GASB 2015 Webinar Presentation - Final

Date: July 8, 2015Time: 12 p.m. CTD ti 120 i tDuration: 120 minutes

GASB Final Statement on Fair Value Measurement and ApplicationMeasurement and Application

Presenters:

Justin Glasser, ASA, MAI, MRICSSenior Director

Adriane Bookwalter, CPADirector

Cushman & Wakefield

Deborah BeamsPractice Fellow

Cushman & Wakefield

Moderator:

R b t E Di t i h MAI CRE CCIM MRICSGASB Governmental Accounting Standards Board

Marius Andreasen, CFA, MAISenior Managing Director

Robert E. Dietrich, MAI, CRE, CCIM MRICSSenior Valuation Services Director Colliers International

Senior Managing DirectorCushman & Wakefield

Using the Technology

Use Telephone or Mic & Speakers for AudioOpen or close panel

You are muted

Select how you are listening to the Webinar

Maximize or minimize screen

Raise your handRaise your hand

Submit your question

Slide 2

Using the Technology, cont.

Adjust Screen in GoToWebinar Viewer

Slide 3

Getting Started

120 minutesQuestions will be answered at the end of

the webinar. Use the Questions box to submit a question.Webinar handout(s) can be downloaded ( )

from the resource page and the link is included in your connection e-mailincluded in your connection e mail. Tech Issues: GoToWebinar (800) 263-6317

Slide 4

Disclaimers

The views and materials presented in this webinar represent only the opinions and views of the presenters and/or speakers. Although the materials may have been reviewed by p p g y ymembers of the Appraisal Institute, the views and opinions expressed herein are not endorsed or approved by the Appraisal Institute as policy unless adopted by the Board of Directors pursuant to the Bylaws of the Appraisal Institute. While substantial care has been taken to provide accurate and current data and information, the Appraisal Institute does not p , ppwarrant the accuracy or timeliness of the data and information contained herein. Further, any principles and conclusions presented in this webinar are subject to court decisions and to local, state, and federal laws and regulations and any revisions of such laws and regulations.g

This webinar is presented for educational and informational purposes only with the understanding that the Appraisal Institute is not engaged in rendering legal, accounting, or other professional advice or services. Nothing in these materials is to be construed as the ff i f h d i i If t d i i i d doffering of such advice or services. If expert advice or services are required, readers are

responsible for obtaining such advice or services from appropriate professionals.

Slide 5

Slide 6

Slide 7

Robert E. Dietrich, MAI CRE CCIM MRICS

Professional and Industry ExperienceRobert E. Dietrich is the Director of the Specialty Valuation Practice of Colliers International Valuation & Advisory Services, and is located in the Newport Beach office.

Robert E. Dietrich,MAI CRE CCIM MRICS

Mr. Dietrich has performed valuations involving a wide variety of property types ranging from high rise offices to farms and ranches. He has appraised special purpose properties such as port facilities, ski resorts, and others. Areas of specialization include planned developments, subdivisions, leasehold/leased fee analyses, and project modeling. He has appraised all types of commercial, industrial, and multi‐family properties in the Western United States for more than 30 yearsMAI, CRE, CCIM, MRICS

Senior Director

Colliers International865 S. Figueroa St.Suite 3500Los Angeles, CA 90017

properties in the Western United States for more than 30 years.Mr. Dietrich has been designated as an expert in real estate valuation issues in courts and has testified on over 60 occasions in State Superior Court, federal court, Bankruptcy Court, US Tax Court, JAMS, state and county assessment appeals boards, and others. He was selected as an independent arbitrator and has been approved as a commercial appraiser by several nationally chartered banks and government agenciesEducation, Licenses &

Certifications B.S. University of Arizona Member, Board of Directors of the Appraisal

Institute (2008 – 2012) President, Southern California Chapter of the

Appraisal Institute (2014)

commercial appraiser by several nationally chartered banks and government agencies.

Representative Clients Latham & Watkins

Wells Fargo Bank

Representative Complex Assignments Compensation for inverse taking of water

Rental value for a recreation lake in Southern California

President, Southern California CCIM Chapter (1997)

Volunteer of Distinction Award, Appraisal Institute (July 2012)

MAI designation - Appraisal Institute CRE designation – Counselors of Real Estate CCIM designation – CCIM Institute MRICS designation – Royal Institution of Chartered

S

American Ag Credit

Metropolitan Water District

Elsinore Valley Municipal Water District

AEGON USA Realty Advisors

William Lyon Homes Company

Valuation of largest development company in California

Valuation of largest land holding and development in Bermuda

Valuation of 2.2 million acre cattle ranch

Valuation of Queen Mary Seaport development

Valuation of highest grossing retail complex in US

Slide 8

Surveyors Member – Lambda Alpha Licensed Appraiser (15 States including California,

Arizona, and Nevada)

Tribune Company Valuation of 18,000 acres of almond orchards in Central Valley

Deborah Beams, GASB Practice Fellow

Professional and Industry ExperienceDeborah Beams joined the GASB as a Practice Fellow in November 2012. She is on rotation from the Dallas office of Grant Thornton LLP, where she is an Experienced Manager in the Audit practice. She has been with Grant Thornton for ten years, during which time she primarily served clients in the state and local government and not for profit industries Deborah was on the GASB project team that led to the

Deborah Beams, CPAPractice Fellow

local government and not-for-profit industries. Deborah was on the GASB project team that led to the issuance of Statement No. 72, Fair Value Measurement and Application. She currently leads the GASB projects on Leases and External Investment Pools.

