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What' s wrong with EC World REIT?
Probably a dose of dé jà vu, that is master leases, and capital management. The net asset value of EC World REIT as at end-2021 stood at 93 cents. Its unit price closed at 48 cents on June 30, 2022. That values EC World REIT at 0.51x NAV. The market capitalisation as at June 29 was $388 million based on units in issue of 809.49 million as stated in the 2021 annual report, The secured debt outstanding stood at $725 million as at Dec 31, 2021.
On June 29, the Singapore Exchange, questioned the REIT&rsquo s refinancing efforts following the latter&rsquo s announcements on June 1 and June 13. Why were the loan extensions for less than 12 months? Why are the lenders not financing beyond April 2023? Are there difficulties in obtaining onshore facilities?
Among the answers given, it turns out that the offshore lenders requested an undertaking when the manager was negotiating for the extension of the REIT&rsquo s offshore loans. &ldquo If at least 25% of the aggregate principal amount of the outstanding offshore fcilities is not repaid by 31 December 2022, EC World REIT faces an event of default which will trigger mandatory prepayment of the offshore facilities,&rdquo EC World REIT&rsquo s manager says.
The manager confirmed that event of default will trigger cross defaults across EC World REIT&rsquo s other existing facilities such as the onshore facilities and revolving loan facilities.
On June 13, EC World REIT&rsquo s manager signed and announced the entry into a non-binding Memorandum of Understanding (MOU) with the sponsor, to explore the potential divestment of two of EC World REIT&rsquo s assets - Beigang Stage 1 Logistics and Chongxian Port Logistics.
Valuation
In the IPO prospectus, the initial valuation of the properties did not take into account the master lease rents, but instead used underlying rental rates. The master leases were for a term of five years as the manager believed this would have been the optimal length of time required for the underlying rental rates of Chongxian Port Investment, the Stage 1 Properties of Bei Gang Logistics and Fu Heng Warehouse to reach the master lease rental level, the prospectus had said.
Yet, in FY2021, related party rents totalled $105.87 million, or 84% of revenue. This is marginally lower the FY2020&rsquo s related party rents of $93.92 million versus revenue of $109.72 million.
The REIT&rsquo s FY2021 annual report says that gross revenue of the portfolio was $125.5 million and the DPU for the full year was 6.263 Singapore cents. The projected revenue derived from market rent would have been $116.8 million and the corresponding DPU would have been 5.662 Singapore cents.
See also: Jim Chanos' latest big short: data centre REITs
As compared to the projected market rents, the master leases gross rent for Chongxian Port Investment, Bei Gang Logistics, Fu Heng Warehouse and Fuzhou E-Commerce are approximately RMB8.0 million, RMB24.4 million RMB2.4 million and RMB7.8 million higher respectively. The total difference of RMB42.6 million is 7.1% of the portfolio gross rent in 2021, the annual report states.
The difference in rents does not justify the P/NAV of 0.51x. The manager has blamed property market conditions in China for EC World REIT&rsquo s refinancing challenges. Investors are clearly nervous, given that so much of EC World REIT&rsquo s liquidity depends on the sponsor: rents, the valuation of the properties, and the undertaking to raise cash by divesting assets. As indicated in the annual report, $725 million of loans are secured, except for an inter-company loan of $426 million.
Analysts were sanguine about EC World REIT&rsquo s refinancing till June 29, when RHB Research started sounding a lot more cautious. Soochow CSSD Capital Markets says it is reviewing its recommendation. DBS Group Research was relatively upbeat following the June 1 refinancing announcement.
Now, with its loans at almost twice the value of EC World REIT&rsquo s market capitalisation, market watchers are likely to be a lot more concerned.
Raffles Infrastructure terminates executive director Ma Zhi after investigation
AFTER EC World Reit : BWCU -2.73%&rsquo s recent &ldquo disappointing&rdquo refinancing outcome, RHB has lowered its target price for the real estate investment trust (Reit) to S$0.55 from S$0.65, citing &ldquo limited catalysts&rdquo in a Monday (Jun 27) report.
This represents a further drop from RHB&rsquo s report in May, where it had previously lowered the target price for EC World Reit to S$0.65 from S$0.76.
RHB has maintained its &ldquo neutral&rdquo call on the Reit. The new target price represents a 0.9 per cent upside from the counter&rsquo s trading price as at 10.50 am. Units of EC World Reit were trading at S$0.545, down S$0.005 or 0.9 per cent, at the time.
