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.

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An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from the property.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 judgements 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: E1.7.3Valuation assumptions
E1.3 Profile
 

Group       Company       
  June 2020 
R'000
 
   June 2019 
R'000
 
   June 2020 
R'000
 
   June 2019 
R'000
 
  
E1.4  Net carrying value                 
   Historical cost  15 516 373     14 897 979     12 826 351     12 702 164    
   Accumulated fair value movements  10 341 537     15 067 836     11 048 012     15 325 157    
   Assets classified as held-for-sale  (1 983 547)    (1 938 494)    –     –    
   Total investment property  23 874 363     28 027 321     23 874 363     28 027 321    
E1.5  Movement reconciliation                 
   Investment property at valuation at 1 July  28 027 321     30 141 027     28 027 321     28 091 539    
   Capital expenditure  140 896     95 064     140 629     94 670    
   Disposals  –     (55)    –     (55)   
   Currency translation difference  436 060     67 016     –     –    
   Net change in fair value  (4 668 419)    (337 238)    (4 277 145)    (158 832)   
      Change in fair value  (4 550 133)    (425 125)    (4 151 218)    (240 231)   
      Straight-line rental income accrual  (118 286)    87 887     (125 927)    81 399    
   Interest capitalised  589     –     589     –    
   Reclassification to property plant and equipment  (17 031)    –     (17 031)    –    
   Transfer to non-current assets held-for-sale  (45 053)    (1 938 494)    –     –    
   Total investment property  23 874 363     28 027 321     23 874 363     28 027 321    
E1.6  Reconciliation to independent valuation                 
   Net carrying value of investment property  23 874 363     28 027 321     23 874 363     28 027 321    
   Straight-line rental income accrual  574 845     448 917     574 845     448 917    
   Property, plant and equipment  206 236     162 288     206 236     162 288    
   Fair value relating to owner occupied building portion  12 897     –     12 897     –    
   Centre management assets  (2 377)    (1 808)    (2 377)    (1 808)   
   Independent valuation (1)  24 665 964     28 636 718     24 665 964     28 636 718    
ss
 
(1) Excludes property held-for-sale, refer to note E7.

Refer to Section C – Segmental analysis, for a breakdown of investment property, contractual rental income and property expenses by segment.

Interest rate used to calculate interest capitalised (%) 7.4   n/a   7.4   n/a  
E1.7 Valuation methodologys
 

Investment property fair value measurements are categorised as level 3 (refer to note L1.1 for the definition of level 3). The Group's policy is to obtain independent valuations of the investment properties and report investment properties at the lower of that value, or a directors' valuation based on arms-length bona fide commercial offers for specific properties. 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).   Canal Walk, Somerset Mall, CapeGate, Rosebank Mall, Atterbury Value Mart, Cradock Heights and 17 Baker (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, Clearwater Mall, Hyde Park Corner, Woodlands Boulevard (Retail and office)
  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 versa). 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
  • 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  
  June 2020
%
  June 2019
%
  June 2020
%
  June 2019
%
 
Reversionary capitalisation rates 6.8 to 9.0   6.5 to 8.8   6.8 to 9.0   6.5 to 8.8  
Weighted average reversionary capitalisation rates 7.5   6.9   7.4   6.8  
Discount rate 10.5 to 14.5   10.5 to 14.3   11.3 to 14.5   12.3 to 14.3  
Weighted average discount ratess 12.4   12.4   12.5   12.5  
Retail vacancy levels 0.0 to 1   0.3 to 2   0.0 to 1   0.3 to 2  
Office vacancy levels 0.0 to 0.5   0.5 to 0.8   0.0 to 0.5   0.5 to 0.8  
Average market rental growth rate 4.2   5.8   4.3   5.8  

The discount and capitalisation rates used in the property valuations are dependent on a number of factors, such as location, the condition of the improvements, current market conditions, the lease covenants and the risk inherent in the property. The current economic downturns in South Africa and Nigeria, together with the extremely difficult trading and operating conditions due to the national lockdowns and Covid-19, has prompted the valuers to assume and apply higher and more conservative discount and reversionary capitalisation rates and to revise their market rental growth rates and forecast property net operating incomes. Reversionary capitalisation rates were adjusted upwards by between 0.25% to 1.5%, from the capitalisation rates used in 2019. Discount rates were adjusted accordingly. The anticipated short-term impact of rental discounts granted to tenants as a result of Covid-19 was taken into account as a "once-off" adjustment.

