Getting the all clear
When it comes to property, tranparent reporting is imperative
It would have been difficult to lose money in recent years by investing in
property, given the favourable market conditions and yield compression, but most
recognise it will now be hard to maintain high level of returns.
However, there is still a surplus of global funds competing for
opportunities. Almost half of the 90bn euros (£114.5bn) European investment in
the first six months of 2006 related to cross-border transactions.
Investors increasingly demand more timely reporting, and tighter processes
place greater pressure on small finance teams against a background of
International Financial Reporting Standards and the introduction of Real Estate
Investment Trusts (REITs).
Under IFRS, traditional key performance indicators (KPIs) of net asset value
and earnings per share are even less meaningful to the investor.
The EPRA (European Public Real Estate Association) has been working with
members to define appropriate KPIs for today’s market. These include
EPRA-Adjusted Net Asset Per Share, including external valuation surplus on
trading properties, excluding fair value adjustments for debt and related
derivatives and deferred taxation on revaluations and capital allowances; and
EPRA Earnings Measure, excluding gains on property disposals and investment
revaluations and related taxation, intangible asset movements and the capital
allowance effects of IAS 12 where applicable.
If these are to become standard performance indicators, companies need to
ensure they are given sufficient priority in financial statements.
The UK REIT will be available from 1 January 2007, providing a new
tax-efficient vehicle for real estate investment.
BDO Australia’s annual Listed Property Trust survey covers the
long-established REIT market there and reflects a continuing trend for greater
transparency in reporting. Similar trends are noted with US investors. It is
likely that offshore companies and AIM-listed businesses competing for funds in
a REIT environment, need to ‘up their game’ in terms of clarity of reporting to
avoid being left behind.
The annual BDO Stoy Hayward Property Awards look to reward clarity and
transparency of disclosure in the listed market. The judging panel still remains
disappointed by the reporting of many property companies. The 2006 awards will
help improve standards in the UK by recognising best practice. Hopefully, we
will see a UK-REIT contender in the BDO Australian global shortlist next year –
an achievement which could rank with us retaining the Ashes!
Lynette Lackey is real estate partner at BDO Stoy Hayward