EC World REIT (SGX:BWCU) is a pure-play China REIT, where all the properties in its portfolio are used for e-commerce and port logistics.

Before I begin with today’s post, a brief update on the situation surrounding the divestment of 2 properties to raise the amount needed to repay 25.0% of its borrowings, refinancing of borrowings due on 30 April, and also its conduct of AGM: On the repayment of borrowings, along with debt refinancing, the REIT had posted an update on 01 May that it will be done by 31 May. Further, its Chairman, Mr Zhang Guobiao, have provided personal guarantees in respect of the full outstanding amount of the mandatory repayment (you can read the announcement in full here); on the latter, they have sought an extension of time to conduct its AGM on 27 July, with the request approved by SGX-ST (you can read the announcement in full here.) As a unitholder, I continue to keep a close watch on them and will share material updates as and when they are made available.

In today’s post, I will be sharing my review of the REIT’s latest results for the first quarter of FY2023, which they have published earlier this evening (12 April 2023) – particularly, you’ll read about my review of its latest financial performance, portfolio occupancy and debt profile.

Financial Performance (Q1 FY2022 vs. Q1 FY2023)

The following table is a comparison of EC World REIT’s key financial statistics recorded for Q1 FY2023 ended 31 March 2023, compared against that recorded for the same time period last year (i.e. Q1 FY2022 ended 31 March 2022):

Q1 FY2022Q1 FY2023% Variance
Gross Revenue
(S$’mil)
$32.2m$28.1m-12.5%
Property Operating
Expenses (S$’mil)
$2.4m$2.1m-14.9%
Net Property
Income (S$’mil)
$29.7m$26.1m-12.3%
Distributable Income
to Unitholders
(S$’mil)
$11.2m$9.1m-18.5%

My Observations: Overall, it was a weaker set of results reported by the REIT – with its gross revenue and net property income declined by double-digit percentages in SGD-terms (by 12.5% and 12.3% respectively) mainly due to the absence of rental income from Fu Zhuo Industrial and late fee income, along with a weaker RMB against SGD, offset by rental escalations.

However, in RMB-terms, gross revenue and net property income was down by just 4.3% and 4.1% respectively.

Together with a rise in blended running interest rate by 1.4 percentage points, its distributable income to unitholders fell by 18.5% to S$9.1m (Q1 FY2022: S$11.2m)

Portfolio Occupancy Profile (Q4 FY2022 vs. Q1 FY2023)

Next, let us have a look at the REIT’s portfolio occupancy profile, where I will be comparing the statistics reported for the current quarter under review (i.e. Q1 FY2023 ended 31 March 2023) against that reported in the previous quarter 3 months ago (i.e. Q4 FY2022 ended 31 December 2022) to find out if it has improved or deteriorated:

Q4 FY2022Q1 FY2023
Portfolio Occupancy
(%)
99.2%96.8%
Portfolio WALE (by
Gross Rental Income – years)
1.6 years1.4 years

My Observations: The 2.4 percentage point (pp) decline in portfolio occupancy rate was attributed to a plunge in occupancy rate in Wuhan Meiluote (down from 86.7% in Q4 FY2022 to just 39.2% in Q1 FY2023.)

Apart from that, its other properties are either fully occupied (4 of its properties), or more than 99.0% occupied (the remaining 2 properties.)

As far as lease expiries are concerned, 17.1% of the leases are due for renewal in the remaining 3 quarters of the current financial year 2023, with the remaining 82.5% of the leases expiring in the next financial year 2024.

Debt Profile (Q4 FY2022 vs. Q1 FY2023)

Similar to how I have reviewed the REIT’s portfolio occupancy profile in the previous section, in this section, I will also be reviewing its debt profile by taking the statistics reported for the current quarter under review (i.e. Q1 FY2023 ended 31 March 2023) and compare them against that reported in the previous quarter (i.e. Q4 FY2022 ended 31 March 2023, as follows:

Q4 FY2022Q1 FY2023
Aggregate Leverage
(%)
38.8%35.4%
Average Term to
Debt Maturity (years)
0.44 years0.17 years
Average Cost of
Debt (%)
5.4%5.6%

My Observations: From the REIT’s presentation slides, I understand that negotiations with lenders are still ongoing for the refinancing of outstanding loans, of which comprising the Mandatory Repayment, and April 2023 outstanding loans (which have been extended to 31 May 2023.)

It was also stated that the refinancing of outstanding loans is expected to be completed by 31 May 2023, with new conditions for the settlement of the Mandatory Repayment to be agreed to as part of the Refinancing Exercise.

I await for further updates from the REIT regarding this.

CEO Mr Goh Toh Sim’s Comments & Outlook (from the REIT’s Press Release)

“On quarterly basis, our first quarter performance was underscored by stable income from across all properties and muted borrowing costs. In the short term, cost pressures will remain high under the current interest rate environment before a stablisation of financing conditions.”

Closing Thoughts

Overall, its a disappointing set of results reported by the REIT – while the decline in its financial results was much expected (considering the lack of income contribution from Fu Zhuo Industrial following the completion of its expropriation, and also a weaker RMB vs. SGD), but the huge decline in the occupancy rate of Wuhan Meiluote (where it fell from a high of 86.7% in Q4 FY2022 to a low of 39.2% in Q1 FY203) took me by surprise – with no further explanation provided.

I will follow up with the REIT’s Investors’ Relation to seek further clarification to find out why the huge decline in the occupancy rate of Wuhan Meiluote, along with whether negotiations have begun to renew the 82.5% of the leases which will be expiring next year (i.e. FY2024), and if so, what stage is it in right now.

Finally, in case you’re wondering, there’s no distribution payouts declared for the current quarter under review, as the REIT have switched to paying out distributions on a half-yearly basis in an announcement published on 27 December 2022, which you can read in full here.

With that, I have come to the end of my review of EC World REIT’s latest results for the first quarter. As always, all opinions you’ve read in this post are for educational purposes only, and they do not constitute any buy or sell calls for the REIT’s units. Please do your own due diligence prior to making 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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