[JR REIT Survival Series]②Five Years Hinged on 1.1 Billion Euros... Debate Over Finance Tower Valuation

Different Appraisals for Building Valuation by Each Firm
Assumption of 1.1 Billion Euros Next Year
Difficulties in Raising Additional 280 Billion Won

Editor's NoteJR Global REITs, which was the first listed REIT to file for rehabilitation proceedings, recently lost a lawsuit in the UK, raising fundamental questions about the direction of its debt restructuring involving over 600 billion won. The Asia Business Daily examines the issues highlighted by the UK ruling, the controversies over the valuation of Finance Tower, the realism of JR’s five-year repayment plan, and the institutional blind spots revealed by this crisis.

The key factor in determining whether JR Global REITs can be revived is ultimately the valuation of Brussels Finance Tower. The five-year repayment plan presented by JR Asset Management is premised on having the asset appraised at 1.1 billion euros next year, refinancing the secured loan based on this value, and raising additional funding.

On September 8 (local time), a UK court ruled that the 920 million euro appraisal by Jones Lang LaSalle (JLL), which formed the basis for the cash trap provision, is valid under the loan agreement. The issue is that other appraisals and the company’s own accounting imply a higher value, so the actual appraised value next year will be critical in determining whether the repayment plan can succeed.

Knight Frank Withdrew After Appraisal of 1.081 Billion Euros

Knight Frank, which appraised Finance Tower before JLL, assessed it at approximately 1.081 billion euros in December of last year. Afterwards, PIMCO—the investment management company representing the lender group—demanded answers and revisions for each 'key issue' in the appraisal report. Knight Frank withdrew from the engagement on January 30 of this year.

At the time of resignation, the responsible officer cited the nature of the queries, lack of trust, and inappropriate pressure applied during the appraisal process. PIMCO also acknowledged that in discussions with Knight Frank, a potential valuation of 950 million euros had been mentioned.

However, the UK court did not fully accept the company’s claim that Knight Frank resigned purely due to unreasonable intervention by the lenders. The court saw the possibility that Knight Frank had put itself in an awkward position by raising company expectations for a higher appraisal.

Subsequently, Colliers, engaged unofficially by the company’s asset manager Valesco, provided an informal valuation of 1.069 billion euros. This would be just above the threshold to avoid triggering the cash trap. Based on this, the company requested that Colliers be appointed as the official appraiser, but the lender group rejected the request. Instead, newly appointed JLL gave a figure of 920 million euros. The company's expert witnesses during the court proceedings claimed a fair value of 1.09–1.1 billion euros.

Company’s Own Appraisal: 1.352 Billion Euros...Wide Disparity Even in Legal Arguments

While the UK court did not specify what the “correct” price should be, it concluded that JLL’s appraisal could not be considered irrational. The court also pointed out the contractual vulnerability in which whether or not the cash trap is triggered hinges on hitting a specific appraisal number.

According to an external professional appraisal commissioned separately by JR REITs, the value of Finance Tower at the end of last year was assessed at 1.3521 billion euros. This is over 430 million euros higher than JLL’s appraisal of 920 million euros—equivalent to a difference of more than 700 billion won. Even compared to the company’s own expert testimony in the UK court—which claimed a fair value range of 1.09–1.1 billion euros—the difference is at least 250 million euros higher.

Recently, both the ongoing concern value and liquidation value for JR REITs have been under review by Samil PwC, which was appointed as an examiner by the Seoul Bankruptcy Court. Since Finance Tower is core to the company’s assets, its recognized value will be a key issue in determining the likelihood of any successful rehabilitation. The deadline for submitting the interim report is the 28th of this month.

"Additional Lending More Important Than Refinancing"

Creditors worry that the company’s five-year repayment plan is heavily dependent on the value of Finance Tower. JR REITs has assumed, regardless of the outcome of the UK litigation, that the appraised value for refinancing the secured loan next year will be 1.1 billion euros, with a loan-to-value (LTV) ratio of 55%.

This structure would use the proceeds left after repaying the existing local loan with the new loan to pay back domestic creditors. Under the scenario where the company lost the lawsuit, the additional amount that needs to be secured rises to 283.7 billion won. To raise the funds needed to repay domestic creditors, JR REITs would have to borrow more against Finance Tower than is currently possible.

One basis for the company’s expectation for a 1.1 billion euro appraisal next year is ongoing negotiations with the Belgian Buildings Agency, the key tenant, to extend the long-term lease. The logic is that if a government institution extends its tenancy, this will secure a stable stream of rental income for many years and have a positive impact on the appraisal.

An investment banking industry insider said, “Refinancing an old loan with a new one and increasing the loan size to provide enough cash to repay domestic debt are two different issues. With the lender group (with which the lawsuit was fought) potentially not staying on after maturity, the real challenge is to find new financiers willing to provide a large amount of fresh capital.”

JR REITs has stated that, following the UK decision, it is negotiating and conducting due diligence with multiple financial institutions for refinancing. While the cash trap remains in effect, annual Belgian dividend income exceeding 20 million euros is being prioritized for repayment of the local secured loan. The company also plans to present an updated debt repayment plan that takes into account the examiner’s findings, reduced hedging liabilities, and arrangements with new lenders.

The conditions attached to the existing loan agreement also remain a variable. The cash trap LTV threshold for Finance Tower is set to tighten from 52.5% this year to 50% from the third year onwards. However, these are the terms applicable to the current loan with the existing lender group. The LTV ratio of 55% assumed in the company’s rehabilitation plan for next year is based on refinancing with new financial institutions. Whether a new lender group would appraise Finance Tower at 1.1 billion euros and accept an LTV of 55%, as the company assumes, is a point of market skepticism.

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