REITs-The new kid on the block

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: profits will be the notional accounting of rental income on a straight-line basis over the period of lease. As a consequence of this treatment, the rental income will remain the same over the period of lease, but the gross margins may decline on a gradual basis on account of increases in the cost of maintenance from one period to another.

There is an unparallel need for transparency in the adoption of accounting policies and their disclosure requirements in the case of REITs. Concentrated focus is required towards specifying the definition of investment property, depreciation on buildings, straight-lining of leases, to name a few. In addition to these, policy of revenue recognition from rental operations and service operations, property sales and discontinued operations should be given specific emphasis.

To develop confidence of investors on securitisation of REITs, the accounting framework relating to measurement and disclosures needs to be closely looked into keeping in mind global best practices.

A clearly defined and ring fenced regulation shall result in strong investor confidence and would thus ensure the securitisation of real estate investment trusts in its true sense.