EC World REIT - Phillip Securities 2019-05-15: An Accretive Acquisition & Longer Wale

EC WORLD REIT (SGX:BWCU) | SGinvestors.io EC WORLD REIT (SGX:BWCU)

EC World REIT - An Accretive Acquisition & Longer Wale

  • EC WORLD REIT (SGX:BWCU)'s 1Q19 NPI and DPU were in line with our forecast.
  • WALE by GRI extended from 1.8 to 4.7 years due to the extension of master leases.
  • Proposed yield accretive acquisition of ROFR asset with 5+5 year master leases expected to increase FY19e/FY20e DPU by 0.64% and 6.17% respectively.
  • 100% of debt maturing in July 2019; refinanced debt maturity profile will be lumpy.
  • Maintain BUY with higher Target Price of S$0.87 (previously S$0.85) to factor in the proposed acquisition.



The Positives


WALE by GRI extended from 1.8 to 4.7 years due to extension of master leases.

  • 99.3% of shareholders voted in favour of accepting the master leases on Chongxian Port, Beigang Stage 1 and Fuheng warehouse at the EGM held on 22 April 2019.

Proposed yield-accretive acquisition of ROFR asset with 5+5 year master leases.

  • On a pro-forma basis, the 6.4% acquisition yield on Fuzhou e-commerce will lift NPI and DPU by 16.4% and 1.6% respectively. However, the acquisition will push gearing from 31.3% to 41.1%, which is slightly above the 40% gearing targeted by management.
  • The asset is located beside EC World REIT’s e-commerce asset, Fu Heng warehouse, and will be leased out to 2 master lessees on a 5+5 year term, with built-in rental escalation of 2.25% p.a.
  • Acquisition is expected to be completed in 3Q19. Assuming full funding by debt, we expect FY19e/FY20e DPU to increase by 0.6%./6.17%.


The Negatives


100% of debt maturing in July 2019; refinanced debt maturity profile will be lumpy.

  • The Management shared that they are in the final stages of concluding the refinancing of all loans. It is likely a maturity of 3 years. Refinancing this batch of loans will once again lead to a lumpy debt maturity profile.


Outlook

  • Extended WALE of 4.7 years and committed portfolio occupancy of 99.97% provides much income visibility. This is important in the context of the current global geopolitical tensions and economic uncertainty.
  • Key risk is the depreciation of the RMB, which is partially mitigated by the rolling 6-month hedging strategy implemented on 75% of the distributable income.


Maintain Buy with higher Target Price of S$0.87 (previously S$0.85)

  • We raise our target price to S$0.87 to incorporate the proposed yield-accretive acquisition of the Fuzhou E-Commerce asset.
  • EC World REIT trades at an attractive yield of 8% and a P/NAV of 0.93x.





Phillip Research Team Phillip Securities Research | https://www.stocksbnb.com/ 2019-05-15
SGX Stock Analyst Report BUY MAINTAIN BUY 0.87 UP 0.850


* The report is produced by Phillip Securities Research under the ‘SGX StockFacts Research Programme’ (administered by SGX) and has received monetary compensation for the production of the report from the entity mentioned in the report.



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