SK REITs Corporate Bonds 'Major Flop' Showing Limits of Large-Cap REITs

View of SK Seorin Building, the headquarters of SK Group in Jongno-gu. Photo by Moon Honam munonam@

[Asia Economy Reporter Park So-yeon] SK REITs failed to attract investors in its first public bond offering, highlighting the limitations of large conglomerate REITs. Other major companies preparing to enter the REIT market, such as Hanwha and Samsung, are tightening their strategies after observing SK REITs' experience.

According to the Financial Supervisory Service's electronic disclosure system on the 4th, SK REITs announced that it finalized the sales amount of its first unnamed subordinated unsecured bond at 96 billion KRW on September 30. The subscription and payment date is October 7.

Previously, SK REITs conducted a demand forecast to determine the price of the unsecured bonds but reportedly received orders totaling only 91 billion KRW against the 96 billion KRW target. Consequently, the unsold portion was underwritten by the lead managers Korea Investment & Securities, SK Securities, and the underwriter Samsung Securities.

This figure falls significantly short of the target amount of 150 billion KRW. Industry insiders expect SK REITs to consider other methods such as issuing convertible bonds or increasing the proportion of short-term bonds and real estate secured loans.

Following SK REITs' failure to successfully issue corporate bonds, other group REITs preparing to apply for business approval, including Hanwha and Samsung, are focusing on securing assets to present to investors.

Recently, large conglomerates have been entering the REIT market aiming for asset securitization and tax benefits, but from an investor's perspective, there are clear weaknesses. Most large conglomerate REITs hold buildings occupied by their affiliates as assets, making it difficult to continuously increase rental fees to meet investors' expectations.

An industry insider explained, "Large conglomerate REITs secure high-quality real estate occupied by headquarters and affiliate offices, making them very stable, but realistically, it is difficult to continuously raise rents from affiliates, so aggressive investment from a profitability standpoint is limited."

To overcome this, large conglomerate REITs are pursuing additional asset acquisitions, but in the current high-interest-rate environment, such strategies are challenging to implement. As the domestic listed REITs with the highest credit rating of AA- (stable) also face difficulties in raising corporate bonds due to the direct impact of high interest rates, other large conglomerates preparing to enter the REIT market are also cautious of investor sentiment. If investors recognize the limitations of large conglomerate REITs and begin to feel uneasy about the high-interest-rate environment, it could cause problems in REIT formation and listing processes.

Meanwhile, 'Hanwha REITs' is currently under review by the Ministry of Land, Infrastructure and Transport for business approval. Hanwha REITs has a founding capital of 30 million KRW, capital of 374 billion KRW, and a total project cost of 756.2 billion KRW. Investment targets include the Yeouido Hanwha General Insurance Building, Hanwha Life Nowon Office, Hanwha Life Pyeongchon Office, Hanwha Life Jungdong Office, and Hanwha Life Guri Office. Samsung SRA Asset Management is also preparing to obtain business approval for 'Samsung REITs.' The mentioned investment properties include Samsung Life Daechi Tower and Taepyeongno S1 Building.

This content was produced with the assistance of AI translation services.