Shinhan Global Active REIT, a listed real estate investment trust (REIT) under Shinhan REITs Management, has decided to sell part of its stake in a U.S. real estate fund to repay outstanding debt. The move comes as Shinhan Global Active REIT’s stock price has dropped to nearly half its initial public offering (IPO) price just seven months after going public. The decision aims to improve its financial structure and restore investor confidence.
Shinhan Global Active REIT’s board convened on Feb. 13 to discuss the sale of assets, according to people familiar with the matter. Shinhan REIT has invested in three American real estate funds—USGB, PRISA, and CBRE USCP—valued at $116.5 million.
The company plans to sell some of these assets and use the proceeds to repay 39.7 billion won ($27.5 million) in borrowings. The debt is the remaining balance from a 97.7 billion won bridge loan, which Shinhan REIT took out before its listing after repaying 58 billion won with IPO proceeds. With an annual interest rate of 8.5%, the remaining debt has been considered a significant financial burden for the company. By fully repaying the outstanding amount, Shinhan REIT expects to save up to 3.4 billion won in annual interest expenses.
The board also discussed strategies to manage upcoming settlements related to currency hedging contracts, primarily focusing on securing a credit line. Shinhan Global REIT has foreign exchange hedging agreements worth $71 million each with Standard Chartered Korea and Shinhan Bank, maturing in July and August, respectively. These contracts are based on pre-set exchange rates of 1,280.88 won per U.S. dollar for Standard Chartered Korea, and 1,290.25 won for Shinhan Bank. If the current exchange rate of roughly 1,450 won per dollar persists until the contracts mature, the company will need around 23.3 billion won for settlements.
Shinhan REIT plans to secure a 40 billion won credit line at an expected annualized interest rate of 6%. The final amount drawn from this facility will depend on exchange rate fluctuations, potentially easing the financial burden if the Korean won strengthens against the dollar before the contracts mature.
Shinhan Global Active REIT went public last July at an IPO price of 3,000 won per share. But its stock price has plummeted recently, closing at 1,580 won, down 47.3% from its IPO price.
The decline is largely attributed to the sluggish U.S. real estate market, which has affected the company’s investments. While the REIT’s portfolio includes logistics, residential, and retail assets, a significant portion comprises office buildings leased to U.S. government agencies. As a result, overall returns have been weaker than expected.
The REIT’s net asset value (NAV) per share has also declined, falling from 3,000 won in June last year to 2,575 won in September and now standing at 2,500 won. After factoring in the impact of currency hedging settlements, the adjusted NAV per share is estimated at roughly 2,300 won.
Shinhan REIT reassured investors in a notice on Feb. 10, stating that the underlying real estate holdings remain stable, with no insolvencies or leasing issues reported. The company also confirmed that dividends will be paid as scheduled, with the ex-dividend date set for Feb. 28.
Analysts say U.S. interest rates will likely influence Shinhan REIT’s future performance. The Federal Reserve has signaled slower rate cuts this year amid inflationary pressures. U.S. headline inflation rose 3% year-on-year in January, exceeding market expectations. Fed Chair Jerome Powell and other officials have indicated they are in no rush to cut rates, suggesting that interest rates will remain unchanged for a few months.