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By Anna J. Park
Amid growing signs of an economic recovery later this year hinging on expectations for the accelerating vaccination campaign and export upturn, real estate investment trusts (REITs) are enjoying a ride in their stock prices.
Lotte REIT, one of the major listed REITs here, reached its 52-week high of 6,190 won ($5.57) during Wednesday’s intra-day trading, and finished at 6,170 won. ESR Kendall Square REIT that mainly invests in prime logistics facilities also hit its all-time high of 6,940 won, Wednesday, since its listing back at the end of last year. Shinhan Alpha REIT also reached its 52-week high of 8,720 won during Wednesday’s early trading hours, the highest level since November 2019 when it touched its all-time high level of 9,440 won. The REIT’s Wednesday closing price was 8,670 won.
Market experts view that the investment environment for REITs will continue to improve with visible signs of recovery in the global retail and real estate sectors.
“The increase of offline activities will result in enhanced performances by REITs, as a recovery in retail sectors is expected to lead enhanced demand for real estate as well, including urban offices, apartments, resorts and logistics facilities. Higher-than-expected inflation has also raised investment preference for REITs, as real estate properties are one of the leading inflation-hedging assets,” Daishin Securities analyst Bae Sang-young said.
But it still has a long way to go in the Korean market compared to other major economies where REIT investments are much more developed.
REITs were first introduced in Korea back in 2001. During the past two decades, the local market for REITs has grown significantly. As of Wednesday, a total of 13 REITs are listed on Korean stock markets, which is nearly quadruple the listed number back in 2002. The 13 REITs’ entire market cap rose above 4 trillion won ($3.6 billion) as of the end of last year, which is more than 10 times the 278 billion logged two decades ago.
However, the growth rate is still relatively meager when compared to markets like the U.S. and Japan, where the REIT market is more matured. In the U.S., where REITs were first introduced in the 1960s, the number of listed REITs was 219 as of March this year, which is over 16 times that of Korea, with their total market cap standing at $1.3 trillion.
REITs pay handsome dividends that are higher than savings interest rates, and their stock prices are also expected to increase further. Last year, the average dividend rate of listed REITs in Korean stock markets stood at 7.1 percent.
“Currently, real estate for logistics facilities is faring the best, while retail properties are still generally sluggish, except in the U.S. market. However, the global economic recovery, which is expected to come in the near future, is forecast to grant the most positive effect on commercial real estate, such as hotels, resorts and offices,” a recent SK Securities report on alternative investments stated.
As the Korean REIT market is currently still in the early stages of its maturing period, more than five major REITs are preparing for stock market debuts later this year.
SK D&D ― SK conglomerate’s real estate arm ― is preparing for its D&D Platform REIT, scheduled to go public sometime around August. The REIT attracted about 137 billion won in its pre-IPO investment, much higher than its original goal of 80 billion won.
NH All One REIT is also planning to go public in a similar time frame, as the REIT includes investments in various commercial buildings like Bundang Square Building and MDM Tower as well as Doji Logistics Center.
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