As a retail investor investing in individual companies, one of the ways I receive the latest updates about a company’s developments and outlook ahead is through its annual report – usually published shortly after the company have released its full-year results.

One of the REITs in my long-term investment portfolio, EC World REIT (SGX:BWCU), have recently made available its latest annual report, along with its notice of AGM. I have studied the logistics REIT’s latest report and in this post, you will find a summary of the salient points to take note of (which I have compiled for the benefit of those who do not have the time to go through it), details about its upcoming annual general meeting (AGM), as well as four questions I have submitted together with my registration to seek the REIT management’s clarifications.

Let’s begin…

Letter to Unitholders by Chairman of the Board and Non-Executive Director Zheng Guobiao

On Covid-19:

  • China implemented strict lockdowns in major cities in the first quarter of 2020 in a bid to contain the pandemic, and this disrupted the operations of tenants in EC World REIT’s properties.
  • In an effort to help them mitigate the adverse impacts of the Covid-19 situation on their operations, the REIT provided cash rebates of approximately RMB19.7m in April 2020.
  • No doubt China’s economy have managed to rebound and grow 2.3% in the year 2020, uncertainties still remain, which will hamper this growth.

On its FY2020 Performance:

  • Gross revenue and net property income grew 10.7% and 11.8% on a year-on-year (y-o-y) basis to S$109.7m and S$100.3m respectively. The improvements can be attributed to the newly acquired Fuzhou E-commerce in August 2019, in addition to organic growth from the embedded rental escalations provided in the master leases. However, this amount was offset by one-off rental rebates to its tenants in April 2020, along with a lower occupancy at Wuhan Meiluote.
  • The REIT’s portfolio valuation, in SGD-terms, was up by 3.6% to S$1,624m mainly due to the appreciation of the Chinese Renminbi against the Singapore Dollar (however, in RMB-terms, its portfolio valuation saw a marginal decline.) Moving forward, the Manager continues to strive to seek accretive and value-adding investments for the REIT so as to provide a stream of sustainable returns.
  • In terms of its portfolio occupancy, all of its properties have a committed occupancy rate of 100.0% except for Wuhan Meiluote (which had a occupancy rate of 86.5%.) Lease profile-wise, as at 31 December 2020, the REIT has a weighted average lease to expiry of 3.4 years by gross rental income, and 2.9 years by net lettable area.
  • Pertaining to its debt profile, the REIT has an aggregate leverage ratio of 38.1% (as at 31 December 2020) with no major refinancing requirements in the short-term. Its weighted average debt term to maturity was at 1.6 years with a running interest rate of 4.3%. To mitigate currency risk, the Manager hedged 100% of the interest rate risk of EC World REIT’s offshore loans using floating to fixed interest rate swaps and cross currency swaps.
  • Finally, in terms of distribution per unit to unitholders for FY2020, a total of 5.359 cents/unit was declared. The Manager had retained 8.7% of the total amount available for distribution for the year (excluding this, its distribution per unit would have been 5.869 cents/unit for FY2020.)

Looking Ahead:

  • The Manager will continue to proactively manage the portfolio to ensure sustainable retains to unitholders.

Tenant Mix and Industries

  • As at 31 December 2020, the REIT has a total of 28 different tenants across the portfolio. Its top-10 tenants contributed 98.3% towards the REIT’s total gross rental income, as follows (with the percentage contribution in brackets):
    • Hangzhou Fu Gang Supply Chain Co., Ltd (36.4%)
    • Forchn Holdings Group Co., Ltd (22.5%)
    • Zhejiang Fuyang Yunton E-commerce Co., Ltd (12.4%)
    • China Tobacco Zhejiang Industrial Co., Ltd (10.8%)
    • Hangzhou Fuyang Yunton E-commerce Co., Ltd (8.4%)
    • Zhejiang Yuntong E-commerce Co., Ltd (4.2%)
    • Hubei Jingbangda Supply Chain Technology (1.1%)
    • Hangzhou Xi Lian Logistics Co., Ltd (1.1%)
    • Wangying Supply Chain Co., Ltd (1.0%)
    • Wuhan Jindong Trading Co., Ltd (0.4%)
  • On the industries which the REIT’s tenants operate in, they are as follows:
    • 37% – Delivery, Logistics, and Distribution
    • 27% – E-commerce Services
    • 23% – Telecommunication Sectors, Conglomerates, and Human Resources Sector
    • 12% – Industrial
    • 1% – Trading

Notice of AGM

Due to the current Covid-19 measures that are in place, the REIT’s coming AGM on Tuesday, 20 April 2020 at 10.00am will be held virtually. Unitholders can sign up to attend the meeting here (the deadline to do so will be on 17 April 2020 at 10.00am.)

Verified unitholders will receive an email with the login instructions by 19 April 2021 at 2.00pm.

As a unitholder of the REIT, I have already signed up to attend the upcoming meeting, and submitted the following 4 questions to seek the management’s clarifications:

  1. I would like to seek the management’s rationale on the need to increase the retention of distributable from 5% in Q4 FY2019 to 10% in Q4 FY2020 – considering the fact that the pandemic have more or less been successfully contained in China, and business operations have more or less resumed.
  2. Are there any timeline which the management is looking at to return the retained distributions back to unitholders?
  3. In the REIT’s most recent results presentation, it was noted that the average term to debt maturity was 1.6 years, but there’s no elaboration on the percentage of debts due in the respective financial years ahead. Can the management provide more detail on that?
  4. I note that the interest coverage ratio as at 31 December 2020 was just 2.62x – at this ratio, its among the lowest in S-REITs. May I know if the management have any plans in place to improve on this particular statistic?

I will provide an update on the management’s responses when I have them, along with a summary of the AGM in due course.

In Conclusion

One thing I have noticed in the annual report (which I’d like to highlight) is that, the REIT’s top 10 tenants contributed a whooping 98.3% towards its overall gross rental income, with the top 2 tenants already contributing more than 50.0%. Should they decide not to renew their lease upon expiry, it will definitely impact the REIT’s revenue negatively.

With that, I have come to the end of my summary of EC World REIT’s latest annual report. I hope you have found it to be useful.

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

 

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