107 / 148
Hyprop Investments Limited
Integrated annual report and consolidated financial statements
2017
105
1.
Accounting policies and presentation of consolidated financial statements
continued
1.21
Taxation
continued
1.21.2
Deferred taxation
continued
The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the group expects, at the
reporting date, to recover or settle the carrying amount of its assets and liabilities. For this purpose, the carrying amount of investment
property measured at fair value is presumed to be recovered through sale, and the group has not rebutted this presumption.
The effect on deferred taxation of any changes in taxation rates is recognised in profit or loss for the period, except to the extent that it
relates to items previously charged or credited directly to other comprehensive income or equity.
Deferred taxation assets and liabilities are offset if there is a legally enforceable right to offset current taxation liabilities and assets, and they
relate to income taxes levied by the same taxation authority on the same taxable entity.
1.22 Segment reporting
The group determines and presents operating segments based on information that is provided internally to the executive management committee
(exco) and to the board of directors. The exco reviews internal management reports of each segment monthly, while the board reviews internal
management reports in respect of each segment at least quarterly.
On a primary basis, the operations are organised into the following business segments: Shopping centres, value centres, standalone offices, investments
in sub-Saharan Africa (excluding South Africa) and investments in South-Eastern Europe.
1.23
Earnings, headline earnings and distributable earnings per share
Earnings per share are calculated based on the weighted average number of shares in issue for the year and profit attributable to shareholders.
Headline earnings per share are calculated in terms of the requirements set out in Circular 2/2015 issued by SAICA.
1.24 Key estimations and uncertainties
Estimates and assumptions are an integral part of financial reporting and as such have an impact on the amounts reported for the group’s income,
expenses, assets and liabilities. Judgement in these areas is based on historical experience and reasonable expectations relating to future events.
Information on the key estimations and uncertainties that have the most significant effect on amounts recognised are set out below:
Investment property valuations
The valuation of investment properties requires judgement in the determination of future cash flows, appropriate discount rates and capitalisation
rates. Refer to
note 2 – Investment property
.
Interests in co-ownerships
Judgement is required to identify the relevant activities of the co-ownerships. Interests in co-ownerships are seen as interests in joint operations.
There is a sharing of control of the co-owned assets and decisions regarding major capital expenditure projects require unanimous consent by the
parties sharing control.
In terms of the co-ownership agreements for Canal Walk and The Glen, material capital expenditure requires mutual consent of the co-owners. In
view of the significant increases in development costs, most capital expenditure that is undertaken is material and accordingly these centres are not
considered to be solely controlled by Hyprop.
The interests in these centres are therefore treated as joint operations.
Control over an investee
Management assessed the acquisition of its interest in Hystead and whether it has control over Hystead. It was concluded that the company has joint
control over Hystead and not control.
Investments in joint ventures – equity-accounted investments versus financial instruments
In the prior year, management assessed the acquisition of Hystead and considered whether it should form part of joint ventures and be equity
accounted or whether the contractual right to receive dividends should be accounted for as a financial asset. The contracts in place give rise to a
financial obligation in the Hystead entity to pay dividends.
Accordingly, Hyprop has to account for this investment as a financial asset and therefore the investment in Hystead has been classified as such. During
the current year, Hystead acquired Balfin MK (as disclosed in
note 6.3 – 60% – Joint venture – Hystead Limited (Hystead)
). Management reassessed
the classification and accounting treatment of the investment in Hystead and concluded that classification as a financial asset remained appropriate.
Investments in joint ventures – valuation of financial instrument 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 future cash flows, at R2 billion
(EUR135,7 million) at the period end, which has increased during the year due to the acquisition of Balfin MK.
There has not been a material change in the fair value of the right to receive dividends from existing investments. The valuation method includes
assumptions which are derived from unobservable inputs and therefore management has determined that the day-one gain should be deferred.
Financial guarantees
Hyprop has guaranteed the obligations of Hystead and its subsidiaries. The investment properties owned by these entities are currently not
encumbered and the joint venture partner in Hystead compensates Hyprop for a portion of this credit enhancement by foregoing certain rights to
dividends in favour of Hyprop.
Management assessed the obligations under the guarantees and concluded that these meet the definition of financial guarantees, and that the
change in value of the guarantees represent a charge or a credit to the statement of profit or loss.