The independent valuers have noted in their valuation reports that, as a result of Covid-19, their valuations are reported on the basis of "material valuation uncertainty" as per VPS 3 and VPGA 10 of the RICS Red Book Global (The Royal Institute of Chartered Surveyors global valuation standards guideline). They note that, at the valuation date:

  • the current response to Covid-19 means that they are faced with an unprecedented set of circumstances on which to base a judgement; and
  • they consider that they can attach less weight to previous market evidence for comparison purposes, to inform opinions of value.

Consequently, they note that, less certainty and a higher degree of caution should be attached to the valuations than would normally be the case. Given the unknown future impact that Covid-19 might have on the real estate market, they recommend that the valuations be kept under frequent review. It is Hyprop's policy to have its consolidated investment properties independently valued every six months.

E1.7.4 Valuation sensitivity (1)
 

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      
  June 2020 
% change
 
   June 2019 
% change
 
   June 2020 
0R'000
 
   June 2019 
R'000
 
   June 2020 
R'000
 
   June 2019 
R'000
 
  
Increase in reversionary capitalisation rates  0.25     0.25     (630 311)    (723 337)    (630 311)    (723 337)   
Decrease in reversionary capitilisation rates  0.25     0.25     675 237     778 519     675 237     778 519    
Increase in discount rate  0.25     0.25     (251 395)    (274 057)    (251 395)    (274 057)   
Decrease in discount rate  0.25     0.25     254 619     277 580     254 619     277 580    
Increase in average market rental growth rate  0.25     0.25     199 400     279 416     199 400     261 581    
Decrease in average market rental growth rate  0.25     0.25     (215 700)    (302 940)    (215 700)    (283 603)   
(1) Value sensitivities exclude assets held-for-sale

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   June 2020
R'000
  June 2019
R'000
  June 2020
R'000
  June 2019
R'000
 
Fair value of investment property mortgaged as security 19 980 352   25 299 216   17 987 264   23 360 700  
Comprising: Canal Walk (80%), The Glen (75.16%), Somerset Mall (30%), Woodlands Boulevard, Clearwater Mall, Ikeja City Mall (held-for-sale) and Atterbury Value Mart.
Total secured borrowings H1.4   12 183 693   10 760 655   9 189 154   7 306 747  
   Secured borrowings (consolidated) 3 697 101   4 229 324   1 658 225   1 558 308  
   Secured borrowings held-for-sale (consolidated) 955 663   782 892      
   Secured revolving credit facilities not drawn down 500 000     500 000    
   Secured borrowings (non-consolidated) (2) 7 030 929   5 748 439   7 030 929   5 748 439  
(2) Non-consolidated borrowings comprise loans advanced to Hystead Limited and its subsidiaries which have been guaranteed by Hyprop Investments Limited. Hyprop's obligations under these guarantees are secured by mortgage bonds over certain of Hyprop's properties as described above.

E1.9 Straight-line rental income accrual
 
Balance at the beginning of the year  448 917     550 182     448 917     530 316    
Foreign currency translation difference  3 157     650     –     –    
Recognition/(reversal) of straight-line asset during the year  118 286     (87 887)    125 928     (81 399)   
Reallocated from/to asset-held-for-sale  4 485     (14 028)    –     –    
Balance at the end of the year  574 845     448 917     574 845     448 917    

E2 PROPERTY, PLANT AND EQUIPMENT
E2.1 Accounting policy
 

Property, plant and equipment is carried at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is provided on all property, plant and equipment 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 the lease
Owner occupied building: – 20 years

