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An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from the property.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

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.

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:

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:

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

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.

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.

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.

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).

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:

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

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

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

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

For further details on loans extended to these entities refer to note F1 – Loans receivable.

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.

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:

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:

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

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.

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

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.

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.

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.