L. FINANCIAL INSTRUMENTS
L1 CLASSIFICATION AND MEASUREMENT OF FINANCIAL INSTRUMENTS
L1.1

Accounting policy

Financial instruments are monetary contracts that give rise to a financial asset (a right to receive cash) of one entity and a financial liability (an obligation to deliver cash) or equity instrument of another entity.

Recognition

Financial assets and financial liabilities are recognised in the statement of financial position when the group becomes party to the contractual provisions of the instrument. The group classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financial liability or an equity instrument in accordance with the substance of the contractual arrangement.

Initial measurement

FVTPL Financial instruments which are categorised and designated at initial recognition as being at FVTPL are initially recognised at fair value. Transaction costs, which are directly attributable to the acquisition or on issue of these financial instruments, are recognised immediately in profit or loss.
Non-FVTPL Financial instruments which are not carried at FVTPL are initially measured at fair value plus transaction costs that are directly attributable to the acquisition or issue of the financial instruments.
Day-one gains or
losses
A day-one gain or loss arises when the transaction price of a financial instrument designated as FVTPL differs from the fair market value on the date of acquisition. If the day-one fair value is calculated based on a valuation methodology which includes assumptions which are derived from unobservable inputs, the day-one gain or loss is deferred. The day-one gain or loss is only recognised in profit or loss to the extent that there is a change in a factor (including time) that market participants would take into account when pricing the financial instrument, the unobservable inputs become observable, or on derecognition of the financial instrument.
Presentation  
Offset Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position when the group has an enforceable right to set off the asset and liability, and intends to settle the asset and liability on a net basis or to realise the asset and settle the liability simultaneously.

Subsequent measurement

The group has adopted IFRS 9: Financial instruments with effect from 1 July 2018. In applying IFRS 9, the group has reconsidered the classification and subsequent measurement of financial assets and liabilities. The impact is summarised in A3.1.

Derecognition of financial instrument

The group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the entity is recognised as a separate asset or liability. The group derecognises a financial liability when its contractual obligations are discharged, cancelled or expire.

Fair value hierarchy

In addition to the subsequent measurement classification, financial instruments carried at fair value are further classified into 3 levels based on the lowest level of input significant to the overall valuation.

Level 1 Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. The group has no level 1 financial instruments.
Level 2 Level 2 inputs are inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly. The group has classified derivatives as level 2.
Level 3 Level 3 inputs are unobservable inputs. Those are used to measure fair value to the extent that relevant observable inputs are not available, to cater for situations in which there is little, or no, market activity for the asset or liability at the measurement date. The group has classified its investment in Hystead as level 3.
L1.2

Accounting classifications, carrying and fair values

The following table reflects the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of the fair value.

  CARRYING AMOUNT   FAIR VALUE AND FAIR VALUE HIERARCHY  
          (The group has no financial instruments
classified as level 1)
 
GROUP
30 June 2019
Fair value
through
profit or loss
R000
Amortised
cost
R000
Total
R000
  Level 2
R000
Level 3
R000
Total
R000
 
Financial assets measured at fair value                
Financial asset 218 444 218 444   218 444 218 444  
Derivative instruments – non-current 619 619   619 619  
Derivative instruments – current 2 691 2 691   2 691 2 691  
  221 754 221 754   3 310 218 444 221 754  
Financial assets not measured at fair value                
Loans receivable – non-current 18 847 18 847    
Loans receivable – current 423 139 909 967 1 333 106   423 139 423 139  
Trade and other receivables (including held-for-sale)* 174 970 174 970    
Cash and cash equivalents (including held-for-sale) 1 326 849 1 326 849    
  423 139 2 430 633 2 853 772   423 139 423 139  
Financial liabilities measured at fair value                
Derivative instruments – non-current 60 224 60 224   60 224 60 224  
Derivative instruments – current 7 339 7 339   7 339 7 339  
Financial guarantees – non-current 110 401 110 401   110 401 110 401  
  177 964 177 964   67 563 110 401 177 964  
Financial liabilities not measured at fair value                
Long-term portion of interest-bearing borrowings (including held-for-sale) 7 365 864 7 365 864    
Short-term portion of interest-bearing borrowings (including held-for-sale) 1 019 499 1 019 499    
Trade and other payables (including held-for-sale) 373 679 373 679    
  8 759 042 8 759 042    

* Excluded from this balance are the following: Prepayments, municipal deposits and sundry receivables.

