[Asia Economy Reporter Lee Seon-ae] Lotte Entrusted Management Real Estate Investment Company (Lotte REITs) will sign a purchase contract for Lotte Mart Gyeonggi Yangpyeong Branch next month. After the purchase, it plans to generate rental income by signing a long-term lease contract with Lotte Shopping. It will also issue its first unsecured corporate bonds to raise funds for the asset purchase.
According to Lotte Entrusted Management Real Estate Investment Company on the 25th, the company will hold an extraordinary general meeting of shareholders on the 3rd to approve changes in the business plan (purchase and incorporation of Yangpyeong Branch) and borrowing plan (issuance of unsecured corporate bonds), as well as to handle the real estate sales contract (purchase of Yangpyeong Branch) and the master lease contract (tenant Lotte Shopping).
Lotte REITs stated, "We intend to sign a real estate sales contract for the purpose of purchasing Lotte Mart Gyeonggi Yangpyeong Branch (including each building, land, accessories, and sculptures)." They added, "Lotte Mart Gyeonggi Yangpyeong Branch is an asset with excellent business performance and expected real estate value appreciation. This is the first case of incorporating assets owned by entities outside the group, enabling the securing of various deal pipelines in the future." The sale is scheduled to be signed on December 15, with an acquisition price of 34.6 billion KRW, accounting for 1.45% of the total assets. The purchase funds will be raised through bond issuance and existing funds.
The scale of the unsecured corporate bonds is 31 billion KRW. This is the first time Lotte REITs is issuing unsecured bonds. Although it raised funds in the corporate bond market in 2019, it issued secured bonds at that time. Since REITs need to lower financing costs to increase dividends, corporate bonds are considered more advantageous in terms of interest rates compared to general loans, so they decided to issue public bonds. According to the Real Estate Investment Company Act, REIT companies are required to distribute at least 90% of distributable profits as dividends.
Lotte REITs said, "By issuing corporate bonds, we expect an increase in distributable amounts by acquiring and managing assets without capital increase from existing shareholders." They expect the total dividend amount to increase by 0.05%, from 38.283 billion KRW to 38.320 billion KRW, with the incorporation of Gyeonggi Yangpyeong Branch. Next year, it is expected to increase by 0.52%, from 38.820 billion KRW to 39.050 billion KRW.
Lotte REITs plans to lease Lotte Mart Gyeonggi Yangpyeong Branch to Lotte Shopping after purchase. They expect annual rental income of approximately 1.487 billion KRW. The lease contract period is from next month until March 2028. Lotte REITs explained, "Through the master lease contract, we will ensure stable asset management without vacancy risk, and by having the tenant bear building maintenance, taxes, and insurance premiums, we will enhance dividend safety."
Lotte REITs expects portfolio strengthening with the incorporation of Lotte Mart Gyeonggi Yangpyeong Branch. The proportion of the metropolitan area (based on the number of assets by region) is expected to increase from 57.1% before incorporation to 60% after, anticipating future asset value appreciation. The asset size is expected to increase by about 34.6 billion KRW, from 2.266 trillion KRW before incorporation to 2.3006 trillion KRW after, based on the acquisition price.
Kim Se-ryeon, a researcher at Ebest Investment & Securities, evaluated, "Lotte REITs completed the incorporation of six new assets including Lotte Mart Mall Gimpo Logistics Center in March this year." He added, "With the existing eight investment assets worth 1.5 trillion KRW and six additional assets worth 800 billion KRW incorporated this year, the total investment asset size has expanded to 2.3 trillion KRW, making it a large and high-quality anchor REIT." He also said, "They plan to sign a master lease contract with Lotte Shopping," and added, "Future asset value appreciation is expected."
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