EC World REIT (SGX:BWCU) is a e-commerce and port logistics REIT where all of its 6 properties are located in China.
The REIT is caught in all sorts of trouble at the moment. Just a quick recap to get you up to speed:
- Trading of the REIT has been halted at the request of the management since 31 August 2023 (who cited “preserving value” as the reason). This comes after tenants failed to meet their lease obligations, leaving the REIT with cash flow issues and unable to make its interest payments. As at the time of writing, defaulted lease payments have yet to be recouped, as the Sponsor and the subsidiaries are still not able to make any payments;
- As a result of its cashflow problems, the REIT was unable to pay out distributions (amounting to 2.053 cents/unit) declared for 1H FY2023;
- In early Jan 2024, the REIT updated that its Sponsor mortgaged 3 of its properties (in Fuzhou E-commerce, Fu Heng Warehouse, and Hengde Logistics) without its consent. However, Hendge Logistics has since been discharged mortgage. For the other 2 properties, EC World REIT have filed a case with the relevant PRC court to facilitate lawsuits to revoke the mortgages on the basis that they are unauthorised. The case is currently being reviewed and yet to be accepted by the relevant PRC court.
To raise the funds necessary for debt repayment, the REIT is exploring the option of divesting some of its properties (including but not limited to the two originally planned for purchase by its Sponsor but which couldn’t be acquired due to funding constraints) to other buyers.
As the saying goes, ‘when it rains, it pours.’ – I couldn’t find any better phrases to describe the ongoing situation surrounding EC World REIT at the moment. Those who have been following my posts will know that I’ve spent a substantial amount of time to seek out updates, and I’m definitely disappointed in that, despite my best efforts, it has come to this. The only saving grace is I only have a small investment in the REIT (it comprised about 5% in my investment portfolio) – while any losses is painful, but this incident serves as a gentile reminder to all the importance of building a diversified investment portfolio.
For now, I will continue to keep track of any updates – speaking of which, after market hours on Tuesday (27 February 2024), EC World REIT have made available its financial results for the 4th quarter, as well as for the financial year ended 31 December 2023 (i.e., FY2023). In this post, you will find my review of its financial performance, as well as its portfolio occupancy and debt profile:
Financial Performance:
In this section, I will be reviewing the REIT’s financial performance reported for the 4th quarter, and then for the full year:
Q4 FY2022 vs. Q4 FY2023:
| Q4 FY2022 | Q4 FY2023 | % Variance | |
| Gross Revenue (S$’mil) | $28.414m | $25.055m | -11.8% |
| Property Operating Expenses (S$’mil) | $2.448m | $2.396m | -2.1% |
| Net Property Income (S$’mil) | $25.966m | $22.659m | -12.7% |
| Calculated Distribution to Unitholders (S$’mil) | $5.085m | $5.592m | +10.0% |
My Observations: On the whole, it was a weaker set of results reported by the e-commerce and port logistics REIT.
Gross revenue and net property income fell by 11.8% and 12.7% in SGD-terms mainly due to the weakening of the Chinese Renminbi (RMB) against the Singapore Dollar (SGD), lower occupancy rate in Wuhan Meiluote, and early termination of China Tobacco leases in relation to Hengde Logistics Phase I, mitigated partly by organic rental esclations and higher late fee income. In RMB-terms, its gross revenue and net property income were down by 8.0% and 9.0% respectively.
Calculated distribution to unitholders was up by 10.0% mainly due to 10% distributable income for the full year of FY2022 retained in Q4 FY2022, offset by lower revenue and higher financing cost in Q4 FY2023.
FY2022 vs. FY2023:
| FY2022 | FY2023 | % Variance | |
| Gross Revenue (S$’mil) | $121.568m | $107.770m | -11.4% |
| Property Operating Expenses (S$’mil) | $10.612m | $8.569m | -19.3% |
| Net Property Income (S$’mil) | $110.956m | $99.201m | -10.6% |
| Calculated Distribution to Unitholders (S$’mil) | $38.564m | $29.631m | -23.2% |
My Observations: Looking at EC World REIT’s full-year results, it was a weaker one compared to the year before.
Particularly, the 11.4% and 10.6% decline in gross revenue and property operating expenses respectively (in SGD-terms) was mainly caused by the weakening of RMB against the SGD, lower occupancy rate in Wuhan Meiluote, early termination of China Tobacco leases in relation to Hengde Logistic Phase I, cessation of rental income contribution from Fu Zhuo Industrial from 1 April 2022 (which was expropriated by the Chinese Government), mitigated partly by organic rental escalations and higher late income. However, in RMB-terms, its gross revenue and net property income were down by 4.1% and 3.3% respectively.
Calculated distribution to unitholders was down by 23.2% mainly due to lower revenue, higher interest cost, and absence of pay out distribution retained in prior periods.
Portfolio Occupancy (Q3 FY2023 vs. Q4 FY2023)
The following table is EC World REIT’s portfolio occupancy profile for Q4 FY2023 ended 31 December, compared against the reported in the previous quarter 3 months ago (i.e. Q3 FY2023 ended 30 September):
| Q3 FY2023 | Q4 FY2023 | |
| Portfolio Occupancy (%) | 97.4% | 79.9% |
| Portfolio WALE (years) | 1.0 years | 0.8 years |
My Observations: Portfolio occupancy fell further to 79.9%, as a result of a decline in the occupancy rates of Wuhan Meiluote (down from 51.8% in Q3 FY2023 to 44.0% in Q4 FY2023), Hengde Logistics (down from 99.9% in Q3 FY2023 to 31.4% in Q4 FY2023).
