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

The deputy chief executive of the manager of EC World Real Estate In-vestment Trust (Reit), which is list-ed on the Singapore Exchange (SGX), has over three decades of ex-perience in corporate finance and Reit management. He graduated with a Bachelor of Science (ho-nours) in naval architecture and shipbuilding from the University of Newcastle upon Tyne in Britain.

He then went on to pursue a double master’s degree in ocean systems management and ocean engineering at the Massachusetts Institute of Technology (MIT). He describes his time at the prestigi-ous American university as an eye-opener. “Being at MIT taught me how little I actually know, and how much there is to be learnt, and that there are many others who will be intellectually superior,” Mr Cheng recalled. “MIT was where I learnt the word ‘humble’.”

He pointed out: “During your ca-reer journey, if you reach a point where you think you’re invincible, that will mark the beginning of your downfall.”

STELLAR PERFORMANCEMr Cheng, 56, was appointed deputy chief of EC World Reit’s manager in January. Previously, he held senior management positions at APL Lo-gistics, the former Pacific Shipping Trust and SGX-listed Lippo Malls In-donesia Retail Trust. His earlier ca-reer in the financial sector included senior regional roles at then-Chem-ical Bank, Rabobank and GE Capital.

In July last year, EC World Reit, managed by EC World Asset Man-agement, became the first Chinese-specialised logistics and e-commerce logistics trust to list on SGX. It aims to invest directly or indi-rectly in a diversified portfolio of in-come-producing real estate used primarily for e-commerce, sup-ply-chain management and logis-tics purposes, as well as real es-tate-related assets, with an initial geographical focus on China.

The trust offers exposure to the specialised logistics and e-com-merce sectors in Hangzhou in Zheji-ang province, through a portfolio of six assets located at one of the largest e-commerce clusters in the Yangtze River Delta. As at Dec 31 last year, the portfolio – with two e-com-merce logistics properties, one spe-cialised logistics asset and three port logistics assets – had an aggregate net lettable area of 698,478 sq m and a total appraised value of about 6.4 billion yuan (S$1.3 billion).

The trust manager, EC World As-set Management, is an indirect

wholly owned subsidiary of Forchn Holdings Group, the Reit’s sponsor. Established in 1992 and headquartered in Shanghai, Forchn is a diversified enterprise group specialising in the real es-tate, industrial, e-commerce, lo-gistics and finance sectors.

Forchn owns 41.6 per cent of the trust. Other cornerstone investors for the Reit’s initial public offering (IPO) are China Cinda Asset Man-agement, Fosun International Holdings and BOCOM Interna-tional Global Investment.

For the three months ended Dec 31 last year, EC World Reit re-ported a stellar operating perform-ance that beat forecasts in its IPO prospectus. Gross revenue of $24.7 million for the quarter was 7.5 per cent above its earlier projection, while net property income of $21.8 million exceeded its forecast by 4.1 per cent. Its distribution per unit (DPU) of 1.463 cents topped its pre-vious estimate by 2 per cent.

For the year ending Dec 31 this year, the trust has forecast gross revenue of $90.5 million, net pro-perty income of $82 million and a DPU of 5.94 cents.

EC World Reit has a market capi-talisation of more than $580 mil-lion. The units, currently trading 6.2 per cent below their IPO price of 81 cents, have a price-to-book ra-tio of 0.8 times.

BURGEONING GROWTH Looking ahead, Mr Cheng expects China’s e-commerce industry to continue expanding at a rapid clip, underpinned by widespread Inter-net penetration as well as in-creased consumption from a rising and tech-savvy middle class.

According to data from Analysys, China’s retail e-commerce market is estimated to expand to 9.4 tril-lion yuan in 2020, from 5.1 trillion yuan last year, for a compounded annual growth rate of 16.5 per cent. This year, the country’s online re-

tail sales are projected to reach US$972 billion (S$1.36 trillion), compared with the US$315 billion forecast for the United States.

Mr Cheng noted that physical in-frastructure – which includes the specialised warehouse assets in the Reit’s portfolio, on-the-ground deli-very networks and customer collec-tion points – plays a key role in con-necting the industry’s ecosystem and ensuring smooth operations.

High-quality warehouse space is needed for the fulfilment and cus-tomisation of each order, as well as timely delivery of goods at the low-est rates, he pointed out.

