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By Jhoo Dong-chan
Domestic real estate investment trusts (REITs) are eyeing an initial public offering (IPO) in the nation's stock market, reflecting investors' mounting interest in the market amid the low interest rate trend.
A REIT is a firm that operates various income-producing properties ranging from office and apartment buildings to warehouses, hospitals, shopping centers, hotels and woodland.
Lotte REIT and NongHyup REIT Management have already announced their decision to go public in October and November, respectively. Following the two REITs' lead, the nation's largest real estate related assets operator IGIS Asset Management is also reviewing a plan to list the firm's REIT fund in November.
According to investment bank sources, Lotte REIT, which invests in Lotte Group's retailer branches across the country, is gearing up to raise up to 430 billion won ($356.2 million) by listing itself on the Seoul bourse next month.
NongHyup REITs Management seeks an IPO to raise up to 100 billion won in November. It has invested mainly in famous office buildings in Seoul, including the Samsung C&T's office in Seocho-gu, Seoul.
IGIS also plans to list its REIT fund investing in the Taepyeongno Building in Seoul and Kensington Hotel on Jeju by the end of November.
Under the plan, the asset management firm is expected to raise up to 235 billion won. Its expected dividend yield ratio is annually about 6 percent.
Domestic REITs' sudden rush to the Seoul bourse this year comes as a surprise since there have been only five listed REITs so far including A REITs in 2011, K Top REITs in 2012 and Shinhan Alpha REIT in 2018. Except Shinhan Alpha REIT which raised about 114 billion won, the remaining four failed to raise more than 100 billion won through their IPOs.
Experts said a series of REITs' moves to go public this year reflects an increasing number of investors seeking alternative investment sources amid the nation's low interest rate trend.
Another factor behind these REITs' moves is attributed to growing investor attention to REIT shares that offer a strong dividend return.
"REITs are highly correlated to changes in interest rates. The lower the interest rates are, the more REITs can secure and utilize cash leverages," said Hana Financial Investment researcher Kim Hoon-gil.
"It is almost certain the Bank of Korea will lower the nation's key rate at least once by the end of the year. The situation is favorable for domestic REITs."
According to the Korea Appraisal Board, average dividend yield on the nation's REITs stood at 8.5 percent last year. In the meantime, that of the nation's deposit accounts and government bonds were only 1.4 percent and 2.1 percent, respectively.
Along with big-name REITs' planned IPOs, share prices of already listed REITs have also enjoyed momentum.
Share price of Shinhan Alpha REIT closed at 8,140 won Wednesday, up 70 won, or 0.87 percent, from the previous session. The price was up nearly 70 percent from its initial offering price of 5,000 won in last August.
The share price of E REITs KOCREF was also up 27.5 percent this year to 6,190 won, Wednesday.
According to the Korea Association of Real Estate Investment Trusts, the total assets of the nation's public and private REITs stood at 44.38 trillion won in March, up 27.2 percent from the end of 2017 figure of 34.8 trillion won.
Domestic brokerages and asset management firms are also introducing a series of equity funds investing in overseas REITs reflecting their high return ratio.
Online market researcher FnGuide suggested 42 out of 44 domestic equity funds investing in overseas REITs posted over a 5 percent return rate in the past year.
Mirae Asset Global Investments, Mirae Asset Financial Group's asset management unit, added two more REIT products last month.
The existing Mirae Asset Global REIT fund already marked a 14 percent return over the past year by investing in various overseas REITs including America's largest ― Prologis.
Commercial banks have also jumped into the market by acquiring REIT operating firms.
Woori Financial Group acquired a 65.74 percent stake in Kukje Asset Trust in April as part of the group's efforts to diversify its business portfolio.
Established in 2007, Kukje attracted 23.6 trillion won worth of trust money while posting a 31.5 billion won net profit last year.
