Hanwha REITs to Launch Public Subscription Amid REITs Market Slump

Hanwha REITs recorded a subscription rate of 77.62% for its rights offering despite difficulties caused by the overall decline in stock prices across the listed REITs industry.

According to the Financial Supervisory Service's electronic disclosure system on the 15th, Hanwha REITs received subscriptions for 84,605,760 shares out of the 109 million shares planned to be issued in the rights offering allocated to existing shareholders.

The remaining shares will be acquired by the lead underwriter Korea Investment & Securities and the underwriting consortium consisting of Hanwha Investment & Securities, NH Investment & Securities, SK Securities, and Hana Securities in proportion to their underwriting commitments.

The Janggyo-dong Hanwha Building incorporated through the rights offering is a prime office building located in the CBD (Central Business District) area. The transaction price per 3.3㎡ is set at around 35.9 million KRW, slightly lower than the average price of office properties traded in the CBD area over the past 3 to 4 years. Large REITs have consecutively conducted rights offerings, and market conditions have been unfavorable for REIT investment sentiment due to factors such as rising U.S. Treasury yields following the election of U.S. President Donald Trump.

An investment banking (IB) industry official said, “Although prime offices in the CBD area are being incorporated, the subscription rate from existing shareholders is lower than expected, and the overall decline in stock prices across the REITs industry can be mainly attributed to market supply and demand issues.” He added, “With no new funds flowing into the market, a situation is occurring where investors are switching from one undervalued REIT to another. If this situation continues, the REIT market may face difficulties in stabilizing.”

Currently, the REIT market is experiencing increased volatility due to supply-demand imbalances caused by fund rebalancing among REITs, as existing investors sell other REITs to participate in rights offerings. In the REIT market, major players such as Mirae Asset Global Investments, Aegis Asset Management, the Housing and Urban Fund Anchor REIT (Koramco Housing and Urban Fund Trust Management Real Estate Investment Company), and life insurance companies are leading large-scale investments. However, with the suspension of new investments from the Housing and Urban Fund Anchor REIT, there is a shortage of funds.

With funding drying up and consecutive rights offerings by REITs, REIT stock prices continue to struggle. As of the end of July before the rights offering, Hanwha REITs’ major shareholders were Hanwha Life Insurance (46.18%), Mirae Asset Global Investments (18.21%), Koramco Housing and Urban Fund REIT (8.50%), and Kyobo Life Insurance (5.67%).

In the rights offering, existing shareholder Hanwha Life Insurance and newly incorporated shareholder Hanwha General Insurance took responsibility for nearly half of the shares, totaling 50.32 million shares. However, Koramco Housing and Urban Fund REIT, a major shareholder of Hanwha REITs, sold all of its subscription rights.

With the incorporation of the Janggyo-dong Hanwha Building, Hanwha REITs’ total assets have grown to approximately 1.6 trillion KRW. The increase in scale is a positive factor. A larger asset base offers advantages such as increased dividend stability, expanded dividend-paying capacity, potential credit rating upgrades, and improved liquidity in the market over the medium to long term.

If included in the ‘FTSE EPRA Nareits,’ the global benchmark index for REIT investments, there is a possibility of recovery in price declines due to inflows of global passive funds. Currently, SK REITs, ESR Kendal Square REITs, Lotte REITs, JR Global REITs, and Shinhan Alpha REITs are included in this index.

A Hanwha REITs official said, “The current stock price has fallen from the 5,000 KRW range before the rights offering to the 3,000 KRW range, which could be a buying opportunity at a low price,” adding, “Considering the promised dividend of 270 KRW at the REIT investment briefing, a dividend yield of over 7% is expected at the current stock price level.”

He continued, "The rights offering will not negatively affect existing investors and will provide an attractive investment opportunity for new investors."

Hanwha REITs accepted subscriptions for new shares from general investors until the 15th, and the new shares will be listed on the 29th. The lead underwriter is Korea Investment & Securities, with Hanwha Investment & Securities, NH Investment & Securities, SK Securities, and Hana Securities participating as the underwriting consortium.