“Many of these warehouse and distribution services require com-plex 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 de-velop, there’s also the issue of re-verse logistics, where customers re-turn goods. This is one bugbear for many manufacturers, because it’s not something that every logistics provider – particularly the more tra-ditional ones – can handle.”

EC World Reit, whose portfolio 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 Hang-zhou, which is the logistics hub for Zhejiang province and the Yangtze River Delta. Throughput of ports in the city – dubbed China’s e-com-merce capital – is expected to surge to 175 million tonnes in 2035, up 59.1 per cent from 110 mil-lion tonnes last year, based on data from Hangzhou’s government.

Planned construction of a second channel within five years, aimed at connecting the waterway systems in northern China to Hang-zhou, will provide a further boost, according to the Hangzhou Trans-port Bureau.

The Reit’s main growth thrust lies in its e-commerce warehouses, such as Bei Gang and Fu Heng, which part-ner RuiYiCang, the sponsor’s e-com-merce logistics and supply-chain management service platform.

“EC World Reit complements RuiYiCang, and together, we can offer one-stop, integrated, intelli-gent logistics services for both do-mestic and international custom-ers,” noted Mr Cheng.

ALTERING PERCEPTIONSAdditional drivers of growth in-clude acquisitions as well as asset enhancement initiatives, he said.

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

Asset enhancement options in-clude converting traditional ware-houses to e-commerce logistics centres, or retrofitting and refur-bishing existing facilities to achieve greater efficiency. Such measures are expected to boost rental revenues and maintain high occupancy rates, said Mr Cheng.

The trust is eyeing opportunities to diversify outside China as well, particularly in high-growth Asean markets such as Indonesia, Malay-sia, Thailand, Singapore and the Philippines.

“These markets in aggregate have a huge population, and are rapidly expanding in the e-com-merce sector, particularly Indone-sia, where demand growth is very significant,” said Mr Cheng.

He noted that the key challenge for the trust is not acquisitions or available funding in the market, but investor mindsets.

“The biggest challenges we face are the ability to change percep-tions 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 mis-placed, he noted. “We’re classified as an industrial Reit – while that’s not entirely wrong, there’s no other category at the moment that pre-cisely defines what we do.”

He said: “Our consistent sugges-tion to investors and analysts is to categorise us with business models like that of Keppel DC Reit, which owns data centre assets. Our con-cept is similar – we house a system that revolves around the flow of elec-tronic information, and we perform physical operations that include sort-ing, labelling and fulfilment.”

Still, changing mindsets is a gradual process, Mr Cheng admit-ted. “At the moment, 70 per cent of our portfolio consists of more tradi-tional and specialised logistics as-sets, 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.”

“But as the e-commerce logistics sector expands, our portfolio com-position will be very different, as we will grow together with the sector.”

CREATIVE DISRUPTIONAs far as possible, Mr Cheng does not 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.”

“From time to time, we need to break out of the mould, to ensure we remain relevant in a fast-chan-ging world,” said Mr Cheng, who en-joys mentoring graduating stu-dents from his alma mater.

“You might not like being disrupt-ive, but your competitors will con-tinuously create disruptions. Either you’re there, or you’re left behind.”

• This is an excerpt from the Singapore Exchange’s “kopi-C: the Company brew” column, which features C-level executives of firms listed on SGX. A longer version can be found on SGX’s My Gateway website.

Offering smart logistics for e-commerce

EC WORLD REIT

$24.7mGross revenue for the three months ended Dec 31, 2016. The figure was 7.5 per cent above projections.

$21.8m Net property income for the period.

For Mr Alvin Cheng, the greatest hurdle ahead is getting investors to understand the Reit’s unique operating model, which positions it at the heart of the e-commerce ecosystem. In particular, the highly specialised physical infrastructure incorporated into its properties to service complex e-commerce transactions makes EC World Reit far more than just a traditional warehousing play. PHOTO: SGX

Reit manager’s deputy CEO aims to tap sharp growth in sector

EC World Reit’s portfolio of six key assets includes Bei Gang Logistics (above), whose warehouses are located in one of the largest e-commerce clusters in the Yangtze River Delta. PHOTO: EC WORLD REIT

C4 BUSINESS | THE STRAITS TIMES | SATURDAY, APRIL 15, 2017 |