EC World REIT - Phillip Securities 2019-03-01: Optimistic About The Outlook


EC World REIT - Optimistic About The Outlook

  • EC WORLD REIT (SGX:BWCU)'s FY18 NPI and DPU were in line with our forecast. 5.3% and 5.6% y-o-y boost in gross revenue and NPI, respectively, driven by the acquisitions of Wuhan Meiluote in 2Q17.
  • Wuhan asset performing well after acquisition; slow rap-up of occupancy at Beigang.
  • Early renewal of master lease on favourable terms, pending shareholder vote at an EGM to be convened.
  • Maintain Buy with higher Target Price of S$0.85 (prev S$0.82).

The Positives

Wuhan asset performing well after acquisition.

  • Occupancy has ramped up from c.60% to c.86% since acquisition in April 2018, owing to the efforts of the Manager.

The Negatives

Slow ramp-up of occupancy at Beigang.

  • Occupancy for this asset has increased from 55.3% to 84% over the last 3.6 years. As this asset is currently under master lease with the sponsor, there is income support provided by the master lease which gives the Manager a finite runway to work on boosting vibrancy of the property.


  • All EC World REIT’s master-leased assets - Chongxian Port, Beigang Stage 1 and Fuheng warehouse - are up for renewal in 4Q20. The rents from these three properties represent 70% of EC World REIT’s revenue. If the terms are accepted by shareholders, portfolio WALE will increase from 2.0 to 4.8 years, providing stable earnings visibility.
  • The master leases will now have built-in annual rental escalation of 1-2% (vs 1-3% rental growth rates for warehouses in Hangzhou), and will be renewed at existing prices. We also note that that Fuheng’s rents are currently already c.50% above market (c.RMB3.91psf vs c.RMB2.60psf).
  • 100% of debt will be expiring in July 2019 comprising 50:50 onshore and offshore debt, and 89% of revolving credit facilities have been drawn down.

Maintain Buy with higher Target Price of S$0.85 (prev S$0.82)

  • We raise our target price to S$0.85 due to changes in our rental assumptions and early lease renewals with positive reversions in 4Q18.
  • Our Target Price translates to a FY19e yield of 20.2% and a P/NAV of 0.84x.

Phillip Research Team Phillip Securities Research | https://www.stocksbnb.com/ 2019-03-01
SGX Stock Analyst Report BUY MAINTAIN BUY 0.85 UP 0.820