Mall operators will clock a healthy revenue growth of 10-12% this fiscal, building on last fiscal’s 15% spurt¹. The growth will ride on contractual rental escalations, improvement in overall occupancy due to ramp-up of the malls launched in last two fiscals, the full-year impact of malls launched during last fiscal, and an increase in share² of tenant revenues supported by consumption growth, among other factors.

Steady rental income and comfortable balance sheets will keep credit profiles stable.

An analysis of 32 Grade A malls rated by Crisil Ratings³ indicates as much.

For the current fiscal, mall operators will prioritise maximising occupancy in malls commissioned over the past two years as ongoing under-construction projects are at a nascent stage.

Says Gautam Shahi, Director, Crisil Ratings, “Overall occupancy for malls is expected to increase to 92-93% this fiscal from 89% last fiscal. This will be driven by a surge in occupancy for malls that were launched in the last two fiscals⁴, while occupancy for established malls will remain stable at ~95%, with timely renewals. This, along with full-year impact of the newly launched malls, steady rental escalations of 4-5% and moderate retail consumption growth, will drive revenue growth for mall operators to 10-12% this fiscal.”

Retail consumption growth of these malls is estimated to have moderated to 3-5% in the first half of this fiscal, from 12.5% in the corresponding period last fiscal, due to a high base effect and heat wave. Notably, Tier-I cities have seen higher moderation than Tier-II cities. Consumption is likely to pick up in the second half of this fiscal, with an above-normal monsoon⁵ and the festive and wedding season partly offsetting the lower growth in the first half.

That said, the impact on the mall operators will be limited as revenue sharing accounts for only 10-15% of total revenue.

Meanwhile, mall operators have maintained their operating efficiency, with Ebitda⁶ margin holding firm around 70% over the past few years and expected to sustain at a similar level this fiscal.

Debt levels remain under control despite addition of new assets to the portfolio as cash accruals are expected to be sufficient to fund the ongoing capital expenditure plans of around 2-3 million square feet (msf), which are expected to operationalise over the next 2-3 years.

Says Snehil Shukla, Associate Director, Crisil Ratings, “Healthy operating performance, underpinned by rising occupancy and anticipated rental growth, will help improve the debt-to-Ebitda ratio to 2.6-2.8 times by the end of this fiscal from 2.9 times last fiscal. The debt service coverage ratio is also expected to remain strong, at 2.2 times, compared with 2.3 times last fiscal.” (Please refer to chart in annexure).

That said, any large debt-funded acquisitions by mall operators will bear watching.

¹ High revenue growth last fiscal was driven by full-year contribution of malls launched towards the end of fiscal 2023, supplemented by the half-year impact of those that were launched by mid last fiscal; on a like-to-like basis, revenue growth remained stable at ~5%.
² Typically, mall operators generate 85-90% of their income from minimum guaranteed rentals as per lease agreements, while the rest is linked to the revenue performance of the tenants, which is in turn dependent on consumption spend.
³ A total of 23 million square feet (msf) across 11 Tier 1 and 2 cities housed under 32 entities (including special purpose vehicles under one real estate investment trust)
⁴ New malls form around 20% of the leasable space in our sample. Occupancy of new malls is likely to increase to 85-90% this fiscal from 67% in fiscal 2024.
⁵ As per the press release of India Meteorological Department dated October 1, 2024, overall rainfall in India during the 2024 southwest monsoon season (June-September) was 108% of its long period average
⁶ Earnings before interest, taxes, depreciation and amortisation