Will EC World REIT Grow With The E-Commerce Boom?

Listed on 28 July 2016, EC World REIT (SGX: BWCU) is a SGX-REIT which specialises in the investments of e-commerce logistics real estate based in Mainland China. As of 24 September 2019, EC is valued at S$ 579.8 million in market capitalisation. In this article, I’ll cover on its latest financial results and its valuation figures. Thus, here are 11 main things to know about EC before you invest. 

• Portfolio Composition
  As of 30 June 2019, EC has a portfolio of eight properties worth S$ 1.32 billion. It has three segments as follows:
  

Source: EC’s Investors Presentation August 2019

• Segment 1: e-Commerce Logistics Assets
  This segment has four properties, where three of them are now leased to their master lessees under long-term lease agreements with built-in rental escalations ranging between 1%-4% per year. The sole exception in this segment is Wuhan Meiloute where it is now multi-tenanted by a number of main tenants such as JD.com and DangDang. The properties and their lease structures are as follows: 

Source: EC’s Investors Presentation August 2019

• Segment 2: Port Logistics Assets
  It consists of two ports: Chongxian Port and Fu Zhou Industrial and one warehouse: Chongxian Port Logistics, which supports the operations of Chongxian Port. Their lease structures are as follows: 

Source: EC’s Investors Presentation August 2019

• Segment 3: Specialised Logistics Assets (Hengde Logistics)
  Hengde Logistics has two clusters of high-specification warehouses that have capabilities to store temperature & humidity sensitive goods, such as tobacco, wines, cosmetics, and perishables. It is currently leased to a key tenant, China Tobacco Zhejiang Industrial Co. Ltd for two years.
  
  
  
• Financial Results
  Since its IPO listing, EC has generated S$ 23-24 million in group revenue and S$ 20-22 million in net property income per quarter. From which, it has paid out S$ 11-12 million in distributable income or about 1.5 cents per quarter in distribution per unit (DPU). For the last 12 months, it has paid out 6.188 cents in DPU.
  
  
  

Source: EC’s Investors Presentation August 2019

• Balance Sheet Strength
  As of 30 June 2019, EC has reported S$ 489.9 million in borrowings and S$ 1.51 billion in total assets. Thus, its aggregate leverage is 32.4%. The REIT’s annualised all-in running interest costs is 4.5% per annum.
  
  
  
• Sponsor Strength & Major Unitholders
  Forchn Holdings Group Co. Ltd (Forchn) is the sponsor and the ultimate biggest unitholder of EC with 42.5% unitholdings. Forchn is an operator of port facilities and other logistics properties in China. As EC’s sponsor, it has given Rights of First Refusal (ROFR) to the following properties:
  
  

Source: EC’s IPO Documents

As of 12 March 2019, the other major unitholders of EC are as follows:

Source: EC’s Annual Report 2018

• Income Visibility
  As of 30 June 2019, EC has weighted average lease expiry (WALE) of 4.8 years by gross rental income (GRI). Its portfolio’s occupancy rate is now at 99.3%, where its top 10 tenants and their contributions in regards to their GRI for the financial year (FY) 2018 are as follows:
  

Source: EC’s Annual Report 2018

• Land Tenure Expiry
  In 2019, EC has a remaining tenure of 39 years and its land lease expiry for each properties are as follows: 

Source: EC’s Annual Report 2018

• P/B Ratio
  As of 24 September 2019, EC is trading at S$ 0.73 an unit. Upon EC had acquired the Fuzhou E-Commerce Property, its net asset value (NAV) is adjusted to be S$ 0.882 an unit. Thus, its P/B Ratio is 0.83.
  
  
  
• Distribution Yield
  For the last 12 months, EC has paid out 6.188 cents in DPU. Hence, EC’s current distribution yield is 8.48% per annum. 

VIA’s Verdict 

Since its IPO listing, EC has delivered a string of stable DPU to its unitholders. It intends to capitalise on the booming eCommerce industry across China and the strategic partnerships forged with its sponsor and eCommerce players. To name a few, they may include Alibaba.com, Taobao, JD.com, and DangDang.

Source: EC’s Investors Presentation August 2019

In summary, EC’s unit price is trading below its IPO price of S$ 0.81 per unit and offers 8+% per annum in distribution yield. It is reliant on two major tenants for its financial results and all of its properties are leasehold. 

So, would you invest in EC at S$ 0.73 an unit? 

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