• MindCept

Some mall operators agreed to cut rents by 50-100% during lockdown period

A few mall operators have announced blanket deals for their retail tenants in their properties that include letting go of rents anywhere between 50 percent to 100 percent during the lockdown period but any prolonged mall closure, rent waivers is expected to lead to operating income of owners declining by 45 to 60 percent, an analysis by ICRA Research has said.

The contagion fears as well as the possible impact on disposable income of the consumers will also lead to low footfalls in malls throughout the year.

Further, people may fulfil their shopping requirements through e-commerce platforms or through local retailers in the near term, which may also impact the footfalls. In such a scenario most of the leveraged malls will have to take measures to fund the cash flow mismatches which are expected in the current year, it said.


Broadly the mall operators are agreeing to let go of the rents anywhere between 50 percent to 100 percent during the lockdown period and the quantum depends on the balance sheet strength of the mall operator, the competitive advantage of the property and the bargaining power of the retailer, it said.


The mall operators, recognising a possible weakness in the performance of the retailers even after resumption, are offering a staggered reduction in discounts over the next two to three quarters. At the same time, the operators are also imposing terms like no near-term lease terminations and increased revenue share component for the residual period of FY2021.

ICRA notes that some of the vanilla or standalone retailers might not be able to resume operations even after the rental waivers due to weakening of their financial position. More than normal vacancy during FY2021 due to the same will pose a downside risk to the estimates.


“We believe that the lenders will play a critical role by supporting the mall operators and revisiting the repayment terms. Capitalisation of accrued interest, sanction of new debt facilities and extension in the repayment schedule will be some of the means through which the immediate impact on debt servicing can be mitigated. Hence, players with healthy financial flexibility will be able to mitigate the risks more effectively,” said Anand Kulkarni, Assistant Vice President and Associate Head – Corporate Ratings, ICRA.

Entities with strong parentage will be better placed to receive promoter’s support to fund the deficit. Some players with diversified assets – apart from the retail segment on the balance sheet – will also be able to sail through the crisis comparatively better than the companies with standalone assets, he said. The increasing spread of the COVID-19 pandemic in India, starting from mid-March 2020 and the resultant preventive measures taken by the Central and various state governments have severely affected retail mall operations.


As per ICRA's research, the mall operators have been significantly impacted due to the closure of operations for around three months.


Source: https://www.moneycontrol.com/news/business/real-estate/covid-19-impact-some-mall-operators-agreed-to-cut-rents-by-50-100-during-lockdown-period-5499221.html

July 02, 2020

2 views
Mindcept-Logo.png

© MINDCEPT CONSULTING

  • Black LinkedIn Icon

DISCLAIMER: The information contained in this website is offered for illustration purposes only and is general information. We make no representations or warranties of any kind (express or implied) with respect to the information, products, services, statements, figures, calculations, plans, images, logos, related graphics and are purely indicative in nature only. Whilst all reasonable care has been taking in providing all information, however, We or / and our related companies or/ and our representatives, consultants or / and our agents accept no responsibility for its completeness, accuracy, reliability, suitability or availability of any information contained herein for any action taken in reliance thereon by any party. Any reliance on information as contained in this website does not constitute an offer, inducement, representation, warranty or contract and may be relied upon at one’s risk and consequences.