EC World Real Estate Investment Trust’s Latest Earnings: 2018 Fourth-Quarter DPU Up 4.4%

EC World Real Estate Investment Trust’s Latest Earnings: 2018 Fourth-Quarter DPU Up 4.4%

EC World Real Estate Investment Trust (SGX: BWCU) rounded off an impressive year with distribution per unit (DPU) increasing 4.4% in the last quarter of 2018. Full-year DPU rose 2.6%. Here are the key takeaways from the company’s 2018 earnings update.

Source: EC World REIT 2018 Q4 Earnings Press Release

What’s behind the numbers

As you can see, all key operating numbers were up. The higher revenue and net property income were driven by the contribution of the newly acquired Wuhan property as well as organic growth in its existing portfolio due to step-up annual rental escalations.

In addition, the REIT is looking to extend its master lease agreements at three of its seven properties. If accepted by unitholders, the new master lease agreements will extend the weighted average lease expiry (WALE) by gross revenue of its portfolio from 2.0 years to 4.8 years. The details of the extended master lease agreements are detailed in the table below.

Source: EC World REIT 2018 Q4 Earnings Presentation

While the slower step-up annual rental escalations may irk investors, the new master lease agreements guarantee rental income from three of its key properties up to at least 2025.

Financial position

  • As of 31 December 2018, EC World’s gearing ratio stood at 31.5%.
  • Net asset value per unit was S$0.87.
  • Annualised all-in running interest rate is 4.3%.

While EC World REIT’s debt to asset ratio of 31.5% is well below the 45% regulatory cap, most of its debt needs to be repaid by the end of 2019. It is, therefore, susceptible to interest-rate risk. In addition, it already has a low-interest cover ratio of just 3.0 times, and higher finance costs could impact the REIT’s distribution going forward.

Investors should continue to monitor the REIT’s interest expense over the next few quarters.


Goh Toh Sim, executive director and CEO of the REIT’s manager, commented on the results:

Our portfolio continues to perform well with committed occupancy remaining high at 99.2%. Furthermore, the New Master Lease Agreements, which are subject to unitholders’ approval, will significantly extend our lease expiries, providing income certainty and sustainability with built-in escalations.”

The Foolish bottom line

There were both positives and negatives in EC World’s latest earnings update. Built-in rental escalations should continue to provide the REIT with visible rental growth. Its proposed extension of the master lease will extend the WALE of the REIT and provide relief to unitholders who were fretting over the possibility of non-renewal of the master leases, which contribute the bulk of the REIT’s rental income.

However, the REIT high-interest cover ratio remains a mark on the REIT. With the bulk of its debt due for refinancing this year, it is also heavily exposed to interest-rate risk. At the time of writing, units of EC World REIT exchange hands at S$0.77 per piece, translating to a price-to-book ratio of 0.88 and a trailing distribution yield of 8.0%.

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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. 

This content was originally published here.

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