VALUATION REPORT LEIPZIG PORTFOLIO by NAI apollo valuation & research GmbH

Transcription

1 VALUATION REPORT LEIPZIG PORTFOLIO by NAI apollo valuation & research GmbH in the form of a condensed valuation report ( Financial Statement Publication Valuation Report ) from the determination of Market Value carried out by NAI apollo valuation & research GmbH in accordance with the International Financial Reporting Standards (IFRS), the International Valuation Standards ( IVS ) and the Valuation Standards of the Royal Institution of Chartered Surveyors ( Red Book ), in connection with the financial statement publication by Brack Capital Properties NV, of the portfolio of 43 properties located in Leipzig (Germany), comprising 134,121 sq m of residential space and 1,555 sq m of commercial space. Date of Valuation: 30 th June 2014 Date of Valuation Report: 20 th August 2014 Client: Brack Capital Properties NV Weteringschans 95A 1017 RZ Amsterdam The Netherlands I The valuation was ordered by Fred Ganea, BCP s Head of Financial Department. Issuer: NAI apollo group NAI apollo valuation & research GmbH Eschersheimer Landstraße Frankfurt am Main Germany

2 VALUATION REPORT LEIPZIG PORTFOLIO by NAI apollo valuation & research GmbH SUMMARY OF THE VALUATION CONCLUSIONS Upon the assumption that there are no onerous restrictions or unusual outgoings of which we have no knowledge and based on the specific comments and assumptions set out in this valuation statement, we are of the opinion that the aggregate of the individual Market Values (net) of the freehold interest in the properties of the LEIPZIG Portfolio, rounded on an asset basis, as at 30 th June 2014, is: 96,536,000 (Ninety-Six Million Five Hundred and Thirty-Six Thousand Euro) The aggregate of the individual Market Values presented here takes into account the marketing period and the transaction costs of the individual properties and does not reflect any discount or premium on the sale of the whole portfolio. The following table shows aggregated key property data for the portfolio: Total lettable area ,677 sq m Market Value per sq m lettable area EUR Annual rental income... 7,574,611 EUR Rental income per sq m / month EUR Estimated annual rental value... 8,260,997 EUR Multiplier (based on current rent) times Net initial yield (based on current rent) % II Further information on the assumptions of the LEIPZIG Portfolio underlying the valuation are presented in section 4 Applied Valuation Methodology of this report.

3 VALUATION REPORT LEIPZIG PORTFOLIO by NAI apollo valuation & research GmbH Table of Content 1. BASIS OF VALUATION... II 1.1. Valuation Instruction... II 1.2. Publication and Liability... II 1.3. Valuer... II 1.4. Project Team... II 1.5. Subject of Valuation... III 1.6. Date of Valuation... III 1.7. Project Timeline... III 1.8. Concept of Value... IV 1.9. Currency and Rounding... IV Basic Data... IV Legal, Environmental and Technical Due Diligence... IV Scope of Work... V Declaration of Independence... V Statement of Indemnity... V Place of Performance and Jurisdiction... V 2. GERMAN RESIDENTIAL MARKET... VI 2.1. In general... VI 2.2. Residential market of Leipzig... VII 3. THE PORTFOLIO... IX 3.1. Portfolio Overview... IX 3.2. Breakdown of Rental Income... IX 4. APPLIED VALUATION METHODOLOGY... IX 4.1. Valuation Methodology... IX 4.2. Plausibility Check... X 4.3. Cash Flow Calculation... X 4.4. Structural Investigations... X 4.5. Technical Cost Indexation... XI 4.6. Indexation of Costs... XI 4.7. Environmental Condition and Soil Contamination... XI 4.8. Collection Loss... XI 4.9. Void Costs... XII Revenue Assumptions... XII Vacancy Development... XII Management Costs... XII Technical Costs...XIII Auxiliary Purchase Costs... XIV Discount Rate... XIV Capitalization Rate... XIV III 5. VALUATION RESULTS... XV 6. SENSITIVITY ANALYSIS... XVI 7. VALUATION COMPARISON TABLE... XVI

