Fortitude Budget measures

Cash grant to be distributed to landlords who will then pass this on to their SME tenants. Retail tenants to get ~0.8 months of rent in addition to the property tax rebate passed on to them previously. This will amount to ~2months of rental support in total. Industrial and Office tenants to get ~0.64 months of rent; total of ~1 month of rental support from the government.

New Bill to mandate landlords to grant rental waivers to SME tenants that experienced a significant drop in revenue due to Covid-19. This mandated rental waiver will be shared between the government and landlords. Retail landlords would have to bear 2 months of rental while industrial/office landlords would have to bear 1-month rent.

Fortitude Budget Measures for Real Estate (Source: Singapore Government)

Impact of Fortitude Budget measures on REITs

Could be a slight negative for REITs as the new measures potentially quantify a fixed amount of rental support required whereas it was previously up to the landlords to decide on how much support to give (apart from passing on the property tax rebate).

Worryingly, the measures could potentially be supporting zombie SMEs and not be the best use of scarce resources. In the light of Covid-19 and the expected new norm of social distancing, a number of business owners would have assessed that it could make more sense to close down their business rather than suffer losses post-Covid. However, with a total of 4 months of rental support from landlords and the government, tenants could decide that instead of closing now, they would be better off taking the 4 months of support and close shop at a later date once the support runs out.

Using the Capitaland Mall Trust (CMT) as a bell-weather for Singapore malls, the average occupancy cost of ~18% implies significant savings for tenants struggling to make ends meet. 

Capitaland Mall Trust Occupancy Cost (Source: CMT)

Apart from the direct real estate measures introduced, the other additional support measures like the extension of the Jobs Support Scheme also indirectly benefit REITs as they promote the survival of REIT tenants.