Real estate firm Phoenix Mills is looking to sell stakes in a clutch of projects housed in an SPV (special purpose vehicle) to a private equity (PE) major, sources told FE. The company is in talks with several PE companies to divest a minority stake in the SPV, Island Star but the exact size of the deal is not immediately known.
Brookfield, Morgan Stanley, APG and GIC are among the PE players believed to be interested in the deal. The SPV primarily houses a mall in Bengaluru valued at around R1,000-R1,200 crore. The proceeds of the stake sale will be used to acquire more projects, mainly in Tier II cities, people in the know said. Phoenix Mills has been participating in auctions and negotiations for the past few months; it bid for GMR’s airport mall plot in Delhi and also initiated negotiations for a retail plot at L&T’s Hyderabad metro rail project.
The company is also reportedly in talks with a Coimbatore mall development company for an acquisition. FE reported in July that Phoenix Mills was eyeing acquisitions in markets like Hyderabad, Ahmedabad and Coimbatore.
The Bengaluru mall, is considered to be one of Phoenix’s top performing malls given negligible vacancy rates. While ascribing value to the project, a cap rate of 9%-10% has been assumed. According to company disclosures, the 1 million square ft mall earns annual rentals of R100 crore on annual sales of R885 crore.
Officials at Phoenix Mills did not want to comment on the story but confirmed the company has plans to grow the portfolio through acquisitions.
One sector analyst who did not wish to be named, said making acquisitions is imperative to Phoenix’s next phase of growth; the firm now has six malls, all of which are mature assets, leased out to long term tenants.
Phoenix’s gross debt at the end of March, 2016 was R3,644 crore, with a net debt to equity of 1.5 times. The Bengaluru project individually has debt of R465 crore. “There is room for fund raising through lease rental discounting but attracting “patient” capital from credible PE companies will have a more lasting impact,” an analyst said.
A number of PE funds like Blackstone, CPPIB, Macquarie and GIC have been out shopping for retail malls as capitalization rates in the office space have spiralled downwards, making assets increasingly expensive.