Reading firm's annual reports

[kingsfall]

does anyone know what does "Net change in fair value of
investment properties" really meant? it takes up a chunk of money. do i count it into the net income or not?

 

[Shiny Things]

does anyone know what does "Net change in fair value of
investment properties" really meant? it takes up a chunk of money. do i count it into the net income or not?

Sounds like the company's marking-to-market the value of its real-estate assets.

This seems to me like quite an unusual accounting treatment, because it's basically impossible to accurately revalue an investment property unless you sell it. If this is making up a big chunk of net income, this should be a huge red flag.

Care to name names? You can drop me a PM if you want.

 

[derrick_]

I think you can read up on FRS 40 Investment property.

It basically says all gain/loss from investment property goes to P&L. So the accouting treatment is correct.

Note that when accountant says Fair value, they are usally refering to market value, which is evaluated by a property valuer base on similiar transactions.

 

[lzydata]

I'm guessing this is a REIT...

It makes sense that Net change in fair value of investment properties is recorded as a profit or loss on the income statement, because these changes are also made to the company's assets on the balance sheet.

If you are concerned that this is a non-cash profit or loss so it is less real than the rest of net income, you can look at the cash flow statement where non-cash items such as property value changes and depreciation are excluded. For REITs, there is also the statement for distributable income (or "amount available for distribution to unitholders") that likewise cannot include non-cash items.

 

[peterchan75]

The most important is the trend of top line (income) and botton line(income less expense). Can't sustain for long the bottom line with shrinking top line. The are many tricks that accountant can do e.g. delay in recognising the bad, take in reserve when business is good etc etc etc... all these are within the framework of accounting. Believe you me, the sales folks know to manage to top line too.. Smart accountants know to avoid steping on tails that link to the arse of the bosses. Such skills are essential to climbing the corp ladder.

 

[Shiny Things]

I'm guessing this is a REIT...

Yeah, that was my thought too. If this is a REIT it makes sense; if it's not, then it seems like a big red flag for them to be pumping up their PnL with real estate gains.

 

[kingsfall]

Yea it's a REIT

 

[satayxp]

Yeah, that was my thought too. If this is a REIT it makes sense; if it's not, then it seems like a big red flag for them to be pumping up their PnL with real estate gains.

some companies do hold investment ppty.. fair value gain (or loss) will still be recognised mah..

 

[wahkao3]

if you are looking at the property firm's earning powers, DO NOT LOOK AT NET INCOME

Look at cashflow from operations

I encountered situation where cashflow from operations is not available. in that case use revenue as the closest proxy.