[Gold Age 21] Lee Kyung-ja, Samsung Securities Researcher, "Domestic Listed REITs Highlighted... Possess Both Profitability and Growth Potential"

Domestic REITs Market to Take a Step Forward This Year

Senior Research Fellow Kyungja Lee of the Financial/REITs Team at Samsung Securities Research Center is giving a presentation titled "2021, The Beginning of K-REIT Evolution" at the "2021 Gold Age Forum: Smart Retirement Planning for Silver Investors," hosted by Asia Economy on the 8th at the Bankers Association Building in Jung-gu, Seoul. The forum was held via non-face-to-face online live streaming to prevent the spread of COVID-19. Photo by Jinhyung Kang aymsdream@

[Asia Economy Reporter Park Jihwan] It is forecasted that domestic listed REITs products will become a prominent financial tool for future retirement planning this year. In particular, they are evaluated to be competitive in both profitability and growth potential compared to overseas REITs products.

Lee Kyung-ja, Senior Research Fellow at Samsung Securities, stated at the '2021 Gold Age Forum' hosted by Asia Economy on the 8th at the Bankers Hall in Jung-gu, Seoul, that this year will mark the beginning of an evolution for domestic REITs products. Although last year was challenging due to the COVID-19 pandemic and early market trial and error, domestic REITs are now more competitive than well-established overseas products, indicating that domestic REITs are entering a second growth phase.

REITs are real estate indirect investment products that raise funds from multiple investors and invest and operate in real estate, distributing rental income, capital gains from sales, and development profits to investors. Especially, listed REITs have the advantage of being easier to liquidate than direct real estate investments because they are traded on the stock market.

Senior Research Fellow Lee Kyung-ja expects that domestic REITs will show a strong recovery this year due to the resumption of dividends and stock price recovery. Despite the COVID-19 pandemic, consistent dividends and high dividend yields were cited as key reasons. She emphasized, "The dividend yield of domestic REITs was 5.3%, higher than the 3.9% of global REITs products," adding, "Even considering the risks of the domestic market being in its early stages, domestic REITs are well-positioned for investment due to their premium in yields and other factors."

Lee attributed the competitiveness of domestic REITs' dividend yields to active asset conversion and value-add strategies. Good REITs should acquire assets at reasonable prices and have high potential for value appreciation. In other words, they should be able to buy low and sell high.

She explained, "Recently, as it has become difficult to acquire assets at good prices, strategies such as converting underperforming assets to other uses or enhancing the value of undervalued assets through value-add strategies have become more active." Representative examples of 'asset conversion' include Coramco Energy REIT's gas station sales and special dividends, LG Best Shop conversions, and the development of electric vehicle charging stations. Value-add strategies are mainly applied to small and medium-sized offices through remodeling, expansion, and tenant changes.

She also emphasized that the increase in REIT investments centered on mutual aid associations is another reason why domestic REIT investments are promising. Lee said, "Recently, local government mutual aid associations have shown increased interest in small and medium-sized offices, such as by establishing blind funds investing in mid-sized offices," explaining, "The background includes the price burden of prime offices, the fact that 71% of domestic office transactions are for small and medium-sized offices under 20,000 pyeong, and changes in work environments." Previously, many workers concentrated in major offices, but now demand for distributed work in small and medium-sized offices is increasing.Location and condition are becoming more important than office size. As value-add strategies become a key theme in the real estate market, the trend of investing in REIT products equipped with such capabilities is expected to be established.

It is also positive news that the investment targets of REIT products are significantly expanding. The focus is spreading from office buildings to housing, logistics, and more. Currently, there are 13 listed REITs in Korea, and SK REITs, D&D Platform REITs, and Allwon REITs are preparing for listing in the second half of the year. The number of domestic listed REITs is expected to increase from 13 to more than 16 this year, reaching around 20 by 2022. In Singapore, the number of listed REITs reached about 20 in 2015, after which related products and exchange-traded funds (ETFs) significantly increased.

Looking ahead, the characteristics of upcoming listed REITs are expected to include an increase in group-type or Japanese-style developer-affiliated REITs, as well as more cases of incorporating growth assets such as logistics and data centers. Lee said, "Domestic REITs have significantly improved their product appeal by learning from last year's failures and now possess the 'growth story' required for listed stocks," emphasizing, "Especially large groups such as GS, SK, LG, and Hyundai Motor have real estate accounting for 13-20% of their total assets, so they are expected to actively utilize REITs as investment vehicles to efficiently manage their real estate holdings."

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