There is potential good news for Lessors, Landlords and affected CRE property owners with respect to the extraordinary revisions of a joint undertaking by Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IFRS).
Specifically, there has been significant concern -- and I have covered it extensively in these pages -- that lease accounting would be updated in the name of improved transparency.
The good news is this: There has been significant public comment on the draft published in August 2010. The potential impact for CRE has been huge, for landlords and tenants, property managers and commercial brokerages. More succinctly, because real estate leases comprise a high percentate of all operating leases, that impact could be significant.
A tip of the hat to my colleague Barbi Reuter at PICOR/Cushman & Wakefield, FASB now has agreed to reconsider its proposed guidance. Lease figure accounting under the original proposal was to be moved from the operating statement to the balance sheet. Now, final guidance is coming in 2012 due to the volume of public input.
More importantly, FASB published the following on their public website: The two bodies "have tentatively decided that a lessor's lease of investment property would not be within the scope of the receivable and residual approach. Insteads, for such leases the lesor should continue to recognize the underlying asset and recognize lease income over the lease term."
The International Council of Shopping Centers (ICSC), which has been lobbying heavily on this subject, summarized it as follows: "The Boards' decision to exclude all lessors of all investment properties from the receivable and residual approach gives many real estate lessors the opportunity to continue to use operating lease accounting rules. Given their decision that lessors should apply operating lease accounting to leases of investment properties, the Boards will likely receive requests to reconsider previous decisions on lessee accounting, such as requiring a single income statement recognition model for all leases, including leases of real estate."
Stay tuned. This will continue to be hot news for CRE investors, tenants and practitioners.
Again, h/t to Barbi Reuter at PICOR in Arizona.