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FOR IMMEDIATE RELEASE 22 NOVEMBER 2001

‘INTERNATIONAL ACCOUNTING STANDARDS PROHIBIT REVALUATION OF LEASED LAND — IVSC LAUNCH RESEARCH PROJECT’

The elimination of US$6.1 billion (88%) of shareholders’ equity from the balance sheet at 31 December 2000. That was the impact on the first half 2001 financial report of property company, Hongkong Land, when it adopted International Accounting Standard, IAS 40, Investment Property for the first time.

Hongkong Land also published modified financial statements reflecting the valuation of its long leasehold assets. This method increased net profit for 2000 from US$0.3 billion to US$2.2billion.

IAS 40 companies that adopt a fair value approach to investment property are required to revalue freehold investment properties but are not allowed to report long leasehold property investments at fair (market) value in the balance sheet. Instead, they will be required to account for the long leasehold interest in accordance with IAS 17, Leases. As most, if not all, long-term leases are operating leases, this means that amount paid for a lease must be amortised over the period of the lease, in other words long leasehold properties must be carried at depreciated cost.

Property companies in countries that are moving to adopt the International Accounting Standards are increasingly worried that IAS 40 could wipe tens of millions of dollars off the value of land and buildings in their balance sheets The issue is particularly relevant to companies in the UK, Hong Kong, Singapore, Netherlands, Sweden and Ireland.

The IVSC has launched a research project, the object of which is to persuade the IASB to reconsider its requirements for long leasehold property investments. In support of this initiative, Land Securities and Hongkong Land have joined Lend Lease Real Estate Investments in the growing list of property companies who are providing financial support to the IVSC.

John Rich, IVSC technical consultant and project leader said, “Although it is inappropriate for IVSC, as a standard setter, to act as a lobby group for particular interests, it is entirely appropriate for IVSC to promote property generally and its accurate measurement at fair (market) value, as opposed to historic cost. The aims of standards are to promote the reliability of valuations and the understanding of property as an asset class. It is in the context of the latter that it must be reasonable that those who know and understand the essential features of property and its performance can quite properly make representation as to whether leasehold property investments more closely mirror freeholds than the generality of other leased assets.”

END

NOTES TO EDITORS

1. For further details, please contact:
   John Rich - IVSC Technical Consultant
   Tel: +44 1825 790450
   Marianne Tissier - Executive Director, IVSC.
   Tel: +44 1442 879306

2. The IVSC is an unincorporated association comprising professional valuation associations from some 50 countries. It has published International Valuation Standards (IVS) since 1985. The IVSC is an NGO (Non Government Organisation) member of the United Nations. IVSC maintains liaison with international agencies, such as the Organisation for Economic Co-operation and Development (OECD), the World Bank, the International Monetary Fund, the World Trade Organisation, the European Commission, and the Bank for International Settlements. IVSC also maintains a close relationship with standard-setting bodies such as the International Accounting Standards Board, the International Federation of Accountants, and the International Organisation of Securities Commissions. For further details on the IVSC or to obtain a copy of the 2001 edition of International Valuation Standards, please contact the IVSC Executive Director (see above) or visit the IVSC web site.

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