EC World REIT (SGX:BWCU) is the only company in my long-term investment portfolio (you can check out a list of all the Singapore-listed companies I have investments in here) that have all of its properties located outside of Singapore.
For those who are not familiar, EC World REIT is a China-based e-commerce and port logistics REIT where, at the time of writing, it has 8 properties in its portfolio – however, do take note that 2 of its properties (in Stage 1 of Bei Gang Logistics, along with Chongxian Port Logistics) are pending divestment to raise funds to repay 25.0% of the borrowings – the transaction is targeted to be completed by the end of this month (i.e. 28 February 2023.) You can read the update in full (published by the REIT on 30 January 2023 here.)
Yesterday evening (23 February 2023), the REIT have released its results for the fourth quarter, as well as for the full-year ended 31 December 2022 (i.e. FY2022.) In this post, let us take a look at some of the REIT’s latest financial results, portfolio occupancy, debt profile, along with its distribution payouts to unitholders.
Let’s begin:
Financial Performance (Q4 FY2021 vs. Q4 FY2022, and FY2021 vs. FY2022)
In this section, you’ll find the REIT’s financial performance first on a quarter-on-quarter (q-o-q) basis (i.e. Q4 FY2021 vs. Q4 FY2022), followed by its performance on a year-on-year (y-o-y) basis (i.e. FY2021 vs. FY2022):
Q4 FY2021 vs. Q4 FY2022:
| Q4 FY2021 | Q4 FY2022 | % Variance | |
| Gross Revenue (S$’mil) | $31.9m | $28.4m | -11.0% |
| Property Operating Expenses (S$’mil) | $3.1m | $2.4m | -21.8% |
| Net Property Income (S$’mil) | $28.8m | $26.0m | -9.9% |
| Distributable Income to Unitholders (S$’mil) | $12.4m | $5.1m | -59.1% |
My Observations: Weakness in the REIT’s latest set of results was largely expected, considering the lack of income of Fu Zhou Industrial following its compulsory expropriation by the Chinese Government, along with weakness in the Chinese Renminbi against the Singapore Dollar – this led to its gross revenue falling by 11.0%. However, in RMB-terms, its gross revenue would just have been down by 2.0%.
A lower gross revenue, along with a 10.2% increase in finance costs due to higher interest rates, 10% retention of distributable income for FY2022 retained in Q4 FY2022, and higher withholding tax paid for the repatriation of funds along with higher interest cost, saw its distributable income taking a huge 59.1% tumble.
FY2021 vs. FY2022:
| FY2021 | FY2022 | % Variance | |
| Gross Revenue (S$’mil) | $125.5m | $121.6m | -3.1% |
| Property Operating Expenses (S$’mil) | $12.5m | $10.6m | -14.9% |
| Net Property Income (S$’mil) | $113.0m | $111.0m | -1.8% |
| Distributable Income to Unitholders (S$’mil) | $50.6m | $38.6m | -23.8% |
My Observations: On a full-year basis, EC World REIT’s financial performance have also weakened compared to the previous year (again, this was expected), as a result of a weaker Chinese Renminbi against the Singapore Dollar, and also the loss of revenue contribution from Fu Zhuo Industrial following the property being expropriated. However, on RMB-terms, its gross revenue and net property income have fallen by just 1.7% and 0.4% respectively.
Finally, distributable income to unitholders fell by 23.8% as a result of the following:
- a weaker net property income;
- higher finance costs (of 5.2% compared to last year due to higher interest rates);
- higher retention of distributable income for loan repayment, refinancing related costs, and general working capital purpose;
- provision for Pre-Termination Compensation made to the third-party tenant at Fu Zhuo Industrial as a result of compulsory expropriation;
- payment of 100% of Management Fees in the form of cash as compared to 50.0% in the form of units for the first 3 quarters of FY2021;
- higher withholding tax paid for the repatriation of funds and higher interest cost.
