With State governments imposing restrictions and localised lockdowns due to the Omicron variant-led third wave, recovery for malls is expected to get restricted to 70-75 per cent of the pre-pandemic levels in this fiscal, according to a report by CRISIL. In addition, rental revenues could see reduction by about 10 per cent.

An analysis of India’s top 14 malls, rated by CRISIL Ratings, indicated that credit profiles of mall owners will, however, be able to absorb the shock given relatively faster recovery seen among those afflicted, compared with the earlier waves.

Anand Kulkarni, Director, Crisil Ratings said, “The third wave may restrict recovery of mall revenue in fiscal 2022 to 70-75 per cent of the pre-pandemic levels as against earlier expectations of 80-85 per cent. Retail sales in malls had reached about 90 per cent of the pre-pandemic level in the third quarter of this fiscal, supported by a rapid easing of restrictions post 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.”

The third wave-led restrictions on malls in the top eight cities are expected to last only 4-5 weeks compared with 7-8 weeks during the second wave and 13-14 weeks during the first wave, it added.

Pace of recovery

However, the pace of recovery will vary across sectors. Tenant categories such as 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. These segments will recover quickly when the third wave wanes, the report added.

Other tenant categories, such as food and beverage, cinema and family entertainment centres, are expected 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 longer than anticipated earlier. Already restaurants and other retailers have begun urging mall owners to switch to pure-revenue models and waive-off rentals for the period when they are facing restrictions.

Cinemas are expected to be hit harder and their recovery momentum could get delayed by 3-5 months as big budget movies postpone release dates, the report noted.

However, the report noted that this time around lower rental waivers are expected to be offered by mall owners to retailers as swifter recovery is expected post the third wave. The pace of recovery will be mixed across geographies as well, depending on the intensity of the pandemic and the extent of restrictions imposed by local authorities, it added.

Kshitij Jain, Associate Director, Crisil Ratings, “The delay in 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 by up to one month due to the impact of the third wave. The debt service coverage ratio will remain below 1 time for most mall owners this fiscal. However, many malls with strong sponsors have demonstrated the ability to raise equity or refinance debt and, hence, are better-placed to absorb the impact.”

The report also stated that unlike earlier waves where malls were completely shut down, many States are only imposing capacity or timing restrictions supported by lower hospitalisation rates.