Pure-play China specialised logistics and e-commerce logistics REIT EC World REIT (SGX:BWCU) released its second quarter and half-year results for the financial year 2020 ended 30 June 2020 last Friday (07 August) evening.

As a unitholder of the REIT, I have studied its latest set of results in detail and in this post, you will find the most important aspects of the REIT’s results to take note of, along with my thoughts about it (for sharing purposes):

Key Financial Results (2Q FY2019 vs. 2Q FY2020, and 1H FY2019 vs. 1H FY2020)

In this section, you will find a quarter-on-quarter (q-o-q) as well as a year-on-year (y-o-y) comparison of the REIT’s financial results:

2Q FY2019 vs. 2Q FY2020:

2Q FY20192Q FY2020% Variance
Gross Revenue
(S$’mil)		$23.7m$28.2m+18.8%
Property Operating
Expenses (S$’mil)		$2.6m$2.4m-8.0%
Net Property
Income (S$’mil)		$21.2m$25.8m+22.1%
Distributable Income
to Unitholders
(S$’mil)		$12.3m$11.1m-9.5%

In SGD terms, the REIT’s gross revenue and net property income went up by 18.8% and 22.1% respectively, while in RMB terms, its gross revenue and net property income saw improvements by 19.0% and 22.3% on a q-o-q basis – this is due to contributions from Fuzhou E-commerce which was acquired in August 2019, along with organic rental escalations.

Distribution to unitholders, however, fell 9.5% q-o-q due to the REIT retaining 10% of the distributable income.

1H FY2019 vs. 1H FY2020:

2Q FY20192Q FY2020% Variance
Gross Revenue
(S$’mil)		$47.6m$51.7m+8.7%
Property Operating
Expenses (S$’mil)		$5.2m$4.8m-9.2%
Net Property
Income (S$’mil)		$42.3m$47.0m+10.9%
Distributable Income
to Unitholders
(S$’mil)		$24.2m$20.4m-15.7%

On a y-o-y basis, in SGD terms, the REIT’s gross revenue and net property income grew 8.7% and 10.9% respectively, while on RMB terms, both its gross revenue and net property income also improved by 9.5% and 11.8% respectively – Again, this can be attributed to the contribution by the newly acquired Fuzhou E-commerce in August 2019, along with organic rental escalations. However, this was offset by a one-off rental rebate (amounting to approximately RMB23.7m) given to tenants announced on 03 April 2020 (you can read the announcement in full here) to mitigate the adverse effects of the ongoing Covid-19 pandemic on the tenants’ operations.

Finally, as a result of the rental rebate given to tenants, its distributable income to unitholders fell 15.7% on a y-o-y basis.

My Thoughts: The retention of 10% of the distributable amount in the second quarter for allowances to deal with unforeseen circumstances relating to the ongoing Covid-19 pandemic was a reasonable one in my opinion (considering at this point in time, there seem to be a resurgence in the number of reported Covid-19 cases in China.)

Also, as far as the REIT’s gross revenue and net property income are concerned (both on a q-o-q as well as on a y-o-y basis), I am happy to see improvements being recorded.

Portfolio Occupancy Profile (1Q FY2020 vs. 2Q FY2020)

The next thing I focus on (apart from its financial results), is the REIT’s portfolio occupancy profile – where I tend to compare the latest statistics for the quarter under review against the previous quarter to find out if it has improved or deteriorated three months on.

In the table below, you will find EC World REIT’s portfolio occupancy profile for the current quarter under review (i.e. 2Q FY2020 ended 30 June 2020), compared against the previous quarter (i.e. 1Q FY2020 ended 31 March 2020):

1Q FY20202Q FY2020
Portfolio Occupancy
(%)		99.1%98.7%
Weighted Average Lease
Expiry (by Gross Rental
Income – in Years)		3.8 years3.6 years

My Thoughts: While there was a slight drop in its portfolio occupancy (due to one of the tenants in Wuhan Meiluote not renewing its lease, and currently, the manager is working closely with the property manager in China to backfill the space), but its portfolio occupancy continues to remain resilient at close to 100.0%.

Personally, there is no cause for concern here.

Debt Profile (1Q FY2020 vs. 2Q FY2020)

Just like how I analyse the REIT’s portfolio occupancy profile, I also compare the REIT’s debt profile reported for the current quarter under review against the previous quarter three months ago:

1Q FY20202Q FY2020
Gearing Ratio
(%)		38.6%39.1%
Average Cost of Debt
(%)		4.3%4.3%

My Thoughts: While the average cost of debt remains constant, its gearing ratio have crept up – even though there is still some debt headroom to go before it reaches its regulatory limit of 50.0%, but in my personal opinion, it is on the high side compared to the other Singapore-listed REITs.

As such, the REIT’s gearing ratio is something I will be keeping a close watch on in the subsequent quarters.

Distribution Per Unit (2Q FY2019 vs. 2Q FY2020)

As a result of a 10% retention of the quarter’s distributable income, the REIT’s distribution per unit fell by the same percentage to 1.386 Singapore cents/unit (compared to 1.547 Singapore cents/unit declared in the same time last year.)

The REIT will be going ex-dividend on 11 September, with the record date on 14 September, and payout date on 28 September.

In Conclusion

Overall, it was a decent set of results reported by the REIT in my personal opinion.

If I have to name one aspect that I do not quite like, it is the REIT’s current gearing ratio, which I mentioned earlier, is a bit on the high side compared to the other Singapore-listed REITs (even though there remains sufficient debt headroom before it reaches the regulatory limit of 50.0%.)

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Disclaimer: At the time of writing, I am a unitholder of EC World REIT.

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