Did investors dodge a bullet? The South Korean finance sector is belatedly relieved that MBK Partners, the private equity firm that owns a 100% stake in discount store retailer Homeplus, failed to list Homeplus' real estate investment trust (REIT) back in 2019. Now that Homeplus has filed for corporate rehabilitation, akin to Chapter 11 bankruptcy in the U.S., and is undergoing court receivership, investors believe the scrapped REIT IPO spared investors from significant losses.
At the time, Homeplus REIT was seen as a large-scale listing that would raise trillions of won, with plans to include 51 Homeplus stores as its underlying assets and offer a dividend yield of around 7% per year. The REIT’s total assets were projected to reach an unprecedented 4 trillion won ($3 billion), and the listing was widely expected to succeed, especially with government backing. MBK had planned to raise between 1.5 trillion won and 1.7 trillion won through the offering, based on the proposed IPO price band of 4,530 won to 5,000 won per share.
However, the IPO did not happen because Homeplus REIT struggled to attract interest from foreign institutional investors, its primary target audience. Despite conducting a two-week roadshow with over 200 global investors, few investors submitted bids at the expected price levels. The total bid volume fell short of half the capital-raising target, with most offers at the lower end of the target price range. MBK abandoned the IPO in 2019.
In retrospect, analysts believe that the failed IPO ultimately turned out to be a fortunate turn of events for investors. MBK had considered launching a REIT as part of its asset securitization strategy when it acquired Homeplus in 2015. The goal was to secure funds to cover the 2 trillion won in outstanding debt from the 4.3 trillion won in acquisition financing used for its 2015 takeover of Homeplus.
Even then, many questioned the Homeplus REIT’s investment appeal. However, Homeplus emphasized that its leases included a 2.5% annual rent escalation clause. It also marketed the REIT’s size as an advantage, suggesting that it would be included in global REIT funds and potentially attract foreign investment if added to the KOSPI 200.
Analysts say that had the Homeplus REIT gone public, it would not have been able to withstand the sharp rise in interest rates, including the financial strain caused by the Legoland crisis in 2022. Other retail-focused REITs have struggled, with Lotte REIT and E Kocref Cr-REIT, which have similar business structures to Homeplus REIT, seeing their stock prices drop from the 6,000-7,000 won range in 2019 to 3,000-4,000 won range this year. Given Homeplus REIT’s significantly higher debt burden, it would have faced even steeper losses.
At the time, foreign institutional investors had been wary of the growing shift from offline to online retail and the absence of key landmark stores. Additionally, including over ten underperforming stores raised concerns about MBK offloading unprofitable assets, further dampening investor sentiment.
“If the Homeplus REIT IPO had been successful, MBK would have significantly reduced its financial burden, and the current Homeplus crisis may have been delayed,” said an industry insider. “But investors would have suffered heavy losses as MBK would have likely engaged in repeated capital increases and inclusion of low-performing assets, problems that have plagued other REITs.”
MBK Partners secured over 2 trillion won through acquisition debt refinancing in the second half of 2019, effectively extending the loans it had initially planned to repay through the REIT listing. As part of this refinancing, MBK pledged 78 Homeplus-owned hypermarket sites, valued at approximately 6 trillion won, as collateral. MBK later recouped its investment through a sale-and-leaseback strategy, selling Homeplus stores and leasing them back under long-term agreements.
Homeplus, meanwhile, has struggled financially, posting consecutive operating losses since the COVID pandemic—133.5 billion won in 2021, 262.2 billion won in 2022, and 199.4 billion won in 2023. The number of Homeplus stores, which stood at 142 when MBK acquired the company in September 2015, has declined to 126.
