JT 8.2016This article by Jennifer Tan (left, Director, Research & Products,  Equities & Fixed Income, at the Singapore Exchange) was published in SGX's kopi-C: the Company brew series on 7 April 2017. The article is republished with permission.

bei gang 1EC World REIT's portfolio includes the Stage 1 properties of Bei Gang Logistics, 8 buildings divided by themes. (Photo: Company)


Ask Alvin Cheng to define his management philosophy, and he will tell you it's all about being entrusted to add value.

The Deputy Chief Executive Officer of the manager of SGX-listed EC World REIT places a premium on the values of humility, gratitude and positiveness.

"The more responsibility you take on, the more humble you need to become," said Cheng, who has more than three decades of experience in corporate finance and REIT management.

"Every success you achieve should be seen as a gift to be treasured, not to boast about or flaunt, but as an opportunity to build your career."

Cheng, who graduated with a Bachelor of Science with Honours degree in Naval Architecture & Shipbuilding from University of Newcastle-Upon-Tyne, went on to do a double Masters degree in Ocean Systems Management and Ocean Engineering from the Massachusetts Institute of Technology.

LQM ad141eYou need to listen to people around you, be able to feel for your employees, board of directors, unit holders and regulators, all of whom have different needs.

- Alvin Cheng
Deputy CEO


He describes his time in the prestigious American university as an "eye-opener".

"Being in MIT taught me how little I actually know, and how much there is to be learnt, and there are many others who will be intellectually superior," Cheng recalled.

"MIT was where I learnt the word 'humble'."

And during your career journey, if you reach a point where you think you're invincible, that will mark the beginning of your downfall, he noted.

"I've seen leaders who made damaging mistakes because they were no longer humble - they felt they could do anything, and no one could challenge them."

Good leadership also means having a heart for your stakeholders, Cheng pointed out. "You need to listen to people around you, be able to feel for your employees, board of directors, unit holders and regulators, all of whom have different needs."

"Each action and decision taken should create positive values for key stakeholders."

When obstacles loom, a sanguine attitude goes a long way. "When you're stuck in a difficult situation, you need to be the most optimistic person in the room, so as to keep the momentum going. After all, it is during our darkest moments that we must focus to see the light," he quipped, referring to a maxim from Buddha.

In the same vein, the word "impossible" should not be in your vocabulary. "There's no such thing as an impossible situation in life. It's a matter of how much pain or sacrifice you are willing to make - there's always a price to be paid."

Stellar Performance

Cheng, 56, was appointed Deputy CEO of EC World Real Estate Investment Trust in January 2017. Prior to this, he held senior management positions in APL Logistics, then-Pacific Shipping Trust and SGX-listed Lippo Malls Indonesia Retail Trust. His earlier career in the financial sector included senior regional roles in then-Chemical Bank, Rabobank and GE Capital.

EC World REIT, managed by EC World Asset Management Pte Ltd, was the first Chinese specialised logistics and e-commerce logistics trust to list on SGX last July. It aims to invest directly or indirectly in a diversified portfolio of income-producing real estate used primarily for e-commerce, supply-chain management and logistics purposes, as well as real estate-related assets, with an initial geographical focus on China.

The trust offers exposure to the specialised logistics and e-commerce sectors in Hangzhou, through a portfolio of six assets located in one of the largest e-commerce clusters in the Yangtze River Delta. As at 31 December 2016, the portfolio - comprising two e-commerce logistics properties, one specialised logistics asset and three port logistics assets - had an aggregate net lettable area of 698,478 square metres, and a total appraised value of about 6.4 billion yuan (S$1.3 billion).

The manager - EC World Management - is an indirect wholly owned subsidiary of Forchn Holdings Group Co Ltd, the REIT's sponsor. Established in 1992 and headquartered in Shanghai, Forchn is a diversified enterprise group specialising in the real estate, industrial, e-commerce, logistics and finance sectors.

