Construction of Jones Lang LaSalle Prime and Secondary Index Nasima Ahmed Senior Analyst EMEA Capital Market Research 24 th June 2010

2 Agenda  Why?  Definition  Methodology  Health Warnings  Results  Conclusion

3 Why?  Create the first Jones Lang LaSalle Prime and Secondary Index  Limited work done so far, thus need for more academic work in this field  Address the issues of over representation of certain sectors in the existing Jones Lang LaSalle “Growth” and “Value” Index

4 Definition….  “Prime” asset is one which is located in the best position, is new and well designed, is of a lot size popular with investors and is freehold with no restrictive covenants and is let to a sound covenant on a long term lease. All these factors are reflected in the yield of the property, thus “Prime” assets are low yielding property because it has the potential of future capital and rental growth  A “Secondary” asset is characterised by high yields, largely reflecting the location, covenant strength and the age of the property

5 Methodology

6  Sample size 913 properties  Sectors – Office, Retail and Industrial Two approaches: - Equivalent yield quartiles - Capital value quartiles  In order to exclude “hybrid properties” the middle quartile was ignored  Only the “super prime” and “super secondary” (properties which remained in the lower and upper quartiles over the period studied 1996 to 2008) assets were included Methodology 25 th percentile Lower quartile 50 th percentile Middle quartile Upper quartile 75 th percentile

7 Methodology Total Return: Capital value growth: The compounded increase in quarterly values, net of capital expenditure, expressed as a percentage of the capital employed each quarter. Income Return: The net income receivable for the quarter expressed as a percentage of the capital employed over the quarter. Estimated rental value: The increase in the estimated rental value of properties held throughout the measurement period, expressed as a percentage of the rental value at the beginning of the period. Initial yield: The rent passing (net of ground rent) as a percentage of the capital value at the same date. Equivalent yield: Estimation of the discount rate which equates the future income flows to the current capital value.

8 Health Warnings  Data -Lag in valuation -Issue of serial correlation -How representative is the sample  Methodology -Issues concerning management expenses and depreciation

9 Results

10 Source: Jones Lang LaSalle Total Returns by Sector – Prime (EYA*) *Equivalent Yield Approach

11 Total Returns by Sector – Secondary (EYA) Source: Jones Lang LaSalle *Equivalent Yield Approach

12 Office ERV (EYA) Source: Jones Lang LaSalle

13 Total Returns by Sector – Prime (CVA) Source: Jones Lang LaSalle *Capital Value Approach

14 Total Returns by Sector – Secondary (CVA) Source: Jones Lang LaSalle *Capital Value Approach

15 IPD and JLL Prime and Secondary Index Office Total Returns – (EYA) Office Total Returns – (CVA) Source: Jones Lang LaSalle, IPD

16 Performance Summary Total Returns PrimeSecondary 5 year annualised 5 year annualised Office 2.36%0.53% Retail 1.80%1.42% Industry 1.27%1.50% Total Returns PrimeSecondary 10 year annualised 10 year annualised Office 2.26%2.23% Retail 2.28%2.04% Industry 2.00%2.10% Source: Jones Lang LaSalle

17 Conclusion Two approaches : The equivalent yield approach:  More comparable with IPD upper and lower quartile  Accurately demonstrated the market cyclical trends across all the sectors The Capital Value Approach:  Limitation given that it is a lot size measure – e.g. a big block of secondary office can be classified as prime  Does not capture the market cyclical trends across all three sectors Sector Performance:  Office sector : Secondary properties outperformed in the boom years and underperform in down cycle  Retail sector: Followed a similar trend to the office sector from 2007 onwards with prime assets outperforming in boom years and underperforming in down cycle  Industrial sector : showed similar trends to the office sector

18 Recommendation Alternative approaches:  Conduct similar analysis using Initial Yield and Reversionary Yield  Split sample by the qualitative property characteristics of prime and secondary Methodology :  Conduct tests to incorporate some of the “Hybrid” properties to the sample?  The assumption to exclude properties showing +50%/-50% was that the best approach to take?  When calculating returns additional costs such as management costs, depreciation should be included.

19 Thank you Nasima Ahmed Senior Analyst EMEA Capital Market Research Tel: +44 (0) Fax: +44 (0)