The Black Dog Public House Question 1 Valuation of Accounts and Market By Adam Smith 0901686

The Black Dog Public House Introduction The purpose of the report is to evaluate The Black Dog Public House and provide comment to the owner on the use of the public houses accounts and how this determines the propertys value through the type of valuation method used. Objective The objective in preparing the report is to define the valuation of the public house which will be based on the use of the profit methods of valuation, whilst justifying the chosen format of valuation. The valuation will be completed in conjunction with comment in relation with the associated market. Methodology The report will be structured to provide a breakdown of the individual components of the profit method of valuation, as considered in relation to the supporting case study. The purpose of the valuation and the principles of the components will determine the value of the public house, as well as the given assessment of the Public Houses market place. The valuation of the portfolio will be considered in accordance with RICS Red Book, the valuation of specialist properties and appraisal and Valuation standards. Valuation Certain specialist types of properties are not capable of valuation according to comparative principles, owing to their unique situation and characteristics CEM (2010) The current market for the sale of public houses is dictated by the type and location of the premises available. The public house market, according to RICS is split into 6 categories or types 1) Town Centre: Bar 2) Town Centre: Traditional Pub (either food or wet led); 3) Urban 4) Suburban 5) Rural and 6) Food Led. Therefore as the valuer, the opinion of the market is based on the businesses current receipts in relation to wet and dry sales as created within its market. Its market is also defined by the purchaser (the public house company) and its intended future use. This will be influenced by the businesses location and subsequent (number and type) competition.

With this being the case with the Black Dog Public House, there is an assumption that the value of the property is related to its revenue stream or profits created out of its beneficial use. The value of the premises is derived on the assumption that any rental income from the property is related to the businesses earning power. Public houses, bars, restaurants and nightclubs are among those types of property generally referred to as trade related property. They are normally bought and sold having regard to their trading potential Red Book 6th Edition The Profits Method is generally used where there is some degree of monopoly attached to the property Millington (2009) A monopoly can be as such legally or factually, this is the case, where a license is required to operate. When valuing using The Profit Method an assumption that the property is vacant and to be let; CEM (2010) is made. The actual accounts provide a basis for the assessment of sales income and the operating expenses. The surplus can then be considered and out of it, the tenant will require CEM (2010) a return on capital invested and remuneration or yield for invested risk.

Year 1 Income Receipts Wine, beer and spirits Food sales Other Hire of function rooms Sub-total (Income) Food and Drink sales (2) 508,000 88,000 12,000 2,500 610,500 298,000

Year 2 518,000 101,000 13,000 2,600 634,600 309,500

Year 3 535,000 128,000 15,000 2,750 680,750 331,500

Average 520,333 105,667 13,333 2,617 641,950 325,000

Purchases

Expenditure Outgoings

Wages (1) Cost of sales Repairs and insurance Utilities Office expenses Advertising Laundry Furnishings Rates Sub-total (Expenditure)

46,000 48,000 50,000 200,000 215,000 221,000 10,000 12,000 10,000 7,000 8,000 8,200 800 850 850 1,000 1,000 1,000 400 450 450 5,000 1,000 1,000 15,000 15,400 15,800 285,200 301,700 308,300

48,000 212,000 10,667 7,733 833 1,000 433 2,333 15,400 298,400

Notes 1. Average for 3 years but trends will be considered during Adjusted Accounts 2. At 50% of sales of Food and Drink

It should be considered that the actual accounts may not always offer a true flection of the businesses, or premises earning potential, all they record is the actual income and

expenditure, black and white, the figures but not the facts. They do not consider, how other external factors, such as human input affect the business performance. The concept of the method is to evaluate and adjust the accounts based on what would be considered reasonable through the evaluation of Fair Maintainable Trade. This requires consideration in terms of evaluating the type of pub or licensed premises that is being examined, the area it is in and what level of services it is able to offer.

