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EC World Reit bullish on e-commerce
WHILE the rest of the world frets about trade wars and a China slowdown, the chief executive of EC World Reit's manager remains calmly bullish about e-commerce in Asia's largest economy.
"If the economic growth slows, more consumers are likely to pivot to e-commerce purchases as it offers better value for money," says Goh Toh Sim, executive director and CEO of the manager of EC World Reit. "Moreover, the consumption of domestic products and services has been growing steadily."
That confidence is perhaps necessary for Mr Goh, who leads a property trust that maintains a portfolio of mostly logistics-related assets in China.
In June, the manager added an eighth property to its stable of logistics facilities when it acquired Fuzhou E-Commerce for 1.11 billion yuan (S$223.6 million) from its sponsor, Shanghai-headquartered conglomerate Forchn Holdings Group.
"As a listed entity, the real estate investment trust (Reit) is a very natural exit channel for them (Forchn)," Mr Goh says.
Fuzhou E-Commerce is the Reit's seventh property in Hangzhou, the capital of Zhejiang province and the home of e-commerce behemoth Alibaba. The Reit has one property in Wuhan. The acquisition, which comprises a warehouse and an office building, is expected to have a positive contribution to third quarter earnings for the Reit.
EC World Reit's portfolio is currently valued at S$1.75 billion and the proportion of the portfolio focused on e-commerce warehouses has gone up from 32 per cent when it first listed to almost 50 per cent at present.
The Reit has also extended its master lease agreements this year, with weighted average lease to expiry (WALE) of those agreements standing at 4.7 years as at end March, which is one of the highest among Singapore-listed real estate investment trusts. It has also maintained stable unit payouts to investors of 1.5 to 1.57 Singapore cents in the past four quarters.
In 2018, half of e-commerce transactions globally were made in China, to the tune of nine trillion yuan.
E-commerce's explosive growth in China, where it has grown ten-fold in the past decade, is underpinned by the country having the highest internet user base in the world - 800 million in 2018 - the influential role of social media in conveying production information and recommendations, and high mobile penetration rates.
The growth prospects for China are still immense, Mr Goh says. He points out that only 20 per cent of all retail transactions made in China last year were done online, providing ample room for further growth.
Two key sales events drive China's e-commerce industry yearly: JD day, which falls on June 19, and Alibaba's Singles' Day on Nov 11. "Over these two days, e-commerce sales really shoot up."
While this might give the impression that it is downtime for the sector in other periods, the truth cannot be further than that.
Mr Goh explains: "The size and scale of these events have grown greatly with each passing year. Suppliers and warehouse operators now spend a few months to prepare for the sales, with items stocked far in advance to meet the demands of making deliveries in the two to three days."
With growth also comes capacity issues. Mr Goh recalls that five years ago, warehouses in China were in oversupply but today they are faced with the opposite reality and the race is on to build more of such facilities.
Warehouses have also had to change the way they operate. Traditional warehousing mostly comprised business-to-business (B2B) operations, but with the advent of e-commerce, it has taken on a mix of B2B and business-to-consumer (B2C) capabilities, utilising technological advances and data.
This, Mr Goh explains, sees a shift to housing bigger tenants like e-logistics operators, which receive goods from wholesalers and repackage orders for end users, often holding master leases.
For EC World Reit, one of its key tenants is Ruyicang, Forchn's wholly owned e-commerce logistics operator subsidiary. Ruyicang provides services for e-commerce clients by integrating physical warehousing and logistics facilities with advanced IT management systems and data analytics.
Ruyicang is also part of the Cainiao Network, which operates the China Smart Logistics Network, a shared data platform to serve the e-commerce ecosystem.
The triangle relationship
EC World Reit utilises what Mr Goh calls its unique "triangle relationship" with Shanghai-headquartered Forchn and Ruyicang to build on its portfolio and benefit from such synergies.
The Reit's acquisitions are likely to be from assets owned by Hangzhou Unilogix, a five billion yuan fund set up by Forchn and the Bank of Zhejiang that invests in logistics assets primarily in Zhejiang province.
"The acquisition that we did (in June) is a fine example of that relationship. The sponsor develops the warehouse, the e-logistics operators (like Ruyicang) then occupy the warehouse and we acquire it," Mr Goh says.
That said, Mr Goh explains that the Reit manager is actively on the hunt for third party assets for acquisition in other major cities and provincial capitals in China.
"As we are getting better established within Zhejiang province and increasing our footprint, we are also looking for opportunities in other provinces in China," Mr Goh says.
South-east Asia is another region that the Reit has its eyes set on for future acquisitions, with two priority markets being Vietnam and Indonesia.
Both countries are large populations that are both Internet and mobile savvy. Vietnam also has a blossoming middle class, he notes.
The Reit manager wants to tap fully the opportunities offered by the burgeoning e-commerce scene in China; it does not have plans to branch from the industrial space to office or hospitality sectors.
Mr Goh says: "We want to focus on what we are familiar with and where we believe the best growth opportunities are."