EC World REIT (SGX:BWCU) is a China-based REIT, where it invests in income-producing properties that are used for e-commerce, supply-chain management, and logistics purposes.
At the time of writing, its portfolio comprises 7 properties – however, do take note that 2 (in Stage 1 of Bei Gang Logistics, and Chongxian Port Logistics) are going to be divested for the mandatory repayment of 25% of borrowings. For information, this is still underway at the time of writing, and should there be any material updates, I will keep everyone informed in separate posts.
After market hours last Friday (11 August 2023), the REIT have released its results for the 2nd quarter, as well as for the first half of the financial year ended 30 June. In this post, you will find my review of its latest financial figures, portfolio occupancy and debt profile, and its distribution payout to unitholders.
Let’s begin…
Financial Performance (Q2 FY2022 vs. Q2 FY2023, and 1H FY2022 vs. 1H FY2023)
In this section, I will first be reviewing the REIT’s results for the 2nd quarter of the year (compared against its results for the 2nd quarter last year), and also its results for the 1st half of the year (compared against the same time period last year):
Q2 FY2022 vs. Q2 FY2023:
| Q2 FY2022 | Q2 FY2023 | % Variance | |
| Gross Revenue (S$’mil) | $31.2m | $27.6m | -11.5% |
| Property Operating Expenses (S$’mil) | $3.0m | $1.9m | -37.2% |
| Net Property Income (S$’mil) | $28.2m | $25.7m | -8.8% |
| Distributable Income to Unitholders (S$’mil) | $11.2m | $7.5m | -33.3% |
My Observations: Prior to its results release, I was of the expectation that its results would be weaker compared to last year, mainly due to 2 reasons: lack of acquisitions, as well as weaker Chinese Renminbi against the Singapore dollar. Indeed, its latest financial figures was within my expectations.
The slump in its gross revenue and net property income (by 11.5% and 8.8% respectively) was mainly due to the weakening of the Chinese Renminbi against the Singapore Dollar (on RMB terms, however, its gross revenue only fell by 3.4%, while its net property income edged up by 0.7%), lower late fee income, lower other operating income, and mitigated partly by organic rental escalations.
Distributable income to unitholders fell by 33.3% as a result of lower gross revenue, higher finance cost, 10% retention of distributable income in Q2 FY2023 as compared to 100% distribution of distributable income in Q2 FY2022, and absence of pay out distribution previously retained in prior periods.
1H FY2022 vs. 1H FY2023:
| 1H FY2022 | 1H FY2023 | % Variance | |
| Gross Revenue (S$’mil) | $63.3m | $55.7m | -12.0% |
| Property Operating Expenses (S$’mil) | $5.4m | $3.9m | -27.2% |
| Net Property Income (S$’mil) | $57.9m | $51.8m | -10.6% |
| Distributable Income to Unitholders (S$’mil) | $22.4m | $16.6m | -25.9% |
My Observations: For the same reasons, the REIT’s financial performances for the 1st half of FY2023 have also weakened compared to the same time period last year.
In particular, the 12.0% and 10.6% decline in its gross revenue and net property income were due to the weakening of the Chinese Renminbi against the Singapore Dollar (however, in RMB-terms, its gross revenue was down by just 3.9%, while its net property income was down by only 2.4%), lower late fee income, and the cessation of income contribution from Fu Zhou Industrial from 01 April 2022 (following the property being compulsory expropriated by the Chinese government), offset by the impact of organic rental escalations.
Distributable income to unitholders fell by 25.9% to $16.6m due to lower gross revenue, higher interest cost (which went up by 1.9% mainly due to higher interest rate and extension fees incurred, offset by the impact of lower borrowings), 10% retention of the distributable income for 1H FY2023 for general working capital purpose, and absence of pay out distribution previously retained in the prior periods.
Portfolio Occupancy (Q1 FY2023 vs. Q2 FY2023)
Moving on, let us take 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. Q2 FY2023 ended 30 June 2023) against that reported in the previous quarter 3 months ago (i.e., Q1 FY2023 ended 31 March 2023) to find out if they continue to remain resilient:
| Q1 FY2023 | Q2 FY2023 | |
| Portfolio Occupancy (%) | 96.8% | 96.3% |
| Portfolio WALE (by Gross Rental Income – years) | 1.4 years | 1.2 years |
My Observations: EC World REIT’s portfolio occupancy fell slightly as a result of a further slide in occupancy rate in Wuhan Meiluote (down from 39.2% in Q1 FY2023 to 29.2% in Q2 FY2023).
Apart from that, the occupancy rates of all the remaining properties remain the same – where Fu Heng, Fuzhou E-Commerce, Stage 1 Properties of Bei Gang, and Chongxian Port Investment remain fully occupied, Hengde Logistics 99.9% occupied, and Chongxian Port Logistics 99.3% occupied.
