REITs, by their nature, are expected to make acquisitions of real estate assets in order to satisfy their goal of increasing their payouts to unitholders.

ECWorldChair CEO3.18(L-R): EC World REIT Chairman Zhang Guobiao with Acting CEO Goh Toh Sim. (Mr Zhang is also chairman of the REIT's sponsor, Forchn Holdings Group).
 Photo by Leong Chan Teik
EC World REIT, which listed in July 2016 with 6 properties, has just made its maiden acquisition post-IPO.

Located in the Chinese provincial capital of Wuhan (population: 10.6 million), this asset is owned by a third party, Hubei Anhai Steel-work Co., Ltd.

In other words, the vendor is not the REIT's sponsor.

And, to reiterate, the property is not in Hangzhou where the REIT's current six properties -- purchased from the sponsor, Forchn Holdings Group -- are located. 

Target asset

Where

Wuhan city

Anchor tenants

JD.com, DangDang.com

Completion

May 2017

Remaining land tenure

48 years (2065)

Consideration

RMB145 m (S$30.3 m)

Occupancy

82.2%

NPI yield

4.9%

The Wuhan asset is currently used for warehousing purposes with an ancillary dormitory use.

The property is leased to big-name logistics and e-commerce tenants including Dangdang Information Technology and Jingdong Jinde.

The acquisition raises the REIT's distribution per unit (DPU) by 0.8%, from 6.025 cents to 6.076 cents on a pro-forma basis.

The FY17 distribution yield was 7.9% based on DPU of 6.025 cents and the closing price of 76 cents as at end-2017.

The REIT's Acting CEO, Goh Toh Sim, emphasised the REIT's stable returns, as the committed occupancy of the six pre-IPO assets remains at 100%.

Following the Wuhan property acquistion, there is upside potential for the DPU -- if and when tenants are found for the 17.8% space that is still available there.

 
ECW brief3.18@ EC World REIT's briefing on its FY17 results.
Photo by Reyna Mei
The total purchase consideration for the Wuhan property is RMB145 million (S$30.3 million), which is a 15.2% discount to the independent valuation of RMB171 million done by Colliers International.

The weighted average lease expiry (WALE) is 2.3 years by gross rental and 2.4 years by net lettable area.

ECworld mgt3.18EC World REIT management (L-R): Acting CEO Goh Toh Sim | CFO Johnnie Tng | Head Investment, Asset Management and Investor Relations Jinbo Li.
Photo by Leong Chan Teik
This is relatively short but it works in favour of the asset owner as rents are expected to rise -- given the high demand for e-commerce facilities -- upon either renewal of a lease or a new tenant taking up the space.

The transaction enhances the REIT's unique proposition as a specialised e-commerce logistics REIT.

At present, 30.7% of  its portfolio is in the e-commerce logistics sector while another 34.1% is in the specialised logistics sector (by net lettable area).

With a low gearing of 29.2% post-Wuhan acquisition, the REIT is looking to make further acquisitions, possibly in Southeast Asia.

The focus is on assets that have specialised use (such as e-commerce warehousing and fulfilment centres) as well as other logistics assets providing strategic connectivity in the supply chains.

For more on the Wuhan acquisition, see Powerpoint materials here.


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