NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2022 10. Investment properties (cont’d) There are no material events that affect the valuation between the valuation, data and financial year end. Policy on transfer between levels The fair value of an asset to be transferred between levels is determined as of the data of the event or change in circumstances that caused the transfer. Level 1 fair value Level 1 fair value is derived from quoted price (unadjusted) in active markets for identical investment properties that the entity can assess at the measurement date. Level 2 fair value Level 2 fair value is estimated using inputs other than quoted prices included within Level 1 that are observable for the investment properties, either directly or indirectly. Level 3 fair value Level 3 fair value is estimated using unobservable inputs for the investment property. Transfer between Level 1, 2 and 3 fair values There is no transfer between level 1, 2 and 3 fair values during the financial year. Fair value of investment properties is classified as Level 3. The fair value of the investment properties are classified as Level 3 for fair value hierarchy disclosure purposes. The significant unobservable inputs applied by the independent valuers in applying the investment method above are as follows: Inter-relationship between significant Significant unobservable inputs unobservable inputs and fair value measurement Term yield ranging from 5.50% - 9.25% (2021: 5.50% - 9.25%) - Higher term yield rates, lower fair value Reversionary yield ranging from 6.00% - 7.75% (2021: 6.00% - 7.50%) - Higher reversionary yield rates, lower fair value Void rate of 5.00% - 10.00% (2021: 5.00% - 10.00%) - Higher void rate, lower fair value Discount rate of 5.50% - 9.25% (2021: 5.50% - 9.25%) - Higher discount rate, lower fair value The fair values were determined based on the capitalisation of net income method (“investment method”) and is premised on the principle that the value of an income-producing property is represented by the “present worth of future rights to income, or utility”. The values estimated under this method are derived by ascertaining the market rent of the properties; deducting all reasonable annual operating expenses (as would be experienced under typical management) and then capitalising the resultant net operating income by an appropriate rate of capitalisation to obtain the present value of the income stream. In undertaking their assessment of the value using this approach, the market rental income and expected future rental income are taken into consideration. In arriving at the net income, the outgoings i.e. quit rent, assessment, takaful coverage and repairs and maintenance, are deducted from gross rental income together with allowance for void. In estimating the fair values of the investment properties, the highest and best use of the investment properties is their current use. The valuers had adopted market corroborated capitalisation rates, which is the most frequently adopted methodology by the property industry in Malaysia and in Australia, based on information pertaining to recent comparable sales which are publicly available, adjusted for the location, quality and characteristics of the investment properties. 171 1. Corporate Overview 3. Strategic Performance 5. Governance Structure 2. The Driving Forces 4. Sustainability Statement 6. Financial Reports
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