이 기사는 2019년 12월 05일 08:00 thebell 에 표출된 기사입니다.

Singapore’s real estate investment trusts (REITs) are surging in popularity among South Korean institutional investors. Korea’s major institutional investors like pension funds and benefit associations have visited Singapore recently to conduct due diligence on local REITs.

According to mergers and acquisitions (M&A) industry sources, domestic institutional investors visited Singapore twice in November to conduct a due diligence on Singapore’s REITs. The latest due diligence was planned by Singapore Exchange. More due diligences are scheduled for December.

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.

The first due diligence on Singapore’s REITs was conducted from November 6 to 8 and the second one was conducted from November 18 to 20. Asset management firms comprised 90 percent of the two groups that conducted due diligence. Securities firms and life insurance companies also participated in the process.

What is notable is that major investors who drive the domestic capital market such as pension funds and benefit associations participated in the due diligence. One pension fund, three benefit associations and two domestic commercial banks plan to conduct due diligence by early December. Inquiries for more due diligence continue.

The first and second due diligence groups had meetings with local REITs managers. Singapore REITs explained the value of assets, rental income, total returns, vacancy rate, borrowings and debt ratio. Investors had a chance to look at the location and conditions of the underlying assets in Singapore.

Investors have flocked into Singapore REITs amid falling dividend yield on domestic public REITs. As the shares of major domestic public REITs have risen recently by 20~30 percent compared to their listing prices, the rate of return (dividend yield) against the cost (share purchase price) has fallen. Domestic REITs’ annualized dividend yield currently stands at three to four percent. Singapore’s REITs have an annualized dividend yield of around 6.2 percent.

Singapore-listed Cromwell European REIT has an annualized dividend yield of around 10 percent. The product was listed in November, 2017 with around two trillion won of market capitalization. It is packaged only with overseas assets including offices and warehouses in Europe.

Market watchers say competition among REITs at home and abroad is starting to get fiercer. Domestic REITs have to put efforts to improve their yield to attract institutional investors.

Domestic REITs still have competitiveness in the capital market. Investors rush to seek returns amid scarce investment options after the Bank of Korea lowered the base interest rate to a record low 1.25 percent this year. Interest rates on savings accounts at the country's major banks hover slightly above 1 percent. This makes REITs attractive with annualized dividend yield of three to four percent.

“Investors’ interest in foreign alternative investments is due to sharp decline in the rate of return on domestic investments. For domestic REITs to keep their competitiveness, they should make efforts to maintain high dividend yield, like adding more assets,” said a market watcher.

(By reporter Jeon Kyung-jin)