INREV’s standards mandate that both the Total Gross Expense Ratio (TGER) and Net External Asset Management Expense Ratio (REER) rely on INREV Gross Asset Value (GAV) as their foundational metric. Fund managers must ensure full transparency with investors by detailing the methods and assumptions applied when determining GAV, aligning with protocols set out in the INREV NAV and Fee and Expense Metrics frameworks.
Assets according to Generally Accepted Accounting Principles (GAAP), which includes IFRS, can serve as the basis for calculating the denominator in the Fee and Expense Metrics module ratios. INREV recommends using the same accounting framework as for the INREV NAV calculation, such as IFRS, local GAAP, or a vehicle-specific GAAP.
Calculating INREV GAV
From that foundation, various adjustments must be made to arrive at an INREV GAV applicable for calculating the INREV TGER and REER. The INREV GAV utilized for these ratios may differ from an adjusted GAV used for performance evaluation or other reporting needs.
Further adjustments can be added or removed to create an adjusted GAV tailored to a specific goal. The INREV GAV guidelines take precedence over standard accounting principles by modifying results based on the chosen GAAP. Managers must exercise judgment when making INREV GAV adjustments.
Consequently, it is essential to include sufficient disclosures to allow investors to understand positions taken by the manager. In this Q&A, direct links will be made to IFRS as a basis for calculating the required adjustments, and if needed, to other fair value concepts.
Adjustments for INREV GAV
For the use of calculating the INREV TGER and REER, a vehicle GAV calculated in accordance with IFRS should be adjusted for the following items: revaluation to fair value of investment properties, revaluation to fair value of self-constructed or developed investment property, and revaluation to fair value of investment property held for sale.
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Other adjustments involve revaluing property leased under a finance lease to fair value, revaluing real estate held as inventory to fair value, and revaluing other real asset investments to fair value. This adjustment reflects the GAV impact of revaluing these items under IFRS 13 fair value assumptions.
When valuing property at fair value according to IAS 40 and SIC 15, the effects of straight-lining lease incentives, rent guarantees, and insurance claims must be considered to prevent double-counting assets in the GAV. The INREV GAV guidance provides a method for calculating these adjustments.
In preparing the INREV TGER and REER, the manager should consider the specific requirements of the Fee and Expense Metrics module. The INREV GAV calculation is a critical component of this process, and the manager should ensure that all necessary adjustments are made to arrive at an accurate GAV.
As described in further detail below, set-up costs and acquisition expenses should be capitalised and amortised. The rationale for these adjustments is to spread these costs over a defined period of time to smoothen the immediate impact of costs on the vehicle’s performance.
Accounting Principles and Adjustments
Investments are valued at cost or fair value. Indirect investments have different accounting treatments. These investments can be valued at cost, fair value, or NAV.
Financial assets are measured at amortised cost. Construction contracts are accounted for based on completion stage. Adjustments represent the impact on GAV of revaluations to fair value.
