Fair value disclosures – financial instruments

Fair value disclosures on financial instruments in respect of June 2018 have not changed. Please refer to disclosures in Hyprop's integrated report for the year ended June 2018 on Hyprop's website.

Financial guarantees

Hyprop and PDI Investment Holdings Limited (PDI) have guaranteed EUR400,8 million of loans advanced by banks to Hystead as follows:

  • Hyprop EUR360,8 million (90%)
  • PDI EUR40 million (10%)

PDI has provided back-to-back guarantees to Hyprop for a further EUR46,8 million (equivalent to 11,7% of the EUR400,8 million guaranteed debt).

For the remaining EUR73,5 million of debt (18,3% of the EUR401 million guaranteed debts) which Hyprop has guaranteed in excess of its pro rata 60% interest in Hystead, Hyprop receives 60% of the related dividends declared to PDI from Hystead, which equates to 11% (60% x 18,3%) of the dividends paid by Hystead (the credit enhancement fee).

This agreement is in place until May 2021, when the shareholders' agreement between Hyprop and PDI, as shareholders in Hystead, expires.

The guarantees issued by Hyprop are recognised as financial liabilities on the statement of financial position, initially at fair value.

During the financial period loans of EUR242 million (EUR202 million of which were guaranteed by Hyprop) were refinanced and Hyprop provided new guarantees for EUR198 million of the new loan. This resulted in the derecognition of the guarantees given in respect of the expired loans and recognition of the new guarantees as financial liabilities.

The initial fair values of the guarantees issued are determined by an independent specialist and are dependent on estimated credit spreads, forecast cash flows and forecast interest rates, which require significant judgement.

Details of movement in financial guarantees

    Six months 
31 December 2018 
R000 		    Six months 
31 December 2017 
R000 		   
Balance at beginning of the period/year   185 686    163 855   
Net change   162 891     29 409    
Recognition of new financial guarantees (refer to financial asset)   196 565     41 393    
Derecognition of expired guarantees   (33 674)   (11 984)   
Balance at end of period/year   348 577     193 264 

Financial instruments

A  Accounting classifications and fair values
 

The following table reflects the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of the fair value. The risks associated with the balances are also indicated.

   Carrying amount    Fair value and fair value hierarchy
(The group has no financial
instruments classified as level 1) 		  
   Fair value 
through 
profit 
or loss 
R000 		   Amortised 
cost 
R000 		   Total 
R000 		   Level 2 
R000 		   Level 3 
R000 		   Total 
R000 		  
December 2018                         
Financial assets measured at fair value                         
Financial asset  176 472         176 472          176 472      176 472     
Derivative instruments – non-current  4 566         4 566      4 566          4 566     
Derivative instruments – current  6 937         6 937      6 937          6 937     
  187 975         187 975      11 503      176 472      187 975     
Financial assets not measured at fair value                         
Loans receivable – non-current  423 881      1 630 283      2 054 164                 
Loans receivable – current       19 256      19 256                 
Trade and other receivables  7 348      244 898      252 246                 
Cash and cash equivalents (including held-for-sale) 712      901 122      901 834                 
  431 941      2 795 559      3 227 500                 
Financial liabilities measured at fair value                         
Derivative instruments – non-current  23 471         23 471      23 471          23 471     
Derivative instruments – current  2 545         2 545      2 545          2 545     
  26 016         26 016      26 016          26 016     
Financial liabilities not measured at fair value                         
Long-term portion of interest-bearing borrowings       5 872 230      5 872 230                 
Short-term portion of interest-bearing borrowings       2 531 009      2 531 009                 
Financial guarantees – non-current       348 577      348 577                 
Trade and other payables  10 886      374 853      385 739                 
  10 886      9 126 669      9 137 555                 
    Carrying amount      Fair value and fair value hierarchy
(The group has no financial
instruments classified as level 1)  		   
    Designated 
at fair value 
through 
profit 
or loss 
R000 		    Amortised 
cost 
R000 		    Total 
R000 		    Level 2 
R000 		    Level 3 
R000 		    Total 
R000 		   
December 2017                                     
Financial assets measured at fair value                                      
Financial asset   (1)                      (1)          
Derivative instruments – current   8 894           8 894     8 894           8 894     
   8 894           8 894     8 894           8 894     
Financial assets not measured at fair value                                      
Loans receivable – non-current         2 646 106     2 646 106                      
Loans receivable – current         17 302     17 302                      
Trade and other receivables         221 631     221 631                      
Cash and cash equivalents        1 094 882     1 094 882                      
         3 979 921     3 979 921                      
Financial liabilities measured at fair value                                      
Derivative instruments – non-current   61 822           61 822     61 822           61 822     
Derivative instruments – current   821           821     821           821     
   62 643           62 643     62 643           62 643     
Financial liabilities not measured at fair value                                      
Long-term portion of interest-bearing borrowings         5 648 768     5 648 768                       
Short-term portion of interest-bearing borrowings         2 695 583     2 695 583                       
Financial guarantees – non-current         193 264     193 264                       
Trade and other payables         405 314     405 314                       
         8 942 929     8 942 929                       

(1) Value less than R1 000
B Measurement of fair value
  Details of valuation techniques
  The following tables show the valuation techniques used in measuring level 2 and 3 fair values, as well as the significant unobservable inputs used:

 

Type

  

Valuation technique

  

 

Significant
unobservable
inputs

  

Inter-relationship
between
significant
unobservable
inputs and
fair value
measurement

Financial asset – Hystead Limited (Hystead)

  

Discounted cash flow: The valuation model uses the present value of the future net cash flows expected to be generated by the underlying shopping centres after deducting the head office costs within the Hystead group. The cash flow projections include specific estimates for 10 years. The expected net cash flows are discounted using a risk adjusted discount rate as well as a risk adjusted cap rate.

  

Annual growth rate and terminal growth rate

Exit cap rates and discount rates

  

The estimated fair value would increase (decrease) if:

  • The annual growth rate is higher (lower); or
  • The exit cap rate is lower (higher)

Derivatives

  

Market comparison: The valuation of the derivative instruments was determined by discounting the future cash flows using the JIBAR or OIS swap curves as applicable. Similar contracts are traded in active markets and the quotes reflect actual transactions in similar instruments.

  

Not applicable – level 2

  

Not applicable – level 2
  Transfers between levels
  There were no transfers in either direction between levels 1 and 2 during the current or prior periods, nor were there any transfers out of level 2 or 3 during the current or prior periods.
Valuation assumptions
Level 3 – significant unobservable inputs (% unless otherwise stated)   Six months 
31 December 2018 
R000 		    Six months 
31 December 2017 
R000 		    12 months 
June 2018 
R000 		   
Financial asset – Hystead Limited (Hystead)              
Annual growth rate   0   Between
0,2 and 2,6		   Between
(17,8) and 0,6		  
Weighted average annual growth rate   0   1,2   (0,3)  
Terminal growth rate   Between
1,8 and 2		   Between
0 and 0,4		   Between
0,8 and 2		  
Weighted average terminal growth rate   1,8   0,2   1,5  
Discount rate   Between
6 and 8		   Between
7 and 8		   Between
7 and 8		  
Weighted average discount rate   6,9   7,4   7,4  
Exit capitalisation rates   Between
5 and 7.3		   Between
5.5 and 7.3		   Between
5.3 and 7.3		  
Weighted average exit capitalisation rate   5,8   6,2   6,0