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Hyprop Investments Limited
Integrated annual report and consolidated financial statements
2017
109
2.
Investment property
continued
2.5
Investment property valuation
continued
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:
Future rental cash flows:
Based on the location, type and quality of the properties and supported by the terms of any existing leases or other
contracts or external evidence such as current market rentals for similar properties.
Discount rates:
The discount rate is the rate of return used in a discounted cash flow analysis to determine the present value of future cash flows, and
takes into account an assessment of the uncertainty in the amount and timing of future cash flows.
Vacancy rates:
Based on current and expected future market conditions after expiry of any current leases, as well as tenant failures during the course
of a lease.
Maintenance costs:
Including necessary investment to maintain functionality of the property for its expected useful life.
Capitalisation rates:
Based on location, size and quality of the properties and taking into account market data at the valuation date.
Terminal value:
Taking into account assumptions regarding maintenance costs, vacancy rates and market rentals.
The valuation methods applied by the independent valuers were the same as the prior year.
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. 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
– these 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.
Recurring fair value
measurements – level 3
June 2017
Valuation
R000
June 2016
Valuation
R000
South Africa
(1)
Shopping centres
26 490 589
25 282 472
Value centres
1 248 000
1 109 000
Standalone offices
117 000
108 300
Sub-Saharan Africa (excluding South Africa)
Ikeja City Mall (Lagos, Nigeria)
1 969 744
2 322 426
Total consolidated
29 825 333
28 822 198
(1)
Excludes property held-for-sale
Non-recurring fair value
measurements – level 3
June 2017
Valuation
R000
June 2016
Valuation
R000
Assets held-for-sale
418 798
1 230 775
Total consolidated
418 798
1 230 775
Investment property held-for-sale was measured at fair value which, in instances where the property is already sold, but not yet transferred, is based
on the sale price.
There are inter-relationships between unobservable inputs. Expected vacancy rates may impact the yield, with higher vacancy rates resulting in lower
yields. An increase in future rental income may be linked with higher costs. If the remaining lease term increases, the yield may decrease.