138 CapitaLand Integrated Commercial Trust Notes to the financial statements Year ended 31 December 2024 5 INVESTMENT PROPERTIES (continued) Valuation technique Investment properties are stated at fair value based on valuation performed by independent professional valuers. In determining the fair value, the methodologies adopted by the valuers include capitalisation method and/or discounted cash flow method. 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. Significant unobservable inputs The following table shows the valuation techniques and significant unobservable inputs used in measuring Level 3 fair values of investment properties: Valuation technique Significant unobservable inputs Inter-relationship between key unobservable inputs and fair value measurement Capitalisation method Capitalisation rate Group Singapore Retail 2024: 4.50% to 7.00% (2023: 4.50% to 7.00%) Integrated Developments 2024: 3.50% to 4.85% (2023: 3.55% to 4.85%) Office 2024: 3.15% to 3.75% (2023: 3.40% to 3.75%) Australia Integrated Developments 2024: 6.50% (2023: 5.50% to 6.50%) Office 2024: 7.00% to 7.25% (2023: 6.00% to 6.25%) The estimated fair value would increase/(decrease) if the capitalisation rates were lower/ (higher).
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