Organic growth to the rescue
- Revenues and NPI increased 14.4% and 12.7% y-o-y respectively due mainly to rental rebates given in FY20
- FY21 DPU higher by 16.9% to 6.263 Scts, c.2% above our estimates
- Organic growth in earnings to offset absence of income from the expropriation of Fu Zhuo Industrial
- Maintain BUY with a revised TP of S$0.85
Investment Thesis
Revising our TP to reflect divestment of Fu Zhuo Industrial. ECWREIT has demonstrated its portfolio resilience by reporting improving earnings and higher occupancy rates. However, Fu Zhuo Industrial will undergo a compulsory expropriation by the local government and will be vacated by 31 March 2022. Although built-in rental escalations from its master leases will more than offset the absence of income, there will be a c.S$1.8m income void going forward.
Leveraged on e-commerce. Earnings to remain robust as its portfolio caters to the fast-growing logistics and e-commerce sector; 50% of assets are e-commerce logistics and 25% each in port logistics and specialised logistics.
Inherent organic growth in the portfolio underpinned by master leases. With built-in rental escalations ranging from an average of 1.0% to 2.5% for its master leases, this ensures organic growth to ECWREIT’s earnings. Moreover, its multi-tenanted assets that cater to the fast-growing logistics industry also have the potential deliver revenue growth.
Valuation:
Our target price of S$0.85 is based on DCF with an assumed discount rate of 7.9% (risk-free rate of 3.0%). Our target price implies 7.4% yield and a P/NAV of 0.95x.
Where we differ:
We have assumed that ECWREIT maintains a dividend payout ratio of 95% going forward. An increase in payout ratio will be an upside risk to our projections.
Key Risks to Our View:
Key risks include those that are sponsor-related such as failure to extend master-lease agreements and challenges in underlying occupancy.