S-REIT with 100% exposure to China Market Part 2

Dasin Retail Tr (SGX: CEDU) EC World Reit (SGX: BWCU) Sasseur Reit (SGX: CRPU) CapLand China T (SGX: AU8U) BHG Retail REIT

EC World REIT

When we buy REIT, many people only look at the Gearing Ratio and DPU (dividend). Many information provided to us during the REIT earning report and annual report but we overlook it. We trust the management will handle well the REIT, so that we can relax and collect our dividend yearly. They are the experts in the property market. No! We need to check and assess them during their quarterly or semi- annually earning report. We need to check if the REIT is still healthy or debt ridden or badly manage or any other issue. Don’t forget it’s our hard earn money. 

EC World REIT is the first Chinese specialised logistics and e-commerce logistics real estate investment trust to be listed on the SGX. IPO with 6 properties in 2016. Brought Wuhan Meiluote in December 2018 and Fuzhou E-Commerce in August 2019.

Below is the timeline how the EC World REIT management handle their debts and loan renewal. 

The Facilities were used to refinance all of EC World REIT’s existing onshore and offshore term loans due in 2019, and partially fund the acquisitions of Fuzhou E-Commerce (please refer to the announcement released by EC World REIT dated 10 May 2019) and to finance EC World REIT’s working capital and other general corporate purposes as stated in the announcement titled “Drawdown on loan facilities” which was released on 29 July 2019 and the announcement titled “Further Drawdown On Loan Facilities And Completion Of Acquisitions Of Fuzhou eCommerce” which was released on 8 August 2019. (1st red flag)

Debt maturity profile (as at Dec 2019) (reported on 27 Feb 2020)  FY19 Summary

4QFY19 and FY19 blended running interest rate of 4.4% and 4.5% respectively (Including amortized upfront fee, the all-in interest rate for 4QFY19 and FY19 is 5.2% and 5.4% respectively) (Very high interest rate) Successfully refinance IPO loans in July 2019 extending Weighted Average Debt Expiry to 2.6 years.

• RMB975 million onshore
• S$300 million and US$86.8 million offshore
• S$62.7 million RCF (revolving credit facility)

Debt maturity profile (as at 31 March 2020) (reported on May 2020)

Healthy Weighted Average Debt Expiry to 2.37 years

100% of offshore facilities has been swapped into fixed rate

The blended all-in interest rate for the quarter ended 31 March 2020 was 6.3%. The blended running interest rate for the quarter ended 31 March 2020 was 5.8%. 

• RMB1,095.0 million onshore
• S$300.0 million and US$86.8 (S$123.6 million)
• S$79.3 million RCF (revolving credit facility)

Debt maturity profile (as at 30 June 2020) (reported on Aug 2020) 2QFY2020

Healthy Weighted Average Debt Expiry to 2.37 years (should be lesser)

• RMB1,095.0 million onshore
• S$300.0 million and US$86.8 (S$123.6 million)
• S$79.3 million RCF (revolving credit facility)

Debt maturity profile (as at 30 September 2020) (reported on Nov 2020) 3QFY2020

3QFY2020 and YTD3QFY2020 blended running interest rate of 4.2% and 4.3% respectively

Weighted Average Debt Expiry of 1.9 years

• RMB1,095.0 million onshore
• S$305.6 million and US$86.8 (S$118.8 million)
• S$120 million RCF (revolving credit facility)

Fine print: Using acquisition price of RMB145 million, NPI yield will be 1.7%. Wuhan Meiluote had an occupancy rate of 35.0% as at 30 Sep 2020. The Manager has since backfilled the space to 81.1% as at 30 October 2020. 

Back tracking Wuhan Meiluote occupancy rate record:
	Wuhan Meiluote Occupancy rate	Portfolio Occupancy rate	Portfolio Occupancy rate should be
FY2019	99.4%	99.97%	99.925%  (-0.045%)
1QFY2020	93.3%	99.1%	98.6%  (-0.5%)
2QFY2020	85.0%	98.7%	97.56%  (-1.15%)
3QFY2020	35.0%	96.7%	91.875%  (4.825%)
Fine print: Portfolio occupancy of 96.7% as at 30 September 2020.  Including the new lease at Wuhan Meiluote, portfolio occupancy would be 99.0% (3QFY2020)
[Fine print: In October 2020, the Manager announced that it has successfully leased 22,545 sqm of space at Wuhan Meiluote. Including these leases, occupancy at Wuhan Meiluote would be 81.1%]
FY2020	86.5% (error)	99.3%	98.31%  (-0.99%)
1QFY2021	81.3%	99.1%	97.66%  (-1.44%)
2QFY2021	81.3%	99.1%	97.66%  (-1.44%)
3QFY2021	79.4%	99%	97.425%  (-1.575%)
FY2021	84.7%	99.2%	98.08%  (-1.12%)
1QFY2022	78.8%	98.6%	96.657%  (-1.943%)
		Chongxian Port Logistics 97.8%
Summary: End of back tracking Wuhan Meiluote occupancy rate, found that management seem prefer to announce higher occupancy rate than exact figure (报大数). In case any one may think that I have calculation problem, kindly check the report yourself. (2nd red flag)

