Valuation Report ‘Matrix Portfolio, Valuation of 13 properties’’ prepared for Brack Capital Properties N.V.
August 2012
Matrix Portfolio, Valuation of 13 properties – August 2012
Contents
1 Brief & Scope of Instruction ...... 3 1.1 Instruction ...... 3 1.2 Valuer Status ...... 3 1.3 Purpose of Valuation...... 4 1.4 Sources of Information ...... 4 1.5 Date of Valuation ...... 4 1.6 Inspections ...... 4 1.7 Basis of Valuation ...... 5 2 Market Considerations ...... 6 2.1 German Economy ...... 6 2.2 Retail Investment Market ...... 12 2.3 German Retail Warehouses and Retail Parks ...... 15 3 Valuation ...... 22 3.1 Valuation Methodology ...... 22 3.2 Valuation Assumptions ...... 22 3.3 Valuation Results ...... 25 3.4 Sensitivity Matrix ...... 26 3.5 Market Value Disclaimer ...... 28 4 Confidentiality & Publication ...... 29
Appendix I – Property Reports ...... 30 Appendix II – Overview ...... 31 Appendix III – General Principles for Valuation ...... 32
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Contents cont’d
Figure 1: Development of gross domestic product (Q3/2011 – Q3/2012) “Seasonally and calendar adjusted” ...... 7 Figure 2: Development of unemployment ...... 8 Figure 3: Development of the inflation rate / consumer price index “original values” (basis 2005 = 100) ...... 9 Figure 4: Purchasing Power in Germany 2012 ...... 11 Figure 5: Forecast of population development in Germany (2009 – 2060) “medium” variant ...... 12 Figure 6: Retail Transaction Volume Germany ...... 12 Figure 7: Transaction Volume Germany divided by Retail Asset Class ...... 13 Figure 8: Development of Prime Yields ...... 14 Figure 9: Prime Yield Development in % ...... 17 Figure 10: Prime Yield Development in % ...... 20
Table 1: Transaction Evidence ...... 18 Table 2: Transaction Evidence ...... 21 Table 3: Inflation forecast Germany ...... 25
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1 Brief & Scope of Instruction
1.1 Instruction We refer to your instruction, dated 24 June 2012, instructing us to carry out a valuation of the Matrix Portfolio consisting of 13 properties. The portfolio comprises retail parks and self-service department stores. The instruction was ordered by Fred Ganea, Head of Financial Department of Brack Capital Properties N.V. 1.2 Valuer Status We confirm that the valuation has been carried out by us as external valuers, qualified for the purposes of providing valuations in accordance with the Appraisal and Valuation Manual published by the Royal Institution of Chartered Surveyors (RICS). We also confirm that we have no conflict of interest relating to the property and that we have valued portfolios of a similar scope as well as larger scope in the course of other mandates. The project team consists of the following members: Andrew Groom Since August 2001 Mr. Groom is head of the Valuation Advisory department in Germany with additional responsibility for valuation business in Austria and Switzerland. As International Director, Mr Groom leads the overall direction of the Bank, Portfolio, Transaction, Residential and Retail Valuation business lines as well as mortgage lending valuations for German mortgage banks (Team of 50+ consultants). He is also responsible for providing client management within the scope of major German and international mandates, comprehensive advisory services for real estate portfolios in terms of acquisition and disposal strategies and advising leading banks with regard to risk classification in property financing. Prior to that he gained management experience leading international advisory departments for CEI Investment London and Drivers Jonas London as well as Berlin. Here he was not only responsible for the valuation department, but also for the investment sector. Andrew Groom holds a Bachelor of Science with Honours in Estate Management and is also a member of The Royal Institution of Chartered Surveyors (MRICS) and a member of the RICS Valuation Faculty Board, Germany. He has over 20 years development, valuation and international investment experience as well as over 17 years management experience leading international advisory departments. Carsten Meinhardt Since January 2012 Carsten Meinhardt is Associate Director and Teamleader of the Retail Valuation Advisory team of Jones Lang LaSalle’s Valuation Department. Here he heads a team of 4 professionals. Carsten Meinhardt has lead several buy-side advices and real estate appraisals for single assets as well as portfolios for various clients. All the valuations are conducted according to the IFRS standards. He is a graduated industrial engineer with a focus on real-estate and has over 10 years’ experience in real estate valuation. Carsten Meinhardt is a member of The Royal Institution of Chartered Surveyors (MRICS). Nicoline Dechamps Nicoline Dechamps has been part of the Retail Valuation Advisory Team of Jones Lang LaSalle since August 2007 and currently holds the position of Principal Consultant. Nicoline Dechamps focuses on the valuation of retail properties throughout Germany. She has lead several real estate appraisals for portfolios or single-assets.
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Nicoline Dechamps holds a Diploma in Business Administration and is a certified Member of the Royal Institution of Chartered Surveyors and possesses more than 5 years of consulting experience on the German real estate market. Georg Charlier In September 2008, Georg Charlier joined Jones Lang LaSalle Germany, focusing mainly on the valuation of retail and office portfolios/properties. He holds the position of Principal Consultant. Prior to that he was part of the Munich based team of a German Real Estate Investor. Georg Charlier holds a Diploma of Real Estate Engineering and Management and a certification of the society of investment professionals in Germany. He possesses more than 5 years of consulting experience on the German real estate market. Doreen Süssemilch Since January 2011, Doreen Süssemilch is a Consultant of Valuation & Transaction Advisory of Jones Lang LaSalle GmbH. Doreen Süssemilch is focusing mainly on the valuation of commercial portfolios. She holds a Diploma in Business Administration and possesses 2 years of consulting experience on the German real estate market. 1.3 Purpose of Valuation We understand that the valuation is required for financial statement reporting and that the valuation reports will be included in the financial statement of Brack Capital Properties N.V. 1.4 Sources of Information In preparing this valuation report, we have predominantly relied upon information provided by Brack Capital Properties N.V. We received the documents listed below, which form the basis for our valuation: • Tenancy Schedule as at June 2012 • Schedule of non-recoverable costs on an individual property basis • Overview of short-term tenants income, on an individual property basis • Overview of Capital Expenditure on an individual property basis • List of indexation clauses • Supplementary schedule of Capital Expenditures for the properties Biberach and Augsburg • Schedule of the surplus land areas in Neckarsulm • Presentation regarding the development potential for the subject property in Neckarsulm In the event that this information proves to be incorrect or additional information is made available to us, the accuracy of the valuation could be affected. In such case, we reserve the right to amend our opinion of value accordingly. 1.5 Date of Valuation As specified in your instruction, we have set the valuation date to be 30 June 2012. 1.6 Inspections For the current valuation, we did not conduct inspections. However, the properties were inspected by us in the scope of the valuation in February 2011.
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1.7 Basis of Valuation The valuation is carried out on the basis of Market Value as defined in the '7th Edition of the Royal Institution of Chartered Surveyors' (RICS) Appraisal and Valuation Manual. This is incorporated into the Jones Lang LaSalle “General Principles Adopted in the Preparation of Valuations and Reports”, which is attached in the Appendix 2. Market Value 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.”
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2 Market Considerations
2.1 German Economy Overview, 2012 Forecast The German economy has shown signs of stabilisation at the start of this year. Sentiment indicators have markedly improved. Businesses and consumers therefore expect that the economy will gather momentum over the coming months. Following two years of very high growth, the German economy weakened slightly by 0.2% in the fourth quarter of 2011. While domestic demand made a marginally positive contribution to growth especially due to investment in construction, the drop in net foreign demand had a particularly negative impact on growth. Given the subdued international business environment, exports decreased more strongly than imports. The debt situation of individual countries, particularly in the Eurozone, and the weak economic development of important trading partners are negatively affecting the growth of the German economy both via the trade channel and on account of the impact of negative confidence. To improve the future economic outlook, it is therefore vital to restore trust in the stability of the Eurozone. Foreign trade in January showed positive signs: goods exports rose by 2.3% and imports by 2.4%. However, the external economic environment will only brighten gradually. Another positive sign came from the marked increase in production at the beginning of the year. Following the dip in the goods-producing sector in the fourth quarter of 2011, due especially to a weak December, industrial output rose again by +1.6% in January. The industrial and construction sectors as well as energy production have all shown strong growth. New industrial orders continued on a downward trend. They decreased by 2.7%, which was mostly due to an unusually low number of large orders. Overall, orders placed by countries outside the Eurozone are developing quite robustly again while domestic orders saw some increase in January. The sentiment indicators have generally been developing well since the start of the year. This has been shown by surveys of companies, financial market analysts and consumers alike. While the level of investment in machinery and equipment in the fourth quarter remained at the level of the third, the replacement and expansion of plant and equipment is likely to increase again as the economic cycle progresses. The consumer climate, which has brightened continuously over the last six months, points towards a pick-up in consumer spending. The retail sector (excluding motor vehicles) reported decreasing turnover in January. However, it is likely to pick up in the coming months as the most important conditions for consumer spending remain favourable. The job market continues to be a stabilising force thanks to strong growth in both gainful employment in January and jobs subject to the payment of social security contributions in December. The disposable income of private households, which increased by an average of 0.7% per quarter in 2011, is therefore likely to have increased further in the first quarter of 2012. Leading indicators are signalling continued brisk demand for labour in almost every sector. Due to a further sharp rise in energy prices, consumer prices in February settled at 2.3% above the level a year earlier. Germany is expecting inflation to subside as the year progresses, which will also bring about a rise in purchasing power. Business Climate According to the ifo business climate index, the index stood in March 2012 at 109.8 (German index values, 2005 = 100, seasonally adjusted) and thus significantly below the previous year's level of 114.7. The ifo-economic overview from March 2012 paints the following picture: Manufacturing Industry: Forecasts remain favourable In manufacturing (including the food industry) the business climate improved further in February. The companies surveyed in the framework of the ifo Business Climate Survey were slightly less satisfied with their current situation than in January. However, they no longer see future developments with scepticism. In view of a slight
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increase in demand, production is being ramped up and production increases are planned in the coming months. Companies still intend to increase their staff numbers. Construction Industry: Business situation slightly weakening According to the results of the ifo Business Survey, the business climate improved further in construction in February. The climate indicator rose to 3.3 percentage points, the highest value since reunification. The companies surveyed were more satisfied with their current business situation than in January. Their business expectations also improved. According to company responses, construction in February was severely constrained by adverse weather conditions. Companies will also increase their staff numbers in the near future. Wholesale and Retail: Unchanged business situation The business climate index slightly increased in the wholesale and retail sector. In both sectors, the business situation is rated more positively than before. In addition, the expectations of the wholesalers and the retailers are more positive. Service Sector: Situation and expectations slightly worsen The ifo Business Climate Indicator for the service sector (excluding trade, banking, leasing, insurance and the public sector) brightened significantly in February. The service providers surveyed were more satisfied with their current business situation than in January and assessed their six-month outlook clearly more positively than previously. Companies also showed greater optimism with regard to the development of their revenues in the near future and plan to increase their staff numbers. Gross Domestic Product 2011 The key German National Research Institutes have predicted slight growth for the current year. The institutes forecast a 0.9% increase in real GDP for 2012 (range: 0.4% - 1.3%) and a 2.0% increase for 2013. Figure 1: Development of gross domestic product (Q3/2011 – Q3/2012) “Seasonally and calendar adjusted”
Source: Federal Employment Agency Labour and Training Markets Unemployment, Unemployment Rate According to an initial estimate by the Federal Labour Agency for March 2012, on average about 5,333,000 people of working age received unemployment benefits based on the Social Code Book (SGB) III or services related to the assurance of livelihood, according to the SGB II. This corresponds to 281,000 or 5% fewer people than a year ago. There was a decline in social assistance programs SGB III, and an increase in social assistance programs SGB II. The nationwide unemployment rate in March 2012 was 7.2% (approximately 3,028,000).
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Labour Market Politics According to the statistical analysis of the employment agency, about 1.03 million people were part of a federally or state-funded employment agency measure in March 2012, 21% less than in March 2011. For every 2.9 unemployed persons, one was receiving social assistance, thereby marking a slight drop in unemployment- related public funding measures in comparison to the previous year (in March 2011 for every 2.9 unemployed persons one was receiving social assistance). These measures predominantly comprised instruments aimed at the promotion of vocational training for individuals receiving assistance (33% of funding). Training and Education The training and education sector have generally been developing well since the start of the year. According to preliminary results of the Federal Statistical Office (Destatis) from the academic year 2011 (summer semester 2011 and 2011/2012 winter semester), around 515,800 freshmen studied at universities in Germany, which corresponds to an increase of more than 16% in 2010. Due to declining demographic developments, increasingly fewer applicants for training and educational programs as well as young professionals are expected.
Figure 2: Development of unemployment
Source: Federal Employment Agency Consumer Price Index The Consumer Price Index (Cost-of-Living Index) measures the change in monetary value by comparing costs of living based on essential goods and services (living costs). The starting point is the so-called basket of commodities (currently 12 groups), which comprises a large number of goods and services that are typically consumed or required (currently 750). The index is founded on a basis year with costs set right away at 100%. The Federal Statistical Office determines and publishes the consumer prices in the consumer price index for Germany based on the year 2005. The whole index across all 12 groups (basked of commodities) had a value of 112.6 in March 2012 (basis year 2005 = 100); in March 2011, it stood at 110.3. Inflation According to the Federal Statistical Office (Destatis), the consumer price index for Germany rose by 2.1% in March 2012 compared to the same month of the previous year. The driver of the price increase is the rise in energy costs (household energy and motor fuels). The important trigger point stood at 2.0% indicating monetary policies had been exceeded in the fifteenth month in a row, resulting in the Consumer Price Index in Germany to rise on average from 2011 to 2010 by 2.3%.
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Figure 3: Development of the inflation rate / consumer price index “original values” (basis 2005 = 100)
112,5 2,8 % 112,0 2,6 % 111,5 2,4 % 111,0 2,2 % 110,5 2,0 % 110,0 1,8 % 109,5 109,0 1,6 % 108,5 1,4 % 108,0 1,2 % 107,5 1,0 % 12/ 01/ 02/ 03/ 04/ 05/ 06/ 07/ 08/ 09/ 10/ 11/ 12/ 2010 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011
consumer price index inflation rate
Source: Federal Statistical Office, Wiesbaden 2011 Purchasing Power Purchasing power is the market-recognized benchmark for determining the consumption potential. It delivers key information regarding the regions with the strongest purchasing power. Simplified, purchasing power can indicate the total of all net revenues per region. Furthermore, it is directly identified at the place of residence of consumers and thereby, a more important indicator for consumption potential of the population living in a specific community. Retail Industry: Germany sees significant increase The GfK purchasing power in Germany for 2012 is estimated to be in total at approx. € 1.636 billion. This is 2.0% more than the previous year. The average citizen thereby has a purchasing power of € 20,014 this year, which will likely be spent on consumer products, rent or costs of living. This development is due to the rapid recovery following the financial crisis, but also because of higher wage expectations and pensions. Nevertheless, there are other factors, which could change the forecasted purchasing power. At this time, the Federal Statistical Office estimates an inflation rate of 1.8% for 2012. Small variances in inflation, for example an inflation rate of 2.1%, could affect purchasing power as a whole significantly. Furthermore, higher costs are expected in many areas this year including, for instance, health insurance. German Federal State Comparison This year, the three city-states Bremen, Hamburg and Berlin are the winners among the federal states because they show the most marked change in index value compared to the previous year. The residents of Bremen and Hamburg will have an average per capita purchasing power of € 18,684 and € 21,985 respectively in the coming year. Consequently, Hamburg has overtaken Bavaria in the federal state ranking, occupying first place for the first time since 2007. There have been no other changes in the federal state rankings. The states in eastern Germany still occupy the lowest positions. Bottom-placed Sachsen-Anhalt has a purchasing power of € 16,606 per capita and therefore more than € 5,300 per capita less than the leader Hamburg. A ranking of the federal states shows a clear result of the range of purchasing power per inhabitant per year in euros from € 21,985 (Hamburg) down to € 16,606 (Saxony-Anhalt). Cities and Districts Comparison A similar picture is apparent among the 412 urban and rural districts. There are no significant changes in the ranking of the 25 districts with the greatest purchasing power. Only the Miesbach rural district in Bavaria improved its position and has moved nine places up the table. The top 10 positions remain the same as in the
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previous year. The Hochtaunus district in Hessen (€ 29,285 per capita) and the Bavarian rural district Starnberg (€ 29,142 per capita) lead the table by quite a margin. Munich, Main-Taunus and Ebersberg rural districts and Munich urban district are in similar positions with residents having between € 27,877 and € 26,704 per capita at their disposal on average. This corresponds to 33-39% more purchasing power than the national average. European Comparison According to the findings of the last GfK-study, approx. € 7.9 billion of net household incomes were available for consumer spending for Europeans in 2010. This translates into a purchasing power on average of € 11,945 per person among the 42 reviewed countries. Among the European countries, Germany stands in a per-person comparison in the top ten ranking. Lichtenstein takes the number one spot (purchasing power in 2010: € 49,014), followed by Switzerland, Luxembourg, Norway, Austria and Denmark. The mid-range European countries include Portugal, Italy, Ireland, Greece and Spain, whose purchasing power has remained relatively stable on a year-on- year basis. Despite a recovery of the general economic situation, the purchasing power in the Baltic countries, which suffered with full force the effects of the economic crisis, continues to drop. Among these countries, Estonia stands ahead with a purchasing power of € 4,938 per person. According to GfK, Moldova has the lowest purchasing power; the residents there have on average € 832 per year as disposable income.
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Figure 4: Purchasing Power in Germany 2012
Source: GfK Regional Statistics, Jones Lang LaSalle Research
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Demographic Change Population development in the coming years can be described as a whole in four words: fewer, older, and more multicultural. In addition to this, a complex and significant change within population structures and their development will occur. Its effects on the economy and competitiveness as well as on the future of the social welfare system (old age, unemployment and health insurances) are heavily debated again and again. It is evident that Germany’s population has been dropping since 2003. This decrease will continue and will moreover intensify. At the end of 2011, about 81.4 million people lived in Germany (approx. 81.5 million in 2010), 0.1 million or respectively 0.1% less than the previous year. In 2060, the population will drop down to between 65 million (annual immigration rate of 100,000, lower end of “average” population) and 70 million (annual immigration rate of 200,000, upper end of “average” population). Even in the maximum estimate for the total population – which assumes a rise in the birth rate, a significant increase in life expectancy and an annual balance of migration of 200,000 people – only about 77 million people would be living in Germany in 2060, a smaller population than today. Currently a Germany-wide census is taking place (census 2011), which is designed to provide up-to-date information about the numbers, demographics, socio-economic data and housing of the population. Preliminary results are expected in November 2012; the publication of the detailed assessment is planned for May 2013
Figure 5: Forecast of population development in Germany (2009 – 2060) “medium” variant
85.000
80.000
75.000
70.000 in thousands in
65.000
60.000 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060
lower limit medium higher limit
Source: Berlin-Institute of Population and Development 2.2 Retail Investment Market Retail Investment Market: Review of 2011 and Q1 2012 Stable economic growth has brought Germany in the focus of real estate investors throughout Europe. Following a recovery in 2010, not only the economy but also employment rates and income rose significantly. This caused a ripple effect in the retail sector. At the end of 2011 the total amount of retail investments amounted to approximately € 10.6 billion, whereas the figure stood at € 1.4 billion at the end of Q1 2012. Hence, it accounted for 45%, and 27% respectively, of the total investments in commercial properties in Germany. This represents the reverse figures of office investments (30% in 2011 and 45% in Q1 2012). Whereas the 2011 total investment in retail properties clearly exceeded the figure of 2010 and was close to the 2007 level, Q1 2012 marks the first drop within three years of consecutive growth.
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Figure 6: Retail Transaction Volume Germany
Source: Jones Lang LaSalle, April 2012 Within the retail investment market, the shares of the major asset classes shifted slightly between 2011 and Q1 2012. High street properties/department stores and shopping centres remained the largest asset classes with a share of 37% and 35% respectively (compared to 32% and 45% respectively in 2011). This equals an investment volume of € 518 million and € 490 million. However, retail parks accounted for 15% (8% in 2011), whereas retail warehouses accounted for 5% (8% in 2011). Investments in supermarkets/discounters represented 3% in 2011 but went down to less than 1% in the Q1 2012. Transactions involving other retail properties and a portfolio of kiosks took up an 8% share. In 2011some large transactions drove up the amount of investments in shopping centre high street properties and department stores. In Q1 2012, however, large transactions were virtually absent with the exception of the sale of a 45% share of the Europa Passage in Hamburg for € 184 million and Luisencenter in Darmstadt for € 104 million. A deal started in Q1 2012 and completed in Q2 2012 is the sale of 80% of Gropius Passagen in Berlin for € 341 million (seller: a UniCredit fund; buyer: TIAA-CREF). Furthermore, Dutch investors MayerBergmann are considering buying Neukölln Arcaden in Berlin from the fund Axa Immosolution. This will also likely occur in Q2 2012 instead of Q1 2012.
Figure 7: Transaction Volume Germany divided by Retail Asset Class
Source: Jones Lang LaSalle, April 2012
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Yield Stabilisation in the Retail Market As mentioned above, the investment market for retail properties was rather active throughout 2011 but has slowed down in Q1 2012. Further, in most retail property classes, the gap between sellers and buyers has decreased and almost vanished. However, supermarkets and discounters are the exception. In fact, the reverse could be observed in 2011 as well as in Q1 2012, with demand currently lower than the available supply in the investment market. As in the previous years, financing issues were strongly reflected in the market for retail properties and lead to a further shift in investor groups towards those with a strong equity base. The yield compression, which could be observed since 2009 and throughout 2011, came to halt in Q1 2012 with respect to retail parks, shopping centres and retail high street unit shops/department stores. However, the yield compression as well as the stabilisation applies to core properties rather than secondary assets, which have yet to follow. Prime yields for shopping centres, for instance, are now close to 5% and, consequently, are very close to those of prime offices – an occurrence which has not taken place since a brief period in 2007. Net initial yields for prime retail parks went down to approximately 6% at the end of 2011 and have remained stable ever since.
Figure 8: Development of Prime Yields
Source: Jones Lang LaSalle, April 2012
Retail Investment Market: Outlook Particularly with respect to the current economic conditions in Germany, we consider retail to be amongst the largest asset classes in 2012. Despite a weak start in Q1 2012, particularly for those investors who seek a core investment with upward potential, retail currently seems to be the best fit. Unlike, however, at the beginning of 2011 investors now appear to be more open to alternative options, such as value-add assets than they were just a few months ago. They are increasingly considering properties with shorter rental lease contracts or vacancies, as long as the condition and the location of the property are reasonable. This development is partly due to a certain pressure to invest and partly because of a limited supply of core properties. There is also increasing optimism in the market and the common belief that the economic downturn has passed. With respect to retail properties, we expect a progressively stable trend with the highest investment share anticipated for shopping centres and high street properties. Furthermore, we predict that the German real estate market will remain the focus of foreign investors. In the Q1 2012 the buy side was dominated by insurance companies, open funds and private investors. We expect this to continue and for foreign investors along with asset managers, developers and banks to become more active in the course of 2012.
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2.3 German Retail Warehouses and Retail Parks The following section presents a more detailed overview of retail warehouses with a specific focus on “Do-It- Yourself” (DIY) stores, furniture stores, electronic goods stores, hypermarkets and cash & carry markets as well as retail parks and retail agglomerations. The subject matter will concentrate on the classification of these types of retail establishments, providing information on the special characteristics, the most well-known tenants, the deciding regional factors and information regarding the present situation in the German real estate market in view of the current rental level and the investment market. Retail Warehouses Definition Retail warehouses are large-scale forms of retailers. They offer a broad and often very deep range of different products for different requirements and for specific target groups. Retail warehouses usually operate using a self- service format with a self-explanatory product selection, which is clearly presented to the customer. The need for good presentation and the broad and deep product range contribute to large sales areas. On the other hand, fewer sales staff is needed due to the self-service character. In combination with a good area performance and efficient stock keeping, the costs for retail warehouses are easily managed. Additionally, the majority of retail warehouses are chain stores with a basic concept. The construction of such concepts entails economic advantages, with products that can be and mostly are offered at lower to medium price levels. Among retail warehouses, different types and branches can be distinguished. Retail warehouses can differ in service orientation and price level. There are more service-oriented warehouses (higher prices, more services) and more discount-oriented warehouses (lower price, less services). Plus, even though retail warehouses are usually large-scale, they can be distinguished based on their size and location. Small retail warehouses have an area of approx. 200 to 1,200 m² and are located within a suburban location with good traffic connections. Tenants are usually hardware stores, office supply stores or drugstores. Medium retail warehouses comprise stores with an area of up to 3,500 m² and are located both in suburban areas and in the outskirts of towns and cities. Typical tenants include sporting goods stores, toy stores, electronic goods stores, large shoe stores, large hardware stores and auto supply stores. Large retail warehouses have an area of more than 3,500 m² up to 18,000 m² and are usually located in peripheral locations. However, these stores are increasingly being developed in more integrated locations. Typical tenants are large fashion retailers, toy stores, electronic goods stores and DIY stores. The biggest retail warehouses reach a size of up to 30,000 m². Due to their size, these stores are normally found exclusively in peripheral locations or on Greenfield sites. This size is usually only occupied by furniture stores. The branches and tenants for retail warehouses are diverse and depend on the strategy and orientation of the subject property. Locational Factors Since the time they originated in the mid-1980s, retail warehouses are typically situated in peripheral locations in cities (e.g. commercial areas). This distinguishes a retail warehouse from conventional specialist stores, which traditionally prefer city centre locations. The motivation to move to Greenfield sites results mainly from the lower rental rates compared to the city centre, the fact that expansion is easier in the periphery (especially for large- scale retail warehouses), as well as the possibility to use simple building methods to affordably construct on a large scale (with regard to sales area and parking spaces). Together with more efficient organisation, this allowed products to be offered at lower prices than in traditional retail formats. Retail warehouses and their concepts are thus posing an ever greater threat of competition for the city centres. This means that continuous adjustment and development of concepts is necessary to remain competitive for both city centres and retail areas in the periphery. Location factors can be differentiated by the macro-location and micro-location. The most important factor on a macro-level is the population and all factors directly and indirectly associated therewith. The first is the population of the locality and the number of people living in the catchment area of the respective property. In this context,
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future population development is another important factor given the long-term use of such real estate. Another factor concerning the population is the purchasing power. The more specialized retail warehouses are, the more purchasing power matters. This is because the costs associated with food, for example, do not depend on purchasing power as much as the costs associated with electronics or DIY-store goods. Factors like tourism potential and commuter balance play a less significant role. Given the increasing difference concerning the mentioned macro-location factors in Germany, these factors are continually gaining importance in the valuation of real estate. On a micro-location level an important factor is the traffic infrastructure. As retail warehouses mostly rely on customers travelling by car, sufficient parking spaces as well as a good traffic infrastructure are very important. Thus, retail warehouses are often found along major arterial roads in commercial or industrial zones. Public transportation plays a less significant role but is important as well. Another important factor is the development in the vicinity. Further retailers in the vicinity can produce benefits from synergy effects or if retailers have a similar product range they can form competition. A residential population in the vicinity can also be beneficial, as people living in the surrounding area of a retail warehouse can significantly increase the customer frequency. Rental Market There is no homogeneous rental level for retail warehouses throughout Germany. Nevertheless, the spread between the rental levels is not as big as in high street locations. The maximum rents are determined by a percentage of the turnover expectancy as is common in the retail sector. The turnover again is most dependent on the above-mentioned macro- and micro-location factors of the retail warehouses plus the characteristics of the property like quality and concept of the store, architecture and visibility from the adjacent streets. The economic difference throughout Germany has led to differences in rental levels throughout the country. Rents in Bavaria, Baden Wuerttemberg and the metropolitan regions around Hamburg, Frankfurt or Berlin, lie above the average rent in Germany due to the high population density, the positive population forecast and the strong economy. Rental levels in eastern German towns are generally slightly lower than their western counterparts, as these areas have a lower purchasing power, higher unemployment rates, most often a negative population development and therefore generate on average lower revenues. Depending on the size of the retail unit and the branch of the tenant, rents for retail warehouses in Germany usually range from € 5.00 and € 14.00/m²/month. However, there are exceptions in both directions. The highest rents are not paid in peripheral locations but in locations in or near the city centre of larger cities with more than 100,000 inhabitants. Usually these prime rents are paid by well-known and attractive tenants, which occupy buildings in very good conditions. The rents for retail warehouses in general in Germany have been relatively stable in the past 10 years. However, the future rental development of retail warehouse will be mainly determined by the growing regional differences. The rental levels will remain stable in sustainable locations and in absolute top locations there is the probability of small increases. But, locations in economically weak regions with negative population development were and are going through difficult development. Therefore, less sales area is needed there due to the migrating population. This leads to an oversupply of rental areas, which again leads to falling rental levels. Investment Market Specifics In 2006, retail warehouses and hypermarkets gained importance in the international retail markets and developed from a niche product into an autonomous asset group. However, during the financial crisis in 2008 and the beginning of 2009, as in all other market segments, yields for retail properties rose. As expected, this change affected secondary and tertiary locations more strongly than core properties. Within the retail asset branch, the retail warehouse sector showed the strongest imbalance between product offer and demand during this time. From the beginning of 2011, yields began to fall again due to the increasing demand and the economic upturn after the crises. Especially core properties and properties in sustainable locations with stable characteristics became the focus of investors. Since the second half of 2011, the prime yield for retail warehouses has stabilized
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at around 6.50%. This is still 90 bps higher that the all-time low of 5.60%. Purchase price multipliers for sustainably lettable retail warehouses in good locations range from 10.5-fold to 14.0-fold the net annual rent. The following figure shows the prime yield development for retail warehouses since the first quarter of 2007:
Figure 9: Prime Yield Development in %
8
7
6
5
4
3
2
1
0 Q1 07 Q4 07 Q3 08 Q2 09 Q1 10 Q4 10 Q3 11 Q2 12
Source: Jones Lang LaSalle analysis
Prime yields for retail parks and retail warehouses relate to properties with the following characteristics: • Modern concept • Good-looking interior and exterior with an overall attractive appearance • Long lease contracts with the anchor tenants (preferably > 10 years) • A good mix of tenants and branches as well as well-known retail chains • Sufficient parking spaces • Well-positioned in the local market • Prime retail parks may also be situated in peripheral locations but with excellent connections to major traffic arteries Based on research of all commercial property classes, the prime yield development is expected to remain at approximately this level, though if investors’ preference remains as high as it is, a further decline of prime yields seems possible. Additionally, all estimates have to be seen in light of the current economic crises in the European Union. Furthermore, investors still distinguish between assets situated in western and eastern Germany. Thus, yields for prime properties in eastern Germany are usually traded with a premium of approx. 50 bps. Exceptions can be noted in the large metropolitan areas around Berlin, Dresden and Leipzig. Another major factor concerning the future yield development is similar to the rental levels the current growing regional difference within Germany. Metropolises and mid-sized cities in good macro locations considered to be winners, while stores in secondary and tertiary locations with poor macroeconomic data are the losers. At present, investors are placing greater focus on location factors than was the case two years ago, which is expected considering the current developments in Germany with regard to population, among other factors. Thus, very weak demand exists for locations with low purchasing power and a negative population growth forecast.
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Transaction Evidence The price decreases which were observed in 2008 and partly 2009 are over. The transactions in 2010 and 2011 indicated an increase in investor’s interest in retail properties in Germany. In 2012 the market seems to stabilize. The total transaction volume for commercial properties in Germany for the first two quarters of 2012 stands at approx. € 9.4 billion. For the first two quarters of 2011 this value stood at € 11.2 billion. Retail properties account for a share of the transaction volume in 2012 of approx. 30%. However, for retail warehouses the transaction volume in 2012 stands at € 83 million which is far below the volume for the whole of 2011 (approx. € 1.3 billion). But, the second half of the year is usually the stronger. Thus, a relatively high increase in the volume for retail warehouses can be expected. Please find some transactions from 2010 until 2012 in the table below.
Table 1: Transaction Evidence Federal Date Location Type NIY Multiplier Area Comment state Q2 2012 Jever Lower Saxony Furniture Store 6.40% 13.8-fold 13,000 m² WALT: 9.26 years North Rhine- Q2 2012 Krefeld DIY store 6.40% 13.7-fold 4,320 m² WALT: 13.6 years Westphalia North Rhine- Q2 2011 - DIY store 6.40% 15.7-fold 11,500 m² WALT: 15 years Westphalia North Rhine- Q2 2011 Aachen DIY store - 13.3-fold - Obi; WALT: 15 years Westphalia Q1 2011 Michendorf Berlin Cash&Carry - 12.92-fold 15,500 m² WALT: ca. 9 years North Rhine- Q4 2010 Cologne Eletronic store - 9.5-fold - WALT:< 5 years Westphalia Baden- Q2 2010 - Hypermarket - 14,00-fold 5,300 m² WALT 18 yrs. Wuerttemberg Baden- Q2 2010 - Hypermarket - 13,25-fold 4,000 m² WALT 18 yrs. Wuerttemberg North Rhine- Q2 2010 Wuppertal Hypermarket 8.00% - 8,500 m² Real, until 2026 Westphalia North Rhine- Q1 2010 - DIY - 13,3-fold 10,850 m² Obi, WALT 14 yrs. Westphalia
15 years WALT with tenant Q1 2010 Taunus area Hesse DIY-Store 7.15% 12.4-fold 11,000 m² OBI; construction year: 1998
North Rhine- 15 years WALT with tenant Q1 2010 Ruhr area DIY-Store 6.90% 12.85-fold 9,735 m² Westphalia OBI; construction year: 2006
Source: Jones Lang LaSalle research
Retail Parks Definition Retail parks are planned retail warehouse agglomerations. A retail park generally consists of at least three large- scale retailers with a combined retail area of at least 3,000 m². Similar to large retail warehouses, they usually are situated in locations reachable by car, close to traffic arteries or federal highways. In contrast to unplanned retail warehouse agglomerations, retail parks are built in order to effectively benefit from synergy effects and cultivate a collective corporate identity as well as a visual and spatial appearance. They usually have a shared, central car park and advertise their tenants through traffic cones at the access points. Although distinguished by their plain
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and functional architecture, retail parks have many similarities to shopping centres. One similarity is the central planning and management of the retail park. Instead of letting random tenants into the property, it is the retail park manager’s task to optimise the tenant mix in order to maximise synergy effects. The manager is further responsible for organising the retail park’s external appearance through shared marketing measures and also functions as a contact for clients, tenants and the landlord. Retail Agglomerations In comparison to retail parks, agglomerations of retail warehouses have also often been developed in order to take advantage of synergy effects with other retailers. However, these developments are not strategically planned. Agglomerations are created with the successive settlement of retail warehouses. This usually develops over an extended period of time without central planning, management or operation. Similar to retail parks, the joint usage of infrastructural components and joint marketing are synergy effects arising from such an agglomeration, resulting in an extension of the catchment area and an increase of the competitiveness relative to other retail agglomerations. Two common forms can be distinguished: retail warehouse strips and clusters. While retail warehouse strips develop through the successive construction of retail warehouses on a linear axis along a single road, clusters develop through the construction of further retail warehouses around a centrally situated store. Often such developments evolve chaotically and seldom benefit from shared parking lots. The concept of “one-stop shopping”, which is offered by retail parks and retail agglomerations, will play an increasingly important role in the future when shopping for provisions, because time is becoming more and more important to individuals. As a result, individual or sparsely clustered discounters and supermarkets will become increasingly unappealing. Rental Market and Tenant Mix The tenant mix of a retail agglomeration or retail park is very important for the overall quality and success of the property. The rental rate for such properties – as is common in the retail sector – is tied to the turnover expectancy (normally as a percentage). A good tenant mix and combination of brands and offers is able to satisfy several consumer requirements and guarantees a good customer flow. In order to increase the overall quality of a retail park or retail agglomeration, tenants selling daily convenience goods and tenants with a periodic or leisure component should be combined within the property. The combination of goods and services supports the consumers’ time management and therefore, appeals to the customer and offers an advantage compared to a stand-alone supermarket, for example. The opportunity to link purchases with different store characters (periodic and irregular, impulse and target purchases, etc.) varies depending on the main range of goods. In particular, branches with a very high leisure character are easily linked to each other, for example fashion and shoes, leatherwear, toys and jewellery. Purely supply-orientated tenants (for example supermarkets, discounters, bakeries and drugstores) have similar linkage potential. Target-oriented purchases like furniture purchases or DIY-purchases have a lower potential for linkage as they are very sporadic and usually require higher investment. Therefore, the information and the time requirement are higher and these purchases are normally not combined with other purchases. If in the case of a retail park, the management succeeds in establishing good anchor tenants, which increases the customer frequency, then the turnover expectancy of secondary tenants tends to be higher. As a consequence, their overall rental level can be higher as well. Therefore, some anchor tenants are able to negotiate lower rents, because their existence in a property increases the rental level of the others, thereby compensating for the higher rents. Thus, the rental level of a large anchor store within retail parks, like a supermarket or hypermarket, tends to be lower than if it was a stand-alone store. In contrast, smaller retail warehouses within retail parks, which benefit from large anchor tenants, tend to pay higher rents than if they were stand-alone stores. Overall, retail parks have the potential to generate higher rents than stand-alone retail warehouses due to the higher customer frequency. The discrepancy between the average and prime rents is usually between € 5.00 and € 6.00/m²/month. Depending on the size of the retail unit and the branch of the tenants, rents in retail parks in western German
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locations generally range between € 5.00 and € 15.00/m²/month. However, there are exceptions in both directions. The current prime rent for retail warehouses ranges from € 10.50 to € 18.50/m²/month. The prime rent of € 18.50/m²/month is usually not paid in peripheral locations but in locations in or near the city centre of larger metropolitan areas (> 100,000 inhabitants) by well-known and attractive tenants occupying buildings in very good condition. The prime rent for retail warehouses in Germany has been virtually stable in the past 10 years. In the first quarter of 2002, the prime rent ranged from € 9.79 from 18.60/m²/month. The overall potential for rental growth of retail warehouses in Germany is best summed up as mediocre. Depending on the tenant branch, rental rates for discounters, department stores and DIY stores remain stable due to the high competition in the market, but the rents for fashion stores have uplift potential simply due to the fact that these stores are increasing their presence in retail parks and are prepared to pay high rents. Investment Market Specifics Retail parks are a very interesting investment for investors. This is due to the fact that there is still a great deal of demand for retail areas within the centres and very often the security of cash flow is supported by contract lengths of up to 15 years. Tenants are willing to sign long contracts, because the restrictive town planning in Germany makes new developments difficult and thereby decreases the risk that new properties will be constructed nearby in the near future and will avert the customer flow. Furthermore, retail parks offer risk diversification due to the multi-tenant structure in comparison to single-tenant retail warehouses. Thus, retail parks on average offer a more secure cash flow. For that reason, the yields for retail parks are lower than for retail warehouses. The following shows the prime yield development for retail parks from the first quarter of 2007 until the second quarter of 2012.
Figure 10: Prime Yield Development in %
8
7
6
5
4
3
2
1
0 Q1 07 Q4 07 Q3 08 Q2 09 Q1 10 Q4 10 Q3 11 Q2 12
Source: Jones Lang LaSalle analysis
Prime yields usually remain relatively stable because prime properties are less affected by developments than non-prime properties. The prime yields started to increase with the appearance of the financial crises in 2007 and peaked at the beginning of 2009 at 6.75%. From the fourth quarter of 2009, prime yields have fallen quite considerably by 0.85% to as low as 5.90% in the second quarter of 2011. Since then, the prime yield has remained stable. Top multipliers are currently reaching 14.25 to 15.00, at the most.
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Given the present-day perspective, we expect yields for core products to remain stable, provided that the overall economic situation and the situation in the retail market (particularly for specialist retail properties) will not deteriorate. However, if investor’s preference for retail parks remains as high as it is, a further decline of prime yields seems possible. Additionally, all estimates have to be seen in light of the development of the current economic crisis in the European Union. Furthermore, within the individual retail park segment, investors are currently increasingly searching for properties with refurbishment potential. The result is a clear focus on redeveloping single large-scale retail warehouses into retail parks in order to fully capitalise on the investor demand for these products. Large self-service department stores (> 10,000 m²) in need of modernisation show the greatest potential in this regard due to their area dimensions and typically favourable building law regulations. Transaction Evidence The transaction volume of retail parks stand at € 464 million for the first two quarters of 2012. This is more of half the investment volume of retail parks in 2011 which stood at € 823 million. This shows the currently strong demand of investors for retail parks. This demand will probably increase in the future due to the above mentioned facts. Please find some transactions from 2010, 2011 and 2012 in the table below.
Table 2: Transaction Evidence Federal Date Location Type NIY Multiplier Area Comment state Q3 2011 Freital Saxony Retail Park n.a. 11.2-fold 20,000 m² WALT:> 10 years Baden- 2012 n.a. Retail Park 7.55% n.a. 27,955 m² - Wuerttemberg Baden- Q2 2012 Karlsruhe Retail Park ca. 6.00% 14.5-fold 27,500 m² Saturn, real; WALT: ca. 9 years Wuerttemberg North Rhine- Q3 2011 Dortmund Retail Park - 14.16-fold 31,131 m² Hornbach, REWE, Lidl, Tedox; WALT: 8 years Westphalia North Rhine- Q1 2011 Castrop-Rauxel Retail Park - 11.05-fold 9,715 m² Media Markt, Tedox, Dänisches Bettenlager Westphalia Q1 2011 Hesse Hesse Retail Park - Around 15-fold 4,500 m² WALT 20 yrs. WALT 10 yrs., new retail park, main tenants Q1 2010 Salzgitter Bad Lower Saxony Retail Park - 12,75-fold - Rossmann and Penny Q2 2010 Gernsheim Hesse Retail Park - 12.00--fold 9,900 m² Edeka,, WALT over 10.0 years Main tenants Obi, Burger King, Kaisers, Dänisches Q1 2010 Berlin Berlin Retail Park - 13,51-fold 21,500 m² Bettenlager North Rhine- Main tenants Rewe, Dänisches Bettenlager, dm, etc.; Q1 2010 - Retail Park - Around 13.75-fold 8,400 m² Westphalia WALT between 10 and 15 years Main tenants Kaufland, Aldi, Saturn, C&A, Q1 2010 Landshut Bavaria Retail Park GIY 6.9% 14.53-fold 23,000 m² Deichmann, Das Depot, Mister * Lady; purchase price € 53.5 Mio; construction year 2010 Q1 2010 Gießen Hesse Retail Park approx. 7.5% 11.75-fold 18,000 m² Main tenants real, Saturn, WALT: > 10 years Source: Jones Lang LaSalle research
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3 Valuation
3.1 Valuation Methodology Our valuation provides an estimate of Market Value. The definition by the ‘Royal Institution of Chartered Surveyors’ outlined below applies to the underlying values quoted in the valuation. The Market Value of the property has been assessed using the Discounted Cash Flow (DCF) calculation method. This takes into account the agreed rent for the signed leases, the market rent for currently vacant space and estimated rents for re-letting of the space after lease term expiry. Cash flows for the relevant year are calculated as follows: the Rental Income at full occupancy (Base Rental Revenue) is reduced by the loss of rent due to rent–free periods (Base Rent Abatements) and vacancy (Absorption and Turnover Vacancy). Besides income from indexation clauses (CPI and Other Adjustment Revenues) and step rents (Base Rental Step Revenue), reimbursable expenses (Vacancy Costs) have been added to obtain the Total Potential Gross Revenue. While rents are calculated according their particular adjustment clause, costs have been adjusted according to the change in the Consumer Price Index (CPI) on a yearly basis. After deduction of the non-recoverable costs (i.e. Management and Maintenance Costs) and reimbursable expenses (Vacancy Costs), the Net Operating Income (NOI) is determined. In case of vacancy, the reimbursable costs the landlord receives are lower than the amount he has to pay, so that only in this event do Vacancy Costs have an influence on the NOI. Subtracting the non-operating costs (such as Leasing Commissions, Tenant Improvements and Capital Expenditures) from the NOI results in the Cash Flow before Tax and Debt Service. After the DCF period of 10 years, we have considered a stabilised rental income in year 11. The capitalised value after year 10 takes this stabilised rental income and subtracts the stabilised expenses, resulting in the Stabilised Net Operating Income. This result is capitalised into perpetuity applying an equated (growth implicit) yield and produces the Terminal Value Indication. The resulting value is then discounted to the valuation date using the discount rate from term year 1-10. Discounting the remaining Cash Flows for years 1 to 10 and the Terminal Value for year 11 to the valuation date (i.e. the Net Present Value) produces the Gross Capital Value. We have assessed monthly rents as this conforms to the timing of rental payments. Subsequently, the Cash Flows calculated across the valuation period are discounted to the valuation date monthly in advance using the market derived discount rate. The discount rate adopted considers the probability of default as well as the security of the forecast for the Cash Flow. Therefore, factors which influence the discount rate include existing terms and conditions of lease contracts, the individual location quality, the building structure and building stock, the strengths of tenant covenants, the prevailing over- or underrent and the resale value calculated. After deductions for Purchaser’s Costs, the Market Value is obtained. 3.2 Valuation Assumptions Definition Market Value The Market Value is defined in the ‘Royal Institution of Chartered Surveyors (RICS) Appraisal and Valuation Manual’. This is incorporated into the Jones Lang LaSalle “General Principles Adopted in the Preparation of Valuations and Reports” attached as Appendix 2. The “Market Value” is an appraisal of the price for which a property transaction would take place on the appointed valuation date and may be defined as:
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“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.” Rental Income The current rental income for the portfolio amounts to € 13,549,049/year, which equals a rent of € 7.67/m²/month on occupied areas.
Property Rental Income
Contractual No Town Contract Rent Rental Income
€ p.a. €/m²/month
1 Aschersleben 1,525,571 8.76
2 Augsburg 1,308,379 7.88
3 Bad Aibling 634,106 7.49
4 Biberach 1,239,500 9.59
5 Borken 1,062,502 9.33
6 Erlangen 1,071,740 6.67
7 Geislingen 552,877 4.91
8 Glauchau 1,324,646 8.68
9 Ludwigsburg 953,144 5.62
10 Ludwigsfelde 1,094,138 7.22
11 Neckarsulm 1,356,016 11.01
12 Vilshofen 815,599 6.64
13 Wittenberge 610,832 5.86
13,549,049 7.67
Estimated Market Rental Value In the scope of the valuation, an achievable market rent was derived for each rental unit of the buildings within the portfolio. The estimate of market rents is made on the basis of comprehensive research and our turnover analysis. As a result, the Estimated Rental Value for the portfolio amounts to € 14,799,851/year. This represents € 8.38/m²/month.
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Property Rental Income
No Town Market Rental Value Market Rent
€ p.a. €/m²/month
1 Aschersleben 1,588,391 9.12
2 Augsburg 1,483,517 8.93
3 Bad Aibling 685,093 8.09
4 Biberach 1,275,158 9.87
5 Borken 1,197,694 10.51
6 Erlangen 1,450,000 9.02
7 Geislingen 837,832 7.44
8 Glauchau 1,238,323 8.11
9 Ludwigsburg 1,332,938 7.85
10 Ludwigsfelde 1,042,904 6.88
11 Neckarsulm 1,274,754 10.35
12 Vilshofen 805,062 6.56
13 Wittenberge 588,185 5.64
14,799,851 8.38
Costs We have been provided with an updated cost schedule concerning ground tax and insurance costs. As for the other non-recoverable costs, we assume that these costs remain unchanged in the current valuation. The previous owner did not recover all costs, which could be recovered according to the lease contracts. We understand that the lawyers of BCRE see that in the future these costs will be reduced and a higher portion will be recovered. We assumed that if the tenants would be provided with an accurate cost schedule they will pay these (recoverable) costs. Vacancy Costs In periods of vacancy, all fixed ancillary costs are borne by the owner. This fact has been taken into account within the valuation and in the case of projected vacancy during re-letting or successive rental; furthermore, we have applied a non-recoverable surcharge for vacant space. The vacancy costs are assessed to amount to € 10.00/m²/year. Renewal Probability Following the lease contract periods, we have considered assumptions appropriate to the local market environment regarding use type, location, quality of rental areas and property condition. Rent-free periods were not assumed for the re-letting/initial letting of any units. Void periods have been applied for re-lettings/initial lettings and leasing commissions were taken into account to secure new tenants. Depending on the respective area, we have incorporated tenant improvements after lease term expiry. We have predominantly assumed that the existing leases will be extended with a renewal probability of 75% (at market rental level) and leases will be
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agreed with new tenants with a corresponding probability of 25% (also at market level). Therefore, costs in the cash flow related to re-letting and the void period are weighted with the aforementioned likelihood of 25%. Void Periods The period of vacancy before re-letting depends on the location, building quality and demand. For the rental units, a specific vacancy period between 3 and 24 months was assumed. Given that marketing to identify new tenants can commence as soon as an existing tenant has submitted notice, the usual notice period for the tenant is taken into account (i.e. deducted) when determining the void period. However, the period of vacancy may not amount to less than three months due to renovation and refurbishment that may be required within the rental area. Please refer to the individual property templates in Appendix 1 for further information. Tenant Improvements Tenant improvements are costs for fixtures and building works incurred when a new rental contract is signed. In the valuation, these costs were fixed for each individual rental area according to the exterior and interior appearance. For the rental units, we have taken tenant improvements of € 25/m² to € 100/m² into account in our valuation. Please refer to the individual property templates in Appendix 1 for further information. Agent’s Fees Letting fees usually include agent’s fees borne by the owner and are incorporated into the estimated cash flow. For the Matrix Portfolio we assumed three monthly rental payments for commercial units. Contractual Terms Rental terms are estimated by drawing upon standard rental contracts, giving consideration to building use and the current real estate market. A contractual period of 10 years is assumed for large units and 5 years for smaller units. Contract extension options in the new lease contracts are disregarded. The rent for new lease contracts reflects the market rent for the building. The contractual rent used in the calculation of future cash flows is shown in the individual valuation templates in the Appendix 1 of this report. Investment Yields The yields applied reflect the individual location quality (macro- and micro-location) of the properties, building structure, letting situation, covenant strength and the relationship between contractual and market rent. In the current investment market, covenant strength and lease term play a major role in the purchase of such properties. The cap and discount rates used for each property to calculate Market Value are disclosed in the individual valuation reports. Rental Growth Forecasts For rents we assume a rental growth in line with the development of the inflation. Table 3: Inflation forecast Germany
Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 after 2021 Inflation 0.96% 1.54% 1.54% 1.51% 1.37% 1.35% 1.40% 1.40% 1.40% 1.40% 1.55% Source: Global Insight 2012
3.3 Valuation Results Market Value The valuation is carried out on the basis of Market Value as defined in the ‘Royal Institution of Chartered Surveyors' (RICS) Appraisal and Valuation Manual. This is incorporated into the Jones Lang LaSalle “General Principles for Valuations and Standard Terms of Business”, which is attached as Appendix 2.
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The “Market Value” is an appraisal of the price for which a property transaction would take place on the appointed valuation date and may be 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.” We are of the opinion that the Market Value of the subject portfolio is as at 30 June 2012:
€ 169,400,000 (net)
(ONE HUNDRED SIXTY-NINE MILLION, FOUR HUNDRED THOUSAND EUROS) reflecting € 1,153 /m² of lettable area
The above valuation figure represents a net figure, i.e. a deduction has been made for land transfer tax and legal costs and agent’s fees normally incurred by the purchaser. No allowance has been made for any expenses of realisation or for taxation, which might arise in the event of a disposal. The properties are considered as if free and clear of all mortgages or other charges, which may be secured thereon. The above figure results in a Gross Capital Value after addition of purchaser’s costs of
€ 179,500,000
(ONE HUNDRED SEVENTY-NINE MILLION, FIVE HUNDRED THOUSAND EUROS) reflecting € 1,221 /m² of lettable area
3.4 Sensitivity Matrix Below we present a matrix per property showing the Market Value sensitivity to changes of the Discount Rate. 3.4.1 Aschersleben Sensitivity Matrix as at 30th June 2012 Discount Rate Variation - 50 bp - 25 bp 7.35% + 25 bp + 50 bp € 20,800,000 € 20,400,000 € 20,100,000 € 19,700,000 € 19,400,000
3.4.2 Augsburg Sensitivity Matrix as at 30th June 2012 Discount Rate Variation - 50 bp - 25 bp 7.10% + 25 bp + 50 bp € 16,100,000 € 15,800,000 € 15,500,000 € 15,200,000 € 14,900,000
3.4.3 Bad Aibling Sensitivity Matrix as at 30th June 2012 Discount Rate Variation - 50 bp - 25 bp 7.25% + 25 bp + 50 bp € 8,700,000 € 8,500,000 € 8,400,000 € 8,200,000 € 8,100,000
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3.4.4 Biberach Sensitivity Matrix as at 30th June 2012 Discount Rate Variation - 50 bp - 25 bp 7.10% + 25 bp + 50 bp € 15,300,000 € 15,000,000 € 14,700,000 € 14,400,000 € 14,200,000
3.4.5 Borken Sensitivity Matrix as at 30th June 2012 Discount Rate Variation - 50 bp - 25 bp 6.90% + 25 bp + 50 bp € 15,000,000 € 14,800,000 € 14,500,000 € 14,200,000 € 14,000,000
3.4.6 Erlangen Sensitivity Matrix as at 30th June 2012 Discount Rate Variation - 50 bp - 25 bp 7.00% + 25 bp + 50 bp € 11,100,000 € 10,900,000 € 10,700,000 € 10,500,000 € 10,300,000
3.4.7 Geislingen Sensitivity Matrix as at 30th June 2012 Discount Rate Variation - 50 bp - 25 bp 7.25% + 25 bp + 50 bp € 9,000,000 € 8,900,000 € 8,700,000 € 8,600,000 € 8,400,000
3.4.8 Glauchau Sensitivity Matrix as at 30th June 2012 Discount Rate Variation - 50 bp - 25 bp 7.25% + 25 bp + 50 bp € 16,900,000 € 16,600,000 € 16,300,000 € 16,000,000 € 15,800,000
3.4.9 Ludwigsburg Sensitivity Matrix as at 30th June 2012 Discount Rate Variation - 50 bp - 25 bp 7.15% + 25 bp + 50 bp € 12,600,000 € 12,400,000 € 12,200,000 € 12,000,000 € 11,800,000
3.4.10 Ludwigsfelde Sensitivity Matrix as at 30th June 2012 Discount Rate Variation - 50 bp - 25 bp 6.75% + 25 bp + 50 bp € 14,500,000 € 14,200,000 € 14,000,000 € 13,800,000 € 13,500,000
3.4.11 Neckarsulm Sensitivity Matrix as at 30th June 2012 Discount Rate Variation - 50 bp - 25 bp 7.30% + 25 bp + 50 bp € 17,100,000 € 16,800,000 € 16,500,000 € 16,300,000 € 16,000,000
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3.4.12 Vilshofen Sensitivity Matrix as at 30th June 2012 Discount Rate Variation - 50 bp - 25 bp 7.00% + 25 bp + 50 bp € 10,300,000 € 10,200,000 € 10,000,000 € 9,800,000 € 9,700,000
3.4.13 Wittenburg Sensitivity Matrix as at 30th June 2012 Discount Rate Variation - 50 bp - 25 bp 6.85% + 25 bp + 50 bp € 8,100,000 € 8,000,000 € 7,800,000 € 7,700,000 € 7,600,000
3.5 Market Value Disclaimer Our valuations are carried out on the basis of market value as defined in the ‘Royal Institution of Chartered Surveyors' (RICS) Appraisal and Valuation Manual. The “Market Value” according to the RICS Appraisal and Valuation manual contains an appraisal of the price at which a property transaction would take place at the appointed valuation date and may be 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.” According to information given by Brack Capital Properties N.V., we understand that the Matrix portfolio was offered in a distressed loan situation. Thus, the subject transaction can be considered a forced sale, so that the underlying purchase price is not necessarily comparable to the above-mentioned market value definition. Furthermore, our valuation is based on market parameters, in particular concerning service charges, which potentially deviate from the actual situation of the portfolio on the purchase date. After discussions with Brack Capital Properties N.V. we now understand that the purchase price is lower than the estimated market value. However, we are not in the position to comment on this deviance as we are not aware of the exact conditions of the final purchase contract, nor of any side letters or supplementary agreements that potentially deviate from the valuation basis. We assume that the distressed vendor might have accepted Brack Capital Properties N.V.’s lower bid in order to quickly close a deal with a trusted, recognised purchaser with a proven track record. In this regard, our calculated market value could be above the agreed purchase price; nonetheless, we are comfortable with this level and consider it to reflect the market value (according to the above RICS definition) for the portfolio at the respective valuation date. Prior to this valuation round, we have conducted a valuation in June 2011 for the financial statements of Brack Capital Properties N.V. Compared to the previous valuation in June 2011, the market value in June 2012 has increased by approx. 2.8%. This is mainly due to a reduction of capital expenditures scheduled in the upcoming year. This sum has dropped from over € 9 million in 2011 to just below € 3 million in 2012. The biggest influence on this development came from the properties in Biberach and Augsburg where the refurbishment of the parking decks has much advanced since the last valuation.
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Matrix Portfolio, Valuation of 13 properties – August 2012
4 Confidentiality & Publication
In preparing this valuation report, we have relied upon information provided by you and your representatives relating to tenure, tenancies, building and site areas, and building description. If this information proves to be incorrect or additional information is made available to us, the accuracy of the valuation could be affected. In such case, we reserve the right to amend our opinion of value accordingly. In accordance with our standard practice, we must state that the content of this report, including the valuation, has been prepared exclusively for Brack Capital Properties N.V. (BCP) for the purposes of assisting BCP to value its assets as at 30th June 2012 for its financial statement reporting and for no other purpose. In addition, the results of the work executed by Jones Lang LaSalle shall remain confidential and are intended exclusively for BCP and only for the purposes specified in the contract. Any other use and, in particular, disclosure to third parties or other publications (disclosure to third parties) – including extracts – without the express prior written consent of Jones Lang shall be prohibited. We consent to the disclosure of the valuation report to a third party only within the scope of the publication of the financial statement reporting. However, BCP agrees to notify the respective third parties in writing and to underline that Jones Lang LaSalle generally assumes no liability towards third parties for the work and services provided and that third parties may make no claims whatsoever against Jones Lang LaSalle on the basis of the work and services provided. BCP also agrees to indemnify Jones Lang LaSalle against any third party claims and associated costs asserted by third parties against Jones Lang LaSalle as a result of unauthorised disclosure or publication of the results of the work and services provided. Jones Lang LaSalle GmbH’s liability for any loss or damage caused by negligence on our part, irrespective of the legal reason, in relation to the valuation services provided is limited to a maximum of 10% of the respective and reported Market Value per property, and may not exceed a maximum liability cap of € 7.5 million (euros) for any case. Finally, to the fullest extent permitted by law, we do not accept or assume responsibility or liability in respect of the whole or any part of the report or valuation for any other purpose than stated above nor to any other person or entity to whom the report or valuation is shown or disclosed or into whose hands it may come, whether published with our consent or otherwise, except where expressly agreed by our prior consent in writing.
Andrew M. Groom MRICS Nicoline Dechamps MRICS International Director Principal Consultant Head of Valuation & Transaction Advisory Retail Valuation Advisory
Appendix
Valuation for accounting purposes only Copy 29
Appendix I – Property Reports Appendix I – Property Reports
Property address Property no. 1 Portfolio: Matrix Portfolio
Hoymer Chaussee 108 Valuation date: 30.06.2012
06449 Aschersleben Inspection date: 31.01.2011
Germany Prepared for: Brack Capital Properties N.V.
Property Summary
Key Figures
Property type Retail Park Main tenant Marktkauf Holding GmbH
Total lettable area 14,520 m² Total parking units 700 units
Current vacancy rate 8.5% Weighted average lease term 8.3 years
Year of construction 1993 Year of refurbishment n.a.
Contractual gross rental income (month 1 x 12) total p.a. € 1,525,571 per m² / month € 8.76
Total non-recoverable expenses (month 1 x 12) total p.a. € 119,270 per m² / month € 0.68
Net operating income (month 1 x 12) total p.a. € 1,406,300 per m² / month € 8.07
Market rental valuetotal p.a. € 1,588,391 Over-/Underrent based on occupied areas 4.3%
SWOT Analysis
Strengths Weaknesses Sufficient parking areas on site Located on the outskirts of Aschersleben Good accessibility by car Slight under-rent of Kaufland premises Good tenant mix Difficulty to let former Quelle unit due to its location within the property Synergies due to adjacent furniture store Low purchasing power and centrality index 0 0
Opportunities Threats Prolongation of lease contracts after expiry Re-letting or prolongation of existing contracts may result in worse conditions Reletting of the former areas of dm and Quelle Significant negative population growth 0 Below-average purchasing power 0 Limited investor focus on properties in eastern Germany 0 0
Property Rating (1 = very negative, 5 = very positive)
Building Location
Building age 2 16 to 25 years Macrolocation 2 Below average location and catchment area Lettable Area 4 Between 12,500 and 15,000 m² Microlocation 3 Average micro location Property condition 2 Below average building condition Commercial activity 4 Average commercial activity nearby General impression 2 Below average general impression Competition 3 Average competition level
Liquidity Investment Quality
WALT 4 WALT seven to ten years Investment market 2 Under developed property market Over- / underrent 3 Rack rented (-5% to 5%) Investment volume 4 Good lot size Quality of tenants 4 Tenants with very good credit rating Saleability 4 Good saleability within 6 months
Property Description
The site encompasses the subject retail park, a petrol station as well as some food stalls located in front of the main entrance. The property was constructed in 1993 and contains a self-service department store (Kaufland) and a DIY discount store (B1) as large-scale retail units as well as some mid-sized and small-sized retail units. The building has a rectangular shape and for the most part is a single storey structure, with a small second storey located over the main entrance area in the south serving as an administrative area. The property is constructed of concrete columns, precast concrete beams and concrete floor slabs. The flat roof has trapezoid metal panels as bearing structure and several skylights integrated. The facade is made from multilayer concrete panels. Main entrance, office windows and shop displays have coated aluminium frames and the entrance is equipped with automatic sliding doors. The walls within the public areas are plastered and painted. The ceiling inside the mall is suspended with a grid system still allowing the technical installations above to be seen. The smaller shop units usually have a suspended ceiling while the large retail units of B1 and Kaufland do not have a suspended ceiling with all technical installations viewable. The floor is mainly covered with ceramic tiles, while the fit out of the smaller shop units depends on the tenant’s preferences. In terms of HVAC, the property does not offer air conditioning, only oil-fueled heating and ventilation. The parking area is made of asphalt on driveways and paving stones in the parking areas.
Valuation Results
Market Value Market Rental Value
€ 20,100,000 equals to € 1,384 per m² € 1,588,391 p.a. equals to € 9.12 / m² / p.m.
Discount Rate 7.35% Net Initial Yield 6.57% excluding 6.57% Multiplier (initial) 13.18 capital Capitalisation Rate7.10% Net Reversionary Yield 6.86% expenditures 6.86% Multiplier (based on MRV) 12.65
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Hoymer Chaussee 108 Valuation date: 30.06.2012
06449 Aschersleben Inspection date: 31.01.2011
Germany Prepared for: Brack Capital Properties N.V.
Location
Germany Macroeconomic Indicators (Source: GfK, BBE, BBSR/Inkar 2012)
Federal State Saxony-Anhalt District Salzlandkreis (Rural District) City Aschersleben Postcode 06449
Population Federal State absolute 2,356,219 Population District absolute 212,605 Population City absolute 29,357 Number of Households City absolute 14,733 Population Density District per km² 149 Population Density City per km² 197 Population Forecast (2007 - 2025) District in % -20.9% Population Growth (2002 - 2007) Federal State in % -5.4% Population Growth (2002 - 2007) District in % -7.6% Unemployment Rate (6/2012) Federal State in % 11.1% Unemployment Rate (6/2012) District in % 11.4%
Structual Data (Source: GfK and BBE 2012)
Purchasing Power District in m € 3,294 Purchasing Power City in m € 455 Purchasing Power Index Federal State index 83.42 Retail Purchasing Power Index District index 78.71 Retail Centrality Index District index 91.05
Aschersleben Macro Location
The city of Aschersleben is located in the federal state of Saxony-Anhalt. Aschersleben is situated between the region of the Harz Mountains and the Magdeburger Boerde. Aschersleben is rich in many cultural and leisure activities, and has a healthy small- and medium-sized business structure. There are many historic churches and other buildings, which are worth visiting. The cultural activities of the town are well known in the whole region and attract many visitors. The closest larger cities are Magdeburg, (approx. 50 km to the north), Halle (Saale) (approx. 67 km to the south-west) and Braunschweig (approx. 107 km to the north-west). The transport connections from Aschersleben to the German motorway system as well as to the major roads are quite good. Aschersleben is located close to the motorway A14. The main federal roads, which run through Aschersleben are B6, B180 and B185. There are also connections to the public transport network via the local bus system within the city and the train, regional or national bus network for out-of-town travel. The train station of Aschersleben offers service to Halle (Saale), Dessau and Magdeburg. The closest international airports are located in Magdeburg (approx. 49 km) and Leipzig-Halle (approx. 80 km). The economy traditionally has been based on the printing industry, machine tool building and vehicle construction. Highly specialised machines and printing products have been produced in Aschersleben since the 19th century. The production of non-woven cotton has been firmly established in Aschersleben since the 1990s. Also medical equipment companies, which have established their operations in the city in recent years, are economically important.
Micro Location Micro Location
The property is located at Hoymer Chaussee 108, approx. 3 km west from Aschersleben's historic city centre on the outskirts of the city by an arterial road, connecting to the major federal road (B6). The property shares its parking lot with a furniture discount store to the east. To the south, there is the aforementioned arterial road with plots on the other side of the road. Similarly, to the north of the property more plots can be found. The land to the west of the property is used for agricultural purposes. The property has its own bus stop on Hoymer Chaussee called "Aschersleben Kaufland", which connects the premises with the remainder of Aschersleben including its train station. The property offers good visibility and can be accessed directly from the arterial road by which it is located. It benefits from the adjacent discount furniture store and the petrol station on its plot.
0
Local Tax Information
Real Estate Tax Rate (Typ B) City in % 400 Land Transfer Tax City in % 5.0
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Hoymer Chaussee 108 Valuation date: 30.06.2012
06449 Aschersleben Inspection date: 31.01.2011
Germany Prepared for: Brack Capital Properties N.V.
Site Plan
Source: Cadastral plan on a 1 to 2,000 scale, dated 28.12.2010 Site Information
Site area 36,735 m² Ground lease No thereof surplus land 0 m² Ground lease expiry n.a. Surplus land value (net) n.a. € 0 Comment Site servicing Fully serviced The site consists of two plots: 174 and 19/2. The site has an even topography and an irregular shape. The site is not listed in the register of contaminated land ("Altlastenkataster"). Site layout Irregular There is an encumbrances registered on plot 19/2. However, since it containes an obligation in case a property is built on the plot we assume that this obligation has been fulfilled by the owner. Furthermore, Soil contamination No Suspicion there are a couple of easements registered on the plots. However, we do not regard these to have an impact on the market value. For the purposes of this valuation, we have assumed that the subject Building encumbrances Yes property is free of any soil or building contamination.
Town Planning
Use class SO (special zone) Comment According to information from the local planning authority's website, a legally binding development plan Site coverage ratio (GRZ) n.a. exists, entitled "Hoymer Chaussee Nr. 1" with the following regulations: the subject site is located in a special retail zone (Sondergebiet Einkaufszentrum). It sets the following restrictions, among others: a Plot ratio (GFZ) n.a. maximum of 16,600 m² of retail space is permissible, of which non-food retail space is not permitted to exceed 4,300 m² and DIY may not exceed 3,600 m² (we assume that an additional agreement is in Cubic index (BMZ) n.a. place for B1 to operate a larger scheme).
Tenure
Land Register Owner Sheet Plot Parcel Section 2 (Restrictions) Section 3 (Loans) Local Court of TPL Aschersleben 8878 19 19/2 Several limited personal easements and personal Land charges in the total amount of € 24,229,108 in Achersleben, land S.á.r.l., Luxembourg 174 easements: right-of-way and parking for the favour of Bank of Scotland (Frankfurt branch), register of Aschersleben respective owner of the parcels 171, 172 and 173 Frankfurt am Main; entered on 18.02.2007. (plot 19); the right to freshwater, wastewater, energy and water for firefighting for the respective owner of the parcels; respective owner of the plot registered on sheet 8879 no. 1, 2, 3 prohibited to operate furniture stores, casinos, sex-shops, peep-shows, etc.; right to operate a self-service department store including essential adjacent areas, parking areas, etc. for Kaufland Dienstleistungs GmbH & Co. KG, Neckarsulm; the right to build, operate and maintain a transformer station with cable, equipment, service and information lines for Stadtwerke Aschersleben GmbH.
Source: Land register extract, dated 2nd December 2010
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Hoymer Chaussee 108 Valuation date: 30.06.2012
06449 Aschersleben Inspection date: 31.01.2011
Germany Prepared for: Brack Capital Properties N.V.
Competitor Map
Source: Jones Lang LaSalle Research
Competitor Overview
Name Address Type Sales area Distance Potential E-center 06449 Aschersleben, Seegraben 5 Hypermarket 3,500 m² 1.80 km Medium Rewe 06449 Aschersleben, Hecklinger Str. 43-45 Hypermarket 1,500 m² 2.10 km Low 0 m² 0 0 0 0 0 0 0 0 0 0 0 0 0
Competiton Indicators
Inhabitants in primary catchment area 22,679 Inhabitants per hypermarket in primary catchment area 7,560
Inhabitants in secondary catchment area 32,076 Inhabitants per hypermarket in secondary catchment area 10,692
Inhabitants in tertiary catchment area 50,705 Inhabitants per hypermarket in tertiary catchment area 16,902
Number of households in the district 14,733 Population forecast for the district (2007 - 2025) -20.9%
Retail Purchasing Power Index (District) 78.71 Retail Centrality Index (District) 91.05
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Hoymer Chaussee 108 Valuation date: 30.06.2012
06449 Aschersleben Inspection date: 31.01.2011
Germany Prepared for: Brack Capital Properties N.V.
Main competitors
This retail park is located close to the city centre of Aschersleben and comprises an E-Center This competitor is a Hellweg DIY store at the other end of town, next to toom DIY. The Hellweg DIY (Edeka), medimax (consumer electronics), and a Zoo & Co (pet shop) as well as some smaller store is larger than B1 in the subject property and comprises a garden centre as opposed to the B1. tenants such as a bakery. Furthermore, a discounter is located in the vicinity. This competitor is Due to the different market positioning of Hellweg and B1, these two are not direct competitors. The approx. 1.8 km away from the subject property. Hellweg is approx. 3.2 km away from the subject property.
Competition Comment
Concerning food competitors, the aforementioned E-Center as the only larger scale food retailing scheme and some smaller supermarkets. Nevertheless, Kaufland has by far the largest sales area, so that at least supermarkets can be considered to be only indirect competitors. Kaufland offers a very deep and broad product range with more than 50,000 products, while discounters and supermarkets offer a limited product range with only 7,000 to 11,000 (supermarkets) or 400-2,500 (discounters) articles. Therefore, these retailing forms address different customers or customer needs. While supermarkets and discounters cater to the daily needs of customers, Kaufland offers a larger variety for products that are bought on a non-daily basis. Based on this, the primary and secondary catchment area of the Kaufland is sufficient to operate successfully in this location.
The strongest competitor for Kaufland is the small retail park anchored by E-Center located at Seegraben 5 close to the city centre. The E-Center is somewhat smaller than the Kaufland, has a significantly lower share of non-food items and focuses on a good presentation of the goods sold. Thus, Edeka-branded stores are usually perceived as quality-focused rather than cut-price focused as Kaufland usually is. Additionally, the tenant mix in the retail park with consumer electronics and a pet shop differs from the subject property; thus, we do not see direct competition. Hence, we assess the competition level to be medium.
In terms of DIY competition, there are two other DIY stores in Aschersleben. These two are located next to each other at an arterial road in the north-eastern outskirts of the city. Among these two, Hellweg is clearly in the better position in terms of visibility, accessibility, as well as size. In terms of level of competition, the catchment area, for the most part shared by two competitors, is quite small. However, toom as well as Hellweg target customers not driven solely by price but rather by quality of goods and customer service. This is quite contrary to the discount strategy used by B1. Therefore, we assess the level of competition to be moderate.
Turnover analysis
The rents in functional retail agglomeration are linked to turnover. The percentage rate that a retail tenant can use for rental payments depends on the margins achievable in the various market sectors. This rate normally ranges between 2% and 15% depending on the respective industry. The productivity varies between approx. € 1,000/m² up to more than € 10,000/m². Taking into consideration the tenant mix in the subject property, the space productivity should be in the range of € 2,250 and € 6,000/m². Generally most tenants have a below average space productivity, i.e. turnover, compared to similar retail parks. For Kaufland, we have also been provided with turnover figures. We have analysed the figures and have found the area productivity of Kaufland to be in a healthy range.
With a turnover-to-rent ratio of less than 2% it lies below the range of 2% to 4%, which is acceptable for a self-service department store. Hence, we believe that a higher market rent is achievable after the end of the lease contract. Please also refer to the rent/turnover analysis on page 8. We have not been provided with turnover figures of B1. The rent of B1 would result in a productivity of approx. € 1,800/m². However, toom (incl. B1) has an average productivity of only € 1,000/m². Additionally, the lease comparable for DIY in Aschersleben indicate that the market rent and turnover expectations of DIY tenants are lower than € 1,800/m². Thus, we reduced the market rent accordingly. Nevertheless, apart from B1, the lower turnover is already reflected in below average contractual rents and in the market rents used in the valuation. Thus, we assess the rents paid all in all to be sustainable on the current level.
Conclusion
The subject property is a retail park located in the outskirts of Aschersleben at an arterial road. It offers good visibility and accessibility by car. The property is anchored by a B1 DIY discount store and a Kaufland self-service department store. Additionally, smaller units are let to Deichmann, AWG, among others. Furthermore, a petrol station advertising low petrol prices is situated on site as well. The retail park predominantly focuses on price-conscious customers with a discount DIY store and Kaufland with plenty of non-food bargains and a wide range of own brand food products. Tenants such as AWG and Deichmann fit into this strategy; thus, the tenant mix within the subject property is assessed to be good. Moreover, a discount furniture store shares the parking area with the subject property, which is a combination fitting combination. Therefore, it is likely that the retail park is able to attract a number of customers who usually would not be in this catchment area. Due to this positioning of the property in the market, the level of competition is assessed to be only medium though there is a better located smaller retail park in Aschersleben's city centre.
The tenants within the property, apart from the food stands, suffer from below-average turnover, likely because of the low purchasing power in the region. Nevertheless, based on the turnover data made available to us, we believe that the total rental income is sustainable. The smaller tenants benefit from the fact that all customers of Kaufland pass by their premises with the exception of one shop unit. The vacancy rate within the property is low (8.5%) with only two units being unoccupied. The unoccupied unit is not part of the mall, but has a separate entrance close to the main entrance. Nonetheless, the entrance situation is quite problematic not catching the attention of customers. Therefore, we believe this unit to be difficult to let. The average rent paid is € 8.76/m²/month and the weighted average lease term is 8.3 years. The non-recoverable costs of the property are above average due to the fact that Kaufland agreed in its lease to not pay for costs such as ground tax, insurance fees or management costs. All in all, the property offers an attractive tenant mix with regards to the economic situation of the region with two strong anchor tenants.
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Hoymer Chaussee 108 Valuation date: 30.06.2012
06449 Aschersleben Inspection date: 31.01.2011
Germany Prepared for: Brack Capital Properties N.V.
Rent Roll
Tenant Name Area Category Letting Area Rent Rent / m² Tenant Lease Lease Renewal Tenant Status m² / unit / month / month pays VAT Start End Probability pays * 1 Kaufland Warenhandel Brandenburg GmbH & Co. KG Retail Let 5,533 € 30,296 5.48 Yes 01.10.2007 30.09.2026 75% 2 Allg. Warenvertriebs GmbH Retail Let 1,345 € 15,000 11.16 Yes 01.03.2002 28.02.2022 75% PM 3 BRL Center GmbH RetailLet 151 € 4,179 27.68 Yes 01.08.2008 31.07.2028 75% GT I PM 4 Metzgerei Carsten Kneusel RetailLet 124 € 7,304 58.90 Yes 01.10.2004 30.09.2016 75% GT I PM 5 Lucas, Dagmar Retail Let70 € 1,540 22.00 Yes 01.09.2007 31.08.2017 75% GT I PM 6 Ihr Bäcker GmbH & Co. KG Retail Let 73 € 5,500 75.34 Yes 01.09.2007 31.08.2014 75% GT I PM 7 Hang Bui Other Units Let 1 € 1,000 1000.00 Yes 01.01.1996 30.09.2012 75% PM 8 Thurländer Hähnchen Grill GmbH Other Units Let 1 € 938 937.55 Yes 01.12.2002 30.12.2015 75% PM 9 Blochwitz Other Units Let 1 € 680 680.00 Yes 01.04.2006 31.05.2013 75% PM 10 NKD Vertriebs GmbH Retail Let 313 € 3,133 10.00 Yes 15.09.2010 31.08.2014 75% GT I PM 11 Reiseland GmbH & Co. KG Retail Let 62 € 1,35121.82 Yes 09.08.1993 30.09.2014 75% GT I PM 12 Erdmann / Focke Retail Let 54 € 950 17.46 Yes 16.04.2012 31.08.2015 75% GT I PM 13 Frisör Klier GmbH Retail Let 72 € 2,335 32.42 Yes 04.08.1993 28.02.2018 75% GT I PM 14 Convenience Concept GmbH Retail Let 41 € 1,346 32.89 Yes 01.09.2007 31.08.2014 75% GT I PM 15 Marktkauf Holding GmbH Retail Let 4,880 € 38,399 7.87 Yes 01.07.1999 30.06.2019 75% GT I 16 Vacant (formerly dm) Retail Vacant 478 € 0 0.00 17 Deichmann SE Retail Let 443 € 9,353 21.10 Yes 02.08.1993 31.10.2014 75% GT I PM 18 Allg. Warenvertriebs GmbH Storage Let 129 € 0 0.00 Yes 01.03.2002 28.02.2022 75% PM 19 KSK Aschersleben-Sraßfurt Other Units Let 1 € 273 273.18 Yes 01.09.1993 31.12.2012 75% 20 Schwarz Außenwerbung GmbH Other Units Let 1 € 433 433.33 Yes 01.01.2010 31.12.2014 75% 21 Marktkauf Holding GmbH Other Units Let 1 € 424 424.00 Yes 01.07.1999 30.06.2019 75% PM 22 TOTAL Deutschland GmbH Petrol Station Let 1,200 € 1,570 1.31 Yes 01.04.2003 31.03.2018 75% M GT I PM 23 VACANT Retail Vacant 750 € 0 0.00 24 Kurzzeitmieter Retail Let 1 € 1,127 1126.88 Yes 01.10.2007 30.09.2026 100% 25 Parking External parking Let 700 € 0 0.00 No 00.01.1900 00.01.1900 0%
Total 15,720 m² € 127,131 * M = Maintenance, GT = Ground Tax, I = Insurance Costs, PM = Property Management
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Hoymer Chaussee 108 Valuation date: 30.06.2012
06449 Aschersleben Inspection date: 31.01.2011
Germany Prepared for: Brack Capital Properties N.V.
