REIS Reporting Survey

1
REIS Reporting Survey

• Report of the Sub-Committee on Scope Project
  Applicability to the
• PREA Plan Sponsor Council
• March 28, 2007

2
Survey Team

• Co-Chairs
• Denisa Hall-Prudential
• Carol Kuta-UBS
• Committee
• Scott Brown-Ennis Knupp
• Larry Christensen-Heitman
• Joe DAlessandro-Real Estate Insights
• Bruce Frank-Ernst Young
• Steve Holland-Campbell
• Barry Johnson-Morgan Stanley
• Asieh Mansour-DB/RREEF
• Ralph Marra-Sentinel

• Committee (Cont.)
• Maritza Matlosz-BlackRock
• Tom Mulvin-Virginia Retirement System
• Doug Poutasse-AEW
• Steve Repertinger-Principal
• Support Staff
• Marybeth Kronenwetter-NCREIF
• Denise Stake-NCREIF
• Owen Robbins-Benchmark
• John Baczewski-REFS

3
Pronouncements Update

• Statement of Position, Clarification of the
  Scope of the Audit and Accounting Guide
  Investment Companies and Accounting by Parent
  Companies and Equity Method Investors for
  Investments in Investment Companies
• Cleared by FASB in September 13, 2006
• Effective Dateexpected to be 12/15/7 for
  calendar year companies this will mean 1/1/8
• Expected publicationon or about 3/31/7
• Fair Value Option-FAS 159
• Issued 2/15/7,
• Effective, years beginning on or after 11/15/7

4
Survey Objectives

• Three primary objectives
• gather information regarding the impact of
  certain pending accounting pronouncements on the
  industry
• gain a further understanding of the information
  needs of the private market institutional real
  estate investor.
• determine the impact on NCREIFs data products
• Survey results will be used to
• develop implementation guidance and identify REIS
  modifications for these pending pronouncements
• evaluate NCREIF data products in light of
  accounting changes and industry views

5
Survey Process

• Task Force formed February 2006
• Started developing questions big project needed
  better information
• Sought Board approval of survey in April, 2006
  obtained Board approval to engage Benchmark in
  June 2006
• Weekly calls to develop questions between April
  and December 2006
• Sought feedback and approvals from REIS Council
  and Committees as appropriate-and on an ongoing
  basis
• January 2007-survey issued survey response
  period
• February 2007survey analysis
• March 2007---survey completed presentations to
  NCREIF PREA

6
Demographics-89 Respondents
7

• Summary of Survey Team Observations

8
REIS Views-Observations and Recommendations

• Q28---Consistent reporting within asset class?
• Comparability within Real Estate private equity
  reporting is more important than comparability
  across asset classes
• Q29Should compliance with GAAP be required by
  REIS?
• GAAP Compliance is paramount
• Q35-Does your Organization require audited
  financials?
• Investors generally require audited financials

9
REIS Views-Observations and Recommendations

• Q31-Will current fund level information continue
  to be available?
• A majority of respondents indicate data
  supporting current reporting information should
  continue to be available.

10
REIS Views-Observations and Recommendations

• Q38-Will you elect Fair Value Option?
• Significant number of respondents have not yet
  decided about the Fair Value Option
• NCREIF Board approved this as a REIS requirement
  in March 2007

11
REIS Views-Observations and Recommendations

• Q44-Do you claim or require GIPS Compliance?
• GIPS compliance is still a potential competitive
  advantage, particularly since investors are
  interested in such compliance

12
Pending SOP-Observations and Recommendations

• Q47-50-Will your private market real estate be
  subject to the Guide?
• Majority of Commingled Funds expect to follow
  investment company accounting model going forward
• Separate Account investors expect to use multiple
  accounting models

13
Pending SOP-Observations and Recommendations

• Q53-60-Do you use current REIS financial
  statement line items?
• Data suggests that current REIS financial
  information is being used by investors across all
  investment strategies
• Q63-66-Which fund accounting model do you think
  is most appropriate?
• Current REIS is favored by separate account
  investors

14
Pending SOP-Observations and Recommendations

• Q67-70-Would you support a REIS requirement to
  report Fund Net Investment Income and Fund
  Appreciation, as determined within current REIS,
  as supplemental information?
• A majority of respondents want Fund Net
  Investment Income and Fund Appreciation,
  investors prefer it audited

15
Performance NCREIF Data ProductsObservations
and Recommendations

• Time Weighted Total Returns most important for
  analysis both across asset classes and within the
  real estate asset class
• Time Weighted Component Returns are highly
  utilized as well
• IRR more important for higher risk
  investments/funds
• Additional measures would be useful to support
  returns for both fund and property products
•   -Cash flow return, multiples and IRRS
• New NCREIF fund products are desired
• Consistency of inputs to performance measures
  desired for effective comparability (between
  asset classes, entities and historical and
  prospective performance).

16
Three Major Challenges Ahead

• Deadlines are approaching rapidly-time is of the
  essence-pronouncement effective dates are
  expected to be 1/1/8
• Survey results are definitive in many places, but
  occasionally conflicting
• Aligning the REIS Standards and the NCREIF Data
  Products