Governmental Accounting Standards Board401 Merritt 7, P.O. Box 5116Norwalk, CT 06856

T +1 (203) [email protected]

Education Licenses & CertificationsEducation, Licenses & Certifications Certified Public Accountant, State of Texas BS and MS in Accounting from University of North Texas Member, American Institute of Certified Public Accountants Member, Texas Society of Certified Public Accountants

Slide 9

Marius Andreasen, CFA, MAI

Mr. Andreasen is a Senior Managing Director and Americas Practice Leader of the Financial ReportingPractice within the Valuation & Advisory (V&A) Group at Cushman & Wakefield. The FinancialReporting Practice is a specialty within V&A focusing on corporate engagements involving real estaterelated consulting services with a primary focus on valuation for financial reporting fair valuerelated consulting services, with a primary focus on valuation for financial reporting, fair valuemeasurement (ASC Topic 820) and purchase price allocations (ASC Topic 805), intangible real estateassets, fractional/minority interests in real estate holding companies and partnerships, real estate-related going concern enterprises and real estate investment trusts (REITs), and valuations ofinvestments across the capital stack including, equity, preferred equity, and mezzanine and seniordebt.

Mr Andreasen has worked on a national and international level with services provided from coast toMarius W. Andreasen, MAI, CFA

Mr. Andreasen has worked on a national and international level, with services provided from coast tocoast in the United States, while also performing real estate valuations and consultations withinMexico, Canada, India, Ireland, Aruba, and the Commonwealth of the Bahamas. These valuations andconsultations have been on a variety of assets, including office buildings, regional malls, neighborhoodand community shopping centers, hotels and destination resort properties, golf courses, conveniencestores and gas stations, apartment complexes, transportation rights-of-way, solar photovoltaic plants,data centers, hospitals, subdivision developments, and a variety of industrial facilities including singleand multi-tenant distribution heavy manufacturing research & development facilities and cold-storage

Senior Managing Director &Americas Practice Leader, Financial Reporting

Cushman & Wakefield of Illinois, Inc.200 South Wacker Drive, Suite 2800Chicago, Illinois 60606

T +1 (312) 470-1881M +1 (847) 722 8992 and multi tenant distribution, heavy manufacturing, research & development facilities, and cold storage

warehouses. These studies have been in conjunction with real estate portfolio and joint-venturevaluations, merger and acquisition due diligence support, asset impairment studies, internal planning,highest and best use analysis, financing, litigation support, sale-leasebacks, fresh start accounting, andestate planning.

Over the past decade Mr. Andreasen has provided valuation and consulting services on more than $60billion in transactional value, having performed numerous studies assisting public and private REIT

M +1 (847) [email protected]

Functions and Specializations Valuation Buy-Side Advisory Financial Reporting Litigation Support Fractional Interest Valuations Debt Valuations , g p g p p

clients in the application of FASB Statement No. 141R / ASC Topic 805 (Business Combinations),FASB Statement No. 159 / ASC Topic 820 (Fair Value Measurements and Disclosures) and ASC Topic852 (Reorganizations). Furthermore, Mr. Andreasen has extensive experience advising some of thelargest U.S. pension funds with regard to their real estate and infrastructure fund investments. Overthe past several years Mr. Andreasen has valued equity interests in funds which, in aggregate, totalmore than $7 billion in assets under management, and span across all property types and investmentstrategies, ranging from stabilized core assets to Greenfield infrastructure investments.

Education, Licenses, Certifications B.S. in Finance, University of Illinois at Urbana Champaign Member, Appraisal Institute, MAI Designation #12432 Chartered Financial Analyst (CFA) Member of the CFA Society of Chicago International Valuation Standards Council (IVSC) Cushman & Wakefield Leadership Council, Board of Advisors Guest lecturer, University of Illinois at Urbana-Champaign Appraisal Institute Government Relations Committee 2013-Present Certified General Real Estate Appraiser in numerous states

Slide 10

g g gpp

Justin Glasser, ASA, MAI, MRICS

Professional and Industry ExperienceJustin Glasser is a Senior Director and West Region Leader of the Financial Reporting Practice within the Valuation & Advisory (V&A) Group at Cushman & Wakefield. The Financial Reporting Practice is a specialty practice within V&A focusing on engagements involving real estate related consulting services, with a primary focus on valuation for financial reporting (GAAP & IFRS) including fair value

Justin R. Glasser, ASA, MAI, MRICSSenior Director & West Region LeaderFi i l R ti

with a primary focus on valuation for financial reporting (GAAP & IFRS), including fair value measurements (ASC Topic 820), purchase price allocations (ASC Topic 805), capital leases (ASC Topic 840), and reorganizations (ASC Topic 852).

