115 / 160
113
Hyprop Investments Limited
Group annual financial statements 2016
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 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 2016.
The portfolio was valued at R28,8 billion at 30 June 2016 (2015: R25,0 billion), excluding property held-for-sale. The portfolio was valued by two
independent, professionally qualified property valuers:
Valuer and qualifications
Properties
valued
Method
Old Mutual Investment Group South Africa (Old Mutual) led by Trevor King –
The valuations division of Old Mutual led by Trevor King (BSc DipSurv MRICS Valuer),
Professional Registered Valuer (SA), member of South African Council for the Valuers
Profession and a Chartered Valuation Surveyor and Associate of the Royal Institution of
Chartered Surveyors (UK).
13 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 and
the Nigerian
property
(all retail)
Discounted
cash flow
The valuers work independently of each other and their valuations are combined to arrive at the value of the full portfolio.
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 income yield produced by the valuers was 7,2% (2015: 6,9%). The average annualised resultant yield
range across all properties was 6,5% to 11,0% (2015: 6,3% to 9,9%).
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 2016 were:
•
•
The range of reversionary capitalisation rates applied to the portfolio was between 6,5% and 10,0% with the weighted average being
6,8% (2015: 6,9%)
•
•
The discount rates applied range between 12,3% and 14,5% with the weighted average being 11,7% (2015: 12,6%)
•
•
The permanent vacancy factor applied for shopping centres ranged between 0,5% and 2,0% (offices 2,5% and 5,0%)
•
•
The average rental escalation percentage applied for shopping centres ranged between 5,0% and 8,0% (offices 5,0% and 6,0%).
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 R674 million (2,1%).
A 25 basis point decrease in the average discount rate will increase the value of investment property portfolio by R703 million (2,2%).
A 25 basis point increase in the capitalisation rate will decrease the value of investment property portfolio by R1,21 billion (3,7%).
A 25 basis point decrease in the capitalisation rate will increase the value of investment property portfolio by R1,30 billion (4,0%).