NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2023 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2023 5 INVESTMENT PROPERTIES (CONT’D) (a) Investment properties comprise commercial, residential, hotel and industrial properties that are leased to external customers. Generally, each of the leases is fixed for a period of 1 to 30 years (2022: 1 to 16 years), and subsequent renewals are negotiated at prevailing market rates and terms. (b) During 2023, the Company disposed of certain investment properties of net carrying amount of $349.0 million to subsidiaries of the Group for consideration of $1,482.8 million. (c) During 2022, the Group transferred a portion of an investment property to development properties for redevelopment as residential units for sale. In addition, the Group transferred a development property to investment properties arising from inception of an operating lease for the property. The Group also disposed of certain investment properties arising from the deconsolidation of CDLHT following the distribution in specie of CDLHT units during the year (note 39). (d) As at 31 December 2023, investment properties of the Group with a total carrying amount of $1,526,975,000 (2022: $1,236,481,000) were mortagaed to (i) certain financial institutions to secure credit facilities (refer to notes 22 and 23 for more details of the facilities); and (ii) a lessee as collateral for security deposit held of $3,700,000 (2022: Nil) which will be discharged on termination of lease. (e) The Group undertook its annual review of the carrying amounts of investment properties for indicators of impairment. Where indicators of impairment were identified, the recoverable amounts were estimated based on internal or external valuations undertaken. The cash generating units (CGU) are individual properties. The recoverable amounts of the investment properties, being the higher of the fair value less costs to sell and value-in-use, were predominantly determined using the fair value less costs to sell approach, and were estimated using the income capitalisation, standardised land value adjustment and residual methods (2022: income capitalisation, standardised land value adjustment and residual methods). Based on the impairment assessment undertaken in 2023, the Group recognised an impairment loss of $43,749,000 on two commercial properties in the United Kingdom (UK) and one commercial project under construction in China. The impairment loss recognised during the year was mainly due to the higher capitalisation rates applied to the said commercial properties in UK amidst evaluated interest rate environment and the downturn in real estate market in China which remained challenging, along with higher than expected development costs incurred on the project in China. In 2022, the Group recognised an impairment loss of $35,728,000 on one commercial property in UK, one purpose-built student accommodation in UK and one commercial project under construction in China. The impairment loss recognised in 2022 was mainly due to the increase in capitalisation rates arising from higher interest rates in UK and the subdued real estate market in China, along with higher than expected development costs incurred on the project in China. The impairment loss recognised was recognised in “other operating expenses” and the investment properties segment. 5 INVESTMENT PROPERTIES (CONT’D) The key assumptions used in estimating the recoverable amounts are set out below: 2023 China UK Capitalisation rate N/A 5.5% to 6.0% Gross development value $113 million N/A Estimated cost to completion $12 million N/A Price per square metre (“psm”) $707 psm N/A 2022 China UK Capitalisation rate N/A 5.6% to 9.0% Rental rate per bed N/A $290 Gross development value $119 million N/A Estimated cost to completion $22 million N/A Price per square metre (“psm”) $777 psm N/A Sensitivity analysis The Group’s impairment review is sensitive to changes in the key assumptions used. An increase in rental rate per bed, price psm or gross development value in isolation would result in a higher recoverable amount. An increase in capitalisation rate or estimated cost to completion in isolation would result in a lower recoverable amount. FINANCIALS FINANCIALS ANNUAL REPORT 2023 CITY DEVELOPMENTS LIMITED 167 166
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