NICE Investors Service Downgrades Korea Real Estate Investment & Trust's Long- and Short-Term Credit Ratings

On June 25, NICE Investors Service announced that it had downgraded both the long-term and short-term credit ratings of Korea Real Estate Investment & Trust.

As a result, the long-term rating was adjusted from 'BBB+/Negative' to 'BBB/Stable', while the short-term rating was changed from 'A3+' to 'A3'.

NICE Investors Service explained that the downgrade reflected several factors, including the company's net profit turning into a loss due to increased credit loss expenses and funding costs, as well as the rapid deterioration of asset quality amid a sluggish real estate market.

Korea Real Estate Investment & Trust's credit loss expenses in 2024 reached 42.8 billion KRW, a significant increase compared to 2.7 billion KRW in 2022. During the same period, provisions for credit loss reserves also rose from 1.2 billion KRW to 13.2 billion KRW.

NICE Investors Service pointed out, "While cost burdens have increased, operating revenue has also declined recently due to a decrease in orders for management-type land trusts with completion guarantees since the second half of 2022." Operating revenue dropped from 95.8 billion KRW in 2022 to 59.3 billion KRW in 2024, and its market share based on operating revenue fell from 5.5% to 3.6%.

NICE Investors Service further stated, "Given the sluggish real estate market, it is unlikely that new orders will recover in the short term," and added, "The recovery of operating revenue and profitability in the near term will also be limited."

Additionally, the agency noted, "The potential realization of contingent liabilities related to completion guarantees is also a burden on profitability projections," and explained, "As of the end of March 2025, there are 12 projects that have exceeded their guaranteed completion deadlines, and there are four related lawsuits for damages."

Along with this, NICE Investors Service commented, "The ratio of trust account loans (net) to equity rose from 47% at the end of 2023 to 100% at the end of March 2025, indicating a rather rapid deterioration in soundness," and added, "Given the continued weakness in the real estate market, there is a possibility of further deterioration in asset quality, which we plan to monitor closely."