Appendix Iii Property Valuation
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APPENDIX III PROPERTY VALUATION The following is the text of a letter, summary of values and valuation certificate, prepared for the purpose of incorporation of this prospectus received from American Appraisal China Limited, an independent valuer, in connection with their valuations as at 30th September, 2003 of the property interests of the Company in the PRC. 11th November, 2003 The Directors Wumart Stores, Inc. 10th Floor, Yuquan Building Yu Quan Road Shijingshan District Beijing The PRC Dear Sirs/Madams, In accordance with your instructions to value the property interests owned by Wumart Stores, Inc. (the ‘‘Company’’) andits subsidiaries(hereinafter together referredto as the ‘‘Group’’) in the People’s Republic of China (the ‘‘PRC’’), we confirm that we have carriedout inspection, made relevant enquiries andobtainedsuch further information as we considernecessary for the purpose of providing you with our opinion of the value of such property interests as at 30th September, 2003 (the ‘‘valuation date’’) for inclusion in this prospectus. BASIS OF VALUATION Our valuation of the property is our opinion of open market value which we woulddefineas intended to mean ‘‘the best price at which the sale of an interest in a property might reasonably be expectedto have been completedunconditionallyfor cash consideration on the dateof valuation assuming: (i) a willing seller; (ii) that, prior to the dateof valuation, there hadbeen a reasonable period(having regardto the nature of the property andthe state of the market) for the proper marketing of the interest, for the agreement of price andterms andfor the completion of the sale; (iii) that the state of the market, level of values andother circumstances were, on any earlier assumed date of exchange of contracts, the same as on the valuation date; (iv) that no account is taken of any additional bid by a purchaser with a special interest; and —241— APPENDIX III PROPERTY VALUATION (v) that both parties to the transaction hadactedknowledgeably, prudently andwithout compulsion.’’ VALUATION METHODOLOGY For the property interests in Group I, the land underlying the Buildings of the properties was obtained by way of State Allocation, which cannot be transferred, leased, or mortgaged freely by Wumart Stores, Inc. without the approval by the relevant government bodies and payment of land premium to the government. In the circumstances, we have attributedno commercial value to these property interests because of the non-assignability of these properties in the open market. For the property interests in Group II andIII, which are occupiedby the Group in the PRC, they are considered to have no commercial value either because of their non-assignability in the open market, or there are prohibitions against subletting and/or assignment contained in the respective lease and/or tenancy agreement, or the lack of substantial profit rent. For property interests in Group IV, which have been subleasedby various independentthird parties, we have adopted the income capitalization approach. In the income capitalization approach, value is developedon the basis of capitalization of the net earnings that wouldbe generatedif a specific stream of income can be attributedto the property interests concerned.This approach is most applicable to investment andgeneral-use properties where there is an establishedand identifiable rental market. ASSUMPTIONS Our valuations have been made on the assumption that the owners sell the property interests on the open market without the benefit of any deferred term contracts, leasebacks, joint ventures, management agreements or any similar arrangements which couldserve to increase the value of such property interests. In addition, no forced sale situation in any manner is assumed in our valuations. No allowance has been made in our valuations for any charges, mortgages or amounts owning on any of the property interests valuednor for any expenses or taxation which may be incurredin effecting a sale. Unless otherwise stated, it is assumed that all the property interests are free from encumbrances, restrictions andoutgoings of an onerous nature, which couldaffect their rental values. For the property interests in Group I, which are statedin the valuation certificate, as the land on which the Buildingsare erectedis heldunderlong-term leases, we have assumedthat the company has free anduninterruptedrights to use the Buildingsfor the whole of the unexpiredterms of their respective landleases. We have assumedthat all consents, approvals andlicenses from relevant government authorities for the buildings andstructures erectedor to be erectedthereon have been granted. Also, we have assumed that unless otherwise stated, all buildings and