[Click e-Stock] "SK REITs: LTV Normalization Positive... Target Price Raised"

On August 29, NH Investment & Securities raised its target price for SK REITs from 6,800 won to 7,300 won. The company cited the decline in the cost of equity (COE) due to a downward adjustment of the risk-free interest rate and the normalization of the loan-to-value (LTV) ratio as reasons for the increase.

Lee Eunsang, a researcher at NH Investment & Securities, stated, "As of the end of March, the balance of convertible bonds stood at 87.1 billion won, but following additional conversion requests in June, it has now decreased to 67.1 billion won." He added, "Of this, 44 billion won is convertible at 4,706 won per share, and 23.1 billion won is convertible at 5,025 won per share, resulting in a total of 13.95 million convertible shares. This represents only 5% of the total outstanding shares, so concerns about dilution are minimal. Furthermore, the conversion requests will end in six months, which is also a positive factor."

He also analyzed that the normalization of the LTV ratio through asset revaluation is a positive development. Lee explained, "Following the amendment of the Enforcement Decree of the Tax Act, asset revaluation gains are now excluded from mandatory dividends. Previously, asset revaluation gains had to be classified as profits in the financial statements, which created an obligation to pay dividends."

He continued, "After the inclusion of SK-C Tower at the end of last year, the LTV ratio temporarily rose to 66%. To normalize this, an asset appraisal was conducted, and a portion of the debt (48.5 billion won) was also repaid. The appraised value of the assets, as confirmed through the appraisal, is 4.9 trillion won, which is a 12% increase compared to the acquisition cost of 4.4 trillion won. This will be reflected in the June-end financial statements, and considering this, the LTV ratio could decline to 59%."

Lee Eunsang projected, "With improved profitability from reduced financial costs, it will be possible to pay dividends without capitalizing earnings from the second half of next year." He further explained, "During the first half of the year, 398.3 billion won in refinancing was carried out, lowering the funding rate to 3.2% (from the previous 4.1%). This translates to an annual reduction in financial costs of 3.8 billion won, and reflecting the lower funding rate, the expected dividend per share in 2026 is 265 won."