Portfolio Occupancy Profile (Q3 FY2022 vs. Q4 FY2022)
Moving on, let us take a look at the REIT’s portfolio occupancy profile recorded for the current quarter under review (i.e. Q4 FY2022 ended 31 December 2022), compared against that recorded in the previous quarter 3 months ago (i.e. Q3 FY2022 ended 30 September 2022) to find out whether it has continued to remain resilient:
| Q3 FY2022 | Q4 FY2022 | |
| Portfolio Occupancy (%) | 98.8% | 99.2% |
| Portfolio WALE (by Gross Rental Income – years) | 1.8 years | 1.6 years |
My Observations: The only bright spot in the REIT’s results was in its portfolio occupancy – where its overall occupancy rate have improved to 99.2%, driven by an improvement in performance in the occupancy rate of Wuhan Meiluote (up from 77.4% in Q3 FY2022 to 86.7% in Q4 FY2022). However, the occupancy rate of Chongxian Port Logistics (which is going to be divested) dipped from 99.5% in Q3 FY2022 to 99.3% in Q4 FY2022. The REIT’s portfolio occupancy for the remaining properties remains fully occupied.
However, 41.9% of its leases (by gross rental income) will be expiring in FY2023, and the remaining 57.6% of the leases will be expiring in FY2024 – which is a big concern, because if the leases are renewed at unfavourable terms, or worse, if they are not being renewed at all, it will put a huge dent on the REIT’s financial performance.
Debt Profile (Q3 FY2022 vs. Q4 FY2022)
Next, let us take a look at its debt profile – just like how I have reviewed the REIT’s portfolio occupancy profile in the previous section, I will also be comparing the stats reported for the current quarter under review, against that reported 3 months ago (i.e. Q3 FY2022 vs. Q4 FY2022):
| Q3 FY2022 | Q4 FY2022 | |
| Aggregate Leverage (%) | 39.3% | 38.8% |
| Average Term to Debt Maturity (years) | 0.70 years | 0.44 years |
| Average Cost of Debt (%) | 4.8% | 5.4% |
My Observations: I note the following from the REIT’s press release regarding the mandatory repayment of the 25.0% of the borrowings by 28 February 2023, along with the refinancing of the remaining loans (which is also due for refinancing real soon):
“The Manager is in the process of working with the Sponsor and existing lenders to repay the remaining Mandatory Repayment amount as well as to refinance the balance onshore and offshore facilities, and expects these borrowings to be repaid and/or refinanced before they become due for repayment.”
I await for further updates on these 2 fronts.
Distribution Payout to Unitholders
For Q4 FY2022, the management of EC World REIT have declared a distribution payout of 0.628 cents/unit – compared to its payout of 1.537 cents/unit, this represents a huge 59.1% decline.
Together with the REIT’s distribution payout of 1.383 cents/unit in the first quarter, 1.387 cents/unit in the second quarter, 1.364 cents/unit in the third quarter, its distribution payout for the full year amounts to 4.762 cents/unit. Again, compared to the previous year’s payout of 6.263 cents/unit, it is a 24.0% drop.
If you are a unitholder of the REIT, do take note of the following dates regarding its distribution payout:
Ex-Date: 14 March 2023
Record Date: 15 March 2023
Payout Date: 29 March 2023
Moving forward, to take note that the REIT have announced on 27 December 2022 that they will be switching the frequency payout from once every quarter to once every half-yearly from FY2023. However, the REIT will continue to report its full financial results on a quarterly basis, despite not mandated to do so. You can check out the announcement in full here.
Closing Thoughts
A disappointing set of results to be honest, but not unexpected – given the weakness in the Chinese Renminbi against the Singapore Dollar, and also the lack of income contribution from Fu Zhuo Industrial (which was expropriated.)
Moving forward, with another 2 properties that the REIT is going to divest (in Stage 1 of Bei Gang Logistics, and Chongxian Port Logistics), its financial performance is going to be hit further, and so too will its distribution payouts to unitholders. Speaking of which, its huge decline in distribution payout for the fourth quarter was another bummer.
However, the biggest concern in the near-term is the repayment of 25.0% of its borrowings by 28 February, along with whether or not it manage to refinance the remainder of its borrowings – given the current high interest rate environment, it’ll be very likely that borrowing costs will spike, and as a result, distribution payout will take a further hit.
I will continue to keep a close watch on its debt repayment and refinancing, and raise questions to the management at appropriate timings.
With that, I have come to the end of my review of EC World REIT. As always, I do hope you’ve found the contents presented within useful. Also, do note that this post does 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.
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Disclaimer: At the time of writing, I am a unitholder of EC World REIT.
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