Alvin Cheng ECW

LQM ad141eWhen you're stuck in a difficult situation, you need to be the most optimistic person in the room, so as to keep the momentum going.

- Alvin Cheng
Deputy CEO


(Photo: Company)

Forchn owns 41.6% of EC World REIT, while the other IPO cornerstone investors are China Cinda Asset Management, Fosun International Holdings and BOCOM International Global Investment.

For the three months ended 31 December 2016, EC World REIT reported a stellar operating performance that exceeded forecasts in its IPO prospectus.

Gross revenue of S$24.7 million for the quarter was 7.5% above its earlier projection, while net property income of S$21.8 million exceeded its forecast by 4.1%.

Its distribution per unit (DPU) of 1.463 Singapore cents also topped its previous estimate by 2.0%.

For the year ending 31 December 2017, the trust has forecast gross revenue of S$90.5 million, net property income of S$82.0 million and DPU of 5.94 cents.

EC World REIT has a market capitalisation of nearly S$590 million. Its shares, currently trading 6.8% below their IPO price of 81 Singapore cents, have a price-to-book ratio of 0.8. In the year-to-date, the stock has distributed a dividend of 2.454 cents per unit, which translates into an annualised yield of 7.5%.

♦ Burgeoning Growth

Looking ahead, Cheng expects China's e-commerce industry to continue expanding at a rapid clip, underpinned by widespread Internet penetration and increased consumption from a rising, tech-savvy middle class.

According to data from Analysys, the size of China's retail e-commerce market is estimated to expand to 9.4 trillion yuan (US$1.4 trillion) in 2020, from 5.1 trillion yuan (US$740 billion) in 2016, reflecting a compounded annual growth rate of 16.5%. This year, China's online retail sales are projected to reach US$972 billion, triple the US$315 billion forecast for the United States.

Cheng noted that physical infrastructure - such as the specialised warehouse assets in EC World REIT's portfolio, on-the-ground delivery networks and customer collection points - all play a crucial role in connecting the industry's ecosystem and ensuring its smooth operation.

High-quality warehouse space is needed for the fulfillment and customisation of each order, as well as timely delivery of goods at the lowest rates.

Stock price  75c
52-week range 69.5c - 81.5c
Market cap S$592.9 m
Price/Book 0.815 x
Annualised Dividend Yield 7.5%
PE 20.2 x
Source: SGX StockFacts

"Many of these warehouse and distribution services require complex systems - they're like the brains of an operation, so specially configured real estate is necessary to house these operations," he said.

"As e-commerce continues to develop, there's also the issue of reverse logistics, where customers return goods. This is one bugbear for many manufacturers, because it's not something that every logistics provider - particularly the more traditional ones - can handle."

EC World REIT, with a portfolio that caters to high-growth e-commerce transactions, has the ability to meet these specialised needs, he added.

Another competitive advantage stems from its exposure to Hangzhou, the logistics hub of Zhejiang province and the Yangtze River Delta. Throughput of ports in the city - dubbed China's e-commerce capital - is expected to surge 59.1% to 175 million tonnes in 2035 from 110 million tonnes in 2016, data from Hangzhou's government showed.

Planned construction of a second channel within five years, connecting the waterway systems in northern China to Hangzhou, will provide a further boost, according to the Hangzhou Transport Bureau.

The REIT's main growth thrust lies in its e-commerce warehouses, such as Bei Gang and Fu Heng, which partner RuiYiCang, the sponsor's e-commerce logistics and supply-chain management service platform.

"EC World REIT complements RuiYiCang, and together, we can offer one-stop, integrated, intelligent logistics services for both domestic and international customers," Cheng added.

Altering Perceptions

Additional drivers of growth include acquisitions, as well as asset enhancement initiatives, he noted.

