[Practical Finance] Which REITs Are Gaining Attention Despite COVID-19?

New Opportunities for Special, Residential, and Industrial REITs
About 10 Public REITs Preparing for Listing with Assets Like Logistics Centers

[Asia Economy Reporter Moon Jiwon] Although the REITs (Real Estate Investment Trusts) market was somewhat sluggish in the first half of the year due to the spread of the novel coronavirus infection (COVID-19), it is analyzed that REITs in special, residential, and industrial sectors with no rent arrears could present new opportunities. As non-face-to-face consumption and telecommuting have increased since the COVID-19 outbreak, the diversification of investment targets such as logistics centers and data centers is also a recent characteristic of REITs products.

According to the real estate industry on the 8th, REITs products that could not avoid stock price declines due to COVID-19 this year are gradually recovering as they expand their investment targets. REITs operate by collecting funds from investors to invest in real estate or real estate-related capital and distributing the generated profits as dividends. If the economy worsens due to COVID-19 and rental income decreases, there is a possibility of principal loss.

Therefore, the industry is focusing more on special, residential, and industrial sector REITs with no rent arrears. Special types typically include data centers and communication towers. Experts advise that these REITs have recorded favorable rent collection rates despite the COVID-19 situation, enabling them to pay stable dividends.

Investing in U.S. REITs, where the most REIT products are traded worldwide, is also worth considering. The products gaining attention in the U.S. are also data centers and logistics centers. Data centers are facilities that house servers, communication equipment, and storage devices used by companies. As telecommuting and video conferencing have increased due to COVID-19, their importance has grown even more. With the advancement of information technologies such as the Internet of Things (IoT) and artificial intelligence, demand for data centers is expected to increase further.

Interest in logistics centers is also rising. This model involves renting logistics warehouses to online commerce companies such as Amazon, FedEx, and Walmart and generating income. This is also one of the sectors benefiting from the increase in non-face-to-face consumption due to COVID-19. Domestically, more than ten public REITs investing in logistics centers, offices, and gas stations are preparing for listing in the second half of the year.

Lee Kyungja, an analyst at Samsung Securities, stated in a report titled "Continued Asset Expansion of Untact-Related REITs" on the 6th, "While REITs closely related to offline activities are focusing on securing cash liquidity, the only REITs continuing asset acquisitions and investments this year are logistics centers, data centers, and cell towers," adding, "Digital Realty in the previous week decided to add data center investments in Hong Kong following Korea, and Ascendas and Mapletree in Singapore are accelerating overseas logistics center acquisitions in Australia and other regions. These are phenomena expected to continue even after COVID-19 ends."

Investing in large REITs less affected by economic recessions is also advantageous. NH Prime REIT, which was listed in December last year, recently decided to acquire a large number of real estate investment securities of overseas prime-grade offices. These overseas properties have tenants such as luxury brand Gucci, global accounting firm KPMG, and the Bank of France. NH Nonghyup REIT Management explained, "As the portfolio assets expand, opportunities for capital gains from sales will also increase."

REITs are characterized by allowing small investments in various real estate assets to earn stable returns, but since real estate is the underlying asset, caution is necessary when investing. They can be greatly affected by government policies or the economy. Retail REITs may suffer losses if department stores or marts experience declining performance, and office building REITs are vulnerable if vacancy rates increase. Even in sectors attracting attention due to COVID-19, verification of underlying assets is essential. An industry insider said, "It is necessary to check what real estate the REIT holds," and added, "Blind investments should be avoided."