184 AL-SALAM REIT 10. Investment properties (cont’d.) Fair value measurement of the Group’s and the Fund’s investment properties The fair values of the Group’s and the Fund’s investment properties as of 31 December 2022 have been arrived at on the basis of valuation carried out by Cheston International Sdn Bhd, independent valuer not related to the Group and the Fund. The valuer are registered members of the Board of Valuers, Appraisers and Estate Agents, Malaysia, and they have appropriate qualifications and recent experience in the valuation of the properties in the relevant locations. The valuation of the Fund’s investment properties were performed in accordance with the Malaysian Valuation Standards issued by the Board of Valuers, Appraisers and Estate Agents, Malaysia. The fair values were determined based on the capitalisation of net income method and is premised on the principle that the value of an income-producing property is represented by the “present worth of future rights to income, or utility”. The values estimated under this method are derived by ascertaining the market rent of the properties; deducting all reasonable annual operating expenses (as would be experienced under typical management) and then capitalising the resultant net operating income by an appropriate rate of capitalisation to obtain the present value of the income stream. In undertaking their assessment of the value using this approach, the market rental income and expected future rental income are taken into consideration. In arriving at the net income, the outgoings i.e. quit rent, assessment, insurance, repairs and maintenance and management, are deducted from gross rental income together with allowance for void. In estimating the fair values of the investment properties, the highest and best use of the investment properties is their current use. The following table shows a reconciliation of Level 3 fair values: Group Fund 2022 RM 2021 RM 2022 RM 2021 RM Valuation per valuers’ report 1,240,990,000 1,190,460,000 1,240,990,000 1,190,460,000 Less: Unbilled rental income (16,816,654) (13,223,478) (16,816,654) (13,223,478) 1,224,173,346 1,177,236,522 1,224,173,346 1,177,236,522 The fair value of the investment properties are classified as Level 3 for fair value hierarchy disclosure purposes. The significant unobservable inputs applied by the independent valuer in applying the investment method above are as follows: Significant unobservable inputs Inter-relationship between significant unobservable inputs and fair value measurement Term yield ranging from 5.00% - 6.75% (2021: 5.00% - 6.75%) Higher term yield rates, lower fair value Reversionary yield ranging from 5.50% - 7.25% (2021: 5.50% - 7.5%) Higher reversionary yield rates, lower fair value Discount rate ranging from 5.00% to 7.25% (2021: 5.00% - 7.25%) Higher discount rate, lower fair value Allowance for void of 3.0% - 10.00% (2021: 2.5% - 10.00%) Higher allowance for void rate, lower fair value The valuer had adopted market corroborated capitalisation rates, which is the most frequently adopted methodology by the property industry in Malaysia, based on information pertaining to recent comparable sales which are publicly available, adjusted for the location, quality and characteristics of the investment properties. NOTES TO THE FINANCIAL STATEMENTS 31 December 2022 (cont’d.)
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