Phoenix Mills eyes $250 mln for 30 pct in hotel unit

Thu, Jul 24 04:57 PM

By Prashant Mehra and Jasudha Kirpalani

MUMBAI (Reuters) - Real estate developer Phoenix Mills Ltd plans to sell up to 30 percent stake in its hospitality unit to private equity investors for about $250 million, a senior official said on Thursday.

The Mumbai-based developer is in talks with about five investors for offloading stake in Phoenix Hospitality Pvt Ltd, and expects to close the deal in three to four months, Chief Financial Officer Mahesh Iyer told Reuters.

"The funds will take care of our needs for the next five years," he said, but declined to identify the likely investors.

Phoenix Mills is currently developing a 400-room luxury hotel in central Mumbai at a cost of 8 billion rupees, to be managed by Hong Kong's Shangri-La Hotels. It is developing seven other hotel projects across the country, and will eventually add four more.

All these properties will be transferred to the hospitality unit, in which the parent has already put in 3.5 billion rupees.

"Phoenix will continue to own the hotel assets. We will talk to different hotel chains for operating properties," Iyer said.

Phoenix Mills currently holds 75 percent in Phoenix Hospitality. The balance, held by the founders, the Ruia family, will also be subsequently transferred to it, he said.

At this price, the hospitality unit has been valued at over $800 million. The parent company, which along with associates plans to develop 25 million sq ft of retail space, currently has a market capitalisation of $440 million.

RETAIL RENTALS STRONG

Despite a downturn in property prices, Phoenix continues to book strong rentals at two of its upcoming malls in central India, through which it expects to add a million sq ft of retail space in 2008/09, Iyer said.

"We have pre-leased 40 percent of the space in the new malls at a blended average of 50-55 rupees (per sq foot per month). We had assumed 43-44 rupees a sq ft in our business plan," he said.

The company has started securing anchor tenants for its malls and the challenge now would be in project execution.

The anchor tenants, typically cinema chain halls and supermarkets, that bring in footfalls and are hence charged at the lower end of rentals, were paying an even higher rental than factored into the company's business plan, he said.

"In Kurla, we just transacted for 120,000 sq ft multiplex space with Adlabs at 120 rupees. Our estimate was 90 rupees. So we are managing 30-40 percent increment to our business plan numbers," he said.

High inflation and rising interest costs in India this year have hit margins for retailers, forcing them to be more choosy about adding new space. As a result, rise in retail rentals has slowed compared to earlier years, industry officials said.

Phoenix shares ended sharply higher at 157.80 rupees, up 14.1 percent in a weak Mumbai market.

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