EC World REIT - DBS Research 2020-05-14: Business As Usual

EC WORLD REIT (SGX:BWCU)

EC World REIT - Business As Usual

Tenants in all properties have resumed operations.
RMB23.7m in rental rebates were given to tenants; equivalent to half month of rent.
EC World REIT's 1Q20 distributable income and DPU declined 23.2% and 23.3% to S$9.8m and 1.158 Scts respectively.
5% of distributable income was retained as a prudent measure and to maintain some financial flexibility.

EC World REIT (SGX:BWCU)'s 1Q20 revenues and NPI fell to S$23.5m and S$21.1m respectively.
- 9.0% and 13.6% declines in revenues and NPI mainly due to one-off rental rebates.
- RMB23.7m rebates given to tenants due to impact of COVID-19; equivalent to half month of rent.
On a y-o-y basis, revenues and NPI declined by a smaller 1.4% and 0.2% respectively.
- Declines were mainly due to rental rebates given and weaker RMB y-o-y.
- However, contribution from Fuzhou E-Commerce acquired in August 2019 helped mitigate the decline.
EC World REIT's 1Q20 DPU of 1.158 Scts was 23.3% lower q-o-q.
- 5% of distributable income was retained as a prudent measure and to maintain some financial flexibility.
- Excluding rental rebates, DPU would have increased 1.3% q-o-q (1.529 Scts).
NAV increased S$0.05 q-o-q to S$0.90; mainly due to stronger RMB in 1Q20.

EC World REIT's gearing improved marginally by 0.1ppt q-o-q to 38.6%; mainly due to stronger RMB.
All-in borrowing costs fell 0.1ppt to 4.3%.
Weighted average debt expiry of 2.37 years with an ICR of 2.85x.
No refinancing due until FY22.
Continues to maintain a 6-month forward income hedging.

EC World REIT's 1Q20 operations were impacted by the extended Spring Holidays followed by the lockdown due to COVID-19.
Tenant operations were also impacted by a delay in migrant workers travelling back for work.
However, all tenants had resumed operations by the end of March.
Portfolio occupancy fell 0.87ppt q-o-q to 99.1%.
- Fall in occupancy at Wuhan Meiluote (93.3%) and Chongxian Port Logistics (95.5%).
- WALE remained healthy at 3.8 years.
26.2% of portfolio leases will be expiring in FY20.
- Approximately half of expiries due to China Tobacco’s lease at Hengde Logistics expiring in the later part of FY20.
- Rest of expiries at Wuhan Meiluote and Chongxian Port Logistics.
- Focused on retaining tenants, rent reversions likely to remain flat.
- In advanced negotiations with China Tobacco to extend its lease.

We continue to like EC World REIT for its stable portfolio metrics and long WALE that provides earnings visibility. Since the easing of COVID-19 containment measures in March 2020, tenant operations have ramped up very quickly and are mostly back to normal.
Looking ahead, EC World REIT will continue to seek opportunities within China and Europe. However, given its relatively high gearing, we believe that any acquisition will be accompanied by equity-raising.
To further align their interest with stakeholders, the directors and management of EC World REIT will voluntarily take a 10% reduction in remuneration for 2Q20.
See EC World REIT Share Price; EC World REIT Target Price; EC World REIT Analyst Reports; EC World REIT Dividend History; EC World REIT Announcements; EC World REIT Latest News.
We have a BUY call with a Target Price of S$0.80.

Dale LAI DBS Group Research | Derek TAN DBS Research | https://www.dbsvickers.com/ 2020-05-14

SGX Stock Analyst Report BUY MAINTAIN BUY 0.800 SAME 0.800