New NAV model for non-listed real estate funds

A new calculation methodology for the presentation of net asset value (NAV) has been launched by the European Association for Investors in Non-listed Real Estate Vehicles (Inrev) at a conference in Berlin. As reported in the September edition of PropertyEU Magazine, the new NAV model is designed to allow investors to compare the performance and valuations in Europe's EUR 400 bn non-listed real estate funds industry for the first time.

'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 standardisation 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, at the association's investor only seminar held in the German capital on Tuesday.

'We have a EUR 2 bn 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.

The NAV guidelines are available on Inrev's website www.inrev.org. The association intends to promote them at its own and industry events, as well as make them an integral part of training and education courses.

Click on the link below to read about Inrev's new fee metrics guidelines.