Adjusted accounts for valuation Income Wine, beer and spirits (3) Food sales Other Hire of function room (2) Total gross earnings Less Purchases (Cost of Sales) Gross Profit Expenditure Wages (1) Repairs & insurance Utilities Office Expenses Advertising Laundry Furnishings Business rates (4) Total Expenses Expected Future Net profit

525,000 110,000 13,333 2,650 650,983 212,000 438,983

51,000 10,500 8,610 850 1,000 450 2,000 16,200 90,610 348,373

Interest on Operators Capital@ 5.5% of 350,000 Divisible balance Half to rent Notes 1. Wages adjusted upwards to mimick trends set 2. Adjusted downwards from average to indicate corporate slow down 3. Average taken to display current economic trend and impact. 4. Increased on average to display yearly increase

19,250 329,123 165,000

The essential characteristics of properties that are normally sold on the basis of their trading potential is that they are designed, or adapted, for specific use and that ownership of the property normally passes with the sale of the business as an operational entity Red

Book 6th Edition. Entity is defined as including any legal interest within the land, the trades, fixtures, fittings and equipment. The capital value of such is evaluated using two approaches; the single earnings multiplier and the dual capitalisation approach. The single earnings multiplier is formed on the concept that the value of the land and buildings is directly linked with the businesses profits; therefore the relationship between net profit and sales value of the property is evaluated and the entity approach is inclusive, not only of the land and the buildings and profits, but also of the tenants fixtures and fittings
Capital Value - Single earnings multiplier Net profit Value as an operational entity @ YP (1) 348,373 5 1,741,865 Notes 1. Derived YP to give a return on investment of 20% - This includes rental value and Operators profit it is also to include the fixtures and fittings

And the Dual Capitalisation approach considers the value of the land and buildings along with the sum of the business, as evaluated from a reasonable perspective, which runs with the land, A bricks and mortar valuation business venture aside.
Capital Value Dual Capitalisation approach Rental value YP perp @ 12% (1) Value of rental slice Operational profit YP Value of residual profit slice Tenants fixtures, furniture etc (2) 165,000 8.333 1,374,945 164,123 3 492,369 25,000

1,892,314 Notes 1. High YP Perp of 12% used to highlight the competition in the Market Place, normal pub YP Perp suggested by Isurv at 9/10% 2. 25,000 used based on the age of the fittures and fittings, with some being replaced 3 years ago 3. Good Will Valuation not used as valuation is in relation to a leisure property as stated in GN1

Discussion As concluded by RICS, public houses are not held within a homogenous market, meaning no two entities within the market are the same, which makes comparison very difficult.

The essence of understanding the market and the key to valuing a public house is determined by understanding the purchasers requirements, the property type and location in tandem with an evaluation of the business accounts.
The basic truth is that rent can only be paid if the tenants can sell enough beer to cover rent

and make a living CBR Ellis (2011), showing a direct correlation with the propertys value and the success of the business. The market which the Black Dog occupies, Horsham, competition appears to expanding, there is considerable competition from major national food retailers, such as Ask, Wagamammas and Strada within the Town Centre, making any new venture or business take on considerable risk. How-ever much demand is derived from the ever expanding local micro-brewery market, with the emergence of Dark Star, Taylor Woodhouse and King & Co looking for public houses to show-case their ales. Horsham being a traditional market town has always strived on local breweries to supporting the pub market, with as many as 12 public houses, independent and brewery linked with in or around the town centre. The success is based on the required consistence of good ale with, good local pub food or themed (Chinese, Thai or Indian) foods being served, as well as goodwill and reputation The market within Horsham is forever growing with the expansion of the population and new homes. There are currently no empty or vacant retail or leisure unit, which suggests that the market is resistant to the current economic market and trends. This is further solidified with the emergence of further eateries and licenced establishments on almost a monthly basis. This however increases the competition of The Black Dog hence the display and use of a high yield. Conclusion With the valuations completed, it is of the opinion that the value of the pub based on the market and accounts of The Black Dog, would be say circa 1,850,000. There are still real opportunities within the sector, but times are changing CBR Ellis (2010) Word Count 1026