Valuation Assumptions
Tenant Name Area Category Area Market Market Re-letting Initial Re-letting Rent Agency Lease Renewal sqm/unit Rent Rent /month Tis Void VPV*Void* Abatem.* Fees* Term** Probability 1 Kaufland Warenhandel Brandenburg GmbH & Co. KG Retail 5,533 € 6.50 € 35,967 € 50 6 6 0 3 10 75% 2 Allg. Warenvertriebs GmbH Retail 1,345 € 10.00 € 13,446 € 50 15 15 0 3 5 75% 3 BRL Center GmbH Retail 151 € 30.00 € 4,530 € 100 6 6 0 3 5 75% 4 Metzgerei Carsten Kneusel Retail 124 € 65.00 € 8,060 € 100 6 6 0 3 5 75% 5 Lucas, Dagmar Retail 70 € 17.50 € 1,225 € 100 9 9 0 3 5 75% 6 Ihr Bäcker GmbH & Co. KG Retail 73 € 65.00 € 4,745 € 100 6 6 0 3 5 75% 7 Hang Bui Other Units 1 € 1000.00 € 1,000 € 0 6 6 0 3 5 75% 8 Thurländer Hähnchen Grill GmbH Other Units 1 € 1000.00 € 1,000 € 0 6 6 0 3 5 75% 9 Blochwitz Other Units 1 € 800.00 € 800 € 0 6 6 0 3 5 75% 10 NKD Vertriebs GmbH Retail 313 € 10.00 € 3,133 € 100 12 12 0 3 5 75% 11 Reiseland GmbH & Co. KG Retail 62 € 20.00 € 1,238 € 100 9 9 0 3 5 75% 12 Erdmann / Focke Retail 54 € 22.50 € 1,224 € 100 9 9 0 3 5 75% 13 Frisör Klier GmbH Retail 72 € 30.00 € 2,160 € 100 99 0 3 5 75% 14 Convenience Concept GmbH Retail 41 € 30.00 € 1,227 € 100 9 9 0 3 5 75% 15 Marktkauf Holding GmbH Retail 4,880 € 6.50 € 31,720 € 50 66 0 3 10 75% 16 Vacant (formerly dm) Retail 478 € 11.00 € 5,258 € 100 12 12 0 3 5 75% 17 Deichmann SE Retail 443 € 15.00 € 6,650 € 100 15 15 0 3 5 75% 18 Allg. Warenvertriebs GmbH Storage 129 € 8.00 € 1,032 € 0 15 15 0 3 5 75% 19 KSK Aschersleben-Sraßfurt Other Units 1 € 273.18 € 273 € 0 33 0 3 5 75% 20 Schwarz Außenwerbung GmbH Other Units 1 € 433.33 € 433 € 0 00 0 3 5 75% 21 Marktkauf Holding GmbH Other Units 1 € 424.00 € 424 € 0 00 0 3 5 75% 22 TOTAL Deutschland GmbH Petrol Station 1,200 € 1.31 € 1,570 € 0 00 0 3 10 75% 23 VACANT Retail 750 € 7.00 € 5,250 € 100 15 15 0 3 5 75% 24 Kurzzeitmieter Retail 1 € 0.00 € 0 € 0 00 0 3 5 100% 25 Parking External parking 700 € 0.00 € 0 € 0 00 0 0 0 0%
Total 15,720 sqm € 132,366 * months ** years ***structural vacancy
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Hoymer Chaussee 108 Valuation date: 30.06.2012
06449 Aschersleben Inspection date: 31.01.2011
Germany Prepared for: Brack Capital Properties N.V.
Property Analysis
Area Analysis Lettable AreaArea Vacant Area Let Vacancy Rate Use Category m² m² m² % Office 0 0 0 0.00% Office Retail DIY Retail 14,391 1,228 13,163 8.53% DIY 0 0 0 0.00% Warehouse 0 0 0 0.00% Commercial 0 0 0 0.00% Warehouse Commercial Residential Residential 0 0 0 0.00% Storage 129 0 129 0.00% Total area 14,520 1,228 13,292 8.46% Petrol Station 1,200 0 1,200 0.00% Storage Other Units 6 0 6 0.00% Internal parking 0 0 0 0.00% External parking 700 0 700 0.00% Total parking 1,906 0 700 0.00%
Income Analysis Contractual Contractual Contractual Potential Market MarketMarket Over-/ Under- Rent Rent Rent Rent Rent Rent Rent Rented Use Category €/m²/month €/month €/year €/year €/m²/month €/month €/year Office 0.00 0 0 0 0.00 0 0 0.0% Retail 9.25 121,813 1,461,754 1,590,605 8.74 125,833 1,510,001 5.8% DIY 0.00 0 0 0 0.00 0 0 0.0% Warehouse 0.00 0 0 0 0.00 0 0 0.0% Commercial 0.00 0 0 0 0.00 0 00.0% Residential 0.00 0 00 0.00 0 0 0.0% Storage 0.00 0 0 0 8.00 1,032 12,384 -100.0% Petrol Station 1.31 1,570 18,840 18,840 1.31 1,570 18,840 0.0% Other Units 624.68 3,748 44,977 44,977 655.09 3,931 47,166 -4.6% Total area 9.56 127,131 1,525,571 1,654,422 9.12 132,366 1,588,391 4.9% Internal parking 0.00 000 0.00 0 0 0.0% External parking 0.00 0 0 0 0.00 0 0 0.0%
Assessment of Kaufland market rent
Space productivity Turnover to rent ratio Explanation
7,000 14.00
13.00 Usual market % - levels 6,500 12.57 12.00 Market rent
6,000 11.00 Contractual Rent
10.00 5,500 Rents % € / m² 9.42 9.00 Contractual 1.7% 5.48 5,000 8.00 Market 2.1% 6.50 7.00 4,500 4% of turnover 12.57 Rent / m² / month 6.286.50 6.00 3% of turnover 9.42 4,000 5.48 5.00 2% of turnover 6.28
3,500 4,015 4.00 Turnover potential 18,397,517 € (net) 3.00 Sales Area ~ 4,582 m² 3,000 2.00 Total Area 4,880 m² in € / m² p.a. 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% based on sales area Turnover-rent-ratio
Self-service department stores usually can afford to pay a rent in the range of 2% to 4% of their net turnover (economically sustainable rent burden) and have a space productivity of about € 4,000 to € 6,000 per m² sales area. The two graphics above indicate, how the contract rent of the main tenant Kaufland as well as the assumed market rental level, can be assessed on the basis of usual market ranges. This analysis is based on the turnover potential figures prepared by Trade Dimension.
D&B Rating of Main Tenant
Main tenant Comment
Tenant name Marktkauf Holding GmbH The main tenant is a corporation belonging ultimately to Edeka Group, which purchased Marktkauf in Rent p.a. € 460,782 2005. Marktkauf operates self-service department stores and used to operate DIY stores until 2007, Share of total income 30% when they sold off about 150 stores to Rewe (toom DIY) and closed the remaining ones. The Edeka WALT 7 years Group is the largest German supermarket corporation, currently holding a market share of 26% in food Payment Index 79 retailing. Capital indicator 5AA According to Dun & Bradstreet (D&B) Rating as of 06.02.2011 Marktkauf Holding GmbH has a low Risk indicator 2 credit risk. The risk of insolvency (D&B Score) within the next 12 months compared with other German Score 77 companies is assessed to be quite low, i.e. 77% of businesses on the German database have the Credit limit € 7,800,000 same or higher risk of failure.
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Assumptions Market Value
Lease Contract Commentary The main tenant, Marktkauf Holding, has a lease expiring in 2019 with the option to prolong its lease by five years two times. The rent is indexed and will be adapted by 60% of the CPI change whenever the change exceeds 10 percent in relation to CPI basis. The tenant does not contribute to costs concerning maintenance work for the roof and structure of the property. Furthermore, the tenant does not pay for management costs. However, the share of ground tax and insurance fees are borne by the tenant. The second largest tenant, Kaufland, has a lease expiring in 2026 with the option to prolong its lease by five years three times. The rent is indexed and will be adapted by 50% of the CPI change whenever the change exceeds 10 percent in relation to CPI basis. Kaufland does not contribute to any costs in association with maintenance costs for roof and the building structure, ground tax, insurance fees, and management costs. The remaining tenants usually do not pay for maintenance costs for roof and building structure and pay a fixed amount each month for management costs (usually around € 100). However, insurance fees and ground tax are paid by these tenants. The rent is mostly indexed with 100% adjustment of the rent whenever the German CPI changes by 10% or more. There have been several changes in the tenancy schedule: AWG has lowered ist rent to € 15,000 /month. The following tenants have prolonged their lease contracts: Metzgerei Kneusel (2016), Dagmar Lucas (2017), Hang Bui (September 2012) and Blochwitz (2013). For some of the tenants, we have not been provided with the lease end as they were still in negotiation. In this case, we have made assumptions. The income of the tenants Reiseland, Frisör Klier, Marktkauf, KSK Aschersleben-Straßfurt and Deichmann have increased due to indexation adjustments. One unit of approx. 54m² was let to the tenant Erdmann / Focke until 2015. General Property Assumptions Discount Rate Comment
Discount rate 7.35% The yields applied reflect the individual location quality (macro- and micro-location) of the properties, building structure, letting situation, covenant strength and the relationship between contractual and Capitalisation rate 7.10% market rent. We derive the discount rate from market transactions. The discount rate reflects the rate of return expected by investors and is determined based on the risk associated with a property. As Capital expenditures* € 0 reinsurance, the initial yield profile is aligned with the market/other transactions. We have taken into account such facts as the remaining lease term with the well-known anchor tenant, the tenant mix the Vacancy costs € 10.00 /m²/p.a. vacancy rate as well as the location within the federal state Saxony-Anhalt. * on the basis of cost estimates provided by RT Facility Management GmbH & Co. KG, dated June 2012
Breakdown of Non-Recoverable Costs
% of Gross Inflation Contract** per year per year (month 1 x 12) Contract Rent Maintenance costs € 5.50 /m² € 79,859 5.23% Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 after 2021 Management costs € 1.58 /m² € 22,884 1.50% Inflation 1.0% 1.5% 1.5% 1.5% 1.4% 1.3% 1.4% 1.4% 1.4% 1.4% 1.6% Ground tax € 0.88 /m² € 12,765 0.84% Insurance costs € 0.26 /m² € 3,762 0.25% Market Rental Growth Other non-recoverable costs € 0.00 /m² € 0 0.00% Total non-recoverable expenses € 8.21 /m² € 119,270 7.82% Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 after 2021 ** JLL analysis Rental Growth 1.0% 1.5% 1.5% 1.5% 1.4% 1.3% 1.4% 1.4% 1.4% 1.4% 1.6%
Market % of Gross Contract per year per year (assuming full occupancy) Market Rent Maintenance costs Maintenance costs € 5.50 /m² € 79,859 5.03% Management costs Management costs € 1.64 /m² € 23,826 1.50% Ground tax € 0.88 /m² € 12,765 0.80% Ground tax € 0.26 /m² € 3,762 0.24% Insurance costs Insurance costs Other non-recoverable costs € 0.00 /m² € 0 0.00% Total non-recoverable expenses € 8.28 /m² € 120,213 7.57% Other non-recoverable costs
Total Non-recoverable Costs
Maintanance Management Ground Insurance Other Non- Vacancy Total % of Total Costs Costs Tax Costsrecoverable Costs Costs per year Gross Revenue Year 1 € 80,253 € 22,870 € 10,838 € 5,239 0 € € 12,342 € 131,542 8.6% Year 2 € 81,257 € 24,919 € 10,974 € 5,305 0 € € 1,262 € 123,717 7.4% Year 3 € 82,476 € 23,985 € 11,138 € 5,384 0 € € 2,629 € 125,612 7.9% Year 4 € 83,713 € 24,896 € 11,305 € 5,465 0 € € 95 € 125,474 7.6% Year 5 € 84,927€ 24,911 € 11,469 € 5,544 0 € € 218 € 127,069 7.7% Year 6 € 86,073 € 25,147 € 11,624 € 5,619 0 € € 255 € 128,718 7.7% Year 7 € 87,235 € 24,997 € 11,781 € 5,695 0 € € 4,440 € 134,148 8.0% Year 8 € 88,456 € 22,962 € 11,946 € 5,775 0 € € 11,788 € 140,927 9.2% Year 9 € 89,695 € 25,088 € 12,113 € 5,855 0 € € 102 € 132,853 7.9% Year 10 € 90,951 € 24,044 € 12,283€ 5,937 0 € € 5,869 € 139,084 8.7% Year 11 € 92,270 € 25,454 € 12,461 € 6,024 0 € € 273 € 136,482 8.0%
Non-Recoverable Costs as a percentage of Total Gross Revenue 10.0% 9.2% 9.0% 8.6% 8.7% 8.0% 7.9% 7.9% 7.7% 8.0% 7.4% 7.6% 7.7%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
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Cash Flow Market Value
Total Non- Net TIs and Present Rental Turnover Rent Gross recoverable Operating Capital Leasing Value @ Revenue Vacancy Abatements Revenue Costs Income Expenditures Commissions Cash Flow 7.35% Year 1 € 1,654,836 -€ 130,200 € 0 € 1,524,636 -€ 131,542 € 1,393,094 € 0 -€ 757 € 1,392,337 € 1,348,043 Year 2 € 1,672,786-€ 11,505 € 0 € 1,661,281 -€ 123,717 € 1,537,564 -€ 37,500 -€ 16,677 € 1,483,387 € 1,336,449 Year 3 € 1,651,333 -€ 52,346 € 0 € 1,598,987-€ 125,612 € 1,473,375 -€ 24,067 -€ 13,258 € 1,436,050 € 1,206,548 Year 4 € 1,664,450 -€ 4,687€ 0 € 1,659,763 -€ 125,474 € 1,534,289 -€ 1,415 -€ 1,761 € 1,531,113 € 1,198,152 Year 5 € 1,677,975 -€ 17,213 € 0 € 1,660,762 -€ 127,069 € 1,533,693 -€ 3,274 -€ 6,466 € 1,523,953 € 1,110,866 Year 6 € 1,686,010 -€ 9,517 € 0 € 1,676,493 -€ 128,718 € 1,547,775 -€ 3,827 -€ 3,576 € 1,540,372 € 1,046,085 Year 7 € 1,714,265 -€ 47,801 € 0€ 1,666,464 -€ 134,148 € 1,532,316 -€ 33,590 -€ 9,317 € 1,489,409 € 941,627 Year 8 € 1,657,439 -€ 126,646 € 0 € 1,530,793 -€ 140,927 € 1,389,866 -€ 80,742 -€ 35,074 € 1,274,050 € 748,790 Year 9 € 1,677,538 -€ 5,033 € 0 € 1,672,505 -€ 132,853 € 1,539,652 -€ 13,900 -€ 7,492 € 1,518,260 € 833,146 Year 10 € 1,688,091 -€ 85,184 € 0 € 1,602,907 -€ 139,084 € 1,463,823 -€ 3,555 -€ 6,942 € 1,453,326 € 744,116 Year 11 € 1,707,194 -€ 10,237 € 0 € 1,696,957 -€ 136,482€ 1,560,475 -€ 25,012 -€ 14,492 € 22,072,963 € 10,860,258 Total Cashflow (incl. Terminal Value @ 7.10 %) € 21,374,080 Gross Value of Surplus Land € 0 Gross Capital Value incl. Surplus Land € 21,374,080 Total Gross Revenue versus Net Operating Income
€ 1800000.0 8.0%
7.2% 7.2% 7.2% 7.2% 7.2% 7.2% 6.5% 6.9% 6.8% € 1600000.0 7.0% 6.5%
€ 1400000.0 6.0%
€ 1200000.0 5.0%
€ 1000000.0 4.0%
Rental income € 800000.0 Running yield 3.0% € 600000.0
2.0% € 400000.0
€ 200000.0 1.0%
€.0 0.0% Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Valuation Results Market Value
Rent Overview Gross Capital Value (rounded) Contractual gross rental income (month 1 x 12) total p.a. € 1,525,571 per m²/month € 8.76 Total € 21,400,000
Market rental value total p.a. € 1,588,391 per m² € 1,474 per m²/month € 9.12 Over-/Underrent 4.33% Purchaser's costs 6.50% Yield Overview
Net Initial Yield 6.57% Market Value (rounded) Net Reversionary Yield 6.86% Total € 20,100,000 Gross Initial Yield 7.59% Gross Reversionary Yield 7.90% per m² € 1,384
Valuation Comment
For our risk evaluation, we primarily considered the covenant strength as well as the lease duration of the existing contracts. The main tenant, Marktkauf Holding GmbH, has good covenant strength and is a subsidiary of Edeka Group. However, the premises are occupied by a subsidiary of REWE (B1). It could not be clearified whether the premises are sublet with consent of the landlord or were taken over by REWE. For the purpose of this valuation, we assumed that the lease with Marktkauf is still in place and was sublet to REWE with consent of the landlord. We consider the covenant strength all in all to be adequate to ensure the income stream at least until the lease expiry in 2019. The same applies for the tenant Kaufland, which has very good covenant strength; thus, we consider the cash flow until lease expiry in 2026 to be secured. In terms of a resale, we took into account such facts as visibility, demographic factors, appearance, condition and building age, third-party usability, competition situation and location. For the purpose of the valuation on 30.06.2012, we have been provided with updated insurance costs as well as updated ground tax and have applied them in our valuation. Other costs have remained unchanged and have been applied according to information received during the previous valuation cycle. For management costs, we have applied 1.5% of the effective gross rent. We have been provided with updated information regarding necessary capital expenditures. All Capital expenditures for repairs in the first year as well as in the periods of year 2 to 5 and year 6 to 10 are considered to be covered by the maintenance costs of € 5.50/m² per annum. Regarding comparable rents we have had recourse to evidence of similar areas situated in the comparable regions and locations. Furthermore, we have analysed comparable transactions. Please refer to the section "Investment Comparables". 0
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Photos
Sales area of Kaufland View of the mall area
Indoor view of the main entrance and butcher and bakery shops View of the delivery zone
View of the petrol station on site View of discount furniture store next to the subject property
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Leasing and Investment Market
Leasing Market Investment Market
There is no homogeneous rental level for retail space in retail warehouses or retail parks throughout Stable economic growth has brought Germany in the focus of real estate investors throughout Europe. Germany. However, the spread between the average and the absolute prime rent is not as big as in At the end of 2011 the total amount of retail investments amounted to approximately € 10.6 billion, high street locations. The overall potential for rental growth in retail parks in Germany is best whereas the figure stood at € 1.4 billion at the end of Q1 2012. Hence, it accounted for 45%, and 27% summed up as mediocre. Depending on the tenant branch, rental rates for discounters, department respectively, of the total investments in commercial properties in Germany. This represents the reverse stores and DIY stores remain stable due to the high competition on the market, but the rents for figures of office investments (30% in 2011 and 45% in Q1 2012). Whereas the 2011 total investment in fashion stores have uplift potential simply due to the fact that these stores are increasing their retail properties clearly exceeded the figure of 2010 presence in retail parks and are prepared to pay high rents. and was close to the 2007 level, Q1 2012 marks the first drop within three years of consecutive growth. The rental level of retail warehouses and retail parks is the result of their location in urban centres or Within the retail investment market, the shares of the major asset classes shifted slightly between 2011 rural areas, and the resulting quality of the location in terms of catchment area, competition, and Q1 2012. High street properties/department stores and shopping centres remained the largest accessibility and visibility. While rental levels in Bavaria generally lie slightly above the average asset classes with a share of 37% and 35% respectively (compared to 32% and 45% respectively in western German rent levels due to the state’s strong economy, rental levels in eastern German 2011). This equals an investment volume of € 518 million and € 490 million. towns are generally slightly lower than their western counterparts, as these areas have a lower purchasing power and generate on average lower revenues. In the retail warehouse and retail park However, retail parks accounted for 15% (8% in 2011), whereas retail warehouses accounted for 5% segment, the maximum rents are determined by a percentage of the turnover expectancy. (8% in 2011). Investments in supermarkets/discounters represented 3% in 2011 but went down to less The rents within the different branches vary. This is due to the diverging location assessment and than 1% in the Q1 2012. Transactions involving other retail properties and a portfolio of kiosks took up turnover expectancy of the different tenants. If in the case of a retail park the management succeeds an 8% share. In 2011some large transactions drove up the amount of investments in shopping centre in establishing good anchor tenants, which guarantee a high visitor frequency, then the turnover high street properties and department stores. In Q1 2012, however, large transactions were virtually expectancy of secondary tenants tends to be higher. Therefore, some anchor tenants are able to absent. negotiate lower rents because their existence in a property increases the rental level of the others. The yield compression, which could be observed since 2009 and throughout 2011, came to a halt in Q1 Depending on the size of the retail unit and the branch of the tenants, rents in retail parks in western 2012 with respect to retail parks, shopping centres and retail high street unit shops/department stores. German locations generally range between € 5.00 and € 13.00 /m²/month. Prime yields for shopping centres are now close to 5% and, consequently, are very close to those of Depending on the size of the retail unit and the retail format of the store, rents for supermarkets are prime offices – an occurrence which has not taken place since a brief period in 2007. Net initial yields generally slightly higher than the rents for discounters. Rents for supermarkets in western German for prime retail parks went down to approximately 6% at the end of 2011 and have remained stable locations generally range between € 7.00 and € 13.00 /m²/month. Rents for discounters in western ever since. Germany generally range between € 6.00 and € 12.00 /m²/month, while discounters located in With respect to retail properties, we expect a progressively stable trend with the highest investment eastern Germany generally achieve slightly lower rental rates ranging between € 5.00 and € 11.00 share anticipated for shopping centres and high street properties. Furthermore, we predict that the /m²/month. Drugstores, textile, shoe and electronics branches generally achieve rental rates ranging German real estate market will remain the focus of foreign investors. In the Q1 2012 the buy side was from € 7.50 to € 12.00 /m²/month for rental areas with a size between 500 and 750 m². DIY stores dominated by insurance companies, open funds and private investors. We expect this to continue and need extensive space due to their broad product range with rental prices ranging between € 6.00 for foreign investors along with asset managers, developers and banks to become more active in the and € 10.00 /m²/month. course of 2012. Leasing Comparables
Tenant City Property Type Area Total Rent p.m. Rent p. sqm Comment Kaufland Crimmitschau Self-Service Department Store 4,661 m² € 21,441 € 4.60 /m² Worse purchasing power Kaufland Staßfurt Self-Service Department Store 5,430 m² € 32,526 € 5.99 /m² Same federal state; similar purchasing power Kaufland Maulburg Self-Service Department Store 4,435 m² € 27,408 € 6.18 /m² Significantly better purchasing power real Nordhorn Self-Service Department Store 3,141 m² € 20,888 € 6.65 /m² Slightly better purchasing power OBI AG Rödermark DIY 11,566 m² € 64,654 € 5.59 /m² Other federal state ,better purchasing power Praktiker Magdeburg DIY 9,441 m² € 61,367 € 6.50 /m² Slightly better purchasing power Hellweg Halberstadt DIY 5,434 m² € 36,408 € 6.70 /m² Slightly better purchasing power toom Staßfurt DIY 5,430 m² € 32,526 € 5.99 /m² Slightly worse purchasing power
Investment Comparables
Year of Gross Date of Property Type Area Comment Construction Multiplier Transaction Retail Park 2009/2010 8,500 m²13.8-fold Q1 2011 tegut; Deichmann, Takko; WALT 12.5 yrs; good location, no competition Retail Park 1996 25,000 m² 13.7-fold Q1 2011 Anchor tenant: large-scale hypermarket; high level of competition; WALT: 6yrs Retail Park 2008 6,000 m² 14.6-fold Q1 2011 Anchor tenant: electronics store; office; WALT: 7.5 yrs Self-service department store 2006 13,000 m² 13.8-fold Q2 2012 Famila; WALT approx. 9.26 yrs Self-service department store 1982/1995 12,000 m² 12.5-fold Q2 2010 Real; WALT approx. 12 yrs Retail Park n.a. 27,955 m² n.a. 2012 property in Baden-Wuerttemberg, purchase price approx. € 49.00m Standalone n.a. 10,100 m² n.a. 2011 property in Lower Saxony, purchase price approx. € 17.61m Retail Park n.a. 20,000 m² 11.2-fold Q3 2011 Saxony, WALT > 10 years, purchase price approx. € 29.6m, Kaufland, Esprit
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Gögginger Straße 119 Valuation date: 30.06.2012
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Property Summary
Key Figures
Property type Retail Park Main tenant Kaufland Vertrieb GAMMA GmbH & Co. KG
Total lettable area 13,840 m² Total parking units 550 units
Current vacancy rate 0.0% Weighted average lease term 7.4 years
Year of construction 1969 Year of refurbishment 1995
Contractual gross rental income (month 1 x 12) total p.a. € 1,308,379 per m² / month € 7.88
Total non-recoverable expenses (month 1 x 12) total p.a. € 154,523 per m² / month € 0.93
Net operating income (month 1 x 12) total p.a. € 1,153,856 per m² / month € 6.95
Market rental valuetotal p.a. € 1,483,517 Over-/Underrent based on occupied areas -11.8%
SWOT Analysis
Strengths Weaknesses Sufficient parking spaces The retail unit let to Kaufland is strongly underrented Good accessibility by car & public transport Medium to high level of competition Good tenant mix Limited third party use of space let to Kaufland Good location within the city district 0 0 0
Opportunities Threats Synergies from other wholesalers in the vicinity Re-letting or negotiations concerning the prolongation of existing contracts may result Prolognation of the lease contracts after expiry Difficult relettability of the fitness studio on 2nd floor 0 0 0 0 0 0
Property Rating (1 = very negative, 5 = very positive)
Building Location
Building age 2 16 to 25 years Macrolocation 4 Good location and catchment area Lettable Area 4 Between 12,500 and 15,000 m² Microlocation 4 Good micro location Property condition 3 Average building condition Commercial activity 4 Average commercial activity nearby General impression 3 Average general impression Competition 3 Average competition level
Liquidity Investment Quality
WALT 4 WALT seven to ten years Investment market 4 Well developed property market Over- / underrent 4 Slightly underrented (-5% to -15%) Investment volume 4 Good lot size Quality of tenants 4 Tenants with very good credit rating Saleability 4 Good saleability within 6 months
Property Description
The site is L-shaped and comprises a three-storey split levelled main building (in addition to a lettable basement level), an adjacent three-storey car park, offering approx. 550 parking spaces, as well as a petrol station and a car wash. The construction of the main building started in 1969 along with the petrol station and the car park. A major modification took place in 1995 and the building in its existing form was finally completed in 1997. The building structure is made of concrete columns, pre-cast concrete beams and concrete slab ceilings. It has a flat roof. There are two main entrances; one from Gögginger Straße and one from Peter-Dörfler-Straße with access from the parking lot. The fitness centre has an additional separate entrance used after 8 p.m from Peter- Dörfler-Straße. Kaufland comprises the basement and the ground floor. Other smaller retailers, such as a bakery, pharmacy, hairdresser, and discount clothier, occupy the remaining area along the mall on the ground floor. Two escalators provide access to the basement, where produce can be found. This area could be divided into three parts with separate entrances. A fitness centre occupies the second floor. The third floor is a mezzanine floor with plant rooms. The upper floors can be reached via escalators and lifts. The petrol station is located on Peter-Dörfler-Straße with two levels of parking overhead. Next to the petrol station is a waiting zone for trucks.
Valuation Results
Market Value Market Rental Value
€ 15,500,000 equals to € 1,120 per m² € 1,483,517 p.a. equals to € 8.93 / m² / p.m.
Discount Rate 7.10% Net Initial Yield 7.12% excluding 6.61% Multiplier (initial) 11.85 capital Capitalisation Rate6.75% Net Reversionary Yield 8.19% expenditures 7.60% Multiplier (based on MRV) 10.45
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Gögginger Straße 119 Valuation date: 30.06.2012
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Location
Germany Macroeconomic Indicators (Source: GfK, BBE, BBSR/Inkar 2012)
Federal State Bavaria District Augsburg (Urban District) City Augsburg Postcode 86199
Population Federal State absolute 12,510,331 Population District absolute 263,646 Population City absolute 263,646 Number of Households City absolute 139,228 Population Density District per km² 1,795 Population Density City per km² 1,795 Population Forecast (2007 - 2025) District in % 4.4% Population Growth (2002 - 2007) Federal State in % 1.1% Population Growth (2002 - 2007) District in % 1.5% Unemployment Rate (6/2012) Federal State in % 3.4% Unemployment Rate (6/2012) District in % 2.5%
Structual Data (Source: GfK and BBE 2012)
Purchasing Power District in m € 5,148 Purchasing Power City in m € 5,148 Purchasing Power Index Federal State index 108.34 Retail Purchasing Power Index District index 99.20 Retail Centrality Index District index 133.69
Augsburg Macro Location
Augsburg is one of the oldest German cities, along with Trier and Kempten. Today it is the third largest city in the federal state of Bavaria, following Munich and Nuremberg. It lies in the south west part of Bavaria within the metropolitan area of Munich and is home to approx. 265,000 inhabitants. Due to its affordability, Augsburg has become a sought-after residence for commuters working in Munich, which is a little more than an hour away by car. The number of commuters and housing rent have been increasing.
Augsburg lies on the Lech and Wertach rivers and is situated near the motorway A8, connecting Munich and Stuttgart. The federal roads through Augsburg are the B2, B10, B17 and B300. The main train station offers regional connections as well as Intercity Express (ICE) connections to cities such as von Munich, Berlin, Dortmund, Frankfurt am Main, Hamburg und Stuttgart. Direct express trains (EC) are also offered to Vienna, Amsterdam, and Paris. Augsburg is a university town, as well as one of the most significant industrial locations in southern Germany. It is home to the University of Augsburg and two “Hochschulen”, as well as major research institutes. The service sector has been growing in the past years and accounts for approx. 20% of employment. Many well-known companies are located in the city, e.g. MAN Diesel, Walter Bau, Osram, Fujitsu Siemens Computers, EADS and MT Aerospace.
Micro Location Micro Location
The property is located within the city district of Augsburg on the corner of Gögginger Straße, a major arterial road, and Peter-Dörfler-Straße, approx. 4 km south of the city centre. Major roadways B17 and B300 intersect with Gögginger Straße, just south of the property. The retail building is easily accessible from city by car in approx. 15 minutes. Sufficient parking at the property is provided by a multi-storey car park. The retail park is also easily accessible via public transport, as bus and tram stops are located directly in front of the building. The surrounding area is mostly residential and commercial area. Other large retail warehouses are located in close vicinity, such as Promarkt (electronics), Media Markt (electronics), Lidl and Aldi (discount supermarkets), and a Netto Marken Discount (discount store). A hagebaumarkt (DIY store) can be found just 5 minutes in the direction of the city centre.
A high school is also located at just a 5 minutes walk to the south on Gögginger Straße.
Local Tax Information
Real Estate Tax Rate (Typ B) City in % 485 Land Transfer Tax City in % 3.5
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Site Plan
Source: Cadastral plan dated 30.06.2008 Site Information
Site area 20,862 m² Ground lease No thereof surplus land 0 m² Ground lease expiry n.a. Surplus land value (net) n.a. € 0 Comment Site servicing Fully serviced The site consists of six plots: 421/10, 415/28, 415/29, 415/30, 415/31, 421. The site has an even topography and an irregular shape. It is surrounded by a road to the west and to the north and a small Site layout Irregular paved road to the east. According to the environmental due diligence dated July 2007, the site is not registered in the “Altlastenkataster” (contaminated land cadastre). The general risk of subsoil Soil contamination No Suspicion contamination at the Kaufland site without petrol station and car wash is considered to be low to moderate. This risk is moderate to high for the site with the petrol station and car wash. For the Building encumbrances Yes purposes of this valuation, we have assumed that the subject property is free of any soil or building contamination.
Town Planning
Use class SO (special zone) Comment According to information from the local planning authority, no legally binding development plan exists. Site coverage ratio (GRZ) n.a. Town planning issues are governed by § 34 of the German Federal Building Code. This paragraph stipulates that new developments and their designated uses are required to blend in with their Plot ratio (GFZ) n.a. immediate surroundings, so as to show consideration of nearby types of uses. According to the local planning authority, the site could be characterized as (SO) special zone with mixed-use including Cubic index (BMZ) n.a. commercial.
Tenure
Land Register Owner Sheet Plot Parcel Section 2 (Restrictions) Section 3 (Loans) Local Court of TPL Biberach S.á.r.l., 10640 0 421/10 There are several limited personal easement: Land charges in the total amount of € 13,143,373 in Augsburg, land register Luxembourg 415/28 Right of fuel service station in favour of CONOCO favour of Bank of Scotland (Frankfurt branch), of Göggingen 415/29 Mineraloel GmbH, plot 421; Right of transformer Frankfurt am Main; entered on 09.10.2007. 415/30 station and pipeline in favour of Lech 415/31 Elektrizitätwerke, plot 421; Right of way on 421 sidewalk in favour of the municipality of Augsburg, plots 415/28, 415/29, 415/31; Right of noise barrier in favour of the municipality of Augsburg, plots 415/29, 415/31; Right of gas & water pipeline in favour of the municipality of Augsburg; plots 415/28, 415/29, 415/30, 415/31; Right to hold and operate a self-service department store in favour of Kaufland Dienstleistung GmbH & Co. KG, plots 421/10, 415/28, 415/29, 415/30, 415/31, 421. Easement (right of access) in favour of the owner of plot 421/24. Source: Extract from the land register dated 08.01.2008
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Competitor Map
Source: Jones Lang LaSalle Research
Competitor Overview
Name Address Type Sales area Distance Potential Marktkauf 86199 Augsburg, Bergiusstr. 1 Self-service dep. store 5,494 m² 0.90 km High Rewe 86150 Augsburg, Viktoriastr. 2 Hypermarket 2,807 m² 2.20 km Low E-center 86153 Augsburg, Willy-Brandt-Platz 1 Hypermarket 3,498 m² 2.90 km Low Rewe Gesell 86153 Augsburg, Jakoberwallstr. 9 Hypermarket 2,300 m² 3.40 km Low Marktkauf 86391 Stadtbergen, Hagenmähderstr. 47 Hypermarket 3,475 m² 3.60 km Low E-center 86161 Augsburg, Wilhelm-Hauff-Str. 34 Hypermarket 2,200 m² 3.70 km Low Hüdaverdi Süpermarket 86153 Augsburg, Böheimstr. 6A Hypermarket 2,000 m² 3.80 km Low Rewe 86179 Augsburg, Haunstetter Str. 239-241 Hypermarket 1,600 m² 3.90 km Low E-center 86156 Augsburg, Kriegshaberstr. 4 Hypermarket 3,200 m² 4.00 km Low Rewe 86391 Stadtbergen, Benzstr. 7 Hypermarket 1,650 m² 4.00 km Low Real 86161 Augsburg, Reichenberger Str. 59 Self-service dep. store 6,900 m² 4.30 km Medium Edeka 86154 Augsburg, Donauwörther Str. 110 Hypermarket 1,600 m² 4.70 km Low Rewe 86169 Augsburg, Schillstr. 111 Hypermarket 1,600 m² 5.10 km Low Kaufland 86165 Augsburg, Meraner Str. 6 Self-service dep. store 10,000 m² 5.40 km Medium Rewe Seidler 86167 Augsburg, Neuburger Str. 174-184 Hypermarket 1,800 m² 5.50 km Low
Competiton Indicators
Inhabitants in primary catchment area 51,903 Inhabitants per hypermarket in primary catchment area 17,301
Inhabitants in secondary catchment area 176,688 Inhabitants per hypermarket in secondary catchment area 13,591
Inhabitants in tertiary catchment area 334,866 Inhabitants per hypermarket in tertiary catchment area 20,929
Number of households in the district 139,228 Population forecast for the district (2007 - 2025) 4.4%
Retail Purchasing Power Index (District) 99.20 Retail Centrality Index (District) 133.69
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Gögginger Straße 119 Valuation date: 30.06.2012
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Germany Prepared for: Brack Capital Properties N.V.
Main competitors
This competitor is a Marktkauf (self-service department store), located less than 1km from the This competitor is a real,- (self-service department store). It is located approx. 4km from the subject off subject property. It is similar in size and condition and offers a similar product assortment. It is laid of the main road B2 in a commercial area east of the city centre. It is somewhat larger in size and out in a retail park with a shared open parking lot. There is also a petrol station on the site. This is a comprised of only one floor with high ceilings. A bakery, flower shop, delicatessen and beverage store direct competitor. are on the site, as well as an open parking lot and a parking garage. This competitor poses a medium level of competition.
Competition Comment
Catchment area is divided into 3 categories: primary (0-5 min drive time); secondary (5-10 min) and tertiary (10-15 min). Approximately 52,000 inhabitants live in the primary catchment area and three self-service department stores are present. This correlates to approx. 17,000 inhabitants, i.e. potential customers, per store. Within the broader secondary catchment area there are 175,000 inhabitants and a total of thirteen self-service department stores, equalling about 13,500 potential customers per store. We consider there to be 3 main competitors for the subject property: a Marktkauf, a real,- and another Kaufland.
The most direct competitor is a Marktkauf, located less than 1km away. Situated directly off the main arterial roads B17 and B300, it has very good accessibility and visibility. It is laid out in a retail park with a shared open parking lot, different to that of Kaufland. The neighbouring stores, as well as a petrol station and car wash, offer a wide variety of options to the consumer and are mostly well-known retailers. This is a strong competitor due to its close proximity and the similar tenant mix. A real,- is located about 4km from the subject off of the federal road B2 in a commercial area east of the city centre. There is an OBI (DIY store) and a Norma (discount supermarket) nearby. It is laid out over only floor, which is preferable, and the building itself is newer, but since it will draw mainly residents from the eastern part of Augsburg, we believe it poses only a medium-level of competition.
Another Kaufland can be found north-east of the city centre in the district of Lechhausen. It is somewhat larger with retail spread out over two floors (ground floor and 1st floor).This Kaufland offers a similar shopping experience to the consumer, yet based on the distance from the subject property, we consider it to pose only a medium-level of competition, as it mostly draws customers living north-east of the city centre. There are a substantial number of competitors within the primary and secondary catchment areas; however, when considering the number of potential consumers, the market cannot be described as oversaturated. Furthermore, the population growth for the county (“Landkreis”) is forecasted to grow by 4.4% between years 2007 and 2025; and according to the “Wirtschaftsförderung” of Augsburg, there are currently no self-service department stores in planning. Accordingly, the overall competitive environment can be described as medium to high.
Turnover analysis
For the purpose of this valuation, we have used the average turnover rents for the years 2008 and 2009 until the end of the respective lease agreement. The rents in functional retail agglomerations are linked to turnover. The percentage that a retail tenant can use for rental payments depends on the margins achievable in the various market sectors. This rate normally ranges between 2% and 15% depending on the respective branch. Kaufland is a strong anchor, we believe that there will continue to be demand for such ancillary tenants. For Kaufland, we have also been provided with turnover figures. We have analysed the figures and have found the area productivity of Kaufland to be in a healthy range. With a turnover-to-rent ratio of less than 2% it lies below the range of 2% to 4%, which is acceptable for a self-service department store. Hence, we believe that a higher market rent is achievable after the end of the lease contract. Please also refer to the rent/turnover analysis on page 8.
0
Conclusion
The property is currently used as a self-service department store (Kaufland), making up 67% of lettable area, a fitness centre (McFit) also takes up close to 20% of the total lettable area, and the rest is divided between smaller retailers with the indoor mall area. A car park offers plentiful parking, and a petrol station and car wash are also located on the property. The micro-location is good for it is easily accessible by car and public transport. Despite a high level of competition, the property should compete strongly due its good location and the synergies effects created through other large retailers (Media Markt and Hagebau) in the immediate area. The catchment area should suffice, despite the significant number of competitors. Furthermore, the population growth for the district (“Landkreis”) is forecasted to grow by 4.4% between years 2007 and 2025 and there is no evidence of self-service department stores in planning according to the “Wirtschaftsförderung” of the city of Augsburg.
Kaufland splits its retail area between the ground floor and the basement, which is less preferable to a one-floor building, making it difficult to let if Kaufland were to leave. It would be difficult to envision another use; the best use would remain to be a self-service department store. Therefore, if Kaufland were to leave, a major competitor, such as real,- Marktkauf or Edeka would be a likely replacement. The fitness centre on the 2nd floor may be difficult to re-let in the future if McFit were to leave. Foreseeable future use of the upper floors could be a furniture store or electronics store. It is highly probable that the fitness centre will continue to let the space on the 2nd floor, due to the good micro-location close to a large residential area. Kaufland’s lease does not expire until 2022 and it has options to extend until 2037. On the basis of our projection of likely productivity per m² and turnover, we have calculated the market rent at € 7.60 /m²/month. The tenant currently pays a contractual rent of € 5.50/m²/month. Hence, we expect Kaufland to stay until 2037 (based on its below-market rental level), as long as it continues to generate adequate turnover.
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Rent Roll
Tenant Name Area Category Letting Area Rent Rent / m² Tenant Lease Lease Renewal Tenant Status m² / unit / month / month pays VAT Start End Probability pays * 1 Kaufland Vertrieb GAMMA GmbH & Co. KG Retail Let 7,775 € 42,763 5.50 Yes 01.10.2007 30.09.2022 75% 2 Frisör Thonet GmbH Retail Let 72 € 1,677 23.43 Yes 25.10.2005 24.10.2020 75% GT I PM 3 Solak RetailLet 18 € 702 38.15 Yes 01.04.2011 31.03.2016 75% GT I PM 4 KiK Textilien und Non-Food GmbH RetailLet 461 € 4,075 8.84 Yes 01.04.2003 31.03.2013 75% GT I PM 5 Friedberger Landbrot Brez´n Baur GmbH Retail Let9 € 707 78.56 Yes 01.06.2010 31.05.2015 75% GT I PM 6 BRL Center GmbH Retail Let 144 € 4,057 28.27 Yes 01.08.2008 31.07.2028 75% GT I PM 7 Bucan Retail Let 41 € 1,394 33.99 Yes 01.08.2010 30.06.2015 75% GT I PM 8 Vincent Murr Vertriebs GmbH Retail Let 80 € 3,372 42.15 Yes 31.03.2006 30.03.2016 75% GT I PM 9 McFit GmbH Retail Let 2,220 € 11,105 5.00 Yes 17.10.2002 16.10.2014 75% GT I PM 10 Landbäckerei Ihle GmbH Retail Let 107 € 4,850 45.33 Yes 01.11.2006 30.04.2016 75% GT I PM 11 Neckermann Urlaubswelten GmbH & Co. KG Retail Let 55 € 1,32724.13 Yes 01.10.2010 12.05.2016 75% GT I PM 12 Altin RetailLet 34 € 92727.43 Yes 07.10.2010 30.09.2012 75% GT I PM 13 Glanzer Retail Let 26 € 948 36.33Yes 02.01.2004 24.10.2015 75% GT I PM 14 Askarzada Retail Let 127 € 9057.15 Yes 01.12.2010 30.11.2013 75% GT I PM 15 Thi Dung RetailLet 39 € 964 24.45 Yes 17.05.2006 30.11.2016 75% GT I PM 16 Thi Dung StorageLet 28 € 108 3.85 Yes 01.10.2006 15.05.2016 75% GT I PM 17 FOTOFIX Schnellphotoautomaten GmbH Other UnitsLet 1 € 44 43.90 Yes 01.06.2007 30.11.2012 75% 18 Deutsche Plakat-Werbung GmbH & Co. KG Other UnitsLet 11 € 486 44.17 Yes 03.08.2009 02.08.2014 75% 19 ConocoPhillips Germany GmbH Petrol StationLet 200 € 3,593 17.96 Yes 01.03.1978 31.12.2015 75% 20 ConocoPhillips Germany GmbH Petrol StationLet 200 € 6,739 33.70 Yes 01.03.1978 31.12.2015 75% 21 Kurzzeitmieter Other Units Let 0 € 1360.00 Yes 16.01.2012 30.06.2013 75% 22 AB Möbel und Immobilien GmbH RetailLet 2,604 € 9,270 3.56 n.a. 01.01.2012 31.12.2021 75% M GT I PM 23 VACANT Internal parkingVacant 1 € 0 0.00 24 Hosokawa Alpnie Aktiengesellschaft Other UnitsLet 1 € 1,750 1750.00 n.a. 16.01.2012 30.06.2013 75% M GT I PM 25 transact Elektronische Zahlungssysteme GmbH Other UnitsLet 1 € 51 51.13 n.a. 01.01.2007 31.12.2013 75% M GT I PM 26 Internal Parking Internal parkingLet 549 € 7,083 12.90 No 01.10.2007 30.09.2022 100% 0%
Total 14,240 m² € 109,032 * M = Maintenance, GT = Ground Tax, I = Insurance Costs, PM = Property Management
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Valuation Assumptions
Tenant Name Area Category Area Market Market Re-letting Initial Re-letting Rent Agency Lease Renewal sqm/unit Rent Rent /month Tis Void VPV*Void* Abatem.* Fees* Term** Probability 1 Kaufland Vertrieb GAMMA GmbH & Co. KG Retail 7,775 € 7.60 € 59,091 € 50 0 12 0 3 10 75% 2 Frisör Thonet GmbH Retail 72 € 15.00 € 1,074 € 100 0 12 0 3 5 75% 3 Solak Retail 18 € 25.00 € 460 € 100 0 12 0 3 5 75% 4 KiK Textilien und Non-Food GmbH Retail 461 € 7.00 € 3,227 € 100 0 12 0 3 5 75% 5 Friedberger Landbrot Brez´n Baur GmbHRetail 9 € 60.00 € 540 € 100 0 12 0 3 5 75% 6 BRL Center GmbH Retail 144 € 25.00 € 3,588 € 100 0 12 0 3 5 75% 7 Bucan Retail 41 € 25.00 € 1,025 € 100 0 12 0 3 5 75% 8 Vincent Murr Vertriebs GmbH Retail 80 € 22.00 € 1,760 € 100 0 12 0 3 5 75% 9 McFit GmbH Retail 2,220 € 4.50 € 9,990 € 100 0 12 0 3 5 75% 10 Landbäckerei Ihle GmbH Retail 107 € 40.00 € 4,280 € 100 0 12 0 3 5 75% 11 Neckermann Urlaubswelten GmbH & Co. KG Retail 55 € 22.00 € 1,210 € 100 0 12 0 3 5 75% 12 Altin Retail 34 € 25.00 € 845 € 100 0 12 0 3 5 75% 13 Glanzer Retail 26 € 25.00 € 653 € 100 0 12 0 3 5 75% 14 Askarzada Retail 127 € 22.00 € 2,783 € 100 0 12 0 3 5 75% 15 Thi Dung Retail 39 € 25.00 € 985 € 100 0 12 0 3 5 75% 16 Thi Dung Storage 28 € 0.00 € 0 € 100 0 12 0 3 5 75% 17 FOTOFIX Schnellphotoautomaten GmbH Other Units 1 € 43.90 € 44 € 100 0 6 0 3 5 75% 18 Deutsche Plakat-Werbung GmbH & Co. KG Other Units 11 € 485.83 € 5,344 € 100 0 6 0 3 5 75% 19 ConocoPhillips Germany GmbH Petrol Station 200 € 17.96 € 3,593 € 100 0 12 0 3 5 75% 20 ConocoPhillips Germany GmbH Petrol Station 200 € 33.70 € 6,739 € 100 0 12 0 3 5 75% 21 Kurzzeitmieter Other Units € 0.00 € 0 € 100 0 6 0 3 5 75% 22 AB Möbel und Immobilien GmbH Retail 2,604 € 4.75 € 12,370 € 100 12 12 0 3 5 75% 23 VACANT Internal parking 1 € 0.00 € 0 € 0 12 12 0 3 5 75% 24 Hosokawa Alpnie Aktiengesellschaft Other Units 1 € 1750.00 € 1,750 € 100 0 6 0 3 5 75% 25 transact Elektronische Zahlungssysteme GmbH Other Units 1 € 51.13 € 51 € 100 0 6 0 3 5 75% 26 Internal Parking Internal parking 549 € 12.90 € 7,083 € 0 00 0 0 0 100%
Total 14,240 sqm € 128,485 * months ** years ***structural vacancy
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Gögginger Straße 119 Valuation date: 30.06.2012
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Property Analysis
Area Analysis Lettable AreaArea Vacant Area Let Vacancy Rate Use Category m² m² m² % Office 0 0 0 0.00% Office Retail DIY Retail 13,812 0 13,812 0.00% DIY 0 0 0 0.00% Warehouse 0 0 0 0.00% Commercial 0 0 0 0.00% Warehouse Commercial Residential Residential 0 0 0 0.00% Storage 28 0 28 0.00% Total area 13,840 0 13,840 0.00% Petrol Station 400 0 400 0.00% Storage Other Units 14 0 14 0.00% Internal parking 550 1 549 0.18% External parking 0 0 0 0.00% Total parking 964 1 549 0.10%
Income Analysis Contractual Contractual Contractual Potential Market MarketMarket Over-/ Under- Rent Rent Rent Rent Rent Rent Rent Rented Use Category €/m²/month €/month €/year €/year €/m²/month €/month €/year Office 0.00 0 0 0 0.00 0 0 0.0% Retail 6.45 89,042 1,068,503 1,068,503 7.52 103,880 1,246,564 -14.3% DIY 0.00 0 0 0 0.00 0 0 0.0% Warehouse 0.00 0 0 0 0.00 0 0 0.0% Commercial 0.00 0 0 0 0.00 0 00.0% Residential 0.00 0 00 0.00 0 0 0.0% Storage 3.85 108 1,294 1,294 0.00 0 0 0.0% Petrol Station 25.83 10,332 123,983 123,983 25.83 10,332 123,983 0.0% Other Units 176.19 2,467 29,599 29,599 166.49 2,331 27,970 5.8% Total area 7.37 101,948 1,223,379 1,223,379 8.42 116,543 1,398,517 -12.5% Internal parking 12.90 7,08385,000 85,155 12.88 7,083 85,000 0.2% External parking 0.00 0 0 0 0.00 0 0 0.0%
Assessment of Kaufland market rent
Space productivity Turnover to rent ratio Explanation
7,000 10.00
9.38 Usual market % - levels 6,500 9.00 Market rent
6,000 8.00 Contractual Rent 7.60 5,500 7.00 7.04 Rents % € / m² Contractual 2.3% 5.50 5,000 6.00 Market 3.2% 7.60 5.50 4,500 4% of turnover 9.38 Rent / m² / month 5.00 4.69 3% of turnover 7.04 4,000 4,394 4.00 2% of turnover 4.69
3,500 Turnover potential 21,884,417 € 3.00 (net) Sales Area ~ 4,980 m² 3,000 2.00 Total Area 7,775 m² in € / m² p.a. 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% based on sales area Turnover-rent-ratio
Self-service department stores usually can afford to pay a rent in the range of 2% to 4% of their net turnover (economically sustainable rent burden) and have a space productivity of about € 4,000 to € 6,000 per m² sales area. The two graphics above indicate, how the contract rent of the main tenant Kaufland as well as the assumed market rental level, can be assessed on the basis of usual market ranges. This analysis is based on the turnover potential figures prepared by Trade Dimension.
D&B Rating of Main Tenant
Main tenant Comment
Tenant name Kaufland Vertrieb GAMMA GmbH & Co. KG The main tenant is a corporation belonging to the Kaufland Group, which in turn belongs to the Lidl & Rent p.a. € 513,155 Schwarz Group, one of the biggest grocer groups in Europe. Kaufland is the self-service department Share of total income 39% store division of Lidl & Schwarz with more than 500 locations across Europe. Kaufland’s core business WALT 10.3 years area is food retailing with branded goods and own-brands specially produced for Kaufland. The risk of Payment Index n.a. insolvency (D&B Score) is high, i.e. 32% of businesses on the German database have the same or Capital indicator O3 higher risk. According to section 19 of the main lease agreement entered into by the landlord and Risk indicator 3 Kaufland Dienstleistung GmbH & Co. KG (Rating = 2AA 1), an assignment of the main lease Score 32 agreement by the tenant to another entity of the Kaufland group requires that the landlord's credit risk Credit limit € 12,500 (single) € 84,000 (total) rating may not deteriorate due to such assignment of the lease.
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Assumptions Market Value
Lease Contract Commentary The property is let to nineteen retail tenants, a fitness studio, a petrol station and car wash. There are three vacant areas on the 1st floor of the property totalling 2,299 m². The WALT amounts to 7.4 years. The main tenant is Kaufland with a share of approx. 43% of the rental income. The property is currently strongly under-rented mainly due to the low rental level of Kaufland. The lease is valid until 2022 with 3 five-year extension options until 2037; therefore, we do not believe that the rental level will be adjusted before 2037. Kaufland’s rent is indexed and is adapted by 50% of the CPI change, when the change exceeds 10% in relation to the CPI basis. Indexation started on 01.04.2009. Ground tax, maintenance costs for structural repairs, management and insurance costs are not borne by Kaufland. The rest can be apportioned to the tenant in accordance with the German Regulation on Operating Costs. Due to negligence by the current owner, these costs are currently not apportioned to the tenant. As this could be changed and a cost schedule could be drafted this year, we have assumed that all costs of the scheduled base revenue will be apportioned to the respective tenants. The following tenant's have just extended this lease contracts: FOTOFIX until 30.11.2012 and Neckermann Urlaubswelt until 12.05.2016. There is a new tenant, AB Möbel und Immobilien GmbH, singed a lease contract over 2,604 m² until 31.12.2021. Furthermore, the tenant Euronet Service GmbH has terminated its lease and there are several rental increases due to indexations. We are not aware of any other tenants planning to terminate their leases in the subject property, nor have we received any information regarding a prolongation of their leases.
General Property Assumptions Discount Rate Comment
Discount rate 7.10% The yields applied reflect the individual location quality (macro- and micro-location) of the properties, building structure, letting situation, covenant strength and the relationship between contractual and Capitalisation rate 6.75% market rent. We derive the discount rate from market transactions. The discount rate reflects the rate of return expected by investors and is determined based on the risk associated with a property. As Capital expenditures* € 1,256,506 reinsurance, the initial yields profile is aligned with the market/other transactions. We have taken into account such facts as the remaining lease term with the well-known anchor tenant, the tenant mix the Vacancy costs € 10.00 /m²/p.a. vacancy rate as well as the location within the federal state Bavaria. * on the basis of cost estimates provided by RT Facility Management GmbH & Co. KG, dated June 2012
Breakdown of Non-Recoverable Costs
% of Gross Inflation Contract** per year per year (month 1 x 12) Contract Rent Maintenance costs € 5.50 /m² € 76,118 5.82% Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 after 2021 Management costs € 1.42 /m² € 19,626 1.50% Inflation 1.0% 1.5% 1.5% 1.5% 1.4% 1.3% 1.4% 1.4% 1.4% 1.4% 1.6% Ground tax € 3.93 /m² € 54,353 4.15% Insurance costs € 0.32 /m² € 4,427 0.34% Market Rental Growth Other non-recoverable costs € 0.00 /m² € 0 0.00% Total non-recoverable expenses € 11.17 /m² € 154,523 11.81% Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 after 2021 ** JLL analysis Rental Growth 1.0% 1.5% 1.5% 1.5% 1.4% 1.3% 1.4% 1.4% 1.4% 1.4% 1.6%
Market % of Gross Contract per year per year (assuming full occupancy) Market Rent Maintenance costs Maintenance costs € 5.50 /m² € 76,118 5.13% Management costs Management costs € 1.61 /m² € 22,253 1.50% Ground tax € 3.93 /m² € 54,353 3.66% Ground tax € 0.32 /m² € 4,427 0.30% Insurance costs Insurance costs Other non-recoverable costs € 0.00 /m² € 0 0.00% Total non-recoverable expenses € 11.36 /m² € 157,150 10.59% Other non-recoverable costs
Total Non-recoverable Costs
Maintanance Management Ground Insurance Other Non- Vacancy Total % of Total Costs Costs Tax Costsrecoverable Costs Costs per year Gross Revenue Year 1 € 76,498 € 18,920 € 51,760 € 6,573 0 € € 1,248 € 154,999 12.3% Year 2 € 77,456 € 19,826 € 52,407 € 6,655 0 € € 322 € 156,666 11.9% Year 3 € 78,617 € 19,504 € 53,193 € 6,755 0 € € 5,726 € 163,795 12.6% Year 4 € 79,797 € 19,628 € 53,991 € 6,856 0 € € 687 € 160,959 12.3% Year 5 € 80,953€ 19,542 € 54,774 € 6,955 0 € € 296 € 162,520 12.5% Year 6 € 82,046 € 19,668 € 55,513 € 7,049 0 € € 92 € 164,368 12.5% Year 7 € 83,154 € 19,475 € 56,263 € 7,145 0 € € 1,598 € 167,635 12.9% Year 8 € 84,318 € 19,354 € 57,050 € 7,245 0 € € 6,191 € 174,158 13.5% Year 9 € 85,499 € 19,718 € 57,849 € 7,346 0 € € 414 € 170,826 13.0% Year 10 € 86,696 € 19,383 € 58,659€ 7,449 0 € € 8,316 € 180,503 14.0% Year 11 € 87,953 € 20,839 € 59,510 € 7,557 0 € € 7,529 € 183,388 13.2%
Non-Recoverable Costs as a percentage of Total Gross Revenue 16.0%
14.0% 14.0% 13.5% 12.9% 13.0% 12.3% 12.6% 12.3% 12.5% 12.5% 11.9% 12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
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Gögginger Straße 119 Valuation date: 30.06.2012
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Cash Flow Market Value
Total Non- Net TIs and Present Rental Turnover Rent Gross recoverable Operating Capital Leasing Value @ Revenue Vacancy Abatements Revenue Costs Income Expenditures Commissions Cash Flow 7.10% Year 1 € 1,273,707 -€ 12,382 € 0 € 1,261,325 -€ 154,999 € 1,106,326 -€ 1,257,359 -€ 640 -€ 151,673 -€ 185,999 Year 2 € 1,330,300-€ 8,559 € 0 € 1,321,741 -€ 156,666 € 1,165,075 -€ 14,882 -€ 4,608 € 1,145,585 € 1,036,187 Year 3 € 1,331,948 -€ 31,711 € 0 € 1,300,237-€ 163,795 € 1,136,442 -€ 57,749 -€ 7,806 € 1,070,887 € 905,429 Year 4 € 1,332,403 -€ 23,865€ 0 € 1,308,538 -€ 160,959 € 1,147,579 -€ 1,990 -€ 1,752 € 1,143,837 € 902,801 Year 5 € 1,313,079 -€ 10,291 € 0 € 1,302,788 -€ 162,520 € 1,140,268 -€ 7,930 -€ 6,949 € 1,125,389 € 828,651 Year 6 € 1,313,971 -€ 2,753 € 0 € 1,311,218 -€ 164,368 € 1,146,850 -€ 917 -€ 690 € 1,145,243 € 787,782 Year 7 € 1,318,107 -€ 19,804 € 0€ 1,298,303 -€ 167,635 € 1,130,668 -€ 15,982 -€ 4,962 € 1,109,724 € 712,607 Year 8 € 1,323,764 -€ 33,507 € 0 € 1,290,257 -€ 174,158 € 1,116,099 -€ 61,906 -€ 8,396 € 1,045,797 € 628,504 Year 9 € 1,325,689 -€ 11,155 € 0 € 1,314,534 -€ 170,826 € 1,143,708 -€ 4,173 -€ 2,795 € 1,136,740 € 636,518 Year 10 € 1,364,601 -€ 72,417 € 0 € 1,292,184 -€ 180,503 € 1,111,681 -€ 83,161 -€ 18,149 € 1,010,371 € 528,754 Year 11 € 1,460,778 -€ 71,497 € 0 € 1,389,281 -€ 183,388€ 1,205,893 -€ 44,585 -€ 14,797 € 18,793,417 € 9,464,791 Total Cashflow (incl. Terminal Value @ 6.75 %) € 16,246,025 Gross Value of Surplus Land € 0 Gross Capital Value incl. Surplus Land € 16,246,025 Total Gross Revenue versus Net Operating Income
€ 1600000.0 8.0%
6.8% 7.2% 7.0% 7.1% 7.0% 7.1% 7.0% 7.0% 6.9% 6.8% € 1400000.0 7.0%
€ 1200000.0 6.0%
€ 1000000.0 5.0%
€ 800000.0 4.0% Rental income Running yield € 600000.0 3.0%
€ 400000.0 2.0%
€ 200000.0 1.0%
€.0 0.0% Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Valuation Results Market Value
Rent Overview Gross Capital Value (rounded) Contractual gross rental income (month 1 x 12) total p.a. € 1,308,379 per m²/month € 7.88 Total € 16,200,000
Market rental value total p.a. € 1,483,517 per m² € 1,171 per m²/month € 8.93 Over-/Underrent -11.81% Purchaser's costs 5.00% Yield Overview
Net Initial Yield 7.12% Market Value (rounded) Net Reversionary Yield 8.19% Total € 15,500,000 Gross Initial Yield 8.44% Gross Reversionary Yield 9.57% per m² € 1,120
Valuation Comment
In terms of risk, we considered the covenant strength as well as the lease duration for the existing contracts. As at 01.01.2011, the main tenant Kaufland Vertrieb GAMMA GmbH & Co. KG has below average covenant strength and a high credit risk. According to section 19 of the main lease agreement entered into by the landlord and Kaufland Dienstleistung GmbH & Co. KG (D&B Rating = 2AA 1), an assignment of the main lease agreement by the tenant to another entity of the Kaufland group requires that the landlord's credit risk rating may not deteriorate due to such assignment of the lease. Section 1 of the first amendment to the main lease agreement provides for the assignment of the main lease agreement to Kaufland Vertrieb GAMMA GmbH & Co. KG, which has a worse D&B Rating (O3). Accordingly, pursuant to section 2 of the first amendment to the main lease agreement, the former tenant remains jointly and severally liable for the landlord's payment claims. Hence, the former tenant is a guarantor for the lease payments of the current tenant. Upon resale we took into account visibility, demographic factors, appearance, condition and building age, third party usability, competition and location. For the purpose of the valuation on 30.06.2012, we have been provided with updated insurance costs as well as updated ground tax and have applied them in our valuation. Other costs have remained unchanged and have been applied according to information received during the previous valuation cycle. For management costs, we have applied 1.5% of the effective gross rent. Regarding comparable rents, we have evidence of similar areas situated in comparable regions and locations. Furthermore, we have analysed comparable transactions. Please refer to the section "Investment Comparables". We have been provided with updated information regarding necessary capital expenditures. Capital expenditures for repairs (predominantly for the multi-storey car par) in the amount € 1.256.506 have been taken into account in Year 1. For the period until year 10 further costs have been included in the technical due diligence; however, these are covered by the sinking fund budget of € 5.50/m² p.a. for on-going maintenance measures. As for the tenancies within the property, the following changes have taken place: there have been several indexation adjustments. The tenant Thi Dung has prolonged the lease until 30.11.2016. The new tenant AB Möbel has signed a lease contract for 2,604m² retail space until 31.12.2021. For some tenants, we have been provided with the turnover figures and have applied there figures in our valuation. Based on provided information from Brack Capital, we have additionally considered parking income of approx. € 85,000 p.a. As we have not been provided with any costs in this context and it is currently only a planned measure, we have adjusted the discount rate.
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Photos
Main entrance to Kaufland View of the mall
Internal view of sales area of Kaufland View of retail area
Internal view of McFit fitness studio (2nd floor) View of the car park and petrol station
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Leasing and Investment Market
Leasing Market Investment Market
There is no homogeneous rental level for retail space in retail warehouses or retail parks throughout Stable economic growth has brought Germany in the focus of real estate investors throughout Europe. Germany. However, the spread between the average and the absolute prime rent is not as big as in At the end of 2011 the total amount of retail investments amounted to approximately € 10.6 billion, high street locations. The overall potential for rental growth in retail parks in Germany is best whereas the figure stood at € 1.4 billion at the end of Q1 2012. Hence, it accounted for 45%, and 27% summed up as mediocre. Depending on the tenant branch, rental rates for discounters, department respectively, of the total investments in commercial properties in Germany. This represents the reverse stores and DIY stores remain stable due to the high competition on the market, but the rents for figures of office investments (30% in 2011 and 45% in Q1 2012). Whereas the 2011 total investment in fashion stores have uplift potential simply due to the fact that these stores are increasing their retail properties clearly exceeded the figure of 2010 presence in retail parks and are prepared to pay high rents. and was close to the 2007 level, Q1 2012 marks the first drop within three years of consecutive growth. The rental level of retail warehouses and retail parks is the result of their location in urban centres or Within the retail investment market, the shares of the major asset classes shifted slightly between 2011 rural areas, and the resulting quality of the location in terms of catchment area, competition, and Q1 2012. High street properties/department stores and shopping centres remained the largest accessibility and visibility. While rental levels in Bavaria generally lie slightly above the average asset classes with a share of 37% and 35% respectively (compared to 32% and 45% respectively in western German rent levels due to the state’s strong economy, rental levels in eastern German 2011). This equals an investment volume of € 518 million and € 490 million. towns are generally slightly lower than their western counterparts, as these areas have a lower purchasing power and generate on average lower revenues. In the retail warehouse and retail park However, retail parks accounted for 15% (8% in 2011), whereas retail warehouses accounted for 5% segment, the maximum rents are determined by a percentage of the turnover expectancy. (8% in 2011). Investments in supermarkets/discounters represented 3% in 2011 but went down to less The rents within the different branches vary. This is due to the diverging location assessment and than 1% in the Q1 2012. Transactions involving other retail properties and a portfolio of kiosks took up turnover expectancy of the different tenants. If in the case of a retail park the management succeeds an 8% share. In 2011some large transactions drove up the amount of investments in shopping centre in establishing good anchor tenants, which guarantee a high visitor frequency, then the turnover high street properties and department stores. In Q1 2012, however, large transactions were virtually expectancy of secondary tenants tends to be higher. Therefore, some anchor tenants are able to absent. negotiate lower rents because their existence in a property increases the rental level of the others. The yield compression, which could be observed since 2009 and throughout 2011, came to a halt in Q1 Depending on the size of the retail unit and the branch of the tenants, rents in retail parks in western 2012 with respect to retail parks, shopping centres and retail high street unit shops/department stores. German locations generally range between € 5.00 and € 13.00 /m²/month. Prime yields for shopping centres are now close to 5% and, consequently, are very close to those of Depending on the size of the retail unit and the retail format of the store, rents for supermarkets are prime offices – an occurrence which has not taken place since a brief period in 2007. Net initial yields generally slightly higher than the rents for discounters. Rents for supermarkets in western German for prime retail parks went down to approximately 6% at the end of 2011 and have remained stable locations generally range between € 7.00 and € 13.00 /m²/month. Rents for discounters in western ever since. Germany generally range between € 6.00 and € 12.00 /m²/month, while discounters located in With respect to retail properties, we expect a progressively stable trend with the highest investment eastern Germany generally achieve slightly lower rental rates ranging between € 5.00 and € 11.00 share anticipated for shopping centres and high street properties. Furthermore, we predict that the /m²/month. Drugstores, textile, shoe and electronics branches generally achieve rental rates ranging German real estate market will remain the focus of foreign investors. In the Q1 2012 the buy side was from € 7.50 to € 12.00 /m²/month for rental areas with a size between 500 and 750 m². DIY stores dominated by insurance companies, open funds and private investors. We expect this to continue and need extensive space due to their broad product range with rental prices ranging between € 6.00 for foreign investors along with asset managers, developers and banks to become more active in the and € 10.00 /m²/month. course of 2012. Leasing Comparables
Tenant City Property Type Area Total Rent p.m. Rent p. sqm Comment Marktkauf Lübbenau Self-Service Department Store 5,479 m² € 42,353 € 7.73 /m² Other federal state Kaufland Geldern Self-Service Department Store 8,478 m² € 65,705 € 7.75 /m² Other federal state; similar purchasing power McFit Bochum Fitness Studio 1,600 m² € 7,840 € 4.90 /m² Other federal state; slightly lower purchasing power KiK Straubing Discount Fashion 657 m² € 4,901 € 7.46 /m² Similar purchasing power KiK Heilsbronn Discount Fashion 500 m² € 4,090 € 8.18 /m² Similar purchasing power Pharmacy Nürnberg Pharmacy 140 m² € 3,885 € 27.75 /m² Similar purchasing power Deichmann Karlstadt Shoe store 467 m² € 4,553 € 9.75 /m² Similar purchasing power 0 0 0 0 m² € 0 € 0.00 /m² 0
Investment Comparables
Year of Gross Date of Property Type Area Comment Construction Multiplier Transaction Retail Park 2009/2010 8,500 m²13.8-fold Q1 2011 tegut; Deichmann, Takko; WALT 12.5 yrs; good location, no competition Retail Park 1996 25,000 m² 13.7-fold Q1 2011 Anchor tenant: large-scale hypermarket; high level of competition; WALT: 6yrs Retail Park 2008 6,000 m² 14.6-fold Q1 2011 Anchor tenant: electronics store; office; WALT: 7.5 yrs Self-service department store 2006 13,000 m² 13.8-fold Q2 2012 Famila; WALT approx. 9.26 yrs Self-service department store 1982/1995 12,000 m² 12.5-fold Q2 2010 Real; WALT approx. 12 yrs Retail Park n.a. 27,955 m² n.a. 2012 property in Baden-Wuerttemberg, purchase price approx. € 49.00m Standalone n.a. 10,100 m² n.a. 2011 property in Lower Saxony, purchase price approx. € 17.61m Retail Park n.a. 20,000 m² 11.2-fold Q3 2011 Saxony, WALT > 10 years, purchase price approx. € 29.6m, Kaufland, Esprit
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Property Summary
Key Figures
Property type Retail Park Main tenant Handelshof SB Warenhaus GmbH & Co. KG
Total lettable area 7,054 m² Total parking units 300 units
Current vacancy rate 0.0% Weighted average lease term 5.6 years
Year of construction 2000 Year of refurbishment n.a.
Contractual gross rental income (month 1 x 12) total p.a. € 634,106 per m² / month € 7.49
Total non-recoverable expenses (month 1 x 12) total p.a. € 65,696 per m² / month € 0.78
Net operating income (month 1 x 12) total p.a. € 568,411 per m² / month € 6.72
Market rental valuetotal p.a. € 685,093 Over-/Underrent based on occupied areas -7.4%
SWOT Analysis
Strengths Weaknesses Sufficient parking The retail unit let to Kaufland is strongly underrented Good building condition Low visibility from the main road Long remaining lease term of the anchor tenant 0 0 0 0 0
Opportunities Threats Prolongation of lease contracts after expiry Re-letting or negotiations concerning the prolongation of existing contracts may result Positive population growth forecast for the district (Rosenheim) in worse conditions Low unemployment rate Termination of short term lease contracts with subsequent void periods 0 0 0 0
Property Rating (1 = very negative, 5 = very positive)
Building Location
Building age 3 11 to 15 years Macrolocation 3 Average location and catchment area Lettable Area 1 Smaller than 7,500 m² Microlocation 3 Average micro location Property condition 3 Average building condition Commercial activity 3 Limited commercial activity nearby General impression 3 Average general impression Competition 3 Average competition level
Liquidity Investment Quality
WALT 3 WALT three to seven years Investment market 3 Average property market Over- / underrent 4 Slightly underrented (-5% to -15%) Investment volume 3 Reasonable lot size Quality of tenants 4 Tenants with very good credit rating Saleability 4 Good saleability within 6 months
Property Description
The site comprises a single storey U-shaped retail park, separated into 3 wings which are called the west, east and north wing. The north wing is a 2-storey building (main building) with no basement. An open parking lot with approx. 300 parking spaces is provided to the front of the main building and on the left- and right-hand side of the U-shaped building. Construction of the property began in 1999 and was completed in 2000. The buildings are rectangular in shape and constructed with concrete columns, pre-cast concrete beams and concrete slab ceilings. The building has a flat roof covered by folio.
Kaufland is the anchor tenant occupying retail space on the ground floor of the main building. Office space and some storage and personnel rooms are located on the 1st floor. The entrance to the north wing is in the front of the building facing the parking lot. The other retail units, which include a drugstore, textile stores, shoe store, etc., have separate entries from the parking lot. The property includes space to the backside of the northern building for delivery and removal.
Valuation Results
Market Value Market Rental Value
€ 8,400,000 equals to € 1,191 per m² € 685,093 p.a. equals to € 8.09 / m² / p.m.
Discount Rate 7.25% Net Initial Yield 6.46% excluding 6.46% Multiplier (initial) 13.25 capital Capitalisation Rate6.75% Net Reversionary Yield 7.03% expenditures 7.03% Multiplier (based on MRV) 12.26
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Location
Germany Macroeconomic Indicators (Source: GfK, BBE, BBSR/Inkar 2012)
Federal State Bavaria District Rosenheim (Rural District) City Bad Aibling Postcode 83043
Population Federal State absolute 12,510,331 Population District absolute 248,819 Population City absolute 18,125 Number of Households City absolute 8,364 Population Density District per km² 173 Population Density City per km² 438 Population Forecast (2007 - 2025) District in % 9.6% Population Growth (2002 - 2007) Federal State in % 1.1% Population Growth (2002 - 2007) District in % 2.2% Unemployment Rate (6/2012) Federal State in % 3.4% Unemployment Rate (6/2012) District in % 2.5%
Structual Data (Source: GfK and BBE 2012)
Purchasing Power District in m € 5,187 Purchasing Power City in m € 377 Purchasing Power Index Federal State index 108.34 Retail Purchasing Power Index District index 105.91 Retail Centrality Index District index 80.97
Bad Aibling Macro Location
Bad Aibling is a spa town in the south of the federal state Bavaria with approx. 18,000 inhabitants. It lies on the river Mangfall, in the administrative district of Rosenheim, approx. 50 km southeast of Munich. It has become a sought-after residence for commuters working in Munich.
Bad Aibling has good accessibility through federal motorways and major roads. It is located near the motorway A8 (Munich-Salzburg). The major road which runs through the city is the state road St 2078 (Munich-Rosenheim). The city is considering building another bypass (bypass road north), to lead the traffic flowing north, towards Großkarolinenfeld and Tuntenhausen around the city. The train station offers regional connections.
The economic focus of Bad Aibling is on the health care and wellness sector. There are several cure hospitals and rehabilitation centres. Companies in the pharmaceutical sector, textiles, electronic industry, and milk processing industry can be found in the city. The unemployment rate for the district lies at 3.8%, well below the national average (7.9%).
Micro Location Micro Location
The property is located in a small commercial area at the city’s western periphery, on Grassingerstraße. Accessibility is good as Grassingerstraße is just off the main arterial road Münchenerstraße. However, the property cannot be seen from the main road and therefore has poor visibility. A bus stop is located at about 2 minutes walking distance. The property is approx. 5 minutes by car and 10 minutes walking distance from the city centre. The surrounding area is mostly residential and undeveloped land. A police station, car dealership, a sporting goods store, as well as an Aldi (discount supermarket) can be found in close vicinity.
0
Local Tax Information
Real Estate Tax Rate (Typ B) City in % 330 Land Transfer Tax City in % 3.5
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Site Plan
Source: Cadastral plan on a 1 to 1000 scale, dated 27.12.2010 Site Information
Site area 19,222 m² Ground lease No thereof surplus land 0 m² Ground lease expiry n.a. Surplus land value (net) n.a. € 0 Comment Site servicing Fully serviced The site consists of plots 1131 and 1072. It has an even topography and an irregular shape. It is surrounded by a road to the east and a small paved delivery access road around the site to the south, Site layout Irregular west and north. According to the environmental due diligence dated July 2007, plots 1072 and 1131 are not registered in the “Altlastenkataster” (contaminated land cadastre). For the purposes of this Soil contamination No Suspicion valuation, we have assumed that the subject property is free of any soil or building contamination.
Building encumbrances Yes
Town Planning
Use class SO (special zone) Comment According to the local planning authority, a legally binding development plan exists, entitled Site coverage ratio (GRZ) 0.6 "Bebauungsplan 51 Nördlich der Grassingerstraße", dated 3 August 1992, date of last amendment 23 May 2003, with the following regulations: subject site is located in a special zone retail (SO). The plot Plot ratio (GFZ) n.a. ratio (GFZ) is 0.6 and the site coverage ratio (GRZ) is not specified.
Cubic index (BMZ) n.a.
Tenure
Land Register Owner Sheet Plot Parcel Section 2 (Restrictions) Section 3 (Loans) Local Court of TPL Biberach S.á.r.l., 7174 0 1131 Limited personal easement (right to operate a self-Land charges in the total amount of € 9,590,419 in Rosenheim, land Luxembourg 7630 1072 service department store) in favour of Kaufland favour of Bank of Scotland (Frankfurt branch), register of Bad Aibling Dienstleistung GmbH & Co. KG, Neckarsulm. Frankfurt am Main; folio 7630 & 7174; entered on 08.10.2007.
Source: Extract from the land register dated 18.01.2008
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Competitor Map
Source: Jones Lang LaSalle Research
Competitor Overview
Name Address Type Sales area Distance Potential Prechtl Frischecenter 83043 Bad Aibling, Ebersberger Str. 1 Hypermarket 2,305 m² 0.40 km High Rewe 83059 Kolbermoor, An der Alten Spinnerei 4 Hypermarket 2,000 m² 5.10 km Medium E-center 83059 Kolbermoor, Carl-Jordan-Str. 18 Hypermarket 2,750 m² 5.80 km Medium Kaufland 83026 Rosenheim, Äußere Münchener Str. 100 Self-service dep. store 5,200 m² 7.50 km Low E-center 83026 Rosenheim, Grubholzer Str. 2a Hypermarket 2,800 m² 7.50 km Low Rewe 83024 Rosenheim, Hofmillerstr. 1 Hypermarket 1,500 m² 9.20 km Low Real 83026 Rosenheim, Kufsteiner Str. 124 Self-service dep. store 6,500 m² 9.90 km Low 0 m² 0 0 0 0 0 0 0 0
Competiton Indicators
Inhabitants in primary catchment area 15,691 Inhabitants per hypermarket in primary catchment area 7,846
Inhabitants in secondary catchment area 52,647 Inhabitants per hypermarket in secondary catchment area 13,162
Inhabitants in tertiary catchment area 84,900 Inhabitants per hypermarket in tertiary catchment area 10,612
Number of households in the district 8,364 Population forecast for the district (2007 - 2025) 9.6%
Retail Purchasing Power Index (District) 105.91 Retail Centrality Index (District) 80.97
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Main competitors
This competitor is an Edeka Frischemarkt. It is much smaller in size and offers a more limited This competitor is an Edeka E-Center. It is similar in size and is located approx. 6km east of the subject product assortment than the anchor tenant of the subject property. It has, however, greater visibility property in the town of Kolbermoor. The E-Center has retail on the ground floor and a fitness studio on as it lies on the main road and needs to be passed in order to reach the subject property, which is the 1st floor. It is located in a retail park surrounded by smaller retail shops, such as a shoe store, just around the corner. The building is newer. Furthermore, a Müller (drugstore) is located on the optician, jewellery shop, dry cleaner, and two discount fashion stores, among others. This competitor site. This competitor poses a medium level of competition. poses a medium level of competition.
