Hyprop Integrated Report 2015

Investment property

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2.4 Investment property pledged as security

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To Rand Merchant Bank (a division of FirstRand Bank Limited) to secure borrowing facilities totalling R762 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 R3,4 billion.

To Nedbank Limited to secure borrowing facilities totalling R2,7 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 R9,5 billion.

2.5 Investment property valuation

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 2015.

The South African portfolio was valued at R26,2 billion at 30 June 2015, excluding minority interests (including 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 6,9%. The average annualised resultant yield range

across all properties was 6,3% to 9,9%.

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 2015 were:

The range of reversionary capitalisation rates applied to the portfolio was between 6,5% and 9,5% with the weighted

average being 6,9% (2014: 7,3%)

The discount rates applied range between 12,3% and 14,5% with the weighted average being 12,6% (2014: 12,5%)

The permanent vacancy factor applied for shopping centres ranged between 0,5% and 2,0% (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 portfolio by R560 million (2%).

A 25 basis point decrease in the capitalisation rate will increase the value of investment property portfolio by R1,08 billion (4%).

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Hyprop Investments Limited

Integrated Report 2015