EC World REIT (SGX:BWCU) is a pure-play China-based port logistics and e-commerce REIT, and one in my investment portfolio.

For those who are invested in it, I understand your concerns about events surrounding it – from the compulsory expropriation of Fu Zhuo Industrial by the Chinese Government back in January 2022 (you can read the news report by The Business Times here) and distribution payouts being affected as a result, to issues surrounding the repayment of 25% of its borrowings with the proposed of divestment of 2 assets (in Stage 1 of Bei Gang Port Logistics, and Chongxian Port Logistics – where an EGM was conducted in December 2022 and approval given by unitholders; you can read a summary of the meeting I have posted here.)

I have received messages from fellow readers on my thoughts about the situation surrounding it.

As a unitholder, I have continuously trying to stay updated on the latest developments by the REIT, and posting questions to its investors’ relations to have a clearer understanding of the situation.

For the benefit of fellow unitholders, in this post, you will find the investor relations’ response on 4 areas:

(i) The huge plunge in Wuhan Meiluote’s occupancy rate from 86.7% in Q4 FY2022 to just 39.2% in Q1 FY2023 (I have highlighted this concern when I posted my review about the REIT’s first quarter results, and you can read about it here.)

(ii) With 82.5% of the leases by gross revenue due in FY2024, I wanted to know if negotiations have begun to renew the leases with the tenants.

(iii) Following the successful refinancing of its borrowings by 31 May 2023, I would like to know about the REIT’s latest debt profile following its refinancing – particularly, its gearing level, interest coverage ratio, weighted average debt expiry, and average cost of debt.

(iv) On the divestment of 2 properties to repay 25% of its borrowings, I wanted to know reasons behind the transaction still uncompleted after so long, so much so that the REIT has sought for an extension of the completion date time and again.

Let’s begin:

Question 1: Reasons for the huge plunge in the occupancy rate of Wuhan Meiluote to 39.2% in Q1 FY2023

Response: The occupancy rate at Wuhan Meiluote as at 31 March 2023 as compared to 31 December 2022, was mainly due to the expiry of existing leases. The transitory vacancy as at end of 1QFY2023 was a reflection of the competitive warehousing facilities landscape in Wuhan. At that juncture in the regulatory 1QFY2023 reporting, jointly with the Property Manager, we had been in active discussions to procure new tenants. The Manager will provide an update on its portfolio details in the forthcoming 2Q/1H2023 results, which will be released in August 2023.

Catering mainly for warehousing purposes and dormitory use, Wuhan Meiluote is the smallest asset in our portfolio in respect of leasable area – its NLA of 48,695 sqm (as disclosed in ECW’s 2021 annual report) represents approximately 5% of total portfolio’s NLA of 954, 299 sqm, and therefore correspondingly, the impact of its contributions in terms of gross revenue and NPI to the overall portfolio is not significant.

The Manager continues to adopt an active portfolio management, and regularly evaluate its properties in terms of its tenant constitution, and look out for opportunities for value creation to optimise the net leasable area and enhance portfolio returns.

Question 2: Status of lease renewal (where 82.5% of the leases by gross rental income will expire in FY2024)

Response: Most of the leases expiring in 2024 are Master Lease Agreements.

For these leases, lease renewal discussion with tenants will commence one year prior to the respective lease expiry. Details including lease tenure and expiry of the four master leases can be found in slide 13 of our 1QFY2023 results presentation.

The earliest expiring lease will be in August 2024, and we will commence discussion for procurement of lease renewal and new leases in the due course.

Question 3: Following the Refinancing of its Borrowings, What is the REIT’s Debt Profile

Response: Details of the completion of offshore and onshore facilities, and including the respective maturity dates of both facilities had been announced in the SGXNET announcement dated 31 May 2023.

As these facilities were entered in second quarter 2023 of current financial period, information of ECW’s debt profile will be announced in its 2QFY2023/1H2023 results due for release in August 2023.

Question 4: Reasons Behind the Delay in Completion of Divestment in the 2 Properties to Repay 25% of its Borrowings

Response: As disclosed in the latest update on Proposed Divestment in the 31 May announcement, the Manager understands from the Purchasers and the Sponsor in relation to the acquisition financing for the Proposed Divestment, a group of PRC banks is in the process of approving an acquisition loan package (capped at RMB 1,100 million) for the Proposed Divestment and the Manager understands that the relevant PRC banks are working towards the completion of their internal approval processes albeit the processes are slower than expected and therefore have caused a delay in the completion of the Proposed Divestment.

As the proposed divestment is still on-going, the Manager will provide timely announcements on the SGXNET in the event that there are any material developments which warrant disclosure, in compliance with its obligation under the Listing Manual.

Closing Thoughts

The one bright spot amid a list of concerns, is the REIT have successfully refinanced all of its borrowings by 31 May 2023. I look forward to its results for the second quarter, as well as for the first half of FY2023 to find out more about its latest debt profile.

On the backfilling of vacated space in Wuhan Meiluote, I will continue to keep a close watch in the REIT’s upcoming result releases over the next few quarters ahead (understand that time is needed for the REIT Manager to find tenants.)

Finally, on issues pertaining the completion of divestment of the 2 properties, an EGM will be held to seek unitholders’ approval for the transaction to be completed by 31 October 2023 (in my opinion, the proposal will be passed; the conduct of the EGM is merely for formality) – on that front, I look forward to relevant documents to be made available, and seek clarifications (if any) during the meeting.

With that, I have come to the end of my update on some of the pertinent issues surrounding the REIT, and I hope you’ve found the share today useful (especially for fellow readers who are invested in it.)

Moving forward, I will continue to monitor its latest developments, raise relevant questions, and post material updates accordingly.

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

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