Competition Comment
Catchment area is divided into 3 categories: primary (0-5 min drive time); secondary (5-10 min) and tertiary (10-15 min). Approximately 15,700 inhabitants live in the primary catchment area. There are two self- service department stores/hypermarkets, including the subject property, present in this area, which is approx. 8,000 inhabitants per store. Within the broader secondary catchment area of approx. 53,000 inhabitants, there are 3 main competitors: an Edeka Frischemarkt, an Edeka E-Center, and a Rewe.
The Edeka Frischemarkt is about 1,000 m² smaller and offers a more limited product assortment than Kaufland. It does have, however, greater visibility as it lies on the main road and needs to be passed in order to reach the subject property, just around the corner. The building is significantly newer. Furthermore, a Müller (drugstore) is located on the site, which is comparable to the dm-markt (drugstore) next to the subject property. Despite its smaller size, we consider it to be a strong competitor based on its close proximity and preferred location.A bit farther away, approx. 6 km, in the town of Kolbermoor, an Edeka E-Center and a Rewe can be found. They are surrounded by a mostly residential area and located off of the state road St 2078 between Bad Aibling and the city of Rosenheim. Both hypermarkets are set within retail parks with outdoor parking. They will mainly draw inhabitants of Kolbermoor and possibly those from the eastern part of Bad Aibling and those who commute to Rosenheim for work. Therefore, they pose a medium level of competition.
According to the local planning authority, because of a change in the traffic routes within the city centre of Bad Aibling, residents from the west have to bypass the city centre and drive through southern Bad Aibling to get to Kaufland. Accordingly, a new supermarket has been discussed. Given the relatively few competitors within the catchment area and the forecasted population growth for the county (“Landkreis”) of 9.6% between years 2007 and 2025, we rate the overall current competitive environment as medium.
Turnover analysis
For the purpose of this valuation, we have used the average turnover rents for the years 2008 and 2009 until the end of the respective lease agreement. The rents in functional retail agglomerations are linked to turnover. The percentage that a retail tenant can use for rental payments depends on the margins achievable in the various market sectors. This rate normally ranges between 2% and 15% depending on the respective branch. Kaufland is a very strong anchor, we believe that there will continue to be demand for ancillary tenants. For Kaufland, we have been provided with turnover figures. We have analysed the figures and have found the area productivity of Kaufland to be in a healthy range. With a turnover-to-rent ratio of less than 2% it lies below the range of 2% to 4%, which is acceptable for a self-service department store. Hence, we believe that a higher market rent is achievable after the end of the lease contract. Please also refer to the rent/turnover analysis on page 8.”
Conclusion
The property is currently mainly used as a self-service department store (Kaufland), which makes up 52% of lettable area. AWG (discount fashion) makes up 20% of the total lettable area, a dm-markt (drugstore) makes up close to 15% and the rest is divided between smaller retailers within the retail park. An outside parking lot offers sufficient parking. The property is also easily accessible via public transport. Despite the relatively small primary catchment area, because there are few direct competitors and the population growth for the county (“Landkreis”) is forecasted to grow by 9.6% between years 2007 and 2025, we anticipate that there will be enough customers to sustain the property. At the time, there is no vacancy. Kaufland, being a consumer magnet, provides a healthy retail environment for the remaining tenants.
The lease of the anchor tenant (Kaufland) does not expire until 2022 and it has options to extend until 2037. On the basis of our projection of likely productivity per m² and turnovers, we have calculated the market rent at a level of € 6.50 /m²/month. The tenant currently pays a contractual rent of € 5.25 /m²/month. Therefore, we expect that Kaufland will stay until 2037 (based on its below-market rental level), as long as it continues to generate adequate turnover. Potential future uses for the property would be difficult to envision. The best use for the property is its current use as a self-service department store. The next self-service department store is located in the next town, approx. 6km away. If Kaufland were to leave, another self-service department store, such as a real,- or Marktkauf, would be likely to take its place.
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Rent Roll
Tenant Name Area Category Letting Area Rent Rent / m² Tenant Lease Lease Renewal Tenant Status m² / unit / month / month pays VAT Start End Probability pays * 1 AWG Allgemeine Warenvertriebs-GmbH Retail Let 998 € 10,558 10.57 Yes 24.02.2000 30.06.2015 75% 2 Telko GmbH Retail Let 77 € 1,208 15.78 Yes 15.03.2005 31.10.2018 75% GT I PM 3 Pham RetailLet 84 € 955 11.43 Yes 01.07.2011 30.06.2016 75% GT I PM 4 Reno Sportswear GmbH RetailLet 224 € 1,141 5.10 n.a. 01.01.2012 31.12.2016 75% M GT I PM 5 dm-drogerie markt GmbH + Co. KG Retail Let709 € 6,979 9.84 Yes 10.02.2000 31.12.2014 75% 6 Heinrich Deichmann Schuhe GmbH & Co. KG Retail Let 498 € 5,158 10.35 Yes 21.02.2000 20.02.2015 75% 7 Fressnapf Immobilien-Vermögensverwaltung GmbH Retail Let 346 € 2,164 6.25 Yes 11.02.2000 10.02.2015 75% 8 KiK Textilien und Non-Food GmbH Retail Let 404 € 4,168 10.30 Yes 01.03.2000 28.02.2015 75% 9 Handelshof SB Warenhaus GmbH & Co. KG Retail Let 3,634 € 19,086 5.25 Yes 01.10.2007 30.09.2022 75% 10 Deutsche Plakat-Werbung GmbH & Co. KG Other Units Let 6 € 265 44.17 Yes 03.08.2009 02.08.2014 75% 11 Kurzzeitmieter Retail Let 1 € 586585.83 Yes 01.10.2008 unlimited 75% 0% 12 Fechtel RetailLet 78 € 5757.35 n.a. 01.12.2011 30.11.2016 75% 0% 13 External Parking External parking Let 300 € 0 0.00 No 01.10.2007 30.09.2022 100% 0%
Total 7,054 m² € 52,842 * M = Maintenance, GT = Ground Tax, I = Insurance Costs, PM = Property Management
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Valuation Assumptions
Tenant Name Area Category Area Market Market Re-letting Initial Re-letting Rent Agency Lease Renewal sqm/unit Rent Rent /month Tis Void VPV*Void* Abatem.* Fees* Term** Probability 1 AWG Allgemeine Warenvertriebs-GmbH Retail 998 € 10.00 € 9,984 € 50 0 12 0 3 5 75% 2 Telko GmbH Retail 77 € 10.50 € 804 € 100 0 12 0 3 5 75% 3 Pham Retail 84 € 10.50 € 878 € 100 0 12 0 3 5 75% 4 Reno Sportswear GmbH Retail 224 € 10.50 € 2,349 € 100 0 12 0 3 5 75% 5 dm-drogerie markt GmbH + Co. KGRetail 709 € 10.00 € 7,090 € 100 0 12 0 3 5 75% 6 Heinrich Deichmann Schuhe GmbH & Co. KG Retail 498 € 10.00 € 4,981 € 100 0 12 0 3 5 75% 7 Fressnapf Immobilien-Vermögensverwaltung GmbH Retail 346 € 6.50 € 2,252 € 100 0 12 0 3 5 75% 8 KiK Textilien und Non-Food GmbH Retail 404 € 10.00 € 4,045 € 100 0 12 0 3 5 75% 9 Handelshof SB Warenhaus GmbH & Co. KG Retail 3,634 € 6.50 € 23,622 € 50 0 12 0 3 10 75% 10 Deutsche Plakat-Werbung GmbH & Co. KG Other Units 6 € 265.00 € 1,590 € 0 0 6 0 0 5 75% 11 Kurzzeitmieter Retail 1 € 0.00 € 0 € 0 0 0 0 0 5 75% 12 Fechtel Retail 78 € 10.50 € 822 € 100 12 12 0 3 5 75% 13 External Parking External parking 300 € 0.00 € 0 € 0 00 0 0 0 100%
Total 7,054 sqm € 58,416 * months ** years ***structural vacancy
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Property Analysis
Area Analysis Lettable AreaArea Vacant Area Let Vacancy Rate Use Category m² m² m² % Office 0 0 0 0.00% Office Retail DIY Retail 7,054 0 7,054 0.00% DIY 0 0 0 0.00% Warehouse 0 0 0 0.00% Commercial 0 0 0 0.00% Warehouse Commercial Residential Residential 0 0 0 0.00% Storage 0 0 0 0.00% Total area 7,054 0 7,054 0.00% Petrol Station 0 0 0 0.00% Storage Other Units 6 0 6 0.00% Internal parking 0 0 0 0.00% External parking 300 0 300 0.00% Total parking 306 0 300 0.00%
Income Analysis Contractual Contractual Contractual Potential Market MarketMarket Over-/ Under- Rent Rent Rent Rent Rent Rent Rent Rented Use Category €/m²/month €/month €/year €/year €/m²/month €/month €/year Office 0.00 0 0 0 0.00 0 0 0.0% Retail 7.45 52,577 630,926 630,926 8.06 56,826 681,913 -7.5% DIY 0.00 0 0 0 0.00 0 0 0.0% Warehouse 0.00 0 0 0 0.00 0 0 0.0% Commercial 0.00 0 0 0 0.00 0 00.0% Residential 0.00 0 00 0.00 0 0 0.0% Storage 0.00 0 0 0 0.00 0 0 0.0% Petrol Station 0.00 0 0 0 0.00 0 0 0.0% Other Units 44.17 265 3,180 3,180 44.17 265 3,180 0.0% Total area 7.49 52,842 634,106 634,106 8.09 57,091 685,093 -7.4% Internal parking 0.00 000 0.00 0 0 0.0% External parking 0.00 0 0 0 0.00 0 0 0.0%
Assessment of Kaufland market rent
Space productivity Turnover to rent ratio Explanation
7,000 8.00
Usual market % - levels 6,500 7.45 7.00 Market rent
6,000 6.50 Contractual Rent
6.00 5,500 Rents % € / m² 5.58 Contractual 2.8% 5.25 5.25 5,000 5.00 Market 3.5% 6.50
4,500 4% of turnover 7.45 Rent / m² / month 4.00 3% of turnover 5.58 4,000 3.72 2% of turnover 3.72
3,500 3.00 Turnover potential 8,118,378 € (net) Sales Area ~ 2,500 m² 3,000 3,247 2.00 Total Area 3,634 m² in € / m² p.a. 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% based on sales area Turnover-rent-ratio
Self-service department stores usually can afford to pay a rent in the range of 2% to 4% of their net turnover (economically sustainable rent burden) and have a space productivity of about € 4,000 to € 6,000 per m² sales area. The two graphics above indicate, how the contract rent of the main tenant Kaufland as well as the assumed market rental level, can be assessed on the basis of usual market ranges. This analysis is based on the turnover potential figures prepared by Trade Dimension.
D&B Rating of Main Tenant
Main tenant Comment
Tenant name Handelshof SB Warenhaus GmbH & Co. KG The main tenant is a corporation belonging to the Kaufland Group, which in turn belongs to the Lidl & Rent p.a. € 229,028 Schwarz Group, one of the biggest grocer groups in Europe. Kaufland is the self-service department Share of total income 36% store division of Lidl & Schwarz with more than 500 locations across Europe. Kaufland’s core business WALT 10.3 years area is food retailing with branded goods and own-brands specially produced for Kaufland. According to Payment Index 75 Dun & Bradstreet (D&B) rating as at 02.02.2011 Handelshof SB-Warenhaus GmbH & Co. KG has a Capital indicator 5AA2 below-average credit risk. The risk of insolvency (D&B Score) within the next 12 months compared with Risk indicator 2 other German companies is assessed to be low, i.e. 84% of businesses on the German database have Score 84 the same or higher risk of failure. Credit limit € 560,000 (single) € 39,000,000 (total)
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Assumptions Market Value
Lease Contract Commentary The property is let to eleven retail tenants. There is no vacancy at the moment. The WALT amounts to 5.6 years. The main tenant is Kaufland with a share of approx. 36% of the rental income. The property is currently under-rented mainly due to a very low rental level of the main tenant Kaufland. As the lease contract is valid until 2022 and the tenant has three five-year extention options until 2037, we do not believe that the rental level can be adjusted before 2037. The rent of Kaufland is indexed and will be adapted by 50% of the CPI change, whenever the change exceeds 10 % in relation to the CPI basis. Indexation started on 01.04.2009. Ground tax, maintenance costs for structural repairs, management and insurance costs are not borne by Kaufland. The rest can be apportioned to the tenant in accordance with the German Regulation on Operating Costs. Due to negligence by the current owner, these costs are currently not apportioned to the tenant. As this could be changed and a cost schedule could be drafted this year, we have assumed that all costs will be apportioned to the respective tenants. AWG has just extended the lease contract until 30.06.2015. The new tenant Fechtel singed a lease contract regarding 78m² until 30.11.2016. We are aware that the tenant Petra Baldinger & Christian Miller GbR has been replaced by Reno. Reno has signed a lease contract until 31.12.2016. Furthermore, some rental increases due to indexations have taken place. We are not aware of any other tenants planning to terminate their leases in the subject property, nor have we received any information regarding a prolongation of their leases.
General Property Assumptions Discount Rate Comment
Discount rate 7.25% The yields applied reflect the individual location quality (macro- and micro-location) of the properties, building structure, letting situation, covenant strength and the relationship between contractual and Capitalisation rate 6.75% market rent. We derive the discount rate from market transactions. The discount rate reflects the rate of return expected by investors and is determined based on the risk associated with a property. As Capital expenditures* € 0 reinsurance, the initial yields profile is aligned with the market/other transactions. We have taken into account such facts as the remaining lease term with the well-known anchor tenant, the tenant mix the Vacancy costs € 10.00 /m²/p.a. vacancy rate as well as the location within the federal state Bavaria. * on the basis of cost estimates provided by RT Facility Management GmbH & Co. KG, dated June 2012
Breakdown of Non-Recoverable Costs
% of Gross Inflation Contract** per year per year (month 1 x 12) Contract Rent Maintenance costs € 5.50 /m² € 38,795 6.12% Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 after 2021 Management costs € 1.35 /m² € 9,512 1.50% Inflation 1.0% 1.5% 1.5% 1.5% 1.4% 1.3% 1.4% 1.4% 1.4% 1.4% 1.6% Ground tax € 1.96 /m² € 13,828 2.18% Insurance costs € 0.50 /m² € 3,560 0.56% Market Rental Growth Other non-recoverable costs € 0.00 /m² € 0 0.00% Total non-recoverable expenses € 9.31 /m² € 65,696 10.36% Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 after 2021 ** JLL analysis Rental Growth 1.0% 1.5% 1.5% 1.5% 1.4% 1.3% 1.4% 1.4% 1.4% 1.4% 1.6%
Market % of Gross Contract per year per year (assuming full occupancy) Market Rent Maintenance costs Maintenance costs € 5.50 /m² € 38,795 5.66% Management costs Management costs € 1.46 /m² € 10,276 1.50% Ground tax € 1.96 /m² € 13,828 2.02% Ground tax € 0.50 /m² € 3,560 0.52% Insurance costs Insurance costs Other non-recoverable costs € 0.00 /m² € 0 0.00% Total non-recoverable expenses € 9.42 /m² € 66,461 9.70% Other non-recoverable costs
Total Non-recoverable Costs
Maintanance Management Ground Insurance Other Non- Vacancy Total % of Total Costs Costs Tax Costsrecoverable Costs Costs per year Gross Revenue Year 1 € 38,984 € 9,512 € 9,317 € 3,665 0 € € 0 € 61,478 9.7% Year 2 € 39,472 € 9,512 € 9,434 € 3,711 0 € € 0 € 62,129 9.8% Year 3 € 40,064 € 8,860 € 9,575 € 3,767 0 € € 5,094 € 67,360 11.4% Year 4 € 40,665 € 9,372 € 9,719 € 3,823 0 € € 2,598 € 66,177 10.6% Year 5 € 41,254€ 9,806 € 9,860 € 3,879 0 € € 1,028 € 65,827 10.1% Year 6 € 41,811 € 10,167 € 9,993 € 3,931 0 € € 0 € 65,902 9.7% Year 7 € 42,375 € 10,074 € 10,128 € 3,984 0 € € 208 € 66,769 9.9% Year 8 € 42,969 € 9,577 € 10,270 € 4,040 0 € € 3,138 € 69,994 11.0% Year 9 € 43,570 € 9,565 € 10,414 € 4,096 0 € € 5,107 € 72,752 11.4% Year 10 € 44,180 € 10,471 € 10,559€ 4,154 0 € € 1,102 € 70,466 10.1% Year 11 € 44,821 € 9,923 € 10,712 € 4,214 0 € € 10,420 € 80,090 12.1%
Non-Recoverable Costs as a percentage of Total Gross Revenue 12.0% 11.4% 11.4% 11.0% 10.6% 10.1% 10.1% 9.8% 9.7% 9.9% 10.0% 9.7%
8.0%
6.0%
4.0%
2.0%
0.0%
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Cash Flow Market Value
Total Non- Net TIs and Present Rental Turnover Rent Gross recoverable Operating Capital Leasing Value @ Revenue Vacancy Abatements Revenue Costs Income Expenditures Commissions Cash Flow 7.25% Year 1 € 634,108 € 0 € 0 € 634,108 -€ 61,478 € 572,630 € 0 € 0 € 572,630 € 554,668 Year 2 € 634,108€ 0 € 0 € 634,108 -€ 62,129 € 571,979 € 0 € 0 € 571,979 € 516,588 Year 3 € 648,166 -€ 57,497 € 0 € 590,669-€ 67,360 € 523,309 -€ 50,936 -€ 14,410 € 457,963 € 387,851 Year 4 € 656,224 -€ 31,438€ 0 € 624,786 -€ 66,177 € 558,609 -€ 12,986 -€ 7,879 € 537,744 € 421,292 Year 5 € 666,741 -€ 12,997 € 0 € 653,744 -€ 65,827 € 587,917 -€ 10,291 -€ 3,256 € 574,370 € 420,483 Year 6 € 677,816 € 0 € 0 € 677,816 -€ 65,902 € 611,914 € 0 € 0 € 611,914 € 417,700 Year 7 € 674,254 -€ 2,650 € 0€ 671,604 -€ 66,769 € 604,835 -€ 2,105 -€ 664 € 602,066 € 383,233 Year 8 € 674,950 -€ 36,489 € 0 € 638,461 -€ 69,994 € 568,467 € 0 € 0 € 568,467 € 337,964 Year 9 € 696,815 -€ 59,149 € 0 € 637,666 -€ 72,752 € 564,914 -€ 68,718 -€ 23,964 € 472,232 € 259,726 Year 10 € 712,035 -€ 13,972 € 0 € 698,063 -€ 70,466 € 627,597 -€ 4,640 -€ 1,466 € 621,491 € 320,767 Year 11 € 743,813 -€ 82,289 € 0 € 661,524 -€ 80,090€ 581,434 -€ 59,293 -€ 19,264 € 9,672,087 € 4,803,383 Total Cashflow (incl. Terminal Value @ 6.75 %) € 8,823,655 Gross Value of Surplus Land € 0 Gross Capital Value incl. Surplus Land € 8,823,655 Total Gross Revenue versus Net Operating Income
€ 800000.0 8.0%
7.1% 6.5% 6.9% 6.9% € 700000.0 6.7% 7.0% 6.5% 6.3% 6.4% 6.4% 5.9% € 600000.0 6.0%
€ 500000.0 5.0%
€ 400000.0 4.0% Rental income Running yield € 300000.0 3.0%
€ 200000.0 2.0%
€ 100000.0 1.0%
€.0 0.0% Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Valuation Results Market Value
Rent Overview Gross Capital Value (rounded) Contractual gross rental income (month 1 x 12) total p.a. € 634,106 per m²/month € 7.49 Total € 8,800,000
Market rental value total p.a. € 685,093 per m² € 1,248 per m²/month € 8.09 Over-/Underrent -7.44% Purchaser's costs 5.25% Yield Overview
Net Initial Yield 6.46% Market Value (rounded) Net Reversionary Yield 7.03% Total € 8,400,000 Gross Initial Yield 7.55% Gross Reversionary Yield 8.16% per m² € 1,191
Valuation Comment
In terms of risk, we considered the covenant strength as well as the lease duration for the existing contracts. As at 02.02.2011, the main tenant Handelshof SB-Warenhaus GmbH & Co. KG has good covenant strength, which ensures a secure cash flow for the remainder of the lease term until at least 2022. Upon resale we took into account such facts as visibility, demographic factors, appearance, condition and building age, third party usability, competition and location. For the purpose of the valuation on 30.06.2012, we have been provided with updated insurance costs as well as updated ground tax and have applied them in our valuation. Other costs have remained unchanged and have been applied according to information received during the previous valuation cycle. For management costs, we have applied 1.5% of the effective gross rent.
Regarding comparable rents, we have evidence of similar areas situated in comparable regions and locations. Furthermore, we have analysed comparable transactions. Please refer to the section "Investment Comparables".We have been provided with updated information regarding necessary capital expenditures. All Capital expenditures for repairs in the first year as well as in the periods of year 2 to 5 and year 6 to 10 are considered to be covered by the maintenance costs of € 5.50 /m² p.a. Upon resale we took into account such facts as visibility, demographic factors, appearance, condition and building age, third party usability, competition and location.
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Photos
Internal view of entrance area of Kaufland Internal view of sales area of Kaufland
Internal view of sales area of Kaufland View of bakery in entrance area to Kaufland
View of vacant area View of parking lot and retail park
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Leasing and Investment Market
Leasing Market Investment Market
There is no homogeneous rental level for retail space in retail warehouses or retail parks throughout Stable economic growth has brought Germany in the focus of real estate investors throughout Europe. Germany. However, the spread between the average and the absolute prime rent is not as big as in At the end of 2011 the total amount of retail investments amounted to approximately € 10.6 billion, high street locations. The overall potential for rental growth in retail parks in Germany is best whereas the figure stood at € 1.4 billion at the end of Q1 2012. Hence, it accounted for 45%, and 27% summed up as mediocre. Depending on the tenant branch, rental rates for discounters, department respectively, of the total investments in commercial properties in Germany. This represents the reverse stores and DIY stores remain stable due to the high competition on the market, but the rents for figures of office investments (30% in 2011 and 45% in Q1 2012). Whereas the 2011 total investment in fashion stores have uplift potential simply due to the fact that these stores are increasing their retail properties clearly exceeded the figure of 2010 presence in retail parks and are prepared to pay high rents. and was close to the 2007 level, Q1 2012 marks the first drop within three years of consecutive growth. The rental level of retail warehouses and retail parks is the result of their location in urban centres or Within the retail investment market, the shares of the major asset classes shifted slightly between 2011 rural areas, and the resulting quality of the location in terms of catchment area, competition, and Q1 2012. High street properties/department stores and shopping centres remained the largest accessibility and visibility. While rental levels in Bavaria generally lie slightly above the average asset classes with a share of 37% and 35% respectively (compared to 32% and 45% respectively in western German rent levels due to the state’s strong economy, rental levels in eastern German 2011). This equals an investment volume of € 518 million and € 490 million. towns are generally slightly lower than their western counterparts, as these areas have a lower purchasing power and generate on average lower revenues. In the retail warehouse and retail park However, retail parks accounted for 15% (8% in 2011), whereas retail warehouses accounted for 5% segment, the maximum rents are determined by a percentage of the turnover expectancy. (8% in 2011). Investments in supermarkets/discounters represented 3% in 2011 but went down to less The rents within the different branches vary. This is due to the diverging location assessment and than 1% in the Q1 2012. Transactions involving other retail properties and a portfolio of kiosks took up turnover expectancy of the different tenants. If in the case of a retail park the management succeeds an 8% share. In 2011some large transactions drove up the amount of investments in shopping centre in establishing good anchor tenants, which guarantee a high visitor frequency, then the turnover high street properties and department stores. In Q1 2012, however, large transactions were virtually expectancy of secondary tenants tends to be higher. Therefore, some anchor tenants are able to absent. negotiate lower rents because their existence in a property increases the rental level of the others. The yield compression, which could be observed since 2009 and throughout 2011, came to a halt in Q1 Depending on the size of the retail unit and the branch of the tenants, rents in retail parks in western 2012 with respect to retail parks, shopping centres and retail high street unit shops/department stores. German locations generally range between € 5.00 and € 13.00 /m²/month. Prime yields for shopping centres are now close to 5% and, consequently, are very close to those of Depending on the size of the retail unit and the retail format of the store, rents for supermarkets are prime offices – an occurrence which has not taken place since a brief period in 2007. Net initial yields generally slightly higher than the rents for discounters. Rents for supermarkets in western German for prime retail parks went down to approximately 6% at the end of 2011 and have remained stable locations generally range between € 7.00 and € 13.00 /m²/month. Rents for discounters in western ever since. Germany generally range between € 6.00 and € 12.00 /m²/month, while discounters located in With respect to retail properties, we expect a progressively stable trend with the highest investment eastern Germany generally achieve slightly lower rental rates ranging between € 5.00 and € 11.00 share anticipated for shopping centres and high street properties. Furthermore, we predict that the /m²/month. Drugstores, textile, shoe and electronics branches generally achieve rental rates ranging German real estate market will remain the focus of foreign investors. In the Q1 2012 the buy side was from € 7.50 to € 12.00 /m²/month for rental areas with a size between 500 and 750 m². DIY stores dominated by insurance companies, open funds and private investors. We expect this to continue and need extensive space due to their broad product range with rental prices ranging between € 6.00 for foreign investors along with asset managers, developers and banks to become more active in the and € 10.00 /m²/month. course of 2012. Leasing Comparables
Tenant City Property Type Area Total Rent p.m. Rent p. sqm Comment Real Amberg Self-Service Department Store 10,824 m² € 71,114 € 6.57 /m² Slightly lower purchasing power Real Zschornewitz Self-Service Department Store 1,000 m² € 7,410 € 7.41 /m² Other federal state Kaufland Freital Self-Service Department Store 8,000 m² € 62,000 € 7.75 /m² Other federal state; slightly lower purchasing power dm-drogerie markt Landsberg am Lech Drugstore 831 m² € 6,440 € 7.75 /m² Similar purchasing power Rossmann Treuchtlingen Drugstore 531 m² € 5,193 € 9.78 /m² Similar purchasing power Deichmann Karlstadt Shoe store 467 m² € 4,651 € 9.96 /m² Similar purchasing power KiK Bad Kissingen Discount Fashion 525 m² € 5,119 € 9.75 /m² Similar purchasing power 0 0 0 0 m² € 0 € 0.00 /m² 0
Investment Comparables
Year of Gross Date of Property Type Area Comment Construction Multiplier Transaction Retail Park 2009/2010 8,500 m²13.8-fold Q1 2011 tegut; Deichmann, Takko; WALT 12.5 yrs; good location, no competition Retail Park 1996 25,000 m² 13.7-fold Q1 2011 Anchor tenant: large-scale hypermarket; high level of competition; WALT: 6yrs Retail Park 2008 6,000 m² 14.6-fold Q1 2011 Anchor tenant: electronics store; office; WALT: 7.5 yrs Self-service department store 2006 13,000 m² 13.8-fold Q2 2012 Famila; WALT approx. 9.26 yrs Self-service department store 1982/1995 12,000 m² 12.5-fold Q2 2010 Real; WALT approx. 12 yrs Retail Park n.a. 27,955 m² n.a. 2012 property in Baden-Wuerttemberg, purchase price approx. € 49.00m Standalone n.a. 10,100 m² n.a. 2011 property in Lower Saxony, purchase price approx. € 17.61m Retail Park n.a. 20,000 m² 11.2-fold Q3 2011 Saxony, WALT > 10 years, purchase price approx. € 29.6m, Kaufland, Esprit
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Property Summary
Key Figures
Property type Retail Park Main tenant Handelshof SB Warenhaus GmbH & Co. KG
Total lettable area 10,769 m² Total parking units 606 units
Current vacancy rate 0.8% Weighted average lease term 7.4 years
Year of construction 1994 Year of refurbishment n.a.
Contractual gross rental income (month 1 x 12) total p.a. € 1,239,500 per m² / month € 9.59
Total non-recoverable expenses (month 1 x 12) total p.a. € 76,822 per m² / month € 0.59
Net operating income (month 1 x 12) total p.a. € 1,162,678 per m² / month € 9.00
Market rental valuetotal p.a. € 1,275,158 Over-/Underrent based on occupied areas -0.8%
SWOT Analysis
Strengths Weaknesses Good tenant mix Limited third party usability of the large-scale retail area without refurbishment Long remaining lease term of the anchor tenant Building almost 17 years old Sufficient parking spaces High number Capital expenditures because of the structural damage Good connections to the major road B 465 and L 267 0 0 0
Opportunities Threats Extension of the lease contracts of the smaller tenants Increasing maintenance required due to the building age Finding new strong and attractive tenants Drop out of tenants before expiry of the contracts Prolognation of the lease contract after expiry 0 0 0 0 0
Property Rating (1 = very negative, 5 = very positive)
Building Location
Building age 2 16 to 25 years Macrolocation 3 Average location and catchment area Lettable Area 3 Between 10,000 and 12,500 m² Microlocation 3 Average micro location Property condition 3 Average building condition Commercial activity 3 Limited commercial activity nearby General impression 3 Average general impression Competition 3 Average competition level
Liquidity Investment Quality
WALT 4 WALT seven to ten years Investment market 3 Average property market Over- / underrent 3 Rack rented (-5% to 5%) Investment volume 4 Good lot size Quality of tenants 4 Tenants with very good credit rating Saleability 4 Good saleability within 6 months
Property Description
The property is a one-storey retail building with parking facilities on the roof. The petrol station and some undeveloped areas are located on separate plots. The ground level of the retail building is occupied by several retail tenants.The main tenant is Handelshof. The main entrances are accessible from the parking areas and located on the south side of the building. Another entrance to the retail areas is on the roof beside the parking facilities. Access to the parking areas on the roof is made possible via a ramp along the west facade. The property can be easily reached from Obere Stegwiesen. Structurally, the building consists of a steel-beton construction. The main entrance is equipped with glazed elements and the entrance is provided by automatic sliding doors.
Valuation Results
Market Value Market Rental Value
€ 14,700,000 equals to € 1,337 per m² € 1,275,158 p.a. equals to € 9.87 / m² / p.m.
Discount Rate 7.10% Net Initial Yield 7.60% excluding 6.75% Multiplier (initial) 11.62 capital Capitalisation Rate6.75% Net Reversionary Yield 7.83% expenditures 6.95% Multiplier (based on MRV) 11.29
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Location
Germany Macroeconomic Indicators (Source: GfK, BBE, BBSR/Inkar 2012)
Federal State Baden-Wurttemberg District Biberach (Rural District) City Biberach Postcode 88400
Population Federal State absolute 10,744,921 Population District absolute 417,267 Population City absolute 3,350 Number of Households City absolute 1,483 Population Density District per km² 224 Population Density City per km² 0 Population Forecast (2007 - 2025) District in % 2.9% Population Growth (2002 - 2007) Federal State in % 0.8% Population Growth (2002 - 2007) District in % 1.1% Unemployment Rate (6/2012) Federal State in % 3.7% Unemployment Rate (6/2012) District in % 2.3%
Structual Data (Source: GfK and BBE 2012)
Purchasing Power District in m € 8,239 Purchasing Power City in m € 73 Purchasing Power Index Federal State index 106.68 Retail Purchasing Power Index District index 100.32 Retail Centrality Index District index 94.00
Biberach Macro Location
Biberach an der Riß is located in the south-east of the federal state Baden-Wurttemberg. The closest major cities are Memmingen (approx. 43 km south-east; 41,085 inhabitants) and Ulm (approx. 47 km north-east; 122,000 inhabitants). The closest motorway is the A7, connecting to Flensburg (near the Danish border) in the north and to Füssen (close to the Austrian border) in the south, can be reached in a distance of approx. 33 km. Furthermore, the A8, connecting to Munich and farther on, Austria in the south-east and to Perl near the French border in the north-west, can be reached in a distance of approx. 47 km.
Biberach has a train station, which connects Biberach to the cities of Stuttgart and Munich via regional trains. The nearest airport offering connections to national and international destinations is Friedrichshafen, located approx. 67 km from the city centre of Biberach an der Riß. Furthermore, the Stuttgart Airport is located approx. 136 km away and the Munich Airport is situated approx. 151 km away. Biberach an der Riß is a strong business location. The city has both known and globally-operated large corporations, as well as many mid-size industrial and trading companies. Well-known companies in Biberach an der Riß are Liebherr, Boehringer Ingelheim, Handtmann, EnBW and KaVo. Furthermore, Biberach is also known for its university, Biberach University of Applied Sciences.
Micro Location Micro Location
The property is located in the north-east of the city and is less than 4 km from Biberach city centre. The property itself is located on a side road near the B 465, L 251 and L 267; it is bordered by industrial and trading companies.
0
Local Tax Information
Real Estate Tax Rate (Typ B) City in % 300 Land Transfer Tax City in % 5.0
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Site Plan
Source: Cadastral plan on a 1 to 2500 scale, dated 29.12.2010 Site Information
Site area 29,632 m² Ground lease No thereof surplus land 5,588 m² Ground lease expiry n.a. Surplus land value (net) € 56 /sqm € 313,312 Comment Site servicing Fully serviced The site consists of three separate pl. 3003/2, 3002 and 3002/1: all have an even topogr. It can be accessed fr. the western side by foot or fr. the eastern side by car. According to the Environmental Due Site layout 3003/2: trapezoidal, 3002: trinagular, 3002/1: square Diligence report, dated July 2007, the site is not registered in the register of contaminated sites. According to the land charges register of Biberach (page 2500 nr.1) one building encumbrance exists Soil contamination No Suspicion reg. t. limited sales areas (max. 9500m²) a. t. product ranges. Furthermore, areas for admin. a. parking spaces must be built. For purposes of this valuation, we assume that the building encumbrances have Building encumbrances Yes no effect on t. valuation. For t. purposes of this valuation, we have assumed that t. subject property is free of any soil or building conta. For purpose of this valuation, we assumed t. land value pursuant to the committee of experts of Biberach.
Town Planning
Use class SO (special zone) Comment According to information from the local planning authority, a development plan exists, entitled "Obere Site coverage ratio (GRZ) 0,8 Stegwiese 332" and dated 11.11.1995, with the following regulations: the subject site is located in special zone ("Sondergebiet"). The plot ratio (Geschossflächenzahl, GFZ) is 2.4 and the site coverage Plot ratio (GFZ) 2.4 ratio (Grundflächenzahl, GRZ) is 0.8.
Cubic index (BMZ) n.a.
Tenure
Land Register Owner Sheet Plot Parcel Section 2 (Restrictions) Section 3 (Loans) Local Court of Biberach TPL Biberach S.á.r.l., 12876 SO 3849, SO 3003/2, 3002, 2 easements. 1. for t. owner o. t. prop. parc. 49 Land charges in the total amount of € 19,584,384 in an der Riß, land register Luxembourg 3849 (VN 3002/1 Bahnhofstr. 2 a. parc. 55 Bahnhofstr. 1 with favour of Bank of Scotland (branch Frankfurt) of Biberach an der Riß 2008/71), SO 49,50a (reg. t. rig. o. water pipe). 2. i. favr. o. t. 3849 (VN owner o. t. parc. 775, Eisenbahn EB 1 a. parcel 2008/71) 2997, 2998, 2999, 3000, 3001, 3025, 3026, 3027, 3028 a. 3029 (reg. t. rig. o. wayleave). Limited personal easements. 1. (reg. o. t. clamping station, power line a. access) in favr. o. t. Energie-Versorgung Schwaben AG, 2. (reg. o. t. retain a. operate o. a hypermar.) i. favr. o. Kaufland Dienstl. GmbH Co. KG Neckarsulm. Rig. o. acquisition i. favr. o. alb-elektric OHG located i. Biberach. Restrictive covenant, 1.i. favour of t. particular owner for t. parcel 3003/2, 2. favour o. Kaufland Dienstl. GmbH Co. KG Neckarsulm (reg. t. durable omission reg. operate o. f. exa. discoun., supermar. o. eating house) Source: Extract from the land register dated 03.12.2010
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Competitor Map
Source: Jones Lang LaSalle Research
Competitor Overview
Name Address Type Sales area Distance Potential Marktkauf 88400 Biberach, Sandgrabenstr. 52 Hypermarket 2,965 m² 1.90 km Medium Obi 88400 Biberach, Hubertus Liebrecht-Str. 44 DIY n.a. 1.50km Medium 0 0 0 0 0 0 0 0 0 0 0 0 0
Competiton Indicators
Inhabitants in primary catchment area 6,628 Inhabitants per hypermarket in primary catchment area 2,209
Inhabitants in secondary catchment area 46,311 Inhabitants per hypermarket in secondary catchment area 15,437
Inhabitants in tertiary catchment area 77,216 Inhabitants per hypermarket in tertiary catchment area 25,739
Number of households in the district 1,483 Population forecast for the district (2007 - 2025) 2.9%
Retail Purchasing Power Index (District) 100.32 Retail Centrality Index (District) 94.00
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Main competitors
This competitor is a retail park located in the north-east of Biberach. The main tenant is OBI. Other This competitor is a medium-sized Marktkauf. The location of Marktkauf is very good. It is located tenants for example are Lidl, a drinks cash-and-carry and Euronics. The retail park "Biber Center" is between the main road, L 267, and a residential area. The Marktkauf is a serious competitor. well located directly on the main road L 267. The property is a serious competitor.
Competition Comment
The catchment area can be differentiated into primary (0 – 5 min driving distance), secondary (5 – 10 min) and tertiary (10 – 15 min) catchment areas. Approximately 6,630 inhabitants live in the primary catchment area. While the density of hypermarkets is relatively high in the primary catchment area, the competition eases in the secondary and tertiary catchment area. Even though there are several discounters and small- sized supermarkets located in Biberach, it can be said that these present only indirect competition to the property. Kaufland offers a very deep and broad product range with more than 50,000 products, while discounter and supermarkets offer a limited product range with only 7,000 to 11,000 (supermarkets) or 400-2,500 (discounters) articles. Therefore, these retailing forms address different customers or customer needs. While supermarkets and discounters cater to the daily needs of customers, Kaufland offers a larger variety of products that are bought on a non-daily basis. There are two direct competitors within 2 km.
The first competitor, a retail park called “Biber Center” is located in a distance of 1.5 km directly on the main road L 267. The location of this centre compared to our centre is better, as it is can be accessed directly from the L 267 and is therefore very visible. The Biber Center seems to be newer and has a good mix of tenants. The main tenant is an OBI market; other tenants include Lidl, a drinks cash-and-carry, Burger King and Euronics. The Biber Center has no supermarket, just a Lidl discounter, which offers another product range. In addition, the significant difference in size and product range also differentiates the properties, especially the DIY stores. The OBI market offers a wider range and is more upscale than the discount DIY at the subject property. Therefore, it can be said that the Biber Center represents only medium competition. Another direct competitor is Marktkauf, which is 1.9 km away. The Marktkauf is directly located on the main road L 267 and is very visible. However, it can not be directly accessed from the main road; instead, it is necessary to drive first through a residential area to reach the store. While the Kaufland is primarily reachable by car, the competitor can also be reached by foot from the adjacent residential area. The Marktkauf probably has similar construction date as the valued property and offers a similar assortment. The competitor does not offer as many parking facilities as the valued property. The valuation property offers a wide range of products due to the various tenants, while the competitor has just some minor tenants like a bakery and a hairdresser. Even though the properties may attract different customers and have slightly different primary catchment areas, the catchment areas strongly overlap and two hypermarket stores for a city of only 32,000 inhabitants can be problematic. Overall, it can be said that the competition level in Biberach is medium to high, especially due to the existence of a similar Marktkauf nearby.
Turnover analysis
The rents in functional retail agglomerations are linked to turnover. The percentage rate that a retail tenant can use for rental payments depends on the margins achievable in the various market sectors. This rate normally ranges between 2% and 15% depending on the respective branch. The productivity varies between approx. € 1,000/m² and up to more than € 10,000/m². Kaufland is represents a very strong anchor, we believe that there will always be demand for such ancillary tenants. We have not been provided with any turnover figures for Kaufland. For Kaufland, we have also been provided with turnover figures. We have analysed the figures and have found the area productivity of Kaufland to be in a healthy range. With a turnover-to-rent ratio of less than 2% it lies below the range of 2% to 4%, which is acceptable for a self- service department store. Hence, we believe that a higher market rent is achievable after the end of the lease contract. Please also refer to the rent/turnover analysis on page 8.
0
Conclusion
The property in Biberach is located in the direct vicinity of several serious competitors. The property is currently used for retail use; regarding third-party use, retail is the best option, because of the structural conditions like the very good parking facilities, the allocation and the equipment of the areas of the value property. The strengths of the property include that is almost fully let, the well-known status of the main tenant, the length of the lease contract of the main tenant and the very good parking facilities. In contrast, some weaknesses include the limited third-party usability, the limited visibility and the secluded location as a whole. The leasing capacity is for this property medium because of the building age and the existing density of competitors.
0
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Rent Roll
Tenant Name Area Category Letting Area Rent Rent / m² Tenant Lease Lease Renewal Tenant Status m² / unit / month / month pays VAT Start End Probability pays * 1 AWG Allgemeine Warenvertriebs GmbH Retail Let 1,144 € 10,863 9.50 Yes 03.11.1994 03.11.2019 75% I 2 Marktkauf Autonom BM Vermietungs GmbH & Co. KG Retail Let 4,150 € 42,337 10.20 Yes 01.07.1999 30.06.2019 75% GT I 3 Vacant RetailVacant 42 € 0 0.00 4 Walser + Schwaderer GmbH RetailLet 47 € 2,637 56.10 Yes 01.11.2004 31.10.2014 75% GT I PM 5 Yilmaz Retail Let44 € 1,324 30.44 Yes 06.04.2005 05.04.2015 75% GT I PM 6 Bäckerei Mäschle OHG Retail Let 53 € 7,032 131.69 Yes 01.10.2004 30.09.2019 75% GT I PM 7 Vacant Retail Vacant 42 € 0 0.00 8 Essanelle Hair Group AG Retail Let 31 € 1,837 58.95 Yes 06.11.2006 05.11.2016 75% GT I PM 9 Handelshof SB Warenhaus GmbH & Co. KG Retail Let 5,216 € 28,688 5.50 Yes 01.10.2007 30.09.2022 75% 10 FOTOFIX Schnellphotoautomaten GmbH Other Units Let 1 € 70 69.95 Yes 01.06.2007 30.11.2012 100% M GT I PM 11 Deutsche Plakat-Werbung GmbH & Co. KG Other Units Let 3 € 13344.17 Yes 03.08.2009 02.08.2014 100% M GT I PM 12 HPV Hanseatic Petrol Vertriebs GmbH Petrol StationLet 2,103 € 7,2153.43 Yes 01.09.2005 31.08.2015 0% M GT I 13 Kurzzeitmieter Other Units Let 1 € 1,157 1156.83Yes 01.10.2008 31.01.2011 100% 14 Parkplatzanzahl External parking Let 606 € 00.00 00.01.1900 00.01.1900 0% 0%
Total 12,872 m² € 103,292 * M = Maintenance, GT = Ground Tax, I = Insurance Costs, PM = Property Management
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Valuation Assumptions
Tenant Name Area Category Area Market Market Re-letting Initial Re-letting Rent Agency Lease Renewal sqm/unit Rent Rent /month Tis Void VPV*Void* Abatem.* Fees* Term** Probability 1 AWG Allgemeine Warenvertriebs GmbH Retail 1,144 € 9.50 € 10,863 € 50 0 12 0 3 10 75% 2 Marktkauf Autonom BM Vermietungs GmbH & Co. KG Retail 4,150 € 9.50 € 39,425 € 50 0 12 0 3 10 75% 3 Vacant Retail 42 € 25.00 € 1,057 € 100 0 15 0 3 5 75% 4 Walser + Schwaderer GmbH Retail 47 € 50.00 € 2,350 € 1000 15 0 3 5 75% 5 Yilmaz Retail 44 € 25.00 € 1,088 € 100 0 15 0 3 5 75% 6 Bäckerei Mäschle OHG Retail 53 € 130.00 € 6,942 € 100 0 15 0 3 5 75% 7 Vacant Retail 42 € 25.00 € 1,050 € 100 0 15 0 3 5 75% 8 Essanelle Hair Group AG Retail 31 € 50.00 € 1,559 € 100 0 15 0 3 5 75% 9 Handelshof SB Warenhaus GmbH & Co. KG Retail 5,216 € 8.00 € 41,727 € 50 0 12 0 3 10 75% 10 FOTOFIX Schnellphotoautomaten GmbH Other Units 1 € 69.95 € 70 € 0 0 12 0 0 5 100% 11 Deutsche Plakat-Werbung GmbH & Co. KG Other Units 3 € 44.17 € 133 € 0 0 12 0 0 5 100% 12 HPV Hanseatic Petrol Vertriebs GmbH Petrol Station 2,103 € 0.00 € 0 € 0 0 0 0 0 0 0% 13 Kurzzeitmieter Other Units 1 € 0.00 € 0 € 0 00 0 0 0 100% 14 Parkplatzanzahl External parking 606 € 0.00 € 0 € 0 0 0 0 0 0 0%
Total 12,872 sqm € 106,263 * months ** years ***structural vacancy
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Property Analysis
Area Analysis Lettable AreaArea Vacant Area Let Vacancy Rate Use Category m² m² m² % Office 0 0 0 0.00% Office Retail DIY Retail 10,769 84 10,685 0.78% DIY 0 0 0 0.00% Warehouse 0 0 0 0.00% Commercial 0 0 0 0.00% Warehouse Commercial Residential Residential 0 0 0 0.00% Storage 0 0 0 0.00% Total area 10,769 84 10,685 0.78% Petrol Station 2,103 0 2,103 0.00% Storage Other Units 5 0 5 0.00% Internal parking 0 0 0 0.00% External parking 606 0 606 0.00% Total parking 2,714 0 606 0.00%
Income Analysis Contractual Contractual Contractual Potential Market MarketMarket Over-/ Under- Rent Rent Rent Rent Rent Rent Rent Rented Use Category €/m²/month €/month €/year €/year €/m²/month €/month €/year Office 0.00 0 0 0 0.00 0 0 0.0% Retail 8.86 94,718 1,136,614 1,146,575 9.85 106,061 1,272,728 -10.0% DIY 0.00 0 0 0 0.00 0 0 0.0% Warehouse 0.00 0 0 0 0.00 0 0 0.0% Commercial 0.00 0 0 0 0.00 0 00.0% Residential 0.00 0 00 0.00 0 0 0.0% Storage 0.00 0 0 0 0.00 0 0 0.0% Petrol Station 3.43 7,215 86,574 86,574 0.00 0 0 0.0% Other Units 271.86 1,359 16,311 16,311 40.49 202 2,429 571.4% Total area 9.67 103,292 1,239,500 1,249,461 9.87 106,263 1,275,158 -2.0% Internal parking 0.00 000 0.00 0 0 0.0% External parking 0.00 0 0 0 0.00 0 0 0.0%
Assessment of Kaufland market rent
Space productivity Turnover to rent ratio Explanation
7,000 14.00
13.00 Usual market % - levels 6,500 12.84 12.00 Market rent
6,000 11.00 Contractual Rent
10.00 5,500 9.63 Rents % € / m² 9.00 Contractual 1.7% 5.50 5,000 8.00 8.00 5,287 Market 2.5% 8.00 7.00 4,500 4% of turnover 12.84 Rent / m² / month 6.42 6.00 3% of turnover 9.63 4,000 5.50 5.00 2% of turnover 6.42
3,500 4.00 Turnover potential 20,089,294 € (net) 3.00 Sales Area ~ 3,800 m² 3,000 2.00 Total Area 5,216 m² in € / m² p.a. 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% based on sales area Turnover-rent-ratio
Self-service department stores usually can afford to pay a rent in the range of 2% to 4% of their net turnover (economically sustainable rent burden) and have a space productivity of about € 4,000 to € 6,000 per m² sales area. The two graphics above indicate, how the contract rent of the main tenant Kaufland as well as the assumed market rental level, can be assessed on the basis of usual market ranges. This analysis is based on the turnover potential figures prepared by Trade Dimension.
D&B Rating of Main Tenant
Main tenant Comment
Tenant name Handelshof SB Warenhaus GmbH & Co. KG The main tenant is a corporation belonging to the Kaufland Group, which in turn belongs to the Lidl & Rent p.a. € 344,251 Schwarz Group, one of the biggest grocer groups in Europe. Kaufland is the self-service department Share of total income 28% store division of Lidl & Schwarz with more than 500 locations across Europe. Kaufland’s core business WALT 10.3 years area is food retailing with branded goods and own-brands specially produced for Kaufland. According to Payment Index 75 Dun & Bradstreet (D&B) rating as at 02.02.2011 Handelshof SB-Warenhaus GmbH & Co. KG has a Capital indicator 5AA2 below-average credit risk. The risk of insolvency (D&B Score) within the next 12 months compared with Risk indicator 2 other German companies is assessed to be low, i.e. 84% of businesses on the German database have Score 84 the same or higher risk of failure. Credit limit € 560,000 (single) € 39,000,000 (total)
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Assumptions Market Value
Lease Contract Commentary The property is let to ten retail tenants. There are at the moment 84 m² vacant. The WALT of the property amounts to 7.4 years. The property is currently rack rented. This figure includes the turnover rents of the tenants Bäckerei Mäschel, Cetin, HPV Hanseatic, Walser and Yilmaz, which we belive to be sustainable until the end of the respective lease contracts. The property is nearly let at market rental level. The lease contract of the main tenant expires in 2022. Kaufland’s rent is indexed and will be adapted by 50% of the CPI change, whenever the change exceeds 10 percent in relation to the CPI basis. Indexation started on 01.04.2009. The majority of the tenants pay all costs (including ground tax, insurance costs and management costs) except for maintenance costs for structural repairs. The rest can be apportioned to the tenants in accordance with the German Regulation on Operating Costs. However, due to negligence of the current owner, these costs are currently not apportioned to the tenant. As this could be changed and cost schedules could be drafted this year, we have assumed that all costs will be apportioned to the respective tenants. The tenant E-Plus has vacated the property. Furthermore, some rental increases due to indexations have taken place. 0
General Property Assumptions Discount Rate Comment
Discount rate 7.10% The yields applied reflect the individual location quality (macro- and micro-location) of the properties, building structure, letting situation, covenant strength and the relationship between contractual and Capitalisation rate 6.75% market rent. We derive the discount rate from market transactions. The discount rate reflects the rate of return expected by investors and is determined based on the risk associated with a property. As Capital expenditures* € 1,618,471 reinsurance, the initial yields profile is aligned with the market/other transactions. We have taken into account such facts as the short remaining lease term and the lasting condition of the subject property. Vacancy costs € 10.00 /m²/p.a. * on the basis of cost estimates provided by RT Facility Management GmbH & Co. KG, dated June 2012
Breakdown of Non-Recoverable Costs
% of Gross Inflation Contract** per year per year (month 1 x 12) Contract Rent Maintenance costs € 4.50 /m² € 48,460 3.91% Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 after 2021 Management costs € 1.73 /m² € 18,593 1.50% Inflation 1.0% 1.5% 1.5% 1.5% 1.4% 1.3% 1.4% 1.4% 1.4% 1.4% 1.6% Ground tax € 0.62 /m² € 6,688 0.54% Insurance costs € 0.29 /m² € 3,082 0.25% Market Rental Growth Other non-recoverable costs € 0.00 /m² € 0 0.00% Total non-recoverable expenses € 7.13 /m² € 76,822 6.20% Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 after 2021 ** JLL analysis Rental Growth 1.0% 1.5% 1.5% 1.5% 1.4% 1.3% 1.4% 1.4% 1.4% 1.4% 1.6%
Market % of Gross Contract per year per year (assuming full occupancy) Market Rent Maintenance costs Maintenance costs € 4.50 /m² € 48,460 3.80% Management costs Management costs € 1.78 /m² € 19,127 1.50% Ground tax € 0.62 /m² € 6,688 0.52% Ground tax € 0.29 /m² € 3,082 0.24% Insurance costs Insurance costs Other non-recoverable costs € 0.00 /m² € 0 0.00% Total non-recoverable expenses € 7.18 /m² € 77,357 6.07% Other non-recoverable costs
Total Non-recoverable Costs
Maintanance Management Ground Insurance Other Non- Vacancy Total % of Total Costs Costs Tax Costsrecoverable Costs Costs per year Gross Revenue Year 1 € 48,702 € 18,774 € 8,629 € 5,271 0 € € 705 € 82,081 6.6% Year 2 € 49,311 € 19,099 € 8,737 € 5,337 0 € € 0 € 82,484 6.5% Year 3 € 50,051 € 18,886 € 8,868 € 5,417 0 € € 237 € 83,459 6.6% Year 4 € 50,802 € 18,060 € 9,001 € 5,498 0 € € 75 € 83,436 6.9% Year 5 € 51,538€ 18,070 € 9,131 € 5,578 0 € € 111 € 84,428 7.0% Year 6 € 52,234 € 18,514 € 9,255 € 5,653 0 € € 152 € 85,808 7.0% Year 7 € 52,939 € 18,539 € 9,380 € 5,730 0 € € 153 € 86,741 7.0% Year 8 € 53,680 € 15,483 € 9,511 € 5,810 0 € € 14,783 € 99,267 9.6% Year 9 € 54,432 € 18,503 € 9,644 € 5,891 0 € € 0 € 88,470 7.2% Year 10 € 55,194 € 18,525 € 9,779€ 5,974 0 € € 0 € 89,472 7.2% Year 11 € 55,994 € 18,528 € 9,921 € 6,061 0 € € 4,985 € 95,489 7.7%
Non-Recoverable Costs as a percentage of Total Gross Revenue 12.0%
10.0% 9.6%
8.0% 7.2% 6.9% 7.0% 7.0% 7.0% 7.2% 6.6% 6.5% 6.6%
6.0%
4.0%
2.0%
0.0%
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Cash Flow Market Value
Total Non- Net TIs and Present Rental Turnover Rent Gross recoverable Operating Capital Leasing Value @ Revenue Vacancy Abatements Revenue Costs Income Expenditures Commissions Cash Flow 7.10% Year 1 € 1,272,888 -€ 21,268 € 0 € 1,251,620 -€ 82,081 € 1,169,539 -€ 1,626,899 -€ 6,416 -€ 463,776 -€ 499,043 Year 2 € 1,273,282€ 0 € 0 € 1,273,282 -€ 82,484 € 1,190,798 € 0 € 0 € 1,190,798 € 1,077,663 Year 3 € 1,271,131 -€ 12,051 € 0 € 1,259,080-€ 83,459 € 1,175,621 -€ 1,223 -€ 1,838 € 1,172,560 € 990,933 Year 4 € 1,206,249 -€ 2,281€ 0 € 1,203,968 -€ 83,436 € 1,120,532 -€ 1,132 -€ 857 € 1,118,543 € 882,663 Year 5 € 1,211,337 -€ 6,680 € 0 € 1,204,657 -€ 84,428 € 1,120,229 -€ 835 -€ 1,256 € 1,118,138 € 823,626 Year 6 € 1,238,850 -€ 4,586 € 0 € 1,234,264 -€ 85,808 € 1,148,456 € 0 € 0 € 1,148,456 € 790,033 Year 7 € 1,240,543 -€ 4,615 € 0€ 1,235,928 -€ 86,741 € 1,149,187 -€ 2,286 -€ 1,730 € 1,145,171 € 735,340 Year 8 € 1,230,657 -€ 198,438 € 0 € 1,032,219 -€ 99,267 € 932,952 -€ 74,497 -€ 47,790 € 810,665 € 483,372 Year 9 € 1,233,506 € 0 € 0 € 1,233,506 -€ 88,470 € 1,145,036 € 0 € 0 € 1,145,036 € 641,117 Year 10 € 1,234,978 € 0 € 0 € 1,234,978 -€ 89,472 € 1,145,506 € 0 € 0 € 1,145,506 € 598,849 Year 11 € 1,283,610 -€ 48,394 € 0 € 1,235,216 -€ 95,489€ 1,139,727 -€ 29,910 -€ 9,999 € 17,513,490 € 8,820,191 Total Cashflow (incl. Terminal Value @ 6.75 %) € 15,344,744 Gross Value of Surplus Land € 333,677 Gross Capital Value incl. Surplus Land € 15,678,421 Total Gross Revenue versus Net Operating Income
€ 1400000.0 7.5% 8.0% 7.6% 7.5% 7.3% 7.3% 7.3% 7.3% 7.1% 7.1% 7.0% € 1200000.0
6.0% 6.0% € 1000000.0
5.0% € 800000.0
4.0%
Rental income € 600000.0 Running yield 3.0%
€ 400000.0 2.0%
€ 200000.0 1.0%
€.0 0.0% Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Valuation Results Market Value
Rent Overview Gross Capital Value (rounded) Contractual gross rental income (month 1 x 12) total p.a. € 1,239,500 per m²/month € 9.59 Total € 15,700,000
Market rental value total p.a. € 1,275,158 per m² € 1,421 per m²/month € 9.87 Over-/Underrent -0.83% Purchaser's costs 6.50% Yield Overview
Net Initial Yield 7.60% Market Value (rounded) Net Reversionary Yield 7.83% Total € 14,700,000 Gross Initial Yield 8.61% Gross Reversionary Yield 8.86% per m² € 1,337
Valuation Comment
In terms of risk, we considered the covenant strength of the tenants as well as the lease duration of the existing contracts.As at 02.02.2011 the main tenant Handelshof SB-Warenhaus GmbH & Co. KG has good covenant strength, which ensures a secure cash flow for the remainder of the lease term until at least 2022. In terms of a resale, we took into account such facts as visibility, demographic factors, appearance, condition and building age, third-party usability, competition situation and location. For the purpose of the valuation on 30.06.2012, we have been provided with updated insurance costs as well as updated ground tax and have applied them in our valuation. Other costs have remained unchanged and have been applied according to information received during the previous valuation cycle. For management costs, we have applied 1.5% of the effective gross rent. We have been provided with updated information regarding necessary capital expenditures. Capital expenditures for repairs in the amount € 1,618,471 have been taken into account in Year 1. The main tenant, Marktkauf Holding GmbH, has good covenant strength and is a subsidiary of Edeka Group. However, the premises are occupied by a subsidiary of REWE (B1). It could not be clearified whether the premises are sublet with consent of the landlord or were taken over by REWE. For the purpose of this valuation, we assumed that the lease with Marktkauf is still in place and was sublet to REWE with consent of the landlord. The restrictions of Division II, have no effect on the value of the property, except for the land value of parcel 3002/1. For this land value, we have assumed a lower value because of the restrictive easement. Furthermore, for the purpose of this valuation, we assumed the land value pursuant to the committee of experts in Biberach. Regarding comparable rents we have had recourse to evidence of similar areas situated in the comparable regions and locations.
Furthermore, we have analysed comparable transactions. Please refer to the section "Investment Comparables".Compared to the previous valuation there are some rent indexations and the tenants Cetin (42m²) and E-Plus vacated the property.
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Photos
Western front view of the property Access to the parking areas on the roof
View of the petrol station View of the DIY market
Internal view of the mall Internal view of the Kaufland
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Leasing and Investment Market
Leasing Market Investment Market
There is no homogeneous rental level for retail space in retail warehouses or retail parks throughout Stable economic growth has brought Germany in the focus of real estate investors throughout Europe. Germany. However, the spread between the average and the absolute prime rent is not as big as in At the end of 2011 the total amount of retail investments amounted to approximately € 10.6 billion, high street locations. The overall potential for rental growth in retail parks in Germany is best whereas the figure stood at € 1.4 billion at the end of Q1 2012. Hence, it accounted for 45%, and 27% summed up as mediocre. Depending on the tenant branch, rental rates for discounters, department respectively, of the total investments in commercial properties in Germany. This represents the reverse stores and DIY stores remain stable due to the high competition on the market, but the rents for figures of office investments (30% in 2011 and 45% in Q1 2012). Whereas the 2011 total investment in fashion stores have uplift potential simply due to the fact that these stores are increasing their retail properties clearly exceeded the figure of 2010 presence in retail parks and are prepared to pay high rents. and was close to the 2007 level, Q1 2012 marks the first drop within three years of consecutive growth. The rental level of retail warehouses and retail parks is the result of their location in urban centres or Within the retail investment market, the shares of the major asset classes shifted slightly between 2011 rural areas, and the resulting quality of the location in terms of catchment area, competition, and Q1 2012. High street properties/department stores and shopping centres remained the largest accessibility and visibility. While rental levels in Bavaria generally lie slightly above the average asset classes with a share of 37% and 35% respectively (compared to 32% and 45% respectively in western German rent levels due to the state’s strong economy, rental levels in eastern German 2011). This equals an investment volume of € 518 million and € 490 million. towns are generally slightly lower than their western counterparts, as these areas have a lower purchasing power and generate on average lower revenues. In the retail warehouse and retail park However, retail parks accounted for 15% (8% in 2011), whereas retail warehouses accounted for 5% segment, the maximum rents are determined by a percentage of the turnover expectancy. (8% in 2011). Investments in supermarkets/discounters represented 3% in 2011 but went down to less The rents within the different branches vary. This is due to the diverging location assessment and than 1% in the Q1 2012. Transactions involving other retail properties and a portfolio of kiosks took up turnover expectancy of the different tenants. If in the case of a retail park the management succeeds an 8% share. In 2011some large transactions drove up the amount of investments in shopping centre in establishing good anchor tenants, which guarantee a high visitor frequency, then the turnover high street properties and department stores. In Q1 2012, however, large transactions were virtually expectancy of secondary tenants tends to be higher. Therefore, some anchor tenants are able to absent. negotiate lower rents because their existence in a property increases the rental level of the others. The yield compression, which could be observed since 2009 and throughout 2011, came to a halt in Q1 Depending on the size of the retail unit and the branch of the tenants, rents in retail parks in western 2012 with respect to retail parks, shopping centres and retail high street unit shops/department stores. German locations generally range between € 5.00 and € 13.00 /m²/month. Prime yields for shopping centres are now close to 5% and, consequently, are very close to those of Depending on the size of the retail unit and the retail format of the store, rents for supermarkets are prime offices – an occurrence which has not taken place since a brief period in 2007. Net initial yields generally slightly higher than the rents for discounters. Rents for supermarkets in western German for prime retail parks went down to approximately 6% at the end of 2011 and have remained stable locations generally range between € 7.00 and € 13.00 /m²/month. Rents for discounters in western ever since. Germany generally range between € 6.00 and € 12.00 /m²/month, while discounters located in With respect to retail properties, we expect a progressively stable trend with the highest investment eastern Germany generally achieve slightly lower rental rates ranging between € 5.00 and € 11.00 share anticipated for shopping centres and high street properties. Furthermore, we predict that the /m²/month. Drugstores, textile, shoe and electronics branches generally achieve rental rates ranging German real estate market will remain the focus of foreign investors. In the Q1 2012 the buy side was from € 7.50 to € 12.00 /m²/month for rental areas with a size between 500 and 750 m². DIY stores dominated by insurance companies, open funds and private investors. We expect this to continue and need extensive space due to their broad product range with rental prices ranging between € 6.00 for foreign investors along with asset managers, developers and banks to become more active in the and € 10.00 /m²/month. course of 2012. Leasing Comparables
Tenant City Property Type Area Total Rent p.m. Rent p. sqm Comment OBI AG Rudolstadt DIY 5,358 m² € 31,023 € 5.79 /m² Other federal state, slightly lower purchasing power OBI AG Ottendorf-Ottkrilla DIY 6,000 m² € 28,320 € 4.72 /m² Other federal state Praktiker Hillesheim DIY 5,278 m² € 26,284 € 4.98 /m² Worse purchasing power Kaufland Moosburg Self-Service Department Store 4,165 m² € 42,067 € 10.10 /m² Better purchasing power Kaufland Freital Self-Service Department Store 8,000 m² € 62,000 € 7.75 /m² Other federal state; slightly lower purchasing power Kaufland Hameln Self-Service Department Store 4,425 m² € 29,692 € 6.71 /m² Worse purchasing power Kaufland Schwäbisch Hall Self-Service Department Store 5,850 m² € 55,283 € 9.45 /m² Similar purchasing power 0 0 0 0 m² € 0 € 0.00 /m² 0
Investment Comparables
Year of Gross Date of Property Type Area Comment Construction Multiplier Transaction Retail Park 2009/2010 8,500 m²13.8-fold Q1 2011 tegut; Deichmann, Takko; WALT 12.5 yrs; good location, no competition Retail Park 1996 25,000 m² 13.7-fold Q1 2011 Anchor tenant: large-scale hypermarket; high level of competition; WALT: 6yrs Retail Park 2008 6,000 m² 14.6-fold Q1 2011 Anchor tenant: electronics store; office; WALT: 7.5 yrs Self-service department store 2006 13,000 m² 13.8-fold Q2 2012 Famila; WALT approx. 9.26 yrs Self-service department store 1982/1995 12,000 m² 12.5-fold Q2 2010 Real; WALT approx. 12 yrs Retail Park n.a. 27,955 m² n.a. 2012 property in Baden-Wuerttemberg, purchase price approx. € 49.00m Standalone n.a. 10,100 m² n.a. 2011 property in Lower Saxony, purchase price approx. € 17.61m Retail Park n.a. 20,000 m² 11.2-fold Q3 2011 Saxony, WALT > 10 years, purchase price approx. € 29.6m, Kaufland, Esprit
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Property Summary
Key Figures
Property type Retail Park Main tenant ALPHA Warenhandel GmbH & Co. KG
Total lettable area 9,494 m² Total parking units 400 units
Current vacancy rate 0.0% Weighted average lease term 6.0 years
Year of construction 2003 Year of refurbishment n.a.
Contractual gross rental income (month 1 x 12) total p.a. € 1,062,502 per m² / month € 9.33
Total non-recoverable expenses (month 1 x 12) total p.a. € 87,823 per m² / month € 0.77
Net operating income (month 1 x 12) total p.a. € 974,678 per m² / month € 8.56
Market rental valuetotal p.a. € 1,197,694 Over-/Underrent based on occupied areas -11.3%
SWOT Analysis
Strengths Weaknesses City centre location No further extension possible All retail areas on ground floor level Some tenants (C&A, Takko, Kramer Schuhe) have short lease terms (2013) Very good accessibility - sufficient parking spaces 0 Modern retail park with good tenant mix 0 Strong anchor tenant Kaufland with long term lease contract 0
Opportunities Threats Limited number of competitors in Borken Termination of short term lease contracts with subsequent void periods Positive future population growth prospects for Borken 0 Low unemployment rate 0 Extension of lease contracts with short remaining term 0 Underrent of Kaufland lease, however, difficult to realise potential as extension options are in place 0
Property Rating (1 = very negative, 5 = very positive)
Building Location
Building age 4 6 to 10 years Macrolocation 3 Average location and catchment area Lettable Area 2 Between 7,500 and 10,000 m² Microlocation 4 Good micro location Property condition 4 Good building condition Commercial activity 4 Average commercial activity nearby General impression 4 Good general impression Competition 4 Low competition level
Liquidity Investment Quality
WALT 3 WALT three to seven years Investment market 3 Average property market Over- / underrent 4 Slightly underrented (-5% to -15%) Investment volume 4 Good lot size Quality of tenants 4 Tenants with very good credit rating Saleability 4 Good saleability within 6 months
Property Description
The property (completion date 2003) consists of a single-storey L-shaped retail building; on its ground floor, it has several retail units as well as parking areas and substructures on the roof. Main access is provided from the south side of the building alongside a roofed passageway in front of the building. Approximately 400 parking spaces (470 spaces acc. to the building permit) are located on the inner courtyard to the south of the building as well as on the roof. Access to the parking facilities on the roof is provided via a ramp along the west facade. The delivery zone is located at the northern side of the building complex. The main entrance provides access to the large Kaufland unit (approx. 5,500 m²), two medium sized units (Kramer Schuhe 675m² and C&A 350 m²) and a shopping mall with small shops (between 20 - 80 m²). Three additional shopping units can directly be accessed from outside the building. An escalator connects the ground floor with the parking deck on the roof. The structure of the building consists of concrete columns in regular grids, pre-cast concrete beams and concrete floor slab. Staircases are of pre-cast concrete elements. The flat roof is constructed as a parking area with prefabricated slabs on layer insulation. The facades to the east and to the south are constructed as rear ventilated facades with a facing of exposed brickwork. The upper half of the porch is equipped with a cover of industrial glass. Partitions within the administration and staff areas are from plasterboard. Corridors are equipped with PVC flooring, painted walls and grid ceilings with external lights. The standard office shows carpet flooring, painted walls and a suspended grid ceiling with external lights. The complex has a gas-powered heating system with ventilation systems, air heaters and standard heaters.
Valuation Results
Market Value Market Rental Value
€ 14,500,000 equals to € 1,527 per m² € 1,197,694 p.a. equals to € 10.51 / m² / p.m.
Discount Rate 6.90% Net Initial Yield 6.33% excluding 6.33% Multiplier (initial) 13.65 capital Capitalisation Rate6.50% Net Reversionary Yield 7.19% expenditures 7.19% Multiplier (based on MRV) 12.11
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Location
Germany Macroeconomic Indicators (Source: GfK, BBE, BBSR/Inkar 2012)
Federal State North Rhine-Westphalia District Borken (Rural District) City Borken Postcode 46325
Population Federal State absolute 17,872,763 Population District absolute 369,666 Population City absolute 41,216 Number of Households City absolute 17,261 Population Density District per km² 260 Population Density City per km² 270 Population Forecast (2007 - 2025) District in % 2.7% Population Growth (2002 - 2007) Federal State in % -0.4% Population Growth (2002 - 2007) District in % 1.5% Unemployment Rate (6/2012) Federal State in % 8.0% Unemployment Rate (6/2012) District in % 4.1%
Structual Data (Source: GfK and BBE 2012)
Purchasing Power District in m € 6,826 Purchasing Power City in m € 790 Purchasing Power Index Federal State index 101.21 Retail Purchasing Power Index District index 93.81 Retail Centrality Index District index 93.80
Borken Macro Location
Borken is situated in the federal state of North Rhine-Westphalia in the region of Münsterland close to the Dutch border and has a population (city) of approx. 41,000. It is located about 30 km north of the large agglomeration area 'Ruhrgebiet', which has approx. 10 million inhabitants (nearby cities include Duisburg, Oberhausen, Essen Gelsenkirchen and Dortmund). The A3 and A31 federal motorways can be accessed within a distance of 5 - 10 km from Borken. Immediate access is possible to the B67 and B70 federal roads.
The city’s train station is linked to the regional railway network. The nearest station connected to the ICE high-speed train network is located in, for example, Duisburg about 40 km away.
The closest passenger airport, Düsseldorf International, can be reached in a distance of approx. 80 km south or Münster-Osnabrück International in 80 km north. The economy of Borken (within the rural region Münsterland) is primarily characterised by small- and medium-sized companies active in various sectors, as well as handcraft sector. Historically, the textile industry was – and still is – an important factor in the region. Borken also somewhat benefits from the strategic location between the Netherlands, Münster and the Ruhrgebiet. Thus, the region is also attractive for logistics companies and related service providers.
Micro Location Micro Location
The property is located on the boundary of the city centre of Borken on a highly frequented through- road, Heidener Strasse, and can directly be accessed from a traffic circle. The surrounding area is characterised by a mixture of retail, office, industrial and residential buildings. To the east, the building adjoins Heidener Strasse; to the north, an access road for fire fighting vehicles can be found; and to the west, the complex is bordered by a public walkway open for pedestrians and bicycles.
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Local Tax Information
Real Estate Tax Rate (Typ B) City in % 441 Land Transfer Tax City in % 5.0
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Site Plan
Source: Cadastral plan on a 1 to 1,000 scale, dated 27.12.2010 Site Information
Site area 17,337 m² Ground lease No thereof surplus land 0 m² Ground lease expiry n.a. Surplus land value (net) n.a. € 0 Comment Site servicing Fully serviced The site has an even topography and is accessible from the east, south and west (pedestrians only). According to the Environmental DD Report from Mace GmbH, dated July 2007, the risk of subsoil / Site layout Irregular ground water contamination is considered moderate to high. Land use risk for present use of the site, however, is low, if good operation practices can be observed. Furthermore, it is stated that the Soil contamination Suspicion of contamination environmental setting risk is low to moderate with regards the surroundings of the site and high with regards to the aquifer and the brook. Overall, Mace estimates the environmental risk to e moderate to Building encumbrances No high. No cost estimates for potential decontamination measures were provided to us. For the purposes of this valuation, we have assumed that the subject property is free of any soil or building contamination.
Town Planning
Use class MK (core zone) Comment According to information from the local planning authority, a legally binding development plan exists, Site coverage ratio (GRZ) 1.0 entitled "Am Kuhn - No. BO58,2" and dated 31.05.1976, with the following regulations: the subject site is designated as core area - "MK - Kerngebiet". The maximum height of the buildings is limited to two Plot ratio (GFZ) n.a. full storeys - 60m above sea level. The permissible site coverage ratio amounts to 1.0.
Cubic index (BMZ) n.a.
Tenure
Land Register Owner Sheet Plot Parcel Section 2 (Restrictions) Section 3 (Loans) Local Court of Borken, TPL Borken S.a.r.l., 15495 007 472 Several limited personal easements (regarding Land charge in the total amount of € 16,103,535 in land register of Borken Luxemburg wayleave and pipeline easements, use of parking favour of Bank of Scotland, branch Frankfurt/Main, areas, commercial limitation) in favour of the city Germany of Borken
Several limited personal easements (regarding pipeline easements and operation of a electrical substation) in favour of the Stadtwerke Borken/Westf. GmbH, Borken
Limited personal easement to operate a hypermarket / self-service department store on the plot, including right of use for all technical installations and pipelines in favour of Kaufland Dienstleistungs GmbH & Co. KG, Neckarsulm.
Source: Extract from the land register dated 02.12.2010
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Competitor Map
Source: Jones Lang LaSalle Research
Competitor Overview
Name Address Type Sales area Distance Potential K+K Markt 46325 Borken, Nordring 70-74 Hypermarket 1,990 m² 0.80 km Medium to low E-center Wilger 46325 Borken, Otto-Hahn-Str. 8 Hypermarket 2,200 m² 1.10 km Medium to low E-center Wilger 46325 Borken, Boumannstr. 6 Hypermarket 3,000 m² 1.20 km Medium to low 0 0 m² 0.00 km 0 0 0 0 0 0 0 0 0 0 0 0
Competiton Indicators
Inhabitants in primary catchment area 26,723 Inhabitants per hypermarket in primary catchment area 8,908
Inhabitants in secondary catchment area 38,216 Inhabitants per hypermarket in secondary catchment area 12,739
Inhabitants in tertiary catchment area 68,568 Inhabitants per hypermarket in tertiary catchment area 22,856
Number of households in the district 17,261 Population forecast for the district (2007 - 2025) 2.7%
Retail Purchasing Power Index (District) 93.81 Retail Centrality Index (District) 93.80
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Main competitors
This competitor is a K+K hypermarket with a sales area of 1,990 m² and some additional small This competitor is an E-center Wilger hypermarket with a sales area of 3,000 m² and some additional ancillary shops, e.g. Ernsting's family (textile) or Ebbing (bakery). The building is situated small ancillary shops. The building is situated approximately 1.2 km to the north-west of the Kaufland approximately 800 m north-west of the Kaufland asset. Although the asset is highly visible and asset. Upon inspection, this property was highly frequented. The property is slightly set back from the located on the main road, Nordring, this property appeared to be less frequented during the main road Nordring and accessible via Burloer/ Boumannstrasse, but has a modern, attractive inspection. appearance.
Competition Comment
The catchment area can be differentiated into primary (0 - 5min driving time); secondary (5 - 10min) and tertiary (10 - 15min) catchment areas. Approximately 26,723 inhabitants live in the primary catchment area. This results in approx. 8,900 inhabitants per large-scale hypermarket in the primary catchment area. The total catchment area (15 minute driving distance) amounts to approx. 133,500 inhabitants (i.e. 44,500 per large scale hypermarket).
Even though there are several discounters and small-scale supermarkets located nearby (4 in primary catchment area), it can be said that these represent only indirect competition for the property. Kaufland offers a very deep and broad product range with more than 50,000 products, while supermarkets and discounters generally offer a limited product range with only 7,000 to 11,000 (supermarkets) or 400-2,500 (discounters) items. Therefore, these retailing forms address different customers or customer needs. While supermarkets and discounters cater to the daily needs of customers, Kaufland offers a larger variety of products that are bought on a non-daily basis.
The main competitors for the Kaufland store in Borken are the K+K Markt as well as two E-center Wilger hypermarkets, all within the primary catchment area. However, due to the smaller size, retail concept and partly weaker micro-location, the competition potential of these markets is fairly limited. No other large scale hypermarket is situated in a 15 minute driving distance. For the other retailers in the subject retail park such as textile and shoe shops, the retail area in the city centre of Borken (only in walking distance) can be regarded as the main competitor.
Turnover analysis
The rents in functional retail agglomerations are linked to turnover. The percentage rate that a retail tenant can use for rental payments depends on the margins achievable in the various market sectors. This rate normally ranges between 2% and 15% depending on the respective industry. The productivity varies between approx. € 1,000/m² up to more than € 10,000/m². For the shoe and clothing segment, the rent amounts to approx. 6.0 to 12.0% of the respective turnover – a substantial amount. For Kaufland, we have been provided with turnover figures. We have analysed the figures and have found the area productivity of Kaufland to be in a healthy range. With a turnover-to-rent ratio of less than 2% it lies below the range of 2% to 4%, which is acceptable for a self-service department store. Hence, we believe that a higher market rent is achievable after the end of the lease contract. Please also refer to the rent/turnover analysis on page 8.
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Conclusion
The subject property is a modern self-service department store with a small mall and some additional medium sized tenant units. As Kaufland is a strong customer magnet, we believe that it is possible to re-let the small retail units on the ground floor without longer void periods. The tenant mix shows a reasonable structure. Furthermore, the property offers sufficient parking spaces in a city centre location. The rental area of Kaufland itself can be regarded as relatively unproblematic. First of all, the location is suitable for the tenant. It can be reached by foot from the surrounding residential area as well as by car or public transport. The density of self-service department stores in the primary catchment area is low and there are no other direct competitors within 5 to 15 minutes distance. We believe that Kaufland will be able to compete with these other hypermarkets, especially because it can operate on a very low contractual rent for a long time.
The anchor tenant, Kaufland, has a lease contract until 2022 with three options each for five years, bringing the earliest possible termination date for the landlord to 2037. On the basis of our projection of likely productivity per m² and turnovers, we have calculated the market rent at a level of € 7.75/m²/month (please refer to page 8). The tenant currently pays a contractual rent of € 5.47/m²/ month. Therefore, the retail unit is currently heavily under-rented. Due to the margins realizable and under the assumption of good turnover figures, we believe that Kaufland will remain in the property until 2037. In the unlikely case that Kaufland should vacate the premises, the property could be relet to other self-service department stores, which are currently not present in the Borken real estate market, such as real or Marktkauf. Reletting the unit as a DIY store would be difficult, because of the relatively small size of the lettable area and the parking spaces not being on ground level.
