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Listed companies usually value their real estate assets annually, but dynamic conditions may warrant more frequent reviews, said industry players.
With the COVID-19 pandemic causing uncertainties both in local and global market conditions, some industry watchers suggested increasing the frequency of property valuation reviews for listed companies, reported The Business Times (BT).
The frequency of reviews, however, should be balanced against the need to adopt a long-term outlook.
CapitaLand shares dropped by as much as 5% on Monday (25 January) as the market tried to price in a profit warning. Last week, the property giant warned of losses for its 2020 financial year due to impairments and revaluations. CapitaLand expects fair value losses to stand at $1.55 billion to $1.65 billion, or about 4.7% of its investment properties portfolio value.
Other property companies may also incur similar losses and make similar announcements, leading to the question on how much advance warning should companies provide to shareholders, said BT.
Listed companies usually value their real estate assets annually, but dynamic conditions may warrant more frequent reviews, said industry players.
“During the early onset of the COVID-19 outbreak, we have seen companies requesting for more frequent valuation updates on a monthly, quarterly and half-yearly basis, so as to keep their investors and Board up to date on their asset values in line with market movement,” said Png Poh Soon, Head of Valuation and Advisory Services for Singapore at CBRE as quoted by BT.
Colliers International’s Executive Director and Head of Valuation and Advisory Services Tan Keng Chiam said it is advisable for companies to conduct more regular review and update of valuations, such as quarterly or half yearly, during rapidly changing market conditions and when the value of the assets have significant impact on the financial status of the company.
RHB analyst Vijay Natarajan noted that it makes sense for companies to make disclosures once they expect material impacts on key assets, after discussions with valuers.
However, he does not see a necessity for an increase in frequency of a full set of valuations.
He believes that frequent valuation exercises may not be ideal considering the potential volatility to the market and stock price.
“Doing a full set of valuations, I think, is not needed on a quarterly basis,” said Natarajan as quoted by BT. He noted that the uncertainty in COVID-19 pandemic’s progress in 2020 as well as the changing outlook on business conditions from quarter to quarter may have resulted in volatility and fluctuations.
BDO Audit Partner and Head of Audit & Assurance Ng Kian Hui also warned against a short-term perspective on valuation since it should reflect future earnings potential instead of adjustments for events that may not affect the business permanently.
Although more frequent disclosures may be beneficial for investors, it would not be realistic to expect full valuation reports every quarter, said Ng.
The management could instead conduct a more robust assessment of the crisis’ impact on individual assets, rather than taking a macroeconomic view on how valuations may be affected.
For this year, Natarajan expects valuations to slightly improve as the economy picks up.
“I would say that 2020 is a one-off year,” he said. “I wouldn’t be overly concerned (over property revaluations) unless the outlook for the world changes dramatically.”
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