With Homeplus entering corporate rehabilitation proceedings (court receivership), raising concerns about potential damage to real estate funds, REITs, developers, and construction companies, an analysis from the securities industry suggests that the impact of the lease debt issue on the financial market and credit bond market will be more limited than feared.
On the 20th, Kim Ki-myung, a researcher at Korea Investment & Securities, stated in the report titled "Review of Homeplus Lease Debt Risk" that "the entities that purchased Homeplus stores and leased them out can be broadly divided into real estate funds and REITs, and developers and construction companies."
Researcher Kim explained, "Homeplus currently operates 126 stores, of which about half are stores provided as collateral through a trust method related to a borrowing limit of 1.3 trillion KRW from Meritz Financial Group, and the other half mostly consist of stores under sale-and-leaseback agreements after being sold."
The lease debt arising from this situation amounts to around 4 trillion KRW as of the end of February 2024, leading some market participants to worry about an expansion of risks across the financial market related to uncertainties in lease debt repayment (rent payments).
First, Researcher Kim believes that loans from financial institutions to real estate funds and REITs will not face issues in final recovery. He said, "With Homeplus filing for court receivership, there is a possibility of rent arrears and subsequent rent reductions according to the rehabilitation plan. As a result, there may be limitations on dividends due to funding shortages. However, considering that the loan-to-value (LTV) ratio is at a low level despite differences depending on store locations, loans that hold seniority compared to equity investments should not face problems in final recovery." Korea Investment & Securities estimates the approximate LTV to be in the 50-60% range.
The real estate funds that purchased Homeplus stores include Yukyung PSG Asset Management’s Yukyung Public Real Estate Trust No. 3, Aegis Asset Management’s Aegis Core Retail Real Estate Investment Trust No. 126, and Koramco Asset Management’s Koramco Private Specialized Real Estate Investment Trust No. 63. Additionally, REITs that purchased Homeplus stores or have Homeplus as a tenant include KB Real Estate Trust’s KB Sadang Retail Management Trust REIT and KB Pyeongchon Retail Management Trust REIT, JR Investment Management’s JR No. 24 Corporate Restructuring REIT, Shinhan REIT Management’s Shinhan Western T&D REIT, and Daehan Land Trust’s Daehan No. 21 Management Trust REIT.
Researcher Kim also assessed that developers and construction companies will face limited impact on their projects since their purpose is development after store closures. He mentioned, "While there may be difficulties securing funds to pay interest on borrowings related to store purchases, since the purpose is real estate development after store closures, Homeplus’s court receivership filing will not act as a major obstacle to overall project progress."
The major developers and construction companies that purchased Homeplus stores include JME Korea, The Mirae and Mirae City, MGM, and DL E&C. These companies borrowed purchase funds using real estate funds and project financing vehicles (PFVs).
Researcher Kim concluded, "The uncertainty in repayment of lease receivables related to Homeplus’s sale-and-leaseback is unlikely to cause serious damage to the banking sector, which mainly consists of loans to store purchasers." He also noted that the risk level for construction companies would only increase moderately, concluding that "the impact of Homeplus lease debt on the financial market and credit bond market is more limited than concerns suggest."
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