EC WORLD REIT: Is first post-IPO acquisition around the corner?

EC World REIT (currently trading at 77 cents) offers a yield that is stable -- and nice at about 7.8% annualised -- because its rental income is based on an effective 100% occupancy of its assets. Property Lease terms Rental escalation Fu Heng Warehouse Master lease: From 1/1/2016 to 31/12/2020 6.0%, 5.0%, 4.0% and 3.0% on 1st Jan of 2017, 2018, 2019 and 2020, respectively. Stage 1 Properties of Bei Gang Logistics Master lease: From 1/11/2015 to 31/10/2020 1% per annum Chongxian Port Investment Master lease: From 1/1/2016 to 31/12/2020 6.0%, 5.0%, 4.0% and 3.0% on 1st Jan of 2017, 2018, 2019 and 2020, respectively Chongxian Port Logistics Multiple tenancies (1) 75% of leases: increase of 10% in first 3 years, 12% from the fourth year; (2) 20% of leases: increases up to 5%, annually Fu Zhuo Industrial 1)25 Apr 2015 to 24 Apr 2020 2) 8 Oct 2014 to 7 Oct 2029 (1) 10% in first 3 years, 15% starting from the 4th year  (2) 7.5% every 3 years Hengde Logistics 1) 15 Oct 2015 to 14 Oct 2020 2) 9 May 2016 to 8 May 2021 2 main leases. Up to 10% upon renewal Source: annual report 2016 The full occupancy lends visibility to the REIT's income, more than 70% of which derives from 5-year master leases taken up its sponsor, Forchn Holdings Group, until 2020. While the assets come with annual increases in rental, a bigger boost in the REIT's distribution per unit (DPU) will come from earnings-accretive acquisitions. The REIT, which listed in July 2016 with 6 properties, has in fact been actively working towards that objective, CEO Alvin Cheng (photo) said during a meeting with investors last week. Investors at the REIT briefing."In the past one and a half years after listing, we have been preparing to expand our portfolio. We have had a few loose ends to tie up, especially to meet regulatory requirements. "We are working on some opportunities and hopefully this year, we can complete an acquisition."

New assets, especially if they have relatively shorter tenant leases and bigger rental escalation, will be the growth driver for the DPU.

The REIT is particularly keen on assets with potential for leasing to e-commerce businesses, since the latter can afford higher rental rates and rental reversions and there is stronger scope for capital gain for such real estate, said Mr Cheng.

The REIT has a right of first refusal to acquire, from the sponsor, two assets in China which are focused on e-commerce logistics.

They are Fu Zhou E-Commerce Properties, and Stage 2 of Bei Gang Logistics.

The REIT, all whose current assets are located in Hangzhou, is not ruling out venturing into other parts of China, said Mr Cheng.

With a gearing of 29%, the REIT has debt headroom of $150-200 million.

Likely, capital raising will be needed at some point in the future, as has been the experience of Singapore-listed REITs during their growth phase.

There are various capital-raising steps available including, but not necessarily, a rights issue, said Mr Cheng.