  CARRYING AMOUNT   FAIR VALUE AND FAIR VALUE HIERARCHY  
          (The group has no financial instruments
classified as level 1)
 
GROUP
30 June 2018
Fair value
through
profit or loss
R000
Amortised
cost
R000
Total
R000
  Level 2
R000
Level 3
R000
Total
R000
 
Financial assets measured at fair value                
Financial asset 121 576 121 576   121 576 121 576  
Derivative instruments – non-current 6 846 6 846   6 846 6 846  
Derivative instruments – current 815 815   815 815  
  129 237 129 237   7 661 121 576 129 237  
Financial assets not measured at fair value                
Loans receivable – non-current 2 937 445 2 937 445    
Loans receivable – current 40 716 40 716    
Trade and other receivables* 245 639 245 639    
Cash and cash equivalents 715 648 715 648    
  3 939 448 3 939 448    
Financial liabilities measured at fair value                
Derivative instruments – non-current 24 060 24 060   24 060 24 060  
Derivative instruments – current 1 999 1 999   1 999 1 999  
  26 059 26 059   26 059 26 059  
Financial liabilities not measured at fair value                
Long-term portion of interest-bearing borrowings 7 815 651 7 815 651    
Short-term portion of interest-bearing borrowings 69 343 69 343    
Financial guarantees – non-current 185 686 185 686    
Trade and other payables 384 107 384 107    
  8 454 787 8 454 787    

* Excluded from this balance are the following: Prepayments, municipal deposits and sundry receivables.

  CARRYING AMOUNT   FAIR VALUE AND FAIR VALUE HIERARCHY  
          (The group has no financial instruments
classified as level 1)
 
COMPANY
30 June 2019
Fair value
through
profit or loss
R000
Amortised
cost
R000
Total
R000
  Level 2
R000
Level 3
R000
Total
R000
 
Financial assets measured at fair value                
Financial asset 218 444 218 444   218 444 218 444  
Derivative instruments – non-current 619 619   619 619  
Derivative instruments – current 2 691 2 691   2 691 2 691  
  221 754 221 754   3 310 218 444 221 754  
Financial assets not measured at fair value                
Loans receivable – non-current 72 450 72 450    
Trade and other receivables* 94 359 94 359    
Cash and cash equivalents 1 062 412 1 062 412    
  1 229 221 1 229 221    
Financial liabilities measured at fair value                
Derivative instruments – non-current 59 408 59 408   59 408 59 408  
Derivative instruments – current 7 326 7 326   7 326 7 326  
Financial guarantees – non-current 296 424 296 424   296 424 296 424  
  363 158 363 158   66 734 296 424 363 158  
Financial liabilities not measured at fair value                
Long-term portion of interest-bearing borrowings 3 649 784 3 649 784    
Short-term portion of interest-bearing borrowings 1 008 000 1 008 000    
Loans payable – non-current 761 125 761 125    
Trade and other payables 310 494 310 494    
  5 729 403 5 729 403    

* Excluded from this balance are the following: Prepayments, municipal deposits and sundry receivables.

  CARRYING AMOUNT   FAIR VALUE AND FAIR VALUE HIERARCHY  
          (The group has no financial instruments
classified as level 1)
 
COMPANY
30 June 2018
Fair value
through
profit or loss
R000
Amortised
cost
R000
Total
R000
  Level 2
R000
Level 3
R000
Total
R000
 
Financial assets measured at fair value                
Financial asset 121 576 121 576   121 576 121 576  
Derivative instruments – non-current 224 224   224 224  
  121 800 121 800   224 121 576 121 800  
Financial assets not measured at fair value                
Loans receivable – non-current 18 723 18 723    
Loans receivable – current 84 160 84 160    
Trade and other receivables 181 339 181 339    
Cash and cash equivalents 643 032 643 032    
  927 254 927 254    
Financial liabilities measured at fair value                
Derivative instruments – non-current 24 060 24 060   24 060 24 060  
Derivative instruments – current 1 999 1 999   1 999 1 999  
  26 059 26 059   26 059 26 059  
Financial liabilities not measured at fair value                
Long-term portion of interest-bearing borrowings 2 949 278 2 949 278    
Short-term portion of interest-bearing borrowings 761 125 761 125    
Financial guarantees – non-current 388 508 388 508    
Trade and other payables 346 916 346 916    
  4 445 827 4 445 827    

* Excluded from this balance are the following: Prepayments, municipal deposits and sundry receivables.

L2 FAIR VALUE MEASUREMENT METHODOLOGIES
L2.1

Fair value measurement techniques

The following tables show the valuation techniques used in measuring level 2 and 3 fair values, 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
 
Derivatives Market comparison: The valuation of the derivative instruments was determined by discounting the future cash flows using the JIBAR or OIS swap curves as applicable. Similar contracts are traded in active markets and the quotes reflect actual transactions in similar instruments.   Not applicable – level 2 Not applicable – level 2  
Financial guarantees

Discounted cash flow: Contractual future cash flows related to each loan were calculated and then multiplied by an appropriate probability of default (PD) and loss given default (LGD). The amounts were then discounted (using risk-free rates) to either the inception date of the exposure or the valuation date (30 June 2019) to obtain the day-one fair value or expected credit loss (ECL).