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 property, plant and equipment 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        
June 2020 
R'000
 
   June 2019 
R'000
 
   June 2020 
R'000
 
   June 2019 
R'000
 
  
   Cost 
   Building appurtenances  318 937     256 158     318 937     256 158    
   Tenant installations  85 938     77 338     85 938     77 338    
   Owner occupied building  17 031     –     17 031     –    
   Total cost  421 906      333 496      421 906      333 496     
   Accumulated depreciation 
   Building appurtenances  156 169     122 950     156 169     122 950    
   Tenant installations  58 649     48 258     58 649     48 258    
   Owner occupied building  852     –     852     –    
   Total accumulated depreciation  215 670      171 208      215 670      171 208     
   Net carrying value 
   Building appurtenances  162 768     133 208     162 768     133 208    
   Tenant installations  27 289     29 080     27 289     29 080    
   Owner occupied building  16 179     –     16 179     –    
   Total net carrying value  206 236      162 288      206 236      162 288     
                     
E2.3  Movement for the year                 
   Net carrying value at the beginning of the year  162 288     163 068     162 288     159 911    
   Capital expenditure  83 695     45 051     71 379     43 457    
   Currency translation difference  1 941     103     –     –    
   Disposals  –     (201)    –     (201)   
   Reclassified from investment properties  17 031     –     17 031     –    
   Classified as held-for-sale  (12 859)    (3 524)    –     (356)   
   Depreciation  (45 860)    (42 209)    (44 462)    (40 523)   
   Net carrying value at the end of the year  206 236      162 288      206 236      162 288     

E3 CAPITAL COMMITMENTS
 

Details of approved capital expenditure for the year ended 30 June 2021 are set out below.

  Group and Company  
  June 2020
R'000
June 2019
R'000
 
Approved and committed 173 346   84 945  
Approved but not yet committed 339 315   365 532  
Total 512 661   450 477  
         
Yield-based projects 248 107   241 945  
Trading density improvements 71 994   121 475  
Maintenance/replacements 33 642 66 562  
Infrastructure projects 158 918   20 495  
Total capital commitments (1) 512 661   450 477  
(1) These balances do not include Co-owners' portions of Canal Walk and The Glen.

Capital commitments exclude held-for-sale properties.

The capital expenditure will be financed from available cash resources, cash generated by operations, banking facilities and debt capital market funding.

E4 INVESTMENTS IN SUBSIDIARIES
E4.1 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 in the separate financial statements.

E4.2 Profile
 
Name and country ofincorporation/operation Status Nature of activities 30 June 2020   
% held (1)
30 June 2019   
% held (1)
 
Incorporated and operating in South Africa          
African Land Investments (Proprietary) Limited Dormant Dormant 100    100     
Hyprop Investments Employee Incentive Scheme (Proprietary) Limited Active Hedging the obligations arising from share allocations made to employees. 100    100     
Hyprop Foundation NPC Active Coordination of Hyprop's corporate social investment initiatives. 100    100     
West Africa Asset Management (Proprietary) Limited Active Asset management function for properties in sub-Saharan Africa (excluding SA). 73.12    –     
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    100     
Hyprop Ikeja Mall Limited Active Holding Company for Gruppo. 100    100     
Incorporated and operating in Nigeria          
Gruppo Investments Nigeria Limited Held-for-sale Owner of Ikeja City Mall. 75    75     
(1) Proportion of ownership interest and voting power held by the Group.

E4.3 Carrying value
 
Company       
  June 2020 
R'000
 
   June 2019 
R'000
 
  
Shares at cost             
African Land – Shares at cost  758 264     758 264    
Hyprop Share Scheme       
Hyprop Foundation       
Hyprop Mauritius  398 020       
West Africa Asset Management (Proprietary) Limited     –    
Less accumulated impairments  (398 020)    –    
Total carrying value  758 264     758 264    

* Amounts less than R1 000.

