[Into the Stock] Will ESR Kendall Square REIT's Rights Offering Succeed... Dividend Growth Expected

[Asia Economy Reporter Lee Seon-ae] ESR Kendall Square REITs, a leading logistics REIT (Real Estate Investment Trust) in Korea, has attracted attention for its bold offer allowing shareholders participating in the rights offering to subscribe for up to twice the number of new shares allocated to them.

According to the financial investment industry on the 9th, Macquarie Infrastructure is the only domestic listed company that has set the over-subscription limit for rights offerings at 100%. The general over-subscription limit for ordinary companies is 20%. REITs, which invest indirectly in real estate, differ from ordinary companies, making such conditions possible.

ESR Kendall Square REITs is conducting a rights offering for existing shareholders amounting to 442 billion KRW until today. The issue price of the new shares has been set at 6,330 KRW. Compared to the closing price of 6,350 KRW on the 8th, the price attractiveness of the new share subscription is low. The opening price on the day was 6,330 KRW, with an early session low of 6,320 KRW. As of 9:10 AM, it remained at 6,330 KRW.

It might seem more advantageous to buy on the market. However, the bold condition can compensate for the drawback that the new share price is not much different from the market price during the rights offering process. Lee Kyung-ja, a researcher at Samsung Securities, predicted, "Given the characteristics of listed REITs with low trading volume and dividend-focused long-term investment, the biggest incentive for subscribing to new shares will be the advantage of securing stock volume through the rights offering."

In particular, the financial investment industry is paying attention to the dividend growth potential of ESR Kendall Square REITs. ESR Kendall Square REITs distributes most of the rental income from its 12 domestic logistics centers to shareholders twice a year.

The criteria for selecting promising REITs during a period of rising interest rates are that rent increases should be easy and dividend growth should be possible by lowering financing costs. ESR Kendall Square REITs completed preparations for borrowings to acquire new assets in September, before the sharp rise in interest rates, so experts believe there is no concern about adverse effects from rising rates.

Dividend payout ratios are expected to increase significantly after the first half of next year. Kim Hyun-wook, a researcher at Shinhan Financial Investment, explained, "Due to the fixed cost dispersion effect from the rapid increase in asset size, dividend growth after asset incorporation will be confirmed from June next year," adding, "The current dividend gap can be regarded as part of the growth process." He further added, "Once asset incorporation is complete, if dividend per unit (DPU) growth is confirmed from the 6th term (June to November next year), the value of the sponsor pipeline will attract attention."

The asset size of ESR Kendall Square REITs is expected to increase from about 1.4 trillion KRW to 2.3 trillion KRW. The researcher said, "Due to the asset incorporation effect, distributable income, which is about 38.5 billion KRW this year, will increase to 56.7 billion KRW next year," and added, "Even considering the increase in the number of shares this year, the dividend yield is estimated to remain similar at 4.2%."