RHB Group Research analyst Vijay Natarajan has kept a “neutral” rating on EC World REIT with a lowered target price of 55 cents from 65 cents.

EC World REIT has currently secured onshore borrowing facilities of $300 million and US$87 million ($121 million) due this June. It has entered into an amendment & restatement agreement to extend the maturity date of the offshore facilities to Apr 30, 2023, but this comes with a condition– 25% or approximately $100 million of loans to be repaid by end 2022.

EC World REIT also has onshore borrowings of RMB907 million ($188 million) that are due for refinancing this month – except a RMB64 million portion of debt that expires in July 2029 – and is currently in talks to extend the maturity till April 2023.

These onerous refinancing terms come despite repeated earlier management assurances that banks remain supportive. “This also indicates a widespread impact of the Chinese government’s policy measures in the real estate sector,” says the analyst. “It could have a possible ramifications on other Chinese listed S-REITs in Singapore that have debts to be refinanced, in our view.”

“EC World REIT’s recent refinancing outcome was disappointing, as it was only granted a temporary extension with an added condition of paring down 25% of offshore facilities by end 2022,” says Natarajan.

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Subsequent to the loan extension, the REIT announced a non-binding memorandum of understanding (MOU) for the sale of Beigang Logistics Stage 1 (BLS1) and Chongxian Port Logistics (CPL) to a sponsor. These assets were valued at RMB1.2 billion and RMB841 million for BLS1 and CPL as at end FY2021.

BLS1 and CPL account for 16% and 11% respectively of total asset value, as well as around 30% of total income. “While a sale at book value could lighten the gearing, which stands at 37.3%, we think it will further decrease the REIT’s size, currently at $1.7 billion, thereby drying up liquidity and further widening the yield gap vis-à-vis the larger REITs,” writes the analyst.

While REIT did not provide data on the likely updated refinancing costs, the analyst expects it to be 30-100 basis points (bps) higher than existing blended interest rates of 4.2% per annum. “More importantly, we believe the maturing of all the loans at the same time continues to pose future risks and limits EC World REIT’s negotiating capabilities,” says Natarajan.

As at 10.23am, units in EC World REIT are trading at 0.5 cents down or 0.91% lower at 54 cents at FY2022 P/B ratio of 0.59x and dividend yield of 10.1%.

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