Jones Lang LaSalle (JLL)
On behalf of the management of Züblin Immobilien Holding AG, the local subsidiaries of Jones Lang LaSalle (“JLL”) have valued all investment properties of Züblin Immobilien Holding AG or its affiliated companies (“Züblin Group”) for accounting purposes as at 30 September 2014.
JLL Offices Involved
The portfolio of the Züblin Group is diversified within Switzerland, Germany, France and the Netherlands.
All valuations were prepared by the JLL valuation teams in the respective countries.
JLL Zurich office
JLL Frankfurt am Main, Hamburg und Munich office
JLL Paris office
JLL Amsterdam office
The valuers hereby confirm that the valuations have been performed in accordance with national and international standards and guidelines as set out in the International Valuation Standards (IVSC) and the standards of the Royal Institution of Chartered Surveyors (Red Book).
The market values determined for the investment properties represent “fair value” as defined in the International Financial Reporting Standards (IFRS) on the basis of revised IAS 40 (Investment Property) and IFRS 13 (Fair Value Measurement).
The “fair value” is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date”.
An exit price is the selling price as stated in the purchase contract on which the parties have agreed.
The “fair value” valuation assumes that the hypothetical transaction for the asset being valued takes place on the market with the greatest volume and the largest business activity (principal market), as well as transactions of sufficient frequency and volume occur so that sufficient pricing information is available for the market (active market). If such a market cannot be identified, a market for the asset is assumed that maximises the selling price.
The “fair value” is determined on the basis of the best possible use of a property (highest and best use). The best use is the use that maximizes the property’s value. This assumption of use must be technically / physically possible, legally permissible and financially feasible. As a maximisation of utility is assumed in the determination of fair value, the best use may differ from the actual or planned use. Future capital expenditures that will improve or increase the value of a property are taken into account appropriately in the fair value measurement.
The application of the highest and best use approach is based on the principle of materiality of the potential difference in value in relation to the value of the individual property and of the total real estate assets, as well as in relation to the possible absolute value difference. Potential increased real estate values that lie within the usual valuation tolerance of a single valuation are considered to be insignificant and neglected as a result.
The determination of “fair value” is dependent on the quality and reliability of measurement parameters, with decreasing quality and reliability: Level 1 market price, level 2 modified market price and level 3 model-based valuation. For a fair value appraisal of a property, different levels for different application parameters can be applied simultaneously. The entire valuation is classified according to the lowest level of the fair value hierarchy, which contains the main valuation parameters.
The valuation of investment properties of the Züblin Group are performed with a model-based valuation in accordance with level 3, on the basis of input parameters not directly observable on the market. Based on this level, adapted level 2 input parameters are used (e.g. market rents, operational and maintenance costs, discount / capitalization rates). Not observable inputs are only used when relevant observable inputs are not available.
Valuation procedures have been applied that are appropriate in the particular circumstances and for which sufficient data are available to determine the fair values, in which the use of relevant observable inputs are maximized and those unobservable inputs are minimized.
The market valuations of properties that are completely or partially vacant are calculated on the assumption that a re-letting takes a certain period of time. Loss of rent, rent-free periods and other incentives for new tenants that meet the market standard are taken into account in the valuation.
To determine the market value across all countries an income-based approach was applied. In this case, the potential yield of a property is determined on the basis of future revenues and expenditures. The resulting cash flows correspond to the current and projected cash flows after deducting all non-recoverable costs to the tenant (before taxes and borrowing costs). The interest rate used is based on the rate of long-term, risk-free investments and a specific risk premium, which reflects the current situation on the transaction market, the local real estate market and the characteristics of the object.
In Switzerland, Germany and the Netherlands, the discounted cash flow method (DCF method) was used where the annual cash flows are discounted to the valuation date. At the end of the period in which the cash flows are projected in detail, a residual value (exit value) is determined on basis of a perpetual annuity of the exit cash flow. The market value is calculated as the sum of the discounted net cash flows. The market value is the sum of the net cash flows discounted to the valuation date beyond the detailed analysis period and the discounted residual value.
