[Practical Finance] How About Earning Monthly Rent with Small-Scale Real Estate Investment?

How to Use REITs 100%
Domestic REIT A-REIT Last Year's Dividend Yield 9.8%
Monthly Dividend US REIT 'Realty Income'

[Asia Economy Reporter Ji Yeon-jin] As expectations for economic normalization grow with the expansion of COVID-19 vaccinations, investment in REITs (Real Estate Investment Trusts) is gaining attention. In recent years, low interest rates have driven funds into real estate and stock investments, but with recent signs of inflation such as interest rate hikes increasing stock market volatility, REITs have emerged as a stable investment option.

REITs are indirect real estate investments where multiple people jointly purchase expensive real estate, lease it out, and share the rental income. In South Korea, REITs were first introduced in May 2001 to promote corporate restructuring through the liquidation of corporate-owned real estate following the 1997 foreign exchange crisis, and they began to be listed on the stock market starting in 2010. REITs are corporations that invest and operate at least 70% of their total assets in real estate (including buildings under construction) and must distribute 90% of their earnings to investors as dividends. Individual investors can easily invest in listed REITs through stock accounts, earning capital gains like stock trading and receiving dividends.

Currently, there are 13 listed REITs in South Korea, including A-REITs, I-REITs Core REITs, K-Top REITs, Shinhan Alpha REITs, Lotte REITs, NH Prime REITs, Mirae Asset MAPS REITs, EGIS Residence REITs, JR Global REITs, Koramco Energy REITs, and ESR Kendall Square REITs. Most of these pay dividends once or twice a year. According to financial information provider FnGuide, last year A-REITs (with annual dividends) had a dividend yield of 9.8%. K-Top REITs and Modetour REITs had yields of 6.81% and 5.11%, respectively. Lotte REITs, the largest by market capitalization, paid dividends twice last year, with an annual dividend yield of 2.97%. Unlike monthly rent, domestic REITs do not pay dividends monthly.

However, some overseas REITs pay monthly dividends. The U.S. ‘Realty Income’ is a representative example. Since its listing on the New York Stock Exchange in 1994, Realty Income has paid dividends monthly. As of the 1st of this month, the monthly dividend was $0.235 per share, amounting to an annual dividend of $2.82. Based on the closing price on the 19th (local time), the dividend yield was about 4%.

Most overseas REITs, however, pay dividends quarterly. If you want to receive more frequent dividends, you can invest in overseas REITs with different dividend payment dates. For example, Omega Healthcare, which invests in U.S. nursing homes and hospital real estate, paid dividends on February 16 this year, with a dividend yield of 7.3%. Equinix (dividend yield 1.8%) paid dividends on the 17th of last month, and Alexandria (2.8%) paid dividends on the 15th. Like domestic REITs, overseas REITs can be traded through stock accounts.

The securities industry is noting signs of dividend increases among REITs this year, along with rising stock price returns for listed REITs. Lee Kyung-ja, a researcher at Samsung Securities, said, "Some REITs have increased distributable earnings or have a high possibility of special dividends due to refinancing of secured loans, asset acquisitions, and portfolio rebalancing. It is time to focus on domestic REITs with dividend growth potential."

However, if you expect dividend yields, buying when stock prices are too high may actually lower your returns. Also, due to COVID-19 last year, REITs investing in U.S. offices, retail, and hotels saw significant declines in performance and cut dividends. Jang Seung-woo, a researcher at Daishin Securities, said, "Since REITs are sensitive to economic conditions, investors should consider growth potential in sectors like logistics and infrastructure and compare stock prices and dividend yields before investing."