New Measures To Help SREITs During COVID-19

New Measures To Help SREITs During COVID-19

Previously I wrote about how the COVID-19 measures have impacted the SREITs. Under the new bill, landlords will not be able to terminate the lease of tenants or claim back the rented premises if the tenant is unable to pay the rent during the relief period of 6 months. This has added financial pressure to REITs as the held back of rental payments by tenants will affect the landlord’s operating cash flow.

I am glad that a new set of measures to assist the SREITs was announced by Ministry of Finance (MOF), the Inland Revenue Authority of Singapore (IRAS), and the Monetary Authority of Singapore (MAS) on Thursday, 16 April 2020.

Below are the two measures that will help SREITs with their cash flow.

Extension of Permissible Period for Distribution of Taxable Income

S-REITs have to pay out 90% of their annual distributable income in order to qualify for tax exemption. This has been extended from the current 3 months to 12 months. This extension is only applicable for distributions made from taxable income that is derived by an S-REIT during FY2020.

Higher Leverage Limit and Deferral of Interest Coverage Requirement

SREITs investors should be very familiar with this. The current leverage limit is 45%. With the new measure, SREITs can borrow up to 50%. On a positive note, most REITs have kept their gearing low below 40%. Hopefully with this measure, SREITs will not borrow more just to payout unitholders.

ST Engineering Defers AGM and Dividend Payment

ST Engineering Defers AGM and Dividend Payment

This morning, I read that ST Engineering has cancelled its dividend payout from a post in an investing forum. At that moment, I was shocked as so far no companies had announce dividend payout and cancelled it due to the impact from COVID-19. I quickly checked upon ST Engineering’s website and found the related news. It was not true that ST Engineering has cancelled its dividend payout. It was because the Annual General Meeting (“AGM”) has to be deferred to a later date.

If you didn’t know, the proposed final dividend of 10.0 cents per share is subjected to shareholders’ approval at the Annual General Meeting (“AGM”), under Singapore law. With the deferment of the Annual General Meeting (“AGM”), the record date and payment date of the proposed final dividend will have to be deferred as well.

The following FAQ is extracted from ST Engineering’s website:

ST Engineering is deferring its AGM to a later date (to be confirmed) as legislative amendments on the holding of meetings are expected to be introduced at the next sitting of Parliament on or about 7 April 2020.

The legislative amendments are intended to provide legal certainty on the holding of meetings in light of the safe distancing measures recently announced by the Ministry of Health.

ST Engineering intends to convene its AGM after these legislative amendments have been passed and the necessary arrangements have been put in place in order to adopt the recommended measures for conducting meetings (as appropriate) and implement the safe distancing measures put in place by the Ministry of Health.

I do hope if you receive any news that dividends are deferred, do not panic. Check out the company’s website first for clarity.

COVID-19 Measures To Impact SREITs

COVID-19 Measures To Impact SREITs

The stock market is irrational. With “Circuit Breaker” being announced on Friday, I was expecting the stock market to be in a sea of red however it was the reverse. The stock market went up today. Do not be too happy yet as a new Bill that was passed in Parliament today will most likely have a significant impact on S-REITs.

A new Bill for COVID-19 (Temporary Measures) was passed in Parliament today. Under the new bill, landlords will not be able to terminate the lease of tenants or claim back the rented premises if the tenant is unable to pay the rent during the relief period of 6 months. Under the new bill, the landlord is also not able to take legal action.

As part of the COVID-19 measures, landlord must pass the property tax rebates to the tenants. Those landlords that failed to do so will be guilty of the offence and can be fine up to S$5,000.

These measures will definitely add financial pressure to Retails REITs such as CapitaMall, Mapletree Commercial Trust and SPH REIT as the held back of rental payments by tenants will affect the landlord’s operating cash flow. If you didn’t know, S-REITs have to pay out 90% of their annual distributable income in order to qualify for tax exemption. With such added pressure, I believe the S-REITs managers will retain cash for operational purposes and further slash the already miserable dividend payout to investors.

There are certainly pro and cons to the new measures being introduced. If I am a tenant or shop owner, I will definitely benefit from the new measure as reduced shopper traffic and “Circuit Breaker” will impact my business. The new measure relieves the financial burden.

As a dividend investor, I will frown over the new measure as this means higher possibility REIT managers further cutting dividends to sustain their operating cash flow. As land lords are unable to reclaim back the premises should tenants are unable to pay rent, the land lords will not be able to seek new tenants as well, impacting the rental reversion.

Last, we all know REITs derive their revenue from rents. I am not ruling out the possibility of REITs taking up more loans which can further drive up their gearing ratio (cap at 45%).