Property Funds Association Conference 2013 Shackled or Freepropertyfunds.org.au/images/Conference_2013/PFA-2013... · 2017-06-03 · Property Funds Association Conference 2013 Shackled

Property Funds Association

Conference 2013

Shackled or Free

Emerging & Topical Issues In

Investment Valuation

Overview

• AASB 13 - Fair Value

• Impact on Investment Valuation – AASB 140

• Dual Purpose Valuations – “Fair Value” For Financial Reporting and

“Market Value” for borrowing

• Date a valuation is issued versus reporting date and the date that

the bank expects to rely on the valuation.

www.prpsydney.com.au 2

• Published September 2011

• Applies to annual reporting periods

beginning on or after 1st January 2013

– (Aus 4.2)

• Applies when another standard

requires or permits Fair Value

Measurement –(5)

• Doesn’t apply to Leasing transaction

(AASB 17) or Value in use for

impairment testing (AASB 136)

• Incorporates IFRS 13 but with local

amendment (Aus)

AASB 13 Fair Value


• Subtle, but potentially significant

differences to the definition of Fair

Value between standards

• AASB 13 – “The price that would be

received to sell an asset or paid to

transfer a liability in a orderly

transaction between market

participants at the measurement date”

• AASB 140 – “Fair value is the amount

for which an asset could be

exchanged between knowledgeable,

willing parties in an arms length

transaction”

• Contrast both of these with the

“Spencer Market Value test/ definition

AASB 13 Fair Value

(Cont.)


• Whist the fair value definition itself

remains one paragraph AASB 13

expands on the definition (59 Pages)

• It sets out a single standard

framework for measuring fair value

and notably requires disclosures

about fair value measurement

• It also discusses how fair value is to

be assessed in some 59 pages

• Some of the requirements will require

valuers to rethink the presentation of

their valuation reports so that they

focus on the requirements of AASB

13

AASB 13 (Cont.)


• Designed to cover all asset classes

and liabilities

• Asset classes may include real and

personal property and also financial

assets, equities, bonds, derivatives

etc

• For any asset class including

investment real estate is a matter of

questioning which parts of the

standard apply to the asset class

• Fair value is a market based

approach

• It discusses a transaction in a

principal market for the asset class

and the most advantageous market

absent a principal market

AASB -13 What are the

requirements?


• It discusses market participants and

requires assumptions to be adopted

that market participants would use

• It emphasises that Fair Value is the

Price that would be received to sell

asset or transfer a liability

• The price shall not be adjusted for

Transactions costs (Paragraph 25) –

Consider this in the context of how

most DCF valuation are prepared.

• Highest and best use is emphasised

as a fundamental principal for non

financial assets – this gets detailed

attention (Paragraphs 27-33)


requirements? (Cont)


• Entities to use appropriate valuation

techniques appropriate to

circumstances and subject to

sufficient data being available

• Valuation techniques to be applied

consistently (Market, Cost or Income

approaches)

• Single or multiple techniques may be

appropriate

• Inputs to valuations techniques to

maximise the use of observable

inputs and minimise use of

unobservable inputs

• To increase consistency three levels

of Fair Value assessment inputs are

required to be considered




• Level 1 Inputs are quoted prices in

active markets for identical assets or

liabilities – most reliable evidence

• Level 2 Inputs are inputs other than

quoted prices included within level 1

that are observable either directly or

indirectly – these include market

corroborated inputs

• Level 3 Inputs are unobservable

inputs that can only be used when

observable inputs are not available

• Where does a typical real estate

transaction fit into the hierarchy?

• Examples at the rear of AASB 13 –

unfortunately limited examples on

investment real estate




• Entities obligated to disclose

information that helps user's of the

valuation to asses fair value

• Valuations (full reports and PDS

summary letters) will have to be

tailored to meet the disclosure

requirements of AASB 13

• Entities (RE’s) are going to have to

familiarise themselves with AASB 13,

how Fair Value is defined and

particular how to instruct valuers

• Valuers are going to have to consider

how they present their reports to best

assist entities satisfy the disclosure

requirements of AASB 13 - API is

busily drafting a Technical Information

Paper on AASB 13 and Valuation for

financial reporting at present

AASB 13 – The wrap up


• Is Fair Value one and the same thing

as Market Value? Goes to the issue of

dual purpose valuations – Are the

definitions the same? In most cases

yes where the is an active market.

• The date of the valuation has been

raised by the banks as an issue for

them in the use of dual purpose

valuations.

• At issue is:-

• The date the property is inspected by

a valuer (say 1st November 2012);

• The date that the valuer issues the

report (say 5th December 2012);

• The date that the valuation is said to

be based as at (i.e. the financial

reporting date) (say 31st December

2012)

Dual Purpose Valuations


• The day that the valuation is issued to

a bank or consortia of banks for loan

security or loan covenant support for

a group of assets (Say 1st February

2013)

• Issues – Most valuer’s PI insurance

policies require that valuations can

only be used up to 90 days from the

date of valuation – a logic developed

from mortgage valuation work

• Hence a bank may not be able to rely

on the valuation (although it would

appear that they have not had a

choice)

• All valuation firms are disclaiming

forward dated valuations differently –

they may not be covered by their PI

policies


(Cont.)


• May also breach the API capped

liability scheme requirements which is

compulsory for valuers

• Potential solutions:-

• Valuation has to stand on the day it is

written based on known

circumstances

• Acknowledge the practicality of RE’s

requiring valuations ahead of a

reporting date of PDS issue date for

say up to 90 days;

• In terms of banks using valuations

post the date of valuation allow a

longer period for use or alternatively

don't restrict the period at all and

leave it to the banks discretion?

• The big 4 banks are seeking a

solution to this


(Cont.)


• The Australian Valuation Standards

Board (AVSB) is currently looking at

this issue and is engaging with all

stakeholders including:-

• Valuation Firms;

• Banks;

• Users of valuations – RE’s and

corporates;

• APIV – The API’s compulsory capped

liability entity;

• With the intent of seeking comment

from all stakeholders to address the

issue in a practical way that is

reasonable.

• From a users (RE’s) viewpoint the

cost of valuations in the process is

undoubtedly important


(Cont.)


• Although AASB 13 has been around

since September 2011 it has crept up

given its universal adoption in

Australia for reporting periods

beginning on or after 1st January

2013. There is time to absorb it – but

now is the time to begin preparing

• Assuming annual reporting periods

this puts the first year end at 31st

December 2013

• The IVSC is publishing a number of

TIP’s on this and the AVSB is busily

drafting a TIP for the Australian

circumstance covering all real

property asset classes

Conclusion


• Apropos the dual valuation and date/

timing issue I would be happy to take

any comments back to the AVSB to

ensure they are considered along with

other stakeholders views.

• Thank You

Conclusion (Cont.)


Documents

Property Funds Association Conference 2013 Shackled or Freepropertyfunds.org.au/images/Conference_2013/PFA-2013... · 2017-06-03 · Property Funds Association Conference 2013 Shackled