4 1. BASIS OF VALUATION 1.1. Valuation Instruction NAI apollo valuation & research GmbH ( NAI apollo ) was instructed by Brack Capital Properties NV (the Client ), as of 26 th June 2014, to carry out a determination of the Fair Value of the LEIPZIG Portfolio in a valuation report in its role as an independent valuation expert for financial accounting purposes. Furthermore NAI apollo was requested to prepare this report for the Client s IFRS financial statement expected to be published in August Publication and Liability NAI apollo understands that this condensed valuation report will be included in Brack Capital Properties NV financial statements that will be published in August 2014 and that investors will rely on the financial statement. NAI apollo gives consent to the Client to publish this report as part of the financial statements. Apart from that, neither the whole report, any part thereof nor any references thereto may be included in any published document, circular note nor published in any way without our prior written approval of the content, form and context in which it will appear. Such approval shall not be unreasonably withheld. In connection with the publication of this report the liability of NAI apollo is limited to 2 million for typical damage caused by negligence, unless it is a case of damage caused by gross negligence, or the damage arises as a result of the breach of major duties. The limitation of liability does not apply for damage to life, body and health Valuer NAI apollo valuation & research GmbH Eschersheimer Landstr Frankfurt am Main Germany Tel.: +49 (0) Fax: +49 (0) Project Team Stefan Mergen Since September 2010, Stefan Mergen has been Managing Partner of NAI apollo valuation & research GmbH. Prior to that he was the Head of Jones Lang LaSalle s Residential Valuation & Transaction Advisory team in Frankfurt / Main. Here, he set up and headed a team of 14 valuation professionals in Berlin and Frankfurt. Before joining Jones Lang LaSalle, he worked as valuer for a nationwide real estate consulting company, focusing mainly on the valuation of residential portfolios. Stefan Mergen holds a Bachelor of Arts in Real Estate and possesses more than 12 years of consulting experience on the German real estate market.

5 Falk Schollenberger MRICS Since September 2010, Falk Schollenberger has been Managing Partner of NAI apollo valuation & research GmbH. Prior to that he was National Director in Jones Lang LaSalle s Corporate Finance team in Frankfurt / Main, where he was responsible for M&A, Equity Raising and transaction advisory for national and international investors. Prior to that he headed the Residential Valuation & Transaction Advisory team together with Stefan Mergen. Falk Schollenberger is a Certified Political Economist, Master of Science (Real Estate) and Manager in Real Estate and an RICS Registered Valuer. He possesses more than 15 years of consulting experience on the German real estate market. Nico Schultz MRICS Since September 2010, Nico Schultz has been Director - Valuation at NAI apollo valuation & research GmbH. Prior to that he was Principal Consultant in Jones Lang LaSalle s Residential Valuation & Transaction Advisory team in Frankfurt / Main. Before joining Jones Lang LaSalle, he worked in the Research and Consulting department of a nationwide real estate consulting company. Prior to that, he gained professional experience as valuer and property manager in a medium-sized company. Nico Schultz holds an MBA and is an RICS Registered Valuer. He possesses more than 12 years of consulting experience on the German real estate market. Dr. Konrad Kanzler Since October 2010, Dr. Konrad Kanzler has been Head of Research at NAI apollo valuation & research GmbH. Prior to that he set up and headed the Residential Research team in Jones Lang LaSalle s Residential Valuation & Transaction Advisory department in Frankfurt / Main. Before joining Jones Lang LaSalle he worked as an analyst for a nationwide real estate consulting company after successfully completing several research projects as research associate at the University of Osnabrück. Konrad Kanzler is a certified economic geographer (degree of Doctorate) and possesses more than 10 years of consulting experience on the German real estate market Subject of Valuation The portfolio consists of 43 mainly residentially used properties in Leipzig Date of Valuation 30 th June Project Timeline Instruction received... June 26, 2014 Database received... June 23, 2014 Delivery of Final Valuation Report... August 20, 2014 Delivery of this Financial Statement Publication Valuation Report... August 20, 2014

