EC World REIT (SGX: BWCU) has a financial year ended 31 December 2023, and supposed to hold its AGM (Annual General Meeting) by end-April 2024.

However, just like in the previous financial year, they have once again sought an extension to how its AGM, due to delays in the divestments in the 2 assets (in Stage 1 of Bei Gang Logistics, and Chongxian Port Logistics). Trading for the China-based REIT continues to remain suspended.

Last Friday (12 July), EC World REIT have published its annual report, and you will find key highlights about it in this post, along with questions I have submitted to the management for their response, and details of its upcoming AGM.

Let’s begin:

Brief Introduction to EC World REIT

For the uninitiated, when EC World REIT was listed on the Singapore Exchange in July 2016, it was the first specialised and e-commerce REIT.

The REIT invests in properties in China used primarily for e-commerce, supply-chain management, and 3rd party logistics purposes, as well as real estate assets.

Currently, its portfolio comprises of 7 properties located within the largest e-commerce sectors of Hangzhou in the Yangtze Ricer Delta and Wuhan.

Summary of EC World REIT’s Annual Report

Massive Challenges faced by the REIT:

  • Proposed divestment of Stage 1 of Bei Gang Logistics, and Chongxian Port Logistics failed to materialise as the Sponsor was unable to secure the necessary funding by the long-stop date of 31 October 2023.
  • Sponsor’s inability to pay outstanding rent (currently, the REIT and its subsidiaries are owed more than RMB289.1 million, or S$53.7 million in overdue rent receivables by their Sponsor group) have also resulted in substantial rent arrears, which directly impacted EC World REIT’s cash flow. The long-term arrears from the master leases have necessitated the novation process (which as been completed on 30 June, and the REIT has taken over the master leases and other related party leases) as part of the remedial measure to address the rental arrears (this, along with deteriorating make conditions in China, resulted in a 43% decline in the REIT’s property valuations).
  • As a result of an oversupply of logistics space in major cities like Hangzhou and Wuhan (where EC World REIT’s properties are located), a broader economic slowdown, together with the discontinuation of significant leases (such as with China Tobacco at Hengde Logistics Phase 1) contributed to EC World REIT having a portfolio occupancy of just 79.9% as of the end of 2023.
  • Despite active marketing strategies to counter these trends, EC World REIT’s properties have struggled to attract and retain tenants, adversely affecting its rental income and overall financial health.
  • Aggregate leverage ratio, as of 31 December 2023, was at 57.9%, as a result of a significant drop in portfolio valuations, and financial difficulties the REIT is facing at this juncture.

Navigating Through the Challenges:

  • The REIT have formulated new leasing strategies to improve occupancy rates and lease terms, which helped to improve its occupancy rate to 80.2% as of 30 June 2024.
  • The management is also actively seeking to divest one or more of its properties to 3rd parties through open market sales – where they have appointed Savills Property Services (Shanghai) Co Ltd, and Cushman & Wakefield (Hong Kong) Ltd as the REIT’s advisors to seek potential buyers.
  • To address the REIT’s financial and operational difficulties, it has also appointed the services of KPMG Services Pte Ltd as the financial adviser to explore various strategic options available to EC World REIT – including the restructuring of its existing facilities, negotiating with lenders, and identifying opportunities for divestment.

Sustainability Progresses:

  • In 2023, EC World REIT’s properties completed several environmental initiatives, including the installation of more LED bulbs and conducting feasibility studies for installing solar panels.
  • The REIT has also conducted qualitative assessments of climate-related transition and physical risks for all its properties.

