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Financial StatementsNotes to the condensed financial statementsfor the year ended 31 March 2022

1  GENERAL ACCOUNTING POLICIES

  • 1.1BASIS 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.

The revaluation of investment property requires judgement in determining 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 tenure 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. Management applied judgement in assessing whether certain assets qualify to be classified as held for sale. In management’s opinion, the following assets met all the IFRS 5 requirements and are classified as held for sale:

  • Mbombela Truworths Centre
  • Monsterlus Moratiwa Crossing
  • 1.2NEW 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 2021:

  • 1.2.1Management 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; and
  • IFRS 16 – Leases.

IFRS 7 – Financial Instruments: Disclosure relates to instances where interbank offered rates (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 will have no impact on the group.

  • 1.2.2Management has assessed the changes to IFRS 16 – Leases in respect of COVID-19-related rent concessions providing lessees with an exemption from assessing whether a COVID-19-related rent concession was a lease modification. The amendment had no impact on the group.

2  FAIR VALUE MEASUREMENT

  • 2.1FAIR 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

  • 2.2FAIR 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.

   31 March 2022  31 March 2021 
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 
Equity investment at fair value through profit or loss  360      360  309  —  —  309 
Equity investments at fair value through other comprehensive income  1 452      1 452  —  —  —  — 
Executive share scheme financial asset  109      109  57  —  —  57 
Derivative financial instruments    300    300  —  214  215 
Total  1 921  300    2 221  904  214  1 119 
Liabilities                         
Executive share scheme financial liability    (63)   (63) —  (26) —  (26)
Derivative financial instruments    (220) (232) (452) —  (578) (202) (780)
Total    (283) (232) (515) —  (604) (202) (806)
Net fair value  1 921  17  (232) 1 706  904  (390) (201) 313 

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

Equity investment at fair value

Listed equity investment: The fair value of shares held in listed property securities (Fairvest, formerly 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 and barrier call options. 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 to measure fair value are unchanged compared to the previous reporting period.

  • 2.3FAIR VALUE MEASUREMENT OF NON-FINANCIAL ASSETS (INVESTMENT PROPERTY)

At 31 March 2022, the directors valued the South African property portfolio at R14.5 billion (31 March 2021: R15.6 billion), and an external valuer valued the Spanish portfolio at R16.2 billion (31 March 2021: R17.1 billion).

The external valuations performed by Quadrant Properties (Pty) Ltd and Knight Frank (Pty) Ltd at 31 March 2022 on 52% of the South 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:

  31 March 2022 31 March 2021
  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 13.5 7.7 to 15.3 9.0 12.7 to 19.6 13.8 7.7 to 15.3 9.2
Spain 7.3 to 9.5 8.1 5.0 to 6.9 6.1 7.3 to 9.0 8.2 5.0 to 9.3 6.2

South 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 base discount rates as well as NOI for year one and the capitalisation year.

 
South 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 in  capitali-  sation  year 
% 
Total portfolio  100.0  13.5  9.0  (5.6) (4.1) (3.5) (5.1)
Retail  95.0  13.5  8.9  (5.6) (4.1) (3.5) (5.1)
Other  5.0  14.0  10.7  (5.0) (4.8) (2.6) (5.2)
Gauteng  40.0  13.4  8.9  (5.7) (4.0) (3.6) (5.1)
KwaZulu-Natal  20.0  13.4  8.8  (5.4) (4.0) (3.2) (5.1)
Free State  9.0  13.1  8.5  (5.9) (3.9) (3.7) (5.1)
Western Cape  8.0  13.2  9.1  (5.5) (4.2) (3.4) (5.1)
Eastern Cape  8.0  13.6  9.1  (5.5) (4.1) (3.6) (5.1)
Limpopo  7.0  14.1  9.4  (5.1) (4.6) (3.3) (5.0)
Mpumalanga  4.0  15.1  10.6  (4.9) (4.8) (3.4) (5.1)
North West  4.0  14.0  9.2  (5.6) (4.3) (3.4) (5.0)

Given that the discount rate for the portfolio ranges from 12.7 to 19.6, the table above has been further disaggregated based on risk showing discount rates below 14%, between 14%-16% and above 16%.

