After market hours this evening (12 May 2022), China-based e-commerce and port logistics REIT in EC World REIT (SGX:BWCU) made available its results for the first quarter of FY2022 ended 31 March 2022.

For those who are not familiar with the REIT, a quick introduction – its portfolio currently constitutes of 8 properties, where all but 1 (located in Wuhan) are located in Hangzhou. Also, the REIT is one of the few remaining Singapore-listed REITs that have continued to provide its full financial reports on a quarterly basis after the Singapore Exchange no longer mandates listed companies to report their full financial results in that timeframe from FY2020. It is also one of the few Singapore-listed REITs that have declared a distribution payout to its unitholders on the same timeframe.

In this post, you’ll read about my review on the REIT’s latest set of financial results, portfolio and debt profile, along with its distribution payout declared for the current quarter under review.

Let’s begin…

Financial Performance (Q1 FY2021 vs. Q1 FY2022)

The following table is EC World REIT’s financial results reported for Q1 FY2022 compared against that reported last year (i.e. Q1 FY2021):

Q1 FY2021Q1 FY2022% Variance
Gross Revenue
(S$’mil)
$30.8m$32.2m+4.4%
Property Operating
Expenses (S$’mil)
$3.1m$2.4m-22.6%
Net Property
Income (S$’mil)
$27.7m$29.7m+7.4%
Distributable Income
to Unitholders
(S$’mil)
$12.4m$11.2m-9.4%

The 4.4% and 7.4% improvements in the REIT’s gross revenue and net property income respectively were mainly due to the strengthening of the Chinese Renminbi (however, if we were to compare its gross revenue and net property income in RMB-terms, they would have been up by a smaller percentage at 1.3% and 4.4% respectively), late fee income, along with organic rental escalation.

However, its distributable income to unitholders saw a 9.4% dip due to higher income tax expenses and provision for pre-termination compensation to 3rd party tenant (amounting to RMB19.2m, or approximately S$4.1m; of which 30% has been recognised in the current quarter under review) as a result of the compulsory expropriation of Fu Zhuo Industrial – where the PRC authorities will be providing a compensation package of RMB108.5m (this amount is 92.8% of the property’s latest valuation, and 26.8% higher than its purchase consideration at IPO) to be paid in 3 tranches to the REIT; as at 31 March 2022, 30.0% of the compensation package has been received.

Portfolio Occupancy Profile (Q4 FY2021 vs. Q1 FY2022)

Next, let us take a look at the REIT’s portfolio occupancy profile – where I will be taking the statistics reported for the current quarter under review (i.e. Q1 FY2022 ended 31 March 2022) and compare them against the statistics reported for the previous quarter 3 months ago (i.e. Q4 FY2021 ended 31 December 2021) to find out whether they have continued to hold steady (like in the previous quarters):

Q4 FY2021Q1 FY2022
Portfolio Occupancy
(%)
99.2%98.6%
Portfolio WALE (by
Gross Rental Income – years)
2.7 years2.4 years

My Observations: Compared to the previous quarter, the REIT’s portfolio has weakened slightly, due to a drop in the occupancy rate of Wuhan Meiluote (down from 84.7% in Q4 FY2021 to 78.8% in Q1 FY2022), as well as in Chongxian Port Logistics (down from 100.0% in Q4 FY2021 to 97.8% in Q1 FY2022.) All the other properties continue to remain 100.0% occupied.

As far as lease expiries are concerned, only 8.0% (by gross rental income) will be due for renewal in the remaining quarters of the current financial year 2022, with another 15.9% due for renewal in FY2023. However, a huge bulk (74.9%) of the leases will be due for renewal in FY2024 (which is something to be mindful of.)

Finally, regarding the recent lockdowns in China, I understand that the REIT has not received any request for rental rebates from its tenants at this juncture, and that it is monitoring the situation very closely (this is something which I have also checked with its investor relations about – and I was told that the REIT have been communicating through calls every day to stay updated about the situation in the country; so far, its still business as usual in the REIT’s properties.)

Debt Profile (Q4 FY2021 vs. Q1 FY2022)

The following table is a comparison of the REIT’s debt profile recorded for the current quarter under review against that reported in the previous quarter (just like how I have reviewed its portfolio occupancy profile in the previous section):

Q4 FY2021Q1 FY2022
Aggregate Leverage
(%)
38.2%37.3%
Average Cost of
Debt (%)
4.1%4.2%

My Observations: From my understanding, as of 31 March 2022, the REIT has aggregated facilities of S$706.5m outstanding – apart from RMB77.0m of onshore facility which will due in 2029, the rest are due in the current financial year – to which I understand that the Manager is in the final stage of negotiation for the refinancing and will provide updates as and when there are further developments. I also note from its presentation slides that “the Manager expects that the refinancing exercise will be completed prior to the maturity dates of the term loans.”

Personally, I have also been following up on this and trying to seek for updates from the Investors Relation but was also told the same. It’s something I will keep a close watch on and provide updates as and when I have them.

Distribution Payout to Unitholders

For the current quarter under review, the REIT’s management have declared a payout of 1.383 cents/unit, a 9.7% drop from its payout of 1.532 cents/unit in the same time period last year (i.e. Q1 FY2021.)

If you are a unitholder of the REIT, do take note of the following dates regarding its distribution payout this time round:

Ex-Date: 14 June 2022
Record Date: 15 June 2022
Payout Date: 29 June 2022

Closing Thoughts

The REIT’s latest set of financial results in my opinion is a little on the “flattish” side in my opinion – pretty much expected considering that the REIT have not embarked on any acquisitions, and as such, improvements to its financial results can only be from rental escalations, and/or from favourable currency exchange rate.

While its portfolio occupancy rate continues to remain pretty resilient, but I remain concerned by the fact that a 74.9% of the leases will be expiring in a single year – in FY2024. I have posted a question during its AGM to ask about this, and the following was the REIT’s response, and I quote:

“The Manager has not commenced lease renewal negotiations for the leases expiring in FY2024. Majority of the expiring leases in FY2024 are attributed to the master leases for Fuzhou ECommerce, Stage 1 Properties of Bei Gang Logistics, Chongxian Port Investments as well as Fu Heng Warehouse.

Typically, negotiations for large lease renewals are conducted between six months to a year prior to the lease expiries. The Manager will provide timely updates to unitholders should there be any material developments in the lease renewal exercise.”

Another area I have concerns on is the REIT’s debt refinancing (for borrowings that will be expiring this year – particularly, with one tranche expiring in end-May 2022) – I’m disappointed that the response provided by the REIT still remains the same (i.e. it is still in the final stages of negotiation) considering the fact that we are just mere 2+ weeks or so to the end of the month. It will certainly be keeping a VERY close watch on this, and provide updates as and when I have them.

With that, I have come to the end of my review of EC World REIT’s latest first quarter results for FY2022. As always, please note that all the opinions above are purely mine, which I’m sharing for educational purposes only. They do not imply any buy or sell calls for the REIT’s units. You should always do your own due diligence before you embark on any investment decisions.

Related Documents

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

 

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