IndiQube Spaces Clarifies Accounting Loss vs. Operational Profit Amidst Lease Standard Complexities

IndiQube Spaces, a managed workspaces company that recently went public, is addressing investor concerns regarding its reported accounting loss for the second quarter of FY26. While the company's financials show a loss according to Indian Accounting Standards (Ind AS), cofounder Meghna Agarwal clarified that this is primarily due to accounting treatments under Ind AS 116, which governs leases.

Agarwal explained that under Ind AS 116, long-term leases, especially those with escalating rental payments, are recognized on a straight-line basis over the lease term. This means that in the early years of a lease, a significant 'notional' rent expense is recorded, even if the actual cash outflow is lower. These create Right-of-Use (ROU) Assets and Lease Liabilities that don't represent immediate cash expenditure. This accounting treatment can lead to reported 'notional losses' in the early stages, a common challenge for new-age companies in the real estate and managed workspace sectors that rely on long-term leases.

However, Agarwal stressed that the company's operational profit and cash flows are positive, and it continues to pay income tax, calculated under Generally Accepted Accounting Principles (GAAP), not Ind AS. This indicates that the underlying business is profitable.

IndiQube currently operates in 16 cities with 9.14 million sq. ft. under management and maintains an occupancy rate of 87%. Their growth strategy focuses on maintaining high occupancy, achieving top-line growth, and enhancing value-added services through technology and innovation. The company has seen significant personal investment from its founders and backing from WestBridge.

Impact: This news can impact investor perception by clarifying the difference between accounting losses and operational profitability, especially for companies affected by Ind AS 116. It highlights the need for investors to perform due diligence and understand the specific accounting standards applied to real estate-linked businesses. Rating: 6/10

Difficult Terms: - Ind AS (Indian Accounting Standards): A set of accounting principles followed in India, converging with International Financial Reporting Standards (IFRS). - IGAAP (Generally Accepted Accounting Principles): A common set of accounting rules, standards, and procedures used in financial accounting. Income tax is typically calculated under IGAAP. - Ind AS 116 (Leases): An accounting standard that requires lessees to recognize most leases on their balance sheets as a right-of-use asset and a lease liability. - Notional Losses: Losses that are recorded in accounting but do not represent an actual cash outflow or a real economic loss in the current period. - Straight-line Accounting: An accounting method where an asset's cost is expensed evenly over its useful life. In leases, it means spreading the total lease cost equally across the lease term. - ROU Assets (Right-of-Use Assets): Assets recognized under Ind AS 116 that represent a lessee's right to use an underlying asset for the lease term. - Lease Liabilities: Obligations recognized under Ind AS 116 representing a lessee's liability to make lease payments. - REIT (Real Estate Investment Trust): A company that owns, operates, or finances income-generating real estate. It's a different regulatory category than a service company operating in real estate.