Irits Kokrep Completes Block Deal... Imminent Conversion to Outsourced Management REIT

E-Land Stake Below 50%... Opens Path for General Real Estate Investment
Fixed Interest Rate in Low 3% Range Applied Until 2024

[Asia Economy Reporter Hyungsoo Park] Koramco Asset Trust announced on the 1st that it has completed the block deal of IREIT KOREIT and lowered the major shareholder's stake to 48%, meeting the conditions for conversion to a delegated management REIT.

IREIT KOREIT is a listed REIT that holds as assets the top five stores by sales operated by E-Land Retail, including NC Department Store Yatap Branch, NewCore Outlet Ilsan Branch, Pyeongchon Branch, 2001 Outlet Junggye Branch, and Bundang Branch. It has maintained an annual dividend rate in the 8% range based on the public offering price.

IREIT KOREIT is the only corporate restructuring REIT among listed REITs in Korea. A corporate restructuring REIT is established to support asset securitization of companies undergoing restructuring. Since its investment targets are limited to real estate owned by restructuring companies, there are restrictions on expanding asset size. Currently, Koramco Energy REIT, The One REIT, SK REIT, and Lotte REIT, all traded on the KOSPI, are delegated management REITs.

Koramco Asset Trust has been preparing for the conversion of IREIT KOREIT to a delegated management REIT since last year. This is because there are limitations to competitiveness in the growing domestic REIT market when restricted to corporate restructuring real estate alone.

For a corporate restructuring REIT to convert to a delegated management REIT, the major shareholder's stake must be lowered to 50% or less. To achieve this, Koramco Asset Trust successfully reduced E-Land's stake from 75% to below 50% through four block deals since June last year. With the basic conditions for conversion recently met, they plan to submit a change approval application to the Ministry of Land, Infrastructure and Transport as early as this month.

Koramco Asset Trust plans to accelerate general asset incorporation after REIT change approval. The assets under review include E-Land's securitized assets, mid-to-large retail, and logistics centers that can create synergy with IREIT KOREIT's existing assets and have verified profitability. IREIT KOREIT's loan-to-value ratio (LTV) is currently low at 43%. In addition to rights offerings, various financing methods can be considered for asset acquisition, so asset purchases are expected to accelerate.

IREIT KOREIT predicts that the impact of interest rate hikes will be limited compared to competing REITs. In May last year, when the base interest rate was at an all-time low, it was the first domestic REIT to successfully raise funds through corporate bond issuance. IREIT KOREIT is subject to a fixed interest rate in the low 3% range until the first half of 2024.

IREIT KOREIT has signed lease contracts with E-Land Retail structured to increase rent annually linked to the Consumer Price Index (CPI). Rent is expected to increase by about 2.5% starting from the third quarter, and from the first half of 2023, when the rent increase is applied, it is expected to pay a semiannual dividend of 215 KRW, equivalent to an annual dividend rate of 8.58% based on the public offering price.

A Koramco Asset Trust official said, "The conversion of IREIT KOREIT to a delegated management REIT has provided an opportunity to grow into a complex-type REIT, breaking away from the limitations of existing retail REITs," adding, "We will strive to increase dividend rates even during periods of rising interest rates through rent increases and active asset incorporation."