Companies Rush to Securitize Real Estate to Secure Cash

Asset Sales and REITs Formation Surge
Efforts to Improve Financial Structure Using Non-Core Assets
Liquidity Securing Takes Priority Despite Asset Price Decline

[Asia Economy Reporter Park Soyeon] Companies are accelerating the sale of non-core assets or real estate securitization efforts to raise funds. Although asset values are declining, corporate real estate securitization efforts aimed at improving financial structures are expected to accelerate.

According to the investment banking (IB) industry on the 21st, there has been an increase in cases where companies seek consulting on real estate securitization of their holdings through asset trusts and real estate management companies. A representative from Company A Real Estate Investment Company said, "There is a growing number of companies requesting consulting for real estate securitization, considering various options such as sales or forming REITs (Real Estate Investment Trusts)."

Due to the global economic recession and interest rate hikes, large-scale funds tied up in real estate are being liquidated to invest in new businesses and resolve management difficulties, accelerating investment strategies of large corporations. Although investment sentiment has shrunk in the REITs business, causing difficulties in attracting investors, companies in need of funds appear to be seeking real estate securitization even at reduced asset prices.

Recently, Samsung Group received a business license for Samsung FN REITs, which securitizes group assets. This is a case of asset securitization through REITs aimed at expanding insurance company capital. The goal is to enter the stock market early next year. Samsung FN REITs, managed by Samsung SRA Asset Management, has Samsung Financial Network, which groups Samsung Group’s financial affiliates, as its sponsor. Samsung SRA Asset Management is 100% owned by Samsung Life Insurance. The underlying assets are buildings owned by Samsung Life Insurance. Samsung Financial Network includes Samsung Life Insurance, Samsung Fire & Marine Insurance, Samsung Securities, and Samsung SRA Asset Management.

Hanwha Asset Management is also preparing to establish Hanwha REITs for an IPO this year, selecting Hanwha Securities as the lead underwriter. Hanwha REITs will have about 40% ownership by Hanwha Group’s financial affiliates. Hanwha REITs includes the Hanwha General Insurance building in Yeouido, Seoul, Hanwha Life Insurance’s Nowon office building, and Hanwha Life Insurance’s Pyeongchon office building.

Companies expanding existing REITs businesses are also notable. HL REITs Management established its second REIT, HL No. 2 REIT, and obtained a business license last August. The investment asset is the Mando Global R&D Center owned by HL Mando, an automotive parts subsidiary of HL Group. Previously, large corporations such as SK, Lotte, and Doosan have securitized massive funds tied up in real estate assets. The industry cautiously anticipates indirect REIT market entries by Meritz Fire & Marine Insurance, Shinhan Life, KB Life Insurance, and KB Insurance.

Besides asset securitization through REITs, companies are actively improving financial structures by selling non-core real estate. Hyosung Advanced Materials plans to dispose of land, buildings, and all structures of its Ulsan Eonyang plant for 150 billion KRW by the end of this year, aiming to improve financial structure and secure investment funds. Kal Hotel Network, a Hanjin affiliate, decided to sell Jeju KAL Hotel for 95 billion KRW to manage borrowings. HJ Heavy Industries also sold land and buildings in Wonchang-dong, Seo-gu, Incheon for 77 billion KRW.

An IB industry official said, "Looking at recent stock prices of listed REITs and investor movements, the real estate securitization market is not in a good mood, but from the companies’ perspective, securing cash for future investments is urgent, so they seem to be exploring various options for asset securitization."