KOSPI is on the verge of 8,000, enjoying an all-time boom, but the real estate investment trust (REITs) market, considered a representative "medium risk, medium return" product, is facing winter alone. Investor sentiment has rapidly frozen after the major negative shock of JR Global REIT filing for court receivership.
According to the Korea Exchange (KRX) on the 14th, the "KRX Real Estate REITs Infra" index, which includes Korea's representative REITs, fell 6.7% over the past month. It dropped from 1,441.78 on the 13th of last month to 1,345.05 on the 12th of this month. The "KRX Prime Office REITs" index also plunged 10.62% during the same period, remaining sluggish.
This stands in stark contrast to KOSPI and KOSDAQ, which have risen 31.58% and 7.22%, respectively, extending a strong rally.
In particular, on the 12th, 24 out of 25 listed REITs fell across the board. KB Star REIT (-10.48%) logged a double-digit plunge, while Mirae Asset Global REIT (-6.88%), D&D platform REIT (-6.67%), and Shinhan Global Active REIT (-5.03%) also dropped sharply.
The fundamental cause driving fear in the REITs market was JR Global REIT's application for corporate rehabilitation proceedings on the 27th of last month. Overseas asset-based REITs have been unable to pay dividends due to a structural "cash trap" mechanism.
If the value of overseas real estate assets declines and violates the loan-to-value (LTV) conditions agreed with lenders such as banks, the lenders freeze the REIT's cash flow. As a result, rental income generated by the asset does not flow through to shareholder dividends and is locked up internally to protect the creditors' collateral coverage.
JR Global REIT also failed to meet LTV conditions due to declines in office asset values in Belgium and the United States, cutting off cash flow, and ultimately entered court receivership after failing to repay bonds.
This situation is expected to further intensify the "sorting the wheat from the chaff" in the REITs market. Analysts say the credit gap between REITs sponsored by large corporations and standalone REITs like JR Global REIT will be a decisive variable.
Large corporate-affiliated REITs such as SK REIT, Hanwha REIT, and LOTTE REIT hold strong credit ratings from A+ to AA-. Based on their high credit, they can raise funds through various channels such as corporate bonds or electronic short-term bonds at interest rates more than 100 basis points (1 percentage point) lower than ordinary bank collateral loans.
However, standalone REITs with lower credit ratings not only face higher funding expenses but are structurally exposed to the risk of funding lines being cut off when a market crisis occurs.
In the securities industry, the view is that this situation will not lead to a collapse of the overall REITs market. Rather, some say dividend yields have risen to attractive levels due to falling stock prices. According to the brokerage industry, the expected dividend yields of major REITs are 6.4% for LOTTE REIT and 8.0% for D&D platform REIT, far above deposit rates.
Lee Kyung-ja, head of alternative investments at Samsung Securities, said, "The JR Global REIT issue was an exceptional situation where hedging against FX settlements and value-decline risks was insufficient, and we should be cautious about overextending this to a problem across the entire REITs industry," adding, "When a crisis occurs, differentiation will accelerate around higher-rated REITs that have diversified debt structures and proven funding capabilities."
Hong Ju-mi, an analyst at Samsung Securities, said, "The current average loan-to-value (LTV) ratio of domestic REITs is around 57%, which is not excessive, and many large REITs are smoothly raising funds through asset sales or issuance of electronic short-term bonds."