Real Estate Investment Funds: Financial reporting - Alfi

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financial statements and disclosures 1. What does a typical set of financial statements include? a. Under LuxGAAP, the financial statements comprise: Balance sheet or statement of net assets Income statement (statement of operations) Statement of changes in net assets Statement of changes in the number of units/shares Reconciliation of Investors Equity (IFRS/ LuxGAAP NAV) to the Fund NAV NAV per unit/shares statistics for the last 3 years Statement of investment in property (can also be included as a note to the financial statements) Notes to the financial statements Managers’ report Audit opinion Various income statement layouts have been put forward within the industry. Commonly, the recommended layout per EPRA or INREV guidelines is often used to separate the results of rental and property management activities, fund management costs, finance income and expense, unrealised and realised gains from changes in the fair value of real estate or property disposals and taxation b. Additional information provided under IFRS includes: Cash flow statement Statement of changes in equity attributable to unit holders/shareholders (similar to and often an adapted form of the statement of changes in net assets) Additional notes and disclosures required under IFRS c. Additional optional and supplementary information may include: Reconciliations to other GAAPs (e.g. US GAAP) Additional information on the real estate portfolio The opinion(s) of the property valuer(s) EPRA, INREV or other trade association recommended disclosures (e.g. additional information on taxes) 2. Is there a requirement to disclose property portfolio information? a. Funds prepare either a "statement of investments in property" or a note to the financial statements which gives a description of properties held and shows the movement in fair value. The granularity of the disclosure will depend on the number of assets and nature of the portfolio, the investors’ needs, and concerns about confidentiality. For a typical fund with a limited number of properties, this is generally disclosed by individual property, but may be summarised by property sector or geography. In general, the level of disclosure should be sufficient for a reader to understand the nature and location of properties, and movements in their fair value as recorded in the financial statements. Often, investment diversification percentages are also added to this disclosure. b. There is also a general requirement to disclose the names and location of significant subsidiaries, joint ventures and associated companies in consolidated accounts. c. In addition, under IFRS, there is a requirement to consider the disclosure of segmental information if the fund is listed. d. There may also be other situations where additional disclosures are required, e.g. under the Prospectus Directive. e. Under LuxGAAP, all subsidiaries, joint ventures and associated companies included in the consolidated financial statements are subject to disclosure requirements. 24
3. What are the typical contents of the related party disclosure note? a. Transactions with related parties need to be disclosed in the notes to the financial statements to enable readers to understand the nature of these transactions and to determine if they have been conducted on normal market terms or in line with the provisions of the Fund Documents. Related parties of a real estate fund are typically the promoter, asset managers, joint venture partners, key service providers such as custodians, officers and management etc. b. Typical related party transactions are: Q Q Performance fees (if any) Management fee/Asset management fees Administrative fees (if self-administered) Distributors fees Acquisitions from related parties Loans to or from the asset management company or promoter Co-investment of the promoter in the fund 4. What are the requirements for risk disclosures? a. Risk disclosures are common both in the prospectuses of funds and are a requirement under IFRS in the financial statements. b. Common financial risk disclosures for a real estate fund include: QQ Diversification risks QQ Financial leverage risk QQ Credit risk QQ Liquidity risks QQ Currency risks c. Pursuant to adoption of IFRS 7 and amended IAS 1, in addition to the above, Funds preparing IFRS financial statements are required to provide quantitative analysis of liquidity, credit and market risks (including sensitivity analysis) as well as capital management disclosures. d. In addition, it is common practice and a requirement of IFRS and LuxGAAP to disclose the nature of key estimates made in establishing the NAV of a fund. These estimates of risks include: Property valuations Fair value of financial instruments Bad debt provisions Accounting for acquisitions Estimation of current and deferred tax provisions 25
Page 1: guidelines Real Estate Investment F
Page 5 and 6: table of contents chapter I - PROPE
Page 7 and 8: property valuation chapter I
Page 9 and 10: y the seller. The assessment of the
Page 11 and 12: valuation uncertainty chapter II
Page 13 and 14: 3. How recent should a valuation be
Page 15 and 16: accounting chapter III
Page 17 and 18: discussed above in Chapter III.2.c
Page 19 and 20: understand the nature and potential
Page 21 and 22: f. INREV guidance states that in ca
Page 23 and 24: net asset value calculation chapter
Page 25: financial statements and disclosure
Page 29 and 30: 1. What specific issues arise with
Page 31 and 32: In general, a FOREF invests in illi
Page 33 and 34: What information in respect of inve
Page 35 and 36: chapter IX how does increased valua
Page 37 and 38: chapter X what options do FOREFS ha
Page 39 and 40: 3. Continue to produce Fund NAVs/fi
Page 41 and 42: In general, auditors will have to p
Page 43 and 44: Glossary of terms 91/75 The IML Cir

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