EC WORLD REIT (SGX:BWCU)
EC World REIT - Another Stable Quarter; Keep BUY
- EC World REIT’s 3Q20 results were in line. New leases were signed at Wuhan Meiluote (武汉梅洛特) and, as expected, the REIT managed to renew a major lease at Hengde Logistics, maintaining a high committed occupancy at 99% (+0.3ppts q-o-q).
- The outlook for its logistics assets portfolio remains stable, with China’s domestic economy showing positive signs of revival.
- EC World REIT's valuation is attractive at 0.8x P/BV. Keep BUY and S$0.76 target price, 9% upside and c.8% yield.
EC World REIT's 3Q20 DPU was down 9% y-o-y
- EC World REIT (SGX:BWCU)'s 3Q20 DPU was down 9% y-o-y, mainly due to the prudent retention of 9% of distributable income – excluding which DPU would have risen 2.4% y-o-y (+0.1% q-o-q).
- Year-to-date, EC World REIT has retained S$2.8m of distributable income or c.0.35 cents/share. The higher distributable income was mainly due to contribution from its Fuzhou E-Commerce asset – acquired in Aug 2019 – and in-built rent escalations for master leases. Management noted that income retention was mainly a prudent measure in light of increasing global uncertainties and slowly plans to distribute it if economic conditions improve further.
Renewal of major Hengde lease, occupancy improves at Wuhan Meiluote.
- As anticipated, EC World REIT announced the renewal of Hengde Logistics Phase 1 lease amounting to 159,752sq m for another three years with existing tenant, China Tobacco Zhejiang Industrial. While the new rent renewal headline rents are 1.1% higher than existing ones, the tenant will not be using the warehouse management services currently provided by the REIT, which accounted for about 1.1% of 2Q20 revenue.
- Separately, EC World REIT's existing e-commerce tenant at Wuhan Meiluote has expanded its operations and signed a major lease of 22,545sq m at the asset, which will bring occupancy there to 81.1% from 35%. The signing rents were 4.3% higher than rents paid by the previous tenant. With this, only c.4.5% and 12.8% of leases by rental income are due for renewal in 4Q20 and 2021.
- The expiring leases are mainly at Chongxian Port Logistics and Hengde Logistics. Management expects most of these leases to be renewed, but does not anticipate any rental uplift, considering the current market conditions.
Acquisitions not likely in the near-term, balance sheet remains healthy.
- EC World REIT's gearing remains modest at 38.3% with no major debt expiry in the near term. Most of its debt is expiring in mid-2022 and EC World REIT plans to refinance it early next year, with a slight (estimated 20-30bps) savings in interest costs expected upon refinancing (currently blended 4.3% pa).
- EC World REIT's management noted that acquisitions are unlikely in the near term, as it is difficult to carry out due diligence of assets in the light of current travel restrictions.
- 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.
- No changes to our earnings estimates.
Vijay Natarajan
RHB Securities Research
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https://www.rhbinvest.com.sg/
2020-11-11
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