1. Presentation Valuation Methodology in Russia Chris Dryden Regional Valuations Director

2. Investors’ Concerns “a lack of trust in the integrity of the process” “misleading statements” “a lack of transparency”

3. Investors’ Concerns  Different methodologies  Assumptions that do not reflect the position at the date of valuation  Special assumptions that are not “realistic, relevant and valid”  Ownership and acquisition of rights  Planning  Future over supply  Valuation vs. Purchase Price  Off-site infrastructure and utility costs  Construction cost inflation  Valuation of minority interests

4. Emphasis on IPO reporting I.Properties Held as Investments II.Developments in the Course of Construction III.Development Land In all cases, we are assessing Market Value.

5. I. Property Held as Investment  Rent & Yield approach  Historically, values generated purely off initial yield  Rental growth, particularly for offices, has resulted in the need to appraise off equivalent yield  DCF valuation approach still prevalent in Russian market. Potential issue with forecasting of exit capitalization yield

6. Yield terminology In all cases, Rents are Net Operating Income, expressed gross of costs. Initial Yield Reversionary Yield = Estimated Rental Value (Market Rent) / Value or Price Paid; Current Rent / Value or Price Paid; = Equivalent Yield = Growth implicit IRR of a changing income stream over time; Running Yield= AnnualRent / Value or Price Paid

7. Price, Value and Worth Price: The price achieved in the sale / purchase of property(ies). Value: An estimate of the price at which a transaction for an asset would take place in the market. Worth: An estimate of the worth to an individual which takes account of his/her individual assessment of the property variables, and also the investor's own required return and other relevant factors. i.e. NOT a Valuation.

8. II. Valuation in the Course of Construction  In balance sheets, typically you will see Value expressed as price of land plus costs to date of valuation  Alternative Market Value is to calculate Gross development value and subtract outstanding costs, including cost of finance, plus element of Developer Profit  Developer Profit level will be influenced by construction and occupational risk as at date of Valuation

9. III. Development Land Day One Residual or DCF? A day one residual adopts assumptions that are fully supportable as at the date of valuation Main Value Drivers:- 1.Rent/Sale price 2.Capitalization Rate 3.Construction costs (including infrastructure &utilities) 4.City Share 5.Developer Profit 6.Finance

10. III. Development Land DCF:- Main Value drivers as for Residual approach, but additionally:- 1. Rental/Sales Price Growth 2. Cost Growth 3. Discount Rate 4. Exit Capitalization Rate Therefore, inherently additional risk in DCF. Robust due diligence is required prior to forecasting real growth.

11. Investors’ Concerns “a lack of trust in the integrity of the process” “misleading statements” “a lack of transparency”

12. Investors’ Concerns  Different methodologies  Assumptions that do not reflect the position at the date of valuation  Special assumptions that are not “realistic, relevant and valid”  Ownership and acquisition of rights  Planning  Future over supply  Valuation vs. Purchase Price  Off-site infrastructure and utility costs  Construction cost inflation  Valuation of minority interests