Epra pushes for transparency

Cross-border comparability of investment metrics such as net asset value (NAV) is becoming increasingly important. Epra's Best Practice Recommendations aim to raise the bar, writes Epra's Fraser Hughes, Mike Speelman and Gareth Lewis.

Investors, analysts and company management have always been conscious of the unique characteristics of property investment. For example, real estate investment is one of the few industries that have a dedicated International Financial Reporting Standard. IAS 40 is focused specifically on the business of real estate investment, and provides a fair value-driven accounting convention which is generally viewed as enabling investors to understand property performance based on the value enhancement/destruction caused by management actions, and the changing market values for rents and valuation yields. There is a fundamental and important link between rental income and the fair value of investment property. In turn, the fair value of investment property is a significant factor in measuring the net asset value (NAV) of companies that own and operate portfolios of investment property, and NAV is a significant factor used to price the securities of these companies.

Over the course of time, industry participants have developed and used supplemental industry metrics to value the common shares of companies that own and operate investment property. These metrics include Funds from Operation (FFO), Epra Earnings, Epra Net Asset Value (EPRA NAV), Epra Triple Net NAV (EPRA NNNAV) and others. These metrics are viewed by users of the financial statements as being reflective of the true operating results of a real estate investment company, excluding non-cash items, such as unrealised valuation changes and depreciation.

The rest of the article appears in the September edition of PropertyEU Magazine. Click on the link below to sign up to our full subscription package.