In terms of lease expiries, 33.3% of the leases by net lettable area, and 18.6% of the leases by gross rental income will be due for renewal in the 2nd half of FY2023, while the remaining leases (by net lettable area and gross rental income) will be due for renewal in FY2024.
Debt Profile (Q1 FY2023 vs. Q2 FY2023)
Next, let us take a look at its debt profile – particularly, my focus is on their all-in cost of debt (a question about it was asked during its AGM last month, and the CFO replied that ‘the all-in borrowing costs for its offshore and onshore facilities came up to about 6-7%, as a result of the high benchmark rates’ – you can read my summary of it here), and also its average term to debt maturity.
Let us find out in the table below, where I will be comparing the statistics recorded for the current quarter under review (i.e. Q2 FY2023 ended 30 June 2023) against that recorded in the previous quarter (i.e. Q1 FY2023 ended 31 March 2023):
| Q1 FY2023 | Q2 FY2023 | |
| Aggregate Leverage (%) | 35.4% | 36.2% |
| Average Term to Debt Maturity (years) | 0.17 years | 1.45 years |
| Average Cost of Debt (%) | 5.6% | 6.2% |
My Observations: A few things to note here:
(i) its aggregate leverage have climbed by 0.8 percentage points (pp) to 36.2%;
(ii) its interest coverage ratio have fallen to 2.41x – as it is now under 2.5x, its aggregate leverage limit will be at 45.0% instead of 50.0% – however, at 36.2%, it is still a safe distance away.
Distribution Payout to Unitholders (1H FY2022 vs. 1H FY2023)
EC World REIT have switched their distribution payout frequency from once every quarter to once every half-yearly from this year.
Hence, for the first half of FY2023, a distribution payout of 2.053 cents/unit was declared, a 25.9% decline from the total payout of 2.770 cents paid out in the same time period last year (comprising of 1.383 cents/unit declared in the 1st quarter, and 1.387 cents/unit declared in the 2nd quarter).
If you are a unitholder of the REIT, do take note of the following dates regarding its distribution payout:
Ex-Date: 13 September 2023
Record Date: 14 September 2023
Payout Date: 28 September 2023
CEO Goh Toh Sim’s Comments & Outlook (from the REIT’s Press Release)
“On semi-annual basis, the revenue in RMB term remains stable for all properties. However, the increased borrowing costs due to global interest rates hikes and the weakening of RMB against SGD in 1HFY2023 created significant pressures over the distributable income in SGD term. In the short term, cost pressures will remain high under the current interest rate environment and the weakening RMB condition until a more favourable market condition returns.”
Closing Thoughts
In terms of its results on all 4 fronts (its financial performance, portfolio occupancy, debt profile, as well as distribution payout to unitholders), they are all weaker.
On top of that, there are several headwinds that the REIT’s management had to deal with – apart from the compulsory repayment of 25% of its borrowings (and to do so, they will need to divest 2 of its properties to raise the funds required), there are also concerns surrounding the continued decline in occupancy rate of Wuhan Meiluote, and also its debt profile which I like to seek the management’s clarifications on:
- Reasons for the continued decline in occupancy rate of Wuhan Meiluote (down from 39.2% in Q1 FY2023 to 29.2% in Q2 FY2023), and what is the status of the backfilling of vacant spaces at this point in time – are discussions already on going with potential tenants, or is the REIT still in process of looking for suitable tenants?
- Understand from the lease expiry profile that 33.3% of the leases by net lettable area, and 18.6% of the leases by gross rental income will be due in the 2nd half of the current financial year. With that, I would like to seek the REIT’s update on the progress of the renewal.
- The weighted average debt maturity, as at 30 June 2023, was at 1.45 years. However, there was no breakdown on the percentage of borrowings that will be maturing ahead. That said, is it possible to provide a breakdown?
- Still on the debt maturity profile – I would like to ask if it is the ‘industry norm’ that borrowings have such a short debt maturity. If not, why is it so? The reason why I am asking this is because, with the current repayment of 25% of the borrowings still not yet settled, the REIT may be faced with another problem soon in that, the recently renewed borrowings (completed on 06 June 2023) will be expiring in another year or so down the road.
I will follow up with another post when I receive a response.
With that, I have come to the end of my review of EC World REIT’s latest results for the 2nd quarter, as well as for the 1st half of FY2023. Please note that everything you have read about above is purely for educational purposes only, and they do not represent any buy or sell calls for the REIT’s units. You should always do your own due diligence before making any investment decisions.
Related Documents
Disclaimer: At the time of writing, I am a unitholder of EC World REIT.
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