[Real Estate AtoZ] "Their Own REITs"... 75% Are Non-Public Offering

No Public Offering Obligation for 3 out of 4 Domestic REITs
Among 373 Domestic REITs, 23 are Listed

"In Korea, REITs are REITs in name only. When conducting a public offering, they have to go through the hassle of disclosing dividend details, profits, expenses, etc., and there are no tax benefits associated with public offerings. Because of this, more REITs seek exemptions from public offering requirements," said a fund manager at an asset management company.

It has been revealed that three out of four domestic REITs (Real Estate Investment Trusts) are products that are not obligated to conduct public offerings. Without public offerings, it is also difficult for them to get listed. Since the majority of REITs do not conduct public offerings or get listed, general investors face difficulties accessing them. This is acting as an obstacle to the revitalization of REITs. On the 22nd, Real Estate AtoZ examined the current status and issues of the domestic REIT market.

View of a reconstruction construction complex in Seoul city.
Photo by Yonhap News

Among 373 domestic REITs, only 23 are listed...

REITs are an indirect investment method where funds are collected from multiple investors to invest in real estate and the operating income is returned to investors. For example, 10 people pool money into one REIT to buy a building, then receive dividends by sharing the rental income from the building. Additionally, through REITs, investors can invest not only in real estate but also in real estate-related securities such as other REITs. This method is called a parent-subsidiary relationship, where the investing REIT is called the parent REIT and the invested REIT is called the subsidiary REIT.

REITs are divided into listed REITs and unlisted REITs. The market accessible to general investors is the listed REITs. However, the proportion and scale of listed REITs in the overall REIT market are small. According to the Korea REITs Association, out of 373 domestic REITs, only 23 are listed. The size of the domestic REIT market was 95 trillion KRW as of March. Among this, the market size of listed REITs was 7.8694 trillion KRW as of the end of March. In comparison, the size of listed REITs in the U.S. is about 1,610 trillion KRW, and in Japan about 152 trillion KRW.

Listing of REITs proceeds after a public offering according to listing requirements. The listing requirements include having equity capital of at least 10 billion KRW, the total number of shares offered being at least 25% of the total common shares, and having at least 200 shareholders. A Ministry of Land, Infrastructure and Transport official said, "Public offering REITs must follow listing procedures if they meet the listing requirements. However, there are many REITs that have not yet proceeded with listing due to requirements such as the number of shareholders or sales."

75% are private rental REITs, established with pension fund capital and exempt from public offering obligations

The problem is that REITs without public offering obligations account for about 75% of all REITs. A Ministry of Land, Infrastructure and Transport official said, "Among the total 373 REITs, 50% are public-supported private rental REITs aimed at housing supply rather than public offering or listing. Additionally, 25% of all REITs are established with funds from pension funds or mutual aid associations, which are recognized as having a public offering nature and thus are exempt from public offering." He added, "In fact, only about 90 REITs have public offering obligations."

On the afternoon of the 8th, a briefing session on support measures for PF projects utilizing industry REITs, hosted by the Ministry of Land, Infrastructure and Transport, was held at the Korea Financial Investment Association in Yeouido, Yeongdeungpo-gu, Seoul.
[Photo by Yonhap News]

Recently introduced Corporate Restructuring (CR) REITs by the Ministry of Land, Infrastructure and Transport also have no public offering obligations under the Real Estate Investment Company Act. Because the number of REITs required to conduct public offerings is small, the path to revitalizing REIT public offerings is still far away. A Korea REITs Association official said, "For the REIT market to be revitalized, the trading volume of REIT stocks must increase and the REIT market must grow."

The Korea REITs Association official also said that regulations on mergers and acquisitions (M&A) between REITs should be relaxed to promote REIT revitalization. Currently, listed REITs can only acquire listed REITs, and unlisted REITs can only acquire unlisted REITs. The official said, "For the market to grow, listed REITs should be allowed to acquire unlisted REITs as well. By acquiring small-scale unlisted REITs, listed REITs can grow in size, which will expand the market and activate public offerings." A Ministry of Land, Infrastructure and Transport official said that these improvement plans are "under internal discussion."