On a quarterly basis, BNL’s Independent Directors Committee establishes and approves the Determined Share Value (DSV), which is derived by adjusting the net asset value per share to reflect the current market value of the real estate investment portfolio and the entities debt. Each quarter, BRE’s Property Management Team determines the current market value of the real estate investment portfolio by applying a current market capitalization rate to each property’s upcoming 12-months rental revenue. The appropriate capitalization rate is derived based on the current market conditions for comparable properties. Due to the significant volume of transactions and straightforward nature of underwriting in the net lease market resulting from the long-term leases in place and lack of operating expenses or capital expenditures, BNL utilizes leading national real estate databases to gather real-time sales comparables referenced across geography and property types. Additionally, BRE’s Acquisition Team is active in the market and studies potential acquisitions every day, providing additional opportunities for market value comparables. All of these factors lead to a strong market presence that allows management to adjust capitalization rates up or down based on actual market conditions. Further, BNL Property Valuation Policy requires a third-party appraisal to be conducted on portfolio holdings on a rolling two year basis. The valuations are then reviewed by a third-party, nationally recognized real estate sales and appraisal organization, Cushman & Wakefield (CW) and their Valuation and Advisory Group, on a quarterly and annual basis for procedural and market value accuracy. CW provides opinion on the estimated fair market value of the portfolio and also provides opinion on any discrepancies or anomalies via a thorough written report. The Capital Markets team also calculates a debt mark-to-market adjustment each quarter which in turn accounts for debt above or below market interest rates. Subsequent to the Property Management Team’s determination of each property’s current value and the calculation of DSV, the DSV and property valuation summaries are reviewed, BNL’s Management and submitted to the Independent Directors Committee for review and approval or adjustment. The Independent Directors discuss the valuation recommendations of management at its quarterly meeting and then sets the final DSV for the next three months. Management and Inside Directors do not have a vote on the setting of the DSV.
The valuation guides presented here closely match those of the Investment Program Association and their guidance issued on April 25, 2013 in “The IPA Practice Guideline 2013-01-Valuations of Publicly Registered Non-Listed REITs.”