E. PROPERTY INVESTMENTS AND RELATED ITEMS
E1 INVESTMENT PROPERTY
E1.1 Accounting policy
 

Investment properties are properties held to earn rental income and/or for capital appreciation.

Rental income from investment property is recognised as revenue on a straight-line basis over the term of the lease.

Investment property is initially recognised at cost, including transaction costs. Cost includes initial costs, costs incurred subsequently to extend or refurbish investment property and the cost of any development rights.

Investment property is subsequently measured at fair value as determined on at least an annual basis by an independent registered valuer, or fair value less cost to sell, based on market evidence.

Gains or losses arising from changes in fair value, after deducting the straight-line rental income accrual, are included in net profit or loss for the period in which they arise. These gains or losses are transferred to non-distributable reserves in the statement of changes in equity. In instances when investment property has been sold, but not yet transferred to the purchaser at year-end, the fair value is determined as the sale price.

An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from the property.

Any gain or loss arising on derecognition of the property is included in profit or loss in the period in which the property is derecognised. The gain or loss is calculated as the difference between the net disposal proceeds and the carrying amount of the asset.

Realised gains or losses arising on the disposal of investment properties are recognised in profit or loss for the year and transferred to/from non-distributable reserves in the statement of changes in equity.

E1.2 Key assumptions and estimations
 
Investment property valuations The valuation of investment properties requires judgement in the determination of, inter alia, future cash flows, appropriate discount rates and capitalisation rates. Refer: E1.7.3
E1.3 Profile
 
    GROUP     COMPANY  
    30 June 2019 
R000 
30 June 2018 
R000 
    30 June 2019 
R000 
30 June 2018 
R000 
 
E1.4 Net carrying value              
   Historical cost  14 897 979  14 973 825        12 702 164  12 847 920    
   Accumulated fair value movements  15 067 836  15 361 867        15 325 157  15 438 284    
   Assets classified as held-for-sale  (1 938 494) (194 665)       –  (194 665)   
   Total investment property  28 027 321  30 141 027        28 027 321  28 091 539    
E1.5  Movement reconciliation                      
   Investment property at valuation at 1 July  30 141 027  29 128 477        28 091 539  27 176 840    
   Capital expenditure  95 064  263 640        94 670  262 654    
   Disposals  (55) –        (55) –    
   Currency translation difference  67 016  98 216        –  –    
   Net change in fair value  (337 238) 650 206        (158 832) 651 558    
      Change in fair value  (425 125) 646 359        (240 231) 646 862    
      Straight-line rental income accrual  87 887  3 847        81 399  4 696    
   Interest capitalised  –  6 665        –  6 665    
   Transfer to non-current assets held-for-sale  (1 938 494) (6 177)       –  (6 178)   
   Total investment property  28 027 321  30 141 027        28 027 321  28 091 539    
E1.6  Reconciliation to independent valuation                      
   Net carrying value of investment property  28 027 321  30 141 027        28 027 321  28 091 539    
   Straight-line rental income accrual  448 917  550 182        448 917  530 316    
   Building appurtenances and tenant installations  162 288  163 068        162 288  159 911    
   Centre management assets  (1 808) (5 076)       (1 808) (1 919)   
   Independent valuation(1)  28 636 718  30 849 201        28 636 718  28 779 847    
  (1) Excludes property held-for-sale.
  Refer to section C – Segmental analyses, for a breakdown of investment property, contractual rental income and property expenses by segment.
 
Interest rate used to calculate interest capitalised (%) N/A 8.3     N/A 8.3  
E1.7 Valuation methodology
 

The group’s policy is to obtain independent valuations of the investment properties and to report investment properties at that value. The South African properties are independently valued, every six months, while properties held by subsidiaries or associates of AttAfrica and Hystead are independently valued on an annual basis.

The valuation methods applied by independent valuers are the same as those used in the prior year.

