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Hyprop Investments Limited
Integrated annual report and consolidated financial statements
2017
135
34.
Financial instruments – Fair values and risk management
continued
B – Measurement
continued
IV. Level 3 fair values
Reconciliation of level 3 fair values
The following table shows a reconciliation from the opening balances to the closing balances for level 3 fair values:
June 2017
R000
June 2016
R000
Balance at 1 July
Acquisition of 60% equity investment in Hystead at cost
(1)
Net change in fair value
1 472 754
Deferral of unrealised fair value change calculated with reference to unobservable inputs
(1 472 754)
Unrealised foreign exchange loss
(112 340)
Net change in fair value of new assets (acquisition of Skopje City Mall, Skopje, Macedonia)
661 868
1 472 754
Deferral of unrealised fair value change calculated with reference to unobservable inputs (day-one gains)
(549 528)
(1 472 754)
Balance at 30 June
(1)
Value less than R1 000
There were no transfers out of level 3 during the current or prior years.
V. Valuation sensitivity analysis
Joint venture – Hystead
For the fair value of the equity investment in Hystead, changes at the reporting date to one of the significant unobservable inputs, holding other
inputs constant, would have the following effects.
June 2017
R000
June 2016
R000
Increase
Decrease
Increase
Decrease
Profit or loss
Change in annual growth rate – 1% (2016: 1%)
26 731
(26 731)
33 268
(33 268)
Change in exit cap rate – 1% (2016: 1%)
(378 887)
378 887
(106 202)
106 202
C – Financial risk management
The group has exposure to the following risks arising from financial instruments:
■■
Interest rate risk
■■
Credit risk
■■
Liquidity risk and
■■
Foreign exchange risk.
I. Risk management framework
The board of directors (board) has overall responsibility for the establishment and oversight of the group’s risk management framework. The board
reviews and monitors the effectiveness of internal control systems, assisted by the audit and risk committee. The committee is in turn assisted by
management reporting and periodic reviews, as well as reports from an outsourced internal audit service provider. The committee reports to the
board on the findings of the internal audit function.
Executive management implement controls to ensure the validity, accuracy and completeness of financial information. These controls are reviewed
by internal audit.
The audit and risk committee has an independent role, operating as an overseer and making recommendations to the board for its consideration and
final approval. The committee does not assume the functions of management, which remain the responsibility of the executive directors, officers and
other members of senior management. The main role of the committee is to ensure that an appropriate risk management policy aligned with industry
practice is adopted and implemented. For further detail on the role and mandate of this committee, please refer to its charter online.