Recently, the real estate investment trust (REITs) industry has been looking for various ways to raise funds, such as issuing corporate bonds, instead of pursuing aggressive paid-in capital increases. Until now, REITs had found paid-in capital increases virtually unavoidable to add new assets, but subsequent share price declines kept recurring, fueling investor dissatisfaction.
According to the REITs industry on the 9th, Samsung FN REITs, which is making its first attempt in the public corporate bond market, succeeded in meeting its target in a book-building for institutional investors. Samsung FN REITs received 400 billion won of orders in the corporate bond book-building held on the 6th, aiming for a total of 200 billion won. It is not expected to increase the issue size and plans to issue on the 16th.
Samsung FN REITs will use all of the funds raised to acquire the Samsung Life Insurance building in Jamsil, Songpa-gu, Seoul. Of the needed 207.9 billion won, 200 billion won will be raised through a public bond issue, and the remaining 7.9 billion won will be covered in cash. Samsung FN REITs owns three office buildings: FN Tower Daechi (Samsung Life Insurance Daechi Tower), FN Tower Sunhwa (S-1 Building), and FN Tower Pangyo (Samsung Fire & Marine Insurance Pangyo office building).
The value of a REIT is determined by the price of the real estate it holds and the dividends revenue generated from that real estate. Because of this, steady asset purchases and liquidity are necessary, and paid-in capital increases have been the conventional funding method. However, as more investors became wary of share dilution and reduced dividends that can follow, share prices fell. When a large number of new shares are issued through a paid-in capital increase, equity is diluted, which is disadvantageous to existing shareholders.
For example, JR Global REIT, which decided on a 120 billion won paid-in capital increase in early last month, saw its share price fall more than 17% in seven trading days. As the share price fell to the low 2,000-won range, JR Global REIT withdrew the decision in less than two weeks. In contrast, Samsung FN REITs, which chose to issue corporate bonds, saw its share price rise and recover the offer price (5,000 won).
Given the situation, the REITs industry is moving to avoid paid-in capital increases as much as possible. Hana Office REIT, which is scheduled to list on Apr. 17, expressed its intent to prevent a share price decline by avoiding aggressive paid-in capital increases.
Park Woo-cheol, a senior managing director at Hana Asset Trust, said at a recent REIT investment meeting, "We will invest more than 80% in offices and more than 50% in Gangnam," and added, "Since there have been cases where REIT share prices fell due to paid-in capital increases, we will refrain from aggressive paid-in capital increases and become a REIT investors can trust." Hana Office REIT owns Hana Financial Group's Gangnam office building near Gangnam Station and Taekwang Tower near Yeoksam Station.
Shinhan Alpha REIT is pushing to acquire one or two office buildings in Seoul and Pangyo through a development-type blind fund created by Shinhan Financial Group. Shinhan Alpha REIT is also trying to reduce its reliance on paid-in capital increases. Shinhan Alpha REIT composes 100% of its portfolio with office assets. Last year, it newly added Greats Gangnam (formerly BNK Digital Tower).
An industry official said, "REITs have the advantage of allowing investment in high-quality commercial real estate with small amounts of money to pursue both high dividends revenue and capital gains, but it is true that frequent paid-in capital increases have depressed investor sentiment by pushing down share prices," and added, "Through the success of Samsung FN REITs' corporate bond issuance, we believe REITs with solid credit can find alternatives to paid-in capital increases in the capital market."