Brokers' take: RHB upgrades EC World Reit to 'trading buy' on potential offer

RHB on Tuesday upgraded EC World Real Estate Investment Trust (EC World Reit) to "trading buy" from "neutral", with a raised target price of S$0.83 from S$0.76.

This came after the Reit's manager announced on Monday that it has been approached by Forchn International regarding a potential transaction involving EC World Reit's interests in all of its properties, which may or may not lead to a divestment of these properties.

Forchn International is the overseas headquarters of Forchn Holdings, EC World Reit's sponsor. It is leading the discussions on behalf of a consortium of purchasers.

On the possible deal, RHB said there could be a potential takeover offer. It noted that the Reit is an ideal acquisition target for funds looking for stable recurring income due to its high FY2021 dividend forecast of 7.6 per cent and logistics-focused portfolio.

The research team's target price of S$0.83 represents a 7.1 per cent upside from the Reit's trading price of 77.5 Singapore cents as at 11.23am on Tuesday. The counter was up 3.3 per cent or 2.5 Singapore cents at the time.

It has raised its forecasts for FY2021-2023 distribution per unit by 1-3 per cent by fine-tuning its interest cost and occupancy assumptions. It has also trimmed its cost of equity assumption by 30 basis points to 8.8 per cent.

In its announcement on Monday, EC World Reit's manager said that no decision has been made in respect of the price or the terms under which any such divestment would take place and "wishes to emphasise" that there is no certainty or assurance whatsoever that any transaction will occur.