Guidelines

The investment manager should ensure that the external valuer provides a comprehensive valuation report, in line with professional valuation standards, to enable them to adequately review and assess their work.

The external valuer should include in the valuation report key information regarding the valuation method used for each individual property type, such as investment property, property held for sale, property under construction, and ground leases. The scope of work and disclosures should be in line with the relevant valuation standards and their minimum requirements. In addition, all applicable material valuation inputs and market assumptions should be clearly communicated and explained.
 

Although external valuers may consider different valuation methodologies, the valuation should result in a single number.

There may be situations where different valuation outcomes need to be considered and resolved when determining a fair value. For instance:

• a valuer may use different methods with varying results to value a single asset;
• a single asset may be subject to multiple valuations by different valuers.

In these situations, the investment manager should determine an appropriate valuation methodology that results in a single number.
 

The fair value of properties used by the investment manager to determine the NAV of the vehicle should be aligned with the requirements of the INREV NAV module.

For instance, the allocation of transfer taxes and purchasers’ costs between a buyer and seller in different structures and market situations should be considered and appropriately reflected (see INREV NAV module).
 

The governing body of the vehicle should ensure that communication with investors is balanced and fairly represents the activities of the vehicle.

In addition to respecting contractual and reporting obligations, the investment manager should provide further clarity, and timely and accurate information to investors and/ or key stakeholders, as relevant. In pursuing this responsibility, the governing body of the vehicle should always consider the best interests of investors and confidentiality considerations. Information provided to investors should include but is not limited to:

• The valuation standards (such as RICS), methodologies, and frameworks used in arriving at an opinion of value;
• Information relevant to the approach taken across portfolios with different asset types and potentially different valuation methodologies;
• Disclosures of market assumptions and their related explanations. The information   regarding applicable market assumptions could, for example, include sensitivity analysis of rent movements and yield changes;
• Disclosure of any limitations or reservations made by the external valuer   in the valuation report;
• Disclosure and discussion of significant issues related to valuation outcomes, for example covenant breaches and related liquidity issues;
• Disclosure and explanation of deviations from the underlying appraised value, either related to vehicle-specific circumstances or disagreements with the external valuer (see PV22 and PV23);
• In the event of significant changes in market value resulting from a rotation of the external valuer, the investment manager should perform an assessment of the main underlying assumptions and provide full disclosure of the rationale for such changes.

During the lifecycle of a vehicle, the investment manager may decide to adjust the agreed-upon values as determined by the external valuer to reflect their best estimates of market value in certain exceptional circumstances related to the vehicle.

Examples of such exceptional circumstances where factual and objective information support a necessary adjustment include, among others, distressed situations, portfolio sales, liquidations, and vehicle wind-ups reflecting a   non-going concern basis of accounting. These adjustments should always be made in the best interests of investors and other stakeholders, and be subject to full scrutiny by the governing body of the vehicle. In such circumstances, timely and clear communication to investors outside of the regular reporting obligations of valuation outcomes may be required. The investment manager, together with the governing body of the vehicle, should enable such communications to take place through appropriate channels such as written reports and/or convening meetings.
 

The investment manager should ensure that appropriate internal procedures are clearly documented and can be applied in exceptional circumstances, where there may be disagreements between the investment manager and the external valuer on the underlying market value of certain individual assets. Such deviations should be fully communicated and disclosed to investors.

In such exceptional circumstances where the investment manager and the external valuer cannot reconcile their views the market value, as determined by the investment manager, should be reported to investors including full disclosure to justify the deviation from the market value arrived at by the external valuer.

Whatever the circumstances, appropriate internal procedures (including escalation and oversight measures) should be followed by the investment manager and the governing body of the vehicle in the event of valuation adjustments. These deviations and disagreements should occur very rarely and if so, more often in relation to more opportunistic investments, where, for example, the investment manager and the external valuer have different views as to the likelihood of a particular event occurring (because, for example, the investment manager is in discussion with governmental bodies, potential buyers or tenants).

Another example of deviation could relate to disagreements about value changes if there is a considerable time period between the actual date of external valuation and a later reporting date. An additional option in such circumstances is to instruct a further valuation.