24. Investment Property

Development of Investment Property
in € thousand	Investment property	Payments on account and plants under construction	Total
Carrying amount as of 1 January 2014	172,552	11,704	184,256
Acquisition or production cost
1 January 2014	287,266	11,704	298,970
Additions	24,066	120	24,186
Disposals	- 230		- 230
Reclassifications	11,655	- 11,655	0
31 December 2014	322,758	169	322,927
Accumulated depreciation, amortisation and impairment
1 January 2014	114,714	0	114,714
Additions	9,031		9,031
Disposals	- 14		- 14
Reclassifications			0
31 December 2014	123,731	0	123,731
Carrying amount as of 31 December 2014	199,026	169	199,196

Carrying amount as of 1 January 2015	199,026	169	199,196
Acquisition or production cost
1 January 2015	322,758	169	322,927
Additions	180	634	815
Disposals	- 30	- 97	- 127
Reclassifications	0	0	0
31 December 2015	322,909	706	323,615
Accumulated depreciation, amortisation and impairment
1 January 2015	123,731	0	123,731
Additions	9,285	0	9,285
Disposals	- 4	0	- 4
Write-backs	0	0	0
31 December 2015	133,012	0	133,012
Carrying amount as of 31 December 2015	189,897	706	190,603

The properties held as investment property are mainly warehouses converted to office space and other commercial real estate in Hamburg’s Speicherstadt historical warehouse district as well as logistics warehouses and surfaced areas.

The addition to investment property in the previous year was due to the completion and handover of a hotel complex.

Rental income from investment property at the end of the financial year was € 51,022 thousand (previous year: € 46,287 thousand). The direct operating expenses for investment property amounted to € 14,867 thousand (previous year: € 16,631 thousand) at the end of the reporting year.

Fair value is calculated and measured annually by HHLA’s Real Estate segment. The associated inputs are classified as Level 3 in the fair value hierarchy, see Note 7.

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Fair Value Reconciliation
in € thousand		2015
As of 1 January		521,005
Change in fair value (not realised)		63,207
As of 31 December		584,212

The valuation method used to measure the fair value of investment property as well as the key unobservable input factors applied:
Valuation method	Key unobservable input factors	Relationship between key unobservable input factors and measurement at fair value
		The estimated fair value would increase (fall) if
Fair values are measured by applying the discounted cash flow method (DCF method) to the forecast net cash flows from managing the properties. This method is based on detailed forecasts of ten years or up to the end of the useful lives of properties with a remaining useful life of less than ten years. The cash flows are discounted using standard market interest rates. Property-specific fair value is determined on the basis of property-specific measurement criteria.	contractually agreed rental income	the expected rent increases were higher (lower)
	expected rent increases	the expected rent increases were higher (lower)
	vacancy periods	the vacancy periods were shorter (longer)
	level of occupancy	the level of occupancy was higher (lower)
	rent-free periods	the rent-free periods were shorter (longer)
	possible termination of the tenancy agreement	tenancy agreements were not terminated (were terminated)
	re-leasing	the property was re-leased sooner (later)
	operating, management and maintenance costs	operating, management and maintenance costs were lower (higher)
	discount rate (4.54 to 7.82 % p. a.)	the risk-adjusted discount rate was lower (higher)

The valuation method used to measure the fair value of investment property as well as the key unobservable input factors applied:

Valuation method

Key unobservable input factors

Relationship between key unobservable input factors and measurement at fair value

The estimated fair value would increase (fall) if

Fair values are measured by applying the discounted cash flow method (DCF method) to the forecast net cash flows from managing the properties. This method is based on detailed forecasts of ten years or up to the end of the useful lives of properties with a remaining useful life of less than ten years. The cash flows are discounted using standard market interest rates. Property-specific fair value is determined on the basis of property-specific measurement criteria.

contractually agreed rental income

the expected rent increases were higher (lower)

expected rent increases

the expected rent increases were higher (lower)

vacancy periods

the vacancy periods were shorter (longer)

level of occupancy

the level of occupancy was higher (lower)

rent-free periods

the rent-free periods were shorter (longer)

possible termination of the tenancy agreement

tenancy agreements were not terminated (were terminated)

re-leasing

the property was re-leased sooner (later)

operating, management and maintenance costs

operating, management and maintenance costs were lower (higher)

discount rate
(4.54 to 7.82 % p. a.)

the risk-adjusted discount rate was lower (higher)

Regarding existing restrictions on the disposal and use of buildings in connection with the letting of the associated properties from the Free and Hanseatic City of Hamburg, see the explanatory remarks on the lease agreements in Note 45.