In exceptional circumstances, deviations by managers from property valuations as determined by external property valuers must be clearly explained and disclosed.
If there is a disagreement between the manager and the property valuer on the market value parameters, these parameters must be clearly explained and disclosed. We expect these deviations and disagreements to occur only very rarely and if so, more in relation to opportunistic investments, where for example the manager and the external valuer have different views as to the likelihood of a particular event occurring (because, for example, the manager is in discussion with governmental bodies, potential buyers or tenants).
Another example of deviation could be related to disagreement about value changes if there is a considerable time period between the actual date of external valuation and a later reporting date.
Whatever the circumstances, appropriate internal procedures (including escalation measures) should be followed by the management in the event of valuation adjustments.
Managers should make the following disclosures related to the NAV computation:
the reconciliation between GAAP NAV and INREV NAV should be presented in line with guideline NAV 2;
managers should explain material estimates and computation methodologies to enable investors to understand the components of the reconciliation between GAAP NAV and INREV NAV.
Explanatory notes to the reconciliation should describe key assumptions, methods used, and in particular:
the basis for reclassifying certain shareholder loans or hybrid capital instruments as a component of equity;
the basis for the determination of fair value of investmentproperty, self-constructed or developed investment property, property that is leased to tenants under finance lease, investment property held for sale and real estate held as inventory;
the basis of the estimate of other investments in real estate assets;
the basis for the determination of the fair value of indirect investments not consolidated;
details of the methodology used to calculate the fair value of financial assets and liabilities;
the basis of the estimate of the fair value of construction contracts with third parties;
the basis of the estimate of the fair value of contractual fees;
details of the assumptions used to estimate the fair value of deferred tax and the tax effect of INREV NAV adjustments. Such disclosure gives an overview of the tax structure including, for instance, details of the property ownership structure, key assumptions and broad parameters used for estimating deferred taxes for each country, the maximum deferred tax amount estimated assuming only asset sales (i.e., without taking into account the intended method of disposal) and the approximate tax rates used;
reasons for making adjustments to the carrying value of subsidiaries having negative equity (non-recourse);
under IFRS, the fair value of investment properties does not take into account the expenses incurred by the seller when selling a property. As with IFRS, no adjustment is required to include a provision for such costs in the INREV Guidelines, unless they are held for sale. The manager should, however, estimate and disclose the amount of disposal costs likely to be incurred on the sale of properties, taking account of the intended method of exit, assuming an exit without duress and in the current market environment;
set-up costs - description of impairment and reasons for booking if applicable;
set-up costs - description of the reasons for departure from the five year amortisation period if applicable;
acquisition expenses - description of impairment and reasons for booking if applicable;
acquisition expenses - description of the reasons for departure from the five year amortisation period if applicable.
Describe material changes in methodologies and assumptions
A disclosure table should be presented that provides an analysis of all the components of the fees charged by the manager, including any element of performance fee or carried interest or any other such arrangement, or by any other affiliate or related party of the manager.
11.17 NAV TER before Performance Fees, 11.18 GAV TER before Performance Fees, 11.19 NAV TER after Performance Fees, 11.20 GAV TER after Performance Fees, 11.23 REER, and Section 18 Investor's Portion of Fees to the Manager and Affiliates