6 1.8. Concept of Value The assessment of Fair Value has been carried out by NAI apollo in accordance with the guidelines of the International Financial Reporting Standards (IFRS), the International Valuation Standards (IVS) and the Valuation Standards of the Royal Institution of Chartered Surveyors (Red Book). The properties have been valued to Market Value in accordance with the RICS Valuation Standards Ninth Edition, published by RICS, London, which is defined as: The estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. In most cases, the above definition concurs with that of the Fair Value in accordance with IAS 40 of the International Financial Reporting Standards (IFRS) published by the International Accounting Standards Board (IASB), which is defined as: Fair value is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm s-length transaction. We confirm that we have sufficient local and national knowledge of the particular property market involved and possess the skills and understanding to undertake the valuation(s) competently Currency and Rounding All prices and values in this report are displayed in Euro ( ). Every amount in total relating to rents and areas within this report is rounded without decimal place Basic Data The information on which the valuation was based was provided to NAI apollo by the Client, or by third parties acting on the Client s instructions, in the form of electronic documents, by means of extensive correspondence as well as inspection of the properties (23 rd and 24 th April 2012 and again on 18 th April 2013 respectively on 20 th January 2014 regarding refurbished subportfolios). The figures in this report are based on the rent roll provided by the Client. In the course of the valuation, the relevant documents were examined and verified for.plausibility Legal, Environmental and Technical Due Diligence NAI apollo did not receive a legal due diligence report. However NAI apollo was provided with land register excerpts, excerpts from the public easement register and excerpts from the contaminated land register.

7 1.12. Scope of Work In the assessment of the Market Value of the subject properties, inter alia, the following procedures were carried out: Analysis and interpretation of the property information provided by the Client, for example tenancy and property schedules and other data materials relevant to the valuation Analysis of each single property Analysis of market, location and rental situation for each property Determination of Market Value for each property Compilation of a fact-file for each property, including a DCF calculation, a brief description of the reference property, situation and site maps, site information and tenure, a schedule of rental and investment evidence and photographs, as part of a comprehensive valuation report in English Declaration of Independence We hereby confirm, to the best of our knowledge and belief that NAI apollo has carried out the determination of Market Value in its capacity as independent valuer, under instructions received from the Client. We further confirm that NAI apollo is not aware of any actual or potential conflict of interest that might have influenced its status as an independent valuer. This declaration also includes all other companies and departments which are part of the NAI apollo group, including the Investment and Agency Departments. The fee for this assignment was agreed upon as a fixed amount which is not dependent on the stated market values. The total fees, including the fee for this assignment, earned by NAI apollo from the Client (or other companies forming part of the group of companies) is less than 5.0% of the total revenues generated in Germany Statement of Indemnity NAI apollo valuation & research GmbH confirms that we have never received a letter of indemnification from the client or from a company related to the client Place of Performance and Jurisdiction German law applies. The place of performance and jurisdiction is Frankfurt am Main.

8 2. GERMAN RESIDENTIAL MARKET 2.1. In general Sales increase to EUR 11.3 billion Trading in German residential property portfolios or residential complexes registered strong growth again in 2013, reaching a transaction volume of EUR 15.0 billion. Compared to the previous year (2012: EUR 11.3 billion) this represents an increase of 32.7 % and involved the sale of 318 portfolios (2012: 241) with more than 30 residential units apiece, amounting to a total of 231,000 residential units (2012: 211,000). The largest transaction of the year was the acquisition of 91 % of the shares in GSW AG by Deutsche Wohnen AG for around EUR 3.3 billion. Next came the sale of GBW AG by BayernLB to a consortium of 27 investors under the lead management of Patrizia AG for approx. EUR 2.5 billion. In third place was the purchase of a Blackstone portfolio by Deutsche Wohnen AG for EUR 369 million. The sale of a portfolio of Corestate Capital AG to several institutional investors from Germany for EUR 250 million was in fourth place. Overall, 27 of the registered transactions had a volume of more than EUR 100 million apiece, amounting to around EUR 10.3 billion in total. This corresponds to a share of 68.5 %. Major cities in Saxony gain in importance As in previous years demand was focused on properties in economically strong major cities and conurbations. Berlin maintained its leading position with a share of 22.0 % (-2.7 percentage points compared to the previous year) of the assignable portfolio transactions. In a comparison of the federal states, most of the purchases took place in North Rhine Westphalia with a share of 22.6 % (-0.1 percentage points). One striking development was the growing level of activity in Saxony. Compared to 2012, this state increased its share of transactions by 5.8 percentage points to 11.3 %. In particular, investors increasingly see Dresden and Leipzig as viable alternatives. Listed property companies with highest transaction volume An analysis according to investor types reveals that listed property companies accounted for almost half of last year s transaction volume (14.4 % of the purchases), driven by the GSW AG acquisition by Deutsche Wohnen AG. Next were insurance companies and pension funds with 19.1 % of the volume (4.0 % of purchases), largely due to the GBW AG deal. After registering a decline in the previous year, private investors improved their standing again with a 3.8 % share of the volume or 23.4 % of the number of transactions (+2.0 and +7.9 percentage points respectively). More than 80% of buyers are Germans With regard to the origin of investors, German investors have now dominated the market for the past five years. Domestic buyers accounted for 81.8 % of the transaction volume, which is a 9.4 percentage point increase from the previous year. The reduced activity by international investors is partly due to the rise in property prices. For example, the average purchase price for existing stock increased by 18.7 % compared to 2012 to reach more than 950 Euro/sqm. Project developments on average yield 3,020 Euro/sqm, which is 10.6 % more than in the previous year. Competition has intensified on the other hand due to the lack of alternative investment opportunities and attractive

