valuation report · valuators’ conclusions and presumptions that were based to market...

Newsec Valuations

VALUATION REPORT

No.: EE-14-03-28-278

LAND PLOT FOR DEVELOPMENT

Paldiski road 70c, Tallinn, Estonia

2014 03 31

Newsec | Lithuania, Latvia, Estonia, Finland, Sweden, Norway, Kaliningrad (Russia)

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TABLE OF CONTENTS

VALUATION CERTIFICATE ................................................................................................................... 3

Summary ............................................................................................................................................ 3 Objective ............................................................................................................................................. 4 Client .................................................................................................................................................. 4 Valuer ................................................................................................................................................. 4 Date of the valuation and date of report ............................................................................................. 4 Purpose of the valuation ..................................................................................................................... 5 Compliance with Valuation Standards ............................................................................................... 5 Basis of the value ............................................................................................................................... 5 Extent of investigation and inspections .............................................................................................. 5 Nature and source of information ....................................................................................................... 6 Conflict of Interest .............................................................................................................................. 6 Valuation methodology and selection of valuation approach ............................................................. 6 Valuation assumptions, special assumptions and circumstances ..................................................... 8 Servitudes and other encumbrances ................................................................................................. 8 Town Planning, Structure, Site and Contamination ........................................................................... 8 Restriction on use, distribution or publication ..................................................................................... 9 General Principles .............................................................................................................................. 9 Valuation ........................................................................................................................................... 10 Signature(s) ...................................................................................................................................... 11

APPENDIX 1: Market report ................................................................................................................ 12

Macro review .................................................................................................................................... 12 General economic situation .............................................................................................................. 14 Land market of Harju County ........................................................................................................... 18 Tallinn Residential Market review..................................................................................................... 19 Investments (Baltics) ........................................................................................................................ 25

APPENDIX 2: Property report ............................................................................................................. 30

General information and Legal status .............................................................................................. 30 Location ............................................................................................................................................ 30 Land description ............................................................................................................................... 33 The main parameters of projected construction .............................................................................. 34 Highest and the best use of the property ......................................................................................... 35 (Expected) rating of property ............................................................................................................ 35

APPENDIX 3: Valuation ....................................................................................................................... 36

Valuation process and selected methodology .................................................................................. 36 Valuation by the Residual Approach ................................................................................................ 36 Sensitivity analysis ........................................................................................................................... 50 Valuation according to Sales Comparison Approach ....................................................................... 50 Valuation conclusion ........................................................................................................................ 53 Signature(s) ...................................................................................................................................... 54

APPENDIX 4: Residual Model............................................................................................................. 55

APPENDIX 5: Sales Comparison Model ............................................................................................ 59

APPENDIX 6: Pictures of the Property .............................................................................................. 63

APPENDIX 7: Other support Information .......................................................................................... 65


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VALUATION CERTIFICATE

Summary

The purpose of this valuation report is to present and appraise the properties known as land for development “Koldekodu”, located at the address Paldiski Rd. 70c, Tallinn, Estonia, currently owned by Kolde AS. Within the framework of this assignment, NEWSEC VALUATIONS EE is acted for the client as in the capacity of external valuators (IVS). The valuation required for the purposes of the Secondary Public Offering of the shares of AS Arco Vara on OMX Tallinn Stock Exchange (the IPO). The valuation is to be undertaken on basis of Market Value in accordance with the RICS valuation standards, International valuation Standards (IVS) and Estonian valuations standards (EVS-875) as an equivalent for the valuations on the local market. Valuation Certificate contains general information regarding methodology, limitations and disclaimers of the valuation, also legal characteristics of the property. Estimated Market Value of the property “as is” on the date of valuation (March 27

th 2014) is

EUR 2,130,000 (two million and one hundred thirty thousand euro) The value opinion reported above is qualified by certain assumptions, limiting conditions, certifications, and definitions, which are set forth in the report. We particularly call your attention to the following special assumption. An assumption that either assumes facts that differ from the actual facts existing at the valuation date or that would not be made by a typical market participant in a transaction on the valuation date. Based on the Client request, we have been instructed to develop an opinion of Market Value of the property, subject to the special assumption, “as approved” considering hypothetical condition that the detail planning is approved. Based on our complete valuation we have developed an opinion that the Market Value of the property, subject to the special assumption “as approved”, on the date of valuation (March 27

th

2014) is EUR 2,650,000 (two million and six hundred fifty thousand euro) Property that is being valued – land for development “Koldekodu” (total land area 28,498 sq.m and projected gross building area above ground 32,000 sqm), located in Haabersti administrative district close to the Stroomi beach. Property valuation refers on possible future sales income (development of the residential buildings – blocks of flats), constructional and other expenses on the property based on valuators’ conclusions and presumptions that were based to market conjuncture. Residual method and Sale comparison method were used for estimation of Market Value of the property. Detailed calculations of the Market value by these methods are set in the appendixes of the report. The property was inspected and report was prepared by Aleksander Sibul, MRICS. Our valuation is exclusive of any Value Added Tax.


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Objective

In accordance with instructions received from Arco Vara AS, we have been instructed to do a valuation of the properties known as land for development “Koldekodu”, located at the address Paldiski Rd. 70c, Tallinn, Estonia. The property is registered in the Real Estate Registry of Estonia under following property data:

Land plot – 28,498 sqm

Unique No. – 23279901

Cadastral No. – 78406:601:0043

Property rights – freehold

Ownership – AS Kolde (Reg. No. 10423374)

Client

The client of the valuation is AS Arco Vara (Status - Joint Stock Company; address – Jõe 2B, 10151, Tallinn, Estonia; company reg. code – 10261718; data collected in Register of Legal Entities of Estonia).

Valuer

The valuer Aleksander Sibul is approved by Property Valuation Institute of the Republic of Estonia as Certified Valuator (certificate no VH171211) and also by Royal Institution of Chartered Surveyors (RICS) as Chartered Surveyor (Membership No. 1301782). Valuer confirms that is in a position to provide an objective and unbiased valuation and is competent to undertake the subject valuation assignment; Valuer confirms that has sufficient current local, national and international (as appropriate) knowledge of the particular market and the skills and understanding to undertake subject valuation competently. Within the framework of this assignment, Valuer is acted for the client as in the capacity of external valuators (IVS). The Valuer hereby declares that this valuation is carried out in line with the ethical standards of the Royal Institution of Chartered Surveyors (RICS) and the valuators have no direct interest in the property or the company owning it.

OÜ “NEWSEC VALUATIONS EE” Address: Roseni 7, 101111 Tallinn, Bank account: EE192200221049294915 Estonia Bank: Swedbank Tel.: +372 6645090 Bank code: HABAEE2X Fax.: + 372 6645091 Company code: 11930446

VAT payer code: EE101366122

Date of the valuation and date of report

The date of the valuation is 27th March 2014 and the date of report is 31

st March, 2014.


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Purpose of the valuation

The purpose of this valuation is based on the client’s valuation instructions as follows - The valuation required for the purposes of the Secondary Public Offering of the shares of AS Arco Vara on OMX Tallinn Stock Exchange (the IPO).

Compliance with Valuation Standards

Valuer has prepared a full valuation of the property in accordance with the Royal Institution of Chartered Surveyors (RICS) Valuation – Professional Standards 2014 – including the International Valuation Standards and Estonian Valuation Standards (EVS-875) as an equivalent basis on the local market, including inspection of the property and a detailed market survey.

Basis of the value

We as assessing the Market Value of the property in accordance with the Practice Statements and Relevant Guidance Notes of the RICS Appraisal and Valuation and approved by both the International Valuation Standards Committee (IVSC) and The European Group of Valuers’ Association (TEGoVA) as follows:

“Market Value – 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” (RICS, 2014, IVS 2013)

The Market Rent is also defined according to the manuals of the above mentioned associations as follows:

“Market Rent – 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 each acted knowledgeably, prudently and without compulsion” (RICS, 2014, IVS 2013)

Extent of investigation and inspections

This valuation report contains market overview and detail analysis with estimation of Market Value of the subject Property. Note – due to specific nature and safety requirement internal inspection of Electricity substation was not possible. Property valuation by Residual method refers on possible future sales income (development of the residential buildings – blocks of flats), constructional and other expenses on the property based on valuators’ conclusions and presumptions that were based to market conjuncture. Each of the property specific factors that influence respective cash flows, sale comparison adjustment analysis and market value were evaluated.


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Residual method and Sale comparison method were used for estimation of Market Value of the property. Detailed calculations of the Market value by these methods are set in the appendixes of the report. Property was inspected on 27

th March, 2014. Property was inspected by the valuer Aleksander Sibul,

MRICS, Estonian licensed valuator. The inspection was not conducted by Client representative side.

Nature and source of information

For the purpose of this report we have been provided by Client with the following documents / information:

a) General description of property received from Client representative Tarmo Sild b) Location figure c) Detail planning main figure d) Environmental analysis figure

Valuer has also used various publicly available information

1 as well as OU “NEWSEC VALUATIONS EE” data base. Valuer has in general relied on this information to be accurate and has generally not found any reason to believe otherwise, using this information as basis for our valuation. Our report is therefore using this information as basis for our valuation.

Conflict of Interest

Hereby valuators declare that they, nor Newsec as legal entities, do not have any conflict of interest while performing valuation of the subject property, and benefit from the valuation process only through receiving a fixed pre-agreed fee from the Client. Fee received by the valuator for valuation procedure is not related to the valuation results.

Valuation methodology and selection of valuation approach

There are four methods, generally used for estimation of value: 1. Replacement value (cost) approach 2. Comparative value (sales comparison) approach; 3. Operating income (income capitalization or discounted cash flows) approach; 4. Residual value approach;

Replacement value (cost) approach is based on an assumption that a knowledgeable buyer will not pay for the same substitute property more than the amount necessary to create such property. This approach is particularly applicable when the subject property is related with relatively new buildings/constructions that reflect the highest or best use of the land lot or when the buildings/constructions on the land lot are relatively unique or specialized and the market has a limited supply of comparable properties. Under the replacement approach to value, the value of land is established by considering comparable sales transactions. The replacement value of buildings/constructions is determined on the basis of typical sources, first of all details supplies by local professional construction companies and accepted national price-fixing measures. In some cases, the application of this approach is based on the construction cost

1 Estonian Internet public resources: (www.ehr.ee; www.maaamet.ee; https://kinnistusraamat.rik.ee; http://www.fin.ee)


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of the subject property and information about the construction costs of similar buildings, less the accrued depreciation amount calculated with reference to data obtained from all sources. Then the additional value of land is added to the replacement value of buildings/constructions less depreciation amount to reflect the value of the subject property under the replacement value approach. Comparable value (sales comparison) approach relies on search for recent sales transactions involving comparable property and analysis of data related to the subject property. This approach is based on the price paid in actual market transactions over comparable properties to derive the market price of the subject property. This property valuation approach relies on data on fully comparable sales transactions concluded over a relatively long period of time that reflect the market conditions related to the subject property. Applying the sales comparison approach to value, the data interrelation allows determining the value of the subject property considering certain adjustments in view of the physical and economical characteristics of the property. The sales comparison approach is used to determine the specified sales price of a comparable unit. Operating income (income capitalization of discounted cash flow) approach is normally applied to establish the value of income-generating properties to be acquired by an investor. This approach also relies on market data that are used to determine the current economical volumes of rent rates and expenses that form the basis of the estimated net income. Depending on the purpose of the subject property, the specifics of its operation and the character of cash flow as well as the typical expectations of buyers and sellers on the market, the appraiser may adopt the capitalization approach to value. Under the direct capitalization approach, the value is calculated by dividing the net income (profit) by a capitalization rate. When the discounted cash flow approach is applied, the value of the property is calculated by summing up the present values of future cash flows, discounted at a discount rate. Both the direct capitalization and the discounted cash flow approach are used to determine the market value. Using the operating income (income capitalization or discounted cash flow) approach to value, first of all, one must consider the overall income, from which the respective amounts are subtracted considering the losses for vacancies and levies, expenses and provisions. The resulting net income is capitalized or discounted at a specific rate, which is proportional to the risks related to the title to the subject property. Under the direct capitalization approach, income and expenses of one year are stabilized and the net resulting operating income is capitalized at a capitalization or return rate in proportion to the title to the subject property. Such income capitalization considers the competitive return resulting from alternative instruments of investment into real estate or other property. The baseline assumption of this approach is that the forecast cash flow will be available for an unlimited duration in time, however this statement is usually not the case when it comes to compound investments into real estate. Residual approach, for the purpose of evaluation of projects under development, the residual value method is used. This method is applied to establish the value of a vacant land site or of a land site and buildings that are prepared for redevelopment. Market Value according to Residual method generally is used to evaluate properties with possible future development. According to this method construction costs and other expenses for development of property together with assumed allowance for developer’s profit, sale incomes after development are being calculated. Selection of valuation approach

To evaluate the subject property Valuer is taking into account Detail planning basic figures and applied the Residual Valuation Approach. The Sales comparison approach was also chosen for estimation of


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Market Value of the property for secures the final conclusion. Detailed calculations of the Market Values by these methods are set in the appendixes of the report.

