Brokers' take: RHB downgrades EC World Reit to 'neutral' on lack of near-term catalysts

RHB has downgraded EC World Reit to "neutral" from "buy" due to a lack of near-term catalysts and limited upside to the real estate investment trust's (Reit) target price, which remains unchanged at S$0.76.

The research team noted that the Reit's occupancy rate and income have been largely stable despite the Covid-19 pandemic, being well-supported by master leases. Rental growth, on the other hand, seems to have plateaued, with tenants still adopting a cautious approach.

As at Dec 31, 2020, EC World Reit's portfolio occupancy stood at 99.3 per cent, with a weighted average lease to expiry (by gross rental income) of 3.4 years.

Acquisitions will likely be the key catalyst for the Reit moving forward, as its gearing "remains modest" at 38.1 per cent, RHB said. This provides a debt headroom of about S$175 million for acquisitions.

"Management is still on the lookout for acquisitions from its sponsor and third parties, but has been facing some challenges due to current travel restrictions limiting its ability to conduct due diligence exercises," RHB said.

The research team has cut its FY2021-22 distribution per unit (DPU) forecast by 7-8 per cent, assuming a 90 per cent payout ratio. The previously assumed payout ratio was 100 per cent.

A NEWSLETTER FOR YOU

Tuesday, 12 pm

Property Insights

Get an exclusive analysis of real estate and property news in Singapore and beyond.

Sign Up

For the 12 months ended Dec 31, 2020, EC World Reit's DPU was 11.4 per cent lower year on year at 5.359 cents. Gross revenue rose 10.7 per cent to S$109.73 million, while net property income was 11.8 per cent higher at S$100.31 million. Distribution to unitholders was 10.6 per cent lower at S$43.11 million.

Units of EC World Reit closed at 1.4 per cent or S$0.01 higher at S$0.74 on Friday.