As of 2019 the new IFRS16 lease accounting standards are in place. For Vesteda acting as a lessor no relevant changes apply, so this new standard did not affect the accounting for the Vesteda rent activities to tenants of properties.
However the effect of applying IFRS16 Leases in relation to land lease payments has a larger impact on the balance sheet and the classification within the profit and loss account. The effect is nil for both the equity and the income of Vesteda.
Vesteda has applied IFRS 16 making use of the practical expedient on a modified retrospective basis. As a result the comparative information is not restated. Instead, Vesteda recognizes the cumulative effect of initially applying this Standard as an adjustment to the opening balance at 1 January 2019.
In this first year of adoption the impact in the opening balance as per 1 January 2019 is an increase in right of use assets (within the investment property balance) of €188 million and a corresponding increase of the lease liability.
The lease liability is primary the bases for the accounting of the right of use asset. The lease liability is based on the discounted expected future lease payments (including future ground lease redemptions) over the lease term. For determining the lease term the contractual lease term is taken into account with all options the lessee has for lengthening the contract. In general in the Netherlands the lease term is perpetual. Only in the municipality of Amsterdam, the contract has a continuous character with a potential break option by the lessee. As the property is so interlinked with the land lease, Vesteda concluded that the contract term for the Amsterdam contracts is perpetual as well although there is a theoretical break. The future payments are discounted with the incremental borrowing-rate.
If clear information was not readily available for determining the future cash flows, they are based on a fair value assessment at a moment in time at the inception of the contract, such as external valuation reports or benchmarking information from other land leases.
In Q4 2019, Vesteda decided for the Amsterdam residential land lease contracts to use the option of changing the continuous land lease to perpetual land lease. As a result a re-assessment has taken place to calculate the expected cashflows based on this favorable option.