Guidelines

Asset level returns on a time-weighted basis reflect the performance of an operating asset or a group of assets. The asset level return relates strictly to asset operations and attempts to strip out all structure-related activity, usually including advisory fees, use of working capital and income and expenses. As such, asset level returns on a time-weighted basis reflect the appreciation and operating income that are generated by the asset.

Asset level returns should be reported on an unleveraged basis, as not all assets are leveraged and those that are, are leveraged within the vehicle structure, which makes the comparison of leveraged returns among different assets difficult.
 

A total return at an aggregate asset level may be disclosed.

The asset level, unleveraged return formulas are as follows:

TR = Asset total return
MV = Market value at the end of the period
D = Dispositions, net of disposal costs
A = Acquisitions, including acquisition costs
p = Period
k = Asset

Denominator (unleveraged):
When component returns are presented for any period, the sum of the income return and capital return will generally equal the total return. When component returns are geometrically linked to create cumulative returns, the simple addition of the cumulative income return plus the cumulative capital return will not usually equal the cumulative total return. The difference is acceptable, and no adjustment is required to any of the total return components.

For the estimation of an asset’s monthly market values, the following approach is proposed:
INREV's proposal

Value change adjustment:

E [MV_km] = Estimated market value at the end of the month
MV_kQ = Market value at the end of the quarter
D = Dispositions
A = Acquisitions
Q = Quarter
k = Asset
 

The asset level return should reflect the investment manager experience and not that of the investor and therefore the acquisition costs should not be capitalised or amortised for asset level return computation purposes. The acquisition costs should be expensed.

Under the fair value model, acquisition expenses for an investment property are effectively charged to income when fair value is calculated at the first subsequent measurement date after acquisition. This results in the fair value of a property on subsequent fair value measurement being lower than the total purchase price of the property.

For INREV NAV calculation purposes, the capitalisation and the amortisation of the property acquisition cost over the first five years after the acquisition of the property should be used.
 

Should the positive effect of saving on Stamp Duties as a result of a share deal sale of a property be taken into account when calculating the performance of the asset?

When determining the market value of a property, the valuer should take into account any saving on Stamp Duties and the positive effect of these savings. The valuer should make the same allowance for transaction costs that a normal purchaser of the property would make in the market, regardless of the exit strategy.
 

The valuation should be done at the asset level (valuation of the building) regardless of the SPV. The roll-up of income taxation within the SPV should be captured at the vehicle level.
 

An income return at an aggregate asset level may be disclosed.

IR = Asset income return
MV = Market value at the end of the period
A = Acquisitions
p = Period
k = Asset

Net operating income numerator (unleveraged):
The net operating income (NOI) numerator is the net operating income (before interest expenses) that was reported by the asset during the period. Vehicle or investment level income and expenses should be excluded from NOI because the asset level returns focus on asset operations.
 

When CAPEX and NOI are collected over a quarter period, to estimate the monthly values, the following two options are possible.

1.Equally distribute quarterly NOI and CAPEX to the months based on the number of days an asset is owned during the month

2. Allow contributors provide monthly NOI and CAPEX for more precise performance calculation
 

A capital return at an aggregate asset level may be disclosed.

CR = Asset capital return
MV = Market value at the end of the period
D = Dispositions
A = Acquisitions
p = Period
k = Asset

Capital return numerator (unleveraged):
The appreciation numerator measures the change in asset value (increase or decrease) not caused by capital improvements or sales.