Shinhan Alpha Up 9.8%, Lotte REITs Up 7.7% in Last 5 Trading Days
Pandemic Fear Eases... Stable Dividend Income Expected in Low-Interest Era
[Asia Economy Reporter Eunmo Koo] Real estate investment trusts (REITs) listed on the stock market, which had stalled amid concerns over the slowdown of the real economy due to the spread of the novel coronavirus infection (COVID-19), have recently shown signs of recovery. As the fear of the pandemic gradually eases, the relatively stable dividend income expected in the low-interest-rate era is emerging as an attractive factor.
According to the Korea Exchange on the 22nd, Lotte REITs closed at 5,570 won, up 3.15% (170 won) from the previous trading day. Lotte REITs, which had shown a sluggish trend with a 14.0% decline until last month this year, have been gradually recovering this month, rising 7.7% over the past five trading days. During the same period, Shinhan Alpha REITs (9.8%), NH Prime REITs (4.1%), and IREITs Core REITs (2.6%) also rose, signaling a shift in sentiment.
Previously, REIT stocks showed sluggish price trends due to concerns that the real economy would slow down because of COVID-19. In particular, many domestic listed REITs are retail REITs such as IREITs Core REITs (including NC Department Store) and Lotte REITs (Lotte Mart, department stores, outlets), so offline sales slumps were directly reflected in stock prices. The rapid surge in listed REITs’ stock prices at the end of last year, which led to an increase in profit-taking volume, also negatively affected supply and demand.
Researcher Yeolmae Kim of Eugene Investment & Securities explained, "When the economy deteriorates sharply as in the recent COVID-19 situation, the rent of real estate held by REITs may be delayed or vacancy rates may increase, causing rental income to decline. In such cases, there is a possibility that dividends cannot be paid, or difficulties in financing may arise when borrowing matures."
However, as the recent COVID-19 situation has stabilized relatively, interest in listed REITs is reviving. In a situation where the base interest rate has decreased, the higher dividend yield compared to other asset classes can be an advantage. Researcher Kim said, "With countries significantly lowering base interest rates, REITs will become relatively more attractive compared to other asset classes. As the COVID-19 situation gradually stabilizes, the dividend yield of REITs in the ultra-low interest rate era will be spotlighted again."
Researcher Seryeon Kim of eBest Investment & Securities said, "Unless the assets held face a situation where rent payments become difficult due to prolonged business downturns, resulting in inability to receive expected dividends or forced sales below appraisal value due to increased defaults, there is no major risk. Considering the expansion of disaster relief funds and the gradual resumption of economic activities, the current valuation of REITs could be a buying opportunity."
Shinhan Alpha REITs, which recently acquired additional office assets, is also attracting attention. In March, Shinhan Alpha REITs decided to purchase the Daeil Building on Namdaemun-ro for 68 billion won. On the 15th, it finalized the rights offering price at 5,860 won per share, issuing 27.5 billion won, which is 38% of the acquisition cost, and plans to raise the remaining 62% through senior and mezzanine loans. Researcher Kyungja Lee of Samsung Securities evaluated, "The inclusion of the Daeil Building expanded the asset size from about 600 billion won at the time of listing to 900 billion won, proving it is a growing REIT."
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