The following is an article published in the SA Property Review magazine.
This article was written By Mark Pettipher
With financial mismanagement becoming more pronounced and many high-profile companies being questioned for misrepresenting their assets, there is a need for independent regulated valuations. Property Review talks to Gavin Commins, Group CEO of The Valuator Group, about the benefits of taking on the services of a professional valuation company.
In 2008, when the world was caught in the grip of a financial meltdown, many companies had their backs to the wall. The crisis was a wake-up call, and corporate governance became a catchphrase.
Gavin Commins, the Chief Executive Officer of The Valuator Group, is familiar with the principles of corporate governance. “Fairness, accountability, responsibility and transparency were put in place to attract investors and give people peace of mind,” he says. “We needed to have a standard regulatory body, which initially was the Generally Accepted Accounting Principles (GAAP), but every country had its own version with different interpretations of the standards. The International Financial Reporting Standards (IFRS) was introduced to provide a common global language for business affairs.”
The primary difference between the two systems is that GAAP is rules-based and IFRS is principles-based. This disconnect manifests itself in specific details and interpretations. Basically, IFRS guidelines provide much less overall detail than GAAP. Consequently, the theoretical framework and principles of the IFRS leave more room for interpretation, and may often require lengthy disclosures on financial statements. On the other hand, the consistent and intuitive principles of IFRS are more logically sound, and may possibly better represent the economics of business transactions.
Commins sums up how business and people should be in balance. “To put the rapid pace of change in the business environment, I think of a quote I heard at a conference that I attended in Miami,” he says. “Coming from Africa, I found it to be appropriate and meaningful in assessing where we are in a complex and challenging business environment. I was by the conference’s keynote speaker, James Stavridis, a retired US Navy admiral, former supreme allied commander of NATO, and Dean Emeritus of the Fletcher School of Law and Diplomacy at Tufts University.
“He said that balance in business, as in life, is key. For example, every part of a cheetah is designed for speed, except for its long, almost bulky tail. That is designed for balance: it lets the cheetah change direction at top speed without losing its footing, ensuring its success and survival.”
This is what executives are faced with. They have to get the balance right and act for the now while preparing for the future. Demand on executives in intense; it’s all about the shareholders and ensuring wealth is being generated. In that process, individuals or groups get too much power and greed can easily take over. These individuals think they are above the law – and that’s when transgressions happen. Interestingly, many of these transgressions are related to valuations in some way. It’s all about driving the share price.”
Commins tells us that, in some cases, boards or executives inflate the true worth of valuations via unscrupulous means just to increase profits and their net asset value for personal gain. The Valuator Group’s income mix five years ago was about 60% replacement cost valuations for insurance purposes, with the balance made up of open market value. Over time, more emphasis has been placed on providing accurate asset registers, detailing fair value and complying with the International Accounting Standards (IAS) for financial reporting.
“What this means is that auditors will not sign off on financial statements unless they believe that a company’s assets are in order,” explains Commins. “It is the result of the regulations and corporate governance, including IAS requirements which regulate financial reporting. This is where valuations are required. Invariably, an auditing firm will call upon a valuation company to assess assets and provide an independent, arm’s-length valuation.”
The international standard for property is implemented by the International Valuations Standard Council and regulated by the Royal Institution of Chartered Surveyors (RICS). Commins believes that RICS is in discussions with the South African Council for the Property Valuers Profession (SACPVP), a statutory body established by Section 2 of the Property Valuers Profession Act No. 47 of 2000.
“The listed property sector is regulated, and its assets need to be valued, so that shareholders are kept abreast of their investments and the fluid environment,” says Commins. “For more than 15 years listed property was one of the best local asset classes. This has changed: real estate investment trusts (REITs) are looking to expand abroad, with many REITs’ share price on offer at a discount of up to 25%. Objective, accurate valuations are crucial in providing market and fair value.
“Valuations can be subjective, which means they can be influenced. At The Valuator Group, we believe a property owner has great insight into the nature of the asset and the market it can trade in, so we engage with the owner. There is always room for discussion. We state value ranges in the report, and a likely value within a range based on sound, verified data. This reduces subjectivity and affirms that no market transaction can be predicted exactly. A valuer’s duty is to help the client make a more informed decision, not to dictate the decision. “Having a discussion around property values with our clients is necessary to understand their expected all-risk yield rates and compare them to the going rates. These can vary from city to city, province to province and country to country. Our methodology is about being rational and applying the science of the process. We analyse the results and look at them objectively; we set the level and back it up with sound reporting.
“We also believe in the credibility of our work. Independent valuations provide confidence in the value of a property because of good corporate governance, and because we have sound ethics and professionalism embedded in our process.
“We support the idea that property owners need to be forward-thinking and innovative in the way they approach their portfolio. This means valuers also have to be open-minded and agile, while remaining objective and realistic.
“We’ve examined the valuation space, and we offer a one-stop shop. It includes risk analysis for all main asset classes for both replacement cost and open/fair market value, as well as working directly with brokers, auditors and clients.
“Since The Valuator Groups’s inception in 2007, our footprint has spread into Africa (including Mauritius, where many companies are setting up head offices) and the UAE. Our longevity, experience and best-in-class practices put us in the enviable position of being able to consult on a variety of asset classes. We are up to date in terms of technology, and offer fourth industrial revolution-ready cloud-based solutions, which give our clients secure access to critical and confidential information instantly. Each of our 35 valuers brings their own expertise to the table, dovetailing with the need for regional knowledge and the ability to be able to draw parallels when necessary.
“The cost of our services is often seen as a ‘grudge’ cost, but the market shouldn’t see it that way. Companies shouldn’t look at valuation as a short-term expense, but rather as long-term peace of mind. Valuations and the other services we offer are a positive tool, and an essential driver of investor confidence.”
Original Article can be found here https://issuu.com/sapoa052013/docs/pr_july_issue.com