Valuation assumptions, special assumptions and circumstances

That the project will be completed and that valid unconditional confirmation is granted by all relevant authorities including planning, building and user permits/ licenses and tenant approvals have been granted. In respect of the land plot freehold property, usual landlord’s fixtures a utilities facilities as central heating and water supply pipelines, electrical cables, drainage and any other site improvements have been treated as an integral part of the land and are included within the asset valued. Any mortgage registered on the property is not considered in valuation and not effect on final market value conclusion. We have received general title information from AS Arco Vara and our valuation has been based on the information supplied to us. Special assumption

We particularly call your attention to the following special assumption. An assumption that either assumes facts that differ from the actual facts existing at the valuation date or that would not be made by a typical market participant in a transaction on the valuation date. Based on the Client request, we have been instructed to develop an opinion of Market Value of the property, subject to the special assumption, “as approved” considering hypothetical condition that the detail planning is approved.

Servitudes and other encumbrances

There are some encumbrances registered on the property (listed in the Report), but they are assumed not to have any effect on our valuation of the property. Our valuation is on the above basis and assumes that there registered on the property that may affect the value so that the property possesses a good and marketable title, free from restrictions, covenants or other encumbrances.

Town Planning, Structure, Site and Contamination

Our valuation is on the basis that the property is not affected by proposals for road widening or Compulsory Purchase. We have in our investigations not found any evidence of any plans. We have assumed that the property has been erected in accordance with valid planning permissions and are being occupied and used without any breach of that. We have not had access to detailed planning of the Municipality but have assumed, that property has been approved by local authorities and are used in accordance with existing legislation and planning. We have neither carried out a structural survey of the property, nor tested any services or other plant or machinery. We are therefore unable to give any opinion on the condition of the structure and services.


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However, our valuation takes into account any information supplied to us and any defects noted during our inspection. Otherwise, our valuation is on the basis that there are no latent defects, wants of repair or other matters which would materially affect our valuation. We have not investigated the presence or absence of High Alumina Cement, Calcium Chloride, Asbestos and other deleterious materials. In the absence of information to the contrary, our valuation is on the basis that no hazardous or suspect materials and techniques have been used in the construction of the property. We have not investigated ground conditions / stability and, unless advised to the contrary, our valuation is on the basis that all buildings have been constructed, having appropriate regard to existing ground conditions. We have not carried out any investigations or tests, nor been supplied with any information from you or from any relevant expert that determines the presence or otherwise of pollution or contaminative substances in the subject or any other land (including any ground water). Accordingly, our valuation has been prepared on the basis that there are no such matters that would materially affect our valuation. Should this basis be unacceptable to you or should you wish to verify that this basis is correct, you should have appropriate investigations made and refer the results to us so that we can review our valuation.

Restriction on use, distribution or publication

This valuation report is prepared for above indicated purposes and it cannot be considered as a basis for a decision on the purchase, sale or lease. This report does not include property under valuation technical, legal, financial or economical audit points. The conclusion of property under valuation market value is not compulsory to the Client and other third parties for decisions making related to the property under valuation. This report is a confidential document prepared for a Client. Full valuation report, a part or citation of it cannot be published in public documents, notes, petitions or be publicized in other way without Valuer’s written permission, except for a purpose of valuation, indicated in valuation report. Valuer does not assume responsibility if this report is used by other persons for before-mentioned or other purposes. This valuation report belongs to the Client. All copyrights to the valuation report belong to Valuer. Valuer and Client keep this report as a confidential document. Having this report or a copy of it does not enable to copy or distribute this report or a part of it without Valuer’s written permission for concrete publication, citation or reference to it, except report submission to the third parties or publication for a purpose of valuation and Republic of Estonia property valuation basis law’s substitution provided case. Valuer does not assume responsibility in cases, than after valuation report preparation emerge or do not emerge juridical facts related to the property under valuation or its legal status, including Client’s incapability to make actions with property. Valuer does not assume responsibility in cases, when, after valuation report preparation, the documents, provided to the Valuer, become invalid, because they were prepared in contravention with the law. Valuer does not assume responsibility for Client and / or the Owner of the property actions, related to the property under valuation, and for other cases, except cases stated in law.

General Principles

Our valuation is based on the information, which we have obtained from the Client. We have relied on this being correct and complete and on there being no undisclosed matters which would affect our valuation.


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No allowances have been made for any expenses of realization or any taxation liability arising from a sale or development of the property. Where grants have been received, no allowance has been made in our valuation for any requirement to repay the grant in the event of a sale of the property. Our valuation is exclusive of any Value Added Tax.

Valuation

Subject to the foregoing, and based on values current as at 27th March, 2014 (date of valuation), we are

of the opinion that the Market Value of the property “as is” as set out in Report, is the total sum of

(EUR 2,130,000)

In letters: two million and one hundred thirty thousand euro

Based on recent market situation, as well as discussion with market participants, a sale of the subject property at the above statement opinion of market value would have required an exposure time of approximately 8 - 12 months. Furthermore, a marketing period of approximately (4) months is currently warranted for the subject property. Based on our complete valuation we have developed an opinion that the Market Value of the property, subject to the special assumption “as approved”, on the date of valuation at March 27

th 2014 is

(EUR 2,650,000)

In letters: two million and six hundred fifty thousand euro

The contents of this Valuation Certificate and Report are intended to be confidential to the addressees and for the specific purpose stated. Consequently, and in accordance with current practice, no responsibility is accepted to any other party in respect of the whole or any part of its contents. Before the Valuation Certificate or Report or any part of its contents are reproduced or referred to in any document, circular or statement or disclosed orally to a third party, our written approval as to the form and content of such publication or disclosure must first be obtained. For avoidance of doubt, such approval is required whether or not this firm is referred to by name and whether or not our Valuation Certificate or Report is combined with others. Probability of changes

The losses valuated in this report were estimated as of the presumptive data. Constantly changing market situation, country mortgage politic, economic, social, political and physical conditions have varying effects upon real property value. Even after the passage of a relatively short or mid-term period of time, property value may change substantially and require a review based on differing market conditions.


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Signature(s)

The date of Valuation Report: 31st March, 2014

Report compiler:

Aleksander Sibul, MRICS Senior Valuator (Estonia), Newsec Valuations EE OÜ


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APPENDIX 1: Market report

Macro review

Location and Territory

Borders Russian Federation to the East (290 km) Latvia to the South (266 km) Gulf of Finland to the North and West

Area 45,228 sq. km

Politics

Type of Government Parliamentary Republic

Legislative Body Parliament (Riigikogu), which has 101 members elected for a four-year term

Head of the State President, who is elected directly for a five-year term. Since October, 2006 the President of Estonia is Toomas Hendrik Ilves.

International Membership

Full member of NATO and the EU from 2004; member of Organization for Security and Cooperation in Europe (OSCE). As an OSCE participating State, Estonia’s international commitments are subject to monitoring under the mandate of the U.S. Helsinki Commission.


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Currency

Currency 1 EUR = 100 Euro cents

Peg Estonia has adopted EURO since January the 1st 2011.

Population

Population 1,340,021 inhabitants

Density 29 people per sq. km

Urban Population 70 % Source: Statistics Estonia

Total population of Estonia is declining, being decreased during last decade by almost 6%. Natural increase of population is negative (excluding Tallinn), emigration is growing. Another alarming aspect is ageing: on the background of decline in total number of inhabitants, number of people over 60 years old (making up 23% of the population of Estonia) grows at over 1% p.a. Share of inhabitants in the age of 20-50 years (potential home-buyers, able to finance home-purchase with bank loan) is ca 40%, and this segment of population grows slower if compared to the elder segment. Major Cities

Area, sq. km Population2

Tallinn 159 395,392

Tartu 39 95,426

Narva 85 61,724

Kohtla-Järve 42 38,656

Pärnu 32 41,173 Source: Statistics Estonia

Note: Changes in administrative division. Together with the population number as of 1 January 2013, the new data also for 1 January 2012 (incl. migration) was published. The indicators for 2000-2012 and 2012*-2013 have been calculated using different data sources (2000 and 2011 Population Census), for

2 Based on Statistic Estonian Data for 2013.

396010 396193

396852 397617

398594 399340

400292 401072

393231

395392

2005 2006 2007 2008 2009 2010 2011 2012 2012* 2013

Tallinn population dynamics (as of 01.01.)


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which reason they are not comparable with each other. Statistics Estonia has started to adjust the population number during the years between the two censuses, in the course of which the under coverage of the 2011 as well as of the 2000 Population Censuses will be eliminated. The revised population figures between the population censuses for the years 2000–2013 will be published during the 1st quarter of 2014. 2012 - based on 2000 Population Census and 2012* - based on 2011 Population Census. The data on Tallinn for 2013 have been revised in June 2013. Tallinn, the capital of Estonia, is the largest city of the country as well as its political, commercial, and cultural centre. In addition to long-time functions as seaport and capital city, Tallinn has seen development of an information technology sector in recent years. The New York Times characterized Estonia in December 2005 as "a sort of Silicon Valley on the Baltic Sea". The most important economic sectors of Tallinn are the light, textile, and food industry, as well as the service and government sector. Harju County, surrounding Tallinn, generates almost 60% of the country’s GDP. The second largest city of Estonia is Tartu, producing 8% of the total GDP in the country. Tartu is considered the intellectual and cultural hub, especially since it is home to Estonia's oldest and most renowned university, which is one of the largest employers. Many ICT enterprises and other high-tech companies have offices in Tartu (for example Skype). Narva is the third largest city in Estonia. It is located at the eastern extreme point of Estonia, by the Russian board. Kohtla-Järve is highly industrial, and both processes oil shale and are a large producer of various petroleum products. Pärnu is a popular summer vacation resort with many hotels, restaurants and large beaches. It is situated on the coast of Pärnu Bay, an inlet of the Gulf of Riga in the Baltic Sea.

General economic situation

The most significant event for Estonian economy was entering Euro-zone since the 1st January 2011,

which means simplification of mutual payments with other Euro-zone countries and increase in attractiveness of Estonia for foreign investors. Estonia was successful in coming over financial crisis based on a balanced state budget, liberal trade and investment laws. Significant GDP growth of 2011 (+ 10% y-o-y) was followed by rather moderate growth of 4% in 2012. In 2013 slowdown in Estonian GDP growth rate has continued. As a result of the 1

st half of

2013, Estonian economy growth rate made up only 1.5% compared to the same period of 2012. Result of the 3

rd quarter was even weaker (+ 0.4%). This was caused mainly by weak foreign demand (as a

consequence of lack of confidence in Euro-zone) and decreased VAT receipt. Further developments in Estonian gross domestic product are dependent on solutions in Euro-zone. According to the autumn 2013 forecast by Newsec, the Estonian economy will grow by approximately 1.3% in 2013 (we have reduced our forecast compared to previous 2.0 – 2.5%). In 2014 - 2017 Estonian economic growth is expected to be in range from 3.5 to 2.5%.


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Source: Statistics Estonia, Newsec, Estimation

On the background of weakening foreign demand, Estonian GDP growth was driven by domestic demand. According to Statistics Estonia data, retail sales made up 3.9 billion euros in 2011, which means 10% growth compared to 2010. Growth continued in 2012 at the same rate, followed by decrease of growth rate to 6% as a result of the 1

st half of 2013. If growth of 2011 was driven by food segment, then in

2012 leading role was taken over by clothes and footwear sales. As of the 1st half of 2013, retail sales

growth in clothes retail segment was zero. As a result of 2013, Newsec forecasts 7% increase in Estonian retail sales, driven by food and beverage sales.