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Rent Roll
Tenant Name Area Category Letting Area Rent Rent / m² Tenant Lease Lease Renewal Tenant Status m² / unit / month / month pays VAT Start End Probability pays * 1 Büsch GmbH Retail Let 80 € 6,386 79.37 Yes 08.10.2003 07.10.2013 75% GT I PM 2 ALPHA Warenhandel GmbH & Co. KG Retail Let 5,495 € 30,068 5.47 Yes 01.10.2007 30.09.2022 75% 3 Kramer Schuhe GmbH & Co. KG RetailLet 676 € 9,341 13.83 Yes 25.09.2003 31.12.2013 75% GT I PM 4 PM Service GmbH RetailLet 30 € 744 24.86 Yes 01.03.2004 31.08.2014 75% GT I PM 5 Nguyen Retail Let63 € 1,836 29.13 Yes 01.08.2010 30.06.2013 75% GT I PM 6 Reisecenter alltours GmbH Retail Let 49 € 653 13.22 Yes 01.11.2004 21.10.2015 75% GT I PM 7 Sparkasse Westmünsterland Retail Let 28 € 771 27.99 Yes 01.10.2003 30.09.2013 75% GT I PM 8 Takko Holding GmbH Retail Let 621 € 7,803 12.57 Yes 23.09.2003 22.09.2013 75% GT I PM 9 Paczesny Retail Let 31 € 1,018 32.53 Yes 01.10.2010 30.09.2012 75% GT I PM 10 Nyguen Retail Let 36 € 690 19.17 Yes 01.11.2011 30.10.2014 75% GT I PM 11 Adler Mode GmbH Retail Let 1,602 € 13,7358.57 Yes 01.12.2011 30.11.2021 75% GT I PM 12 C&A Mode KG RetailLet 359 € 4,64512.92 Yes 28.10.2003 15.08.2013 75% 13 Friseur Klier GmbH Retail Let 81 € 2,738 33.63Yes 01.02.2012 31.01.2021 75% GT I PM 14 Convenience Concept GmbH Retail Let 36 € 1,07029.72 Yes 08.10.2003 07.10.2015 75% GT I PM 15 Dogan RetailLet 50 € 1,151 23.01 Yes 01.11.2005 31.10.2012 75% GT I PM 16 Dogan RetailLet 46 € 1,006 22.07 Yes 27.02.2004 30.06.2015 75% GT I PM 17 Ernsting´s family GmbH & Co. KG RetailLet 144 € 2,860 19.84 Yes 25.09.2003 31.12.2015 75% GT I PM 18 Ernsting´s family GmbH & Co. KG RetailLet 35 € 400 11.42 Yes 15.09.2004 31.12.2015 75% GT I PM 19 FOTOFIX Schnellphotoautomaten GmbH Other UnitsLet 1 € 84 83.57 Yes 01.06.2007 30.11.2012 100% 20 Deutsche Plakat-Werbung GmbH & Co. KG Other UnitsLet 2 € 88 44.17 Yes 03.08.2009 02.08.2014 100% 21 Kurzzeitmieter (short term tenants) Other UnitsLet 1 € 357 357.17 Yes 01.11.2008 30.09.2022 100% 22 Bott (flower shop) RetailLet 31 € 600 19.17 Yes 01.03.2011 28.02.2013 75% GT I PM 23 Le Thahn Ha Other UnitsLet 1 € 500 500.00 Yes 01.04.2011 31.03.2013 100% 24 External Parking External parkingLet 400 € 0 0.00 No 01.02.2010 30.09.2022 100%
Total 9,494 m² € 88,542 * M = Maintenance, GT = Ground Tax, I = Insurance Costs, PM = Property Management
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Valuation Assumptions
Tenant Name Area Category Area Market Market Re-letting Initial Re-letting Rent Agency Lease Renewal sqm/unit Rent Rent /month Tis Void VPV*Void* Abatem.* Fees* Term** Probability 1 Büsch GmbH Retail 80 € 80.00 € 6,437 € 50 9 9 0 3 5 75% 2 ALPHA Warenhandel GmbH & Co. KG Retail 5,495 € 7.75 € 42,585 € 50 12 12 0 3 10 75% 3 Kramer Schuhe GmbH & Co. KG Retail 676 € 13.00 € 8,782 € 50 9 9 0 3 5 75% 4 PM Service GmbH Retail 30 € 25.00 € 748 € 50 9 9 0 3 5 75% 5 Nguyen Retail 63 € 25.00 € 1,575 € 50 9 9 0 3 5 75% 6 Reisecenter alltours GmbH Retail 49 € 13.00 € 642 € 50 9 9 0 3 5 75% 7 Sparkasse Westmünsterland Retail 28 € 25.00 € 688 € 50 9 9 0 3 5 75% 8 Takko Holding GmbH Retail 621 € 13.00 € 8,067 € 50 9 9 0 3 5 75% 9 Paczesny Retail 31 € 25.00 € 783 € 50 9 9 0 3 5 75% 10 Nyguen Retail 36 € 25.00 € 900 € 50 9 9 0 3 5 75% 11 Adler Mode GmbH Retail 1,602 € 9.25 € 14,820 € 50 12 12 0 3 5 75% 12 C&A Mode KG Retail 359 € 13.00 € 4,672 € 50 12 12 0 3 5 75% 13 Friseur Klier GmbH Retail 81 € 25.00 € 2,035 € 50 99 0 3 5 75% 14 Convenience Concept GmbH Retail 36 € 25.00 € 900 € 50 9 9 0 3 5 75% 15 Dogan Retail 50 € 25.00 € 1,250 € 50 99 0 3 5 75% 16 Dogan Retail 46 € 25.00 € 1,140 € 50 99 0 3 5 75% 17 Ernsting´s family GmbH & Co. KG Retail 144 € 13.00 € 1,874 € 50 12 12 0 3 5 75% 18 Ernsting´s family GmbH & Co. KG Retail 35 € 13.00 € 455 € 50 12 12 0 3 5 75% 19 FOTOFIX Schnellphotoautomaten GmbH Other Units 1 € 83.57 € 84 € 0 00 0 0 1 100% 20 Deutsche Plakat-Werbung GmbH & Co. KG Other Units 2 € 44.17 € 88 € 000 0 0 1 100% 21 Kurzzeitmieter (short term tenants) Other Units 1 € 0.00 € 0 € 000 0 0 1 100% 22 Bott (flower shop) Retail 31 € 25.00 € 783 € 50 12 9 0 3 5 75% 23 Le Thahn Ha Other Units 1 € 500.00 € 500 € 0 00 0 0 1 100% 24 External Parking External parking 400 € 0.00 € 0 € 0 00 0 0 5 100%
Total 9,494 sqm € 99,808 * months ** years ***structural vacancy
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Property Analysis
Area Analysis Lettable AreaArea Vacant Area Let Vacancy Rate Use Category m² m² m² % Office 0 0 0 0.00% Office Retail DIY Retail 9,494 0 9,494 0.00% DIY 0 0 0 0.00% Warehouse 0 0 0 0.00% Commercial 0 0 0 0.00% Warehouse Commercial Residential Residential 0 0 0 0.00% Storage 0 0 0 0.00% Total area 9,494 0 9,494 0.00% Petrol Station 0 0 0 0.00% Storage Other Units 5 0 5 0.00% Internal parking 0 0 0 0.00% External parking 400 0 400 0.00% Total parking 405 0 400 0.00%
Income Analysis Contractual Contractual Contractual Potential Market MarketMarket Over-/ Under- Rent Rent Rent Rent Rent Rent Rent Rented Use Category €/m²/month €/month €/year €/year €/m²/month €/month €/year Office 0.00 0 0 0 0.00 0 0 0.0% Retail 9.22 87,513 1,050,153 1,050,153 10.44 99,136 1,189,631 -11.7% DIY 0.00 0 0 0 0.00 0 0 0.0% Warehouse 0.00 0 0 0 0.00 0 0 0.0% Commercial 0.00 0 0 0 0.00 0 00.0% Residential 0.00 0 00 0.00 0 0 0.0% Storage 0.00 0 0 0 0.00 0 0 0.0% Petrol Station 0.00 0 0 0 0.00 0 0 0.0% Other Units 205.81 1,029 12,349 12,349 134.38 672 8,063 53.2% Total area 9.33 88,542 1,062,502 1,062,502 10.51 99,808 1,197,694 -11.3% Internal parking 0.00 000 0.00 0 0 0.0% External parking 0.00 0 0 0 0.00 0 0 0.0%
Assessment of Kaufland market rent
Space productivity Turnover to rent ratio Explanation
7,000 11.00
10.41 Usual market % - levels 6,500 10.00 Market rent
6,000 9.00 Contractual Rent
8.00 5,500 7.757.81 Rents % € / m²
7.00 Contractual 2.1% 5.47 5,000 Market 3.0% 7.75 6.00 4,500 4% of turnover 10.41
Rent / m² / month 5.47 5.20 5.00 3% of turnover 7.81 4,000 4.00 2% of turnover 5.20
3,500 3,990 Turnover potential 17,156,874 € 3.00 (net) Sales Area ~ 4,300 m² 3,000 2.00 Total Area 5,495 m² in € / m² p.a. 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% based on sales area Turnover-rent-ratio
Self-service department stores usually can afford to pay a rent in the range of 2% to 4% of their net turnover (economically sustainable rent burden) and have a space productivity of about € 4,000 to € 6,000 per m² sales area. The two graphics above indicate, how the contract rent of the main tenant Kaufland as well as the assumed market rental level, can be assessed on the basis of usual market ranges. This analysis is based on the turnover potential figures prepared by Trade Dimension.
D&B Rating of Main Tenant
Main tenant Comment
Tenant name ALPHA Warenhandel GmbH & Co. KG The main tenant is a corporation belonging to the ALPHA Warenhandel GmbH & Co. KG, which in turn Rent p.a. € 360,815 belongs to the Lidl & Schwarz Group, one of the biggest grocer groups in Europe. According to Dun & Share of total income 34% Bradstreet (D&B) rating as at 01.01.2011 ALPHA Warenhandel GmbH & Co. KG has a below-average WALT 10.3 years credit risk. The risk of insolvency (D&B Score) within the next 12 months compared with other German Payment Index n.a. companies is assessed to be low, i.e. 66% of businesses on the German database have the same or Capital indicator DD 2 higher risk of failure. According to section 19 of the main lease agreement entered into by the landlord Risk indicator 2 and Kaufland Dienstleistung GmbH & Co. KG (D&B Rating = 2AA 1), an assignment of the main lease Score 66 agreement by the tenant to another entity of the Kaufland group requires that the landlord's credit risk Credit limit € 6,200 (single) € 27,000 (total) rating may not deteriorate due to such assignment of the lease.
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Assumptions Market Value
Lease Contract Commentary The property is fully let to approx. 20 different tenants and an undefined number of short-term tenants. The WALT of the property amounts to 6.0 years. The main tenant is Kaufland with a share of approx. 34% of the rental income. The property is currently under-rented (-11.3%), due to a very low rental level of the main tenant Kaufland. As the lease contract is valid until 2022 and the tenant has options until 2037, we do not believe that the rental level can be adjusted before 2037. The rent of Kaufland is indexed and will be adapted by 50% of the CPI change, whenever the change exceeds 10 percent in relation to the CPI basis. Indexation started on 01.04.2009. The majority of the tenants pay all costs (including ground tax, insurance costs and management costs) except for maintenance costs for structural repairs. Ground tax, maintenance costs for structural repairs, management and insurance costs will not be borne by Kaufland, C&A and some smaller other units. The rest can be apportioned to the tenants in accordance with the German Regulation on Operating Costs. However, due to the negligence of the current owner, these costs are currently not apportioned to the tenant. As this could be changed and a cost schedule could be drafted this year, we have assumed that all costs will be apportioned to the respective tenants. We are aware that the tenant Wehmeyer Lifestyle GmbH has been replaced by Adler Mode GmbH, while the tenants Convenience Concept GmbH and Rita und Hans Ferrand have been replaced by the new tenants Nyguen and Friseur Klier GmbH respectively. Furthermore, some rental increases due to indexations have taken place.
General Property Assumptions Discount Rate Comment
Discount rate 6.90% The yields applied reflect the individual location quality (macro- and micro-location) of the properties, building structure, letting situation, covenant strength and the relationship between contractual and Capitalisation rate 6.50% market rent. We derive the discount rate from market transactions. The discount rate reflects the rate of return expected by investors and is determined based on the risk associated with a property. As Capital expenditures* € 0 reinsurance, the initial yields profile is aligned with the market/other transactions. We have taken into account such facts as the stable Cash Flow, the long lease contract with the tenant Kaufland, the good Vacancy costs € 10.00 /m²/p.a. location, full occupancy and the good condition of the subject property. * on the basis of cost estimates provided by RT Facility Management GmbH & Co. KG, dated June 2012
Breakdown of Non-Recoverable Costs
% of Gross Inflation Contract** per year per year (month 1 x 12) Contract Rent Maintenance costs € 5.50 /m² € 52,215 4.91% Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 after 2021 Management costs € 1.68 /m² € 15,938 1.50% Inflation 1.0% 1.5% 1.5% 1.5% 1.4% 1.3% 1.4% 1.4% 1.4% 1.4% 1.6% Ground tax € 1.59 /m² € 15,125 1.42% Insurance costs € 0.48 /m² € 4,546 0.43% Market Rental Growth Other non-recoverable costs € 0.00 /m² € 0 0.00% Total non-recoverable expenses € 9.25 /m² € 87,823 8.27% Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 after 2021 ** JLL analysis Rental Growth 1.0% 1.5% 1.5% 1.5% 1.4% 1.3% 1.4% 1.4% 1.4% 1.4% 1.6%
Market % of Gross Contract per year per year (assuming full occupancy) Market Rent Maintenance costs Maintenance costs € 5.50 /m² € 52,215 4.36% Management costs Management costs € 1.89 /m² € 17,965 1.50% Ground tax € 1.59 /m² € 15,125 1.26% Ground tax € 0.48 /m² € 4,546 0.38% Insurance costs Insurance costs Other non-recoverable costs € 0.00 /m² € 0 0.00% Total non-recoverable expenses € 9.46 /m² € 89,851 7.50% Other non-recoverable costs
Total Non-recoverable Costs
Maintanance Management Ground Insurance Other Non- Vacancy Total % of Total Costs Costs Tax Costsrecoverable Costs Costs per year Gross Revenue Year 1 € 52,476 € 15,814 € 16,212 € 5,427 0 € € 283 € 90,212 8.6% Year 2 € 53,132 € 14,592 € 16,415 € 5,495 0 € € 4,639 € 94,273 9.7% Year 3 € 53,929 € 16,031 € 16,661 € 5,577 0 € € 170 € 92,368 8.6% Year 4 € 54,738 € 16,025 € 16,911 € 5,661 0 € € 815 € 94,150 8.8% Year 5 € 55,532€ 16,204 € 17,156 € 5,743 0 € € 0 € 94,635 8.8% Year 6 € 56,281 € 16,168 € 17,387 € 5,821 0 € € 249 € 95,906 8.9% Year 7 € 57,041 € 15,098 € 17,622 € 5,899 0 € € 5,073 € 100,733 10.0% Year 8 € 57,840 € 16,799 € 17,869 € 5,982 0 € € 184 € 98,674 8.8% Year 9 € 58,650 € 16,521 € 18,119 € 6,065 0 € € 1,106 € 100,461 9.1% Year 10 € 59,471 € 16,335 € 18,373€ 6,150 0 € € 4,573 € 104,902 9.6% Year 11 € 60,333 € 17,154 € 18,639 € 6,240 0 € € 5,440 € 107,806 9.4%
Non-Recoverable Costs as a percentage of Total Gross Revenue 12.0%
10.0% 10.0% 9.7% 9.6% 9.1% 8.8% 8.9% 8.8% 8.6% 8.6% 8.8%
8.0%
6.0%
4.0%
2.0%
0.0%
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Heidenerstraße 32 Valuation date: 30.06.2012
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Cash Flow Market Value
Total Non- Net TIs and Present Rental Turnover Rent Gross recoverable Operating Capital Leasing Value @ Revenue Vacancy Abatements Revenue Costs Income Expenditures Commissions Cash Flow 6.90% Year 1 € 1,062,774 -€ 8,531 € 0 € 1,054,243 -€ 90,212 € 964,031 -€ 2,843 -€ 2,137 € 959,051 € 930,421 Year 2 € 1,065,634-€ 92,806 € 0 € 972,828 -€ 94,273 € 878,555 -€ 46,651 -€ 23,259 € 808,645 € 733,923 Year 3 € 1,073,891 -€ 5,131 € 0 € 1,068,760-€ 92,368 € 976,392 -€ 1,703 -€ 1,286 € 973,403 € 826,249 Year 4 € 1,084,181 -€ 15,858€ 0 € 1,068,323 -€ 94,150 € 974,173 -€ 8,172 -€ 3,975 € 962,026 € 764,034 Year 5 € 1,080,296 € 0 € 0 € 1,080,296 -€ 94,635 € 985,661 € 0 € 0 € 985,661 € 732,183 Year 6 € 1,085,323 -€ 7,482 € 0 € 1,077,841 -€ 95,906 € 981,935 -€ 2,205 -€ 1,661 € 978,069 € 679,707 Year 7 € 1,108,166 -€ 101,652 € 0€ 1,006,514 -€ 100,733 € 905,781 -€ 32,502 -€ 18,391 € 854,888 € 556,944 Year 8 € 1,125,486 -€ 5,521 € 0 € 1,119,965 -€ 98,674 € 1,021,291 -€ 20,416 -€ 8,679 € 992,196 € 602,909 Year 9 € 1,125,370 -€ 23,964 € 0 € 1,101,406 -€ 100,461 € 1,000,945 -€ 6,004 -€ 4,015 € 990,926 € 563,992 Year 10 € 1,140,019 -€ 50,990 € 0 € 1,089,029 -€ 104,902 € 984,127 -€ 51,003 -€ 14,769 € 918,355 € 488,960 Year 11 € 1,198,691 -€ 55,062 € 0 € 1,143,629 -€ 107,806€ 1,035,823 -€ 31,510 -€ 10,440 € 16,685,834 € 8,561,914 Total Cashflow (incl. Terminal Value @ 6.50 %) € 15,441,236 Gross Value of Surplus Land € 0 Gross Capital Value incl. Surplus Land € 15,441,236 Total Gross Revenue versus Net Operating Income
€ 1200000.0 7.0% 6.2% 6.6% 6.5% 6.4% 6.3% 6.3% 6.4% 6.4%
5.9% 6.0% € 1000000.0 5.7%
5.0% € 800000.0
4.0%
€ 600000.0
Rental income 3.0% Running yield
€ 400000.0 2.0%
€ 200000.0 1.0%
€.0 0.0% Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Valuation Results Market Value
Rent Overview Gross Capital Value (rounded) Contractual gross rental income (month 1 x 12) total p.a. € 1,062,502 per m²/month € 9.33 Total € 15,400,000
Market rental value total p.a. € 1,197,694 per m² € 1,622 per m²/month € 10.51 Over-/Underrent -11.29% Purchaser's costs 6.50% Yield Overview
Net Initial Yield 6.33% Market Value (rounded) Net Reversionary Yield 7.19% Total € 14,500,000 Gross Initial Yield 7.33% Gross Reversionary Yield 8.26% per m² € 1,527
Valuation Comment
In terms of risk, we considered the covenant strength as well as the lease duration for the existing contracts. As at 01.01.2011, the main tenant, ALPHA Warenhandel GmbH & Co. KG, has good covenant strength, which ensures a secure cash flow for the remainder of the lease term until at least 2022. Furthermore, according to section 19 of the main lease agreement entered into by the landlord and Kaufland Dienstleistung GmbH & Co. KG (D&B Rating = 2AA 1), an assignment of the main lease agreement by the tenant to another entity of the Kaufland group requires that the landlord's credit risk rating will not deteriorate due to such an assignment of the lease. Section 1 of the first amendment to the main lease agreement provides for the assignment of the main lease agreement to ALPHA Warenhandel GmbH & Co. KG, which has a worse D&B Rating (DD 2). Pursuant to section 2 of the first amendment to the main lease agreement, the former tenant remains jointly and severally liable for the landlord's payment claims. Hence, the former tenant is a guarantor for the lease payments of the current tenant. In terms of a resale, we considered such facts as visibility, condition and building age, competition situation and location. For the purpose of the valuation on 30.06.2012, we have been provided with updated insurance costs as well as updated ground tax and have applied them in our valuation. Other costs have remained unchanged and have been applied according to information received during the previous valuation cycle. For management costs, we have applied 1.5% of the effective gross rent. Regarding comparable rents, we have had recourse to evidence of similar areas situated in the comparable regions and locations. Furthermore, we have analysed comparable transactions. Please refer to the section "Investment Comparables". The turnover and space productivity analysis shows that the main tenant Kaufland has a very low rental level. We have assumed that it is relatively unlikely to adjust the contract rent to the higher market rent after 2022 (as 3x 5-year extension options are in place), which on the other hand further improves the cash-flow security and stability. We have been provided with updated information regarding necessary capital expenditures. All Capital expenditures for repairs in the first year as well as in the periods of year 2 to 5 and year 6 to 10 are considered to be covered by the maintenance costs of € 5.50/m² p.a. As for the tenancies within the property, the following changes have taken place: the tenant Wehmeyer Lifestyle GmbH has been replaced by Adler Mode GmbH, while the tenants Convenience Concept GmbH and Rita und Hans Ferrand have been replaced by the new tenants Nyguen and Friseur Klier GmbH respectively. Furthermore, some rental increases due to indexations have taken place. As for the short term tenants, we have been provided with the income figures for the period 01.07.2011 until 30.06.2102 and have applied the monthly average in our valuation. The changes within the tenancy schedule led to a slight increase of the contractual rental income from € 1,055,415 p.a to € 1,062,502.
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Photos
View towards main Kaufland entrance View from Heidener Strasse towards rear side of the complex
Delivery zone to the north side of the building Escalator from the park deck on top of the building to the ground floor level
External porch - facade to the south Internal shopping mall
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Leasing and Investment Market
Leasing Market Investment Market
There is no homogeneous rental level for retail space in retail warehouses or retail parks throughout Stable economic growth has brought Germany in the focus of real estate investors throughout Europe. Germany. However, the spread between the average and the absolute prime rent is not as big as in At the end of 2011 the total amount of retail investments amounted to approximately € 10.6 billion, high street locations. The overall potential for rental growth in retail parks in Germany is best whereas the figure stood at € 1.4 billion at the end of Q1 2012. Hence, it accounted for 45%, and 27% summed up as mediocre. Depending on the tenant branch, rental rates for discounters, department respectively, of the total investments in commercial properties in Germany. This represents the reverse stores and DIY stores remain stable due to the high competition on the market, but the rents for figures of office investments (30% in 2011 and 45% in Q1 2012). Whereas the 2011 total investment in fashion stores have uplift potential simply due to the fact that these stores are increasing their retail properties clearly exceeded the figure of 2010 presence in retail parks and are prepared to pay high rents. and was close to the 2007 level, Q1 2012 marks the first drop within three years of consecutive growth. The rental level of retail warehouses and retail parks is the result of their location in urban centres or Within the retail investment market, the shares of the major asset classes shifted slightly between 2011 rural areas, and the resulting quality of the location in terms of catchment area, competition, and Q1 2012. High street properties/department stores and shopping centres remained the largest accessibility and visibility. While rental levels in Bavaria generally lie slightly above the average asset classes with a share of 37% and 35% respectively (compared to 32% and 45% respectively in western German rent levels due to the state’s strong economy, rental levels in eastern German 2011). This equals an investment volume of € 518 million and € 490 million. towns are generally slightly lower than their western counterparts, as these areas have a lower purchasing power and generate on average lower revenues. In the retail warehouse and retail park However, retail parks accounted for 15% (8% in 2011), whereas retail warehouses accounted for 5% segment, the maximum rents are determined by a percentage of the turnover expectancy. (8% in 2011). Investments in supermarkets/discounters represented 3% in 2011 but went down to less The rents within the different branches vary. This is due to the diverging location assessment and than 1% in the Q1 2012. Transactions involving other retail properties and a portfolio of kiosks took up turnover expectancy of the different tenants. If in the case of a retail park the management succeeds an 8% share. In 2011some large transactions drove up the amount of investments in shopping centre in establishing good anchor tenants, which guarantee a high visitor frequency, then the turnover high street properties and department stores. In Q1 2012, however, large transactions were virtually expectancy of secondary tenants tends to be higher. Therefore, some anchor tenants are able to absent. negotiate lower rents because their existence in a property increases the rental level of the others. The yield compression, which could be observed since 2009 and throughout 2011, came to a halt in Q1 Depending on the size of the retail unit and the branch of the tenants, rents in retail parks in western 2012 with respect to retail parks, shopping centres and retail high street unit shops/department stores. German locations generally range between € 5.00 and € 13.00 /m²/month. Prime yields for shopping centres are now close to 5% and, consequently, are very close to those of Depending on the size of the retail unit and the retail format of the store, rents for supermarkets are prime offices – an occurrence which has not taken place since a brief period in 2007. Net initial yields generally slightly higher than the rents for discounters. Rents for supermarkets in western German for prime retail parks went down to approximately 6% at the end of 2011 and have remained stable locations generally range between € 7.00 and € 13.00 /m²/month. Rents for discounters in western ever since. Germany generally range between € 6.00 and € 12.00 /m²/month, while discounters located in With respect to retail properties, we expect a progressively stable trend with the highest investment eastern Germany generally achieve slightly lower rental rates ranging between € 5.00 and € 11.00 share anticipated for shopping centres and high street properties. Furthermore, we predict that the /m²/month. Drugstores, textile, shoe and electronics branches generally achieve rental rates ranging German real estate market will remain the focus of foreign investors. In the Q1 2012 the buy side was from € 7.50 to € 12.00 /m²/month for rental areas with a size between 500 and 750 m². DIY stores dominated by insurance companies, open funds and private investors. We expect this to continue and need extensive space due to their broad product range with rental prices ranging between € 6.00 for foreign investors along with asset managers, developers and banks to become more active in the and € 10.00 /m²/month. course of 2012. Leasing Comparables
Tenant City Property Type Area Total Rent p.m. Rent p. sqm Comment Kaufland Freital Self-Service Department Store 8,000 m² € 62,000 € 7.75 /m² Other federal state; slightly lower purchasing power Kaufland Geldern Self-Service Department Store 8,749 m² € 67,805 € 7.75 /m² Comparable location < 50 km distance Kaufland Lübbenau Self-Service Department Store 7,887 m² € 71,298 € 9.04 /m² Comparable location < 50 km distance Kaufland Bochum Self-Service Department Store 6,388 m² € 56,214 € 8.80 /m² Comparable location < 50 km distance real,- Rhede Self-Service Department Store 8,170 m² € 57,925 € 7.09 /m² Comparable purchasing power - distance 9.0 km Marktkauf Lübbenau Self-Service Department Store 5,479 m² € 42,353 € 7.73 /m² Comparable purchasing power - distance 24.0 km Wehmeyer Herne Fashion Store 1,622 m² € 13,382 € 8.25 /m² Comparable location < 50 km distance Strauss Innovation Recklinghausen Fashion Store 1,085 m² € 10,329 € 9.52 /m² Comparable location < 50 km distance
Investment Comparables
Year of Gross Date of Property Type Area Comment Construction Multiplier Transaction Retail Park 2009/2010 8,500 m²13.8-fold Q1 2011 tegut; Deichmann, Takko; WALT 12.5 yrs; good location, no competition Retail Park 1996 25,000 m² 13.7-fold Q1 2011 Anchor tenant: large-scale hypermarket; high level of competition; WALT: 6yrs Retail Park 2008 6,000 m² 14.6-fold Q1 2011 Anchor tenant: electronics store; office; WALT: 7.5 yrs Self-service department store 2006 13,000 m² 13.8-fold Q2 2012 Famila; WALT approx. 9.26 yrs Self-service department store 1982/1995 12,000 m² 12.5-fold Q2 2010 Real; WALT approx. 12 yrs Retail Park n.a. 27,955 m² n.a. 2012 property in Baden-Wuerttemberg, purchase price approx. € 49.00m Standalone n.a. 10,100 m² n.a. 2011 property in Lower Saxony, purchase price approx. € 17.61m Retail Park n.a. 20,000 m² 11.2-fold Q3 2011 Saxony, WALT > 10 years, purchase price approx. € 29.6m, Kaufland, Esprit
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Westliche Stadtmauerstraße 27 Valuation date: 30.06.2012
91054 Erlangen Inspection date: 01.02.2011
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Property Summary
Key Figures
Property type Retail Park Main tenant Kaufland Vertrieb SIGMA GmbH & Co. KG
Total lettable area 13,398 m² Total parking units 500 units
Current vacancy rate 4.3% Weighted average lease term 7.2 years
Year of construction 1975 Year of refurbishment 2004
Contractual gross rental income (month 1 x 12) total p.a. € 1,071,740 per m² / month € 6.67
Total non-recoverable expenses (month 1 x 12) total p.a. € 363,569 per m² / month € 2.26
Net operating income (month 1 x 12) total p.a. € 708,171 per m² / month € 4.40
Market rental valuetotal p.a. € 1,450,000 Over-/Underrent based on occupied areas -22.3%
SWOT Analysis
Strengths Weaknesses Sufficient parking spaces Multi-storey self-service department store Very good accessibility from Fuchsengraben to the parking area Leasehold on car park Good branch and tenant mix Confusing route marking through the parking area to the sales area Established location, pedestrian zone of Erlangen in immediate vicinity Low visibility from "Altstadtmarktpassage" and "Hauptstraße" The former lettable area of Schlecker was relet right away One vacant retail area
Opportunities Threats Property is currently let below market rental level (under-rented) Strong dependancy from the main tenant Kaufland Prolongation of the main lease contract, Kaufland exercises its options until 2037 Other tenants along pedestrain passage could also terminate their contracts Re-letting of the vacant units Long-term vacancies possible, especially for the office area 0 0 0 0
Property Rating (1 = very negative, 5 = very positive)
Building Location
Building age 4 6 to 10 years Macrolocation 4 Good location and catchment area Lettable Area 4 Between 12,500 and 15,000 m² Microlocation 4 Good micro location Property condition 3 Average building condition Commercial activity 4 Average commercial activity nearby General impression 2 Below average general impression Competition 3 Average competition level
Liquidity Investment Quality
WALT 4 WALT seven to ten years Investment market 4 Well developed property market Over- / underrent 5 Significantly underrented (more than -15%) Investment volume 4 Good lot size Quality of tenants 4 Tenants with very good credit rating Saleability 4 Good saleability within 6 months
Property Description
The property has 4 buildings: a car park, a self-service department store, some units along an uncovered pedestrian passage and a commercial building. The 4-storey car park, accessible via Fuchsengraben, was completed in 1993. The upper parking area is roofless, and accessible via a staircase and 2 elevators. It is built as an open steel construction with reinforced concrete floor slabs. The outer boundaries have steel railings. The three-storey self-service department store was completed in 1975 and refurbished in 2004. The drinks cash-and-carry is on the ground floor. The store access is adjacent to the parking area or internally via escalators. Kaufland’s sales area, the cash area as well as several smaller shops are on the first floor. The main entrance to Kaufland is from the pedestrian passage “Altstadtmarktpassage”. The second floor is connected by escalators. The delivery zone is located south of the subject site. The delivery area for the drinks cash-and-carry and other goods are separate. However, access to both zones is via Fuchsengraben. The self-service department store is a frame construction. The façade mostly has plastered prefabricated concrete panels, with some sandwich panels. The single-storey related units are built on the first floor level of the tenant “Kaufland”. The units were built at the same time as the self-service department store. Both buildings have a flat roof. The pedestrian passage entrance is from “Kaufland” as well as from Hauptstraße. The 3-storey commercial building is located on Hauptstraße and was completed in 1975. The pedestrian passage is on the ground floor level. The façade of the commercial building is listed. The building is made of brickwork and has a gable roof.
Valuation Results
Market Value Market Rental Value
€ 10,700,000 equals to € 799 per m² € 1,450,000 p.a. equals to € 9.02 / m² / p.m.
Discount Rate 7.00% Net Initial Yield 6.32% excluding 6.32% Multiplier (initial) 9.98 capital Capitalisation Rate6.50% Net Reversionary Yield 9.65% expenditures 9.65% Multiplier (based on MRV) 7.38
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Westliche Stadtmauerstraße 27 Valuation date: 30.06.2012
91054 Erlangen Inspection date: 01.02.2011
Germany Prepared for: Brack Capital Properties N.V.
Location
Germany Macroeconomic Indicators (Source: GfK, BBE, BBSR/Inkar 2012)
Federal State Bavaria District Erlangen (Urban District) City Erlangen Postcode 91054
Population Federal State absolute 12,510,331 Population District absolute 105,554 Population City absolute 105,554 Number of Households City absolute 54,329 Population Density District per km² 1,372 Population Density City per km² 1,372 Population Forecast (2007 - 2025) District in % 2.4% Population Growth (2002 - 2007) Federal State in % 1.1% Population Growth (2002 - 2007) District in % 2.4% Unemployment Rate (6/2012) Federal State in % 3.4% Unemployment Rate (6/2012) District in % 3.8%
Structual Data (Source: GfK and BBE 2012)
Purchasing Power District in m € 2,604 Purchasing Power City in m € 2,604 Purchasing Power Index Federal State index 108.34 Retail Purchasing Power Index District index 125.31 Retail Centrality Index District index 124.79
Erlangen Macro Location
Erlangen is located in the Middle Franconia region in the federal state of Bavaria, approx. 25 km north of Nuremberg. With the cities of Nuremberg and Fuerth, approx. 18 km south of Erlangen, it forms the metropolitan region Nuremberg. The city has approx. 105,000 inhabitants. The economic structure is predominantly affected by Siemens AG. The city of Erlangen is the second largest Siemens AG location worldwide. Different divisions of Siemens AG are operated from Erlangen. Furthermore, some faculties of the Friedrich-Alexander-Universität Erlangen-Nürnberg are located in Erlangen. The university is the second largest in the state of Bavaria.
Erlangen is well connected to the German railway network. The city is directly connected to the A73 federal motorway and to the A3 federal motorway. The A9 federal motorway is located about 20 km away and can be reached in less than 20 minutes. It runs from Berlin to Munich. The city’s traffic network is further supplemented by the B4 federal road. Erlangen Central Station is a stopping point for ICE trains. The nearest airport is Nuremberg Airport approx. 15 km from Erlangen. It can be reached in less than 12 minutes.
Micro Location Micro Location
The self-service department store is located along Westliche Stadtmauerstraße, whereas the building parts at the Altstadtmarktpassage extend to the east along Hauptstraße. The high street of Erlangen is located south of the property just 200 m away. The subject property is accessible via Fuchsengraben by car and from Hauptstraße by foot. A bus stop is located directly in front of the three-storey commercial building along Hauptstraße. Due to the city centre location of the property, the surrounding is characterised by a relatively high density of retail and residential use. The central station is located approximately 250 m south of the property. The B4 federal road can be accessed in about 3.2 km. The A74 federal motorway is located around 850 m away.
Local Tax Information
Real Estate Tax Rate (Typ B) City in % 460 Land Transfer Tax City in % 3.5
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Westliche Stadtmauerstraße 27 Valuation date: 30.06.2012
91054 Erlangen Inspection date: 01.02.2011
Germany Prepared for: Brack Capital Properties N.V.
Site Plan
Source: Cadastral plan on a 1 to 2000 scale, dated 28.12.2010 Site Information
Site area 17,609 m² Ground lease Yes thereof surplus land 0 m² Ground lease expiry 30.06.2017, but 30 years options Surplus land value (net) n.a. € 0 Comment Site servicing Fully serviced The site is built on different levels. The parking area and the drinks cash-and-carry are constructed at the same level as Fuchsengraben, whereas the main entrance of the self-service-department store and Site layout Irregular the pedestrian passage is constructed at the same level of Hauptstraße. The part of the site with the car park is bordered by the railway line to the west. To the east, Fuchsengraben runs in an S-curve along Soil contamination No Suspicion Westliche Stadtmauerstraße, where it is tangent to the street along the railway line. The S-curve is the western border of the part of the site with the pedestrian passage. This part of the site is bordered by Building encumbrances No Hauptstraße to the east. For the purposes of this valuation, we have assumed that the subject property is free of any soil or building contamination.
Town Planning
Use class MK (core zone) Comment According to information from the local authority in Erlangen, a legally binding development plan exists, Site coverage ratio (GRZ) n.a. entitled no. 253 “Fuchsenwiese” and dated 31.03.1994. The non-food sales area is maximized to 5,000m². The maximum number of full storeys is limited to two, with some areas permitted only to have Plot ratio (GFZ) n.a. one storey.
Cubic index (BMZ) n.a.
Tenure
Land Register Owner Sheet Plot Parcel Section 2 (Restrictions) Section 3 (Loans) Local Court of Erlangen, TPL Erlangen S.à.r.l., 13012 0 Sheet 13012 Sheet 13012 / 16691 / 27710 Sheet 13012 / 16991 land register of Luxembourg 16991 972, 972/1, Limited personal easement (right to operate a self-Land charges in the total amount of € 11,950,000 in Erlangen 27710 (leasehold) 1587/1, 1587/2 service department store) in favour of Kaufland favour of Bank of Scotland (branch Frankfurt), 28698 Dienstleistungs GmbH & Co. KG registered on 19.10.2007 Sheet 16991 14 (75/100 co- Sheet 27710 Sheet 27710 ownership) Leasehold of € 350,000 per year in favour of the Land charges in the total amount of € 2,800,000 in landlord of parcel 1583/7, registered until favour of Bank of Scotland (branch Frankfurt), Sheet 27710 30.06.2017, currently in Sheet 28698 registered on 19.10.2007 1583/7 Sheet 28698 Reservation of right to prolongate the leasehold (first option for further 20 years, second option for further 10 years) in favour of the leaseholder Further rights in 13012 / 16991 / 27710 / 28698
Source: Extract from the land register dated 02.12.2010
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Westliche Stadtmauerstraße 27 Valuation date: 30.06.2012
91054 Erlangen Inspection date: 01.02.2011
Germany Prepared for: Brack Capital Properties N.V.
Competitor Map
Source: Jones Lang LaSalle Research
Competitor Overview
Name Address Type Sales area Distance Potential Kaufland 91052 Erlangen, Carl-Thiersch-Str. 4 Self-service dep. store 5,353 m² 1.90 km Medium to low E-center 91052 Erlangen, Michael-Vogel-Str. 1a Hypermarket 2,500 m² 1.30 km Low Rewe Plank 91052 Erlangen, Karl-Zucker-Str. 10 Hypermarket 1,773 m² 1.90 km Low E-center Bächmann 91056 Erlangen, Neumühle 4 Hypermarket 2,600 m² 2.30 km Low Rewe 91058 Erlangen, Cumianastr. 4 Hypermarket 2,374 m² 2.70 km Low Edeka Neugebauer 91088 Bubenreuth, Frankenstr. 75 Hypermarket 1,600 m² 3.10 km Low Edeka 91058 Erlangen, Weidenweg 1-3 Hypermarket 1,650 m² 4.30 km Low Rewe Zwingel 91083 Baiersdorf, Forchheimer Str. 49 Hypermarket 1,650 m² 8.20 km Low Rewe Wittmann 91077 Neunkirchen, Zum Neuntagwerk 9 Hypermarket 2,300 m² 8.80 km Low Handelshof 91074 Herzogenaurach, Ohmstr. 12 Hypermarket 1,716 m² 8.90 km Low 0 0 m² 0 0 0 0 0
Competiton Indicators
Inhabitants in primary catchment area 101,202 Inhabitants per hypermarket in primary catchment area 14,457
Inhabitants in secondary catchment area 179,655 Inhabitants per hypermarket in secondary catchment area 19,962
Inhabitants in tertiary catchment area 460,706 Inhabitants per hypermarket in tertiary catchment area 41,882
Number of households in the district 54,329 Population forecast for the district (2007 - 2025) 2.4%
Retail Purchasing Power Index (District) 125.31 Retail Centrality Index (District) 124.79
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Westliche Stadtmauerstraße 27 Valuation date: 30.06.2012
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Germany Prepared for: Brack Capital Properties N.V.
Main competitors
A self-service department store, Kaufland, is located in a distance of approximately 1.9 km south- A supermarket “E-Center” is located in close proximity to the railway tracks. It comprises 2,500 m² of east of the subject property. It comprises 5,350m² of sales area. Parking facilities are available sales area. The supermarket is located approx. 1.3 km south of the subject property. Parking facilities directly in front of the competitor as well as in an adjacent car park. The surrounding area is are available in front of the competitor as well as in the underground car park. Some smaller rather characterised by modern office use, medical services and residential use. The competitor is built on regional retailers are located near the Edeka. former military areas.
Competition Comment
The catchment area can be differentiated into primary (0 - 5min driving time); secondary (5 - 10min) and tertiary (10 - 15min) catchment areas. More than 100,000 inhabitants live in the primary catchment area. The competitor Kaufland is located in the secondary catchment area approx. 1.9 km away or less than 10 min driving distance. Thus, the vicinity to the city centre is attractive for the customers. The competing property is a one-storey structure. As both properties offer a full product range, the branch related assortment is generally problematic. In the current valuation, we assumed that the significantly larger sales area of the subject property is combined with a larger depth of product range. Furthermore, the subject location is in close proximity to Erlangen’s pedestrian zone.
As one-storey self-service department stores generally enjoy a higher degree of acceptance than multi-storey departments, we assumed that there is no immediate competition for the purchasing power of the customer. There is no direct competition between a city centre self-service department store and a location close to the city centre. Hence, we are of the opinion that both department stores can co-exist in the long term. The second competitor E-Center is located in the primary catchment area. However, with a sales area of approx. 2,500 m², the store offers a lower depth and breadth of product range. The assortment is not branch related. The second competitor is therefore also not a direct competitor of the subject property. An important advantage of the subject property over other competitors is that the close proximity of Erlangen’s pedestrian zone holds additional benefits. Thus, the parking area of the subject property is also used for shopping in the high street of Erlangen. Afterwards, the weekly shopping for every day commodities can be done.
The multi-storey sales area of the subject property is no disadvantage. Generally, development within the city centre has a higher density and is characterised by higher land use type. However, further smaller shopping facilities for everyday commodities are located within the city centre. Considering all mentioned factors, the competition level can be described as medium.
Turnover analysis
The rents in functional a retail agglomeration are linked to turnover. The percentage rate that a retail tenant can use for rental payments (turnover-to-rent ratio) depends on the margins achievable in the various market sectors. This rate normally ranges between 2% and 15% depending on the respective branch. The productivity varies between approx. € 1,000/m² and up to more than € 10,000/m². For Kaufland, we have also been provided with turnover figures. We have analysed the figures and have found the area productivity of Kaufland to be in a healthy range. With a turnover-to-rent ratio of less than 2% it lies below the range of 2% to 4%, which is acceptable for a self-service department store. Considering the location factors and the competition level within Erlangen, we assumed that a higher turnover-to-rent ratio regarding a similar branch and turnover is realistic. Hence, a higher market rent is achievable after the end of the lease contract. Please also refer to the rent/turnover analysis on page 8.
0
Conclusion
The subject property is a self-service department store situated in a very good location within Erlangen. The depth and breadth of the product range is very good. However, the property is not easily accessible by foot due to the confusing route marked from the parking area to the tenant Kaufland. The property is also less visible from the street Fuchsengraben and Hauptstraße. Furthermore, we are of the opinion that the tenant and branch mix within the one-storey units along the pedestrian passage are critical. Currently, there are five vacant units. We assumed that access from the parking area is used more frequently by customers as opposed to the access road from Hauptstraße. As the pedestrian passage can be defined as a secondary location, the frequency of passersby is rather low. Furthermore, the tenant and branch mix is not comparable with that of the pedestrian zone. The profit of the tenants within the passage is very dependent on Kaufland.
The rental area of Kaufland can be regarded as relatively unproblematic. In the unlikely case that Kaufland vacates the premises, the property could be re-let to other self-service department stores as real, Marktkauf or E-Center. However, the third-party usability of the area is limited. The lettable area is not suitable for large-scale retail purposes such as a DIY store or furniture store. Both branches are not as strong as a self-service department store. The numbers of passersby also cannot be increased in the long term. According to the turnover analysis, the turnover rent is at the lower end of the range and a higher turnover- to-rent-ratio is achievable. Therefore, the retail unit is currently heavily under-rented. We assumed that the tenant Kaufland will exercise its three options, each for five years, by 2037. During this time, there will be steady demand for ancillary lettable spaces within the property. There is no direct competition within the vicinity.
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Germany Prepared for: Brack Capital Properties N.V.
Rent Roll
Tenant Name Area Category Letting Area Rent Rent / m² Tenant Lease Lease Renewal Tenant Status m² / unit / month / month pays VAT Start End Probability pays * 1 Kraus Retail Let 73 € 950 13.01 Yes 01.06.2007 30.06.2013 75% GT I PM 2 Kaufland Vertrieb SIGMA GmbH & Co. KG Retail Let 10,737 € 56,598 5.27 No 01.10.2007 30.09.2022 75% 3 Tran Thi RetailLet 160 € 1,500 9.38 Yes 01.06.2007 31.05.2015 75% GT I PM 4 Frisör Klier GmbH RetailLet 116 € 3,100 26.72 Yes 23.06.2007 31.12.2012 75% GT I PM 5 Darlice Cosmetics/Amorim-Kneisl Retail Let88 € 910 10.34 Yes 01.10.2010 30.09.2013 75% GT I PM 6 vacant Retail vacant 85 € 0 0.00 7 Deutscher Hausfrauen-Bund e.V. Retail Let 280 € 1,556 5.56 Yes 06.12.2006 15.12.2014 75% GT I PM 8 Hauswirtschaftliches Serviceteam GmbH Retail Let 80 € 494 6.18 Yes 01.01.2008 15.12.2014 75% GT I PM 9 Stadt- und Kreissparkasse Erlangen Retail Let 34 € 445 12.99 No 06.02.2007 30.04.2013 75% GT I 10 Stadt Erlangen Retail Let 161 € 805 5.00 Yes 15.09.2011 30.09.2012 0% GT I PM 11 Schmidl Retail Let 37 € 45212.06 Yes 01.04.2007 30.06.2014 75% GT I PM 12 Topuz Retail Let 41 € 1,042 25.68 Yes 01.09.2004 31.08.2014 75% GT I PM 13 Endres Retail Let 47 € 2,277 48.45 Yes 02.07.2007 01.07.2017 75% GT I PM 14 Orientteppich-Galerie Retail Let 137 € 1,047 7.65 Yes 01.12.2010 30.11.2012 75% GT I PM 15 Apotheke Bernd Nürmberger Retail Let 87 € 3,067 35.25 Yes 01.01.2001 31.12.2015 75% GT I PM 16 Rüffer Retail Let 112 € 1,368 12.22 Yes 01.10.2010 30.09.2013 75% GT I PM 17 Linus Schade + Julian Wening Residential Let 102 € 746 7.33 Yes 01.08.2007 30.09.2012 75% GT I PM 18 Müller Residential Let 139 € 734 5.28 Yes 01.10.2009 30.09.2012 75% GT I PM 19 Tran Thi Storage Let 60 € 0 0.00 Yes 01.06.2007 31.05.2015 75% GT I PM 20 Deutsche Plakat-Werbung GmbH & Co. KG Other Units Let 12 € 530 44.17 No 03.08.2009 02.08.2014 75% 21 Hauswirtschaftliches Serviceteam GmbH Internal Parking Let 1 € 29 29.41 Yes 01.07.2008 30.09.2012 75% 22 Vacant Internal Parking vacant 1 € 0 0.00 23 Schmidl Internal Parking Let 1 € 29 29.41 Yes 01.07.2008 30.09.2012 75% 24 Bätz Internal Parking Let 1 € 29 29.41 Yes 01.10.2010 30.09.2012 75% 25 Metzgerei Ludwig Walk GmbH Internal Parking Let 1 € 29 29.41 Yes 01.08.2008 30.09.2012 75% 26 Metzgerei Ludwig Walk GmbH Internal Parking Let 1 € 29 29.41 Yes 01.08.2008 30.09.2012 75% 27 Metzgerei Ludwig Walk GmbH Internal Parking Let 1 € 29 29.41 Yes 01.08.2008 30.09.2012 75% 28 Vacant Internal Parking vacant 1 € 0 0.00 29 Vacant Internal Parking vacant 1 € 0 0.00 30 Oberbank Erlangen Internal Parking Let 1 € 29 29.41 Yes 01.06.2009 30.07.2012 75% 31 Oberbank Erlangen Internal Parking Let 1 € 29 29.41 Yes 01.06.2009 30.07.2012 75% 32 Oberbank Erlangen Internal Parking Let 1 € 29 29.41 Yes 01.06.2009 30.07.2012 75% 33 Fuchs Internal Parking Let 1 € 29 29.41 Yes 18.06.2009 30.07.2012 75% 34 Gottschling Internal Parking Let 1 € 29 29.41 Yes 11.11.2010 30.07.2012 75% 35 Meyer Internal Parking Let 1 € 29 29.41 Yes 01.04.2010 30.07.2012 75% 36 Denslinger Richardson Internal Parking Let 1 € 29 29.41 Yes 15.08.2009 30.07.2012 75% 37 Schleicher Internal Parking Let 1 € 29 29.41 Yes 01.05.2010 30.07.2012 75% 38 Haas-Eberhard Internal Parking Let 1 € 29 29.41 Yes 01.08.2010 30.07.2012 75% 39 Haas-Eberhard Internal Parking Let 1 € 29 29.41 Yes 01.08.2010 30.07.2012 75% 40 Haas-Eberhard Internal Parking Let 1 € 29 29.41 Yes 01.08.2010 30.07.2012 75% 41 Rüffer Internal Parking Let 1 € 29 29.41 Yes 01.10.2010 30.07.2012 75% 42 Gemeinnützige Wohnungsbaugesellschaft Other Units Let 1 € 0 0.00 Yes 01.01.2007 31.12.2012 75% GT I 43 Parking Garage Internal Parking Let 470 € 10,295 21.90 Yes 01.11.2008 unlimited 75% GT I 44 VACANT Retail Vacant 366 € 0 0.00 45 Stadt Erlangen Office Let 144 € 0 0.00 Yes 01.06.2011 31.05.2016 75% GT I 46 Stadt Erlangen Office Let 92 € 0 0.00 Yes 01.06.2011 31.05.2016 75% GT I 47 Orientteppich-Galerie Internal Parking Let 1 € 29 29.41 Yes 01.02.2011 30.07.2012 75% 0% 48 Orientteppich-Galerie Internal Parking Let 1 € 29 29.41 Yes 01.02.2011 30.07.2012 75% 0% 49 Mönius Internal Parking Let 1 € 29 29.41 Yes 15.02.2011 30.07.2012 75% 0% 50 Knauer Internal Parking Let 1 € 29 29.41 Yes 15.04.2011 30.07.2012 75% 0% 51 Thiem-Hofmann Internal Parking Let 1 € 0 0.00 Yes 10.03.2011 30.07.2012 75% 0% 52 Stadt Erlangen Internal Parking Let 1 € 0 0.00 Yes 01.06.2011 31.05.2016 75% 0% 53 Stadt Erlangen Internal Parking Let 1 € 0 0.00 Yes 01.06.2011 31.05.2016 75% 0% 54 Stadt Erlangen Internal Parking Let 1 € 0 0.00 Yes 01.06.2011 31.05.2016 75% 0% 55 Stadt Erlangen Internal Parking Let 1 € 0 0.00 Yes 01.06.2011 31.05.2016 75% 0% 56 Kolasinac GbR, Thiem-Hofmann Retail let 90 € 417 4.63 Yes 01.01.2012 31.07.2012 75% GT I PM 57 VACANT (former Comic-Shop) Retail Vacant 81 € 0 0.00 58 VACANT Retail Vacant 50 € 0 0.00 59 Kurzzeitmieter Other Units Let 1 € 332 332.08 Yes 00.01.1900 30.09.2022 100% 0%
Total 13,398 m² € 89,312 * M = Maintenance, GT = Ground Tax, I = Insurance Costs, PM = Property Management
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Westliche Stadtmauerstraße 27 Valuation date: 30.06.2012
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Germany Prepared for: Brack Capital Properties N.V.
Valuation Assumptions
Tenant Name Area Category Area Market Market Re-letting Initial Re-letting Rent Agency Lease Renewal sqm/unit Rent Rent /month Tis Void VPV*Void* Abatem.* Fees* Term** Probability 1 Kraus Retail 73 € 11.50 € 840 € 100 0 15 0 3 5 75% 2 Kaufland Vertrieb SIGMA GmbH & Co. KG Retail 10,737 € 7.90 € 84,819 € 50 0 12 3 3 10 75% 3 Tran Thi Retail 160 € 10.00 € 1,600 € 100 0 15 0 3 5 75% 4 Frisör Klier GmbH Retail 116 € 11.50 € 1,334 € 100 0 15 0 3 5 75% 5 Darlice Cosmetics/Amorim-KneislRetail 88 € 11.50 € 1,012 € 100 0 15 0 3 5 75% 6 vacant Retail 85 € 10.00 € 850 € 100 0 15 0 3 5 75% 7 Deutscher Hausfrauen-Bund e.V. Retail 280 € 6.00 € 1,680 € 100 0 15 0 3 5 75% 8 Hauswirtschaftliches Serviceteam GmbH Retail 80 € 10.00 € 800 € 100 0 15 0 3 5 75% 9 Stadt- und Kreissparkasse Erlangen Retail 34 € 12.00 € 411 € 100 0 15 0 3 5 75% 10 Stadt Erlangen Retail 161 € 10.00 € 1,610 € 100 0 15 0 3 5 75% 11 Schmidl Retail 37 € 12.00 € 450 € 100 0 15 0 3 5 75% 12 Topuz Retail 41 € 12.00 € 487 € 100 0 15 0 3 5 75% 13 Endres Retail 47 € 15.00 € 705 € 100 0 15 0 3 5 75% 14 Orientteppich-Galerie Retail 137 € 9.00 € 1,233 € 100 0 15 0 3 5 75% 15 Apotheke Bernd Nürmberger Retail 87 € 11.50 € 1,001 € 100 0 15 0 3 5 75% 16 Rüffer Retail 112 € 11.50 € 1,287 € 100 0 15 0 3 5 75% 17 Linus Schade + Julian Wening Residential 102 € 6.50 € 661 € 25 0 6 0 3 5 75% 18 Müller Residential 139 € 6.50 € 904 € 25 0 6 0 3 5 75% 19 Tran Thi Storage 60 € 0.00 € 0 € 0 0 15 0 3 5 75% 20 Deutsche Plakat-Werbung GmbH & Co. KG Other Units 12 € 44.17 € 530 € 0 0 15 0 0 5 75% 21 Hauswirtschaftliches Serviceteam GmbH Internal Parking 1 € 30.00 € 30 € 0 0 6 0 0 5 75% 22 Vacant Internal Parking 1 € 30.00 € 30 € 0 0 6 0 0 5 75% 23 Schmidl Internal Parking 1 € 30.00 € 30 € 0 0 6 0 0 5 75% 24 Bätz Internal Parking 1 € 30.00 € 30 € 0 0 6 0 0 5 75% 25 Metzgerei Ludwig Walk GmbH Internal Parking 1 € 30.00 € 30 € 0 0 6 0 0 5 75% 26 Metzgerei Ludwig Walk GmbH Internal Parking 1 € 30.00 € 30 € 0 0 6 0 0 5 75% 27 Metzgerei Ludwig Walk GmbH Internal Parking 1 € 30.00 € 30 € 0 0 6 0 0 5 75% 28 Vacant Internal Parking 1 € 30.00 € 30 € 0 0 6 0 0 5 75% 29 Vacant Internal Parking 1 € 30.00 € 30 € 0 66 0 0 5 75% 30 Oberbank Erlangen Internal Parking 1 € 30.00 € 30 € 0 0 6 0 0 5 75% 31 Oberbank Erlangen Internal Parking 1 € 30.00 € 30 € 0 0 6 0 0 5 75% 32 Oberbank Erlangen Internal Parking 1 € 30.00 € 30 € 0 0 6 0 0 5 75% 33 Fuchs Internal Parking 1 € 30.00 € 30 € 0 0 6 0 0 5 75% 34 Gottschling Internal Parking 1 € 30.00 € 30 € 0 0 6 0 0 5 75% 35 Meyer Internal Parking 1 € 30.00 € 30 € 0 0 6 0 0 5 75% 36 Denslinger Richardson Internal Parking 1 € 30.00 € 30 € 0 0 6 0 0 5 75% 37 Schleicher Internal Parking 1 € 30.00 € 30 € 0 0 6 0 0 5 75% 38 Haas-Eberhard Internal Parking 1 € 30.00 € 30 € 0 0 6 0 0 5 75% 39 Haas-Eberhard Internal Parking 1 € 30.00 € 30 € 0 0 6 0 0 5 75% 40 Haas-Eberhard Internal Parking 1 € 30.00 € 30 € 0 0 6 0 0 5 75% 41 Rüffer Internal Parking 1 € 30.00 € 30 € 0 0 6 0 0 5 75% 42 Gemeinnützige Wohnungsbaugesellschaft Other Units 1 € 0.00 € 0 € 0 0 0 0 0 5 75% 43 Parking Garage Internal Parking 470 € 21.90 € 10,295 € 0 0 0 0 0 5 75% 44 VACANT Retail 366 € 9.00 € 3,298 € 100 15 15 0 3 5 75% 45 Stadt Erlangen Office 144 € 6.00 € 862 € 100 0 15 3 3 5 75% 46 Stadt Erlangen Office 92 € 6.00 € 552 € 100 0 15 3 3 5 75% 47 Orientteppich-Galerie Internal Parking 1 € 30.00 € 30 € 0 0 0 0 0 5 75% 48 Orientteppich-Galerie Internal Parking 1 € 30.00 € 30 € 0 0 0 0 0 5 75% 49 Mönius Internal Parking 1 € 30.00 € 30 € 0 0 0 0 0 5 75% 50 Knauer Internal Parking 1 € 30.00 € 30 € 0 00 0 0 5 75% 51 Thiem-Hofmann Internal Parking 1 € 30.00 € 30 € 0 0 0 0 0 5 75% 52 Stadt Erlangen Internal Parking 1 € 30.00 € 30 € 0 0 0 0 0 5 75% 53 Stadt Erlangen Internal Parking 1 € 30.00 € 30 € 0 0 0 0 0 5 75% 54 Stadt Erlangen Internal Parking 1 € 30.00 € 30 € 0 0 0 0 0 5 75% 55 Stadt Erlangen Internal Parking 1 € 30.00 € 30 € 0 0 0 0 0 5 75% 56 Kolasinac GbR, Thiem-Hofmann Retail 90 € 11.50 € 1,035 € 100 15 15 0 3 5 75% 57 VACANT (former Comic-Shop) Retail 81 € 11.50 € 929 € 100 15 15 0 3 5 75% 58 VACANT Retail 50 € 15.00 € 750 € 100 15 15 0 3 5 75% 59 Kurzzeitmieter Other Units 1 € 0.00 € 0 € 0 0 0 0 0 5 100%
Total 13,398 sqm € 120,833 * months ** years ***structural vacancy
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Property Analysis
Area Analysis Lettable AreaArea Vacant Area Let Vacancy Rate Use Category m² m² m² % Office 236 0 236 0.00% Office Retail DIY Retail 12,862 582 12,280 4.53% DIY 0 0 0 0.00% Warehouse 0 0 0 0.00% Commercial 0 0 0 0.00% Warehouse Commercial Residential Residential 241 0 241 0.00% Storage 60 0 60 0.00% Total area 13,398 582 12,816 4.35% Petrol Station 0 0 0 0.00% Storage Other Units 14 0 14 0.00% Internal parking 500 3 497 0.60% External parking 0 0 0 0.00% Total parking 514 3 497 0.58%
Income Analysis Contractual Contractual Contractual Potential Market MarketMarket Over-/ Under- Rent Rent Rent Rent Rent Rent Rent Rented Use Category €/m²/month €/month €/year €/year €/m²/month €/month €/year Office 0.00 0 0 0 6.00 1,414 16,968 -100.0% Retail 6.19 76,027 912,329 969,976 8.25 106,129 1,273,548 -25.0% DIY 0.00 0 0 0 0.00 0 0 0.0% Warehouse 0.00 0 0 0 0.00 0 0 0.0% Commercial 0.00 0 0 0 0.00 0 00.0% Residential 6.15 1,480 17,758 17,758 6.50 1,565 18,779 -5.4% Storage 0.00 0 0 0 0.00 0 0 0.0% Petrol Station 0.00 0 0 0 0.00 0 0 0.0% Other Units 61.58 862 10,345 10,345 37.86 530 6,360 62.7% Total area 6.11 78,369 940,432 998,079 8.18 109,638 1,315,656 -25.3% Internal parking 22.02 10,942131,308 132,114 22.39 11,195 134,344 -1.7% External parking 0.00 0 0 0 0.00 0 0 0.0%
Assessment of Kaufland market rent
Space productivity Turnover to rent ratio Explanation
7,000 12.00
11.36 Usual market % - levels 6,500 11.00 Market rent 10.00 6,000 Contractual Rent 9.00 5,500 8.52 Rents % € / m² 8.00 7.90 Contractual 1.9% 5.27 5,000 7.00 Market 2.8% 7.90
4,500 6.00 4% of turnover 11.36 Rent / m² / month 5.68 5.27 5.00 3% of turnover 8.52 4,000 4,335 2% of turnover 5.68 4.00 3,500 Turnover potential 36,582,177 € 3.00 (net) Sales Area ~ 8,439 m² 3,000 2.00 Total Area 10,737 m² in € / m² p.a. 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% based on sales area Turnover-rent-ratio
Self-service department stores usually can afford to pay a rent in the range of 2% to 4% of their net turnover (economically sustainable rent burden) and have a space productivity of about € 4,000 to € 6,000 per m² sales area. The two graphics above indicate, how the contract rent of the main tenant Kaufland as well as the assumed market rental level, can be assessed on the basis of usual market ranges. This analysis is based on the turnover potential figures prepared by Trade Dimension.
D&B Rating of Main Tenant
Main tenant Comment
Tenant name Kaufland Vertrieb SIGMA GmbH & Co. KG According to section 19 of the main lease agreement entered into by the landlord and Kaufland Rent p.a. € 679,175 Dienstleistung GmbH & Co. KG (D&B Rating = 2AA 1), an assignment of the main lease agreement by Share of total income 63% the tenant to another entity of the Kaufland group requires that the landlord's credit risk rating may not WALT 10.3 years deteriorate due to such assignment of the lease. Section 1 of the first amendment to the main lease Payment Index n.a. agreement provides for the assignment of the main lease agreement to Kaufland Vertrieb SIGMA Capital indicator O GmbH & Co. KG. For this tenant, no financial information was available. Accordingly, pursuant to Risk indicator n.a. section 2 of the first amendment to the main lease agreement, the former tenant remains jointly and Score n.a. severally liable for the landlord's payment claims. Hence, the former tenant is a guarantor for the lease Credit limit n.a. payments of the current tenant.
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Assumptions Market Value
Lease Contract Commentary The property is let to 16 retail tenants, two residential tenants and one office tenant. Furthermore, 30 parking spaces are let for permanent use. Currently, four retail units are vacant. The WALT amounts to 7.2 years. The main tenant is Kaufland with a share of more than 60% of the rental income. The property is currently significantly under-rented due to the very low rental level of the main tenant, Kaufland. As the lease contract is valid until 2022 and the tenant has options until 2037, we do not believe that the rental level can be adjusted before 2037. Kaufland’s rent is indexed and will be adapted by 50% of the CPI change, whenever the change exceeds 10 percent in relation to the CPI basis. Indexation started on 01.04.2009. The majority of the tenants pay all costs (including ground tax, insurance costs and management costs) except for maintenance costs for structural repairs. However, due to the current owner’s negligence, these costs are currently not apportioned to the tenant. Ground tax, maintenance costs for structural repairs, management and insurance costs will not be borne by Kaufland. As this could be changed and a cost schedule could be drafted this year, we have assumed that all costs will be apportioned to the respective tenants. The tenant Schlecker has terminated its lease as at July 2011 and the tenant Stadt Erlangen has taken over the space. One rental area of 90 m² has been let for a short-term to the tenant Kolasinac GbR, Thiem- Hofmann. Furthermore, there were some rental adjustments due to indexations.
General Property Assumptions Discount Rate Comment
Discount rate 7.00% The yields applied reflect the individual location quality (macro- and micro-location) of the properties, building structure, letting situation, covenant strength and the relationship between contractual and Capitalisation rate 6.50% market rent. We derive the discount rate from market transactions. The discount rate reflects the rate of return expected by investors and is determined based on the risk associated with a property. As Capital expenditures* € 0 reinsurance, the initial yields profile is aligned with the market/other transactions. We have taken into account such facts as the stable Cash Flow, the long lease contract with the tenant Kaufland, the good Vacancy costs € 10.00 /m²/p.a. location, the low vacancy rate and the good condition of the subject property. * on the basis of cost estimates provided by RT Facility Management GmbH & Co. KG, dated June 2012
Breakdown of Non-Recoverable Costs
% of Gross Inflation Contract** per year per year (month 1 x 12) Contract Rent Maintenance costs € 6.50 /m² € 87,089 8.13% Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 after 2021 Management costs € 1.20 /m² € 16,076 1.50% Inflation 1.0% 1.5% 1.5% 1.5% 1.4% 1.3% 1.4% 1.4% 1.4% 1.4% 1.6% Ground tax € 3.90 /m² € 52,235 4.87% Insurance costs € 0.37 /m² € 4,968 0.46% Market Rental Growth Other non-recoverable costs € 15.17 /m² € 203,200 18.96% Total non-recoverable expenses € 27.14 /m² € 363,569 33.92% Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 after 2021 ** JLL analysis Rental Growth 1.0% 1.5% 1.5% 1.5% 1.4% 1.3% 1.4% 1.4% 1.4% 1.4% 1.6%
Market % of Gross Contract per year per year (assuming full occupancy) Market Rent Maintenance costs Maintenance costs € 6.50 /m² € 87,089 6.01% Management costs Management costs € 1.62 /m² € 21,750 1.50% Ground tax € 3.90 /m² € 52,235 3.60% Ground tax € 0.37 /m² € 4,968 0.34% Insurance costs Insurance costs Other non-recoverable costs € 15.17 /m² € 203,200 14.01% Total non-recoverable expenses € 27.56 /m² € 369,243 25.47% Other non-recoverable costs
Total Non-recoverable Costs
Maintanance Management Ground Insurance Other Non- Vacancy Total % of Total Costs Costs Tax Costsrecoverable Costs Costs per year Gross Revenue Year 1 € 87,525 € 15,988 € 40,173 € 6,665 214,803 € € 8,677 € 373,831 35.1% Year 2 € 88,620 € 16,913 € 40,676 € 6,749 217,490 € € 3,263 € 373,711 33.1% Year 3 € 89,949 € 17,151 € 41,286 € 6,850 220,753 € € 2,279 € 378,268 33.1% Year 4 € 91,299 € 17,060 € 41,905 € 6,953 224,064 € € 3,753 € 385,034 33.9% Year 5 € 92,622€ 17,619 € 42,512 € 7,053 227,312 € € 623 € 387,741 33.0% Year 6 € 93,872 € 17,160 € 43,086 € 7,149 230,380 € € 1,506 € 393,153 34.4% Year 7 € 95,140 € 16,786 € 43,668 € 7,245 233,491 € € 4,160 € 400,490 35.8% Year 8 € 96,472 € 17,579 € 44,279 € 7,346 236,760 € € 289 € 402,725 34.4% Year 9 € 97,822 € 17,406 € 44,899 € 7,449 240,074 € € 1,779 € 409,429 35.3% Year 10 € 99,192 € 17,520 € 45,528€ 7,554 243,435 € € 1,395 € 414,624 35.5% Year 11 € 100,630 € 17,583 € 46,188 € 7,663 246,966 € € 911 € 419,941 35.8%
Non-Recoverable Costs as a percentage of Total Gross Revenue 40.0% 35.1% 35.8% 35.3% 35.5% 33.9% 34.4% 34.4% 35.0% 33.1% 33.1% 33.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
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Westliche Stadtmauerstraße 27 Valuation date: 30.06.2012
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Germany Prepared for: Brack Capital Properties N.V.
Cash Flow Market Value
Total Non- Net TIs and Present Rental Turnover Rent Gross recoverable Operating Capital Leasing Value @ Revenue Vacancy Abatements Revenue Costs Income Expenditures Commissions Cash Flow 7.00% Year 1 € 1,171,637 -€ 105,750 € 0 € 1,065,887 -€ 373,831 € 692,056 -€ 8,828 -€ 4,449 € 678,779 € 658,444 Year 2 € 1,168,896-€ 41,338 € 0 € 1,127,558 -€ 373,711 € 753,847 -€ 82,556 -€ 25,533 € 645,758 € 583,589 Year 3 € 1,164,473 -€ 21,088 € 0 € 1,143,385-€ 378,268 € 765,117 -€ 2,016 -€ 730 € 762,371 € 645,942 Year 4 € 1,177,102 -€ 34,416-€ 5,341 € 1,137,345 -€ 385,034 € 752,311 -€ 44,480 -€ 9,944 € 697,887 € 553,003 Year 5 € 1,180,371 -€ 4,644 -€ 1,132 € 1,174,595 -€ 387,741 € 786,854 -€ 6,222 -€ 1,228 € 779,404 € 576,400 Year 6 € 1,163,573 -€ 19,566 € 0 € 1,144,007 -€ 393,153 € 750,854 -€ 3,905 -€ 3,317 € 743,632 € 514,308 Year 7 € 1,171,692 -€ 52,595 € 0€ 1,119,097 -€ 400,490 € 718,607 -€ 35,748 -€ 11,193 € 671,666 € 434,187 Year 8 € 1,176,138 -€ 4,181 € 0 € 1,171,957 -€ 402,725 € 769,232 -€ 2,177 -€ 786 € 766,269 € 462,786 Year 9 € 1,178,382 -€ 17,955 € 0 € 1,160,427 -€ 409,429 € 750,998 -€ 4,524 -€ 1,359 € 745,115 € 420,689 Year 10 € 1,182,537 -€ 11,852 -€ 2,654 € 1,168,031 -€ 414,624 € 753,407 -€ 19,396 -€ 4,299 € 729,712 € 384,598 Year 11 € 1,184,603 -€ 12,387 € 0 € 1,172,216 -€ 419,941€ 752,275 -€ 1,590 -€ 2,665 € 11,747,373 € 5,971,769 Total Cashflow (incl. Terminal Value @ 6.50 %) € 11,205,715 Gross Value of Surplus Land € 0 Gross Capital Value incl. Surplus Land € 11,205,715 Total Gross Revenue versus Net Operating Income
€ 1400000.0 8.0%
7.0% 6.8% 6.9% 6.7% 6.7% 6.7% 6.7% 6.7% 7.0% € 1200000.0 6.2% 6.4%
6.0% € 1000000.0
5.0% € 800000.0
4.0%
Rental income € 600000.0 Running yield 3.0%
€ 400000.0 2.0%
€ 200000.0 1.0%
€.0 0.0% Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Valuation Results Market Value
Rent Overview Gross Capital Value (rounded) Contractual gross rental income (month 1 x 12) total p.a. € 1,071,740 per m²/month € 6.67 Total € 11,200,000
Market rental value total p.a. € 1,450,000 per m² € 836 per m²/month € 9.02 Over-/Underrent -22.28% Purchaser's costs 5.00% Yield Overview
Net Initial Yield 6.32% Market Value (rounded) Net Reversionary Yield 9.65% Total € 10,700,000 Gross Initial Yield 10.02% Gross Reversionary Yield 13.55% per m² € 799
Valuation Comment
In terms of risk, we considered the covenant strength as well as the lease duration for the existing contracts. As at 4.2.2011, the tenant Kaufland Dienstleistung GmbH & Co. KG is the former tenant of the main lease contract and has good covenant strength. According to the second amendment of the lease contract, the former tenant remains jointly and severally liable for the landlord's payment claims. However, the lease contract ensures a secure cash flow for the remainder of the lease term until at least 2022. In terms of a resale, we took into account such facts as visibility, demographic factors, appearance, condition and building age, third-party usability, competition situation and location. Regarding the leasehold, we have assumed that the leaseholder will exercise its options for in total another 30 years. This is due to the fact that the leasehold is on the car park site, which is in our opinion essential for the operation of the self-service department store. Otherwise, there are insufficient parking spaces available. The right to prolong the leasehold is registered in Sheet 28698 in the land register of Erlangen. The annual amount of the leasehold payments was adjusted compared to the last valuation and increased to € 213,734 p.a. For the purpose of the valuation on 30.06.2012, we have been provided with updated insurance costs as well as updated ground tax and have applied them in our valuation. Other costs have remained unchanged and have been applied according to information received during the previous valuation cycle. For management costs, we have applied 1.5% of the effective gross rent. We have been provided with updated information regarding necessary capital expenditures. All Capital expenditures for repairs in the first year as well as in the periods of year 2 to 5 and year 6 to 10 are considered to be covered by the maintenance costs of € 6.50/m² per annum. Regarding comparable rents we have had recourse to evidence of similar areas situated in the comparable regions and locations. Furthermore, we have analysed comparable transactions. Please refer to the section "Investment Comparables". As for the tenancies within the property, the following changes have taken place:
The tenant Stadt Erlangen has agreed a lease contract for the former Schlecker unit. However, the unit has only been let until September 2012 and terms have to be renegotiated soon. The tenant Der Beck has vacated the premises. Two tenants underwent an indexation adjustment. Several tenants have prolonged their lease contracts. These include the tenants Kraus, Tran Thi and Friseur Klier amongst others. As for the short term tenants, we have been provided with the income figures for the period 01.07.2011 until 30.06.2102 and have applied the monthly average of approx. € 332 in our valuation (excluding the income for the parking spaces).
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Photos
View of the car park (leasehold) View of the Kaufland and the adjacent parking level from the car park
View towards the pedestrian passage ("Altstadtmarktpassage") View of the commercial building from Hauptstraße
View of a vacant retail unit at the pedestrian passage View of the entrance to the car park
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Leasing and Investment Market
Leasing Market Investment Market
There is no homogeneous rental level for retail space in retail warehouses or retail parks throughout Stable economic growth has brought Germany in the focus of real estate investors throughout Europe. Germany. However, the spread between the average and the absolute prime rent is not as big as in At the end of 2011 the total amount of retail investments amounted to approximately € 10.6 billion, high street locations. The overall potential for rental growth in retail parks in Germany is best whereas the figure stood at € 1.4 billion at the end of Q1 2012. Hence, it accounted for 45%, and 27% summed up as mediocre. Depending on the tenant branch, rental rates for discounters, department respectively, of the total investments in commercial properties in Germany. This represents the reverse stores and DIY stores remain stable due to the high competition on the market, but the rents for figures of office investments (30% in 2011 and 45% in Q1 2012). Whereas the 2011 total investment in fashion stores have uplift potential simply due to the fact that these stores are increasing their retail properties clearly exceeded the figure of 2010 presence in retail parks and are prepared to pay high rents. and was close to the 2007 level, Q1 2012 marks the first drop within three years of consecutive growth. The rental level of retail warehouses and retail parks is the result of their location in urban centres or Within the retail investment market, the shares of the major asset classes shifted slightly between 2011 rural areas, and the resulting quality of the location in terms of catchment area, competition, and Q1 2012. High street properties/department stores and shopping centres remained the largest accessibility and visibility. While rental levels in Bavaria generally lie slightly above the average asset classes with a share of 37% and 35% respectively (compared to 32% and 45% respectively in western German rent levels due to the state’s strong economy, rental levels in eastern German 2011). This equals an investment volume of € 518 million and € 490 million. towns are generally slightly lower than their western counterparts, as these areas have a lower purchasing power and generate on average lower revenues. In the retail warehouse and retail park However, retail parks accounted for 15% (8% in 2011), whereas retail warehouses accounted for 5% segment, the maximum rents are determined by a percentage of the turnover expectancy. (8% in 2011). Investments in supermarkets/discounters represented 3% in 2011 but went down to less The rents within the different branches vary. This is due to the diverging location assessment and than 1% in the Q1 2012. Transactions involving other retail properties and a portfolio of kiosks took up turnover expectancy of the different tenants. If in the case of a retail park the management succeeds an 8% share. In 2011some large transactions drove up the amount of investments in shopping centre in establishing good anchor tenants, which guarantee a high visitor frequency, then the turnover high street properties and department stores. In Q1 2012, however, large transactions were virtually expectancy of secondary tenants tends to be higher. Therefore, some anchor tenants are able to absent. negotiate lower rents because their existence in a property increases the rental level of the others. The yield compression, which could be observed since 2009 and throughout 2011, came to a halt in Q1 Depending on the size of the retail unit and the branch of the tenants, rents in retail parks in western 2012 with respect to retail parks, shopping centres and retail high street unit shops/department stores. German locations generally range between € 5.00 and € 13.00 /m²/month. Prime yields for shopping centres are now close to 5% and, consequently, are very close to those of Depending on the size of the retail unit and the retail format of the store, rents for supermarkets are prime offices – an occurrence which has not taken place since a brief period in 2007. Net initial yields generally slightly higher than the rents for discounters. Rents for supermarkets in western German for prime retail parks went down to approximately 6% at the end of 2011 and have remained stable locations generally range between € 7.00 and € 13.00 /m²/month. Rents for discounters in western ever since. Germany generally range between € 6.00 and € 12.00 /m²/month, while discounters located in With respect to retail properties, we expect a progressively stable trend with the highest investment eastern Germany generally achieve slightly lower rental rates ranging between € 5.00 and € 11.00 share anticipated for shopping centres and high street properties. Furthermore, we predict that the /m²/month. Drugstores, textile, shoe and electronics branches generally achieve rental rates ranging German real estate market will remain the focus of foreign investors. In the Q1 2012 the buy side was from € 7.50 to € 12.00 /m²/month for rental areas with a size between 500 and 750 m². DIY stores dominated by insurance companies, open funds and private investors. We expect this to continue and need extensive space due to their broad product range with rental prices ranging between € 6.00 for foreign investors along with asset managers, developers and banks to become more active in the and € 10.00 /m²/month. course of 2012. Leasing Comparables
Tenant City Property Type Area Total Rent p.m. Rent p. sqm Comment Kaufland Straubing Self-Service Department Store 7,315 m² € 76,808 € 10.50 /m² Similar purchasing power Kaufland Freital Self-Service Department Store 8,000 m² € 62,000 € 7.75 /m² Other federal state; slightly lower purchasing power Kaufland Geldern Self-Service Department Store 8,478 m² € 65,705 € 7.75 /m² Other federal state; slightly lower purchasing power Real Würzburg Self-Service Department Store 8,450 m² € 61,685 € 7.30 /m² Location is farther away from the city centre; lower purchasin Hairdresser Landshut Hairdresser 124 m² € 1,672 € 13.48 /m² Slightly lower purchasing power Pharmacy Langgöns Pharmacy 128 m² € 1,453 € 11.35 /m² 0 Pharmacy Halle Pharmacy 80 m² € 720 € 9.00 /m² Other federal state 0 0 0 0 m² € 0 € 0.00 /m² 0
Investment Comparables
Year of Gross Date of Property Type Area Comment Construction Multiplier Transaction Retail Park 2009/2010 8,500 m²13.8-fold Q1 2011 tegut; Deichmann, Takko; WALT 12.5 yrs; good location, no competition Retail Park 1996 25,000 m² 13.7-fold Q1 2011 Anchor tenant: large-scale hypermarket; high level of competition; WALT: 6yrs Retail Park 2008 6,000 m² 14.6-fold Q1 2011 Anchor tenant: electronics store; office; WALT: 7.5 yrs Self-service department store 2006 13,000 m² 13.8-fold Q2 2012 Famila; WALT approx. 9.26 yrs Self-service department store 1982/1995 12,000 m² 12.5-fold Q2 2010 Real; WALT approx. 12 yrs Retail Park n.a. 27,955 m² n.a. 2012 property in Baden-Wuerttemberg, purchase price approx. € 49.00m Standalone n.a. 10,100 m² n.a. 2011 property in Lower Saxony, purchase price approx. € 17.61m Retail Park n.a. 20,000 m² 11.2-fold Q3 2011 Saxony, WALT > 10 years, purchase price approx. € 29.6m, Kaufland, Esprit
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Gartenstraße 30 Valuation date: 30.06.2012
73312 Geislingen Inspection date: 03.02.2011
Germany Prepared for: Brack Capital Properties N.V.
