SK REIT
This year, SK REIT’s share-price decline has been modest compared to the level seen during its rights issuance period last year. With capital to be raised to the degree expected, DPS is projected to rise over the next year. We advise buying at the current low price, believing that the risk of any share-price correction once the fundraising is finished is limited.
Fundraising on track to support DPS to rise over next year
We maintain a Buy rating and a TP of W6,000 on SK REIT. As detailed in our previous report, DPS is projected to rise over the next year, backed by: 1) incorporation of a water treatment facility; 2) a special dividend payout; and 3) short-term bond redemption using the capital raised via a rights offering. As its share-price decline has been limited since the record date for new share allotment, the final subscription price is to be set at around W4,000, a level representing a 5% discount from the current share price. In line, the amount of capital to be raised should meet expectations. Based on the current share price, 12-month forward DY comes to 8%.
Share price slide less than during last year’s rights issue
This year, SK REIT’s share price fell 8% between the initial disclosure date for its rights offering (Jul 27) and the record date (Aug 11) and then to 9% down at the point about a month away (Aug 22) from the disclosure date. In comparison, during last year’s rights offering, its share price had slid by 18% and 14% at these two respective points.
We attribute the smaller share-price correction during this year’s right offer to the strong cap rate for the asset to be purchased following the rights issue. This year, the firm plans to buy SK Hynix’s Icheon Wastewater Treatment Center, the cap rate (excluding rent) for which is sized at 7%. With this asset addition, the company's portfolio cap rate is set to rise from 3.92% to 4.61%. Moreover, the BOK’s base rate cycle looks to be topping off. Of note, during last year's rights’ issue period, the BOK amped up its base rate by 50bp. Even after the capital raising period, SK REIT’s share price was sluggish due both to continued interest rate hikes and the Legoland PF issue. But in the current case, as related risks are limited, the share price should remain solid after the rights issuance.