After three years of consequent decrease, Estonian private consumption grew in 2011 and 2012 by 3.5% and 4.4%, respectively. In the nearest years private consumption growth rate is expected to remain to the level of approximately 4%. According to Statistics Estonia, inflation enhanced since 2011: consumer price

-20%

-15%

-10%

-5%

0%

5%

10%

15%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E2014E2015E

Estonian GDP dynamics

GDP, m EUR GDP change (y-o-y)

Retail trade | Estonia

-30%

-20%

-10%

0%

10%

20%

30%

40%

2007 2008 2009 2010 2011 2012 2013E

Yearly change, %

Retail trade, excl. motovehicles Food and beverage Clothing and footware


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index accounted for 5.1% in 2011 and 3.9% in 2012. Since 2013, inflation is expected to stabilize at 3.2 - 2.7%.


On the background of overall situation in Euro-zone, Estonian official labour market data looks comparatively optimistic. Started growth in 2008, unemployment achieved almost 17% in 2010. Already in 2011 unemployment rate started descending to 12.5%, this trend continued in 2012 with 10.2%. Further improvement is expected in 2013 (8%), and beyond, but not below 7.5%. After two consequent years of descending (2009 and 2010), average monthly gross wage turned to growth again in 2011. According to Statistics Estonia, in 2012 gross average wage made up 914 EUR per month in private sector and 1,039 EUR per month in public sectors, which is 5% and 6% above the numbers of 2011, respectively. Gross wage growth rate is expected to persist in 2013 at 6 - 7%.

Source: Statistics Estonia

-20

-15

-10

-5

0

5

10

15

2007 2008 2009 2010 2011 2012 2013E

%

Inflation and private consumption | Estonia

Inflation (yearly average %) Private consumption (% growth)

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

0

200

400

600

800

1,000

1,200

2007 2008 2009 2010 2011 2012

Gross avg EUR/month

Wages and Salaries I Estonia

Public sector Private sector

Public sector growth %, yoy Private sector growth %, yoy


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According to Statistics Estonia, in 2012 the exports of goods from Estonia at current prices totalled at 12.5 billion euros and imports 13.8 billion euros. That means significant descending in growth rate compared to 2010 and 2011 (y-o-y change in 2012 at + 4.2% and + 5.8% in exports and imports, respectively). Due to continuous turbulence in Euro-zone resulting in decreased foreign demand, as a result of 9 months 2013 Estonian exports volume have decreased by 1.5% compared to the same period of 2012. Decrease in imports accounted for 0.3%. As of total 2013, exports and imports volumes are expected to decrease by 2% and 1%, respectively. The most important partners of Estonia in exports in 2013 are continuously Finland, Sweden and Russia.


Remarkable revival in property investment market confirms increased interest towards Estonian from the

side of foreign investors, caused by adopting Euro and economic stabilization.

In 2012, total amount of FDI in Estonia came over the record level of 2010 (after the crisis), having been achieved 14.6 billion EUR (increase by almost 12% compared to 2011). FDI volume is expected to continue its’ moderate growth beyond 2012 due to positive development of Estonian economy on the background of other countries of Euro-zone. In 2013 growth rate is expected to slowdown, remaining though positive. In monetary terms volume of FDI is expected to come over 15 billion EUR.

0

2000

4000

6000

8000

10000

12000

14000

16000

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

2007 2008 2009 2010 2011 2012 2013E

mEUR Exports and imports | Estonia

Exports Imports Exports growth, % yoy Imports growth, % yoy


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Source: Bank of Estonia, Newsec, Estimation

Land market of Harju County

Demand Massive drawback has arrived to land market of Harju County (incl. Tallinn) in 2007, when number of transactions dropped more than twice compared to previous year (from 397 transactions per month to 176). Although this is best location in Estonia, number of transactions remains below 2,000 annually. In 2008 decline in the market continued. In 2009 number of transactions increased by 7%, but in 2010 „bottom“ has been reached in this region: below 100 transactions were concluded monthly. Although market activity increased in 2011 by half, in 2012 new decline arrived. Number of land transactions concluded in this area was by 14% over the indicator of 2012.

Source: Estonian Land Board

Approximately 40% of all land transactions in Harju County are concluded with agricultural land. One third of transactions are residential land transactions. Below 3% of all transactions are concluded with

-5

0

5

10

15

20

02,0004,0006,0008,000

10,00012,00014,00016,00018,000

2007 2008 2009 2010 2011 2012 2013E

Percent m EUR Foreign Direct Investments I Estonia

FDI, million EUR Growth

3 095

4 4624 769

2 116

1 491 1 5941 185

1 801 1 6831 912

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Total number of land transactions in Harju County


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industrial and 1,6% - with commercial land. If commercial land market activity has been stable during last four years (ca 30 transactions per year), then number of industrial land transactions in 2013 (56 transactions) was the highest since 2006, when 115 transactions were concluded. Supply

Source: http://kv.ee/

Number of land plots offered for sale at real estate web www.kv.ee was the highest in Tallinn in summer 2008 (ca 550 units). By the end of same year supply dropped to 500-le. Until early 2012, 400 – 450 plots were on sale in Tallinn. In 2012 growth has started again.

Tallinn Residential Market review

Estonian residential market is driven to certain extent by Tallinn market, were almost half of the total number transactions is concluded. Apartments market activity peaked in Estonia in 2005 – 2006, having been achieved over 2,300 transactions per month (of which ca 1,100 in Tallinn). After dramatic downfall started in 2007, the market has started moderate recovery in 2010. After small drawback in 2011 caused by “Euro-shock” and turbulence in Euro-zone, upwards movement in terms of number of transactions concluded continued in 2012. Transaction activity growth compared to 2011 made up 21%, followed by another year of strong growth (+15%) in 2013. Thus, market activity climbed over the level of 2008, making up 77% of pre-crisis level. In the 1

st quarter of 2013 transaction activity growth continued, but at

smaller scale: forecasted is +2% in Tallinn and +4% in Estonia in total (y-o-y).


0100200300400500600700

Number of offers - Tallinn

0

200

400

600

800

1000

1200

1400

1600

1800

0

5000

10000

15000

20000

25000

30000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013IQ 2014(f)

Number and total value of transactions with apartments in Estonia

nr. of transactions (left scale) total value, m EUR (right scale)


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Total value of transactions with apartments closed in Estonia during 2013 came at EUR 885 million, which means 33% increase compared to 2012 (after 26% growth in 2012). This makes up almost 60% of the number of pre-crisis year 2007. Increase in total value of transactions with apartments continued in early 2014 at the same level.


Based on number of transactions with apartments, higher market activity compared to the whole country is observed in Tallinn. Approximately 10% increase was observed in Tallinn as a result of in 2013 (after 23% in 2012), followed by only 2% y-o-y increase in the 1

st quarter of 2014.

Source: Estonian Land Board, Statistics Estonia

8,753

13,261 12,369 9,976

6,654 4,770 5,825 5,714

7,042 7,771

1713

19424

27800 28408

23320

15513

10458 12955 12858

15531 17889

3970

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 IQ2014(f)

Number of transactions with apartments in Tallinn

Tallinn Estonia

-50%-40%-30%-20%-10%0%10%20%30%40%50%60%

0

200

400

600

800

1000

1200

1400

2005 2006 2007 2008 2009 2010 2011 2012 2013 Iq2014(f)

EUR/sqm

Average apartment sqm price, its dynamics and CPI - Estonia

Average sqm price, EUR change in average price CPI


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If during the boom period apartment price growth rate was well above CPI, then during downturn period situation turned to the opposite. In 2010 average price growth was almost equal to CPI, which actually means zero growth rates. In 2011 and 2012 average price growth again was over inflation and has reached 10% per year. This was followed by 15% growth in 2013 (along with CPI on the level of 3%). Forecasted y-o-y average price growth in the 1st quarter of 2014 makes reaches over 20%.

Tallinn

Apartments market activity peaked in Tallinn in 2005 – 2006, being achieved 1,105 transactions in average per month. Decline has begun in 2007. In 2008 number of transactions with apartments decreased in Tallinn below level of 2004.


The year 2010 has become a turn-point, a beginning of new (although moderate) growth period: average number of transactions concluded with apartments increased by 22% compared to 2009. Period of 2010-2011 in number of transactions stayed rather stable at 5,800 – 5,700 transactions per year. It was two times less as compared to the peak-time of 2005 - 2006. Market activity increase during 2012 made up 23%. In 2013 number of transactions with apartments increased by 10% compared to 2013. Market activity is moving toward the “boom” level, being although restricted by deficit in certain segments.

8,753

13,261 12,369

9,976

6,654

4,770

5,825 5,714

7,042 7,771

1713

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 IQ2014(f)



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Source: http://spot.city24.ee/, Newsec

Since the 2

nd half of 2012, total apartments supply in Tallinn has started to decline, and this trend

continued in 2013. If in the end of June 2013 6,800 apartments were offered for sale, then as of the year-end this number decreased to ca 6,000. Apartment one sq.m asking price has turned to growth since the 2

nd half of 2011. During a 2012 average asking price increased in Tallinn by 7%, up to 1,360 EUR/sq.m.

Asking price growth trend has continued in 2013; as of end of year growth made up 14%, which means an asking price level of 1,546 EUR/sq.m.


After crisis, transaction prices have started moderate increase again in the beginning of 2011. In 2011 average apartment price in Tallinn accounted for 908 EUR/sq.m, which is by 4% over the level of 2010.

0

200

400

600

800

1000

1200

1400

1600

1800

2000

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

IHY 2009 IHY 2010 IHY 2011 IHY 2012 IHY 2013 IHY 2014(f)

EUR/sq.m

Apartments supply and average asking price in Tallinn

Supply, apartments (left scale) Asking price, EUR/sq.m (right scale)

0

200

400

600

800

1000

1200

1400

1600

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

Average apartment sqm price dynamics in Tallinn

Average sqm price, EUR Compared to previous quarter, %


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As of the 4

th quarter of 2012, average apartment sq.m price in Tallinn made up 1,010 EUR, which is by

5% over the price in the same period of 2011. In the beginning of 2013 positive trend has continued, and by the end year average price climbed to 1,249 EUR. After quiet beginning of 2011, which was caused by implementation of Euro, number of transactions concluded quarterly has started to increase again and stabilized in 2012.


Number of transactions concluded in Tallinn during the 2013 was by 10% over the number of 2012. In 2013, Tallinn apartments market demonstrated the highest activity in Lasnamäe and City Center (22% each), followed by Põhja-Tallinn (16%) and Mustamäe (17%). Most of new residential development projects are located in these districts.

0

50

100

150

200

250

300

350

400

450

500

IQ 2011 IIIQ 2011 IQ 2012 IIIQ 2012 IQ 2013 IIIQ 2013


City Center

Lasnamäe

Põhja-Tallinn

Mustamäe

Haabersti

Kristiine

Nõmme

Pirita


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In 2013, average apartment sq. m price growth made up in Tallinn almost 30% compared to 2012 (Dec-to-Dec). As of end of 2013, average sq. m price in Tallinn was 1,313 EUR/sq. m. Average sq.m price remains the highest in the City Center (which includes such highly valued areas as Old Town and Kadriorg). In the end of 2013 average price here accounted for 1,850 EUR/sq.m, having been increased by 18% compared to the December 2012. The highest y-o-y price growth rate (30%) was in Lasnamäe, caused by number of newly built apartments sold. As of end of 2013, average price in Lasnamäe achieved 1,085 EUR/sq. m. Apartment sq. m prices in Põhja-Tallinn, Mustamäe, Kristiine and Haabersti lie in range from 1,183 to 1,469 EUR/sq. m. In Pirita, apartment sq. m average price is the third highest after City Center and Kristiine (1,411 EUR/sq. m).

