EREITs KOCREF Enhances Appeal With 7% Annual Dividend and Quarterly Payout Plan

Amid concerns about increased financial costs due to additional hikes in the base interest rate, investor sentiment across the listed REITs market has weakened. In response, EREITs KOCREF has moved to defend investor sentiment by maintaining a dividend guidance in the 7% range and announcing plans to implement quarterly dividends.

Exterior view of Newcore Outlet Pyeongchon Branch. Provided by Koramco Asset Trust

On September 1, EREITs KOCREF, a listed REIT managed by Koramco Asset Trust, announced that it would uphold its annual dividend guidance at around 7% based on the offering price. The company is also considering shifting from the current biannual dividend (twice a year) to a quarterly dividend paid four times a year.

Previously, the Bank of Korea's Monetary Policy Board raised the base interest rate by 0.25 percentage points from an annual 2.75% to 3.00% on August 27. Interest rate hikes can lead to increased borrowing costs, which has recently become a key burden for the listed REITs market.

EREITs KOCREF plans to address rising interest rates by leveraging retained cash and its long-term master lease structure, which ensures yearly rental increases. According to a stress test conducted by Koramco Asset Trust, even if the interest rate on the KRW 430 billion in loans due for refinancing in 2027 rises by 1 percentage point from the current weighted average rate of 4.95% to 5.95%, the company can still maintain the annual dividend guidance of approximately 7% based on a 5,000-won offering price. This is possible by offsetting additional interest costs from higher rates using existing retained cash and increasing rental income.

Recent declines in share price have further enhanced EREITs KOCREF's dividend appeal based on market prices. The company has set its target annual dividend per share (DPS) at 350 won, equating to roughly 7% per year when compared to the 5,000-won offering price. Calculated at recent share prices, the expected dividend yield is in the double-digit range. However, the dividend guidance is a target, and the actual payout may vary depending on future rates and refinancing conditions.

The key factor supporting the stability of EREITs KOCREF's dividends is its predictable cash flow through long-term lease agreements. The company owns five urban retail assets in the Seoul metropolitan area, including NewCore Outlet Pyeongchon and Ilsan branches, 2001 Outlet Bundang and Junggye branches, and NC Department Store Yatap branch, all of which are fully master-leased by E-Land Retail. The remaining weighted average lease expiry (WALE) is approximately 8.4 years. Notably, lease agreements ensure annual rent increases of 1.5% to 2.5%, linked to the Consumer Price Index (CPI). The triple-net structure, where the tenant bears all real estate-related taxes, insurance, and maintenance costs, helps mitigate the impact of inflation and rising costs on the REIT’s cash flow.

Additionally, improvements in E-Land Group’s financial strength, its principal tenant, further reduce risk factors. E-Land World’s consolidated operating profit for the first half of this year rose 48.4% year-on-year to KRW 231.6 billion, while E-Land Retail’s operating profit surged by 243%, posting a positive net income for the first half for the first time since the COVID-19 pandemic.

Specifically, Koramco Asset Trust is considering increasing the dividend frequency from the current twice a year (June and December) to four times a year (March, June, September, and December). By maintaining the annual dividend guidance while shortening the payout cycle, they aim to offer investors more regular and predictable cash flows. While specific implementation has not yet been confirmed, a final decision will be made after board and shareholder meetings following a detailed review.

Along with this, the company also plans to proactively refinance the KRW 430 billion in borrowings maturing in April-May next year, and to further stabilize share prices and restore market confidence by expanding investor relations (IR) activities targeting institutional investors.

Chulkyu Kim, Head of the REITs Investment Division at Koramco Asset Trust, stated, "Although share prices are being adjusted due to a decline in overall investor sentiment toward listed REITs, there has been no significant change to the leasing and cash flow structure of the REIT. We will continue to uphold the 7% dividend guidance based on the offering price, and are reviewing shareholder-return measures such as transitioning to quarterly dividends. We are focusing on enhancing shareholder value through proactive refinancing and active investor communication."

This content was produced with the assistance of AI translation services.