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3 Things EC World Real Estate Investment Trust’s Management Want Investors To Know About Its Business

In late February, EC World Real Estate Investment Trust (SGX: BWCU) released its 2017 fourth quarter and full year earnings update.

As a quick introduction, EC World REIT, which was listed in July 2016, is the first China-focused logistics REIT in Singapore’s stock market. As of 31 December 2017, it owned six properties in China that are mainly used for e-commerce, supply-chain management, and logistics purposes.

The Manager of the REIT had given a presentation on its latest results. In the presentation deck, I saw three slides about its business that I think investors should pay attention to.

The first slide shows a high-level summary of EC World REIT’s income statement for the whole of 2017, along with a comparison of the numbers given in the forecast of the trust’s IPO (initial public offering) prospectus:

Source: EC World REIT’s 2017 fourth quarter earnings presentation

We can see that the REIT did better than expected for the whole of 2017, with its gross revenue, net property income, distributable income, and distribution per unit (DPU) all higher than projected. The REIT’s stronger performance was driven mainly by favourable currency movements.

The next slide I want to look at shows a breakdown of the REIT’s gross revenue and net property income by property:

Source: EC World REIT’s 2017 fourth quarter earnings presentation

What’s useful to know is that the REIT’s income is concentrated on two properties, which collectively account for more than 50% of its total NPI. This represents a high level of concentration risk.

The last slide I want to discuss shows EC World REIT’s lease expiry profile:

Source: EC World REIT’s 2017 fourth quarter earnings presentation

There are two points worth mentioning. Firstly, the REIT’s weighted average lease to expiry (by gross income) was 3.0 years at end-2017. What this means is that on average, the REIT’s tenants will continue to occupy its properties and pay rent for the next 3.0 years.

Secondly, 86.7% of the REIT’s leases will expire in 2020. This will put significant pressure on the REIT in that year as it has to renew a significant amount of leases. Investors should keep an eye on this risk, and observe the REIT’s progress in the renewal of its leases.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.