The valuation basis that moved between contribution and the first net asset value.

A landowner contributes a parcel to a platform at a valuation, and receives units for it. The valuation is performed by a valuer on a basis: market value with a willing buyer and seller, or a development value on an assumed programme, or a residual value on assumed costs and sales, with assumptions about the consent, the tenure and the timing. The platform holds the parcel from that day and strikes its net asset value at the first valuation date on its own valuer's basis under its own valuation policy. If the two bases are the same, the parcel's value on the first valuation day is the contribution value adjusted for what happened since. If they are not, the parcel's value moves on the first day by the difference between the bases, and the movement is a transfer between the landowner and the cash investors that nobody agreed. If the platform's basis is more conservative, the owner's units are worth less than the owner was issued them for, and the cash investors have gained at the owner's expense. If it is more generous, the reverse. Neither was agreed. Both are visible to every holder on the first report, and the owner, who is on the committee, will say so.

This note sets out what a basis is and how bases differ, why the contribution valuation and the net asset value are two events, the transfer the difference makes and its direction, who sees it and when, the provision that prevents it, the owner's own valuer and the reconciliation, the later admissions and the same defect, the special assumptions that move between the two, the related-party reading, the lender's reading, the onshore interface, a comparison, a worked contribution as a type, cases, what each party holds, the sequence, questions, terms and what to read.

What a basis is

A basis of value is the definition the valuer values to: market value, the price between a willing buyer and a willing seller at the date after proper marketing, is the common one. Development value, the value of the parcel with an assumed programme completed, less the costs and a developer's return, is a residual method on the market value basis or a basis of its own depending on the standard. Investment value, the value to a particular owner with its own plans, is a basis the standards name and a platform's net asset value does not use. Each basis is applied with assumptions: about the consent granted or assumed, the tenure and its years, the programme's costs and timing, the market's absorption, and the discount rate. The basis and the assumptions together are the number, and two valuers on the same parcel with different bases or different assumptions produce numbers that differ by amounts a landowner notices.

Why the bases differ

They differ because the two events have two purposes and two authors. The contribution valuation is commissioned to support a negotiation: the landowner wants a high number and the platform wants the parcel, and the valuer is instructed by whoever wanted it most, on assumptions that favour the number. The net asset value is commissioned to report a holding to holders and to feed the uses the constitution names: the valuer is instructed under a policy drafted to be conservative and consistent, because a net asset value that moves with assumptions is a net asset value nobody can use. The first event's valuer assumes the consent because the negotiation assumed it; the second's values the consent as it stands because the policy says so. The bases differ because nobody instructed them to be the same, and the provision is the instruction.

The movement's size

The movement's size is the difference between the bases applied to the parcel, and on a development parcel it is large: the consent's value on a parcel valued with and without it is a multiple; the renewal's value on a term valued with and without it is a large fraction; the developer's cost plan against the valuer's is the margin. A contribution valued on a development basis with three assumptions the platform's policy excludes can move by a third on the first day, and a third of a contributed parcel's value is a transfer between holders that a committee cannot explain as what happened since. The size is why the provision is drafted and not left to the valuer's judgement.

Two events

The contribution valuation is an event in the negotiation between the landowner and the platform: it fixes the number of units the owner receives, it is supported by a valuer, and it is the price the owner accepted for the parcel. The net asset value is an event in the platform's life: it is struck at each valuation date by the platform's valuer on the platform's policy, it feeds the charge, the hurdle, any equalisation, any transfer price and the reporting, and it is the number every holder reads. The first is done once by whoever the contribution agreement named; the second is done every period by the platform's valuer. Unless the constitution says they are done by the same valuer on the same basis, they are two events with two authors, and the difference between them is the first valuation day's movement.

The transfer and its direction

The landowner received units at the contribution value. The cash investors subscribed at the unit price the platform's net asset value fixes. If the parcel's value falls on the first valuation day because the platform's basis is more conservative, the landowner holds units issued against a value the platform no longer recognises, and the cash investors' share of the holding is worth more than their cash, because the holding's total is lower and their units are the same number. If the parcel's value rises because the platform's basis is more generous, the landowner's units are worth more than the parcel the platform received, and the cash investors have paid the difference. Either way value has moved between two classes of holder by an act of valuation, without a transaction, on the first day.

