Boasts Stable Asset Income in Seoul, Neighboring Areas
The author is an analyst of NH Investment & Securities. He can be reached at minjae.lee@nhqv.com. -- Ed.
With 51% of Koramco’s underlying assets located in Seoul & neighboring metropolitan areas and 21% in major metropolitan cities, it should enjoy both asset value rises and stable rental fee income. It is also to be able to charge higher rental fees on gas stations on the inclusion of vehicle maintenance centers and drive-through stores on gas station land. As a large portion of its underlying assets are in major regions, potential additional development projects should provide additional earnings growth momentum.
Boasts stable asset income in Seoul, neighboring metropolitan areas
Gas station-based real estate investment trust (REIT) Koramco Energy Plus REIT (Koramco)’s main underlying assets are 187 gas stations nationwide it purchased from SK Networks, including lands (W1.0tn), buildings (W0.1tn), and structures (tanks, piping, etc). These assets encompass a total site area of 96,000 pyeong (1 m2 = 0.3025 pyeong), with a total value of W1.1tn (an average value of W11.8mn per pyeong). With Hyundai Oilbank being the main tenant (83% of total rental fees), a 10-year long-term lease contract is expected to secure stable profits. Of note, an early termination of the lease contract is not possible in general, but gas stations booking operating losses are allowed to terminate the lease before the expiration of the lease period.
We point out that 51% of Koramco’s real estate assets are located in Seoul & neighboring metropolitan areas and 21% are located in major metropolitan cities. Moving ahead, we expect the portion of the firm’s assets located in Seoul and its neighboring metropolitan area to widen via continual asset incorporations and deletions. In addition to 187 gas stations, other underlying assets in operation on the gas station lands owned by Koramco include 172 car wash facilities and 81 convenience stores operated by Hyundai Oilbank, and also 78 vehicle maintenance services operated by SK Networks. Besides, 20 quick service restaurants (QSRs) such as McDonald’s and Burger King are also a part of the firm’s underlying assets. We note that Koramco’s lease contracts with these QSRs are sales volume-linked, and expansion is likely through additional contracts.
Potential development projects in metropolitan areas to further spur earnings growth momentum
As Koramco’s gas stations are located on major roads in city centers and boast an average land size of over 500 pyeong, the value of them is highly likely to rise upon future development. In terms of land classification, Koramco’s underlying assets consist of 20 commercial areas, 50 semi-residential areas, and 65 other residential areas. We see 2021F DY of 6.5%, a more attractive level than that offered by office and retail asset-focused REITs.