Included in investment property held for sale is property under leasehold in respect of Willowbridge North. The lessor is Transnet Limited and the lease term runs until 30 June 2033.

The following properties have been pledged as security by means of mortgage bonds (refer to note 18):

To The Standard Bank of South Africa Limited to secure borrowing facilities totalling R880 million and to Standard Finance (Isle of Man) Limited to secure borrowing facilities of USD60 million
1. A 75,15% undivided share in The Glen
2. A 40% undivided share in Canal Walk

The market value of the bonded properties (75,15% and 40% respectively) at year-end was R5,1 billion.

To Rand Merchant Bank (a division of FirstRand Bank Limited) to secure borrowing facilities totalling R962 million and USD30 million
1. A 40% undivided share in Canal Walk

The market value of the bonded property (40% thereof) at year-end was R3 billion.

To Nedbank Limited to secure borrowing facilities totalling R3,6 billion
1. CapeGate
2. Atterbury Value Mart
3. Woodlands Boulevard
4. Clearwater Mall
5. Willowbridge South

The market value of these properties at year-end was R8,9 billion.

To The Standard Bank of South Africa Limited to secure borrowing facilities of USD57,5 million
1. Manda Hill Centre, Lusaka, Zambia

The market value of the bonded property at year-end was USD153 million

Valuation process

It is the policy of the group to obtain an independent valuation of the investment property portfolio on a six-monthly basis. More than one independent valuer may be used to provide the valuation. Investment property is reflected at fair value at 30 June 2014.

The South African portfolio was valued at R24,2 billion at 30 June 2014, excluding minority interests (including development property and property held for sale). The portfolio was valued by two independent, professionally qualified property valuers: The valuation division of Old Mutual Investment Group South Africa, led by Trevor King (BSc DipSurv MRICS, Valuer), Professional Registered Valuer (SA), member of the South African Council for the Valuers Profession, Chartered Valuation Surveyor and Associate of the Royal Institution of Chartered Surveyors (UK), and the valuation division of Jones Lang LaSalle (Proprietary) Limited, led by Roger Long (BSc MBA FRICS MIV(SA)), Professional Registered Valuer, member of the South African Council for the Property Valuers Profession, Chartered Valuation Surveyor and Associate of the Royal Institution of Chartered Surveyors, using the discounted cash flow method.

The significant inputs and assumptions in respect of the valuation process are developed in close consultation with management. The valuation process and fair value changes are reviewed by the audit committee and the board of directors at each reporting date. The directors confirm that there have been no material changes to the assumptions applied by the registered valuers. The average annualised resultant portfolio yield produced by the valuers was 7,2%. The average annualised resultant yield range across all properties was 6,6% to 9,2%.

The most significant inputs to the valuation process, all of which are unobservable, are the estimated rental values, assumptions regarding vacancy levels, the discount rate and the reversionary capitalisation rate. The estimated fair value increases if the estimated rental increases, vacancy levels decline or if discount rates (market yields) and reversionary capitalisation rates decline. The valuations are sensitive to all four assumptions. The inputs used in the valuations at 30 June 2014 were:

	The range of reversionary capitalisation rates applied to the portfolio were between 6,75% and 9,5% with the weighted average being 7,29% (June 2013: 7,17%)
	The discount rates applied range between 11,75% and 14,50% with the weighted average being 12,52% (June 2013: 12,31%)
	The permanent vacancy factor applied for shopping centres ranged between 0,5% and 2,5% (offices 2,5% and 5%)

Changes in discount rates attributable to changes in market conditions can have a significant impact on property valuations. A 25 basis point increase in the average discount rate will decrease the value of investment property by R751 million (3%). A 25 basis point decrease in the capitalisation rate will increase the value of investment property by R962 million (4%)

Valuation techniques underlying management’s estimation of fair value

The valuations were determined using discounted cash flow projections, based on significant unobservable inputs. These inputs include:

There was no change to the method of valuation applied compared to the prior year.

Manda Hill

Manda Hill Centre was valued at R1,6 billion (USD153 million) at 30 June 2014 by the valuation division of Jones Lang LaSalle led by Roger Long, using the cap rate method. The average annualised resultant yield produced by the valuer was 7,5%. The vacancy factor at Manda Hill was 0,5%.

A 25 basis point increase in the capitalisation rate will decrease the value of Manda Hill by R43,4 million (3%) and a 25 basis point decrease in capitalisation rate will increase the value of Manda Hill by R65,1 million (4%).

Fair value hierarchy

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date.

In addition, for financial reporting purposes, fair value measurements are categorised into level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety. The three levels are explained as follows:

Level 1 — inputs are quoted prices in active markets for identical assets or liabilities that the company can access at the measurement date. These quoted prices are unadjusted.
Level 2 — inputs are inputs, other than quoted prices included in level 1, that are observable for the asset or liability, either directly or indirectly.
Level 3 — inputs are unobservable inputs for the asset or liability.

There are interrelationships between unobservable inputs. Expected vacancy rates may impact the yield, with higher vacancy rates resulting in higher yields. For investment property under construction, increases in construction costs that enhance the property’s rental stream may result in an increase in property values. An increase in future rental income may be linked with higher costs. If the remaining lease term increases, the yield may decrease.