Proposed changes to accountancy rules that would have seen property values and rental income figures removed from the balance sheets of property companies are close to being thrown out by the International Accountancy Standards Board (IASB), the body responsible for international accounting regulations.
At an IASB Board meeting held in London on Wednesday, a "tentative" decision was taken to exclude landlords of investment property from the proposed reforms a change which would have sent shockwaves through the industry, according to the European Public Real Estate Association's (EPRA) executive responsible for liaison with the IASB. Gareth Lewis, Director of Finance at EPRA said: "We are very encouraged by the decision taken this week. It shows that the IASB have listened to the views expressed by the industry and recognised that the European real estate sector already has an accounting standard (IAS 40) that is well supported across the world."
Lewis added: "This validates the huge amount of time and effort taken by EPRA and its partners in the international real estate associations' alliance REESA to present a global view on behalf of the industry that was also the view of investors in property. Our message was difficult for the regulators to ignore and will hopefully result in a more transparent and useful accounting framework for investment property than would otherwise have been the case."
The new leasing model, had it continued to apply to lessors of investment property, would have seen the reclassification of this real estate as a financial asset, with the result that property companies would no longer have either rental income in their income statements or property held on the balance sheet despite these being the very things used to measure value and compare businesses.
The reform is still expected to affect occupiers, however. They will have to record leases as if they were bank loans, with rental obligations during the remaining period of the contract shown as a liability. How the change will influence the way businesses approach their property requirements remains to be seen EPRA in cooperation with other organisations like NAREIT in the US and REESA, have been lobbying hard to persuade the IASB, and its US equivalent FASB, to exclude lessors or investment properties. They urged the regulatory bodies to take into account the fact that the proposed new leasing model would not provide useful information to investors and adversely affect the ability of investors to assess the performance of property and real estate companies.
The European Public Real Estate Association - is the voice of the publicly traded European real estate sector. With around 200 active members, EPRA represents over EUR 250 billion of real estate assets and 85% of the market capitalisation of the FTSE EPRA/NAREIT Europe Index. Through the provision of better information to investors, improvement of the general operating environment, encouragement of best practices and the cohesion and strengthening of the industry, EPRA works to encourage greater investment in listed real estate companies in Europe.
Source: EPRA (European Public Real Estate Association)