Notes to the condensed financial statements
for the year ended 31 March 2021

1 GENERAL ACCOUNTING POLICIES

1.1 Basis of preparation

Estimates

Management discusses with the audit committee the development, selection and disclosure of the group's critical accounting policies and estimates and the application of these policies and estimates. Actual results may differ from these estimates.

Except for the amendments adopted as set out below in point 1.2, all accounting policies applied by the group in the preparation of these consolidated financial statements are consistent with those applied by the group in its consolidated financial statements as at and for the year ended 31 March 2020.

The revaluation of investment property requires judgement in the determination of discount rates and an appropriate reversionary capitalisation rate. Note 2.3 sets out further details of the fair value measurement of investment property.

In determining the lease liability in accordance with IFRS 16, the incremental borrowing rate was estimated by management using the three-year DMTN margin as a starting point. The rate was adjusted to reflect an estimated spread for a tenor of 10 years, 25 years and 50 years.

Judgements

Judgement is applied in certain areas based on historical experience and reasonable expectations relating to future events. Uncertainty around the future economic impact as a result of the COVID-19 pandemic has also been considered.

Management applied judgement in accounting for the impact of the COVID-19-related rent concessions. Vukile is of the view that the rental discounts provided to Southern African tenants did not constitute lease modifications, thus recognising the discounts as a reduction in income from leases. The deferral of Southern African rent payments has also been treated as a non-modification of leases. In Spain, the scope of certain leases were changed, resulting in lease modifications, thus recognising rental income in accordance with the updated lease terms.

Management also applied judgement in assessing whether certain investment properties qualify to be classified as held for sale. In management's opinion, the following properties met all the IFRS 5 requirements and are classified as held for sale:

  • Ulundi King Senzangakhona Shopping Centre
  • Letlhabile Mall
  • Pretoria Rosslyn Warehouse
  • Kempton Park Spartan Warehouse
  • Centurion Samrand N1

1.2 New standards and amendments

The group has adopted the following new standards, or amendments to standards which were effective for the first time for the financial period commencing 1 April 2020:

1.2.1 Management has assessed the changes to IFRS 7 relating to the interest rate benchmark reform which is to result in amendments to the following standards:

  • Amendments to IFRS 7 – Financial Instruments: Disclosures;
  • Amendments to IFRS 9 – Financial Instruments; and
  • IFRS 16 – Leases.

IFRS 7 – Financial Instruments: Disclosure relates to instances where IBORs are expected to be replaced by an alternative benchmark. This amendment permits the continuation of hedge accounting for such hedge relationships for phase 1. This had no impact on the group. Amendments related to phase 2 result in a change to the effective date being financial periods beginning on or after 1 January 2020, which was amended to 1 January 2021.

2 FAIR VALUE MEASUREMENT

2.1 Fair value measurement of financial instruments

Financial assets and financial liabilities measured at fair value in the statement of financial position are grouped into three levels of a fair value hierarchy. The three levels are defined based on the observability of significant inputs to the measurement, as follows:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2: Other than quoted prices included within level 1, that are observable for the asset or liability, either directly or indirectly
Level 3: Unobservable inputs for the asset or liability

2.2 Fair value hierarchy

The following table presents financial assets and liabilities measured at fair value in the statement of financial position in accordance with the fair value hierarchy. The level within which the financial asset or liability is classified is determined based on the lowest level of significant input to the fair value.

        2021        2020      
Group  Level 1 
Rm 
Level 2 
Rm 
Level 3 
Rm 
Total 
Rm 
Level 1 
Rm 
Level 2 
Rm 
Level 3 
Rm 
Total 
Rm 
Assets 
Investment in associate at fair value  538  –  –  538  338  –  –  338 
Equity investment at fair value  309  –  –  309  246  –  –  246 
Executive share scheme financial asset  57  –  –  57  36  –  –  36 
Derivative financial instruments  –  214  215  –  12  18  30 
Total  904  214  1 119  620  12  18  650 
Liabilities 
Executive share scheme financial liability  –  (26) –  (26) –  (18) –  (18)
Derivative financial instruments  –  (578) (202) (780) –  (1 060) (163) (1 222)
Total  –  (604) (202  (806) –  (1 078) (163) (1 241)
Net fair value  904  (390) (201) 313  620  (1 066) (145) (591)

There have been no significant transfers between levels 1, 2 and 3 in the reporting period under review.

Investment in associate at fair value

This comprises shares held in a listed property company (Fairvest) at fair value, which is determined by reference to the quoted closing price at the reporting date.

Equity investment at fair value

Listed equity investment: The fair value of shares held in listed property securities (Arrowhead) is determined by reference to the quoted closing price at the reporting date.

