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Notes to the Consolidated Accounts
\ Annual Accounts
R. Operating revenues
Operating revenues include revenues from lease contracts on buildings
and revenues from real estate services.
Revenues from lease contracts are recorded under the rental income item.
Some lease contracts allow for a period of free occupancy followed by a
period during which the agreed rent is due by the tenant. In this case, the
total amount of the contractual rent to be collected until the first break
option for the tenant is recognised under the income statement (item
“rental income”) pro rata temporis over the length of the lease contract,
beginning at the start of the occupancy and ending at the first break
option (i.e. the firm term of the lease). More accurately, the contractual
rent expressed in annual amount is first recognised as a revenue and the
rent-free period spread over the firm term of the lease is then booked as
an expense. Hence, an accrued income account is debited at the start of
the lease for an amount corresponding to the rental income (net of the
cost of rent-free periods) already earned but not yet expired.
When real estate experts make an estimation of the value of the buildings
based on the discounted value of future cash flows method, they include
in these values the total rents yet to be collected. Hence, the accrued
income account referred to above is redundant with the part of the build-
ings representing rents already earned and recognised under the income
statement but not yet due. Therefore, in order to avoid this redundancy
which would wrongfully swell the total of the balance sheet and of the
shareholders’ equity, the amount under the accrued income account is
reversed against a charge booked under the item “Other result on the port-
folio”. Once the date of the first break option is passed, no charge is to
be recorded under the income statement, as would have been the case
without this reverse booking.
As a result, the operating result before result on the portfolio (and thus the
current income of the analytical form) reflects the rents spread over the
firm term of the lease, whereas the net result reflects the rents to date and
as they are cashed.
The concessions granted to tenants are, on their part, booked as charges
over the firm term of the lease. They refer to incentives consisting of
the financing by the landlord of certain expenses the tenant is normally
responsible for, such as the cost of the fitting works of private surfaces
for example.
S. Operating expenses
I Service costs
Service costs paid, as well as those borne on behalf of the tenants, are
included in the direct property expenses. Their reclaiming from the tenants
is presented separately.
II Works carried out on properties
Works carried out which are the responsibility of the building owner are
recorded in the accounts in three different ways, depending on the type
of works:
•
expenditure on maintenance and repairs which does not add any
extra functionality to or does not increase the standard of comfort of
the building is considered as current expenditure for the period, and
as property costs;
•
extensive renovation works: these are normally undertaken at
intervals of 25 to 35 years and involve virtually rebuilding the building
whereby, in most cases, the existing carcass work is re-used and
state-of-the-art building techniques are applied; on completion of
such renovation works, the property can be considered as new and
expenditure is capitalised;
•
improvement works: these are works carried out on an occasional
basis to add functionality to the property or significantly enhance
the standard of comfort, thus making it possible to raise the rent
and, hence, the estimated rental value. The costs of these works
are capitalised by reason of the fact that and in so far as the expert
normally recognises a pro tanto appreciation in the value of the
property. Example: installation of an air conditioning system where
one did not previously exist.
Works which generate expenses to be activated are identified taking
into account the previous criteria during the preparation of the budgets.
The capitalised expenses are related to materials, engineering works,
technical studies, internal costs, architect fees and interests during the
construction.
III Commissions paid to letting agents and other transaction
costs
Commissions relating to property lettings are entered under current
expenditure for the year, under the item “commercial costs”. Commissions
relating to the acquisition of properties, transfer duties, notary fees and
other ancillary costs are considered as transaction costs and included in
the acquisition cost of the acquired property. These costs are also consid-
ered as part of the acquisition cost when the purchase is done through a
business combination. Commissions on property sales are deducted from
the disposal price obtained to determine the gain or loss made. Property
valuation costs and technical valuation costs are always entered under
current expenditure.
IV Financial result
The net financing costs comprise interests payable on borrowings, cal-
culated using the effective interest rate method, and gains and losses on
hedging instruments that are recognised under the income statement
(see F). Interest income is recognised under the income statement as
it accrues, taking into account the effective yield on the asset. Dividend
income is recognised under the income statement on the date that the
dividend is declared.
T. Income tax
The income tax of the financial year comprises the current tax. The income
tax is recognised under the income statement except to the extent that
it relates to items recognised directly under equity. The current tax is the
expected tax payable on the taxable income of the past year, using the
tax rate enacted at the closing date, and any adjustment to taxes payable
in respect of previous years.
U. Exit tax and deferred taxes
The exit tax is the tax on the gain that arises upon approval of a Belgian
non-Sicafi/Bevak company as a Sicafi/Bevak or merger of a non-Sicafi/
Bevak company with a Sicafi/Bevak. When the non-Sicafi/Bevak company,
which is eligible for this regime, first enters the consolidation scope of the
Group, a provision for an exit tax liability is recorded simultaneously with a
revaluation gain on the property corresponding to the market value of the
property, and taking into account a forecasted merger date.
Any subsequent adjustment to this exit tax liability is recognised under
the income statement. When the approval or merger takes place, the pro-
vision becomes a debt and any difference is also recognised under the
income statement. The same treatment is applied mutatis mutandis to
French companies eligible for the SIIC regime and to Dutch companies eli-
gible for the FBI regime. When companies not eligible for the Sicafi/Bevak,
SIIC or FBI regimes are acquired, a deferred tax is recognised on the unre-
alised gain of the investment property.