Notes to the summarised financial statements

for the year ended 31 March 2019

Financial instruments

The financial assets and liabilities measured at fair value in the statement of financial position are grouped into the fair value hierarchy as follows:

   2019     2018    
GROUP Level 1 
R000
 
Level 2 
R000
 
Level 3 
R000
 
Total 
R000
 
   Level 1 
R000 
Level 2 
R000 
Total 
R000 
  
ASSETS                            
Investments in associates at fair value  1 296 737  —  —  1 296 737     1 384 645  —  1 384 645    
Executive share scheme                            
financial assets  72 439  —  —  72 439     79 152  —  79 152    
Derivative financial instruments  —  52 624  —  52 624     —  26 039  26 039    
Total  1 369 176  52 624  —  1 421 800     1 463 797  26 039  1  489 836    
LIABILITIES                            
Executive share scheme                            
financial liabilities  —  (44 617) —  (44 617)    —  (45 053) (45 053)   
Derivative financial instruments  —  (316 430) (224 335) (540 765)    —  (131 479) (131 479)   
Total  —  (361 047) (224 335) (585 382)    —  (176 532) (176 532)   
Net fair value  1 369 176  (308 423) (224 335) 836 418     1 463 797  (150 493) 1 313 304    

There have been no significant transfers between levels 1 and 2 in the reporting period under review.

Investments in associates at fair value

This comprises shares held in listed property companies at fair value which is determined by reference to quoted prices at the reporting date.

Executive share scheme financial assets and liabilities

This comprises the long-term reimbursement right, which is legally offset by the long-term employee benefit liability. This comprises equity-settled share-based long-term incentive reimbursement rights stated at fair value. Fair value has been determined by reference to Vukile’s quoted closing price at the reporting date after deduction of executive and management rights.

Derivative financial instruments

Level 2 derivatives consist of interest rate swap contracts, cross-currency interest rate swaps and forward exchange contracts. The fair values of these derivative instruments are determined by Absa Capital, Rand Merchant Bank, Standard Bank, Nedbank, Investec Bank Limited, Banco Popular, Banco Santander and Caixabank using a valuation technique that maximises the use of observable market inputs. Level 3 derivatives consist of net settled derivatives and share warrants that have been valued using the Black Scholes option pricing model.

Measurement of fair value

The methods and valuation techniques used for the purpose of measuring fair value are unchanged compared to the previous reporting period.

Fair value measurement of non-financial assets (investment properties)

The following table reflects the levels within the hierarchy of non-financial assets measured at fair value at 31 March:

  2019
Recurring fair value
measurements
Level 3
R000
  2018
Recurring fair value
measurements
Level 3
R000
 
Investment properties 29 517 796   19 102 209  
Investment properties under development 163 250   54 476  
  2019
Non-recurring
fair value
measurements
Level 3
R000
  2018
Non-recurring
fair value
measurements
Level 3
R000
 
Investment properties held for sale 1 001 672   10 500  

There were no transfers in or out of level 3 in the reporting period under review.

As at 31 March 2019, the directors have valued the southern African property portfolio at R15.8 billion, and an external valuer have valued the Spanish portfolio at R14.9 billion (2018: R11.8 billion and R7.3 billion respectively). This includes assets classified as held for sale.

This is R11.5 billion or 60.08% higher than the group’s valuation as at 31 March 2018.

The external valuations performed by Quadrant Properties (Pty) Ltd and Knight Frank (Pty) Ltd at 31 March 2019 on 51% of the southern African portfolio are in line with the directors’ valuations. The Spanish portfolio was valued by Colliers International.

The fair values of commercial buildings are estimated using an income approach which capitalises the estimated rental income stream, net of projected operating costs, using a discount rate derived from market yields. The estimated rental stream takes into account current occupancy levels, estimates of future vacancy levels, the terms of in-place leases and expectations of rentals from future leases over the remaining economic life of the buildings.

The most significant inputs are the discount rate and the reversionary capitalisation rate. The inputs used in the valuations at 31 March were:

  2019     2018  
  Discount rate Reversionary
capitalisation rate
    Discount rate Reversionary
capitalisation rate
 
  Range
%
Weighted
average
%
Range
%
Weighted
average
%
    Range
%
Weighted
average
%
Range
%
Weighted
average
%
 
Southern Africa 12.4 to 17.4 13.5 7.4 to 13.0 8.7     12.2 to 17.3 13.4 7.5 to 12.8 8.6  
Spain 7 to 9.0 7.9 5 to 9.2 6     7.5 to 10.3 8.8 5 to 9.1 6.1  

The estimated fair value would increase/(decrease) if the expected market rental growth was higher/(lower), expected expense growth was lower/(higher), the vacant periods were shorter/(longer), the occupancy rate was higher/(lower), the rent-free periods were shorter/(longer), the discount rate was lower/(higher) and/or the reversionary capitalisation rate was lower/(higher).

The effect of a 25 basis point change to the base discount rate is as follows on the 31 March 2019 value of the portfolio:

    25 bps increase   25 bps decrease  
  Fair value
R000
Decreased
fair value
R000
Decrease 
R000 

decrease 
Increased
fair value
R000
Increase
R000
%
increase
 
Southern Africa 15 501 000 15 050 000 (451 000) (2.91) 15 979 000 478 000 3.1  
  Fair value
€000
Decreased
fair value
€000
Decrease 
R000 

decrease 
Increased
fair value
€000
Increase
R000
%
increase
 
Spain 916 470 899 945 (16 525) (1.8) 933 420 16 950 1.8  

SUMMARISED CONSOLIDATED RESULTS
for the year ended 31 March 2019 and change to the board of directors

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