Distressed Singapore-listed REIT in EC World REIT (SGX: BWCU) released its financial results for the 3rd quarter, as well as for the first 9 months of the financial year 2024 ended 30 September earlier this evening (12 November).

For those who are unfamiliar with the REIT, a quick introduction – it is a China-based REIT with 7 properties in its portfolio used for e-commerce, supply-chain management, and logistics purposes. Trading of the REIT remains suspended since 31 August 2023. The same can also be said for its distribution payouts since the 1st half of FY2023 due to insufficient funds.

Some of the recent developments by the REIT are as follows:

1. In August 2024, it was announced that the REIT's Chairman, Mr Zhang Guobiao, will temporarily step down due to 'personal health reasons', with Mr Chan Heng Wing been appointed as the Acting Chairman;
2. In September 2024, the REIT have received approval to extend the time to submit a resumption proposal to the Singapore Exchange by 31 May 2025;
3. In October 2024, it received an update from the Sponsor that a court order has been issued, which allows certain assets belonging to Mr Zhang Guobiao, including a mortgage property tied to EC World REIT's loans, to be seized and sold to cover a debt of about S$15.7 million. As this involves assets linked to the REIT's offshore loans, it triggers a 'default event', meaning it could be in violation of its loan terms, which could lead to a 'cross-default' – where its other loans could be impacted, potentially allowing lenders to demand immediate payment.

For those of you who have been following my updates about the REIT, you should be aware that I'm of the opinion that it is headed towards being liquidated eventually, with unitholders losing the entire sum they have put into investing in the REIT, given the sequence of events that have happened since the REIT ran into cashflow problems and subsequently, suspended the trading of its units. Anything else will be considered as a bonus.

While I have already 'written off' my investment in it, I am still providing updates as best as I can, for the benefit of other unitholders of the REIT. In this post, you will find a review of its latest financial performance, as well as its portfolio occupancy and debt profile.

Key Financial Performances (Q3 FY2023 vs. Q3 FY2024, and 9M FY2023 vs. 9M FY2024)

In this section, you will find a review of the REIT's key financial performances first for the 3rd quarter, and then for the first 9 months of the current financial year compared against the same time periods last year:

Q3 FY2023 vs. Q3 FY2024:

My Observations: The decline in EC World REIT's gross revenue and net property income (by 7.1% and 7.8% to S$25.1 million and S$22.8 million respectively) was due to the discontinuation of China Tobacco leases in relation to Hengde Logistics Phase I, lower rental income from Chongxian Port Logistics, and the expiry of master lease agreement in August 2024 for Fuzhou E-Commerce, offset by higher late fee and organic rental escalations.

As a result of a decline in revenue, and a 22.3% year-on-year jump in finance cost to S$14.4 million, its calculated distribution to unitholders tumbled by 56.2% year on year to S$3.2 million.

9M FY2023 vs. 9M FY2024:

My Observations: As far as the REIT's financial performances for the first 9 months of FY2024 compared a year before is concerned, it's also a weaker one (and its within my expecations).

Particularly, the 7.7% and 8.5% year-on-year decline in its gross revenue and net property income was due to the discontinuation of China Tobacco leases in relation to Hengde Logistics Phase I, lower rental income from Chongxian Port Logistics, and the expiry of master lease agreement in August 2024 for Fuzhou E-Commerce.

Property operating expenses was up by 1.6% year on year to S$6.3 million due to the refund of land use tax in April 2023.

Calculated distribution to unitholders fell by 30.2% year on year to S$16.8 million from a lower revenue, as well as a 7.8% increase in finance cost to S$37.3 million, mainly due to higher interest rate for offshore facilities during the period, as well as additional finance cost incurred for the settlement of short-term advance from an onshore SBLC (Standby Letter of Credit) issuer.

Portfolio Occupancy Profile (Q2 FY2024 vs. Q3 FY2024)

Moving on, let us take a look at EC World REIT's portfolio occupancy profile, where I will be comparing the statistics reported for the current quarter under review (i.e., Q3 FY2024 ended 30 September) against that reported in the previous quarter (i.e., Q2 FY2024 ended 30 June), as follows:

My Observations: Portfolio occupancy improved by 3.9 percentage points to 84.1% an improvement in occupancy rate in Wuhan Meiluote (up from 33.8% in Q2 FY2024 to 46.7% in Q3 FY2024), Hengde Logistics (up from 76.2% in Q2 FY2024 to 89.7% in Q3 FY2024), and Chongxian Port Logistics (from 92.9% in Q2 FY2024 to 95.9% in Q3 FY2024).