Question 2 The purpose of any valuation is to determine the present value of a future cash flow. The value of an investment is the discount value of all estimated future liabilities and benefits French and Gabreilli (2010) The method of discounted cash flow as a valuation technique is used to estimate the viability of an investment opportunity by using future cash flow projections and discounts to formulate a net present or market value. Discounted cash flow is used to evaluate the potential or internal rate of return of an investment. Discount cash flow valuation is a valuation method where future cash flows are discounted to produce a present value. When used to estimate Market Value, all the variables used in the calculation must be based on market evidence ()DCF is an opinion of market value which is based on growth expectations and a discount rate, all supported by market evidence. If any are based on a client's projections then the calculation will be an assessment of value (worth) to that client on those assumptions. Isurv (2011) The benefit of using the discount valuation method is to provide a basis for a transparent alternative to perpetuity and capitalisation through the use of an all risks yield. Discounted cash flow takes into account projected rents and depreciation over a given period of time without the need of the overall adaptation of various external factors through the use an all risk yield and market comparables. Discounted cash flow is used for an evaluation of the hidden assumptions implied in the all-risk yield method French and Gaberilli (2010) For an investment, such as the Riverside Retail Park, discounted cash flow allows for specific market growth rates to be reflected and displayed to mirror market assumptions. It also allows a valuer to consider current and future economic and market circumstances. Another benefit is that specific tranches of income and expenditure can be broken down in to individual time periods to reflect varying income periods or lease terms as with the valuations of the DCFs for Riverside Retail Park. It allows for various forms of income to be evaluated as one investment. Unlike other traditional methods of valuations; discounted cash flow will enable and the valuer to be able to be able to display the expected net cash

flow for each period as well as the total net present value of a total investment, whether it is positive or negative as has been done with The Riverside Retail Park. The use of a discounted cash flow table will enable the valuer to take into account expenditure against income, whilst formulating the investments internal rate of return. The discounted cash flow method allows for a reflection of a future income and or re-sale value which can reasonably be expected, whereas the other traditional methods evaluate and compare with what has been paid in the past. However each valuation method is only as good the market assumptions made and the market data itself. The advantage of using the discounted cash flow method is that it allows the valuer to consider, reflect and manipulate the individual inputs and factors which affect the valuation, whether it be growth as in The Riverside Retail Park, expenditure etc. This allows for reflect on price, value or worth, in accordance with market conditions, valuation requirements and professional knowledge. The more accurate the future expectations, the more robust the valuation. French and Gaberilli (2010) Word Count 511

1. DCF Valuation based on Case Study 5 Riverside Retail Park (Positive Growth)
Unit 1 Period Years 3-5 2 Years 6 - 10 5 Exit at 10 years Years ^Income Growth @ Income Total 3.9% with growth income 250,000 n/a n/a 250,000 250,000 1.080 269,880 269,880 269,880 n/a n/a 269,880 PV of @ YP @ 12% 12% 1.000 1.6901 0.797 3.8713 0.452 11.4286 TOTAL NPV Unit 2/3 Period Years 2-5 Years 6 - 10 Years 11-15 Exit Unit 4 Period Years 6 - 10 Years 11-15 Exit 4 5 Years ^Income Growth @ Income Total 3.9% with growth income 100,000 n/a n/a 100,000 100,000 1.165 116,537 116,537 116,537 n/a n/a 116,537 PV of @ YP @ 12% 12% 1.000 3.2619 0.636 3.8713 0.361 11.4286 TOTAL NPV Unit 5 Period Years 3-5 Years 6 - 10 Years 11-15 Exit 2 5 5 Years ^Income Growth @ 3.9% 291,500 n/a 291,500 1.080 314,680 1.307 411,318 n/a Income with growth n/a 314,680 411,318 n/a Total income 291,500 314,680 411,318 411,318 PV of @ YP @ 12% 12% 1.0000 1.815 0.7972 3.871 0.4523 3.871 0.2567 11.4286 TOTAL NPV NPV 529,075 971,161 720,293 1,206,576 3,427,105 12,721,980 NPV 326,192 286,713 1,331,850 1,944,755 3 5 5 Years ^Income Growth @ 3.9% 250,000 n/a 250,000 1.122 280,406 1.358 380,813 n/a Income with growth n/a 280,406 380,813 n/a Total income 250,000 280,406 380,813 380,813 PV of @ YP @ 12% 12% 1.0000 2.579 0.7118 3.871 0.4039 3.871 0.2292 11.4286 TOTAL NPV NPV 644,854 772,663 595,422 997,402.43 3,010,342 NPV 422,525 832,899 3,084,353 4,339,778