E1.7.1 Who
 

Valuations of the South African investment properties were performed by valuers who are all registered valuers in terms of section 19 of the Property Valuers Professional Act 47 of 2000. Valuations of the non-South African properties were performed by valuers who are members of the Royal Institution of Chartered Surveyors (RICS), as detailed below:

Company and lead valuer   Qualification   Properties valued

Viking Valuation

Trevor King Managing director

  BSc Hons (Building Science, UCT), Dip Surveying (UK, Reading University), Professional Registered Valuer and member of SA Council for the Property Valuers Profession, Chartered Valuation Surveyor and Associate Member of the Royal Institute of Chartered Surveyors (MRICS).   Eight South African properties (retail and office)

Jones Lang LaSalle (JLL)

Joshua Askew

Head of valuation: Sub-Saharan Africa, National Director

  BA (Hons) English and philosophy, MA Property Valuations and Property Law, Fellow of and Registered Valuer of the Royal institute of Chartered Surveyors (FRICS and RICS), Licensed Pfandbrief MLV Valuer, Recognised European Valuer.   The Glen and Clearwater Mall (retail)

Mills Fitchet

Thomas Bate Partner/member

  BSc (Urban Land Economics) University of Westminster London, MSc (Reading University UK), Chartered Valuation Surveyor (RICS).   Ikeja City Mall (Lagos, Nigeria) (retail)
E1.7.2 How
 

Details of the valuation methodologies used in valuing investment property, as well as the significant unobservable inputs used, are set out in the table below:

Type   Valuation methodology   Unobservable inputs   Inter-relationship between
unobservable inputs and fair
value measurement
Investment properties– continuing operations   Discounted cash flow: The valuation models calculate the present value of the future net cash flows expected to be generated by each investment property. The cash flow projections include specific estimates for five years. The expected net cash flows are discounted using a risk adjusted discount rate as well as a risk adjusted cap rate.  
  • Estimated rentals at the end of the lease
  • Vacancy levels
  • Discount rate, and
  • Reversionary capitalisation rate.
 

The estimated fair value increases if:

  • The estimated rentals increase
  • Vacancy levels decline,
  • Discount rates (market yields) decline or
  • Reversionary capitalisation rates
    decline (and vice versa).
Investment properties – held-for-sale   Fair value less costs to sell: Investment property held-for-sale is measured at fair value less costs to sell (FVLCTS) which, in instances where the property is already sold, but not yet transferred, is based on the sale price.  
  • Estimated rentals at the end of the lease
  • Vacancy levels
  • Discount rate, and
  • Reversionary capitalisation rate, and
  • Costs to sell.
 
E1.7.3 Valuation assumptions
 

The key assumptions used by the valuers in determining the fair values of the investment properties are in the following ranges:

  GROUP     COMPANY  
  30 June 2019
%
30 June 2018
%
    30 June 2019
%
30 June 2018
%
 
Unobservable inputs              
Reversionary capitalisation rates   6,5 to 8,8   6,3 to 8,5       6,5 to 8,8   6,3 to 8,3  
Weighted average reversionary capitalisation rates 6,9 6,7     6,8 6,6  
Discount rate 10,5 to 14,3 12,3 to 14,5     12,3 to 14,3 12,3 to 14,3  
Weighted average discount rate 12,4 12,4     12,5 12,5  
Retail vacancy levels 0,3 to 2 0,5 to 2     0,3 to 2 0,5 to 2  
Office vacancy levels 0,5 to 0,8 0,5 to 2     0,5 to 0,8 0,5 to 2  
Average market rental growth rate 5,8 6,0     5,8 6,0  
E1.7.4 Valuation sensitivity
 

The valuations of the investment properties are sensitive to changes in the unobservable inputs used in such valuations. Changes to one of the unobservable inputs, while holding the other inputs constant, would have the following effects on the fair value of investment property in the statement of profit or loss.

