In an analysis of the top 10 malls that it rates, Crisil said that these malls have a total rated debt of Rs 4,200 crore and cover 7.5 million square feet (msf), with a pan-India presence.
“These have strong sponsors and high debt service coverage ratio (DSCR) of 1.5 times on average,” the rating agency said in a statement.
“Hence, notwithstanding pressure on revenues, impact on credit quality of Crisil rated malls is expected to be limited in the near term.”
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.
“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 statement said.
“For the other categories, such as apparel, 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.”
As per the statement, with revenues dented, and recovery expected to be slow, these businesses have started renegotiating their contracts with mall owners – for waivers in lease payments, or discounts over the period of lockdown and in the medium term – thereby impacting mall revenues.
“Malls also face the risk of cannibalisation of revenue by online platforms. 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,” the statement said.
“This could lead to higher vacancies and pressure on rentals. Crisil expects vacancies to inch up to over 10 per cent over the next 12-18 months compared with 4 per cent as of March 2020.”
According to the statement, mall owners may 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 revenue in fiscal 2020, while the bulk was from minimum guaranteed rentals,” the statement said.
“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.”