Malls' operating income is expected to decline by 45-60% in FY2021, ICRA Research said on Thursday.
The COVID-19 outbreak and the subsequent lockdown to curb its spread has devastated the retail industry, excluding e-commerce firms.
According to ICRA Research, mall operators have been significantly impacted due to the closure of operations for around three months.
"Over the last few weeks, though malls in some cities have resumed operations, properties in some of the metros and tier-I cities are yet to resume due to the severity of the pandemic in the respective geographies," ICRA Research said in a statement.
"These markets are economically critical and uncertainty about opening malls in these geographies may hurt the players present in these markets."
As per the report, tenants have been negotiating with the mall operators for a waiver or rebate on the rentals.
In operational aspects, mall operators and tenants are considered to be long-term business partners with lease tenures of up to 30 years in some cases.
"A disruption of three to six months is a relatively small period and hence both parties are willing to resolve the issues," the statement said.
"Broadly, the mall operators are agreeing to let go of the rents anywhere between 50 to 100 per cent 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."
Accordingly, mall operators, recognising a possible weakness in the performance of the retailers even after resumption, are offering a staggered reduction 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 Research said.
"The current terms are being worked out with eligible tenants like anchor and vanilla retail stores. However, tenants like multiplexes, restaurants and family entertainment centres are still not allowed to open in many places and those terms are likely to be worked out separately."
ICRA expects the cash flows of malls in FY2021 to get significantly impacted due to the discounts being offered to the tenants in the minimum guarantee rentals.
Further, the revenue share income is likely to be depressed throughout the year.
"It is estimated that the impact on key financial metrics like net operating income and debt service coverage indicators will be acute due to the rent waivers. It will vary based on revenue share, cost optimisation and leverage levels," ICRA Research said.
"The possibility of a structural shift towards a greater number of pure revenue-sharing agreements will be the key going forward."