EC World REIT (SGX:BWCU), a pure-play Chinese logistics REIT (its portfolio consists of 8 logistics properties all located in China), and a REIT I have in my long-term investment portfolio (you can view a list of all the companies I have invested in here), released its latest financial results for the fourth quarter, as well as for the full-year ended 31 December 2020 (i.e. FY2020) after market hours yesterday (Thursday, 23 February 2021.)
In this post, you will find a summary of the logistics REIT’s latest set of results – particularly its financial performance, debt and portfolio occupancy profile, as well as its distribution payout to unitholders. You will also find my personal thoughts about the REIT’s latest results.
Let’s begin…
Financial Performance (Q4 FY2019 vs. Q4 FY2020, and FY2019 vs. FY2020)
In this section, you will find a comparison of the REIT’s financial performance both on a quarter-on-quarter (q-o-q), as well as on a year-on-year (y-o-y) basis:
Q4 FY2019 vs. Q4 FY2020:
| Q4 FY2019 | Q4 FY2020 | % Variance | |
| Gross Revenue (S$’mil) | $25.9m | $29.5m | +14.2% |
| Property Operating Expenses (S$’mil) | $1.4m | $2.3m | +67.9% |
| Net Property Income (S$’mil) | $24.5m | $27.2m | +11.1% |
| Distributable Income to Unitholders (S$’mil) | $12.1m | $11.5m | -5.0% |
The latest set of quarterly results reported by the REIT was a mixed one – while its total revenue saw a 14.2% q-o-q improvement (due to contributions from Fuzhou E-commerce acquired in August 2019, rental escalations, as well as the appreciation of the Chinese Renminbi against Singapore Dollar), but its distributable income to unitholders fell by 5.0% in the same time period due to the REIT retaining 10% of the distributable income (compared to just 5% in Q4 FY2019.)
FY2019 vs. FY2020:
| FY2019 | FY2020 | % Variance | |
| Gross Revenue (S$’mil) | $99.1m | $109.7m | +10.7% |
| Property Operating Expenses (S$’mil) | $9.4m | $9.4m | – |
| Net Property Income (S$’mil) | $89.7m | $100.3m | +11.8% |
| Distributable Income to Unitholders (S$’mil) | $48.2m | $43.1m | -10.6% |
Just like its q-o-q performance, the logistics REIT’s y-o-y performance was also a mixed bag – the 10.7% growth in its gross revenue was due to contributions from the newly acquired Fuzhou E-commerce, organic rental escalations, as well as the appreciation of the Chinese Renminbi against the Singapore Dollar, partially offset by a one-off rental rebate given to its tenants in Q1 FY2020 to mitigate the adverse effects of the current Covid-19 situation on its tenants’ operations; its distributable income to unitholders fell by 10.6% compared to last year due to rental rebates given out in Q1 FY2020, along with the REIT’s management retaining part of the distributable income.
My Thoughts: Considering that businesses have more or less returned to pre-Covid condition in China, I’m curious on the need for the REIT’s management to continue to retain part of a distributable income, as well as any timeline the REIT may have when it comes to returning the retained distributable income back to its unitholders – I’ll be raising both of these concerns in the REIT’s upcoming AGM.
Debt Profile (FY2019 vs. FY2020)
Next, let us take a look at the REIT’s debt profile recorded at the end of FY2020, compared against its debt profile recorded a year ago (i.e. FY2019 ended 31 December 2019) to find out if it has improved or deteriorated:
| FY2019 | FY2020 | Difference (in Percentage Points) | |
| Aggregate Leverage (%) | 38.7% | 38.1% | -0.6pp |
| Average Cost of Debt (%) | 4.5% | 4.3% | -0.2pp |
My Thoughts: It is good to note that both its aggregate leverage, as well as its average cost of debt have improved one year on. While its aggregate leverage, at 38.1% as at the end of FY2020, is on the high side, but it is still a distance away from the regulatory limit of 50.0%.
However, its interest coverage ratio recorded as at 31 December 2020 was just 2.62x – and this is one of the lowest among the Singapore-listed REITs, and it’s something I will keep a close watch on in the quarters ahead, as well as to raise my concerns to the REIT’s management during the upcoming AGM.
Another thing to note is that, while the REIT have updated that its average term to debt maturity was at 1.6 years, but there was no mentioning about the percentage breakdown in terms of debt expiring in the financial years ahead – I will be posting a question to the REIT’s management to find out about this as well.
Portfolio Occupancy Profile (FY2019 vs. FY2020)
The following table is the portfolio occupancy profile of EC World REIT – just like how I have reviewed its debt profile in the previous section, I will be comparing the REIT’s portfolio occupancy profile for the latest financial year under review (i.e. FY2020 ended 31 December 2020) against the same time period last year (i.e. FY2019 ended 31 December 2019):
| FY2019 | FY2020 | Difference (in Percentage Points) | |
| Portfolio Occupancy (%) | 100.0% | 99.3% | -0.7% |
| Portfolio WALE (by Gross Rental Income – in Years) | 4.1 years | 3.4 years | – |
My Thoughts: The REIT’s portfolio occupancy, compared to the previous year, have weakened slightly. However, at 99.3% (as at 31 December 2021), it is still considered very good in my opinion.
In terms of its lease expiries in the coming financial years ahead, only 15.8% of the leases are up for renewal in FY2021, 1.1% in FY2022, 7.7% in FY2023, and a huge bulk of the leases (75.4%) are only due for renewal in FY2024 and beyond.
Distribution to Unitholders
For the current quarter under review (i.e. Q4 FY2020), the management have declared a payout of 1.427 cents/unit (a 5.5% q-o-q drop compared to the payout of 1.51 cents/unit in Q4 FY2019), due to a 10% retention of the distributable payouts by the REIT’s management.
If you are a unitholder of the logistics REIT, you’ll want to take note of the following dates:
Ex-Date: 12 March 2021
Record Date: 15 March 2021
Payout Date: 31 March 2021
One thing to note regarding the REIT’s distribution payouts over the past 3 financial years is that it has been on a downward decline (even though for the past 2 years, i.e. in FY2019 and in FY2020, it was due to the management retaining a certain amount of distribution for prudence as well as to deal with contingencies relating to the Covid-19 pandemic):
| Distribution Per Unit (S$’cents) | |
| FY2018 | 6.179 cents |
| FY2019 | 6.047 cents |
| FY2020 | 5.359 cents |
This is something I will be keeping a close watch on in the financial year ahead. Finally, with regard to the frequency of payouts, the REIT is still paying out a distribution to its unitholders on a quarterly basis for now.
In Conclusion
While I like the REIT’s improvements in its gross revenue as well as in its net property income (both on a q-o-q as well as on a y-o-y basis), along with slight improvements in its debt profile (compared to the previous year), but I have concerns about its distribution payout (particularly on when the REIT’s management intends to release the retained amount back to its unitholders, considering that businesses in China have more or less returned to pre-Covid condition.)
Apart from the REIT’s distribution payouts, I will also be highlighting my concerns about the low interest coverage ratio, along with seeking more information about the percentage of borrowings which will be expiring in the coming financial years ahead. I will be raising those questions in the REIT’s coming AGM and provide updates accordingly.
With that, I have come to the end of my review on EC World REIT’s latest set of results update. Please note that everything you have just read about above are purely for educational purposes only, and they do not represent any buy or sell recommendations for the REIT’s units. As always, please do your own due diligence before you make any investment decisions.
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Disclaimer: At the time of writing, I am a unitholder of EC World REIT.
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