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JTC gives O&M lessees and tenants rental rebates of 3-10% for 2017

Industry welcomes move, but some observers question how far it will go towards tackling deeper, structural problems plaguing sector
Monday, January 9, 2017 - 05:50

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To support the beleaguered offshore and marine (O&M) industry through a protracted downturn, JTC has given between 3 per cent and 10 per cent in rental rebates to all its O&M tenants and lessees for 2017.

Singapore

TO support the beleaguered offshore and marine (O&M) industry through a protracted downturn, JTC has given between 3 per cent and 10 per cent in rental rebates to all its O&M tenants and lessees for 2017.

This marks the first rental rebate for industrial properties in Singapore since the global financial crisis in 2009.

While the industry welcomed the move, some have questioned how far it would go towards tackling deeper, structural problems plaguing the sector.

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Others, citing the quantum and timing of the rental rebate, have asked if help for the sector has come too little, too late.

JTC, in response to BT queries, said that it has offered about 250 O&M lessees and tenants rental rebates for 2017. "While there is a general slowdown in economic growth, the marine and offshore (M&OE) industry in particular is facing a unique and prolonged downturn due to cyclical and structural forces . . .

"This (move) aims to provide some reprieve for our M&OE lessees and tenants during this period, while they review their operations to enhance productivity and reposition their business for the future."

JTC said that it had already lowered the posted rents (which are publicly published rentals of its own industrial facilities as well as industrial land) in tandem with the industrial property slowdown over the last two years.

The rental rebate will further reduce the rentals payable by the companies for a one-year period starting Jan 1, 2017.

For companies with sites which have a higher rent stated in their contracts than the prevailing posted rates, a rebate will be given to effect the lower posted rent as at Jan 1, 2017.

An additional 3 per cent rebate will be given across the board, thus explaining why there is a range of rental rebates from 3 per cent to 10 per cent. It depends on the companies' existing contracted rents.

 

 

A copy of the letter seen by BT said: "From Jan 1, 2018 onwards, the rent payable will revert back to the rates as per your contract."

Furthermore, for sites with a scheduled rent increase this year, a rebate will be given to offset the increase in the contracted rent.

For companies whose leases or tenancies are expiring, instead of requiring them to pump money into their fixed assets (such as plant and machinery, building and civil works and refurbishments) in order to get their leases renewed, as is usually the case, JTC will grant them a short-term lease extension without any investment requirement.

BT understands that JTC had sent out the letter on the rental rebate to qualifying O&M lessees and tenants in late December 2016, about two years after the 2014 oil price collapse that triggered a multi-year sectoral downturn.

In the letter, JTC also said that it would continue to monitor the industry outlook with trade associations, chambers and the economic agencies to see how it may continue to support the industry.

Industry players generally applauded the gesture from JTC. Lim How Teck, who sits on the board of Rickmers Maritime and is chairman of Swissco Holdings, said: "The JTC rental rebate is not going to move mountains, but it is a step towards the right direction."

Swissco, which is heading for judicial management, owns properties sitting on JTC leases. Its appointed interim judicial manager from EY told BT that while the priority is to secure new investments, sale of assets remains an option to raise cash to keep the business afloat.

Winnie Low, executive director of the Association of Singapore Marine Industries, said that the rental rebates were very timely.

"Yes, I agree 3 per cent is not much but it is a gesture of assistance. We understand that JTC is also exploring other ways to help the companies apart from rental rebates, such as being more flexible with their policies."

One private industrial landlord put the savings from a 3 per cent rental rebate as ranging from tens of dollars to a few thousand, depending on the land size.

Many said that the JTC rental rebate is not expected to reverse the fortunes of O&M companies already in distress.

IHS principal researcher Ang Dingli suggested that under a multi-year downturn, the rebate will more likely "differentiate the stronger companies from the weaker ones". He does not see the rebate as "much help" to the O&M industry because "the problem now is (a lack of) demand".

Mr Ang noted that utilisation of major yards in Asia now averages about 30-40 per cent, sharply down from last year when they were still working on a larger number of projects. "These bits of help from the government when put together will help fundamentally strong companies pull through these tough times so that they may emerge stronger. Help from the government will only prolong the dying process of companies that are not fundamentally competitive," he said.

Several O&M players have already let go of their industrial leases before news on the rebate was released to the market.

The yard operating arm of mainboard-listed Ezra Holdings, Triyards, on Dec 12 sold the leased land occupied by its previous yard in Pioneer Sector back to JTC.

Triyards clarified that its other premise at Shipyard Road is able to accommodate Strategic Marine, its wholly-owned subsidiary acquired in 2014. "It was cost efficient and economical to move in together," it said.

Speaking on his market observations broadly, Knight Frank executive director and head of industrial Tan Boon Leong said: "I think industrial tenants and lessees giving up their properties to JTC would be their last stop measure. They will try to sell it in the market or lease out the space first, because that will get them a better price.

"Unless the company is in financial difficulty and the banks are starting to call on their loans, I don't think the company will sell their premises below market price back to JTC."

Maintenance, repair and overhaul solutions provider Mencast Holdings on Dec 22 disclosed the proposed sale of its leasehold industrial property in Tuas Basin Close for over S$6 million to CES-Precast Pte Ltd.

The sale of Mencast's property is understood to be driven by a need to cash up under an unfavourable market. "Liquidity is key under conditions of excess capacity. It is also better to let go to someone else who can make more productive use of the property," one source said.

In this respect, the JTC rebate, coming two years into the downturn "is a little late from the end users' perspective", although it is understandable that the agency needs time to weigh how reasonable it is to extend these rebates to only a specific sector, another industry player said.

The industry player pointed out, however, that rent is just a smaller component compared to property tax, which is the heftier component in the overall cost of holding an industrial property.

Many have also said that taking into consideration the structural issues surfacing under this downturn, it is not realistic to count on government aid. Rather, the industry has to take the pain of restructuring upon itself to overcome the hurdles to a sustainable recovery.

The JTC rebate comes about one month after the Ministry of Trade and Industry announced two measures to help the O&M sector.

First, the maximum loan under IE Singapore's Internationalisation Finance Scheme (IFS), which provides project and asset financing support for companies, was raised to S$70 million per borrower group from S$30 million previously.

Second, under Spring Singapore's Bridging Loan (BL) initiative, which was reintroduced to the market, SMEs will be able to borrow up to S$5 million each, with a tenure of up to six years. The maximum loan quantum for each borrower group under BL is S$15 million. The government will also take on 70 per cent of the risk share for both IFS and BL.

Meanwhile, industrial players have also begun to suggest to JTC other ways in which the agency can help the sector.

These include allowing lessees and tenants to sublet their under-utilised space to non-O&M users, and for JTC to buy back waterfront land from users who have difficulty sustaining their businesses. JTC can consolidate these with other users and use the opportunity of the downturn to restock their waterfront land bank, they said.

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