Portfolio Occupancy Update:

  • A total of 15 new leases has been secured for Hengde Logistics Phase 1, which took up 65.2% of the occupancy rate. Tenants are from the medical logistics sector which is aligned with the marketing strategy to create a medical logistics hub in the property), with one of the tenants being ATM Cloud (which specialises in medical logistics) taking up 34.5% of the leased area.
  • In terms of rental escalation in the tenants’ contracts in the REIT’s properties, it is as follows: For Fu Heng Warehouse, Fuzhou E-commerce and Hengde Logistics, leases come with a rent escalation of 5%; for Stage 1 of Bei Gang Logistics, it has a rental escalation of 1.0%; for Wuhan Meiluote, Chongxian Port Investment, and Chongxian Port Logistics, the current leases have no escalation.
  • Comparing the occupancy rates of its properties between 31 December 2023 and 30 June 2024, Hengde Logistics saw its occupancy rate improving from 31.4% to 76.2%, and Stage 1 of Bei Gang Logistics remaining fully occupied. The other properties (in Chong Xian Port Investment, Fu Heng Warehouse, Wuhan Meiluote, Fuzhou E-commerce, and Chongxian Port Logistics) saw their portfolio occupancy rates recording a decline, with Wuhan Meiluote’s occupancy dipped the most (from 44.0% to just 33.8%, as a result of an influx of new warehouse supply and global and local economic slowdown in Wuhan).

Looking Ahead:

  • Economic outlook for China’s real estate sector remains challenging.
  • Despite potential in China’s e-commerce market, its growth rate may slow, and the market environment is expected to become more complex and volatile.
  • The REIT management’s goal is to make steady progress in the coming year, gradually adopting to the economic rebound and returning to normalcy, ultimately providing sustainable value to all stakeholders.
  • In light of the financial challenges present and ahead, it is highly likely that no distribution for the financial year 2024 will be declared too.

Details of EC World REIT’s Upcoming AGM

When? Monday, 29 July 2024
Where? Begonia Junior Ballroom 3011-2 & 3111-3 Level 3, Marina Bay Sands Expo and Convention Centre, 10 Bayfront Avenue Singapore 018956
Time? 10.00am

If your units of the REIT are held in your CDP account, no pre-registration is required. However, if your units are held in a custodian account, then you will need to get in touch with your brokerage to appoint you as a proxy to attend the meeting.

The upcoming AGM will be held in a wholly physical format, with no options available for unitholders to attend virtually.

In relation to the coming AGM, I have submitted the following questions to seek clarification from the management:

[Update on 28 July 2024: The management of EC World REIT have responded to all 4 questions posed, and you can find them underneath each of the question below. You can find out all the substantial and relevant question submitted by unitholders, along with the REIT management’s reply here.]

Question 1: On page 9 of the annual report, it is stated, “Our goal is to make steady progress in the coming year, gradually adapting to the economic rebound and returning to normalcy, ultimately providing sustainable value to all stakeholders.” Could the management provide further details on this, specifically regarding the key goals set for completion by the end of the financial year on 31 December 2024?

[Response: The management’s key goals for the financial year ending 31 December 2024 (“FY2024”) include (i) completing the novation process to take over underlying leases from the master leases and other related party leases (“Underlying Leases Novation”); and (ii) stabilising the revenue of ECW.

As stated in the Management Review section of the FY2023 Annual Report, the Underlying Leases Novation has been completed on 30 June 2024. The overall committed occupancy stood at 80.2% as of 30 June 2024. The Manager will also continue to undertake the following steps to stabilise the revenue of ECW:


(a) implement proactive leasing strategies to secure stable rental income and improve occupancy rates across the portfolio of ECW;


(b) explore favourable opportunities to divest nonperforming assets of the ECW group, with Savills Property Services (Shanghai) Co., Ltd. and Cushman & Wakefield (HK) Ltd. as its consultants in relation to the sourcing of potential purchaser(s) of the properties (appointed on 12 January 2024); and


(c) explore various strategic options to address ongoing challenges of ECW, with the support of KPMG Services Pte. Ltd. as its financial adviser (“Financial Adviser”) (appointed on 15 February 2024).]

Question 2: On page 13 of the annual report, it is stated that the novation process, which involves taking over underlying leases from the master leases and other related party leases due to long overdue rent receivables, was completed on 30 June 2024. What are the subsequent actions planned by the REIT’s management following this completion, and are there any specific timeframes established for these actions?

[Response: The Manager had appointed independent consultants to evaluate the market rental of the assets being leased under the master leases for the purpose of formulating a new leasing strategy for these assets.

