Hufvudstaden's properties are valued at fair value. Fair value is an assessment of the probable sales price on the market at the time of the valuation. Below is information about the valuation method, yield requirements and net operating profit.
A valuation of the property holdings is made by assessing each individual property’s fair value. The assessment is based on a valuation made according to a variant of the location price method, known as the net capitalization method. This method means that the market yield requirement is set against the net operating income of the properties.
Hufvudstaden's assessment of the yield requirements is based on information gathered on the market return on investment requirements for purchases and sales of comparable properties in similar locations. If few or no deals were concluded in the property's sub-area, transactions in the adjoining area are analyzed. Deals not concluded also provide guidance on the market yield requirements. Account has also been taken of the property type, technical standard and building construction.
|Change +/-||Impact on profit before tax +/-|
|Rent revenue||SEK 100 per sq. m||SEK 1,000 m|
|Property costs||SEK 50 per sq. m||SEK 500 m|
|Rental vacancy level||1.0 procentage points||SEK 480 m|
|Yield requirement||0.25 procentage points||SEK 2,350 m|
The assessment of the yield requirements is based on information gathered on the market return on investment requirements for purchases and sales of comparable properties in similar locations. If few or no deals were concluded in the property’s sub-area, transactions in the adjoining area are analysed. Deals not concluded also provide guidance on the market yield requirements. Account has also been taken of the property type, technical standard and building construction.
The yield requirements used in the valuation vary between different regions and different sub-areas within the regions. Information is checked with valuation and consulting companies. Hufvudstaden’s average yield requirement since 2011-12-31 has varied between 3.9 per cent and 4.8 per cent and as of December 31, 2016, the figure was 3.9 per cent. For leasehold properties, the calculation is based on a yield requirement that is 0.25 percentage points higher.
The net operating income is based on market-adapted rental income. Rental income is adapted to the market by adjusting existing rents with newly signed and renegotiated leases and with account taken of the expected rent trend.
Income has been reduced to take into account an assessed, long-term rental vacancy level. The vacancy level is based on the true outcome of the property holdings over a business cycle and the expected rental situation for the individual property. In the valuation, an average vacancy level of 4 per cent has been estimated. The actual vacancy level during the period 2007 – 2016 varied between 3 and 6 per cent and as of December 31, 2016, the figure was 3.9 per cent.
A deduction has been made for standard costs for operation and maintenance, excluding costs passed on and part of the property administration. These are based on the actual outcome and are adjusted for non-permanent deviations. The average cost per square metre over the most recent five-year period has been in the range SEK 400 – 500 and the estimated cost in the valuation as of December 31, 2016 was on the same level. The following information has been used in the valuation.
|Range (weighted average)|
|Net operating income (SEK/sq m)||1,470 - 6,390 (3,830)|
|Vacant space (%)||2 - 5 (4)|
|Yield requirement, Stockholm (%)||
3.5 - 4.0 (3.7)
|Yield requirement, Gothenburg (%)||4.1 - 4.8 (4.4)|
Yield requirement, total (%)
The external valuation companies have set a fair value of SEK 12.6 billion. Hufvudstaden’s internal valuation of the same properties was SEK 12.3 billion. The internal valuations thus concur well with the external valuations.
In conjunction with a property valuation, a range is often given to indicate the degree of uncertainty surrounding the estimates of fair value. The value range is usually +/– 5 per cent but can vary depending, among other things, on the market situation, the technical standard of the property and investment requirements.
Hufvudstaden’s property holdings are valued at SEK 36.5 billion with a degree of uncertainty of +/– 5 per cent and consequently this means that the assessed fair value varies by +/– SEK 1.8 billion.