Source: Statistics Estonia

600

800

1,000

1,200

1,400

1,600

1,800

2,000

IQ 2011 IIIQ 2011 IQ 2012 IIIQ 2012 IQ 2013 IIIQ 2013

EUR/sqm

Average apartment prices in Tallinn

City Center

Lasnamäe

Põhja-Tallinn

Mustamäe

Haabersti

Kristiine

Nõmme

Pirita

0

200000

400000

600000

800000

1000000

1200000

1400000

2005 2006 2007 2008 2009 2010 2011 2012 2013

sqm

Apartments: construction permits issued and commissioned. Tallinn

construction permits issued commissioned buildings


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Residential construction volume peaked in Tallinn in 2007-2008, when over 180 ths. sq.m of apartments p.a. (2 500 – 3 000 flats) were commissioned per year. Since 2009 residential construction activity has started to shrink due to declined demand and later – due to rapid growth in construction price. Total area of apartments commissioned during 2012 made up only 1/4 of the total volume of 2007-2008. However, the year 2012 has become a turn-point, when volume of commissioned apartments (in sq. m) has turned to increase (+13% compared to 2011). As a result of 2013, volume of apartments commissioned has slightly decreased compared to the same period of 2012 (+7%). As of end 2013, approximately 900 new apartments were offered for sale in Tallinn. Currently, situation in the new apartments segment in Tallinn may be described rather as deficit; asking prices at favourable locations start from 2,000 EUR/sq.m. During one month ca 70 newly built apartments are sold in Tallinn. Growth is slowing down, developers are cautious

Major part of apartments located in the sleeping districts were bought by Estonian resident, however increasing number of upper class apartments in central location were bought by Finish retired people with higher purchasing power as save investment. Growth rate of average price of apartments in Tallinn peaked in 2005 - 2006, when y-o-y change made up to 25% and 57%, respectively. In 2007 average square meter price has achieved its highest value (over 1,500 EUR/sq. m). Since 2008 prices apartments have started to fall with most significant drawback of -39% in 2009. As of end of 2013, average apartment square meter price has achieved over 1,300 EUR. If during the “boom” years apartments were purchased mostly with loan financing, then in 2012 approximately half of transactions were carried out with 100% own-financing. In 2013 this rate came somewhat down. Caused by lack of new supply, average square meter price is expected to move up by at least 5 – 6% p.a. Market activity is expected to grow at the same rate in 2014. On the other hand, growth may not continue in medium prospective, as it is not supported neither by economic growth nor by increase in salaries. Although today there definitely is un-satisfied demand for new apartments, developers are cautious and rather sceptic towards potential payable demand for short to medium prospective.

Investments (Baltics)

All three Baltic countries have achieved long but good runs up the economic and market-recovery ladders and have become active EU members with continuously rising private consumption, which has made them more attractive to investors. International investors who were previously anxious about relatively small markets because of their economic situations, lower yields and lack of prime assets have become more and more interested in the Baltic real estate markets, which have proved well worth their attention. In the view of market instability in Southern European countries, Baltics are regarded among the safer investment options, with Estonia demonstrating the highest transaction activity among the Baltic countries. However, the Baltics are still a niche market with perceived low liquidity. Investment volume

In each of the three Baltic countries the overall transaction volume during the first half of 2013 was over EUR 100 million, thus exceeding the previous expectation of EUR 300 million for the combined Baltic area. Several more transactions are expected to be agreed by the end of the year, making the final figure around EUR 500 million – a level close to 2008. Expectations are even more positive for 2014, which is expected to be twice as active and to regain the level of around EUR 1 billion last seen in 2007.


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Source: Newsec * - Transactions exceeding 5 M EUR are included

Largest investment transactions in 2013

Buyer Seller Property Type City Value, mEUR

Technopolis Realco Alfa, Beta, Gama Office Vilnius 62.5

Lords LB Baltic Fund III

SMI Shopping centres Arena Retail Other cities

n/a

Capital Mill BPT Secura Zariju logistics centre Warehouse Vilnius n/a

Private investor Respektas Evita Office Vilnius n/a

Private investor BPT Optima Gostauto 40 Office Vilnius n/a

Danhaus LT Lords LB Baltic Fund I

Danske Bank HQ Office Vilnius n/a

Lords LB SMI Portfolio Mixed Other n/a

Capital Mill BPT Secura Valdemara office Office Riga n/a

East Capital Vicus Prisma Hypermarket Retail Riga n/a

BPT Baltic Opportunity

Sky Sky supermarket Retail Riga n/a

One Baltic Investment Group

Ektornet Dominante Park I Warehouse Riga 11.0

EfTEN Real Estate Fund

EPI Baltic I One retail asset and four industrial and logistic assets

Portfolio Other 30.5

Private Boultbee Sikupilli Prisma Retail Tallinn n/a

Eften Vicus Prisma Retail Narva n/a

Capital Mill BPT Secura Ravala 5 Office Tallinn n/a

EfTEN Real Estate and Esraven

Scandic Hotels AB

Scandic Palace Hotel Hotel Tallinn n/a


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Buyer Seller Property Type City Value, mEUR

BPT Baltic Opportunity Fund

Coca-Cola Plaza Entertainment Tallinn 9.9

Private XANO Industri AB

n/a Industrial Tallinn n/a

Selver BPT Optima Selver Retail Tartu n/a

Selver BPT Optima Selver Retail Valga n/a

Profile of investors

Nordic and Russian investors are currently the key players in the Baltic market. In terms of the new institutional investors to the Baltics – no big changes are expected in 2014. The markets are considered as a niche, with perceived lack of liquidity, thus the interest is limited to the Scandinavian countries, and select funds in other Western European countries. Properties qualifying for institutional investors are expected to be bought mainly by locally present funds (Baltic Property Trust, Lords LB, East Capital, Kawe Group). Yields

Average yields for prime retail and office assets in the Baltic capitals stand around 7.25 to 7.75%, with the most attractive properties lower by up to 75 basis points and secondary properties standing between 9 and 9.5%. Yields for prime logistic centres and warehouses vary between 8.25 and 9%.


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Source: Newsec, E - estimation


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Required Rate of Return of Investors Targeting the Baltic Market

The data below reflects the targeted ROE/IRR by the key commercial property investors that were targeting the Baltic and the CIS markets within the past several years and that can be characterized as core plus or opportunistic.

Asset Management

Company Fund Type of Fund

Type of Real Estate

Targeted ROE

Targeted IRR

Data as of

North Asset Management

Argo Real Estate Opportunities

Closed-ended Retail, logistics n/a 20% 2006

GILD Real Estate EEREIF Closed-ended Retail, office,

logistics

Target return: 15-20% p.a. after all fees

n/a 2005

Baltic Property Trust AM

BPT Arista S.A. SICAV-SIF

Closed-ended Retail, office,

logistics 11-15% n/a 2011


BPT Secura A/S Closed-ended Retail, office,

logistics 12,50% n/a 2004


BPT Optima Closed-ended Retail, office,



BPT Baltic opportunity

Closed-ended Retail, office,


Eften Capital Eften

Kinnisvarafond Closed-ended

Retail, office, logistics

20-25% (ROIC)

n/a 2008

Eften Capital Balti

Kinnisvaraportfell Closed-ended

Retail, office, logistics

>20% (ROIC) n/a 2003

LORDS LB Asset Management

Lords LB Baltic Fund I

Closed-ended Retail, office n/a 18-20% 2009


Lords LB Opportunity Fund I

Closed-ended Residential, commercial

n/a 18-20% 2010


Lords LB Baltic Fund II

Closed-ended Commercial n/a 20-25% 2011


Lords LB Opportunity Fund II

Closed-ended Residential, commercial

n/a 25% 2011


Lords LB Baltic Fund III

Closed-ended Commercial n/a 18% 2012


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APPENDIX 2: Property report

General information and Legal status

Property under valuation – land plot with total site area 28,498 sq.m 3

According to information provided on public register, subject property is a vacant land plot with industrial 100% land purposes. Site has started detail planning. The main goal of detail planning to change the initial land zoning into residential purposes for further development of apartments buildings. The property is registered in the Real Estate Registry of Estonia under following property data:

Project name / Address Paldiski Rd. 70c, Tallinn

Number of separate properties 1

Land size 28,498 sq.m

Land purpose Industrial 100%

Land cadastral No. 78406:601:0043

Land unique No. 23279901

Owner (name and ID) AS Kolde (10423374)

Land tenure Freehold

Encumbrances and Restriction None

Mortgages 4 In sum of 60,000,000 EEK in favor of AS LHV Pank

Location

Macro location

The property is located in the northern part of Estonia, in the capital city of the Republic of Estonia, Tallinn. Tallinn is no only the capital city, but also the centre of Estonian political and business life. The capital is the driving force for the country’s economy. The Parliament of Estonia, as well as most of the governmental institutions, representatives of international organizations and foreign embassies are located in Tallinn. The city hosts about half of all Estonian companies, which are responsible for approximately 50-60% of total country’s GDP and nearly ¾ of the total business profit. The economy to a large extent is affected by close relationships with Scandinavian countries, in particular Sweden and Finland, whose incoming flows have significant impact on Estonia’s retail and leisure market.

3 Data is based on Estonian Land Board public register

4 More Detailed information regarding of subject property mortgages is provided in the appendix of current report.


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Micro location


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The Subject Property is located in the NW part of Tallinn, Haabersti district, area.

Neighbouring well-known properties are: G4S office building, Meremetsa Hospital, Shool, Car centers, Merimetsa shopping center, Stroomi beach, Pelguranna park and other commercial, social and residential properties.

Residential area in the nearest vicinity next to Paldiski road. The object is located in approx. 4 km from CBD (central business district). The distance from the crossroads with the main roads of Mustamäe, Endla and Paldiski road is approx. 1,25 km. Access is good thought Pelguranna street with an individual, bus and trolleybus stops are at the distance of approx. 350 m. Distance to Stroomi beach is around 500 m.

Very good visibility from Pelguranna street and average from the Paldiski road.


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Land description

Area 28,498 sq.m

Plan

Purpose Industrial 100%

Zoning According to the Master plan of Tallinn city Haabersti district – zoning purposes on subject property area is designated as residential (EK) that is envisaged for block of flats contraction.

Master planning

Existing buildings / usage Vacant land, not used

Detail Plan Detail planning DP037720 is started at 26.06.2013


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Detail Plan scheme

Infrastructure Missing or presents insignificantly

Comments on encumbrances Valuer does not find current encumbrances influential for the valuation final decision.

Comments on quality of site Strategic location suit well for development of Residential complex of houses (block of flats)

The main parameters of projected construction 5

Property main factors Paldiski Rd. 70c

Gross building area (GBA) incl. GBA underground incl. GBA above ground

43,100 sq.m 11,100 sqm 32,000 sqm

GBA above 32,000 sqm Commercial 960 sqm Residential 31,040 sqm

Closed saleable area Commercial Residential

25,648 sqm 816 sqm 24,832 sqm

Floors maximum 5 and -1 underground floor

Parking projected underground 317 p/p

Parking available Multi parking 76 p/p

5 The data based on information provided by Client. We do not provided ditail concept project of blocks of flats, thus we rely on

information provided to us, considering best property use solutions according to Tallinn residential market, subjekt property and surrounding area characteristics.


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Saleable area

Valuer has not been provided by Client with information regarding potential saleable area or construction project. Thus we have followed by common practices of reduction gross building area into potential saleable area as follows: commercial – 15%, residential 20%.

Comments

In valuer opinion construction of full GBA amount (43,100 sqm) for residential purposes within one phase is not reasonable today. Therefore we are in opinion to divide expected by Detail planning gross building area (GBA) for construction into new phases and extending the development period up to 8 years.

Highest and the best use of the property

Highest and best use of the property: the most probable use of an asset which is physically possible, appropriately justified, legally permissible, financially feasible, and which results in the highest value of the asset being valued (IVSC 2013 and EVS-875).

According to location close to the centre of Tallinn, Master planning of Haabersti district, starting Detail planning and physical characteristics of the property, we evaluate highest and the best use of the property would be development of residential building – blocks of flats with small amount of supportive commercial premises.

