14 Investment property

The investment property is made up as follows:

 

2017

2016

Investment property as at 1 January

4,207

3,726

Acquisitions

10

99

Capital expenditure on owned property

25

23

Transfer from property under construction

80

68

Property sales

(81)

(84)

Revaluation

537

375

Investment property as at 31 December

4,778

4,207

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.

The appraisals 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:

 

2017

 

2016

Average

Sell

 

Hold

 

Sell

 

Hold

Discount rate (%)

6.3

 

5.7

 

6.2

 

5.8

Exit yield (%)

5.8

 

6.2

 

6.4

 

6.9

Rental growth (%)

1.9

 

1.9

 

1.7

 

1.8

Vacant value growth (%)

2.3

 

2.2

 

1.9

 

1.9

        

Sell

2017

 

2016

Region

primary

secondary

other

 

primary

secondary

other

Discount rate (%)

6.2

6.4

6.6

 

6.1

6.3

6.5

Exit yield (%)

5.6

6.1

6.9

 

6.2

6.5

7.2

Rental growth (%)

2.0

1.8

1.8

 

1.7

1.7

1.6

Vacant value growth (%)

2.4

2.0

1.9

 

2.0

1.8

1.7

        

Hold

2017

 

2016

Region

primary

secondary

other

 

primary

secondary

other

Discount rate (%)

5.5

5.9

6.4

 

5.7

6.0

6.5

Exit yield (%)

5.8

6.6

7.3

 

6.6

7.6

7.5

Rental growth (%)

2.0

2.0

1.9

 

1.8

1.9

1.7

Vacant value growth (%)

2.3

2.2

1.8

 

1.9

1.8

1.7

        

Sell

2017

 

2016

Rental segment

<700

>700 < 1200

> 1200

 

<700

>700 < 1200

> 1200

Discount rate (%)

6.3

6.3

6.2

 

6.3

6.2

6.1

Exit yield (%)

6.5

5.8

5.3

 

7.0

6.4

6.0

Rental growth (%)

1.9

1.9

2.0

 

1.7

1.7

1.8

Vacant value growth (%)

2.2

2.3

2.3

 

1.8

1.9

2.1

        

Hold

2017

 

2016

Rental segment

<700

>700 < 1200

> 1200

 

<700

>700 < 1200

> 1200

Discount rate (%)

6.0

5.6

5.5

 

6.0

5.7

5.8

Exit yield (%)

7.1

5.9

5.7

 

7.5

6.6

6.5

Rental growth (%)

1.9

2.0

2.0

 

1.8

1.9

1.8

Vacant value growth (%)

2.1

2.2

2.4

 

1.9

1.9

1.8

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 2017

   

Discount rate

4,451

4,207

3,955

Exit yield

4,450

4,207

4,009

Rental growth

4,047

4,207

4,366

Vacant value growth

4,141

4,207

4,275

    

As at 31 December 2017

   

Discount rate

5,119

4,778

4,562

Exit yield

5,164

4,778

4,593

Rental growth

4,672

4,778

5,017

Vacant value growth

4,763

4,778

4,928