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ANNUAL ACCOUNTS /
Notes to the consolidated 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.
Independent real estate experts determine the valuation of the prop-
erty 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 prop-
erties 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”, estab-
lished 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 investor would be dis-
posed 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 invest-
ment value of the investment properties to establish the fair value
of the investment properties, as evidenced in their valuation report
(see Note 21).
At the time of an acquisition or an investment, the transfer taxes
incurred in the case of a hypothetical subsequent disposal are
recorded directly under shareholders’ equity; any adjustment made
subsequently is booked under the income statement. This adjust-
ment is transferred to the reserves at the time of appropriation of the
result of the financial year.
If an investment property becomes owner-occupied, it is reclassified
as asset held for own use and its fair value at the date of reclassifi-
cation 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 develop-
ment projects until the completion of the works, and stated at their
fair value. This concerns nursing homes under construction or devel-
opment (extensions) and empty office buildings which are under
renovation or redevelopment. When the works are completed, the
buildings are transferred from development projects to investment
properties or assets held for sale if they are put up for sale. The fair
value of the office buildings which will undergo a renovation or rede-
velopment 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, inter-
est charges are capitalised at a rate reflecting the average borrow-
ing 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
different 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 incep-
tion as a receivable 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 peri-
odically by the lessee will be treated by the Group partly as a repay-
ment 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 cor-
respond, at the end of the lease, to the market value of the full own-
ership. 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 temporarily assigned
right will be accounted for at its fair value in accordance with IAS 40 -
“Investment properties”, the progressive loss in value resulting 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 prop-
erty’s value to the extent that this sale of lease payments is oppos-
able 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 of the lease payments sold will
be recognised under the item “Writeback of lease payments sold
and discounted” of the income statement.
The changes in the fair value of the property will be recorded sepa-
rately under the item “Changes in the fair value of investment prop-
erties” of the income statement.