Debt maturity profile (as at 31 Dec 2020) (reported on Feb 2021) FY2020

Stable running interest rate: 4QFY2020 and FY2020 blended running interest rate of 4.2% and 4.3% respectively.

Weighted Average Debt Maturity of 1.6 years

• Onshore: RMB1,018.0 and RMB77.0 million
• Offshore: S$305.6 million and US$86.8 (S$114.8 million)
• S$85.7 million RCF (revolving credit facility)

Debt maturity profile (as at 31 March 2021) (reported on May 2021) 1QFY2021

1QFY2021 running interest rate of 4.1%

Weighted Average Debt Maturity of 1.4 years (1.4 years is an error) 

• Onshore: RMB1,018.0 and RMB77.0 million
• Offshore: S$305.6 million and US$86.8 (S$114.8 million)
• S$101.7 million RCF (revolving credit facility)

Debt maturity profile (as at 30 June 2021) (reported on Aug 2021) 2QFY2021

1HFY2021 and 2QFY2021 running interest rate of 4.2%

Weighted Average Debt Maturity of 1.13 years

• Onshore: RMB1,018.0 and RMB77.0 million
• Offshore: S$305.6 million and US$86.8 (S$116.7 million)
• S$95.9 million RCF (revolving credit facility)

Debt maturity profile (as at 30 September 2021) (reported on Nov 2021) 3QFY2021

3QYTDFY2021 and 3QFY2021 running interest rate of 4.1% and 4.0% respectively

Weighted Average Debt Maturity of 0.88 years

• Onshore: RMB1,018.0 and RMB77.0 million
• Offshore: S$305.6 million and US$86.8 (S$118.1 million)
• S$107.9 million RCF (revolving credit facility)

Debt maturity profile (as at 31 Dec 2021) (reported on Feb 2022) FY2021

FY2021 and 4QFY2021 running interest rate of 4.1%

Weighted Average Debt Maturity of 0.63 years. Have commenced refinancing plans

• Onshore: RMB1,018.0 and RMB77.0 million
• Offshore: S$305.6 million and US$86.8 (S$118.1 million)
• S$111.9 million RCF (revolving credit facility)

FY2020 Presentation Slides 3 pages missing! Summary Asset Performance is missing!

(3rd red flag)    (The management really bo chap)

Debt maturity profile (as at 31 March 2022) (reported on May 2022) 1QFY2022

1. As at 31 March 2022, ECW REIT has an aggregated facilities of S$706.5m outstanding. Save for a RMB 77.0 million onshore facility which will due in 2029, the rest of the Facilities are due in 2022.

2. New regulations introduced in August 2020 aimed to de-risking the residential sector resulted in tightening of credit to property developers.

3. While ECW is not in the residential property sector, the Manager noted that lenders have become much more cautious in giving out property related loans, resulting in additional challenges to the REIT’s refinancing.

4. At this juncture, the Manager expects that the refinancing exercise will be completed prior to the maturity dates of the term loans.

• Onshore:
• Offshore:
• RCF (revolving credit facility):

All these figures are missing! (4th red flag) (Again the management hide all the debts detail, just blame China new regulation which introduced in Aug 2020. Why the management didn't think of refinancing earlier!)

Compulsory Expropriation of Fu Zhuo Industrial

Ceased income contribution from 1 April 2022

PRC authorities to provide a Compensation Package of RMB108.5 million to be paid in 3 tranches to ECW. Compensation is 92.8% of latest valuation and 26.8% higher than purchase consideration at IPO. 

General Announcement: Responses to Substantive and Relevant Questions 21 April 2022

Qn: Please advise on the cause of the delay in refinancing the term loans due in 2022.

