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.
Revenues lowered by rental rebates
- 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.
Improved capital structure
- 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.
Portfolio operations back to normal
- 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.
Our Views
- 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
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Derek TAN
DBS Research
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https://www.dbsvickers.com/
2020-05-14
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