13 Valuation Approach
In arriving at our Fair Values for the subject properties we have applied a DCF approach, based on a 10-year time horizon.
The DCF model involves a period-by-period estimation of gross rental income and expenditures to calculate the net operating income (cash flow) for each period, explicitly taking into account a range of variables including changes in rent due to legally permissible rent increases and growth in market rents as well as expenditures on maintenance, repairs and renovation, vacancies etc. over the period of the time horizon. The resulting net cash flows are discounted at a selected discount rate, normally set by considering money- market rates and allowing for a risk premium derived from net initial yields observed in the market. The terminal value of the properties at the end of the time horizon is estimated using forecasts of the then rental income and appropriate capitalisation rates (income capitalisation method).
After allowing for purchaser’s costs (notary fees, land transfer tax, agency fees), the result is the Fair Value of the property.
14 Valuation Parameter
In accordance with the valuation approach, the Fair Value calculation is based on expected cash flows. These reflect market expectations and incorporation and update of previous valuations of the subject properties or one respectively several comparable properties.
The valuation parameters have been assessed in good faith by CBRE and according to the information provided by the Principal.
The valuation parameters comprise mainly:
k Level of rents for the first and the following lettings. k Vacancy durations and costs.
k Non recoverable costs for the owner.
k Tenant improvements and costs for reletting.
k Object- and lease contract-specific rates of interest of the invested capital.
15 General Valuation Assumptions
15.1 Floor Areas
If not otherwise stated, we have not measured the properties but have relied upon the schedules of area that were provided to us within the tenancy lists and additional information. In undertaking our work, we have assumed that these floor areas are correct.
15.2 The Property
Landlord’s fixtures such as lifts, escalators, central heating and other normal service installations have been treated as an integral part of the building and are included within our valuations. Tenant-specific process plant and machinery, tenants’ fixtures and specialist trade fittings have been excluded from our valuations. For the valuation of the properties 1153.1415 (Saalestr. in Berlin), 1257.1000 (Am Steingarten in Mann- heim) and 1257.13 (Hanauer Landstr. in Frankfurt) we assumed that the existing furniture in the apartments will be sold together with the property within a transaction.
15.3. Contamination and site condition
We were provided by the Principal with information concerning contamination for 14.8% of the subject properties (262 units). For 1,506 units (representing about 85.2%) we were not provided with further information.
According to the information provided to us, we assumed that the sites of 2 valuation units (1250.2185, Frankfurt and 1250.4206, Bobingen) are contaminated. Appropriate surveys were available, which did not contain any cost approach for the removal but advised to monitor the site. The existing contamination was considered in adjustments to the discount rates. Five other valuation units are suspected to be contaminated. About 14.4% (255 units) of all valuation units are not contaminated.
We assume that the sites of the not contaminated properties and the sites of the properties without information concerning contamination were used in the past and will be used in the future for activities without any contamination potential.
In the last-mentioned cases, we assume that no environmental audit or geological survey was carried out respectively the subject properties (inclusive of the buildings) are not contaminated and have no contami- nation potential.
As we were not specifically instructed, we have not undertaken any investigation into the past or present uses of either the properties or any adjoining or nearby land, to establish whether there is any potential for contamination from these uses, and assume that none exists.
However, should it be subsequently established that such contamination exists at the properties or on any adjoining land or that any premises have been or are being put to contaminative use, this may have a detrimental effect on the value reported.
15.4 Technical Survey
CBRE inspected the properties but did not carry out any building surveys. The properties have not been measured as part of CBRE’s inspection nor have the services or other installations been tested.
15.5 Legal Requirements / Consents and Authorisation for the Use of the Property
An investigation of the compliance of the properties with legal requirements (including (permanent) planning consent, building permit, acceptance, restrictions, building, fire, health and safety regulations etc.) or with any existing private-law provisions or agreements relating to the existence and use of the site and building has not been carried out.
In preparing our valuation, we have assumed that all necessary consents and authorisations for the use of the property and the processes carried out at the properties are in existence, will continue to subsist and are not subject to any onerous conditions.
15.6 Title, Tenure, Planning and Lettings
The Fair Value calculation is based on the rent roll provided, the extracts from the land register as well as information from the Principal.
Thus:
(1) 5% of the subject properties (representing 3.3% of the Fair Value) are built on sites relating to heritable building rights. The remainder of the subject properties inclusive of their sites at 30 June 2009 is in the freehold of the Principal or its subcompanies;
(2) no circumstances which have a negative impact on Fair Values result from encumbrances and limitations in section II of the land register;
(3) we assume that the lease contracts listed in the rent roll were in existence on the date of valuation; (4) there are no entries in the land charges register with a negative impact on Fair Values.
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