IMMOEAST Annual Report 2006/07

3.4 Investment property
Additional information on investment property is provided under point 4.1.
Investment properties represent all objects that are held to generate rental income or to realise a long-term increase
in value, and are not used in production or for administrative purposes or sold as part of the ordinary business
activities of the company. Land and/or buildings, or parts thereof, can also represent investment property. Properties
used in the production of goods or provision of services, as well as for administrative purposes, do not represent
investment property as defined in IAS 40. Land that is purchased as a site for the construction of investment property
is classified as IAS 40 property on the date of acquisition and subsequently measured at fair value.
In accordance with IAS 40, investment properties are measured at cost plus transaction costs at the point of recognition.
These costs may not include any founding or start-up costs or operating losses incurred before the investment
property reaches the planned level of occupancy. For subsequent measurement, this standard provides companies
with an option to choose either the cost model or the fair value model. Up to 30 April 2005 IMMOEAST recorded
investment property in accordance with the cost model. In keeping with this model, properties were recorded at cost
less ordinary straight-line depreciation and any necessary impairment charges. As of 31 January 2006 the management
of IMMOEAST AG decided to follow the EPRA´s Best Practices Policy Recommendation 2.11, which advise EPRA
members to follow the fair value model defined in IAS 40, based on this decision, the consolidated financial statements
were adjusted retrospectively in accordance with IAS 8.22 to reflect the application of the fair value model
defined in IAS 40.33.
In accordance with the fair value model, properties are carried at their fair value as of the balance sheet date. Fair
value is defined as the amount at which a property could be exchanged between knowledgeable, willing parities in
an arm’s length transaction. All changes in fair value are recognised to the income statement. The properties are no
longer depreciated on a regular basis, but measured each year at their fair value. As stated in IAS 36.2 (f), the regulations
for impairment tests are not applicable because investment properties are measured at fair value and gains or
losses in fair value are recognised to the income statement.
Fair value must reflect the current market situation and circumstances as of the balance sheet date. The best evidence
of fair value is normally provided by prices quoted on an active market for similar properties that have a similar
location and conditions as well as comparable rental and other contractual relationships. The fair value of IMMOEAST
properties is determined by expert opinions, which are prepared by independent valuation experts. The function of
the independent expert is filled by the member companies of the Colliers International Group for the CEE and SEE
segment and DTZ Debenham Zadelhoff for the CIS segment.
Investment properties are valued using the discounted cash flow method, specifically in the form of the term and
reversion model. Under this model, current rental income up to the end of the contract term is discounted back to
the valuation date, a comparable market rent is then applied, capitalised and also discounted back to the valuation
date to determine the perpetual yield (reversion). Depending on the estimates for risk – which are based on the type
of property, location and region as well as current market circumstances – different discount rates are used applied
to current rental income and the capitalisation of the perpetual yield. The capitalisation also includes any vacancies
as well as the perpetual yield based on an appropriate period of time for rental and comparable market rental prices
and an assumed maximum occupancy that is derived from the above-mentioned criteria.
Notes
Report by the Executive Board 175
Highlights 2006/07
Business Model and Strategy
Portfolio Structure
Corporate Governance and Outlook
Property Portfolio
Development of Business
Consolidated Financial Statements
Service and Glossary
IAS 40.5
IAS 40.20 &
IAS 40.23
IAS 40.30
IAS 8.22
IAS 40.33 in
connection
with IAS 40.35
IAS 40.38
IAS 40.45