        GROUP     COMPANY  
        (decreases are indicated by brackets)  
Input June 2019
% change
June 2018
% change
  30 June 2019 
R000 
30 June 2018 
R000 
    30 June 2019 
R000 
30 June 2018 
R000 
 
Increase in reversionary capitalisation rates   0,25   0,25     723 337    760 237        723 337    721 666   
Decrease in reversionary capitalisation rates 0,25 0,25   (778 519) (817 786)     (778 519) (776 878)  
Increase in discount rate 0,25 0,25   274 057  293 838      274 057  274 435   
Decrease in discount rate 0,25 0,25   (277 580) (297 617)     (277 580) (277 962)  
Increase in average market rental growth rate 0,25 0,25   279 416  281 791      261 581  262 889   
Decrease in average market rental growth rate 0,25 0,25   (302 940) (305 515)     (283 603) (285 021)  
* Prior year sensitivities have been recalculated to take into account time value.
E1.8 Mortgaged properties
 

First mortgage bonds have been registered over South African investment property as well as sub-Saharan African investment property as security for secured interest-bearing borrowings.

In the case of Standard Bank and Rand Merchant Bank, properties are mortgaged to secure a pool of both consolidated and non-consolidated borrowings.

      GROUP     COMPANY  
  Note   30 June 2019
R000
30 June 2018
R000
    30 June 2019
R000
30 June 2018
R000
 
Fair value of investment property mortgaged as security     25 299 216 25 507 201     23 360 700 23 437 847  
Comprising: Canal Walk, The Glen, Somerset Mall, Woodlands Boulevard, Clearwater Mall, Ikeja City Mall (held-for-sale) and Atterbury Value Mart.                  
Total secured borrowings H1.4   (10 760 655) (10 986 353)     (4 190 131) (6 283 679)  
   Secured borrowings (consolidated)     (4 229 324) (5 302 213)     1 558 308 (599 539)  
   Secured borrowings held-for-sale (consolidated)     (782 892)      
   Secured borrowings (non-consolidated)(1)     (5 748 439) (5 684 140)     (5 748 439) (5 684 140)  
(1) Non-consolidated borrowings comprise loans advanced to Hystead Limited and its subsidiaries, which have been guaranteed by Hyprop Investments Limited. Hypropís obligations under these guarantees are secured by mortgage bonds over certain of Hypropís properties as described above.
E1.9 Straight-line rental income accrual
 
  GROUP     COMPANY  
  30 June 2019
R000
30 June 2018
R000
    30 June 2019
R000
30 June 2018
R000
 
Balance at the beginning of the year 550 182 553 119     530 316 535 012  
Foreign currency translation difference 650 910      
Reversal during the year (87 887) (3 847)     (81 399) (4 696)  
Reallocated to assets-held-for-sale (14 028)      
Balance at the end of the year 448 917 550 182     448 917 530 316  
E2 BUILDING APPURTENANCES AND TENANT INSTALLATIONS
E2.1 Accounting policy
 

Building appurtenances and tenant installations are carried at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is provided on all building appurtenances and tenant installations to write down the cost, to the estimated residual value, in equal monthly instalments over the estimated useful lives of the assets as follows:

Building appurtenances    – 3 to 15 years

Tenant installations           – period of lease

Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if necessary. There were no adjustments in the current and prior years.

Subsequent expenditure is capitalised when it is probable that future economic benefits will flow to the group and the cost thereof can be reliably measured. All other expenditure is recognised as an expense in the period in which it is incurred.

Gains or losses on the disposal of building appurtenances and tenant installations are recognised in profit or loss and are calculated as the difference between the proceeds and the carrying value of the item sold.

E2.2 Net carrying value
 
  GROUP     COMPANY  
  30 June 2019
R000
30 June 2018
R000
    30 June 2019
R000
30 June 2018
R000
 
