ING Direct 2015 Annual Report Download - page 46

Contents
Who we are
Report of the
Management
Board
Corporate
Governance
Consolidated
annual accounts
Parent company
annual accounts
Other
information
Additional
information
Notes to the Consolidated annual accounts of ING Bank - continued
Unrealised gains on transactions between ING Bank and its associates and joint ventures are eliminated to the extent of ING Bank’s
interest in the associates and joint ventures. Unrealised losses are also eliminated unless they provide evidence of an impairment of
the asset transferred. Accounting policies of associates and joint ventures have been changed where necessary to ensure consistency
with the policies adopted by ING Bank. The reporting dates of all significant associates and joint ventures are consistent with the
reporting date of ING Bank.
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
Bank 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 rent free periods. The cash flows are
discounted using market based interest rates that reflect appropriately the risk characteristics of real estate.
Market conditions in recent years have led to a reduced level of real estate transactions. Transaction values were impacted by low
volumes of actual transactions. As a result comparable market transactions have been used less in valuing ING’s real estate
investments by independent qualified valuers. More emphasis has been placed on discounted cash flow analysis and capitalisation of
income method.
Reference is made to Note 36 ‘Fair value of assets and liabilities’ for more disclosure on fair values of real estate investments.
The valuation of real estate involves various assumptions and techniques. The use of different assumptions and techniques could
produce significantly different valuations. Consequently, the fair values presented may not be indicative of the net realisable value. In
addition, the calculation of the estimated fair value is based on market conditions at a specific point in time and may not be indicative
of future fair values. To illustrate the uncertainty of our real estate investments valuation, a sensitivity analysis on the changes in fair
value of real estate is provided in the section ‘Risk management – Market risk’.
ING Bank owns a real estate portfolio, diversified by region, by investment segment (Office, Retail and Residential) and by investment
type. 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.
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 Bank and the cost can be measured reliably. All other repairs and maintenance costs are
recognised in the profit and loss account.
ING Bank Annual Report 2015 44