9 financing conditions, with international investors proving to be the more frequent losers compared to domestic investors. Further potential for 2014 Interest in German residential portfolios will remain high in However, compared to the previous year the market will be less dominated by mega transactions. Although there are some isolated cases of large portfolios being offered for sale, such as a sub-portfolio of the Berlinovo property company comprising around 16,000 units or the DGAG- Portfolio with around 18,000 units, the emphasis will be on medium-sized deals that will largely arise from partial sales. On this basis, the NAI apollo group expects to see a reduction in the 2014 investment volume to around EUR 11 billion in total. This would be in line with the 2012 result (EUR 11.3 billion). It is likely that listed property companies will again play a central role in the large-volume market segment, while private investors will dominate the segment for smaller portfolios. In addition, international investors are again expected to be more active on the market. In geographical terms, the established conurbations will remain in high demand. At the same time a growing acceptance of secondary locations is also evident, as was already indicated in 2013 by investments in Leipzig and Dresden Residential market of Leipzig Population and Households According to the results of the census, 520,838 people live in the City of Leipzig (2012). The latest update by the Federal Statistical Office (2011) states a population figure of 531,809.distributed over 302,558 households. Hence, households in the City of Leipzig have an average size of 1.8 persons (Saxony: 1.9 / Germany: 2.1 persons). In the two-year comparison ( ) the population growth (+2.5%) has significantly outperformed the German development (Germany: +0.1%), showing a positive trend (Saxony: -0.8%). The development in the number of households during the same period (+0.6%) shows a similar tendency (Saxony: -0.6% / Germany: +0.4%). Hence, the average household size has increased by persons. Regarding future population development in the City of Leipzig, the Federal Institute for Research on Building, Urban Affairs and Spatial Development (BBSR) forecasts a decline (-1.2%) until the year 2030 (base year: 2010; Saxony: % / Germany: -2.9%). In the same period, the development of household numbers is projected with +1.2% (Saxony: -10.1% / Germany: +2.9%). Economy The economy in the City of Leipzig is characterized by the tertiary sector. 83.8% of all employees (subject to social insurance contributions) are employed in this economic sector. In comparison, the tertiary sector in Germany accounts for 69.0% (Saxony: 68.6%). The remaining workforce in the City of Leipzig is distributed over the secondary sector with 16.1% as well as the primary sector with 0.1%. The GfK purchasing power index per inhabitant (2013) stands at 84.5 and has changed only marginally by +0.1 points since the previous year. Compared to the German average (100), the purchasing power index in the City of Leipzig is significantly below the German figure (Saxony: 83.3 / -0.5 points compared to the previous year).