Cost              
Building appurtenances   256 158   234 018       256 158   223 444  
Tenant installations 77 338 68 475     77 338 68 475  
Total cost 333 496 302 493     333 496 291 919  
Accumulated depreciation              
Building appurtenances   122 950   100 165       122 950   92 748  
Tenant installations 48 258 39 260     48 258 39 260  
Total accumulated depreciation 171 208 139 425     171 208 132 008  
Net carrying value              
Building appurtenances   133 208   133 853       133 208   130 696  
Tenant installations 29 080 29 215     29 080 29 215  
Total net carrying value 162 288 163 068     162 288 159 911  
E2.3 Movement for the year              
  Net carrying value – at the beginning of the year  163 068  148 530        159 911  145 511    
   Capital expenditure  45 051  52 104        43 457  50 428    
   Foreign currency translation movement  103  147        –  –    
   Disposals  (201) –        (201) –    
   Assets written off  –  67        –  –    
   Classified as held-for-sale  (3 524) 369        (356) 369    
   Depreciation  (42 209) (38 149)       (40 523) (36 397)   
   Net carrying value at the end of the year  162 288  163 068        162 288  159 911    
E3 INVESTMENTS IN SUBSIDIARIES
E3.1 Accounting policy election
 
Investments in subsidiaries, joint operations   In terms of IAS 27: Investments in subsidiaries, associates and joint arrangements, these investments can be accounted for in the separate financial statements either at: cost; or at fair value in accordance with IFRS 9: Financial instruments; or using the equity method as described in IAS 28: Investments in associates and joint ventures.   The group has elected to recognise these investments at cost less impairments in the separate financial statements.
E3.2 Profile
 

          % held(1)  
Name and country of incorporation/operation Status   Nature of activities   30 June 2019
%
30 June 2018
%
 
Incorporated and operating in South Africa              
African Land Investments Limited Dormant   Dormant   100,0 100,0  
Hyprop Investments Employee Incentive Scheme Proprietary Limited Active   Hedging the obligations arising from share allocations made to employees.   100,0 100,0  
Hyprop Foundation NPC Active   Coordination of Hyprop’s corporate social investment initiatives.   100,0 100,0  
Incorporated and operating in Mauritius              
Hyprop Investments (Mauritius) Limited Active   Indirect investment in and development of income-producing properties in sub-Saharan Africa (excluding SA).   100,0 100,0  
Hyprop Ikeja Mall Limited Active   Holding company for Gruppo.   100,0 100,0  
Incorporated and operating in Nigeria              
Gruppo Investments Nigeria Limited Held-for-sale   Owner of Ikeja City Mall.   75,0 75,0  
(1) Proportion of ownership interest and voting power held by the group.
E3.3 Carrying value
 
  COMPANY  
  30 June 2019
R000
30 June 2018
R000
 
Shares at cost      
African Land 758 264 758 264  
Hyprop share scheme * *  
Hyprop Foundation * *  
Hyprop Mauritius * *  
Total cost 758 264 758 264  
* Amounts less than R1 000.

Details of loans to subsidiaries are set out in note F1 – Loans receivable.

The fair value of the shares in African Land has been assessed taking into account the loan payable by Hyprop to African Land (see note H1.4).

E3.4 Movement for the year
 
  COMPANY  
  30 June 2019
R000
30 June 2018 
R000 
 
Net carrying value at the beginning of the year 758 264 1 156 008   
Recognition of new guarantees 102 387   
Reallocations to Loans receivable (35 173)  
Impairments(2) (464 958)  
Total net carrying value 758 264 758 264   
(2) An impairment test was performed at year end and the investment of Hyprop Mauritius was impaired to R0 due to the negative net asset value in Hyprop Mauritius.
E4 INVESTMENTS IN JOINT ARRANGEMENTS
E4.1 Accounting policy
 

Joint arrangements are those entities over which the group has joint control, established by contractual agreements requiring unanimous consent for decisions about relevant activities that significantly affect the returns of the arrangements. Joint arrangements are classified as either joint operations or joint ventures, depending on the contractual rights and obligations of the investor, and are accounted for as follows:

