The author is an analyst of NH Investment & Securities. He can be reached at email@example.com. -- Ed.
Major domestic REITs management players have recently completed a series of real estate purchases. Accordingly, expectations are strengthening that they will take these additional assets under management. Moreover, other REITs have IPO plans in the works for 1H20. Major listed REITs are currently trading at 2020E PFFOs of 16~19x, offering DYs in the 5~6% range.
REITs management players continuing to snap up real estate
Shinhan Alpha REITs recently announced its acquisition (W68.0bn) of the Daeil Building in Namdemun-ro, Jung-gu, Seoul. Of note, the Daeil Building is the former headquarters of Namyang Dairy Products, and it is now where Shinhan Financial Group and DGB Financial Group are located after the building was purchased (W60.0bn) by DGB Asset Management in 2018. At a future board meeting, Shinhan Alpha REIT is to settle details regarding financing methods and plans for the deal. For reference, Shinhan Alpha raised capital of W48.6bn via a new shares issuance in 2018 during its purchasing of Yongsan The Prime Tower (W68.0bn).
And, Shinhan REITs Management has been selected as the preferred bidder for acquiring the Hite Jinro headquarters building in Seocho-gu, Seoul. In order to improve its financial structure, Hite Jinro sold the building in 2012, inking a 20-year lease agreement. It has yet to be determined whether the building will be transferred under the umbrella of Shinhan Alpha REITs. According to media reports, having won the bidding despite having submitted a lower bid than rival bidders, it is unlikely Shinhan Alpha REITs’ DY will drop even if it takes the building under management.
Meanwhile, NH NongHyup REITs Management has completed its purchase of the MDM Towers complexes in Dangsan-dong, Seoul and Ingye-dong, Suwon for rumored combined price of W190.0bn. Of note, the vacancy rates for both Dangsan-dong and Ingye-dong currently stand at less than 5%, and NH NongHyup REITs Management is reportedly planning to resell the buildings after leasing them out for at least 5 years.
IPO plans for other REITs in the works for 1H20
In 2019, JR Global REITs paid W1.6tn to acquire the Finance Tower Complex in Brussels, Belgium. The members of the related underwriter group, KB Securities and Meritz Securities, are planning to sell down W78.0bn-worth of stakes by making related REITs listings within 1H20. Elsewhere, Mirae Asset Management has acquired authorization from the Ministry of Land, Infrastructure and Transport to establish MAPS REITs #1. The firm is planning to invest in commercial facilities inside Gwanggyo Central Prugio at Yeongtong-gu, Suwon, with the goal of listing MAPS REITs #1 within 1H20. Including Koramco Energy Plus, several other REITs have IPO schedules in the works—the combined total public offering amount for these planned listings is being sized at W2.0tn.
Looking at major listed REITs, Lotte REITs, E-REITs KOCREF, and Shinhan Alpha REITs are currently trading at 2020F PFFOs of 16x, 16x, and 19x, respectively, with their average DYs having upped since 2H18 to now reside in the 5~6% range.