[Click eStock] Lotte REITs Maintains High Dividend Yield Despite Rising Interest Rates

[Asia Economy Reporter Lee Seon-ae] It is forecasted that Lotte REITs' incorporated assets will be abundant and the dividend yield will be maintained.

According to Korea Investment & Securities on the 23rd, the second asset incorporation of Lotte REITs has been completed. The second asset, acquired on the 15th and with lease contracts initiated, is Lotte Mart Gyeonggi Yangpyeong Branch. The acquisition price of the asset is 34.6 billion KRW, purchased from Maston Investment Management, and a master lease contract was signed with Lotte Shopping to receive an annual fixed rent of 1.3 billion KRW and a variable rent amounting to 0.5% of the previous year's sales. The purchase price was financed by issuing 31 billion KRW of unsecured corporate bonds with a 2-year maturity at an interest rate of 2.9% per annum. Therefore, there is expected to be no dilution of dividends per share after the second asset incorporation. This is comparable to the first asset incorporation, which involved a paid-in capital increase of 41.3% of the existing issued shares. The loan-to-value (LTV), calculated by adding the corporate bond issuance amount and excluding the lease deposit, is 49.5%, and the dividend for the 6th term is estimated at 159 KRW per share (annualized dividend yield of 6.36%).

Researcher Kang Kyung-tae of Korea Investment & Securities commented, "The incorporation of high-quality assets like Lotte Mart Yangpyeong Branch is expected to continue," and evaluated it as "a period when the strengths of sponsor REITs are manifested." The pipeline of retail stores and logistics centers for which Lotte REITs has been granted the right of first refusal from Lotte Shopping and Lotte Global Logistics amounts to 8.7 trillion KRW, and it also secures opportunities to participate from the early stages of development for planned assets. The debt ratio, which is significantly lower than the statutory debt ratio limit under the Real Estate Investment Company Act, and the LTV of less than 50% create conditions for stable financing when incorporating additional assets.

Researcher Kang emphasized, "Lotte REITs is a REIT that can defend against increased borrowing interest expenses and potential damage to dividend yields due to rising interest rates." As of the first half of the 6th term, long-term borrowings amount to 936 billion KRW, of which 478 billion KRW matures in 2022. If refinancing is conducted for the maturing portion, an additional interest expense of about 1.2 billion KRW will occur, including fees paid to the lending syndicate, assuming a 0.5%p increase in the base interest rate. However, Lotte REITs has a history of issuing 170 billion KRW of secured bonds with a 2-year maturity at an annual interest rate of 1.553% before its IPO.

He added, "If 200 billion KRW of the maturing portion is financed through corporate bond issuance, interest expenses can be reduced by 800 million KRW, and considering the rent increases of more than 1.5% annually, the dividend yield is expected to be maintained at the current level," but he also stated, "However, no investment opinion or target price is provided."

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