The manager of EC World REIT has renewed a second major lease of some 74,057 sqm in relation to Hengde Logistics with China Tobacco Zhejiang Industrial.
The second major lease (Phase 2 renewal) came after the successful renewal of 152,752 sqm of space in October 2020 (Phase 1 renewal).
During the Phase 2 renewal, China Tobacco committed to a lease term of 2.65 years to coincide with the expiry of the Phase 1 renewal.
Both leases with China Tobacco will expire on Dec 31, 2023.
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Although the renewal rental rate contracted for the Phase 2 renewal is 8.8% lower than the existing rental rate, the effective blended rental rate of Phase 1 renewal and Phase 2 renewal is 2.2% lower than the effective blended rental rate of the expiring China Tobacco leases at Hengde Logistics Phase 1 and Phase 2.
According to CBRE’s MarketView 4Q2020 report, the rental rates for the logistics sector in Hangzhou showed a year-on-year decline of 1.9%.
The Phase 2 renewal is expected to reduce EC World REIT’s revenue by 0.8%, as China Tobacco will no longer require the warehouse management services for the renewal, similar to the one in Phase 1.
“We are heartened by the continued support from China Tobacco in relation to this renewal of lease at Hengde Logistics Phase 2. This is a testament to the quality of EC World REIT’s asset and the positive working relationship with our tenants. We will continue to work closely with the property manager in China to ensure portfolio quality and predictable returns to the portfolio,” says Goh Toh Sim, executive director and CEO of the manager.
Units in EC World REIT closed flat at 73 cents on May 7.
