Positioning for the Future | 203
Appendix
Notes to the Financial Statements
Year ended 31 December 2014
34 FAIR VALUE OF ASSETS AND LIABILITIES
(cont’d)
(a) Determination of fair value
(cont’d)
(iv) Investment properties
TheGroup’s investment propertyportfolio ismostly valuedbyexternal and independent valuationcompanies
every six months. 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 wherein the parties had each acted knowledgeably and without compulsion.
The valuers have considered valuation techniques including direct comparison method, capitalisation
approach, discounted cash nows and residual method in arriving at the open market value as at the
balance sheet date. In determining the fair value, the valuers have used valuation techniques which involve
certain estimates. The key assumptions used to determine the fair value of investment properties include
market-corroborated capitalisation rate, terminal yield and discount rate.
Investment property under construction is valued by estimating the fair value of the completed investment
property and then deducting from that amount the estimated costs to complete the construction and a
reasonable promt margin on construction and development. The estimated cost to complete is determined
based on the construction cost per square metre in the pertinent area.
(v) Assets held for sale
The fair value of the Group’s assets held for sale is either valued by an independent valuer or based on
agreed contractual selling price on a willing buyer willing seller basis. For assets held for sale valued
by an independent valuer, the valuer has considered the direct comparison and income capitalisation
approaches in arriving at the open market value as at the balance sheet date. In determining the fair
value, the valuer used valuation techniques which involve certain estimates. The key assumptions used
to determine the fair value of assets held for sale include market-corroborated capitalisation rate.
(vi) Property, plant and equipment
The fair value of the property, plant and equipment recognised as a result of a business combination is the
estimated amount for which a property could be exchanged on the date of acquisition between a willing
buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had
each acted knowledgeably and willingly. The residual values of serviced residence properties at the end
of the intended holding period are determined based on annual independent professional valuations,
using valuation methods such as discounted cash now and/or comparison method. The key assumptions
used to determine the residual values of serviced residence properties include terminal yield and
discount rate.
(vii) Share-based payment transactions
The fair values of employee performance share plan and restricted stock/share plan are measured using
Monte Carlo Simulation. The fair value of employee share option plan is measured using Enhanced
Trinomial (Hull and White) valuation model. Measurement inputs include the share price at grant date,
expected volatility (based on an evaluation of the historical volatility of the Company’s and subsidiaries’
share price), expected term of the instruments (based on historical experience and general option
holder behaviour), expected dividends and the risk-free interest rate (based on government bonds).
Service and non-market performance conditions attached to the transactions are not taken into account
in determining the fair values.
(b) Fair value hierarchy
The Group categorises fair value measurements using a fair value hierarchy that is dependent on the valuation
inputs used. The different levels have been demned as follows
Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 Inputs other than quoted prices included within Level 1 that are observable for the asset or liability,
either directly (i.e., as prices) or indirectly (i.e., derived from prices).
Level 3 Inputs for the asset or liability that are not based on observable market data (unobservable inputs).