Who sees it and when

The first report after the first valuation date shows the parcel at the platform's value and the contribution at the contribution value, and the difference is a line the administrator cannot hide and the valuer's report explains. The landowner, on the committee, sees its units' value fall or the cash investors' rise. The cash investors see the reverse. The committee sees a movement on a related party's contribution that nobody approved as a dealing. The regulator, on inspection, sees a related-party transaction whose terms changed after approval. And the next landowner in the market, approached to contribute, hears about it.

The provision

One valuer, one basis, one instruction letter, from contribution to exit. The constitution provides that contributions are valued by the platform's valuer on the platform's valuation policy's basis, under an instruction letter the committee reads, and that the same valuer, basis and policy apply at every valuation date. The contribution valuation is then the first net asset value's input, and the first valuation day's movement is what happened to the parcel since contribution and nothing else. The owner's advisers read the basis and the policy before the owner agrees the number, and the committee sees the instruction letter before the contribution is approved. The provision costs nothing, and it is the difference between a contribution and a dispute.

The valuation policy's drafting

The policy is drafted before the first contribution with contributions in view: the basis, market value on the standard's definition; the assumptions on consents, as they stand; on tenure, renewals at probability; on programmes, the valuer's own costs and timing; on markets, the valuer's own evidence; and the exclusion of special assumptions except where the committee instructs and the report states them. A policy drafted for a holding of completed assets and applied to a development contribution is a policy whose assumptions do not fit, and the first valuation's movement is the fit's absence. The policy is the contribution's basis, and it is drafted to be one.

The owner's own valuer

A landowner that wants its own valuer to support the number is entitled to one, and the two valuers agree the basis, the policy and the assumptions in writing before either values, so that they differ on judgement and not on definition. A difference above a stated band is resolved by a third valuer appointed jointly, on the same agreed basis, and the contribution value is the third's or the average as the agreement says. The reconciliation is a document the committee reads, and the agreed basis is the platform's policy, because the platform's policy is the basis every later valuation will use. An owner's valuer on a different basis produces a number the platform's first valuation will move from, and the owner's advisers, reading the provision, understand why the basis is the platform's.

Later admissions

A parcel acquired for cash from a third party at a price is a parcel whose first net asset value is the price adjusted for what happened since, because the price was a market transaction. A parcel contributed, or acquired from a related party, or acquired at a valuation rather than a price, has the same defect as the first contribution: valued at one basis on entry and another on the first date. The admission policy names the basis for every admission that is not a market purchase, and it is the platform's policy's basis, by the platform's valuer, under a letter the committee reads.

The special assumptions that move

The difference between bases is often a difference in special assumptions. The contribution valuation assumed the consent would be granted; the platform's policy values consents as they stand. The contribution valuation assumed the tenure's renewal; the platform's valuer values the renewal at its probability. The contribution valuation assumed the programme's costs from the developer's plan; the platform's valuer uses its own. The contribution valuation assumed a market absorption the platform's valuer does not. Each assumption is a number's difference, and a contribution valued on special assumptions the platform's policy does not permit is a contribution whose first valuation day is the assumptions' removal. The instruction letter for the contribution valuation carries the platform's policy's assumptions, and the committee reads it for assumptions the policy excludes.

The equalisation and the contribution

A contribution at a later close is an admission with equalisation, and the contribution value is the later holder's equalisation price for its share of the existing positions as well as the value of the parcel it brings. The two computations run on the same basis: the existing positions at the platform's valuer's number on the policy, and the parcel at the same valuer's number on the same policy, so that the landowner's units are issued against a consistent pair. A contribution whose parcel is valued on one basis and whose equalisation into the existing positions runs on another has two transfers on the first day, in opposite directions or the same, and the landowner's advisers read both.

The exit and the basis

The provision's one basis from contribution to exit means the exit is measured against the contribution on a consistent footing: the landowner's return on its units is the holding's return on the policy's basis, and the parcel's contribution to that return is what the parcel did since contribution. A landowner that contributed at a generous basis and exits at the market's price has a return that the first valuation day's movement already took; one that contributed at the policy's basis has a return the holding earned. The basis's consistency is the landowner's return made legible, which is what the landowner's advisers ask for at the contribution and the committee reads at the exit.

The related-party reading

The landowner who contributes becomes a holder, usually a large one, with a seat on the committee, and its contribution is a related-party dealing from the moment it is a holder, approved by the committee on the valuation as the terms test. A valuation that moves on the first day is a related-party dealing whose terms the approval did not capture: the committee approved a contribution at a value, and the platform's first valuation says the value was other. The committee's approval is read against the first valuation by the regulator and by the other holders, and a movement the provision would have prevented is a movement the committee is asked to explain.