EC World REIT is well-positioned to leverage its sponsor's business networks and relationships in China to acquire e-commerce properties that are yield-accretive. The sponsor has granted the trust a right of first refusal (ROFR), which could also usher in suitable opportunities.

Asset enhancement options include converting traditional warehouses to e-commerce logistics centres, or retrofitting and refurbishing existing facilities to achieve higher efficiency. These measures are expected to boost rental revenues and maintain high occupancy rates, Cheng said.

The REIT is also eyeing opportunities to diversify outside China, particularly in the high-growth ASEAN markets of Indonesia, Malaysia, Thailand, Philippines and Singapore.

LQM ad141eMany of these warehouse and distribution services require complex systems - they're like the brains of an operation, so specially configured real estate is necessary to house these operations.

- Alvin Cheng
Deputy CEO


"These markets in aggregate have a huge population, and are rapidly expanding in the e-commerce sector, particularly Indonesia, where demand growth is very significant," he added.

Meanwhile, the key hurdle the trust faces is not acquisitions or available funding in the market, but in the investor mindset, Cheng said.

"The biggest challenge we face is the ability to change perception of the REIT as a traditional warehousing play, and investors' willingness to understand our unique operating model as part of the e-commerce ecosystem."

Essentially, EC World REIT is misplaced, he noted. "We're classified as an Industrial REIT - while that's not entirely wrong, there's no other category at the moment that precisely defines what we do."

"Our consistent suggestion to investors and analysts is to categorise us together with business models like that of Keppel DC REIT, which owns data centre assets. Our concept is similar - we house a system that revolves around the flow of electronic information, and we perform physical operations that include sorting, labelling and fulfillment."

But changing mindsets is a gradual process, Cheng admitted. "At the moment, 70% of our portfolio comprises more traditional and specialised logistics assets, which are port and tobacco storage facilities. The rationale for this composition is that we wanted to be more conservative when we listed, as these traditional assets generate more stable returns," he said.

But as the e-commerce logistics sector expands, our portfolio composition will be very different, as we will grow together with the sector."

Chongxian PortChongxian Port Investment, one of China's key inland ports, is strategically located in the north of Hangzhou, on the east bank of the Beijing-Hangzhou Grand Canal. It is leased to the port operator, a subsidiary of EC World REIT's sponsor, Forchn Holdings

♦ Creative Disruption

As far as possible, Cheng doesn't allow operational issues to keep him up at night. "It's important to settle your concerns at the close of each day. If you worry a lot at night, you will lose your momentum and effectiveness the next morning."

"If there's anything that keeps me awake, it would be to imagine exciting things happening tomorrow, including what to make for breakfast," he laughed.

Cheng, who used to skip breakfast, now finds pleasure in making a sandwich every morning, having been inspired to try his friend's recipe for toast with melted cheese.

"I experimented for a while before I got it right, as I had to make sure the cheese was melted, but the bread was not burnt! Now, I feel good after a meal every morning."

Another passion is interacting with people from different walks of life, including children. "When you talk to people, you get a diversity of views about life, art and culture, which allows me to take my mind off day-to-day issues. It's a chance to balance my mind and heart," he added.

There's much you can glean from a conversation with a child. "Kids have a different worldview - their perspectives are pure, untainted, and boundaries are blurred. As we get older, we get more and more confined by rules, regulations, and the expectations of others."

It's crucial to constantly reinvent yourself, he said. Be creatively disruptive, and continually challenge yourself to explore beyond existing boundaries.

"From time to time, we need to break out of the mould, to ensure we remain relevant in a fast-changing world," said Cheng, who enjoys mentoring graduating students from his alma mater.

"You might not like being disruptive, but your competitors will continuously create disruptions. Either you're there, or you're left behind."

