The Investment Program Association released new guidelines for valuing publicly registered, non-listed real estate investment trusts in a move that aims to improve the information available to investors and allow the non-listed real estate investment products to fit more easily into portfolios.trade group
Unanimously adopted by IPA’s 24-person board, the guideline calls for defining non-listed REITs’ share values using a uniform basis and methodology. This is the first time that non-listed REITs have been put under an industry-wide set of valuation guidelines, the IPA says.
“This guideline harmonizes different valuation approaches used by non-listed REIT sponsors across the industry so that investors, investment advisors, broker-dealers, and securities analysts can assess and compare more accurately non-listed REIT valuations and investment performance,” says Kevin M. Hogan, IPA president and CEO.
The guideline—which took over two years to develop and included the input from firms, broker-dealers, advisors and others—aims to bring a higher level of uniformity, consistency and transparency to the financial reporting for Non-Listed REITs, Hogan says.
The IPA’s guideline establishes a net asset value as the basis of a per-share reporting, the organization says. This is consistent with reporting standards used by other institutional realfunds and embraces the fair value standards of the generally accepted accounting standards.
The new guidelines also call upon the board of directors for each non-listed REIT to establish an independent committee of directors to supervise the valuation process, a stipulation intended to eliminate conflicts of interest and increase transparency.
Under these guidelines, the IPA predicts that timeline for initial valuations—which currently can be as long as four and a half years—will be cut in half. The organization recommends that valuations need to be determined by Dec. 31 of each year.
Additionally, the IPA also recommended that each valuation disclosure include a 17-point list of disclosure items that goes beyond the current requirements, including the assumptions and methodologies used, the role of third-party experts and value sensitivity.
“We also believe the improved transparency and standardized valuation reporting arising from this guideline will give a more compelling picture of the capacity of non-listed REITs to deliver attractive investment results, which in turn will enhance public confidence in our industry,” Hogan says.