Mall rentals to fall 20-25% in March quarter due to third wave: Icra
Premium- With estimated rental recoveries over 85% of pre-covid levels, the October-December quarter was the best for mall operators since the onset of the pandemic
BENGALURU: The third wave of the covid-19 pandemic will lead to a 20-25% fall in rentals of shopping mall in the January-March quarter, forcing them to rely, to an extent, on available bank balances and undrawn lines, in the absence of which timely sponsor support will be critical, rating agency Icra said on Tuesday.
The Omicron-led third wave has resulted in a fresh surge of covid cases, which in turn has led to local mobility curbs, impacting trading values for retail store operators and hindering rental recovery for mall operators.
Malls saw a decline in footfalls in the first week of January 2022, with restrictions in major cities such as closure of dining in at restaurants, occupancy restrictions for multiplexes and their closure in few cities along with weekend curfews.
This is sure to impact the rental recoveries for Q4 FY2022 and thereby the whole of 2021-22, Icra noted.
“The trading values are expected to decline to 60-70% of pre-covid levels in Q4 FY22 due to the third wave as against recovery of over 85% in Q3 FY2022.The rental recovery for Q4FY2022 is estimated to be at 70% of pre-covid levels as against the earlier estimates of over 90% levels. Also, the rental recovery for FY2022 is expected to be up to 70% of pre-covid levels, as compared to earlier estimates of up to 75% recovery. However, recovery post third wave is expected to be faster than the previous waves with short tenured restrictions and expected quick ramp up for major tenant – multiplexes, as content line up remains robust with several big budget movies ready for release," said Anupama Reddy, sector head, corporate ratings, Icra.
With estimated rental recoveries over 85% of pre-covid levels, the October-December quarter was the best for mall operators since the onset of the pandemic. The recovery was largely driven by pent-up demand, high vaccination coverage, resumption of multiplexes which also coincided with the festival season.
While certain store categories such as hypermarkets, electronics and fashion and beauty have done very well with some brands exceeding pre-covid sales, department stores and food and beverage tenants saw moderate recovery in line with the improvement in footfalls in Q3FY2022. Trading values for these stores would be impacted by the third wave in Q4FY2022. Multiplexes will be the most impacted segment due to deferred movie releases.
Overall, majority of the categories are now expected to reach near-normalcy by the June quarter as against earlier estimated Q4 FY22 with variance, depending on the mall or brand specific factors.
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“Weaker H1 FY2022 due to second wave and expected reduction in recovery in Q4FY2022 due to third wave of pandemic is expected to impact the full year FY2022 debt coverage metrics. The projected DSCR is estimated to be in the range of 0.70-0.75 times as against earlier estimates of 0.80-0.85 times. The support from sponsors, debt service reserve and undrawn credit lines (for few issuers) have helped ICRA rated malls in meeting their obligations during the H1FY2022. With improvement in rental recoveries, there was no significant shortfall or major dependence on sponsors in Q3FY2022. However, with 20-25% reduction in rentals in Q4FY2022, the malls would again be reliant to some extent on available bank balances and undrawn lines, in the absence of which timely sponsor support will be critical," Reddy added.
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