Property Summary
Key Figures
Property type Retail Park Main tenant Kaufland Warenhandel Südwest GmbH & Co. KG
Total lettable area 9,390 m² Total parking units 450 units
Current vacancy rate 0.5% Weighted average lease term 7.8 years
Year of construction 2002 Year of refurbishment n.a.
Contractual gross rental income (month 1 x 12) total p.a. € 552,877 per m² / month € 4.91
Total non-recoverable expenses (month 1 x 12) total p.a. € 85,146 per m² / month € 0.76
Net operating income (month 1 x 12) total p.a. € 467,731 per m² / month € 4.15
Market rental valuetotal p.a. € 837,832 Over-/Underrent based on occupied areas -32.5%
SWOT Analysis
Strengths Weaknesses Located near the city center adjacent to the pedestrian area High level of competition (another Kaufland nearby) Sufficient parking spaces Limited third party usability of the large-scale retail area without refurbishment Strong and well-known anchor tenant The retail unit let to Kaufland is strongly underrented Long remaining lease term of the anchor tenant One vacant retail area New letting of area of former tenant Charles Vögele 0
Opportunities Threats Extension of the lease contracts of the smaller tenants Difficult relettability of the fitness studio Reletting of the main retail area on market level Increased vacancy of ancilliary areas due to low turnovers of these tenants Kaufland exercises its options until 2037 0 0 0 0 0
Property Rating (1 = very negative, 5 = very positive)
Building Location
Building age 3 11 to 15 years Macrolocation 3 Average location and catchment area Lettable Area 2 Between 7,500 and 10,000 m² Microlocation 4 Good micro location Property condition 4 Good building condition Commercial activity 3 Limited commercial activity nearby General impression 4 Good general impression Competition 2 High competition level
Liquidity Investment Quality
WALT 4 WALT seven to ten years Investment market 3 Average property market Over- / underrent 5 Significantly underrented (more than -15%) Investment volume 4 Good lot size Quality of tenants 4 Tenants with very good credit rating Saleability 4 Good saleability within 6 months
Property Description
The property has four storeys. The ground level is occupied by several retail tenants, the largest being Kaufland. The first floor is a parking level, while the second floor is partly used for parking and accommodates part of the fitness studio. The third floor is used by the fitness studio as well as a playground. The property has an elongated shape, with the long side facing the B10 federal road ("Gartenstraße"). The property is a steel-reinforced concrete construction with precast elements. The facade is partly made of brick facing and partly of galvanised steel sheets. In the entrance areas, there are curtain walls with metal frames. The roof is flat with hard covering.
The property can be accessed on the ground floor from Gartenstraße as well as from the parking levels via several elevators.
Valuation Results
Market Value Market Rental Value
€ 8,700,000 equals to € 927 per m² € 837,832 p.a. equals to € 7.44 / m² / p.m.
Discount Rate 7.25% Net Initial Yield 5.03% excluding 5.03% Multiplier (initial) 15.74 capital Capitalisation Rate6.50% Net Reversionary Yield 8.05% expenditures 8.05% Multiplier (based on MRV) 10.38
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Location
Germany Macroeconomic Indicators (Source: GfK, BBE, BBSR/Inkar 2012)
Federal State Baden-Wurttemberg District Göppingen (Rural District) City Geislingen Postcode 73312
Population Federal State absolute 10,744,921 Population District absolute 189,337 Population City absolute 6,029 Number of Households City absolute 2,671 Population Density District per km² 206 Population Density City per km² 0 Population Forecast (2007 - 2025) District in % -2.9% Population Growth (2002 - 2007) Federal State in % 0.8% Population Growth (2002 - 2007) District in % -1.1% Unemployment Rate (6/2012) Federal State in % 3.7% Unemployment Rate (6/2012) District in % 3.9%
Structual Data (Source: GfK and BBE 2012)
Purchasing Power District in m € 3,832 Purchasing Power City in m € 121 Purchasing Power Index Federal State index 106.68 Retail Purchasing Power Index District index 102.83 Retail Centrality Index District index 105.27
Geislingen Macro Location
Geislingen an der Steige is located in the east of Baden-Wuerttemberg, approx. 25 km from the border to the federal state Bavaria. The city is a minor secondary centre with approx. 27,000 inhabitants. The closest major cities are Ulm (approx. 25 km south-east; 122,000 inhabitants) and Stuttgart (approx. 50 km west; 602,000 inhabitants). The closest motorways are the A8 (Perl - Bad Reichenhall), connecting to Salzburg (Austria) in the south-east, and the A7 (Flensburg - Füssen), leading to Denmark in the north and Austria in the south. The motorways can be reached within 18 km and 25 km, respectively. Geislingen has a train station, which connects Geislingen to the cities of Stuttgart and Ulm via regional trains. The closest train station offering connections to the high-speed ICE train network is Ulm in a distance of approx. 25 km. The nearest airport offering connections to national and international destinations is Stuttgart Airport, located in a distance of approx. 56 km from the city centre of Geislingen an der Steige.
Geislingen an der Steige is characterized by an industry that has evolved over time. The economy is mainly based on the processing of steel and metal as well as the automotive supply industry and traditional beer brewing. Furthermore, Geislingen is also known for its university "Hochschule für Wirtschaft und Umwelt Nürtingen-Geislingen", offering business and real estate courses. Well-known companies based in Geislingen include Württembergische Metallwarenfabrik (WMF), ULO Fahrzeugleuchten (Odelo GmbH), Adlerbrauerei Karl Götz and Schlötter Galvanotechnik.
Micro Location Micro Location
The self-service department store is located in the southern part of Geislingen an der Steige, near the city centre. The subject property is situated adjacent to the pedestrian zone of Geislingen along a highly frequented traffic axis (federal road B10 "Gartenstraße"). The property is bordered by Römerstraße to the south, Bleichstraße to the west and Bismarckstraße to the north. The surrounding area is characterized by residential housing with some commercial usage.
0
Local Tax Information
Real Estate Tax Rate (Typ B) City in % 395 Land Transfer Tax City in % 5.0
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Site Plan
Source: Cadastral plan on a 1 to 1000 scale, dated 27.12.2010 Site Information
Site area 10,909 m² Ground lease No thereof surplus land 0 m² Ground lease expiry n.a. Surplus land value (net) n.a. € 0 Comment Site servicing Fully serviced According to the Environmental Due Diligence Report, dated July 2007, the site has been industrially used since 1850 by "Maschinenfabrik Geislingen (MAG)", whose activities included chemical and Site layout Irregular mechanical metal working and foundries. From this use stems severe subsoil and ground water contamination caused by petrol, oil, lubricants and further chemicals. The site has been gradually Soil contamination Suspicion of contamination remediated from 1989 until 1999 and the soil remediation is considered as finished according to the Landratsamt Göppingen. However, other sources suggest that there is still contaminated soil beneath Building encumbrances No the property and it is likely that the site is listed in the contaminated land cadastre as remediated with residual contamination. For the purposes of this valuation, we have assumed that the subject property is free of any soil or building contamination.
Town Planning
Use class MK (core zone) Comment According to information from the local planning authority, a legally binding project and development Site coverage ratio (GRZ) 1.0 plan exists, entitled "20/1/2 Marktgalerie" and dated 01.04.1999, with the following regulations: the subject site is located in core zone (limitations regarding the use) - "Kerngebiet mit Einschränkung". The Plot ratio (GFZ) 2.0 plot ratio (Geschossflächenzahl, GFZ) is 2.0 and the site coverage ratio (Grundflächenzahl, GRZ) is 1.0. Cubic index (BMZ) n.a.
Tenure
Land Register Owner Sheet Plot Parcel Section 2 (Restrictions) Section 3 (Loans) Local Court of TPL Geislingen S.á.r.l., 10534 NO 1051 341 Two land charges concerning the payment of a Land charges in the total amount of € 11,052,658 in Geislingen an der Luxembourg money amount payable to the respective owner favour of Bank of Scotland (branch Frankfurt) Steige, land register of of parcel no 489/11 and several limited personal Geislingen an der easements, among other things regarding the Steige construction, operation and maintenance of a transformer station, pipline easement, wayleave in favor of the city Geislingen an der Steige and Albwerk GmbH & Co. KG, Geislingen. Furthermore, there is a limited personal easement (the right to operate and maintain a hypermarket) in favor of Kaufland Dienstleistungs GmbH & Co. KG, Neckarsulm.
Source: Extract from the land register dated 03.12.2010
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Gartenstraße 30 Valuation date: 30.06.2012
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Competitor Map
Source: Jones Lang LaSalle Research
Competitor Overview
Name Address Type Sales area Distance Potential E-aktiv Markt Gebauer's 73312 Geislingen, Heidenheimer Str. 139 Hypermarket 2,900 m² 1.70 km Medium Kaufland 73312 Geislingen, Neuwiesenstr. 25 Self-service dep. store 7,500 m² 2.40 km High E-aktiv Markt Staufers 73072 Donzdorf, Wagnerstr. 3 Hypermarket 1,590 m² 8.30 km Low Rewe 73072 Donzdorf, Mozartstr. 35 Hypermarket 1,850 m² 8.60 km Low E-aktiv Markt Gebauer's 73079 Süßen, Bühlstr. 23 Hypermarket 1,900 m² 9.00 km Low 0 0 0 0 0 0 0 0 0 0
Competiton Indicators
Inhabitants in primary catchment area 18,626 Inhabitants per hypermarket in primary catchment area 6,209
Inhabitants in secondary catchment area 37,545 Inhabitants per hypermarket in secondary catchment area 12,515
Inhabitants in tertiary catchment area 72,039 Inhabitants per hypermarket in tertiary catchment area 18,010
Number of households in the district 2,671 Population forecast for the district (2007 - 2025) -2.9%
Retail Purchasing Power Index (District) 102.83 Retail Centrality Index (District) 105.27
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Main competitors
This competitor is a smaller-sized Edeka hypermarket. Furthermore, Dänisches Bettenlager and This competitor is a small retail park located on the south-western outskirts of Geislingen. The main Fressnapf are also located on the site. It is built as a retail warehouse agglomeration instead of a tenant is a Kaufland. Other tenants include a Kik, Tedi and Quickschuh. This building is well-located in a retail park with a mall and offers a different product and service variety than the subject property and small industrial zone. Nearby retailers include Obi, Aldi and Lidl. The property is a serious competitor. therefore caters to different needs. It represents medium competition.
Competition Comment
The catchment area can be differentiated into primary (0 - 5min driving time); secondary (5 - 10min) and tertiary (10 - 15min) catchment area. Approximately 18,626 inhabitants live in the primary catchment area. While the density of hypermarkets is relatively high in the primary catchment area, the competition eases in the secondary and tertiary catchment area. Even though there are several discounters and small-size supermarkets located nearby, it can be said that these present only indirect competition to the property. Kaufland offers a very deep and broad product range with more than 50,000 products, while supermarkets and discounters generally offer a limited product range with only 7,000 to 11,000 (supermarkets) or 400-2,500 (discounters) articles. Therefore, these retailing forms address different customers or customer needs. While supermarkets and discounters cater to the daily needs of customers, Kaufland offers more variety for products that are bought on a non-daily basis. The first competitor is a small retail warehouse agglomeration located on Heidenheimer Straße in a distance of approx. 1.7 km. The main tenant is a Edeka hypermarket. Other tenants on the site a Fressnapf and Dänisches Bettenlager. Furthermore, Edeka offers a small mall with additional businesses such as the bakery “K&U”, a newspaper agent and a cash machine. The location of the property within a commercial agglomeration is inferior to the location of the subject property near the city centre along a highly frequented street. While the competitor is solely reachable by car, the subject property can also be reached by foot from the adjacent residential area. Furthermore, the tenant mix is different. While both offer the typical service providers, the Edeka-Center also has Fressnapf and a Dänisches Bettenlager, both tenants that are prone to returning customers, whereas Kaufland is bound to receive more impulse buyers due to its location in the city centre. In addition, the large difference in size and product range also differentiates both properties. Therefore, it can be said that the Edeka market only represents medium competition. A second Kaufland was opened in January 2010 after the take-over of the former Schlekkerland (self-service department store) is in an industrial zone on the south-western outskirts of Geislingen. Other tenants in the property include a Kik, Tedi, Klier, Quickschuh, a tobacco shop and IMO (carwash). Nearby retailers in the commercial zone are OBI, Aldi and Lidl. The tenant mix within the property is very similar to the tenant mix in the subject property and therefore the property presents high competition potential. Even though the properties may attract different customers and have slightly different primary catchment areas, the catchment areas strongly overlap; two Kaufland self-service department stores for a city of only 27,000 inhabitants can be problematic. Another potential competitor is the small retail park with 13,000 m², that is currently being build in the city centre on the former sports field. Part of the area is let to REWE and Lidl. However, it remains to be seen whether it will have an effect on the turnover of Kaufland, because they usually address different customers.
Turnover analysis
The rents in a functional retail agglomeration are linked to turnover. The percentage rate that a retail tenant can use for rental payments (turnover-to-rent ratio) depends on the margins achievable in the various market sectors. This rate normally ranges between 2% and 15% depending on the respective branch. The productivity varies between approx. € 1,000/m² and up to more than € 10,000/m². Kaufland is represents a very strong anchor, we believe that there will always be demand for such ancillary tenants. For Kaufland, we have also been provided with turnover figures. We have analysed the figures and have found the area productivity of Kaufland to be in a healthy range. With a turnover-to-rent ratio of less than 2% it lies below the range of 2% to 4%, which is acceptable for a self-service department store. Considering the location factors and the competition level within Geislingen, we assume that a higher turnover-to-rent ratio regarding a similar branch and turnover is realistic. Hence, the market rent after the termination of the current rental contract has been chosen in a range of 2.2%. Please also refer to the rent/turnover analysis on page 8. Even though turnover rents have been negotiated with some of the tenants, the necessary turnovers for the turnover rents to become effective have not been reached in the past few years. The tenants only pay the minimum rent. We therefore haven't included any additional turnover rents.
Conclusion
The subject property is a modern self-service department store with a small mall accommodating additional businesses, such as a hair dresser, locksmith and newspaper kiosk. The property has sufficient parking spaces and is highly visible and easily accessible by foot and by car. The location of the property close to the city centre entails additional benefits. As Kaufland is a strong customer magnet, we believe that there will always be sufficient demand for the minor retail areas in the mall. The letting of the current fitness studio, however, is assessed to be more difficult. Even though the location of the property near the city centre and near a residential area is very good for the current use, the third-party usability of the areas is limited. One alternative use would be the letting of the space as office space. However, this would involve extensive refurbishment and restructuring measures. Furthermore, the location is not a traditional office location and the demand for such an area is limited. However, we believe that it is very probable that the fitness studio will remain within the property on an adequate market rental level. The rental area of Kaufland can be regarded as relatively unproblematic. First of all, the location is very good for such a tenant, as it can be reached both by foot and by car. Furthermore, the property is highly visible and easily accessible. Even though the competition is quite strong and the density of self-service department store is very high for a town this size, we have not been informed of severe turnover decreases after the second Kaufland on Neuwiesenstraße was launched. We believe that the tenant will be able to compete with this property, especially because it can operate on a very low contractual rent for a long time. The anchor tenant Kaufland has a lease contract until 2022 with three options, each for five years, bringing the earliest possible termination date for the landlord to 2037. On the basis of our projection of likely productivity per m² and turnovers, we have calculated the market rent at € 8.25/m²/month. The tenant currently pays a contractual rent of € 5.47/m²/p.m. Therefore, the retail unit is currently strongly underrented. Due to the margins realizable and under the assumption of good turnover figures, we believe that Kaufland will remain in the property until 2037. In the unlikely case that Kaufland should vacate the premises, the property could be relet to other self-service department stores which are currently not present in Geislingen an der Steige such as real or Marktkauf.
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Rent Roll
Tenant Name Area Category Letting Area Rent Rent / m² Tenant Lease Lease Renewal Tenant Status m² / unit / month / month pays VAT Start End Probability pays * 1 ROFU Kinderland Spielhandels GmbH Retail Let 1,107 € 0 0.00 Yes 15.08.2012 31.08.2022 0% GT I PM 2 Bäckerei Staib GmbH & Co. KG Retail Let 60 € 2,585 43.08 Yes 03.04.2002 30.06.2013 75% GT I PM 3 In Shape-Sports Club GmbH OfficeLet 2,487 € 4,100 1.65 Yes 03.09.2008 02.09.2018 75% GT I PM 4 Güngornez RetailLet 57 € 1,844 32.32 Yes 15.05.2010 14.05.2015 75% GT I PM 5 Kaufland Warenhandel Südwest GmbH & Co. KG Retail Let5,065 € 27,687 5.47 Yes 01.10.2007 30.09.2022 75% 6 Mutlu Retail Let 12 € 407 33.44 Yes 10.04.2007 31.12.2012 75% GT I PM 7 Vacant Retail vacant 50 € 0 0.00 8 Deichmann SE Retail Let 479 € 5,899 12.33 Yes 03.04.2002 02.04.2017 75% GT I PM 9 Frisör Klier GmbH Retail Let 73 € 1,869 25.52 Yes 03.04.2002 28.02.2017 75% GT I PM 10 ING-DiBa AG Niederlassung Hannover Other Units Let 1 € 205 205.00 Yes 03.04.2008 02.04.2013 75% GT I PM 11 Deutsche Plakat-Werbung GmbH & Co. KG Other Units Let 6 € 26544.17 Yes 03.08.2009 02.08.2014 75% GT I PM 12 Leerstand Internal Parkingvacant 1 € 0 0.00 13 Kühnle Internal Parking Let 1 € 29 29.41Yes 01.12.2009 31.07.2012 0% GT I PM 14 Kurzzeitmieter Other Units Let 1 € 9393.08 Yes 01.11.2008 30.09.2022 75% GT I PM 15 Internal Parking Internal ParkingLet 448 € 1,090 2.43 0%
Total 9,390 m² € 46,073 * M = Maintenance, GT = Ground Tax, I = Insurance Costs, PM = Property Management
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Valuation Assumptions
Tenant Name Area Category Area Market Market Re-letting Initial Re-letting Rent Agency Lease Renewal sqm/unit Rent Rent /month Tis Void VPV*Void* Abatem.* Fees* Term** Probability 1 ROFU Kinderland Spielhandels GmbH Retail 1,107 € 7.25 € 8,026 € 50 15 12 0 3 10 75% 2 Bäckerei Staib GmbH & Co. KG Retail 60 € 65.00 € 3,900 € 100 12 6 0 3 10 75% 3 In Shape-Sports Club GmbH Office 2,487 € 1.75 € 4,353 € 100 15 15 0 3 10 75% 4 Güngornez Retail 57 € 25.00 € 1,427 € 100 12 9 0 3 10 75% 5 Kaufland Warenhandel Südwest GmbH & Co. KGRetail 5,065 € 8.25 € 41,786 € 50 12 12 0 3 10 75% 6 Mutlu Retail 12 € 40.00 € 487 € 100 12 6 0 3 10 75% 7 Vacant Retail 50 € 30.00 € 1,500 € 100 12 6 0 3 10 75% 8 Deichmann SE Retail 479 € 12.50 € 5,981 € 100 15 12 0 3 10 75% 9 Frisör Klier GmbH Retail 73 € 25.00 € 1,831 € 100 12 9 0 3 10 75% 10 ING-DiBa AG Niederlassung Hannover Other Units 1 € 205.00 € 205 € 0 12 0 0 0 10 75% 11 Deutsche Plakat-Werbung GmbH & Co. KG Other Units 6 € 44.17 € 265 € 0 0 0 0 0 10 75% 12 Leerstand Internal Parking 1 € 30.00 € 30 € 0 12 9 0 0 3 75% 13 Kühnle Internal Parking 1 € 30.00 € 30 € 0 12 9 0 0 3 75% 14 Kurzzeitmieter Other Units 1 € 0.00 € 0 € 0 15 0 0 0 10 75% 15 Internal Parking Internal Parking 448 € 0.00 € 0 € 0 12 0 0 0 0 0%
Total 9,390 sqm € 69,819 * months ** years ***structural vacancy
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Property Analysis
Area Analysis Lettable AreaArea Vacant Area Let Vacancy Rate Use Category m² m² m² % Office 2,487 0 2,487 0.00% Office Retail DIY Retail 6,903 50 6,853 0.72% DIY 0 0 0 0.00% Warehouse 0 0 0 0.00% Commercial 0 0 0 0.00% Warehouse Commercial Residential Residential 0 0 0 0.00% Storage 0 0 0 0.00% Total area 9,390 50 9,340 0.53% Petrol Station 0 0 0 0.00% Storage Other Units 8 0 8 0.00% Internal parking 450 1 449 0.22% External parking 0 0 0 0.00% Total parking 458 1 449 0.22%
Income Analysis Contractual Contractual Contractual Potential Market MarketMarket Over-/ Under- Rent Rent Rent Rent Rent Rent Rent Rented Use Category €/m²/month €/month €/year €/year €/m²/month €/month €/year Office 1.65 4,100 49,200 49,200 1.75 4,353 52,232 -5.8% Retail 5.88 40,291 483,486 489,129 9.41 64,937 779,240 -37.5% DIY 0.00 0 0 0 0.00 0 0 0.0% Warehouse 0.00 0 0 0 0.00 0 0 0.0% Commercial 0.00 0 0 0 0.00 0 00.0% Residential 0.00 0 00 0.00 0 0 0.0% Storage 0.00 0 0 0 0.00 0 0 0.0% Petrol Station 0.00 0 0 0 0.00 0 0 0.0% Other Units 70.39 563 6,757 6,757 58.75 470 5,640 19.8% Total area 4.81 44,954 539,443 545,086 7.43 69,759 837,112 -35.2% Internal parking 2.49 1,11913,434 13,435 0.13 60 720 1770.0% External parking 0.00 0 0 0 0.00 0 0 0.0%
Assessment of Kaufland market rent
Space productivity Turnover to rent ratio Explanation
7,000 15.00
14.00 13.90 Usual market % - levels 6,500 13.00 Market rent
6,000 12.00 Contractual Rent 11.00 5,500 10.42 Rents % € / m² 10.00 Contractual 1.6% 5.47 5,000 9.00 8.00 8.25 Market 2.4% 8.25 5,028 4,500 4% of turnover 13.90
Rent / m² / month 7.00 6.95 6.00 3% of turnover 10.42 4,000 5.47 5.00 2% of turnover 6.95
3,500 4.00 Turnover potential 21,116,431 € (net) 3.00 Sales Area ~ 4,200 m² 3,000 2.00 Total Area 5,065 m² in € / m² p.a. 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% based on sales area Turnover-rent-ratio
Self-service department stores usually can afford to pay a rent in the range of 2% to 4% of their net turnover (economically sustainable rent burden) and have a space productivity of about € 4,000 to € 6,000 per m² sales area. The two graphics above indicate, how the contract rent of the main tenant Kaufland as well as the assumed market rental level, can be assessed on the basis of usual market ranges. This analysis is based on the turnover potential figures prepared by Trade Dimension.
D&B Rating of Main Tenant
Main tenant Comment
Tenant name Kaufland Warenhandel Südwest GmbH & Co. KG The main tenant is a corporation belonging to the Kaufland Group, which in turn belongs to the Lidl & Rent p.a. € 332,243 Schwarz Group, one of the biggest grocer groups in Europe. Kaufland is the self-service department Share of total income 60% store division of Lidl & Schwarz with more than 500 locations across Europe. Kaufland’s core business WALT 10.3 years area is food retailing with branded goods and own-brands specially produced for Kaufland. According to Payment Index 82 Dun & Bradstreet (D&B) Rating as at 01.01.2011 Kaufland Warenhandel Südwest GmbH & Co. KG has Capital indicator 2AA an below-average credit risk. The risk of insolvency (D&B Score) within the next 12 months compared Risk indicator 2 with other German companies is assessed to be low, i.e. 84% of businesses on the German database Score 84 have the same or higher risk of failure. Credit limit € 145.000 (single); €4,150,000 (total)
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Assumptions Market Value
Lease Contract Commentary The property is fully let to seven retail tenants and a fitness studio. The WALT of the property amounts to 7.8 years. The main tenant is Kaufland with a share of approx. 60% of the rental income. The property is currently heavily underrented due to the very low rental level of the main tenant, Kaufland. As the lease contract is valid until 2022 and the tenant has options until 2037, we do not believe that the rental level can be adjusted before 2037. Kaufland’s rent is indexed and will be adapted by 50% of the CPI change, whenever the change exceeds 10 percent in relation to the CPI basis. Indexation started on 01.04.2009. The majority of the tenants pay all costs (including ground tax, insurance costs and management costs) except for maintenance costs for structural repairs. Ground tax, maintenance costs for structural repairs, management and insurance costs will not be borne by Kaufland. The rest can be apportioned to the tenant in accordance with the German Regulation on Operating Costs. However, due to negligence by the current owner, these costs are currently not apportioned to the tenant. As this could be changed and a cost schedule could be drafted this year, we have assumed that all costs will be apportioned to the respective tenants. We are currently aware that the tenant Charles Vögele has terminated its lease term as at April 2012 due to bad turnovers. However, the area was relet to ROFU Kinderland Spielhandels GmbH for a term of 10 years. The tenant Convenience Concept GmbH has terminated his lease term and the area is currently vacant. Even though the average area productivity is very low for the ancillary tenants, we are not aware of any other tenants planning to terminate their leases in the subject property, nor have we received any information regarding a prolongation of their leases. Furthermore, some rental increases due to indexations have taken place. In addition, on rental decrease has been negotiated for the bakery. General Property Assumptions Discount Rate Comment
Discount rate 7.25% The yields applied reflect the individual location quality (macro- and micro-location) of the properties, building structure, letting situation, covenant strength and the relationship between contractual and Capitalisation rate 6.50% market rent. We derive the discount rate from market transactions. The discount rate reflects the rate of return expected by investors and is determined based on the risk associated with a property. As Capital expenditures* € 0 reinsurance, the initial yields profile is aligned with the market/other transactions. We have taken into account such facts as the stable Cash Flow, the long lease contract with the tenant Kaufland, the new Vacancy costs € 10.00 /m²/p.a. contract with ROFU, the increase in vacancy, the reported turnover figures, the good location and the * on the basis of cost estimates provided by RT Facility Management GmbH & Co. KG, dated June 2012 good condition of the subject property.
Breakdown of Non-Recoverable Costs
% of Gross Inflation Contract** per year per year (month 1 x 12) Contract Rent Maintenance costs € 4.50 /m² € 42,256 7.64% Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 after 2021 Management costs € 0.88 /m² € 8,293 1.50% Inflation 1.0% 1.5% 1.5% 1.5% 1.4% 1.3% 1.4% 1.4% 1.4% 1.4% 1.6% Ground tax € 3.27 /m² € 30,723 5.56% Insurance costs € 0.41 /m² € 3,874 0.70% Market Rental Growth Other non-recoverable costs € 0.00 /m² € 0 0.00% Total non-recoverable expenses € 9.07 /m² € 85,146 15.40% Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 after 2021 ** JLL analysis Rental Growth 1.0% 1.5% 1.5% 1.5% 1.4% 1.3% 1.4% 1.4% 1.4% 1.4% 1.6%
Market % of Gross Contract per year per year (assuming full occupancy) Market Rent Maintenance costs Maintenance costs € 4.50 /m² € 42,256 5.04% Management costs Management costs € 1.34 /m² € 12,567 1.50% Ground tax € 3.27 /m² € 30,723 3.67% Ground tax € 0.41 /m² € 3,874 0.46% Insurance costs Insurance costs Other non-recoverable costs € 0.00 /m² € 0 0.00% Total non-recoverable expenses € 9.52 /m² € 89,420 10.67% Other non-recoverable costs
Total Non-recoverable Costs
Maintanance Management Ground Insurance Other Non- Vacancy Total % of Total Costs Costs Tax Costsrecoverable Costs Costs per year Gross Revenue Year 1 € 42,467 € 9,278 € 21,378 € 4,505 0 € € 1,193 € 78,821 12.7% Year 2 € 42,998 € 9,888 € 21,646 € 4,562 0 € € 101 € 79,195 12.0% Year 3 € 43,643 € 10,054 € 21,971 € 4,630 0 € € 49 € 80,347 12.0% Year 4 € 44,298 € 10,231 € 22,300 € 4,700 0 € € 49 € 81,578 12.0% Year 5 € 44,940€ 9,945 € 22,623 € 4,768 0 € € 1,412 € 83,688 12.6% Year 6 € 45,547 € 10,258 € 22,929 € 4,832 0 € € 91 € 83,657 12.2% Year 7 € 46,162 € 10,017 € 23,238 € 4,897 0 € € 8,995 € 93,309 14.0% Year 8 € 46,808 € 10,380 € 23,564 € 4,966 0 € € 0 € 85,718 12.4% Year 9 € 47,463 € 10,453 € 23,894 € 5,035 0 € € 0 € 86,845 12.5% Year 10 € 48,128 € 10,457 € 24,228€ 5,106 0 € € 0 € 87,919 12.6% Year 11 € 48,826 € 10,532 € 24,579 € 5,180 0 € € 8,039 € 97,156 13.8%
Non-Recoverable Costs as a percentage of Total Gross Revenue 16.0%
14.0% 14.0% 12.7% 12.6% 12.4% 12.5% 12.6% 12.0% 12.0% 12.0% 12.2% 12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
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Cash Flow Market Value
Total Non- Net TIs and Present Rental Turnover Rent Gross recoverable Operating Capital Leasing Value @ Revenue Vacancy Abatements Revenue Costs Income Expenditures Commissions Cash Flow 7.25% Year 1 € 629,026 -€ 10,501 € 0 € 618,525 -€ 78,821 € 539,704 -€ 5,306 -€ 4,914 € 529,484 € 512,330 Year 2 € 667,140-€ 7,942 € 0 € 659,198 -€ 79,195 € 580,003 -€ 1,515 -€ 2,984 € 575,504 € 519,429 Year 3 € 671,753 -€ 1,494 € 0 € 670,259-€ 80,347 € 589,912 € 0 € 0 € 589,912 € 496,785 Year 4 € 683,630 -€ 1,590€ 0 € 682,040 -€ 81,578 € 600,462 -€ 1,484 -€ 1,123 € 597,855 € 469,269 Year 5 € 686,349 -€ 23,326 € 0 € 663,023 -€ 83,688 € 579,335 -€ 1,960 -€ 1,477 € 575,898 € 422,122 Year 6 € 687,137 -€ 3,256 € 0 € 683,881 -€ 83,657 € 600,224 -€ 14,167 -€ 6,058 € 579,999 € 395,557 Year 7 € 690,567 -€ 19,196 -€ 3,591€ 667,780 -€ 93,309 € 574,471 -€ 68,401 -€ 3,591 € 502,479 € 319,749 Year 8 € 692,076 -€ 100 € 0 € 691,976 -€ 85,718 € 606,258 € 0 € 0 € 606,258 € 359,770 Year 9 € 696,894 € 0 € 0 € 696,894 -€ 86,845 € 610,049 € 0 € 0 € 610,049 € 337,558 Year 10 € 697,191 -€ 69 € 0 € 697,122 -€ 87,919 € 609,203 € 0 € 0 € 609,203 € 314,304 Year 11 € 779,772 -€ 77,663 € 0 € 702,109 -€ 97,156€ 604,953 -€ 45,269 -€ 17,128 € 10,361,740 € 5,145,880 Total Cashflow (incl. Terminal Value @ 6.50 %) € 9,292,753 Gross Value of Surplus Land € 0 Gross Capital Value incl. Surplus Land € 9,292,753 Total Gross Revenue versus Net Operating Income
€ 800000.0 7.0% 6.6% 6.5% 6.5% 6.5% 6.6% 6.3% 6.2% 6.2% 5.8% 6.2% € 700000.0 6.0%
€ 600000.0 5.0%
€ 500000.0 4.0%
€ 400000.0
Rental income 3.0% Running yield € 300000.0
2.0% € 200000.0
1.0% € 100000.0
€.0 0.0% Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Valuation Results Market Value
Rent Overview Gross Capital Value (rounded) Contractual gross rental income (month 1 x 12) total p.a. € 552,877 per m²/month € 4.91 Total € 9,300,000
Market rental value total p.a. € 837,832 per m² € 990 per m²/month € 7.44 Over-/Underrent -32.53% Purchaser's costs 6.75% Yield Overview
Net Initial Yield 5.03% Market Value (rounded) Net Reversionary Yield 8.05% Total € 8,700,000 Gross Initial Yield 6.35% Gross Reversionary Yield 9.63% per m² € 927
Valuation Comment
In terms of risk, we considered the covenant strength as well as the lease duration for the existing contracts. As at 01.01.2011, the main tenant, Kaufland Warenhandel Südwest GmbH & Co. KG, has good covenant strength, which ensures a secure cash flow for the remainder of the lease term until at least 2022. In terms of a resale, we took into account such facts as visibility, demographic factors, appearance, condition and building age, third-party usability, competition situation and location. For the purpose of the valuation on 30.06.2012, we have been provided with updated insurance costs as well as updated ground tax and have applied them in our valuation. Other costs have remained unchanged and have been applied according to information received during the previous valuation cycle. For management costs, we have applied 1.5% of the effective gross rent. We have been provided with updated information regarding necessary capital expenditures. All Capital expenditures for repairs in the first year as well as in the periods of year 2 to 5 and year 6 to 10 are considered to be covered by the Regarding comparable rents we have had recourse to evidence of similar areas situated in the comparable regions and locations. Furthermore, we have analysed comparable transactions. Please refer to the section "Investment Comparables". As for the tenancies within the property, the following changes have taken place: the tenant Charles Vögele has vacated the premises and the retail areas was re-let to the tenant ROFU Kinderland for a term of ten years. However, the tenant has been granted rent abatements and the rental payments will only start in September 2012. The tenant Convenience Concept GmbH has terminated his lease term and the area is currently vacant. The tenant Bäckerei Staib has prolonged its lease term for an unlimited period of time while lowering the rent. The tenant Mutlu has also prolonged his lease term, while the tenant Güngornez underwent indexation adjustments. As for the short term tenants, we have been provided with the income figures for the period 01.07.2011 until 30.06.2102 and have applied the monthly average in our valuation. The applied monthly income by the short-term tenants have slightly decreased to approx. € 1183/p.m. The changes within the tenancy schedule led to a decrease of the contractual rental income (month 1 * 12) from € 782,130 to € 552,877 p.a. However, this figure does not include the rent paid by ROFU Kinderland, starting in September.
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Photos
Front view of the property Internal view of the sales areas of the tenant Kaufland
View of the mall Internal view of the sales area of the tenant Deichmann
Entrance to the fitness studio from parking level 2 View of the parking level
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Leasing and Investment Market
Leasing Market Investment Market
There is no homogeneous rental level for retail space in retail warehouses or retail parks throughout Stable economic growth has brought Germany in the focus of real estate investors throughout Europe. Germany. However, the spread between the average and the absolute prime rent is not as big as in At the end of 2011 the total amount of retail investments amounted to approximately € 10.6 billion, high street locations. The overall potential for rental growth in retail parks in Germany is best whereas the figure stood at € 1.4 billion at the end of Q1 2012. Hence, it accounted for 45%, and 27% summed up as mediocre. Depending on the tenant branch, rental rates for discounters, department respectively, of the total investments in commercial properties in Germany. This represents the reverse stores and DIY stores remain stable due to the high competition on the market, but the rents for figures of office investments (30% in 2011 and 45% in Q1 2012). Whereas the 2011 total investment in fashion stores have uplift potential simply due to the fact that these stores are increasing their retail properties clearly exceeded the figure of 2010 presence in retail parks and are prepared to pay high rents. and was close to the 2007 level, Q1 2012 marks the first drop within three years of consecutive growth. The rental level of retail warehouses and retail parks is the result of their location in urban centres or Within the retail investment market, the shares of the major asset classes shifted slightly between 2011 rural areas, and the resulting quality of the location in terms of catchment area, competition, and Q1 2012. High street properties/department stores and shopping centres remained the largest accessibility and visibility. While rental levels in Bavaria generally lie slightly above the average asset classes with a share of 37% and 35% respectively (compared to 32% and 45% respectively in western German rent levels due to the state’s strong economy, rental levels in eastern German 2011). This equals an investment volume of € 518 million and € 490 million. towns are generally slightly lower than their western counterparts, as these areas have a lower purchasing power and generate on average lower revenues. In the retail warehouse and retail park However, retail parks accounted for 15% (8% in 2011), whereas retail warehouses accounted for 5% segment, the maximum rents are determined by a percentage of the turnover expectancy. (8% in 2011). Investments in supermarkets/discounters represented 3% in 2011 but went down to less The rents within the different branches vary. This is due to the diverging location assessment and than 1% in the Q1 2012. Transactions involving other retail properties and a portfolio of kiosks took up turnover expectancy of the different tenants. If in the case of a retail park the management succeeds an 8% share. In 2011some large transactions drove up the amount of investments in shopping centre in establishing good anchor tenants, which guarantee a high visitor frequency, then the turnover high street properties and department stores. In Q1 2012, however, large transactions were virtually expectancy of secondary tenants tends to be higher. Therefore, some anchor tenants are able to absent. negotiate lower rents because their existence in a property increases the rental level of the others. The yield compression, which could be observed since 2009 and throughout 2011, came to a halt in Q1 Depending on the size of the retail unit and the branch of the tenants, rents in retail parks in western 2012 with respect to retail parks, shopping centres and retail high street unit shops/department stores. German locations generally range between € 5.00 and € 13.00 /m²/month. Prime yields for shopping centres are now close to 5% and, consequently, are very close to those of Depending on the size of the retail unit and the retail format of the store, rents for supermarkets are prime offices – an occurrence which has not taken place since a brief period in 2007. Net initial yields generally slightly higher than the rents for discounters. Rents for supermarkets in western German for prime retail parks went down to approximately 6% at the end of 2011 and have remained stable locations generally range between € 7.00 and € 13.00 /m²/month. Rents for discounters in western ever since. Germany generally range between € 6.00 and € 12.00 /m²/month, while discounters located in With respect to retail properties, we expect a progressively stable trend with the highest investment eastern Germany generally achieve slightly lower rental rates ranging between € 5.00 and € 11.00 share anticipated for shopping centres and high street properties. Furthermore, we predict that the /m²/month. Drugstores, textile, shoe and electronics branches generally achieve rental rates ranging German real estate market will remain the focus of foreign investors. In the Q1 2012 the buy side was from € 7.50 to € 12.00 /m²/month for rental areas with a size between 500 and 750 m². DIY stores dominated by insurance companies, open funds and private investors. We expect this to continue and need extensive space due to their broad product range with rental prices ranging between € 6.00 for foreign investors along with asset managers, developers and banks to become more active in the and € 10.00 /m²/month. course of 2012. Leasing Comparables
Tenant City Property Type Area Total Rent p.m. Rent p. sqm Comment Kaufland Freital Self-Service Department Store 8,000 m² € 62,000 € 7.75 /m² Other federal state; slightly lower purchasing power Kaufland Lüneburg Self-Service Department Store 4,611 m² € 35,732 € 7.75 /m² Lower purchasing power; worse location Kaufland Bergkamen Self-Service Department Store 5,956 m² € 44,730 € 7.51 /m² Bigger retail area; lower purchasing power Deichmann Wiesbaden Shoe Store 449 m² € 5,972 € 13.31 /m² Higher purchasing power; smaller retail area Deichmann Rödermark Shoe Store 495 m² € 5,361 € 10.83 /m² Other federal state Bäckerei Aschaffenburg Bakery 66 m² € 3,854 € 58.40 /m² Comparable purchasing power; worse location Bäckerei Berlin Bakery 50 m² € 3,000 € 60.00 /m² Lower purchasing power Fitness Company Bremen Fitness Studio 2,430 m² € 3,013 € 1.24 /m² Worse location
Investment Comparables
Year of Gross Date of Property Type Area Comment Construction Multiplier Transaction Retail Park 2009/2010 8,500 m²13.8-fold Q1 2011 tegut; Deichmann, Takko; WALT 12.5 yrs; good location, no competition Retail Park 1996 25,000 m² 13.7-fold Q1 2011 Anchor tenant: large-scale hypermarket; high level of competition; WALT: 6yrs Retail Park 2008 6,000 m² 14.6-fold Q1 2011 Anchor tenant: electronics store; office; WALT: 7.5 yrs Self-service department store 2006 13,000 m² 13.8-fold Q2 2012 Famila; WALT approx. 9.26 yrs Self-service department store 1982/1995 12,000 m² 12.5-fold Q2 2010 Real; WALT approx. 12 yrs Retail Park n.a. 27,955 m² n.a. 2012 property in Baden-Wuerttemberg, purchase price approx. € 49.00m Standalone n.a. 10,100 m² n.a. 2011 property in Lower Saxony, purchase price approx. € 17.61m Retail Park n.a. 20,000 m² 11.2-fold Q3 2011 Saxony, WALT > 10 years, purchase price approx. € 29.6m, Kaufland, Esprit
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Waldenburger Straße F175 Valuation date: 30.06.2012
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Property Summary
Key Figures
Property type Retail Park Main tenant Kaufland Warenhandel Mittel-Sachsen GmbH & Co. KG
Total lettable area 12,717 m² Total parking units 450 units
Current vacancy rate 0.1% Weighted average lease term 8.1 years
Year of construction 1992 Year of refurbishment n.a.
Contractual gross rental income (month 1 x 12) total p.a. € 1,324,646 per m² / month € 8.68
Total non-recoverable expenses (month 1 x 12) total p.a. € 113,191 per m² / month € 0.74
Net operating income (month 1 x 12) total p.a. € 1,211,454 per m² / month € 7.94
Market rental valuetotal p.a. € 1,238,323 Over-/Underrent based on occupied areas 7.0%
SWOT Analysis
Strengths Weaknesses Sufficient parking High level of competition (another Kaufland nearby) Good accessibility by car Limited third party usability of the large-scale retail area without refurbishment Good tenant mix Low turnover per m² figures Located next to a motorway exit and a federal road 0 New letting of area of former tenant Gold Meister 0
Opportunities Threats Prolongation of lease contracts after expiry Re-letting or negotiations concerning the prolongation of existing contracts may result in worse 0 Significant negative population growth 0 Below-average purchasing power 0 Limited investor focus on properties in eastern Germany 0 Property is currently let sligthly over market rental level (over-rented)
Property Rating (1 = very negative, 5 = very positive)
Building Location
Building age 2 16 to 25 years Macrolocation 2 Below average location and catchment area Lettable Area 4 Between 12,500 and 15,000 m² Microlocation 3 Average micro location Property condition 2 Below average building condition Commercial activity 3 Limited commercial activity nearby General impression 3 Average general impression Competition 2 High competition level
Liquidity Investment Quality
WALT 4 WALT seven to ten years Investment market 2 Under developed property market Over- / underrent 2 Slightly overrented (5% to 15%) Investment volume 4 Good lot size Quality of tenants 4 Tenants with very good credit rating Saleability 4 Good saleability within 6 months
Property Description
The site encompasses the subject retail park, a petrol station as well as some food stalls located in front of the main entrance. The property was constructed in 1992 and encompasses a self-service department store (Kaufland), an Aldi food discounter, a medimax (consumer electronics) and various smaller retailers. The property is rectangular-shaped with the north-western corner being cut out. The property mostly has a single storey; however, on the eastern side, there is second storey accommodating offices of the main tenant. The unit let by the tenant Aldi has its own entrance located at the south-east of the subject property with no access to the mall. The property is built out of prefabricated columns and beams on a reinforced concrete slab. The supporting structure of the flat roof consists of trapezoidal metal panels. The facade of the property is made from multi-layer concrete panels. Main entrance, office windows and shop displays have coated aluminium frames. The walls within the public areas are plastered and painted. The ceiling inside the mall is suspended with a grid system still allowing the technical installations above to be seen. The smaller shop units usually have a suspended ceiling while the large retail unit of Kaufland all technical installations are viewable. The floor is mainly covered with ceramic tiles, while the fit out of the smaller shop units depends on the tenant’s preferences. In terms of HVAC, the property offers gas- operated heating and ventilation, but only partial air conditioning. The parking area is made of asphalt in the driveways and paving stones for the parking areas.
Valuation Results
Market Value Market Rental Value
€ 16,300,000 equals to € 1,282 per m² € 1,238,323 p.a. equals to € 8.11 / m² / p.m.
Discount Rate 7.25% Net Initial Yield 7.08% excluding 7.08% Multiplier (initial) 12.31 capital Capitalisation Rate7.25% Net Reversionary Yield 6.59% expenditures 6.59% Multiplier (based on MRV) 13.16
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Location
Germany Macroeconomic Indicators (Source: GfK, BBE, BBSR/Inkar 2012)
Federal State Saxony District Zwickau (Rural District) City Glauchau Postcode 08371
Population Federal State absolute 4,168,732 Population District absolute 345,118 Population City absolute 24,684 Number of Households City absolute 12,870 Population Density District per km² 364 Population Density City per km² 479 Population Forecast (2007 - 2025) District in % -15.0% Population Growth (2002 - 2007) Federal State in % -3.0% Population Growth (2002 - 2007) District in % -4.9% Unemployment Rate (6/2012) Federal State in % 9.4% Unemployment Rate (6/2012) District in % 8.0%
Structual Data (Source: GfK and BBE 2012)
Purchasing Power District in m € 5,623 Purchasing Power City in m € 393 Purchasing Power Index Federal State index 83.60 Retail Purchasing Power Index District index 82.77 Retail Centrality Index District index 100.82
Glauchau Macro Location
The city of Glauchau is located in the federal state of Saxony. Glauchau is situated between the cities Gera to the west (approx. 35 km) and Chemnitz to the east (approx. 30 km). Glauchau is located next to the motorway A4, which runs from the east of Hesse to the Polish border, passing by cities such as Erfurt, Chemnitz and Dresden. Furthermore, the federal roads B175 and B93 cross Glauchau, connecting the city from north and south.
Glauchau has a railway station with service to Dresden, Hof, Nuremberg and Zwickau, connecting the city to the long-distance network of Deutsche Bahn.
The closest airport is Leipzig-Altenburg, which is situated 20 km north of Glachau. Destinations to be reached from Leipzig airport are nationally, larger German cities in the west and south of Germany and internationally, Brussels, Prague, Paris and Vienna. Furthermore, Leipzig offers service to plenty of tourist destinations, such as Spain, Greece and North Africa. Glauchau is home to several manufacturing companies in the field of textiles and car parts. Particularly the latter sector benefits from the manufacturing site of Volkswagen in Zwickau-Mosel only a couple of kilometres away. Additionally, Glauchau benefits from its location next to a motorway.
Micro Location Micro Location
The property is situated approx. 2.5 km north of the city centre of Glauchau in the sub-district of Jerisau. The property is located very close to a motorway exit (A4) and the federal road B175, connecting the city in all directions. The property is visible from both roads. It can be accessed from Ludwig-Erhard- Straße in the north and Waldenburger Straße in the east, surrounding the property to the west, north, and east. To the south of the property, there is a Greenfield site. The neighbourhood of the property is predominantly characterised by commercial buildings, such as car dealerships, a fast food restaurant, and fields. Furthermore, there is a petrol station on the site. There is a bus stop in front of the site with frequent service from Glauchau to a couple of villages and town to the north and east of the property.
Local Tax Information
Real Estate Tax Rate (Typ B) City in % 490 Land Transfer Tax City in % 3.5
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Site Plan
Source: Cadastral plan on a 1 to 1,500 scale, dated 30.12.2010 Site Information
Site area 47,878 m² Ground lease No thereof surplus land 0 m² Ground lease expiry n.a. Surplus land value (net) n.a. € 0 Comment Site servicing Fully serviced The site consists of ten different plots and encompasses a total of 47,878 m². The site is not listed in the register of contaminated land ("Altlastenkataster") and the environmental DD, dated 2nd May 1991 Site layout Irregular prepared by Institut Fresenius GmbH, did not identify any contamination of the site. In terms of easements, all plots have an easement registered in favour of Kaufland to operate its store. Soil contamination No Suspicion This represents a common practice so that we do not attribute any effect on value to it. Furthermore, three other easements secure the right to build an underground water pipe on some of the plots. Again, Building encumbrances No we do not believe that this will influence the market value of the property. For the purposes of this valuation, we have assumed that the subject property is free of any soil or building contamination.
Town Planning
Use class SO (special zone) Comment According to information from the local planning authority's website, a legally binding development plan Site coverage ratio (GRZ) n.a. exists, entitled "Einkaufszentrum Glauchau Waldenburgerstr." with the following regulations: the subject site is located in a special retail zone (Sondergebiet Einkaufszentrum). It imposes the following Plot ratio (GFZ) n.a. restrictions, among others: approx. 13,000 m² of retail space is permissible, of which a maximum of 5,500 m² can be used for food retailing, 6,400 m² for non-food retailing, and 3,200 m² for ancillary Cubic index (BMZ) n.a. rooms. Additionally, up to 2,000 m² of office space is permissible.
Tenure
Land Register Owner Sheet Plot Parcel Section 2 (Restrictions) Section 3 (Loans) Local Court of TPL Glauchau S.á.r.l, 5177 n.a. Sheet 5177: Sheet 5177: Joint liability of the plots entered in sheet 5177, 8599 Hohenstein-Ernstthal, Luxembourg 8599 220/3, 217/4, Easement (pipeline installation and use as and 4303: Land charge in the amount of € land register of 4303 213/3, 213/4, storage space) for the respective owner of the 19,884,802 in favour of Bank of Scotland, branch in Glauchau 232/9, 220/5, parcels 220, 219/4 and 219/5 (Jerisau district); Frankfurt, Frankfurt am Main n.a. 220/6, 219/11; Comprehensive right of use to operate a Sheet 8599: n.a. Sheet 8599: supermarket/self-service department for Kaufland 219/6; Dienstleistung GmbH & Co. KG, Neckarsulm; Sheet 4303: 219/7 Freshwater pipeline easement for Regionaler Zweckverband Wasserversorgung Bereich Lugau-Glauchau, Glauchau; Sheet 8599 and 4303: Comprehensive right to operate a supermarket/self-service department for Kaufland Dienstleistung GmbH & Co. KG, Neckarsulm
Source: Land register extracts, dated 2nd December 2010
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Competitor Map
Source: Jones Lang LaSalle Research
Competitor Overview
Name Address Type Sales area Distance Potential Simmel 08371 Glauchau, Rudolf-Breitscheid-Str. 10-14 Hypermarket 2,300 m² 2.10 km Medium Kaufland 08371 Glauchau, Grenayer Str. 10 Hypermarket 4,200 m² 3.00 km High Simmel 08393 Meerane, August-Bebel-Str. 65 Hypermarket 1,600 m² 5.30 km Low Kaufland 08393 Meerane, Seiferitzer Allee 1 Hypermarket 4,847 m² 6.70 km Low Simmel 09350 Lichtenstein, Platanenstr. 4 Hypermarket 2,000 m² 9.30 km Low Kaufland 08451 Crimmitschau, Harthauer Weg 1 Hypermarket 3,525 m² 9.70 km Low 0 m² 0 0 0 0 0 0 0 0 0
Competiton Indicators
Inhabitants in primary catchment area 26,058 Inhabitants per hypermarket in primary catchment area 26,058
Inhabitants in secondary catchment area 55,254 Inhabitants per hypermarket in secondary catchment area 11,051
Inhabitants in tertiary catchment area 138,555 Inhabitants per hypermarket in tertiary catchment area 19,794
Number of households in the district 12,870 Population forecast for the district (2007 - 2025) -15.0%
Retail Purchasing Power Index (District) 82.77 Retail Centrality Index (District) 100.82
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Main competitors
This competitor is a retail park located at the western outskirts of Glauchau, only 3 km away from the This medium-sized Edeka store is located within a small retail park with several small retailers such as subject property. It comprises a Kaufland, a toom DIY, a large-scale drinks cash-and-carry, a Reno NKD, a local shoe store and Pfennigpfeiffer (a discount store for non-food items, for example stationery shoe market, a tedi, a petrol station and various smaller retailers. Due to the proximity and similarity and houseware). of the tenant mix, we assess the competition level to be high.
Competition Comment
Concerning food competitors, there is the aforementioned retail park anchored by Kaufland (named Kaufland II in the following) and toom DIY at the western outskirts of Glauchau and the E-Center Simmel located within Glauchau. Of these two and the Kaufland in the subject property, the latter one has the largest sales area with more than 7,000 m². Its competitors only have approx. 4,200 m² (Kaufland II) and 2,300 m² (E- Center) of space. On the other hand, the Kaufland II is part of a larger retail agglomeration with a toom DIY, a large-scale drinks cash-and-carry, a Reno shoe market, a tedi, a petrol station and various smaller retailers. Furthermore, a petrol station is next to the agglomeration. The E-Center is part of a smaller retail agglomeration with a couple of smaller retailers, predominantly from the region. Generally, shop units are smaller within this agglomeration compared to the properties in which the Kauflands are located in.
However, the E-Center is only an indirect competitor to Kaufland, since the sales area is significantly smaller. Furthermore, Kaufland offers a very deep and broad product range with more than 50,000 products, while discounters and supermarkets offer a limited product range with only 7,000 to 11,000 (supermarkets) or 400-2,500 (discounters) articles. Therefore, these retailing forms address different customers or customer needs. While supermarkets and discounters cater to the daily needs of customers, Kaufland offers a larger variety of products that are bought on a non-daily basis. Thus, the only very strong competitor is Kaufland II. In terms of location, Kaufland II benefits from its location next to the B175, which leads out of Glauchau to Zwickau and to the Volkswagen manufacturing site close by. However, the accessibility of the site is below average and the visibility from the road from a distance is below average. Additionally, the different larger shops are not connected to each other via a mall as in the subject property. This means that customers have to walk through the parking lot to get to the next shop. Moreover, Kaufland II does not have a food discounter, which usually attracts many customers who go shopping in hypermarkets for the goods they cannot buy in food discounters. Furthermore, when considering the inner and outer appearance of the shops, they are both almost on the same level as the subject property. Taking the catchment area into account, Kaufland has no competition in its primary catchment area, though it overlaps with other competitors. Considering the total catchment area (up to 15 min driving distance) and the number of competitors in this area, nearly 20,000 inhabitants are allotted per store, which is a very good figure. Particularly to the north of the property, there are no competitors and this area is connected via a major federal road. Therefore, we believe that there is enough customer potential for Kaufland.
Turnover analysis
The rents in a functional retail agglomeration are linked to turnover. The percentage rate that a retail tenant can use for rental payments depends on the margins achievable in the various market sectors. This rate normally ranges between 2% and 15% depending on the respective industry. The productivity varies between approx. € 1,000/m² and up to more than € 10,000/m². For the previous valuation we have been provided with turnover figures from the tenant Kaufland. We have analysed the figures and have found the area productivity of Kaufland to be in a healthy range. With a turnover-to-rent ratio of less than 2% it lies below the range of 2% to 4%, which is acceptable for a self-service department store.
Hence, we believe that a higher market rent is achievable after the end of the lease contract. Though turnover is low, the turnover-rent ratio is in an acceptable range. Nevertheless, we consider the rents paid in the property to be at the upper end of the range of acceptable ratios. On the other hand, the rents paid are considered to be generally sustainable. With regards to the turnover rents, apart from some exceptions, we believe that there will be no significant and sustainable increases in turnover. Thus, in the valuation we considered only turnover rents when the level of turnover was sustainable over a long period of time.
Conclusion
The subject property is a retail park located in the northern outskirts of Glauchau at an arterial road, close to a motorway exit. It offers good visibility and accessibility by car. The property is anchored by a Kaufland and comprises other nation-wide operating retailers such as Aldi, medimax, Deichmann, Apollo Optik, AWG, mister+lady and some local retailers. The tenant mix within the property predominantly focuses on price-conscious customers and offers products ranging from daily needs to fashion and services, such as a dry cleaner, a locksmith, and jeweller. This tenant mix fits into the general economic environment of the region. On the other hand, the tenant mix is quite similar to that of the strongest competitor (Kaufland II). Nevertheless, the subject property benefits from the villages to the north, which act as additional customer potential and help sustain the market. Furthermore, the subject property benefits of the presence of Aldi within the property since food discounters usually attract a large number of people who could be potential customers at the other shops as well. The tenants within the property, apart from the food stalls, suffer from below average turnover, likely because of the low purchasing power in the region. Nevertheless, based on the turnover data made available to us, we believe that the total rental income is sustainable. The property is nearly fully let and achieves an average contractual rent of € 8.68/m² for the retail areas. Furthermore, the weighted average lease term is 8.1 years with the anchor tenant having a remaining lease term of more than 10 years.
All in all, the property has an adequate tenant mix and is let on a sustainable level. Nevertheless, the strong competition and economic situation in the region does not leave much room for rental growth potential.
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Rent Roll
Tenant Name Area Category Letting Area Rent Rent / m² Tenant Lease Lease Renewal Tenant Status m² / unit / month / month pays VAT Start End Probability pays * 1 BRL Center GmbH Retail Let 175 € 4,788 27.36 Yes 01.08.2008 31.07.2028 75% GT I PM 2 Friedrich Retail Let 13 € 577 43.06 Yes 06.09.2007 30.09.2017 75% GT I PM 3 mister*lady GmbH RetailLet 336 € 2,136 6.36 Yes 25.07.2000 24.07.2013 75% GT I PM 4 Frisör Klier GmbH RetailLet 78 € 2,440 31.21 Yes 01.03.2009 28.02.2019 75% GT I PM 5 Reiseland GmbH & Co. KG Retail Let30 € 815 27.61 Yes 01.04.2008 31.03.2013 75% GT I PM 6 Reiseland GmbH & Co. KG Storage Let 29 € 105 3.58 Yes 01.04.2008 31.03.2013 75% GT I PM 7 Röhner Retail Let 73 € 991 13.67 Yes 01.04.2005 31.03.2015 75% GT I PM 8 Valora Retail Kiosk GmbH Retail Let 29 € 732 25.30 Yes 01.12.2010 31.12.2016 75% GT I PM 9 Weber Andreas Retail Let 67 € 2,309 34.60 Yes 01.09.2011 31.08.2016 75% GT I PM 10 Deichmann SE Retail Let 435 € 7,786 17.90 Yes 13.10.1992 31.10.2014 75% GT I PM 11 Fleischerei Richter GmbH Retail Let 82 € 3,30040.34 Yes 21.06.2008 30.06.2022 75% GT I PM 12 Apollo Optik GmbH RetailLet 125 € 1,55812.47 Yes 02.11.2005 01.11.2015 75% GT I PM 13 Aldi GmbH & Co. KG Retail Let 660 € 6,645 10.06No 01.05.2008 30.04.2013 75% 14 Flora Passionata Retail Let 58 € 1,35423.35 Yes 01.04.2009 31.03.2014 75% GT I PM 15 Kaufland Warenhandel Mittel-Sachsen GmbH & Co. KG RetailLet 7,140 € 39,268 5.50 Yes 01.10.2007 30.09.2026 75% 16 Wiener Feinbäckerei Heberer GmbH Weimar RetailLet 79 € 4,419 56.29 Yes 01.06.2001 31.05.2016 75% GT I PM 17 AWG Allgemeine Warenvertriebs-GmbH RetailLet 890 € 10,082 11.32 Yes 01.03.2002 28.02.2017 75% GT I 18 MediMax Zentrale Electronic GmbH RetailLet 1,546 € 10,027 6.49 Yes 01.12.2004 07.05.2014 75% GT I PM 19 Ziesche RetailLet 80 € 750 9.38 Yes 01.10.1998 30.09.2015 75% GT I PM 20 Kaufland Warenhandel Mittel-Sachsen GmbH & Co. KG OfficeLet 442 € 2,210 5.00 Yes 01.10.2007 30.09.2026 75% 21 Kaufland Warenhandel Mittel-Sachsen GmbH & Co. KG Other UnitsLet 55 € 275 5.00 Yes 01.10.2007 30.09.2026 75% 22 Aldi GmbH & Co. KG StorageLet 135 € 0 0.00 No 01.05.2008 30.04.2013 75% 23 Aldi GmbH & Co. KG StorageLet 41 € 0 0.00 No 01.05.2008 30.04.2013 75% 24 Sparkasse Chemnitz Abt. Verwaltung Other UnitsLet 1 € 273 272.86 Yes 26.04.1993 31.03.2014 75% 25 Schwarz Außenwerbung GmbH Other UnitsLet 1 € 433 433.33 Yes 01.01.2010 31.12.2014 75% 26 Cakir Other UnitsLet 24 € 607 25.31 Yes 01.04.2006 31.03.2016 75% 27 Dung Tran Other UnitsLet 24 € 75031.25 Yes 01.11.2005 30.06.2014 75% 28 TOTAL Deutschland GmbH Petrol Station Let 1,139 € 1,963 1.72 Yes 01.04.2003 31.03.2018 75% M GT I PM 29 Apache Jeans Retail Let 150 € 2,027 13.50 Yes 15.03.2011 14.03.201675% GT I PM 30 VACANT Retail Vacant 17 € 0 0.00 31 Kurzzeitmieter Other Units Let 1 € 466 465.83 Yes 01.10.2007 30.09.2026 75% 32 Parking External parking Let 450 € 0 0.00 Yes 00.01.1900 00.01.1900 0% 0% 33 Fleischerei Richter GmbH Retail Let 8 € 1,000 133.33 01.01.2009 31.01.2017 75% 0% 34 Geiser Roland GmbH Other Units Let 1 € 300 300.00 01.08.2011 31.07.2016 75% 0%
Total 13,856 m² € 110,387 * M = Maintenance, GT = Ground Tax, I = Insurance Costs, PM = Property Management
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Valuation Assumptions
Tenant Name Area Category Area Market Market Re-letting Initial Re-letting Rent Agency Lease Renewal sqm/unit Rent Rent /month Tis Void VPV*Void* Abatem.* Fees* Term** Probability 1 BRL Center GmbH Retail 175 € 25.00 € 4,375 € 100 6 6 0 3 5 75% 2 Friedrich Retail 13 € 30.00 € 402 € 100 6 6 0 3 5 75% 3 mister*lady GmbH Retail 336 € 7.00 € 2,352 € 100 12 12 0 3 5 75% 4 Frisör Klier GmbH Retail 78 € 25.00 € 1,955 € 100 6 6 0 3 5 75% 5 Reiseland GmbH & Co. KGRetail 30 € 25.00 € 738 € 100 6 6 0 3 5 75% 6 Reiseland GmbH & Co. KG Storage 29 € 25.00 € 733 € 100 6 6 0 3 5 75% 7 Röhner Retail 73 € 17.50 € 1,269 € 100 9 9 0 3 5 75% 8 Valora Retail Kiosk GmbH Retail 29 € 30.00 € 869 € 100 6 6 0 3 5 75% 9 Weber Andreas Retail 67 € 30.00 € 2,003 € 100 6 6 0 3 5 75% 10 Deichmann SE Retail 435 € 12.50 € 5,438 € 100 12 12 0 3 5 75% 11 Fleischerei Richter GmbH Retail 82 € 30.00 € 2,454 € 100 6 6 0 3 5 75% 12 Apollo Optik GmbH Retail 125 € 12.50 € 1,562 € 100 9 9 0 3 5 75% 13 Aldi GmbH & Co. KG Retail 660 € 10.00 € 6,604 € 100 12 12 0 3 10 75% 14 Flora Passionata Retail 58 € 30.00 € 1,740 € 100 6 6 0 3 5 75% 15 Kaufland Warenhandel Mittel-Sachsen GmbH & Co. KG Retail 7,140 € 5.50 € 39,268 € 50 66 0 3 5 75% 16 Wiener Feinbäckerei Heberer GmbH Weimar Retail 79 € 30.00 € 2,355 € 100 66 0 3 5 75% 17 AWG Allgemeine Warenvertriebs-GmbH Retail 890 € 11.00 € 9,795 € 100 12 12 0 3 5 75% 18 MediMax Zentrale Electronic GmbH Retail 1,546 € 6.00 € 9,274 € 50 66 0 3 10 75% 19 Ziesche Retail 80 € 8.00 € 640 € 100 99 0 3 5 75% 20 Kaufland Warenhandel Mittel-Sachsen GmbH & Co. KG Office 442 € 5.00 € 2,210 € 100 66 0 3 5 75% 21 Kaufland Warenhandel Mittel-Sachsen GmbH & Co. KG Other Units 55 € 5.00 € 275 € 100 66 0 3 5 75% 22 Aldi GmbH & Co. KG Storage 135 € 0.00 € 0 € 0 12 12 0 3 10 75% 23 Aldi GmbH & Co. KG Storage 41 € 0.00 € 0 € 0 12 12 0 3 10 75% 24 Sparkasse Chemnitz Abt. Verwaltung Other Units 1 € 272.86 € 273 € 0 33 0 3 5 75% 25 Schwarz Außenwerbung GmbH Other Units 1 € 433.33 € 433 € 0 00 0 3 5 75% 26 Cakir Other Units 24 € 30.00 € 720 € 0 66 0 3 5 75% 27 Dung Tran Other Units 24 € 30.00 € 720 € 0 66 0 3 5 75% 28 TOTAL Deutschland GmbH Petrol Station 1,139 € 1.72 € 1,963 € 0 00 0 3 10 75% 29 Apache Jeans Retail 150 € 15.00 € 2,252 € 100 12 12 0 3 5 75% 30 VACANT Retail 17 € 0.00 € 0 € 0 00 0 3 5 75% 31 Kurzzeitmieter Other Units 1 € 0.00 € 0 € 0 00 0 3 5 75% 32 Parking External parking 450 € 0.00 € 0 € 0 00 0 0 0 0% 33 Fleischerei Richter GmbH Retail 8 € 30.00 € 225 € 100 66 0 3 5 75% 34 Geiser Roland GmbH Other Units 1 € 300.00€ 300 € 100 00 0 3 5 75%
Total 13,856 sqm € 103,194 * months ** years ***structural vacancy
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Property Analysis
Area Analysis Lettable AreaArea Vacant Area Let Vacancy Rate Use Category m² m² m² % Office 442 0 442 0.00% Office Retail DIY Retail 12,069 17 12,052 0.14% DIY 0 0 0 0.00% Warehouse 0 0 0 0.00% Commercial 0 0 0 0.00% Warehouse Commercial Residential Residential 0 0 0 0.00% Storage 205 0 205 0.00% Total area 12,717 17 12,700 0.13% Petrol Station 1,139 0 1,139 0.00% Storage Other Units 107 0 107 0.00% Internal parking 0 0 0 0.00% External parking 450 0 450 0.00% Total parking 1,696 0 450 0.00%
Income Analysis Contractual Contractual Contractual Potential Market MarketMarket Over-/ Under- Rent Rent Rent Rent Rent Rent Rent Rented Use Category €/m²/month €/month €/year €/year €/m²/month €/month €/year Office 5.00 2,210 26,520 26,520 5.00 2,210 26,520 0.0% Retail 8.55 103,005 1,236,059 1,237,674 7.92 95,567 1,146,799 7.9% DIY 0.00 0 0 0 0.00 0 0 0.0% Warehouse 0.00 0 0 0 0.00 0 0 0.0% Commercial 0.00 0 0 0 0.00 0 00.0% Residential 0.00 0 00 0.00 0 0 0.0% Storage 0.51 105 1,260 1,260 3.57 733 8,796 -85.7% Petrol Station 1.72 1,963 23,554 23,554 1.72 1,963 23,554 0.0% Other Units 29.01 3,104 37,253 37,253 25.43 2,721 32,654 14.1% Total area 8.69 110,387 1,324,646 1,326,261 8.11 103,194 1,238,323 7.1% Internal parking 0.00 000 0.00 0 0 0.0% External parking 0.00 0 0 0 0.00 0 0 0.0%
Assessment of Kaufland market rent
Space productivity Turnover to rent ratio Explanation
7,000 13.00
12.00 Usual market % - levels 6,500 11.84 Market rent 11.00 6,000 Contractual Rent 10.00
5,500 9.00 8.88 Rents % € / m²
8.00 Contractual 1.9% 5.50 5,000 Market 1.9% 5.50 7.00 4,500 4% of turnover 11.84 Rent / m² / month 6.00 5.92 5.50 3% of turnover 8.88 4,000 5.00 2% of turnover 5.92 4,227 4.00 3,500 Turnover potential 25,359,998 € (net) 3.00 Sales Area ~ 6,000 m² 3,000 2.00 Total Area 7,140 m² in € / m² p.a. 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% based on sales area Turnover-rent-ratio
Self-service department stores usually can afford to pay a rent in the range of 2% to 4% of their net turnover (economically sustainable rent burden) and have a space productivity of about € 4,000 to € 6,000 per m² sales area. The two graphics above indicate, how the contract rent of the main tenant Kaufland as well as the assumed market rental level, can be assessed on the basis of usual market ranges. This analysis is based on the turnover potential figures prepared by Trade Dimension.
D&B Rating of Main Tenant
Main tenant Comment
Tenant name Kaufland Warenhandel Mittel-Sachsen GmbH & Co. KG The main tenant is a corporation belonging to the Kaufland Group, which in turn belongs to the Lidl & Rent p.a. € 471,214 Schwarz Group, one of the biggest grocer groups in Europe. Kaufland is the self-service department Share of total income 36% store division of Lidl & Schwarz with more than 500 locations across Europe. Kaufland’s core business WALT 14.3 years area is food retailing with branded goods and own-brands specially produced for Kaufland. Payment Index n.a. According to Dun & Bradstreet (D&B) Rating as of 05.01.2011 Kaufland Warenhandel Mittel-Sachsen Capital indicator 2AA GmbH & Co. KG has a very low credit risk. The risk of insolvency (D&B Score) within the next 12 Risk indicator 1 months compared with other German companies is assessed to be low, i.e. 93% of businesses on the Score 93 German database have the same or higher risk of failure. Credit limit n.a.
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Assumptions Market Value
Lease Contract Commentary The main tenant, Kaufland, has a lease expiring in 2026 with the option to prolong its lease by five years three times. The rent is indexed and will be adapted by 50% of the CPI change, whenever the change exceeds 10 percent in relation to CPI basis. Kaufland does not contribute to any costs in association with maintenance costs for roof and the building structure, ground tax, insurance fees, and management costs. The remaining tenants usually do not pay for maintenance costs for roof and building structure and pay a fixed amount each month for management costs (usually around € 100). However, most tenants pay for ground tax and insurance fees. The rent is mostly indexed with 75% to 100% adjustment of the rent whenever the German CPI changes by 10% or more. Some of the tenants have an option to prolong their leases by five years.
The space of the bankrupt tenant Gold Meister GmbH has been relet to Andreas Weber. One new contracts was negotiated with Geiser Roland GmbH. Prolongations have taken place for the tenants Fleischerei Richter, Ziesche, Peter Röhner and Friedrich. Several indexation adjustments took place.
General Property Assumptions Discount Rate Comment
Discount rate 7.25% The yields applied reflect the individual location quality (macro- and micro-location) of the properties, building structure, letting situation, covenant strength and the relationship between contractual and Capitalisation rate 7.25% market rent. We derive the discount rate from market transactions. The discount rate reflects the rate of return expected by investors and is determined based on the risk associated with a property. As Capital expenditures* € 0 reinsurance, the initial yields profile is aligned with the market/other transactions. We have taken into account such facts as the stable Cash Flow, the long lease contract with the tenant Kaufland, the Vacancy costs € 10.00 /m²/p.a. average location within the federal state Saxony and the low vacancy rate. * on the basis of cost estimates provided by RT Facility Management GmbH & Co. KG, dated June 2012
Breakdown of Non-Recoverable Costs
% of Gross Inflation Contract** per year per year (month 1 x 12) Contract Rent Maintenance costs € 5.50 /m² € 69,941 5.28% Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 after 2021 Management costs € 1.56 /m² € 19,870 1.50% Inflation 1.0% 1.5% 1.5% 1.5% 1.4% 1.3% 1.4% 1.4% 1.4% 1.4% 1.6% Ground tax € 1.50 /m² € 19,043 1.44% Insurance costs € 0.34 /m² € 4,338 0.33% Market Rental Growth Other non-recoverable costs € 0.00 /m² € 0 0.00% Total non-recoverable expenses € 8.90 /m² € 113,191 8.55% Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 after 2021 ** JLL analysis Rental Growth 1.0% 1.5% 1.5% 1.5% 1.4% 1.3% 1.4% 1.4% 1.4% 1.4% 1.6%
Market % of Gross Contract per year per year (assuming full occupancy) Market Rent Maintenance costs Maintenance costs € 5.50 /m² € 69,941 5.65% Management costs Management costs € 1.46 /m² € 18,575 1.50% Ground tax € 1.50 /m² € 19,043 1.54% Ground tax € 0.34 /m² € 4,338 0.35% Insurance costs Insurance costs Other non-recoverable costs € 0.00 /m² € 0 0.00% Total non-recoverable expenses € 8.80 /m² € 111,896 9.04% Other non-recoverable costs
Total Non-recoverable Costs
Maintanance Management Ground Insurance Other Non- Vacancy Total % of Total Costs Costs Tax Costsrecoverable Costs Costs per year Gross Revenue Year 1 € 70,595 € 19,689 € 16,034 € 5,850 0 € € 1,677 € 113,845 8.7% Year 2 € 71,478 € 19,746 € 16,234 € 5,923 0 € € 3,145 € 116,526 8.9% Year 3 € 72,550 € 19,603 € 16,478 € 6,012 0 € € 2,742 € 117,385 9.0% Year 4 € 73,639 € 20,120 € 16,725 € 6,102 0 € € 1,000 € 117,586 8.8% Year 5 € 74,706€ 19,494 € 16,968 € 6,191 0 € € 2,816 € 120,175 9.2% Year 6 € 75,714 € 19,943 € 17,197 € 6,274 0 € € 261 € 119,389 9.0% Year 7 € 76,737 € 19,751 € 17,429 € 6,359 0 € € 1,350 € 121,626 9.2% Year 8 € 77,811 € 19,673 € 17,673 € 6,448 0 € € 1,522 € 123,127 9.4% Year 9 € 78,900 € 20,071 € 17,920 € 6,538 0 € € 643 € 124,072 9.3% Year 10 € 80,005 € 20,060 € 18,171€ 6,630 0 € € 1,813 € 126,679 9.5% Year 11 € 81,165 € 20,449 € 18,435 € 6,726 0 € € 2,081 € 128,856 9.5%
Non-Recoverable Costs as a percentage of Total Gross Revenue 10.0% 9.5% 9.2% 9.2% 9.4% 9.3% 9.0% 9.0% 8.9% 8.8% 9.0% 8.7%
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
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Cash Flow Market Value
Total Non- Net TIs and Present Rental Turnover Rent Gross recoverable Operating Capital Leasing Value @ Revenue Vacancy Abatements Revenue Costs Income Expenditures Commissions Cash Flow 7.25% Year 1 € 1,328,989 -€ 16,398 € 0 € 1,312,591 -€ 113,845 € 1,198,746 -€ 1,485 -€ 1,121 € 1,196,140 € 1,159,124 Year 2 € 1,343,446-€ 27,067 € 0 € 1,316,379 -€ 116,526 € 1,199,853 -€ 26,646 -€ 8,196 € 1,165,011 € 1,051,670 Year 3 € 1,337,540 -€ 30,671 € 0 € 1,306,869-€ 117,385 € 1,189,484 -€ 33,009 -€ 12,997 € 1,143,478 € 962,221 Year 4 € 1,357,202 -€ 15,842€ 0 € 1,341,360 -€ 117,586 € 1,223,774 -€ 5,380 -€ 2,319 € 1,216,075 € 954,977 Year 5 € 1,340,314 -€ 40,691 € 0 € 1,299,623 -€ 120,175 € 1,179,448 -€ 32,614 -€ 14,071 € 1,132,763 € 830,293 Year 6 € 1,332,029 -€ 2,475 € 0 € 1,329,554 -€ 119,389 € 1,210,165 -€ 359 -€ 327 € 1,209,479 € 825,636 Year 7 € 1,332,341 -€ 15,597 € 0€ 1,316,744 -€ 121,626 € 1,195,118 -€ 12,985 -€ 4,769 € 1,177,364 € 749,491 Year 8 € 1,334,751 -€ 23,188 € 0 € 1,311,563 -€ 123,127 € 1,188,436 -€ 13,725 -€ 6,618 € 1,168,093 € 693,495 Year 9 € 1,345,330 -€ 7,230 € 0 € 1,338,100 -€ 124,072 € 1,214,028 -€ 7,817 -€ 2,944 € 1,203,267 € 665,795 Year 10 € 1,369,617 -€ 32,301 € 0 € 1,337,316 -€ 126,679 € 1,210,637 -€ 9,424 -€ 7,233 € 1,193,980 € 615,887 Year 11 € 1,392,522 -€ 29,257 € 0 € 1,363,265 -€ 128,856€ 1,234,409 -€ 28,265 -€ 10,992 € 17,361,362 € 8,622,055 Total Cashflow (incl. Terminal Value @ 7.25 %) € 17,130,644 Gross Value of Surplus Land € 0 Gross Capital Value incl. Surplus Land € 17,130,644 Total Gross Revenue versus Net Operating Income
€ 1600000.0 8.0% 7.0% 7.1% 7.1% 7.1% 7.1% 7.0% 6.9% 6.9% 7.0% 6.9% € 1400000.0 7.0%
€ 1200000.0 6.0%
€ 1000000.0 5.0%
€ 800000.0 4.0% Rental income Running yield € 600000.0 3.0%
€ 400000.0 2.0%
€ 200000.0 1.0%
€.0 0.0% Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Valuation Results Market Value
Rent Overview Gross Capital Value (rounded) Contractual gross rental income (month 1 x 12) total p.a. € 1,324,646 per m²/month € 8.68 Total € 17,100,000
Market rental value total p.a. € 1,238,323 per m² € 1,345 per m²/month € 8.11 Over-/Underrent 6.97% Purchaser's costs 5.00% Yield Overview
Net Initial Yield 7.08% Market Value (rounded) Net Reversionary Yield 6.59% Total € 16,300,000 Gross Initial Yield 8.13% Gross Reversionary Yield 7.60% per m² € 1,282
Valuation Comment
In terms of risk, we considered the covenant strength as well as the lease duration for the existing contracts. The main tenant, Kaufland Warenhandel Südwest GmbH & Co. KG, has good covenant strength, which ensures a secure cash flow for the remainder of the lease term until at least 2026. In terms of a resale, we took into account such facts as visibility, demographic factors, appearance, condition and building age, third-party usability, competition situation and location. In terms of the market rent of Kaufland, our analysis shows that Kaufland could afford to pay a higher rent of approx. € 6.40/m²/month. However, taking the highly negative population growth forecast for the coming years into account as well as the strong competition, we decreased the market rent accordingly to € 5.50/m²/month, which still represents an increase of Kaufland’s contractual rent.