Joint operation When the group has rights to the assets and obligations for the liabilities relating to a joint arrangement, it accounts for its proportionate share of the assets, liabilities and transactions, including its share of those held or incurred jointly, in relation to the joint operation, in accordance with the applicable IFRS.
Joint venture When the group has rights only to the net assets of the arrangement, it accounts for its interest using the equity method.
The above treatment will apply in all cases, except:
Held-for-sale When the investment is classified as held-for-sale, it is accounted for in accordance with IFRS 5: Non-current assets held-for-sale
Financial asset When the investment is classified as a financial asset, it is accounted for in accordance with IFRS 9: Financial instruments.
E4.2 Profile
 

The group’s direct and indirect holdings in joint arrangements and associates are summarised below:

        Effective economic interest held %  
Name Principal place of business Partner/co-investor Status 30 June 2019
%
30 June 2018
%
 
Joint operations            
Canal Walk Shopping Centre Cape Town, South Africa Ellerine Brothers Active 80,00 80,00  
The Glen Shopping Centre Johannesburg, South Africa Ellerine Brothers Active 75,16 75,16  
Joint ventures – held through Hyprop Mauritius            
AttAfrica Limited(1) Mauritius Attacq Active 37,50 37,50  
Manda Hill Mauritius Limited(2) Mauritius Attacq Active 68,75 68,75  
(1) Hyprop Mauritius has a 37,5% interest in AttAfrica. The initial investment was made on 20 November 2012. Hyprop Mauritius has 50% of the voting rights on the board of AttAfrica and, accordingly, has joint control of AttAfrica.
(2) Hyprop Mauritius has a 50% interest in Manda Hill Mauritius. AttAfrica holds the other 50% of the shares in Manda Hill Mauritius resulting in a group effective economic interest in Manda Hill Mauritius of 68,75%. The effective date of the investment was 1 July 2014. Hyprop Mauritius has 50% of the voting rights on the board of Manda Hill Mauritius and, accordingly, has joint control of Manda Hill Mauritius.
E4.3 Joint operations
  Financial results for the joint operations, Canal Walk and The Glen, are proportionately consolidated in the company and group statements of profit or loss and other comprehensive income and statements of financial position.
E4.3.1 Summary of audited financial information
 

Set out below is a summary of the audited financial information for the joint operations Canal Walk and The Glen.

  Canal Walk     The Glen  
% interest held by Hyprop 30 June 2019 
80,00% 
R000 
30 June 2018 
80,00% 
R000 
    30 June 2019 
75,16% 
R000 
30 June 2018 
75,16% 
R000 
 
Revenue  776 657  724 496        252 100  223 280    
Expenses  (252 853) (227 200)       (92 412) (65 973)   
Interest received  –  1 750        –  130    
Net property income  523 804  499 046        159 688  157 437    
Expenses include:                      
Depreciation    (313)   (238)         (74)   (92)   
E4.4 Joint ventures
E4.4.1 Carrying value
 
  GROUP     COMPANY  
  30 June 2019
R000
30 June 2018
R000
    30 June 2019
R000
30 June 2018
R000
 
Shares at cost              
AttAfrica * *     * *  
Manda Hill Mauritius * *     * *  
Total cost      
* Amounts less than R1 000.

Details of loans to joint ventures are set out in note F1Loans receivable.

E4.4.2 Summary of financial information
 

Set out below is a summary of the audited financial information for the joint ventures AttAfrica and Manda Hill Mauritius.

  Canal Walk     The Glen  
  30 June 2019 
100% 
R000 
30 June 2018 
100% 
R000 
    30 June 2019 
100% 
R000 
30 June 2018 
100% 
R000 
 