The recoverability of the shares in African Land has been assessed taking into account the loan payable by Hyprop to African Land of R761m (see note H1.4). This results in a net liability of R 2.86m.

The recoverability of the shares in Hyprop Mauritius has been assessed taking into account the following factors:

  • the expected performance of the underlying investments
  • the anticipated market values at which the companies / properties may be sold
  • the net asset value of Hyprop Mauritius which, at 30 June 2020, is negative

In calculating the recoverable amount, no probability-weighted outcomes are used as the directors have assumed a 100% loss given default on the calculated shortfall. The investment (shares) in Hyprop Mauritius and the loan receivable from Hyprop Mauritius (see note F1.4) have been impaired to nil.

E4.4 Movement reconciliation
 
Net carrying value at the beginning of the year  758 264    758 264   
Shares subscribed for  398 020     
Less impairments  (398 020)   –   
Total net carrying value  758 264    758 264   

* Amounts less than R1 000.

E5 INVESTMENTS IN JOINT ARRANGEMENTS
E5.1 Accounting policy
 

Joint arrangements are those entities, assets or properties over which the Group has joint control, established by contractual agreements regarding 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.
E5.2 Key judgements and estimations
 
  Classification as anassociate or joint venture: AttAfrica.   Management has considered whether the investment in AttAfrica should be classified as a joint venture or an associate. Each of the two shareholders in AttAfrica (one of which is Hyprop Mauritius) have a 50% (2019: 37.5%) shareholding in AttAfrica. Based on the new shareholders agreement concluded during the 2020 financial year, decisions regarding the "reserved matters" must to be agreed to by both shareholders. Accordingly, Hyprop concluded that Hyprop Mauritius has joint control of AttAfrica.

E5.3 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 June 2020
%
  June 2019
%
 
Joint operations              
Canal Walk Shopping Centre Cape Town, South Africa Ellerine Brothers Active 80 80  
The Glen Shopping Centre Johannesburg, South Africa Ellerine Brothers Active 75.16 75.16  
Joint ventures              
AttAfrica SA Proprietary Limited (1) South Africa Attacq Limited Active 40.6 37.5  
Joint venture – held through Hyprop Mauritius            
AttAfrica Limited (2) Mauritius AIH International Limited Active 50 37.5  
(1) Effective from 14 April 2020, Hyprop and Attacq Limited acquired the shares and the entire shareholder loan of Atterbury Property Holdings (Pty) Ltd in AttAfrica SA. Subsequent to the transaction, Hyprop holds a 40,6% interest in AttAfrica SA. In 2019, Hyprop held a 37.5% interest in AttAfrica SA which was accounted for as an investment.

E5.4 Joint operations
 

Financial resu lts 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.

E5.4.1 Summary of audited financial information
 

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

  Canal Walk   The Glen  
% interest held by Hyprop June 2020
80%
R'000
  June 2019
80%
R'000
  June 2020
75.16%
R'000
  June 2019
75.16%
R'000
 
Revenue 682 352   776 657   234 728   252 100  
Expenses (235 495)   (252 853)   (102 159)   (92 412)  
Net property income 446 857   523 804   132 569   159 688  
Expenses include:
       Depreciation
(8 508)   (313)   (4 626)   (74)  

E5.5 Joint ventures
E5.5.1 Carrying value
 
Group         Company        
  June 2020 
R'000 
  June 2019 
R'000 
  June 2020 
R'000 
  June 2019 
R'000 
 
Shares at cost                  
AttAfrica – ordinary shares at cost         
AttAfrica – preference shares  –    –    –    –   
   Cost  1 768 661    –    –    –   
   Accumulated impairments  (1 768 661)   –    –    –   
AttAfrica SA – ordinary shares at cost  1 730      1 730     
Total carrying value  1 730    –    1 730    –   

* Amounts less than R1 000.

During the year a portion of the loan receivable from AttAfrica was settled through a subscription for preference shares (see Notes F1.3 to F1.5).

