Homeplus, which requested a rent reduction from real estate landlords, has finalized negotiations on rent cuts with Shinhan Seobu T&D REIT. This is the first case where Homeplus, undergoing corporate rehabilitation procedures, has concluded negotiations after demanding lower rents from landlords.
Homeplus will raise the prepaid rent, which acts as a deposit, by 2 times while reducing the annual rent by 35%. This will decrease the monthly rent burden that needs to be paid. Although the annual rent will decrease for Shinhan Seobu T&D REIT, the increase in prepaid rent will allow the overall rent level to be maintained.
According to officials in the real estate and REIT sectors on the 28th, Shinhan Seobu T&D REIT resolved to sign a modification contract with Homeplus at its board meeting the previous day. On this day, Shinhan Seobu T&D REIT and Homeplus signed the contract and concluded the negotiations.
Shinhan Seobu T&D REIT has Homeplus, located in the basement of the 'Incheon Square One' shopping mall in Yeonsu-gu, Incheon, as a tenant. The share of Homeplus rent within this REIT is 28%.
According to the modified lease agreement, Shinhan Seobu T&D REIT's annual rent collection remains at 5.94 billion won. However, the structure of the rent has changed. While the prepaid rent has increased, the annual rent has decreased. The prepaid rent has been raised from the previous 1.5 billion won to approximately 3.05 billion won. In contrast, the annual rent has decreased from 4.44 billion won to 2.89 billion won, realizing the 35% reduction that Homeplus requested.
The prepaid rent is the amount that Shinhan Seobu T&D REIT receives in advance from Homeplus and deducts on a yearly basis. As of last month, the total prepaid rent was at the level of 12 billion won.
With this structure, Shinhan Seobu T&D REIT's monthly rent remains at approximately 495.33 million won, but the amount that Homeplus actually needs to pay decreases by more than 100 million won.
This lease adjustment is in response to Homeplus's request for a rent reduction. Homeplus, which entered corporate rehabilitation last month, requested landlords to cut rents. It asked public real estate funds and public REITs for a 35% reduction, while requesting 50% from private equity real estate funds and private REITs. Shinhan Seobu T&D REIT is a public REIT.
Officials from Shinhan Seobu T&D REIT explained, "The decision to sign a lease modification contract is to stabilize Homeplus's financial structure and enable stable management of the asset in light of Homeplus's corporate rehabilitation application." They added that "the effectiveness of the lease contract is contingent upon Homeplus's approval from the Seoul Bankruptcy Court."
The term of this lease is faster of either May 31, 2029, or the end of the month just before the prepaid rent is exhausted.
With the completion of the lease contract modification between Shinhan Seobu T&D REIT and Homeplus, there are expectations that Homeplus will similarly modify lease contracts with other landlords. However, there are also projections that the contract structures may differ, as Homeplus is proposing different negotiation terms based on individual store circumstances.
An official in the REIT industry noted, "Homeplus is negotiating different discount rates with landlords, taking into account individual store sales situations," adding that "since the rent may differ based on whether it is annual or monthly, and because sales situations vary, it is highly likely that different contracts will be made with each landlord."
Homeplus is currently negotiating with other landlords. KB Real Estate Trust, which has Homeplus's Pyeongchon and Sadang stores as tenants, has presented a framework for a new lease modification proposal with Homeplus. This proposal will be brought before the shareholder meeting next month after being approved by the board.
DL Group, which has five Homeplus stores as tenants, is still at an impasse in negotiations. MDM Asset Management, which has leased ten stores to Homeplus, is also struggling with the request for a significant rent cut. They have been paying interest on borrowing funds with the rent collected from Homeplus, but if the rent is reduced, it will become difficult to pay the interest.
A Homeplus official stated, "While some negotiations are progressing well, it is difficult to discuss the specifics due to contractual matters," and added, "We will continue to operate normally and aim to conclude the rehabilitation procedures as soon as possible."