As mentioned in the Management Review section the FY2023 Annual Report, the Manager will continue to improve the lease performance and stabilise rental income of ECW’s assets through:

(a) proactive leasing strategies to secure new tenants and retaining existing ones by engaging with existing and prospective tenants well in advance of lease expiry. As a result of proactive leasing strategy, the Manager successfully secured 15 new leases for Hengde Logistics Phase 1, bringing the occupancy rate of the asset (both Hengde Logistics Phase 1 and 2) from 31.4% to 76.2% as at 30 June 2024.

(b) diversifying the tenants across the portfolio so as to reduce dependency on a few key tenants and to enhance the stability of rental income.

These are part of the ongoing efforts by the Manager to adapt to the current market conditions and improve ECW’s portfolio health and sustainability which will be pursued continuously.]

Question 3: As a unitholder, I am happy to note that the REIT management has secured 15 new tenants for Hengde Logistics Phase 1. Could the management share the rental reversion of these leases?

[Response: A negative rental reversion of 30.4% has been recorded for Hengde Logistics Phase 1 after committing approximately 106,361 sqm of warehouse space for the asset.]

Question 4: Given that distributions for unitholders have been suspended since FY2023 due to cash flow issues (which is quite disappointing, especially since it was stated during the AGM for FY2022 that unitholders should receive distributions for 1H FY2023), can the REIT’s management clarify whether the remuneration for the entire management and board of directors remains the same as in previous years, or if there has been a voluntary pay cut or suspension to align with unitholders? If not, could the management explain why this is the case?

[Response: ECW is externally managed by the Manager and accordingly has no personnel of its own. The management fees payable to the Manager under ECW’s trust deed for managing ECW are structured to align the interests of the Manager and the Unitholders with the base and performance management fee structure based on distributable income and distribution per Unit (“DPU”) growth, respectively. Hence, the Manager will receive less fees in the event there is a decline in the distributable income and DPU growth of ECW.

As a result, the remuneration of the CEO for FY2023 had been reduced to the band of S$250,000 to S$500,000 (as compared to FY2022 where the remuneration of the CEO was in the band of S$500,000 to S$750,000). The details of the FY2023 remuneration of management and the Board are disclosed at pages 52 and 53 of the FY2023 Annual Report.

Please note that:

(i) although the Directors are entitled to directors’ fees (see page 52 of the FY2023 Annual Report for details on the directors’ fees), the directors’ fees in respect of the period from 1 July 2023 to 30 June 2024 have not been paid out yet;

(ii) based on ECW’s financial performance In FY2023, no bonus will be paid to the management team in respect of FY2023.

For the avoidance of doubt, the remuneration of all Directors and employees of the Manager are paid by the Manager and not by ECW. The Manager adopts the principle that remuneration should be appropriately structured to attract, retain and motivate qualified talent and key management personnel to provide good stewardship of ECW and to successfully manage ECW for the long term. The current management team has been stable and to ensure continuity of business and operations of ECW, it is important that the Manager continues to retain its team of competent and committed staff given the current very challenging situation.]

Closing Thoughts

The China-based REIT continues to be faced with massive headwinds related to the inability to divest the 2 properties to repay borrowings. This is on top of the Sponsor’s inability to pay outstanding rent, which led to the REIT running into cash flow problems. Additionally, the oversupply of logistics properties in cities which EC World REIT has properties made matters worse, as they faced with difficulties to find new tenants to occupy the vacant property spaces.

In my opinion, for things to change, the overall situation in China have to improve – and its something I do not foresee to happen over the next 1-2 years, especially with the country currently engaged in a geopolitical tension between the United States and Europe, which, in my opinion, could impact its economic growth, as well as investors’ confidence.

And personally, as far as the REIT is concerned, I still maintain my opinion that it is heading towards liquidation, and my entire investment in it being written off. Any thing else I will consider as a ‘bonus’.

With that, I have come to the end of my summary of EC World REIT’s latest annual report, as well as my honest thoughts about it.

Related Documents

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

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