Mr. Glasser joined the San Diego office of Cushman & Wakefield in 2015. Prior to joining Cushman & Wakefield, Mr. Glasser held a senior management position in the real estate valuation practice of KPMG LLP, where he consulted with real estate clients in a variety of industries, including hospitality, healthcare, Financial Reporting

Cushman & Wakefield Western, Inc. 4747 Executive Drive, 9th FloorSan Diego, CA 92121

T +1 (858) 558 5687M +1 (619) 723 [email protected]

, y , g p y, ,retail, residential development, manufacturing, and financial services.

Mr. Glasser has provided tax consulting and transfer pricing services to public and private REITs with respect to structuring real property leases for qualified lodging and healthcare properties. He has prepared transfer pricing planning and documentation studies to determine the range of fair market lease payments for taxable REIT subsidiaries (TRS). He has also provided guidance on structuring TRS leases.

Function and Specialization Financial Reporting Litigation Support

Education, Licenses & Certifications Masters of Science in Real Estate, University of San Diego Alpha Sigma Gamma Award Recipient B.A. in Economics, University of California at San Diego Member, Appraisal Institute, MAI #497209

Mr. Glasser was a contributing editor to The Appraisal of Real Estate, 14th Edition and has presented to the Appraisal Institute on Purchase Price Allocations for Financial Reporting & Tax and International Valuation Standards. Speaking engagements also include presentations on valuation of real property for tax purposes to the Society of Auditors/Appraisers at their annual conference September 2014 and to the International Association of Assessing Officers Fall Appraisal Seminar in October 2014.

Member, American Society of Appraisers, ASA # 106380 Royal Institution of Chartered Surveyors, MRICS #6504539 State of California Real Estate Appraisers License # AG045014 State of Colorado Real Estate Appraiser License #CG100042083 State of Florida Real Estate Appraisers License # RZ3544 State of Hawaii Real Estate Appraisers License # CGA1038 State of Maine Real Estate Appraisers License # CG3337 State of Michigan Real Estate Appraisers License # 31944 State of Montana RE Appraisers License # REA-RAG-LIC-6037 State of Oregon Real Estate Appraisers License # C001151 State of Pennsylvania Real Estate Appraisers License # GA004001

Representative Clients Ashford Hospitality Trust

CBRE Global Investors

DiamondRock Hospitality Co.

Dubai World

Pebblebrook Hotel Trust

Terreno Realty Corp.

The Blackstone Group

Tropicana Entertainment

Harrah’s Entertainment Inc

Hilton Hotels Corporation

Hyatt Corporation

Luxury Resorts & Hotels

Slide 11

State o e sy a a ea state pp a se s ce se # G 00 00 State of Texas Real Estate Appraisers License # 1380207 State of Utah Real Estate Appraisers License # 8548636-CG00 State of Virginia Real Estate Appraisers License # 4001017045 State of Washington Real Estate Appraisers License # 1102240

Dubai World

EPR Properties

GEM Realty Capital, Inc.

p

UBS Realty Investors, LLC

Westport Capital Partners LLC

y

Marriott Vacation Worldwide Corp.

MGM Mirage

Adriane Bookwalter, CPA

Professional and Industry ExperienceMs. Bookwalter is a Director of Financial Reporting within the Valuation & Advisory (V&A) Group at Cushman & Wakefield. She specializes in a variety of engagements including debt valuation, ASC 805 financial reporting, acquisition due diligence and lease operating expense audits. These projects include all property types located throughout the U S and internationally

Adriane F Bookwalter, CPADirector, Financial Reporting

all property types located throughout the U.S. and internationally.

Prior to joining C&W, Ms. Bookwalter worked at PricewaterhouseCoopers, where she also focused on commercial real estate consulting within an advisory group called Financial Instruments, Structured Products, and Real Estate. Her clients included national/regional banks, REITS, hedge funds, insurance companies, Fortune 500 companies, etc. Below is a more detailed summary of Adriane’s experience throughout her career:

Cushman & Wakefield of Illinois, Inc.200 South Wacker Drive, Suite 2800Chicago, Illinois 60606

T +1 (312) [email protected]

Function and Specialization

g

Responsible for overseeing acquisition due diligence investigations for retail, hotel, apartment and office properties.

Valued commercial real estate loan pools related to the acquisition and recapitalization of banks. Modeled future cash flows based on market, industry, and property level analysis.

A l d f i l t t d b dit li t f it d d bt i t t fFunction and Specialization Financial Reporting Due Diligence Debt Valuation Operating Expense Audit Valuation

Education, Licenses & Certifications B.S. in Business, Indiana University - Bloomington (major:

Fi R l E t t )

Analyzed fair value measurements reported by audit clients for equity and debt investments for quarterly and year-end financial statement purposes.

Valued real property assets and liabilities for purchase price allocations in conjunction with mergers and acquisitions for a broad range of clients.

Analyzed distressed commercial loan portfolios to assist clients with strategic asset management and disposition strategies Performed stratification loan underwriting and valuation for variousFinance-Real Estate)

Licensed Certified Public Accountant (CPA) – State of Illinois Certified Commercial Investor Member (CCIM) Candidate –

Pending Credential Top Secret Government Security Clearance

and disposition strategies. Performed stratification, loan underwriting, and valuation for various possible scenarios.

