EC World Real Estate Investment Trust (SGX: BWCU) is the first REIT in Singapore’s market that focuses on specialized logistics and e-commerce logistics facilities that are based in China. The properties in its portfolio are mainly for e-commerce, supply-chain management, and logistics activities.
The REIT caught my attention recently as it was trading near its 52 week-low; for perspective, EC World REIT’s current unit price of S$0.72 is just 1.4% higher than a 52-week low of S$0.71. As I studied the REIT, I found a few reasons for investors to like it. Here are three.
Good growth in recent quarter
One of the first reasons to like EC World REIT is its positive performance shown in its latest earnings update for 2018’s first quarter.
During the quarter, EC World REIT’s gross revenue came in at S$23.9 million, 1.2% higher than a year ago. Its reported distributable income declined by 3.8% year-on-year to S$11.56 million, while its DPU (distribution per unit) fell by 4.7% to 1.469 cents. But, this was mainly due to a 5% withholding tax that arose due to the repatriation of cash from the REIT’s asset companies in China in the quarter. (The REIT’s manager has no intention to repatriate any further cash from the asset companies for the rest of 2018.)
Without the withholding tax, EC World REIT’s distributable income and DPU would have shown year-on-year growth of 2.7% and 1.9%, respectively, instead.
Strong occupancy rate
The occupancy rate is a useful metric to measure the strength of the market demand for a REIT’s property. Most REITs in Singapore have occupancy rates that are higher than 90%.
And this is where EC World REIT stands out, at least for now. As of 31 March 2018, its committed occupancy rate was 100%. Moreover, only 3.2% of its leases (by gross rental income)will expire in 2018 and 2019, as of end-2017.
These numbers indicate that the REIT’s properties may be in high demand.
The last thing to like about EC World REIT is its low gearing. At the end of 2018’s first quarter, the REIT had a gearing ratio of 28.9%, which is a safe distance from the regulatory gearing ceiling of 45%.
With such a low gearing ratio, EC World REIT has ample room to raise more debt for future acquisitions. And since the REIT can make use of debt, there’s a lower chance of it needing to raise equity when making acquisitions; this also means that any future acquisitions by EC World REIT would likely not be dilutive for existing unitholders.
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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.