The covid-19 crisis has created new challenges in the joint efforts among the real estate associations NCREIF, PREA, INREV and ANREV to standardize reporting standards globally. “It’s highlighting any extent of inconsistencies in reporting of asset specific information,” says Kronenwetter. “That’s where I see the biggest change.”
In June, NCREIF and PREA developed a guide for disclosures on covid-19-related rent relief, which includes templates for managers to provide a general summary of waived rents and deferred rents and a general assessment of rent collectability.
Kronenwetter believes rent relief will be an ongoing reporting issue for the foreseeable future. “I do think over next 18 months to two years, we’re still going to be talking rent relief in one form or another, because it’s going to morph into differences in how leases are negotiated.”
She also expects covid-19 will lead to new reporting requirements long term: “When you come out of a crisis, there’s always something that sticks. And I believe that some of the asset specific or investment specific challenges we’re facing now and things that investors are going to need are going to stay.”
Similar to NCREIF, INREV has also issued a rent collection disclosure template, as well as guidance on reporting and liquidity considerations for managers relating to covid-19.
“The need for timely data and the ability to monitor the performance, monitor the risks through standardized reporting has become critical, especially now as we’re living in this uncertain environment,” says Constantin Sorlescu, director of professional standards at INREV. “I would say the industry is more prepared than before to tackle this crisis in terms of reporting and transparency.”
In Europe, ongoing efforts at reporting standardization included the issuance of the INREV Standard Data Delivery Sheet, which aims to standardize information exchanged between a manager and an investor; and INREV NAV, which is intended to more accurately reflect an investment’s economic value by addressing inconsistencies in how net asset value is calculated as a result of different accounting principles in each jurisdiction.
When it comes to global standardization, “it starts first with acknowledging there are differences and looking for the source of those differences,” Sorlescu notes. For example, many European investors were initially confused by US terminology, such as an “investment management or advisor fee,” which was actually the equivalent of a “fund management fee” in Europe.
“When we started actually looking behind the fees charged across regions and understanding what were the services behind those fees, we figured out we were talking about similar terms or fees,” he remarks. To address such confusion, in 2017 the four industry groups jointly unveiled the Global Definitions Database, which includes close to 500 terms, about a quarter of which are globally agreed.
The latest milestone in the global standardization initiative was the introduction in January of the Total Global Expense Ratio, which is a standardized approach for measuring the total fees and costs of real estate investment vehicles to enable investors and managers to compare vehicles across different regions. TGER will be a reporting requirement under the NCREIF PREA Reporting Standards and, beginning in 2021, the INREV Guidelines, the reporting best practices adopted by both INREV and ANREV.
The four industry groups continue to look at ways to globalize and standardize NAV, while in the US, NCREIF and PREA have been working on standardizing the meaning of gross internal rate of return, which currently can reflect all cash flows, including subscription lines of credit; cash from investors only; and cash from investors only minus transaction costs.
“When we think about reporting standards, I think of a process like peeling an onion,” says Kronenwetter. “Developing standards is never over and we will continue to do things that peel the onion.”