For the purpose of the valuation on 30.06.2012, we have been provided with updated insurance costs as well as updated ground tax and have applied them in our valuation. Other costs have remained unchanged and have been applied according to the information received during the previous valuation cycle. For management costs, we have applied 1.5% of the effective gross rent. We have been provided with technical due diligence reports provided by Kaiser Baucontrol for the previous valuation as well as new information from RT Facility Management. For the periods of year 1 to 10, all budgeted costs (capital expenditures) are covered by our maintenance cost approach of € 5.50/m² p.a. Regarding comparable rents, we have had recourse to evidence of similar areas situated in the comparable regions and locations. Furthermore, we have analysed comparable transactions. Please refer to the section "Investment Comparables". 0
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Photos
View from main entrance to the mall Sales area of Kaufland
View of the mall View of Aldi with separate entrance
View of the petrol station on site View of the delivery zone
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Leasing and Investment Market
Leasing Market Investment Market
There is no homogeneous rental level for retail space in retail warehouses or retail parks throughout Stable economic growth has brought Germany in the focus of real estate investors throughout Europe. Germany. However, the spread between the average and the absolute prime rent is not as big as in At the end of 2011 the total amount of retail investments amounted to approximately € 10.6 billion, high street locations. The overall potential for rental growth in retail parks in Germany is best whereas the figure stood at € 1.4 billion at the end of Q1 2012. Hence, it accounted for 45%, and 27% summed up as mediocre. Depending on the tenant branch, rental rates for discounters, department respectively, of the total investments in commercial properties in Germany. This represents the reverse stores and DIY stores remain stable due to the high competition on the market, but the rents for figures of office investments (30% in 2011 and 45% in Q1 2012). Whereas the 2011 total investment in fashion stores have uplift potential simply due to the fact that these stores are increasing their retail properties clearly exceeded the figure of 2010 presence in retail parks and are prepared to pay high rents. and was close to the 2007 level, Q1 2012 marks the first drop within three years of consecutive growth. The rental level of retail warehouses and retail parks is the result of their location in urban centres or Within the retail investment market, the shares of the major asset classes shifted slightly between 2011 rural areas, and the resulting quality of the location in terms of catchment area, competition, and Q1 2012. High street properties/department stores and shopping centres remained the largest accessibility and visibility. While rental levels in Bavaria generally lie slightly above the average asset classes with a share of 37% and 35% respectively (compared to 32% and 45% respectively in western German rent levels due to the state’s strong economy, rental levels in eastern German 2011). This equals an investment volume of € 518 million and € 490 million. towns are generally slightly lower than their western counterparts, as these areas have a lower purchasing power and generate on average lower revenues. In the retail warehouse and retail park However, retail parks accounted for 15% (8% in 2011), whereas retail warehouses accounted for 5% segment, the maximum rents are determined by a percentage of the turnover expectancy. (8% in 2011). Investments in supermarkets/discounters represented 3% in 2011 but went down to less The rents within the different branches vary. This is due to the diverging location assessment and than 1% in the Q1 2012. Transactions involving other retail properties and a portfolio of kiosks took up turnover expectancy of the different tenants. If in the case of a retail park the management succeeds an 8% share. In 2011some large transactions drove up the amount of investments in shopping centre in establishing good anchor tenants, which guarantee a high visitor frequency, then the turnover high street properties and department stores. In Q1 2012, however, large transactions were virtually expectancy of secondary tenants tends to be higher. Therefore, some anchor tenants are able to absent. negotiate lower rents because their existence in a property increases the rental level of the others. The yield compression, which could be observed since 2009 and throughout 2011, came to a halt in Q1 Depending on the size of the retail unit and the branch of the tenants, rents in retail parks in western 2012 with respect to retail parks, shopping centres and retail high street unit shops/department stores. German locations generally range between € 5.00 and € 13.00 /m²/month. Prime yields for shopping centres are now close to 5% and, consequently, are very close to those of Depending on the size of the retail unit and the retail format of the store, rents for supermarkets are prime offices – an occurrence which has not taken place since a brief period in 2007. Net initial yields generally slightly higher than the rents for discounters. Rents for supermarkets in western German for prime retail parks went down to approximately 6% at the end of 2011 and have remained stable locations generally range between € 7.00 and € 13.00 /m²/month. Rents for discounters in western ever since. Germany generally range between € 6.00 and € 12.00 /m²/month, while discounters located in With respect to retail properties, we expect a progressively stable trend with the highest investment eastern Germany generally achieve slightly lower rental rates ranging between € 5.00 and € 11.00 share anticipated for shopping centres and high street properties. Furthermore, we predict that the /m²/month. Drugstores, textile, shoe and electronics branches generally achieve rental rates ranging German real estate market will remain the focus of foreign investors. In the Q1 2012 the buy side was from € 7.50 to € 12.00 /m²/month for rental areas with a size between 500 and 750 m². DIY stores dominated by insurance companies, open funds and private investors. We expect this to continue and need extensive space due to their broad product range with rental prices ranging between € 6.00 for foreign investors along with asset managers, developers and banks to become more active in the and € 10.00 /m²/month. course of 2012. Leasing Comparables
Tenant City Property Type Area Total Rent p.m. Rent p. sqm Comment Marktkauf Mühlhausen Self-Service Department Store 1,800 m² € 8,136 € 4.52 /m² Other federal state Real Braunschweig Self-Service Department Store 19,688 m² € 104,150 € 5.29 /m² Significantly better purchasing power Wal Mart Salzgitter Self-Service Department Store 6,250 m² € 38,750 € 6.20 /m² Better purchasing power Real Bitterfeld Self-Service Department Store 16,866 m² € 115,532 € 6.85 /m² Rental income includes sub tenants with higher rents Deichmann Görlitz Shoes 504 m² € 5,670 € 11.25 /m² Slightly worse purchasing power AWG Großpösna Fashion 1,435 m² € 16,373 € 11.41 /m² Slightly better purchasing power Frisör Klier Großpösna Haircutter 88 m² € 2,236 € 25.41 /m² Slightly better purchasing power 0 0 0 0 m² € 0 € 0.00 /m² 0
Investment Comparables
Year of Gross Date of Property Type Area Comment Construction Multiplier Transaction Retail Park 2009/2010 8,500 m²13.8-fold Q1 2011 tegut; Deichmann, Takko; WALT 12.5 yrs; good location, no competition Retail Park 1996 25,000 m² 13.7-fold Q1 2011 Anchor tenant: large-scale hypermarket; high level of competition; WALT: 6yrs Retail Park 2008 6,000 m² 14.6-fold Q1 2011 Anchor tenant: electronics store; office; WALT: 7.5 yrs Self-service department store 2006 13,000 m² 13.8-fold Q2 2012 Famila; WALT approx. 9.26 yrs Self-service department store 1982/1995 12,000 m² 12.5-fold Q2 2010 Real; WALT approx. 12 yrs Retail Park n.a. 27,955 m² n.a. 2012 property in Baden-Wuerttemberg, purchase price approx. € 49.00m Standalone n.a. 10,100 m² n.a. 2011 property in Lower Saxony, purchase price approx. € 17.61m Retail Park n.a. 20,000 m² 11.2-fold Q3 2011 Saxony, WALT > 10 years, purchase price approx. € 29.6m, Kaufland, Esprit
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Friedrichstraße 124 Valuation date: 30.06.2012
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Property Summary
Key Figures
Property type Retail Park Main tenant Kaufland Vertrieb ALPHA GmbH & Co. KG
Total lettable area 14,144 m² Total parking units 300 units
Current vacancy rate 4.3% Weighted average lease term 6.4 years
Year of construction 1997 Year of refurbishment n.a.
Contractual gross rental income (month 1 x 12) total p.a. € 953,144 per m² / month € 5.62
Total non-recoverable expenses (month 1 x 12) total p.a. € 110,778 per m² / month € 0.65
Net operating income (month 1 x 12) total p.a. € 842,366 per m² / month € 4.96
Market rental valuetotal p.a. € 1,332,938 Over-/Underrent based on occupied areas -25.0%
SWOT Analysis
Strengths Weaknesses Located along a major through road Still some long-term vacancies in the annex Sufficient parking spaces Limited third party usability of the large-scale retail area without refurbishment Strong and well-known anchor tenant with long remaining lease term The retail unit let to Kaufland is strongly underrented Good tenant mix High level of competition (another Kaufland nearby) Low vacancy rate 0
Opportunities Threats Letting of the vacant office space and vacant residential unit Difficult relettability of the fitness studio/health center Reletting of the main retail area on market level 0 Extension of the lease contracts of the smaller tenants 0 Kaufland exercises its options until 2037 0 0 0
Property Rating (1 = very negative, 5 = very positive)
Building Location
Building age 2 16 to 25 years Macrolocation 3 Average location and catchment area Lettable Area 4 Between 12,500 and 15,000 m² Microlocation 3 Average micro location Property condition 3 Average building condition Commercial activity 2 No commercial activity nearby General impression 3 Average general impression Competition 3 Average competition level
Liquidity Investment Quality
WALT 3 WALT three to seven years Investment market 3 Average property market Over- / underrent 5 Significantly underrented (more than -15%) Investment volume 4 Good lot size Quality of tenants 4 Tenants with very good credit rating Saleability 4 Good saleability within 6 months
Property Description
The property consists of two buildings. The main building was built in 1997 and is a multifunctional building complex with two underground levels and one to five storeys. The main tenant, Kaufland, is located in the main building, as is the health centre and some minor office areas. The building comprises four connected building parts, which extend from west to east: Part A is a five-storey building with one basement, which has a triangular shape and is the location of the main entrance to the mall. This building part is mainly let to medical practices. Part B is an L-shaped one- to two-storey building with a basement level and in parts, a second basement level. The main part of the mall is located here. Building part C has two storeys, one basement level and a rectangular shape. The ground level is occupied by the shopping mall, while the first floor is let to the fitness studio. Building part D is rectangular, has four-storeys and comprises residential units. The main building is a skeleton construction with columns and beams in varying grids. On the upper floors, there are reinforced concrete slabs and a ripped ceiling over the basement. The inner and outer walls are made of reinforced brickwork or concrete, and are partly constructed as a multi-layer construction or covered with plaster. The annex was completed in 2007. It has three storeys and a rectangular shape. The annex is let to medical practices and office tenants on the first floor. There are three retail units on the ground floor and several residential units on the other floors. There are two parking levels under the main building accessible from Friedrichstraße. Some additional parking is provided in front of the annex and is accessible from Danziger Straße.
Valuation Results
Market Value Market Rental Value
€ 12,200,000 equals to € 863 per m² € 1,332,938 p.a. equals to € 7.85 / m² / p.m.
Discount Rate 7.15% Net Initial Yield 6.48% excluding 6.48% Multiplier (initial) 12.80 capital Capitalisation Rate6.75% Net Reversionary Yield 9.36% expenditures 9.36% Multiplier (based on MRV) 9.15
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Location
Germany Macroeconomic Indicators (Source: GfK, BBE, BBSR/Inkar 2012)
Federal State Baden-Wurttemberg District Ludwigsburg (Rural District) City Ludwigsburg Postcode 71638
Population Federal State absolute 10,744,921 Population District absolute 516,874 Population City absolute 87,460 Number of Households City absolute 40,372 Population Density District per km² 753 Population Density City per km² 2,018 Population Forecast (2007 - 2025) District in % 7.5% Population Growth (2002 - 2007) Federal State in % 0.8% Population Growth (2002 - 2007) District in % 1.6% Unemployment Rate (6/2012) Federal State in % 3.7% Unemployment Rate (6/2012) District in % 3.6%
Structual Data (Source: GfK and BBE 2012)
Purchasing Power District in m € 12,077 Purchasing Power City in m € 1,929 Purchasing Power Index Federal State index 106.68 Retail Purchasing Power Index District index 118.70 Retail Centrality Index District index 83.06
Ludwigsburg Macro Location
Ludwigsburg is located in the centre of Baden-Wuerttemberg, only 12 km north from the state capital, Stuttgart (602,000 inhabitants). It is the district capital of the Ludwigsburg District and the second biggest secondary centre in the federal state. The closest motorways are the A81 (Würzburg - Gottmadingen) and A8 (Perl - Bad Reichenhall), which connect the region to Salzburg, Austria to the south-east. The motorways can be reached within 5 km and 20 km, respectively. Ludwigsburg has a railway station, which is located approx. 2 km from the subject property and offers connections to regional destinations such as Stuttgart. The closest railway station offering connections to the high-speed ICE train network is in Stuttgart, approx. 13 km away.
The nearest airport offering connections to national and international destinations is the Stuttgart Airport, located approx. 22 km from the subject property.
The economy of Ludwigsburg is based on five sectors: automotive suppliers, mechanical engineering, financial services, software development, and communication media. Additionally, a new field is currently establishing itself in Ludwigsburg, namely companies with future-oriented businesses such as energy efficiency, eco-design and green industry. Well-known companies based in Ludwigsburg include Beru Ag, Gleason-Pfauter GmbH, Wüstenrot Bausparkasse AG and Mann+Hummel GmbH.
Micro Location Micro Location
The property is less than 2 km from Ludwigburg's city centre. It is located at the intersection of Danziger Straße and Friedrichstraße (L1140), a well-frequented east-west axis. The property is highly visible from both Friedrichstraße and Danziger Straße due to its corner location. The surrounding are is characterized by residential use with minor commercial use on the ground floor level.
0
Local Tax Information
Real Estate Tax Rate (Typ B) City in % 360 Land Transfer Tax City in % 5.0
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Site Plan
Source: Cadastral plan on a 1 to 1,000 scale, dated 28.12.2010 Site Information
Site area 10,911 m² Ground lease No thereof surplus land 0 m² Ground lease expiry n.a. Surplus land value (net) n.a. € 0 Comment Site servicing Fully serviced According to the Environmental Due Diligence Report, dated July 2007, both sites are listed in the contaminated land register, "Atlas altlastverdächtiger Flächen des Landratsamtes Ludwigsburg". The Site layout Irregular sites were formerly used by the US military as a military base. It is not clear whether the grounds were contaminated, as neither subsoil investigation reports nor remediation reports were available. Kaufland Soil contamination Suspicion of contamination has stated that there is no subsoil contamination up to 10 m below ground level; however, it is not clear whether there is contamination below this point. For the purposes of this valuation, we have assumed Building encumbrances Yes that the subject property is free of any soil or building contamination.
Town Planning
Use class SO (special zone) Comment According to information from the local planning authority, a legally binding development plan exists, Site coverage ratio (GRZ) 0,9 entitled "048/01" and dated 30.09.1995, with the following regulations: the subject site is listed as a special area (SO-Sondergebiet "Einkaufszentrum"), which permits large-scale retail trade. The site Plot ratio (GFZ) n.a. coverage ratio (Grundflächenzahl, GRZ) is 0.9. The maximum height of the buildings is limited to 27.5 m for the corner building and 17.5 m for the middle part of the building and 15 m for the annex. Cubic index (BMZ) n.a.
Tenure
Land Register Owner Sheet Plot Parcel Section 2 (Restrictions) Section 3 (Loans) Local Court of TPL Ludwigsburg 25568 NO 3611 (VN 1330/2 Several limited personal easements (regarding Land charges in the total amount of € 14,136,476 in Ludwigsburg, land S.á.r.l., Luxembourg 1998/2) 1330/89 temporary restrictive covenant, right of wayleave, favour of Bank of Scotland (branch Frankfurt) register of Ludwigsburg NO 3611 (VN restrictive covenant, pipeline easement, building 1993/71) restrictions concerning antennas and combustion installations, right to maintain a sidewalk on part of the property, right to operate and maintain a central heating system) in favor of the city of Ludwigsburg. Further limited personal easements (regarding the installation/operation of a transformer station, pipeline easement, the installation and operation of a distribution plant) are in favour of Neckarwerke Elektrizitätsversorgungs-AG, Esslingen and Deutsche Telekom AG, Stuttgart. One limited personal easement (the right to operate and maintain a hypermarket) in favor of Kaufland Dienstleistungs GmbH&Co. KG, Neckarsulm. Source: Extract from the land register dated 03.12.2010
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Competitor Map
Source: Jones Lang LaSalle Research
Competitor Overview
Name Address Type Sales area Distance Potential Rewe 70806 Kornwestheim, Arkansasstr. 2 Hypermarket 1,500 m² 1.60 km Low Rewe 71638 Ludwigsburg, Wilhelmstr. 24 Hypermarket 1,500 m² 1.90 km Low Rewe 70806 Kornwestheim, Neckarstr. 1 Hypermarket 1,724 m² 2.90 km Low Kaufland 71636 Ludwigsburg, Schwieberdinger Str. 94 Self-service dep. store 5,073 m² 3.00 km High E-center 70806 Kornwestheim, Bahnhofsplatz 2-4 Hypermarket 1,500 m² 3.60 km Low E-center 71686 Remseck, Neckaraue 2 Hypermarket 3,400 m² 4.50 km Medium Marktkauf 71679 Asperg, Ruhrstr. 6 Hypermarket 2,746 m² 4.50 km Medium Rewe Burkhardt 71679 Asperg, Eglosheimer Str. 72 Hypermarket 1,500 m² 5.20 km Low Kaufland 70378 Stuttgart, Aldinger Str. 70 Hypermarket 4,800 m² 5.50 km Medium Rewe Aupperle 70736 Fellbach, Daimlerstr. 18 Hypermarket 2,800 m² 6.40 km Low Handelshof 71672 Marbach, Rielingshäuser Str. 15 Hypermarket 2,000 m² 7.30 km Low E-neukauf 71732 Tamm, Bissinger Str. 10 Hypermarket 2,400 m² 7.50 km Medium Handelshof 70825 Korntal-Münchingen, Schwieberdinger Str. 100 Hypermarket 2,361 m² 7.60 km Low Kaufland 70736 Fellbach, Merowingerstr. 5 Self-service dep. store 6,000 m² 8.50 km Low Handelshof 74321 Bietigheim-Bissingen, Prinz-Eugen-Str. 10 Hypermarket 2,864 m² 8.60 km Low
Competiton Indicators
Inhabitants in primary catchment area 37,677 Inhabitants per hypermarket in primary catchment area 12,559
Inhabitants in secondary catchment area 139,480 Inhabitants per hypermarket in secondary catchment area 15,498
Inhabitants in tertiary catchment area 295,384 Inhabitants per hypermarket in tertiary catchment area 19,692
Number of households in the district 40,372 Population forecast for the district (2007 - 2025) 7.5%
Retail Purchasing Power Index (District) 118.70 Retail Centrality Index (District) 83.06
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Main competitors
This competitor is a large-scale retail property let to the tenant Kaufland. The property is located in a The location of the property is very good and it benefits from being next to a highly-frequented road commercial area at the western periphery of Ludwigsburg. A Küchenstudio and an Aral petrol station leading to the A81 motorway. The property is comparable to the subject property and therefore, has a are located next to the property. high competition potential.
Competition Comment
The catchment area can be differentiated into primary (0 - 5min driving time); secondary (5 - 10min) and tertiary (10 - 15min) catchment area. Approximately 37,677 inhabitants live in the primary catchment area. This results in 12,559 inhabitants per large-scale hypermarket in the primary catchment area. Even though there are several discounters and small-scale supermarkets located nearby, it can be said that these present only indirect competition to the property. Kaufland offers a very deep and broad product range with more than 50,000 products, while supermarkets and discounters generally offer a limited product range with only 7,000 to 11,000 (supermarkets) or 400-2,500 (discounters) articles. Therefore, these retailing forms address different customers or customer needs. While supermarkets and discounters cater to the daily needs of customers, Kaufland offers more variety for products that are bought on a non-daily basis. Several additional tenants complement the offer. These include Kreissparkasse Ludwigsburg (bank), Klier (hairdresser), several restaurants and cafés, a butcher’s shop and a bakery, a travel agency, a photography store, a car rental service, a pharmacy, a newspaper kiosk, a locksmith, a Quick-Schuh and a fashion jewellery store. The mix of the ancillary tenants is comparable to the sublets of Kaufland in the subject property (pharmacy, newspaper kiosk, bakery, butcher’s shop, hairdresser, drycleaner). The property was refurbished in 2009/2010. The split of the retail area over two storeys is a bit problematic, as it forces consumers to walk longer distances. Other than that, the proximity of this competitor to the subject property and the superior location along a commuter road make this retail property a serious competitor with high competition potential. There are three more Rewe hypermarkets in a radius of 3 km. However, as these have barely half the sales area of the subject property and offer a different product mix, they only represent indirect competition. 0
Turnover analysis
The rents in a functional retail agglomeration are linked to turnover. The percentage rate that a retail tenant can use for rental payments depends on the margins achievable in the various market sectors. This rate normally ranges between 2% and 15% depending on the respective branch. The productivity varies between approx. € 1,000/m² up to more than € 10,000/m². In the subject property, there are only four retail areas: the retail areas of Kaufland, Corongiu, Sardovino and Aro Heimtextilien GmbH. No turnover rents have been agreed with the tenants Corongiu and Sardovino; we have therefore not been provided with any turnover figures.
For Kaufland, we have been provided with turnover figures. We have analysed the figures and have found the area productivity of Kaufland to be in a healthy range. With a turnover-to-rent ratio of less than 2% it lies below the range of 2% to 4%, which is acceptable for a self-service department store. Considering the location factors and the competition level within Ludwigsburg, we have assumed that a higher turnover-to- rent ratio regarding a similar branch and turnover is realistic. Hence, the market rent after the termination of the current rental contract has been chosen in a range of 3%. Please also refer to the rent/turnover analysis on page 8.
Conclusion
The subject property is a modern self-service department store with a small mall in the basement as well as some additional tenants on the ground floor. The tenant mix of the sublet areas is service oriented and includes a hairdresser, pharmacy, newspaper kiosk, bakery, butcher’s shop, deli and drycleaner. The property offers sufficient parking spaces on two levels and is easily accessible as well as highly visible from both Danziger Straße and Friedrichstraße. As Kaufland is a strong customer magnet, we believe that it will have no trouble letting the small retail units in the basement and on the ground floor. The retail units in the annex, however, are difficult to let. This is partly due to the fact that in the location of the subject property, there is no demand for additional retail space. The current use as a restaurant/wine store are fine, however, they do not benefit greatly from their location next to the Kaufland and therefore, it will be difficult to find new tenants if the current tenants do not prolong their lease terms. In contrast to this, the location has established itself as a medical centre: several of the office units in both the main building and annex have been let to medical practices and a health centre complements this offer. The letting of the office units assuming an adequate rental level can therefore be rated as relatively unproblematic.The rental area of Kaufland can be regarded as relatively unproblematic. The location is suitable for the tenant and can be reached by foot from the surrounding residential area as well as by car. Even though the competition from the Kaufland located nearby is strong, the density of self- service department stores is moderate for a city this size. We believe that the tenant will be able to compete, especially because it can operate on a very low contractual rent for a long time. The anchor tenant, Kaufland, has a lease contract until 2022 with three options each for five years, bringing the earliest possible termination date for the landlord to 2037. On the basis of our projection of likely productivity per m² and turnovers, we have calculated the market rent at a level of € 8.50/m²/month. The tenant currently pays a contractual rent of € 4.91/m²/p.m. Therefore, the retail unit is currently heavily underrented. Due to the margins realizable and under the assumption of good turnover figures, we believe that Kaufland will remain in the property until 2037. In the unlikely case that Kaufland should vacate the premises, the property could be relet to other self-service department stores, which are currently not present in the Ludwigsburg real estate market.
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Rent Roll
Tenant Name Area Category Letting Area Rent Rent / m² Tenant Lease Lease Renewal Tenant Status m² / unit / month / month pays VAT Start End Probability pays * 1 Kaufland Vertrieb ALPHA GmbH & Co. KG Retail Let 7,491 € 36,743 4.91 No 01.10.2007 30.09.2022 75% 2 SardoVino GmbH Alexander & Carolin Corongiu Retail Let 90 € 1,001 11.13 Yes 14.09.2007 13.09.2017 75% GT I PM 3 Corongiu RetailLet 260 € 2,878 11.07 Yes 14.09.2007 13.09.2017 75% GT I PM 4 Land BW vertr. Landesbetrieb Vermögen BW OfficeLet 165 € 1,479 8.96 Yes 26.09.2007 30.10.2017 75% GT I PM 5 Life GmbH Office Let2,161 € 9,915 4.59 Yes 16.05.2006 15.05.2016 75% GT I 6 Life GmbH Office Let 595 € 0 0.00 Yes 16.05.2006 15.05.2016 75% GT I 7 Jacobi-Haumer Office Let 240 € 1,199 5.00 Yes 31.10.2007 30.10.2017 75% GT I PM 8 Beyer Office Let 252 € 2,728 10.83 Yes 01.04.2007 30.09.2012 75% GT I PM 9 Praxisgem. Office Let 457 € 3,959 8.66 Yes 01.04.2007 31.03.2017 75% GT I PM 10 Schwarzenberger Office Let 177 € 1,759 9.94 Yes 01.09.2010 31.08.2013 75% GT I PM 11 VACANT Office Vacant 205 € 0 0.00 12 VACANT ResidentialVacant 75 € 0 0.00 13 Izmaku Residential Let 75 € 575 7.67Yes 01.12.2007 30.09.2012 75% GT I 14 Derr Residential Let 65 € 4506.92 Yes 26.06.2006 30.09.2012 75% GT I 15 Ekaterina und Alexander Erik ResidentialLet 65 € 432 6.65 Yes 01.02.2003 30.09.2012 75% GT I 16 Keiner ResidentialLet 65 € 408 6.28 Yes 01.02.2010 30.09.2012 75% GT I 17 Meder ResidentialLet 63 € 450 7.14 Yes 01.12.2006 30.09.2012 75% GT I 18 Modnikov ResidentialLet 82 € 464 5.66 Yes 26.11.2007 30.09.2012 75% GT I 19 Bondar ResidentialLet 65 € 408 6.28 Yes 01.04.2010 30.09.2012 75% GT I 20 Izmaku ResidentialLet 65 € 450 6.92 Yes 01.02.2007 30.09.2011 75% GT I 21 Roth ResidentialLet 65 € 432 6.65 Yes 01.09.1997 30.09.2012 75% GT I 22 PROPERTY MANAGER ResidentialLet 87 € 0 0.00 Yes 01.07.2011 30.06.2014 75% GT I 23 Tahiri ResidentialLet 87 € 602 6.92 Yes 01.02.2010 30.09.2012 75% GT I 24 Jacobi-Haumer ResidentialLet 83 € 600 7.23 Yes 01.08.2009 30.09.2012 75% GT I 25 Elbs ResidentialLet 85 € 588 6.92 Yes 01.04.2010 30.09.2012 75% GT I 26 Tarasov ResidentialLet 87 € 6167.08 Yes 01.02.2010 30.09.2012 75% GT I 27 Török Residential Let 86 € 602 7.00 Yes 01.02.2010 30.09.2012 75% GT I 28 Schneider Residential Let 65 € 408 6.28 Yes 01.02.2010 30.09.2012 75% GT I 29 Deutsche Post Real Estate Germany GmbH Other Units Let 7 € 125 17.86 Yes 27.07.2007 31.07.2012100% GT I PM 30 VACANT Internal Parking Vacant 1 € 0 0.00 31 PROPERTY MANAGER Internal Parking Let 1 € 0 0.00 Yes 01.07.2011 30.06.2014 75% 32 Jacobi-Haumer Internal Parking Let 1 € 35 35.00 Yes 31.10.2007 30.10.2017 75% 33 Jacobi-Haumer Internal Parking Let 1 € 35 35.00 Yes 31.10.2007 30.10.2017 75% 34 Tittes Internal Parking Let 1 € 29 29.41 Yes 01.08.2009 31.07.2012 75% 35 Modnikov Internal Parking Let 1 € 35 35.00 Yes 26.11.2007 30.09.2012 75% 36 Török Internal Parking Let 1 € 29 29.41 Yes 01.02.2010 30.09.2012 75% 37 Elbs Internal Parking Let 1 € 35 35.29 Yes 01.04.2010 30.09.2012 75% 38 VACANT Internal Parking Vacant 1 € 0 0.00 39 VACANT Internal Parking Vacant 1 € 0 0.00 40 Török Internal Parking Let 1 € 29 29.41 Yes 01.05.2010 31.07.2012 75% 41 Tahiri Internal Parking Let 1 € 35 35.29 Yes 01.09.2010 31.07.2012 75% 42 Modnikov Internal Parking Let 1 € 35 35.29 Yes 01.05.2010 31.07.2012 75% 43 Izmaku Internal Parking Let 1 € 35 35.00 Yes 01.12.2007 30.09.2012 75% 44 Bondar Internal Parking Let 1 € 35 35.29 Yes 01.08.2010 31.07.2012 75% 45 Kurzzeitmieter Other Units Let 1 € 25 25.00 Yes 01.11.2008 30.09.2022 100% 46 Aro Heimtextilien GmbH Retail Let 460 € 2,680 5.83 Yes 01.09.2011 31.08.2021 75% GT I PM 47 VACANT Office Vacant 262 € 0 0.00 48 VACANT Residential Vacant 65 € 0 0.00 49 Internal Parking Internal Parking Let 285 € 7,083 24.85 00.01.1900 00.01.1900 0% 0%
Total 14,144 m² € 79,429 * M = Maintenance, GT = Ground Tax, I = Insurance Costs, PM = Property Management
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Valuation Assumptions
Tenant Name Area Category Area Market Market Re-letting Initial Re-letting Rent Agency Lease Renewal sqm/unit Rent Rent /month Tis Void VPV*Void* Abatem.* Fees* Term** Probability 1 Kaufland Vertrieb ALPHA GmbH & Co. KG Retail 7,491 € 8.50 € 63,670 € 50 12 12 0 3 10 75% 2 SardoVino GmbH Alexander & Carolin Corongiu Retail 90 € 9.00 € 810 € 100 15 9 0 3 10 75% 3 Corongiu Retail 260 € 8.50 € 2,210 € 100 15 9 0 3 10 75% 4 Land BW vertr. Landesbetrieb Vermögen BW Office 165 € 9.00 € 1,485 € 100 12 9 3 3 10 75% 5 Life GmbH Office 2,161 € 3.25 € 7,023 € 100 12 9 3 3 10 75% 6 Life GmbH Office 595 € 3.25 € 1,934 € 100 12 9 3 3 10 75% 7 Jacobi-Haumer Office 240 € 8.75 € 2,097 € 100 12 9 3 3 10 75% 8 Beyer Office 252 € 8.75 € 2,205 € 100 12 9 3 3 10 75% 9 Praxisgem. Office 457 € 8.50 € 3,885 € 100 12 9 3 3 10 75% 10 Schwarzenberger Office 177 € 9.00 € 1,593 € 100 12 9 3 3 10 75% 11 VACANT Office 205 € 8.75 € 1,794 € 100 12 9 3 3 10 75% 12 VACANT Residential 75 € 7.00 € 525 € 25 6 6 0 3 5 75% 13 Izmaku Residential 75 € 7.00 € 525 € 25 66 0 3 5 75% 14 Derr Residential 65 € 6.75 € 439 € 25 6 6 0 3 5 75% 15 Ekaterina und Alexander Erik Residential 65 € 6.75 € 439 € 25 66 0 3 5 75% 16 Keiner Residential 65 € 6.75 € 439 € 25 66 0 3 5 75% 17 Meder Residential 63 € 6.75 € 425 € 25 6 6 0 3 5 75% 18 Modnikov Residential 82 € 7.00 € 574 € 25 66 0 3 5 75% 19 Bondar Residential 65 € 6.75 € 439 € 25 66 0 3 5 75% 20 Izmaku Residential 65 € 6.75 € 439 € 25 66 0 3 5 75% 21 Roth Residential 65 € 6.75 € 439 € 25 66 0 3 5 75% 22 PROPERTY MANAGER Residential 87 € 7.00 € 609 € 25 66 0 3 5 0% 23 Tahiri Residential 87 € 7.00 € 609 € 25 66 0 3 5 75% 24 Jacobi-Haumer Residential 83 € 7.00 € 581 € 25 66 0 3 5 75% 25 Elbs Residential 85 € 7.00 € 595 € 25 66 0 3 5 75% 26 Tarasov Residential 87 € 7.00 € 609 € 25 66 0 3 5 75% 27 Török Residential 86 € 7.00 € 602 € 25 66 0 3 5 75% 28 Schneider Residential 65 € 6.75 € 439 € 25 66 0 3 5 75% 29 Deutsche Post Real Estate Germany GmbH Other Units 7 € 17.86 € 125 € 0 15 0 0 0 10 100% 30 VACANT Internal Parking 1 € 32.50 € 33 € 0 12 12 0 0 5 75% 31 PROPERTY MANAGER Internal Parking 1 € 32.50 € 33 € 0 12 12 0 0 5 0% 32 Jacobi-Haumer Internal Parking 1 € 32.50 € 33 € 0 12 12 0 0 5 75% 33 Jacobi-Haumer Internal Parking 1 € 32.50 € 33 € 0 12 12 0 0 5 75% 34 Tittes Internal Parking 1 € 32.50 € 33 € 0 12 12 0 0 5 75% 35 Modnikov Internal Parking 1 € 32.50 € 33 € 0 12 12 0 0 5 75% 36 Török Internal Parking 1 € 32.50 € 33 € 0 12 12 0 0 5 75% 37 Elbs Internal Parking 1 € 32.50 € 33 € 0 12 12 0 0 5 75% 38 VACANT Internal Parking 1 € 32.50 € 33 € 0 12 12 0 0 5 75% 39 VACANT Internal Parking 1 € 32.50 € 33 € 0 12 12 0 0 5 75% 40 Török Internal Parking 1 € 32.50 € 33 € 0 12 12 0 0 5 75% 41 Tahiri Internal Parking 1 € 32.50 € 33 € 0 12 12 0 0 5 75% 42 Modnikov Internal Parking 1 € 32.50 € 33 € 0 12 12 0 0 5 75% 43 Izmaku Internal Parking 1 € 32.50 € 33 € 0 12 12 0 0 5 75% 44 Bondar Internal Parking 1 € 32.50 € 33 € 0 12 12 0 0 5 75% 45 Kurzzeitmieter Other Units 1 € 0.00 € 0 € 0 15 0 0 0 10 100% 46 Aro Heimtextilien GmbH Retail 460 € 7.00 € 3,220 € 75 15 9 0 3 10 75% 47 VACANT Office 262 € 8.75 € 2,293 € 100 12 9 0 3 10 75% 48 VACANT Residential 65 € 6.75 € 439 € 25 6 6 0 3 5 75% 49 Internal Parking Internal Parking 285 € 24.85 € 7,083 € 0 0 0 0 0 0 0%
Total 14,144 sqm € 111,078 * months ** years ***structural vacancy
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Property Analysis
Area Analysis Lettable AreaArea Vacant Area Let Vacancy Rate Use Category m² m² m² % Office 4,514 467 4,047 10.35% Office Retail DIY Retail 8,301 0 8,301 0.00% DIY 0 0 0 0.00% Warehouse 0 0 0 0.00% Commercial 0 0 0 0.00% Warehouse Commercial Residential Residential 1,330 140 1,190 10.53% Storage 0 0 0 0.00% Total area 14,144 607 13,537 4.29% Petrol Station 0 0 0 0.00% Storage Other Units 8 0 8 0.00% Internal parking 300 3 297 1.00% External parking 0 0 0 0.00% Total parking 308 3 297 0.97%
Income Analysis Contractual Contractual Contractual Potential Market MarketMarket Over-/ Under- Rent Rent Rent Rent Rent Rent Rent Rented Use Category €/m²/month €/month €/year €/year €/m²/month €/month €/year Office 5.20 21,038 252,452 282,632 5.39 24,308 291,696 -3.5% Retail 5.22 43,303 519,635 519,635 8.42 69,910 838,921 -38.1% DIY 0.00 0 0 0 0.00 0 0 0.0% Warehouse 0.00 0 0 0 0.00 0 0 0.0% Commercial 0.00 0 0 0 0.00 0 00.0% Residential 6.29 7,485 89,823 101,399 6.89 9,164 109,971 -8.7% Storage 0.00 0 0 0 0.00 0 0 0.0% Petrol Station 0.00 0 0 0 0.00 0 0 0.0% Other Units 18.75 150 1,800 1,800 15.63 125 1,500 20.0% Total area 5.32 71,976 863,711 905,467 7.32 103,507 1,242,088 -27.3% Internal parking 25.09 7,45389,433 90,341 25.24 7,571 90,850 -0.6% External parking 0.00 0 0 0 0.00 0 0 0.0%
Assessment of Kaufland market rent
Space productivity Turnover to rent ratio Explanation
7,000 11.00 10.33 Usual market % - levels 6,500 10.00 Market rent
6,000 9.00 Contractual Rent 8.50 8.00 5,500 7.75 Rents % € / m²
7.00 Contractual 1.9% 4.91 5,000 Market 3.3% 8.50 6.00 4,500 4% of turnover 10.33 Rent / m² / month 5.00 5.17 4.91 3% of turnover 7.75 4,000 4.00 2% of turnover 5.17 4,132 3,500 Turnover potential 23,216,057 € 3.00 (net) Sales Area ~ 5,618 m² 3,000 2.00 Total Area 7,491 m² in € / m² p.a. 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% based on sales area Turnover-rent-ratio
Self-service department stores usually can afford to pay a rent in the range of 2% to 4% of their net turnover (economically sustainable rent burden) and have a space productivity of about € 4,000 to € 6,000 per m² sales area. The two graphics above indicate, how the contract rent of the main tenant Kaufland as well as the assumed market rental level, can be assessed on the basis of usual market ranges. This analysis is based on the turnover potential figures prepared by Trade Dimension.
D&B Rating of Main Tenant
Main tenant Comment
Tenant name Kaufland Vertrieb ALPHA GmbH & Co. KG The main tenant is a corporation belonging to the Kaufland Group, which in turn belongs to the Lidl & Rent p.a. € 440,920 Schwarz Group, one of the biggest grocer groups in Europe. According to Dun & Bradstreet (D&B) Share of total income 46% Rating as at 01.01.2011 Kaufland Vertrieb ALPHA GmbH & Co. KG has a very low credit risk. The risk WALT 10.3 years of insolvency (D&B Score) within the next 12 months compared with other German companies is Payment Index n.a. assessed to be low, i.e. 86% of businesses on the German database have the same or higher risk of Capital indicator O failure. According to section 19 of the main lease agreement entered into by the landlord and Kaufland Risk indicator 1 Dienstleistung GmbH & Co. KG (D&B Rating = 2AA 1), an assignment of the main lease agreement by Score 86 the tenant to another entity of the Kaufland group requires that the landlord's credit risk rating may not Credit limit n.a. deteriorate due to such assignment of the lease.
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Assumptions Market Value
Lease Contract Commentary The property is fully almost fully let (95.7%) to four retail tenants, one health centre, 5 office tenants and several residential tenants. The WALT of the property amounts to 6.4 years. The main tenant is Kaufland with a share of approx. 52% of the rental income. The property is currently strongly underrented, due to a very low rental level of the main tenant Kaufland. As the lease contract is valid until 2022 and the tenant has options until 2037, we do not believe that the rental level can be adjusted before 2037. The rent of Kaufland is indexed and will be adapted by 50% of the CPI change, whenever the change exceeds 10 percent in relation to the CPI basis. Indexation started on 01.04.2009. The majority of the tenants pay all costs (including ground tax, insurance costs and management costs) except for maintenance costs for structural repairs. The residential tenants and the tenant Life GmbH (health centre) do not pay management costs. Ground tax, maintenance costs for structural repairs, management and insurance costs will not be borne by Kaufland. The rest can be apportioned to the tenants in accordance with the German Regulation on Operating Costs. However, due to the negligence of the current owner, these costs are currently not apportioned to the tenant. As this could be changed and a cost schedule could be drafted this year, we have assumed that all costs will be apportioned to the respective tenants. Compared to the previous valuation, one residential unit and one retail unit have been newly let. The retail unit with a size of 460 m² was let to Aro Heimtextilien GmbH for a term of 10 years. The tenant Praxisgemeinschaft has vacated an office area of 205 m². Two residential units and one further office unit are currently vacant. The overall vacant area amounts to 607 m². Further to the above-mentioned changesm several lease have been subject to an indexation adjustment. General Property Assumptions Discount Rate Comment
Discount rate 7.15% The yields applied reflect the individual location quality (macro- and micro-location) of the properties, building structure, letting situation, covenant strength and the relationship between contractual and Capitalisation rate 6.75% market rent. We derive the discount rate from market transactions. The discount rate reflects the rate of return expected by investors and is determined based on the risk associated with a property. As Capital expenditures* € 0 reinsurance, the initial yields profile is aligned with the market/other transactions. We have taken into account such facts as the remaining lease term with the well-known anchor tenant, the reduction of Vacancy costs € 10.00 /m²/p.a. vacancy and consequently low vacancy rate, the good turnover figures, the good location within the * on the basis of cost estimates provided by RT Facility Management GmbH & Co. KG, dated June 2012 federal state Baden-Wuerttemberg and the good condition of the subject property.
Breakdown of Non-Recoverable Costs
% of Gross Inflation Contract** per year per year (month 1 x 12) Contract Rent Maintenance costs € 4.75 /m² € 67,185 7.05% Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 after 2021 Management costs € 1.01 /m² € 14,297 1.50% Inflation 1.0% 1.5% 1.5% 1.5% 1.4% 1.3% 1.4% 1.4% 1.4% 1.4% 1.6% Ground tax € 1.73 /m² € 24,415 2.56% Insurance costs € 0.35 /m² € 4,880 0.51% Market Rental Growth Other non-recoverable costs € 0.00 /m² € 0 0.00% Total non-recoverable expenses € 7.83 /m² € 110,778 11.62% Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 after 2021 ** JLL analysis Rental Growth 1.0% 1.5% 1.5% 1.5% 1.4% 1.3% 1.4% 1.4% 1.4% 1.4% 1.6%
Market % of Gross Contract per year per year (assuming full occupancy) Market Rent Maintenance costs Maintenance costs € 4.75 /m² € 67,185 5.04% Management costs Management costs € 1.41 /m² € 19,994 1.50% Ground tax € 1.73 /m² € 24,415 1.83% Ground tax € 0.35 /m² € 4,880 0.37% Insurance costs Insurance costs Other non-recoverable costs € 0.00 /m² € 0 0.00% Total non-recoverable expenses € 8.23 /m² € 116,475 8.74% Other non-recoverable costs
Total Non-recoverable Costs
Maintanance Management Ground Insurance Other Non- Vacancy Total % of Total Costs Costs Tax Costsrecoverable Costs Costs per year Gross Revenue Year 1 € 67,555 € 13,565 € 30,809 € 10,433 0 € € 5,940 € 128,302 14.2% Year 2 € 68,400 € 15,117 € 31,195 € 10,563 0 € € 298 € 125,573 12.5% Year 3 € 69,426 € 15,212 € 31,663 € 10,722 0 € € 1,227 € 128,250 12.6% Year 4 € 70,467 € 15,521 € 32,138 € 10,883 0 € € 2,483 € 131,492 12.7% Year 5 € 71,489€ 14,589 € 32,604 € 11,040 0 € € 8,785 € 138,507 14.2% Year 6 € 72,454 € 15,046 € 33,044 € 11,189 0 € € 2,217 € 133,950 13.4% Year 7 € 73,432 € 15,810 € 33,490 € 11,341 0 € € 0 € 134,073 12.7% Year 8 € 74,460 € 15,746 € 33,959 € 11,499 0 € € 1,176 € 136,840 13.0% Year 9 € 75,502 € 15,996 € 34,434 € 11,660 0 € € 140 € 137,732 12.9% Year 10 € 76,559 € 15,947 € 34,916€ 11,824 0 € € 1,668 € 140,914 13.3% Year 11 € 77,670 € 16,162 € 35,423 € 11,995 0 € € 1,585 € 142,835 13.3%
Non-Recoverable Costs as a percentage of Total Gross Revenue 16.0% 14.2% 14.2% 14.0% 13.4% 13.3% 13.0% 12.9% 12.5% 12.6% 12.7% 12.7% 12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
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Friedrichstraße 124 Valuation date: 30.06.2012
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Cash Flow Market Value
Total Non- Net TIs and Present Rental Turnover Rent Gross recoverable Operating Capital Leasing Value @ Revenue Vacancy Abatements Revenue Costs Income Expenditures Commissions Cash Flow 7.15% Year 1 € 972,158 -€ 61,133 -€ 6,676 € 904,349 -€ 128,302 € 776,047 -€ 32,107 -€ 14,435 € 729,505 € 706,537 Year 2 € 1,015,949-€ 3,252 -€ 4,887 € 1,007,810 -€ 125,573 € 882,237 -€ 30,669 -€ 10,275 € 841,293 € 759,740 Year 3 € 1,024,820 -€ 10,688 € 0 € 1,014,132-€ 128,250 € 885,882 -€ 4,602 -€ 4,812 € 876,468 € 739,911 Year 4 € 1,044,996 -€ 10,253€ 0 € 1,034,743 -€ 131,492 € 903,251 € 0 € 0 € 903,251 € 711,732 Year 5 € 1,044,769 -€ 43,462 -€ 28,677 € 972,630 -€ 138,507 € 834,123 -€ 74,053 -€ 10,268 € 749,802 € 549,764 Year 6 € 1,049,800 -€ 22,489 -€ 24,220 € 1,003,091 -€ 133,950 € 869,141 -€ 63,716 -€ 13,761 € 791,664 € 542,625 Year 7 € 1,054,303 -€ 321 € 0€ 1,053,982 -€ 134,073 € 919,909 € 0 € 0 € 919,909 € 589,025 Year 8 € 1,059,734 -€ 10,029 € 0 € 1,049,705 -€ 136,840 € 912,865 -€ 3,889 -€ 4,079 € 904,897 € 540,899 Year 9 € 1,068,161 -€ 1,748 € 0 € 1,066,413 -€ 137,732 € 928,681 -€ 1,046 -€ 1,090 € 926,545 € 516,682 Year 10 € 1,077,179 -€ 14,029 € 0 € 1,063,150 -€ 140,914 € 922,236 -€ 53,405 -€ 4,862 € 863,969 € 449,520 Year 11 € 1,102,927 -€ 15,625 -€ 9,811 € 1,077,491 -€ 142,835€ 934,656 -€ 445,004 -€ 6,642 € 13,756,314 € 6,895,731 Total Cashflow (incl. Terminal Value @ 6.75 %) € 13,002,166 Gross Value of Surplus Land € 0 Gross Capital Value incl. Surplus Land € 13,002,166 Total Gross Revenue versus Net Operating Income
€ 1200000.0 8.0%
7.1% 7.1% 7.1% 6.9% 7.0% 6.8% 6.8% 6.7% 7.0% € 1000000.0 6.0% 6.4%
6.0%
€ 800000.0 5.0%
€ 600000.0 4.0% Rental income Running yield 3.0% € 400000.0
2.0%
€ 200000.0 1.0%
€.0 0.0% Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Valuation Results Market Value
Rent Overview Gross Capital Value (rounded) Contractual gross rental income (month 1 x 12) total p.a. € 953,144 per m²/month € 5.62 Total € 13,000,000
Market rental value total p.a. € 1,332,938 per m² € 919 per m²/month € 7.85 Over-/Underrent -25.02% Purchaser's costs 6.50% Yield Overview
Net Initial Yield 6.48% Market Value (rounded) Net Reversionary Yield 9.36% Total € 12,200,000 Gross Initial Yield 7.81% Gross Reversionary Yield 10.93% per m² € 863
Valuation Comment
In terms of risk, we have considered the covenant strength as well as the lease duration for the existing contracts. The main tenant, Kaufland Vertrieb ALPHA GmbH & Co. KG, as at 1.1.2011 has good covenant strength, which ensures a secure cash flow for the remainder of the lease term until at least 2022. Furthermore, according to section 19 of the main lease agreement entered into by the landlord and Kaufland Dienstleistung GmbH & Co. KG (D&B Rating = 2AA 1), an assignment of the main lease agreement by the tenant to another entity of the Kaufland group requires that the landlord's credit risk rating will not deteriorate due to such an assignment of the lease. Section 1 of the first amendment to the main lease agreement provides for the assignment of the main lease agreement to ALPHA Warenhandel GmbH & Co. KG, which has a worse D&B Rating (O 1). Pursuant to section 2 of the first amendment to the main lease agreement, the former tenant remains jointly and severally liable for the landlord's payment claims. Hence, the former tenant is a guarantor for the lease payments of the current tenant. In terms of a resale, we considered such facts as visibility, appearance, condition, third-party usability and location. For the purpose of the valuation on 30.06.2012, we have been provided with updated insurance costs as well as updated ground tax and have applied them in our valuation. Other costs have remained unchanged and have been applied according to information received during the previous valuation cycle. For management costs, we have applied 1.5% of the effective gross rent. We have been provided with updated information regarding necessary capital expenditures. All Capital expenditures for repairs in the first year as well as in the periods of year 2 to 5 and year 6 to 10 are considered to be covered by the maintenance costs of € 4.50/m² per annum. The encumbrances and the public easements are considered to be common practice and do not affect the Market Value of the property. For comparable rents we have had recourse to evidence of similar areas situated in the comparable regions and locations. Furthermore, we have analysed comparable transactions. As for the tenancies within the property, the following changes have taken place: one office unit of 205 m² was vacated by the tenant Praxisgemeinschaft and a retail area of approx. 460 m² was let to the tenant Aro Heimtextilien GmbH for a lease term of ten years. Furthermore, on residential unit was vacated, however, we consider this to be normal fluctuation. Several indexation adjustments have taken place. As for the short term tenants, we have been provided with the income figures for the period 01.07.2011 until 30.06.2102 and have applied the monthly average in our valuation. The applied monthly income by the short- term tenants has decreased from approx. € 75/p.m. to approx. € 25/p.m. Based on information from Brack Capital, we have additionally considered parking income of approx. € 85,000 p.a. As we have not been provided with any costs in this context and it is currently only a planned measure, we have adjusted the discount rate accordingly. The changes within the tenancies and the additional parking income led to an increase of the contractual rental income from € 931,268 p.a to € 953,144 p.a.
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Photos
Southern facade of Kaufland View of the annex building from Danziger Straße
Internal view of the sales areas of the tenant Kaufland View of the mall
View of the vacant retail unit in the annex building View of the parking garage
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Leasing and Investment Market
Leasing Market Investment Market
There is no homogeneous rental level for retail space in retail warehouses or retail parks throughout Stable economic growth has brought Germany in the focus of real estate investors throughout Europe. Germany. However, the spread between the average and the absolute prime rent is not as big as in At the end of 2011 the total amount of retail investments amounted to approximately € 10.6 billion, high street locations. The overall potential for rental growth in retail parks in Germany is best whereas the figure stood at € 1.4 billion at the end of Q1 2012. Hence, it accounted for 45%, and 27% summed up as mediocre. Depending on the tenant branch, rental rates for discounters, department respectively, of the total investments in commercial properties in Germany. This represents the reverse stores and DIY stores remain stable due to the high competition on the market, but the rents for figures of office investments (30% in 2011 and 45% in Q1 2012). Whereas the 2011 total investment in fashion stores have uplift potential simply due to the fact that these stores are increasing their retail properties clearly exceeded the figure of 2010 presence in retail parks and are prepared to pay high rents. and was close to the 2007 level, Q1 2012 marks the first drop within three years of consecutive growth. The rental level of retail warehouses and retail parks is the result of their location in urban centres or Within the retail investment market, the shares of the major asset classes shifted slightly between 2011 rural areas, and the resulting quality of the location in terms of catchment area, competition, and Q1 2012. High street properties/department stores and shopping centres remained the largest accessibility and visibility. While rental levels in Bavaria generally lie slightly above the average asset classes with a share of 37% and 35% respectively (compared to 32% and 45% respectively in western German rent levels due to the state’s strong economy, rental levels in eastern German 2011). This equals an investment volume of € 518 million and € 490 million. towns are generally slightly lower than their western counterparts, as these areas have a lower purchasing power and generate on average lower revenues. In the retail warehouse and retail park However, retail parks accounted for 15% (8% in 2011), whereas retail warehouses accounted for 5% segment, the maximum rents are determined by a percentage of the turnover expectancy. (8% in 2011). Investments in supermarkets/discounters represented 3% in 2011 but went down to less The rents within the different branches vary. This is due to the diverging location assessment and than 1% in the Q1 2012. Transactions involving other retail properties and a portfolio of kiosks took up turnover expectancy of the different tenants. If in the case of a retail park the management succeeds an 8% share. In 2011some large transactions drove up the amount of investments in shopping centre in establishing good anchor tenants, which guarantee a high visitor frequency, then the turnover high street properties and department stores. In Q1 2012, however, large transactions were virtually expectancy of secondary tenants tends to be higher. Therefore, some anchor tenants are able to absent. negotiate lower rents because their existence in a property increases the rental level of the others. The yield compression, which could be observed since 2009 and throughout 2011, came to a halt in Q1 Depending on the size of the retail unit and the branch of the tenants, rents in retail parks in western 2012 with respect to retail parks, shopping centres and retail high street unit shops/department stores. German locations generally range between € 5.00 and € 13.00 /m²/month. Prime yields for shopping centres are now close to 5% and, consequently, are very close to those of Depending on the size of the retail unit and the retail format of the store, rents for supermarkets are prime offices – an occurrence which has not taken place since a brief period in 2007. Net initial yields generally slightly higher than the rents for discounters. Rents for supermarkets in western German for prime retail parks went down to approximately 6% at the end of 2011 and have remained stable locations generally range between € 7.00 and € 13.00 /m²/month. Rents for discounters in western ever since. Germany generally range between € 6.00 and € 12.00 /m²/month, while discounters located in With respect to retail properties, we expect a progressively stable trend with the highest investment eastern Germany generally achieve slightly lower rental rates ranging between € 5.00 and € 11.00 share anticipated for shopping centres and high street properties. Furthermore, we predict that the /m²/month. Drugstores, textile, shoe and electronics branches generally achieve rental rates ranging German real estate market will remain the focus of foreign investors. In the Q1 2012 the buy side was from € 7.50 to € 12.00 /m²/month for rental areas with a size between 500 and 750 m². DIY stores dominated by insurance companies, open funds and private investors. We expect this to continue and need extensive space due to their broad product range with rental prices ranging between € 6.00 for foreign investors along with asset managers, developers and banks to become more active in the and € 10.00 /m²/month. course of 2012. Leasing Comparables
Tenant City Property Type Area Total Rent p.m. Rent p. sqm Comment Marktkauf Ulm Self-Service Department Store 6,233 m² € 56,032 € 8.99 /m² Comparable purchasing power, better location Kaufland Lüneburg Self-Service Department Store 4,611 m² € 35,732 € 7.75 /m² Lower purchasing power; worse location Kaufland Freital Self-Service Department Store 7,940 m² € 61,538 € 7.75 /m² Bigger retail area; lower purchasing power Marktkauf Lauchhammer Self-Service Department Store 9,506 m² € 74,052 € 7.79 /m² Bigger retail area; lower purchasing power Kaufland Bochum Self-Service Department Store 6,388 m² € 56,214 € 8.80 /m² Smaller retail area, slightly lower purchasing power Residential Ludwigsburg Appartment 52 m² € 395 € 7.59 /m² Offer Office Ludwigsburg Office 452 m² € 3,842 € 8.50 /m² Offer 0 0 0 0 m² € 0 € 0.00 /m² 0
Investment Comparables
Year of Gross Date of Property Type Area Comment Construction Multiplier Transaction Retail Park 2009/2010 8,500 m²13.8-fold Q1 2011 tegut; Deichmann, Takko; WALT 12.5 yrs; good location, no competition Retail Park 1996 25,000 m² 13.7-fold Q1 2011 Anchor tenant: large-scale hypermarket; high level of competition; WALT: 6yrs Retail Park 2008 6,000 m² 14.6-fold Q1 2011 Anchor tenant: electronics store; office; WALT: 7.5 yrs Self-service department store 2006 13,000 m² 13.8-fold Q2 2012 Famila; WALT approx. 9.26 yrs Self-service department store 1982/1995 12,000 m² 12.5-fold Q2 2010 Real; WALT approx. 12 yrs Retail Park n.a. 27,955 m² n.a. 2012 property in Baden-Wuerttemberg, purchase price approx. € 49.00m Standalone n.a. 10,100 m² n.a. 2011 property in Lower Saxony, purchase price approx. € 17.61m Retail Park n.a. 20,000 m² 11.2-fold Q3 2011 Saxony, WALT > 10 years, purchase price approx. € 29.6m, Kaufland, Esprit
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Potsdamer Straße 51 Valuation date: 30.06.2012
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Property Summary
Key Figures
Property type Retail Park Main tenant Kaufland Dienstleistung GmbH & Co. KG
Total lettable area 12,631 m² Total parking units 400 units
Current vacancy rate 1.8% Weighted average lease term 6.2 years
Year of construction 1997 Year of refurbishment n.a.
Contractual gross rental income (month 1 x 12) total p.a. € 1,094,138 per m² / month € 7.22
Total non-recoverable expenses (month 1 x 12) total p.a. € 102,958 per m² / month € 0.68
Net operating income (month 1 x 12) total p.a. € 991,179 per m² / month € 6.54
Market rental valuetotal p.a. € 1,042,904 Over-/Underrent based on occupied areas 8.2%
SWOT Analysis
Strengths Weaknesses Located in city centre location Sufficient parking spaces but located underground Located close to other retailers on an arterial road Sales area spread over several floors Well maintained 0 Good tenant mix 0 0 0
Opportunities Threats Prolongation of the main lease contract, Kaufland exercises its options until 2037 Strong dependency on the main tenant Kaufland Extension of the lease contracts of smaller tenants Difficult relettability of the fitness studio Under-rent of Kaufland lease, however, difficult to realise potential as extension options are in place 0 0 0 0 0
Property Rating (1 = very negative, 5 = very positive)
Building Location
Building age 2 16 to 25 years Macrolocation 3 Average location and catchment area Lettable Area 4 Between 12,500 and 15,000 m² Microlocation 4 Good micro location Property condition 3 Average building condition Commercial activity 4 Average commercial activity nearby General impression 3 Average general impression Competition 4 Low competition level
Liquidity Investment Quality
WALT 3 WALT three to seven years Investment market 3 Average property market Over- / underrent 2 Slightly overrented (5% to 15%) Investment volume 4 Good lot size Quality of tenants 4 Tenants with very good credit rating Saleability 4 Good saleability within 6 months
Property Description
The subject property is a three storey department store complex, furnished with escalators. The property was built in 1997 and faces Potsdamer Straße, Karl-Liebknecht-Straße and Bruno-Taut-Straße. The property has one main entrance from Potsdamer Straße and can also be accessed from the underground parking garage. The buildings have an irregular shape and are made of a steel reinforced concrete construction. The facade consists in parts of plastered or with facing bricks and in the entrance area of glass. It has a flat roof with hard covering.
Valuation Results
Market Value Market Rental Value
€ 14,000,000 equals to € 1,108 per m² € 1,042,904 p.a. equals to € 6.88 / m² / p.m.
Discount Rate 6.75% Net Initial Yield 6.65% excluding 6.65% Multiplier (initial) 12.80 capital Capitalisation Rate7.00% Net Reversionary Yield 6.31% expenditures 6.31% Multiplier (based on MRV) 13.42
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Location
Germany Macroeconomic Indicators (Source: GfK, BBE, BBSR/Inkar 2012)
Federal State Brandenburg District Teltow-Fläming (Rural District) City Ludwigsfelde Postcode 14974
Population Federal State absolute 2,511,525 Population District absolute 161,847 Population City absolute 23,992 Number of Households City absolute 11,275 Population Density District per km² 77 Population Density City per km² 219 Population Forecast (2007 - 2025) District in % 3.6% Population Growth (2002 - 2007) Federal State in % -1.8% Population Growth (2002 - 2007) District in % 1.0% Unemployment Rate (6/2012) Federal State in % 9.8% Unemployment Rate (6/2012) District in % 7.4%
Structual Data (Source: GfK and BBE 2012)
Purchasing Power District in m € 2,917 Purchasing Power City in m € 446 Purchasing Power Index Federal State index 89.44 Retail Purchasing Power Index District index 91.55 Retail Centrality Index District index 84.64
Ludwigsfelde Macro Location
Ludwigsfelde is situated in the federal state of Brandenburg in the administrative region of Teltow- Fläming. The city covers an area of 109.3 sq km. Nearby cities include Berlin (30 km) and Potsdam (20 km). The A10 federal motorway is located directly next to Ludwigsfelde, offering a direct connection to the motorway network. Thus, Ludwigsfelde is an interesting logistics location. The city’s railway station is linked to the regional railway network, offering connections to Berlin and Potsdam. The closest passenger airport is located in Berlin, which can be reached within 30 km.
The economy of Ludwigsfelde is primarily focussed on logistics and production facilities. Ludwigsfelde has an industrial park with an area of over 256 ha, where more than 70 companies operate. Additionally, there are three commercial parks with over 618 ha, where more than 900 companies are located. The district Teltow-Fläming is economically one of the strongest districts in the former East German states.
Micro Location Micro Location
The property is located at the residential and office street, Potsdamer Straße, close to the A10 motorway and the city centre in the western part of the city. The town hall is located only 500 m from the property. The property is highly visible and dominates the area to some extent. The property is surrounded by residential buildings, but there are also retail warehouses, for example operated by Rossmann, directly next to Potsdamer Straße. Thanks to the underground garage, many visitors of the local market located in front of the town hall, use the property for parking purposes, increasing the footfall of the property. However, the market takes place only twice a week.
0
Local Tax Information
Real Estate Tax Rate (Typ B) City in % 380 Land Transfer Tax City in % 5.0
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Site Plan
Source: Cadastral plan on a 1 to 1,500 scale, dated 27th December 2010 Site Information
Site area 10,340 m² Ground lease No thereof surplus land 0 m² Ground lease expiry n.a. Surplus land value (net) n.a. € 0 Comment Site servicing Fully serviced The property has an even topography and irregular shape. It is accessible from the north-east, south- east and north-west. According to information provided by the city of Ludwigsfelde, the site is not Site layout Irregular registered in the register of contaminated sites. In Brandenburg, there are no building encumbrances. Instead the muncipalities obtain personal Soil contamination No Suspicion easments, which are registered in the land register in divison 2. Thus, we assumed the subject property to be free of any building encumbrances. Building encumbrances No
Town Planning
Use class SO (special zone) Comment According to information from the local planning authority, a legally binding development plan exists, Site coverage ratio (GRZ) 1.0 entitled "Nr. 2 Sport- und Einkaufszentrum Ludwigsfelde" and dated 10.10.1994, with the following regulations: the subject site is located in a special zone (SO). The site coverage ratio is limited to 1.0. Plot ratio (GFZ) n.a.
Cubic index (BMZ) n.a.
Tenure
Land Register Owner Sheet Plot Parcel Section 2 (Restrictions) Section 3 (Loans) Local Court of Zossen, TPL Ludwigsfelde 4807 3 a/b 150, 152 Limited personal easement in favour of the city of Land charge in the amount of € 16,798,646.00 in land register of S.aá.r.l., Luxemburg 159, 161 Ludwigsfelde prohibiting that certain parts of the favour of Bank of Scotland. Ludwigsfelde 15/130, 15/132 property may be built on. 15/133, 41 Limited personal easement right of way in favour 154, 155 the owner of the plot 15/132. 157 Limited personal easement to operate a self- service department store on the plot in favour of Kaufland Stiftung & Co. KG, Neckarsulm.
Source: Land register extract, dated 2nd December 2010
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Competitor Map
Source: Jones Lang LaSalle Research
Competitor Overview
Name Address Type Sales area Distance Potential Real 14513 Teltow, Oderstr. 29 Self-service dep. store 7,829 m² 11.10 km Low Real 14480 Potsdam, Zum Kirchsteigfeld 2 Self-service dep. store 6,525 m² 11.20 km Low Real 15834 Rangsdorf, Klein Kienitzer Str. 2 Self-service dep. store 10,767 m² 13.90 km Low 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Competiton Indicators
Inhabitants in primary catchment area 11,169 Inhabitants per hypermarket in primary catchment area 11,169
Inhabitants in secondary catchment area 15,179 Inhabitants per hypermarket in secondary catchment area 15,179
Inhabitants in tertiary catchment area 59,047 Inhabitants per hypermarket in tertiary catchment area 29,524
Number of households in the district 11,275 Population forecast for the district (2007 - 2025) 3.6%
Retail Purchasing Power Index (District) 91.55 Retail Centrality Index (District) 84.64
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Main competitors
There is no direct competitor within Ludwigsfelde or the primary or secondary catchment area. The The property, which can be considered a largest competitor within Ludwigsfelde, is shown above. It neighbouring property next door has a bank and a retail use on the ground floor, but is not comprises six retail units including a Penny discounter and a large drugstore operated by Rossmann. considered to be real competition. However, the property is considering incorporating the same The overall size is however significantly smaller than the subject property. product range as the subject property.
Competition Comment
Approximately 15,000 inhabitants live in the secondary catchment area. This area is dominated by the subject property as there is no other self-service department store. Within the broader tertiary catchment area, there are 59,000 inhabitants and still only one competitor, which increases the customer potential to 24,500 potential customers per self-service department store.
However, we think that the property will mainly attract customers from the primary and secondary catchment area, but this is sufficient for this property. Thus, there are no direct competitors.
Only small supermarkets or discounters compete for the non-food customers. Consequently, we assess the level of competition to be below average and that the customer potential is sufficient.
0
Turnover analysis
The rents in retail agglomerations are linked to the achievable turnover. The percentage rate that a retail tenant can use for rental payments depends on the margins achievable in the various market sectors. This rate normally ranges between 2% and 15% depending on the respective industry. The productivity varies between approx. € 1,000/m² up to more than € 10,000/m². We have been provided with turnover figures from tenants such as s.m.s. shopping macht Spaß GmbH, Deichmann, Floristik´99, among others. For Kaufland, we have also been provided with turnover figures. We have analysed the figures and have found the area productivity of Kaufland to be in a healthy range. With a turnover-to-rent ratio of less than 2% it lies below the range of 2% to 4%, which is acceptable for a self-service department store. Hence, we believe that a market rent on contractual level is achievable after the end of the lease contract. Please also refer to the rent/turnover analysis on page 8.
With regards to turnover rents, we considered the current turnover rents to be sustainable in the long run for the property’s income.
Conclusion
The subject property is a self-service department store situated in a city centre location of Ludwigsfelde. The depth and breadth of the product range is very good. The property dominates the primary and secondary catchment areas, which should be sufficient for operating a self-service department store. Thus, the rental area of Kaufland can be regarded as relatively unproblematic. In the unlikely case that Kaufland should vacate the site, the property could be re-let to other self-service department store chains such as real or Marktkauf. We assumed that the tenant Kaufland will exercise its three options, each for five years, until 2037 due to the low contractual rental level. We therefore think that this location should be sustainable.
0
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Rent Roll
Tenant Name Area Category Letting Area Rent Rent / m² Tenant Lease Lease Renewal Tenant Status m² / unit / month / month pays VAT Start End Probability pays * 1 Johae Fleischprodukte GmbH & Co. KG Retail Let 67 € 2,687 39.89 Yes 01.08.2008 31.07.2014 75% GT I PM 2 Stadt Ludwigsfelde Retail Let 2,031 € 3,666 1.80 No 22.09.1997 21.09.2017 100% GT I PM 3 Henschel OfficeLet 51 € 255 4.99 No 01.12.2006 30.09.2012 75% GT I 4 Kaufland Warenhandel RetailLet 5,940 € 32,586 5.49 Yes 01.10.2007 30.09.2022 75% 5 Kaufmann Retail Let51 € 1,064 20.93 Yes 21.10.2005 20.10.2014 75% GT I PM 6 Kaufmann Retail Let 102 € 1,374 13.49 Yes 19.10.2005 18.10.2014 75% GT I PM 7 AWG Allgemeine Warenvertriebs-GmbH Retail Let 536 € 4,820 9.00 Yes 01.10.1997 30.09.2017 75% GT I PM 8 Apollo Optik GmbH Retail Let 117 € 2,617 22.40 Yes 01.06.2004 31.05.2014 75% GT I PM 9 Deichmann SE Retail Let 407 € 5,205 12.78 Yes 14.06.2004 13.06.2019 75% GT I PM 10 HAARMEX.DE Elduran Meryem Retail Let 125 € 1,635 13.08 Yes 10.01.2005 09.10.2015 75% GT I PM 11 Vodafone D2 GmbH Retail Let 52 € 1,40227.14 Yes 02.04.2009 31.12.2015 75% GT I PM 12 Naser RetailLet 65 € 1,06916.55 Yes 13.10.2007 12.10.2013 75% GT I 13 Vacant Retail Vacant 36 € 0 0.00 14 s.m.s. shopping macht Spaß GmbH - Jürgen Menzel Retail Let 131 € 1,83513.96 Yes 01.10.2007 30.09.2017 75% GT I 15 Wendorff RetailLet 173 € 5,434 31.37 Yes 08.09.1997 07.09.2017 75% GT I PM 16 Wohnungsgesellschaft Ludwigsfelde mbH RetailLet 131 € 551 4.22 Yes 13.10.1997 12.10.2017 75% GT I PM 17 Zebra Gastronomie und Automaten GmbH RetailLet 167 € 1,514 9.06 Yes 01.09.2003 14.10.2017 75% GT I PM 18 tabacon Franchise GmbH & Co. KG RetailLet 45 € 1,293 28.69 Yes 10.10.2006 09.10.2016 75% GT I PM 19 Floristik´99 RetailLet 63 € 2,181 34.82 Yes 01.10.2007 30.09.2012 75% GT I PM 20 Takke CommercialLet 833 € 1,028 1.23 Yes 01.08.2006 31.07.2013 75% GT I PM 21 Takke CommercialLet 162 € 179 1.10 Yes 01.08.2006 31.07.2013 75% GT I PM 22 TEDI GmbH & Co. KG RetailLet 266 € 2,452 9.22 Yes 21.04.2004 20.04.2016 75% GT I PM 23 Dinh Hoang RetailLet 55 € 524 9.46 Yes 15.07.2010 14.07.2013 75% GT I PM 24 AWG Allgemeine Warenvertriebs-GmbH RetailLet 533 € 4,796 9.00 Yes 01.10.1997 30.09.2017 75% GT I PM 25 Steinecke´s Heidebrot Backstube GmbH & Co. KG RetailLet 72 € 5,100 70.47 Yes 01.10.2007 30.09.2014 75% GT I PM 26 Frisör Klier GmbH RetailLet 64 € 1,950 30.57 Yes 01.10.2007 30.09.2017 75% GT I PM 27 Gürkan RetailLet 44 € 1,05823.81 Yes 01.09.2004 30.11.2016 75% GT I PM 28 Vacant Retail Vacant 196 € 0 0.00 29 Deichmann SE Storage Let 39 € 137 3.50 Yes 14.06.2004 13.06.2019 75% GT I PM 30 transact Elektronische Zahlungssysteme GmbH Other Units Let 1 € 56 56.26 No 01.01.2007 31.12.2013 100% GT I PM 31 Schwarz Außenwerbung GmbH Other Units Let 1 € 596 595.83 No 01.01.2010 31.12.2014 100% 32 Mall Income Other Units Let 1 € 565 565.08 Yes 100% 33 FOTOFIX Schnellphotoautomaten GmbH Other Units Let 1 € 52 52.09 Yes 01.01.2011 31.12.2012 100% GT I PM 34 Döbelin Retail Let 78 € 1,499 19.31 n.a. 01.04.2012 30.06.2013 75% M GT I PM 35 Internal Parking Internal Parking Let 400 € 0 0.00 00.01.1900 00.01.1900 0% 0%
Total 12,631 m² € 91,178 * M = Maintenance, GT = Ground Tax, I = Insurance Costs, PM = Property Management
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Valuation Assumptions
Tenant Name Area Category Area Market Market Re-letting Initial Re-letting Rent Agency Lease Renewal sqm/unit Rent Rent /month Tis Void VPV*Void* Abatem.* Fees* Term** Probability 1 Johae Fleischprodukte GmbH & Co. KG Retail 67 € 37.50 € 2,526 € 100 9 3 0 3 5 75% 2 Stadt Ludwigsfelde Retail 2,031 € 1.80 € 3,666 € 25 0 0 0 3 5 100% 3 Henschel Office 51 € 5.00 € 255 € 100 15 9 0 3 5 75% 4 Kaufland Warenhandel Retail 5,940 € 5.50 € 32,669 € 50 18 12 0 3 10 75% 5 Kaufmann Retail 51 € 20.00 € 1,017 € 100 12 6 0 3 5 75% 6 Kaufmann Retail 102 € 10.00 € 1,019 € 100 18 12 0 3 5 75% 7 AWG Allgemeine Warenvertriebs-GmbH Retail 536 € 8.00 € 4,284 € 100 18 12 0 3 5 75% 8 Apollo Optik GmbH Retail 117 € 27.50 € 3,213 € 100 12 6 0 3 5 75% 9 Deichmann SE Retail 407 € 10.00 € 4,073 € 100 18 12 0 3 5 75% 10 HAARMEX.DE Elduran Meryem Retail 125 € 9.00 € 1,125 € 100 18 12 0 3 5 75% 11 Vodafone D2 GmbH Retail 52 € 25.00 € 1,291 € 100 12 6 0 3 5 75% 12 Naser Retail 65 € 10.00 € 646 € 100 18 12 0 3 5 75% 13 Vacant Retail 36 € 20.00 € 712 € 100 12 6 0 3 5 75% 14 s.m.s. shopping macht Spaß GmbH - Jürgen Menzel Retail 131 € 10.00 € 1,314 € 100 18 12 0 3 5 75% 15 Wendorff Retail 173 € 30.00 € 5,197 € 100 12 6 0 3 5 75% 16 Wohnungsgesellschaft Ludwigsfelde mbH Retail 131 € 4.22 € 551 € 100 18 12 0 3 5 75% 17 Zebra Gastronomie und Automaten GmbH Retail 167 € 8.00 € 1,337 € 100 18 12 0 3 5 75% 18 tabacon Franchise GmbH & Co. KG Retail 45 € 25.00 € 1,127 € 100 12 6 0 3 5 75% 19 Floristik´99 Retail 63 € 27.50 € 1,723 € 100 12 6 0 3 5 75% 20 Takke Commercial 833 € 1.00 € 833 € 25 24 18 0 3 5 75% 21 Takke Commercial 162 € 1.00 € 162 € 25 24 18 0 3 5 75% 22 TEDI GmbH & Co. KG Retail 266 € 9.00 € 2,395 € 100 18 12 0 3 5 75% 23 Dinh Hoang Retail 55 € 9.00 € 498 € 100 18 12 0 3 5 75% 24 AWG Allgemeine Warenvertriebs-GmbH Retail 533 € 8.00 € 4,264 € 100 18 12 0 3 5 75% 25 Steinecke´s Heidebrot Backstube GmbH & Co. KG Retail 72 € 60.00 € 4,342 € 100 93 0 3 5 75% 26 Frisör Klier GmbH Retail 64 € 25.00 € 1,595 € 100 12 6 0 3 5 75% 27 Gürkan Retail 44 € 25.00 € 1,111 € 100 12 6 0 3 5 75% 28 Vacant Retail 196 € 10.00 € 1,960 € 100 18 12 0 3 5 75% 29 Deichmann SE Storage 39 € 3.50 € 137 € 0 18 12 0 3 5 75% 30 transact Elektronische Zahlungssysteme GmbH Other Units 1 € 56.26 € 56 € 100 12 6 0 3 5 100% 31 Schwarz Außenwerbung GmbH Other Units 1 € 595.83 € 596 € 100 12 6 0 3 5 100% 32 Mall Income Other Units 1 € 0.00 € 0 € 0 00 0 0 0 100% 33 FOTOFIX Schnellphotoautomaten GmbH Other Units 1 € 52.09 € 52 € 0 00 0 0 0 100% 34 Döbelin Retail 78 € 15.00 € 1,164 € 100 18 12 0 3 5 75% 35 Internal Parking Internal Parking 400 € 0.00 € 0 € 0 0 0 0 0 0 0%
Total 12,631 sqm € 86,909 * months ** years ***structural vacancy
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Property Analysis
Area Analysis Lettable AreaArea Vacant Area Let Vacancy Rate Use Category m² m² m² % Office 51 0 51 0.00% Office Retail DIY Retail 11,546 232 11,315 2.01% DIY 0 0 0 0.00% Warehouse 0 0 0 0.00% Commercial 995 0 995 0.00% Warehouse Commercial Residential Residential 0 0 0 0.00% Storage 39 0 39 0.00% Total area 12,631 232 12,400 1.83% Petrol Station 0 0 0 0.00% Storage Other Units 4 0 4 0.00% Internal parking 400 0 400 0.00% External parking 0 0 0 0.00% Total parking 404 0 400 0.00%
Income Analysis Contractual Contractual Contractual Potential Market MarketMarket Over-/ Under- Rent Rent Rent Rent Rent Rent Rent Rented Use Category €/m²/month €/month €/year €/year €/m²/month €/month €/year Office 4.99 255 3,054 3,054 5.00 255 3,059 -0.2% Retail 7.81 88,310 1,059,722 1,080,138 7.35 84,817 1,017,809 6.2% DIY 0.00 0 0 0 0.00 0 0 0.0% Warehouse 0.00 0 0 0 0.00 0 0 0.0% Commercial 1.21 1,207 14,489 14,489 1.00 995 11,943 21.3% Residential 0.00 0 00 0.00 0 0 0.0% Storage 3.50 137 1,642 1,642 3.50 137 1,642 0.0% Petrol Station 0.00 0 0 0 0.00 0 0 0.0% Other Units 317.32 1,269 15,231 15,231 176.05 704 8,450 80.2% Total area 7.35 91,178 1,094,138 1,114,554 6.88 86,909 1,042,904 6.9% Internal parking 0.00 000 0.00 0 0 0.0% External parking 0.00 0 0 0 0.00 0 0 0.0%
Assessment of Kaufland market rent
Space productivity Turnover to rent ratio Explanation
7,000 10.00
Usual market % - levels 6,500 9.00 8.87 Market rent
6,000 8.00 Contractual Rent
5,500 7.00 Rents % € / m² 6.65 Contractual 2.5% 5.49 5,000 6.00 Market 2.5% 5.50 5.495.50 4,500 4% of turnover 8.87 Rent / m² / month 5.00 4.43 3% of turnover 6.65 4,000 4.00 2% of turnover 4.43
3,500 Turnover potential 15,796,730 € 3.00 (net) 3,761 Sales Area ~ 4,200 m² 3,000 2.00 Total Area 5,940 m² in € / m² p.a. 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% based on sales area Turnover-rent-ratio
Self-service department stores usually can afford to pay a rent in the range of 2% to 4% of their net turnover (economically sustainable rent burden) and have a space productivity of about € 4,000 to € 6,000 per m² sales area. The two graphics above indicate, how the contract rent of the main tenant Kaufland as well as the assumed market rental level, can be assessed on the basis of usual market ranges. This analysis is based on the turnover potential figures prepared by Trade Dimension.
