CapitaLand Integrated Commercial Trust - Annual Report 2021

Notes to the Financial Statements YEAR ENDED 31 DECEMBER 2021 5 INVESTMENT PROPERTIES (continued) Valuation technique Investment properties, including investment property reclassified as asset held for sale, are stated at fair value based on valuation performed by independent professional valuers. In determining the fair value, the methodology adopted by the valuers includes capitalisation method and discounted cash flowmethod. The capitalisation method is an investment approach whereby the estimated gross passing income (on both a passing and market rent basis) is adjusted to reflect anticipated operating costs and a natural vacancy to produce the net income on a fully leased basis. The adopted fully leased net income is capitalised over the remaining term of the lease from the valuation date at an appropriate investment yield. The discounted cash flow method 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 current market requirements. The above valuation methods involve certain estimates. The Manager reviews the key valuation parameters and underlying data including market-corroborated capitalisation rates, discount rates and terminal yield rates adopted by the valuers and is of view that they are reflective of the market conditions as at the reporting dates. The ongoing novel coronavirus (“COVID-19”) pandemic continued to affect market activity in property sectors. As the impact of COVID-19 is fluid and evolving, significant market uncertainty exists. Certain valuers have retained the material uncertainty clauses in the valuation reports, highlighting that as a result of the ongoing COVID-19 pandemic, less certainty should be attached to the valuations than would normally be the case. Due to the uncertain future impact that the pandemic might have on the real estate market, the values might change more rapidly and significantly than during standard market conditions. The carrying amounts of the investment properties, including investment property reclassified as asset held for sale, were current as at 31 December 2021 only. Significant unobservable inputs The following table shows the valuation techniques and significant unobservable inputs used in measuring level 3 fair values of investment properties, including investment property reclassified as asset held for sale: Valuation technique Significant unobservable inputs Inter-relationship between key unobservable inputs and fair value measurement Capitalisation method Capitalisation rate Group Singapore Retail 2021: 4.50% to 7.00% (2020: 4.50% to 7.00%) Integrated Developments 2021: 3.63% to 4.85% (2020: 3.75% to 4.85%) Office 2021: 3.40% to 3.75% (2020: 3.45% to 3.95%) The estimated fair value would increase/(decrease) if the capitalisation rates were lower/ (higher). CapitaLand Integrated Commercial Trust 252