EC World REIT (SGX:BWCU) is the final company in my long-term investment portfolio (you can check out a list of companies I’ve invested in, along with my average prices, here) to release its financial results for the second quarter, as well as for the first half of the financial year 2022 ended 30 June 2022 after market hours yesterday (11 August 2022.)
For those who may not be familiar with the REIT, it is a China-based REIT where its portfolio comprises a total of 8 e-commerce and port logistics properties in the country (even though one of its properties, Fu Zhuo Industrial, will be expropriated by the Chinese Government in a news report on 10 January – you can read the report in full here.) Also, there are concerns surrounding its debt profile in recent months (with the most recent piece of news being they will need to repay 25.0% of the facilities by the end of the year, and the management is in the process of exploring the various options to raise the amount – you can read my thoughts in a separate post I have published in mid-July here.)
Today, my focus is on the REIT’s latest set of financial results, portfolio occupancy and debt profile, as well as its distribution declared for unitholders for the period under review.
Let’s begin:
Financial Results (Q2 FY2021 vs. Q2 FY2022, and 1H FY2021 vs. 1H FY2022)
EC World REIT is one of the few Singapore-listed companies that have continued to provide its full financial results on a quarterly basis despite it not required to do so (and this is something where, as a unitholder, I appreciate as it allows me to get more timely updates about the REIT’s performance.)
Hence in this section, we will be taking a look at its financial results first on a quarter-on-quarter (q-o-q) basis (i.e. Q2 FY2021 vs. Q2 FY2022), and then on a year-on-year (y-o-y) basis (i.e. 1H FY2021 vs. 1H FY022):
Q2 FY2021 vs. Q2 FY2022:
| Q2 FY2021 | Q2 FY2022 | Variance (%) | |
| Gross Revenue (S$’mil) | $31.2m | $31.2m | +0.0% |
| Property Operating Expenses (S$’mil) | $3.2m | $3.0m | -8.6% |
| Net Property Income (S$’mil) | $27.9m | $28.2m | +1.0% |
| Distributable Income to Unitholders (S$’mil) | $12.4m | $11.2m | -9.2% |
The REIT’s performance on a q-o-q basis was a mixed one – its gross revenue more or less the same compared to last year in SGD-terms (but in RMB-terms, it is 1.1% lower), which can be attributed to organic rental escalations and new leases secured, offset the impact from the discontinuance of contribution from Fu Zhuo Industrial (which was expropriated by the Chinese Government, and income contribution from the property has been ceased from 01 April 2022, which is the start of the second quarter of FY2022.) At the same time, due to lower operating expenses, its net property income edged up by 1.0% (in RMB-terms, it is 0.1% higher.)
However, due to the recognition of pre-termination compensation to a 3rd party tenant (from Fu Zhuo Industrial as a result of the compulsory expropriation), along with the release of retained income (from Q2 and Q3 of FY2020) to unitholders in the same time period last year, its distributable income to unitholders saw a 9.2% decline.
1H FY2021 vs. 1H FY2022:
| 1H FY2021 | 1H FY2022 | Variance (%) | |
| Gross Revenue (S$’mil) | $62.0m | $63.3m | +2.2% |
| Property Operating Expenses (S$’mil) | $6.4m | $5.4m | -15.5% |
| Net Property Income (S$’mil) | $55.6m | $57.9m | +4.2% |
| Distributable Income to Unitholders (S$’mil) | $24.7m | $22.4m | -9.3% |
Similar to its q-o-q results, the REIT’s y-o-y results was also a mixed bag – gross revenue went up slightly by 2.2% in SGD-terms (however, it was down by 0.2% in RMB-terms) due to organic rental escalations and late fee income despite the discontinuance of contribution from Fu Zhuo Industrial from 01 April 2022.
As a result of a 15.5% decline in property operating expenses, its net property income saw a 4.2% improvement. However, its distributable income to unitholders fell 9.3% due to the provision for pre-termination compensation to 3rd party tenant, and along with higher withholding tax.
Portfolio Occupancy (Q1 FY2022 vs. Q2 FY2022)
Moving on, let us take a look at the REIT’s portfolio occupancy – where I will be comparing the statistics reported for the current quarter under review (i.e. Q2 FY2022 ended 30 June 2022) against that reported in the previous quarter 3 months ago (i.e. Q1 FY2022 ended 31 March 2022) to find out whether it has continued to remain resilient (just like in the previous quarter, where the portfolio occupancy was very strong at 98.6%):
| Q1 FY2022 | Q2 FY2022 | |
| Portfolio Occupancy (%) | 98.6% | 99.1% |
| Portfolio WALE (by Gross Rental Income – years) | 2.4 years | 2.1 years |
My Observations: The 0.5 percentage point (pp) improvement in its portfolio occupancy is due to an improvement in the occupancy rate in Wuhan Meiluote (from 78.8% in Q1 FY2022 to 84.0% in Q2 FY2022), as well as in Chongxian Port Logistics (from 97.8% in Q1 FY2022 to 99.7% in Q2 FY2022.) All the other properties (Fu Seng, Fuzhou E-Commerce, Stage 1 Properties of Bei Gang, Hengde Logistics, as well as Chongxian Port Investment) are 100.0% occupied in both quarters (i.e. Q1 & Q2 FY2022.)
