Troubled Real Estate Investment Trust (Reit) EC World Reit : BWCU 0% will defer its first half FY2023 distribution to unitholders to an unspecified future date, citing “insufficient funds”.

The distribution was originally due on Sep 28.

Its manager said on Wednesday (Sep 27) that the trust’s sponsor and its subsidiaries had not been able to pay the overdue rent owed to ECW Group, which comprises EC World Reit and its subsidiaries.

“Additionally, as at the date of this announcement, the sponsor has been unable to provide a committed repayment plan in respect of the outstanding rent receivables which is satisfactory to the ECW Group,” it added.

As such, EC World Reit will defer the distribution payment to a date when the Reit has sufficient free cash for the distribution, said the manager.

It added that it will update unitholders when there is clarity on the deferred distribution date.

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The China-focused Reit and its subsidiaries are owed more than 145.8 million yuan (S$27.3 million) in overdue rent by their sponsor.

The manager had previously flagged a “high risk” of non-collection of the rent receivables.

On Wednesday, it said that the ECW Group may have insufficient funds to maintain its operations as the trust’s sponsor has not paid the outstanding rent receivables.

In particular, the group may not be able to pay interest expenses which are due to become payable, said the manager.

This may give rise to an event of default under the group’s existing onshore and offshore facilities, such as EC World Reit being unable to pay its debts.

Such a circumstance may also be viewed by lenders as constituting a material adverse event, which in turn could result in an event of default under facilities.

The manager noted that this may lead relevant lenders to accelerate the facilities, or in other words, demand repayment.

It added that it is currently engaging the lenders and has not received any indication that they intend to accelerate the facilities.

The manager also said that it intends to take steps to address the situation.

These include working with the sponsor group on the repayment plan for its outstanding rent and payment obligations under existing related party leases.

It will also appoint independent consultants to evaluate the market rental rates of assets under master leases so as to formulate a new leasing strategy for these assets.

The master-leased assets are Chongxian Port Investment, Fu Heng Warehouse, Beigang Logistics Stage One and Fuzhou E-commerce. All properties are in China.

Additionally, it intends to appoint independent consultants to evaluate the possibility of divesting ECW Group’s properties so that the group can meet its pre-payment obligations under the facilities.

Lastly, the manager said that it plans to appoint legal advisers who can provide advice in relation to the master leases as well as the equity purchase agreement between ECW Group and the sponsor group, in connection to the proposed divestment of properties.

It added that the sponsor recognised the challenges faced by EC World Reit, and that it would “continue to proactively work” with the manager to explore solutions.

The Reit’s units have not been traded since Aug 31, when the manager disclosed that the ECW Group could not fully repay its offshore interest expenses.

As at Jun 30, the Reit’s current liabilities exceeded its current assets by S$117.9 million. ECW Group’s current liabilities exceeded the group’s current assets by S$133.2 million.

Within its current liabilities, the ECW Group has borrowings of S$443.2 million that are due for repayment within a year from Jun 30, 2023.

The manager said last week that the tenure for the group’s existing offshore facilities ends on Apr 30, 2024, subject to the consent of the offshore facilities lenders and certain conditions being met.