South Korea’s Hanwha REIT (451800.KS) successfully secured funding in a demand forecast for a ₩200 billion (approximately $145.8 million) corporate bond issuance, receiving orders more than double its target. However, concerns over surging borrowings from new asset acquisitions and floating-rate exposure weighed on investor sentiment, resulting in pricing that fell short of market expectations.

According to the financial investment industry on the 28th, Hanwha REIT secured total buy orders of ₩465 billion (approximately $339.1 million) in the demand forecast conducted that day. By maturity, ₩150 billion (approximately $109.4 million) was allocated to the 1-year tranche and ₩315 billion (approximately $229.7 million) to the 1.5-year tranche. The original fundraising target was ₩200 billion in total.

While investment demand far exceeded the target, the credit spreads fell short of expectations. Based on the offering amount, the 1-year tranche was priced at a spread of plus (+) 20bp (1bp = 0.01 percentage point) over the individual average market rate, while the 1.5-year tranche came in at plus (+) 17bp. Market participants noted that these levels are somewhat elevated given the REIT’s clear earnings improvement trajectory. As a result, future funding cost burdens are expected to increase.

Market participants point to concerns over deterioration in the financial structure stemming from the large-scale asset acquisition as the key driver behind the pricing outcome. Hanwha REIT purchased the Orange Center building in Sunhwa-dong, Jung-gu, Seoul in June for ₩350 billion (approximately $255.2 million), financing the entire amount through borrowings. As a result, total borrowings, which stood at ₩803.4 billion (approximately $585.9 million) at the end of April this year, are projected to swell to ₩1.17 trillion (approximately $851.8 million), with the debt ratio estimated to surge from 124.5% to 178%. The debt-to-assets ratio is also expected to rise from 51.9% to around 61%.

The high proportion of floating-rate debt is also cited as a factor that prevented investors from making more aggressive rate bets. Floating-rate borrowings account for 69.1% of total debt, creating a structure where financing costs could rise rapidly in a rising-rate environment. Combined with an environment of increasing funding rates, the expanded borrowings leave significant room for interest burdens to surge again.

The earnings performance itself shows clear improvement. Based on the recently disclosed 9th fiscal period (November 2025–April 2026), operating revenue reached ₩54.3 billion (approximately $39.6 million), up 7.5% year-over-year, while operating profit rose 10.8% to ₩34.3 billion (approximately $25.0 million). Net income surged 61.3% to ₩17.4 billion (approximately $12.7 million). The sharp increase in net income was driven by a reduction in financing costs. Financing costs for the 9th period totaled ₩16.9 billion (approximately $12.3 million), down 16.3% from ₩20.2 billion (approximately $14.7 million) in the same period a year earlier. The REIT had previously issued ₩110 billion (approximately $80.2 million) in corporate bonds and used the proceeds to repay ₩91.1 billion (approximately $66.4 million) in long-term borrowings, effectively restructuring its debt mix toward lower-cost corporate bonds, which had a positive impact.

The ratio of financing costs to earnings before interest, taxes, depreciation, and amortization (EBITDA)—a measure of interest-paying capacity—also improved from approximately 1.8x in the 7th fiscal period to approximately 2.4x in the 9th period.

Lee Eun-mi, a senior analyst at NICE Credit Rating, commented: “With the new asset acquisition in June 2026 financed entirely through borrowings, the debt level has increased significantly. Amid rising market interest rates, the somewhat elevated proportion of floating-rate debt and the increase in net borrowings suggest that financing cost burdens could rise again.”

Market observers view Hanwha REIT’s aggressive expansion of office assets and the resulting external growth positively, but note that its ability to defend financial soundness has now come under serious scrutiny.