Homeplus: Reit idea, wrong size

South Korea’s Homeplus Stores whipped the market up into a state of excitement over the last month as it lined up a real estate investment trust (Reit) the likes of which the country had never seen. Even more tantalising was the pipeline of large companies considering Reits of their own if Homeplus's offering went well. But it aimed too high and had to pull the deal, wrecking the party before it started.

  • By Jonathan Breen
  • 19 Mar 2019
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The company, backed by Asian private equity firm MBK Partners, was hoping to list a Reit of its supermarket properties for up to W1.73tr ($1.5bn). That was a hefty sum for a market that has seen only a handful of publicly listed Reits, most floating for well below $100m, according to Dealogic data.

The deal was seen as an opening up of the Korean Reit market and it did seem that its time had come when investors were receptive during pre-marketing.

Korean IPOs rely heavily on domestic investors, with an initial 40% of each deal reserved for them. Homeplus's syndicate expected around $500m from local funds. 

But its ambition extended way beyond the locals, targeting investors who usually focused on Singapore Reits, as well as large Japanese investors. To engage those buyers the deal needed to be big enough to show up on their radars.

But vying for all that attention proved too much, too soon for a nascent market like Korea’s and the deal was pulled.

MBK and Homeplus can nurse their wounds for now. But whether they knew it or not, other large issuers were lining up to follow them into the market. Among them were Korean retail companies e-mart and Lotte. No doubt they have also now taken a step back from pursuing their own Reit plans as a result of Homeplus's fate.

Homeplus has said it will return. When it does, local demand should be just as high. But the issuer must take a more conservative approach to its size ambitions and its engagement with international investors. It will be hard to try such a large Reit again, at least for a while.

It is also worth noting that Homeplus need not be the first name to come. Bankers were dejected about the impact of its failure but at least Homeplus has done its peers a service by showing them how high they can fly before they get too close to the sun.

Lotte, e-mart and their peers are not small fry issuers. With a well-marketed roadshow and sensible ambitions, there is no reason they cannot grow the Korean Reit market.

  • By Jonathan Breen
  • 19 Mar 2019

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