Phoenix eyes buyouts in bid to become largest mall developer

    Phoenix eyes buyouts in bid to become largest mall developer

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    Realty firm plans to buy underperforming malls and turn them around to attempt becoming the largest mall developer in India.

    “Acquisition is going to be a route for us. We are under-leveraged right now,” managing director said. “We will look at under performing assets that are leaders in the market that they are in and buy them.”

    Phoenix has been able to keep its debt to equity (DE) ratio under check by roping in various investors, according to a 10 July Crisil report. Its DE ratio of 0.4 in the year ended 31 March 2010 is expected to increase to 0.5 in FY13, once all the projects are on stream, the ratings company said.

    “Raising a war chest will not be a worry,” said Ruia, without specifying the size of acquisitions and source of funds.

    Phoenix operates 1.5 million sq.ft of retail space, which includes 0.8 million sq.ft of the High Street Phoenix mall at Lower Parel in Mumbai and malls in smaller cities with other developers, such as Entertainment World Developers Ltd and Big Apple Real Estate.

    The Phoenix scrip has lost 5.5 per cent in the past 12 months, underperforming the broader market. Its bigger rivals DLF declined 28.13 per cent and Unitech fell 60.76 per cent in the same period. The reality index on the Bombay Stock Exchange shed 38 per cent during the time.

    Phoenix plans to emerge as one of the largest mall developers in the next 12 months, Ruia said.

    Last month, Phoenix launched its first Market City mall, a 1.2 million sq.ft of retail space in Pune. In August the company is scheduled to open a mall each in Bangalore and Kurla, with an area of 0.9 million sq. ft and 1.3 million sq.ft, respectively. In March next year, it will launch a 1 million sq. ft mall in Chennai. Phoenix has between 25 per cent and 58 per cent stake in these projects.

    These malls, along with the Entertainment World and Big Apple projects, in which it owns 40.3 per cent and 73.5 per cent stake, respectively, will see it reach 10 million sq. ft of operating retail space in the next one year, according to Ruia.

    Investors in the Market City projects include private equity firms and realty finds such as Infrastructure Leasing and Financial Services Ltd, Sapphire Capital Llc, Saffron Capital Advisors Pvt. Ltd, Edelweiss Real Estate Fund, and Horizon Venture Capital.

    “We might spin off the commercial, residential into separate companies,” said Ruia.

    “Ruia is known for his ability to turnaround assets,” said , associate vice-president at Infinity.com Financial Securities Ltd. “High Street Phoenix mall at Lower Parel has transformed the area into an entertainment and luxury destination.”

    To be sure, a big thrust on retail will be a challenge for the company.

    “Although the company was able to pre-lease about 65% of Market City’s retail area, the success of the mall in the long run will be determined by the number of footfalls and the mall’s acceptability amongst customers,” said the Crisil report cited earlier. “For some of its upcoming projects, Phoenix faces competition from existing and upcoming malls in the vicinity, which may impact footfalls.”

    “The company already has a lot on its plate,” said Memani. “Let it make a success of what they have and then look out for acquisitions.”

    Source : Mint