Mall revenues likely to halve this fiscal due to COVID disruptions: Report

Much of the impact on mall revenue is because multiplexes, food courts, restaurants and gaming zones have not yet opened in many locations as per government orders, Crisil Ratings said in a report. These businesses, which contribute 22 per cent to the total revenues, have borne the brunt of the impact on operations due to social distancing and are also expected to take the longest to recover, the report noted.

Mumbai, Aug 5 (PTI) Revenue of mall operators is likely to halve this fiscal because of the coronavirus-driven lockdowns as multiplexes, food courts, restaurants and gaming zones continued to remain closed, according to a report. Much of the impact on mall revenue is because multiplexes, food courts, restaurants and gaming zones have not yet opened in many locations as per government orders, Crisil Ratings said in a report.

These businesses, which contribute 22 per cent to the total revenues, have borne the brunt of the impact on operations due to social distancing and are also expected to take the longest to recover, the report noted. For the other categories, such as apparels, cosmetics, electronics, and bookstores, which contribute 75 per cent of mall revenues, consumption is still low at 30-35 per cent of previous years' numbers in the first month of operations post reopening.

With revenues dented, and recovery expected to be slow, these businesses have started renegotiating their contracts with mall owners, like waivers in lease payments or discounts over the period of lockdown and in the medium term, therefore, impacting mall revenues. "We expect a 50-100 per cent lease waiver for the period of lockdown, followed by a 30-50 per cent concession in rentals in the current quarter and the next, which will reduce to 0-20 per cent in the quarter to March. A gradual build-up in revenue can be expected from the current quarter, though for the fiscal overall, a revenue loss of 45-50 per cent appears to be in order. The loss would get bigger if the lockdowns are extended or are reimposed," Crisil Ratings senior director Sachin Gupta said.

Moreover, malls also face the risk of cannibalisation of revenue by online platforms, the Crisil report noted. Increasingly, as customers get accustomed to online spending during the lockdown, there is a risk of some not returning to malls due to change in behaviour patterns.

This could lead to higher vacancies and pressure on rentals, it said adding that Crisil expects vacancies to inch up to over 10 per cent over the next 12-18 months compared with four per cent as of March 2020. Mall owners, it said, might need to give deep concessions to keep their tenant profile intact and may even need to shift to a 100 per cent revenue sharing model.

The current revenue stream includes a minimum guaranteed rental along with a portion from revenue share. Revenue share contributed 14 per cent to income in fiscal 2020, while the bulk was from minimum guaranteed rentals. Despite the projected steep drop in revenue and its consequent impact on profitability, Crisil said its rated mall portfolio would be able to withstand this stress in the near term due to the availability of three-month liquidity (in the form of Debt Service Reserve Account) for most assets and ability of sponsors to bring in liquidity to ease short-term cash mismatches.

Furthermore, the RBI moratorium has also eased the pressure on cash flows for debt servicing in this fiscal. Revenues returning to at least 80 per cent of the pre-pandemic levels by next fiscal would be a key monitorable, it added.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)