Deloitte Valuation Conference

1 Deloitte Valuation Conference Real Estate Valuation January 2015. 2 June 2016. 2015. 2016 Deloitte Tax & Consulting Real estate Valuation Overview Global real estate market Real estate market key issues in 2016 (% of resp.). 68%. 30% 27% 31%. 16% 16% 10%. 8% 8% 6% 6%. Sources: Preqin 2016 Deloitte Tax & Consulting 2. Real estate Valuation Valuation techniques, value drivers and usual traps Purpose of the Valuation (RICS VPS 1). Purpose for which the Valuation assignment is being prepared shall be clearly stated (RICS). Loan security Investor reporting Tax assessment Financial reporting Dispute resolution Transaction Investment decision CIK.. The purpose of Valuation will determine the basis of value 2016 Deloitte Tax & Consulting 3. Real estate Valuation Valuation techniques, value drivers and usual traps Valuation approaches Market approach Income approach Cost approach International Valuation Method Methods Method Standards (IVS).

2 Comparison of identical or Discounted Cash Flow Depreciated replacement similar asset transactions for method ( DCF ) cost which price information is Residual method (used in specific available Direct income circumstances). capitalisation Term & Reversion . 2016 Deloitte Tax & Consulting 4. Real estate Valuation Valuation techniques, value drivers and usual traps Market approach Prices of recent transactions of identical or similar assets in the market Identified comparable transactions have to be adjusted for the following value drivers (amongst others): location Importance of: age & condition - selection quality of tenants and cash flow (WALT) - inspection size (number of floors, net area) - measurement Comparable type of use (office, retail, etc.) - . transactions . Adjustments to reflect the characteristics of property valued Adjustments involve use of professional judgement and strong rationale 2016 Deloitte Tax & Consulting 5.

3 Real estate Valuation Valuation techniques, value drivers and usual traps Valuation approaches Market approach Income approach Cost approach International Valuation Method Methods Method Standards (IVS). Comparison of identical or Discounted Cash Flow Depreciated replacement similar asset transactions for method ( DCF ) cost which price information is Residual method (used in specific available Direct income circumstances). capitalisation Term & Reversion . 2016 Deloitte Tax & Consulting 6. Real estate Valuation Valuation techniques, value drivers and usual traps Income approach . Formula: = . + . + + . + + + . - represent the estimated net cash flows - represents the discount rate - DCF usually over 10 years with a hypothetical sale/ exit assumption DCF. Appropriate discount rate composed of: inflation risk free rate asset specific premium How to estimate it: inflation adjusted yield / discount rate resulting from similar transaction in the absence of similar transactions -> use of prime data as benchmark Income DCF Residual method Term & Reversion capitalisation 2016 Deloitte Tax & Consulting 7.

4 Real estate Valuation Valuation techniques, value drivers and usual traps Income approach Cash flows driven by following key Valuation inputs: Actual inputs: existing rents contractual non-recoverable expenses rent-free periods weighted average lease term (WALT). existing vacancy . DCF. Assumed inputs: estimated market rent period for marketing/ re-letting (3, 6 or 12 months). future non-recoverable expenses structural vacancy in the market capex amount . Income DCF Residual method Term & Reversion capitalisation 2016 Deloitte Tax & Consulting 8. Real estate Valuation Valuation techniques, value drivers and usual traps Income approach When used? Residual Valuation method mainly used for development projects Approach Value asset as if complete . Estimate direct and indirect costs to build Calculation Residual Calculate Gross Development Value ( GDV ). Income approach (rental strategy) or Market approach (sales strategy).

5 Estimate all costs to complete the project Discount GDV and remaining costs to present value and deduct any purchaser acquisition cost In short EUR 100m Present value of assumed market value at completion - GDV. EUR 80m Present value of assumed development cost EUR 20m Residuum (land value) @ project start Income DCF Residual method Term & Reversion capitalisation 2016 Deloitte Tax & Consulting 9. Real estate Valuation Valuation techniques, value drivers and usual traps Income approach . GDV. (as if complete). Value added Market Value Estimated development costs t Land Construction acquisition starting reducing project risk profile Income DCF Residual method Term & Reversion capitalisation 2016 Deloitte Tax & Consulting 10. Real estate Valuation Valuation techniques, value drivers and usual traps Income approach When used? Quick and straight forward method Rental income capitalisation method in applying a market yield Approach Estimate stabilized rental income (on a sqm basis & type of surface).

