This article was published on Aug. 27, 2025, at 10:55 a.m. on ChosunBiz MoneyMove website.
Using the revised corporate tax law enforcement decree, domestic listed real estate investment trusts (REITs) have begun to switch their investment property accounting from the historical cost model to the fair value model. This means the value of investment properties is now being reflected in financial statements at market value instead of book value. As property values increase, capital grows and the liability ratio (total liabilities ÷ total assets) decreases, allowing for the expectation of financial structure improvement.
According to the REITs industry on the 27th, as of the end of June, the assets of JR Global REIT amounted to 2.6322 trillion won, an increase of 22.6% (485.7 billion won) compared to 2.1465 trillion won at the end of last year. During the same period, net income jumped to 30.746 billion won from 20.676 billion won, an increase of 48.7% (10.07 billion won).
This change is thanks to the shift in investment property accounting policy from the historical cost model to the fair value model. If evaluated under the historical cost model, the value of the Finance Tower Complex in Brussels, Belgium, owned by JR Global REIT, would be 1.7815 trillion won after deducting accumulated depreciation (143.7 billion won) from the acquisition cost (1.9252 trillion won). However, under the fair value model, based on appraisals, the value of Finance Tower is 2.1521 trillion won. This switch from the historical cost model to the fair value model resulted in an increase of 370.6 billion won in assets.
As of the end of June, JR Global REIT's liability ratio was 180.4% under the historical cost model, but applying the fair value model allowed it to decrease to 119.2%, dropping by 61.2 percentage points. The removal of depreciation expenses has contributed to an increase in net income.
SK REIT has also transitioned from the historical cost model to the fair value model. As of the end of June, its asset size was 50.984 trillion won, an increase of 15.3% (6.755 trillion won) compared to the same period last year. During the same period, the liability ratio decreased from 243.4% to 159.8%.
In the case of SK REIT's investment property, the acquisition cost of the SK Serin Building was 1.003 trillion won in July 2021, but as of the end of June, the appraisal of its fair value showed an increase of 31.1% (311.9 billion won) to 1.3149 trillion won. The total value of SK Energy gas stations, SK hynix Bundang office, SK Green Campus office, essential semiconductor manufacturing facilities at SK hynix Ichon Campus, and SKC Chungmuro office also grew from an acquisition cost of 4.178 trillion won to a fair value of 4.9416 trillion won, an increase of 18.3% (763.6 billion won).
The adoption of the historical cost model for investment property accounting by REITs has been tied to the corporate tax law. This is because the evaluation profit of investment properties was also counted as 'distributable profit.' Under the Real Estate Investment Company Act, REITs are required to distribute more than 90% of distributable profit to shareholders, creating a burden.
In simple terms, under the previous method, when the value of an investment property increased by 10 billion won, even though there was no cash inflow, REITs had to increase dividends by at least 9 billion won because distributable profit rose. By applying the fair value model, it implies that the REITs could find themselves in a contradictory situation where, as they invest in good properties and the evaluation profits rise, they would have to procure more funds for dividends.
However, following the enforcement decree of the amended corporate tax law, the evaluation gains and losses of investment properties are no longer included in distributable profit, allowing REITs to adopt the fair value model.
From the perspective of the REITs, if the value of the investment properties rises from when they were first purchased, assets increase, and thus debt ratios and loan-to-value ratios (LTV) can be reduced. This makes it easier to obtain financing. This is why some listed REITs, in addition to SK REIT and JR Global REIT, are considering changing investment property accounting standards to the fair value model.
An official from an asset management company stated, "When the liability ratio and LTV decrease due to reflecting the fair value of investment properties, the likelihood of receiving a better credit rating increases, and the interest burden decreases when securing funds," adding, "This also broadens the funding options, including corporate bonds."
Of course, the fair value model carries risk factors. If property prices fall, assessment losses are directly reflected in financial statements. This means asset values may decline while liability ratios increase, thus reducing borrowing capacity.
Earlier, Korea Ratings also noted, through the 'monitoring plan for the impact of REITs applying the fair value model to investment properties,' that "The fair value model is advantageous in terms of increasing accounting benefits and expanding dividend capacity, but it could be a double-edged sword," emphasizing that securing and maintaining financial buffers for each REIT is crucial.
When REITs transition from the historical cost model to the fair value model, determining the appropriate value of investment properties is expected to become critical. An industry insider remarked, "If they inflate the value of investment properties in an attempt to improve financial structures in the short term, they could face even greater crises, thus it is essential to assess whether they are truly reflecting 'fair value.'"