(Expected) rating of property

Type of property Mostly residential buildings

A-class B-class C-class

General BBA

Location X

Standard X

Condition X


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APPENDIX 3: Valuation

Valuation process and selected methodology

Residual approach. For the purpose of evaluation of projects under development, the residual value method is used. This method is applied to establish the value of a vacant land site or of a land site and buildings that are prepared for redevelopment. Market Value according to Residual method generally is used to evaluate properties with possible future development that can be adopted by market. According to this method construction costs and other expenses for development of property together with assumed allowance for developer’s profit, sale incomes after development are being calculated based on market concept. Comparable value (sales comparison) approach relies on search for recent sales transactions involving comparable property and analysis of data related to the subject property. This approach is based on the price paid in actual market transactions over comparable properties to derive the market price of the subject property. This property valuation approach relies on data on fully comparable sales transactions concluded over a relatively long period of time that reflect the market conditions related to the subject property. Applying the sales comparison approach to value, the data interrelation allows determining the value of the subject property considering certain adjustments in view of the physical and economical characteristics of the property.

Valuation by the Residual Approach

Development summary

Based on the current status of the subject property and approved detail planning, and also on valuator’s assumptions, we have assumed that expected construction plan will allow for the following development layout:

SPECIFICATION TOTAL PHASE

I PHASE

II PHASE

III PHASE

IV PHASE

V

Land area, sqm 28,495 14,224 3,686 3,201 3,770 3,614 Building density, above ground, sqm 8,450 3000 2,150 1,500 900 900 Building density, above ground, % 21% 58% 47% 24% 25% Max. Number of floors 5 5 5 4 4 Number of buildings allowed 13 4 3 2 2 2 Gross area of the buildings, sqm 100% 43,100 14,800 11,100 7,500 4,850 4,850 incl. GBA underground sqm 26% 11,100 3,500 2,600 1,800 1,600 1,600 incl. GBA above ground sqm 74% 32,000 11,300 8,500 5,700 3,250 3,250

FAR/ Building density 0.8 2.3 1.8 0.9 0.9

DEVELOPMENT PROPERTY

Start of Construction YEAR 2 II HY

YEAR 4 I HY

YEAR 5 II HY

YEAR 7 I HY

YEAR 8 II HY

Area land, sqm 28,495 14,224 3,686 3,201 3,770 3,614 GBA above ground 100% 32,000 11,300 8,500 5,700 3,250 3,250

Office 0% 0 0 0 0 0 0 Retail, Services 3% 960 560 400 0 0 0 Apartments 97% 31,040 10740 8,100 5,700 3,250 3,250 Social - kindergarten 0% 0 0 0 0 0 0 Industrial - substation 0% 0 0 0 0 0 0 Other 0% 0 0 0 0 0 0

Saleable/Rentable area sqm 80% 25,648 9,068 6,820 4,560 2,600 2,600

Saleable/Rentable area office 0% 0 0 0 0 0 0 Saleable/Rentable area retail 3% 816 476 340 0 0 0


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Saleable/Rentable area residential 97% 24,832 8,592 6,480 4,560 2,600 2,600 Saleable/Rentable area Social 0% 0 0 0 0 0 0 Saleable/Rentable area industrial 0% 0 0 0 0 0 0 Saleable/Rentable area other 0% 0 0 0 0 0 0

Residential units to be developed 336 120 90 62 32 32 Average size of apartment, sqm Saleable area 72 72 74 81 81 Average size of apartment, sqm Gross area 90 90 92 102 102 Parking available underground (for Sale) 317 108 72 57 40 40 Parking available Territory (for Sale) 76 31 32 13 0 0

Development Phases

Assumed development the presented developer solutions of the subject territory by the following stages:

1st

Stage – According to Detail planning figures and Valuator assumptions the 1st phase includes

the construction of the residential buildings (apartments buildings) with total construction volume above ground 11,300 m²

2nd

stage – According to Detail planning figures and Valuator assumptions the 2nd

phase includes the construction of the residential buildings (apartments buildings) with total construction volume above ground 8,500 m²

3rd

stage – According to Detail planning figures and Valuator assumptions the 3rd

phase includes the construction of the residential buildings (apartments buildings) with total construction volume above ground 5,700 m²

4th

stage – According to Detail planning figures and Valuator assumptions the 4th phase includes


5th

stage – According to Detail planning figures and Valuator assumptions the 5th phase includes


Gross area distribution by phases:

11,300

8,500

5,700

3,250 3,250

9,068

6,820

4,560

2,600 2,600

0

2,000

4,000

6,000

8,000

10,000

12,000

1 2 3 4 5

Sq

m

PHASES

sq.m Distribution by Phases

GBA

GLA


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Map of properties to be developed by phases is presented below:

According to Valuer assumption the projection of the whole project will be completed and realized during the 10 years.

1

2

3

4

5


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The development time schedule and project duration:

April 2014 Apr 2015 Apr 2016 Apr 2017 Apr 2018 Apr 2019 Apr 2020 Apr 2021 Apr 2022 Apr 2023 Apr 2024

PHASE Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Phase 1 YEAR 2 IIHY

Construction 11,300 70% 30%

Selling 100% 5% 45% 45% 5%

Sold apartments units p.a 120 6 54 54 6

Sold apartments units p.m 0.5 4.5 4.5 0.5

Phase 2 YEAR 4 IHY


Selling 100% 5% 60% 35%

Sold apartments units p.a 90 5 54 32

Sold apartments units p.m 0.4 4.5 2.6

Phase 3 YEAR 5 IIHY


Selling 100% 0% 50% 50%

Sold apartments units p.a 62 0 31 31

Sold apartments units p.m 0 3 3

Phase 4 YEAR 7 IHY


Selling 100% 10% 70% 20%

Sold apartments units p.a 32 3 22 6.4


Phase 5 YEAR 8 IIHY


Selling 100% 10% 60% 30%

Sold apartments units p.a 32 3.2 19.2 9.6



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Estimation of potential gross sale income

In accordance with situation on Tallinn residential market, apartments sale offers, information about the transaction prices the prices for average and above average residential units (apartments) vary in the range of 1,800 - 2,200 EUR / m². All prices include VAT (20%).

Determination of apartment’s sale income

This is a summary of similar projects and prices that a property would most likely command in the open market.

Comparable residential project No.1

Noorkuu 10, 12

Property description

Construction 4 floor buildings

Developer NCC Ehitus

No.of apartments 38

Average apartments size 46 - 70 sq.m

Year built 2014

Engeneering systems installed City water and sewage, gas heating, communications

Other Internal yard

Parking free parking on the plot

Sales price data

Vacant space 29%

Quated sales price for apartment 1,722 Eur/sq.m in average


Vibu 14, 16



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Developer YIT

No.of apartments 12


Year built 2013


Other Internal yard

Parking 1 place per aparment on the plot (within apartment price).

Sales price data

Vacant space 25%

Quated sales price for apartment 2,150 Eur/sq.m in average


Tondi Residential Quarter Tondi Residential Qurter - 1 Stage



Developer Pro Kapital

No.of apartments 31


Year built 2014


Other Internal yard, underground parking

Parking 7,950 EUR / pp

Sales price data

Vacant space 45%

Quated sales price for apartment 2,164 Eur/sq.m in average (Incl. VAT)

The aforementioned sale analogies represent comparable new residential projects in the nearest vicinity of the Subject Property. We have analysed these properties in location, property class, access and visibility in order to arrive at an estimate of market price applicable to the Subject Property.

Variables No. 1 No. 2 No. 3

Location Inferior Superior Superior

Property Class Inferior Similar Similar

Terms of access and visibility Similar Similar Similar

Quoted price, EUR per sqm, incl. VAT 1,722 2,150 2,164

Quoted price parking, EUR pp, incl. VAT n/a n/a 7,950


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Thus, considering the Valuer assumptions, in subject property most of apartments are expected to have average finishing standards, average price level is also assumed to be a bit higher compared to neighbourhood building’s apartment.

Based on that, estimated sales base price of 1 700 EUR/m² (excl. VAT) is believed to fairly reflect property potential considering full finishing.

Among value increasing factors are:

The properties are located at logistical good location and relatively close to city centre and see side;

The properties to be developed in the neighbourhood (Tivoli entertainment and Leisure park) of the Subject Property will raise the value of land and buildings in future;

Balconies and terraces are expected to be added to the sales price; Based on mentioned above, we have assumed average price for underground floor parking spaces is 6,500 EUR and on territory 3,000 EUR. All prices exclude 20% VAT. We have assumed average price for commercial premises as 1,350 EUR/sqm (white finishing conditions). All prices exclude 20% VAT.

SALE INCOME (exclude VAT)

Variables Saleable

area, sqm

Average sale price

€/sqm Sale

income €

PHASE I Commercial purpose (Rented out) 0 0 0 Commercial purpose (White finishing) 476 1,350 642,600 Residential purpose (White & Full finishing) 8,592 1,700 14,606,400

TOTAL 9,068 15,249,000

Additional Parking available underground 108 6,500 702,000 Additional Parking available territory 31 3,000 93,000

TOTAL 139 16,044,000

PHASE II Commercial purpose 340 1,350 459,000 Residential purpose (full finishing) 6,480 1,700 11,016,000

TOTAL 6,820 11,475,000


TOTAL 104 12,039,000

PHASE III Commercial purpose (for rent) 0 0 0 Residential purpose 4,560 1,700 7,752,000

TOTAL 4,560 7,752,000


TOTAL 70 8,161,500

PHASE IV Commercial purpose 0 0 0 Residential purpose 2,600 1,700 4,420,000

TOTAL 2,600 4,420,000 Additional Parking available underground 40 6,500 260,000 Additional Parking available territory 0 3,000 0

TOTAL 40 4,680,000


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PHASE V Commercial purpose 0 0 0 Residential purpose 2,600 1,700 4,420,000

TOTAL 2,600 4,420,000 Additional Parking available underground 40 6,500 260,000 Additional Parking available territory 0 3,000 0

TOTAL 40 4,680,000

TOTAL

Commercial purpose, projected for lease 816 1,350 1,101,600 Residential purpose 24,832 1,700 42,214,400

TOTAL 25,648 43,316,000 Additional Parking available underground 317 6,500 2,060,500 Additional Parking available territory 76 3,000 228,000

TOTAL 393 45,604,500

Note: The sale income figures do not consider the future sale prices increase of decrease. Calculation details are set up in the Appendix 4.

Following table summarizes the sales revenue during the forecasting period considering indexation:

Sales income revenue sq.m / pp Base

Residential premises sales - 1 Phase 8,592 16,451,823





Commercial premises sales - 1 Phase 476 747,735

Commercial premises sales - 2 Phase 340 558,249

Underground Parking Sale revenue - 1 Phase 108 790,693





Territory Parking Sale revenue - 1 Phase 31 104,750



Territory Parking Sale revenue - 4 Phase 0 0 Territory Parking Sale revenue - 5 Phase 0 0

TOTAL 54,840,648

Note: Calculation details are set up in the Appendix 4.

Costs structure and budget

Development costs structure: Constriction costs are based on average construction sector market level. Costs do not include VAT.


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Construction / Reconstruction PHASE I PHASE II PHASE

III PHASE

IV PHASE V TOTAL

Projected Gross Building Area, sqm 14,800 11,100 7,500 4,850 4,850 43,100

Underground level, sqm 3,500 2,600 1,800 1,600 1,600 11,100 Surface construction, sqm 11,300 8,500 5,700 3,250 3,250 32,000 Period of construction, Years 1.5 1.3 1.0 1.0 1.0 Period of construction, Quarters 6 5 4 4 4

Construction costs Costs - Underground level, €/sqm 450 450 450 450 450 Costs - Surface buildings, €/sqm 850 850 850 850 850 Infrastructure (% of Construction costs) 20% 0% 0% 0% 0% Other costs (% of Construction costs) Architect, engineers, technical supervision 4.5% 2.0% 2.0% 2.0% 2.0% Contingencies 2.5% 2.5% 2.5% 2.5% 2.5% Project Management Costs (PMC) 2.0% 2.0% 2.0% 2.0% 2.0%

Construction work (Hard costs), EUR 11,180,000 8,395,000 5,655,000 3,482,500 3,482,500 32,195,000 Infrastructure Costs, EUR 2,236,000 0 0 0 0 2,236,000 Architect, engineers, EUR 503,100 167,900 113,100 69,650 69,650 923,400 Contingencies 279,500 209,875 141,375 87,063 87,063 804,875 Project Management Costs, EUR 223,600 167,900 113,100 69,650 69,650 643,900

Investment total, EUR 14,422,200 8,940,675 6,022,575 3,708,863 3,708,863 36,803,175

EUR/sqm 974 805 803 765 765 854

Comment: Construction price (costs) assumed for full finishing apartment.

