MinLaw's proposed bill on rental relief could hurt S-REITs' cash flow

The bill has yet to clarify whether the start date is in March or April.

S-REITs may likely see its cash flow deteriorate in the near term as the Ministry of Law’s (MinLaw) upcoming new bill requires landlords to share equally the burden of rental reliefs to qualifying SME tenants, according to an analyst note by DBS Group Research.

Under the proposed bill, SMEs in retail properties will receive four months of rental relief, whilst those in office and industrial properties will get two months of rental reliefs. This means that retail landlords will have to bear two months of rental reliefs out of their own pockets and industrial and office landlords will bear the cost for up to one month of rent.

“With no further details of the new bill for now, the uncertainty lies in the actual assumed start date either from March or April to compute the period of rent waivers that landlords are mandated to offer to tenants. This has a differing impact on the various S-REITs,” said Derek Tan, analyst at DBS Group Research.

He further noted that most listed S-REITs have proactively given assistance with most providing between 0.4 months to 3 months of rental rebates (before property tax rebates of c.1 month), whilst office S-REITs and industrial S-REITs have taken a more targeted approach in their own rental relief programmes.

Assuming that the rent rebates are calculated from March, it is estimated that most retail S-REITs will have to cough up between an additional one month to 1.6 months of rental rebates, Tan said.

“Although the Bill is for a select group, the key lies in the eligibility criteria for the rental waiver that could differentiate those in real needs versus those who are opportunistic. We expect that the Ministry of Law will provide more clarity taking into consideration a more equitable measure for all stakeholders,” Tan added.

Further, office and industrial S-REITs that may have a larger proportion of SME tenants, such as Ascendas REIT (A-REIT), Mapletree Industrial Trust (MINT), Mapletree Logistics Trust (MLT), Suntec REIT and OUE Commercial Trust (OUECT), and mid-cap industrial S-REITs may likely have to do more to assist their tenants.

Despite this, the new bill is expected to help in quantifying the fixed amount of rental relief and could be seen as some form of ‘closure’ to the rental support scheme extended by the landlords, removing the overhang.