Notes to the INREV financial statements

(Amounts in € million)

 

notes

31 December 2016

31 December 2015

NAV per the IFRS financial statements

 

3,045

2,629

    

Reclassification of certain IFRS liabilities as components of equity

   

Effect of reclassifying shareholder loans and hybrid capital instruments (including convertible bonds) that represent shareholders long term interests in a vehicle

1

  

Effect of dividends recorded as a liability which have not been distributed

2

  

NAV after reclassification of equity-like interests and dividends not yet distributed

 

3,045

2,629

    

Fair value of assets and liabilities

   

Revaluation to fair value of investment properties

3

  

Revaluation to fair value of self-constructed or developed investment property

4

  

Revaluation to fair value of investment property held for sale

5

  

Revaluation to fair value of property that is leased to tenants under a finance lease

6

  

Revaluation to fair value of real estate held as inventory

7

  

Revaluation to fair value of other investments in real assets

8

  

Revaluation to fair value of indirect investments not consolidated

9

  

Revaluation to fair value of financial assets and financial liabilities

10

(42)

(13)

Revaluation to fair value of construction contracts for third parties

11

  

Set-up costs

12

  

Acquisition expenses

13

  

Contractual fees

14

  
    

Effects of the expected manner of settlement of sales/vehicle unwinding

   

Revaluation to fair value of savings of purchaser’s costs such as transfer taxes

15

  

Revaluation to fair value of deferred taxes and tax effect of INREV NAV adjustments

16

  

Effect of subsidiaries having a negative equity (non-recourse)

17

  
    

Other adjustments

   

Goodwill

18

  

Non-controlling interest effects of INREV adjustments

19

  
    

INREV NAV

 

3,003

2,616

1 Effect of reclassifying shareholder loans and hybrid capital instruments (including convertible bonds) that represent shareholders’ long term interest in a vehicle

Investors’ capital can take various forms aside from equity – examples include shareholder loans and hybrid capital instruments such as convertible bonds. Some vehicles are structured via a combination of equity participations and shareholder loans.

Shareholder loans and hybrid capital instruments are generally seen as part of the investors’ overall interest in the vehicle.

Since investors in VRF FGR only invest via participation rights according to the Terms and Conditions, no adjustment is applicable.

2 Effect of dividends recorded as a liability which have not been distributed

Under certain circumstances dividends are recorded as a liability but have not yet been legally distributed.

For the determination of INREV NAV, these accrued dividends should be reversed to the NAV.

As per 31 December 2016, no distributions are recorded as a liability, no adjustment is applicable.

3 Revaluation to fair value of investment properties

After initial recognition, investment property is valued at fair value under the fair value option of IAS 40.

As investment properties are valued at fair value, no adjustment has to be made as per 31 December 2016.

4 Revaluation to fair value of self-constructed or developed investment property

Development property is IPUC (investment property under construction) and valued at fair value under the fair value option of IAS 40.

As IPUC is valued at fair value, no adjustment has to be made as per 31 December 2016.

5 Revaluation to fair value of investment property held for sale

Assets in this category should be measured under IFRS at the lower of cost or net realisable value in the financial statements. The adjustment represents the impact on NAV of the revaluation of the property intended for sale, measured at cost, to fair value.

As per 31 December 2016, no properties intended for sale have been identified and all investment properties have been valued at fair value, therefore no adjustment is applicable.

6 Revaluation to fair value of property that is leased to tenants under a finance lease

Property that is leased to tenants under a finance lease is initially measured on a net investment basis and subsequently re-measured based on an amortisation pattern reflecting a constant rate of return. The adjustment represents the impact on NAV of the revaluation of the finance lease receivable to fair value.

As per 31 December 2016, no adjustment has been made since no property is held that is leased to tenants under a finance lease.

7 Revaluation to fair value of real estate held as inventory

Properties intended for sale and accounted for under IAS 2 (Inventory) are measured at the lower of cost or net realisable value in the financial statements.

This adjustment represents the impact on the NAV of the revaluation of such properties to net realisable value (fair value less disposal costs). This adjustment should be included under the caption ‘revaluation to fair value of real estate held as inventory’.