Projected investment schedule:

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

Year 1 Year 3 Year 4 Year 5 Year 6 Year 7

Investment

Investment


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Investment budget considering indexation during the whole forecasting / holding period:

Development costs 1 Phase development

Construction costs 11,944,372

Infrastructure 20% 2,312,400

Architect, engineers, EUR 4.5% 528,940

Contingencies 2.5% 298,609

Project Management Costs, EUR 2.0% 238,887

1 Phase development Total 15,323,208

2 Phase development


Infrastructure 0.0% 0





3 Phase development







4 Phase development







5 Phase development







TOTAL DEVELOPMENT COSTS (indexed) 42,005,129

Other costs

We have do not received documentation for actual expected costs for property and have budgeted long term average costs based in international experience.


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We have budgeted other long term average disposal costs as follows:

land tax is calculated in accordance to taxable value of the land (10.55 €/sqm of land) that is multiplied by 1.5%;

Insurance is calculated for all forecasting period in amount of 0.02% from the total development costs assuming hard construction costs Infrastructure costs, Contingencies and Project Management Costs (VAT free).

Standard void costs / Utility costs (according to forecasted number of unsold apartments). Standard void costs are budgeted to EUR 1.5 (adjusted actual costs) per m

2 unsold apartments

per month.

Sale agent fee – 2% of annual sales income

Lawyers Costs for Selling Agreements – 0.01% of annual sales income

Notary payment 50/50 – 0.45% of annual sales income Property maintenance costs were not considered during the med term forecasting period, due to constructor guaranty for newly constructed building. Disposal costs are considered the project duration and sales unit’s realization progress. Disposal costs total during the forecasting period considering indexation:

Disposal Costs Land Tax, €/sqm 0.16 20,788

Insurance, % 0.02% 8,197

Utility Costs, EUR/sqm (unsold apartments) 1.5 53,350

Sales Agent Fee 2.0% 1,096,813

Lawyers Costs for Selling Agreement 0.01% 5,484

Notary 50/50 0.45% 123,391

Total 1,308,023


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Project duration

Year 1 2 3 4 5 6 7 8 9 10

Calendar Year 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Construction proportion - 1 Phase 0% 70% 30% 0% 0% 0% 0% 0% 0% 0% Construction proportion - 2 Phase 0% 0% 0% 30% 70% 0% 0% 0% 0% 0% Construction proportion - 3 Phase 0% 0% 0% 0% 30% 70% 0% 0% 0% 0% Construction proportion - 4 Phase 0% 0% 0% 0% 0% 0% 70% 30% 0% 0% Construction proportion - 5 Phase 0% 0% 0% 0% 0% 0% 0% 70% 30% 0%

Sales proportion (Commercial) - 1 Phase 0% 0% 0% 50% 50% 0% 0% 0% 0% 0% Sales proportion (Commercial) - 2 Phase 0% 0% 0% 0% 0% 100% 0% 0% 0% 0% Sales proportion (Apartments / Parking) - 1 Phase 0% 5% 45% 45% 5% 0% 0% 0% 0% 0% Sales proportion (Apartments / Parking) - 2 Phase 0% 0% 0% 5% 60% 35% 0% 0% 0% 0% Sales proportion (Apartments / Parking) - 3 Phase 0% 0% 0% 0% 0% 50% 50% 0% 0% 0% Sales proportion (Apartments / Parking) - 4 Phase 0% 0% 0% 0% 0% 0% 10% 70% 20% 0% Sales proportion (Apartments / Parking) - 5 Phase 0% 0% 0% 0% 0% 0% 0% 10% 60% 30%

Apartments sale distribution - 1 Phase, Units 0 6 54 54 6 0 0 0 0 0 Apartments sale distribution - 2 Phase, Units 0 0 0 5 54 32 0 0 0 0 Apartments sale distribution - 3 Phase, Units 0 0 0 0 0 31 31 0 0 0 Apartments sale distribution - 4 Phase, Units 0 0 0 0 0 0 3 22 6 0 Apartments sale distribution - 5 Phase, Units 0 0 0 0 0 0 0 3 19 10 Apartments sale distribution - 1 Phase, Units 0 6 54 54 6 0 0 0 0 0 Total apartments sold 0 6 54 59 60 63 34 26 26 10

Indexation

We assume long-term indexation as following:

Year 1 2 3 4 5 6 7 8 9 10

Calendar Year 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Apartments Sale prices prognoses (Medium class) 3.4% 3.4% 3.5% 3.6% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Construction costs index 2.8% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Inflation rate 3.0% 2.7% 2.7% 2.7% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5%


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Residential units (Apartment’s) sales dynamics

The Market yield / Discount rate

Discount rate is taken by investors to convert future cash flows or receipts to present value. Discount rate should represent the annual rate of return the market indicates it is necessary to attract investment capital. This rate is influenced by many factors:

The degree of perceived risk

Market expectations regarding the future inflation

The prospective rates of return on alternative investments

Availability of debt financing

The prevailing tax law, etc. Evaluation of current risks – is subjective, each investor values risks in his individual manner, relying on his own calculations and analysis of economic and political risk factors. Under condition of definite market development level, including investment, it is possible to speak about certain objective and typical for that sort of investment, rate of return. We have assumed a 10 year cash flow with a discount rate of 14.4% that is based on market concept of average cost of Capital (WACC), and 13.3% as subject of special assumption “as approved” prior to issue of approved Detail Planning.

Inputs Description “as is” “as

approved”

Own funds for acquisition Based on long term market practice 40.00% 40.00%

Leverage Based on long term market practice 60.00% 60.00%

Loan denominated Based on the preliminary indications by commercial banks, local market

EUR EUR

Basis interest rate EUR swap (fixed) rate + Margin (Based on the prevailing practice and preliminary indications by commercial banks)

6.00% 5.5%

Required Rate of Return (equity)

% / year Based on market research (more detail – Investment Market - Required Rate of Return of Investors Targeting the Baltic Market)

27.00% 25.00%

0.0 0.5

4.5 4.9 5.0 5.2

2.9

2.1 2.1

0.8

0.0 0

1

2

3

4

5

6

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11

Sale Dynamics

Apartmetns sold per month


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WACC % / year

Weighted Average Cost of Capital. A calculation of a firm's cost of capital in which each category of capital is proportionately weighted. Derived from the variables presented above using the following formula:

14,40% 13.30%

Developer profit

Developers profit reflects the required return for enterprise, organization, overheads and risk. Where the value of land is known it is commonly expressed as a percentage of total capital expenditure, and may be between 15% and 25%. When deriving a residual land value, however, and total development costs are uncertain, it is frequently pitched at a slightly lower percentage of capital value – between 10% and 20%. Experience shows that there is a very rough relationship between 20% on cost and 15% on value among different schemes. Target level of profit will depend on the nature of the development and allied risks, the competition for development schemes in the market, the period of the development and the general optimism in relation on that form of development. Consequently, it is not possible to lay down firm limits of required profit levels. The residual method assumes a sale of the completed scheme with the developer hoping to gain profit by way of a capital sum. If the developer is likely to hold the development as an investment he may by more concerned as to whether sale or rental income will cover long term finance costs. The developer’s profit is considered as part of investor equity or includes into the WACC. Market Value according to DCF (Residual method) “as is”

DCF SUMMARY

Discount rate, % 14.4% VALUE OF PROPERTY, EUR 2,099,717

Rounded Market Value, EUR 2,100,000

Value, EUR/sq.m of land, €/sqm 28,495 sqm 74 Value, EUR/sq.m gross building area, above ground, €/sqm 32,000 sqm 66 Value, EUR/sq.m gross building area total, €/sqm 43,100 sqm 49 Value, EUR/sq.m gross saleable area, €/sqm 25,648 sqm 82

Market Value according to DCF (Residual method) “as approved” as subject of special assumption prior to issue of approved Detail Planning.

DCF SUMMARY

Discount rate, % 13.3% VALUE OF PROPERTY, EUR 2,501,930

Rounded Market Value, EUR 2,500,000

Value, EUR/sq.m of land, €/sqm 28,495 sqm 88 Value, EUR/sq.m gross building area, above ground, €/sqm 32,000 sqm 78 Value, EUR/sq.m gross building area total, €/sqm 43,100 sqm 58 Value, EUR/sq.m gross saleable area, €/sqm 25,648 sqm 97

Estimation of Market Value using Residual method in detail is set up in the appendixes to valuation report.


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Sensitivity analysis

The following sensitivity analysis shows changes of estimated Market Value with different sale price and discount rate, considering changes +/- 3%.

Sale prices EUR / sqm Discount Rate

2,580,000 13.14% 13.55% 13.97% 14.40% 14.83% 15.28% 15.74%

1,552 360,000 240,000 130,000 20,000 -90,000 -200,000 -310,000 1,600 1,070,000 940,000 820,000 690,000 570,000 450,000 330,000

1,649 1,810,000 1,660,000 1,520,000 1,380,000 1,250,000 1,110,000 980,000 1,700 2,560,000 2,410,000 2,250,000 2,100,000 1,950,000 1,800,000 1,650,000 1,751 3,320,000 3,150,000 2,980,000 2,810,000 2,650,000 2,490,000 2,330,000 1,804 4,100,000 3,920,000 3,730,000 3,550,000 3,370,000 3,200,000 3,020,000 1,858 4,900,000 4,710,000 4,510,000 4,310,000 4,120,000 3,930,000 3,740,000

Sale prices EUR / sqm Discount Rate

1,900,000 13.14% 13.55% 13.97% 14.40% 14.83% 15.28% 15.74%

1,552 -83% -89% -94% -99% -104% -110% -115% 1,600 -49% -55% -61% -67% -73% -79% -84%

1,649 -14% -21% -28% -34% -40% -47% -53% 1,700 22% 15% 7% 0% -7% -14% -21% 1,751 58% 50% 42% 34% 26% 19% 11% 1,804 95% 87% 78% 69% 60% 52% 44% 1,858 133% 124% 115% 105% 96% 87% 78%

Valuation according to Sales Comparison Approach

Steps of Sales Comparison analysis:

1. Research the market to obtain information on recent sales of industrial properties that are similar to the subject Property;

2. Compare them with the subject Property using the elements of comparison and adjust the sale price of each comparable appropriately to the subject Property;

3. Reconcile the various value indications produced from the analysis of comparable objects into a single indication of value.

The Market value estimation comprises three steps:

Adjustment table,

Qualitative analysis,

Weight calculations in accordance to level of adjustment Valuator has carefully evaluated each of the comparables and assigned each of them a weight coefficient in order to find a weighted average sale price of comparable transactions. Comparables that have lower level of adjustment got higher weight in calculating market value of subject property, and comparables with higher level of adjustment are assumed to be less reliable for calculating market value of subject property. 6 comparable properties have been selected after a careful analysis of recent sale transactions. List of comparable properties includes residential sites which location and physical characteristics that are comparable to subject property. We have selected 3 of them (No. 3, 4, 5) that will be comparing with the subject property in more dipper adjustments analysis.


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No Location Total

area of land

Project. GBA, sqm

Price (VAT free)

Price, GBA

Transaction time

Comments

m² m² € €/m²

1. J. Vilmsi str//Vesivärava str

1,956 1,745 585,000 335 Feb. 2014 100% Residential, Allow to build 3-floors apartment building, DP approved, construction project is missing

2. Lehe str / Tedre str

3,954 2,980 688,620 231 Feb. 2014 100% Residential, Allow to build 3-floors two apartment buildings, DP approved, construction project is missing

3. Kiikri str / Pikksilma str / Tuukri str

10,006 16,100 2,500,000 155 Nov. 2013 100% Residential, Allow to build 4-floors two apartment buildings, DP approved, construction project in process

4. Uuslinna str 4,333 6,780 1,000,000 147 Jul. 2013 100% Residential, Allow to build 3-floors two apartment buildings, DP approved, construction project in process

5. Sipelga str 2,300 4,520 450,000 100 Feb. 2013 100% Residential, Allow to build 5-floors apartment building, DP approved, construction project in process

6. Hane str 2,983 3,800 600,000 158 Feb. 2012 100% Residential, Allow to build 4-floors apartment building, DP approved, construction project in process

Due to Subject property is land for development, Valuer has selected the element of comparison for adjustment procedure the price (€/sqm) per gross building area above ground. The following grade is applied:

Grade Description

10 Excellent

9 Very good

8 Good

7 Better than average

6 Average

5 Lower than average

4 Satisfactory

3 Poor

2 Very poor

1 Unsatisfactory

The adjustment tables help to account for differences among comparable objects and the Subject Property that is to adjust the following elements of comparison:


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Adjustment for market conditions (date of sale) - This adjustment was indicated based on market data on dynamic of sale prices on the land market in Tallinn. All comparable subjects were adjusted in accordance to price changes on the market.