The recoverability of the ordinary and preference shares in AttAfrica has been assessed, taking into account the
following factors:

  • the expected performance of the underlying investments
  • the anticipated market values at which the companies / properties may be sold
  • the negative net asset value of AttAfrica

In calculating the recoverable amount, no probability-weighted outcomes are used as the directors have assumed a 100% loss given default on the calculated shortfall.

The investment in AttAfrica has been impaired to nil.

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

E5.5.2 Summary of audited financial information
 

Set out below is a summary of the audited financial information for the joint venture AttAfrica.

 
AttAfrica   
  June 2020 
100% 
R'000
 
   June 2019 
100% 
R'000
 
  
Summarised consolidated statement of financial position         
Non-current assets  2 467 696     2 671 499    
Current assets  112 337     118 632    
Non-current liabilities  (2 289 891)    (4 874 348)   
Current liabilites  (684 779)    (86 022)   
Net liabilities  (394 637)    (2 170 239)   
Summarised consolidated statement of financial position includes: 
Cash and cash equivalents  27 046     48 930    
Current financial liabilities  677 608     79 719    
Non-current financial liabilities  2 029 296     4 657 998    
Summarised consolidated statement of profit or loss and other comprehensive income 
Revenue  175 000     274 142    
Loss before taxation  (207 923)    (1 378 981)   
Taxation  (4 475)    (120 675)   
Net loss  (212 398)    (1 499 656)   
Other comprehensive income (currency translation reserve) (498 064)    (25 836)   
Total comprehensive loss  (710 462)    (1 525 492)   
Loss before taxation includes:         
Fair value of investment property  (185 176)    (787 557)   
Interest income  –     49 714    
Interest expense  (391 959)    (534 582)   
Depreciation  (6 267)    (7 821)   
Comprehensive (loss)/income attributable to:  (710 461)    (1 525 492)   
   Equity holders of the Company  (598 518)    (1 071 032)   
   Non-controlling interest  (111 943)    (454 460)   
Hyprop's share of losses           
   Share of loss from joint venture  (299 259)    (401 637)   
   Limitation of loss from joint venture  299 259     401 637    

E6 FINANCIAL ASSET
E6.1 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.

E6.2 Key judgements and estimations
 

The key judgements and estimations 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  

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 contractual 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.

  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 the anticipated future cash flows (dividends).

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.

E6.3 Profile
 
E6.4 Carrying value and net movement for the year
 
      Group and Company    
   Note  30 June 2020 
R'000 
   30 June 2019 
R'000 
  
Balance at the beginning of the year  218 444     152 556    
Net change in fair value of future cash flows  314 528     65 888    
   – loans receivable capitalised  –     40 716    
   – new guarantees issued  H3.4  –     110 401    
   – fair value adjustment  314 528     (85 229)   
Balance at the end of the year    532 972     218 444    

E6.5 Gross movement for the year
Group and Company    
June 2020 
R'000
 
   June 2019 
R'000
 
  
E6.5.1 Gross asset (A)        
   Balance at the beginning of the year  4 504 991     3 891 691    
   Unrealised foreign exchange movement  933 815     25 558    
   Fair value adjustment through profit or loss  189 164     587 742    
   Subtotal (fair value) at the end of the year  5 627 970     4 504 991    
   New guarantees issued  –     110 401    
   Fair value adjustment through profit or loss  –     (110 401)   
   Balance at the end of the year  5 627 970     4 504 991    
     
E6.5.2 Deferred gains (B)
   Balance at the beginning of the year  (4 286 547)    (3 770 115)   
   Unrealised foreign exchange movement  (888 535)    (24 760)   
   Fair value adjustment through profit or loss  80 084     (491 672)   
   Balance at the end of the year  (5 094 998)    (4 286 547)   
                 
E6.5.3 Fair value of financial asset (A-B) 532 972     218 444   
   Balance at the end of the year  532 972     218 444    
             
E6.6   Movements through profit or loss         
   Movement on financial asset  1 122 979     613 300    
   Movement on deferred gains on financial asset  (808 451)    (516 432)   
   Net movements on financial asset before guarantees  314 528     96 868    
   Less: Capital investments  –     (71 696)   
   Less: New guarantees issued  –     (110 401)   
   Total fair value adjustment to financial asset  314 528     (85 229)   

E6.7 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.

