Arabian Centres adopts fair value/re-evaluation model to measure properties, expects net asset rise of SAR 10 bln

Arabian Centres Co.'s building

Arabian Centres Co.’s (ACC) board of directors approved, on June 29, using the fair value or re-evaluation model to measure real estate and investment properties, according to a statement to Tadawul.

After adopting this model, the company expects its net assets to increase by approximately SAR 10 billion, from nearly SAR 16 billion (as recorded at cost model) to around SAR 26 billion (as recorded at market value). This financial impact will materialize as of Q3 2022/23, ending Dec. 31, 2022.

The adoption of the new accounting policy would not generate any internal cash flow, the firm added.

ACC decided to proceed with the adoption of this model as per the IAS 40 accounting standard, after the Capital Market Authority (CMA) allowed listed companies to use it from 2022 onwards, given that it is the most used practice by the biggest real estate companies globally.

The adoption of this accounting standard has several advantages for the company, as it will show the fair value of investment properties in the financial statements. This, accordingly, will reflect the traded value of properties in accordance with the standards of the Royal Institution of Chartered Surveyors (RICS) that comply with the international valuation standards.

Moreover, adopting this accounting standard will boost ACC’s financial position, including the improvement of leverage ratios as well as increase in shareholders’ equity and retained earnings by around SAR 10 billion. This, accordingly, will increase the book value per share from SAR 12 to around SAR 34, which will provide ACC with an additional ability to maximize shareholders’ equity as well as higher flexibility in coping with the sector’s future developments and mitigating its associated risks.

The fair value model will generally enhance ACC’s ability to expand its operations in a faster and more efficient way, and boost its ability to embrace new investment opportunities, according to the statement.