FAQs
- Asset Management
- Compliance
- Financial and Accounting
- General
- Performance and Risk
- Portfolio Management
- Total Global Expense Ratio (TGER)
- Valuations
- Ask a question
Asset Management
No Q+A at this time.
Compliance
Q: My fund/account is already in compliance with U.S. generally accepted accounting principals (GAAP). Why do I need Reporting Standards compliance too?
A: The Reporting Standards are a multi-discipliary set of reporting standards for portfolio management, performance measurement, asset managements, financial/ accounting and valuation for private institutional real estate investment accounts. These reporting standards depend upon, supplement, and clarify, but do not contradict standards established by U.S. GAAP, the CFA Institute’s Global Investment Performance Standards (GIPS®) and the Standards. Established Foundational Standards do not specifically address institutional real estate investment and investor reporting issues leading to inconsistency and lack of transparency.
Q: We manage real estate assets for our parent company, but do not issue a formal report. Is this activity subject to Reporting Standards?
A: No. The Reporting Standards apply to Account (commingled fund and single investor investment account) Reports. Since you do not issue reports, the Reporting Standards do not apply.
Q: As an advisor I understand we are not required to externally appraise our properties annually if we have a client agreement that states otherwise (once every 36 months), however can the client also claim Reporting Standards compliance?
A: If you have a client agreement that states for other than annual external appraisals and provided that the agreements requires external appraisals no less frequently than every 36 months, then provided that all other required elements are presented, the report can indicate that it is a Reporting Standards compliant report. Reporting Standards compliance is measured on a fund/ account by fund/ account basis. The report is compliant. The client can state that it requires reports from its managers to be prepared in compliance with Reporting Standards.
Financial and Accounting
Debt Valuation
Q: Would the option to elect to report debt at fair value be available to be changed upon the extinguishment of the current debt in a portfolio? If yes would the extinguishment of all the properties in the portfolio be required or would a majority be sufficient?
A: The Fair Value Option (ASC 825) requires the election on an instrument by instrument basis and is not revocable. RS requires compliance with GAAP, so if the Fair Value Option is elected, it would be elected and utilized in a manner consistent with GAAP.
Tenant Improvements and Leasing Commissions
Q: How are leasing commissions for terminated/vacated tenants reflected? They remain in cost and not written off? Historical cost would adjust.
A: The Reporting Standards require fair value, GAAP based financial reporting not historical cost. Accordingly, at each valuation period, a new fair value is determined. Leasing commission for terminated/vacated tenants are reflected in the adjusted fair value of the asset, so in essence are written off through the valuation adjustment.
Q: With respect to tenant improvement allowances at acquisition, should the buyer consider the TI allowances as a liability or a reduction to the purchase price upon establishment at day one?
A: The Reporting Standards require fair value, GAAP based financial reporting, not historical cost. In a fair value model tenant improvements would be included in the value of the real estate.
General
Q: Is the Reporting Standards Handbook available for purchase?
A: Presently, the Handbook is only available for download.
Performance and Risk
Derivatives
Q: In computing time-weighted returns (levered), should the appreciation of derivative instrument used to hedge debt instruments be a part of the appreciation numerator?
A: Yes, provided that the derivative is valued as a part of the debt valuation process, and further provided that the change in value is reported in the financial statements. Derivatives might be valued separately from the debt instrument but the change in value of it is combined with other changes in value for purposes of calculating the appreciation (depreciation) return.
Leverage and Risks
Multiples
Q: We calculate the internal rates of return and investment multiples for our private equity real estate closed end fund. When calculating the investment multiple (TVPI), how do you treat redemption? Would you consider them distributions?
A:
TVPI =(Cumulative distributions since inception + Period-end residual value)
(Cumulative paid-in-capital since inception)
The investment multiple (TVPI) provides investors with an indication of how many times more the investment is worth compared with the original investment, without taking into account, the time value of money. It is equal to the sum of the total distributions since the inception and the investment’s residual value divided by the total paid in capital (or contributions) (i) since inception.
The total distributions since inception include any capital that has been returned to investors. It is the total amount of capital that investors have “realized” for the fund (i.e. operations and return of capital). Please note, for fund level calculations on TVPI, all contributors and distributions since inception are included in the TVPI. Accordingly, if one investor bought into the fund and another redeemed its share of the fund, then the new investor’s capital would be added to the inception capital contributions. The redemption would be added to distributions. Therefore, if the amount contributed and redeemed were identical, there would be no effect on the TVPI.
(i) “3-7 Private Equity.” Global Investment Performance Standards Handbook. 3rd ed. Vol. 2012. [S.I.]: Pbd Worldwide Fulfillment, 2012.275.Print
Portfolio Management
No Q+A at this time.
Total Global Expense Ratio (TGER)
Q: Does TGER replace TER and REFER?
A: TGER is an enhanced version of INREV’s TER and replaces REFER.
Q: Are all funds required to report TGER?
A: TGER is required for open-end funds in order to claim compliance with the Reporting Standards.
For closed-end funds, TGER is required for funds launched in 2020 and thereafter. A since-inception for closed-end funds is recommended to show trending at various states of a funds’s life cycle and must be clearly labeled as such.