In terms of lease expiry, only 7.7% of the leases (by gross rental income) will be expiring in FY2022, 16.3% of the leases expiring in FY2023, and the remaining 76.0% of the leases will be expiring in FY2024 (if you have been following my quarterly reviews of the REIT’s results, this has been a concern for me, and I will be keeping a close watch on this and provide updates as soon as I have them.)
Debt Profile (Q1 FY2022 vs. Q2 FY2022)
Just like how I have reviewed the REIT’s portfolio occupancy profile in the previous section, I will also be reviewing its debt profile by taking the statistics reported for the current quarter under review and compare them against that reported in the previous quarter 3 months ago, as follows:
| Q1 FY2022 | Q2 FY2022 | |
| Aggregate Leverage (%) | 37.3% | 39.1% |
| Average Cost of Debt (%) | 4.2% | 4.3% |
| Interest Coverage Ratio (times) | 2.97x | 2.84x |
My Observations: Its debt profile, compared to the previous quarter, have weakened slightly – where its aggregate leverage have increased by 1.8pp to 39.1%, and average cost of debt have edged up by 0.1pp. Its interest coverage ratio have also weakened slightly.
As far as the REIT’s update on repayment of debt maturing on 30 April 2022 is concerned, it is as follows, and I quote:
“As an update, the Manager is in the process of exploring various options for the Repayment and actively working with the lead lenders on the refinancing of the remaining amount of the Facilities (i.e. the amount of outstanding facilities postRepayment) (the “Remaining Facilities”). For the discussions on refinancing of the Remaining Facilities, the lenders do not expect the refinancing process to last beyond 30 April 2023. This notwithstanding, due to the pandemic and macro-economic situation in China and globally, financial institutions have become more cautious in providing loans to real estate sector in China resulting in additional challenges to the REIT’s refinancing process. The Manager does note the various challenges in refinancing but expects the refinancing of these borrowings to be completed before these borrowings become due for repayment.”
Distribution Payout to Unitholders
The management of EC World REIT declares a distribution payout to its unitholders on a quarterly basis (something I like as well, apart from the REIT reporting its full financial results on a quarterly basis – well, who doesn’t like to receive “pocket money” on a regularly basis?)
For the current period under review (i.e. Q2 FY2022), a distribution payout of 1.387 cents/unit was declared – a 9.5% drop from 1.532 cents/unit declared in the same time period last year (i.e. Q1 FY2022.)
Together with a distribution payout of 1.383 cents/unit declared in the first quarter, the management of EC World REIT have paid out a total of 2.770 cents/unit to its unitholders for the first half of the current financial year (1H FY2022) – a -9.6% decline from the payout of 3.064 cents/unit declared in the same time period last year (i.e. 1H FY2021.) – pretty much in-line with the decline in its distributable income to unitholders (which fell by 9.7% compared to last year.)
If you are a unitholder of the REIT, do take note of the following dates regarding its distribution payout:
Ex-Date: 13 Sep 2022
Record Date: 14 Sep 2022
Payout Date: 28 Sep 2022
Closing Thoughts
To round up, the REIT’s latest set of financial results is very much within my expectation – the loss of Fu Zhuo Industrial (as a result of compulsory expropriation by the Chinese Government) is going to impact its revenue to a certain extent – which is why I’ve raised my concerns about their proposal to divest another 2 properties to its Sponsor to raise the amount (of at least 25% of its outstanding facilities) for repayment by 31 December 2022 (again, you can read the management’s response about this here.)
While it is good to see that the REIT’s portfolio occupancy have improved slightly, and that most of its properties are fully occupied, but I have concerns that a huge bulk of the leases will be expiring in FY2024 – and failure by the REIT to secure the leases at favourable rates will see its revenue (and hence its distributable payout to unitholders) taking a hit.
As a unitholder of the REIT, I will continue to keep a close watch on the REIT’s fundraising, as well as lease renewal very closely, and will provide updates as soon as I have them. In case you’re wondering, I will continue to stay invested in the REIT, but at the same time, I will not be increasing my unitholding (due to concerns I have about its debt refinancing, and lease renewal.)
With that, I have come to the end of my review of EC World REIT’s results for the second quarter, as well as for the first half of the financial year ended 30 June 2022. Do note that all the opinions you’ve read about above are purely mine, which I am sharing for educational purposes only. They do not imply any buy or sell calls for the REIT’s units. As always, please do your own due diligence before you make any investment decisions.
Related Documents
Disclaimer: At the time of writing, I am a unitholder of EC World REIT.
Catch Me "Live" at the REITs Symposium 2024 - the Largest REIT Event in Singapore!
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Many thanks for your support and advance, and I hope to see you at the event! :)
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