While REITs are also rising along with the year-end dividend stock rally, only Shinhan Global Active REIT is moving in the opposite direction. It has kept the high-dividend stance promised at listing, but concerns are growing about sustainability because it is paying dividends by eating into cash on hand rather than from real estate investment returns.
Shinhan Global Active REIT shares have plunged 35% so far this year (Jan. 2–Dec. 9). After topping 2,000 won at the end of last year, the stock has recently fallen to around 1,320 won. Although it paid 127 won per share in dividends in both the first and second half of this year, the stock's decline was much steeper, suggesting investors who bought at the start of the year likely lost money even after receiving dividends.
Compared with the 11.8% and 8.9% gains in the ETFs investing in domestic REITs, "TIGER REITs Real Estate Infra" and "KODEX Korea REITs Infra," respectively, Shinhan Global Active REIT's underperformance stands out.
The reason this REIT's share price is falling is that the performance generated by its underlying assets is weak. Shinhan Global Active REIT is a fund-of-funds REIT that invests in three U.S. real estate funds (USGB, PRISA, USCP) that invest in office buildings long-term leased by U.S. government agencies. When the investment assets generate profit, it is returned as dividends.
At the time of listing, the company pitched as an investment point that it had fixed the dividend yield at 8.5% against the initial two-year offer price (3,000 won). A simple calculation indicates it needs to generate at least 11.1 billion won in revenue each dividend period.
However, according to the company's disclosures, since listing it has posted about 3 billion won in operating profit every half year. Since listing, the quarterly returns of the three funds the REIT invests in were at most around 1%–2%, and at times recorded negative returns.
Dividends are paid after deducting expenses from the revenue generated by operating the underlying assets, but with low revenue, concerns grew that dividend payments would not proceed normally.
As investor concerns mounted and the share price fell, the company's self-rescue measure was to use paid-in capital in excess of par as the dividend source instead of net profit. It moved part of the share premium to retained earnings and decided on dividends each half year amounting to a 7%–8% market dividend yield.
Accordingly, the company's paid-in capital in excess of par fell from 114.1 billion won at the end of Aug. 2024 to 109.6 billion won at the end of Feb. this year, and further to 105.6 billion won as of the end of Aug. this year. Losses have accumulated by that amount. Over the same period, the accumulated deficit increased to 33.6 billion won, 42.4 billion won and 51.1 billion won. The company is maintaining the promised dividends, but questions about the sustainability of the REIT's profitability are inevitably growing.
Even as the REIT barely maintains dividends by cutting into itself and investor concerns grow, affiliates are making not-insignificant profits. Shinhan Investment & Securities and Shinhan Capital lent the REIT more than 10 billion won, at an annual interest rate of 4.8%. Shinhan REITs Management entered into a discretionary investment management contract for the assets and receives asset management fees, and Shinhan Bank handles asset custody and administration and collects fees.