As per 31 December 2016, no adjustment is applicable since the inventory property is valued at lower of cost and net realisable value, which is equal to fair value.

8 Revaluation to fair value of other investments in real assets

Under IAS16 other investments in real assets are normally accounted for at cost. The adjustment represents the impact on NAV of the revaluation of other investments in real assets to fair value in accordance with the fair value assumptions under IFRS 13.

As per 31 December 2016, no adjustment has been made since VRF FGR has no investments in real assets.

9 Revaluation to fair value of indirect investments not consolidated

Indirect investments in real estate, such as investments in associations and joint ventures, have different accounting treatments and carrying values under IFRS. Such investments can be valued at cost, fair value or NAV.

The adjustment represents the impact on NAV of the revaluation of indirect investments to fair value if not yet accounted for at fair value.

As per 31 December 2016, no adjustment had been made since all indirect investments in real estate are valued at fair value.

10 Revaluation to fair value of financial assets and liabilities (including revaluation to fair value of debt obligations)

Financial assets and liabilities such as debt obligations are generally measured at amortised cost, taking into account any impairment when applicable. The adjustment represents the impact on NAV of the revaluation of financial assets and financial liabilities to fair value as determined in accordance with IFRS.

As per 31 December 2016, an adjustment has been made for the revaluation to fair value of the fixed interest debt financial liabilities of € 42 million (2015: € 13 million). This adjustment relates specifically to the senior unsecured notes (bonds issued in July 2014 and October 2015) and the private placement borrowings with PRICOA Capital Group (as per July 2013 and December 2016).

No adjustments have been made for other financial assets and liabilities as these were already valued at fair value in accordance with IFRS principles.

11 Revaluation to fair value of construction contracts for third parties

Under IAS11, construction contracts for third parties are normally accounted for based on the stage of completion.

The adjustment represents the impact on NAV of the revaluation of construction contracts for third parties to fair value in accordance with the fair value principles of IFRS 13.

As per 31 December 2016, no adjustment has been made since VRF FGR has no construction contracts for third parties.

12 Set-up costs

Under IFRS, vehicle set-up costs are charged immediately to income after the inception of a vehicle. Such cost should be capitalized and amortised over the first five years of the term of the vehicle. The rationale for capitalising and amortising set-up costs is to better reflect the duration of the economic benefits to the vehicle.

The adjustment represents the impact on NAV of capitalizing and amortising set-up costs over the first 5 years period instead of charging immediately to the income statement.

No set-up costs for VRF FGR have been made in the last 5 years, therefore no adjustment for set-up costs has been made.

13 Acquisition expenses

Under the fair value model, acquisition expenses of an investment property are effectively charged to income when fair value is calculated at the first subsequent measurement date after acquisition. This results in the fair value of a property on subsequent fair value measurement being lower than the total purchase price of the property, all other things being equal. Property acquisition expenses should be capitalised and amortised over the first 5 years after acquisition of the property.

The rationale for capitalising and amortising acquisition expenses is to better reflect the duration of the economic benefits to the vehicle of these costs.

When capitalising and amortising acquisition costs, a possible impairment test should be taken into account every time the adjusted NAV is calculated when market circumstances change and it is not expected that the capitalised acquisition costs can be recovered through the sale of units of a vehicle. When a property is sold during the amortisation period or is classified as held for sale, the balance of capitalised acquisition expenses of that property should be expensed.

This adjustment represents the impact on NAV of the capitalisation and amortisation of acquisition expenses over the period from acquisition of the specific asset to 5 years after initial closing.

Vesteda has not adjusted for any paid acquisition expenses on the current portfolio, due to the fact that Vesteda has made limited acquisitions over the past years as a result of which the adjustment would be less than 0.1% of total equity at year end 2016.

14 Contractual fees

A liability represents a present obligation as a result of past events. A fee payable at the end of the life of a vehicle or at any other time during the life of a vehicle may not meet the criteria for recognition as a provision or liability in accordance with IFRS at reporting date.

