| The Financial Accounting Standards Board's proposed lease accounting changes may be abundant, but only the appearance of things has changed, Transwestern CFO Steve Harding told our Houston reporter. From a tenant's perspective, rent expenses are disappearing and replaced by depreciation and interest expenses. The changes create a liability and an asset on the books, which can look like more debt to bankers, but expenses haven't actually changed, so a simple explanation to educate analysts and bankers may suffice. The proposed changes are designed to create consistency (all leases will now be treated as capital leases and be viewed the same across companies). A PricewaterhouseCoopers study says $1T of debt will appear on financial statements across the country because of these changes, but Steve isn't sure how significant the impact will be on the day-to-day of the industry. | |
| Some tenants may intentionally minimize liability through shorter leases, but then they can't lock in good rates and landlords may provide less TI, so it won't happen across the board. Steve predicts most tenants will simply explain away the addition to their balance sheets and continue as always. Another note: The proposed changes only apply to companies that report to GAAP. More guidance comes out mid-July reflecting feedback from the comments period, and Steve tells us the changes may be delayed so more guidelines can be provided for landlords. (The current info is directed almost solely toward tenants.) Don't look for implementation until 2012. |
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