Performed credit risk reviews for the purposes of determining appropriate loan risk ratings and estimating loan specific credit losses.

Managed the operations of the lease operating expense audits for PwC’s leased office space located throughout the United States, which includes over 5.5 million square feet. Additionally,

Slide 12

performed lease operating expense audits for a variety of clients, which resulted in savings recovered.

Disclaimer

The views and materials presented in this webinar represent only the opinions and views of the presenters and/or speakers. Although the materials may have been reviewed by members of the Appraisal Institute, the views and opinions expressed herein are not endorsed or approved by the Appraisal Institute asexpressed herein are not endorsed or approved by the Appraisal Institute as policy unless adopted by the Board of Directors pursuant to the Bylaws of the Appraisal Institute. While substantial care has been taken to provide accurate and current data and information, the Appraisal Institute does not warrant the accuracy or timeliness of the data and information contained herein Furtheraccuracy or timeliness of the data and information contained herein. Further, any principles and conclusions presented in this webinar are subject to court decisions and to local, state, and federal laws and regulations and any revisions of such laws and regulations.

This webinar is presented for educational and informational purposes only with the understanding that the Appraisal Institute is not engaged in rendering legal, accounting, or other professional advice or services. Nothing in these materials is to be construed as the offering of such advice or services. If expert advice or

Slide 13

services are required, readers are responsible for obtaining such advice or services from appropriate professionals.


Justin Glasser, ASA, MAI, MRICS

Slide 14

Section Overview

GASB FrameworkGASB Framework

GASB Statement 72

Practical Applications

Q&A

Slide 15

GASB Framework

Financial Accounting Foundation (FAF)

Financial Accounting Foundation

(FAF)

Financial Accounting Standards Board

Financial Accounting Standards Advisory

Governmental Accounting Standards

Governmental Accounting Standards Private Company

CouncilStandards Board(FASB)

Council(FASAC)

Board(GASB)

Advisory Council(GASAC)

Council(PCC)

Slide 16

GASB Framework

Financial Accounting Foundation (FAF)Organization


(FAF)






Council(FASAC)

Board(GASB)


Council(PCC)

FAF Organization Independent, private-sector organization est. 1972

Slide 17

GASB Framework

Financial Accounting Foundation (FAF)Responsibilities


(FAF)






Council(FASAC)

Board(GASB)


Council(PCC)

FAF Primary Responsibilities FAF Primary Responsibilities Oversees, administers, and finances its standard setting

boards, the Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board

Slide 18

and the Governmental Accounting Standards Board (GASB), and their Advisory Councils.

GASB Framework

Financial Accounting Standards Board(FASB)


(FAF)






Council(FASAC)

Board(GASB)


Council(PCC)

FASB est. 1973 Primary responsibilities are to establish and improve

standards for financial reporting for nongovernmental

Slide 19

standards for financial reporting for nongovernmental entities. The FASAC advises FASB on technical issues.

GASB Framework

Governmental Accounting Standards Board(GASB)


(FAF)






yCouncil(FASAC)

gBoard(GASB)

gAdvisory Council

(GASAC)

Council(PCC)

GASB est. 1984 Primary role is "to establish and improve standards of state

and local governmental accounting and financial reporting that

Slide 20

and local governmental accounting and financial reporting that will…result in useful information for users of financial reports”

GASB Framework

Private Company Council (PCC)


(FAF)






Council(FASAC)

Board(GASB)


Council(PCC)

PCC est. 2012 Primary role is "address the needs of users of private

company financial statements”

Slide 21

company financial statements

GASB Framework

Intended Use

Financial Statements allow Users to Assess the finances of the government in its entirety Determine whether financial position improved or deterioratedDetermine whether financial position improved or deteriorated Evaluate whether current-year revenues were sufficient to pay

for current-year services See the cost of providing services See the cost of providing services See how programs are financed—through user fees and other

program revenues versus general tax revenuesU d t d th t t t hi h th t h i t d Understand the extent to which the government has invested in capital assets, including roads, bridges, and other infrastructure assets

Slide 22

GASB Framework

GASB Users

Users of Financial Statements pension plans endowments

buy- and sell-side analysts rating agenciesendowments

public universities research institutes

l i l t d th i t ff

rating agencies bond holders general public

iti d t legislators and their staff municipal bond insurers

citizen and taxpayer groups community organizations

Slide 23

GASB Framework

GASB Investments

Examples of Investments Requiring Valuations Real estate meeting the definition of an investment asset Land and land rights classified as investments, including oil g , g

and gas properties or natural resources classified as investments

Invested securities lending collateral Alternative investments reported by endowments Alternative investments reported by endowments Equity securities (including unit investment trusts and closed-end mutual funds), stock

warrants and stock rights that do not have readily determinable fair values Intangible assets that meet the proposed definition of investments Co mingled investment pools that are not government sponsored Co-mingled investment pools that are not government sponsored Life settlement contracts—when there is no insurable interest the purpose of the

instrument is solely to generate cash and should be measured at fair value Debt securities reported as assets, regardless of whether they meet the definition of

an investment or they were acquired or originated by the government

Slide 24

an investment or they were acquired or originated by the government Securitized debt obligations