Adjustment for Geographical Location - Comparable objects have some micro and macro location differences in scale of location. The subject property is considered to have a satisfactory location, thus we have made an upward adjustment to those comprabales considered inferior in location versus the subject property. Conversely, a downward adjustment was made to those comparables considered superior. Adjustment for Transport access and nearest neighbourhood area – Comparable objects have some differences in scale of transportation accessibility, infrastructure (roads, lighting etc.) and neighbouring. The subject property is considered to have an average characteristics, thus we have made an upward adjustment to those comprabales considered inferior in accessibility versus the subject property. Conversely, a downward adjustment was made to those comparables considered superior.

Adjustment for size of property: The main principle of certain adjustment is a scale effect or smaller size of gross building area provided by Detail planning has more expensive price per 1 sq.m. Adjustment for shape of the land plot: Differences between subject property and comparable transactions in shape of the land plot have been estimated. Each sale was adjusted accordingly. Land plot category: The Commercial attractiveness of any different land purposes reflects the property competitive ability on the market. We have made a downward adjustment to those comprabales considered superior in commercial attractiveness versus the subject property. Conversely, an upward adjustment was made to those comparables considered inferior. Availability of engineering services - Differences between subject property and comparable transactions in the availability of engineering services have been estimated. Each sale was adjusted accordingly. Adjustment for Detail planning: Differences between subject property and comparable transactions in approved Detail planning and project completion have been estimated. Each sale was adjusted accordingly. Based on the above information on comparable transactions and applied adjustments we have estimated Market Value of the property “as is” as listed below in summarized table:

Variables Valued property Comparable object No. 1

Comparable object No. 3


Area | sq.m 32,000 16,100 6,780 4,520

Transaction date

VAT FREE

2013-11 2013-07 2013-02

Transaction price | EUR 2,500,000 1,000,000 450,000

Transaction price | EUR/ sq.m (Ki) K1= 155 K2= 147 K3= 100

Correction - time (t) 0.00% 0.00% 5.00%

Adjusted price, EUR/sqm (Ki x ti) K1 x t1= 155.3 K2 x t2= 147.5 K3 x t3= 105

Total price adjustment Pi = ΣPji -53.47% -45.74% -56.25%

Total price adjustment, EUR/sq.m -83.04 -67.46 -58.80

Total price adjustment (with a time correction) tix(1+Pi) -53.47% -45.74% -54.06%

Total price adjustment, EUR/sq.m (with a time correction) -83.04 -67.46 -53.82

Adjusted price, EUR/sq.m 72.24 80.03 45.74

The significance of the object 32.45% 35.77% 31.39%

Value, EUR/sq.m Rv= 67 Value, EUR 2,131,313 Revised Market value, EUR 2,130,000


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Total market value “as is”, estimated using Sales Comparison Approach – EUR 2,130,000. Estimated value comprises to EUR 74 per sqm of site area and EUR 67 per sqm of building gross area above ground. Based on the above information on comparable transactions and applied adjustments we have estimated Market Value of the property “as approved” as listed below in summarized table:

Variables Valued property Comparable object No. 1



Area | sq.m 32,000 16,100 6,780 4,520

Transaction date

VAT FREE

2013-11 2013-07 2013-02

Transaction price | EUR 2,500,000 1,000,000 450,000

Transaction price | EUR/ sq.m (Ki) K1= 155 K2= 147 K3= 100

Correction - time (t) 0.00% 0.00% 5.00%

Adjusted price, EUR/sqm (Ki x ti) K1 x t1= 155.3 K2 x t2= 147.5 K3 x t3= 105

Total price adjustment Pi = ΣPji -41.69% -33.96% -44.47%

Total price adjustment, EUR/sq.m -64.74 -50.08 -46.48

Total price adjustment (with a time correction) tix(1+Pi) -41.69% -33.96% -41.69%

Total price adjustment, EUR/sq.m (with a time correction) -64.74 -50.08 -41.51

Adjusted price, EUR/sq.m 90.54 97.41 58.05

The significance of the object 32.80% 35.48% 31.72%

Value, EUR/sq.m Rv= 83 Value, EUR 2,645,508 Revised Market value, EUR 2,650,000

Total market value “as approved”, estimated using Sales Comparison Approach – EUR 2,650,000. Estimated value comprises to EUR 93 per sqm of site area and EUR 83 per sqm of building gross area above ground. Estimation of Market Value using Sale Comparison method in detail is set up in the appendixes to valuation report (Annex 5).

Valuation conclusion

Base on the complete valuation above, we therefore estimate the Market Value of the property “as is”, subject to the assumptions and limiting conditions using Residual Approach – EUR 2,100,000 Base on the complete valuation above, we therefore estimate the Market Value of the property “as approved”, subject to special assumptions using Residual Approach – EUR 2,500,000 Base on the complete valuation above, we therefore estimate the Market Value of the property “as is”, subject to the assumptions and limiting conditions using Sales Comparison Approach – EUR 2,130,000. Base on the complete valuation above, we therefore estimate the Market Value of the property “as approved”, subject to special assumption using Sales Comparison Approach – EUR 2,650,000. Although, both methods represent more or less similar results (less than 1%), on valuators opinion value estimated using Sales Comparison Approach reflects subject property characteristics more carefully and more accurately in the level the today’s land market than estimated using Residual Approach which is sensitive in terms of inputs as missing approved Detail planning.


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Based on the above calculations we therefore estimate the Market Value of the property on the date of valuation (27

th March, 2014) calculated using Sale Comparison method

(EUR 2,130,000)

In letters: two million and one hundred thirty thousand euro

Based on recent market situation, as well as discussion with market participants, a sale of the subject property at the above statement opinion of market value would have required an exposure time of approximately 8 - 12 months. Furthermore, a marketing period of approximately (4) month is currently warranted for the subject property. Based on our complete valuation we have developed an opinion that the Market Value of the property, subject to the special assumption “as approved”, on the date of valuation at March 27

th 2014 is

(EUR 2,650,000)

In letters: two million and six hundred fifty thousand euro

The contents of this Valuation Certificate and Report are intended to be confidential to the addressees and for the specific purpose stated. Consequently, and in accordance with current practice, no responsibility is accepted to any other party in respect of the whole or any part of its contents. Before the Valuation Certificate or Report or any part of its contents are reproduced or referred to in any document, circular or statement or disclosed orally to a third party, our written approval as to the form and content of such publication or disclosure must first be obtained. For avoidance of doubt, such approval is required whether or not this firm is referred to by name and whether or not our Valuation Certificate or Report is combined with others. Probability of changes

The losses valuated in this report were estimated as of the presumptive data. Constantly changing market situation, country mortgage politic, economic, social, political and physical conditions have varying effects upon real property value. Even after the passage of a relatively short or mid-term period of time, property value may change substantially and require a review based on differing market conditions.

Signature(s)

The date of report: 31st March, 2014

Report compiler:

Aleksander Sibul, MRICS Senior Valuator (Estonia) Certificate no VH171211


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APPENDIX 4: Residual Model

1 2 3 4 5 6 7 8 9 10

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

ASSUMPTIONS

Saleable / Leasable area: sq.m / pp

Commercial premises for sale 816

Residential - apartments 24,832

Parking (Underground) 317

Parking (Territory) 76

Sale prices prognoses (Flats, parking and commercial) 3.2% 3.4% 3.4% 3.5% 3.6% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%

Construction costs index 3.0% 2.8% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%

Inflation rate 2.6% 3.0% 2.7% 2.7% 2.7% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5%

Construction costs, index 1.028 1.059 1.091 1.123 1.157 1.192 1.227 1.264 1.302 1.341

Expense inflation rate, index 1.030 1.058 1.086 1.116 1.144 1.172 1.201 1.232 1.262 1.294

Sales proportion (Commercial) - 1 Phase 100% 0% 0% 0% 50% 50% 0% 0% 0% 0% 0%

Sales proportion (Commercial) - 2 Phase 100% 0% 0% 0% 0% 0% 100% 0% 0% 0% 0%

Sales proportion (Apartments / Parking) - 1 Phase 100% 0% 5% 45% 45% 5% 0% 0% 0% 0% 0%





Construction proportion - 1 Phase 14,800 100% 0% 70% 30% 0% 0% 0% 0% 0% 0% 0%





Apartments sale distribution - 1 Phase, Units 120 120 0 6 54 54 6 0 0 0 0 0





Total apartments sold during forecasting period 336 336 0 6 54 59 60 63 34 26 26 10

Apartments Distribution factor 100% 0% 2% 16% 17% 18% 19% 10% 8% 8% 3%

Apartment sold cumulative factor 0% 2% 18% 35% 53% 72% 82% 90% 97% 100%

Year

Calendar Year


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Average Sale price, Residential EUR/sqm 1,700 1,758 1,818 1,881 1,949 2,007 2,068 2,130 2,194 2,259 2,327

Average Sale price, Commercial EUR/sqm 1,350 1,396 1,443 1,494 1,548 1,594 1,642 1,691 1,742 1,794 1,848

Average Sale price, Parking Underground EUR/pp 6,500 6,721 6,950 7,193 7,452 7,675 7,905 8,143 8,387 8,639 8,898

Average Sale price, Parking Territory EUR/pp 3,000 3,102 3,207 3,320 3,439 3,542 3,649 3,758 3,871 3,987 4,107

Average Construction costs EUR/sqm of GBA - 1 Phase 755 777 800 824 849 874 900 927 955 984 1,013



Average Construction costs EUR/sqm of GBA - 4 Phase 718 738 760 783 807 831 856 881 908 935 963

Average Construction costs EUR/sqm of GBA - 5 Phase 718 738 760 783 807 831 856 881 908 935 963

CASH FLOW SUM 1 2 3 4 5 6 7 8 9 10

INCOME sq.m / pp

Residential premises sales - 1 Phase 8,592 16,451,823 0 780,826 7,273,394 7,535,236 862,366 0 0 0 0 0

Residential premises sales - 2 Phase 6,480 13,125,393 0 0 0 631,444 7,804,653 4,689,296 0 0 0 0

Residential premises sales - 3 Phase 4,560 9,569,636 0 0 0 0 0 4,714,107 4,855,530 0 0 0

Residential premises sales - 4 Phase 2,600 5,720,726 0 0 0 0 0 0 553,701 3,992,183 1,174,842 0

Residential premises sales - 5 Phase 2,600 5,909,970 0 0 0 0 0 0 0 570,312 3,524,527 1,815,131

Commercial premises sales - 1 Phase 476 747,735 0 0 0 368,343 379,393 0 0 0 0 0

Commercial premises sales - 2 Phase 340 558,249 0 0 0 0 0 558,249 0 0 0 0

Underground Parking Sale revenue - 1 Phase 108 790,693 0 37,527 349,568 362,152 41,446 0 0 0 0 0

Underground Parking Sale revenue - 2 Phase 72 557,615 0 0 0 26,826 331,570 199,218 0 0 0 0

Underground Parking Sale revenue - 3 Phase 57 457,372 0 0 0 0 0 225,307 232,066 0 0 0

Underground Parking Sale revenue - 4 Phase 40 336,513 0 0 0 0 0 0 32,571 234,834 69,108 0

Underground Parking Sale revenue - 5 Phase 40 347,645 0 0 0 0 0 0 0 33,548 207,325 106,772

Territory Parking Sale revenue - 1 Phase 31 104,750 0 4,972 46,310 47,977 5,491 0 0 0 0 0

Territory Parking Sale revenue - 2 Phase 32 114,383 0 0 0 5,503 68,014 40,865 0 0 0 0