10 On the labour market the City of Leipzig, with an unemployment rate (relating to the economically active population) of 10.3% (December 13), is in a worse position than the Federal Republic of Germany (6.7%) (Saxony: 9.1%). Since December 2012 it has, however, decreased by -0.5%-points. Residential Market The residential market in the City of Leipzig consists of 56,311 residential buildings (census 2011: 59,498) and 316,643 residential units (census 2011: 324,069), respectively (2011). In a one year comparison ( ) the stock of apartments increased by +0.2% (stock of residential buildings: +0.7%). The respective stocks (apartments / residential buildings) in Saxony developed with 0.0% and +0.3%, while Germany shows the trends of +0.4% and +0.5%. On average, each residential property in Leipzig consists of 5.6 apartments (Saxony: 2.9 / Germany: 2.2). Each inhabitant has an average living space of 39.3 sq m (Saxony: 38.7 sq m / Germany: 42.1 sq m). The building completion volume in Leipzig (2012) amounted to 1,066 residential units (Saxony: 5,240 / Germany: 200,466). Compared to the previous year this constitutes an increase of 16.6% (Saxony: -2.4% / GER: +9.5%). Compared to the five-year average of approx. 1,000 units per year, this, too, means an increase. Building permits, which give an indication for the construction activity in subsequent years, were issued for 848 apartments in 2012 (Saxony: 5,720 / Germany: 241,090). In contrast to the building completion volume, the number of building permits is below the five-year average of approx. 1,230 units per year. The vacancy rate in multi-family buildings in Leipzig currently (2012) amounts to 8.3%. Thus, it is above the German average, but has decreased compared with 2009 (-1.7%-points) (Saxony: 7.2 [-0.6%-points] / Germany: 3.3 [-0.4%- points]). According to the results of the 2011 census, the vacancy rate based on the total housing stock in Leipzig is at 12.1% (Saxony: 9.9% / Germany: 4.4%). Rents On the letting market for flats in Leipzig the average asking price in 2013 amounts to 5.65 /sq m/month. This constitutes an increase of 5.6% compared to the previous year. In the analysis according to construction year clusters, the cluster > 2005 forms the most expensive market segment with 6.60 /sq m/month. Segmented according to apartment size, the highest rental offer prices of 6.25 /sq m/month can be observed for large units (>84 sq m).the average size of all units on offer in 2013 amounts to sq m. Geographically, the post code area with an average rental offer price of 7.40 /sq m/month marks the peak price, followed by post codes (7.15 /sq m/month) and (7.05 /sq m/month). On the other hand, the cheapest residential space with 4.40 /sq m/month and 4.45 /sq m/month, respectively, can be found in the post code areas and

11 3. THE PORTFOLIO 3.1. Portfolio Overview The LEIPZIG Portfolio consists of 2,573 residential, 24 commercial and several parking and miscellaneous units. According to information provided by the owner none of the units are rent-restricted. The subject portfolio features a lettable area of 135,677 sq m of residential space and 1,555 sq m of commercial space. Apartments have an average size of 52 sq m, while commercial units average 65 sq m. At the date of valuation the LEIPZIG portfolio has a vacancy rate of 3.4% (4,365 sq m). The properties of the portfolio are in mostly average micro locations Breakdown of Rental Income The average residential rent is 4.81 per sq m per month, while commercial units have an average rent of 3.41 per sq m per month. 4. APPLIED VALUATION METHODOLOGY 4.1. Valuation Methodology Generally, there are three different approaches to valuing a property: the sales comparison method, the cost approach and the income approach. The Sales Comparison Method The sales comparison method is an appropriate approach to value investment property, but it depends heavily on the availability of comparable sales. A transaction can be regarded as comparable if the sold property is similar to the valuation property regarding size, condition, rent level and location. Furthermore, the transaction must have taken place according to the requirements stated in the RICS definition of the Market Value (arm's length transaction with knowledgeable and prudent parties without compulsion) and there must be a temporary proximity between transaction and valuation, as markets are in constant movement. Since it is very difficult to obtain comparables that fit all these requirements because the German market is non-transparent, NAI apollo opted against using this approach for the valuation of the properties in Leipzig. The Cost Approach This methodology determines a property's value based on the costs associated with its construction. It is usually used mainly for self-occupied real estate where there is no actual cash flow. The valued properties can be regarded as investment properties, which is why the application of the income approach is regarded as more appropriate for the estimation of their market value. The Income Approach The income approach is usually used to estimate the value of investment property, as it is based on current and future cash flows. This methodology allows detailed estimations to be made regarding future cash flow developments in order to see in which direction and market position a property is heading. As this approach seems to be best suited for the valued properties, NAI applied a cash flow-focused approach. NAI considers the Discounted Cash Flow (DCF)