The lender's reading

A lender to the platform reads the net asset value for its covenant and the contributed parcel's value as part of it, and a first valuation day that moves the parcel moves the covenant. A lender that counted the contribution value in its base on the platform's representation, and finds the platform's own valuer at a different number a quarter later, reads the platform's valuation practice and the representation together. The provision that one valuer values on one basis is the lender's protection as well as the holders'.

The onshore interface

The contribution is an onshore transfer of the parcel to the platform's vehicle, registered at a figure the state's registry records and charges transfer duty on, and the state's figure is the registry's, which may be a valuation by a registry-licensed valuer on the state's basis or the declared consideration. The contribution value for the platform's units, the registry's figure for the transfer, and the platform's first net asset value are three numbers, and counsel in the state says what the registry requires and what the transfer duty is charged on. The three are reconciled in the committee's paper, so that a difference between the registry's figure and the contribution value is explained before a holder asks.

By basis · by event	The contribution valuation	The first net asset value	The movement
Same valuer, same basis, same policy	The platform's valuer on the policy	The same, updated	What happened since
Owner's valuer, different basis	The owner's valuer on its basis	The platform's valuer on the policy	The bases' difference, plus what happened
Development value with assumed consent	The consent assumed	The consent as it stands	The consent's value, removed
Tenure with assumed renewal	The renewal assumed	The renewal at probability	The renewal's discount
Developer's cost plan	The developer's costs	The valuer's costs	The cost difference
Registry's figure	The state's basis for duty	Not used	Explained in the paper

A contribution, as a type

A landowner agrees to contribute a masterplanned parcel to a platform. The constitution provides that contributions are valued by the platform's valuer on the valuation policy's basis under an instruction letter the committee reads. The landowner appoints its own valuer; the two agree in writing the basis, market value, the policy's assumptions, the consent as it stands and the tenure's renewal at probability, and the programme's costs from the valuer's own data; they value within the band and the contribution value is their average. The committee reads the instruction letter, the reconciliation and the registry's figure for the transfer, explained, and approves the contribution as a related-party dealing at the value. The parcel transfers onshore and the units are issued. At the first valuation date the platform's valuer values the parcel on the same basis and policy, and the movement is the consent granted in the interval, which raises the value. The first report shows the contribution value, the first net asset value and the consent as the reason. The landowner's representative on the committee reads it and asks nothing.

The structure paper's page

The structure paper carries a page on contribution valuations: the constitution's provision, the valuation policy's basis and assumptions, the instruction letter's form, the reconciliation procedure with the band and the third valuer, the admission policy for non-market admissions, the registry's figure and its reconciliation, the committee's reading, and the first report's presentation of the two numbers. The page is written before the first landowner conversation and it is the page the landowner's advisers are shown when the basis is explained.

The second platform's reading

A manager's second platform is raised in markets where the first platform's contributing landowners talk, and the first valuation day's movement on the first platform's contributions is the thing they talk about. A first platform whose contributions held their value on the first day, with movements explained as what happened since, is a platform whose landowners contribute to the second and tell others to; one whose first report moved a landowner's units by a third is a platform whose second raise has no contributions. The provision is the land door's access protected by arithmetic, and the first platform's first report is the evidence.

Four cases, as types

A landowner's valuer values the parcel on a development basis assuming the consent, and the platform accepts the number and issues units. The platform's valuer, at the first date, values the consent as pending. The parcel's value falls by the consent's value, the landowner's units are worth less than it was issued them for, and the cash investors have gained by a valuation. The landowner's representative reads the report.

A platform's valuation policy is generous on tenure renewals and the contribution valuation was conservative. The parcel rises on the first day, the landowner's units gain at the cash investors' expense, and the anchor's counsel asks who approved a related-party dealing on those terms.

A platform acquires a second parcel from a company the manager's principal holds, at a valuation on the seller's basis. The first valuation day moves it, and the regulator reads a related-party acquisition whose terms the committee approved on a basis the platform's own policy did not use.

A platform's constitution provides one valuer, one basis, one policy from contribution to exit, and the admission policy names the basis for every non-market admission. The first valuation day's movement on every contributed parcel is what happened since, and the committee's approvals are read against first valuations that confirm them.

What each party holds

The platform holds the constitution's provision, the valuation policy and the instruction letter.

The landowner holds the basis it agreed, its own valuer's reconciliation and its units at the contribution value.