Executive share scheme financial assets and liabilities

This comprises equity-settled share-based long-term incentive reimbursement rights stated at fair value. The level 1 asset is determined with reference to Vukile’s share price.

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 Vukile’s and Castellana’s bank funders, 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.

2.3 Fair value measurement of non-financial assets (investment property)

At 31 March 2021, the directors valued the Southern African property portfolio at R15.6 billion (31 March 2020: R15.6 billion), and an external valuer valued the Spanish portfolio at R17.1 billion (31 March 2020: R19.8 billion).

The external valuations performed by Quadrant Properties (Pty) Ltd and Knight Frank (Pty) Ltd at 31 March 2021 on 54% of the Southern African portfolio were in line with the directors’ valuations. The Spanish portfolio was valued by Colliers International.

The fair values of commercial buildings are estimated using a DCF method, 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 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 most significant inputs are the discount rate and the reversionary capitalisation rate. The inputs used in the valuations were:

  2021       2020    
Discount rate (%) Reversionary
capitalisation rate (%)
Discount rate (%) Reversionary
capitalisation rate (%)
Range Weighted
average
Range Weighted
average
Range Weighted
average
Range Weighted
average
Southern Africa 12.7 to 19.6 13.8 7.7 to 15.3 9.2 12.7 to 19.6 13.8 7.7 to 15.5 9.1
Spain 7.3 to 9.0 8.2 5.0 to 9.3 6.2 7.3 to 9.0 8.0 5.0 to 9.3 6.1

The impact of the COVID-19 pandemic and the government-imposed lockdowns on the economies in Southern Africa and Spain has resulted in a decrease in cash flows and expected growth rates. Given the fact that markets have stabilised following short-term volatility, the average base discount rate in the Southern African portfolio remained unchanged. The exit capitalisation rate was increased for FY21, largely due to lower future growth assumptions.

Southern Africa

The discount rate and reversionary capitalisation rate have been disaggregated based on geography. The table below also illustrates the impact on valuations resulting from changes in net operating income (NOI).

Southern African directly-held property portfolio  Portfolio 
exposure 
Average 
discount 
rate 
Average 
exit 
capitalisation 
rate 
Valuation 
impact if 
base 
discount 
rate is 
increased by 
50bps 
Valuation 
impact of 
50% NOI 
reduction 
in year 
one 
Valuation 
impact of 
5% NOI 
reduction 
in capitalisation 
year 
Valuation 
impact of 
5% NOI 
reduction 
in cash 
flow in 
capitalisation 
year 
Total portfolio  100.0  13.7  9.2  (5.2) (4.2) (3.4) (5.1)
Retail  95.0  13.7  9.1  (5.2) (4.2) (3.5) (5.1)
Other  5.0  14.1  10.7  (4.9) (4.6) (2.7) (5.2)
Gauteng  38.0  13.6  9.1  (5.5) (4.1) (3.5) (5.1)
KwaZulu-Natal  21.0  13.5  8.9  (4.8) (4.2) (3.3) (5.1)
Western Cape  7.0  13.2  9.1  (5.4) (4.1) (3.4) (5.1)
Free State  8.0  13.2  8.6  (5.7) (3.9) (3.6) (5.0)
Limpopo  7.0  14.2  9.5  (4.9) (4.6) (3.2) (5.0)
Eastern Cape  7.0  13.6  8.9  (5.5) (4.0) (3.6) (5.1)
Namibia  5.0  15.9  11.5  (4.2) (4.9) (2.8) (5.2)
North West  4.0  14.3  9.5  (4.1) (4.3) (3.3) (5.0)
Mpumalanga  3.0  14.9  10.5  (4.8) (4.7) (3.4) (5.1)

The above information has been further disaggregated based on risk (discount rates). Refer to the following three tables:

Discount rate below 14%  Portfolio 
exposure 
Average 
discount
rate 
Average 
exit 
capitalisation 
rate 
Valuation 
impact if 
base 
discount 
rate is 
increased by 
50bps 
Valuation 
impact of 
50% NOI 
reduction 
in year 
one 
Valuation 
impact of 
5% NOI 
reduction 
in capitalisation 
year 
Valuation 
impact of 
5% NOI 
reduction 
in cash 
flow in 
capitalisation 
year 
Total portfolio  59.0  13.0  8.4  (5.7) (3.9) (3.5) (5.1)
Retail  56.0  13.0  8.4  (5.7) (3.8) (3.6) (5.1)
Other  3.0  13.1  9.2  (5.6) (4.2) (2.4) (5.3)
Gauteng  25.0  13.0  8.5  (5.8) (3.8) (3.6) (5.1)
KwaZulu-Natal  15.0  13.2  8.5  (5.4) (4.0) (3.2) (5.1)
Western Cape  4.0  12.7  8.7  (5.7) (3.9) (3.4) (5.1)
Free State  5.0  12.7  7.9  (6.1) (3.6) (3.7) (5.0)
Limpopo  3.0  12.7  8.1  (5.9) (3.7) (3.7) (5.0)
Eastern Cape  4.0  13.2  8.3  (5.9) (3.7) (3.7) (5.1)
North West  3.0  13.2  8.3  (5.8) (3.9) (3.7) (5.0)
Discount rate between 14% and 16%  Portfolio 
exposure 
Average 
discount 
rate 
Average 
exit 
capitalisation 
rate 
Valuation  
impact if  
base  
discount  
rate is  
increased by  
50bps  
%  
Valuation  
impact of  
50% NOI  
reduction  
in year  
one  
%  
Valuation  
impact of  
5% NOI  
reduction  
in capitali- 
sation  
year  
%  
Valuation  
impact of  
5% NOI  
reduction  
in cash  
flow in  
capitalisation  
year  
%  
Total portfolio  34.0  14.4  9.9  (4.5)  (4.5)  (3.4)  (5.1) 
Retail  33.0  14.4  9.8  (4.5)  (4.5)  (3.4)  (5.1) 
Other  1.0  14.4  12.4  (4.1)  (4.8)  (3.2)  (5.1) 
Gauteng  9.0  14.2  9.6  (5.1)  (4.2)  (3.5)  (5.1) 
KwaZulu-Natal  6.0  14.5  9.9  (3.4)  (4.6)  (3.5)  (5.1) 
Western Cape  3.0  14.0  9.8  (5.0)  (4.6)  (3.5)  (5.1) 
Free State  3.0  14.0  10.0  (4.9)  (4.5)  (3.5)  (5.0) 
Limpopo  3.0  14.9  10.3  (4.2)  (5.2)  (2.9)  (5.0) 
Eastern Cape  3.0  14.0  9.5  (5.2)  (4.2)  (3.6)  (5.1) 
Namibia  4.0  15.2  10.3  (4.4)  (4.7)  (2.7)  (5.1) 
North West  1.0  15.0  10.2  (4.5)  (3.4)  (5.1) 
Mpumalanga  2.0  14.3  9.6  (5.1)  (4.3)  (3.5)  (5.1) 
Discount rate above 16%  Portfolio
exposure
Average
discount
rate
Average
exit
capitalisation
rate
Valuation 
impact if 
base 
discount 
rate is 
increased by 
50bps 
Valuation 
impact of 
50% NOI 
reduction 
in year 
one 
Valuation 
impact of 
5% NOI 
reduction 
in capitalisation 
year 
Valuation 
impact of 
5% NOI 
reduction 
in cash 
flow in 
capitalisation 
year 
Total portfolio  7.0  16.8  12.8  (4.0) (5.5) (3.1) (5.2)
Retail  6.0  17.0  12.7  (4.0) (5.5) (3.1) (5.2)
Other  1.0  16.3  13.2  (3.9) (5.6) (3.3) (5.2)
Gauteng  4.0  16.3  12.2  (4.1) (5.3) (3.3) (5.2)
Limpopo  1.0  16.3  11.9  (4.1) (5.4) (3.2) (5.0)
Namibia  1.0  18.1  14.1  (3.6) (5.4) (3.1) (5.2)
North West  19.6  15.3  (3.4) (7.0) (1.4) (5.2)
Mpumalanga  1.0  16.3  12.6  (4.1) (5.8) (3.1) (5.3)

The table below also illustrates the impact on valuations resulting from changes in NOI for the year ended 31 March 2020:

        2020      
Southern African directly held property portfolio Portfolio
exposure
%
Average
discount
rate
%
Average
exit
capitali-
sation
rate
%
Valuation 
impact if 
base 
discount 
rate is 
increased 
by 50bps 
Valuation 
impact of 
50% NOI 
reduction 
in year 
one 
Valuation 
impact of 
5% NOI 
reduction 
in capitali- 
sation 
year 
Valuation 
impact of 
5% NOI 
reduction 
in cash 
flow and 
capitali- 
sation 
year 
Total portfolio 100.0 13.8 9.1 (5.5) (3.6) (3.5) (5.1)
Retail 93.0 13.8 9.0 (5.5) (3.6) (3.5) (5.1)
Other 7.0 14.0 10.4 (5.0) (4.1) (2.9) (5.2)
Gauteng 38.0 13.5 8.9 (5.7) (3.5) (3.6) (5.1)
KwaZulu-Natal 21.0 13.5 8.7 (5.4) (3.5) (3.3) (5.1)
Western Cape 8.0 13.2 8.8 (5.7) (3.5) (3.5) (5.1)
Free State 7.0 13.5 8.7 (5.7) (3.3) (3.7) (5.1)
Limpopo 7.0 14.2 9.3 (5.1) (4.0) (3.3) (5.0)
Eastern Cape 6.0 13.6 8.8 (5.8) (3.6) (3.8) (5.2)
Namibia 6.0 16.1 11.5 (4.3) (4.4) (2.8) (5.1)
North West 4.0 14.4 9.5 (5.4) (3.7) (3.4) (5.1)
Mpumalanga 3.0 14.9 10.3 (5.1) (4.2) (3.5) (5.2)

The above information has been further disaggregated based on risk (discount rates.) Refer to the following three tables:

        2020      
Discount rate below 14% Portfolio
exposure
%
Average
discount
rate
%
Average
exit
capitali-
sation
rate
%
Valuation 
impact if 
base 
discount 
rate is 
increased 
by 50bps 
Valuation 
impact of 
50% NOI 
reduction 
in year 
one 
Valuation 
impact of 
5% NOI 
reduction 
in capitalisation 
year 
Valuation 
impact of 
5% NOI 
reduction 
in cash 
flow and 
capitali- 
sation 
year 
Total portfolio 59.0 13.0 8.3 (5.9) (3.3) (3.6) (5.1)
Retail 55.0 13.0 8.2 (5.9) (3.3) (3.6) (5.1)
Other 4.0 13.1 9.2 (5.6) (3.7) (2.6) (5.2)
Gauteng 26.0 13.0 8.3 (6.0) (3.3) (3.7) (5.1)
KwaZulu-Natal 15.0 13.2 8.3 (5.5) (3.4) (3.2) (5.1)
Western Cape 5.0 12.7 8.2 (6.2) (3.2) (3.5) (5.2)
Free State 4.0 13.2 8.2 (6.0) (3.1) (3.7) (5.0)
Limpopo 3.0 12.7 8.0 (6.1) (3.2) (3.7) (5.0)
Eastern Cape 3.0 13.2 8.2 (6.2) (3.4) (3.9) (5.2)
North West 3.0 13.2 8.3 (5.9) (3.3) (3.7) (5.0)
        2020      
Discount rate between 14% and 16% Portfolio
exposure
%
Average
discount
rate
%
Average
exit
capitali-
sation
rate
%
Valuation 
impact if 
base 
discount 
rate is 
increased 
by 50bps 
Valuation 
impact of 
50% NOI 
reduction 
in year 
one 
Valuation 
impact of 
5% NOI 
reduction 
in capitali- 
sation 
year 
Valuation 
impact of 
5% NOI 
reduction 
in cash 
flow and 
capitali- 
sation 
year 
Total portfolio 35.0 14.4 9.7 (5.1) (3.9) (3.4) (5.1)
Retail 33.0 14.4 9.6 (5.1) (3.9) (3.4) (5.1)
Other 2.0 14.7 11.6 (4.3) (4.4) (3.2) (5.1)
Gauteng 10.0 14.2 9.8 (5.2) (3.8) (3.6) (5.1)
KwaZulu-Natal 6.0 14.5 9.6 (5.1) (3.7) (3.6) (5.0)
Western Cape 3.0 14.0 9.8 (5.1) (3.9) (3.5) (5.1)
Free State 3.0 14.0 9.4 (5.3) (3.6) (3.6) (5.1)
Limpopo 3.0 14.9 10.0 (4.4) (4.5) (2.9) (5.1)
Eastern Cape 3.0 14.0 9.3 (5.4) (3.8) (3.7) (5.2)
Namibia 4.0 15.2 10.2 (4.5) (4.1) (2.7) (5.0)
North West 1.0 15.0 10.0 (5.0) (4.0) (3.5) (5.1)
Mpumalanga 2.0 14.3 9.4 (5.5) (3.9) (3.8) (5.3)
        2020      
Discount rate above 16%  Portfolio 
exposure 
Average 
discount 
rate 
Average 
exit 
capitali- 
sation 
rate 
Valuation 
impact if 
base 
discount 
rate is 
increased 
by 50bps 
Valuation 
impact of 
50% NOI 
reduction 
in year 
one 
Valuation 
impact of 
5% NOI 
reduction 
in capitali- 
sation 
year 
Valuation 
impact of 
5% NOI 
reduction 
in cash 
flow and 
capitali- 
sation 
year 
Total portfolio  6.0  17.0  12.6  (4.0) (5.0) (3.1) (5.1)
Retail  5.0  17.1  12.6  (4.1) (4.9) (3.1) (5.1)
Other  1.0  16.3  12.8  (4.0) (5.0) (2.9) (5.2)
Gauteng  2.0  16.3  11.9  (4.2) (4.9) (3.2) (5.1)
Limpopo  1.0  16.3  11.3  (4.5) (4.4) (3.4) (5.2)
Namibia  2.0  18.1  13.7  (3.7) (5.3) (3.1) (5.1)
North West     19.6  15.5  (3.4) (5.5) (1.5) (5.1)
Mpumalanga  1.0  16.3  12.1  (4.2) (4.8) (3.1) (5.2)