Refer to the following three tables:

 
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 capitali-
sation year
%
Valuation impact of 5% NOI
reduction in cash flow in capitali- sation year
%
Total portfolio 66.0 12.9 8.4 (5.9) (3.8) (3.5) (5.1)
Retail 63.0 12.9 8.3 (5.9) (3.8) (3.6) (5.1)
Other 3.0 13.0 9.4 (5.7) (4.4) (2.4) (5.4)
Gauteng 28.0 12.9 8.3 (6.0) (3.9) (3.7) (5.1)
KwaZulu-Natal 16.0 13.2 8.6 (5.5) (3.9) (3.2) (5.1)
Free State 6.0 12.7 7.7 (6.4) (3.5) (3.8) (5.1)
Western Cape 5.0 12.7 8.7 (5.7) (4.0) (3.4) (5.1)
Eastern Cape 4.0 13.2 8.5 (5.8) (3.9) (3.7) (5.1)
Limpopo 3.0 12.7 8.0 (6.1) (3.7) (3.7) (5.0)
North West 4.0 13.2 8.4 (5.9) (3.9) (3.6) (5.0)

 

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 in capitali- sation year
%
Total portfolio 29.0 14.2 9.7 (5.1) (4.4) (3.4) (5.1)
Retail 28.0 14.2 9.7 (5.1) (4.4) (3.4) (5.1)
Other 1.0 14.2 11.2 (4.6) (4.8) (2.8) (5.1)
Gauteng 9.0 14.2 9.6 (5.3) (4.2) (3.5) (5.1)
KwaZulu-Natal 4.0 14.2 9.7 (5.2) (4.4) (3.5) (5.1)
Free State 3.0 14.0 10.1 (4.9) (4.6) (3.4) (5.0)
Western Cape 3.0 14.0 9.7 (5.1) (4.4) (3.5) (5.0)
Eastern Cape 4.0 14.0 9.6 (5.1) (4.3) (3.5) (5.0)
Limpopo 3.0 14.9 10.3 (4.2) (5.4) (2.8) (5.0)
Mpumalanga 3.0 14.3 9.5 (5.3) (4.3) (3.6) (5.1)
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 in capitali- sation year 
Total portfolio 5.0 16.7 12.7 (4.0) (5.7) (3.0) (5.1)
Retail 4.0 16.8 12.5 (4.1) (5.6) (3.0) (5.1)
Other 1.0 16.3 13.6 (3.7) (5.7) (3.1) (5.1)
Gauteng 3.0 16.3 12.4 (4.1) (5.5) (3.2) (5.1)
Limpopo 1.0 16.3 11.8 (4.2) (5.2) (3.2) (5.0)
Mpumalanga 1.0 17.0 13.4 (3.9) (5.9) (3.0) (5.2)
North West 0.0 19.6 15.3 (3.5) (7.2) (1.5) (5.2)

Spain

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

 
31 March 2022
Variation of discount rate
25bps
decrease
€’000
25bps 
increase 
€’000 
Retail 14 960 (20 270)
Theoretical result 14 960 (20 270)
 
31 March 2022
Variation of discount rate
25bps
decrease
€’000
25bps 
increase 
€’000 
Retail 17 360 (16 960)
Office 410 (410)
Land and purchase option 330 (320)
Theoretical result 18 100 (17 690)

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

South Africa(1)
  25bps increase 25bps decrease
Fair value
Rm
Decreased fair  value 
Rm 
Decrease 
Rm 
% 
decrease 
Increased fair value
Rm
Increase
Rm
%
increase
31 March 2022 14 472 14 066 (406) (2.8) 14 903 431 3.0
31 March 2021 15 554 15 143 (411) (2.6) 15 991 437 2.8
Spain(2)
Fair value
€m
Decreased fair value
€m
Decrease 
Rm 
% 
decrease 
Increased fair value
€m
Increase
Rm
%
increase
31 March 2022 1 001 981 (328) (2.0) 1 016 242 1.5
31 March 2021 987 969 (306) (1.8) 1 005 313 1.8
(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.

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

 
31 March 2022
Recurring
fair value
measurements
Level 3
Rm
31 March 2021
Recurring
fair value
measurements
Level 3
Rm
Investment property 30 571 32 193
Right-of-use asset 290 220
 
31 March 2022
Non-recurring
fair value
measurements
Level 3
Rm
31 March 2021
Non-recurring
fair value
measurements
Level 3
Rm
Investment property held for sale 187 562