12 approach the most transparent and practicable income approach methodology, which is why this model was used for the valuation of the LEIPZIG portfolio Plausibility Check The data provided to NAI apollo was checked for obvious errors and logical inconsistencies. This check includes a review of the accuracy and completeness of the data, in particular addresses, the number of economic and administrative units, property types, lettable areas, lease agreements, vacancies and current incomes. If inconsistent data was discovered the client was informed immediately and the issues were clarified. If implausible data could not be verified or data was missing, NAI apollo made plausible assumptions Cash Flow Calculation NAI apollo estimated future cash flows for a ten-year holding period for the subject properties. After year ten, a resale value (present value of all future cash flows generated by the asset) was estimated. The cash flow estimation was based on the following scheme: Potential Gross Income The Potential Gross Income (PGI) forms the basis of the valuation. It comprises annual revenues for rented areas and other units plus a market rent for currently vacant areas. Effective Gross Income Deducting lost income from the PGI, NAI apollo arrives at the Effective Gross Income (EGI). Thus, this figure shows the actual rental income, taking into account existing and estimated future vacancies. Net Operating Income All running costs such as management costs, vacancy costs, collection loss, ongoing maintenance, tenant improvements and ground lease payments are subtracted from the EGI to arrive at the Net Operation Income (NOI). Operating Profit In the final step to determine free cash flow, one-off costs such as capex are deducted from the NOI Structural Investigations NAI apollo did not undertake structural surveys or investigations in the course of this valuation. During the inspections, the properties were not measured nor were building services or technical installations tested. All observations and findings of the inspections carried out by NAI apollo are based exclusively on purely visual examination with no guarantee as to completeness. If, during the inspection, it appeared that there was a backlog of maintenance or repairs, this was reflected in the valuation accordingly. No further investigations that might have caused damage to the subject properties have been carried out. Statements concerning structural elements or materials that were covered or otherwise incapable of inspection are based on information provided or on assumptions.

13 4.5. Technical Cost Indexation The technical costs were indexed with the building price index for the refurbishment of multi-family houses ( Baupreisindex für die Instandhaltung von Wohngebäuden ), determined quarterly by Destatis (Federal Statistical Office). As this index is subject to fluctuations, applying the current figure to forecast the cost development for ten years would be inappropriate. Thus, to forecast the next ten years more reliably, NAI apollo applied the average cost increase observed during the last ten years. The ten-year average increase of technical costs amounts to 2.43% p.a., which was applied by NAI apollo for the indexation of ongoing maintenance, tenant improvements and capex Indexation of Costs Aside from the indexation of technical costs, which was laid out in 4.5., there are some other costs that need to be indexed in order to consider future cash flow developments. These costs, namely management costs, vacancy costs and ground lease payments, were indexed according to the development of the Verbraucherpreisindex (consumer price index - CPI) published monthly by Destatis (Federal Statistical Office). Here, too, to forecast the next ten years, NAI apollo relied on the average price growth observed during the last ten years. The development of this index is displayed in the figure Consumer Price Index Development. The average growth rate of the CPI within the last ten years amounts to 1.56% p.a., which was consequently applied by NAI apollo for the indexation of the above cost categories Environmental Condition and Soil Contamination Based on information received from the client, we have assumed that the subject properties are not subject to any form of contamination and that no uses or activities with potential to cause contamination have been or are being carried out on or in them. Based on the information provided, we have also assumed that no environmental investigations or soil surveys that have discovered contamination or potential contamination in or on the subject properties (including the buildings) have been carried out. For the purposes of this valuation, we have assumed that no potential contamination exists. Should it be discovered, subsequent to our valuation, that contamination exists on any of the subject properties and/or on adjoining or nearby properties or that uses capable of causing contamination have been carried out in any of the subject properties, this could have a detrimental effect on the value of the subject property concerned Collection Loss Collection loss is the risk of a reduction in income as a result of uncollectible arrears of rent. It also serves to cover the costs of legal action to collect payments, cancel a rental contract or clear premises. Arrears of rent due to deposit payments must also be taken into account under this heading. The amount of the collection loss depends on the local market situation, type and condition of the property, tenancy situation, quality of tenants and quality of lease agreements. The collection loss is calculated as percentage of the annual Effective Gross Income (EGI). A percentage of 1.0% of the annual EGI was considered for collection loss in the valuation of the LEIPZIG portfolio.

