17 Investment property

The investment property is made up as follows:

 

2016

2015

Investment property as at 1 January

3,726

3,593

Acquisitions

99

11

Capital expenditure on owned property

23

20

Transfer from inventory property

-

1

Transfer from property under construction

68

11

Property sales

(84)

(75)

Revaluation (fair value adjustment)

375

165

Investment property as at 31 December

4,207

3,726

The fair value of completed investment property has been determined on a market value basis in accordance with International Valuation Standards (IVS), as set out by the IVSC. The valuation is prepared on an aggregated ungeared basis. As set out in Note 4, in arriving at their estimates of market values, the appraisers have used their market knowledge and professional judgement rather than relying exclusively on comparable historical transaction data.

Vesteda continuously seeks to optimise its portfolio of investment properties, which includes the sale of investment properties if this is considered the most optimal strategy; however it appeared not possible under current market conditions to identify that investment properties meet the ‘held-for-sale’ definition. Consequently, no investment properties are presented as held-for-sale as per 31 December 2016.

The valuations were performed by accredited independent appraisers with a recognised and relevant professional qualification and with recent experience in the location and category of the investment property being appraised.

The fair value of the assets is driven by the net cash flows generated by the assets, which are taken into account by the market, in combination with the discount rate development. The generated cash flow is the net rental income plus the net sales revenues from selling individual units.

The following main inputs have been used in the valuation of the investment property:

 

2016

2015

 

Discount rate (%)

6.2

6.7

 

Exit yield (%)

6.4

7.0

 

Rental growth (%)

1.7

1.8

 

Vacant value growth (%)

1.9

1.8

 
    
 

2016

region

primary

secondary

other

Discount rate (%)

6.1

6.3

6.6

Exit yield (%)

6.4

6.7

7.3

Rental growth (%)

1.8

1.7

1.7

Vacant value growth (%)

2.0

1.8

1.7

    
 

2016

rental segment

<700

>700 < 1200

> 1200

Discount rate (%)

6.3

6.2

6.2

Exit yield (%)

7.2

6.5

6.2

Rental growth (%)

1.7

1.7

1.7

Vacant value growth (%)

1.8

1.9

2.0

These inputs are considered to be the most important drivers in the valuation of investment property.

The fair values are determined by external appraisers using discounted cash flow models with a 10 year period. Discount rates are used in the DCF-models to account for the time value of money and reflect the inherent risk with regard to the cash flows in the model when calculating the present values. Exit yields are indicators used to determine the exit values that can be achieved at the end of the DCF lifetime. Rental growth is the average rental growth in the 10 year period of the discounted cash flow model. Vacant value growth is the average vacant value growth in the 10 year period that is assumed in the cash flow model.

Sensitivity analysis

The table below presents the sensitivity of the valuation to changes in the significant parameters driving the underlying valuation of investment property.

 

-100 bps

Fair value 

+100 bps

As at 1 January 2016

   

Discount rate

3,948

3,726

3,497

Exit yield

3,942

3,726

3,546

Rental growth

3,571

3,726

3,879

Empty value growth

3,675

3,726

3,778

    

As at 31 December 2016

   

Discount rate

4,451

4,207

3,955

Exit yield

4,450

4,207

4,009

Rental growth

4,047

4,207

4,366

Empty value growth

4,141

4,207

4,275