Why Are Once-Thriving Listed REITs Struggling Now?

Increasing Risk-Taking Propensity
Highlighting Dividend Yield Volatility
Post-Listing Returns Struggle with Sharp Declines

[Asia Economy Reporter Oh Ju-yeon] Last year, REIT stocks, which attracted attention as regular high-dividend products amid a low-interest-rate environment, have been struggling since the beginning of this year. This is because, as the stock market recovered, risk-taking tendencies increased, and the previously presented stable dividend yields were highlighted as being subject to fluctuations due to volatility in the real estate market and vacancy risks. The stock prices, which boasted high valuations, have plummeted since the end of last year, resulting in many cases where the "initial listing price = highest price" occurred.

According to the Korea Exchange on the 13th, a comparison of the returns of six domestically listed REITs over the past month (closing prices from December 2 to January 10) showed that all six stocks declined, recording an average return of -7.02%.

The relatively better-performing Modetour REIT fell by 2.67%, from 3,195 won to 3,110 won. Modetour REIT owns Stars Hotel Myeongdong Branches 1 and 2, Dongtan Branch, and Doksan Branch, generating investment income from rents received from these properties. However, since its launch, it has been hit by a decrease in Chinese tourists due to the deployment of the Terminal High Altitude Area Defense (THAAD) system, causing the value of investment assets to fall and the stock price returns to decline. The initial listing price on September 22, 2016, was 5,700 won, but it has never recovered in the subsequent three and a half years. Compared to the initial listing price, it has plummeted by 45.44% to date.

The returns of other REIT stocks over the past month were even lower. Shinhan Alpha REIT dropped 6.62% from 8,160 won to 7,620 won, IREIT KOREA fell 6.72% from 7,000 won to 6,530 won, and A-REIT declined 8.85% from 6,835 won to 6,230 won. NH Prime REIT surged 30.00% to 6,500 won on its listing day, December 5 last year, hitting the price limit, but has since continuously fallen, dropping 9.54% to 5,880 won.

Lotte REIT, which received significant attention last year amid the interest rate cut atmosphere, is in a similar situation. Lotte REIT hit the upper price limit on its listing day, October 30, buoyed by the entry into an ultra-low interest rate era of around 1%, the appeal of high dividends in the 6% range, government tax benefits, and the sharp rise in prices of previous REIT stocks. It was regarded as a "big catch" in the IPO market, and its price soared 9.23% during trading the following day, seemingly continuing its strong momentum. Among investors, there were even complaints about applying for hundreds of shares but receiving fewer than 10 shares due to the high competition rate for public offerings. However, the stock price, which had risen to 7,100 won intraday shortly after listing, fell 18.59% to 5,780 won that morning. It also dropped 1.20% compared to the previous trading day.

Investors who jumped in late, expecting the stock price to rise, are disappointed. Even those approaching it for the relatively stable dividend yield face somewhat bleak prospects.

SK Securities analyzed that the current asset portfolio within Lotte REIT is not particularly high quality, and both sales and profits are continuously declining. Lotte REIT holds a total of 10 asset groups, including Lotte Department Store Gangnam Branch. However, since the sales trend of commercial properties near Hanti Station, where the most anticipated asset, Lotte Department Store Gangnam Branch, is located, is also declining, risks to stable dividend income should be considered.

Researcher Shin Seo-jeong of SK Securities said, "The Lotte REIT investment prospectus states expected dividend yields of 6.35% for the third term ending June 30 and 6.39% for the fourth term ending December 31 this year, but notes that 'these are expected annualized dividend yields, and actual dividends and dividend yields may vary during future operations.'" She added, "If there is a downgrade in credit rating or an increase in borrowing costs in the mid-to-long term, actual dividends and dividend yields may deviate from the levels presented to attract public investors." Researcher Yoo Seung-woo of SK Securities also commented, "The original owner of Lotte REIT's assets, Lotte Shopping, needs to perform well for future additional assets to be considered high quality, but its performance is poor due to being outpaced by e-commerce growth," and evaluated, "It is uncertain whether the 6% dividend yield presented by Lotte REIT can be guaranteed."

This content was produced with the assistance of AI translation services.