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

  Type   Valulation 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 (2019: 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


E6.8 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 June 2020
%
  June 2019
%
 
Annual growth rate 1.3 to 18.1   (1.1) to 2.5  
Weighted average annual growth rate 6.5   0.2  
Terminal growth rate   1.8 to 2.3  
Weighted average terminal growth rate   1.9  
Discount rate 6.0 to 8.0   6.0 to 8.0  
Weighted average discount rate 6.9   6.9  
Exit capitalisation rate 5.0 to 7.3   5.0 to 7.3  
Weighted average exit capitalisation rate 5.8   5.8  
(1) Due to the impact of Covid-19 the financial performance of the Hystead Group was negatively impacted up to 30 June 2020. It is however anticipated that the financial performance will return to pre-Covid-19 levels in the short to medium-term. This is reflected in the increase in the annual growth rates and weighted average annual growth rates above.
(2) Despite the impact of Covid-19, no changes were made to the discount and capitalisation rates used in the valuation of the financial asset, due to the relatively stable interest rate environment in Europe.

E6.9 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   
Input    June 2020   
% change(3)
June 2019   
% change(3)
June 2020 
R'000 
  June 2019 
R'000 
 
Annual growth rate  Increase  0.5    0.5    96 653    96 070   
Decrease  0.5    0.5    (96 653)   (96 070)  
Terminal growth rate  Increase  0.5    0.5    6 904    9 150   
Decrease  0.5    0.5    (6 904)   (9 150)  
Exit capitalisation rate  Increase  0.5    0.5    (124 268)   (67 478)  
Decrease  0.5    0.5    124 268    67 478   
Discount rate  Increase  0.5    0.5    (85 607)   (68 621)  
Decrease  0.5    0.5    85 607    68 621   
(3) The percentage change applied in each year is the possible change applicable to each input.

E7 ASSETS AND LIABILITIES 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 disposal 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
 

In 2019 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. 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. Subsequent to 30 June 2020, key terms have been agreed for the disposal of Ikeja City Mall based on a valuation of $115 million. See note O2.2 for details.

The carrying values of the assets and liabilities of Gruppo have been adjusted in line with the anticipated sale proceeds.

The Group's other sub-Saharan African interests comprise its investments and loans receivable from AttAfrica. 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.

E7.3 Maturity profile
      Group      Company    
      June 2020 
R'000
 
   June 2019 
R'000
 
   June 2020 
R'000
 
   June 2019 
R'000
 
  
   Non-current assets  2 009 115     1 985 653     –     –    
   Current assets  89 803     62 194     –     –    
   Total assets classified as held-for-sale less costs to sell  2 098 918     2 047 847              
   Borrowings – current liabilities (2019: non-current) (1 312 286)    (1 056 562)    –     –    
   Other – current liabilities  (46 930)    (41 738)    –     –    
   Total liabilities associated with assets held-for-sale  (1 359 216)    (1 098 300)             
   Net assets classified as held-for-sale  739 702     949 547              
E7.4 Movement for the year – assets                         
   Balance at the beginning of the year  2 047 847     199 257     –     199 257    
      Disposals – Lakefield office park  –     (199 257)    –     (199 257)   
      Additions – Gruppo  51 071     2 047 847     –     –    
   Balance at the end of the year  2 098 918     2 047 847              
E7.5 Movement for the year – liabilities                         
   Balance at the beginning of the year  (1 098 300)    (8 157)    –     (8 157)   
      Disposals – Lakefield office park  –     8 157     –     8 157    
      Additions – Gruppo  (260 916)    (1 098 300)    –     –    
   Balance at the end of the year  (1 359 216)    (1 098 300)             
   Net assets classified as held-for-sale  739 702     949 547