GASB Framework

GASB Statements

Statement No. 34, Basic Financial Statements For State and Local Governments (Jun 1999) Established basic financial statements and requiredEstablished basic financial statements and required

supplementary information Statement No. 52, Land & Other Real Estate Held as

Investments by Endowments (Nov 2007)Investments by Endowments (Nov 2007) Fair Value Requirements for Endowments & Governments

Statement No. 72, Fair Value Measurement and li i ( b 201 )Application (Feb 2015)

Definition of Fair Value; Measurement; Application; and Disclosures

Slide 25

Disclaimers




Slide 26


Deborah Beams, GASB Practice Fellow

Slide 27

Section Overview


GASB Statement 72


Q&A

Slide 28

GASB Statement 72

Highlights

Statement provides further guidance on fair value measurements Basis is FASB Topic 820, “Fair Value Measurement”

Scope is not limited to investmentsScope is not limited to investments Certain assets and liabilities measured at fair value Includes derivatives

T t St t t Two-part Statement Measurement Application

Objective of the Statement Increased comparability between governments, greater

accountability, and a better measure of the resources available to

Slide 29

accountability, and a better measure of the resources available to governments

GASB Statement 72

Key Ideas

Definition of fair value The price that would be received to sell an asset or paid to transfer

a liability in an orderly transaction between market participants at the measurement date.

• Apply to assets and liabilities An exit price

Other characteristics of fair value measurement Market-based Based on a government’s principal or most advantageous market Based on a government s principal or most advantageous market

Slide 30

GASB Statement 72

Key Ideas

Unit of Account Stand-alone asset or liability or a group of assets or liabilities Determined by the standard that requires fair value measurementy q

Market participants Fair value measurement determined using the assumptions market

participants would use in pricing the asset or liabilityparticipants would use in pricing the asset or liability Price

Not adjusted for transaction costs When market information is not available

Estimate the price at which an orderly transaction would take place between market participants at that date (for example, a valuation

Slide 31

technique)

GASB Statement 72

Key Ideas

Nonfinancial assets at fair value Value at the asset’s highest and best use

• A government’s current use is presumed to be the highest and best use, unless otherwise suggested

• May be in combination with other assets and liabilities or on a stand-alone basis

Fair value is an accounting estimate

Slide 32

GASB Statement 72

Valuation Techniques

Apply valuation technique(s) that best represent(s) fair value in the circumstances Market approach – Using prices and other relevant information

generated by market transactions involving identical or similar assets and / or liabilities

Cost approach – Amount that would be required currently to replace the service capacity of an asset

Income approach – Converts expected future amounts to a single current amount (i.e. present value techniques, option-pricing models, etc.)

Slide 33

GASB Statement 72

Inputs to Valuation Techniques

Maximize use of relevant observable inputs and minimize use of unobservable inputs (see next slide)

Inputs should be consistent with the characteristics of the asset por liability Sometimes includes an adjustment, a premium or discount Do not include premium or discount that is inconsistent with the unit Do not include premium or discount that is inconsistent with the unit

of account established for the asset / liability Do not include premiums and discounts that reflect size as a

characteristic of a government’s holdingscharacteristic of a government s holdings• For instance, blockage factors that adjusts the quoted price of an asset

or liability based on the market’s trading volume

Slide 34

GASB Statement 72

Fair Value Hierarchy

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities, most reliable

Level 2: quoted prices for similar assets or liabilities, quoted q p , qprices for identical or similar assets or liabilities in markets that are not active, or other than quoted prices that are observable

Level 3: unobservable inputs least reliable Level 3: unobservable inputs, least reliable Inputs categorized within different levels of the hierarchy

Fair value measurement is categorized in its entirety in the same l l th l t (i t f li bilit ) l l i t th t ilevel as the lowest (in terms of reliability) level input that is significant to the entire measurement

Slide 35

GASB Statement 72

When Buyers Disappear

Measuring fair value when volume or level of activity for an asset or a liability has significantly decreased If it is determined that a transaction or a quoted price does not

represent fair value, an adjustment would be necessary Risk adjustments

• Includes a risk premium reflecting amount that market participants p g p pwould demand as compensation for uncertainty

• Reflects an orderly transaction between market participants at the measurement date under current market conditions

Change in valuation technique(s) may be appropriate

Slide 36

GASB Statement 72

Transactions That Are Not Orderly

More difficult to tell when there is a significant decrease in the volume or level of activity for the asset or liability

Assessment should be performed taking into account:p g Market exposure and marketing period Whether the sale was distressed or forced The transaction price compared to other recent similar transactions The transaction price compared to other recent similar transactions

If the transaction is deemed to be not orderly, little weight should be placed on the transaction price

Quoted prices provided by third parties may be used if developed in accordance with this standard

