Guaranteed Annuity is the Bet of Kinea's FII with Class B Offices

KORE11 is a fund that has been standing out, mainly due to the earnings generated by the Guaranteed Annuity
Out of the four properties in the fund, three do not meet high-standard requirements and are located in regions with high vacancy rates.

• The KORE11 is a fund that has been standing out, mainly due to the earnings generated by the Guaranteed Minimum Income

By: SiiLA News

01/19/2024

With an IPO conducted in December, Kinea's new office fund, KORE11, is catching the attention of investors. Since its stock market debut, the fund has shown strong performance, boasting a positive variation of 7.52% in under two months.

In material released by Kinea, the fund presents a net yield of 15% per year (p.a.) in the first 24 months, with consistent returns due to the structure of Guaranteed Annuity, with which KORE11 was created.

Guaranteed Annuity is a common alternative for new ventures, where the fund uses part of the IPO or the sale of another property to cover unpaid rent. In these cases, the expectation is that the properties will be able to generate income through rents after the end of the GA period.

Investor and market professional inquiries focus on the fund's ability to sustain solid income beyond this initial period. Will the fund be capable of delivering robust returns to unit holders?

For a seasoned investor, the analysis should delve deeply, extending beyond the superficial aspects of funds raised through the IPO.

Property Features

Morumbi Office Tower, a Class B office tower in São Paulo

Currently, the fund comprises four developments, three in São Paulo and one in Rio de Janeiro. The São Paulo assets are all classified as Class B, with Kinea's ownership standing at 100% in Alameda Santos, 89% of Corporate Plaza, and 82% in Morumbi Office Tower. On the other hand, at Centro Empresarial Botafogo, Kinea's stake is at 100%, making it the sole Class A property in the portfolio.

Despite low vacancy rates, KORE11's developments exhibit certain characteristics that could impact performance. Notably, while Centro Empresarial Botafogo is a Class A building, its location in an area with high vacancy rates poses a challenge. According to Market Analytics, the Orla area registers a 19.24% vacancy rate for high-end assets.

Concerning the São Paulo developments, they are situated in regions with ample vacant inventory, such as Chucri Zaidan, which reports a vacancy rate of 27.19% for A+, A, and B offices. Narrowing the focus to Class B properties, the standard for Morumbi Office Tower, the vacancy rate in the region surpasses 30%.

What comes next?

After two years, as the GA concludes, the fund is expected to become self-sufficient, securing profitability through sales and rentals. However, this transition doesn't always unfold seamlessly. A notable case is the Hedge retail and shopping center fund, FIGS11, which, in 2018, concluded its GA but struggled to maintain yields, resulting in a sharp decline in unit values.

When the GA concludes in 2026, the landscape will differ from the present scenario. For Rio de Janeiro, market forecasts from SiiLA indicate that Centro Empresarial Botafogo will contend with a city boasting a 25% vacancy rate for high-end properties.

Kinea also disclosed that 15% of rental contracts for the Rio asset will expire in 2025, followed by 20% in 2026 (when the GA concludes), and 25% in 2027 and beyond.

SiiLA is a multinational company specializing in data and analytics solutions for the commercial real estate market in Latin America. In the Brazilian market, SiiLA presents REsource, a dedicated communication platform delivering news and content pertaining to the sector. The company does not operate in real estate brokerage, recommended portfolios, or any other real estate consulting services.

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