K1 No.15 Pangyo REITs Refinances Building Acquisition Loan
Holds Creditworthy Tenants Including Kakao Affiliates
Smooth Fundraising Amid Rising Office Prices in Pangyo
The Military Mutual Aid Association and Korea Land Trust successfully refinanced the 530 billion KRW loan they took out to acquire the large office building ‘H Square’ in Pangyo through a real estate investment trust (REIT). With high-quality tenants such as Kakao occupying the building and generating stable rental income, and expectations of continued price appreciation of the building, the fundraising proceeded smoothly.
According to the investment banking (IB) industry on the 2nd, K-One No.15 Pangyo Entrusted Management Real Estate Investment Company (K-One No.15 Pangyo REIT) raised 538 billion KRW from a lending consortium composed of financial institutions. The REIT secured the consortium by dividing the loan into a senior loan of 486 billion KRW and a mezzanine loan of 52 billion KRW, using the land and building of the ‘H Square’ building it owns as collateral.
K-One No.15 Pangyo REIT will use the raised funds to repay the loan borrowed when purchasing the H Square building. The REIT still has about seven years left until the end of its operation period, so there are no talks of selling it yet. Currently, high-quality companies such as Kakao Corp., Synopsis Korea LLC, Baker Chemical Korea Corp., and Anris Chemical Korea Corp. are tenants in the building.
It is analyzed that the building generates an annual income of around 30 billion KRW. Rental income from tenants amounts to about 19 to 20 billion KRW per year, and income from management fees and other sources slightly exceeds 10 billion KRW. Since Kakao and others have long-term master lease contracts, it is known to generate stable cash flow. However, due to increased interest expenses (non-operating expenses) caused by rising interest rates, the REIT has been in a net loss position for several years.
K-One REIT invested in and currently holds the office portions of H Square S Building (231 Pangyo Station-ro) and N Building (235 Pangyo Station-ro) in Pangyo Techno Valley in 2022. Pangyo H Square is an office building with four basement floors and ten above-ground floors, with a total floor area of 85,140 square meters (approximately 25,755 pyeong). The building was completed in 2011.
According to the business report, as of the end of January this year, the largest shareholder of the REIT is Standard Chartered Bank Korea (Korea SC Bank). Korea SC Bank holds 21.6% of the preferred type 1 shares with dividend priority as the trustee of M Plus Asset Management, an asset management company affiliated with the Military Mutual Aid Association. Following that, Stick Investment, a domestic private equity fund (PE) manager, holds an 18% stake (preferred shares) through Shinhan Bank Trust.
Smilegate Holdings (14.40%), Construction Mutual Aid Association (14.40%), Daewoo Foundation (9.00%), Samsung Securities (4.26%), Tobacco Production Stabilization Foundation (3.60%), and Neowiz Holdings (1.80%) also hold preferred shares. In terms of common stock ownership, Korea Land Trust is the largest shareholder with 10.26%. Lotte Property & Development and Samsung Securities also participate as common shareholders.
An IB industry official said, "The H Square building is a large office located in the center of Pangyo with many locational advantages, so the office prices are highly likely to continue rising," adding, "Since the collateral value is sufficient and stable rental income is generated, there was no particular difficulty in recruiting a lending consortium to provide funds."
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