14 4.9. Void Costs Since 2006 the Mieterbund (German Tenant Alliance) has published annually a study of operating costs based on service charge statements provided by its members ( Betriebskostenspiegel ). The latest edition of the study was published in March 2013 and was based on operating costs gathered in Operating costs differ between East and West Germany, with costs in East Germany averaging 2.77 per sq m and month in 2011, while tenants in West Germany pay an average of 3.00 per sq m and month. When units are rented, these costs are born by the tenant and do not affect the property s cash flow. However, some of these costs also occur when a unit is vacant. These costs then have to be paid by the owner and thus affect the cash flow. According to relevant literature (cf. Prof. Dr. Kleiber, Verkehrswertermittlung von Grundstücken ) and our internal benchmarks, these cash flow relevant costs make up 40% - 80% of the operating costs. These costs were taken into account in the valuation by NAI apollo for vacant spaces Revenue Assumptions NAI assumed market rents for each property ranging between 3.30 and 5.50 per sq m per month according to the property s market position. The determination of market rents was based on thorough research conducted with the help of several sources. Further, an indexation rate for each assumed rent was set according to current price developments and future expectations regarding the development of each local market. This indexation rate was applied to determine the annual growth of the market rent. If properties were currently subject to rent restrictions, the resulting limited rent increase potential was taken into account for the remaining runtime of the subsidization agreement. Afterwards NAI apollo assumed a letting of vacated units at market level. In-place rents were indexed annually according to legal regulations. Further, an annual tenant turnover was assumed for residential spaces, with new lettings taking place at the respective market rent (taking into account vacancy periods, if applicable) Vacancy Development The tenant turnover rate was determined individually based on the relation of current rents and market rents as well as the property condition and each property s market position. When assuming a tenant turnover of 10% p.a., vacancy times were taken into account, also based on the property condition and location quality. In addition, NAI apollo determined a structural vacancy for each property ranging between 2% and 3% based on local vacancy rates (e.g. provided in the Techem empirica vacancy index), the in-place vacancy of the properties, the micro location, the property condition, assumed future investments and market rents. We have assumed a property-related void period of 0 to 12 months depending on micro-location, property condition as well as condition and fit out of the inspected apartments Management Costs Management costs are costs for the management of a property or economic unit. This includes the coordination and supervision of maintenance works, consistent book-keeping incl. the preparation of annual accounts and the monitoring of building structures and employed personnel.

15 According to NAI s internal benchmarks, these management costs usually range between 200 and 350 per unit and year. Management costs for commercial spaces are usually calculated as a share of the rent paid. These costs usually range between 2% and 5% of the annual PGI. For the LEIPZIG portfolio NAI apollo applied the following management costs: Residential: per unit per year Commercial: % of the annual Potential Gross Income (PGI) Parking: per unit and year Technical Costs There was no technical due diligence report provided by the client. NAI apollo made its own assumptions regarding necessary technical investments based on findings during the site inspections and documentation provided by the client. In the event that a due diligence report provided by a technical consultancy shows different results, the assumptions and scenarios developed by NAI apollo would need to be revised. Ongoing maintenance Ongoing maintenance costs are expenditures necessary to keep properties in their current condition and preserve their usability. Ongoing maintenance is used to remove damages caused by wear and tear, age, weather and environmental influences and/or to comply with legal requirements, to maintain the quality and yield capacity of the properties. The amount of ongoing maintenance necessary depends on the property condition and legal requirements such as monument protection, for example. According to internal benchmarks gained in numerous valuation projects, these costs usually range between 4.00 and per sq m per year. NAI apollo applied ongoing maintenance costs of per sq m for the valuation of the LEIPZIG portfolio. Tenant Improvements Tenant improvements (TIs) are costs necessary to bring vacated units into a marketable and re-lettable condition. Tenant improvements include touch-up repairs as well as refurbishment costs and marketing costs. This cost category has to be regarded as an average figure, as the works necessary to re-let units differ from units that just need to be cleaned to complete refurbishments. These costs usually account for approx per vacant sq m according to our internal benchmark database. For the valuation of the LEIPZIG portfolio NAI apollo applied TIs of 30 per sq m on average. Capital Expenditure Capital expenditure (capex) is defined as the amount used during a particular period to acquire or improve long-term assets. These are one-off costs necessary for immediate repairs and refurbishments not covered by the ongoing maintenance. NAI apollo assumed capex amounting to 439,197.

