Phoenix Mills Ltd is refinancing loans and selling office properties in its upcoming mixed-use projects. For, the company that runs the well-known shopping destination called High Street Phoenix in the country’s commercial capital wants to reduce its debt burden in them.
Currently, Phoenix Mills is developing large mixed-use projects comprising retail, commercial and residential properties under the brand Phoenix Market City, in Pune, Mumbai, Bangalore and Chennai. The four projects, each has an area of over one million sq ft in the first phase of development, have led the company to face a debt of Rs 1,575 crore.
Rising cost of funds and falling home sales have posed big challenge for the property developers to service their debt. In fact, borrowing costs of developers have gone up 3 to 4 per cent in the last two years, after the central bank raised interest rates 13 times since March 2010 to curb inflation.
Developers such as DLF, HDIL, Sobha have either sold their land parcels or development rights to reduce their debt.
Phoenix Group’s executive director Shishir Shrivastava, who is also its CEO says the company has replaced term loans with lease rental discounting in Pune project. “We are doing it for Bangalore, Mumbai as well,” he added.
Phoenix Market City in Pune has a Rs 475-crore deb, while Market City projects in Mumbai, Bangalore and Chennai have a debt of Rs 525 crore, Rs 300 crore and Rs 275 crore, respectively.
Additionally, the company has sold 70 per cent of 300,000 office space in PMC, Kurla, Mumbai and raised aroud Rs 100 crore from the buyers, Shrivastava said.
It is also planning to launch one million sq ft of office in the same project, a substantial part of which is to be sold.
“With this Rs 100 crore, we can bring down the debt to Rs 425 crore,” he noted. “Once we launch second phase, we can have free cashflows of Rs 900 crore to Rs 1,000 crore.”
The company has also sold 60 per cent of 300,000 sq ft of commercial properties in Pune project, he said. “We value annuity. But when you have to choose between retail properties and office ones, retail model gives huge upside in rentals. That is why we decided to sell offices,” he said.
Phoenix Hospitality, a unit of Phoenix Mills which is building the 400-room luxury hotel managed by renowned Shangri-La in Lower Parel, recently refinanced its Rs 534 crore debt at 12.5 per cent interest rate.
The loans initially carried floating rates which peaked 15.5 per cent some time ago. The hotel is located in High Stree Phoenix in Mumbai.
Raja Kaushal, managing director of BNP Paribas Real Estate and Infrastructure Advisory, said, “Since external commercial borrowings are allowed in hotels, we combined foreign debt and domestic debt and brought down interest rates.”
As for the mixed-use projects, they are “becoming popular” among property developers due to easier financial closures and end-user perspective. “It is becoming popular among multi-national corporate occupants as mixed use projects have food courts, night clubs, service apartments. They think it is best tool for employee retension,” he added.
“However, I am not sure one should sell office properties in a mixed use project. Maintenance will be an isse if you sell it to multiple buyers,” Kaushal said.