D&B Rating of Main Tenant
Main tenant Comment
Tenant name Kaufland Dienstleistung GmbH & Co. KG The main tenant is a corporation belonging to the Kaufland Group, which in turn belongs to the Lidl & Rent p.a. € 391,032 Schwarz Group, one of the biggest grocer groups in Europe. Kaufland is the self-service department Share of total income 36% store division of Lidl & Schwarz with more than 500 locations across Europe. Kaufland’s core business WALT 10.3 years area is food retailing with branded goods and own-brands specially produced for Kaufland. According to Payment Index 70 Dun & Bradstreet (D&B) Rating as at 01.01.2011 Kaufland Diensleistungs GmbH & Co. KG has a very Capital indicator 2AA 1 low credit risk. The risk of insolvency (D&B Score) within the next 12 months compared with other Risk indicator 1 German companies is assessed to be low, i.e. 97% of businesses on the German database have the Score 97 same or higher risk of failure. Credit limit n.a.
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Assumptions Market Value
Lease Contract Commentary The property is almost fully let to approx. 26 retail tenants with Kaufland as the anchor tenant. The WALT of the property amounts to 6.2 years. The main tenant Kaufland has a share of approx. 36% of the rental income. The rent of Kaufland is indexed and will be adapted by 50% of the CPI change, whenever the change exceeds 10 percent in relation to the CPI basis. Kaufland does not pay ground tax, insurance costs, maintenance, or property management. Smaller tenants usually cover these costs with the exception of maintenance costs. Some smaller tenants also do not pay property management but these are the minority. We understand that the current owner does not recover all costs that could be recovered, according to the lease contracts. As this could be changed and costs schedule could be drafted this year, we have assumed that all recoverable costs will be apportioned to the respective tenants. The following tenant's has just extended the lease contract: Kaufmann until 28.10.2014, Deichmann until 13.06.2019, Zebra Gastronomie und Automaten GmbH until 14.10.2017, Tabacon until 09.10.2016, Klier until 30.09.2017 and Gürkan until 30.11.2016. Furthermore, there is one new tenant: The tenant Döbelin has singed a lease contract over 78 m² until 30.06.2013. 0
General Property Assumptions Discount Rate Comment
Discount rate 6.75% The yields applied reflect the individual location quality (macro- and micro-location) of the properties, building structure, letting situation, covenant strength and the relationship between contractual and Capitalisation rate 7.00% market rent. We derive the discount rate from market transactions. The discount rate reflects the rate of return expected by investors and is determined based on the risk associated with a property. As Capital expenditures* € 0 reinsurance, the initial yields profile is aligned with the market/other transactions. We have taken into account such facts as the remaining lease term with the well-known anchor tenant, the good location, Vacancy costs € 10.00 /m²/p.a. the low vacancy rate and the good condition of the subject property in Ludwigsfelde. * on the basis of cost estimates provided by RT Facility Management GmbH & Co. KG, dated June 2012
Breakdown of Non-Recoverable Costs
% of Gross Inflation Contract** per year per year (month 1 x 12) Contract Rent Maintenance costs € 5.50 /m² € 69,473 6.35% Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 after 2021 Management costs € 1.30 /m² € 16,412 1.50% Inflation 1.0% 1.5% 1.5% 1.5% 1.4% 1.3% 1.4% 1.4% 1.4% 1.4% 1.6% Ground tax € 1.04 /m² € 13,119 1.20% Insurance costs € 0.31 /m² € 3,954 0.36% Market Rental Growth Other non-recoverable costs € 0.00 /m² € 0 0.00% Total non-recoverable expenses € 8.15 /m² € 102,958 9.41% Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 after 2021 ** JLL analysis Rental Growth 1.0% 1.5% 1.5% 1.5% 1.4% 1.3% 1.4% 1.4% 1.4% 1.4% 1.6%
Market % of Gross Contract per year per year (assuming full occupancy) Market Rent Maintenance costs Maintenance costs € 5.50 /m² € 69,473 6.66% Management costs Management costs € 1.24 /m² € 15,644 1.50% Ground tax € 1.04 /m² € 13,119 1.26% Ground tax € 0.31 /m² € 3,954 0.38% Insurance costs Insurance costs Other non-recoverable costs € 0.00 /m² € 0 0.00% Total non-recoverable expenses € 8.09 /m² € 102,190 9.80% Other non-recoverable costs
Total Non-recoverable Costs
Maintanance Management Ground Insurance Other Non- Vacancy Total % of Total Costs Costs Tax Costsrecoverable Costs Costs per year Gross Revenue Year 1 € 69,820 € 16,469 € 16,347 € 5,967 0 € € 1,922 € 110,525 10.1% Year 2 € 70,694 € 17,274 € 16,552 € 6,041 0 € € 4,777 € 115,338 10.0% Year 3 € 71,754 € 17,122 € 16,800 € 6,132 0 € € 602 € 112,410 9.8% Year 4 € 72,831 € 17,059 € 17,052 € 6,224 0 € € 875 € 114,041 10.0% Year 5 € 73,886€ 17,156 € 17,299 € 6,314 0 € € 382 € 115,037 10.1% Year 6 € 74,884 € 16,075 € 17,533 € 6,399 0 € € 5,469 € 120,360 11.2% Year 7 € 75,895 € 16,999 € 17,770 € 6,486 0 € € 5,090 € 122,240 10.8% Year 8 € 76,957 € 16,805 € 18,018 € 6,577 0 € € 1,984 € 120,341 10.7% Year 9 € 78,035 € 17,786 € 18,271 € 6,669 0 € € 439 € 121,200 10.2% Year 10 € 79,127 € 17,754 € 18,526€ 6,762 0 € € 912 € 123,081 10.4% Year 11 € 80,275 € 15,095 € 18,795 € 6,860 0 € € 22,287 € 143,312 14.2%
Non-Recoverable Costs as a percentage of Total Gross Revenue 12.0% 11.2% 10.8% 10.7% 10.2% 10.4% 10.1% 10.0% 9.8% 10.0% 10.1% 10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
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Cash Flow Market Value
Total Non- Net TIs and Present Rental Turnover Rent Gross recoverable Operating Capital Leasing Value @ Revenue Vacancy Abatements Revenue Costs Income Expenditures Commissions Cash Flow 6.75% Year 1 € 1,126,202 -€ 28,238 € 0 € 1,097,964 -€ 110,525 € 987,439 -€ 27,028 -€ 9,624 € 950,787 € 923,237 Year 2 € 1,167,098-€ 15,465 € 0 € 1,151,633 -€ 115,338 € 1,036,295 -€ 11,388 -€ 2,536 € 1,022,371 € 929,526 Year 3 € 1,158,214 -€ 16,778 € 0 € 1,141,436-€ 112,410 € 1,029,026 -€ 10,549 -€ 9,424 € 1,009,053 € 859,248 Year 4 € 1,148,665 -€ 11,374€ 0 € 1,137,291 -€ 114,041 € 1,023,250 -€ 4,663 -€ 1,917 € 1,016,670 € 811,475 Year 5 € 1,151,046 -€ 7,334 € 0 € 1,143,712 -€ 115,037 € 1,028,675 -€ 9,421 -€ 3,710 € 1,015,544 € 758,875 Year 6 € 1,144,908 -€ 73,249 € 0 € 1,071,659 -€ 120,360 € 951,299 -€ 50,131 -€ 16,698 € 884,470 € 619,425 Year 7 € 1,146,372 -€ 13,098 € 0€ 1,133,274 -€ 122,240 € 1,011,034 -€ 18,556 -€ 4,923 € 987,555 € 647,866 Year 8 € 1,155,918 -€ 35,600 € 0 € 1,120,318 -€ 120,341 € 999,977 -€ 22,515 -€ 13,633 € 963,829 € 591,607 Year 9 € 1,192,488 -€ 6,755 € 0 € 1,185,733 -€ 121,200 € 1,064,533 -€ 4,995 -€ 2,059 € 1,057,479 € 608,857 Year 10 € 1,196,964 -€ 13,340 € 0 € 1,183,624 -€ 123,081 € 1,060,543 -€ 10,090 -€ 3,985 € 1,046,468 € 564,198 Year 11 € 1,189,583 -€ 183,260 € 0 € 1,006,323 -€ 143,312€ 863,011 -€ 140,221 -€ 46,505 € 14,576,728 € 7,585,448 Total Cashflow (incl. Terminal Value @ 7.00 %) € 14,899,762 Gross Value of Surplus Land € 0 Gross Capital Value incl. Surplus Land € 14,899,762 Total Gross Revenue versus Net Operating Income
€ 1400000.0 8.0%
7.1% 7.1% 6.6% 7.0% 6.9% 6.9% 6.9% 6.8% 6.7% 7.0% € 1200000.0 6.4%
6.0% € 1000000.0
5.0% € 800000.0
4.0%
Rental income € 600000.0 Running yield 3.0%
€ 400000.0 2.0%
€ 200000.0 1.0%
€.0 0.0% Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Valuation Results Market Value
Rent Overview Gross Capital Value (rounded) Contractual gross rental income (month 1 x 12) total p.a. € 1,094,138 per m²/month € 7.22 Total € 14,900,000
Market rental value total p.a. € 1,042,904 per m² € 1,180 per m²/month € 6.88 Over-/Underrent 8.24% Purchaser's costs 6.50% Yield Overview
Net Initial Yield 6.65% Market Value (rounded) Net Reversionary Yield 6.31% Total € 14,000,000 Gross Initial Yield 7.82% Gross Reversionary Yield 7.45% per m² € 1,108
Valuation Comment
In terms of risk, we considered the covenant strength as well as the lease duration for the existing contracts. As at 01.01.2011, the main tenant, Kaufland Dienstleistung GmbH & Co. KG, has good covenant strength, which ensures a secure cash flow for the remainder of the lease term until at least 2022. In terms of a resale, we took into account such facts as visibility, demographic factors, appearance, condition and building age, third-party usability, competition situation and location. For the purpose of the valuation on 30.06.2012, we have been provided with updated insurance costs as well as updated ground tax and have applied them in our valuation. Other costs have remained unchanged and have been applied according to information received during the previous valuation cycle. For management costs, we have applied 1.5% of the effective gross rent. We have been provided with updated information regarding necessary capital expenditures. Capital expenditures for repairs in the amount € 1,027 have been taken into account in Year 1. For the periods Year1, Year 2-5 and Year 6-10, these are covered by our maintenance costs. Compared to the previous valuation the following tenants prologned his lease: Kaufmann (three years), Deichmann (five years), Zebra (five years), Tabacon (five years), Klier (five years). The new tenant Döbelin has signed a lease contract for 78 m². Furthermore, the tenant Schlecker has vacated the building. Regarding comparable rents, we have had recourse to evidence of similar areas situated in the comparable regions and locations. Furthermore, we have analysed comparable transactions. Please refer to the section "Investment Comparables". Taking into account the very good micro-location in a small city in eastern Germany but still close to Berlin, we have the opinion that this property should be transacted at a multiplier slightly lower than the middle of the range of the observed comparables.
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Photos
View of the main entrance External view
External view Internal view of the mall
Internal view of the mall View of the underground garage
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Leasing and Investment Market
Leasing Market Investment Market
There is no homogeneous rental level for retail space in retail warehouses or retail parks throughout Stable economic growth has brought Germany in the focus of real estate investors throughout Europe. Germany. However, the spread between the average and the absolute prime rent is not as big as in At the end of 2011 the total amount of retail investments amounted to approximately € 10.6 billion, high street locations. The overall potential for rental growth in retail parks in Germany is best whereas the figure stood at € 1.4 billion at the end of Q1 2012. Hence, it accounted for 45%, and 27% summed up as mediocre. Depending on the tenant branch, rental rates for discounters, department respectively, of the total investments in commercial properties in Germany. This represents the reverse stores and DIY stores remain stable due to the high competition on the market, but the rents for figures of office investments (30% in 2011 and 45% in Q1 2012). Whereas the 2011 total investment in fashion stores have uplift potential simply due to the fact that these stores are increasing their retail properties clearly exceeded the figure of 2010 presence in retail parks and are prepared to pay high rents. and was close to the 2007 level, Q1 2012 marks the first drop within three years of consecutive growth. The rental level of retail warehouses and retail parks is the result of their location in urban centres or Within the retail investment market, the shares of the major asset classes shifted slightly between 2011 rural areas, and the resulting quality of the location in terms of catchment area, competition, and Q1 2012. High street properties/department stores and shopping centres remained the largest accessibility and visibility. While rental levels in Bavaria generally lie slightly above the average asset classes with a share of 37% and 35% respectively (compared to 32% and 45% respectively in western German rent levels due to the state’s strong economy, rental levels in eastern German 2011). This equals an investment volume of € 518 million and € 490 million. towns are generally slightly lower than their western counterparts, as these areas have a lower purchasing power and generate on average lower revenues. In the retail warehouse and retail park However, retail parks accounted for 15% (8% in 2011), whereas retail warehouses accounted for 5% segment, the maximum rents are determined by a percentage of the turnover expectancy. (8% in 2011). Investments in supermarkets/discounters represented 3% in 2011 but went down to less The rents within the different branches vary. This is due to the diverging location assessment and than 1% in the Q1 2012. Transactions involving other retail properties and a portfolio of kiosks took up turnover expectancy of the different tenants. If in the case of a retail park the management succeeds an 8% share. In 2011some large transactions drove up the amount of investments in shopping centre in establishing good anchor tenants, which guarantee a high visitor frequency, then the turnover high street properties and department stores. In Q1 2012, however, large transactions were virtually expectancy of secondary tenants tends to be higher. Therefore, some anchor tenants are able to absent. negotiate lower rents because their existence in a property increases the rental level of the others. The yield compression, which could be observed since 2009 and throughout 2011, came to a halt in Q1 Depending on the size of the retail unit and the branch of the tenants, rents in retail parks in western 2012 with respect to retail parks, shopping centres and retail high street unit shops/department stores. German locations generally range between € 5.00 and € 13.00 /m²/month. Prime yields for shopping centres are now close to 5% and, consequently, are very close to those of Depending on the size of the retail unit and the retail format of the store, rents for supermarkets are prime offices – an occurrence which has not taken place since a brief period in 2007. Net initial yields generally slightly higher than the rents for discounters. Rents for supermarkets in western German for prime retail parks went down to approximately 6% at the end of 2011 and have remained stable locations generally range between € 7.00 and € 13.00 /m²/month. Rents for discounters in western ever since. Germany generally range between € 6.00 and € 12.00 /m²/month, while discounters located in With respect to retail properties, we expect a progressively stable trend with the highest investment eastern Germany generally achieve slightly lower rental rates ranging between € 5.00 and € 11.00 share anticipated for shopping centres and high street properties. Furthermore, we predict that the /m²/month. Drugstores, textile, shoe and electronics branches generally achieve rental rates ranging German real estate market will remain the focus of foreign investors. In the Q1 2012 the buy side was from € 7.50 to € 12.00 /m²/month for rental areas with a size between 500 and 750 m². DIY stores dominated by insurance companies, open funds and private investors. We expect this to continue and need extensive space due to their broad product range with rental prices ranging between € 6.00 for foreign investors along with asset managers, developers and banks to become more active in the and € 10.00 /m²/month. course of 2012. Leasing Comparables
Tenant City Property Type Area Total Rent p.m. Rent p. sqm Comment Kaufland Crimmitschau Self-Service Department Store 1,800 m² € 8,136 € 4.52 /m² Similar purchasing power, other federal state Real Braunschweig Self-Service Department Store 19,688 m² € 104,150 € 5.29 /m² Purchasing power of 105.5 Wal Mart Salzgitter Self-Service Department Store 6,250 m² € 38,750 € 6.20 /m² Purchasing power of 93.5 Real Bitterfeld Self-Service Department Store 16,866 m² € 115,532 € 6.85 /m² Rental income includes sub tenants with higher rents Floristik '99 Schönebeck (Elbe) Flower store 62 m² € 1,406 € 22.67 /m² Purchasing power of 75.8 Local chain Freital Optician 123 m² € 2,743 € 22.30 /m² Purchasing power of 83.6 Frisör Klier Halle Haircutter 74 m² € 2,211 € 29.88 /m² Similar purchasing power, other federal state 0 0 0 0 m² € 0 € 0.00 /m² 0
Investment Comparables
Year of Gross Date of Property Type Area Comment Construction Multiplier Transaction Retail Park 2009/2010 8,500 m²13.8-fold Q1 2011 tegut; Deichmann, Takko; WALT 12.5 yrs; good location, no competition Retail Park 1996 25,000 m² 13.7-fold Q1 2011 Anchor tenant: large-scale hypermarket; high level of competition; WALT: 6yrs Retail Park 2008 6,000 m² 14.6-fold Q1 2011 Anchor tenant: electronics store; office; WALT: 7.5 yrs Self-service department store 2006 13,000 m² 13.8-fold Q2 2012 Famila; WALT approx. 9.26 yrs Self-service department store 1982/1995 12,000 m² 12.5-fold Q2 2010 Real; WALT approx. 12 yrs Retail Park n.a. 27,955 m² n.a. 2012 property in Baden-Wuerttemberg, purchase price approx. € 49.00m Standalone n.a. 10,100 m² n.a. 2011 property in Lower Saxony, purchase price approx. € 17.61m Retail Park n.a. 20,000 m² 11.2-fold Q3 2011 Saxony, WALT > 10 years, purchase price approx. € 29.6m, Kaufland, Esprit
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Property Summary
Key Figures
Property type Retail Park Main tenant Adler Modemärkte GmbH
Total lettable area 10,267 m² Total parking units 550 units
Current vacancy rate 32.8% Weighted average lease term 5.0 years
Year of construction 1974 Year of refurbishment 2001
Contractual gross rental income (month 1 x 12) total p.a. € 1,356,016 per m² / month € 11.01
Total non-recoverable expenses (month 1 x 12) total p.a. € 89,089 per m² / month € 0.72
Net operating income (month 1 x 12) total p.a. € 1,266,927 per m² / month € 10.28
Market rental valuetotal p.a. € 1,274,754 Over-/Underrent based on occupied areas 12.3%
SWOT Analysis
Strengths Weaknesses Good tenant mix High level of competition (Rewe, Aldi and Kaufland nearby) Sufficient parking spaces Limited third party usability of the large-scale retail area without refurbishment Well-known anchor tenant Building almost 37years old (without refurbishment) Good connections to the motorway network via the A 6 Some vacancies areas 0 Basement area in the Adler unit
Opportunities Threats Reletting of the vacant retail units Increasing maintenance required due to the building age Extension of the lease contracts of the smaller tenants Drop out of tenants before expiry of the contracts Prolognation of the lease contract after expiry 0 0 0 0 0
Property Rating (1 = very negative, 5 = very positive)
Building Location
Building age 3 11 to 15 years Macrolocation 3 Average location and catchment area Lettable Area 3 Between 10,000 and 12,500 m² Microlocation 3 Average micro location Property condition 2 Below average building condition Commercial activity 3 Limited commercial activity nearby General impression 2 Below average general impression Competition 2 High competition level
Liquidity Investment Quality
WALT 3 WALT three to seven years Investment market 3 Average property market Over- / underrent 2 Slightly overrented (5% to 15%) Investment volume 4 Good lot size Quality of tenants 4 Tenants with very good credit rating Saleability 4 Good saleability within 6 months
Property Description
The property, which consists of three parts, was built in 1973 and was completed in 1974. In the west of the property, there is a 1 to 2-storey building with a basement level. Retail stores and shops are located in the first floor. In the ground level are administration and stockrooms. Furthermore there are some vacant areas in this property. This main building has two entrances: one is located near the parking area and another one is located by the street corner "Hohenloher Straße" and "Heilbronner Straße". Adjacent to this building, a small 1-storey building is located with some small retail stores. These small retail stores have their own entrances. In the east, there is another small 1-storey building with the use carwash and offices. This is currently rented by TÜV and Ümit Ebem. The external area offers a large parking area. The property is open to all sides and includes a ramp to the basement level for deliveries. The roofs are mainly flat. The panels consist of prefabricated multi-layer concrete panels with thermal insulation. The carwash and TÜV building is designed with simple brickwork walls. The main tenants are Adler and Lidl.
Valuation Results
Market Value Market Rental Value
€ 16,500,000 equals to € 1,588 per m² € 1,274,754 p.a. equals to € 10.35 / m² / p.m.
Discount Rate 7.30% Net Initial Yield 7.28% excluding 7.19% Multiplier (initial) 12.02 capital Capitalisation Rate6.85% Net Reversionary Yield 6.82% expenditures 6.74% Multiplier (based on MRV) 12.79
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Location
Germany Macroeconomic Indicators (Source: GfK, BBE, BBSR/Inkar 2012)
Federal State Baden-Wurttemberg District Heilbronn (Rural District) City Neckarsulm Postcode 74172
Population Federal State absolute 10,744,921 Population District absolute 329,054 Population City absolute 26,641 Number of Households City absolute 12,163 Population Density District per km² 299 Population Density City per km² 1,068 Population Forecast (2007 - 2025) District in % 6.5% Population Growth (2002 - 2007) Federal State in % 0.8% Population Growth (2002 - 2007) District in % 1.2% Unemployment Rate (6/2012) Federal State in % 3.7% Unemployment Rate (6/2012) District in % 3.3%
Structual Data (Source: GfK and BBE 2012)
Purchasing Power District in m € 7,023 Purchasing Power City in m € 538 Purchasing Power Index Federal State index 106.68 Retail Purchasing Power Index District index 108.43 Retail Centrality Index District index 76.08
Neckarsulm Macro Location
Neckarsulm is located in the north-east of the federal state Baden-Wurttemberg. The state capital, Stuttgart (population 602,000), is only 59 km away and Mannheim (population 311,969) is only 77 km away. The closest motorway is the A6, connecting to Amberg in the federal state Bavaria to the east and to Saarbrücken near the French border to the west. The motorway can be accessed in less than 2 km. Furthermore, the A81, connecting to Würzburg to the north-east to Singen (close to the Swiss border) tothesouth-west,canbereachedwithina7kmdistance.Neckarsulmhasatrainstation,which connects Neckarsulm to the cities of Stuttgart and Munich via regional trains. The nearest airport offering connections to national and international destinations is Stuttgart, about 59 km away. Furthermore, the Karlsurhe airport is located in a distance of approx. 91 km. Efficient industrial companies, innovative service providers and medium-sized companies are located in Neckarsulm and are known internationally. Well-known companies located in Neckarsulm include Audi, Lidl and Kolbenschmidt-Pierburg. Furthermore, Neckarsulm is also recognized as very good site for the IT branch.
Micro Location Micro Location
The property is located in the south of Neckarsulm near the motorway A 6. The surrounding area is characterised by discounters like Aldi, Rewe and Zeeman. The property is located along the Hohenloher Straße and is very good visible. A small bus station is situated next to the western side of the property. The property itself is located beside a residential area.
0
Local Tax Information
Real Estate Tax Rate (Typ B) City in % 280 Land Transfer Tax City in % 5.0
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Site Plan
Source: Cadastral plan on a 1 to 1,000 scale, dated 28.12.2010 Site Information
Site area 32,520 m² Ground lease No thereof surplus land 4,800 m² Ground lease expiry n.a. Surplus land value (net) € 46 /sqm € 220,800 Comment Site servicing Fully serviced The site consists of one plot 1900: The site has an even topography. The site is accessible from the north by car and the east by foot. The site has a trapezoidal shape. According to the Environmental Site layout Almost square Due Diligence Report, dated July 2007, a filling station was installed east of the mall in 1974. Because of this use, a suspicion of contamination exists. Operation of the filling station ceased in 1995. Later, Soil contamination Suspicion of contamination this location was used as vacuum cleaner area, car repair shop and carwash. At the moment, a part of this space is rented by the TÜV and Ümit Ebem Building encumbrances No For the purposes of this valuation, we have assumed that the subject property is free of any soil or building contamination. Furthermore, for purpose of this valuation, we assumed the land value pursuant to the committee of experts of Neckarsulm.
Town Planning
Use class SO (special zone) Comment According to information from the local planning authority, a development plan exists, entitled "Südstadt Site coverage ratio (GRZ) 0.8 Nr. 14.01/5" and dated 30.07.2004, with the following regulations: the subject site is located in special zone ("Sondergebiet"). The cubic density (Baumassenzahl, BMZ) is 4.0 and the site coverage ratio Plot ratio (GFZ) n.a. (Grundflächenzahl, GRZ) is 0.8.
Cubic index (BMZ) 4.0
Tenure
Land Register Owner Sheet Plot Parcel Section 2 (Restrictions) Section 3 (Loans) Local Court of TPL Neckarsulm S.á.r.l., 4771 NO 6512 1900 Limited personal easements (regarding the Land charges in the total amount of 20,235,731 in Heilbronn, land register Luxembourg omission of the food offer on an area of more favour of Bank of Scotland (branch Frankfurt), of Neckarsulm than 1200sqm sales area) in favour of Kaufland Stiftung & Co. KG, Neckarsulm.
Source: Extract from the land register dated 03.12.2010
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Competitor Map
Source: Jones Lang LaSalle Research
Competitor Overview
Name Address Type Sales area Distance Potential Kaufland 74172 Neckarsulm, Rötelstr. 35 Self-service dep. store 10,732 m² 1.30 km Medium Rewe 74076 Heilbronn, Etzelstr. 38-44 Hypermarket 1,991 m² 3.60 km low Handelshof 74080 Heilbronn, Neckargartacher Str. 111 Hypermarket 2,900 m² 4.40 km low Handelshof 74177 Bad Friedrichshall, Industriestr. 12 Hypermarket 3,000 m² 5.20 km low Handelshof 74072 Heilbronn, Olgastr. 57-75 Hypermarket 3,400 m² 5.30 km low Rewe 74074 Heilbronn, Schmollerstr. 42 Hypermarket 1,900 m² 5.90 km low Handelshof 74189 Weinsberg, Haller Str. 59 Hypermarket 3,000 m² 6.50 km low Handelshof 74074 Heilbronn, Stuttgarter Str. 85 Hypermarket 2,631 m² 6.60 km low E-aktiv Markt Ültzhöfer 74081 Heilbronn, Mauerstr. 78-90 Hypermarket 2,400 m² 7.00 km low E-neukauf 74248 Ellhofen, Bahnhofstr. 44 Hypermarket 2,500 m² 7.40 km low Rewe 74172 Neckarsulm, Hohenloher Straße 10 Hypermarket n.a. 0.10km High Aldi/Kik 74172 Neckarsulm, Am Wildacker Hypermarket n.a. 0.30km High 0 0 0
Competiton Indicators
Inhabitants in primary catchment area 35,234 Inhabitants per hypermarket in primary catchment area 11,745
Inhabitants in secondary catchment area 138,194 Inhabitants per hypermarket in secondary catchment area 12,563
Inhabitants in tertiary catchment area 236,025 Inhabitants per hypermarket in tertiary catchment area 19,669
Number of households in the district 12,163 Population forecast for the district (2007 - 2025) 6.5%
Retail Purchasing Power Index (District) 108.43 Retail Centrality Index (District) 76.08
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Main competitors
This competitor is a hypermarket located east of the subject property. The main tenant is REWE. This competitor is an small retail park located east of the subject property. The property is a serious The property is a serious competitor. competitor.
Competition Comment
The catchment area can be differentiated into primary (0 – 5 min driving distance); secondary (5 – 10 min) and tertiary (10 – 15 min) catchment areas. Approximately 35,230 inhabitants live in the primary catchment area. The density of hypermarkets is relatively high in the primary and secondary areas, the competition eases in the tertiary catchment areas. In a spatial environment of less than 1.5 km, there are three competitors. There are two competitors in the vicinity. As the main tenants of the valued property include Adler, Takko Fashion and Lidl, the neighbouring discounters, such as Aldi, Rewe and Kik pose as direct competitors. The discounter Rewe and the small retail park are apparently newer than the valued shopping centre. They also target the same customer segment with the specific range of products. In contrast to its competitors, the strengths of the valued property include the mall’s better visibility from the street, the higher number of parking spaces and the concentration of the existing tenant mix. Another competitor is 1.3 km away. This is a big retail park with the main tenant Kaufland. A shopping mall connects directly to this property, with tenants such as Saturn, C & A, Toom, Deichmann, Walmart and various other restaurants and shops. The competing property has signposts on the motorway, and offers very good and ample parking. It is clearly also in very good condition. The valued property has a much smaller size and appeals to a slightly different audience, because there are some shops from the low-price segment. Even though the properties may attract different customers and have slightly different primary catchment areas, the catchment areas strongly overlap, resulting in a high number of retail hypermarkets for a city with only 27,000 inhabitants, which can be problematic. Overall, it can be said that the competition level in Neckarsulm is high, especially due to the existence of an relative hight retail density.
0
Turnover analysis
The rents in a functional retail agglomeration are linked to turnover. The percentage rate that a retail tenant can use for rental payments depends on the margins achievable in the various market sectors. This rate normally ranges between 2% and 15% depending on the respective branch. The productivity varies between approx. 1,000 €/m² up to more than 10,000 €/m². For the evaluation object there are turnover rents for several tenants. We have been provided with the turnover rents for the tenants dm Drogerie and Härdtner. For the purposes of this valuation, we have assumed that the turnover rent are sustainable and have included until the end of the respective lease agreement. We have not been provided with any turnover figures for Adler. For the purpose of this valuation, we have assumed that the area productivity of Adler is in a healthy range and that the rent-to-turnover ratio is in the region of 12,3%, which is slightly above the range of 6-12% for fashion stores.
Due to the rent-to turnover ratio above the general range and the internal layout of the Adler unit with a share of rather substandard areas in the lower storey, we have aplied a market rental value which is lower that the contractual rent. (The precisely figures regarding the productivity and rent-to-turnover ration an page 8)
Conclusion
The property in Neckarsulm is located in the direct vicinity of several serious competitors. The subject property currently has a retail use. Advantageous for this property are the high number of parking spaces and the centrality of the tenant mix. The problems, however, are the age of the property, the vacant space and the high density of competitors. Regarding the third-party use, the current use is considered the best option. The leasing capacity is for this property medium because of the building age and the high density of competitors. Excluding the area of the Adler. The leasing capacity for this area is not very good. Because this area extends over two floors and one of them is the enlarged basement area.
0
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Rent Roll
Tenant Name Area Category Letting Area Rent Rent / m² Tenant Lease Lease Renewal Tenant Status m² / unit / month / month pays VAT Start End Probability pays * 1 Gabriel Retail Let 59 € 1,685 28.36 Yes 25.08.2007 24.07.2014 75% GT I PM 2 Dilek Retail Let 73 € 1,226 16.70 Yes 01.12.2010 30.11.2015 75% GT I PM 3 Lidl Vertriebs-GmbH & Co.KG RetailLet 1,200 € 10,341 8.61 Yes 24.03.1997 23.03.2023 75% GT I PM 4 Vacant Retail Vacant 181 € 0 0.00 5 Meister Rapid e.K. Inh. Geviye Taber Retail Let23 € 833 35.79 Yes 01.10.2006 30.09.2016 75% GT I PM 6 Schwaderer Retail Let 99 € 2,180 22.01 Yes 21.09.2007 20.09.2012 75% GT I PM 7 mister*lady GmbH Retail Let 500 € 5,492 10.99 Yes 01.06.2007 14.06.2017 75% GT I PM 8 Convenience Concept GmbH Retail Let 54 € 1,210 22.46 Yes 31.08.2007 30.08.2014 75% GT I PM 9 dm-drogerie markt GmbH + Co. KG Retail Let 712 € 9,493 13.33 Yes 01.06.2007 27.04.2016 75% GT I PM 10 dm-drogerie markt GmbH + Co. KG Other Units Let 1 € 4,211 4210.56 Yes 00.01.1900 27.04.2016 0% 11 Takko Holding GmbH Retail Let 1,282 € 11,5989.04 Yes 01.10.2002 30.09.2017 75% GT I PM 12 Ernsting's family Gmbh & Co. KG RetailLet 164 € 2,12312.97 Yes 06.09.2007 31.12.2016 75% GT I PM 13 Härdtner GmbH Retail Let 116 € 5,600 48.38Yes 21.09.2007 20.09.2017 75% GT I PM 14 Härdtner GmbH Other Units Let 1 € 1,5601560.04 Yes 00.01.1900 20.09.2017 0% 15 Essanelle Hair Group AG RetailLet 61 € 1,900 31.09 Yes 21.09.2007 20.09.2017 75% GT I PM 16 Essanelle Hair Group AG Other UnitsLet 1 € 138 138.18 Yes 00.01.1900 20.09.2017 0% 17 Schwäbische Wurst Spezialität. RetailLet 119 € 2,250 18.94 Yes 21.09.2007 22.09.2017 75% GT I PM 18 Schwäbische Wurst Spezialität. Other UnitsLet 1 € 1,149 1149.39 Yes 00.01.1900 22.09.2017 0% 19 Serbetcioglu RetailLet 64 € 851 13.35 Yes 01.04.2011 31.03.2013 75% GT I PM 20 Adler Modemärkte GmbH RetailLet 3,359 € 35,732 10.64 Yes 27.03.1997 31.03.2017 75% GT I PM 21 Cosgun RetailLet 50 € 1,152 22.94 Yes 01.05.2010 30.04.2013 75% GT I PM 22 Reno Schuhcentrum GmbH RetailLet 708 € 8,501 12.00 Yes 24.03.2007 23.03.2017 75% GT I PM 23 Reno Schuhcentrum GmbH StorageLet 121 € 477 3.95 Yes 24.03.2007 23.03.2017 75% GT I PM 24 Stuck StorageLet 47 € 1433.07 Yes 27.06.2005 30.09.2012 75% GT I PM 25 P&M Trends Storage Let 42 € 91 2.15 Yes 01.08.2010 30.09.2012 75% GT I PM 26 Siemens Building Technologiers Storage Let 68 € 510 7.53 Yes 01.12.2002 30.11.2012 75% GT I PM 27 Siemens Building Technologiers Storage Let 45 € 0 0.00 Yes 01.12.2002 30.11.2012 75% GT I PM 28 Siemens Building Technologiers Storage Let 21 € 0 0.00 Yes 01.12.2002 30.11.2012 75% GT I PM 29 mister*lady GmbH Storage Let 24 € 64 2.68 Yes 01.06.2007 14.06.2017 75% GT I PM 30 Lidl Vertriebs-GmbH & Co.KG Storage Let 294 € 0 0.00 Yes 24.03.1997 23.03.2023 75% GT I PM 31 dm-drogerie markt GmbH + Co. KG Storage Let 46 € 136 2.99 Yes 01.06.2007 27.04.2016 75% GT I PM 32 Schwaderer Storage Let 38 € 97 2.52 Yes 01.07.2008 31.07.2012 75% GT I PM 33 Pura GmbH Storage Let 11 € 56 5.01 Yes 01.03.2003 30.09.2012 75% GT I PM 34 Vacant Other Units Vacant 5 € 0 0.00 35 Deutsche Plakat-Werbung GmbH & Co. KG Other Units Let 1 € 221 220.83 n.a. 03.08.2009 02.08.2014 100% M GT I PM 36 Vacant Other Units Vacant 10 € 0 0.00 37 TÜV SÜD Auto Service GmbH Retail Let 197 € 906 4.61 Yes 15.10.2010 14.10.2020 0% GT I PM 38 Ümit Ebem Other Units Let 480 € 0 0.00 Yes 01.11.2011 31.12.2020 100% 39 Ümit Ebem Office Let 58 € 0 0.00 Yes 01.11.2011 31.12.2020 100% 40 Ümit Ebem Commercial Let 291 € 0 0.00 Yes 01.11.2011 31.12.2020 100% 41 Kurzzeitmieter Other Units Let 1 € 1,018 1018.33 Yes 01.11.2008 31.01.2011 100% 42 Vacant (ehem. Schmidt) Other Units Vacant 2,150 € 0 0.00 43 VACANT Storage Vacant 18 € 0 0.00 44 VACANT Storage Vacant 35 € 0 0.00 45 VACANT Storage Vacant 29 € 0 0.00 46 VACANT Storage Vacant 26 € 0 0.00 47 VACANT Storage Vacant 17 € 0 0.00 48 VACANT Storage Vacant 15 € 0 0.00 49 Schmidt Other Units Vacant 572 € 431 0.75 50 Schmidt Other Units Vacant 307 € 0 0.00 51 VACANT Other Units Vacant 0€ 00.00 52 Parkplatzanzahl External parking Let 550 € 0 0.00 00.01.1900 00.01.1900 0% 0% 53 FOTOFIX Schnellphotoautomaten GmbH Other Units Let 1 € 57 57.08 Yes 01.06.2007 30.11.2012 100% 0%
Total 10,267 m² € 113,433 * M = Maintenance, GT = Ground Tax, I = Insurance Costs, PM = Property Management
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Valuation Assumptions
Tenant Name Area Category Area Market Market Re-letting Initial Re-letting Rent Agency Lease Renewal sqm/unit Rent Rent /month Tis Void VPV*Void* Abatem.* Fees* Term** Probability 1 Gabriel Retail 59 € 20.00 € 1,188 € 100 0 15 0 3 5 75% 2 Dilek Retail 73 € 20.00 € 1,468 € 100 0 15 0 3 5 75% 3 Lidl Vertriebs-GmbH & Co.KG Retail 1,200 € 10.00 € 12,004 € 50 0 12 0 3 10 75% 4 Vacant Retail 181 € 20.00 € 3,629 € 100 0 15 0 3 5 75% 5 Meister Rapid e.K. Inh. Geviye TaberRetail 23 € 27.50 € 640 € 100 0 15 0 3 5 75% 6 Schwaderer Retail 99 € 20.00 € 1,981 € 100 0 15 0 3 5 75% 7 mister*lady GmbH Retail 500 € 12.00 € 5,995 € 100 0 15 0 3 5 75% 8 Convenience Concept GmbH Retail 54 € 20.00 € 1,078 € 100 0 15 0 3 5 75% 9 dm-drogerie markt GmbH + Co. KG Retail 712 € 12.00 € 8,544 € 100 0 15 0 3 5 75% 10 dm-drogerie markt GmbH + Co. KG Other Units 1 € 0.00 € 0 € 0 0 0 0 0 0 0% 11 Takko Holding GmbH Retail 1,282 € 9.50 € 12,183 € 50 0 12 0 3 10 75% 12 Ernsting's family Gmbh & Co. KG Retail 164 € 12.50 € 2,046 € 100 0 15 0 3 5 75% 13 Härdtner GmbH Retail 116 € 50.00 € 5,787 € 100 0 15 0 3 5 75% 14 Härdtner GmbH Other Units 1 € 0.00 € 0 € 0 0 0 0 0 0 0% 15 Essanelle Hair Group AG Retail 61 € 27.50 € 1,681 € 100 0 15 0 3 5 75% 16 Essanelle Hair Group AG Other Units 1 € 0.00 € 0 € 0 0 0 0 0 0 0% 17 Schwäbische Wurst Spezialität. Retail 119 € 20.00 € 2,375 € 100 0 15 0 3 5 75% 18 Schwäbische Wurst Spezialität. Other Units 1 € 0.00 € 0 € 0 00 0 0 0 0% 19 Serbetcioglu Retail 64 € 12.50 € 797 € 100 0 15 0 3 5 75% 20 Adler Modemärkte GmbH Retail 3,359 € 8.50 € 28,548 € 50 0 12 0 3 10 75% 21 Cosgun Retail 50 € 20.00 € 1,004 € 100 0 15 0 3 5 75% 22 Reno Schuhcentrum GmbH Retail 708 € 12.00 € 8,501 € 100 0 12 0 3 5 75% 23 Reno Schuhcentrum GmbH Storage 121 € 2.25 € 272 € 0 0 12 0 3 5 75% 24 Stuck Storage 47 € 2.25 € 105 € 0 0 15 0 3 5 75% 25 P&M Trends Storage 42 € 2.25 € 95 € 0 0 12 0 3 5 75% 26 Siemens Building Technologiers Storage 68 € 2.25 € 152 € 0 0 15 0 3 5 75% 27 Siemens Building Technologiers Storage 45 € 2.25 € 102 € 0 0 12 0 3 5 75% 28 Siemens Building Technologiers Storage 21 € 2.25 € 48 € 0 0 15 0 3 5 75% 29 mister*lady GmbH Storage 24 € 2.25 € 54 € 0 0 12 0 3 5 75% 30 Lidl Vertriebs-GmbH & Co.KG Storage 294 € 2.25 € 662 € 0 0 15 0 3 10 75% 31 dm-drogerie markt GmbH + Co. KG Storage 46 € 2.25 € 102 € 0 0 12 0 3 5 75% 32 Schwaderer Storage 38 € 2.25 € 86 € 0 0 15 0 3 5 75% 33 Pura GmbH Storage 11 € 2.25 € 25 € 0 0 15 0 3 5 75% 34 Vacant Other Units 5 € 0.00 € 0 € 0 0 0 0 0 5 100% 35 Deutsche Plakat-Werbung GmbH & Co. KG Other Units 1 € 220.83 € 221 € 0 0 15 0 0 5 100% 36 Vacant Other Units 10 € 0.00 € 0 € 0 0 18 0 0 5 100% 37 TÜV SÜD Auto Service GmbH Retail 197 € 4.25 € 836 € 25 0 18 0 0 00% 38 Ümit Ebem Other Units 480 € 1.00 € 480 € 0 0 18 0 0 5 100% 39 Ümit Ebem Office 58 € 4.25 € 247 € 25 0 18 0 0 5 100% 40 Ümit Ebem Commercial 291 € 4.25 € 1,236 € 25 0 18 0 0 5 100% 41 Kurzzeitmieter Other Units 1 € 0.00 € 0 € 0 0 0 0 0 0 100% 42 Vacant (ehem. Schmidt) Other Units 2,150 € 0.20 € 430 € 0 3 12 0 3 5 75% 43 VACANT Storage 18 € 1.80 € 32 € 0 12 12 0 3 5 75% 44 VACANT Storage 35 € 1.80 € 63 € 0 12 15 0 3 5 75% 45 VACANT Storage 29 € 1.80 € 52 € 0 15 12 0 3 5 75% 46 VACANT Storage 26 € 1.80 € 48 € 0 21 15 0 3 5 75% 47 VACANT Storage 17 € 1.80 € 30 € 0 24 12 0 3 5 75% 48 VACANT Storage 15 € 1.80 € 26 € 0 24 15 0 3 5 75% 49 Schmidt Other Units 572 € 1.50 € 858 € 0 0 0 0 0 0 0% 50 Schmidt Other Units 307 € 1.50 € 461 € 0 00 0 0 0 0% 51 VACANT Other Units € 0.00 € 0 € 0 0 0 0 0 0 0% 52 Parkplatzanzahl External parking 550 € 0.00 € 0 € 0 0 0 0 0 0 0% 53 FOTOFIX Schnellphotoautomaten GmbH Other Units 1 € 57.08 € 57 € 0 0 0 0 0 1 100%
Total 10,267 sqm € 106,230 * months ** years ***structural vacancy
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Hohenloher Straße 2 Valuation date: 30.06.2012
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Germany Prepared for: Brack Capital Properties N.V.
Property Analysis
Area Analysis Lettable AreaArea Vacant Area Let Vacancy Rate Use Category m² m² m² % Office 58 0 58 0.00% Office Retail DIY Retail 9,022 181 8,841 2.01% DIY 0 0 0 0.00% Warehouse 0 0 0 0.00% Commercial 291 0 291 0.00% Warehouse Commercial Residential Residential 0 0 0 0.00% Storage 897 139 757 15.52% Total area 10,267 321 9,947 3.12% Petrol Station 0 0 0 0.00% Storage Other Units 3,531 3,044 487 86.21% Internal parking 0 0 0 0.00% External parking 550 0 550 0.00% Total parking 4,081 0 550 0.00%
Income Analysis Contractual Contractual Contractual Potential Market MarketMarket Over-/ Under- Rent Rent Rent Rent Rent Rent Rent Rented Use Category €/m²/month €/month €/year €/year €/m²/month €/month €/year Office 0.00 0 0 0 4.25 247 2,959 -100.0% Retail 11.66 103,073 1,236,871 1,261,073 11.12 100,286 1,203,427 4.9% DIY 0.00 0 0 0 0.00 0 0 0.0% Warehouse 0.00 0 0 0 0.00 0 0 0.0% Commercial 0.00 0 0 0 4.25 1,236 14,829 -100.0% Residential 0.00 0 00 0.00 0 0 0.0% Storage 2.08 1,574 18,892 22,533 2.18 1,955 23,457 -4.7% Petrol Station 0.00 0 0 0 0.00 0 0 0.0% Other Units 17.15 8,354 100,253 126,186 0.71 2,507 30,082 2316.2% Total area 11.36 113,001 1,356,016 1,409,792 10.35 106,230 1,274,754 9.8% Internal parking 0.00 000 0.00 0 0 0.0% External parking 0.00 0 0 0 0.00 0 0 0.0%
Assessment of Adler market rent
Space productivity Turnover to rent ratio Explanation
2,000 12.00
Usual market % - levels 1,800 11.00 Market rent 10.00 1,600 9.65 Contractual Rent 9.00 1,400 8.50 Rents % € / m² 8.00 Contractual 13.2% 10.64 1,200 7.24 7.00 Market 10.6% 8.50
1,000 1,200 6.00 4% of turnover 9.65 Rent / m² / month
5.00 3% of turnover 7.24 800 4.82 2% of turnover 4.82 4.00 600 Turnover potential 3,240,000 € 3.00 (net) Sales Area ~ 2,700 m² 400 2.00 Total Area 3,359 m² in € / m² p.a. 1.0% 3.0% 5.0% 7.0% 9.0% 11.0% 13.0% based on sales area Turnover-rent-ratio
Textile stores usually can afford to pay a rent in the range of 6-12% of their net turnover (economically sustainable rent burden) and have a space productivity of about € 800 to € 1,600 (in shopping centers up to € 3,000) per m² sales area. The graphic above indicates, how the contract rent of the main tenant 'Adler' and the assumed market rental level can be assessed on usual market ranges and an assumed average space productivity of € 1,200 (net).
D&B Rating of Main Tenant
Main tenant Comment
Tenant name Adler Modemärkte GmbH The main tenant is Adler Modemärkte GmbH. The Adler fashion stores carry a broad assortment, Rent p.a. € 428,783 adaptable fashion for the whole family. Adler is one of the major textile retailers in Germany. According Share of total income 32% to Dun & Bradstreet (D&B) Rating as at 07.02.2011 Adler Modemärkte GmbH has an small credit risk. WALT 4.8 years The risk of insolvency (D&B Score) within the next 12 months compared with other German companies Payment Index 72 is assessed to be low, i.e. 82% of businesses on the German database have the same or higher risk of Capital indicator 5 A 2 failure. Risk indicator 2 Score 82 Credit limit 120.000.000 (total)
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Hohenloher Straße 2 Valuation date: 30.06.2012
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Assumptions Market Value
Lease Contract Commentary The property is not fully let. There is some area vacant and the remaining area is let to thirty-three tenants. The WALT of the property amounts to 5.0 years. The main tenant is Adler with a share of approx. 30% of the rental income. The property is currently over-rented. This figure included the turnover rents of the tenants dm Drogerie, Takko Fashion, mister Lady, Reno and Härdtner, which we belive to be sustainable until the end of the respective lease contracts. Without these turnover rents the property is nearly let at market level. The majority of the tenants pay all costs (including ground tax, insurance costs and management costs) except for maintenance costs for structural repairs. The rest can be apportioned to the tenant in accordance with the German Regulation on Operating Costs. However, due to the negligence of the current owner, these costs are currently not apportioned to the tenant. As this could be changed and cost schedules could be drafted this year, we have assumed that all costs will be apportioned to the respective tenants. The following tenant's has just extended the lease contract: Gabriel until 24.07.2014 and Siemens until 30.11.2012. Furthermore, some rental increases due to indexations have taken place.
0
General Property Assumptions Discount Rate Comment
Discount rate 7.30% The yields applied reflect the individual location quality (macro- and micro-location) of the properties, building structure, letting situation, covenant strength and the relationship between contractual and Capitalisation rate 6.85% market rent. We derive the discount rate from market transactions. The discount rate reflects the rate of return expected by investors and is determined based on the risk associated with a property. As Capital expenditures* € 0 reinsurance, the initial yields profile is aligned with the market/other transactions. We have taken into account such facts as the uncertainty of the main tenant Adler and the period of his Vacancy costs € 10.00 /m²/p.a. lease contract, the worse condition and location (referring to the competitor situation), and the short * on the basis of cost estimates provided by RT Facility Management GmbH & Co. KG, dated June 2012 WALT.
Breakdown of Non-Recoverable Costs
% of Gross Inflation Contract** per year per year (month 1 x 12) Contract Rent Maintenance costs € 6.50 /m² € 66,738 4.92% Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 after 2021 Management costs € 1.98 /m² € 20,340 1.50% Inflation 1.0% 1.5% 1.5% 1.5% 1.4% 1.3% 1.4% 1.4% 1.4% 1.4% 1.6% Ground tax € 0.08 /m² € 858 0.06% Insurance costs € 0.11 /m² € 1,153 0.09% Market Rental Growth Other non-recoverable costs € 0.00 /m² € 0 0.00% Total non-recoverable expenses € 8.68 /m² € 89,089 6.57% Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 after 2021 ** JLL analysis Rental Growth 1.0% 1.5% 1.5% 1.5% 1.4% 1.3% 1.4% 1.4% 1.4% 1.4% 1.6%
Market % of Gross Contract per year per year (assuming full occupancy) Market Rent Maintenance costs Maintenance costs € 6.50 /m² € 66,738 5.24% Management costs Management costs € 1.86 /m² € 19,121 1.50% Ground tax € 0.08 /m² € 858 0.07% Ground tax € 0.11 /m² € 1,153 0.09% Insurance costs Insurance costs Other non-recoverable costs € 0.00 /m² € 0 0.00% Total non-recoverable expenses € 8.56 /m² € 87,870 6.89% Other non-recoverable costs
Total Non-recoverable Costs
Maintanance Management Ground Insurance Other Non- Vacancy Total % of Total Costs Costs Tax Costsrecoverable Costs Costs per year Gross Revenue Year 1 € 81,116 € 20,520 € 594 € 285 0 € € 25,632 € 128,147 9.4% Year 2 € 82,131 € 21,528 € 601 € 289 0 € € 22,608 € 127,157 8.9% Year 3 € 83,363 € 21,744 € 610 € 293 0 € € 22,593 € 128,603 8.9% Year 4 € 84,614 € 21,464 € 620 € 298 0 € € 24,130 € 131,126 9.2% Year 5 € 85,840€ 19,156 € 629 € 302 0 € € 36,038 € 141,965 11.1% Year 6 € 86,999 € 18,010 € 637 € 306 0 € € 31,736 € 137,688 11.5% Year 7 € 88,173 € 19,982 € 646 € 310 0 € € 24,388 € 133,499 10.0% Year 8 € 89,408 € 20,062 € 655 € 315 0 € € 24,361 € 134,801 10.1% Year 9 € 90,660 € 19,907 € 664 € 319 0 € € 26,923 € 138,473 10.4% Year 10 € 91,929 € 19,599 € 673€ 323 0 € € 27,772 € 140,296 10.7% Year 11 € 93,262 € 18,297 € 683 € 328 0 € € 36,329 € 148,899 12.2%
Non-Recoverable Costs as a percentage of Total Gross Revenue 14.0%
11.5% 12.0% 11.1% 10.7% 10.4% 10.0% 10.1% 10.0% 9.4% 9.2% 8.9% 8.9%
8.0%
6.0%
4.0%
2.0%
0.0%
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Hohenloher Straße 2 Valuation date: 30.06.2012
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Germany Prepared for: Brack Capital Properties N.V.
Cash Flow Market Value
Total Non- Net TIs and Present Rental Turnover Rent Gross recoverable Operating Capital Leasing Value @ Revenue Vacancy Abatements Revenue Costs Income Expenditures Commissions Cash Flow 7.30% Year 1 € 1,454,601 -€ 59,503 -€ 27,105 € 1,367,993 -€ 128,147 € 1,239,846 -€ 20,645 -€ 14,006 € 1,205,195 € 1,167,432 Year 2 € 1,469,114-€ 6,777 -€ 27,105 € 1,435,232 -€ 127,157 € 1,308,075 -€ 2,878 -€ 1,972 € 1,303,225 € 1,175,988 Year 3 € 1,463,502 -€ 9,396 -€ 4,518 € 1,449,588-€ 128,603 € 1,320,985 -€ 2,925 -€ 1,942 € 1,316,118 € 1,106,824 Year 4 € 1,455,498 -€ 24,564€ 0 € 1,430,934 -€ 131,126 € 1,299,808 -€ 1,938 -€ 1,167 € 1,296,703 € 1,017,221 Year 5 € 1,427,285 -€ 150,230 € 0 € 1,277,055 -€ 141,965 € 1,135,090 -€ 23,804 -€ 9,078 € 1,102,208 € 807,527 Year 6 € 1,344,930 -€ 144,235 € 0 € 1,200,695 -€ 137,688 € 1,063,007 -€ 105,397 -€ 55,144 € 902,466 € 612,062 Year 7 € 1,346,131 -€ 13,993 € 0€ 1,332,138 -€ 133,499 € 1,198,639 -€ 8,031 -€ 6,020 € 1,184,588 € 751,375 Year 8 € 1,347,872 -€ 10,390 € 0 € 1,337,482 -€ 134,801 € 1,202,681 -€ 3,159 -€ 1,991 € 1,197,531 € 708,309 Year 9 € 1,347,998 -€ 20,856 € 0 € 1,327,142 -€ 138,473 € 1,188,669 -€ 3,856 -€ 2,386 € 1,182,427 € 651,989 Year 10 € 1,355,378 -€ 48,771 € 0 € 1,306,607 -€ 140,296 € 1,166,311 -€ 23,156 -€ 9,246 € 1,133,909 € 582,250 Year 11 € 1,387,135 -€ 167,368 € 0 € 1,219,767 -€ 148,899€ 1,070,868 -€ 48,146 -€ 23,443 € 17,837,481 € 8,817,314 Total Cashflow (incl. Terminal Value @ 6.85 %) € 17,398,291 Gross Value of Surplus Land € 235,152 Gross Capital Value incl. Surplus Land € 17,633,443 Total Gross Revenue versus Net Operating Income
€ 1600000.0 8.0% 7.0% 7.4% 7.5% 7.4%
6.8% 6.8% € 1400000.0 6.7% 6.6% 7.0% 6.4% 6.0% € 1200000.0 6.0%
€ 1000000.0 5.0%
€ 800000.0 4.0% Rental income Running yield € 600000.0 3.0%
€ 400000.0 2.0%
€ 200000.0 1.0%
€.0 0.0% Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Valuation Results Market Value
Rent Overview Gross Capital Value (rounded) Contractual gross rental income (month 1 x 12) total p.a. € 1,356,016 per m²/month € 11.01 Total € 17,600,000
Market rental value total p.a. € 1,274,754 per m² € 1,695 per m²/month € 10.35 Over-/Underrent 12.33% Purchaser's costs 6.50% Yield Overview
Net Initial Yield 7.28% Market Value (rounded) Net Reversionary Yield 6.82% Total € 16,500,000 Gross Initial Yield 8.32% Gross Reversionary Yield 7.82% per m² € 1,588
Valuation Comment
In terms of risk, we considered the covenant strength of the tenants as well as the lease duration for the existing contracts. As at 01.01.2011 the main tenant Adler Modemärkte GmbH has good covenant strength, which ensures a secure cash flow. In terms of a resale, we took into account such facts as visibility, demographic factors, appearance, condition and building age, third-party usability, competition and location. For the purpose of the valuation on 30.06.2012, we have been provided with updated insurance costs as well as updated ground tax and have applied them in our valuation. Other costs have remained unchanged and have been applied according to information received during the previous valuation cycle. For management costs, we have applied 1.5% of the effective gross rent. All Capital expenditures for repairs in the first year as well as in the periods of year 2 to 5 and year 6 to 10 are considered to be covered by the maintenance costs. The restrictions of Division II, have no effect on the value of the property.
Regarding comparable rents we have had recourse to evidence of similar areas situated in the comparable regions and locations. Furthermore, we have analysed comparable transactions. Please refer to the section "Investment Comparables". Compared to the previous valuation there are the following changes: there are several rent indexations and extensions of the rent period of the tenants Ernsting Family (4 years), Siemens (1 years), Fotofix (1 years). The tenant Löllgen has vacated the property with 181m². The tenant Lidl reduced his rent. Furthermore, we have taken into account surplus land in the amount of 4,800m² and have reduced the land value for this space by 50%, due to the inferior location of the surplus land behind the main building.
0
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Photos
Front view of the western property part External view of the TÜV
Front view of the eastern property part View of bakery in main building
Internal view of the mall Internal view of the mall
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Hohenloher Straße 2 Valuation date: 30.06.2012
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Leasing and Investment Market
Leasing Market Investment Market
There is no homogeneous rental level for retail space in retail warehouses or retail parks throughout Stable economic growth has brought Germany in the focus of real estate investors throughout Europe. Germany. However, the spread between the average and the absolute prime rent is not as big as in At the end of 2011 the total amount of retail investments amounted to approximately € 10.6 billion, high street locations. The overall potential for rental growth in retail parks in Germany is best whereas the figure stood at € 1.4 billion at the end of Q1 2012. Hence, it accounted for 45%, and 27% summed up as mediocre. Depending on the tenant branch, rental rates for discounters, department respectively, of the total investments in commercial properties in Germany. This represents the reverse stores and DIY stores remain stable due to the high competition on the market, but the rents for figures of office investments (30% in 2011 and 45% in Q1 2012). Whereas the 2011 total investment in fashion stores have uplift potential simply due to the fact that these stores are increasing their retail properties clearly exceeded the figure of 2010 presence in retail parks and are prepared to pay high rents. and was close to the 2007 level, Q1 2012 marks the first drop within three years of consecutive growth. The rental level of retail warehouses and retail parks is the result of their location in urban centres or Within the retail investment market, the shares of the major asset classes shifted slightly between 2011 rural areas, and the resulting quality of the location in terms of catchment area, competition, and Q1 2012. High street properties/department stores and shopping centres remained the largest accessibility and visibility. While rental levels in Bavaria generally lie slightly above the average asset classes with a share of 37% and 35% respectively (compared to 32% and 45% respectively in western German rent levels due to the state’s strong economy, rental levels in eastern German 2011). This equals an investment volume of € 518 million and € 490 million. towns are generally slightly lower than their western counterparts, as these areas have a lower purchasing power and generate on average lower revenues. In the retail warehouse and retail park However, retail parks accounted for 15% (8% in 2011), whereas retail warehouses accounted for 5% segment, the maximum rents are determined by a percentage of the turnover expectancy. (8% in 2011). Investments in supermarkets/discounters represented 3% in 2011 but went down to less The rents within the different branches vary. This is due to the diverging location assessment and than 1% in the Q1 2012. Transactions involving other retail properties and a portfolio of kiosks took up turnover expectancy of the different tenants. If in the case of a retail park the management succeeds an 8% share. In 2011some large transactions drove up the amount of investments in shopping centre in establishing good anchor tenants, which guarantee a high visitor frequency, then the turnover high street properties and department stores. In Q1 2012, however, large transactions were virtually expectancy of secondary tenants tends to be higher. Therefore, some anchor tenants are able to absent. negotiate lower rents because their existence in a property increases the rental level of the others. The yield compression, which could be observed since 2009 and throughout 2011, came to a halt in Q1 Depending on the size of the retail unit and the branch of the tenants, rents in retail parks in western 2012 with respect to retail parks, shopping centres and retail high street unit shops/department stores. German locations generally range between € 5.00 and € 13.00 /m²/month. Prime yields for shopping centres are now close to 5% and, consequently, are very close to those of Depending on the size of the retail unit and the retail format of the store, rents for supermarkets are prime offices – an occurrence which has not taken place since a brief period in 2007. Net initial yields generally slightly higher than the rents for discounters. Rents for supermarkets in western German for prime retail parks went down to approximately 6% at the end of 2011 and have remained stable locations generally range between € 7.00 and € 13.00 /m²/month. Rents for discounters in western ever since. Germany generally range between € 6.00 and € 12.00 /m²/month, while discounters located in With respect to retail properties, we expect a progressively stable trend with the highest investment eastern Germany generally achieve slightly lower rental rates ranging between € 5.00 and € 11.00 share anticipated for shopping centres and high street properties. Furthermore, we predict that the /m²/month. Drugstores, textile, shoe and electronics branches generally achieve rental rates ranging German real estate market will remain the focus of foreign investors. In the Q1 2012 the buy side was from € 7.50 to € 12.00 /m²/month for rental areas with a size between 500 and 750 m². DIY stores dominated by insurance companies, open funds and private investors. We expect this to continue and need extensive space due to their broad product range with rental prices ranging between € 6.00 for foreign investors along with asset managers, developers and banks to become more active in the and € 10.00 /m²/month. course of 2012. Leasing Comparables
Tenant City Property Type Area Total Rent p.m. Rent p. sqm Comment Lidl Renchen Discounter 1,320 m² € 10,798 € 8.18 /m² Worse purchasing power Lidl Braunschweig Discounter 994 m² € 11,183 € 11.25 /m² Better purchasing power Lidl Kerken Discounter 1,103 m² € 12,354 € 11.20 /m² Better purchasing power Lidl Wurzen Discounter 1,099 m² € 9,671 € 8.80 /m² Worse purchasing power Adler Nürnberg Fashion 2,862 m² € 34,344 € 12.00 /m² Better purchasing power Adler Krefeld Fashion 2,807 m² € 24,533 € 8.74 /m² Other federal state, worse purchasing power AWG Textil Volkach Fashion 1,000 m² € 8,900 € 8.90 /m² Worse purchasing power 0 0 0 0 m² € 0 € 0.00 /m² 0
Investment Comparables
Year of Gross Date of Property Type Area Comment Construction Multiplier Transaction Retail Park 2009/2010 8,500 m²13.8-fold Q1 2011 tegut; Deichmann, Takko; WALT 12.5 yrs; good location, no competition Retail Park 1996 25,000 m² 13.7-fold Q1 2011 Anchor tenant: large-scale hypermarket; high level of competition; WALT: 6yrs Retail Park 2008 6,000 m² 14.6-fold Q1 2011 Anchor tenant: electronics store; office; WALT: 7.5 yrs Self-service department store 2006 13,000 m² 13.8-fold Q2 2012 Famila; WALT approx. 9.26 yrs Self-service department store 1982/1995 12,000 m² 12.5-fold Q2 2010 Real; WALT approx. 12 yrs Retail Park n.a. 27,955 m² n.a. 2012 property in Baden-Wuerttemberg, purchase price approx. € 49.00m Standalone n.a. 10,100 m² n.a. 2011 property in Lower Saxony, purchase price approx. € 17.61m Retail Park n.a. 20,000 m² 11.2-fold Q3 2011 Saxony, WALT > 10 years, purchase price approx. € 29.6m, Kaufland, Esprit
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Hösamer Feld 7 Valuation date: 30.06.2012
94474 Vilshofen Inspection date: 01.02.2011
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Property Summary
Key Figures
Property type Retail Park Main tenant Handelshof SB Warenhaus GmbH & Co. KG
Total lettable area 10,230 m² Total parking units 500 units
Current vacancy rate 2.8% Weighted average lease term 5.7 years
Year of construction 1999 Year of refurbishment 2007
Contractual gross rental income (month 1 x 12) total p.a. € 815,599 per m² / month € 6.64
Total non-recoverable expenses (month 1 x 12) total p.a. € 78,709 per m² / month € 0.64
Net operating income (month 1 x 12) total p.a. € 736,890 per m² / month € 6.00
Market rental valuetotal p.a. € 805,062 Over-/Underrent based on occupied areas 3.5%
SWOT Analysis
Strengths Weaknesses Sufficient parking spaces on site Since completion one retail unit is still in shell condition Very good visibility from Aidenbacher Straße 0 Very good accessibility to the parking area 0 Good branch and tenant mix 0 Established location, no further self-service department stores in immediate vicinity 0
Opportunities Threats Prolongation of the main lease contract, Kaufland exercises its options until 2037 Strong dependency on the main tenant Kaufland Extension of the KiK by the adjacent vacant retail unit Long-term vacancy if Kaufland vacates the property Location could be strengthened by further completions in the surrounding area Property is currently let sligthly over market rental level (over-rented) 0 0 0 0
Property Rating (1 = very negative, 5 = very positive)
Building Location
Building age 4 6 to 10 years Macrolocation 3 Average location and catchment area Lettable Area 3 Between 10,000 and 12,500 m² Microlocation 3 Average micro location Property condition 3 Average building condition Commercial activity 3 Limited commercial activity nearby General impression 3 Average general impression Competition 3 Average competition level
Liquidity Investment Quality
WALT 3 WALT three to seven years Investment market 3 Average property market Over- / underrent 3 Rack rented (-5% to 5%) Investment volume 4 Good lot size Quality of tenants 4 Tenants with very good credit rating Saleability 4 Good saleability within 6 months
Property Description
The property consists of two buildings on two parcels of land, which are separated by an access road. The buildings were constructed in 1999. On the south-western side of the property (land parcel 1552), a predominately one-storey self-service department store can be found, which has an L-shaped layout. The sales areas are situated in the longer section of the building on the ground floor; in the shorter section of the building, the warehouse as well as the receiving department can be found. The social rooms on the first floor can be reached through the entrance hall. The goods delivery area can be accessed via a loading ramp. The building itself is a reinforced concrete construction with a flat roof. The façade has sandwich elements made from prefabricated concrete components. The façade and the roof of the social rooms are clad with trapezoidal sheet metal. The parking facilities are situated in front of the covered entrance area of the self-service department store and extend up to the access road. A U-shaped building can be found on the north-western section of the property (parcel 1552/7). The building is a single-storey construction. Parking areas can be found in front of the structure. The rental units are each accessible from the parking areas. The goods delivery zones are situated in the rear building section and stretch around the building. The building is equipped with a flat roof. The façade is clad with aluminium elements in the form of trapezoidal sheet metal. An awning covering the entrance areas optically connects the individual rental units with one another. A petrol station is located on the western end of the property (parcel 1552/7). This section of the property is leased to the petrol station operator.
Valuation Results
Market Value Market Rental Value
€ 10,000,000 equals to € 978 per m² € 805,062 p.a. equals to € 6.56 / m² / p.m.
Discount Rate 7.00% Net Initial Yield 7.02% excluding 7.02% Multiplier (initial) 12.26 capital Capitalisation Rate6.75% Net Reversionary Yield 6.92% expenditures 6.92% Multiplier (based on MRV) 12.42
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Hösamer Feld 7 Valuation date: 30.06.2012
94474 Vilshofen Inspection date: 01.02.2011
Germany Prepared for: Brack Capital Properties N.V.
Location
Germany Macroeconomic Indicators (Source: GfK, BBE, BBSR/Inkar 2012)
Federal State Bavaria District Passau (Rural District) City Vilshofen Postcode 94474
Population Federal State absolute 12,510,331 Population District absolute 105,727 Population City absolute 2,892 Number of Households City absolute 1,204 Population Density District per km² 84 Population Density City per km² 0 Population Forecast (2007 - 2025) District in % -5.8% Population Growth (2002 - 2007) Federal State in % 1.1% Population Growth (2002 - 2007) District in % -1.8% Unemployment Rate (6/2012) Federal State in % 3.4% Unemployment Rate (6/2012) District in % 3.1%
Structual Data (Source: GfK and BBE 2012)
Purchasing Power District in m € 1,938 Purchasing Power City in m € 51 Purchasing Power Index Federal State index 108.34 Retail Purchasing Power Index District index 93.11 Retail Centrality Index District index 67.14
Vilshofen Macro Location
Vilshofen an der Donau is a secondary centre in the Passau administrative district and the largest city in the respective district. The city borders the southern Bavarian forest and is located approx. 20 km west from Passau and around 30 km west from Austria. The regional centre, Regensburg, is situated about 100 km north-west of Vilshofen. As a secondary centre, Vilshofen functions as an economic hub for the surrounding communities and supplies the area with periodic services. Small and medium-sized businesses are predominantly established in the city, with the majority operating in the service sector as well as the retail sector. The establishment of larger retail chains in the city makes Vilshofen a key shopping location for the surrounding sub-centres. Having the largest number of schools in the Passau administrative district, the education sector is equally economically important for the city.
The connection to the national motorway network can be described as good. The motorway A3 can be accessed in approx. 15 minutes via the junction 113. The federal road B8 runs from Passau to Straubing and connects Vilshofen with a variety of communities, including Künzing, Windor and the regional centre Plattling in the Danube-Forest (Donau-Wald) region. Furthermore, the railway station connects Vilshofen with the cities Regenburg, Passau and Munich. The closest railway station offering long-distance services can be found in Passau and Plattling. The nearest airports are located in Munich (approx. 140 km distance) as well as in Linz, Austria (approx. 130 km distance).
Micro Location Micro Location
The subject property is located in Hösamer Feld in the Linda commercial zone, in the southern periphery of Vilsohofen. It can be accessed via the arterial road, Aidenbacher Straße. The city centre is around 3 km north-east of the property and can be reached via Aidenbacher Straße. A Huber, a building materials store which offers a wide range of building materials, tools, piping and metal sheeting, borders the subject property to the north-east. To the south, the site is adjacent to the fashion and shoe retail warehouse, Lipp. The wider surrounding area is characterised by agricultural use. According to information from the City of Vilshofen, there are still around 27,000 m² of land available in the commercial zone for development. This land is located south-west of a self-service department and south-east of the retail warehouse assessed in the present valuation.
Furthermore, a bus stop is located by the subject property. The railway station is located approx. 2.4 km away. The junction “Garham-Vilshofen”, which connects the city with the federal motorway A3, is about 12.5 km north of the property. The federal road B8 is almost 4.6 km away.
Local Tax Information
Real Estate Tax Rate (Typ B) City in % 330 Land Transfer Tax City in % 3.5
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Hösamer Feld 7 Valuation date: 30.06.2012
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Site Plan
Source: Cadastral plan on a 1 to 1000 scale, dated 27.12.2010 Site Information
Site area 37,515 m² Ground lease No thereof surplus land 0 m² Ground lease expiry n.a. Surplus land value (net) n.a. € 0 Comment Site servicing Fully serviced The property is constructed on a slight slope. Thus, the retail warehouses on parcel 1552/7 are on a higher level than the self-service department store on the parcel 1552. The parcels are bordered by Site layout Rectangular Aidenbacher Straße on the north-west and Hösamer Feld on the south-east. The building materials store, Huber, neighbours the parcel 1552/7 on the north-east; developable land is situated south-west Soil contamination No Suspicion of the parcel 1552. Both parcels are separated by an access road. There is no suspicion of contamination due to previous uses on the site. However, a section of parcel Building encumbrances No 1552/7 is currently leased to a petrol station. For the purposes of this valuation, we have assumed that the subject property is free of any soil or building contamination.
Town Planning
Use class SO (special zone) Comment According to information from the building authority of Vilshofen, a legally binding land-use plan, named Site coverage ratio (GRZ) 0.8 “Gewerbegebiet Linda II” exists since 25 October 1993. The area in question is identified as a special zone and the use must have an open coverage type. The total sales area is limited to 7,300 m², with Plot ratio (GFZ) 1.6 non-city centre relevant product ranges being restricted to a maximum of 300 m². Other designations include a sales area for groceries for a maximum of 1,700 m², textile goods from 1,400 m² and for Cubic index (BMZ) n.a. electronic goods of max 700 m², etc.
Tenure
Land Register Owner Sheet Plot Parcel Section 2 (Restrictions) Section 3 (Loans) Local Court of Passau, TPL Vilshofen S.à.r.l. 2007 0 1552 Limited personal easement in favour of Conoco Land charges in the total amount of € 12,786,165 in land register of Luxembourg 1552/7 Mineralöl GmbH, Hamburg, registered until favour of Bank of Scotland (branch Frankfurt), Aunkirchen 30.09.2023 (right to sell fuel and vehicle lubricant, registered on 08.10.2007 right to operate a petrol station)
Limited personal easement (right to operate a self- service department store) in favour of Kaufland Dienstleistungs GmbH & Co. KG, registered on 22.08.2007
Source: Extract from the land register dated 02.12.2010
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Hösamer Feld 7 Valuation date: 30.06.2012
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Competitor Map
Source: Jones Lang LaSalle Research
Competitor Overview
Name Address Type Sales area Distance Potential Retail Park 94474 Vilshofen, Aidenbacher Straße 74 Retail Park n.a. 1.00 km Medium to low Rewe 94474 Vilshofen, Passauer Str. 29 Hypermarket 1,950 m² 3.00 km Low 0 m² 0 0 0 0 0 0 0 0 0 0 0 0 0
Competiton Indicators
Inhabitants in primary catchment area 8,768 Inhabitants per hypermarket in primary catchment area 4,384
Inhabitants in secondary catchment area 25,007 Inhabitants per hypermarket in secondary catchment area 8,336
Inhabitants in tertiary catchment area 43,551 Inhabitants per hypermarket in tertiary catchment area 14,517
Number of households in the district 1,204 Population forecast for the district (2007 - 2025) -5.8%
Retail Purchasing Power Index (District) 93.11 Retail Centrality Index (District) 67.14
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Hösamer Feld 7 Valuation date: 30.06.2012
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Main competitors
A retail agglomeration with the tenants expert (electronics store), Rossmann (drugstore), Takko A Rewe supermarket with approx. 1,900 m² sales area is located shortly behind the federal road B8. (textiler), Aldi (food discounter) und Penny (food discounter), a beverage store and a sport fashion The supermarket is located in a distance of approx. 3 km away within the secondary catchment area. store is located along the Aidenbacher Straße in a distance of approx. 1 km north to the subject The Passauer Straße runs along the railway line until the Aidenbacher Straße begins. The competitor is property. A hagebaumarkt (DIY store) is located opposite to the retail agglomeration. standalone.
Competition Comment
The retail warehouse agglomeration is situated in close proximity, within a 1 km distance from the valued property. The location of this competitor is however closer to the city centre. With a drugstore, two discounters, a drinks cash-and-carry, a sporting goods store as well as a DIY store, the agglomeration overall offers a similar product range as the subject property. The majority of tenants are well-known retail chains. The competing site is additionally strengthened by an electronics superstore. As a whole, the competing property offers also a different range of goods. While both the discounters offer lower-priced goods for daily use, the Kaufland at the subject property in contrast presents a full range of goods. The retail warehouses at the valued site therefore strengthens the attractiveness level of the property. Additionally, the fashion and shoe retail warehouse, which borders the subject site, indirectly benefits the subject property.
Thus, it can be assumed that despite the generally similar tenant mix, direct competition for the purchasing power of the consumers does not exist. The second competitor, Rewe, is also unable to pose as direct competition to the subject property. For one, the city centre with smaller shopping facilities is situated between the subject site and the second competitor, Rewe. For another, the Rewe only offers a fraction of the full range of goods available at Kaufland, thereby indicating a significant difference in the product ranges. Furthermore, no other retail establishments adjoin or border the Rewe, which could boost the quality of the competing property over the subject property. Thus, the competition level as a whole can be described as medium.
0
Turnover analysis
The rents in functional retail agglomerations are linked to the achievable turnover. The percentage rate that a retail tenant can use for rental payments depends on the margins achievable in the various market sectors. This rate normally ranges between 2% and 15% depending on the respective industry. The productivity varies between approx. € 1,000/m² and up to more than € 10,000/m².
For Kaufland, we have also been provided with turnover figures for the previous valuation. We have analysed the figures and have found the area productivity of Kaufland to be in a healthy range. With a turnover- to-rent ratio of less than 2% it lies below the range of 2% to 4%, which is acceptable for a self-service department store. Taking into consideration location features and the competition situation within Vilshofen, a higher rental level and turnovers for similar sectors is certainly realistic. Thus, we assume in the valuation that higher market rents for the self-service department store can be achieved after the expiry of lease agreements.
Conclusion
The tenant and market sector mix is very good for the current type of use. The size of the property is sufficient to meet the needs of the community of Vilshofen and its catchment area. The accessibility and visibility of both building sections can also be described as being very good. The only feature of the property that could be looked at critically is the small rental unit (284 m² in size), which is in shell condition and has remained vacant since being constructed. A fusion between this unit and one of the adjacent rental units is therefore highly advisable. Overall, the property can be expanded with the available building areas bordering the site. A tenant mix with an electronics retail warehouse could further boost the subject site above the competition. The establishment of a similar type self-service department store is however considered problematic. Protection against competition is currently not available. Furthermore, the property is highly dependent on the self-service department store, Kaufland, and also on the tenant, Vögele, who is the main tenant in the retail warehouse centre.
If the tenant Kaufland were to vacate the unit, the self-service department store could be let in the future to other tenants, such as real, Marktkauf or an E-Center. However, a subsequent use of the unit as a DIY store or furniture store would not be suitable. Huber (building materials store) as well as hagebaumarkt (DIY store) are already established in the vicinity and more than sufficiently meet the needs of the catchment area. Furthermore, a furniture retailer also is not a strong enough anchor tenant and lacks the drawing power for consumers. According to the turnover analysis, the turnover rent stands on the lower end of the range; in fact, a higher turnover-to-rent ratio is achievable in the market. Therefore, we assume that the tenant, Kaufland, will exercise its lease agreement extension options and will remain in the property until 2037. Thereby, it can be assumed that over this period of time, demand for the other units will also exist.