Territory Parking Sale revenue - 3 Phase 13 48,144 0 0 0 0 0 23,716 24,428 0 0 0

Territory Parking Sale revenue - 4 Phase 0 0 0 0 0 0 0 0 0 0 0 0

Territory Parking Sale revenue - 5 Phase 0 0 0 0 0 0 0 0 0 0 0 0

TOTAL 54,840,648 0 823,325 7,669,272 8,977,482 9,492,933 10,450,758 5,698,295 4,830,876 4,975,803 1,921,904


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COSTS

Development costs

1 Phase development

Construction costs 11,944,372 0 8,286,482 3,657,890 0 0 0 0 0 0 0

Infrastructure 20% 2,312,400 1,838,886 473,513 0 0 0 0 0 0 0 0

Architect, engineers, EUR 4.5% 528,940 258,593 133,176 137,171 0 0 0 0 0 0 0

Contingencies 2.5% 298,609 0 207,162 91,447 0 0 0 0 0 0 0

Project Management Costs, EUR 2.0% 238,887 0 165,730 73,158 0 0 0 0 0 0 0

1 Phase development Total 15,323,208 2,097,480 9,266,062 3,959,666 0 0 0 0 0 0 0

2 Phase development

Construction costs 9,628,336 0 0 0 2,829,090 6,799,246 0 0 0 0 0

Infrastructure 0.0% 0 0 0 0 0 0 0 0 0 0 0

Architect, engineers, EUR 2.0% 187,274 0 0 91,556 47,151 48,566 0 0 0 0 0

Contingencies 2.5% 240,708 0 0 0 70,727 169,981 0 0 0 0 0

Project Management Costs, EUR 2.0% 192,567 0 0 0 56,582 135,985 0 0 0 0 0

2 Phase development Total 10,248,885 0 0 91,556 3,003,550 7,153,778 0 0 0 0 0

3 Phase development

Construction costs 6,680,368 0 0 0 0 1,962,890 4,717,478 0 0 0 0

Infrastructure 0.0% 0 0 0 0 0 0 0 0 0 0 0

Architect, engineers, EUR 2.0% 129,935 0 0 0 63,524 32,715 33,696 0 0 0 0

Contingencies 2.5% 167,009 0 0 0 0 49,072 117,937 0 0 0 0

Project Management Costs, EUR 2.0% 133,607 0 0 0 0 39,258 94,350 0 0 0 0

3 Phase development Total 7,110,919 0 0 0 63,524 2,083,934 4,963,461 0 0 0 0

4 Phase development

Construction costs 4,313,192 0 0 0 0 0 0 2,992,303 1,320,888 0 0

Infrastructure 0.0% 0 0 0 0 0 0 0 0 0 0 0

Architect, engineers, EUR 2.0% 84,891 0 0 0 0 0 41,502 21,374 22,015 0 0

Contingencies 2.5% 107,830 0 0 0 0 0 0 74,808 33,022 0 0

Project Management Costs, EUR 2.0% 86,264 0 0 0 0 0 0 59,846 26,418 0 0

4 Phase development Total 4,592,176 0 0 0 0 0 41,502 3,148,331 1,402,343 0 0

5 Phase development

Construction costs 4,442,587 0 0 0 0 0 0 0 3,082,073 1,360,515 0

Infrastructure 0.0% 0 0 0 0 0 0 0 0 0 0 0

Architect, engineers, EUR 2.0% 87,437 0 0 0 0 0 0 42,747 22,015 22,675 0

Contingencies 2.5% 111,065 0 0 0 0 0 0 0 77,052 34,013 0

Project Management Costs, EUR 2.0% 88,852 0 0 0 0 0 0 0 61,641 27,210 0

5 Phase development Total 4,729,941 0 0 0 0 0 0 42,747 3,242,781 1,444,413 0

TOTAL DEVELOPMENT COSTS 42,005,129 2,097,480 9,266,062 4,051,222 3,067,074 9,237,713 5,004,963 3,191,078 4,645,124 1,444,413 0


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Prospective Market Value Summary:

Disposal Costs

Land Tax 0.16 20,788 4,510 4,549 3,805 2,998 2,167 1,307 836 484 132 0

Insurance, % 0.02% 8,197 0 2,194 764 591 1,831 986 625 920 284 0

Utility Costs, EUR/sqm (unsold apartments) 1.5 53,350 0 0 16,620 13,451 9,984 6,172 4,049 2,403 672 0

Sales Agent Fee 2.0% 1,096,813 0 16,466 153,385 179,550 189,859 209,015 113,966 96,618 99,516 38,438

Lawyers Costs for Selling Agreement 0.01% 5,484 0 82 767 898 949 1,045 570 483 498 192

Notary 50/50 0.45% 123,391 0 1,852 17,256 20,199 21,359 23,514 12,821 10,869 11,196 4,324

Total 1,308,023 4,510 25,145 192,597 217,687 226,149 242,040 132,868 111,777 112,297 42,955

Total Income 54,840,648 0 823,325 7,669,272 8,977,482 9,492,933 10,450,758 5,698,295 4,830,876 4,975,803 1,921,904

Total Costs 43,313,152 2,101,990 9,291,207 4,243,819 3,284,761 9,463,861 5,247,003 3,323,946 4,756,901 1,556,711 42,955

Net Cash Flow w/o Interest 11,527,496 -2,101,990 -8,467,882 3,425,453 5,692,721 29,072 5,203,756 2,374,349 73,975 3,419,092 1,878,949

DISCOUNT RATE,% 14.40%

VALUE OF PROPERTY, EUR 2,099,458

MARKET VALUE, EUR Rounded 2,100,000

Value, EUR/sq.m of land 28,495 74

Value, EUR/sq.m gross building area, above ground 32,000 66

Value, EUR/sq.m gross building area total 43,100 49

Value, EUR/sq.m gross saleable area 25,648 82

DISCOUNT RATE,% 13.30%

VALUE OF PROPERTY, EUR 2,501,930

MARKET VALUE, EUR Rounded 2,500,000

Value, EUR/sq.m of land 28,495 88

Value, EUR/sq.m gross building area, above ground 32,000 78

Value, EUR/sq.m gross building area total 43,100 58

Value, EUR/sq.m gross saleable area 25,648 97


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APPENDIX 5: Sales Comparison Model

# (j)Weight

(wj)

Corrected

weight

(w*j)

FactorValued

property

Factor

weight by

points (yj)

Comparable

object No. 3

Factor

weight by

points (x1j)

Comparable

object No. 4

Factor

weight by

points (x2j)

Comparable

object No. 5

Factor

weight by

points (x3j)

Area | sq. m 32,000 16,100 6,780 4,520

Transaction date 2013-11 2013-07 2013-02

Price | EUR 2,500,000 1,000,000 450,000

Price | EUR/q. m K1= 155 K2= 147 K3= 100

Correction - Transaction

date (t)0.00% 0.00% 5.00%

Corrected price, EUR/sq. m K1 x t1= 155.3 K2 x t2= 147.5 K3 x t3= 105

Location Satisfactory 4 Excellent 10Lower than

average5

Better than

average7

Comments

Correction coeficient

Price correction (%) | P1i -13.96% -2.33% -6.98%

Price correction, EUR/sq. m -21.68 -3.43 -7.30

Transport access and

neighborhood area

Lower than

average5 Very good 9

Better than


Comments




Size of the plot Unsatisfactory 1Lower than

average5 Very good 9 Excellent 10

Comments




Much superior

smaller area, more

expensive price per sqm

Much superior Superior

15%

SALES COMPARISON MEHOTD

18%1

2

19%

10%

3

10%Much superior

smaller area, more


smaller area, more


Superior Superior

14%

2.33%

1.24%

1.64%


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Shape of the land plot Very good 9 Good 8 Very good 9 Very good 9

Comments


Price correction (%) | P4i 1.53% 0.00% 0.00%

Price correction, EUR/sq. m 2.38 0.00 0.00

Actual Land plot categoryLower than

average5 Good 8 Good 8 Good 8

Comments




Availability of engineering

servicesSatisfactory 4 Very good 9 Good 8 Very good 9

Comments




Detail planning and Project

DesingUnsatisfactory 1 Very good 9 Very good 9 Very good 9

Comments




-53.47% -45.74% -56.25%

-83.04 -67.46 -58.80

-53.47% -45.74% -54.06%

-83.04 -67.46 -53.82

72.24 80.03 45.74

Object significancy 2.Propotional 32.45% 35.77% 31.79%

Value, EUR/sq. m Rv= 67

Value, EUR 2,131,313

Adjusted calue, EUR 2,130,000

1.70%

100%

Corrected price, EUR/sq. m

Much superior Much superior

Superior SuperiorSuperior

Much superior

7 15%

Square

Industrial

6

13%

15%

5

4

in neighborhood area

DP is atarted, Construction

project is missing

1.74%

1.96%

14%

Inferior Similar Similar

7.758.383.98

Total price correction Pi = ΣPj i

Total price correction, EUR/sq. m

Total price correction, EUR/sq. m (time

13%

14%

1.53%

14%

16%

Total price correction (time adjusted)

Much Superior (DP

Approved, Construction

project under

consideration)

Much superior (DP


project under

consideration)

Much superior (DP


project under

consideration)

8.61


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Prospective market value as subject of special assumption “as approved”

# (j)Weight

(wj)

Corrected

weight

(w*j)

FactorValued

property

Factor

weight by

points (yj)

Comparable

object No. 3

Factor

weight by

points (x1j)

Comparable

object No. 4

Factor

weight by

points (x2j)

Comparable

object No. 5

Factor

weight by

points (x3j)

Area | sq. m 32,000 16,100 6,780 4,520

Transaction date 2013-11 2013-07 2013-02

Price | EUR 2,500,000 1,000,000 450,000

Price | EUR/q. m K1= 155 K2= 147 K3= 100

Correction - Transaction

date (t)0.00% 0.00% 5.00%

Corrected price, EUR/sq. m K1 x t1= 155.3 K2 x t2= 147.5 K3 x t3= 105

Location Satisfactory 4 Excellent 10Lower than

average5

Better than

average7

Comments




Transport access and

neighborhood area

Lower than


Better than


Comments




Size of the plot Unsatisfactory 1Lower than

average5 Very good 9 Excellent 10

Comments




Much superior

smaller area, more


Much superior Superior

15%

SALES COMPARISON MEHOTD

18%1

2

19%

10%

3

10%Much superior

smaller area, more


smaller area, more


Superior Superior

14%

2.33%

1.24%

1.64%


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Shape of the land plot Very good 9 Good 8 Very good 9 Very good 9

Comments


Price correction (%) | P4i 1.53% 0.00% 0.00%

Price correction, EUR/sq. m 2.38 0.00 0.00

Actual Land plot categoryLower than

average5 Good 8 Good 8 Good 8

Comments




Availability of engineering

servicesSatisfactory 4 Very good 9 Good 8 Very good 9

Comments




Detail planning and Project

Desing

Better than

average7 Very good 9 Very good 9 Very good 9

Comments




-41.69% -33.96% -44.47%

-64.74 -50.08 -46.48

-41.69% -33.96% -41.69%

-64.74 -50.08 -41.51

90.54 97.41 58.05

Object significancy 2.Propotional 32.80% 35.48% 31.72%

Value, EUR/sq. m Rv= 83

Value, EUR 2,645,508

Adjusted calue, EUR 2,650,000

1.70%

100%

Corrected price, EUR/sq. m

Much superior Much superior

Superior SuperiorSuperior

Much superior

7 15%

Square

Industrial

6

13%

15%

5

4

in neighborhood area

DP is approved

1.74%

1.96%

14%

Inferior Similar Similar

7.758.384.95

Total price correction Pi = ΣPj i

Total price correction, EUR/sq. m

Total price correction, EUR/sq. m (time

13%

14%

1.53%

14%

16%

Total price correction (time adjusted)

Much Superior (DP


project under

consideration)

Much superior (DP


project under

consideration)

Much superior (DP


project under

consideration)

8.61


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APPENDIX 6: Pictures of the Property

View on the site

View on the site


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Looking south of road connecting with Paldiski road

Looking North on the road to Stroomi beach


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APPENDIX 7: Other support Information


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valuation report · valuators’ conclusions and presumptions that were based to market...

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