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Results First Take: More organic growth expected in coming quarters

  • 3Q21 DPU of 1.662 Scts is slightly above our projections
  • Key positives: i) YTD3Q21 DPU makes up more than 77% of our FY21 projections, ii) portfolio occupancy rate remains strong at 99.0%, iii) there will be some organic growth in earnings with rental escalation at one of its property, and iii) c.6.7% increase in NAV to S$0.95
  • Key negative: delays on repairs of the 2 berths in Chongxian Port Logistics, but ECWREIT continues to receive full rental income from master lease
  • Maintain BUY with a TP of S$0.90
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Key operational data3Q212Q21%q-o-q3Q20% y-o-y
Revenue32311.2%2810.9%
NPI29282.4%269.4%
DI13128.6%1120.3%
DPU (Scnts)1.661.538.5%1.3919.7%
Portfolio occupancy99.0%99.1%-0.1%96.7%2.3%
WALE (years)2.83.0-0.23.3-0.5
Aggregate leverage37.9%37.6%0.3%38.3%-0.4%
Interest Coverage Ratio2.92.90.12.50.4
All-in interest rate4.0%4.2%-0.2%4.2%-0.2%

(+) 3Q21 DPU increased 8.5% q-o-q; above projections

  • 3Q21 revenues inched up by 1.2% q-o-q to S$31.6m
    • NPI also inched up by 2.4% q-o-q to S$28.6m
  • Increase in revenues and NPI mainly due to stronger RMB and lower operating expenses
  • 3Q21 DPU of 1.662 Scts is 8.5% higher q-o-q
    • YTD 3Q21 DPU of 4.73 Scts accounts for more than 77% of our FY21 DPU estimates, slightly above our projections
    • Q-o-q DPU growth would have been higher without the pay out of S$2.0m in retained earnings in 2Q21
  • ECWREIT continues to retain 5% of its distributable income for withholding tax purposes for future income repatriation
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(+) Healthy portfolio occupancy rate of 99.0%

  • ECWREIT maintained a very strong portfolio occupancy rate of 99.0% (vs. 99.1% in 2Q21)
  • 7 of its 8 properties remain 100% occupied
  • Only vacancy at Wuhan Meiluote property
    • Slight dip in occupancy rate to 79.4% (vs. 81.3% in 2Q21)
  • Only 5.9% of portfolio (by GRI) will be expiring in 4Q21
  • Expecting a 1% rental escalation at Stage 1 Properties of Bei Gang in November 2021
    • Property accounts for more than 25% of portfolio GRI

(+) Slight improvement in all-in interest rates

  • 3Q21 all-in interest rates of 4.0% is slightly lower than the 4.2% in 2Q21
  • Gearing remains at optimal levels of 37.9%
  • NAV increased by c.6.7% to S$0.95 mainly due to stronger RMB
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Our thoughts
We continue to like ECWREIT for its portfolio resilience and the positive outlook for its portfolio. Its very healthy portfolio occupancy rate of 99.0% continues to underpin earnings stability, and the annual rental escalation at its Stage 1 Properties of Bei Gang will provide some orgic growth in earnings in the coming quarters. Despite a slight dip in occupancy rate at its Wuhan Meiluote property, we believe that ECWREIT will be able to backfill the vacant spaces with the continued growth of the logistics sector.

We understand that there has been some delays in the repair works at the two berths in Chongxian Port Logistics, and repairs would only be completed in the next 1 or 2 quarters. However, as the property is under a master lease agreement, it continues to receive full rental income for the property. There has been no updates on the potential acquisition of its entire portfolio, but we believe that discussions are still ongoing given the very healthy operating metrics of ECWREIT’s portfolio and its attractive yields.

On a forward yield basis, ECWREIT remains very attractive with a projected forward yield of c.7.8%. Moreover, our TP of S$0.90 implies a more than 10% upside in share price. We will be maintaining out BUY recommendation on ECWREIT, with a TP of S$0.90.