Rental Income of Retail Malls Expected to Increase by 30 pc Y-o-Y in FY23

In FY23, the rental income is expected to surpass FY20 levels by around 4-6 percent.
Rental Income of Retail Malls Expected to Increase by 30 pc Y-o-Y in FY23: ICRA

Driven by pent-up demand, high vaccination coverage, and resumption of multiplexes, retail malls have witnessed a sharp recovery in their operational metrics since August 2021 (i.e. post the second wave of Covid-19).

As per an ICRA research report, the trajectory has largely sustained in H2FY2022 barring a brief pause due to Omicron. Further, the retail trading values in Q3 FY2022 reached the pre-covid levels and surpassed the pre-covid trading values in Q4 FY2022. The footfalls at retail malls are expected to reach pre-Covid levels in Q3FY2023.

Commenting on the rental income for retail malls, Anupama Reddy, Vice President & Sector Head, Corporate Ratings, ICRA said, "The rental income improvement is faster post-second wave with recovery at 74 percent for Q2FY2022 (as against 34 percent for Q2FY2021) and reaching 102 percent of pre-Covid levels in H2FY2022. In FY2022, the rental income in ICRA’s sample set witnessed an increase by around 56 percent, reaching around 80 percent of pre-Covid levels.

On the vacancy levels, the addition of new retail space was around 11 MSFT in FY2021 and FY2022 for the aggregate of six cities, however, the incremental space absorption was only around 4 MSFT during this period resulting in a significant increase in the vacancy levels to 23 percent in FY2022 from 18 percent in FY2020. On a same-store basis, the rental income is expected to increase by around 30 percent in FY2023 and is likely to surpass FY2020 levels by around 4-6 percent. With the normalcy in the trading values, the occupancy is expected to improve in FY2023.”

Rental Income of Retail Malls Expected to Increase by 30 pc Y-o-Y in FY23: ICRA

As for the leverage and debt coverage metrics, the Debt-to-OPBDITA ratio is expected to ease to 6-8x in FY2023 from 8-10x in FY2022, with a significant rise in OPBDITA supported by improved trading density and footfalls. The debt service coverage ratio, which was less than 1x for two consecutive years (FY2021 & FY2022) is expected to improve to 1.10-1.15x in FY2023 with the improved rental recoveries.

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