[Click eStock] "Aegis Value REITs, etc., Benefit from Improvements in Sub-Indirect REIT Investment Regulations"

On the 20th, Samsung Securities stated that the REITs sector is expected to benefit from the legislative notice allowing ETFs to invest in indirect REITs, with Aegis Value REIT and Aegis Residence REIT among the beneficiaries. It is anticipated that stock liquidity will improve once included in ETFs.

Previously, the Financial Services Commission announced a legislative notice for an amendment permitting ETFs to invest in listed indirect REITs or real estate/REIT ETFs. This comes four years after the industry requested permission for ETFs to invest in indirect REITs, with the law expected to be enforced around March to April next year.

Researchers Kyungja Lee and Jinhyun Hong said, "The previous regulation on ETFs investing in indirect REITs was due to inefficiencies caused by double fee collection. However, Aegis Value REIT and Aegis Residence REIT, currently recognized as indirect REITs, do not have a double fee structure and essentially have the same structure as general parent-subsidiary REITs."

They added, "Nevertheless, due to their form, they had to endure disadvantages in supply and demand, so this is a substantive institutional change that will be helpful. Especially considering the significant influence of ETFs in the domestic listed REIT market, this will be an important event."

As beneficiaries, they pointed to Aegis Value REIT with a market capitalization of 280 billion KRW and Aegis Residence REIT with 140 billion KRW.

The two researchers noted, "Although the form of indirect REITs has been shed, many REITs still have significant valuation discounts, indicating that the form of indirect REITs is not a major determinant of valuation. Positive effects will be felt only when management capabilities are verified and the REITs meet the market capitalization inclusion criteria of major ETFs." The market capitalization inclusion criteria generally range from 100 billion to 200 billion KRW.