[Every Man for Himself: JR REIT] Company’s Revised Plan Moves Full Repayment Up to 2029... Halts Dividends, Puts Belgian Sale on the Table

Additional 3% interest and EOD introduced... "Strengthening creditor protections"
Belgian assets also tapped to fund early repayment
Shareholder coalition: "Creditor-focused... greater losses for shareholders"

JR Global REIT has proposed a revised plan that would bring forward the date for repaying creditors in full to the end of 2029 and impose additional interest and an event of default (EOD) if repayment is delayed. The plan substantially reflects creditors' demands, but suspends shareholder dividends until all debt is repaid and leaves open the possibility of selling its key asset, the Belgium Finance Tower.

According to the investment banking (IB) industry on Oct. 13, JR REIT released a revised repayment plan on Oct. 12, saying it had “reflected the views of creditors, including bondholders and financial institutions.” The key changes are moving full repayment six months earlier than under the previous plan and adding creditor protection provisions. However, with the shareholder coalition objecting that the plan is “centered on creditors,” the bondholders' meeting scheduled for November is expected to be a turning point for the future of the Autonomous Restructuring Support (ARS) process.

Full repayment by end of 2029... Will the repayment timeline accelerate?

Under the revised plan, rehabilitation claims subject to repayment total KRW 468.1 billion. The company will repay a cumulative 40% of the principal by the end of 2027, and has brought forward the date for repaying 60% from the end of June 2029 to the end of 2028. The date for full repayment of 100% has also been moved up six months, from the end of June 2030 to the end of 2029. The company plans to pay the regular interest that has not been paid to date by the end of June 2027.

The plan also adds creditor protection provisions. If the principal is not fully repaid by the end of 2029, additional interest of 3% per year will be applied to the unpaid principal. If the principal and interest are not repaid by the final repayment date, the company will lose the benefit of the term, allowing creditors to demand immediate repayment of the outstanding debt.

The plan also leaves open the possibility of selling the Finance Tower. The company is pursuing a proposal to put the sale of the Finance Tower or its stake in JR No. 26, which owns the tower, on the agenda of the annual general meeting in March 2029 as part of its business plan. If shareholders approve a sale, or refinancing generates additional funds, the proceeds must be used for early repayment.

While the plan would speed up debt repayment, it would also increase the burden on shareholders. The company has decided to suspend shareholder dividends, to the extent permitted by applicable laws, until all principal and interest on rehabilitation claims are repaid. It will repay KRW 22.7 billion in dividend claims already confirmed as scheduled, but any newly secured funds will be used first to repay creditors. JR Investment Management will also forgo management fees until dividends resume after all principal and interest have been repaid.

"Dividend suspension could also increase the tax burden"

The suspension of dividends could also lead to a greater tax burden. REITs must distribute at least 90% of their distributable profits to qualify for an income deduction under the Corporate Tax Act. In an investigative report submitted to the court in September, Samil PwC estimated that if taxation begins in 2029, corporate taxes of KRW 91.5 billion could accrue during the repayment period.

The shareholder coalition objected that the revised plan was excessively tilted toward creditor protection. Kim Hyun-wook, head of the coalition, said, “Many people feel that the company's proposal itself is too focused on creditors,” adding, “The response is that the repayment schedule is too aggressive and the inclusion of additional interest goes too far compared with the plan proposed by the shareholder coalition.”

On the dividend suspension, he also noted, “A REIT loses much of its significance without dividends,” and said, “If funds for repaying creditors are raised through an urgent asset sale, a paid-in capital increase, or the issuance of convertible bonds (CBs), shareholders could ultimately suffer greater losses.”

Company: 2029; shareholders: 2033; investigative committee: 2036

The proposed plans differ substantially in their full repayment dates. The company's revised plan targets full repayment by the end of 2029, while the shareholder coalition's “3-3-4 plan” targets 2033. The repayment plan presented for reference by Samil PwC runs through 2036. The investigative report found that the plan was short of KRW 144.9 billion in funding and assumed that the shortfall would be covered by borrowing an additional KRW 169 billion in 2036.

Belgium Finance Tower. JR Global REITs website.

The company's plan promises faster repayment than under rehabilitation proceedings, but requires it to raise funds within a shorter period. The company has identified borrowing against its Belgian assets, selling its Manhattan property in the United States, raising new financing, and a paid-in capital increase as potential sources of funds. It plans to complete an extension of the long-term lease currently under discussion with the Belgian government, thereby increasing the value of the Finance Tower and securing local financing. However, the specific terms and amount have not yet been finalized.

A JR REIT representative said, “Setting out a plan that can be achieved under current conditions, rather than making promises we cannot keep, is the way to protect the interests of both creditors and shareholders,” adding, “Selling assets by unreasonably accelerating the schedule could undermine their value and make it difficult to raise funds.”

The revised plan is expected to be finalized at a board meeting in mid-October. The bondholders' meeting is scheduled for mid-November. The plan can be implemented only if it is approved at the meeting and receives court approval. Since the current deadline for ARS negotiations is Oct. 14, a further extension appears inevitable.

Regarding the board meeting that will finalize the revised plan, Kim said, “If the company pushes through an unreasonable plan because of concerns about the manager's business operations or credibility, and shareholders alone suffer the consequences, we will have no choice but to conclude that the directors worked for the asset management company (AMC), not the shareholders.”

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