[Click eStock] "Irits Kokreb, It Will Take Time Until Financing Interest Rates Fall"

[Asia Economy Reporter Eunmo Koo] Samsung Securities has downgraded the target price for IREITs Core REIT, reflecting an expansion in the risk premium. The analysis suggests that for a substantial stock price rebound, the containment of the novel coronavirus infection (COVID-19) and stabilization of market interest rates are necessary.

On the 3rd, Lee Kyung-ja, a researcher at Samsung Securities, lowered the target price of IREITs Core REIT by 35% to 5,300 KRW in a report. Using the dividend discount model, the previously assumed perpetual growth rate of 1% was adjusted to 0%, and the recent 52-week average beta was reflected as having risen from 0.3 to 0.7. The researcher explained, “The reason for lowering the growth rate is not only structural concerns about offline retail but also because the recent rise in credit spreads across the market suggests that the anticipated decline in funding costs will take longer than expected.”

In the last 28th term (July to December 2019), the dividend per share was 175 KRW, which met the guidance. The researcher stated, “Given the characteristics of long-term master lease contracts?three assets with 16 years and two assets with 20 years?the possibility of dividend changes from previous estimates is slim,” adding, “Even if contract changes occur, these are matters for shareholder meetings.” Particularly, “In cases considered significant decisions, since the anchor shareholder E-Land Retail, holding 75% of IREITs Core REIT’s shares, does not have voting rights, it is unlikely that unfavorable matters for shareholders will pass at the shareholder meeting.”

Once market interest rates stabilize, a full-scale stock price rebound is expected. The researcher noted, “Currently, the collateral loan interest rate for five assets is 4% (3-year maturity). Before the COVID-19 issue spread, refinancing at the 3% level in 2021 was expected, but with the prolonged COVID-19 situation and rising short-term market rates, expecting a decline in funding costs in the short term is difficult,” adding, “The P/NAV (fair value) is 0.68 times, showing the cheapest valuation among listed REITs, so the risk of further decline is limited.”

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