Slide 37

GASB Statement 72

Investments That Calculate NAV

Net asset value per share (or its equivalent) may be used as a practical expedient to estimate fair value Adjustment to NAV per share amount may be necessary to be

consistent with measurement principles May be applied on an investment-by-investment basis but must be

applied consistently to fair value measurement of the government’s entire position in a particular investment

If sale of a portion of an investment at an amount different from net asset value per share is probable, the practical o et asset a ue pe s a e s p obab e, t e p act caexpedient may not be applied

Slide 38

GASB Statement 72

Application of Fair Value

Definition of an investment A security or other asset that a government holds primarily for the

purpose of income or profit and with a present service capacity that is based solely on its ability to generate cash or to be sold to generate cash

Investment asset Present service capacity

• Refers to a government’s mission to provide services Held primarily for income or profitHeld primarily for income or profit

• Acquired first and foremost for future income and profit

Slide 39

GASB Statement 72


Measured at fair value Assets that meet the definition of an investment generally should be

measured at fair value Examples, if they meet the definition of an investment

Land and land rights Real estate Real estate Oil and gas property Intangible assets

N l Natural resource assets Generally will be real property held by pension plans and

endowments as investments

Slide 40

GASB Statement 72


Additional investment types that would be measured at fair value Investments that are already measured at fair value Alternative investments Equity securities (including unit investment trusts and closed-end

mutual funds), stock warrants, and stock rights that do not have readily determinable fair valuesy

• Provided such investment-types are not reported according to the equity method

Slide 41

GASB Statement 72

DisclosuresClassify Investments by Level of Inputs

Level12/31/2015 1 2 3

Debt securitiesU.S. Treasuries $85 $85 Commercial mortgage backed securities 50 $50Commercial mortgage backed securities 50 $50 Collateralized debt obligations 35 35Residential mortgage backed securities 149 $24 125Corporate bonds 93 9 84Corporate bonds 93 9 84Total $412 $94 $108 $210

Slide 42

GASB Statement 72

Disclosures

The following information for each class or type of assets and/or liabilities measured at fair value should be disclosed: The fair value measurement at the end of the reporting period and

for nonrecurring fair value measurements, the reasons for the measurement

The level of the fair value hierarchy within which the fair value measurements are categorized in their entirety (Level 1, 2, or 3)

A description of the valuation technique(s)

Slide 43

GASB Statement 72

Disclosures for Investments in CertainEntities that Calculate NAV

Information that helps users of its financial statements to understand the nature and risks of the investmentsunderstand the nature and risks of the investments

Information on whether the investments are probable of being sold at amounts different from net asset value per share (or its equivalent)share (or its equivalent)

Fair value measurement of the investments in the class and a description of the significant investment strategies of the investee(s) in the class

Slide 44

GASB Statement 72


If distributions are received through liquidation of the underlying assets of investees, an estimate of the period of time over which , punderlying assets are expected to be liquidated

Amount of unfunded commitments related to investments in the classclass

General description of the terms and conditions upon which the government may redeem investments in the classh h h h d bl The circumstances in which an otherwise redeemable investment

in the class might not be redeemable; or if the investment is currently restricted, when the restriction lapses

Slide 45

GASB Statement 72


Any other significant restriction on the ability to sell investments in the class at the measurement dateinvestments in the class at the measurement date

If it is probable that the investment will be sold at an amount different from NAV per share

Di l f th t t l f i l f ll i t t th t t th Disclosure of the total fair value of all investments that meet the above and any remaining actions required to complete the sale

If individual investments to be sold have not been identified, di l f l t ll d i i ti i d tdisclosure of plans to sell and any remaining actions required to complete the sale

Slide 46

Disclaimers




Slide 47


Marius Andreasen, CFA, MAI

Slide 48

Section Overview


GASB Statement 72


Q&A

Slide 49


Illustrations

Capital Asset or Investment Multi-use or Mixed-use Assets Natural ResourcesNatural Resources Highest and Best Use Valuation Approaches & Techniques Discount Rate Transaction Costs Scenario 1 Scenario 1 Scenario 2 Scenario 3

Slide 50


Capital Asset or Investment

Some tangible assets can be classified as either a capital asset or an investment. Different governments holding similar assets may arrive

at different classifications based on the usage of the asset and the purpose of the government.• Warehouse used by a public transit district to store vehicles

and equipment (Capital Asset)• Warehouse held by a pension plan as income producing

property that is rented to a private party (Investment)

Slide 51


Mixed-use or Multi-use Asset

Classification of Mixed-use Assets The City rents retail space on the first floor of a

government building to generate rental income and occupies the remainder of the building for its day-to-day operations.• The City must determine at the time of initial recognition

h th th it f t i t (th ti b ildi )whether the unit of account is one asset (the entire building) or two assets (the rental space and the government space).

• The City must then determine classification (capital asset or investment) of the unit(s) of accountinvestment) of the unit(s) of account.

• The classification must continue for financial reporting purposes even if the use changes sometime in the future.

Slide 52


Natural Resource Assets

Classification of Natural Resources Natural resources evaluated based on the unit of account.

