Active Asset Acquisitions Including Samsung Fire & Marine Insurance Pangyo Office and Hanwha Janggyo Building
Reducing Interest Expenses Through 'Paid-in Capital Increase + Low-Interest Secured Loans'
Dividend Yield Expected to Rise... Long-Term Stock Price Uptrend
As the market's effective interest rates show a long-term decline, major REITs (Real Estate Investment Trusts) listed on the stock market are strengthening their fundamentals. They are actively engaging in financial activities that increase dividend yields by expanding new assets and reducing borrowing costs due to lower capital expenses. REIT stocks, which had suffered from high interest rates for a long time, are also showing a long-term upward trend.
Expansion of New Asset Incorporation... Increased Fundraising through Rights Issues
According to the investment banking (IB) industry on the 14th, asset purchases and rights issues of major REITs have been on the rise recently. Samsung FN REIT has agreed to purchase the Samsung Fire & Marine Insurance Pangyo building for 128.5 billion KRW, and Hanwha REIT plans to acquire the Euljiro Hanwha Janggyo Building from Hanwha Life for 808 billion KRW. D&D Platform REIT bought the Myeongdong N Office for 180 billion KRW, and Koramco Life Infrastructure REIT acquired the Anuek Hotel Hongdae branch for 11 billion KRW. Lotte REIT and others are also expected to make additional asset purchases.
As asset purchases increase, REITs' fundraising has also grown. Samsung FN REIT plans to finance the purchase of the Samsung Fire & Marine Insurance Pangyo building through a rights issue and secured loans. Approximately 65.5 billion KRW will be raised via the rights issue, with the remainder covered by loans. Hanwha REIT is also expected to finalize the scale of its rights issue and secured loans soon and begin investor recruitment.
Fundraising aimed at restructuring borrowing to reduce high-interest loans is also ongoing. SK REIT completed refinancing of secured loans worth 1.2 trillion KRW in July. In this process, it repaid high-interest short-term funds raised through electronic short-term bonds, significantly lowering interest expenses on borrowings. It is also expected to pursue value enhancement such as share buybacks using proceeds from the sale of SK gas stations. Samsung Securities noted, "SK REIT lowered its borrowing rate by 50 basis points more than market expectations during the recent refinancing," and accordingly raised SK REIT's target stock price.
Koramco Life Infrastructure Fund is currently pushing a 40 billion KRW rights issue to purchase preferred shares of DF Tower dividends. Aegis Residence REIT decided to conduct a 33 billion KRW rights issue to repay existing secured loans.
Structural Improvement Due to Market Rate Decline... REIT Stocks Show Long-Term Uptrend
The increase in REITs' financial activities is thanks to the decline in market interest rates. As expectations for interest rate cuts in the US and Korea grow, market rates have proactively fallen, lowering borrowing costs. The resolution of uncertainties about rising interest rates is interpreted as prompting repayment of existing high-interest borrowings and acquisition of new assets.
An IB industry official explained, "REITs must distribute more than 90% of rental and sales income generated from real estate to investors as dividends," adding, "During periods of falling interest rates, lowering financing costs acts as an opportunity to increase dividend yields." The official also said, "As interest rate declines lower investors' required returns (cap rates), fundraising has become easier than under high-interest conditions," and added, "REITs see this as an opportune time to acquire new assets."
Stock prices are also showing an upward trend amid REITs' structural improvements. SK REIT recovered from the 3,000 KRW range at the beginning of the year to the 5,000 KRW level, and Lotte REIT rose from the 2,000 KRW range to recently reach the 4,000 KRW level during the same period. The ‘KRX REITs Top 10 Index,’ which includes the top 10 domestic REITs by market capitalization, rose 6.07% over the past month.
An industry insider said, "REIT stock price increases have moved in the opposite direction to the market interest rate decline trend," and predicted, "As REITs' structural improvements continue and the realization of US interest rate cuts becomes certain, further increases in dividend yields will likely give more momentum to stock price rises."
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