Seeking to Boost Transparency, IPA Issues Standards for Non-Traded REITs

The Investment Program Association contends that the guidelines will boost confidence in non-listed investment vehicles by providing greater uniformity to financial reporting and valuation.

By Scott Baltic, Contributing Editor

In a step intended to improve financial reporting and transparency of non-traded REITs, the Investment Program Association on Monday announced the first industry-wide valuation guidelines for the investment vehicles.

Kevin Hogan, president & CEO of the Ellicott City, Md.-based trade group for non-listed direct investment vehicles, said that the new guidelines would promote “a higher level of uniformity, consistency and transparency to the financial reporting” and standardization of valuation approaches by non-listed REIT sponsors. That will enable a variety of stakeholders—investors, investment advisors, broker-dealers and securities analysts alike—to assess and compare the vehicles’ valuation and performance more accurately, Hogan added yesterday in a statement.

“We also believe the improved transparency and standardized valuation reporting arising from this Guideline will give a more compelling picture of the capacity of Non-Listed REITs to deliver attractive investment results, which in turn will enhance public confidence in our industry,” Hogan said.

Two years in the making, the guidelines incorporate input from sponsor firms, broker-dealers, due-diligence professionals and legal, accounting and financial advisors, according to the IPA.

Compared to their publicly traded counterparts, non-traded REITs have sometimes been regarded as lacking transparency and adequate yardsticks, such as up-to-date trading market values and other performance metrics.

Highlights of IPA’s recommendations include:

• Uniform methodology derived from GAAP principles for determining share values based on net asset value

• Protocols for managing valuation and the involvement of independent valuation experts

* Introduction of valuations earlier in the life-cycle of each non-listed REIT, and

* Valuation-related disclosures that exceed U.S. Securities and Exchange Commission requirements

Valuation has often been an issue for non-listed REITs. Scott Crowe, managing director and global portfolio manager at Resource Real Estate Partners Inc., noted in the March edition of CPE that given the difficulty investors have in knowing the value of a non-listed REIT’s assets, “There’s been a big push to have much more regular valuation.”

Only time will tell how quickly or fully the IPA’s guidelines are adopted by non-traded REITs and the extent to which investors expect the standards.

In the meantime, though, Stacy Chitty, managing partner at Blue Vault Partners L.L.C., a research and consulting firm specializing in non-traded REITs, told CPE, “We applaud the IPA for their leading efforts in helping provide a solution to this long-term dilemma.”