LIPPO-MAPLETREE - Lippo Malls Indonesia Retail Trust - Investor ...

Appendix EReport No.017/WPA-Report/2007Page 32.Valuation RationaleIn arriving at our opinion of value, we have adopted the Income Valuation Method utilizing DiscountedCash Flow Analysis as the primary approach to arrive at our opinion of value and also with InvestmentMethod by making consideration of relevant general and economic factors and in particular haveinvestigated recent sales and leasing transactions of comparable properties that have occurred in theretail market.No allowance has been made in the Valuation for any charges, mortgages or amounts owing on theProperties or for any expenses or taxation which may be incurred in effecting a sale. Unless otherwisestated, it is assumed that the Properties are free from encumbrances, restrictions and outgoings of anonerous nature which could affect value.Discounted Cash Flow AnalysisThe Discounted Cash Flow (DCF) Method is used considering that the Properties are income producingproperties. This form of analysis reflects investors’ decision-making process and values the Properties insuch a manner as to attain the desired level of investment return commensurate with the risk of that assetclass. This method is also more precise as it takes into account the timing receipts and payments.In undertaking this analysis, we have used a wide range of assumptions including rental growth, areversionary market rental rate for each tenant type and its location, other income revenue growth,vacancy allowances, and inflation rate. Our valuation analysis also assumes that an operating companywill manage the shopping centers and absorb all operating expenses for the first three years of the DCFanalysis horizon; subject to the execution of the proposed operating company agreements. Whereapplicable, we have also taken into consideration royalty fees and/or other payments associated withthe BOTagreements and the addendums to the land owners, and the remaining BOT tenure for Propertiesunder BOT arrangements.We have carried out a DCF analysis over a five-year investment horizon from 30 June 2007 (the materialdate) to 30 June 2012 for the seven shopping centers, and over a ten-year horizon from 30 June 2007 (thematerial date) to 30 June 2017 for the seven retail spaces occupied by Matahari Group based on terms andconditions as stipulated in the proposed lease agreements for the Properties.Hypothetically, for the shopping centers held with HGB titles and/or with freehold strata title or itsequivalent, we have assumed that the Properties are sold at the commencement of the sixth year ofthe cash flow. Our selected terminal capitalization rates, used to assess the terminal capital value of theProperties, take into consideration perceived market conditions in the future, estimated cash flow profile,and the overall physical condition of the Properties in 5 years’ time.Continue to page 33.E-33