REITs Become Undervalued Despite Stock Market Rally

[Asia Economy Reporter Oh Ju-yeon] Last year, REITs, which attracted attention due to the low interest rate trend in the second half, have been neglected by investors since the beginning of this year. Although the domestic stock market is heating up, with the KOSPI surpassing the 2400 mark, the relative returns of REITs have been sluggish. Some REITs are even trading below their initial listing prices.

According to the Korea Exchange on the 8th, Lotte REITs, which received high interest in the IPO market last year, recently saw its stock price fall to the offering price level.

Lotte REITs closed at 6,500 won on its first day of listing on October 30 last year, a 30% increase from the offering price of 5,000 won. The next day, it even rose intraday by 9% to 7,100 won. However, since then, it has steadily declined and as of 10:05 AM on the day, it was trading at 5,090 won, falling below the initial listing price of 6,000 won and even the offering price level.

Shinhan Alpha REITs, which rose to the 9,000 won range in November last year, has dropped sharply to the 6,000 won range. It has been hovering between 6,400 and 6,700 won for two months since July. On the day, the stock price recorded 6,750 won, up 0.90% from the previous trading day. The stock price of Aegis Value REITs, which was listed this year, is also trading at 4,450 won, below the opening price of 4,800 won on its listing day, July 16. NH Prime REITs fell nearly 30% from 6,100 won as of the closing price on January 2 this year to 4,290 won on the day. Other REITs such as Aegis Residence REITs and JR Global REITs are also struggling. Analysts attribute this to income-type assets being neglected due to premiums on new growth industries backed by massive liquidity.

Lee Kyung-ja, a researcher at Samsung Securities, explained, "Massive liquidity accelerated the concentration of funds in the stock market, creating valuation premiums for new growth industries, and income-type assets offering annual dividend yields of around 6% were relatively neglected." She added, "Many REIT listings were delayed due to the COVID-19 pandemic and only debuted on the stock market in June, but the underlying assets they hold had the weakness of not reflecting the structural social changes accelerated by COVID-19."

However, considering the increased dividend yields, it is said to be a time to regain interest from a long-term perspective.

According to Samsung Securities, the average dividend yield of listed REITs rose to 6.3%, up from 4.2% in the fourth quarter of last year. Also, since 2013, the official land prices in Korea have increased by an average of 3.4% annually, securing a downside for asset value. It is also noteworthy that interest in dividend stocks typically rises in the second half of the year.

The researcher said, "The KOSPI High Dividend Index has shown outperformance in the fourth quarter and the first quarter of the following year every year," adding, "From autumn, the stock market's interest gradually shifts to dividend stocks, highlighting the valuation attractiveness of undervalued Korean REITs."