EC World Reit
A quick post before I go on my holiday. This post is long delayed as I first bought $EC World Reit(BWCU.SI) at 0.735 around 3 months ago. The price has gone up since then but it has come down slightly from last Friday. It will still give you a dividend yield of 8% at the current share price of 0.755.
ECW owns 8 logistics properties mostly in the Hangzhou province. I did not invest initially as 3 of the properties are Port Logistics (think HPH Trust) but after monitoring for 3 years and the renewal of 3 Master Leases by the Sponsor, it looks good to go.
The latest 3rd Quarter results were disappointing with DPU falling 5.2% yoy. This is mainly due to the depreciation of the RMB. The DPU should improve next quarter with the full contribution from the latest acquisition of Fuzhou E-commerce which was completed on 8 Aug 2019.
What I like about ECW:
Long Wale of 4.3 years. This must be the longest WALE for an Industrial Reit, this would help stabilise distributions.
Built-in annual rental escalations of 1 to 2+% for the master leases.
40% of the portfolio are in E-commerce and Hangzhou is the E-Commerce Hub in China. E-commerce in China is expected to continue it’s strong growth, online sales grew 25.4% in 2018.
Hengde Logistics (14% of GRI), a specialised facility where temperature and humidity are controlled is leased to SOE China Tobacco. It is due for renewal in 2020 and the current rental is below market rent. This can also be a risk if China Tobacco does not renew although it’s unlikely.
The sponsor Forchn Holdings manages 4 private funds with USD1.2 billion in AUM which provides a growth pipeline for ECW.
What I don’t like
Income in RMB which is in a long term downtrend against the SGD. ECW does 6 months rolling currency hedge but it does not help if the RMB stays depressed.
High gearing of 39.6% after the recent acquisition. This means there will be a Rights Issue for any more acquisitions.
High average interest rate of 4.6%. Unfortunately they fixed 75% of their loans interest rate before rates started falling.
High dependency on Sponsor for Rental Income.
For sharing only, vested 30k shares.