Shinsegae Group goes asset-light in e-commerce push

South Korea's Shinsegae Group is looking to sell the headquarters building of its supermarket chain E-Mart Inc. for about 1 trillion won ($883 million). The sale, if it goes through, is expected to accelerate the retail giant's asset-light strategy by leveraging its real estate to fund its growing e-commerce business.

E-Mart has recently appointed CBRE, the world's largest commercial real estate services company, as the advisor to securitize its headquarters building in Seongsu-dong, eastern Seoul, according to asset management industry sources on July 6. After selling the headquarters, it will lease back the office.

The decision to sell the head office was made at the group's executive meeting presided over by the group's Vice Chairman Chung Yong-jin, soon after the Shinsegae Group completed its 3.44 trillion won acquisition of an 80% stake in eBay Inc.'s South Korean operations on June 30.

"We are now tapping the market via our advisor. No final decision has been made yet in that regard," said a Shinsegae Group official, in reference to the sale plan for the E-Mart's headquarters.

"Vice Chairman Chung's philosophy is that we should not sit on real estate, but rather transform it into digital assets like e-commerce."

Now seems to be the right time to sell the 99,000-square-meter property, capitalizing on the land price surge fueled by the redevelopment plan in the Seongsu-dong area. Singapore's GIC has invested in a new office building in the area, called the Brooklyn of Seoul, one of the country's most expensive districts where 3.3 square meters, or one pyeong, has already topped 100 million won.

E-Mart holds 23 trillion won in assets as of the end of March this year, of which tangible assets and real estate investments make up half, or 11.6 trillion won. It runs 161 outlets nationwide.

"It doesn't make sense to make money from selling ramen (noodles) on the high-priced land," said one of the asset management sources. "Institutional investors, domestic and overseas alike, give a higher score to the company that makes money from their business, not from real estate." 

NEW M&As?

To finance the eBay Korea purchase that marked the Shinsegae Group's biggest-ever transaction, it borrowed loans against some real estate held by E-Mart, including the Starfield City Bucheon, a grand shopping mall opened in the Seoul Metropolitan Area in 2019.

Touted as a candidate of a controlling stake in Hugel Inc., the country’s top maker of botulinum toxin, the retail titan may need to raise new cash to prepare for additional acquisitions. The stake up for grabs is estimated at over 2 trillion won.

"We financed the eBay Korea transaction with the proceeds from the sale of E-Mart's Gayang-dong store and with the loan backed by Starfield City Bucheon," the Shinsegae Group official told Market Insight.

"Going forward, to build omnichannel operations through a combination of offline and online businesses, we need to make additional investments."

Behind Shinsegae's shift of its focus into the online marketplace was the spectacular New York listing of Coupang Corp., the country's No. 2 e-commerce platform, earlier this year.

Coupang is currently valued at around 80 trillion won as of July 5, a 100-fold surge from the 800 billion won of its first business year in 2011. By contrast, E-Mart's market capitalization stands at 4.4 trillion won, after its stock price has tumbled by half to 159,500 won from 330,000 won in January 2012.

Further, its archrival Lotte Group is ahead of Shinsegae in securing cash by using real estate assets. Walmart Inc., the US retailer E-Mart is seeking to emulate, directly owns just 56% of its offline stores as of 2020.  

Back in 2019, Lotte had raised 3 trillion won by leveraging one of its flagship department stores in southern Seoul and other assets.

"Lotte Group is aggressive in securitizing assets, transferring data centers owned by Lotte Data Communication into Lotte REIT," said another asset management industry source. "It is aimed at securing cash for M&As not only in the shopping business, but also for new businesses in the chemical segments such as hydrogen and batteries."

Up to now, valuations on retail companies like Shinsegae and Lotte Shopping have been based in large part on their real estate holdings, said the source. "The sale of E-Mart's headquarters will be meaningful in that it signals that the era where companies hold on to real estate is coming to an end," he noted.

Write to Dong-hui Park at donghuip@hankyung.com
Yeonhee Kim edited this article.