Real Estate
A solid foundation for an uncertain property market
The standard seeks to improve the presentation of leases in the accounts, and requires lessees (tenants) to account for leases directly on the balance sheet. In the income statement, rental payments are replaced by an amortisation expense and an interest expense.
The International Accounting Standards Board (IASB) has estimated the value of off-balance sheet leases in the financial statements of listed companies at 2.86 trillion USD[1] . The travel and leisure industry is the real estate segment most affected, with 20.7% of the total balance sheet impact[2] .
The standard will have new impacts on the key performance indicators of lessee companies:
Regulatory and prudential capital ratios for the subsidiaries of financial and banking institutions are also affected. More generally, banking covenants backed by financial statements are subject to renegotiation.
IFRS 16 entails organisational changes and could have a significant influence on the business and real estate strategies of lessees. The challenge lies in modelling the different alternative scenarios in order to find the optimal solution.
[1] Source: Effects Analysis | IFRS 16 | January 2016
[2] Source: Effects Analysis | IFRS 16 | January 2016
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