Shinhan Global Active REIT, a listed real estate investment company (REIT), has sold part of its equity in a U.S. real estate fund that it holds as a base asset. Shinhan Global Active REIT expects to repay all its borrowing fund with the sale proceeds, reducing its expense burden and also anticipating savings on the hedge settlement.
Shinhan Global Active REIT announced on the 21st that it will sign a contract to sell 80% of its equity in the U.S. real estate fund PRISA to a European pension fund and UBS. The signing of the sales contract is scheduled for the 24th. Shinhan Global Active REIT will receive the sale proceeds of $33.4 million (approximately 42.8 billion won) through the paid-in capital reduction process of its subsidiary.
Shinhan Global Active REIT plans to first repay its borrowing fund of 39.7 billion won with this money. The annual interest rate on the borrowing fund is 8.5%, which has been cited as a contributing factor to its expense burden. The remaining sale proceeds are expected to be used for operational funds such as dividends.
With this equity sale, Shinhan Global Active REIT’s annual dividend income from PRISA will decrease by approximately 1.5 billion won. However, the annual interest of 3.37 billion won on the borrowing fund will also disappear, improving cash flow by around 1.87 billion won.
Shinhan Global Active REIT's burden of hedge settlement costs will also decrease. Hedge refers to fixing the exchange rate at the time of the hedge contract to protect against asset price fluctuations due to changes in exchange rates.
The hedge contracts that Shinhan Global Active REIT signed with SC First Bank and Shinhan Bank will expire in July and August. The exchange rate for the won against the U.S. dollar, which was around 1,285 won at the time of the contract, is fluctuating above 1,450 won, requiring about 23.4 billion won in hedge settlement costs. This settlement amount is expected to decrease by approximately 5.68 billion won due to the equity sale of PRISA.
Shinhan Global Active REIT is investing in three U.S. real estate funds, including PRISA, USGB, and CBRE USCP. As the U.S. local real estate market faces difficulties and the hedge settlement cost issue arises, the stock price has plummeted from the offering price of 3,000 won in July of last year to the current 1,538 won.
As the U.S. office real estate market enters a recovery phase, Shinhan Global Active REIT expects to strengthen its active management strategy. A representative of Shinhan Global Active REIT noted, "We will do our best to ensure the planned payment of dividends through this asset sale and rebalancing."