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148
ANNUAL ACCOUNTS /
Notes to the consolidated accounts
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 col-
lected. Hence, the accrued income account referred to above is
redundant with the part of the buildings representing rents already
earned and recognised under the income statement but not yet due.
Therefore, in order to avoid this redundancy which would wrong-
fully inflate 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 portfo-
lio”. 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 fixed term of the lease, whereas the net result
reflects the rents to date and as they are cashed in.
The concessions granted to tenants are, on their part, booked as
charges over the fixed term of the lease. They refer to incentives con-
sisting of the financing by the landlord of certain expenses the ten-
ant 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 reconstructing
the building whereby, in most cases, the existing structure 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 budg-
ets. 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 cur-
rent 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 trans-
action costs and included in the acquisition cost of the acquired
property. These costs are also considered 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 borrow-
ings, calculated 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-RREC as a RREC or merger of a non-RREC with a RREC.
When the non-RREC, 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 or approval date.
Any subsequent adjustment to this exit tax liability is recognised
under the income statement. When the approval or merger takes
place, the provision becomes a debt and any difference is also rec-
ognised under the income statement. The same treatment is applied
mutatis mutandis to French companies eligible for the SIIC regime
and to Dutch companies eligible for the FBI regime. When companies
not eligible for the RREC, SIIC or FBI regimes are acquired, a deferred
tax is recognised on the unrealised gain of the investment property.
V. Stock options
Equity-settled share-based payments to employees and members
of the Executive Committee are measured at the fair value of the
equity instruments at the date of granting. Details regarding the
determination of the fair value of equity-settled share-based trans-
actions are set out in Note 44.
W. Estimates, judgments and main sources of
uncertainty
I Fair value of the property portfolio
Cofinimmo’s portfolio is valued quarterly by real estate experts. This
valuation by real estate experts is intended to determine the market
value of a property at a certain date, taking into account the market
evolution and the characteristics of the property. In parallel to the
work of the real estate experts, Cofinimmo proceeds with its own
1
The data provided by Bloomberg result from price observations relating to actual
transactions and the application to these observations of valuation models
developed in the scientific literature
(www.bloomberg.com).