• Current accounting standards do not address unit account to be applied to natural resources

• Based on professional judgment• The Board acknowledges that valuation specialists are

often required to value natural resources

Slide 53


Highest and Best Use (H&BU)

A real property investment should be evaluated with its current zoning. Board acknowledges governments are able to affect

H&BU by changing what is legally permissible• A government may hold industrial land that could be

rezoned for multi-family housing• Presumption is a government’s use of real property as it is

currently zoned is its H&BU H&BU of real property may provide maximum value to

k t ti i t t d l t imarket participants as a stand-alone asset, in combination with other asset groups, or in combination with other assets and liabilities.

Slide 54


Valuation Approaches and Techniques

There are three acceptable approaches to measure fair value: market, cost, and income. A valuation technique is a specific method or combination

of methods used to determine the value of an asset Valuation approaches allow for many possible valuation

techniques If transaction price is consistent with fair value at initial

recognition and a valuation technique will be used to measure fair value in subsequent periods, then the valuation technique should be used to test the purchase price in order to calibrate the technique.

Slide 55


Discount Rate for Present Value Calculation The proper discount rate for a present value calculation

is the rate that would be used by market participants, as with any input to a fair value measurement.

T ti C tTransaction Costs The price used in a fair value measurement are not

adjusted for transaction costs* however transactionadjusted for transaction costs*, however transaction costs should be considered to determine the most advantageous market; the most advantageous market is the one that results in the greatest net benefit to thethe one that results in the greatest net benefit to the participant.

When utilizing the DCF method of the income approach

Slide 56

to derive fair value, transaction costs are applied to the reversion.

Disclaimers




Slide 57


Adriane Bookwalter, CPA

Slide 58


Scenario 1

An endowment acquired a warehouse building 12 months ago. The warehouse is 100 percent leased to a third party under a long term lease which was signed prior to the acquisition and the rent is consistent with asking rents for other buildings within the same industrial park.

Slide 59


Scenario 1

Valuation Approach – Income Approachpp pp

SUMMARY OF HYPOTHETICAL REVENUE AND EXPENSES

Annual Annual TotalMarket Market Market

TenantProperty

Size (GLA) Rent/Sq.Ft. Reimb $/SF RentSuite A 250,000 $ 12.00 $6.60 $ 4,650,553

Annual $/SF % of EGITOTAL POTENTIAL GROSS REVENUE $ 4,650,553 $18.60

Vacancy and Collection Loss @ 5.0% 232,528 0.93 EFFECTIVE GROSS REVENUE $ 4,418,026 $17.67 1.00%OPERATING EXPENSES

CAM $ 625,000 $2.50 14.15%Insurance 25,553 0.10 0.58%Real Estate Taxes 1,000,000 4.00 22.63%

TOTAL EXPENSES $ 1,650,553 $6.60 37.36%NET OPERATING INCOME $ 2,767,472 $11.07 62.64%

Overall Capitalization Rate 7.50% Value $/SF NRA$ $

Slide 60

$ 36,899,631 $147.60 Rounded $ 36,900,000 $147.60


Scenario 1

Valuation Approach – Income Approach (level 3 inputs)pp pp ( p )

SUMMARY OF HYPOTHETICAL REVENUE AND EXPENSES

Annual Annual TotalMarket Market Market

TenantProperty

Size (GLA) Rent/Sq.Ft. Reimb $/SF RentSuite A 250,000 $ 12.00 $6.60 $ 4,650,553

Annual $/SF % of EGITOTAL POTENTIAL GROSS REVENUE $ 4,650,553 $18.60

Vacancy and Collection Loss @ 5.0% 232,528 0.93 EFFECTIVE GROSS REVENUE $ 4,418,026 $17.67 1.00%OPERATING EXPENSES

CAM $ 625,000 $2.50 14.15%Insurance 25,553 0.10 0.58%Real Estate Taxes 1,000,000 4.00 22.63%

TOTAL EXPENSES $ 1,650,553 $6.60 37.36%NET OPERATING INCOME $ 2,767,472 $11.07 62.64%

Overall Capitalization Rate 7.50% Value $/SF NRA$ $

Slide 61

$ 36,899,631 $147.60 Rounded $ 36,900,000 $147.60


Scenario 1

An endowment acquired a warehouse building 12 months ago. The warehouse is 100 percent leased to a third party under a long term lease which was signed prior to the acquisition and the rent is consistent with asking rents for other buildings within the same industrial park.

Other warehouses within the same industrial park have similar utility, including lease terms and tenant profiles, and four of them recently sold in an active market.and four of them recently sold in an active market.

