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Nov 25, 2011, 03.57 PM IST
With the opening up of the retail sector to foreign players, Pradumna Kanodia, director finance of Phoenix Mill, tells CNBC-TV18 that he expects to see a 25-30% increase in rental charges going forward.
Going into the next year, Phoenix Mills has more than 5 million square feet of mall space being operationalized. It currently has malls in Bangalore, Kurla and Pune, with a Chennai mall set to open soon. The company has also tied up with its peers who are offering the same service in tier-II towns in the country.
“All in all, we would be there across 14 cities in the country with almost 11-12 million square feet of retail assets under our control and supervision by the year 2013-14,” said Kanodia.
Kanodia also goes on to say that they have not been in discussion with any foreign player as of yet. “It is still the initial days for this FDI policy, so no discussions have happened so far,” he said. However, he believes that the destinations of their malls are in the most favoured places, so they will attract demand.
Below is an edited transcript of his interview with Reena Tendulkar and Ekta Batra. Also watch the accompanying video.
Q: Could you line out what the positive impact on Phoenix Mills could be on the back of this news?
A: The news is really very, very positive not only for us but for the retail community and the retail sector in whole. We are looking for a long-term play in this matter. We have more than 5 million square feet of mall which will be operationalized by April of the coming year and this gives us the leadership position across the entire country. As new brands and new investments come in, the demand for quality retail space will be increasing and we anticipate at least 25-30% increase in rentals going forward.
Q: Just give us a sense of whether you all have already been approached, because we understand a lot of people are currently on the sidelines?
A: This is a long-term story. We have been pre-leasing our properties all along, so we don’t have too much of inventory at stake. But the 25-30% inventory that we are currently holding and the new stores coming up requiring that kind of a destination that would clearly be the target. But it is still the initial days for this FDI policy, so no discussions have happened so far.
Q: So would you renegotiate current rentals? What does the contract comprise of with regards to current rentals? Could you possibly get a higher premium on that as well?
A: We work on long-term relationships. Our contracts are typically ranging from three years to seven years, five years being the average. So we won’t be renegotiating with our existing tenants and asking them to pay a high rent. We have the revenue share model which allows us to share revenues on a higher side depending on how their sales perform. So clearly with the retail sector becoming more mature and the sales improving, we stand to benefit from the revenue share as well.
The 25-30% area which are yet to lease out in our new malls are in Pune, Bangalore, Chennai and Kurla, and they would definitely benefit from the upside that we see in terms of a greater demand for our space. Our locations and our destinations are clearly the most favoured ones in terms of the brands that we have been able to attract so far. Going forward, developers and mall owners would continue to have the advantage of having the best brands seeking their shops in our places.
Q: So will this 25-30% possible increase in the rentals accrue only in FY13 when the new brands perhaps come in?
A: Yes, 2012 is going to be over by the time we see any meaningful investments come in. So this is a story which will start unfolding in 12-15 months time where you would see more and more brands coming up and they would be interested in taking up spaces in quality malls like us.
Q: Since there is likely to be much more interest in Phoenix Mills and the kind of properties and malls that you are developing, could you line-up what your plan is for FY13 by way of operational square feet that you are looking to launch and would you require any more money?
A: As I was mentioning, we already have launched three malls in the current fiscal year. We started with our Pune mall in June, opened up Bangalore in October and just a few days back our mall at Kurla became operational. Going forward, our Chennai mall will be opened somewhere in April of 2012.
Apart from that we have invested in other associate companies which are doing similar developments in tier-II towns in the central part of India and Northern India which takes us to cities like Indore, Raipur, Jabalpur, Lucknow etc. All in all, we would be there across 14 cities in the country with almost 11-12 million square feet of retail assets under our control and supervision by the year 2013-14.
Q: Where could you possibly see maximum premium in terms of rentals renegotiation in the three large malls that you are coming up with in Pune, Bangalore or Kurla?
A: Each one of them had been leased out in times which were not really favourable to the retail sector. These malls went into construction in 2006 onwards so the pre-leasing activity started from 2007-08, which clearly was not the right time. So as and when these rentals come up for renegotiations, you would be sitting on not only a number which was not proportionate to the value that it was justifying, but opening up of FDI as well.
But the fact remains that this could take three to five years before you see impacts on those properties. At High Street Phoenix, which is our parent company and our parent asset, we continue to see a lot of these tenants coming up for renegotiations as we go forward and those would be the direct impacts as early as maybe 2012-13.
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