13 States Average 16.6% Increase Since April
Advantages of Inflation Hedge + Dividend Income
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[Asia Economy Reporter Park Jihwan] The stock prices of domestically listed REITs, which had been sidelined during the KOSPI rally from last year through early this year, have recently soared. As concerns about inflation due to economic recovery arise, the advantages of inflation hedging (risk avoidance) functions and stable dividend yields are being highlighted.
According to the Korea Exchange on the 13th, the stock prices of 13 domestically listed REITs have risen by an average of 16.6% from April until the day before. Stock prices of 12 items, excluding JR Global REIT, all increased. This significantly exceeds the KOSPI increase rate of 3.27% during the same period. REITs are products that collect funds from investors and invest in commercial real estate such as offices, hotels, and logistics centers, distributing the profits to investors as dividends. In the domestic stock market, an annual dividend yield of 4-7% can be expected.
REITs have been spotlighted for their ability to generate stable returns in a low-interest-rate era, but last year was an exception. As market demand heavily favored growth stocks, interest in REITs, which emphasize dividend attractiveness and stability, significantly declined. Additionally, the economic activity contraction due to COVID-19 dealt a direct blow to REITs’ profitability by reducing rental income and increasing vacancy rates. This is also why the average annual stock price increase rate of REIT stocks last year was only 0.35%.
The recent strength of listed REITs is primarily due to solid dividends. ESR Kendall Square REIT, listed in December last year, invests in 11 logistics centers. Dividends are paid twice in February and August, with a dividend yield exceeding 4%. Lotte REIT is a securitized product of Lotte Department Store and Lotte Mart. Dividends are paid in March and September, with an expected dividend yield close to 6%.
REITs undergoing portfolio adjustments by selling non-core assets and acquiring new assets are also attracting attention. Even non-core assets of REITs are often located in prime real estate areas, so dividend income expansion through large-scale capital gains from sales is expected. Koramco Energy REIT, Korea’s first gas station REIT, plans to sell 27 sites out of 187 gas station assets that have accumulated operating losses. Considering the capital gains from sales, the annual dividend yield is expected to reach 14%.
REITs are also emerging as a hedging tool during inflation periods. REIT assets have a structure where rents and other fees increase with rising prices, functioning as an inflation hedge. Kim Junghyun, head of investment products at Shinhan Financial Investment, said, "REITs have the advantage of improved profitability due to economic recovery benefits and fixed dividend income through real asset investment," adding, "The demand for investment in real assets such as real estate is increasing over financial assets as a hedge in the inflation phase, which is also being met."
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