Separately managed accounts are out of scope as transparency into underlying fees/costs is already inherent in reporting.
Q: If a fund uses feeder vehicles (to admit various types of investors), are the fees and costs associated with the feeder vehicle included in the fund TGER?
A: Consistent with the principles within TGER that all fees paid to the investment manager are included in the calculation regardless of whether the fees are expensed inside or outside the fund, the fees paid to the investment manager within the feeder vehicle are generally included in TGER. The costs associated with the feeder vehicle. should be excluded from the fund TGER as they generally apply only to the investors in a specific vehicle and may or may not reflect the cost of running a fund.
Q: Would fees paid outside of the fund (paid by the investor directly to the investment manager) be included in TGER?
A: Yes. Fees charged by the investment manager directly to their investors for services rendered to the fund would be included in TGER.
Q: Should leasing consultant fees (advises property managers/leasing agents on market leasing trends) be included in TGER?
A: No. Costs related to investment or property specific activities charged by third parties are not included in TGER even if the costs were paid by the fund. This is consistent with a fundamental principle of TGER which is the nature of the cost/expense is a critical determinant of what is included in TGER and takes precedent over where such cost is incurred. Any leasing fees paid to the investment manager are not included in TGER but are disclosed as a related party fee paid to the investment manager.
Q: Guidance states that investor management fee adjustments such as rebates, waivers, reductions, etc. should be disclosed. Does this include an investor who received a discount because they were an initial seed investor?
A: Yes, unless disclosure is not permitted under the provisions of the fund documents.
Q: Would incentive fees that are accrued but not yet paid be included in TGER?
A: Yes. The performance/incentive fee reported in TGER is based on the accrued amount including amounts realized and unrealized.
Q: If an incentive fee is charged to only some of the LP investors and not all of the investors, would this be included in TGER fund level?
A: Yes. Incentive fees charged by the manager should be included in TGER.
Q: Should promotes paid to joint venture partners be included in TGER?
A: No. Joint Venture promotes are viewed as an investment costs and would not be included in TGER.
Q: If an investment manager has internal accounting costs that are charged back to the fund would these be included in TGER?
A: Yes. The guidance indicates that to the extent that the fee is charged for a service provided by the investment manager in lieu of a service provided by a third party which would normally be included in TGER, then the investment manager would need to include such costs in TGER.
TGER costs are classified according to the nature of the service rather than whether the service is provided by the investment manager or a third party and are included in the vehicle costs of TGER. Generally, when a function and its related services is generally outsourced to third parties, yet the investment manager performs this function internally, then the services provided by the investment manager are deemed to be in lieu of third-party services. Conversely, when there is already a charge from a third-party for services related to a specific function, and due to task complexity, the investment manager provides oversight or performs other complementary services for the benefit of the vehicle, then these services provided by the investment manager are deemed to be in addition to third party services.
Q: Would the rolling four quarters Weighted Average GAV/NAV include 4 or 5 quarters?
A: There is diversity in practice on whether to use 4 or 5 quarters, but either is acceptable. However, it is recommended that the method is disclosed.
Q: If an investment manager is paid a debt arrangement fee in lieu of an external broker fee, would this be included in TGER?
A: Yes. These fees charged by the investment manager are included in TGER.
Q: If a fund does not fair value the debt and the debt arrangement fees are amortized over the life of the loan, what amount would be included in TGER?
A: Debt arrangement fees incurred by the fund should be included in TGER.
Q: Are financing costs included in TGER?
A: No. Debt arrangement advisory costs (e.g. broker or placement type costs to source a Line of Credit, Private Placement Costs, investment level and property debt) are included in TGER. This does not include loan financing costs to close a loan (i.e. lender, legal and title costs).
Q: Are Line of Credit costs included in TGER?
A: Debt arrangement advisory costs (e.g. broker or placement type costs to source a Line of Credit, Private Placement Costs, investment level and property debt) are included in TGER. This does not include loan financing costs to close a loan (i.e. lender, legal and title costs).
Q: Would costs incurred to add debt to an existing property be included in TGER?
A: Debt arrangement costs (e.g. broker or placement type costs to source a Line of Credit, Private Placement Costs, incurred at the investment level and property debt) would be included in TGER. This does not include loan financing costs to close a loan (i.e. lender, legal and title costs).
Q: Are taxes paid to state & federal government agencies included in TGER?
A: Taxes paid to local/state/federal would not be included in TGER. However, the guidance includes an after-tax option that was created primarily for European and Asian tax structures.
Valuations
Q: We outsource all valuations. Is it necessary to update quarterly cash flows when we anticipate no changes? We perform a quarterly internal.
A: The requirements for internal valuations are described in the Reporting Standards Handbook Volume I. To the extent the Fund or SMA can comply with these requirements without updating quarterly cash flows, then the update is not necessary.
Ask a Question
Although not part of the Reporting Standards Hierarchy, the FAQs may be a source of additional guidance on matters not contained or addressed within the Reporting Standards, Manuals or other Guidance Materials. Matters addressed in the FAQs may be a source for future standards or guidance within the Reporting Standards hierarchy.
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