Audited

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 2017	182,317	1,677	183,994
Acquisition or production cost
1 January 2017	324,773	1,677	326,450
Additions	141	5,369	5,510
Disposals	- 96		- 96
Reclassifications			0
31 December 2017	324,818	7,046	331,864
Accumulated depreciation, amortisation and impairment
1 January 2017	142,456	0	142,456
Additions	9,581		9,581
Disposals	- 57		- 57
Reclassifications			0
31 December 2017	151,980	0	151,980
Carrying amount as of 31 December 2017	172,838	7,046	179,884

Carrying amount as of 1 January 2018	172,838	7,046	179,884
Acquisition or production cost
1 January 2018	324,818	7,046	331,864
Additions	10,537	2,359	12,896
Disposals			0
Reclassifications	5,740	- 5,740	0
31 December 2018	341,095	3,665	344,760
Accumulated depreciation, amortisation and impairment
1 January 2018	151,980	0	151,980
Additions	8,056		8,056
Disposals			0
Reclassifications			0
31 December 2018	160,036	0	160,036
Carrying amount as of 31 December 2018	181,059	3,665	184,724

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 additions relate mainly to conversion costs in connection with changes of use.

Rental income from investment property at the end of the financial year was € 50,870 thousand (previous year: € 50,986 thousand). The direct operating expenses for investment property, which are fully attributable to rental income, amounted to € 17,082 thousand (previous year: € 17,033 thousand).

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	2018	2017
As of 1 January	651,292	662,172
Change in fair value (not realised)	- 32,676	-10,880
As of 31 December	618,616	651,292

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 contractually agreed rental income was (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)

rent for the land

the rent was lower (higher)

discount rate
(4.02 to 7.25 % 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.

Investments

Payments for investments in property, plant and equipment, investment property and intangible assets.