The occupancy rates of the other properties remain unchanged – with Fu Heng Warehouse, Fuzhou E-Commerce, Stage 1 Properties of Bei Gang, and Chongxian Port Investment 100.0% occupied, and Chongxian Port Logistics 99.3% occupied.
In the coming year ahead (i.e., FY2024), 81.1% of the leases by net lettable area and 89.9% of the leases by gross rental income will be due for renewal. From my understanding, the REIT has commenced the novation process to take over the underlying leases in relation to the master leases and other related party leases due to long overdue rent receivables from the Sponsor the subsidiaries, and expects to achieve longer WALE post novation process.
Debt Profile (Q3 FY2023 vs. Q4 FY2023)
Similar to how I have reviewed the REIT’s portfolio occupancy in the previous section, I will also be reviewing its debt profile by comparing the statistics reported for the current quarter under review (i.e., Q4 FY2023 ended 31 December 2023) against that reported in the previous quarter (i.e., Q3 FY2023 ended 30 September 2023), as follows:
| Q3 FY2023 | Q4 FY2023 | |
| Aggregate Leverage (%) | 36.9% | 58.3% |
| Average Term to Debt Maturity (years) | 1.20 years | 0.95 years |
| Average Cost of Debt (%) | 6.5% | 6.3% |
My Observations: As a result of a huge 43% decline in the portfolio valuation of EC World REIT (from RMB7,604m as at 31 December 2022 to RMB4,336m as at 31 December 2023) due to myriad of factors, including influx of new warehouse supply, slowdown of global and local economy, and vacancy due to discontinuation of lease with China Tobacco in Hengde Logistics Phase 1 being factored into consideration, aggregate leverage shot up to 58.3%.
On its debt, as at 31 December 2023, the REIT has onshore bank loans of RMB735.2m (which will be due for refinancing on 30 April 2024) and offshore bank loans of SGD344.2m outstanding.
Distribution Payout to Unitholders
Calculated distribution per unit to unitholders for the full year it was at 3.659 cents/unit – however, due to insufficient funds (as the Sponsor and its subsidiaries continue to be unable to pay its overdue rent receivables under the relevant master leases, where they contribute 80% of the revenue of the REIT), payments will be deferred to a future date when it has sufficient free cash for distribution.
CEO Mr Goh Toh Sim’s Comments & Outlook
“For the FY 2023, the revenue in RMB terms was 1.6% lower as compared to FY2022. However, despite the Manager’s continued efforts, there has been no repayment plan provided by the Sponsor Group for the accumulation of the outstanding rent receivables from the master lessees and other related parties to date. Furthermore, attempts to raise cash via the divestment of assets for the past few years were not successful. Hence the cash of ECW has been depleted and there will be no distribution for 2H2023. The ECW Group is faced with enormous challenges to maintain its operations and meet various financing obligations under the existing onshore and offshore facilities. As the current liabilities of the Group and ECW exceeded current assets, the Manager is working with the lenders to explore the possibility of restructuring the existing onshore and offshore facilities (the “Restructuring”), has appointed brokers to divest assets via market sales and has also appointed KPMG as financial adviser to explore viable strategic options for ECW.”
Closing Thoughts
Outlook for the REIT looks extremely bleak – on top of the list of problems which I’ve mentioned in the beginning of the post, the 40+% plunge in portfolio valuation will mean that even if the REIT manage to find sellers for its properties (to raise funds to repay debt), it will be at extremely unfavourable terms. Even if there are ready buyers for its properties, given the current property crisis in the country, I am of the opinion that the buyers may have difficulties in securing financing.
Coupled with more than 80% of the leases due in the coming financial year (i.e., FY2024), and bearing in mind that most of the leases are from the Sponsor and its subsidiaries, I am personally of the opinion that they are unlikely to be renewed and as a result, many of its properties end up with a very low or zero occupancy rate, despite the best efforts by the REIT to do so – and this will significantly impact its revenue.
All things considered, I am of the opinion that the REIT is staring at liquidation, unless things drastically improves in the coming months – particularly the REIT is able to receive rental repayments owed by the Sponsor. Personally, I am already writing off my entire investment in this one.
With that, I have come to the end of my review of EC World REIT’s latest 4th quarter and full year results. For those of you who have investments in the REIT, I hope that it holds just a small percentage in your portfolio, and the damage (should the REIT ends up being liquidated) is not too bitter a pill to swallow.
Related Documents
Disclaimer: At the time of writing, I am a unitholder of EC World REIT.
Are You Worried about Not Having Enough Money for Retirement?
You're not alone. According to the OCBC Financial Wellness Index, only 62% of people in their 20s and 56% of people in their 30s are confident that they will have enough money to retire.
But there is still time to take action. One way to ensure that you have a comfortable retirement is to invest in real estate investment trusts (REITs).
In 'Building Your REIT-irement Portfolio' which I've authored, you will learn everything you need to know to build a successful REIT investment portfolio, including a list of 9 things to look at to determine whether a REIT is worthy of your investment, 1 simple method to help you maximise your returns from your REIT investment, 4 signs of 'red flags' to look out for and what you can do as a shareholder, and more!
You can find out more about the book, and grab your copy (ebook or physical book) here...
Comments (0)