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CPPIB invests in Project Rise

Canadian pension fund CPPIB has entered into an agreement with Phoenix Mills (PML), under which the former will invest up to ~INR13.5bn in Project Rise, an upcoming 1.2msf mixed-use project at Lower Parel. CPPIB will eventually hold a 49% stake in the project. PML’s net investment in the project will be effectively nil.

The deal reiterates PML’s ability to sell equity in forthcoming projects at a significant premium, which reduces its capital commitments and is likely to boost the pace of its portfolio expansion. This along with PML’s leadership in the mall space forces our hand to add a 30% premium to NAV. Maintain ‘BUY’ with a revised target price of INR1,459 (INR1,167 earlier).

CPPIB to invest up to INR13.5bn in ‘Project Rise’

CPPIB has entered into an agreement with PML under which it will invest up to INR13.5bn and will jointly develop 'Project Rise' – a mixed use project at Lower Parel with ~1 msf office space and 0.2msf retail space. In the first tranche, CPPIB will invest ~INR7.9bn (~INR7.5bn primary issue and balance being secondary acquisition of shares) for a 35.9% stake in the project. Subject to CPs getting fulfilled, its stake can increase to 49% after the second tranche of INR5.6bn.

PML to receive half of total consideration

Of the INR13.5bn funds, half will accrue to PML with the other half staying in the SPV. PML has so far incurred ~INR3.3bn on the project, which will get reimbursed out of the ~INR6.75bn funds that it would receive.

PML’s investment in the project would be effectively nil

The total development cost of the project (including land cost/FSI premium etc) is ~INR15bn. With INR13.5bn coming from CPPIB and the balance likely to be funded through construction finance/security deposits, PML's net investment in the project will likely be nil. This is CPPIB’s third investment in PML’s assets (it had earlier invested in a retail platform and the upcoming Kolkata mall), which testifies to the company’s ability to raise equity in forthcoming projects at a significant premium.

Outlook and valuation: In a pole position; maintain ‘BUY’

Ongoing industry consolidation, PML’s leadership in retail realty space and its unique understanding of the Indian consumer’s psyche coupled with the structural story of urban consumption growth underpin our bullish stance on the company.

We expect a faster pace of portfolio expansion by PML going ahead led by: i) the new deal, which reduces its capital commitment and increases its financial firepower; and ii) revival of consumer confidence. We accordingly add a 30% premium to its NAV. Maintain ‘BUY/SN’ with a revised target price of INR1,459 (at 30% premium to Mar-23E based NAV of INR1,167).

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