Listed on 28 July 2016, EC World REIT is the first specialised and e-commerce logistics REIT listed on the Singapore Exchange, where it invests in income producing real estate in China used primarily for e-commerce, supply-chain management, and third-party logistics purposes.

As at 31 December 2022, its portfolio comprises 7 properties located within the largest clusters of Hangzhou in the Yangtze River Delta and Wuhan, valued at approximately S$1.47 billion.

Last Saturday (01 July 2023), the REIT have made available its annual report for the financial year ended 31 December 2022 – the reason why it was published so late was because of a delay in the divestment of 2 assets (namely Stage 1 of Bei Gang Logistics and Chongxian Port Logistics) to repay 25.0% of its borrowings, which has yet to be completed till date; an EGM will be conducted at a later date to seek unitholders’ approval for the completion date to be extended to 31 October 2023. Another reason for the delay was due to the refinancing of the outstanding loans (which was successfully completed on 31 May 2023.)

In this post, you will find a summary of the REIT’s annual report, as well as details of its upcoming AGM:

Summary of EC World REIT’s Annual Report

Challenges in 2022:

  • Stringent lockdowns imposed to counter the fast changing Covid-19 pandemic, deteriorating property sector, and weakness in export demand due to global geo-political situations had been the main triggers for the slowdown in economic activities in China.
  • This resulted in the country’s GDP growth softening to just 3% in 2022 (from 8.4% in 2021.)
  • Despite of that, the REIT’s portfolio of mature and diverse logistics assets enabled it to register a steady stream of income.

Financial Performance Highlights:

  • Gross revenue and net property income slid by 3.1% and 1.8% to S$121.6m (FY2021: S$125.5m) and S$111.0m (FY2021: S$113.0m) respectively, due to the discontinuance of contribution from Fu Zhuo Industrial due to its compulsory expropriation (by the China authorities at RMB108.5m, and as at 31 December 2022, the REIT have received 70%, or RMB76m of compensation package from the China authorities, and expect the remaining 30% to be collected in 2023), as well as currency translation effect due to the depreciating Chinese Renminbi against the Singapore Dollar (without this, its net property income in RMB-terms edged up by 0.8%, reflecting the continuous focus by the REIT and Property Managers on cost containment to keep property expenses under control.)
  • Distribution Per Unit fell by 24.0% to 4.762 cents (FY2021: 6.263 cents), mainly due the following reasons:
    • Increase in finance costs
    • Absence of contribution from Fu Zhuo Industrial
    • Pre-terminated compensation to third-party tenants
    • Higher withholding taxes
    • Lower percentage of management fees paid in units (to reduce dilution effect from the issuance of new units to pay for management fees)
    • Higher distributable income retained (representing 10% of total distributable amount) for loan repayment, refinancing related costs, and general working capital purpose

Portfolio Occupancy Profile:

  • Portfolio occupancy remained at a high of 99.2%, with the REIT well-positioned to benefit from the growth of China’s logistics industry in 2023, where the Chinese Government unveiled its ‘Five-Year Plan’ in December 2022 to boost logistics capacity, improve the efficiency of logistics and transportation operations and streamline processes to reduce costs. 3 of the REIT’s e-commerce assets (Fu Heng Warehouse, Stage 1 of Bei Gang Logistics, and Fu Zhou E-commerce) are based in Hangzhou, home of Alibaba, and one of the first 13 cities benefiting from the establishment of China’s comprehensive cross-border e-commerce pilot zones.
  • Weighted average lease to expiry (WALE) by gross rental income was at 1.6 years.
  • With the completion of de-registration of Fu Zhuo Industrial on 30 September 2022, the REIT’s portfolio valuation for its portfolio of 7 properties as at 31 December 2022 was 2.2% lower at RMB7,604m (31 December 2021: RMB7,775m) on a like-for-like basis mainly due to effects of the Covid-19 pandemic.
  • Tenant profile of EC World REIT’s properties:
    • Fu Heng Warehouse: Master-leased to Hangzhou Fuyang Yunton E-Commerce Co., Ltd. (an e-commerce logistics operator under the brand-name of “Ruyicang” 如意仓 that services reputable e-commerce platforms inter-alia, Taobao of Alibaba and
    • Stage 1 of Bei Gang Logistics: Master-leased to Forchn Holdings Group Co., Ltd.
    • -> Fuzhou E-commerce: Warehouse component is master-leased to Hangzhou Fuyang Yunton E-commerce Co., Ltd, and the office component is master-leased to Zhejiang Yuntong E-commerce Co., Ltd.
    • Chongxian Port Investment: Master leased to Hangzhou Fu Gang Supply Chain Co., Ltd. (a port operator controlling more than 60% of the market share in steel product imports in the Hangzhou region)
    • Chongxian Port Logistics: A multi-tenanted properties with 4 tenants (and key tenant being Hangzhou Fu Gang Supply Chain Co., Ltd) who have close business relationships with Chongxian Port Investment
    • Hengde Logistics: Leased to state-owned enterprise e (China Tobacco Zhejiang Industrial Co. Ltd) for storage of a significant portion of tobacco leaves in Zhejiang province; the property is specially customised to cater to the special requirements of tobacco storage and other humidity and temperature sensitive products and perishable goods – this translates to inherent stickiness from incumbent tenant
    • Wuhan Meiluote: A multi-tenanted property with 9 tenants, with key tenant being Midea Group Wuhan Refrigeration Equipment Co., Ltd.
  • As at 31 December 2022, there were a total of 15 different tenants across the portfolio, and the contribution by the top 10 tenants is as follows, with the top 3 tenants contributing 80.8% towards the REIT’s overall revenue:
    • Hangzhou Fu Gang Supply Chain Co., Ltd. – 36.9%
    • Forchn Holdings Group Co., Ltd. – 22.3%
    • Hangzhou Fuyang Yunton E-commerce Co., Ltd. – 21.6%
    • Zhejiang China Tobacco Industrial Co., Ltd. – 9.9%
    • Zhejiang Yuntong E-commerce Co., Ltd. – 4.4%
    • Midea Group Wuhan Refrigeration Equipment Co., Ltd. – 0.6%
    • Wuhan Chuxunfei Logistics Co., Ltd. – 0.4%
    • Hubei Jingbangda Supply Chain Techonology – 0.3%
    • Guangdong Zhong Mao Logistics Co., Ltd. – 0.3%
    • Hangzhou Hua Xian Metal Processing Co., Ltd. – 0.2%

