SINGAPORE (May 14): EC World REIT (ECW REIT) on May 10 announced a 2.2% increase in its 1Q19 DPU to 1.501 cents, compared to 1.469 cents in 1Q18.
Distribution to unitholders was $11.9 million, 3.1% higher compared to the same quarter last year.
Gross revenue came in 0.3% lower y-o-y at $23.9 million, bringing net property income (NPI) to $21.2 million, 1.4% lower y-o-y. These were mainly due to exchange rate differences. In RMB terms, the gross revenue and NPI were 3.0% and 1.9% higher respectively compared to same quarter last year.
As at end-1Q19, the REIT’s portfolio comprises seven properties located in Hangzhou and Wuhan, with an aggregate net lettable area (NLA) of 746,177 sqm.
Concurrently, the REIT also announced that it will be acquiring Fuzhou E-Commerce for RMB1.1 billion ($223.6 million). The 214,484 sqm property is currently 100% occupied and is located next to one of the REIT’s existing warehouse, Fu Heng Warehouse.
Following the announcements, analysts have remained positive on the REIT.
DBS Group Research is keeping its “buy” call on ECW REIT with a target price of 86 cents.
In a Sunday report, lead analyst Carmen Tay says, “The proposed acquisition will boost ECW REIT’s e-commerce exposure by NLA from around 35.3% in FY18 to approximately 49.7%, and 36.7% to 45.6% in NPI terms.”
And taking into account the new proposed master lease agreements for the acquisition, portfolio WALE will also be lengthened significantly from 1.8 to 4.8 years.
“While we acknowledge that a majority of its income is derived from the Sponsor, which we estimate to be around 74% of GRI post-acquisition, compared to around 69% currently, this is balanced against improved income visibility to unitholders,” says Tay.
In addition, the REIT’s gearing is expected to be “more optimal” post-acquisition and further acquisitions could entail potential fund raisings.
RHB Group Research also continues to rate ECW REIT “buy” with a higher target price of 85 cents from 84 cents previously.
In a Tuesday report, analyst Vijay Natarajan likes the stock for its minimal impact from trade tensions as the REIT’s assets mainly cater for domestic consumption. About 80% of tenants operate in the delivery, logistics & distribution, and e-commerce service spaces, which have been seeing strong growth.
“With assets catering largely to the domestic market, we see minimal impact from rising US-China trade tensions, and on the other hand, could potentially benefit from the Government’s push to boost domestic growth,” says Natarajan.
On the REIT’s acquisition of Fuzhou E-Commerce, the analyst believes that it is accretive to both pro-forma DPU (+1.6%) and NAV (+1.4%).
“We like the transaction as it increases its portfolio exposure to favourable e-commerce sector, lengthens portfolio WALE and provides organic rental growth,” adds Natarajan.
As at 11.10am, units in EC World REIT are trading at 78 cents or 0.9 times FY19 book with a dividend yield of 8.1%.
