This morning (20 April 2021), China-based logistics REIT EC World REIT (SGX:BWCU) held its annual general meeting (AGM) for the financial year ended 31 December 2020 (i.e. FY2020.)

I have attended this meeting as a unitholder of the REIT to receive the latest updates from its management (it was a short one, lasting about 30 minutes from start to finish.) For the benefit of those who did not attend, in this post, you’ll find a summary of the presentation by the REIT’s CEO and Executive Director Mr Goh Toh Sim, as well as results of the 3 resolutions put to vote during the meeting:

CEO & Executive Director Goh Toh Sim’s Presentation

Ongoing Covid-19 Pandemic:

  • The year 2020 was an eventful one, marked by the Covid-19 pandemic. Lockdowns in Chinese cities in the first quarter badly impacted business activities, particularly with workers unable to return to their workplaces after the Chinese New Year festivities. It was only from the second quarter onwards when the Covid-19 situation was brought under control by the Chinese government when the workers were able to gradually return.
  • Mr Goh highlighted that many tenants, as a result of business disruptions due to lockdowns, experienced difficulties in fulfilling their rental obligations. As such, the REIT have granted half a month of rental relief for the affected tenants to help them through this difficult period.
  • Even though China’s GDP grew by 2.3% year-on-year in 2020, and the Chinese government setting an economic growth target at above 6% for 2021, Mr Goh added that the global pandemic situation have not improved (with many countries still struggling to contain the pandemic) and as such, he stressed the need to remain prudent.

Financial Performance Recorded in FY2020:

  • Gross revenue grew by 10.7% to S$109.7m (FY2019: S$99.1m) mainly due to income from Fuzhou E-commerce acquired in August 2019, organic rental escalation, as well as the appreciation of the Chinese Renminbi vs. the Singapore dollar, offset by one-off rental rebates provided to tenants in the first quarter in view of the Covid-19 situation.
  • In view of the uncertainties from Covid-19, the Manager retained 8.7% of the total amount distributable for unitholders. As such, the total paid out distribution per unit was 5.359 cents for FY2020, translating to a trading yield of 7.5% (based on its closing price of 71.5 cents as at 31 December 2020), which Mr Goh added that this was much higher than the average of 6.2% yield for S-REITs.
  • Moving forward, Mr Goh assured unitholders that the REIT will continue to manage its asset portfolio actively to provide sustainable and predictable distributions.

Capital Management as at 31 December 2020:

  • Aggregate leverage of 38.1%
  • Weighted average debt maturity of 1.6 years
  • Interest coverage ratio of 2.62x
  • To summarise, Mr Goh said that the REIT’s debt remained constant vis-à-vis FY2019, and that there are no major refinancing requirement in the short-term.

Portfolio Occupancy Profile as at 31 December 2020:

  • Portfolio occupancy rate remained healthy at 99.3%
  • Weighted average lease to expiry of 3.4 years by gross rental income, with 75.4% of the leases expiring in 2024 and beyond
  • In terms of gross revenue contribution by segments, 48.2% is from e-commerce logistics, 18.9% is from port logistics, and 12.9% is from specialised logistics

Results of the Resolutions Put to Vote during the AGM

  • Resolution #1, which is to receive and adopt the report of the Trustee, the statement by the Manager, and the audited financial statements of EC World REIT for the financial year ended 31 December 2020 together with the auditors’ report thereon received 99.7% (or 359,340, 373) of the votes for, and 0.03% (or 110,000) of the votes against.
  • Resolution #2, which is to re-appoint PriceWaterhouseCoopers LLP as auditors of EC World REIT and to hold office until the conclusion of the next AGM and to authorise the Manager to fix their renumeration received 99.89% (or 359,042,653) of the votes for, and 0.11% (or 407,720) of the votes against.
  • Resolution #3, which is to authorise the Manager to issue new units and to make or grant convertible instruments, received 99.90% (or 359,075,529) of the votes for, and 0.10% (or 374,344) of the votes against.

Responses to Questions Raised in Relation to the REIT’s FY2020 Annual Report

In my summary about the REIT’s annual report for FY2020 (in case you’ve missed it, you can check out the post here), I have mentioned at the end that I will be submitting 4 questions to seek the management’s inputs.

All 4 questions have been responded to, and the following are my questions, along with the REIT’s responses:

Question #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.

Response: EC World REIT’s 4QFY2019 financial results was announced on 27 February 2020. At that juncture, the COVID-19 was deemed an epidemic. Subsequently, on 11 March 2020, the World Health Organization (“WHO”) announced that the world was no longer facing an epidemic of Covid-19 but a global and growing pandemic.

In 2020, the China economy grew 2.3% . However, challenges and instabilities continue to emerge from the evolving conditions and global macro environment. The current pandemic still largely depends on the containment measures taken by governments around the world as well as the successful roll-out of vaccination campaigns around the world.

When conducting the businesses of EC World REIT, the Manager undertakes a prudent approach to ensure sustainable and predictable returns to its Unitholders.

The ripple effect of the COVID-19 on the global economies remains unclear as countries grapple with the collateral damages brought about by the pandemic.

In view of the uncertainties, the Manager decided on the retention of 10% of amount available for distribution for Q4 FY2020.

Question #2: Are there any timeline which the management is looking at to return the retained distributions back to unitholders?

Response: The Manager has been retaining part of the amount available for distribution in view of uncertainties arising from prolonged COVID-19 pandemic globally and for general working capital purpose. The amount distributed is still no less than 90% of distributable income, which is in line with EC World REIT’s distribution policy.

Depending on the pandemic and its impact globally, the Manager will assess the situation accordingly.

Question #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?

Response: The relevant debt maturity grouping profile can be found under “Liquidity Risk Disclosure” on page 111 of FY2020 Annual Report.

As at 31 December 2020, EC World REIT’s debt instruments comprise:

a) Onshore Facility comprising a 3-year RMB1,018 million (S$206.0 million) and 10-year RMB77.0 million (S$15.6 million) secured loan facility;

b) Offshore Facility comprising a 3-year S$305.6 million and US$86.8 million (S$114.8 million) secured term loan facility; and

c) Revolving Credit Facilities. The 3-year Onshore and Offshore Facility are due in mid-2022. The Manager is liaising with the banks to refinance the loans.

The Revolving Credit Facilities generally have maturity of less than a year and will be repaid/rolled over at maturity.

Question #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?

Response: The interest coverage ratio has been adversely impacted by the rental rebates given to tenants in April 2020. For the three months period ended 31 December 2020, the interest coverage ratio has improved to 2.85x.

Related Documents

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

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