Riverside Retail Park Overall NPV Notes 1. Growth Rate of 3.9% used based on the case study evidence from Tollgate. This means that there upwards increase in the per square ft value of the units 2. It is assumed that each lease will be sold at the end of each of their individual terms 3. YP and PV used at 12% based on the investors required rate of return 4. Exit Yield of 8.75% in comparison to the equivalent yield based on the sale of Tollgate Retail Park The increase by 1% has been evaluated to consider the condition of Riverside Retail Park, being constructed in 1980

2. DCF Valuation Current Market Conditions (Negative Growth)

Unit 1 Period Years 3-5 2 Years 6 - 10 5 Exit at 10 years Years ^Income Growth @ Income Total -1.5% with growth income 250,000 n/a n/a 250,000 250,000 0.970 242,556 242,556 242,556 n/a n/a 242,556 PV of @ YP @ 12% 12% 1.000 1.6901 0.797 3.8713 0.452 11.4286 TOTAL NPV Unit 2/3 Period Years 2-5 Years 6 - 10 Years 11-15 Exit Unit 4 Period Years 6 - 10 Years 11-15 Exit 4 5 Years ^Income Growth @ -1.5% 100,000 n/a 100,000 0.941 94,134 n/a Income Total with growth income n/a 100,000 94,134 94,134 n/a 94,134 PV of @ YP @ NPV 12% 12% 1.000 3.2619 326,192 0.636 3.8713 231,596 0.361 11.4286 1,075,816 TOTAL NPV Unit 5 Period Years 3-5 Years 6 - 10 Years 11-15 Exit 2 5 5 Years ^Income Growth @ -1.5% 291,500 n/a 291,500 0.970 282,821 0.900 254,428 n/a Income with growth n/a 282,821 254,428 n/a Total income 291,500 282,821 254,428 254,428 PV of @ YP @ 12% 12% 1.0000 1.815 0.7972 3.871 0.4523 3.871 0.2567 11.4286 TOTAL NPV NPV 529,075 872,836 445,550 746,349 2,593,810 1,633,604 3 5 5 Years ^Income Growth @ -1.5% 250,000 n/a 250,000 0.956 238,918 0.886 211,709 n/a Income with growth n/a 238,918 211,709 n/a Total income 250,000 238,918 211,709 211,709 PV of @ YP @ 12% 12% 1.0000 2.579 0.7118 3.871 0.4039 3.871 0.2292 11.4286 TOTAL NPV NPV 644,854 658,343 331,018 554,494.77 2,188,710 NPV 422,525 748,572 2,772,078 3,943,176

Riverside Retail Park Overall NPV

10,359,300

Notes 1. Growth Rate adjusted to have a negative impact. This is to reflect current market conditions and trends as reflected by CBR Ellis and GVA Grimley Reports for predictions in 2011 2. It is assessed that currently the retail market is on a downward trend and despite the case studystating upward only rent reviews this does not reflect true market conditions. Rental incomes have actually decrease by up to 8.2% over the last two years

3. DCF Valuation 5 years future expected Growth (Almost Zero Growth)

Your Ref: 602CMR Our Ref: 0901686 Alliance and Leicester, Santander UK plc, Carlton Park, Narborough, Leicester, LE19 0AL 18th of September 2011 Dear Sirs, Valuation of 602 Commercial Road, Limehouse, London, E14 as of the 14th September 2011 Basic of Instruction In accordance with our terms of engagement issued on the 21st of August 2011 and in relation to compliance with V.1.4, all matters have been fully brought to the clients attention prior to the completion of the report. Our terms of engagement have been executed to the minimum requirements as External Valuers as defined by V.2.1 We have been instructed by Alliance and Leicester, Santander UK plc, Carlton Park, Narborough, Leicester, LE19 0AL to value and prepare a valuation report in relation and respect of the Long Leasehold interest, as detailed below. The valuation is required for secured commercial lending purposes and will be dealt in reference with Appendix 5.