However, in terms of lease expiry, 59.0% of the leases by gross rental income will be expiring in the final quarter of FY2024, with another 19.8% of leases by gross rental income due to expire in FY2025. The remaining 21.2% of the leases will be due for expiry in FY2026 or later.

Debt Profile (Q2 FY2024 vs. Q3 FY2024)

Just like how I have reviewed the REIT's portfolio occupancy profile in the previous section, in the table below, you will find a comparison of its debt profile for the current quarter under review (i.e., Q3 FY2024 ended 30 September) against that reported in the previous quarter 3 months ago (i.e., Q2 FY2024 ended 30 June):

My Observations: Aggregate leverage improved slightly (by 1.8pp) compared to the previous quarter to 56.1%.

It was noted that on 30 September 2024, all cash deposits placed as collaterals for SBLC were released for the repayment of revolving credit facilities.

The REIT has updated it has not received any indication from the lenders that they intend to accelerate the existing bank loans under the ECW facilities. Also, it is in active negotiations with the lenders of the offshore facility on a possible refinancing package, and "is optimistic that a favourable outcome would be achieved".

In a separate document published yesterday (11 November), where the REIT responded to SGX's queries (you can read it in full here), I noted that it is confident of being able to divest one or more properties with the appointment of 2 established consultants (in Savills Property Services (Shanghai) Co., Ltd. and Cushman & Wakefield (HK) Ltd) in relation to sourcing potential purchaser(s) of its properties. It has also appointed KPMG Services Pte Ltd to explore various options for the REIT to address its ongoing challenges.

CEO Mr Goh Toh Sim's Comments & Outlook (from the REIT's Press Release)

"On quarterly basis, the revenue in RMB terms was 6.1% lower compared to 3QFY2023. Due to insufficient funds, there was no distribution for the period from 1 July 2023 to 31 December 2023 and 1 January 2024 to 30 June 2024. There will be no distribution for the period from 1 July 2024 to 31 December 2024 as well. The Manager has been in negotiation with the Sponsor for a Master Offset Agreement to resolve the outstanding receivables.

In addition, the Manager continues to endeavour on discharging of unauthorised mortgage imposed over Fuzhou E-Commerce although the case to revoke the mortgage is still pending.

The restructuring of the existing Onshore Facility has been completed while a Pre-enforcement Notice was issued for the offshore facility. At the date of this announcement, the Group has not received any notice of enforcement action. In the meantime, ECW Group continues to face severe challenges to maintain its operation and meet the financing obligations."

Closing Thoughts

No surprises in terms of a continued decline in its financial performance both for the 3rd quarter, as well as for the first 9 months of FY2024, compared to the respective periods a year ago.

While the overall occupancy rate improved to 84.1% as of Q3 FY2024, but I note that 59.0% of the leases by gross rental income will be due for renewal in the final quarter of FY2024.

As far as its debt profile is concerned, I note that the REIT "is optimistic that a favourable outcome would be achieved" for the refinancing package with the lenders of the offshore facility. Also, the REIT expressed its confidence of being able to find potential buyers to divest one or more of its properties – while this will definitely aid with its recovery, but with the divestments, its financial performances will take a further hit.

Another thing to note is that, looking at the current situation in the property sector in the country, even if the REIT manage to find buyers for its properties, it will very likely be at unfavourable prices.

Finally, no distributions will be made to the unitholders for FY2024 due to insufficient funds – something I fully expect, given that there's little progress in its current situation.

With that, I have come to the end of my review of EC World REIT's latest quarterly results. Specially for the unitholders, I hope this have given you a good update of the current situation surrounding it. However, do take note that all the opinions above are purely mine, which I'm sharing for educational purposes only.

Moving forward, I will continue to provide a similar-styled update every quarter for the REIT.

Related Documents

• Press Release
• Financial Statements
• Presentation Slides

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

The post Key Highlights from EC World REIT's Q3 and 9M FY2024 Results first appeared on The Singaporean Investor.