annington annual rep 2019-web - Page 60



Financial statements | Notes to the financial statements
Notes to the financial statements
10. INVESTMENT PROPERTIES (CONTINUED)
This is a ‘Regulated Purpose Valuation’. Allsop and latterly AVL have provided annual valuations of the portfolio since 1999.
Both have a policy of rotating the valuer not less frequently than every seven years. In accordance with that policy this is the first
year in which Martin Angel has resumed responsibility for the valuation. AVL have confirmed that, in relation to their most recent
financial year, the proportion of Allsop’s total fee income arising from the Annington Group was less than 5%, which may be
regarded as minimal.
Assumptions and valuation models used by the valuers are typically market related, such as yield and discount rates.
For the other units, hese are based on their professional judgement and market observation.
The 2018 valuation of the assured shorthold and other bulk tenancies was derived from applying the valuation movements
of a sample of properties across the remainder of the portfolio. Key assumptions used in that valuation were:
2018
Fair value
£’000
Fair value
6,722,000
Valuation technique
Discounted cash flow
Investment property valuations are inherently subjective, depending on many factors, including property location, expected
future net rental value, market yields and comparable. In valuing the properties, the following assumption have been adopted
and incorporated into the valuation model:
Fair value
£’000
Unobservable inputs
Annualised gross rent (£’000 p.a.)
2.75% p.a.
Long-term House Price Index (%)
2.75% p.a.
8.1%
Surplus estate
Fair value
7,176,000
Valuation technique
8,535
Valuation technique
Discounted cash flow & vacant
possession market comparison
Discounted cash flow
Annualised gross rent (£’000 p.a.)
Discount rate for bulk disposal (%)
179,747
Estimated future rent increase (20 year
average - %)
2.75% p.a.
Assured shorthold and other bulk tenancies
Long-term House Price Index (%)
2.75% p.a.
Fair value
IRR (%)
7.52%
Valuation technique
Vacant possession market comparison
Blended House Price Index (%)
Fair value
Rental (premium)/discount rates (%)
32,813
Valuation technique
Discounted cash flow & vacant
possession market comparison
Discount rate for bulk disposal (%)
Fair value at 31 March 2018
410,314
Valuation technique
(1.8)%- 5.9%
(2.4)% - 12.1%
7,065,272
15.0%
Assured shorthold and other bulk tenancies
Fair value
15.0%
334,737
Surplus estate
Fair value at 31 March 2019
180,867
Estimated future rent increase (20 year
average - %)
IRR (%)
Input
Retained estate
Fair value
Input
Retained estate
The fair value measurement hierarchy level for all investment properties as at 31 March 2019 was Level 3 significant unobservable
inputs (2018: Level 3). There were no transfers between the levels of the fair value hierarchy during the current or prior year.
2019
Unobservable inputs
Vacant possession market comparison
Blended House Price Index (%)
(1.6)% - 5.2%
Rental discount rates (%)
0.0% - 12.2%
All other factors remaining constant, the valuation would increase with an increase in gross rent, estimated future rent increase
and long-term House Price Index (“HPI”), while increases in discount rates would result in a fall in the valuation and vice versa.
There are interrelationships between unobservable inputs as they are determined by market conditions, and so the valuation
movement in any one period depends on the balance between them. If these inputs move in opposite directions, (i.e. gross rents
increase and discount rates decrease), valuation movements can be amplified whereas if they move in the same direction they
may offset reducing the overall net valuation movement.
7,619,127
60 | Annington Limited Annual Report & Accounts 2019
Annington Limited Annual Report & Accounts 2019 | 61

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