The valuation of the Long Leasehold was on the following; As intended as being owner occupied: valued to Market Value which will held predominantly for owner occupational purposes and is intended for occupation by a third party under the proposed long leasehold. The lease has not been sited and the strength of its covenants undetermined, it is recommended that the lease is obtained for reading. The property will be and is vacant at the date of valuation This valuation has been prepared in accordance with the RICS Valuation UK and Global Standards, 7th Edition, issued by The Royal Institution of Chartered Surveyors as of May 2011. As instructed, the valuation has been provided on the basis of Market Value, with any special assumptions set out and highlighted within the report in accordance with V.2.2 The valuers opinion of Market Value was primarily derived using comparable recent market transactions on arms-length terms, with evidence of the proposed lease. Market Value is defined internationally as the estimated amount for which a property should exchange on the date of the valuation between a willing buyer and a willing seller in an arms-length transaction after proper marketing, wherein the parties have acted knowledgably, prudently and without compulsion We can confirm that the independent valuer meets the requirements of the RICS Valuation Standards V.1.5 to V1.7 and holds sufficient current knowledge of the particular market under inspection whilst obtaining the necessary skills and understanding to undertake the valuation with competency. It is also confirmed that there has been no previous material involvement that may affect the valuation. Inspection The property was inspected by the valuer on 14th of September 2011. An Internal and External visual inspection of the property was undertaken, although it should be noted that the residential accommodation above was not inspected and does not form part of this valuation.

A full structural survey has not be completed but comment is drawn to the indication that the premises is due from completion in the Autumn of this year (2011) and on completion will be issued with an NHBC 10 year building guarantee. No disrepair is noted. It is necessary as a recommendation that all local searches and flood risk assessments are performed due to the location of the premise and its proximity to the canal. These assessments were not performed as per our terms of engagement. Plan Enclosed with this report as an appendix is site plan of the property, accompanied by an obtained conveyance plan and Ordnance Survey Map to the scale of 1:100m. Location This new A3/B1/D1/D2 accommodation (It should be noted that the mode of commercial use of the development has not been reified) is located on the North of The River Thames on Commercial Road (A13) Limehouse, within the London Borough of Tower Hamlets. The unit is accessed directly off Commercial Road with secondary access from canal side; the commercial unit is completely separate to the residential units. Forming part of this new mixed used development it is situated directly adjacent to and overlooking Regents Canal and Limehouse Dock. The subject property is highly accessible to Limehouse DLR Station being approximately 200 meters away and subject to a regular service to Bank (8 Minutes) and Canary Wharf (8 Minutes) Description The subject property comprises approximately 5,306 sq. ft. (493m2) GIA of which 667sq ft is located at street level with the surplus 4,639 sq. ft. at canal or basement level and is occupational as a complete unit only. The building is modern and is of brick and block construction, with a re-enforced steel frame. Natural light is provided by floor to ceiling powder coated aluminium framed glazing to both the canal and street levels, additional security grating louvres are provided. There is

