SINGAPORE (Nov 3): The recent buzz around logistics property companies has brought EC World REIT to NRA Capital’s attention. The REIT mainly invests in e-commerce, supply chain management and logistics properties in China.

In a Thursday unrated report, analyst Liu Jinshu notes that EC World will be paying 100% of income for distribution of 0.991 cents per unit. This translates to 5.58 cents annually, or a yield of 7.3%.

“Growth will be driven mainly by the acquisition of new properties given the REIT’s low gearing and its acquisition pipeline,” says Liu.

EC World current has six properties with a net leasable area (NLA) of 700,000 spm, spilt between port, specialised and e-commerce logistics properties. End-tenant occupancy across its portfolio was 94.4% as of June 30. Independent valuation as of Dec 31, 2015, puts the portfolio at $1.31 billion, or $1,876 per sqm, for an average tenure of 40 years and a weighted average lease expiry by NLA of 4.1 years.

Liu notes that REIT sponsor Forchn Holdings is an established real estate, logistics and finance group. In 2015, it posted RMB 2.95 billion ($600 million) in revenue. The sponsor has developed an integrated smart warehousing and third-party logistics services platform, Ruyicang, for supply chain needs of e-commerce companies. The platform is currently available in six cities in China, while EC World is mainly in Hangzhou.

“Hence, there is scope for EC World to expand into other Chinese cities with the support of its sponsor as the Master Lessee and operator of newly acquired assets,” says Liu.

The REIT is currently evaluating whether to acquire a potentially yield-accretive asset in China. EC World currently has $400 million of debt headroom for acquisitions, notes Liu. The REIT currently has two pipeline assets to be completed in Jan 2017 (215,643 sqm) and Dec 2017 (100,777 sqm).

“Most likely EC World will acquire these two assets after occupancy has stablised, suggesting that EC World’s portfolio NLA may grow by at least 45% over the next two years,” says Liu.

EC World also offers diminished forex risk according to Liu, as the RMB has appreciated against the SGD since July, and the SGD may continue to weaken as well in light of slower economic growth.

Units in EC World are trading flat at 76.5 cents.

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