IPF årsrapport 2018 (eng) - Flipbook - Side 29
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In relation to financial instruments where there is only
Internal procedures have been established to ensure the
limited observable market data on which to base valuation
quality of the information included in measurement of fair
(level 3), valuation will be affected by estimates. This
value. This means for example that temporal differences in
applies in particular to shareholdings in group undertakings
accounting data between the most recent reporting and
and associated undertakings with investments in
the balance sheet date are taken into account; that
investment properties and wind turbines, and to unlisted
additional information is obtained from selected funds and
equity investments in private equity funds and real estate
capital managers; that internal information on large
funds etc. as well as the owner-occupied property.
transactions in individual funds is continuously collected;
that general market developments since the most recent
Valuation of investment properties and wind turbines in
group undertakings and associated undertakings is based
reporting are evaluated; and that the quality of the
reporting received is generally followed up on (back test).
on the present value of expected cash flows during a
planning period which is 10 years for investment properties
and 25 years for wind turbines. For investment properties,
the method (discounted cash flow (DCF)) is defined in an
annex to the Danish Executive Order on the Presentation
of Financial Statements. The most significant estimates
concern determination of the discount rate, which is
composed of an individual rate of return the expected
inflation rate, as well as certain elements of the budgeted
The fair value of owner-occupied property is calculated
using a returns model which is also defined in an annex to
the Danish Executive Order on the Presentation of
Financial Statements. According to this model, fair value is
calculated on the basis of the budgeted, normal operating
return, consisting of the market rent less costs of operation
and maintenance, as well as a required rate of return for
cash flows, in particular budgeted rental income which
the type of property in question. The fair value is thus
depends on the level of the rent and vacant periods etc.,
calculated with adjustment for any non-recurring income
expenses for maintenance and renovation as well as a so-
and expenses not included in the normal return, e.g.
called terminal value when the planning period expires. The
deferred maintenance works. The most significant
determination of the individual rate of rate of return is
estimates relate to the individual required rate of return as
based on statistics on actual real estate transactions
well as certain elements of the normal return, in particular
involving similar properties and/or takes into consideration
the market rent and the annual costs of maintenance.
the location of the property, its age, use and state of
maintenance, etc. As a supplement to this valuation, a
The estimates are by nature uncertain. New information
valuation from an external estate agent is obtained every
and/or future events may therefore lead to changes in
year concerning the assumptions applied (primarily
these estimates and consequently also in the calculated
individual rates of return), and the fair value is calculated
fair values.
every three years.
For a more detailed description of the valuation in this
The extensive 25-year planning period for wind turbine
area, see the section on investment assets and note 23,
investments naturally adds to the uncertainty concerning
which includes a break-down of investment assets and
future cash flows and consequently also concerning the
financial liabilities according to the fair value hierarchy
current fair value of the wind turbines. Again, the most
significant estimates relate to the discount rate and to
(levels 1-3) as well as a break-down and further
information on the valuation etc. of level 3 assets.
specific elements which have a major impact on budgeted
cash flows, in particular electricity production which is
based on wind forecasts, idle days with no generation of
electricity, electricity price developments, costs of
maintenance of the wind turbines and costs of dismantling
the wind turbines when the period expires. The discount
Intragroup transactions
Transactions between group undertakings are made on
the basis of written agreements, and settlement is on a
cost-recovery basis or on commercial market terms.
rate is calculated according to the cost of capital method
which combines a risk-free interest rate with the addition of
an illiquidity premium and the expected inflation rate. The
General principles for recognition and measurement
Revenues and costs are recognised in the income
DFC model is maintained by external experts, and as a
statement as they are earned or incurred. All value
supplement to their valuation, a statement from another
adjustments, both realised and unrealised, are therefore
external expert is obtained every year concerning the
recognised in the net profit or loss for the year. However,
market conformity of the model and the assumptions
special rules apply to value adjustments of owner-
applied.
occupied properties, which under certain conditions are
recognised under other comprehensive income, see the
To a great extent, the valuations of unlisted equity
principles for measurement of owner-occupied properties
investments in private equity funds and real estate funds
on page 29.
etc. are based on information from the funds themselves or
from capital managers etc., including information in reports
which were often prepared prior to the balance sheet date.