additional external light to Commercial Road and the Canal Walk. It is confirmed that energy rating and proficiency has not been assessed and the relevant reports should be obtained when completed. The Gross Internal floor space has a basic internal fit out, with wooden laminate flooring, basic ceiling spot lights and plastered white washed walls and ceiling. The unit offers additional services; one multi-purpose toilet, fitted from Roca Polo Range, a Small fully fitted kitchen with subsequent white goods (Washing Machine, Dishwasher and electric oven appliances not tested) Services All mains services will be provided and metered. With Gas, Electricity and Water all connected. Services confirmed by not tested. It is highlighted that the water is maintained by a Grudfos Europump, again not tested. Rating Due to the premise not yet being completed, there is no confirmation or indication of rating to add to the valuation report. Further investigation is required. The property falls under the boundaries of Tower Hamlets Council. Planning Tower Hamlets planning register has be inspected for entries relating to the property. We can confirm that planning consent was submitted on the 14th of October 2008 and granted on the 4th of February 2009 under application PA/08/02207. We understand that no refusals have affected the planning application Planning granted is for the erection of the total buildings is to include two and nine storeys to provide 34 dwellings (5 x studio, 10 x one bedroom, 13 x two bedroom, 5 x three bedroom and 1 x five bedroom units) and 493 sq. m. of commercial floor-space has been completed by Bellway Homes.

There is an attached 106 agreement with the building consent which should be obtained to understand any requirement for any on-going obligations. This has not been investigated by this report and has not been taken in to account in the Market Valuation Title and Tenure We have not seen office copies of the Title Plan and therefore the plans enclosed are for illustrative purposes only and ought to be verified by the lender. It is recommended that a full report on the Title is completed. In reaching our conclusion of value we assumed that the subject property is available on a long lease, indicated at being 250 years and to start at the time of completion, with vacant possession and a ground rent of 500 p.a. The terms of the lease covenants have not been confirmed but an assumption that the landlord is obligated to undertake external and structural repairs is assumed. With the responsibility of the leaseholder being to undertake and keep the internal of the property is a good and substantial condition For the purpose of this valuation it is also assumed that the Tenant may assign a sub-lease of the whole of the premise with the freeholders consents. Valuation The property is marketed at 600,000 for the long leasehold interest The valuation is based on Market rents of 9-11 per sq. ft. being used to value the development, based on evidence from current market evidence and a current rental report from CB Ellis. Lower end values have been taken, due to the over-supply of commercial premises and new build premises in E14, Units on 582 600 Commercial Road are currently on the market for sale which offers large supply and will subsequently affect the current value. This value has be agreed despite acknowledgement of it being a new build, fully fitted and available for vacant possession. The area is under significant redevelopment at this, due to the pending Olympic Games this may affect further values and the perspective of the purchase.

The valuation is as follows;

602 Commercial Road -Long Leasehold Street Level 667 sq ft @ 9.61 Canal Level 4639 sq ft @ 10.25 Market Rent Ground Rent Net Profit Rent Yp Perp @ 11% Market Value 6,410 44,550 53,960 500 53,560 9.091 486,005

On the basis of the above, our opinion of the open market value of the long leasehold interest in the property is 486,000 (Four hundred and Eighty Six Thousand Pounds Sterling) this is considerably less than the propertys asking price with no allowance made for purchasing costs. In accordance with VS 6.1 Assuming normal lending terms of 5.2% with the requirement of 30% capital of the value reported the premises would be considered suitable as security for mortgage-purposes.

Conditions This report and valuations have been prepared on the basis that there has been disclosure of all relevant information, except where special assumptions have been made, which may affect the premises. Our report and valuation is only for use of the party to whom it is addressed and no responsibility is accepted to any third party for the whole of part of its contents. As indicated as good practice by Appendix 5.11 please find attached to the report our terms of engagement as agreed and referred to.

Yours Faithfully

The Valuer MRICS For and on behalf of CEM Surveyors Word Count 1319 Total Word Count 2856

