REIT IPOs elicit lukewarm response from retail investors

The initial public offerings of South Korean real estate investment trusts are drawing lackluster response from retail investors before their listing on the local stock market, estimates showed Sunday.

The latest was the undersubscription of the stock offering to individual investors, when JR Asset Management’s REIT was going public on the main bourse Kospi to invest in Finance Tower Complex in Brussels, Belgium.

REITs are companies designed to generate returns for investors in the form of dividends, in return for investment in securitized real estate assets.

Ahead of the REIT listing in August, none of the IPO underwriters -- KB Securities, Meritz Securities and Daishin Securities -- managed to sell the designated amount of shares to small investors worth a combined 240 billion won ($200 million). The shares were 0.23 times subscribed to small investors over the course of three-day retail tranche that wrapped up Friday. As a result, the three underwriters will hold the remaining amount of shares from the date of listing onward.

The news came despite JR’s move to encourage more small investors to engage in the IPO. Under the plan, any individual investor could be allotted up to 1 million won in shares for half of the available shares, regardless of how oversubscribed the retail split was. Under ordinary terms, the higher the degree of oversubscription the fewer shares each investor can possess in an IPO.

It was part of a fundraising plan for JR to raise 828 billion won through the IPO and pre-IPO fundraising.

The news came after another cross-border REIT by Mastern Investment Management postponed its flotation plan to later this year.

On July 20, Mastern scrapped its retail investor split of Mastern Premier REIT 1, also scheduled from Wednesday to Friday, dropping its bid to raise stock investors’ capital for its acquisition of the Crystal Park office building near Paris, with Samsung Securities.

Mastern said in a statement the delay is partly attributable to retail investors’ appetite for specific industrial sectors, hampering the proper valuation of REITs in the stock market affected by uncertainties like the coronavirus.

Such lack of appetite for local REITs was also seen in other products awaiting market debut this year: IGIS Residence REIT (2.55 times oversubscribed), which aims to buy a residential facility; and Mirae Asset Maps 1 REIT (9 times oversubscribed) to invest in a commercial complex in the planned city of Gwanggyo, Gyeonggi Province.

These show contrast with REITs listed last year. NH Prime REIT, which invests in prime office buildings at home and abroad, was oversubscribed 317.62 times, while Lotte REIT, investing in key locations of Lotte Shopping, was oversubscribed 63.28 times.

The downtrend comes in contrast to the government’s move to stimulate the public REIT market in Korea by offering public REIT investors tax relief and giving public REITs an upper edge in bidding for state-led real estate projects.

Moreover, the share price of all listed REITs fell from the beginning of 2020 through Friday. NH Prime REIT fell 26.7 percent, E-REITs Kocref tanked 22.8 percent and K-Top REITs slipped 20.7 percent. Lotte REIT, the largest REIT by market cap, shed 16.7 percent.

Igis Value Plus REIT, which began trading on the Kospi bourse on July 16, fell 10.5 percent from the offered price, as of Friday.

By Son Ji-hyoung (consnow@heraldcorp.com)