Excerpts from DBS report

  • Lower FY20 DPU of 5.36 Scts mainly due to rental rebates and retention of 10% of distributable income

  • EC World 

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    Healthy backfilling of vacancies at Wuhan Meiluote, bringing portfolio occupancy up to 99.3%

  • Projecting a c.12% rebound in FY21 DPU; implying an attractive forward yield of 8.3%

  • Maintain BUY with a TP of S$0.80

FuZhouE CommerceAcquired on 8 Aug 2019, Fuzhou E-Commerce is an e-commerce logistics property strategically located on the western side of Mingxing Road, Fuyang District, Hangzhou. Photo: Company

(+) Higher occupancy led to a 4.1% q-o-q increase in 4Q20 NPI

  • 4Q20 portfolio occupancy was 99.3%, a 2.6% improvement q-o-q
    • Due to higher occupancy at Wuhan Meiluote (86.5% vs. 35.0%)

  • China Tobacco’s lease at Hengde Logistics has been renewed in October 2020
    • China Tobacco leases c.160,000 sqm of space
    • Although rental reversion was slightly negative (c.-1.1%), occupancy rate at the property has been maintained at 100%

  • Lease at Chongxian Port Logistics has also been renewed (c.3.8% of portfolio GRI)
    • Based on our estimates, renewal at Chongxian Port Logistics was also likely to be slightly negative

  • FY20 DPU of 5.36Scts was 11.4% lower y-o-y; mainly due to rental rebates and retention of income
    • Rental rebates were given to tenants in April 2020 at the height of the COVID-19 outbreak in China
    • ECWREIT has retained 10% of distributable income in FY20 for prudence (S$4.1m retained in FY20)
    • Excluding income retention, decline in DPU would have been a marginal -0.1% y-o-y

(+) Improvement in gearing and all-in cost of debt

  • FY20 gearing of 38.1% was a 0.6% y-o-y improvement

  • All in borrowing costs improved marginally from 4.5% (FY19) to 4.3% (FY20)
    • Given low interest rate environment, we expect further savings in borrowing costs
    • Significant savings in borrowing costs likely to only be seen in FY22 as one of the larger loans mature

(-) Portfolio valuations decline 1.2%; offset by c.4.6% appreciation in RMB

  • Overall portfolio valuations decline by 1.2% due mainly to decline in valuations of Hengde Logistics and Bei Gang Logistics Phase 1
    • Likely due to lower rents achieved during renewals

  • Portfolio valuations in SGD was up 3.6% due to appreciation of RMB against SGD
    • RMB appreciated c.4.6% against SGD during the year

(+) Only 15.8% of leases (by GRI) will be due to expire in FY21

  • Only 15.8% of portfolio leases are due to expire in FY21
    • No master leases will be due to expire during the year
    • We expect rent renewals in FY21 to be relatively flat-to-slightly-positive

  • Organic portfolio growth to continue with rental built-in rental escalations for master leases

Our thoughts

We continue to like ECWREIT given its exposure to the fast growing logistics sector in China.

Despite taking a slight hit in FY20 due to the COVID-19 pandemic and the voluntary rental rebates given to tenants, we believe that the worse is over.

Moreover, c.75% of its portfolio leases are master-leased with built -in rental escalations that will support organic growth in the portfolio.

During the quarter, ECWREIT successfully backfilled vacancies at the Wuhan Meiluote property (86.5% vs. 35.0%), and we believe that ECWREIT will be able to continue leasing out available space at the property and sustain its strong overall portfolio occupancy rate of 99.3%. 

We do however note that retained income in FY20 has increased to c.10% of DI and this was the main cause for full-year DPU to come in c.5% below our projections. 

More details will be given after the analyst briefing tomorrow.

We currently have a BUY call on ECWREIT and a TP of S$0.80.

 Full report here. 

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