Reitas says move to relieve tenants of rental obligations will place 'significant strain' on Reits

THE Reit Association of Singapore (Reitas) has raised a number of concerns over a new Bill that may give businesses a reprieve from contractual obligations including those for rent payments, saying it will place "significant strain" on landlords' finances and may, at large, "destabilise" Singapore's financial ecosystem.

The association said this of the Covid-19 (Temporary Measures) Bill, which will be introduced - and is expected to be passed - in Parliament on Tuesday. Under the Bill, a tenant whose business is affected by the coronavirus outbreak is entitled to suspend rental payments for six months.

In addition, a landlord cannot terminate the lease or licence due to non-payment of rent, if the reason is Covid-19. This covers rental payments due from Feb 1 onwards, and where the agreement was entered into before March 25.

However, Reitas flagged in a statement on Monday night that the suspension of rent essentially deprives a real estate investment trust (Reit) of its main source of income for up to six months. It is also "not realistic" to expect commercial tenants to accumulate six months' of rent and pay it back promptly after the period.

The low rental cash flow thus places "significant strain" on the Reit's ability to service its own financial and operational obligations, Reitas said, adding that the stress is made more acute by Reits having to pay out 90 per cent of their annual distributable income in order to qualify for tax exemption.

In addition, the interruption of revenue may lower Reits' financial standings in terms of metrics such as leverage, capital adequacy and valuation. This may in turn lead to financial problems for Reits, from increased borrowing costs to difficulty in obtaining both debt and equity capital, at "precisely the time when it may be critically needed".

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Left unmitigated, the "widespread deterioration" in Reits' credit and financial standings would in turn "destabilise the banking industry and Singapore's financial ecosystem", Reitas warned.

Finally, shielding tenants from rent termination may result in market distortion, the association pointed out.

On one hand, it deprives new tenants who may wish to "lock in attractive market rents" from taking up space. On the other hand, landlords would not be able to rely on a "commercial basis" to refresh their tenant base to improve the overall quality and resilience of their properties.

Reitas called on regulatory stakeholders to ensure that the "spirit of the legislation is faithfully and equitably discharged", and to urgently review and implement measures to address the issues it raised.

The association said it stands ready to work closely with stakeholders including tenants, regulators, sponsors and business partners to ensure that "we protect the credibility of the sector, such that it continues to be a preferred and dependable investment product, both locally and globally".