A valuation of the property holdings is made by assessing each individual property’s fair value. The assessment is based on a valuation made according to a variant of the location price method, known as the net capitalization method. This method means that the market yield requirement are part in the net operating income of the properties. In the case of other project properties and undeveloped land, the valuation was based on a completed building with a deduction for construction costs, as well as financial costs and the cost of vacant space that arose during the construction period.
Sensitivity analysis, property valuation per December 31, 2022
|Change +/-||Impact on value before tax +/-|
|Rent revenue||SEK 100 per sq m||SEK 1,050 SEK m|
|Property costs||SEK 50 per sq m||SEK 525 SEK m|
|Rental vacancy level||1.0 procentage point||SEK 660 SEK m|
|Yield requirement||0.25 procentage point||SEK 3,320 SEK m|
The assessment of the yield requirements is based on information gathered on the market return on investment requirements for purchases and sales of comparable properties in similar locations. If few or no deals were concluded in the property’s sub-area, transactions in the adjoining area are analysed. Deals not concluded also provide guidance on the market yield requirements. Account is also taken of the property type, technical standard, building construction and major investment requirements.
The yield requirements used in the valuation vary between different regions and different sub-areas within the regions. Information is checked with independent valuation and advisory companies. Hufvudstaden's average yield requirement since December 31, 2017 has varied between 3.5 per cent and 3.8 per cent, and as of December 31, 2022 the figure was 3.7 per cent. For leasehold properties, the calculation is based on a yield requirement that is 0.20 percentage points higher than for equivalent properties where thje land is freehold.
The net operating income
The net operating income is based on market-adapted rental revenue. Rental revenue is adapted to the market by adjusting existing rents using newly signed and renegotiated leases and with account taken of the expected rent trend.
Revenue has been reduced to take into account an assessed long-term rental vacancy rate. The vacancy level is based on the true outcome of the property holdings over a business cycle and the expected rental situation for the individual property. In the valuation, an average vacancy level of 4 per cent has been estimated. The actual average vacancy level during the period 2013 – 2022 varied between 1 and 7 per cent and as at December 31, 2022, the figure was 4 per cent.
A deduction has been made for standard costs for operation and maintenance, excluding costs that can be passed on, and part of the property administration. These are based on the actual outcome and are adjusted for non-permanent deviations. The average cost per square metre over the most recent five-year period has been in the range SEK 500 – 600 and the estimated cost in the valuation as of December 31, 2022 was on the same level.
|Range (weighted average)|
|Net operating income (SEK/sq m)||1,490 - 8,270 (4,970)|
|Vacancy rate (%)||2 - 5 (4)|
|Yield requirement, Stockholm (%)||3.3 - 3.8 (3.5)|
|Yield requirement, Gothenburg (%)||4.3 - 5.0 (4.5)|
|Yield requirement, total (%)||3.7|
To assure the valuation, external valuations were obtained from three independent valuation companies: Cushman and Wakefield, Forum Fastighetsekonomi and Newsec Advice. The external valuations cover nine properties and are equivalent to 43 per cent of the internally assessed fair value, and the corresponding figures at the mid-year were 37 per cent.
The basis for the selection of the properties was that they should represent variations in property category, town, location, technical standard and construction standard. The properties that underwent an external valuation were Grönlandet Södra 11, Hästen 19 and 20 (NK Stockholm), Kungliga Trädgården 5, Kåkenhusen 40, Orgelpipan 7, Pumpstocken 10 (part of) and Skären 9 in Stockholm and Inom Vallgraven 3:2 and Nordstaden 8:24 (part of) in Gothenburg.
The external valuation companies set a fair value of SEK 21.9 billion. Hufvudstaden's internal valuation of the same properties was SEK 21.3 billion. The internal valuations thus concur well with the external valuations.
In conjunction with an external property valuation, a range is often given to indicate the degree of uncertainty surrounding the fair value estimates. The value range is usually +/– 5 per cent but can vary depending, among other things, on the market situation, the technical standard of the property and investment requirements.
Hufvudstaden's property holdings are valued at SEK 49.5 billion with a degree of uncertainty of +/– 5 per cent, which means that the assessed fair value varies by +/– 2.5 billion.