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Notes to the Consolidated Accounts
\ Annual Accounts
G. Investment properties
Investment properties are properties which are held to earn rental income
for the long term. In accordance with IAS 40, investment properties are
stated at their fair value.
External independent real estate experts determine the valuation of the
property portfolio every three months. Any gain or loss arising, after the
acquisition of a property, from a change in its fair value is recognised
under the income statement. Rental income from investment properties
is accounted for as described under R. The real estate experts carry out
the valuation on the basis of the calculation method of the discounted
value of the rental income in accordance with the “International Valuation
Standards/RICS Valuation Standards”, established by the International
Valuation Standards Committee/Royal Institute of Chartered Surveyors, as
set out in the corresponding report. This value, referred to hereafter as
the “investment value”, corresponds to the price that a third-party inves-
tor would be disposed to pay in order to acquire each of the properties
making up the portfolio of assets and in order to benefit from their rental
income while assuming the related charges, without deduction of transfer
taxes. The disposal of an investment property is usually subject to the
payment to the public authorities of transfer taxes or VAT.
A share of transfer taxes is deducted by the experts from the investment
value of the investment properties to establish the fair value of the invest-
ment properties, as evidenced in their valuation report (see Note 20).
At the time of an acquisition, the transfer taxes incurred in the case of
a hypothetical subsequent disposal are recorded directly under share-
holders’ equity; any adjustment made subsequently is booked under the
income statement.
If an investment property becomes owner-occupied, it is reclassified as
asset held for own use and its fair value at the date of reclassification
becomes its cost for subsequent accounting purposes.
H Development projects
Properties that are being built, renovated, developed or redeveloped for
future use as investment properties are classified as development pro-
jects until the completion of the works, and stated at their fair value. This
concerns nursing homes under construction or development (extensions)
and empty office buildings which are under renovation or redevelopment.
When the works are completed, the buildings are transferred from devel-
opment projects to investment properties or assets held for sale if they
are put up for sale. The fair value of the buildings which will undergo a
renovation or redevelopment decreases as the end of the lease and the
beginning of the works approaches.
All costs directly associated with the purchase and construction, and
all subsequent capital expenditures qualifying as acquisition costs, are
capitalised. Provided the project exceeds one year, interest charges are
capitalised at a rate reflecting the average borrowing cost of the Group.
I Properties leased for long periods
I Types of long leases
Under Belgian law, properties can be let for long periods under two differ-
ent regimes:
•
long ordinary leases: the lessor's obligations are essentially those
under any lease: for instance, to ensure that space in a state of
being occupied is available to the lessee during the entire term
of the lease. This obligation is met by the lessor by bearing the
maintenance costs (other than rental) and the insurance costs
against fire and other damages;
•
long leases which involve the assignment of a real right by the
assignor to the assignee: in this case, the ownership passes
temporarily to the assignee who will bear namely maintenance
(other than rental) and insurance costs. Three contract types
fall under this category: (a) the long lease (“bail emphytéotique/
erfpachtovereenkomst”) which must last a minimum of 27 years and
a maximum of 99 years and can apply to land and/or constructions;
(b) the building lease (“droit de superficie/recht van opstal”) which
may not exceed 50 years but has no minimum duration and (c) the
usufruct right (“droit d’usufruit/recht van vruchtgebruik”) which
may not exceed 30 years and has no minimum duration and can
apply to land with a construction or bare land. Under all these
contracts, the assignor keeps a residual right in that it will recover
the full ownership of the property at the end of the term of the
assignment, including the ownership of the constructions erected
by the assignee, with or without indemnity for these constructions,
depending on the contractual conditions. A purchase option for the
residual right may however have been granted, which the lessee can
exercise during or at the end of the lease.
II Long leases qualifying as a finance leases
Provided these leases meet the criteria of a finance lease under IAS 17
§ 10, the Group as assignor will present them at their inception as a receiv-
able for an amount equal to the net investment in the lease agreement.
The difference between this amount and the book value of the leased
property (excluding the value of the residual right kept by the Group) at
the inception of the lease will be recorded under the income statement of
the period. Any payment made periodically by the lessee will be treated by
the Group partly as a repayment of the principal and partly as a financial
income based on a pattern reflecting a constant periodic rate of return for
the Group.
At each closing date, the residual right kept by the Group will be accounted
for at its fair value. It will increase each year and will correspond, at the
end of the lease, to the market value of the full ownership. These changes
in the fair value will be accounted for under the item “Changes in the fair
value of investment properties” of the income statement.
Conversely, if Cofinimmo is assignee in a financial lease as defined under
IAS 17, it will recognise an asset at an amount equal to the fair value of
the leased property or, if lower, at the discounted value of the minimum
lease payments, the corresponding amount being recorded as a financial
debt. Collected rents from tenants will be recorded under rental income.
The subsequent effective payments to the assignor during the term of the
lease will be partially recorded under financial charges and partially as the
amortisation of the related financial debt. At each closing date, the tem-
porarily assigned right will be accounted for at its fair value in accordance
with IAS 40 - “Investment properties”, the progressive loss in value result-
ing from the passing of time being recorded under the item “Changes in
the fair value of investment properties” of the income statement.
III Sale of future lease payments under a long lease not
qualifying as a finance lease
The amount collected by the Group as a result of the sale of the future lease
payments will be recognised in deduction of the property’s value to the
extent that this sale of lease payments is opposable to third parties and
that, as a consequence, the market value of the property is reduced by the
amount of the future lease payments sold. The progressive reconstitution