Examples of such fees include performance fees, disposal fees, or liquidation fees, representing a present obligation from contractual arrangements.

Most of these fees are normally accrued under IFRS accounting rules. The adjustment represents the impact on the NAV of the amount of the estimated contractual fees payable based on the current NAV of the vehicle in the rare circumstances in which these fees are not already recognized in financial statements produced under IFRS and it is probable that they will be incurred. In order to determine the amount of the adjustment, reference should be made to IFRS standards for the measurement (but not necessarily the recognition) of provisions or deferred liabilities.

As per the balance sheet date, all contractual fees and contingent liabilities are recognised in accordance with IFRS.

VRF FGR did not enter into any other contractual fees or contingent liabilities that are not presented in the accounts as per the balance sheet date.

15 Revaluation to fair value of savings of purchaser’s costs such as transfer taxes

Transfer taxes and purchaser’s costs which would be incurred by the purchaser when acquiring a property are generally deducted when determining the fair value of investment properties under IAS 40. The effect of an intended sale of shares in a property-owning vehicle, rather than the property itself, should be taken into account when determining the amount of the deduction of transfer taxes and purchaser’s costs, to the extent this saving is expected to accrue to the seller when the property is sold.

The adjustment therefore represents the positive impact on the NAV of the possible reduction of the transfer taxes and purchaser’s costs for the benefit of the seller based on the expected sale of shares in the property-owning vehicle.

VRF FGR has no investment property structured in special purpose vehicles.

16 Revaluation to fair value of deferred taxes and tax effect of INREV NAV adjustments

Under IFRS, deferred tax assets and liabilities are measured at the nominal statutory tax rate. The manner in which the vehicle expects to realise deferred tax (for example, for investment properties through share sales rather than direct property sales) is generally not taken into consideration.

The adjustment represents the impact on the NAV of the difference between the amount determined in accordance with IFRS and the estimate of deferred tax which takes into account the expected manner of settlement (i.e., when tax structures and the intended method of disposals or settlement of assets and liabilities have been applied to reduce the actual tax liability).

As per 31 December 2016, no adjustment has been made as VRF FGR has not valued deferred tax assets and liabilities on the balance sheet. Furthermore VRF FGR is transparent for tax purposes therefore no adjustment for the INREV NAV adjustments is required.

17 Effect of subsidiaries having a negative equity (non-recourse)

The NAV of a consolidated group under IFRS may include the net liability position of subsidiary undertakings. In practice, however, the group may have neither a legal nor a constructive obligation to fund the accumulated losses in situations where the financing of the subsidiaries is non-recourse to the vehicle. In this scenario it is appropriate to make an adjustment when calculating the INREV NAV in order to recognise the group’s interest in such subsidiaries at nil or an adjusted negative amount rather than at a full net liability position, to the extent there is no intention or obligation on the vehicle to make good those losses.

The adjustment represents the positive impact on the NAV of the partial or full reversal of the negative equity of the specific subsidiary. If the vehicle has granted shareholder loans to the subsidiary, these should be taken into account.

As per 31 December 2016, no adjustment has been made since VRF FGR has no subsidiaries with a negative equity which are valued at zero and are included in the consolidation.

18 Goodwill

At acquisition of an entity which is determined to be a business combination, goodwill may arise as a result of a purchase price allocation exercise.

Often a major component of such goodwill in property vehicles reflects the difference between the full recognition of deferred tax, purchaser’s costs or similar items in the IFRS accounts (which does not generally take account of the likely or intended method of subsequent exit), and the economic value attributed to such items in the actual purchase price.

Except where such components of goodwill have already been written off in the NAV as determined under IFRS, they should be written off in the INREV NAV.

As per 31 December 2016, no adjustment has been made since VRF FGR has no goodwill valued on the balance sheet.

19 Non-controlling interest effects on the above adjustments

This adjustment represents the impact on the NAV of the recognition of non-controlling interests on all of the above adjustments.

As per 31 December 2016, no adjustment has been made since VRF FGR has no material adjustments that arise from its non-controlling interests.