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EC World Real Estate Investment Trust: The Bull Case

REITs in Singapore had a blockbuster 2017. As the property market continues to gain momentum this year, more investors are scrambling to get on the REIT bandwagon. However, with so many REITs in the market, which one can outperform the rest? As such, I want to introduce a REIT that I believe could be a market-beater for many years to come.

Listed in 2016, EC World Real Estate Investment Trust (SGX: BWCU), or ECW for short, is a specialised logistics and e-commerce REIT. It has a portfolio of six properties located in Hangzhou, China. Despite the downsides associated with investing in overseas REITs (such as repatriation tax, foreign currency risk, and so on), ECW has enough positives that may make it a worthy investment.

Low leverage and likelihood of acquisitions

Perhaps one of the main reasons I am attracted to ECW is its low gearing ratio. ECW currently has a gearing ratio of 27.6%, which is one of the lowest amongst Singapore REITs, giving it room for yield-accretive acquisitions. At current debt levels, ECW has around S$400 million of debt headroom for growth.

ECW’s management has also mentioned numerous times that it does intend to make use of their debt capacity for acquisitions to bolster their portfolio in the future.

Built-in rental escalations and long lease expiries

ECW has built-in rental escalations in its tenant contracts. That means that even if it fails to grow its portfolio in the near term, its rental income can still grow organically.

According to the REIT’s annual report, the REIT has built-in rental escalations with its tenants ranging from 3-10% a year. This provides visible organic income growth for as long as the contract runs.

The REIT also has a 100% occupancy rate for five of its properties and a long weighted average lease expiry (WALE) of four years by gross rental income.

Attractive valuation

Despite its low leverage ratio and high property yield of 6.5%, ECW still trades at a relatively reasonable valuation.

At its current price of S$0.72 per unit, it has a price-to-book (PB) ratio of just 0.77 and an attractive distribution yield of 8.3%. For perspective, ECW’s current distribution yield is among highest among REITs listed in Singapore, and it also has the 6th lowest PB ratio.

The Foolish bottom line

At current valuations, you will be hard-pressed to find another REIT that offers similar opportunities for growth and income.

Although there are certainly risks with ECW, including its relatively short history as a listed REIT in Singapore and concentrated property portfolio, the opportunities for growth make it an attractive proposition that is worth looking into.

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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 Jeremy Chia owns units in EC World Real Estate Investment Trust.