Slide 62


Scenario 1

Valuation Approach – Market Approachpp pp

SUMMARY OF IMPROVED SALESPROPERTY INFORMATION TRANSACTION INFORMATION

No. LocationNet Rentable

Area (sf) Sale Date Sale Price $/SF NRA COMMENTSS Subject Property 250,000

1 Same Industrial Park 260,000 1 Month Prior $39,000,000 $150 Directly West of Subject Property. Similar utility.

2 Same Industrial Park 265,000 2 Months Prior $39,750,000 $150 Directly East of Subject Property. Similar utility.

3 Same Industrial Park 235,000 3 Months Prior $35,250,000 $150 Directly North of Subject Property. Similar utility.

4 Same Industrial Park 240,000 2 Months Prior $36,000,000 $150 Directly South of Subject Property. Similar utility.

STATISTICS

Low 235,000 Current $35,250,000 $150.00High 250,000 Current $37,500,000 $150.00Average 265,000 Current $39,750,000 $150.00

Slide 63


Scenario 1

Valuation Approach – Market Approach (level 2 inputs)pp pp ( p )

SUMMARY OF IMPROVED SALESPROPERTY INFORMATION TRANSACTION INFORMATION

No. LocationNet Rentable

Area (sf) Sale Date Sale Price $/SF NRA COMMENTSS Subject Property 250,000

1 Same Industrial Park 260,000 1 Month Prior $39,000,000 $150 Directly West of Subject Property. Similar utility.

2 Same Industrial Park 265,000 2 Months Prior $39,750,000 $150 Directly East of Subject Property. Similar utility.

3 Same Industrial Park 235,000 3 Months Prior $35,250,000 $150 Directly North of Subject Property. Similar utility.

4 Same Industrial Park 240,000 2 Months Prior $36,000,000 $150 Directly South of Subject Property. Similar utility.

STATISTICS

Low 235,000 Current $35,250,000 $150.00High 250,000 Current $37,500,000 $150.00Average 265,000 Current $39,750,000 $150.00

Slide 64


Scenario 2

The City leases an industrial garage as an investment to a private contractor which historically provided services to the City (e.g., street cleaning). The 20-year lease is nearing the end of its term (6 months), but the tenant would like to renew the lease at current market rents for industrial space. Surrounding uses are primarily residential and residential demand within the City is extremely high due to the limited availability infill locations. What is the highest and best use of the site

understanding the site is currently zoned Light Industrial (LI-1)?

Slide 65

( )


Scenario 2

The City allows for the lease to expire and the building is now vacant. The property is no longer generating income for the City and the improvements have fully depreciated. Surrounding uses are primarily residential and residential demand within the City is extremely high due to the limited availability infill locations. Is the real property (effectively land) considered an asset

or an investment? What is the highest and best use?g

Slide 66


Scenario 2

The City Council demolishes the improvements and rezones the site for high density residential use (R-6). There is demand by private investors to develop a luxury for-sale housing. In order to meet demand for affordable housing, the City Council votes to construct an affordable housing project (owned and operated by the City). What is the highest and best use of the land (as vacant)? Once the affordable housing project is constructed, will itOnce the affordable housing project is constructed, will it

be classified as an asset or investment?

Slide 67

Section Overview


GASB Statement 72


Q&A

Slide 68

Q&A

Use the Questions box to submit a question.

Submit yourSubmit your question

Slide 69

Webinar Handouts

Webinar handouts can be downloaded from the resource page which is included in yourthe resource page which is included in your connection e-mail.

Slide 70

Webinars and You

Have an idea?

Do you have a webinar idea that would benefit real estate appraisers and other professionals aligned with the industry?

Submit your suggestions and proposals for future AI webinars through the AI website at http://www.appraisalinstitute.org/education/online-education/webinars.

Did o kno:

Did you know:• Webinar presenters receive 10 points (2 hrs) of AI CE credit (not state credit.)

These are applied after the webinar.F t d d l t h t i f 125 i t• For requested development hours, presenters can earn a maximum of 125 points (25 hrs) per 5-year AI CE cycle under “Service to AI”, and may add these to their AI CE Log (hours should be entered and AI will convert to points).

Slide 71

BE A WEBINAR PRESENTER!

Upcoming Events

Upcoming Webinars

DATE TOPIC

September 16 Contamination and the Valuation ProcessSeptember 16 Contamination and the Valuation Process

September 30 Drones

November 18 Historical and Landmark Home SitesNovember 18 Historical and Landmark Home Sites

Slide 72

Upcoming Events, cont.

Upcoming Live Online (Synchronous) Programs

COURSE SESSIONSCOURSE SESSIONSUnraveling the Mystery of Fannie Mae Appraisal Guidelines(One 4 hour day)

• October 13, 2015

(One 4 hour day)Using Spreadsheet Programs in Real Estate Appraisals – The Basics(Two 3 1/2 hour days)

• October 6 – 7, 2015

(Two 3‐1/2 hour days)Advanced Market Analysis(Eight 4 hour days)

• October 19 – October 29, 2015

Advanced Concepts and Case Studies(Eight 4.5 hour days)

• December 2015 TBD

Slide 73

Upcoming Events, cont.

Slide 74

http://www.appraisalinstitute.org/annualmeeting/

Evaluation

Please complete the brief survey that will appear on your screen immediately followingappear on your screen immediately following this webinar. We will also send the link to the survey in a follow-up e-mail.y p

We appreciate your feedback in helping us improve the quality of our webinars.

Slide 75

Thank you for joining us.

Slide 76

Date post:	16-Apr-2017
Category:	Documents
Upload:	justin-glasser-asa-mai-mrics
View:	407 times
Download:	0 times

GASB 2015 Webinar Presentation - Final

Documents