Appendix Ordnance Survey 1:100m

Conveyance Plan

Site Plan

MORTGAGE VALUATION CONDITIONS OF ENGAGEMENT A valuation for mortgage purposes is a limited inspection and report produced for Building Societies, Banks and other Lenders to enable them to make a lending decision. The Firm reserves the right to make the mortgage information available to other parties, lenders, or prospective borrowers. IT IS NOT A SURVEY. Unless otherwise stated the date of valuation will be the date of inspection. We confirm that our mortgage valuation is prepared in accordance with the R.I.C.S Valuation Standards, 7th Edition, effective from 2nd May 2011, and, unless otherwise stated, we are External Valuers as defined therein. When required to depart from these standards, or in expectation of a requirement to depart from these standards, in respect of a specific action, this will be stated in the body of the report and must not be taken to imply departure from the standards in any other respect. Further information may also be obtained from the Royal Institution of Chartered Surveyors The report is used to guide the lender on the market value of the property for mortgage purposes, and is carried out for this purpose alone. Although the inspection will be carried out by a valuer who will usually be a qualified surveyor it is not a detailed inspection of the property, and only major visible defects will be noted. The surveyor will not inspect roof spaces, under floor areas or other parts not readily accessible. The exterior and roof of the property will be inspected from ground level only from within the boundaries of the site and adjacent/communal public areas. The area of the property will be taken into account, and the rooms individually inspected, but floor coverings and furniture will not be moved. Services (such as water, gas, electricity and drainage) will not be tested and we will not advise as to whether these comply with regulations in respect of these services. The surveyor may recommend that a part of the mortgage be retained by the lenders until such time as particular repair works are carried out. Similarly the report may suggest that the borrower should undertake to carry out certain repairs or commission more extensive investigation where hidden defects are suspected since these may have a material effect on the value of the property. If retention is recommended then the figure should not be regarded as an estimate of repair costs. Its purpose is to protect the interests of the lending institution. It is recommended that detailed estimates be obtained before proceeding with the purchase. Attention is drawn to the fact that if a subsequent transcription of this report is prepared on a lenders form, then in order to comply with the lenders specific requirements, the wording, phraseology or valuation may differ. Many people rely on the Mortgage Valuation Certificate in the mistaken belief that it is a detailed survey. The report is often made available to house buyers by lenders, but this does not mean that it should be relied upon as a report of the condition of the building. The definition of `market value' is the estimated amount for which a property should exchange on the date of valuation, between a willing buyer and a willing seller in an arms length transaction after proper marketing wherein the parties had acted knowledgeably, prudently and without compulsion. For the purposes of this market value we have assumed that vacant possession will be provided. Unless otherwise stated we have valued the interest on a Comparable Basis. The definition of market rental value (when reported) is the estimated amount for which a property, or space within a property, should lease (let) on the date of valuation between a willing lessor or a willing lessee on appropriate lease terms in an arms length transaction after proper marketing wherein the parties had acted knowledgeably, prudently and without compulsion. The valuation assumes that the let complies with Houses in Multiple Occupation legislation if appropriate. The inspection that has been undertaken should not be regarded as a survey. We did not inspect parts of the property which were covered, unexposed or inaccessible and are therefore unable to report that any such part of the property is free from defect. Defects which are not considered materially to affect the value of the property or other matters which would be attended to during maintenance, may not have been mentioned. If defects have been mentioned in this report, they should be regarded as indicative and not exhaustive. Notwithstanding the above comment we would also recommend a more detailed inspection and report. For the purposes of this valuation we have assumed that all uninspected areas are free from defect which would have a material effect on value. In accordance with our normal practice, we must state that this report is for the use only of the party to whom it is addressed or their named client and no responsibility is accepted to any third party for the whole or any part of its content. In addition, we would bring to your attention that neither the whole nor any part of this report, nor any reference thereto, may be included in any document, circular or statement without prior written approval of the form and context in which it will appear.

