EC World REIT (SGX:BWCU), a China-based e-commerce and port logistics REIT where it currently has 7 properties in its portfolio – but do take note that 2 of the properties are pending divestment to fund the repayment of 25.0% of its borrowings.

After studying its Q2 and 1H FY2023 results on 11 August 2023 (you can read my full review of its results here), I have sought the management’s response on 4 things: 2 of them related to its portfolio occupancy profile, and another 2 related to its debt profile.

In this post, you will find responses provided by the management on them, which I am sharing specially for unitholders of the REIT who may have the exact same questions.

Here goes:

Question #1: May I know the 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?

Response: Overall, the logistics assets market in Wuhan has become more competitive as more industrial warehouses have been built or are currently under construction within the same area in recent years. An anchor tenant has moved out to their own newly constructed warehouses while a few smaller tenants moved to other warehouses in the same district. ECW is trying to find suitable tenants to fill the vacancy at their best endeavour.

Question #2: 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.

Response: We are still in the process of lease renewal discussion with tenants and will update the market on timely basis when there is any material development.

Question #3: 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?

Response: Please refer to 1H2023 Results released on 11 August 2023, Note 11 – Borrowings (page 25 for details and breakdown.

** The following additions are mine: As at 30 June 2023, the REIT has a total borrowings of $537.3m. Of which, 81.7% (or S$439.0m) of its borrowings will be due for refinancing within the next 1 year, 17.6% (or S$94.4m) of its borrowings will be due for refinancing after the next 1 year but within 3 years, and the remaining 0.7% (or S$3.9m) of its borrowings will be due 3 years or later.

Question #4: Still on the debt maturity profile – may I 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.

Response: Kindly refer to our announcement dated 31 May 2023 regarding update on refinancing. The new offshore loan’s tenure is 11 months ending on 30 Apr 2024, to be extended for further period of 24 months to 30 Apr 2026, subject to registration with NDRC, the Lenders’ consent and certain conditions.

Closing Thoughts

On the occupancy status of Wuhan Meiluote, I understand from my previous correspondence with the REIT’s investors’ relation that the property only contributed approximately 5% of its total portfolio net lettable area, and that the impact to its financial performance is minimal.

I’m more concerned about the debt maturity front – where I note that more than 80% of its borrowings will be due for refinancing within the next one year, even though I understand that it will be extended by another 24 months to 30 April 2026 subject to approval and certain conditions – I will be monitoring this one very closely, and will raise seek further clarifications on it at a suitable timing.

Another thing I’m casting a watchful eye on is the completion of the divestment of the 2 properties to repay 25.0% of its borrowings, and I will provide updates whenever there are material developments on this front.

With that, I have come to the end of my sharing today, which I hope unitholders of EC World REIT will find useful.

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

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