Voluntary Current Value Disclosures in the Real Estate Industry

The measurement and reporting practices employed by 9 real estate companies that voluntarily disclosed current value data are examined. The types of current value financial statements vary among the 9 real estate comapnies. Seven companies received audit opinions stating that the current value basis financial statements were fairly stated, with 5 different audit firms providing the opinions. All of the firms rely on either the income or equity approaches, under which current values are based on estimates of annual net cash flow from 2 sources: 1. operating the property over an arbitrary holding period, and 2. a residual value that could be received by selling the property at the end of the assumed holding period. Firms presenting current value information should disclose not only the valuation approach for each type of property, but also the cap rates, discount rates, rate of price change forecast for revenues and expenses, anticipated vacancy rate, length to assumed operating period, and amount of selling cost.