Summarised statement of financial position              
Non-current assets   2 671 499   4 911 382         1 784 301   1 902 794    
Current assets  118 632  132 254        42 183  14 226    
Non-current liabilities  (4 874 348) (5 083 572)       (1 131 302) (1 158 504)   
Current liabilities  (86 022) (721 141)       (980 900) (829 596)   
Net liabilities  (2 170 239) (761 077)       (285 718) (71 080)   
Summarised statement of financial position includes:                      
Cash and cash equivalents   48 930   54 964         4 409   7 354    
Current financial liabilities  79 719  93 426        62 960  12 022    
Non-current financial liabilities  4 657 998  4 380 780          1 131 302    1 158 504      
Summarised statement of profit or loss and other comprehensive income                        
Revenue  274 142  283 396        169 828  150 620    
Loss before taxation  (1 378 981) (175 788)       (202 006) (27 847)   
Taxation  (120 675) 62 751        (9 560) (12 394)   
Net loss  (1 499 656) (113 037)       (211 566) (40 241)   
Other comprehensive income (currency translation reserve) (25 836) (23 627)       (2 377) (1 913)   
Total comprehensive loss  (1 525 492) (136 664)       (213 943) (42 154)   
Loss before taxation includes:                      
Interest income   49 714   76 189                
Interest expense  (534 582) (476 383)       (86 048) (90 792)   
Depreciation  (7 821) (2 489)       (7 071) (4 358)   
Comprehensive (loss)/income attributable to:  (1 525 492) (136 664)       (213 943) (42 154)   
   Equity holders of the company  (1 071 032) (116 106)       (213 943) (42 154)   
   Non-controlling interest  (454 460) (20 558)       –  –    
Hypropís share of losses  –  –        –  –    
   – Share of loss from joint venture  (401 637) (43 540)       (106 972) (21 077)   
   – Limitation of loss from joint venture  401 637  43 540        106 972  21 077    

For further details on loans extended to these entities refer to note F1Loans receivable.

E5 FINANCIAL ASSET
E5.1 Accounting policy
 

Where the group has a contractual right to receive its share of net distributable earnings of a financial asset, the financial asset is designated at fair value through profit or loss (FVTPL) and initially measured at fair value. Subsequent to initial recognition, the financial asset is measured at fair value and changes in the fair value are recognised in the consolidated statement of profit or loss and other comprehensive income.

Any gain or loss on initial recognition (i.e. the difference between the fair value and the amount paid) is deferred where the valuation method used to determine the fair value includes assumptions which are derived from unobservable inputs. The deferred profit or loss is subsequently recognised in profit or loss only to the extent of a change in a factor (including time) that market participants would take into account when pricing the asset.

E5.2 Key assumptions and estimations
 

The key assumptions and estimates which have an effect on the group’s investment in Hystead (which is classified as a financial asset) are set out below:

Control over an investee Management assessed whether it has control over Hystead based on the suite of agreements which govern the relationship between the shareholders of Hystead and concluded that Hyprop has joint control of Hystead.
Classification as an equity-accounted investment or financial instrument

In prior years, management considered whether the investment in Hystead should be classified as a joint venture and be equity accounted, or based on the contractual right to receive dividends as a result of the provisions of the Hystead shareholders’ agreement, should be classified as a financial asset.

Based on the provisions of the suite of agreements which govern the relationship between the shareholders of Hystead, Hystead has a financial obligation to pay all of its distributable income as a dividend to its shareholders each year. Accordingly, Hyprop accounts for the investment in Hystead as a financial asset.

Management reassessed the classification and accounting treatment of the investment in Hystead and concluded that the classification as a financial asset remains appropriate.

Valuation of financial asset and deferral of day-one gain

The fair value of the right to receive dividends from Hystead has been valued based on the present value of anticipated future cash flows.

The valuation method includes assumptions derived from unobservable inputs. Management has therefore determined that the day-one gain should be deferred. However, the fair value movement subsequent to that date should be taken through profit or loss.

E5.3 Profile
 
E5.4 Carrying value and net movement for the year
 
      GROUP AND COMPANY  
  Note   30 June 2019 
R000 
30 June 2018 
R000 
 
Balance at the beginning of the year        152 556  –    
Net change in fair value of future cash flows        65 888  152 556    
   – loans receivable capitalised  F1.4     40 716  30 980    
   – new guarantees issued  H3.3     110 401  33 815    
   – fair value adjustment        (85 229) 87 761    
Balance at the end of the year     218 444  152 556   
E5.5 Gross movement for the year
    GROUP AND COMPANY  
    30 June 2019 
R000 
30 June 2018 
R000 
 
