Auckland International Airport Limited – Annual report – 30 June 2019
12. Investment properties
The table below summarises the movements in fair value of investment properties.
Additions for the year ended 30 June 2019 include capitalised interest of $1.8 million (2018: $1.2 million).
The group’s investment properties are all categorised as Level 3 in the fair value hierarchy, as described in note 18.3.
During the year, there were no transfers of investment property between levels of the fair value hierarchy.
The basis of valuation is market value, based on each property’s highest and best use. The valuation methodologies used were a direct sales comparison or a direct capitalisation of rental income, using market comparisons of capitalisation rates, supported by a discounted cash flow approach. Further details of the valuation methodologies and sensitivities are included in note 11(c). The valuation
methodologies are consistent with prior years.
The principal assumptions used in establishing the valuations were as follows.
The fair value of investment properties valued by each independent registered valuer is outlined below.
The investment properties assigned to valuers are rotated across the portfolio every three years, with the most recent rotation occurring in June 2019. All valuers are registered valuers and industry specialists in valuing these types of investment properties.
Income and expenses related to investment property
(a) Property, plant and equipment
The group had contractual obligations to purchase or develop property, plant and equipment for $72.0 million at 30 June 2019 (2018: $77.2 million).
(b) Investment property
The group had contractual obligations to either purchase, develop, repair or maintain investment property for $183.4 million at 30 June 2019 (2018: $178.2 million).
(c) Operating lease receivable – group as lessor
The group has commercial properties owned by the company that produce rental income and retail concession agreements that produce retail income.
These non-cancellable leases have remaining terms of between one month and 36 years (2018: one month and 34 years). Most leases with an initial period over three years include a clause to enable upward revision of the rental charge on contractual rent review dates according to prevailing market conditions. A very small minority can be revised downwards.
Future minimum rental and retail income receivable under non-cancellable operating leases as at 30 June are as follows.
2. Summary of significant accounting policies (extract)
(g) Investment properties
Investment properties are properties held by the group to earn rental income, for capital appreciation or both (including property being constructed or developed for future use as investment property). Land held for a currently undetermined future use is classified as investment property.
Investment properties are measured initially at cost and then subsequent to that initial measurement are stated at fair value. To determine fair value, Auckland Airport commissions investment property valuations at least annually by independent valuers. Gains or losses arising from changes in the fair values of investment properties are recognised in the income statement.
If the fair value of investment property under construction cannot be reliably determined but it is expected that the fair value of the property can be reliably determined when construction is complete, then investment property under construction will be measured at cost until either its fair value can be reliably determined or construction is complete.
Transfers are made to investment property when there is a change in use. This may be evidenced by ending of owner occupation, commencement of an operating lease to another party or commencement of construction or development for future use as investment property.
A property transfer from investment property to property, plant and equipment or inventory has a deemed cost for subsequent accounting at its fair value at the date of change in use. If an item of property, plant and equipment becomes an investment property, the group accounts for such property as an investment property only subsequent to the date of change in use.
3. Significant accounting judgements, estimates and assumptions (extract)
(a) Fair value of investment property
Changes to market conditions or to assumptions made in the estimation of fair value may result in changes to the fair value of investment property. The carrying value of investment property and the valuation methodology are disclosed in note 12.