6 Deduct operating costs in order to estimate a net rental income level Direct income Capitalise the net rental income in applying a yield reflecting current capitalisation market conditions ( market & asset specific). Income DCF Residual method Term & Reversion capitalisation 2016 Deloitte Tax & Consulting 11. Real estate Valuation Valuation techniques, value drivers and usual traps Income approach When used? Single or multi-occupied property with existing lease agreements Approach Based on existing rents calculate a term value Calculate a reversion value, based on current market rents . Term & Reversion Term Reversion Lease end time Income DCF Residual method Term & Reversion capitalisation 2016 Deloitte Tax & Consulting 12. Real estate Valuation Valuation techniques, value drivers and usual traps Valuation approaches Market approach Income approach Cost approach International Valuation Method Methods Method Standards (IVS).

7 Comparison of identical or Discounted Cash Flow Depreciated similar asset transactions for method ( DCF ) replacement cost which price information is Residual method (used in specific available Direct income circumstances). capitalisation Term & Reversion . 2016 Deloitte Tax & Consulting 13. Real estate Valuation Valuation techniques, value drivers and usual traps Cost approach When used? used in specific circumstances market or income approach not possible no market activity for insurance purposes or special use assets (factory, church, etc.). Approach Depreciated estimate land value replacement cost depreciated replacement cost ( DRC ) of Property Limited use & difficulty to assess depreciation 2016 Deloitte Tax & Consulting 14. Real estate Valuation Valuation techniques, value drivers and usual traps Usual traps Purpose of Valuation Vs. Basis of value Investment value for financial reporting purpose Fair value for financial reporting purpose Net versus gross: rents Gross market value Vs Net market value Observed lettable area (GFA / NFA).

8 Yield Independence of valuer 2016 Deloitte Tax & Consulting 15. Impact of investment structuring on Valuation From property value to fund investment value Investment structuring Considerations Fund Value of the fund's investments ? Complex shareholding structure Co-invest & shareholder agreements Complex financing instruments Value Tax issues (CPEC, PPL, MRPS, etc.). Shareholding attributable to structure Profit sharing mechanisms the fund? Non-regulated vehicles Unaudited financials Accounting issues, GAAP discrepancies, etc. Real Estate Asset Fair value of properties from appraiser 2016 Deloitte Tax & Consulting 16. Impact of investment structuring on Valuation Performance Fund structure Performance Valuation 1 year after Fund GP LPs Profit 115. 5 100. sharing Value attributable Shareholding NAV 100 120. to the fund? structure Real Estate Asset Real Estate Asset 2016 Deloitte Tax & Consulting 17. Valuation policy and Valuation process Fund Set-up Policy Process Risk mapping Procedures Asset class Steps from A to Z Controls Process Methodology Flowchart A priori (DD).

9 Inputs Stakeholders A posteriori Structuring Assumptions Tasks Escalation Frequency Responsibility measures Competences Timing Underlying Process enhancement Governance 2016 Deloitte Tax & Consulting 18. Valuation process Steps, roles & responsibilities Oversight Valuation Depositary Bank process 1. Segregation of duties 0. Information Valuation policy AIFM. 2. Information on portfolio companies Investment Portfolio Valuation & Property Appraiser Advisor Management Risk functions 3. Valuations 4. Approved values AIF 5. NAV. Fund Administration Property Manager NAV Calculation Holdco Accounting of SPVs and Accounting Firm SPV. SPV SPV SPV SPV holding companies 2015. 2016 Deloitte Tax & Consulting 19. Real Estate Valuation RICS update Sustainability and commercial property Valuation Role of the Valuer Sustainability features identified and recognized No Impact on value Market value / fair value Investment value for financial reporting Factors not yet Evidenced by Yes reflected in market market value but analysis?

10 Influence investor decision? No Yes Collecting data Built into calculation of value 2016 Deloitte Tax & Consulting 20. Real estate Valuation INREV update European Association for Investors in Non-Listed Real Estate Vehicles ( INREV ). improve transparency best practice reference guidelines Sustainability reporting Guidelines 2016. May 2016. Mandatory and best practice sustainability reporting requirements INREV Sustainability Reporting Guidelines INREV compliance requires mandatory reporting requirements on an annual basis Guidelines applicable over the year 2017. 2016 Deloitte Tax & Consulting 21. Real estate Valuation RICS update Royal Institution of Chartered Surveyors ( RICS ). RICS Guidance Note (GN) recommended good practice RICS International Standard - mandatory International Property Measurement Standards Office Buildings January 1, 2016. International Property Measurement Standards ( IPMS ) Office Buildings - mandatory Objective of IPMS.