SK REITs Completes 1.1 Trillion Won Financing for Acquisition Loan of 'SK Hynix Water Treatment'

670 Billion Won Secured Loan, 336 Billion Won Short-Term Bond Issuance
SK Hynix Struggling with Deficit Secures Liquidity

SK Group's real estate investment company, SK REITs, has completed funding for the acquisition of SK Hynix's water treatment plant. Most of the acquisition funds were secured through borrowings without a capital increase. After selling the water treatment plant, SK Hynix will secure liquidity exceeding 1 trillion KRW through a sale and leaseback.

According to the investment banking (IB) industry on the 27th, 'Clean Industrial REITs' recently received a secured loan of 670 billion KRW using the Hynix water treatment plant real estate as collateral. Clean Industrial REITs is a subsidiary REIT established by SK REITs to acquire SK Hynix's Icheon water treatment plant. The lending consortium reportedly includes financial institutions such as banks and securities firms. SK REITs placed the acquisition target real estate in a trust company as collateral trust and designated the lending consortium as the first-priority trust beneficiary. The secured loan has a maturity of three years.

SK Hynix Icheon Campus

Earlier, SK REITs issued 336 billion KRW worth of electronic short-term bonds with a maturity of three months at an interest rate in the mid-4% range. When these mature in December, they will need to be refinanced. Clean Industrial REITs secured a total of 400 billion KRW in equity capital through SK REITs' capital contribution and preferred stock issuance to investors.

SK REITs raised most of the acquisition funds through borrowings, including Clean Industrial REITs' capital contribution and Clean Industrial's secured loan. The total funds invested in acquiring the water treatment plant real estate amount to 1.12 trillion KRW. An IB industry official explained, "To minimize equity dilution from a new paid-in capital increase, most of the acquisition funds were secured through borrowings," adding, "However, SK REITs and the acquisition entity subsidiary REIT simultaneously taking on large-scale borrowings will increase interest expense burdens."

This funding is the first case in which a domestic listed REIT has raised more than 1 trillion KRW at once to purchase new real estate. The real estate SK REITs is acquiring consists of a total of 36 parcels of SK Hynix's Icheon water treatment plant, including 46,144㎡ (13,983 pyeong) of land and buildings with a total floor area of 146,714㎡ (44,459 pyeong).

SK Hynix secured liquidity exceeding 1 trillion KRW through the real estate sale. Amid a semiconductor industry downturn causing large-scale losses, this is expected to alleviate some liquidity issues. However, SK Hynix must lease the water treatment center's land and buildings for the next 10 years, paying SK REITs an annual rent of approximately 71.7 billion KRW. The lease deposit is 143.4 billion KRW.

SK REITs plans to recover its investment by reselling the water treatment facilities to SK Hynix or selling them to a third party. The useful life of SK Hynix's water treatment center is 45 years, and the asset will be depreciated annually at the same scale over the next 40 years. The remaining funds after deducting interest expenses and depreciation costs from the rent received from SK Hynix will be used as REIT dividends.

An investment institution official commented, "SK REITs secured a stable dividend source by signing a long-term lease contract with SK Hynix," but added, "However, industrial facilities are difficult to appreciate in value due to depreciation, and the interest expenses and depreciation burdens from large-scale borrowings may somewhat impair profitability."