KB Star REITs, listed in Korean stock market, faces a significant currency settlement of approximately USD 43 million (KRW 58 billion) due to a maturing FX hedge related to its 2022 Belgium office acquisition. The KRW-EUR exchange rate has surged from about KRW 1,340 at the time of acquisition to over KRW 1,570 currently.

This settlement amount exceeds the REIT's total dividends from the past year, impacting its future dividend capacity. To secure funds, KB Star REITs plans to issue short-term bonds, highlighting currency risk in overseas office investments alongside interest rate and vacancy risks.

KB Star REITs owns three properties through subsidiary REITs: North Galaxy Tower in Brussels, Belgium; Samsung Electronics European Headquarters in London, UK; and Citibank Center in Seoul.

The Brussels office, acquired in July 2022 for EUR 630 million (approximately USD 645 million), comprises 77% of KB Star REITs’ investment. A EUR 367 million collateralized loan for this acquisition, originally maturing in May 2025, was extended by one year. The KRW-EUR rate surged from about KRW 1,340 at acquisition to over KRW 1,570 currently.

To cover the currency settlement, KB Star REITs issued USD 44 million (KRW 60 billion) in short-term bonds in June at 4.3% annual interest, injecting USD 43.5 million (KRW 58.7 billion) into the subsidiary REIT as a capital increase.

This was for extending an OTC derivative (FX hedge) set to mature in June. KB Star REITs chose borrowing over a capital increase to avoid investor backlash. The company clarified that the full USD 44 million isn't just for settlement but also for cash reserves against exchange rate volatility, with any remainder to be repaid next fiscal year.

The settlement amount, at USD 43 million, exceeds the REIT's past year's total dividends of approximately USD 27 million. This increased expense is expected to lower the REIT's dividend capacity. KB Financial Group holds about a 53% stake in this REIT.

This article was published in Corebeat on June 18, 2025.