Broker's take: Jefferies says further reliefs for landlords, tenants positive for S-Reits sentiment

FURTHER reliefs for landlords and tenants are likely to "invigorate the current positive sentiment" for Singapore real estate investment trusts (S-Reits), while hospitality Reits are expected to take the lead with the implementation of the Singapore-China fast-lane arrangement, according to Jefferies Singapore.

Under new legislation to be introduced on Friday, the Ministry of Law has mandated additional rental waivers - with the cost borne by landlords - to be given to eligible small and medium-sized enterprises that have suffered at least 35 per cent fall in average monthly revenue in the months of April and May.

These additional waivers will lead to tenants in commercial properties getting two more months of base rental waivers, and those in office and industrial properties getting an extra month of waiver. Landlords unable to provide the waivers can seek an assessment on grounds of financial hardship, with qualifying landlords only having to give half the amount.

The new waivers are in addition to earlier ones in the form of mandatory passing on of property tax rebates.

"To recap, earlier announcements had led to government funding of about two months of rent for eligible retail and one month for industrial/office properties. In turn, landlords were mandated to pass them on to tenants as waiver of base rents for the months of April and May," wrote Jefferies Singapore analyst Krishna Guha in a research note on Wednesday.

Separately, more relief measures for cash-strapped landlords have also been announced. In particular, the government and banks have assured large corporate and Reit landlords that loan covenant breaches will not be automatically enforced and that they can request payment deferrals.

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"S-Reits recently have benefited from change in sentiment resulting from the phased exit of 'circuit-breaker' measures, anticipation of pent-up demand, benign macro and most importantly, new debt paper issuances supported by the banks. The last bit helps to tide over liquidity issues, in our view," the brokerage said.

It added that the latest set of announcements is likely to "balance the interests and share the pain of all parties involved in the most optimum way".

Jefferies Singapore also said that while retail Reits are prime beneficiaries of the additional relief measures, they also have rallied the most over the past two weeks. As such, it now expects hospitality Reits to take over sector leadership, especially with transits and fast-lane set-ups.

As Singapore moves to ease border restrictions, business and official travellers who tap the Singapore-China fast lane will not have to serve a two-week quarantine when they travel between the two countries. However, they must take swab tests at their own expense.

Under the fast-lane agreement to be launched on June 8, travellers will also have to be sponsored by a company or government agency of the destination country, as well as cover their own cost of medical treatment if they test positive for Covid-19.

Nonetheless, Jefferies Singapore said that "concerns remain on the strength of pent-up demand", and whether markets are "over-optimistic".

"Data points from North Asian economies are mixed. We cannot, as yet, rule out capital calls. In addition, we hope we are wrong on our worries about business closures once moratoriums are dialled down," it said.

The brokerage has a preference for large liquid plays and industrial Reits. It has also issued a "buy" recommendation on Ascendas Reit, with a price target of S$3.10.

As at 1.40pm on Thursday, units in Ascendas Reit were trading at S$3.13, down S$0.05 or 1.6 per cent.