NTUC Income AR 2019

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2019 4. MANAGEMENT OF INSURANCE AND FINANCIAL RISKS (CONTINUED) (f) Fair value measurements (continued) Investment properties (continued) Valuation techniques and inputs used in Level 3 fair value measurements (continued) Description Fair value at 31 December 2018 $’000 Valuation techniques Unobservable inputs 1 Range of unobservable inputs Relationship of unobservable inputs to fair value Completed Investment properties 1,921,194 Income Capitalisation Approach Estimated rental rate Retail: $6.3 to $20 per square foot per month Office / Industrial: $2 to $10 per square foot per month The higher the rental value per square foot, the higher the fair value. Capitalisation rate 3.25% to 6.25% The higher the capitalisation rate, the lower the fair value. Discounted Cash Flow Approach Rental growth rate 1.2% to 7% The higher the rental growth rate, the higher the fair value. Discount rate 6.5% to 7.5% The higher the discount rate, the lower the fair value. Direct Comparison Approach Valuation per square foot Retail: $1,187 to $3,555 per square foot Office / Industrial: $130 to $3,061 per square foot The higher the valuation per square foot, the higher the fair value. 1 There were no significant inter-relationships between unobservable inputs. Valuation processes of the Group The Group engages external, independent and qualified valuers to determine the fair values of the Group’s investment properties at the end of every financial year based on the properties’ highest and best use. In the Income Capitalisation Approach, gross rental income (net of GST) is estimated at a mature maintainable occupancy level fromwhich total expenses have been deducted and net income capitalised at an appropriate rate. The Discounted Cash Flow Approach involves the estimation and projection of a net income stream over a period and discounting the net income stream with an internal rate of return to arrive at the market value. The discounted cash flow method requires the valuer to assume a rental growth rate indicative of market and the selection of a target internal rate of return consistent with the current market requirements. The Direct Comparison Approach involves analysis of recent transactions of comparable properties within the vicinity and elsewhere in Singapore. Necessary adjustments have been made for the differences in location, tenure, size, shape, design and layout, age and condition of buildings, date of transactions and the prevailing market and prevailing condition amongst other factors affecting their values. ANNUAL REPORT 2019 97