|30 March 2016|
|25 March 2015|
|At beginning of year||25,400||9,000|
|Fair value movement||7,489||14,505|
|At end of year||34,000||25,400|
Investment property comprises commercial property in the Republic of Ireland that is currently leased to third parties (2015: Vacant).
The fair value of investment property was determined by the directors having regard for an external, independent property valuer having appropriate recognised professional qualifications and recent experience in the location and category of the property being valued.
The Group considers that its investment property falls within Level 3 fair value as defined by IFRS 13 and therefore that the income approach / yield methodology using market rental values capitalised with a market capitalisation rate or yield used by the valuer is the best method to determine the fair value of the investment properties. As further outlined in IFRS 13, a Level 3 fair value recognises that not all of the inputs and considerations made in determining the fair value of property investments can be derived from publicly available data, as the valuation methodology in respect of a property has also to rely on other factors including technical engineering reports, legal data and analysis, and proprietary data bases maintained by the valuer in respect of similar properties to the assets being valued.
For investment property, the income approach/yield methodology involves applying market-derived capitalisation yields to current and market-derived future income streams with appropriate adjustments for income voids arising from vacancies or rent-free periods. These capitalisation yields and future income streams are derived from comparable property and leasing transactions and are considered to be the key inputs in the valuation. Other factors that are taken into account include the tenure of the property, tenancy details, planning, building and environmental factors that might affect the property.
A decrease in the estimated annual rent will decrease the fair value. Similarly, an increase in equivalent yield will increase the fair value. There are interrelationships between these rates as they are partially determined by market rate conditions. The following table shows the valuation technique used in measuring the fair value of the investment property, as well as the significant unobservable inputs used. The property was not rented during the year ended 25th March 2015 but is substantially rented at March 2016.
|Valuation technique||Significant unobservable inputs||Inter-relationship between key unobservable inputs and fair value measurement|
|Discounted cash flows: The valuation model considers the present value of net cash flows to be generated from the property taking into account the expected rental growth rate, lease incentive costs such as rent free periods and other costs not paid by tenants. The expected net cash flows are discounted using risk adjusted discount rates. Among other factors, the discount rate estimation considers the quality of the building and its location (prime v secondary), tenant credit quality and lease terms.||Expected market rental growth (2016: 5%)|
Annual rent per square foot(2016: €45; 2015: €42.5)
Equivalent yield (2016: 5.13%; 2015: 6.5%)
Void periods (One floor is void)(2015: Unoccupied)
Occupancy rate (2016: 85-90%)
Rent free periods (In current leases)
Risk adjusted discount rates (2016: 5-8%)
|The estimated fair value would increase/(decrease) if:|
Expected market rental growth were higher (lower)
Void periods were shorter
The occupancy rate were higher (lower)
Rent free periods were shorter (longer); or
The risk adjusted discount rate were lower (higher)