Rent collections to remain under pressure in short term for mall operators: Icra

The weakening financial profile of tenants, particularly of highly impacted sectors, is exacerbating the situation, Icra said.

Mall operators are feeling the cascading effect of the second wave of Covid-19, with pressure on rent collections increasing at least in the short term as the surge in infections has already dampened the pace of economic recovery and again threatens to disrupt the movement of people and goods.

Rating agency Icra said in a report that mall categories that have been the hardest hit are multiplexes, family entertainment centres, food courts and restaurants. These account for up to 25% of the total mall area and are a key driver of footfall. Any adverse impact on them would have a cascading impact on a mall’s overall performance.

Analysts have already pointed out that the second wave has put at high risk sectors such as aviation, hotels, restaurants, tourism, media and entertainment and retail real estate.

After having to extend rental waivers in FY21, mall operators are once again having to extend waivers/ concessions in the current year, given the reduction in footfall and consequent retail spends, particularly in geographies facing high curbs. The weakening financial profile of tenants, particularly of highly impacted sectors, is exacerbating the situation, Icra said.

“Thus, rental collections are likely to remain under pressure, at least over the near term. In the absence of any support to the retail realty sector, such as moratorium on debt obligations, which was available during March-August 2020, the extent of liquidity and financial flexibility available with mall operators will remain a critical determinant of their ability to tide over the cash flow disruptions,” it said.

Icra sector head and assistant VP Mahi Agarwal said, “Net operating income of mall operators is getting hit by fresh localised restrictions being imposed by states, which, in turn, is further impacting debt coverage and protection metrics. Larger players were able to tide over the earlier disruptions on back of diversified revenue streams from varied segments, available liquidity and strong tenant profile. Smaller players, however, faced challenges given their lower diversification and portfolio strength, limited liquidity and credit availability.”

With the onset of this second wave now, overall sectoral stress is increasing. Though effective vaccine rollout is expected to serve as a strong mitigant to these risks, its ramp-up remains to be seen. Absence of support measures, such as debt moratorium, and reduced liquidity levels, given the utilisation of such funds during FY21, exacerbates the risks, she said.

Overall, availability of adequate liquidity and financial flexibility will remain the key. Smaller players, who make up the majority of the market, with limited resources are likely to face the brunt of the challenges.

“Over time though, as the rollout of vaccinations helps to bring the pandemic under control, good recovery is expected, considering the strong long-term demand drivers associated with the sector,” Agarwal said.