Financial results

Five months ended 31 Dec 2016^ (SS$ '000) Actual Forecast* Change
Gross Revenue 41,175 39,294 4.8%
Net property income 36,761 35,716 2.9%
Distribution per unit (cents) 2.454 2.448 0.2%

Quarter ended 31 Dec 2016 (S$ '000) Actual Forecast* Change
Gross Revenue 24,739 23,004 7.5%
Net property income 21,774 20,909 4.1%
Distribution per unit (cents) 1.463 1.434 2.0%


Forecast for 1 Jan to 31 Dec 2017*
(S$ '000)
Gross Revenue 7.5%
Net property income 4.1%
Distribution per unit (cents) 2.0%
Distribution yield 7.3%+

^for period 28 July 2016 to 31 December 2016
*as disclosed in the IPO prospectus dated 20 July 2016
+based on IPO price of S$0.81
Source: Company data

Outlook & Risks
    • According to the National Bureau of Statistics, China's economy expanded 6.7% for full-year 2016, while Hangzhou's GDP grew 9.5% last year. EC World REIT's six assets are all located in Hangzhou, benefiting from the better performance of Hangzhou's economy versus China's national average. The performance of Hangzhou's economy was boosted by the 44.4% growth in e-commerce in 2016.
    • China's online retail sales grew 26.2% in 2016, more than double the growth rate of overall retail sales in the country, according to the National Bureau of Statistics.
    • ​Chongxian Port continues to enjoy growth in throughput due to urbanisation in Hangzhou, driven by the strong economic growth rate. The three Chongxian Port assets - Chongxian Port Investment, Chongxian Port Logistics and Fu Zhuo Industrial - are expected to enjoy stable rental revenue. In particular, Chongxian Port Investment enjoyed a 4.4% increase in income following the completion of the sheltered warehouse that involved converting 24,108 sq m of storage yard space to warehouse space.
    • Hengde Logistics provides customised warehousing facilities for tobacco storage by China Tobacco Zhejiang Industrial. The performance of this asset is stable.
    • Stage 1 Properties of Bei Gang Logistics and Fu Heng Warehouse are e-commerce focused assets. Beigang Logistics, which is master-leased, grew its underlying tenancy from 67.5% in June 2016 to 85% in December 2016. Fu Heng Warehouse is also riding on the growth in e-commerce.
    • Barring unforeseen circumstances, the six assets in the portfolio are expected to continue to achieve full occupancy.
    • The Manager is monitoring the progress of Stage 2 Properties of Bei Gang Logistics and the Fu Zhou e-commerce properties, two assets subject to the right of first refusal (ROFR) granted by the Sponsor to EC World REIT. Half of the construction of Stage 2 Beigang Logistics has been completed and has commenced operations. About 80% of the construction of Fu Zhou e-commerce properties has been completed.
    • As part of the Manager's acquisition growth strategy, it will continue to monitor the progress of construction and operations at the ROFR properties. Concurrently, the Manager will also explore acquisition of assets located in China from third parties.

EC World Real Estate Investment Trust

EC World REIT is the first Chinese specialised logistics and ecommerce logistics REIT to list on 28 July 2016 on Singapore Exchange. With its initial portfolio of six quality properties located in one of the largest e-commerce clusters in the Yangtze River Delta, EC World REIT offers investors unique exposure to the logistics and e-commerce sectors in Hangzhou, China. EC World REIT's investment strategy is to invest principally, directly or indirectly, in a diversified portfolio of income-producing real estate which is used primarily for e-commerce, supply-chain management and logistics purposes, as well as real estate-related assets, with an initial geographical focus on China.

EC World REIT is managed by EC World Asset Management Pte. Ltd., which is an indirect, wholly owned subsidiary of the Sponsor, Forchn Holdings Group Co. Ltd. Established in 1992 and headquartered in Shanghai, the Sponsor is a diversified enterprise group specialising in the real estate, industrial, e-commerce, logistics and finance sectors. For more information, click here.

For its fourth quarter financial results ended 31 December 2016, click here.

The company website is: www.ecwreit.com.

The ccompany's Stock Facts page is here.

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