EC World REIT: Financial Analysis with Net Profit Decline

Business Description

EC World REIT is a real estate investment trust listed on the Singapore Exchange (SGX-ST) since 28 July 2016. It is the first Chinese specialized logistics and e-commerce logistics REIT, offering investors unique exposure to the logistics and e-commerce sectors in Hangzhou and Wuhan, People’s Republic of China (PRC). The REIT’s portfolio comprises seven quality properties located predominantly in one of the largest e-commerce clusters in the Yangtze River Delta.

Industry Position

EC World REIT operates within the logistics and e-commerce real estate sector in China. Key competitors include other logistics REITs and e-commerce warehousing providers. The REIT has a strategic market position in Hangzhou and Wuhan, benefiting from the region’s significant e-commerce activities. However, it faces competition from both local and international players.

Revenue Streams and Customer Base

The company’s revenue streams primarily include rental income from logistics and e-commerce properties. The customer base includes major e-commerce and logistics companies operating in China. The REIT’s competitive advantage lies in its strategic locations and specialized property portfolio catering to high-demand sectors.

Financial Statement Analysis

Income Statement

For the third quarter of FY2024, EC World REIT reported a gross revenue of S\$25.081 million, a 7.1% decline year-on-year from S\$27.001 million in 3QFY2023. Net Property Income (NPI) also decreased by 7.8% year-on-year to S\$22.807 million. The calculated distribution to unitholders saw a significant drop of 56.2% year-on-year to S\$3.249 million, resulting in a calculated DPU of 0.401 cents.

Balance Sheet

As of 30 September 2024, EC World REIT’s aggregate leverage stood at 56.1%, breaching the financial covenant of no more than 40% leverage required by their offshore facility agreement. Current liabilities exceeded current assets by S\$556.5 million for the Group and S\$112.3 million for ECW. This highlights potential liquidity issues and financial stress.

Cash Flow Statement

The company’s finance costs increased by 22.3% year-on-year to S\$14.4 million, primarily due to higher interest rates for offshore facilities and additional finance costs for short-term advances. The blended all-in running interest rate was 9.5% for the quarter and 7.9% for the nine months ended 30 September 2024.

Key Findings

• Date of Report: 12 November 2024
• Financial Year: Q3 FY2024
• No dividend distribution for the periods from 1 July 2023 to 31 December 2023, 1 January 2024 to 30 June 2024, and 1 July 2024 to 31 December 2024 due to insufficient funds.
• Ongoing challenges with overdue rent receivables amounting to RMB591.3 million (S\$108.0 million).
• Legal and financial risks associated with unauthorized mortgage over Fuzhou E-Commerce.
• Occupancy rate improvements in certain properties, but overall financial stress persists.

Special Activities

The Manager is negotiating a Master Offset Agreement to resolve outstanding receivables and is exploring the divestment of the underlying subsidiary to recover compensation from Fu Zhuo Industrial. The restructuring of the existing Onshore Facility has been completed, deferring interest and principal payments to April 2026. The Manager continues efforts to discharge the unauthorized mortgage over Fuzhou E-Commerce.

Recommendations

For Current Investors

Given the financial stress and lack of dividend distributions, it is recommended to hold off on additional investments until the financial situation stabilizes. Monitor the company’s progress in resolving legal and financial challenges.

For Potential Investors

Due to the significant financial and operational risks, it is recommended to avoid investing in EC World REIT at this time. Potential investors should wait for signs of financial improvement and resolution of legal issues before considering investment.

Disclaimer

This analysis is based on the information provided in the financial report for EC World REIT for 3QFY2024. Investors should exercise caution and consult with financial advisors before making any investment decisions. Past performance is not indicative of future results.