"Crisis as Opportunity" REITs Industry: "Advantage of Inflation-Linked Rent, Enhancing Shareholder Value"

"REITs Are Safe Dividend Products... Overcoming Crises with Shareholders"

Lim Hyun-kyu, Head of KB Asset Management, is presenting at the '2022 Second Half Listed REITs Investment Briefing IR' held on the morning of the 10th at the Kensington Hotel in Yeouido. / Photo by Noh Kyung-jo felizkj@

[Asia Economy Reporter Noh Kyung-jo] "These days, the average lunch price in Yeouido is 12,000 to 13,000 won, more than double compared to over 20 years ago. This is due to inflation causing a decline in the value of money. However, real estate, which is the asset of REITs, has increased in value. This trend is expected to continue." (Im Hyun-kyu, Head of KB Asset Management)

Recently, the stock prices of listed REITs (Real Estate Investment Trusts) have also been hit by the real estate market downturn and liquidity risk. In response, the REITs industry emphasized their attractiveness as investment destinations, stating that inflation combined with interest rate hikes supports rental income, and the fallen stock prices have actually increased the dividend yield.

At the '2022 Second Half Listed REITs Investment Briefing IR' hosted by the Korea REITs Association on the 10th, Head Im said, "Unlike personal and retirement pensions, REITs offer a steady dividend yield averaging over 6%, and the principal can be returned later. Rental income, which is the revenue of REITs, is linked to inflation, preventing asset value decline."

KB Star REITs, the youngest among listed REITs, saw its stock price fall below the public offering price from the first day of listing last month. Head Im stated, "We are making efforts to actively communicate with shareholders," adding, "To secure investor trust, we have established an investment review committee that consults with representatives of shareholders."

ESR Kendall Square REIT also voiced efforts to enhance shareholder value. Lee Dong-jin, Head of ESR Kendall Square REIT Management, said, "We will consider acquiring new logistics centers when existing shareholders reach the performance stage (when the average purchase price rises). Two years ago, we focused only on growth, but now our priority is to overcome difficult times with shareholders and minimize damage."

ESR Kendall Square REIT is a leading logistics center REIT in Korea, owning 18 logistics centers nationwide. It maintains a 0% vacancy rate. Regarding forecasts of oversupply in logistics centers, Head Lee explained, "Due to rising construction costs and difficulties in project financing (PF), supply scheduled for this year is being postponed to next year or later. Supply is expected to be less than market estimates."

SK REITs highlighted its financing competitiveness based on the highest credit rating (-AA) among listed REITs and the locational advantages of its 116 gas stations nationwide, which are its managed assets. It was reported that the acquisition funds for 'Jongno Tower,' purchased last month, were raised at a weighted average interest rate of 4.8%.

Baek Min-joo, Head of SK REITs Management, said, "We expect the rights offering for Jongno Tower around June next year and will monitor the financial market stabilization. We anticipate a stock price increase following the inclusion in the FTSE Nareit index next month due to new capital inflows. We will expand the shareholder pool to drive stock price growth."

REITs investing in overseas properties also bear currency risk. The won-dollar exchange rate continues to rise, causing the won's value to decline. Regarding this, Park Joon-tae, Head of Mirae Asset Management, said, "We have hedged about 50% of the currency risk. Since rental income is received in dollars, it can be considered an investment concept," adding, "It is the only REIT generating foreign exchange gains."

Meanwhile, on the same day, the Ministry of Land, Infrastructure and Transport decided at the Real Estate Related Ministers' Meeting to recognize investment shares exceeding 20% ownership in real estate corporations by REITs as real estate. The original standard was over 50%. The association expects this regulatory relaxation to broaden the asset selection range for REITs.

Jung Byung-yoon, Chairman of the REITs Association, said, "Listed REIT stock prices have fallen sharply due to the direct impact of the base rate hike, which is unfair," adding, "I hope investors understand that REITs are safe dividend products holding top-quality assets."