Spain

The tables below show the impact on the fair value of investment property, per property type, for a 25bp change in discount rate:

2021
Variation of discount rate
25bps
decrease
€'000
25bps 
increase 
€'000 
Retail 17 (17)
Office 410 (410)
Land and purchase option 330 (320)
Theoretical result 18 (18)

  2020
  Variation of discount rate
25bps
decrease
€'000
25bps 
increase 
€'000 
Retail 18 (18)
Office 430 (410)
Land and purchase option 350 (325)
Theoretical result 19 (19)

The effect of a 25bps change to the base discount rate will have the following impact on the 31 March 2021 valuation of the portfolio:

    25bps increase   25bps decrease  
Southern Africa(1) Fair valueRm Decreased
fair value
Rm
Decrease
Rm
%
decrease
Increased
fair value
Rm
Increase
Rm
%
increase
2021 15 554 15 143 (411) (2.6) 15 991 437 2.8
2020 15 621 15 182 (439) (2.8) 16 105 484 3.1
Spain(2) Fair value
€m
Decreased
fair value
€m
Decrease
Rm
%
decrease
Increased
fair value
€m
Increase
Rm
%
increase
2021 987 969 (306) (1.8) 1 005 313 1.8
2020 1 003 985 (306) (1.8) 1 023 316 1.9
(1) Fair value excludes non-controlling interest in Clidet.
(2) Fair value sensitivity analysis at 25bps increase/decrease for standing investments and c.100bps increase/decrease for land and related options.
31 March 2021
Recurring
fair value
measurements
Level 3
Rm
31 March 2020
Recurring
fair value
measurements
Level 3
Rm
Investment property 32 193 35 522
Right-of-use asset 220 214

31 March 2021
Non-recurring
fair value
measurements
Level 3
Rm
30 March 2020
Non-recurring
fair value
measurements
Level 3
Rm
Investment property held for sale 562

3 RELATED-PARTY TRANSACTIONS AND BALANCES

      2021    2020   
   Type of transaction  Amount 
(received 
by)/paid to 
Vukile 
Rm 
Amount 
owed 
to/(by)
related
parties 
Rm
 
Amount 
(received 
by)/paid to 
Vukile 
Rm 
Amount 
owed 
to/(by)
related 
parties
Rm 
Group companies 
MICC Property Income Fund (MICC IF) Debenture interest  (133) –  (165) – 
MICC Properties  Sale of Atlantic Leaf Properties Limited share to MICC  (324) –  –  – 
MICC Properties  Interest received  (18) (246) (23) (261)
Clidet No. 1011  Dividends received  (10) (7) (17) – 
Clidet No. 1011  Interest received  (17) (281) (25) (285)
AGI  Interest received  (1) (17)
Castellana  Interest received  (8) (303) (7) – 
Vukile ALP 1 (Pty) Ltd  Dividends received  –  (6) – 
Vukile ALP 2 (Pty) Ltd  Dividends received  –  (6) – 
Vukile ALP 3 (Pty) Ltd  Dividends received  –  (1) – 
Vukile ALP 1 (Pty) Ltd  Interest received  (9) (26) (364)
Vukile ALP 2 (Pty) Ltd  Interest received  (9) (26) (364)
Vukile ALP 3 (Pty) Ltd  Interest received  (4) (13) (180)
Atlantic Leaf Properties Ltd  Dividend received  (54) –  (102) – 
Fairvest Property Holdings Ltd  Dividend received  (57) –  (59) – 
Arrowhead Properties Ltd  Dividend received  (38) –  (85) – 
Investment in Castellana  Dividend received  (427) –  (430) – 
Westbrooke Yield Plus  Dividend received  –  –  (20) – 
Other related parties 
Directors and other officers  Interest  (14) (281) (19) (266)
Executive directors  Remuneration  28  –  50  – 
Key management (excluding directors) Remuneration  12  –  15