Real estate trust companies struggled with poor performance in the second quarter (April to June) as well. There were places that recorded losses of over hundreds of millions of won in the second quarter alone. Other financial indicators such as liability ratios are also worsening. It seems that the trusts are bearing the costs due to a lack of proper sales at the business sites they contracted or delays in construction.
According to an analysis by Korea Ratings on 14 real estate trusts on the 21st, the total operating revenue (sales) of these trusts in the second quarter was recorded at 436.9 billion won. This is an increase of 58.4 billion won from the previous quarter. Trust fees and interest revenue were similar to the previous quarter, but some companies saw an increase in revenue related to real estate investment trusts.
However, looking at profitability, the financial situation worsened. The 14 companies recorded an operating loss of 119.5 billion won. The net loss, which reflects non-operating income and corporate tax, reached 134.3 billion won. The average liability ratio also rose from 81.3% at the end of the first quarter (March) to 84.3% in the second quarter.
Many companies recorded losses of hundreds of millions of won in just this quarter as provisions have increased and non-operating expenses have also grown. The largest loss was recorded by a person surnamed Woo, with an operating loss of 80 billion won in the second quarter alone. The net loss also amounted to 76.2 billion won.
Based on operating losses, including Woo's company, six entities recorded quarterly losses. KB Real Estate Trust (-46.8 billion won), Kyobo Asset Trust (-32.5 billion won), Mugunghwa Trust (-9.2 billion won), and Korea Trust and Daishin Asset Trust (each at –3.9 billion won) all reported deficits. In terms of net loss, Woo's company and Mugunghwa Trust (-44.7 billion won), KB Real Estate Trust (-30.5 billion won), Kyobo Asset Trust (-24.6 billion won), and Korea Trust (-3.6 billion won) also recorded deficits.
Kim Sun-joo, a principal researcher at Korea Ratings, noted, "The sales of existing construction business sites that had signed trust agreements are sluggish, or unforeseen spending by the trusts due to rising construction costs has significantly increased. As the cash flow deteriorates at the business sites, the trusts are paying the construction costs instead, and this has increased the financial risks for the trusts."
The trusts had entered into a responsible completion guarantee that holds them liable to complete the construction or provide compensation if the construction companies fail to finish on time, and the increase in expenditure due to fulfilling these obligations is a major reason for the decline in the trusts' profitability.
As the expenditures of the trusts increase, borrowings are also rising. In the second quarter, the liability ratio of Mugunghwa Trust reached 319.4%, exceeding 300%. Additionally, Korea Investment Real Estate Trust was close to 200% at 187.2%, while Shinhan Asset Trust (159.8%), KB Real Estate Trust (152.9%), and Korea Land Trust (132.8%) also surpassed a 100% liability ratio. This indicates that the borrowed money exceeds the company's capital.
A source in the real estate trust industry said, "In recent years, the main revenue source for real estate trusts, the responsible completion type trusts, have not yielded profits and have instead seen the provision for bad debts increase, along with litigation, resulting in a significant backlash. Trusts are turning their attention to real estate investment trusts (REITs) and maintenance projects to make up for this, but these have lower fees compared to existing land trust projects and are long-term endeavors, making a rebound in profits difficult for the time being."