Debt Profile:

  • REIT’s cashflow was well supported by income from master leases and multi-tenanted leases from its diverse businesses across e-commerce logistics, specialised logistics, and port logistics.
  • Aggregate leverage ratio of 38.8% as at 31 December 2022 was well below the regulatory gearing limit.
  • Refinancing of onshore and offshore syndicated facilities has been completed by 31 May 2023, with the blended running interest rate of the aggregate of all existing facilities at 4.9% for FY2022, higher than the previous year’s 4.1%, resulting from the increase in financing costs during the year.
  • As at 31 December 2022, 45% of its offshore facilities were hedged using floating to fixed interest rate swaps and cross currency swaps.

Proposed Divestment:

  • Due to the current macro-economic and real estate market conditions in China, the lenders of the existing bank loans of the REIT have called on it to repay at least 25% of the existing bank loans by 31 December 2022.
  • To raise funds for the repayment, the REIT have proposed the divestment of Stage 1 of Bei Gang Logistics, and Chongxian Port Logistics at a total sales and purchase consideration of RMB13.7m.
  • In consideration of the mandatory repayment requirement, the Sponsor have decided to support the REIT to overcome the challenges, as well as to provide undertakings to the lenders of the REIT to ensure the repayment of the mandatory repayment amount by acquiring the properties.

Sustainability Efforts:

  • EC World REIT have adopted the best corporate practices in its sustainability reporting for FY2022, including the inaugural referencing of the Task Force on Climate-related Financial Disclosures (or TCFD for short) recommendations framework.
  • During the year, several key environmental initiatives were completed at its properties including the installation of more LED light bulbs and feasibility studies on solar panel installation. This is on top of a qualitative assessment of climate-related transition and physical risks for all of its properties done.

Looking Ahead:

  • Despite the improving economic conditions in China, there remains concerns over the continued strength of recovery, effectiveness of policy support to revitalise the currently heavily stressed real estate sector, and the slowing global growth as rising interest rates and geopolitical tensions continue to weigh on economic activities.

Details of EC World REIT’s Annual General Meeting

The following are details of EC World REIT’s upcoming annual general meeting (AGM):

When? Monday, 24 July 2023
Time? 10.00am
Where? Cassia Junior Ballroom 3211-2, Level 3, Marina Bay Sands Expo and Convention Centre

I will be attending the meeting in-person as a unitholder, and raise the following 3 questions to the management:

Question 1: I note that Chongxian Port Logistics, one of the properties the REIT will be divesting to raise funds for the compulsory repayment, has one of the tenants in Hangzhou Fu Gang Supply Chain Co., Ltd., which happens to be the top revenue contributor to the REIT at 36.9%., and Stage 1 of Bei Gang Logistics being master leased to Forchn Holdings Group Co., Ltd., which is the REIT’s second largest contributor at 22.3%.

Following the completion of divestment of the 2 properties, the REIT’s financial results will be very badly hit – by close to 60% (from the loss of contribution from the 2 top tenants), which is a huge gap for the REIT to cover.

That said, may I know of the REIT’s next course of action to cover this gap. If nothing is done, unitholders will get the short end of the stick once again for all the support they have provided to the REIT’s management in approving the proposed divestment to help the REIT to tide through the tough period.

Question 2: I was expecting the REIT to provide some material updates on the proposed divestment in its annual report but it wasn’t provided, apart from some basic information which we already know.

I understand the REIT will need to hold an EGM to seek unitholders’ approval for the proposed divestment to be held by 31 October 2023. But till date, there are no updates on this. Can the management provide an update? I think the last thing unitholders want to see at this point in time is another ‘last minute’ approval, and possibly further delay to the completion of the divestment.

Question 3: My final question is on the special distribution following the completion of the proposed divestment. With the completion being delayed, will the special distribution payout be negatively impacted?

For the benefit of those who aren’t able to attend, I will provide a summary of the meeting, along with the management’s responses on the above 3 questions I am going to raise, in due course.

Related Documents

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

Launch Event for My First Book: building your REIT-irement portfolio

building your REIT-irement portfolio by Lim Jun Yuan - Official Book Launch on 26 September 2023

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