Aurélien DECAMPS KEDGE Business School aurelien.decamps@kedgebs.com

1. Accounting information and investment properties: economic and financial stakes for listed groups Aurélien DECAMPS KEDGE Business School aurelien.decamps@kedgebs.com Stéphane OUVRARD KEDGE Business School stephane.ouvrard@kedgebs.com

2. Research Question Doesaccountingchoice for corporateinvestmentproperty have an impact on economic and financialdisclosures for listedcompanies ?

3. Aim • Understandaccountingchoice of listedcompaniesconcerningtheirinvestmentproperty • Estimate the impact of thischoice on theirconsolidatedfinancialstatement

4. Presentation • Background • Investmentproperty in a corporatecontext • Accountingchoice for investmentproperty • Empiricalstudy • Investmentproperty of listed groups (SBF 120) • Method • Results • Conclusion

5. Background Investment property in a corporate context • Financialization of corporateproperty in the french context • Value creationfromcorporateproperty (Nappi-Choulet et al., 2009) • Outsourcing / sale and leaseback: core business and debtreductionstrategiesfromfirms • Fastdevelopment of french REITs(SIIC since 2002) • Financial approach and asset management applied to corporateproperty (Simon, Malle, 2009)

6. Background Investment property in a corporate context • IFRS Standards (January 1st 2005) • Owner-occupiedproperty (IAS 16) vs. InvestmentProperty (IAS 40) • Measurement at the Fair Value: financialapproachbased on actuarialassumptions

7. BackgroundInvestment property in a corporate context InvestmentPropertyaccording to IAS 40: "Property (land or a building or part of a building or both) held (by the owner or by the lessee under a finance lease) to earn rentals or for capital appreciation or both" Fair Value according to IAS 40: “The amount for which the property could be exchanged between knowledgeable, willing parties in an arm's length transaction"

8. IAS 40 : Choicebetweentwoaccountingmethods Background Accounting choice for investment property • HistoricalCost •  Referringto accumulateddepreciation • Fair Value • Mark to Marketreferringto market value • Mark to Model referringto appraisalmethodssuch as capitalization rate or discountedcash flow

9. Background Accounting choice for investment property

10. Background Accounting choice for investment property Pros & Cons of Fair Value Pros Cons • Give a further information to reduceagencycosts. • Protectagainst the excess of CreativeAccounting (Casta and Colasse, 2001). • StepcloserAccounting and Corporate Finance. • Source of volatility and of short-term vision (Bloomfield, Nelson, Smith, 2006). • Procyclicalphenomenonamplifying the changes in the assets/liabilities values at the same pace as the economic cycle (Escaffre, Foulquier, Touron, 2008). • Procyclical and self-fulfillingfeature of fair value (Morand and Marteau, 2010).

11. HistoricalCostvs. Fair Value Background Accounting choice for investment property • Twoopposedmodels (historicalcost / fair value) thatraise the question of relevance vs reliabilityof financial information. • The historicalcost model isrelativelyreliableinsofar as underthisaccountingmethod the cost of an asset/liabilityisverifiable and as there are few risks of estimation error. • That is not the case for the value in use (IFRS 13, level 3) thatisbased on calculationcomingfromactuarialassumptions. • Conversely, the relevance of fair-value accountingisgenerallybetterthanwhen the accounts are valued on a historicalcost basis (Scott, 2009).

12. Hypothesis1: As investmentpropertyis the corebusiness of REITs, theyshouldadopt a financialapproach and choose the Fair Value Model to measureinvestmentproperties. Whereascompaniesnot primarily in the real estate business shouldadopt the cost model to measuretheirinvestmentproperty in order to avoid the procyclicaleffect of fair value. • Hypothesis 2: FairValue may have a pro-cyclicaleffect, allowingbetterKPIs (Key Performance Indicators) throughprofitability, rentability and solvency ratios in the context of an increasing cycle of the market. Whereas, itmaydeteriorateKPIswhen the marketis in a decreasing cycle. Two main hypothesis

13. -Sample: 20 companieslisted on SBF 120 whichowninvestmentproperties -Method: -Analysingfinancialannualstatement of eachcompany - Activitysector - Accountingchoice for investmentproperty - Weigt of investmentproperties in the total capital - KPIs (Key Performance Indicators) -MCA (Multiple Correspondance Analysis) to mapcorrelationsbetweenthese quantitative and qualitative dimensions. -Variance analysis to estimate the impact of the accountingchoice on the financialKPIs of REITs. EmpiricalStudy SBF 120 listedcompanies

14. EmpiricalStudy • SBF 120 listedcompanies

15. 3ème partie - Etude empirique: les groupes cotés du SBF 120

17. EmpiricalStudy • SBF 120 listedcompanies

18. Conclusion • This explanatorystudyhighlightstwo main results: • The Fair Value model is a way to improvefinancialstatement as it influences KPIs. However, the value of investmentpropertyiscloselylinked to market cycle generatingprocyclicaleffects. • The accountingchoice of REITs in oursampleisbalancedbetweenhistoricalcost and fair value. It maybeinterpreted as a prudentialbehaviour due to thisprocyclicaleffect.

19. Research Perspectives • A widersample of REITsshouldimproveourresults: • Confirm the impact of the Fair Value model on financialKPIs • Link the accountingchoice of investmentproperty to the REITs’ business model

20. Thankyou for yourattention