EC World REIT has released a slew of responses to investor questions ahead of its Dec 16 EGM, which was called to ask shareholders to approve the divestment of two of the REIT’s properties in China.
The REIT’s manager will divest its indirect interests in Stage 1 Properties of Bei Gang Logistics and Chongxian Port Logistics for a consideration of RMB1.37 billion ($276.0 million).
This divestment comes after the REIT faced queries from the Singapore Exchange regarding the refinancing efforts of its offshore loans back in June.
In June, the REIT’s manager announced that it had only managed to extend the maturity date of its expiring offshore loan and onshore loan facilities to April 2023.
The extensions came with a condition by banks that the REIT’s sponsor Forchn Holdings provide an undertaking to repay 25% of its offshore loan by December or the REIT will be in default.
“If at least 25% of the aggregate principal amount of the outstanding offshore facilities is not repaid by 31 December 2022, EC World REIT faces an event of default which will trigger mandatory prepayment of the offshore facilities,” EC World REIT’s manager says.
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The manager confirmed that the event of default will trigger cross-defaults across EC World REIT’s other existing facilities such as the onshore facilities and revolving loan facilities.
In a Dec 9 filing, EC World REIT’s manager explains that the divestment of the two properties will enable debt financing and refinancing by generating sufficient net proceeds for it to meet the mandatory repayment obligations that are due by Dec 31.
According to RHB Group Research, unitholders are expected to receive a special one-off dividend payment of approximately 11 cents from the sale.
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“The proposed divestment is also an opportunity to realise value as the agreed property value of each of the divestment properties is at a premium to their respective appraised valuations, book value of the target companies, and IPO acquisition costs,” EC World REIT’s manager says.
The agreed property value of the two properties is nearly 18% higher than their initial purchase prices at IPO and at a premium to valuation.
The REIT’s manager says this move will help preserve long-term value as it will be able to avoid further decline in asset value caused by shifting market trends and upcoming major overhaul costs.
It elaborates that should the two properties continue to form part of EC World REIT’s portfolio, the long-term value to unitholders would deteriorate.
The REIT’s manager thinks that it is unfeasible to overhaul and reposition Divestment Properties to capture evolving e-commerce trends, saying that Beigang Logistics is not as attractive to tenants due to market trends, and Chongxian Port Logistics is an ageing property with extensive repairs required in the next couple of years.
The divestment will also enable the REIT to return cash to its unitholders in the form of a special distribution.
Upon the completion of the divestment, the manager intends to distribute a special distribution of RMB450.9 million out of the net proceeds after the repayment of at least 25% of its existing loans.
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This is intended to be done within 40 business days from the completion of the proposed divestment.
However, the REIT’s manager says in its responses that unitholders should note that there is no certainty or assurance that the special distribution will be made.
It explains, “depending on, among other factors, the likelihood of refinancing the April 2023 outstanding loans based on terms that are acceptable to EC World REIT, post-completion, the Manager may decide not to make the special distribution at all or may determine a lower quantum of the special distribution than what is currently expected.”
Nonetheless, the REIT’s manager is of the view that without the proceeds from the proposed divestment, EC World REIT is at risk of an imminent default of its obligations that are due on Dec 31, and seeks support from all unitholders to approve the proposed divestment.
Shares of EC World REIT closed at 44 cents on Dec 9, up one cent or 2.3% higher than its previous close.
