South Korean REITs May Have Bottomed

• There are signs that the South Korean REIT market may have bottomed in the past 3-6 months after significant market underperformance from 2021 to 4Q 2023.

• The 16 major Korean REIT stocks are up on average 5% YTD, outperforming KOSPI which is up 1.4% in the same period.

• Differential in REIT dividend yield/Korean bond yield, meaningful discount to NAV, and increased capital allocation from Corporate Value Up program have been driving outperformance of Korean REIT stocks this year.

Conclusion First

There are signs that the South Korean REIT market may have bottomed in the past 3-6 months after significant market underperformance from 2021 to 4Q 2023. The 16 major Korean REIT stocks are up on average 5% YTD, outperforming KOSPI which is up 1.4% in the same period. We believe there are three major reasons why this outperformance is taking place which could continue in the next 6-12 months.

• First, the interest rate differential between the REIT's dividend yields and Korean bond yields have been expanding since October 2023. When the South Korean 10 year bond yield is close to 5%, there is not much interest rate differential with many of these Korean REITs that have dividend yields of 5-8%. When the gap in the interest rate differential falls further (ie. if the South Korean 10 year bond yield falls below 4%, there is a more meaningful impetus to buy some of these Korean REIT stocks.

• Second, many of these Korean REITs are trading at meaningful discount to their NAVs since their share prices have fallen 30-40% in the past 2-3 years. The P/B multiples of these REITs now range about 0.6x to 0.8x.

• Third, the increased capital allocation to low PBR stocks driven by the Corporate Value Up program in Korea this year has generally helped the South Korean REIT stocks.