[Click eStock] "Koramco Energy Plus REITs, High Asset Appeal... Requires Mid- to Long-Term Perspective"

DB Financial Investment Report
Gas Station Rent-Based REIT... Dividend Yield 6%
May Face Difficulty Receiving Fair Value Due to Declining Investor Sentiment

[Asia Economy Reporter Minji Lee] DB Financial Investment expressed on the 22nd that investing in Koramco Energy Plus REIT requires a mid- to long-term perspective. Although the assets are highly attractive, it may be difficult to receive a proper valuation in the early market due to low interest in REITs.

Recently, the REIT market has faced unfavorable investment conditions as the stability of rental income has declined due to the impact of the novel coronavirus (COVID-19). Yoonho Cho, a researcher at DB Financial Investment, explained, “Koramco Energy Plus REIT is a stock with very high dividend stability and has announced a dividend yield in the 6% range, but it is hard to say this increases its investment appeal,” adding, “In the short term, it may be difficult to receive a proper valuation in the early stages of listing.”

Koramco Energy Plus REIT is a REIT based on underlying assets that did not previously exist. Scheduled to be listed in August, it uses land, buildings, and structures of 187 gas stations nationwide as its underlying assets. The tenants include Hyundai Oilbank (gas stations, about 83% of rent), SK Networks (Speedmate, 6% of rent), McDonald’s, Burger King, Daiso, and others, forming the basis of the rental income.

The dividend source is the rent from gas stations, vehicle repair shops, and QSRs (Quick Service Restaurants). Long-term contracts of 10 years have been signed with Hyundai Oilbank and SK Networks, and the rent increase rate is also fixed, so it is safe to say that about 90% of the total dividends are guaranteed.

Researcher Yoonho Cho said, “The underlying assets of REITs listed on the existing stock market were domestic and international offices, retail, and rental housing, but the types of underlying assets are diversifying,” adding, “Since Hyundai Oilbank, the main tenant, acquired gas stations last year together with Koramco Asset Trust to increase its gas station market share, it seems unlikely they would give up their tenant status.”

The reason for the high interest in Koramco Energy Plus REIT is the development potential of the land it holds. Some of the gas station sites acquired from SK Networks are actually under development. This means that if a site operated as a gas station is judged to have higher development value, it can be developed for purposes other than a gas station.

Researcher Yoonho Cho explained, “However, the profits from development are difficult for REIT investors to enjoy, and the structure allows for capital gains only when the assets are sold later,” adding, “Hyundai Oilbank prioritizes securing competitiveness in the gas station business, so the possibility of land sales in the near term is low.”

The planned public offering amount for Koramco Energy Plus REIT is 106.6 billion KRW. The public offering price has been fixed at 5,000 KRW per share, and the expected annual dividend yield excluding capital gains is 6.2%.