EC World Reit has currently secured onshore borrowing facilities of S$300 million and US$87 million, which were due in June. While it was granted a temporary loan extension to Apr 30 next year, this is conditional to a 25 per cent (approximately S$100 million) repayment of loans by the end of 2022.
Furthermore, the Reit has onshore borrowings of 907 million yuan (S$187.7 million) that are due for refinancing this month &ndash except a 64 million yuan portion of debt that expires in July 2029 &ndash and is currently in talks to extend the maturity till April 2023, noted analyst Vijay Natarajan.
These &ldquo onerous refinancing terms&rdquo indicate the Reit&rsquo s concerns over its China assets, despite repeated earlier assurances that banks remain supportive, he said.
Natarajan expects the similar maturity dates of the loans to continue posing risks and limiting the Reit&rsquo s negotiating capabilities. He predicts updated refinancing costs will be 30 to 100 basis points higher than 4.2 per cent per annum, the existing blended interest rate.
With EC World Reit&rsquo s non-binding plans to divest 2 of its Chinese assets &ndash which account for approximately 27 per cent of total asset value and 30 per cent of total income &ndash to a sponsor, it will likely record a dividends drop and size reduction.
This will dry up liquidity and further widen the yield gap vis-à -vis larger Reits, Natarajan said. &ldquo With this news in the price, we see limited catalysts &ndash except for the Reit&rsquo s possible privatisation.&rdquo
https://dividendnewb.blogspot.com/2022/06/s-reit-with-100-exposure-to-china_23.html
Lots of reit managers posing as retail investors here
Looks like someone do not like the Truth here. LOL
prophetjul ( Date: 16-Jun-2022 11:01) Posted:
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Dated 16/6/2022: On 12 May 2022 SGX announcement " The REIT has announced a distribution of 1.383 cents (SGD) per unit for the period from 1 January 2022 to 31 March 2022 (the &ldquo Distribution&rdquo )." , 0.01383x4/0.54=0.1024, 10.24% Dividend Yield. P/B =0.612, so after they sell those property, Book Value will increase if buyer is China Local Investor. They sell RMB, buy Sing Dollars to buy this stocks, golden opportunity for them, as they have no problem to get Central Approval.
Badly managed Reit.
DPU will fall. NAV will fall. Share price will fall. ALL very bad.
DPU will fall. NAV will fall. Share price will fall. ALL very bad.
hwbrwong ( Date: 16-Jun-2022 10:55) Posted:
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I suppose a big chunk of DPU will be gone after sale. The proceeds will be used to repay loan. Deleveraging will badly impact DPU.
Bottom falling out?
EC World REIT enters into non-binding MOU for potential sale of logistics properties in China to related third party
The manager of EC World REIT has entered into a non-binding memorandum of understanding (MOU) with Forchn International to explore the potential divestment of Beigang Logistics Stage 1 and Chongxian Port Logistics.
The potential divestment will be made with an entity controlled or managed by FIPL, a substantial unitholder of EC World REIT and the sole shareholder of the REIT manager.
FIPL is, in turn, wholly-owned by Forchn Holdings, the sponsor of EC World REIT.
The MOU is said to be for the purposes of facilitating negotiations between the parties only.
Under the MOU, the divestment will be completed upon the parties agreeing to the terms of any definitive agreements. The divestment will also be completed should the valuations delivered by independent valuers commissioned by the trustee of the REIT meet the necessary regulatory requirements under the Code on Collective Investment Schemes and the Listing Manual of the SGX-ST.
Unitholders of the REIT will also have to vote in approval of the potential divestment at an extraordinary general meeting (EGM) to be convened.
Sold a while back in March. Cannot trust this mangemnt with May 2022 dateline.
laksaman57 ( Date: 02-Jun-2022 16:41) Posted:
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Does extension of maturity date automatically mean same interest rate is being charged by lenders ?
Joelton ( Date: 02-Jun-2022 09:14) Posted:
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Prudent to pare down holding.
prophetjul ( Date: 02-Jun-2022 16:02) Posted:
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" At this juncture, the Manager expects that the refinancing exercise will be completed prior to the maturity dates of the term loans."
In fact in the last announcement they informed that they were finalising the refinancing and should be completed before the maturity dates! They have misled the investors!
