EPRA, the European organisation for listed real estate companies, has pledged to oust proposals from the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB), arguing they will substantially increase landlords' debt position, according to an article in Het Financiele Dagblad.
EPRA, the European organisation for listed real estate companies, has pledged to oust proposals from the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB), arguing they will substantially increase landlords' debt position, according to an article in Het Financiele Dagblad.
The lobby organisation aims to increase awareness on the topic that so far has remained largely unknown to the industry. Retailers have until December 15 to comment on the proposed changes.
The new rules, which are aimed at increasing transparency for investors, envisage the entry of rental contracts on the balance sheets. Under current rules, these are kept under a separate heading in annual reports, named 'Commitment & contingencies', which stays off the balance sheet. Major property owners fear that, as a result of the changes, occupiers in the future will opt for shorter rental contracts to lighten their balance sheets, making the overall real estate fund sector less stable.
The proposals, featuring the new rights and obligations of rental contracts from 2013, will improve the financial reporting information available to investors by requiring most leases to be shown on the lessee's balance sheet. According to David Tweedie, chairman of the IASB, today 'much of the estimated annual $640 bn (EUR 498 bn) of lease commitments fails to appear on the balance sheet of lessees, thereby giving a false impression of companies' liabilities and gearing'.
Under the new rules, the entry of rental contracts on the liabilities side of the balance sheet would be matched on the asset side by the entry of a 'Right-of-use asset'. However, this new entry risks impairments in case the company posts weaker results and the right decreases in value.