structures erected on the site are heldby the owners or permittedto be occupiedby the owner. —242— APPENDIX III PROPERTY VALUATION It is assumedthat all applicable zoning, landuse regulations andother restrictions have been compliedwith unless a non-conformity has been stated,definedandconsideredin the valuation certificate. Further, it is assumedthat the utilization of the property andimprovements is within the boundaries of the property interests described and that no encroachment or trespass exists unless notedin the valuation certificate. Other special assumptions andqualifications for each property, if any, have been statedin the footnotes of the valuation certificate for the respective property. TITLESHIP INVESTIGATION We have been provided with the extracts of documents in relation to the lease/tenancy agreement or other various types of contractual agreements of the property interests situatedin the PRC. However, we have not scrutinizedthe original documentsto verify ownership or to verify any amendments, which may not appear on the copies handed to us. We have relied to a considerable extent on the information provided by the Group and the opinion given by the Group’s legal adviser on the PRC Law. All legal documents disclosed in this letter and valuation certificate are for reference only and no responsibility is assumedfor any legal matters concerning the legal title to the property interests set out in this letter andvaluation certificate. We have reliedupon the legal opinion (refer as the ‘‘PRC legal opinion’’) as statedin the property title report dated 11th November, 2003 given by Haiwen & Partners in relation to the legal title to the property interests in the PRC. LIMITING CONDITIONS We have reliedto a considerableextent on the information providedby the Group andhave acceptedadvicegiven to us by the Group on such matters as statutory notices, easements, tenure, occupancy, site andfloor areas andall other relevant matters. Dimensions andareas includedinthe valuation certificate are basedon information containedin the documents providedtous andare only approximations. We have no reason to doubtthe truth andaccuracy of the information as providedtous by the Group. We were also advisedby the Company that no material facts have been omittedfrom the information so supplied. We consider we have been provided with sufficient information to reach an informedview. We have inspectedthe exterior and,where possible, the interior of the property interests includedin the attachedvaluation certificate. However, no structural survey has been madeandwe are therefore unable to report as to whether the property interests are or are not free of rot, infestation or any other structural defects. No tests were carried out on any of the services. In the course of our inspection, we did not notice any serious defects. We have not carriedout investigations on site to determine the suitability of groundconditions andservices for the proposeddevelopment, nor have we undertakenarchaeological, ecological or environmental surveys. Our valuation is preparedon the assumption that these aspects are satisfactory andthat no extraordinaryexpenses or delays will be incurredduringconstruction period. —243— APPENDIX III PROPERTY VALUATION REMARKS Unless otherwise stated, all monetary amounts stated in this report are in Renminbi Yuan. We enclose herewith the summary of valuation andthe valuation certificate. This report is issuedsubject to our General Service Conditions. Yours faithfully, For andon behalf of AMERICAN APPRAISAL CHINA LIMITED Leo C. Ho B.Sc., M.T.P., MBA, MRICS, MHKIS, RPS (GP) Vice President Note: Leo C. Ho, who is a CharteredValuation Surveyor since 1989, has over 16 years of experience in valuation of properties in Hong Kong andthe PRC. —244— APPENDIX III PROPERTY VALUATION SUMMARY OF VALUATION Group I — The propertyinterests held bythe Group for self-occupation Open Market Value in existing state as at Property 30th September, 2003 1. 117 Mentougou Street No commercial value Mentougou District Beijing The PRC 2. 33 Cheng Zi Zhong Street No commercial value Mentougou District Beijing The PRC 3. 128 Mentougou Road No commercial value Mentougou District Beijing The PRC 4. 76XinQiaoDaStreet No commercial value Mentougou District Beijing The PRC Group II — The propertyinterests rented and occupied bythe Group 5. Xi Huang Cun Residential Area No commercial value Shijingshan District Beijing The PRC 6. 1 Gu Lou Xi Da Street No commercial value Changping District Beijing The PRC 7. 2XingLongXiStreet No commercial value Tai Ping Zhuang Chaoyang Road Chaoyang District Beijing The PRC 8. 5A Cui Wei Road No commercial value Haidian District Beijing The PRC —245— APPENDIX III PROPERTY VALUATION Open Market Value in existing state as at Property 30th September, 2003 9.