EC World REIT Rides E-Commerce Boom

EC 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.

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."

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.

- Alvin Cheng
Deputy CEO

EC World REIT

(Photo: Company)

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.

"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.

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.

- Alvin Cheng
Deputy CEO

EC World REIT

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."

• 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.