Third wave might shave 10% off mall revenue this fiscal, says report

Renewed mobility restrictions arising from localised lockdowns to contain the Omicron variant-led third wave of the pandemic might pare as much 10 per cent off the rental revenue of mall owners during the current financial year as compared with the earlier expectations, according to a report.

However, the credit profiles of mall owners will be able to absorb the shock given the relatively faster recovery seen among those afflicted, compared with the earlier waves, Crisil said in a report on Wednesday.

It also warned that losses may be higher if the intensity of the third wave is more than anticipated now.

The impact of new restrictions on malls for the top-eight cities is expected to last only four-five weeks compared to the median closure of seven-eight weeks in the second wave and 13-14 weeks during the first wave.

Also, unlike the earlier waves when malls were shut completely, metros like Mumbai and the Delhi-NCR have only cubed capacity/ timing so far, said the report.

Also, this difference in response of states, supported by lower hospitalisation rates, augurs well for malls this time around. However, the capacity and timing restrictions are expected to dampen footfalls and retail sales, which may lead to a rental revenue loss of 10 per cent during this quarter, the report added.

The third wave might restrict the recovery of mall revenue this fiscal to 70-75 per cent of the pre-pandemic level as against the earlier expectations of 80-85 per cent.

Retail sales in malls had reached 90 per cent of the pre-pandemic level in Q3, driven by a rapid easing of restrictions after the second wave, pent-up demand, and increasing vaccination coverage.

While the third wave may delay full recovery, the bounce-back is expected to be swifter and sharper though the pace of recovery will vary across segments, it notes.

Tenant categories like grocery, apparel, footwear, cosmetics, electronics and luxury, which account for 75-80 per cent of mall revenue, had shown near-full recovery by the third quarter. The categories are likely to recover quickly when the third wave wanes, while food and beverages, cinema and family entertainment centres are likely to be hit harder by the drop in footfalls and could see a combination of rental waivers or continuation of a pure revenue-share model for a longer period.

Recovery for cinema, in particular, is likely to be pushed back by three-four months as the release of some big-ticket flicks has been postponed. Rental waivers, however, are likely to be lower than the past two waves, considering a likely faster recovery after the third wave.

Delay in the recovery of mall revenue due to the third wave will, however, have a limited impact on liquidity and debt serviceability. Liquidity, which was equal to around five months of debt-servicing obligations in September 2021, is expected to shrink only by a month due to the third wave. Therefore, the debt service coverage ratio will remain below 1x for most mall owners this fiscal, said the report.

These malls have a leasable space of over 10 million sqft spread across Ahmedabad, Amritsar, Bengaluru (2), Bareilly, Chandigarh, Chennai (3), Indore, Mumbai (2), Lucknow and Pune, and have a debt of Rs 6,000 crore.