[Click eStock] "Shinhan Seobu TND REITs, Stable Rental Income Structure... Equipped with Growth Potential"

[Asia Economy Reporter Ji Yeon-jin] Korea Investment & Securities analyzed on the 22nd that Shinhan Seobu TND REITs has future growth potential in terms of stable lease structure and asset scale.

Shinhan Seobu TND REITs is a composite REIT with retail and hotel assets as its underlying assets. As of the end of March this year, out of the total assets under management (AUM) of 568.3 billion KRW, 387.5 billion KRW (68.2%) is retail, and 180.8 billion KRW (31.8%) is hotel. Excluding the self-managed Modu Tour REIT, it is notable for being the first among the 17 listed entrusted management REITs to include hotels.

Seobu TND, a real estate development and operation company, is the largest shareholder and participates as a sponsor. It was established by receiving an in-kind contribution of a complex shopping mall called Incheon Square One, owned by the sponsor, and the hotel was incorporated through a subsidiary REIT. The hotel is the Grand Mercure Residence Hotel (32 floors, 202 rooms) among the three buildings of Yongsan Dragon City. The acquisition was completed by investing in the subsidiary REIT with funds secured through an initial public offering (IPO) of new shares.

Kang Kyung-tae, a researcher at Korea Investment & Securities, said, "The sponsor master-leases the entire leasable area of the incorporated assets and pays fixed rent, so rent collection is stable," adding, "Seobu TND leases all areas of Incheon Square One except for the basement level 1 (long-term lease by Homeplus) and prepares rent payments to the REIT through sublease contracts for each retail store." The quarterly rent paid to the REIT is fixed at 4.7 billion KRW and is increased annually within 5% linked to the consumer price index (CPI) inflation rate. The Grand Mercure is master-leased by the sponsor, which operates it under a hotel chain brand and franchise contract, with a minimum guaranteed rent of 810 million KRW per month, maintaining steady operating income even after the pandemic.

Researcher Kang said, "The sponsor is progressing with development projects utilizing the owned land and plans to increase the REIT's total assets under management (AUM) by incorporating the developed properties," adding, "Starting with the Yongsan Najin Shopping Center site, which is undergoing permits, the sponsor plans to develop the Sinjeong-dong cargo terminal site, Incheon Square One 2 site, and others according to their intended use. Since these are development assets with land already secured as raw materials, they are expected to achieve better net operating income (NOI) yields compared to purchasing physical assets in the market."