At the INREV CFO/COO Conference 2007 that was held on 17/18 September 2007 in Berlin, INREV has launched a new calculation methodology for the presentation of net asset value (NAV) in Europe's €400 billion non-listed real estate funds industry, which should allow investors to compare the performance and valuations of funds for the first time, as well as new guidelines on the disclosure of fee structures for private institutional property funds, which aim to increase transparency and facilitate the comparison of fund structures.
Lisette van Doorn, CEO of INREV.
NAV model for real estate funds
"Real estate is the investment asset class of this decade. The dramatic increase in capital flows into non-listed funds is driving the demand for standardization at a whole range of levels from major institutional investors such as ourselves," said Matthias Stürmer, Head of Real Estate Management at Germany's E.ON Energie and a member of INREV's management board.
"We have a €2-billion mixed real estate portfolio with about 50 target funds worldwide. In order to reduce costs, benchmark property funds and compare their performance with other asset classes, we have to know how fund's NAV are calculated and to guarantee either that all NAVs have the same basis or the differences are transparent -- so it's clear what we're paying for," Stürmer added.
INREV does not intend to try and dictate to managers how they should calculate the value of their assets, but is asking them to show in their reports how their NAVs differ from the association's reference, which will then allow investors to easily work back to the market benchmark.
One of the key elements is that acquisition costs, such as transfer taxes, lawyers, agents and accountant fees should be amortised over five years, to create a consistent smoothing of the numbers. Currently, under the fair value option of IFRS, acquisition expenses are capitalised as part of the property and charged to income as fair value changes in the first year.
"People have been using their own adjusted NAV and there has been no one single definition on how it should be calculated, which hinders market transparency and the comparability of funds," said Jef Holland, INREV Reporting Committee Member and Senior Real Estate Manager for Deloitte in Amsterdam.
"When, in the future, the new concept is widely accepted by the industry and the information can be easily collected, then the INREV NAV may be used as a basis for performance indices," Holland concluded.
INREV has made the INREV NAV guidelines available on the association's website www.inrev.org and intends to promote them at its own and industry events, as well as make them an integral part of training and education courses.
Fee Metrics Guidelines
"It would be fair to say that in the past property investment managers have perhaps not been as transparent in this area as some other asset classes. INREV has been working for two years to achieve the same professional standards for fee metrics as prevail in competing markets for capital such as equities as bonds," said Neil Turner, Head of Property Investment at Schroder Property Investment Management and