The Valuer shall, unless otherwise expressly agreed, rely upon information provided by the Client and/or the Client's legal or other professional advisers relating to tenure, leases and all other relevant matters. For the purposes of this valuation we have assumed that all ground burdens are nominal or have been redeemed and that there are no unusual outgoings or onerous restrictions contained within the Titles of which we have no knowledge. We have further assumed that the subjects are unaffected by any adverse planning proposals. Unless otherwise stated, it is assumed that all the required valid planning permissions and statutory approvals for the buildings and for their use, including any recent or significant extensions or alterations, have been obtained and complied with. Works not requiring consent have been assumed to meet the standards required by the building regulations or are exempt. It has been further assumed that no deleterious or hazardous materials or techniques have been used in the construction of the subjects and that there is no contamination in or from the ground or from the immediate surrounds. The valuer will not carry out an asbestos inspection and will not be acting as an asbestos inspector in completing a valuation inspection of properties that may fall within the Control of Asbestos Regulations 2006. No enquiry of the duty holder, as defined in the Control of Asbestos Regulations 2006, of the existence of an asbestos register, or of any plan for the management of asbestos will be made. Your legal adviser/conveyancer should confirm the duty holder under these regulations, the availability of an Asbestos Register and the existence and management of any asbestos containing materials. For the purposes of this valuation, we have assumed that there is a duty holder, as defined in the Control of Asbestos Regulations 2006, and that a Register of Asbestos and effective Management Plan is in place which does not require any immediate expenditure or pose a significant risk to health or breach the HSE Regulations. The valuer will not carry out an inspection for Japanese knotweed. Unless otherwise stated, for the purposes of the valuation we have assumed that there is no Japanese knotweed within the boundaries of the property or in neighbouring properties. The identification of Japanese knotweed should be made by a specialist contractor. It must be removed by specialist contractors and removal may be expensive. Where the valuer does report the presence of Japanese knotweed within the boundaries of the property, further investigations may be recommended As part of our remit, we may, where we feel qualified and experienced to do so, provide general comment on standard appropriate supplementary documentation, presented to us by the clients lender and conveyancer. In the event of a significant amount of documentation being provided to us, an additional fee may be incurred. Any additional fees will be agreed. The firm has a complaints procedure in accordance with Rule 7 of the 2007 Rules of conduct for firms of The Royal Institution of Chartered Surveyors. A copy of this procedure is available on request. In the event that this report is received before or at the same time as receipt of our Confirmation of Instructions we have departed from the requirements of the RICS Valuation Standards to have previously confirmed in writing to you certain information and our Conditions of Engagement. DMH

Hall (2011)

Bibliography Baum, A , Nunnington N, Mackmin D, (2009) The Income Approach to Property Valuation, Fifth Edition, Estate Gazette CEM (2010) Methods of Valuation CEM (2010) Leasehold Interest CEM (2010) Valuing for Investment CEM (2009) Valuation for Loan Purposes CEM (2007) Valuation on the basis of Profits CEM (2003) Contractors and profit methods of valuation CEM (2009) International Valuation Standards and the RICS Appraisals and Valuation Standards CEM (2008) Methods of Valuation CEM (2011) Case Study 1 The Addams Family Portfolio CEM (2011) Case Study 2 The Black Dog CEM (2011) Case Study 5 The Riverside Retail Park, Midtown Millington AF (2009) An Introduction to Property Valuation, Fifth Edition, Estate Gazette

Web Based Material CB Richard Ellis (2010) Prime Rents and Yields http://www.cbre.co.uk/uk_en/news_events/news_detail?p_id=4672 Last Accessed 17th September 2011 2011 CB Richard Ellis (2009) Time to get down to the Real (Estate) Business www.cbre.co.uk Last Accessed 18th September 2011 Claridges (2011) Property Details www.claridges-commercial.co.uk Last Accessed 10th September 2011 DMH Hall (2011) Terms of Engagement for Mortgage Valuation www.apps.dmhall.co.uk/.../MVR%20Conditions%20of%20Engagement.pdf Last Accessed 17th of September 2011

French, Nicky & Gaberilli, Laura (2010) Discounted Cash Flow http://www.reading.ac.uk/REP/fulltxt/0505.pdf Last Accessed 17th of September 2011 Isurv (2011) Various http://www.isurv.com Last Accessed 18th of September 2011 RICS (2010/11) Red Book Edition 6th & 7th www.isurv.com Last Accessed 18th of September 2011 Tower Hamlets (2011) Online Planning http://194.201.98.213/WAM/showCaseFile.do;jsessionid=B4E219CFA6244C6F52E08EE5 A72286B8?action=show&appType=Planning&appNumber=PA/08/2207 Last Accessed 18th of September 2011