The committee holds the instruction letter, the reconciliation, the related-party approval and the first report's reading.

The valuer holds the basis, the policy and the assumptions, the same on both events.

The cash investors hold the net asset value and the first report's explanation.

Counsel in the state holds the registry's figure and its reconciliation.

Where it surfaces

It surfaces at the contribution negotiation, when the landowner's valuer's report arrives on its own basis. It surfaces at the committee's approval, when the instruction letter is not in the papers. It surfaces at the first valuation date, when the platform's valuer reads the contribution valuation's assumptions against the policy. It surfaces in the first report, as a line. It surfaces at the committee, when the landowner's representative reads it. It surfaces at the regulator's inspection of related-party dealings. And it surfaces in the market, when the next landowner asks what happened to the last one's units.

The cost of getting it wrong

A movement on the first day costs the landowner or the cash investors the difference, costs the committee an explanation of a related-party dealing whose terms moved, costs the platform the landowner's trust at the moment the next contribution depends on it, and costs the regulator's reading of the platform's valuation practice. The cost of the provision is a sentence in the constitution and an instruction letter the committee reads, and the cost of the reconciliation is the owner's valuer's time on an agreed basis rather than its own.

The committee's reading

The committee reads, before approving a contribution, the instruction letter for the basis and the assumptions against the valuation policy; the reconciliation between valuers if there are two; the registry's figure and its explanation; and the valuer's report for special assumptions. It approves the contribution as a related-party dealing at the value, with the landowner's representative abstaining if already seated. At the first valuation date it reads the movement and its reason, and a reason that is what happened since is a reading that ends; one that is the bases' difference is a reading that begins.

A timeline, as a type

At formation the constitution provides the one-valuer, one-basis rule and the admission policy names the basis for non-market admissions. In year one a landowner agrees to contribute; its valuer and the platform's agree the basis, the policy's assumptions and the band in writing; both value; the average is the contribution value; the committee reads the letter, the reconciliation and the registry's figure, and approves; the parcel transfers and the units are issued. At the first valuation date the platform's valuer values on the same basis; the consent granted in the interval raises the value; the report shows both numbers and the reason. In year two a second landowner, having read the first's report through the market's talk, contributes on the same provision. In year three a parcel is acquired from a related party on the admission policy's basis by the platform's valuer, and the first valuation confirms it.

The sequence

1. The constitution provides that contributions and non-market admissions are valued by the platform's valuer on the valuation policy's basis under a letter the committee reads.
2. The owner's valuer, if any, agrees the basis, the policy and the assumptions in writing before valuing, with a band and a third valuer for differences.
3. The committee reads the instruction letter, the reconciliation and the registry's figure before approving the contribution as a related-party dealing.
4. The contribution value is the first net asset value's input, and the first valuation is on the same basis by the same valuer.
5. The first report shows the two numbers and the movement's reason.
6. The admission policy applies the same rule to every later non-market admission.

Questions a manager asks

Can the landowner's valuer's number be used. As one of two on an agreed basis with a band and a third; not alone on its own basis.

What if the platform's policy is more conservative than the market's. The owner's advisers read the policy before agreeing the number, and the owner contributes at the policy's value or does not contribute.

Does the registry's figure matter. For the transfer duty and the state's record; it is reconciled in the paper and it is not the contribution value unless the state's basis is the platform's.

What about a consent granted between contribution and the first valuation. A movement with a reason, shown in the report; the provision makes it the only kind of movement there is.

Who reads the instruction letter. The committee, before the contribution; the owner's advisers, before the number; the regulator, on inspection.

Is the first valuation day's movement a dealing. A transfer of value between holders by valuation is not a dealing the constitution authorised, which is why the provision prevents it rather than approves it.

Terms used

Basis of value: the definition the valuer values to, with its assumptions.

Contribution valuation: the valuation that fixes the units the landowner receives.

First net asset value: the platform's valuation at the first date after contribution, on its policy.

The movement: the first valuation day's change in the parcel's value, which the provision limits to what happened since.

Reconciliation: the written agreement of basis and assumptions between the owner's valuer and the platform's, with a band and a third.

Admission policy: the platform's rule on the basis for every non-market admission.

What to read

The constitution's provision on contribution valuations; the valuation policy; the instruction letter; the reconciliation between valuers; the related-party approval; the registry's figure and its reconciliation; the first report. On this site, the portfolio, exposure and platform rooms under Land.