After market hours last Friday (06 July 2021), China-based logistics REIT in EC World REIT (SGX:BWCU) released its financial results for the first half of the financial year 2021 ended 30 June 2021.

For those of you who are not aware, the REIT is one that has continued to report a full financial statement on a quarterly basis, and at the same time, also continued to pay out a distribution to its unitholders in the same frequency.

In this post, I’ll be sharing a summary, along with my thoughts and outlook on the logistics REIT’s latest set of financial results, portfolio occupancy and debt profile, as well as the distributions it has declared for its unitholders this time round.

Let’s begin…

Financial Performance (Q2 FY2020 vs. Q2 FY2021, and 1H FY2020 vs. 1H FY2021)

In this section, I will be looking at the logistics REIT’s financial performance both on a quarter-on-quarter (q-o-q) basis as well as on a year-on-year (y-o-y) basis:

Q2 FY2020 vs. Q2 FY2021:

Q2 FY2020Q2 FY2021% Variance
Gross Revenue
(S$’mil)
$28.2m$31.2m+10.6%
Property Operating
Expenses (S$’mil)
$2.4m$3.2m+37.1%
Net Property
Income (S$’mil)
$25.8m$27.9m+8.1%
Distributable Income
to Unitholders
(S$’mil)
$11.1m$12.4m+11.1%

Looking at the REIT’s results on a q-o-q basis, the latest set of results is an improved one – the 10.6% and 8.1% increase in its gross revenue and net property income (in RMB terms, the former was up by 6.9%, while the latter improved by 4.5% – the smaller increment is due to the strengthening of the Chinese Renminbi against the Singapore Dollar) respectively is due to organic rental escalations and Late Fee income.

Distributable income to unitholders increased by 11.1% in the same time period, mainly due to payout of distributions previously retained in Q4 FY2019, Q1 FY2020, as well as a partial release of distributions retained in Q2 FY2020. At the same time, the REIT have retained 10% of the total amount available for distribution for Q2 FY2021 in view of the uncertainties surrounding the Covid-19 pandemic globally.

1H FY2020 vs. 1H FY2021:

1H FY20201H FY2021% Variance
Gross Revenue
(S$’mil)
$51.7m$62.0m+19.8%
Property Operating
Expenses (S$’mil)
$4.8m$6.4m+33.7%
Net Property
Income (S$’mil)
$47.0m$55.6m+18.4%
Distributable Income
to Unitholders
(S$’mil)
$20.4m$24.7m+21.0%

In the first half of FY2021, the REIT’s results also was an improved one compared to the same time period a year ago (i.e. 1H FY2020) – particularly, the improvements in the REIT’s gross revenue and net property income can be attributed to the absence of one-off rental rebates given to tenants in 1H FY2020. In RMB terms, its gross revenue and net property income were up by 15.6% and 14.3% compared to 1H FY2020.

Distributable income to unitholders in the same time period went up by 21.0% mainly due to the absence of rental rebates given in Q1 FY2020, and the payout of distribution previously retained in Q4 FY2019, Q1 FY2020, along with the partial release of distributions retained in Q2 FY2020 (amounting to approximately S$2.0m in total.)

Portfolio Occupancy Profile (Q1 FY2021 vs. Q2 FY2021)

Next, let us take a look at the logistics REIT’s portfolio occupancy profile as at the end of Q2 FY2021 on 30 June 2021, compared against that recorded in the previous quarter 3 months ago (i.e. Q1 FY2021 on 31 March 2021) to find out whether it has improved, remained stable, or deteriorated:

Q1 FY2021Q2 FY2021
Portfolio Occupancy
(%)
99.1%99.1%
Portfolio WALE (by Gross
Rental Income – in Years)
3.1 years3.0 years

My Observations: Personally, I felt that its portfolio occupancy profile compared to the previous quarter is more or less the same – and at close to 100.0%, I find it to be very resilient.

In terms of occupancy rate by individual properties, all of them are fully occupied except for Wuhan Meiluote, whose occupancy rate was at 81.3%. Also, as far as lease expiries are concerned, only 5.9% of the leases are expiring in the second half of FY2021.

Debt Profile (Q1 FY2021 vs. Q2 FY2021):

Similar to how I have looked at the REIT’s portfolio occupancy profile in the previous section, I too will be studying its debt profile by comparing the figures recorded for the current quarter against the previous quarter 3 months ago:

Q1 FY2021Q2 FY2021
Aggregate Leverage
(%)
38.3%37.6%
Average Cost of Debt
(%)
4.1%4.2%
Average Term to Debt
Maturity (years)
1.4 years1.13 years

My Observations: While the REIT’s aggregate leverage have improved slightly to 37.6% in the current quarter under review, its average cost of debt have edged up slightly. Also, its average term to debt maturity have also come down to just 1.13 years (and some unitholders are concerned about this.)

Diving deeper into its borrowings, a huge bulk of it (S$514.8m out of S$701.3m of its total borrowings) will be maturing in the next 1 year. I share the same concerns as fellow unitholders and I will definitely be keeping a close watch on this particular statistic in the REIT’s financial reporting in the coming quarters ahead.

Distribution Per Unit (Q2 FY2020 vs Q2 FY2021):

The following table is the REIT’s distribution per unit declared for the current quarter under review, compared to that declared in the same time period last year:

Q2 FY2020Q2 FY2021% Variance
Distribution Per
Unit (S$’cents/unit)
1.386 cents1.532 cents+10.5%

The improvements in the REIT’s distribution per unit for the current quarter under review is due to the release of distribution previously retained in Q4 FY2019, Q1 FY2020, as well as the partial release of distributions retained in Q2 FY2020, amounting to about S$2.0m.

On a y-o-y basis, its distribution per unit was up by 20.4% to 3.064 cents/unit (1H FY2020: 2.544 cents/unit.)

If you are a unitholder of the REIT, do take note of the following dates regarding the payout of your distribution:

Ex-Date: 13 Sep 2021
Record Date: 14 Sep 2021
Payout Date: 28 Sep 2021

Closing Thoughts

In terms of the REIT’s most recent set of financial results, the improvements was very much within my expectation – considering that in the same time period last year, China was battling the worst of the pandemic, with many parts of the country subsequently under lockdown by the Chinese government to break the chain of transmission – as a result, businesses were adversely impacted (and the REIT had to provide some form of rental rebates to the affected tenants.) Comparatively, in the same period this year, China is more or less back to normalcy – and with that, the stronger performance is expected.

If there is one thing I do not quite like about the REIT’s latest set of results, it will be its debt profile – particularly, the huge amount of borrowings which will be expiring within a year; and just like I have mentioned above, it is something I will continue to monitor closely when the REIT reports its third quarter results (which should be released sometime in late October this year.)

Finally, on my outlook of the REIT’s performance in the second half of 2021 ahead, it will very much depend on the developments surrounding the ongoing pandemic. At the time of writing, there seem to be a rise in the number of community cases in the various parts of China. Whether or not the REIT’s results will be affected will largely depend on whether or not the Chinese government will re-introduce some of the tightening measures previously implemented to break the current chain of transmission (and if so, to what extent.)

With that, I have come to the end of my review of EC World REIT. As always, please note that everything you have just read above is purely for educational purposes only, and that they do not represent any buy or sell calls for the REIT’s units. You should always 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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