Reply: The Manager has been engaging its lenders proactively on a regular basis. On 17 May 2021, the Manager announced that it has been approached by Forchn International Pte. Ltd. In relation to a potential transaction involving ECW’s interests in all of its properties, which may or may not lead to the divestment of these properties. On 28 December 2021, the Manager was informed that the buyers have decided not to proceed with the Potential Transaction. During the period of evaluation of the Potential Transaction, the Manager continued to engage with its lenders regarding refinancing. However, the lenders were not prepared to make a decision pending the outcome of the Potential Transaction. ECW was only notified of the outcome of the Potential Transaction in December 2021. (This is basically playing taichi)

Auditor's Comments of Accounts on 5 April 2022

EC World REIT manager wishes to update that the refinancing exercise in respect of all of EC World REIT’s onshore and offshore term loans due in 2022 is in the final stages of negotiation. The Manager is confident that the refinancing exercise will be completed prior to the maturity dates of the term loans.

Extension of Loan Facilities 1 June 2022

The Offshore Borrowers have entered into an amendment and restatement agreement

(the “Offshore Amendment and Restatement Agreement”) relating to the Original

Facility Agreement to, inter alia, extend the maturity date of the Offshore Facilities to

the earlier of (i) the earliest maturity date of the Onshore Facilities and (ii) 30 April 2023; 

The Onshore Facilities are due in July 2022 (save for a RMB 63,749,144 portion of the

Onshore Facility which will expire in July 2029). The Onshore Borrowers are in

discussions with the relevant lenders of the Onshore Facilities to extend the maturity

date of the Onshore Facilities to 30 April 2023.  (Very confusing)

In connection with the Offshore Facilities, Forchn Holdings Group Co., Ltd., the sponsor of EC World REIT (the “Sponsor”) is required to provide an undertaking that it will:

(a) procure that the exercise of refinancing of the Offshore Facilities is commenced

immediately; and

(b) by 31 December 2022, ensure that at least 25 per cent. of the aggregate principal

amount of the outstanding Offshore Facilities are repaid whether by acquisition of

asset(s) of EC World REIT and/or its subsidiaries or otherwise.

EC World REIT on 13 June 2022 entered into a non-binding memorandum of understanding (the “MOU”) with Forchn International Pte. Ltd. (“FIPL”) to explore the

potential divestment (the “Potential Divestment”) of Beigang Logistics Stage 1 and Chongxian Port Logistics. (5th red flag)

Portfolio FY2020

1. Chongxian Port Investment (Port logistics) (property since IPO in 2016)

2. Chongxian Port Logistics (Port logistics) (property since IPO in 2016)

3. Fu Zhuo Industrial (Port logistics) (property since IPO in 2016)

4. Hengde Logistics (Specialised logistics) (property since IPO in 2016)

5. Stage 1 Properties of Bei Gang Logistics (E-com logistics) (property since IPO in 2016)

6. Fu Heng Warehouse (E-commerce logistics) (property since IPO in 2016)

7. Wuhan Meiluote (brought in April 2018)

8. Fuzhou E-Commerce (brought in August 2019)

Base on FY2020 Summary Assets Performance 

Beigang Logistics Stage 1 23% of the portfolio gross revenue and 21.13% of NPI.

Chongxian Port Logistics 10.48% of the portfolio gross revenue and 9.67% of NPI.

Divestment of Beigang Logistics Stage 1 and Chongxian Port Logistics, EC World REIT Gross Revenue will decrease 33.48% and NPI will decrease 30.8%. Total portfolio of 8 properties will become 5 properties (exclude Fu Zhuo Industrial).

Summary: Firstly, the management only manage to refinance loans due in 2019 (since IPO), using the acquisitions of Fuzhou E-Commerce. The management has 2.6 years before the next refinance, yet they wait till the very last day then extend on 1 June 2022.

Secondly, the debts maturity chart is never in their earning result reports or annual reports. Unitholders never know what the management announce is correct or wrong. Management only announce how many years left and worst there are error lol. Thirdly, their occupancy rate is full of errors, Weighted Average Debt Maturity spotted error, Summary Assets Performance also spotted error (FY2020 Fu Zhuo gross revenue and NPI is the same amount). I really don’t know how to trust their figure given to the Unitholders. I didn’t check the gross revenue, NPI and DPU figure, so do check yourself if you interested to find out more. 

Lastly, if the REIT will to divest Beigang Logistics Stage 1 and Chongxian Port Logistics just to pay off outstanding loan, EC World REIT will lose one third of their revenue. Dasin Retail Trust is the good example for EC World REIT unitholders, both have the same debts and refinancing issue. 

Interesting note; 

Dec 2019 cessation of CFO Tng Chin Hwee, appoint Wang Feng as Acting CFO in Jan 2020. After that a series of SGX queries on money issue. Appoint of Wang Feng as CFO in Sep 2020 and SGX queries become a yearly thing. Don’t forget Li Jinbo was under investigation with CAD and MAS in June 2020, he cessed his appointment in July 2020. Li Jinbo was the Chief Investment Officer. 

Please DYODD, this is for my own case study only.