SINGAPORE - The Reit Association of Singapore (Reitas) on Friday morning (April 17) cautioned that distributions to unitholders may be lower in the immediate quarters, but should improve over subsequent quarters as Singapore real estate investment trusts (S-Reits) receive the deferred rentals owed to them.

The association was responding to new measures announced on Thursday to give S-Reits more flexibility in managing cash flow and raising funds in the challenging environment resulting from the coronavirus pandemic. These comprise an extension of the deadline for distribution of taxable income by the Ministry of Finance (MOF) and the Inland Revenue Authority of Singapore (Iras), as well as a raising of the leverage limit and deferment of new regulatory requirements by the Monetary Authority of Singapore (MAS).

Reitas earlier this month had warned that the Covid-19 (Temporary Measures) Bill may put "significant strain" on S-Reits' ability to service their financial and operational obligations, even as it acknowledged the importance of supporting tenants in the crisis. Specifically, it had flagged that the suspension of rent under the Bill will deprive a Reit of its main source of income for up to six months.

The extension of the period for the distribution of FY 2020 taxable income from 3 months to 12 months will help many S-Reits by giving them more time to manage their cash flows, and to work with tenants to recover and distribute the deferred rentals granted under the Bill without the impending risk to unitholders of losing tax transparency, Reitas said.

Under the tax transparency treatment, an S-Reit is not taxed on income that is distributed to its unitholders.

However, Reitas noted that this measure offers limited relief to Reits whose FY 2020 has already ended on 31 March 2020, and asked regulators to review the FY 2020 timeframe so as to achieve a more balanced extension period for all S-Reits.

"For unitholders, the extension means that while distributions may be lower in the immediate quarters, these distributions should improve over subsequent quarters as S-REITs receive the deferred rentals owed to them. We underline once again the importance of adopting a spirit of shared responsibility between landlord and tenant, in agreeing both to a schedule of deferred rental, and its subsequent repayment," Reitas added.

DBS Equity Research analysts noted that the extension is "welcome relief for landlords given the revenue-cashflow mismatch in the near term."

"The mismatch is that the calculation of tax transparency was based on accounting profits (rather than cash collected), which may pose a near term challenge for retail S-Reits, if some tenants seek a delay of their rental payments," DBS analysts Derek Tan and Rachel Tan said.

"While this comes at an expense of S-reit unitholders in the near-term with a higher possibility of lower and/or delayed dividend payouts in FY2020, this is the `lesser of two evils' if the alternative is a risk of deterioration in balance sheets and cash flows of S-Reits which may require equity issuance to take place at a wrong time," they added.

Reitas also noted that the increase in the aggregate leverage limit from 45 per cent to 50 per cent is timely as it provides S-Reits with additional funding flexibility. Together with the enhanced share issue limit announced by SGX RegCo last week, S-Reits will be in a better position to access the debt and equity markets to assist in their capital management, it said.

"In the longer term, we believe that this measured increment in the gearing limit is a step towards creating a more level playing field with Reits in other jurisdictions, will help S-Reits compete more effectively for assets globally, as well as sustain Singapore's position as a global Reit listing hub," Reitas said.

Further, it added that the introduction of the Interest Cover Ratio (ICR) as a secondary metric from 1 January 2022 will provide investors with greater transparency and assurance on the ability of an S-Reit to service its debt obligations.

The association added it would provide further inputs to the authorities with the details of the changes that will be released by Iras in early May.