" The Manager is in the final stage of negotiation for the refinancing of the term loans due in 2022 and will update the investing community of developments."
https://ecwreit.listedcompany.com/newsroom/20220512_174048_BWCU_NUQWAG80FAGXRXYP.2.pdf
In fact in the last announcement they informed that they were finalising the refinancing and should be completed before the maturity dates! They have misled the investors!
" The Manager is in the final stage of negotiation for the refinancing of the term loans due in 2022 and will update the investing community of developments."
https://ecwreit.listedcompany.com/newsroom/20220512_174048_BWCU_NUQWAG80FAGXRXYP.2.pdf
Due to increase of US rate, anyone ask for loan need to talk more. Not a problem of securing loan, only question is who can offer better. Now 粽 子 increase in price, but you can expect price will drop by End of June.
Joelton ( Date: 02-Jun-2022 09:14) Posted:
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EC World REIT' s refinancing raises concerns despite analysts' upbeat report
On June 1, EC World REIT&rsquo s (ECW) manager announced that it has entered into an agreement with its offshore lenders to extend the maturity of its offshore facilities comprising $299.95 million and US$86.78 million to April 30, 2023. These loans were last renewed on June 28, 2019.
ECW&rsquo s onshore facilities of RMB906.5 million mature in July this year and ECW&rsquo s manager is in discussions with onshore lenders to extend the maturity of these loans also to April 30, 2023.
ECW&rsquo s manager ominously announced that sponsor Forchn Holdings Group Co will ensure that at least 25% of the principal ammount of its outstanding offshore facilities are repaid by Dec 31, 2022 whether by acquisition of asset(s) of EC World REIT and/or its subsidiaries or otherwise. This means that -from the REIT&rsquo s perspective - a property is likely to be divested to raise the monies to repay 25% of the offshore loan.
In an update, DBS Group Research sounds an optimistic note, saying &ldquo Worries of EC World REIT&rsquo s refinancing &ldquo issues&rdquo have proven to be unfounded, in our view. That said, the tenure of the refinancing of the offshore facilities of 75% of its total loans of $706 million appear to be a short term extension with another refinancing discussion to happen with the lenders again in one year&rsquo s time. That said, we notice a provision this time round that the offshore lenders have required to downsize the outstanding loan quantum by 25% through asset sales by Dec 2022.&rdquo
To be sure, EC World REIT is not the only REIT with Chinese assets that is facing challenges with refinancing. Property trust Dasin Retail Trust&rsquo s loans are also extended for short periods at a time. In fact, Dasin Retail Trust has just made an SGX filing where its manager divested 7 million units at 27 cents, versus its net asset value of $1.40.
Similarly, ECW&rsquo s so called relief rally, which DBS Research is anticipating, has yet to materialise. At its current price of 64 cents, it is trading at 0.69 times NAV. Some investors are concernd that the ECW&rsquo s portfolio relies too heavily on the sponsor and its affiliates for its revenue. As at Dec 31, 2021, some $105 million of revenue out of a total of $125 million is from the sponsor and its affiliates as reported in its annual report.
On June 1, EC World REIT?s (ECW) manager announced that it has entered into an agreement with its offshore lenders to extend the maturity of its offshore facilities comprising $299.95 million and US$86.78 million to April 30, 2023. These loans were last renewed on June 28, 2019.
Looks like ECW misled investors into thinking that refi was just round the corner in their last announcement.
https://www.theedgesingapore.com/capital/reits/ec-world-reits-refinancing-raises-concerns-despite-analysts-upbeat-report
"EC World REIT's refinancing raises concerns despite analysts' upbeat report
....from the REIT?s perspective - a property is likely to be divested to raise the monies to repay 25% of the offshore loan.
....Some investors are concernd that the ECW?s portfolio relies too heavily on the sponsor and its affiliates for its revenue. As at Dec 31, 2021, some $105 million of revenue out of a total of $125 million is from the sponsor and its affiliates as reported in its annual report."
"EC World REIT's refinancing raises concerns despite analysts' upbeat report
....from the REIT?s perspective - a property is likely to be divested to raise the monies to repay 25% of the offshore loan.
....Some investors are concernd that the ECW?s portfolio relies too heavily on the sponsor and its affiliates for its revenue. As at Dec 31, 2021, some $105 million of revenue out of a total of $125 million is from the sponsor and its affiliates as reported in its annual report."
Hope retail investors took his indirect warning and got out 😅
prophetjul ( Date: 25-Apr-2022 14:06) Posted:
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Many retail investors will be hard hit.
laksaman57 ( Date: 25-Apr-2022 19:40) Posted:
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