E5.5.1 Gross asset (A)      
   Balance at the beginning of the year  3 891 691  2 022 282    
   Additions (new properties acquired) –  2 626 646    
   Unrealised foreign exchange gain  25 558  194 480    
   Change in credit enhancement fees  –  (402 631)   
   Fair value adjustment through profit or loss  587 742  (549 086)   
   Subtotal (fair value) at the end of the year  4 504 991  3 891 691    
   New guarantees issued  110 401  33 815    
   Fair value adjustment through profit or loss  (110 401) (33 815)   
   Balance at the end of the year  4 504 991  3 891 691    
E5.5.2 Deferred gains (B)         
   Balance at the beginning of the year  (3 770 115) (2 022 282)   
   Additions (new properties acquired) –  (2 626 646)   
   Unrealised foreign exchange loss  (24 760) (138 923)   
   Change in credit enhancement fees  –  393 864    
   Fair value adjustment through profit or loss  (491 672) 623 872    
   Balance at the end of the year  (4 286 547) (3 770 115)   
E5.5.3  Fair value of financial asset (A-B)  218 444  121 576    
   Capital injection  –  30 980    
   Balance at the end of the year  218 444  152 556    
E5.6  Movements through profit or loss          
   Movement on financial asset    613 300    1 869 409    
   Movement on deferred gains on financial asset  (516 432) (1 747 833)   
   Net movements on financial asset before guarantees  96 868  121 576    
   Less: Capital investments  (71 696) –    
   Less: New guarantees issued  (110 401) (33 815)   
   Total fair value adjustment to financial asset  (85 229) 87 761    
E5.7 Valuation methodology
 

The group performs an internal valuation of the financial asset based on the cash flows of the underlying investment property companies. The European investment properties are independently valued each December. A directors’ valuation is carried out every June.

The following tables show the valuation techniques used in measuring the financial asset, as well as the significant unobservable inputs used:

Type   Valuation technique   Unobservable inputs   Movement in input   Effect on estimated fair value
Financial asset– Hystead  

Discounted cash flow: The valuation is calculated as the present value of the anticipated future net cash flows expected to be generated by the underlying shopping centres after deducting the head office costs within the Hystead group.

The cash flow projections include specific estimates for 10 years (2018: 10 years). The expected net cash flows are discounted using a risk adjusted discount rate as well as a risk adjusted cap rate.

 
  • Annual growth rate
  • Terminal growth rate
  • Exit cap rate
  • Discount rate
  Increase
Decrease
Increase
Decrease
  Increase
Decrease
Decrease
Increase
E5.8 Valuation assumptions
 

The key assumptions used in determining the fair value of the investment in Hystead are in the following ranges:

  GROUP AND COMPANY  
Unobservable inputs 30 June 2019
%
30 June 2018
%
 
Financial asset – Hystead      
Annual growth rate (1,1) to 2,5 (17,8) to 0,6  
Weighted average annual growth rate 0,2 (0,3)  
Terminal growth rate 1,8 to 2,3 0,8 to 2,0  
Weighted average terminal growth rate 1,9 1,5  
Discount rate 6,0 to 8,0 7,0 to 8,0  
Weighted average discount rate 6,9 7,4  
Exit capitalisation rates 5,0 to 7,3 5,3 to 7,3  
Weighted average exit capitalisation rate 5,8 5,9  
E5.9 Valuation sensitivity
 

The valuation of the investment in Hystead is sensitive to changes to the unobservable inputs. Changes to one of the unobservable inputs, while holding the other inputs constant, would have the following effects on the fair value of the investment in Hystead in the statement of profit or loss.

