Standard valuation is based on information on each of the roughly 2,400 properties owned by the listed Swedish companies. The intention is to carry out a standard valuation of the companies’ property stocks according to the principles applied by players in the property market. Comparability is obtained by basing the valuations on a uniform model. The model uses the following definitions.
Yield requirements
Yield requirements are defined as the net operating income (NOI) obtained from the property, less property tax and ground rent. Standard NOI is related to the yield requirement. Accordingly, the earnings-based value of the property is obtained. This value is adjusted for the current value of interest grants, leasing losses and improvement costs, and the standard value of the property is then obtained.
Operating and maintenance costs
Standard operating and maintenance costs are disclosed excluding property tax. Here, rental value accounts for most of the property’s operating and maintenance costs. This is assumed to be normally applicable in Scandinavia. A special standard cost is applied to retail floor area in the NK department store in Stockholm and Göteborg, because of the special form of operation. The following assumptions are made for lease agreements where the tenant pays most of the costs, this being normally assumed to apply outside Scandinavia: Office/Retail €11/m², Hotels €16.5/m² and Other €5.5/m².
Rents
Valuations are based on estimated market rents, which in turn are based on assumptions concerning the annual rise in rent over the past three years. For rental markets not included in the table, the rent payable is assumed to be the market rent, except that it conforms to utility value for residential property. The estimated value of the properties is adjusted for current value of the lower rent received by the property owner during the validity of the lease agreements and the costs that may arise for the property owner in conjunction with renegotiation and new leasing. Aggregate value is assumed to amount to five times the difference between the rent payable and the estimated market rent.
Vacancy rate
For companies with vacancy rates exceeding the expected long-term level, the value of properties is adjusted for the rent losses and costs of tenant improvements burdening the company during the period in which the improvements are carried out. This period is assumed to be six years, and the aggregate current value of rent losses and costs is assumed to amount to five years’ rental value.