Are you ready for the new lease standard

Are you ready for the new lease standard?From 1 January 2019, nearly every property company that uses rentals or leasing will be affected by the new international standard. Yardi’s Hans Pedersen shares how his team is helping clients prepare.In 2016, the International Accounting Standards Board issued ‘IFRS 16 Leases’, a new standard which essentially eliminates operating leases and, subject to limited exceptions, requires all leases to be capitalised on the balance sheet.Pedersen, Yardi’s senior director of product management, says the new requirement removes almost all off balance sheet accounting, and redefines many commonly-used metrics, such as gearing ratios and earnings before interest, tax, depreciation and amortisation, or EBITDA.Real estate analysts say the changes are small, but significant, and advise the property industry to prepare early. CBRE, for example, has said the “requirement to capitalise leases will add scrutiny to current leases, as well as future transactions”, which may add more levels of approval to real estate transactions.For PwC, the changes may “affect covenants, credit ratings, borrowing costs” as well as stakeholder perceptions.Pedersen agrees. “This change could have significant implications for your business systems, processes and controls,” he says.”Lessees will require more data on their leases than they have previously to comply with balance sheet accounting.”Among the companies most likely to be affected are retail owners with many operating leases across multiple renewal options, Pedersen explains. “Yardi’s product management team is already working closely with clients to ensure we are ready.”The time is now to get your lease data organised. Once you have done that, all the heavy lifting will be done in our system.”Yardi will soon roll out updates to its Voyager property management system that supports the new standard.”Our customers will simply need to input the usual information, such as rents, expiry dates and renewal options, and Voyager will do the calculations. It will be a seamless experience for the customer.”Pedersen’s advice for the property industry is clear.”The earlier you understand the impacts the new standard will have on your business, the better prepared you will be. And the easier it will be to identify and eliminate potential issues, reduce implementation costs and minimise compliance risk,” Pedersen concludes. Yardi, with more than 30 offices and 5,000 employees worldwide, designs, develops and supports real estate investment management and property management software. For more information about Yardi, visit www.yardi.com.au