          GROUP AND COMPANY
(decreases are indicated by brackets)
 
Input   30 June 2019  
% change*
30 June 2018  
% change*
  30 June 2019 
R000 
30 June 2018 
R000 
 
Annual growth rate  Increase  0,5   1,0      96 070  45 449    
   Decrease  0,5   1,0      (96 070) (45 449)   
Terminal growth rate  Increase  0,5   1,0      9 150  2 273    
   Decrease  0,5   1,0      (9 150) (2 273)   
Discount rate  Increase  0,5   1,0      (67 478) (32 951)   
   Decrease  0,5   1,0      67 478  32 951    
Exit capitalisation rates  Increase  0,5   1,0      (68 621) (40 904)   
   Decrease  0,5   1,0      68 621  40 904    
* The percentage change applied in each year is the possible change applicable to each input.
E6 CAPITAL COMMITMENTS
 

Details of approved capital expenditure for the year ended 30 June 2020 are set out below.

  GROUP AND COMPANY  
  30 June 2019
R000
30 June 2018
R000
 
Approved and committed 84 945 165 912  
Approved but not yet committed 365 532 176 236  
Total 450 477 342 148  
  30 June 2020
Total
R000
 
Yield-based projects 241 945  
Trading density improvements 121 475  
Replacements 66 562  
Infrastructure projects 20 495  
Total capital commitments* 450 477  
* Excludes the cost of solar plants under evaluation.

All the capital commitment disclosures exclude held-for-sale properties.

The capital expenditure will be financed out of available cash resources, banking facilities and debt capital market funding.

E7 NON-CURRENT ASSETS HELD-FOR-SALE
E7.1 Accounting policy
 

Non-current assets, or disposal groups comprising assets and liabilities, that are expected to be recovered primarily through sale rather than through continuing use, are classified as held-for-sale. This condition is regarded as met only when the sale is highly probable and the non-current asset or disposal group is available for sale in its present condition subject only to terms that are usual and customary for sales of such assets. For the sale to be highly probable, the appropriate level of management must be committed to a plan to sell the asset or disposal group.

Investment property classified as held-for-sale is measured in accordance with IAS 40: Investment property at fair value with gains or losses on subsequent measurement being recognised in profit or loss in the line profit/(loss) on disposal – investment property. Disposal groups and non-current assets held-for-sale are presented separately from other assets and liabilities in the statement of financial position.

E7.2 Summary of disposal group
 

During the year the group reviewed its strategy, resulting in a revised three-year strategic plan. This led to a decision to exit the group’s sub-Saharan African investments within the next 12 to 18 months. As a result the group’s interest in Gruppo (which owns 100% of the Ikeja City Mall in Lagos, Nigeria, and in which Hyprop has a 75% interest) was designated as held-for-sale. Gruppo is reported under the sub-Saharan African operating segment.

The group’s other sub-Saharan African interests comprise its investments and loans receivable from AttAfrica and Manda Hill. It is anticipated that these interests will be realised by repayment of the loans receivable from the proceeds on disposal of the underlying investment properties. The loans receivable have been classified as short term and are included in current assets.

In 2018, the disposal group consisted of Lakefield Office Park, the last remaining non-core property in the portfolio, which was sold effective 4 January 2019 for a profit of R2,8 million. Lakefield had been reported in the South African operating segment.

E7.3 Movement for the year – assets
 
  GROUP AND COMPANY  
  30 June 2019 
R000 
30 June 2018 
R000 
 
Balance at the beginning of the year 199 257  418 796   
   Disposals – Lakefield(1) (2018: Willowbridge North and Greenstone Park – vacant land) (199 257) (226 607)  
   Additions – Gruppo (2018: Lakefield) 2 047 847  7 068   
Balance at the end of the year 2 047 847  199 257   
E7.4 Movement for the year – liabilities
 
  GROUP AND COMPANY  
  30 June 2019 
R000 
30 June 2018 
R000 
 
Balance at the beginning of the year (8 157) (5 189)  
   Disposals – Lakefield(1) (2018: Willowbridge North and Greenstone Park – vacant land) 8 157  1 468   
   Additions – Gruppo (2018: Lakefield) (1 098 300) (4 436)  
Balance at the end of the year (1 098 300) (8 157)  
Net classified as held-for-sale 949 547  191 100   
(1) The sale of Lakefield Office Park was finalised on 4 January 2019 and the sale proceeds received.