ING Direct 2011 Annual Report Download - page 111

For interests in investment vehicles the existence of significant influence is determined taking into account both the Group’s financial
interests for own risk and its role as investment manager.
REAL ESTATE INVESTMENTS
Real estate investments are recognised at fair value at the balance sheet date. Changes in the carrying amount resulting from revaluations
are recognised in the profit and loss account. On disposal the difference between the sale proceeds and carrying value is recognised in the
profit and loss account.
The fair value of real estate investments is based on regular appraisals by independent qualified valuers. For each reporting period every
property is valued either by an independent valuer or internally. Indexation is used when a property is valued internally. The index is based
on the results of the independent valuations carried out in that period. Market transactions and disposals made by ING Group are monitored
as part of the validation procedures to test the indexation methodology. Valuations performed earlier in the year are updated if necessary to
reflect the situation at the year-end. All properties are valued independently at least every five years and more frequently if necessary.
The fair values represent the estimated amount for which the property could be exchanged on the date of valuation between a willing
buyer and willing seller in an at-arm’s-length transaction after proper marketing wherein the parties each acted knowledgeably, prudently
and without compulsion. Fair values are based on appraisals using valuation methods such as: comparable market transactions,
capitalisation of income methods or discounted cash flow calculations. The underlying assumption used in the valuation is that the
properties are let or sold to third parties based on the actual letting status. The discounted cash flow analyses and capitalisation of income
method are based on calculations of the future rental income in accordance with the terms in existing leases and estimations of the rental
values for new leases when leases expire and incentives like rental free periods. The cash flows are discounted using market based interest
rates that reflect appropriately the risk characteristics of real estate.
ING Group owns a large real estate portfolio, widely diversified by region, by investment segment (Office, Retail and Residential) and by
investment type (Core, Value Add and Opportunistic). The valuation of different investments is performed using different discount rates
(‘yields’), dependent on specific characteristics of each property, including occupancy, quality of rent payments and specific local market
circumstances. For ING’s main direct properties in its main locations, the yields applied in the 2011 year-end valuation generally are in the
range of 5% to 8%.
The valuation of real estate investments takes (expected) vacancies into account. Occupancy rates differ significantly from investment
toinvestment.
For real estate investments held through (minority shares in) real estate investment funds, the valuations are performed under the
responsibility of the funds’ asset manager.
Subsequent expenditures are recognised as part of the asset’s carrying amount only when it is probable that future economic benefits
associated with the item will flow to ING Group and the cost can be measured reliably. All other repairs and maintenance costs are
recognised in the profit and loss account.
PROPERTY AND EQUIPMENT
Property in own use
Land and buildings held for own use are stated at fair value at the balance sheet date. Increases in the carrying amount arising on revaluation
of land and buildings held for own use are credited to the revaluation reserve in shareholders’ equity. Decreases in the carrying amount that
offset previous increases of the same asset are charged against the revaluation reserve directly in equity; all other decreases are charged to
the profit and loss account. Increases that reverse a revaluation decrease on the same asset previously recognised in net result are recognised
in the profit and loss account. Depreciation is recognised based on the fair value and the estimated useful life (in general 20–50 years).
Depreciation is calculated on a straight-line basis. On disposal the related revaluation reserve is transferred to retained earnings.
The fair values of land and buildings are based on regular appraisals by independent qualified valuers or internally, similar to appraisals
ofreal estate investments. Subsequent expenditure is included in the asset’s carrying amount when it is probable that future economic
benefits associated with the item will flow to the Group and the cost of the item can be measured reliably.
Property obtained from foreclosures
Property obtained from foreclosures is stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price
in the ordinary course of business, less applicable variable selling expenses. Property obtained from foreclosures is included in Other assets
– Property development and obtained from foreclosures.
Property development
Property developed and under development for which ING Group has the intention to sell the property after its completion is included in
Other assets – Property development and obtained from foreclosures.
Accounting policies for the consolidated annual accounts of ING Group continued
1 Who we are 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information
109ING Group Annual Report 2011