Notes to the financial statements
Year ended 31 March 2016
33 Determination of fair values
Fair values of financial assets and liabilities have been determined for measurement and/or disclosure purposes based
on the following methods. When applicable, further information about the assumptions made in determining fair values
is disclosed in the notes specific to that asset or liability.
(i)
Investment properties and property held for sale
Investment properties and property held for sale are stated at fair value based on valuations by independent
professional valuers. The independent professional valuers have appropriate recognised professional qualifications
and recent experience in the location and category of the properties being valued.
The fair values are based on open market values, being the estimated amount for which a property could be
exchanged on the date of the valuation between a willing buyer and a willing seller in an arm’s length transaction
after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.
The independent professional valuers have considered valuation techniques including direct comparison method,
capitalisation approach and discounted cash flows in arriving at the open market value as at the reporting date.
These valuation methods involve certain estimates. The Manager has exercised its judgement and is satisfied that
the valuation methods and estimates are reflective of the current market conditions.
The direct comparison method involves the analysis of comparable sales of similar properties and adjusting the
sale prices to that reflective of the investment properties. The capitalisation approach capitalises an income
stream into a present value using a market-corroborated capitalisation rate. The discounted cash flows method
involves the estimation of an income stream over a period and discounting the income stream with an expected
internal rate of return and terminal yield.
(ii)
Derivative financial instruments
The fair value of interest rate swaps and cross currency swaps are based on valuations provided by the financial
institutions that are the counterparties to the transactions. These quotes are tested for reasonableness by
discounting estimated future cash flows based on the terms and maturity of each contract and using market
interest rates for a similar instrument at the reporting date.
(iii)
Finance lease receivables
Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal
and interest cash flows, discounted at market interest rate for instruments with similar maturity, repricing and
credit risk characteristics at the reporting date.
(iv)
Investment in debt securities
The fair value of debt securities is determined using an option pricing valuation technique which involves mainly
the use of market-based equity and debt discount rates and other assumptions at the reporting date.
(v)
Security deposits
The fair values of security deposits are calculated based on the present value of future cash outflows, discounted
at the market interest rate at the reporting date.
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A-REIT ANNUAL REPORT
2015/2016
