Page 71 - Housing Solutions Annual Report

Tangible Fixed Assets - Properties (continued)

In valuing care homes properties, a discounted cash flow methodology was
adopted with key assumptions:

Discount rate 5.5%
Level of long-term annual rent increase CPI + 1%
In valuing social properties, a discounted cash flow methodology was
adopted with key assumptions:

Discount rate (income) 5.4% - 6.5%
Rental income growth 1%

Management cost per unit £675
Repair cost per unit £1,300 - £1,700
Level of long-term annual rent increase CPI + 1%
In valuing shared ownership properties, a discounted cash flow
methodology was adopted with key assumptions:
Discount rate (income) 5.5%
Rental income growth (all years) 0.5%
Management costs 3.5% of gross income

Housing properties were valued as at 31 March 2020. The Group’s investment properties have been valued
by Jones Lang LaSalle, professional external valuers. The full valuation of all properties was undertaken, in
accordance with the Appraisal and Valuation Manual of the Royal Institution of Chartered Surveyors (RICS).
Jones Lang LaSalle included the below in their valuation report:
‘The outbreak of the Novel Coronavirus (COVID-19), declared by the World Health Organisation as a “Global
Pandemic” on the 11th March 2020, has impacted global financial markets. Travel restrictions have been
implemented by many countries.
Market activity is being impacted in many sectors. As at the valuation date, we consider that we can attach less
weight to previous market evidence for comparison purposes, to inform opinions of value. Indeed, the current
response to COVID-19 means that we are faced with an unprecedented set of circumstances on which to base
a judgement.
Our valuations are therefore reported on the basis of “material valuation uncertainty”’ as per VPS 3 and VPGA
10 of the RICS Red Book Global. Consequently, less certainty – and a higher degree of caution – should be
attached to our valuation than would normally be the case. Given the unknown future impact that COVID-19
might have on the real estate market, we recommend that you keep the valuation of this portfolio under
frequent review.
For the avoidance of doubt, the inclusion of the ‘material valuation uncertainty’ declaration above does not
mean that the valuation cannot be relied upon. Rather, the phrase is used in order to be clear and transparent
with all parties, in a professional manner that –in the current extraordinary circumstances –less certainty can
be attached to the valuation than would otherwise be the case.
Please note that, as of 26 May 2020, RICS issued updated guidance to recommend that the Material Uncertainty
Clause may no longer be appropriate for valuations on the basis of EUV-SH, and the clause therefore only now
applies to our valuations where given on the basis of MV-T.’

In valuing investment properties, a discounted cash flow methodology was adopted with key assumptions:
Discount rate 5.5%
Annual inflation rate, after first two years -1% to 2020
Level of long-term annual rent increase CPI + 1%

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