DBS Group Research analysts Dale Lai and Derek Tan have kept “buy” on EC World REIT with a higher target price of 90 cents from 80 cents previously.
The new target price implies a price-to-net asset value (P/NAV) of 1.0 times and a “still very attractive” target yield of 6.8%, as it is still slightly below NAV.
As at the time of writing, EC World REIT has a NAV of 93 cents and is trading at a P/NAV multiple of less than 0.9 times.
The higher target price also reflects tighter yields for the REIT’s logistics portfolio amid the compression of cap rates for logistics properties.
EC World REIT reported a 10.5% y-o-y increase in distribution per unit (DPU) to 1.53 cents for the 2QFY2021 ended June, and a DPU of 3.064 cents for the 1HFY2021, which stood 2% above the analysts’ initial projections.
“EC World REIT currently trades at a very attractive forward yield of 7.5%, a spread of more than 350 basis points to its other logistics-focused peers,” write the analysts in an Aug 10 report.
“We recognise that EC World REIT’s portfolio is significantly smaller and less diversified than its large-cap peers, but its concentration of master leases not only ensure income stability, but the rental escalations also provide for organic growth to earnings,” they add.
To this end, Lai and Tan say they have upped their projected earnings estimates on the REIT with its portfolio being close to full occupancy. It also has the potential for further organic growth from rental escalations, they add.
They add that they remain confident that the REIT will be able to maintain its portfolio occupancy with less than 6% of its leases expiring in FY2021. There may also be room for some positive rental reversions, they note.
“We have been positively surprised by EC World REIT’s earnings resilience in the past two quarters, as DPU came in slightly above our previous projections,” write the analysts. “Despite the Covid-19 outbreak still looming, we note that EC World REIT has a reserve pool (from retained earnings) of more than $5.3 million it could tap to maintain DPU.”
To Lai and Tan, the potential transaction from its ongoing offer from its sponsor will be a catalyst to its share price.
“Given the continued positive outlook for logistics properties and increased competition for quality assets, we do not rule out an offer at NAV or even higher,” they write.
Units in EC World REIT closed 1.5 cents higher or 1.8% up at 83 cents on Aug 11. This represents a P/NAV of 0.9 times and a distribution yield of 7.5 times for the FY2021, according to DBS.
Photo: EC World REIT