In France and the Netherlands the capitalisation method has been applied in addition to the DCF approach. This is a capitalisation of the net rental income based on the lease contract and market rent, taking into account the lease contract terms and imputing an eternal useful life and perpetual annuity. The sum of the present values of contract and market rent finally produces the market value. In the Netherlands, the respective market values result from the average value of the DCF method and the capitalization method. In France, the market value is the result of the capitalisation method, verified by applying the DCF method.
In the context of the valuations, JLL inspected all properties and conducted a detailed analysis in terms of quality and risks (attractiveness and lettability of the rented premises, construction and condition, micro and macro-location). In addition, JLL was provided with extensive property documents which were necessary for the preparation of the valuation.
A total of 28 properties were valued as at 30 September 2014. The “fair value” of the properties according to IAS 40 and IFRS 13 is estimated as at the valuation date as follows:
Switzerland (5 properties):
CHF 188‘760‘000 (Gross Fair Value)
Germany (15 properties):
EUR 124‘610‘000 (Net Fair Value)
France (5 properties)*:
EUR 245‘300‘000 (Net Fair Value)
Netherlands (3 properties):
EUR 16‘970‘000 (Net Fair Value)
Gross Fair Value: The fair value according to paragraph 25 IFRS 13 is not corrected by the transaction costs incurred by the purchaser. This corresponds to the Swiss valuation practice.
Net Fair Value: For the valuation of foreign properties, transaction costs are deducted in accordance with IFRS.
* without Chaganne
JLL confirms that the valuations have been created independently and neutrally and are intended only for the aforementioned purpose. JLL assumes no liability to third parties.
Zurich, 31 October 2014
Daniel Schneider, Head Valuation Switzerland
Gregor Strocka, CAIA, Vice President
Frankfurt, 31 October 2014
Andrew Groom MRICS, Head of Valuation Advisory Germany
Patrick Metzger MRICS, National Director
Paris, 31 October 2014
Gareth Sellars MRICS, Head of Valuation Advisory France
Paul Cooper MRICS, Associate Director
Amsterdam, 31 October 2014
Arnold de Bue, Head of Valuation Advisory Netherlands
Kjell van den Heuvel, Associate Director
The following general assumptions apply for the valuation of the properties.
- The valuations are based on rent rolls of the Züblin Group as at 1 October 2014.
- In the valuation models with nominal discounting, unless otherwise specified, the following inflation rates are assumed: Switzerland: 1.0%, Germany: 1.6%, Netherlands: 2.1%. No explicit inflation is considered in France as a result of the valuation model.
- With regard to operating expenses, it is assumed that ancillary expenses are treated separately and thus tenant related costs are borne by the tenants.
- The discount and capitalization is based on a risk-adjusted interest rate. The respective rate is determined individually for each investment property by use of benchmark data from arm’s-length transactions. In case there are not sufficient comparable transactions, the discount and capitalization rates are determined taking into account the current market environment, the macro and micro location, type of use, cash flow risk and any other specific factors.
- As at 30 September 2014 the following interest rates have been applied:
- For the valuations in Switzerland, the discount and capitalization rates are between 3.60% and 5.30%, amounting to a capitalweighted discount and capitalization rate of 4.11%.
- For the valuations in Germany, the discount rates are between 7.25% and 12.50% amounting to a capital-weighted discount rate of 8.23%. The capitalization rates are between 6.00% and 10.00%, amounting to a capital-weighted capitalization rate of 7.10%.
- For the valuations in France, the capitalization rates are between 5.50% and 7.50%, amounting to a capital-weighted capitalization rate of 5.98%.
- For the valuations in the Netherlands, the discount rates are between 9.50% and 12.50%, amounting to a capital-weighted discount rate of 9.82%. The capitalization rates are between 9.00% and 13.25%, amounting to a capital-weighted capitalization rate of 9.47%.
As at 30 September 2014, the property portfolio of the Züblin Group has been valued by JLL for the first time. Due to different valuation models, the discount and capitalization rates are not comparable to those of the valuations as at 31 March 2014.