For the ECL calculations, these can be calculated for either a 12-month period (stage 1) or lifetime (stage 2). Depending on the stage or exposure, the relevant ECL value was chosen and compared to the day-one fair value.

 
  • Probability of default (PD)
  • Loss given default (LGD)
  • Credit rating
Increase
Decrease
Decrease
Increase
Decrease
Increase
 
L2.1.1

Transfers between levels 2 and 3

There were no transfers in either direction between levels 1 and 2 during the current or prior periods, nor were there any transfers out of level 2 or 3 during the current or prior periods.

L2.1.2

Valuation assumptions – Unobservable inputs

  GROUP AND COMPANY  
  30 June 2019 
30 June 2018  
 
Financial asset      
   Annual growth rate (1,1) to 2,5  (17,8) to 0,6   
   Weighted average annual growth rate (0,3)  
   Terminal growth rate 1,8 to 2,3  0,8 to 2   
   Weighted average terminal growth rate  
   Discount rate 6 to 8  7 to 8   
   Weighted average discount rate  
   Exit capitalisation rates 5 to 7,3  5,3 to 7,3   
   Weighted average exit capitalisation rate  
Financial guarantees      
Risk-free rate EUR IOS and
USD IOS
EUR IOS and
USD IOS
 
Data used for probability of default Market traded
instruments
Credit default
swaps
 
Loss given default (%) 20% 20%  
Credit rating BB+ to BBB BB+ to BBB  
L3 RECONCILIATIONS OF LEVEL 3 FINANCIAL INSTRUMENTS
L3.1

Fair value of financial asset – movement reconciliation

    GROUP AND COMPANY  
    30 June 2019  R000  30 June 2018 
R000 
 
L3.1.1 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   
  Additions (financial guarantees) 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   
L3.1.2 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)  
L3.1.3 Fair value of financial asset (A-B) 218 444  121 576   
L3.2

Fair value of financial guarantees – movement reconciliation

  GROUP AND COMPANY   GROUP AND COMPANY  
  30 June 2019  R000  30 June 2018 
R000 
  30 June 2019  R000  30 June 2018 
R000 
 
Opening balance at 1 July 185 686  163 855    388 508  329 575   
Recognition of new financial guarantees issued 110 401  33 815    110 401  136 202   
Fair value adjustment –  –    16 294  –   
Derecognition of guarantees cancelled (185 686) (11 984)   (218 779) (77 269)  
Balance at the end of the year 110 401  185 686    296 424  388 508   
L4 VALUATION SENSITIVITIES – LEVEL 3
L4.1

Fair value of financial asset – valuation sensitivities

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 investment in Hystead in the statement of profit or loss.

    GROUP AND COMPANY  
Input   30 June 2019
% change
30 June 2018
% change
30 June 2019 
% change 
30 June 2018 
% change 
 
Annual growth rate Increase 0,50 1,00 96 070  45 449   
  Decrease 0,50 1,00 (96 070) (45 449)  
Terminal growth rate Increase 0,50 1,00 9 150  2 273   
  Decrease 0,50 1,00 (9 150) (2 273)  
Discount rate Increase 0,50 1,00 (67 478) (32 951)  
  Decrease 0,50 1,00 67 478  32 951   
Exit capitalisation rates Increase 0,50 1,00 (68 621) (40 904)  
  Decrease 0,50 1,00 68 621  40 904   

* The percentage change applied in each year is the possible change applicable to each input.

L4.2

Fair value of financial guarantees – valuation sensitivities

The valuation of the financial guarantees 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 financial guarantees on the statement of financial position.

    GROUP AND COMPANY  
Basis of valuation Change in credit risk 30 June 2019 
R000 
30 June 2018 
R000 
 
If all guarantees were day-one fair value: One notch better credit risk than Hyprop (41 390) (182 643)  
  One notch worst credit risk than Hyprop –  (114 532)  
If all guarantees were 12-month ECL: One notch better credit risk than Hyprop (94 475) (271 994)  
  One notch worst credit risk than Hyprop (86 261) (259 396)  
If all guarantees were lifetime ECL: One notch better credit risk than Hyprop (9 467) (17 570)  
  One notch worst credit risk than Hyprop 40 842  39 692   

Comparative information has not been provided as all Euro denominated guaranteed loans were refinanced and expired guarantees derecognised. The guarantees for US Dollar denominated loans have been reclassified as stage 2 and 3 during the 2019 year.