MBK-owned Homeplus abandons plan for Korean REIT

The company sought to raise up to KRW1.7 trillion ($1.5 billion), offering approximately 345.5 million shares for KRW4,530-5,000 apiece. The REIT comprised 51 stores to be leased back to Homeplus, which would retain a 30% ownership interest in the vehicle. It had a target dividend yield of around 7%. The retailer cited lower-than-expected demand from overseas investors as the primary reason for pulling the deal, while noting that local investors are unfamiliar with large REIT offerings.

Homeplus is Korea’s second-largest retailer behind Shinsegae Group’s E-Mart chain. As of year-end 2017, it operated 142 hypermarkets, 367 supermarkets, and 376 convenience stores. There is also an online shopping and delivery platform.

According to the REIT filing, Homeplus directly owns 81 properties. The 51 in the offering have a gross floor area of 1.98 million square meters, an appraisal value of KRW4.26 trillion, and include 17 out of the company’s top 20 stores by sales value. A total of KRW1.8 trillion in bank financing was arranged to support the acquisition of the stores, with the rest to come from equity investors. The REIT also had the right to buy the 30 remaining hypermarkets held by Homeplus over a period of four years.

When MBK acquired the business, it was the largest-ever private equity buyout in Asia based on enterprise valuation. Co-investors included Canada Pension Plan Investment Board (CPPIB) – which contributed $534 million in equity on its own – as well as Temasek Holdings and the Public Sector Pension Investment Board. The deal was backed by over KRW4 trillion in debt, Debtwire reported.

The consortium pledged to invest KRW1 trillion in the business over two years to improve competitiveness while maintaining the existing employment conditions of staff and ruled out compulsory redundancies. However, turning around the business has proved difficult in the face of restrictive regulations and slowing sales for large-format retailers.

In 2017, I.S. Lim was brought in as CEO to reinvent the hypermarket model and drive online sales. She previously served as CFO at two Unitas Capital portfolio companies - Korean convenience store chain Buy the Way and Australia-based car parts business Exego - helping the private equity firm turn challenging situations into profitable exits.

Speaking earlier this year to German Retail Blog, the English online platform of retail trade publication Lebensmittel Zeitung, Lim explained how Homeplus is implementing a hybrid discount store concept. It a combination of a warehouse and a hypermarket that also serves as a fulfillment center for online orders. One of the goals is to boost the online share of overall sales from 8% to 30%.

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• Topics
• North Asia
• Consumer
• Real estate
• IPO
• South Korea
• MBK Partners