THE manager of EC World Real Estate Investment Trust (Reit) said on Aug 28 (Monday) that the Reit and its subsidiaries are owed more than 145.8 million yuan (S$27.5 million) in overdue rent receivables by their sponsor group, Forchn Holdings Group and its subsidiaries.

Of the outstanding rent receivables, 107.6 million yuan represents the rent payable pursuant to master leases between the sponsor group, in the capacity as master lessee, and ECW Group comprising EC World Reit and its subsidiaries, the master lessor.

These 107.6 million yuan in rent receivables are spread across four master-leased properties of ECW Group in China: Chongxian Port Investment, Fu Heng Warehouse, Beigang Logistics Stage 1, and Fuzhou E-Commerce.

Meanwhile, the balance of 38.2 million yuan in rent receivables represents rent payable by the sponsor group pursuant to other related party leases.

According to the Reit manager, EC World Asset Management, the sponsor group typically maintains ageing between two months to three months, as their practice is to make rental payment quarterly in arrears. Such a practice is common for commercial, industrial and warehousing leases in China, it added.

The manager said it has been in regular dialogue with the sponsor group to remind the related party lessees (including master lessees) of their payment obligations under the existing lease agreements.

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Despite its efforts, however, “there has been no repayment plan provided by the sponsor group to date”.

It has therefore assessed that there is a “high risk” of non-collection of the outstanding rent receivables, considering that the ageing of some of the outstanding rent receivables has exceeded three months and there has been no repayment plan provided by the sponsor group.

ECW Group’s free cash has also been “significantly depleted” at this juncture, the manager noted.

This was due to its refinancing exercise in 2019, where it repaid approximately S$131.1 million to its lenders pursuant to facility agreements entered into in 2019 and 2023. Of this amount, approximately S$56.8 million was funded by the group’s excess cash.

The manager flagged that ECW Group would be unable to maintain its operating and financing requirements if the sponsor group does not pay a sufficient amount of the rent receivables.

This is because more than 80 per cent of ECW Group’s revenue comes from rental income pursuant to related party leases with the sponsor group.

In view of this, there is a “high risk” that ECW Group would not be able to fully repay offshore interest expenses due on Aug 31, 2023, pursuant to its existing offshore facilities, the manager added.

It would need to request the facility agent under the offshore facilities to release part of the offshore interest reserve maintained by ECW Group, in order to fully repay the offshore interest expenses.

The board’s assessment was that in the absence of any other potential financing plan, ECW Group’s current assets “may not be adequate to meet its short-term liabilities”.

This assessment takes into account that as at Jun 30, the group’s current liabilities exceed its current assets by S$133.2 million. Its current liabilities contain borrowings of S$443.2 million, which are due for repayment within the next 12 months.

The assessment also considered that the sponsor group’s delay in paying the rent receivables owing to ECW Group “may signal financial weakness” of the sponsor group, including the purchasers under the proposed divestment of Chongxian Port Logistics and Beigang Logistics Stage 1.

In October 2022, EC World Reit said it would be divesting its indirect interests in Bei Gang Logistics and Chongxian Port Logistics for two billion yuan.

“Hence, there is a significant risk that the proposed divestment may not complete by the divestment longstop date,” the manager said.

It also expects the risk that the initial termination date of the offshore facilities may not be extended from the existing Apr 30, 2024, to April 30, 2026.

EC World Reit units closed at S$0.28 on Monday, down S$0.02 or 6.7 per cent, before the announcement.