PeopleBio Faces Profitability Challenge After Daechi-dong Property Acquisition

PeopleBio, a KOSDAQ-listed company, faces the challenge of reducing its financial burden after acquiring a building in Daechi-dong's private education district. The company maintains that the property is a stable income-generating asset located in this prime educational area, and that the transaction price was determined based on an external appraisal.

According to the Financial Supervisory Service's Electronic Disclosure System on August 14, PeopleBio signed a contract on December 24 of last year to acquire the 'Dugak S-gwan' building and a multi-family residential building located in Seoul's Gangnam-gu Daechi-dong education district for 98.3 billion won. For the down payment and intermediary payment, PeopleBio issued perpetual convertible bonds (CB) worth 35.6 billion won as substitute payment.

Through this transaction, PeopleBio resolved its capital impairment issue. At the time, the capital impairment ratio had exceeded 62%, but by issuing perpetual CBs—which are recognized as capital—to pay for the building, the company was able to escape the state of capital impairment.

However, the profitability of the real estate remains a challenge. The annual rental income generated from the property is 2.64 billion won. A mortgage right of 62.7 billion won has been established on the property, and after excluding deposits, applying an annual interest rate of 5% to 58.7 billion won, the estimated annual interest expense amounts to approximately 2.935 billion won.

Nonetheless, because part of the loan has recently been refinanced through another financial institution, the valuation of the property has gained recognition. There is now the potential to further reduce financing costs through additional refinancing, which could allow the company to achieve both goals at once.

The perpetual CBs provided as the down payment carry an annual interest rate of 2%, but since perpetual CBs allow for the deferral of interest payments, the company explained that immediate additional financing expenses are limited.

Still, it will not be easy to significantly increase rental income in the short term. Dugak S-gwan is currently fully leased to Gangnam Daesung Academy, with the lease contract valid until 2031. The company highlighted the advantages of securing stable rental income through a long-term lease agreement and having a very low vacancy risk.

The seller, Human Data, had set the book value of the property at 80.2 billion won as of the end of September last year. The book value is based on past acquisition cost and accounting standards and may differ from the actual market value.

A PeopleBio spokesperson stated that the transaction price was sufficiently set at fair value, as it was based on appraisals conducted by two reputable appraisal agencies. Furthermore, since Human Data did not receive the full sale proceeds in cash but instead holds securities issued by PeopleBio, PeopleBio was able to achieve capital stabilization without any cash outflow resulting from the acquisition.

PeopleBio is also seeking to sell the building after the acquisition to improve asset management efficiency and secure liquidity. The market has discussed a hoped-for sale price of around 120 billion won, as some nearby private education buildings have transacted in this range. However, considering the current financing structure and long-term lease agreement, it is estimated that some time will be required to coordinate prices and transaction terms with buyers.

The PeopleBio spokesperson said, "This building is located in the core location of Daechi-dong's education district and provides stable rental income through a long-term lease contract. Since the current rent is lower than the local market level, we plan to improve rental income and asset profitability in the future through possible rent adjustments."

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