[Click eStock] "KB Staritz to Steadily Provide Annual Dividend Yield of Around 7%"

Korea Investment & Securities Report

[Asia Economy Reporter Minji Lee] Korea Investment & Securities evaluated on the 5th that KB Staritz has built a portfolio capable of stably providing a dividend yield of over 7% per annum.

KB Staritz is a pure office REIT scheduled to be listed in October. All assets are located overseas, and it is the first of its kind introduced by KB Financial Group. The total assets, converted to Korean won, amount to approximately 945.1 billion KRW and are incorporated not as physical assets but as shares of the REIT and private real estate fund beneficiary certificates. The equity ratios are 100% and 89.4%, respectively.

There are two main assets for the IPO. The first is the North Galaxy Tower located in the CBD of Brussels, Belgium. The entire leasable area is master-leased (maturing in 2031) by the Belgian Building Management Agency, and through a sublease agreement, the Belgian Federal Government’s Ministry of Finance is the actual user. The second asset is a prime office located in London, UK. Samsung Electronics’ European headquarters master-leases (maturing in 2039) this office. The annual rents are 40.7 billion KRW and 5.1 billion KRW, respectively.

The biggest investment point of this REIT is the ability to receive rent payments stably. This is because the tenants under the master lease have credit ratings based on the S&P 500: the Belgian Ministry of Finance (AA) and Samsung Electronics (AA-). In the case of the North Galaxy Tower in Belgium, 68 billion KRW will be invested for remodeling at the expense of the Ministry of Finance, which is expected to further increase the office’s value in the future.

It is also positive that the rent increases are linked to inflation indices. The rent for the North Galaxy Tower is adjusted according to the annual increase rate of Belgium’s consumer price index, the Health Index. The rent for Samsung Electronics’ European office is linked to the UK Retail Price Index. Kang Kyung-tae, a researcher at Korea Investment & Securities, said, “As of August this year, Belgium’s Health Index rose 7% compared to December last year, and as of July this year, the UK Retail Price Index rose 8% compared to December last year.”

It is also positive that concerns about increased interest expenses due to rising interest rates are low, allowing stable payment of dividend yields in the 7% range. The local SPC, wholly owned by the REIT, borrowed funds from a local bank with an LTV of 58.5% to purchase the North Galaxy Tower. The interest rate is a fixed rate of 1.2% per annum plus a variable condition based on the 3-month EURIBOR. However, 75% of the variable condition is hedged through swaps, so even if the variable rate rises by 200 basis points (1bp = 0.01%p), only 50 basis points are actually added to the interest rate.

Researcher Kang said, “Given the growing concerns about rising financing costs for REITs, the fact that the dividend yield presented at the IPO can be stably achieved is the biggest investment point.”

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