110 / 148
Notes to the consolidated
financial statements
continued
for the year ended 30 June 2017
108
Hyprop Investments Limited
Integrated annual report and consolidated financial statements
2017
2.
Investment property
continued
2.5
Investment property valuation
Valuation process
It is the policy of the group to obtain an independent valuation of the South African investment property portfolio on a six-monthly basis. Investment
properties held by subsidiaries or associates of AttAfrica and Hystead are valued by independent valuers on an annual basis. More than one
independent valuer may be used to provide the valuations. Investment property is reflected at fair value at 30 June 2017.
The South African portfolio plus Ikeja City Mall in Lagos, Nigeria, was valued at R29,8 billion at 30 June 2017 (2016: R28,8 billion), excluding property
held-for-sale. The portfolio was valued by three independent, professionally qualified property valuers:
VALUER AND QUALIFICATIONS
PROPERTIES
VALUED
METHOD
Viking Valuations – led by Trevor King, managing director
The investment properties were valued by Mr Trevor King, BSc Hons (Building Science, UCT),
Dip Surveying (UK, Reading University), Professional Registered Valuer (SA Council of Valuers),
Chartered Valuation Surveyor (Royal Institute of Chartered Surveyors RICS). Mr King has over
32 years’ experience in the property valuation industry. The valuations were conducted in
accordance with International Valuation Standards.
9 South African
properties
(retail and
offices)
Discounted
cash flow
Jones Lang LaSalle Proprietary Limited (JLL), led by Jürgen Karg
The valuations division of JLL led by Jürgen Karg (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 (UK).
2 South African
properties
(both retail)
Discounted
cash flow
Jones Lang LaSalle Proprietary Limited (JLL), led by Joshua Askew FRICS CIS HypZert (MLV)
FRICS, Head of Valuation: Sub-Saharan Africa, National Director, RICS Regulated Valuer, Chartered
Valuation Surveyor and Fellow of the Royal Institution of Chartered Surveyors. Licensed
European Pfandbrief (Covered Bond) MLV Valuer.
1 Nigerian
property
(retail)
Discounted
cash flow
The valuers work independently of each other and their valuations are combined to arrive at a fair value for investment property.
The significant inputs and assumptions in respect of the valuation processes are developed in close consultation with management.
The valuation processes 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 most significant inputs to the valuation process, all of which are unobservable, are the estimated rentals at the end of the lease, 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 2017 were:
■■
The range of initial capitalisation rates applied to the portfolio was between 6,3% and 8,5% with the weighted average being 6,7% (2016: 6,8%). The
initial capitalisation rates approximate the average annualised property yields.
■■
The discount rates applied ranged between 12,3% and 14,5% with the weighted average being 12,5% (2016: 11,7%)
■■
The permanent vacancy factor applied for shopping centres ranged between 0,5% and 2,0% (offices 0,5% and 2,0%)
■■
The average rental escalation percentage applied for shopping centres and offices was 6% and for renewals and new leases ranged between
6,5% and 8,0%.
Changes in discount rates attributable to changes in market conditions can have a significant impact on property valuations.
Effect on valuation of investment property portfolio:
■■
A 25 basis point increase in the average discount rate will decrease the value of investment property portfolio by R634 million
(2,0%)(2016: R674 million (2,1%))
■■
A 25 basis point decrease in the average discount rate will increase the value of investment property portfolio by R660 million
(2,0%) (2016: R703 million (2,2%))
■■
A 25 basis point increase in the capitalisation rate will decrease the value of investment property portfolio by R1,17 billion
(3,6%) (2016: R1,21 billion (3,7%))
■■
A 25 basis point decrease in the capitalisation rate will increase the value of investment property portfolio by R1,26 billion
(3,9%) (2016: R1,30 billion (4,0%))