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Mall owners relent; rent waiver, revenue share with tenants in Unlock 1.0 action plan

Mall owners who have less debt may be able to offer concessions as they could have the required leeway but malls that have high level of debt would not be able to offer much

Nirbhay Kumar | June 12, 2020 | Updated 21:20 IST
Mall owners relent; rent waiver, revenue share with tenants in Unlock 1.0 action plan

KEY HIGHLIGHTS

  • Many mall owners have slashed the rent up to 50 per cent for the lockdown period, lowered common area maintenance
  • Mall owners have also shifted to a revenue-share model with many of the tenants
  • Industry sources said that the minimum revenue share is 5-11 per cent, but could be higher in some cases
  • Mall owners with less debt may be able to offer concessions, but those with a high level of debt would not be able to offer much

Amid the tiff over rent waiver during lockdown, with a section of restaurants and store-owners insisting on relief as a condition to re-open, many mall owners have agreed to ease the terms offering 50 per cent cut in rent for the lockdown period, lower common area maintenance (CAM) and switch to revenue-share model for three months.

Sources said that one of the country's largest mall operators DLF has assured some of its tenants that it will come back with 'mutually acceptable terms' while convincing them to open up their stores.

"We have opened our store in Ambience Mall and would open the one in Mall of India in good faith. The top management has given personal assurance to me and we expect a viable financial proposal," said a tenant operating out of the two DLF malls.

He said that his expectation was complete rent waiver for the lockdown period and moving to revenue-share model hereon as footfall was expected to remain much low for quite a long period.

ALSO READ: Malls vs High Street: Who will win hearts of shoppers in post-COVID world?

Executives of retail outlets operating from Ambience Mall, Vasant Kunj said that nearly 60-65 per cent stores have opened up but footfall was not even 5 per cent of the pre-lockdown level.

Other major mall owners are also working out options that would ensure both the parties sharing part of the revenue loss on account of nationwide shutdown. Among the options on the table are complete waiver of rent for the lockdown period, deferral of the rent for some time or shift to revenue share which would ensure both mall owners and tenants sharing the risk in case of low sales.

Anshuman Magazine, Chairman and CEO, India, South East Asia, Middle East and Africa, CBRE said that many mall owners who have less debt may be able to offer concessions as they could have the required leeway but malls that have high level of debt would not be able to offer much.

Some of the malls are learnt to have agreed to go for complete waiver of rent for the lockdown period. Sources said that Lulu, Prestige Group and Mantri Square Mall have given good deals to the tenants.

ALSO READ: '4 out of 10 will shut down': Coronavirus outbreak unsettles India's restaurants

"Some have given 50 per cent waiver while some of the malls especially in South have given complete waiver for the entire lockdown period," said Kumar Rajagopalan, CEO, Retailers Association of India.

On possible options to resolve the ongoing rent issue between mall owners and tenants, Gaurav Karnik, Partner & National Leader (Real Estate), EY India said, "It is a matter of discussion between landlords and tenants. The solution would be based on business imperatives of each situation and not any fixed formula."

With cash flow dried up during the lockdown period, retailers and shop-owners saw their cash reserves sinking and now when the malls have been allowed to open from June 8 the footfall is not very encouraging. Manoj Gaur, Managing Director of the Gaurs Group which runs a mall in Noida Extension said that footfall on weekdays is averaging around 2,000-2,500, nearly one-fourth of the pre-lockdown period.

Malls being quite capital-intensive, their owners are also under pressure to generate cash for serving the debt. Not surprisingly, many of them have tried to resolve the issues with the tenants quickly so that cash generation can happen.

ALSO READ: Coronavirus impact: How consumer behaviour will change post-COVID-19 lockdown

"The issue with restaurateurs and retailers has been more or less resolved. It is a tough time for everyone.  They have made a lot of investment. We have also made a lot of investment. Within a week, 100 per cent shops would be open. We have negotiated a two-month revenue share with someone. With some people we have agreed for a three-month revenue share. Some are on MG (minimum guaranteed rent) while some on revenue share basis. We have agreed with the revenue share model for one quarter as during this time business is likely to stabilise," Gaur said.

While mall owners have agreed to cut minimum rent they have also shifted to a revenue-share model with many of the tenants. Industry sources said that the minimum revenue share is 5 per cent and maximum 11 per cent but in some cases it could be higher.  

The mall owners have renegotiated the terms of rentals with each of the tenants individually. The concession in rent in many cases varies from 15-50 per cent, depending on the tenant's size, for the lockdown period. Many of the restaurant owners have, however, insisted for complete waiver of the rent for the lockdown period and lowering the rent in future as social distancing would substantially reduce their occupancy level.

"You cannot operate on old costs with less than half of older revenue," Anurag Katriar, President of National restaurant Association of India had said while pitching for rent waiver earlier.

ALSO READ: Unlock 1.0 sees pent-up demand driving sales by up to 75%; supply-side constraints still a problem

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