[Gold Age 22] Lee Kyung-ja, Senior Research Fellow at Samsung Securities, "Domestic Listed REITs Enter Full Growth Phase, Also Achieving Profitability"

Lee Kyung-ja, an alternative investment/REITs analyst at Samsung Securities Research Center, is giving a lecture on the topic of "REITs Investment Strategies for Retirees" at the 2022 Asia Economy Golden Age Forum held on the 20th at the Bankers Hall in Jung-gu, Seoul. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Lee Seon-ae] Domestic listed REITs (Real Estate Investment Trusts) products are expected to gain attention as a financial technology tool for future retirement preparation. They are evaluated to have competitiveness in both profitability and growth compared to overseas REITs products.

On the morning of the 20th, Lee Kyung-ja, Senior Research Fellow at Samsung Securities, stated at the '2022 Asia Economy Gold Age Forum' held at the Bankers Hall in Myeongdong, Seoul, hosted by Asia Economy, in the presentation titled '2022 Second Half K-REITs Market Outlook,' "Currently, there are 20 listed REITs, with 4 more expected to be listed within the year, and the market capitalization proportion on the KOSPI is expected to rise to 2% by around 2025 (currently 0.8%)." She emphasized, "With the government's 'Public REITs Activation Measures,' various incentives such as separate taxation on dividend income for REIT investors will be provided, showing the characteristics of income-type assets." Income returns are characterized by high predictability, leading to higher total return performance compared to other asset classes in the mid to long term.

With the acquisition of major investors for listed REITs, expansion of REIT listings, and capital increases of existing REITs, the market capitalization proportion of domestic listed REITs and infrastructure funds relative to the current KOSPI is estimated at 0.8% (approximately KRW 19 trillion market cap), expected to expand to 1.0% in 2023 and 2.0% in 2025. In developed REIT markets such as Japan and the United States, the market capitalization proportion of REITs within the stock market reaches 2-3%.

The reason to pay attention to listed REITs is their usefulness as an inflation hedge. As the possibility of interest rate stabilization increases toward the end of the year and rental increases are gradually occurring, the fundamentals of listed REITs, which can maintain high dividends, are judged to be favorable.

Research Fellow Lee said, "Since the history of Korean REITs is short, looking at the U.S. REITs as an example, the results showed that as inflation intensified, REITs outperformed market index returns," emphasizing, "Therefore, in the current high inflation era, REITs are a useful investment tool."

Compared to global REITs, Korean REITs also have favorable dividend yields. However, dividend yields are expected to gradually stabilize downward to align with global levels over time. This means that REIT stock prices correspond to global standards.

She also noted a positive atmosphere in the listed REITs market as listing procedures have improved. However, she pointed out that asset revaluation is not being properly conducted. Accordingly, Research Fellow Lee urged the necessity of asset revaluation for REITs. He emphasized, "Under the Corporate Tax Act, unrealized gains from valuation increments are classified as distributable profits, so regular asset revaluation of listed REITs is not conducted," adding, "It is reasonable to mandate regular asset revaluation and disclose Net Asset Value (NAV), as is done in Japan."

Regarding REIT investment strategy, she stressed the importance of first looking at dividend yields, followed by examining NAV. She said, "Domestic REITs have undervalued office assets, so there is potential for stock price appreciation," and added, "Especially, increasing asset size can lead to better evaluations, and to this end, capital increases are conducted. Last year alone, a total of KRW 1.4 trillion in capital increases were completed (Macquarie Infrastructure, ESR Kendall Square REIT, Lotte REIT)." She recommended Macquarie Infrastructure, Aegis Value REIT, Coramco Energy REIT, SK REIT, Shinhan Alpha REIT, and Coramco The One REIT.

Meanwhile, REITs are real estate indirect investment products that raise funds from multiple investors and invest and operate real estate to distribute rental income, capital gains from sales, and development profits to investors. In particular, listed REITs are traded on the stock market, making them easier to liquidate than direct real estate investments.