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Hösamer Feld 7 Valuation date: 30.06.2012
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Rent Roll
Tenant Name Area Category Letting Area Rent Rent / m² Tenant Lease Lease Renewal Tenant Status m² / unit / month / month pays VAT Start End Probability pays * 1 Fressnapf Immobilien-Vermögensverwaltung GmbH RetailLet 309 € 2,057 6.65 Yes 11.03.1999 10.02.2014 75% 2 Dänisches Bettenlager GmbH & Co. KG Retail Let 335 € 0 0.00 Yes 04.12.2000 31.12.2014 75% 3 Charles Vögele Deutschland GmbH RetailLet 1,008 € 10,729 10.64 Yes 01.03.1999 28.02.2014 75% 4 Handelshof SB Warenhaus GmbH & Co. KG RetailLet 5,187 € 27,069 5.22 Yes 01.10.2007 30.09.2022 75% 5 KiK Textilien und Non-Food GmbH Retail Let785 € 5,225 6.66 Yes 27.07.2005 26.07.2015 75% GT I PM 6 dm-drogerie markt GmbH + Co. KG Retail Let 704 € 7,680 10.91 Yes 01.03.1999 28.02.2018 75% 7 Dänisches Bettenlager GmbH & Co. KG Retail Let 818 € 3,932 4.81 Yes 04.12.2000 31.12.2014 75% 8 TEDI GmbH & Co. KG Retail Let 348 € 3,777 10.85 Yes 05.03.1999 04.03.2013 75% 9 Deichmann SE Retail Let 452 € 4,419 9.77 Yes 01.03.1999 28.02.2014 75% 10 Deutsche Plakat-Werbung GmbH & Co. KG Other Units Let 6 € 265 44.17 Yes 03.08.2009 02.08.2014 75% GT I PM 11 ConocoPhillips Germany GmbH Petrol Station Let 1,400 € 2,8132.01 Yes 13.01.1999 30.09.2013 75% GT I PM 12 VACANT RetailVacant 284 € 0 0.00 13 External Parking External parking Let 500 € 0 0.00 No 01.10.2007 30.09.2022 100% 0%
Total 11,630 m² € 67,967 * M = Maintenance, GT = Ground Tax, I = Insurance Costs, PM = Property Management
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Hösamer Feld 7 Valuation date: 30.06.2012
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Valuation Assumptions
Tenant Name Area Category Area Market Market Re-letting Initial Re-letting Rent Agency Lease Renewal sqm/unit Rent Rent /month Tis Void VPV*Void* Abatem.* Fees* Term** Probability 1 Fressnapf Immobilien-Vermögensverwaltung GmbH Retail 309 € 6.00 € 1,856 € 100 0 12 0 3 5 75% 2 Dänisches Bettenlager GmbH & Co. KG Retail 335 € 0.00 € 0 € 100 0 12 0 3 5 75% 3 Charles Vögele Deutschland GmbH Retail 1,008 € 8.00 € 8,064 € 100 0 12 0 3 5 75% 4 Handelshof SB Warenhaus GmbH & Co. KG Retail 5,187 € 6.00 € 31,119 € 500 15 3 3 10 75% 5 KiK Textilien und Non-Food GmbHRetail 785 € 5.00 € 3,924 € 100 0 12 0 3 5 75% 6 dm-drogerie markt GmbH + Co. KG Retail 704 € 9.00 € 6,336 € 100 0 12 0 3 5 75% 7 Dänisches Bettenlager GmbH & Co. KG Retail 818 € 5.00 € 4,090 € 100 0 12 0 3 5 75% 8 TEDI GmbH & Co. KG Retail 348 € 9.00 € 3,133 € 100 0 12 0 3 5 75% 9 Deichmann SE Retail 452 € 9.00 € 4,069 € 100 0 12 0 3 5 75% 10 Deutsche Plakat-Werbung GmbH & Co. KG Other Units 6 € 44.17 € 265 € 0 0 0 0 0 5 75% 11 ConocoPhillips Germany GmbH Petrol Station 1,400 € 2.01 € 2,813 € 0 0 24 0 3 5 75% 12 VACANT Retail 284 € 5.00 € 1,420 € 100 36 12 0 3 5 75% 13 External Parking External parking 500 € 0.00 € 0 € 0 00 0 0 0 100%
Total 11,630 sqm € 67,089 * months ** years ***structural vacancy
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Hösamer Feld 7 Valuation date: 30.06.2012
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Property Analysis
Area Analysis Lettable AreaArea Vacant Area Let Vacancy Rate Use Category m² m² m² % Office 0 0 0 0.00% Office Retail DIY Retail 10,230 284 9,946 2.78% DIY 0 0 0 0.00% Warehouse 0 0 0 0.00% Commercial 0 0 0 0.00% Warehouse Commercial Residential Residential 0 0 0 0.00% Storage 0 0 0 0.00% Total area 10,230 284 9,946 2.78% Petrol Station 1,400 0 1,400 0.00% Storage Other Units 6 0 6 0.00% Internal parking 0 0 0 0.00% External parking 500 0 500 0.00% Total parking 1,906 0 500 0.00%
Income Analysis Contractual Contractual Contractual Potential Market MarketMarket Over-/ Under- Rent Rent Rent Rent Rent Rent Rent Rented Use Category €/m²/month €/month €/year €/year €/m²/month €/month €/year Office 0.00 0 0 0 0.00 0 0 0.0% Retail 6.52 64,888 778,658 799,982 6.26 64,010 768,122 4.3% DIY 0.00 0 0 0 0.00 0 0 0.0% Warehouse 0.00 0 0 0 0.00 0 0 0.0% Commercial 0.00 0 0 0 0.00 0 00.0% Residential 0.00 0 00 0.00 0 0 0.0% Storage 0.00 0 0 0 0.00 0 0 0.0% Petrol Station 2.01 2,813 33,761 33,761 2.01 2,813 33,761 0.0% Other Units 44.17 265 3,180 3,180 44.17 265 3,180 0.0% Total area 6.83 67,967 815,599 836,923 6.56 67,089 805,062 4.2% Internal parking 0.00 000 0.00 0 0 0.0% External parking 0.00 0 0 0 0.00 0 0 0.0%
Assessment of Kaufland market rent
Space productivity Turnover to rent ratio Explanation
7,000 10.00
Usual market % - levels 6,500 9.00 9.03 Market rent
6,000 8.00 Contractual Rent
5,500 7.00 Rents % € / m² 6.77 Contractual 2.3% 5.22 5,000 6.00 6.00 Market 2.7% 6.00
4,500 5.22 4% of turnover 9.03 Rent / m² / month 5.00 4.51 3% of turnover 6.77 4,000 4.00 2% of turnover 4.51
3,500 Turnover potential 14,050,009 € 3.00 (net)
3,639 Sales Area ~ 3,861 m² 3,000 2.00 Total Area 5,187 m² in € / m² p.a. 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% based on sales area Turnover-rent-ratio
Self-service department stores usually can afford to pay a rent in the range of 2% to 4% of their net turnover (economically sustainable rent burden) and have a space productivity of about € 4,000 to € 6,000 per m² sales area. The two graphics above indicate, how the contract rent of the main tenant Kaufland as well as the assumed market rental level, can be assessed on the basis of usual market ranges. This analysis is based on the turnover potential figures prepared by Trade Dimension.
D&B Rating of Main Tenant
Main tenant Comment
Tenant name Handelshof SB Warenhaus GmbH & Co. KG The main tenant is a corporation belonging to the Kaufland Group, which in turn belongs to the Lidl & Rent p.a. € 324,823 Schwarz Group, one of the biggest grocer groups in Europe. Kaufland is the self-service department Share of total income 40% store division of Lidl & Schwarz with more than 500 locations across Europe. Kaufland’s core business WALT 10.3 years area is food retailing with branded goods and own-brands specially produced for Kaufland. According to Payment Index 75 Dun & Bradstreet (D&B) Rating as at 01.01.2011 Handelshof SB Warenhaus GmbH & Co. KG has an Capital indicator 5AA 2 below-average credit risk. The risk of insolvency (D&B Score) within the next 12 months compared with Risk indicator 2 other German companies is assessed to be low, i.e. 84% of businesses on the German database have Score 84 the same or higher risk of failure. Credit limit 39.000.000 (total)
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Assumptions Market Value
Lease Contract Commentary The property is let to eight retail units and a petrol station. Currently, one retail unit is vacant. The WALT of the property amounts to 5.7 years. The main tenant is Kaufland with a share of more than 40% of the rental income. The property is currently almost let at market rental level. This figure also includes the turnover rent of the tenant Dänisches Bettenlager. The main tenant Kaufland is almost let at market rental level. As the lease contract is valid until 2022 and the tenant has options until 2037, we do not believe that the rental level can be adjusted before 2037. Kaufland’s rent is indexed and will be adapted by 50% of the CPI change, whenever the change exceeds 10 percent in relation to the CPI basis. Indexation started on 01.04.2009. The majority of the tenants does not pay costs for ground tax, insurance and for management. Except of the tenant KiK and the petrol station these costs will not be borne by the tenants. Maintenance costs for structural repairs are borne by the landlord. The tenant DM has prolonged its contract by option until 02/2018. Further, the rent of the tenant ConocoPhillips Germany GmbH has been indexed.
0
General Property Assumptions Discount Rate Comment
Discount rate 7.00% The yields applied reflect the individual location quality (macro- and micro-location) of the properties, building structure, letting situation, covenant strength and the relationship between contractual and Capitalisation rate 6.75% market rent. We derive the discount rate from market transactions. The discount rate reflects the rate of return expected by investors and is determined based on the risk associated with a property. As Capital expenditures* € 0 reinsurance, the initial yields profile is aligned with the market/other transactions. We have taken into account such facts as the stable Cash Flow, the good location, the short WALT, the Vacancy costs € 10.00 /m²/p.a. low vacancy rate and the good condition of the subject property in Vilshofen. * on the basis of cost estimates provided by RT Facility Management GmbH & Co. KG, dated June 2012
Breakdown of Non-Recoverable Costs
% of Gross Inflation Contract** per year per year (month 1 x 12) Contract Rent Maintenance costs € 4.50 /m² € 46,035 5.64% Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 after 2021 Management costs € 1.20 /m² € 12,234 1.50% Inflation 1.0% 1.5% 1.5% 1.5% 1.4% 1.3% 1.4% 1.4% 1.4% 1.4% 1.6% Ground tax € 1.54 /m² € 15,794 1.94% Insurance costs € 0.45 /m² € 4,646 0.57% Market Rental Growth Other non-recoverable costs € 0.00 /m² € 0 0.00% Total non-recoverable expenses € 7.69 /m² € 78,709 9.65% Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 after 2021 ** JLL analysis Rental Growth 1.0% 1.5% 1.5% 1.5% 1.4% 1.3% 1.4% 1.4% 1.4% 1.4% 1.6%
Market % of Gross Contract per year per year (assuming full occupancy) Market Rent Maintenance costs Maintenance costs € 4.50 /m² € 46,035 5.72% Management costs Management costs € 1.18 /m² € 12,076 1.50% Ground tax € 1.54 /m² € 15,794 1.96% Ground tax € 0.45 /m² € 4,646 0.58% Insurance costs Insurance costs Other non-recoverable costs € 0.00 /m² € 0 0.00% Total non-recoverable expenses € 7.68 /m² € 78,551 9.76% Other non-recoverable costs
Total Non-recoverable Costs
Maintanance Management Ground Insurance Other Non- Vacancy Total % of Total Costs Costs Tax Costsrecoverable Costs Costs per year Gross Revenue Year 1 € 46,265 € 12,064 € 11,667 € 5,399 0 € € 3,733 € 79,128 9.8% Year 2 € 46,844 € 11,312 € 11,813 € 5,466 0 € € 7,425 € 82,860 11.0% Year 3 € 47,547 € 11,549 € 11,990 € 5,548 0 € € 5,062 € 81,696 10.6% Year 4 € 48,260 € 11,886 € 12,170 € 5,632 0 € € 2,042 € 79,990 10.1% Year 5 € 48,960€ 12,096 € 12,346 € 5,713 0 € € 0 € 79,115 9.8% Year 6 € 49,620 € 11,709 € 12,513 € 5,790 0 € € 1,910 € 81,542 10.4% Year 7 € 50,290 € 11,541 € 12,682 € 5,869 0 € € 2,566 € 82,948 10.8% Year 8 € 50,995 € 11,452 € 12,860 € 5,951 0 € € 5,525 € 86,783 11.4% Year 9 € 51,708 € 11,984 € 13,040 € 6,034 0 € € 2,991 € 85,757 10.7% Year 10 € 52,432 € 12,275 € 13,222€ 6,119 0 € € 0 € 84,048 10.3% Year 11 € 53,193 € 10,736 € 13,414 € 6,207 0 € € 20,585 € 104,135 14.5%
Non-Recoverable Costs as a percentage of Total Gross Revenue 12.0% 11.4% 11.0% 10.8% 10.7% 10.6% 10.4% 10.1% 10.3% 9.8% 9.8% 10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
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Hösamer Feld 7 Valuation date: 30.06.2012
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Cash Flow Market Value
Total Non- Net TIs and Present Rental Turnover Rent Gross recoverable Operating Capital Leasing Value @ Revenue Vacancy Abatements Revenue Costs Income Expenditures Commissions Cash Flow 7.00% Year 1 € 831,020 -€ 26,751 € 0 € 804,269 -€ 79,128 € 725,141 € 0 € 0 € 725,141 € 703,432 Year 2 € 814,775-€ 60,640 € 0 € 754,135 -€ 82,860 € 671,275 -€ 54,138 -€ 13,213 € 603,924 € 549,604 Year 3 € 800,463 -€ 30,504 € 0 € 769,959-€ 81,696 € 688,263 -€ 21,281 -€ 3,204 € 663,778 € 562,655 Year 4 € 804,737 -€ 12,370€ 0 € 792,367 -€ 79,990 € 712,377 -€ 48,813 -€ 7,566 € 655,998 € 518,019 Year 5 € 806,396 € 0 € 0 € 806,396 -€ 79,115 € 727,281 € 0 € 0 € 727,281 € 538,005 Year 6 € 801,274 -€ 20,691 € 0 € 780,583 -€ 81,542 € 699,041 -€ 19,092 -€ 5,185 € 674,764 € 467,399 Year 7 € 795,156 -€ 25,756 € 0€ 769,400 -€ 82,948 € 686,452 -€ 9,440 -€ 2,576 € 674,436 € 435,793 Year 8 € 808,232 -€ 44,760 € 0 € 763,472 -€ 86,783 € 676,689 -€ 48,661 -€ 11,649 € 616,379 € 371,133 Year 9 € 817,036 -€ 18,088 € 0 € 798,948 -€ 85,757 € 713,191 -€ 52,921 -€ 7,978 € 652,292 € 367,592 Year 10 € 818,315 € 0 € 0 € 818,315 -€ 84,048 € 734,267 € 0 € 0 € 734,267 € 387,276 Year 11 € 867,805 -€ 152,054 € 0 € 715,751 -€ 104,135€ 611,616 -€ 150,940 -€ 23,600 € 10,987,021 € 5,585,244 Total Cashflow (incl. Terminal Value @ 6.75 %) € 10,486,152 Gross Value of Surplus Land € 0 Gross Capital Value incl. Surplus Land € 10,486,152 Total Gross Revenue versus Net Operating Income
€ 900000.0 8.0% 6.9% 6.9% 7.0% € 800000.0 6.8% 6.8% 7.0% 6.6% 6.7% 6.5% 6.4% 6.5% € 700000.0 6.0%
€ 600000.0 5.0%
€ 500000.0 4.0%
Rental income € 400000.0 Running yield 3.0% € 300000.0
2.0% € 200000.0
€ 100000.0 1.0%
€.0 0.0% Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Valuation Results Market Value
Rent Overview Gross Capital Value (rounded) Contractual gross rental income (month 1 x 12) total p.a. € 815,599 per m²/month € 6.64 Total € 10,500,000
Market rental value total p.a. € 805,062 per m² € 1,026 per m²/month € 6.56 Over-/Underrent 3.50% Purchaser's costs 5.00% Yield Overview
Net Initial Yield 7.02% Market Value (rounded) Net Reversionary Yield 6.92% Total € 10,000,000 Gross Initial Yield 8.16% Gross Reversionary Yield 8.05% per m² € 978
Valuation Comment
In terms of risk, we considered the covenant strength as well as the lease duration for the existing contracts. As at 01.01.2011, the main tenant, Handelshof SB Warenhaus GmbH & Co. KG, has good covenant strength, which ensures a secure cash flow for the remainder of the lease term until at least 2022. In terms of a resale, we took into account such facts as visibility, demographic factors, appearance, condition and building age, third-party usability, competition situation and location.
For the purpose of the valuation on 30.06.2012, we have been provided with updated insurance costs as well as updated ground tax and have applied them in our valuation. Other costs have remained unchanged and have been applied according to the information received during the previous valuation cycle. For management costs, we have applied 1.5% of the effective gross rent. We have been provided with technical due diligence reports provided by Kaiser Baucontrol for the previous valuation as well as new information from RT Facility Management. For the periods of year 1 to 10, all budgeted costs (capital expenditures) are covered by our maintenance cost approach of € 4.50/m² p.a. Regarding comparable rents, we have had recourse to evidence of similar areas situated in the comparable regions and locations. Furthermore, we have analysed comparable transactions. Please refer to the section "Investment Comparables". As for the tenancies within the property, the following changes have taken place: The turnover figure of the tenant Dänisches Bettenlager has slightly changed; hence, in the current valuation the turnover rent has been increased from € 3,041.66 p.a. up to € 3,690.9p.m. The included base rent still amounts to € 3,624 p.m. Furthermore, the tenant ConocoPhillips Germany GmbH underwent an indexation adjustment.
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Photos
View of the retail warehouses View of the petrol station
Internal view of the tenant Kaufland Internal view of the tenant Charles Vögele
Internal view of the vacant unit View of the delivery zone
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Leasing and Investment Market
Leasing Market Investment Market
There is no homogeneous rental level for retail space in retail warehouses or retail parks throughout Stable economic growth has brought Germany in the focus of real estate investors throughout Europe. Germany. However, the spread between the average and the absolute prime rent is not as big as in At the end of 2011 the total amount of retail investments amounted to approximately € 10.6 billion, high street locations. The overall potential for rental growth in retail parks in Germany is best whereas the figure stood at € 1.4 billion at the end of Q1 2012. Hence, it accounted for 45%, and 27% summed up as mediocre. Depending on the tenant branch, rental rates for discounters, department respectively, of the total investments in commercial properties in Germany. This represents the reverse stores and DIY stores remain stable due to the high competition on the market, but the rents for figures of office investments (30% in 2011 and 45% in Q1 2012). Whereas the 2011 total investment in fashion stores have uplift potential simply due to the fact that these stores are increasing their retail properties clearly exceeded the figure of 2010 presence in retail parks and are prepared to pay high rents. and was close to the 2007 level, Q1 2012 marks the first drop within three years of consecutive growth. The rental level of retail warehouses and retail parks is the result of their location in urban centres or Within the retail investment market, the shares of the major asset classes shifted slightly between 2011 rural areas, and the resulting quality of the location in terms of catchment area, competition, and Q1 2012. High street properties/department stores and shopping centres remained the largest accessibility and visibility. While rental levels in Bavaria generally lie slightly above the average asset classes with a share of 37% and 35% respectively (compared to 32% and 45% respectively in western German rent levels due to the state’s strong economy, rental levels in eastern German 2011). This equals an investment volume of € 518 million and € 490 million. towns are generally slightly lower than their western counterparts, as these areas have a lower purchasing power and generate on average lower revenues. In the retail warehouse and retail park However, retail parks accounted for 15% (8% in 2011), whereas retail warehouses accounted for 5% segment, the maximum rents are determined by a percentage of the turnover expectancy. (8% in 2011). Investments in supermarkets/discounters represented 3% in 2011 but went down to less The rents within the different branches vary. This is due to the diverging location assessment and than 1% in the Q1 2012. Transactions involving other retail properties and a portfolio of kiosks took up turnover expectancy of the different tenants. If in the case of a retail park the management succeeds an 8% share. In 2011some large transactions drove up the amount of investments in shopping centre in establishing good anchor tenants, which guarantee a high visitor frequency, then the turnover high street properties and department stores. In Q1 2012, however, large transactions were virtually expectancy of secondary tenants tends to be higher. Therefore, some anchor tenants are able to absent. negotiate lower rents because their existence in a property increases the rental level of the others. The yield compression, which could be observed since 2009 and throughout 2011, came to a halt in Q1 Depending on the size of the retail unit and the branch of the tenants, rents in retail parks in western 2012 with respect to retail parks, shopping centres and retail high street unit shops/department stores. German locations generally range between € 5.00 and € 13.00 /m²/month. Prime yields for shopping centres are now close to 5% and, consequently, are very close to those of Depending on the size of the retail unit and the retail format of the store, rents for supermarkets are prime offices – an occurrence which has not taken place since a brief period in 2007. Net initial yields generally slightly higher than the rents for discounters. Rents for supermarkets in western German for prime retail parks went down to approximately 6% at the end of 2011 and have remained stable locations generally range between € 7.00 and € 13.00 /m²/month. Rents for discounters in western ever since. Germany generally range between € 6.00 and € 12.00 /m²/month, while discounters located in With respect to retail properties, we expect a progressively stable trend with the highest investment eastern Germany generally achieve slightly lower rental rates ranging between € 5.00 and € 11.00 share anticipated for shopping centres and high street properties. Furthermore, we predict that the /m²/month. Drugstores, textile, shoe and electronics branches generally achieve rental rates ranging German real estate market will remain the focus of foreign investors. In the Q1 2012 the buy side was from € 7.50 to € 12.00 /m²/month for rental areas with a size between 500 and 750 m². DIY stores dominated by insurance companies, open funds and private investors. We expect this to continue and need extensive space due to their broad product range with rental prices ranging between € 6.00 for foreign investors along with asset managers, developers and banks to become more active in the and € 10.00 /m²/month. course of 2012. Leasing Comparables
Tenant City Property Type Area Total Rent p.m. Rent p. sqm Comment Real Amberg Self-Service Department Store 10,824 m² € 71,114 € 6.57 /m² Higher purchasing power Kaufland Hameln Self-Service Department Store 4,426 m² € 29,698 € 6.71 /m² Similar out-of-town location, similar purchasing power Real Würzburg Self-Service Department Store 8,450 m² € 61,685 € 7.30 /m² Better location, similar purchasing power dm-drogerie markt Bentwisch Drugstore 790 m² € 7,592 € 9.61 /m² Similar purchasing power, other federal state Charles Vögele Traunreut Fashion 910 m² € 7,680 € 8.44 /m² Similar purchasing power AWG Mode Volkach Fashion 1,000 m² € 8,900 € 8.90 /m² Similar purchasing power Deichmann Karlstadt Shoe store 467 m² € 4,651 € 9.96 /m² Similar purchasing power 0 0 0 0 m² € 0 € 0.00 /m² 0
Investment Comparables
Year of Gross Date of Property Type Area Comment Construction Multiplier Transaction Retail Park 2009/2010 8,500 m²13.8-fold Q1 2011 tegut; Deichmann, Takko; WALT 12.5 yrs; good location, no competition Retail Park 1996 25,000 m² 13.7-fold Q1 2011 Anchor tenant: large-scale hypermarket; high level of competition; WALT: 6yrs Retail Park 2008 6,000 m² 14.6-fold Q1 2011 Anchor tenant: electronics store; office; WALT: 7.5 yrs Self-service department store 2006 13,000 m² 13.8-fold Q2 2012 Famila; WALT approx. 9.26 yrs Self-service department store 1982/1995 12,000 m² 12.5-fold Q2 2010 Real; WALT approx. 12 yrs Retail Park n.a. 27,955 m² n.a. 2012 property in Baden-Wuerttemberg, purchase price approx. € 49.00m Standalone n.a. 10,100 m² n.a. 2011 property in Lower Saxony, purchase price approx. € 17.61m Retail Park n.a. 20,000 m² 11.2-fold Q3 2011 Saxony, WALT > 10 years, purchase price approx. € 29.6m, Kaufland, Esprit
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Wahrenberger Straße 69 Valuation date: 30.06.2012
19322 Wittenberge Inspection date: 31.01.2011
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Property Summary
Key Figures
Property type Retail Park Main tenant Kaufland Dienstleistung GmbH & Co. KG
Total lettable area 8,691 m² Total parking units 400 units
Current vacancy rate 0.0% Weighted average lease term 11.5 years
Year of construction 1996 Year of refurbishment n.a.
Contractual gross rental income (month 1 x 12) total p.a. € 610,832 per m² / month € 5.86
Total non-recoverable expenses (month 1 x 12) total p.a. € 76,794 per m² / month € 0.74
Net operating income (month 1 x 12) total p.a. € 534,037 per m² / month € 5.12
Market rental valuetotal p.a. € 588,185 Over-/Underrent based on occupied areas 3.9%
SWOT Analysis
Strengths Weaknesses Sufficient parking spaces Outdated architectural design Located close to a DIY store generating synergies Strong competition Petrol station on site 0 Well maintained 0 Long term lease contract of the main tenant Kaufland 0
Opportunities Threats Prolongation of the main lease contract, Kaufland exercises its options until 2037 Strong dependency on the main tenant Kaufland 0 Long-term vacancy if Kaufland vacates the property 0 Property is currently let sligthly over market rental level (over-rented) 0 0 0 0
Property Rating (1 = very negative, 5 = very positive)
Building Location
Building age 2 16 to 25 years Macrolocation 2 Below average location and catchment area Lettable Area 2 Between 7,500 and 10,000 m² Microlocation 2 Below average micro location Property condition 3 Average building condition Commercial activity 3 Limited commercial activity nearby General impression 3 Average general impression Competition 2 High competition level
Liquidity Investment Quality
WALT 5 WALT longer than ten years Investment market 2 Under developed property market Over- / underrent 3 Rack rented (-5% to 5%) Investment volume 3 Reasonable lot size Quality of tenants 4 Tenants with very good credit rating Saleability 4 Good saleability within 6 months
Property Description
The subject property is a one- to two-storey department store. The property was built in 1996 and faces Wahrenberger Straße and Cumloser Straße. The property has one main entrance from the parking space in front of the building and a separate entrance to the unit rented by the tenant Hammer, as well as from the parking area. The building has an L-shape and is made of a steel reinforced concrete construction with precast parts. The property has got a flat roof with galvanised steel sheets.
Valuation Results
Market Value Market Rental Value
€ 7,800,000 equals to € 897 per m² € 588,185 p.a. equals to € 5.64 / m² / p.m.
Discount Rate 6.85% Net Initial Yield 6.36% excluding 6.36% Multiplier (initial) 12.77 capital Capitalisation Rate7.00% Net Reversionary Yield 6.09% expenditures 6.09% Multiplier (based on MRV) 13.26
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Location
Germany Macroeconomic Indicators (Source: GfK, BBE, BBSR/Inkar 2012)
Federal State Brandenburg District Prignitz (Rural District) City Wittenberge Postcode 19322
Population Federal State absolute 2,511,525 Population District absolute 83,086 Population City absolute 18,710 Number of Households City absolute 10,635 Population Density District per km² 39 Population Density City per km² 371 Population Forecast (2007 - 2025) District in % -21.8% Population Growth (2002 - 2007) Federal State in % -1.8% Population Growth (2002 - 2007) District in % -7.5% Unemployment Rate (6/2012) Federal State in % 9.8% Unemployment Rate (6/2012) District in % 13.1%
Structual Data (Source: GfK and BBE 2012)
Purchasing Power District in m € 1,331 Purchasing Power City in m € 289 Purchasing Power Index Federal State index 89.44 Retail Purchasing Power Index District index 81.39 Retail Centrality Index District index 95.02
Wittenberge Macro Location
Wittenberge is situated in the federal state of Brandenburg in the administrative region of Prignitz. The city covers an area of 50.44 km². Nearby cities include Berlin (120 km), Potsdam (100 km) and Lüneburg (80 km). The A24 federal motorway is located 35 km to the north and the B89 offers a direct connection to the motorway.
The city’s train station is linked to the ICE network. Wittenberge is a stop on the route from Hamburg to Berlin. International connections to Prague and Kopenhagen are also available.
The closest passenger airport is located in Berlin, which can be reached within 120 km.
The economy of Wittenberge is primarily characterised by small- and mid-sized companies. Moreover, agriculture is a major part of Wittenberge’s economy.
Micro Location Micro Location
The property is located slightly outside of the western outskirts of Wittenberge, very close to the federal road B189, which connects Wittenberege with the motorway system. The property is located along an aterial road connecting western Wittenberge with the B189. Next to the subject property, there is a DIY store operated by OBI and apart from that, there are only few residential dwellings to the north-east as well as agricultural land in the surrounding area.
0
Local Tax Information
Real Estate Tax Rate (Typ B) City in % 400 Land Transfer Tax City in % 5.0
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Site Plan
Source: Cadastral plan on a 1 to 1,000 scale, dated 29th December 2010 Site Information
Site area 39,690 m² Ground lease No thereof surplus land 0 m² Ground lease expiry n.a. Surplus land value (net) n.a. € 0 Comment Site servicing Fully serviced The property has an even topography and irregular shape. It is accessible from the east. According to information provided by the city of Wittenberge, the site is not registered in the register of contaminated Site layout Irregular sites. In Brandenburg, there are no building encumbrances. Instead the muncipalities obtain personal Soil contamination No Suspicion easments, which are registered in the land register in divison 2. Thus, we assumed the subject property to be free of any building encumbrances. Building encumbrances No For the purposes of this valuation, we have assumed that the subject property is free of any soil or building contamination.
Town Planning
Use class SO (special zone) Comment According to information from the local planning authority, a legally binding development plan exists, Site coverage ratio (GRZ) 0.8 entitled "Nr. 2 Geschäftshauskomplex Wahrenberger Straße / B 189" and dated 04.03.1993, with the following regulations: the subject site is located in a special zone (SO). The site coverage ratio is limited Plot ratio (GFZ) 0.5 to 0.8 and the plot ratio to 0.5.
Cubic index (BMZ) n.a.
Tenure
Land Register Owner Sheet Plot Parcel Section 2 (Restrictions) Section 3 (Loans) Local Court of TPL Wittenberge 5509 28 155/4 Limited personal easement to operate a self- Land charge in the amount of € 9,204,703.00 in Perleberg, land register S.á.r.l., Luxembourg 159/9 service department store on the plot in favour of favour of Bank of Scotland of Wittenberge Kaufland Stiftung & Co. KG, Neckarsulm.
Source: Land register extract, dated 2nd December 2010
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Wahrenberger Straße 69 Valuation date: 30.06.2012
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Competitor Map
Source: Jones Lang LaSalle Research
Competitor Overview
Name Address Type Sales area Distance Potential E-Center 19322 Wittenberge, Lenzener Chaussee 21 Hypermarket 3,500 m² 1.20 km High 0 m² 0 0 m² 0 0 0 0 0 0 0 0 0 0 0 0 0
Competiton Indicators
Inhabitants in primary catchment area 14,353 Inhabitants per hypermarket in primary catchment area 14,353
Inhabitants in secondary catchment area 18,858 Inhabitants per hypermarket in secondary catchment area 18,858
Inhabitants in tertiary catchment area 27,247 Inhabitants per hypermarket in tertiary catchment area 27,247
Number of households in the district 10,635 Population forecast for the district (2007 - 2025) -21.8%
Retail Purchasing Power Index (District) 81.39 Retail Centrality Index (District) 95.02
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Main competitors
This competitor is a new retail park with a large EDEKA centre as anchor tenant. The sales area of Charles Vögele contributes to the tenant mix surrounding the EDEKA centre. Luckily, this is the only Edeka is about 3,500 m². Within this retail park, there are several well-known tenants such as ALDI, large competitor, which has a similar tenant mix and size compared to the subject property, and is Charles Vögele, and even a toom DIY store, which is another anchor tenant. This centre is newer considered superior when compared to the subject site. and has a slightly better location also near the B189.
Competition Comment
Approximately 19,000 inhabitants live in the secondary catchment area. Two self-service department stores are present within this area, which correlates to approx. 9,500 inhabitants (i.e. potential customers per self-service department store). Within the broader tertiary catchment area, there is still only one competitor for the 27,000 inhabitants, which increases the customer potential in this rural area to 13,500 potential customers per self-service department store. We consider the EDEKA centre located close by in a retail park to be the main competitor and superior to the subject property. Located only 1.2 km from the subject property also at the B189, they share almost exactly the same catchment area. As both properties need to be accessed by car, we think that most customers will prefer the retail park to the subject property due to its newer construction date and good tenant mix. Apart from the EDEKA centre, only small supermarkets or discounters compete for the non-food customers. However, we still assess the level of competition to be rather high and that the EDEKA centre will draw more than average customer potential from the subject property.
0
Turnover analysis
The rents in functional retail agglomerations are linked to the achievable turnover. The percentage rate that a retail tenant can use for rental payments depends on the margins achievable in the various market sectors. This rate normally ranges between 2% and 15% depending on the respective industry. The productivity varies between approx. € 1,000/m² and up to more than € 10,000/m². For Kaufland, we have also been provided with turnover figures for the previous valuation. We have analysed the figures and have found the area productivity of Kaufland to be in a healthy range. With a turnover- to-rent ratio of less than 2% it lies below the range of 2% to 4%, which is acceptable for a self-service department store. However, we believe that a slightly lower market rent is achievable after the end of the lease contract.
According to Trade Dimension, the turnover potential of the Kaufland is € 16,200,000 p.a. (net basis) . This results in a space productivity of approx. € 4,050 m². The rents hypermarkets usually pay are in the range of 2% to 4%, depending on location and quality of the building. Kaufland’s turnover-rent ratio generally lies above the threshold of 2% but below 4%. Therefore, we consider the rent paid to be sustainable in the long run.
Conclusion
The subject property is a self-service department store situated in an average location within Wittenberge. The depth and breadth of the product range is very good. However, the property faces tough competition from a newer retail park with EDEKA as anchor tenant. The rental area of Kaufland can be regarded as relatively unproblematic. In the unlikely case that Kaufland should vacate the premises, the property could be re-let to an other self-service department stores as real or Marktkauf. We assumed that the tenant Kaufland will prolong the contract until 2037 due to the low contractual rental level. However, the market rental level is similar. More problematic would be Hammer vacating the property, as there are only few potential tenants for such rental unit. The most probable alternative use tenant for this unit would be a furniture store. Although this property will face some problems due to the competition, we believe the location to be sustainable on the low rental level, which is currently paid at the property.
Since Hammer prologed his contract for further 4 years the risk for vacancies has been reduced.
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Rent Roll
Tenant Name Area Category Letting Area Rent Rent / m² Tenant Lease Lease Renewal Tenant Status m² / unit / month / month pays VAT Start End Probability pays * 1 Hammer Fachmärkte für Heimausstattung GmbH & Co. KG Retail Let 2,574 € 15,830 6.15 Yes 01.06.2007 28.02.2019 75% 2 Kaufland Warenhandel Brandenburg GmbH & Co. KG Retail Let 6,117 € 32,208 5.27 Yes 01.10.2007 30.09.2026 75% 3 Schwarz Außenwerbung GmbH Other Units Let 9 € 488 54.17 No 01.01.2010 31.12.2014 100% 4 Mall Income Other UnitsLet 1 € 520 524.00 Yes 01.10.2007 30.09.2026 100% 5 Parking Spaces External parking Let 400 € 0 0.00 00.01.1900 00.01.1900 0% 0% 6 TOTAL Deutschland GmbH Petrol Station Let 1,020 € 1,856 1.82Yes 07.04.2003 06.04.2018 100% M GT I
Total 9,711 m² € 50,903 * M = Maintenance, GT = Ground Tax, I = Insurance Costs, PM = Property Management
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Valuation Assumptions
Tenant Name Area Category Area Market Market Re-letting Initial Re-letting Rent Agency Lease Renewal sqm/unit Rent Rent /month Tis Void VPV*Void* Abatem.* Fees* Term** Probability 1 Hammer Fachmärkte für Heimausstattung GmbH & Co. KG Retail 2,574 € 6.25 € 16,086 € 50 24 18 0 3 10 75% 2 Kaufland Warenhandel Brandenburg GmbH & Co. KG Retail 6,117 € 5.00 € 30,585 € 50 18 12 0 3 10 75% 3 Schwarz Außenwerbung GmbH Other Units 9 € 54.17 € 488 € 0 12 6 0 3 5 100% 4 Mall Income Other Units 1 € 0.00 € 0 € 0 12 6 0 3 10 100% 5 Parking Spaces External parking 400 € 0.00 € 0 € 0 0 0 0 0 0 0% 6 TOTAL Deutschland GmbH Petrol Station 1,020 € 1.82 € 1,856 € 0 12 6 0 3 5 100%
Total 9,711 sqm € 49,015 * months ** years ***structural vacancy
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Property Analysis
Area Analysis Lettable AreaArea Vacant Area Let Vacancy Rate Use Category m² m² m² % Office 0 0 0 0.00% Office Retail DIY Retail 8,691 0 8,691 0.00% DIY 0 0 0 0.00% Warehouse 0 0 0 0.00% Commercial 0 0 0 0.00% Warehouse Commercial Residential Residential 0 0 0 0.00% Storage 0 0 0 0.00% Total area 8,691 0 8,691 0.00% Petrol Station 1,020 0 1,020 0.00% Storage Other Units 10 0 10 0.00% Internal parking 0 0 0 0.00% External parking 400 0 400 0.00% Total parking 1,430 0 400 0.00%
Income Analysis Contractual Contractual Contractual Potential Market MarketMarket Over-/ Under- Rent Rent Rent Rent Rent Rent Rent Rented Use Category €/m²/month €/month €/year €/year €/m²/month €/month €/year Office 0.00 0 0 0 0.00 0 0 0.0% Retail 5.53 48,039 576,466 576,466 5.37 46,672 560,059 2.9% DIY 0.00 0 0 0 0.00 0 0 0.0% Warehouse 0.00 0 0 0 0.00 0 0 0.0% Commercial 0.00 0 0 0 0.00 0 00.0% Residential 0.00 0 00 0.00 0 0 0.0% Storage 0.00 0 0 0 0.00 0 0 0.0% Petrol Station 1.82 1,856 22,276 22,276 1.82 1,856 22,276 0.0% Other Units 100.75 1,008 12,090 12,090 48.75 488 5,850 106.7% Total area 5.86 50,903 610,832 610,832 5.64 49,015 588,185 3.9% Internal parking 0.00 000 0.00 0 0 0.0% External parking 0.00 0 0 0 0.00 0 0 0.0%
Assessment of Kaufland market rent
Space productivity Turnover to rent ratio Explanation
7,000 10.00
Usual market % - levels 6,500 9.00 8.80 Market rent
6,000 8.00 Contractual Rent
5,500 7.00 Rents % € / m² 6.60 Contractual 2.4% 5.27 5,000 6.00 Market 2.3% 5.00
4,500 5.27 4% of turnover 8.80 Rent / m² / month 5.00 5.00 4.40 3% of turnover 6.60 4,000 4.00 2% of turnover 4.40
3,500 4,053 Turnover potential 16,157,982 € 3.00 (net) Sales Area ~ 3,987 m² 3,000 2.00 Total Area 6,117 m² in € / m² p.a. 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% based on sales area Turnover-rent-ratio
Self-service department stores usually can afford to pay a rent in the range of 2% to 4% of their net turnover (economically sustainable rent burden) and have a space productivity of about € 4,000 to € 6,000 per m² sales area. The two graphics above indicate, how the contract rent of the main tenant Kaufland as well as the assumed market rental level, can be assessed on the basis of usual market ranges. This analysis is based on the turnover potential figures prepared by Trade Dimension.
D&B Rating of Main Tenant
Main tenant Comment
Tenant name Kaufland Dienstleistung GmbH & Co. KG The main tenant is a corporation belonging to the Kaufland Group, which in turn belongs to the Lidl & Rent p.a. € 386,501 Schwarz Group, one of the biggest grocer groups in Europe. Kaufland is the self-service department Share of total income 63% store division of Lidl & Schwarz with more than 500 locations across Europe. Kaufland’s core business WALT 14.3 years area is food retailing with branded goods and own-brands specially produced for Kaufland. According to Payment Index 70 Dun & Bradstreet (D&B) Rating as at 01.01.2011 Kaufland Diensleistungs GmbH & Co. KG has a very Capital indicator 2AA 1 low credit risk. The risk of insolvency (D&B Score) within the next 12 months compared with other Risk indicator 1 German companies is assessed to be low, i.e. 97% of businesses on the German database have the Score 97 same or higher risk of failure. Credit limit n.a.
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Assumptions Market Value
Lease Contract Commentary The property is fully let to two retail tenants and a gas station. The WALT of the property amounts to 11.5 years. The main tenant is Kaufland with a share of approx. 64% of the rental income. The property is currently slightly overrented due to the property age and location. The rent of Kaufland is indexed and will be adapted by 50% of the CPI change, whenever the change exceeds 10 percent in relation to the CPI basis. The tenants do not pay ground tax, insurance costs, maintenance, or property management with the exception of the petrol station, where the tenant pays everything with the exception of property management. We understand that the current owner does not recover all costs that could be recovered according to the lease contracts. As this could be changed and costs schedule could be drafted this year, we have assumed that all recoverable costs will be apportioned to the respective tenants.
The rent for the tenant TOTAL Deutschland GmbH has increased slightly. The tenant Hammer Fachmärkte has prolonged his contract to a slightly higher rent until 2/2019.
General Property Assumptions Discount Rate Comment
Discount rate 6.85% The yields applied reflect the individual location quality (macro- and micro-location) of the properties, building structure, letting situation, covenant strength and the relationship between contractual and Capitalisation rate 7.00% market rent. We derive the discount rate from market transactions. The discount rate reflects the rate of return expected by investors and is determined based on the risk associated with a property. As Capital expenditures* € 0 reinsurance, the initial yields profile is aligned with the market/other transactions. We have taken into account such facts as the stable Cash Flow, the long lease contract with the tenant Kaufland, the full Vacancy costs € 10.00 /m²/p.a. occupancy and the good condition of the subject property in Wittenberge. * on the basis of cost estimates provided by RT Facility Management GmbH & Co. KG, dated June 2012
Breakdown of Non-Recoverable Costs
% of Gross Inflation Contract** per year per year (month 1 x 12) Contract Rent Maintenance costs € 5.50 /m² € 47,800 7.83% Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 after 2021 Management costs € 1.05 /m² € 9,162 1.50% Inflation 1.0% 1.5% 1.5% 1.5% 1.4% 1.3% 1.4% 1.4% 1.4% 1.4% 1.6% Ground tax € 1.76 /m² € 15,329 2.51% Insurance costs € 0.52 /m² € 4,503 0.74% Market Rental Growth Other non-recoverable costs € 0.00 /m² € 0 0.00% Total non-recoverable expenses € 8.84 /m² € 76,794 12.57% Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 after 2021 ** JLL analysis Rental Growth 1.0% 1.5% 1.5% 1.5% 1.4% 1.3% 1.4% 1.4% 1.4% 1.4% 1.6%
Market % of Gross Contract per year per year (assuming full occupancy) Market Rent Maintenance costs Maintenance costs € 5.50 /m² € 47,800 8.13% Management costs Management costs € 1.02 /m² € 8,823 1.50% Ground tax € 1.76 /m² € 15,329 2.61% Ground tax € 0.52 /m² € 4,503 0.77% Insurance costs Insurance costs Other non-recoverable costs € 0.00 /m² € 0 0.00% Total non-recoverable expenses € 8.80 /m² € 76,455 13.00% Other non-recoverable costs
Total Non-recoverable Costs
Maintanance Management Ground Insurance Other Non- Vacancy Total % of Total Costs Costs Tax Costsrecoverable Costs Costs per year Gross Revenue Year 1 € 48,039 € 9,162 € 11,769 € 5,388 0 € € 0 € 74,358 12.2% Year 2 € 48,640 € 9,455 € 11,916 € 5,455 0 € € 0 € 75,466 12.0% Year 3 € 49,369 € 9,455 € 12,095 € 5,537 0 € € 0 € 76,456 12.1% Year 4 € 50,110 € 9,455 € 12,276 € 5,620 0 € € 0 € 77,461 12.3% Year 5 € 50,836€ 9,613 € 12,454 € 5,702 0 € € 0 € 78,605 12.3% Year 6 € 51,523 € 9,627 € 12,622 € 5,779 0 € € 0 € 79,551 12.4% Year 7 € 52,218 € 8,620 € 12,792 € 5,857 0 € € 9,437 € 88,924 15.5% Year 8 € 52,949 € 9,626 € 12,972 € 5,939 0 € € 2,359 € 83,845 13.1% Year 9 € 53,691 € 10,124 € 13,153 € 6,022 0 € € 0 € 82,990 12.3% Year 10 € 54,442 € 10,127 € 13,337€ 6,106 0 € € 0 € 84,012 12.4% Year 11 € 55,232 € 10,129 € 13,531 € 6,195 0 € € 0 € 85,087 12.6%
Non-Recoverable Costs as a percentage of Total Gross Revenue 18.0%
16.0% 15.5%
14.0% 13.1% 12.4% 12.4% 12.2% 12.0% 12.1% 12.3% 12.3% 12.3% 12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
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Wahrenberger Straße 69 Valuation date: 30.06.2012
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Cash Flow Market Value
Total Non- Net TIs and Present Rental Turnover Rent Gross recoverable Operating Capital Leasing Value @ Revenue Vacancy Abatements Revenue Costs Income Expenditures Commissions Cash Flow 6.85% Year 1 € 610,832 € 0 € 0 € 610,832 -€ 74,358 € 536,474 € 0 € 0 € 536,474 € 520,527 Year 2 € 630,313€ 0 € 0 € 630,313 -€ 75,466 € 554,847 € 0 € 0 € 554,847 € 503,844 Year 3 € 630,313 € 0 € 0 € 630,313-€ 76,456 € 553,857 € 0 € 0 € 553,857 € 470,701 Year 4 € 630,313 € 0€ 0 € 630,313 -€ 77,461 € 552,852 € 0 € 0 € 552,852 € 439,726 Year 5 € 640,848 € 0 € 0 € 640,848 -€ 78,605 € 562,243 € 0 € 0 € 562,243 € 418,505 Year 6 € 641,805 € 0 € 0 € 641,805 -€ 79,551 € 562,254 € 0 € 0 € 562,254 € 391,702 Year 7 € 645,722 -€ 71,069 € 0€ 574,653 -€ 88,924 € 485,729 € 0 € 0 € 485,729 € 317,782 Year 8 € 659,524 -€ 17,819 € 0 € 641,705 -€ 83,845 € 557,860 -€ 35,391 -€ 13,380 € 509,089 € 309,457 Year 9 € 674,914 € 0 € 0 € 674,914 -€ 82,990 € 591,924 € 0 € 0 € 591,924 € 338,039 Year 10 € 675,149 € 0 € 0 € 675,149 -€ 84,012 € 591,137 € 0 € 0 € 591,137 € 315,945 Year 11 € 675,266 € 0 € 0 € 675,266 -€ 85,087€ 590,179 € 0 € 0 € 8,431,143 € 4,346,515 Total Cashflow (incl. Terminal Value @ 7.00 %) € 8,372,743 Gross Value of Surplus Land € 0 Gross Capital Value incl. Surplus Land € 8,372,743 Total Gross Revenue versus Net Operating Income
€ 800000.0 8.0%
7.1% 7.1% € 700000.0 6.4% 7.0% 6.6% 6.6% 6.6% 6.7% 6.7% 6.7%
€ 600000.0 5.8% 6.0%
€ 500000.0 5.0%
€ 400000.0 4.0% Rental income Running yield € 300000.0 3.0%
€ 200000.0 2.0%
€ 100000.0 1.0%
€.0 0.0% Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Valuation Results Market Value
Rent Overview Gross Capital Value (rounded) Contractual gross rental income (month 1 x 12) total p.a. € 610,832 per m²/month € 5.86 Total € 8,400,000
Market rental value total p.a. € 588,185 per m² € 967 per m²/month € 5.64 Over-/Underrent 3.85% Purchaser's costs 6.75% Yield Overview
Net Initial Yield 6.36% Market Value (rounded) Net Reversionary Yield 6.09% Total € 7,800,000 Gross Initial Yield 7.83% Gross Reversionary Yield 7.54% per m² € 897
Valuation Comment
In terms of risk, we considered the covenant strength as well as the lease duration for the existing contracts. As at 01.01.2011, the main tenant, Kaufland Dienstleistung GmbH & Co. KG, has good covenant strength, which ensures a secure cash flow for the remainder of the lease term. The rent of the petrol station tenant has slightly increased, due to higher revenues of the last period on which the rent is based. In terms of a resale, we took into account such facts as visibility, demographic factors, appearance, condition and building age, third-party usability, competition situation and location. For the purpose of the valuation on 30.06.2012, we have been provided with updated insurance costs as well as updated ground tax and have applied them in our valuation. Other costs have remained unchanged and have been applied according to the information received during the previous valuation cycle. For management costs, we have applied 1.5% of the effective gross rent. We have been provided with technical due diligence reports provided by Kaiser Baucontrol for the previous valuation as well as new information from RT Facility Management. For the periods of year 1 to 10, all budgeted costs (capital expenditures) are covered by our maintenance cost approach of € 5.50/m² p.a. Regarding comparable rents, we have had recourse to evidence of similar areas situated in the comparable regions and locations. Furthermore, we have analysed comparable transactions. Please refer to the section "Investment Comparables". Compared to our last valuation the rent for the tenant TOTAL Deutschland GmbH has increased slightly. The tenant Hammer Fachmärkte has prolonged his contract to a slightly higher rent until 2/2019.
0
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Photos
View of the main entrance of Kaufland View of the main entrance of Hammer
View of the parking space Internal view of Kaufland
Internal view of the mall View of the petrol station
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Leasing and Investment Market
Leasing Market Investment Market
There is no homogeneous rental level for retail space in retail warehouses or retail parks throughout Stable economic growth has brought Germany in the focus of real estate investors throughout Europe. Germany. However, the spread between the average and the absolute prime rent is not as big as in At the end of 2011 the total amount of retail investments amounted to approximately € 10.6 billion, high street locations. The overall potential for rental growth in retail parks in Germany is best whereas the figure stood at € 1.4 billion at the end of Q1 2012. Hence, it accounted for 45%, and 27% summed up as mediocre. Depending on the tenant branch, rental rates for discounters, department respectively, of the total investments in commercial properties in Germany. This represents the reverse stores and DIY stores remain stable due to the high competition on the market, but the rents for figures of office investments (30% in 2011 and 45% in Q1 2012). Whereas the 2011 total investment in fashion stores have uplift potential simply due to the fact that these stores are increasing their retail properties clearly exceeded the figure of 2010 presence in retail parks and are prepared to pay high rents. and was close to the 2007 level, Q1 2012 marks the first drop within three years of consecutive growth. The rental level of retail warehouses and retail parks is the result of their location in urban centres or Within the retail investment market, the shares of the major asset classes shifted slightly between 2011 rural areas, and the resulting quality of the location in terms of catchment area, competition, and Q1 2012. High street properties/department stores and shopping centres remained the largest accessibility and visibility. While rental levels in Bavaria generally lie slightly above the average asset classes with a share of 37% and 35% respectively (compared to 32% and 45% respectively in western German rent levels due to the state’s strong economy, rental levels in eastern German 2011). This equals an investment volume of € 518 million and € 490 million. towns are generally slightly lower than their western counterparts, as these areas have a lower purchasing power and generate on average lower revenues. In the retail warehouse and retail park However, retail parks accounted for 15% (8% in 2011), whereas retail warehouses accounted for 5% segment, the maximum rents are determined by a percentage of the turnover expectancy. (8% in 2011). Investments in supermarkets/discounters represented 3% in 2011 but went down to less The rents within the different branches vary. This is due to the diverging location assessment and than 1% in the Q1 2012. Transactions involving other retail properties and a portfolio of kiosks took up turnover expectancy of the different tenants. If in the case of a retail park the management succeeds an 8% share. In 2011some large transactions drove up the amount of investments in shopping centre in establishing good anchor tenants, which guarantee a high visitor frequency, then the turnover high street properties and department stores. In Q1 2012, however, large transactions were virtually expectancy of secondary tenants tends to be higher. Therefore, some anchor tenants are able to absent. negotiate lower rents because their existence in a property increases the rental level of the others. The yield compression, which could be observed since 2009 and throughout 2011, came to a halt in Q1 Depending on the size of the retail unit and the branch of the tenants, rents in retail parks in western 2012 with respect to retail parks, shopping centres and retail high street unit shops/department stores. German locations generally range between € 5.00 and € 13.00 /m²/month. Prime yields for shopping centres are now close to 5% and, consequently, are very close to those of Depending on the size of the retail unit and the retail format of the store, rents for supermarkets are prime offices – an occurrence which has not taken place since a brief period in 2007. Net initial yields generally slightly higher than the rents for discounters. Rents for supermarkets in western German for prime retail parks went down to approximately 6% at the end of 2011 and have remained stable locations generally range between € 7.00 and € 13.00 /m²/month. Rents for discounters in western ever since. Germany generally range between € 6.00 and € 12.00 /m²/month, while discounters located in With respect to retail properties, we expect a progressively stable trend with the highest investment eastern Germany generally achieve slightly lower rental rates ranging between € 5.00 and € 11.00 share anticipated for shopping centres and high street properties. Furthermore, we predict that the /m²/month. Drugstores, textile, shoe and electronics branches generally achieve rental rates ranging German real estate market will remain the focus of foreign investors. In the Q1 2012 the buy side was from € 7.50 to € 12.00 /m²/month for rental areas with a size between 500 and 750 m². DIY stores dominated by insurance companies, open funds and private investors. We expect this to continue and need extensive space due to their broad product range with rental prices ranging between € 6.00 for foreign investors along with asset managers, developers and banks to become more active in the and € 10.00 /m²/month. course of 2012. Leasing Comparables
Tenant City Property Type Area Total Rent p.m. Rent p. sqm Comment Real Lübbenau Self-Service Department Store 1,800 m² € 8,136 € 4.52 /m² Same federal state; similar purchasing power Real Verden (Aller) Self-Service Department Store 2,750 m² € 13,118 € 4.77 /m² Purchasing power of 103.5 Real Braunschweig Self-Service Department Store 19,688 m² € 104,150 € 5.29 /m² Purchasing power of 105.5 Kaufland Crimmitschau Self-Service Department Store 4,661 m² € 21,441 € 4.60 /m² Purchasing power of 77.1 EDEKA Zwickau Self-Service Department Store 1,300 m² € 7,956 € 6.12 /m² Purchasing power of 84.9 Sport Store Leipzig Large scale sport store 2,600 m² € 17,004 € 6.54 /m² Purchasing power of 84.6 Local chain Leipzig Furniture Store 3,800 m² € 21,546 € 5.67 /m² Other federal state; similar purchasing power 0 0 0 0 m² € 0 € 0.00 /m² 0
Investment Comparables
Year of Gross Date of Property Type Area Comment Construction Multiplier Transaction Retail Park 2009/2010 8,500 m²13.8-fold Q1 2011 tegut; Deichmann, Takko; WALT 12.5 yrs; good location, no competition Retail Park 1996 25,000 m² 13.7-fold Q1 2011 Anchor tenant: large-scale hypermarket; high level of competition; WALT: 6yrs Retail Park 2008 6,000 m² 14.6-fold Q1 2011 Anchor tenant: electronics store; office; WALT: 7.5 yrs Self-service department store 2006 13,000 m² 13.8-fold Q2 2012 Famila; WALT approx. 9.26 yrs Self-service department store 1982/1995 12,000 m² 12.5-fold Q2 2010 Real; WALT approx. 12 yrs Retail Park n.a. 27,955 m² n.a. 2012 property in Baden-Wuerttemberg, purchase price approx. € 49.00m Standalone n.a. 10,100 m² n.a. 2011 property in Lower Saxony, purchase price approx. € 17.61m Retail Park n.a. 20,000 m² 11.2-fold Q3 2011 Saxony, WALT > 10 years, purchase price approx. € 29.6m, Kaufland, Esprit
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Appendix II – Overview Appendix II – Overview
Matrix Portfolio - abc Valuation Overview
Property Information General Data Rental Income Non-recoverable Costs Yields / Multiplier Values
Year of Capital Capitali- Dis- Net Net Net Net Lettable Vacancy Weigted Average Contractual Net Market Over-/under- Maintenance Management Insurance Surplus Land Multi- Multi- Gross Gross Capital Purchaser's Market Value after Market No Town Address Use Construction / Plot Size Contract Rent Market Rental Value Ground Tax Other Costs* Total non-recs Total non-recs Total non-recs Expenditures sation count Initial Initial Reversionary Reversionary Area Rate Lease Term Rental Income Operating Income Rent rent Costs Costs Costs Value plier plier Initial Yield Value Costs Capex Value Modernisation (year 1) Rate Rate Yield Yield Yield Yield absolute ex Cap Ex ex Cap Ex ex Cap Ex m² m² % years € p.a. €/m²/month € p.a. € p.a. €/m²/month % €/m² % €/m² €/m² €/m² €/year €/m²/year % of income € € % % % % % % % €% € €/m²
1 1 Aschersleben Hoymer Chaussee 108 Retail Park 1993 / n.a. 36,735 14,520 8.46% 8.3 1,525,571 8.76 1,406,300 1,588,391 9.12 -3.95 5.50 1.50 0.88 0.26 0.00 119,270 8.21 8% 0 0 7.10 7.35 13.18 13.18 7.59% 6.57% 6.57% 6.86% 6.86% 21,400,000 6.50% 20,100,000 1,384
2 2 Augsburg Gögginger Straße 119 Retail Park 1969 / 1995 20,862 13,840 0.00% 7.4 1,308,379 7.88 1,153,856 1,483,517 8.93 -11.81 5.50 1.50 3.93 0.32 0.00 154,523 11.17 12% 0 1,256,506 6.75 7.10 11.85 12.81 8.44% 7.12% 6.61% 8.19% 7.60% 16,200,000 5.00% 15,500,000 1,120
3 3 Bad Aibling Grassingerstraße 16 Retail Park 2000 / n.a. 19,222 7,054 0.00% 5.6 634,106 7.49 568,411 685,093 8.09 -7.44 5.50 1.50 1.96 0.50 0.00 65,696 9.31 10% 0 0 6.75 7.25 13.25 13.25 7.55% 6.46% 6.46% 7.03% 7.03% 8,800,000 5.25% 8,400,000 1,191
4 4 Biberach Obere Stegwiesen 10 Retail Park 1994 / n.a. 29,632 10,769 0.78% 7.4 1,239,500 9.59 1,162,678 1,275,158 9.87 -2.80 4.50 1.50 0.62 0.29 0.00 76,822 7.13 6% 313,312 1,618,471 6.75 7.10 11.62 13.40 8.61% 7.60% 6.59% 7.83% 6.97% 15,700,000 6.50% 14,700,000 1,337
5 5 Borken Heidenerstraße 32 Retail Park 2003 / n.a. 17,337 9,494 0.00% 6.0 1,062,502 9.33 974,678 1,197,694 10.51 -11.29 5.50 1.50 1.59 0.48 0.00 87,823 9.25 8% 0 0 6.50 6.90 13.65 13.65 7.33% 6.33% 6.33% 7.19% 7.19% 15,400,000 6.50% 14,500,000 1,527
6 6 Erlangen Westliche Stadtmauerstraße 27 Retail Park 1975 / 2004 17,609 13,398 4.35% 7.2 1,071,740 6.67 708,171 1,450,000 9.02 -26.09 6.50 1.50 3.90 0.37 15.17 363,569 27.14 34% 0 0 6.50 7.00 9.98 9.98 10.02% 6.32% 6.32% 9.65% 9.65% 11,200,000 5.00% 10,700,000 799
7 7 Geislingen Gartenstraße 30 Retail Park 2002 / n.a. 10,909 9,390 0.53% 7.8 552,877 4.91 467,731 837,832 7.44 -34.01 4.50 1.50 3.27 0.41 0.00 85,146 9.07 15% 0 0 6.50 7.25 15.74 15.74 6.35% 5.03% 5.03% 8.05% 8.05% 9,300,000 6.75% 8,700,000 927
8 8 Glauchau Waldenburger Straße F175 Retail Park 1992 / n.a. 47,878 12,717 0.13% 8.1 1,324,646 8.68 1,211,454 1,238,323 8.11 6.97 5.50 1.50 1.50 0.34 0.00 113,191 8.90 9% 0 0 7.25 7.25 12.31 12.31 8.13% 7.08% 7.08% 6.59% 6.59% 17,100,000 5.00% 16,300,000 1,282
9 9 Ludwigsburg Friedrichstraße 124 Retail Park 1997 / n.a. 10,911 14,144 4.29% 6.4 953,144 5.62 842,366 1,332,938 7.85 -28.49 4.75 1.50 1.73 0.35 0.00 110,778 7.83 12% 0 0 6.75 7.15 12.80 12.80 7.81% 6.48% 6.48% 9.36% 9.36% 13,000,000 6.50% 12,200,000 863
10 10 Ludwigsfelde Potsdamer Straße 51 Retail Park 1997 / n.a. 10,340 12,631 1.83% 6.2 1,094,138 7.22 991,179 1,042,904 6.88 4.91 5.50 1.50 1.04 0.31 0.00 102,958 8.15 9% 0 0 7.00 6.75 12.80 12.80 7.82% 6.65% 6.65% 6.31% 6.31% 14,900,000 6.50% 14,000,000 1,108
11 11 Neckarsulm Hohenloher Straße 2 Retail Park 1974 / 2001 32,520 10,267 32.77% 5.0 1,356,016 11.01 1,266,927 1,274,754 10.35 6.37 6.50 1.50 0.08 0.11 0.00 89,089 8.68 7% 220,800 0 6.85 7.30 12.02 12.32 8.32% 7.28% 7.11% 6.82% 6.74% 17,600,000 6.50% 16,500,000 1,588
12 12 Vilshofen Hösamer Feld 7 Retail Park 1999 / 2007 37,515 10,230 2.78% 5.7 815,599 6.64 736,890 805,062 6.56 1.31 4.50 1.50 1.54 0.45 0.00 78,709 7.69 10% 0 0 6.75 7.00 12.26 12.26 8.16% 7.02% 7.02% 6.92% 6.92% 10,500,000 5.00% 10,000,000 978
13 13 Wittenberge Wahrenberger Straße 69 Retail Park 1996 / n.a. 39,690 8,691 0.00% 11.5 610,832 5.86 534,037 588,185 5.64 3.85 5.50 1.50 1.76 0.52 0.00 76,794 8.84 13% 0 0 7.00 6.85 12.77 12.77 7.83% 6.36% 6.36% 6.09% 6.09% 8,400,000 6.75% 7,800,000 897
*based upon market benchmarks
Valuation Date 30.6.2012 331,160 147,145 4.38% 7.0 13,549,049 7.67 12,024,680 14,799,851 8.38 -8.45% 5.38 1.50 1.86 0.35 1.38 1,524,369 10.36 11% 2,874,977 12.50 12.71 8.0% 6.70% 6.59% 7.40% 7.28% 179,500,000 6.00% 169,400,000 1,151
abc 14.08.2012
Appendix III – General Principles for Valuation Appendix III –General Principles for Valuation
General Principles Adopted in the Preparation of Valuations and Reports
These are the general principles upon which our Valuations and Reports are normally prepared; they apply unless we have specifically mentioned otherwise in the body of the report. Where appropriate, we will be pleased to discuss variations to suit any particular circumstances, or to arrange for the execution of structural or site surveys, or any other more detailed enquiries.
1 Guidelines a) RICS Appraisal and Valuation Manual All work is carried out in accordance with the Practice Statements contained in the RICS Appraisal and Valuation Manual published by the Royal Institution of Chartered Surveyors, by valuers who conform to the requirements thereof. b) International Valuation Standards (IVS) The standards of the International Valuation Standards Council (IVSC) are in accordance with the definition and interpretation of the Market Value as defined by the RICS and consistent with the concept of Fair Value as defined in the International Financial Reporting Standards. c) Directive for Derivation of Market Value (German Immobilienwertermittlungsverordnung, “ImmoWertV“) Appraisals of German Market Value (“Verkehrswert”) are prepared on the basis of the current version of the ImmoWertV. They are conducted by RICS-approved personnel. d) Directive for Derivation of Mortgage Lending Value (German Beleihungswertermittlungsverordnung, “BelWertV“) Appraisals of German Mortgage Lending Value (“Beleihungswert”) are prepared on the basis of the current version of the BelWertV. They are conducted by personnel approved by the HypZert GmbH.
2 Valuation Basis
Our reports state the purpose of the valuation and the basis adopted. The following definitions are usually the basis of our valuation: a) Market Value (MV, RICS) 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. b) Market Rent (RICS) The estimated amount for which a property would be leased on the valuation date between a willing lessor and a willing lessee on appropriate lease terms in an arm’s length transaction, after proper marketing and where the parties had acted knowledgeably, prudently and without compulsion. c) Depreciated replacement cost (DRC, RICS) The current cost of replacing an asset with its modern equivalent asset, less deductions for physical deterioration and all relevant forms of obsolescence and optimisation. d) Fair Value (RICS) The estimated price for the transfer of an asset or liability between identified knowledgeable and willing parties that reflects the respective interest of those parties (the definition adopted by the IVSC). 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 (the definition adopted by the IASB). e) German Market Value (“Verkehrswert“ according to § 194 BauGB) The Market Value (Verkehrswert) is determined by the price which could be achieved at the date of valuation in an arm’s length transaction reflecting the legal and physical situation, location and other character of the property or other subject of valuation, without consideration of unusual or personal interest. f) Mortgage Lending Value (“Beleihungswert” according to § 16 PfandBG) The mortgage lending value (Beleihungswert) must not exceed the value resulting from a prudent assessment of the future marketability of a property by taking into account the long-term sustainable aspects of the property, the normal regional market condition as well as the current and possible alternative uses. Speculative elements must not be taken into consideration. The mortgage lending value must not exceed a market value calculated in a transparent manner and in accordance with a recognized valuation method.
g) Plant & Machinery An opinion of the price at which an interest in the Plant & Machinery utilized in a business would have been transferred at the date of valuation assuming:
fa) that the Plant & Machinery will continue in its present use in the business; fb) adequate potential profitability of the business, or continuing viability of the undertaking, both having due regard to the value of the total assets employed and the nature of the operation; fc) that the transfer is part of an arm’s length sale of the business wherein both parties acted knowledgeably, prudently and without compulsion. h) Financial Statements Valuations for Financial Statements shall be in accordance with the IVSC International Valuation Application 1 (IVA 1). i) Lending Valuations for lending purposes shall be in accordance with IVSC International Valuation Application 2 (IVA 2).
3 Source of Information
We have relied upon the information provided to us by yourselves as to details of tenure, tenancies, planning consents, site area, accommodation, documents of title, cadastral plans, restrictions on title, and other relevant matters, as summarised in our report. We do not accept any liability for either the accuracy or the completeness of this information. We are neither obliged to confirm the completeness and correctness of the information provided nor to examine any original documentation for the same purpose.
4 Documentation a) We do not normally read leases or documents of title and, where these have been provided to us, we recommend that reliance should not be placed on our interpretation thereof without verification by your lawyers. b) We assume, unless informed to the contrary, that each property has a good and marketable title, that all documentation is satisfactorily drawn and that there are no encumbrances, restrictions, easements or other outgoings of an onerous nature, which would have an effect on the value of the interest under consideration, nor material litigation pending.
5 Tenants
Although we reflect our general understanding of a tenant's status in our valuations, enquiries as to the financial standing of actual or prospective tenants are not normally made unless specifically requested. Where properties are valued with the benefit of lettings, it is therefore assumed, unless we are informed otherwise, that the tenants are capable of meeting their financial obligations under the lease and that there are no arrears of rent or undisclosed breaches of covenant.
6 Town Planning and Other Statutory Regulations a) Unless informed to the contrary, our valuations are prepared on the basis that the premises (and any works thereto) comply with all relevant statutory regulations, including enactments relating to fire regulations. b) Information on Town Planning is often obtained verbally from the Local Planning Authority and, if reassurance is required, we recommend that legally binding written confirmation of the same is obtained.
7 Other Defects and Damages a) We normally assume that: aa) the building and its technical facilities are free of damages and other defects. bb) the building was constructed or altered without using deleterious materials or techniques (including, by way of example, high alumina cement concrete, wood wool as permanent shuttering, calcium chloride or asbestos). cc) the ground conditions are suitable and that, where development is contemplated, no extraordinary expenses or delays will be incurred during the construction period due to these, or to archaeological or ecological matters. dd) the land is not contaminated. b) Unless expressly instructed, we do not carry out a structural survey, nor do we test the services. Whilst any readily apparent defects or items of disrepair, which we note during the course of our inspection, will be reflected in our valuations, we are not able to give any assurance that any property is free from defect. We recommend the necessary surveys to be taken out in order to confirm our assumptions in this respect.
c) Unless expressly instructed we do not carry out technical surveys to ascertain whether those defects and damages exist, or have occurred in the past. We are therefore not able to give any assurance that any property is free from damages or other defects. Any readily apparent defects or items of disrepair, which we note during the course of our inspection, will be reflected in our valuation. d) Provided that we are informed about: . other defects and damages of the building and its technical facilities . the application of any such materials, as listed in lit. ab) above . unsuitable ground conditions as set out in lit. ac) above . any contamination of land as listed in lit. ad) above by the client or any other party involved, such information will be reflected in our valuation, only if we are provided with reliable estimates of costs for their replacement or compensation.
8 Value Added Tax (VAT)
Valuations are prepared and expressed exclusive of VAT payments, unless otherwise stated.
9 Outstanding Debts
In the case of buildings where works are in hand or have recently been completed, we do not normally make allowance for any liability already incurred, but not yet discharged, in respect of completed works, or obligations in favour of contractors, sub- contractors or any members of the professional or design team.
Standard Terms of Business for Advisory Services
1 Scope a) These Standard Terms of Business are applicable for contracts regarding general advisory, valuation and/or market research services between Jones Lang LaSalle GmbH (hereinafter also referred to as "Jones Lang LaSalle" or the "Advisor") and the client (hereinafter also referred to as the "Client"). b) The results of the work of the Advisor on the basis of this Agreement are intended exclusively for the Client and may only be used for the purpose specified in the Agreement. The disclosure of the results of this work to third parties is generally prohibited.
2 Limitation and Execution of Contract a) Jones Lang LaSalle shall provide the agreed services, but shall not guarantee a particular economic result. Jones Lang LaSalle’s services will be deemed as complete once the agreed analyses and the corresponding conclusions and, where applicable, recommendations have been produced and presented to the Client or, in the event of an agreed expert-report or an agreed other written statement, these have been handed over to the Client. Jones Lang LaSalle’s services shall not include any legal or tax-related advice. The written report on the agreed services shall be deemed applicable. Verbal statements and information provided by Jones Lang LaSalle staff outside the terms of the agreed contract should be deemed non-binding, unless confirmed in writing. b) Jones Lang LaSalle will fulfil the contract to the best of their knowledge and skill with due care and diligence, and in the case of a valuation, in accordance with the principles of the Royal Institution of Chartered Surveyors (RICS), an extract of which has been supplied to the Client. c) Jones Lang LaSalle has the right to instruct specialist third parties (i.e. vicarious agents, or “Erfüllungsgehilfen”) to fulfil its contractual obligations. d) Jones Lang LaSalle will only verify the information, especially numbers, provided by the Client for obvious inconsistencies and faults. In all other cases, Jones Lang LaSalle will assume the information provided by the Client is correct and complete. Furthermore, Jones Lang LaSalle accepts no responsibility for the accuracy or completeness of the documents and information provided by the client, whether it is in verbal, written or electronic format. e) The Client does not have the right to demand that the contract be carried out by a specific employee of Jones Lang LaSalle. f) Jones Lang LaSalle is under no obligation to inform the Client about any alterations or their implications resulting from a change in the conditions underlying the conclusions and recommendations of the contract specified above after the execution of the contract. g) All changes and extensions to the contract must be made in writing. The same holds true for the waiver of this written contract agreement. Jones Lang LaSalle shall perform additional services required by the Client that are not specified in the original contract only on the basis of a separate agreement with a separate remuneration and liability. Should Jones Lang LaSalle render these services without both parties being able to agree to an appropriate remuneration for such additional services, the Advisor’s fee will increase according to the additional time and money required by the Advisor. Otherwise, the provisions and conditions of this Agreement remain applicable.
3 Deadline for Delivering Services
Any agreed deadline for delivering services shall be reasonably extended in case of force majeure or any reason for which the Advisor is not responsible but which may temporarily impair them from carrying out their work. Jones Lang LaSalle shall notify the Client without undue delay of any impediment to the performance of these services and the expected duration of the delay.
4 Information and Documentation supplied by the Client a) The Client is obliged to assist Jones Lang LaSalle in the execution of the agreed contract as required, especially by supplying the necessary information and documentation properly, fully and on time. This also applies to documentation and information, which only become known or available during the course of the instruction of Jones Lang LaSalle. Should the Client fail to meet any of the aforementioned obligations to support Jones Lang LaSalle, Jones Lang LaSalle, notwithstanding their claims for compensation for additional expenses and damages, reserves the right to extraordinarily terminate the contract without notice. b) Upon Jones Lang LaSalle's request, the Client shall confirm in writing the accuracy and completeness of all written documentation and information supplied as well as all verbal statements, if such a confirmation is possible through a necessary factual review without incurring additional costs or effort.
5 Guarantee a) The Client has the right to demand that any deficiencies be corrected by Jones Lang LaSalle, to the extent that this is possible and reasonable for Jones Lang LaSalle. Should Jones Lang LaSalle not be able to or fail to correct the deficiency, the Client reserves the right to cancel the contract or reduce the fees. If the contract has been awarded by a merchant within the scope of its commercial activities, by a public-law legal entity or by a public-law fund, the Client can only cancel the contract if Jones Lang LaSalle’s work is of no further interest to the Client, because of the failure of Jones Lang LaSalle to correct the deficiency. All further damage claims are governed by section 6 below. b) The Client is required to report any obvious shortcomings in writing within two weeks of the completion of services. Should the Client be a merchant, patent defects shall be notified without undue delay and latent defects shall be notified without undue delay and in writing upon discovery. In any case, claims because of defects must be notified no later than six months after completion of services. If the Client fails to report errors in due time, any claim for correction of these deficiencies and all other claims because of the defect is excluded. c) Obvious errors, such as typing and arithmetical errors and deficiencies of form may be corrected by Jones Lang LaSalle at any time also with effect against third parties. Errors which are apt to question the results contained in Jones Lang LaSalle’s written report entitle Jones Lang LaSalle to withdraw such statements also with effect against any third party. In such cases Jones Lang LaSalle will first give the Client an opportunity to comment.
6 Liability and Disclosure of Information to Third Parties a) Jones Lang LaSalle only assumes unlimited liability – irrespective of the legal reason – for damage resulting from wilful or grossly negligent conduct caused by a legal representative, employee or vicarious agent (“Erfüllungsgehilfe”) of Jones Lang LaSalle. Otherwise, Jones Lang LaSalle’s liability for damage caused by Jones Lang LaSalle, its legal representatives, employees and vicarious agents – irrespective of the legal reason – shall be limited to a maximum total amount of € 7.5 million (in words: seven point five million euros), unless agreed otherwise by the Advisor and the Client. b) Any liability for lost profits shall be excluded. c) The aforementioned maximum liability amount shall also apply if the damage is based on various or several similar professional errors or an error that has resulted in different types of damage and/or if there is more than one claimant. d) If compensatory damage claims against Jones Lang LaSalle are excluded or limited, this shall also apply with regard to the personal liability of Jones Lang LaSalle's legal representatives and employees. e) The aforementioned exclusions and limitations of liability shall not apply to damages arising from injury to life, limb or health. f) The contractual remuneration has been determined on the basis of the performance and obligations specified in this Agreement. Jones Lang LaSalle's responsibilities under this Agreement and its performance shall be towards the Client exclusively. The results of the work executed by Jones Lang LaSalle shall remain confidential and are intended exclusively for the Client and only for the purposes specified in this Agreement. Any other use and, in particular, disclosure to third parties or other publications (disclosure to third parties) – including extracts – without Jones Lang LaSalle's prior written consent shall be prohibited. In the event of consent to disclosure to a third party, the Client agrees to notify the respective third parties in writing and to underline that Jones Lang LaSalle generally assumes no liability towards third parties for the work and services provided and that third parties may make no claims whatsoever against Jones Lang LaSalle on the basis of the work and services provided. The Client also agrees to indemnify Jones Lang LaSalle against any third party claims and associated costs asserted by third parties against Jones Lang LaSalle as a result of unauthorised disclosure or publication of the results of the work and services provided. "Third parties" in this context shall also include the Client's Affiliates. g) Jones Lang LaSalle may assume liability towards third parties for its valuation only if the relevant third party has accepted the limitation of liability set forth in section 6 and has accounted for the respective additional remuneration for the joint and several liability. h) Should Jones Lang LaSalle have assumed liability as against third parties for its valuation pursuant to section 6f) and 6g), this shall be done only on the basis of the following minimum fee rates per contract volume:
Market value resp. First party Second and Fair Value subsequent parties
For the first ten million 0.05% 0.02% per party euros
For the following 0.025% 0.01% per party ninety million euros
Thereafter 0.0125% 0.005% per party
The percentage rates set forth above shall be applied to the determined market value respectively fair value of the real estate, which is defined in § 2 of Jones Lang LaSalle's "General Principles for Preparing Valuations and Reports". The above-mentioned rates do not include value added tax and shall be no less than € 500 per designated additional party.
7 Restriction on Use and Copyright Protection a) The Client guarantees that the valuations, reports, plans, drafts, sketches, tables and calculations prepared by Jones Lang LaSalle as part of the contract shall be used only for the contractually agreed purposes and may not be published in individual cases without Jones Lang LaSalle's express consent. b) Should the work produced qualify for copyright protection, Jones Lang LaSalle shall remain the author. In such cases, the Client shall be granted a limited, irrevocable, exclusive and non-transferable licence to use the work produced.
8 Return of Documents
After settlement of all conditions agreed in the advisory, valuation or market research contract, Jones Lang LaSalle, on request of the Client, shall return all documents obtained from the Client in order to carry out the instruction. This does not apply to correspondence between the contractual parties and for copies made of the valuations, reports, plans, drafts, sketches, tables and calculations prepared as part of the contract as well as other documents, which Jones Lang LaSalle is legally bound to store or entitled to. The Advisor also has the right to make copies of these released documents for its files.
9 Confidentiality
Jones Lang LaSalle will treat all business and operational secrets of which it becomes aware in the context of the contract and that are recognisable as such and all information indicated to be confidential as confidential, as long as this information is not required by law or public authority. The Advisor will only divulge reports, valuations and other results containing such information to third parties with the consent of the Client, unless required by law or public authority.
10 Payment Conditions a) The agreed remuneration will be payable immediately upon issue of invoice without any deductions. b) If there is more than one client, they shall be jointly and severally liable. c) A set-off of claims of the Advisor for fees and payment of costs is only possible with an uncontested and legally recognised claim.
11 Miscellaneous a) Rights under the contractual relationship with the Advisor may be only assigned subject to its prior consent. b) The laws of the Federal Republic of Germany shall apply to the execution of all contracts relating to general advisory, valuation and/or market research services and all claims resulting thereof. c) If the contract has been awarded by a registered trader (“Vollkaufmann”), public-law legal entity or public-law fund, the place of jurisdiction is Frankfurt am Main. d) Should any individual clause of these Standard Terms of Business be deemed void, this will not affect the validity of any other parts of these Standard Terms of Business. The invalid provisions shall be replaced by that which lawfully most closely reflects the desired purpose. e) All amounts mentioned above are in euros and shall be subject to the legally valid Value Added Tax at the time of the work was executed, unless explicitly excluded. f) A copy of the internal complaints handling procedure can be made available on request.
Andrew m. Groom MRICS Nicoline Dechamps MRICS International Director Principal Consultant Wilhelm-Leuschner-Straße 78 Wilhelm-Leuschner-Straße 78 60329 Frankfurt/M. 60329 Frankfurt/M.
+ 49 (0) 69 2003 1241 + 49 (0) 69 2003 1193 [email protected] [email protected]