16 4.14. Auxiliary Purchase Costs The Market Value as defined in the Red Book is the estimated amount for which a property should exchange on the date of valuation [ ]. Due to this required sale, NAI apollo assumed auxiliary purchase costs at the date of valuation. This cost category includes legal fees for sale, tax and land register fees as well as the broker s commission. In the past, the German government set the tax on acquisition of real estate to 3.50% of the net sale proceeds. Since September 2006, the federal states have been entitled to set the tax rate independently. For the LEIPZIG properties this results in auxiliary purchase costs of 5.00% of the Net Capital Value Discount Rate The discount rate reflects all risks and opportunities that are associated with a property and which were not accounted for in the cash flow. It is used to discount the annual operating profits to the date of valuation. This discount rate is set by NAI apollo for each individual property and comprises a yield for an alternative risk-free investment and a propertyspecific risk premium. The yield for a risk-free investment is taken into account in the form of the ten-year average rate of return for a European Government Bond. At the date of valuation, the ten-year average rate of return for ten-year European Government Bonds stood at 3.78%. The risk premium which was added to arrive at an appropriate discount rate is based on socio-demographic data such as unemployment rates, population development forecasts or purchasing power as well as an assessment of each individual property s micro location and property quality. This discount rate is applied at least in the first year, but is variable in subsequent years, as capex investments can alter a property s risk structure. Discount rates of between 5.00 to 6.5% (average of 5.85%) were applied Capitalization Rate The capitalization rate (cap rate) is used to forecast future cash flows into perpetuity based on the cash flow development assumed in the ten-year planning period. Capitalization rates of between 4.45 to 6.00% were applied. The value weighted average capitalization rate equals 5.14%.

17 5. VALUATION RESULTS Our valuation has been prepared in accordance with the RICS Appraisal and Valuation Standards (9 th Edition) published by the Royal Institution of Chartered Surveyors as well as the TEGoVA European Valuation Standards (7 th Edition) and in accordance with IVSC International Valuation Standards (10 th Edition) on the basis of Market Value. In VPS 4, section 1.2, the RICS Red Book 2014 adopts the following definition of the market value set by the International Valuation Standards Council (IVSC): The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion. The above definition in most cases concurs with that of Fair Value defined by the currently valid International Financial Reporting Standards and the appropriate International Accounting Standard 40, paragraphs Further, the Market Value in result complies with the German Verkehrswert according to 194 BauGB (German Building Act). The valuation result is rounded and represents a net figure, i.e. a deduction has been made for land transfer tax, legal costs and broker fees normally incurred by the purchaser. NAI apollo is of the opinion that the aggregate of the individual Market Values of the portfolio, subject to the assumptions, caveats and comments contained within this report, as at 30 th June 2014 was: 96,536,000 (Ninety-Six Million Five Hundred and Thirty-Six Thousand Euro) Resulting in 712 per sq m lettable area. 101,382,997 (One Hundred and One Million Three Hundred and Eighty-Two Thousand Nine Hundred and Ninety-Seven Euro) The above result equals a Net Initial Yield of 5.4% and a Gross Initial Yield of 8.1%. The multiplier on the current Net Rent is 12.7.

18 Market Value vs. Purchase Price We have been informed by Brack Capital about the deviation of the paid purchase price in July 2011 ( 73,056,309) from the market value provided by NAI apollo. NAI apollo has to point out that the provided valuation is always a third-party opinion of the most likely case for a transaction. This valuation is based on multiple transactions and offer prices. NAI apollo does not confirm the real paid purchase price for the subject portfolio as market value nor did the real paid transaction price affect the valuation result. Hence, it is possible that an investor could have paid a price differing from the market value. It is important to distinguish between Market Value and Purchase Price. A price obtained for a specific property under a specific transaction may or may not represent that property's market value: special circumstances such as a special relationship between the buyer and the seller or considering a portfolio price discount may have influenced the pricing or the transaction may have been part of a larger set of transactions in which the parties had engaged, or the investor has easier access to financing facilities, which is always price influencing. 6. SENSITIVITY ANALYSIS In the following table we summarise the change in value caused by a change of discount rates, ERV and stabilised vacancy rate. 7. VALUATION COMPARISON TABLE Valuation Date Value Purpose of Valuation March ,342,000 financial accounting March ,114,000 financial accounting December ,714,000 financial accounting June ,536,000 financial accounting Frankfurt/Main, 20 th August 2014 Stefan Mergen Managing Partner NAI apollo valuation & research GmbH Falk Schollenberger MRICS Managing Partner NAI apollo valuation & research GmbH