Mall: Mall Operator Rentals Expected to Fall 20-25% in Q4FY2022: ICRA
With an impact on the recovery in the fourth quarter of 2022, the rental recovery for fiscal 2022 is expected to reach up to 70% of pre-Covid levels, compared to earlier estimates of a recovery of up to 75%. Overall, the majority of store categories are expected to reach near normal by the first quarter of fiscal 2023, compared to previous estimates for the fourth quarter of fiscal 2022, with variation depending on the factors mall or brand specific.
“Trade values are expected to fall to 60-70% of pre-Covid levels in Q4FY2022 due to the third wave against a recovery of more than 85% in Q3FY2022. Rental recovery for Q4FY2022 is estimated at 70% of pre-Covid levels compared to previous estimates of over 90%,” said Anupama Reddy, Area Head, Corporate Ratings, ICRA.
The third wave of the Covid-19 pandemic led by Omicron has resulted in a resurgence of new Covid-19 infections, leading to restrictions by various state governments, affecting retail store operators’ business values and hampering the recovery of rents for shopping center operators.
Shopping center footfall is on a downward trend from the first week of January 2022 with restrictions in major cities such as restaurant closures, occupancy restrictions for multiplexes and closures in a few cities as well as weekend curfews. This will certainly have an impact on the rental recovery for the fourth quarter of fiscal 2022 and therefore on fiscal 2022.
“Furthermore, rent recovery for FY2022 is expected to reach up to 70% of pre-Covid levels, compared to earlier estimates of a recovery of up to 75%. However, recovery from the third wave is expected to be faster than previous waves with short term restrictions and expected rapid ramp-up for major tenants – multiplexes, as the content lineup remains strong with several big budget movies ready for release,” Reddy said.
With rent collections estimated at more than 85% of the pre-covid level, Q3FY2022 was the best quarter for shopping center operators since the start of the pandemic. The recovery was driven by pent-up demand, high vaccine coverage, the resumption of multiplexes which also coincided with the holiday season.
While some store categories such as hypermarkets, electronics and fashion & beauty have done extremely well, with some brands even outpacing pre-Covid sales, tenants such as department stores and food & drinks showed a moderate recovery in line with the improvement in footfall. as of Q3FY2022.
“The weaker first half of 2022 due to the second wave and the expected reduction in the recovery in the fourth quarter of 2022 due to the third pandemic wave should impact the fiscal year 2022 debt hedging measures for The projected DSCR is estimated to be 0.70 to 0.75 times, compared to earlier estimates of 0.80 to 0.85 times,” Reddy said.
The commercial values of these stores would be impacted by the third wave in Q4FY2022. Multiplexes will be the most impacted segment due to delayed movie releases.
Overall, the majority of categories are expected to reach near normal by the first quarter of fiscal 2023, compared to the previously estimated first quarter of fiscal 2022, with deviation depending on center-specific factors commercial or brand.
“Sponsor support, debt service reserve and undrawn lines of credit (for a few issuers) helped ICRA-rated shopping centers meet their obligations in the first half of 2022. With the improvement in rent collections, there was no material shortfall or major reliance on sponsors in Q3FY2022 However, with a 20-25% reduction in rentals in Q4FY2022, shopping centers would again depend to some extent on available bank balances and undrawn lines, in the absence of which timely support from sponsors will be essential,” she said.