Data Resources. Appendix B CONTROL PREMIUMS/MINORITY DISCOUNTS DISCOUNTS FOR LACK OF MARKETABILITY

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1 Business Valuation Discounts and Premiums, Second Edition By Shannon P. Pratt Copyright 2009 by John Wiley & Sons, Inc. Data Resources Appendix B Control Premiums/Minority Discounts Discounts for Lack of Marketability Discounts from Net Asset Value for Limited Partnership Interests Discounts from Net Asset Value for REITs and REOCs Discounts from Net Asset Value for Closed-End Investment Funds Discount and Capitalization Rates CONTROL PREMIUMS/MINORITY DISCOUNTS Mergerstat/BVR Control Premium Study. Business Valuation Resources, LLC SW Broadway, Suite 1200, Portland, OR 97205, (888) BUS-VALU [ ], Available online at FactSet Mergerstat, LLC located in Santa Monica, California, publishes this study. This study is a breakthrough new Web-based tool used to quantify minority discounts and control premiums used in the business valuation, business appraisal, venture capital, and merger and acquisition (M&A) professions. Subscribers to the Mergerstat/BVR Control Premium Study are granted access to all of the details in the database, including the five control premiums, implied minority discount, five valuation multiples and other relevant financial data. One important benefit to the Web-based version is the instant access to ten years of back data allowing easy manipulation of the control premium and minority discount information needed. Data is organized by industry, SIC code, calendar quarter, and by individual business sale. Approximately 57 percent of the Mergerstat/BVR Control Premium Study represents U.S.-based companies, with the remainder being international companies. Subscribers will instantly gain access to 10 plus years of valuable back data (1998 present). As of March 2008, the Mergerstat/BVR Control Premium Study contains 6,090 total transactions, with 49 percent of the deals in the database having net sales less than $100 million, and the remainder having net sales greater than $100 million. DISCOUNTS FOR LACK OF MARKETABILITY Emory Pre-IPO Studies. The Value of Marketability as Illustrated in Initial Public Offerings of Common Stock. John D. Emory, Sr., ASA. Emory & Co., LLC. 611 North Broadway, Suite 210, Milwaukee, WI, 53202, This is a series of studies over time and published as 10 separate articles, with most appearing in Business Valuation Review and the earliest in ASA Valuation. The most recent two article studies 410

2 Discounts for Lack of Marketability 411 were co-authored with John D. Emory Jr. and F. R. Dengel III, and published in Shannon Pratt s Business Valuation Update. The studies analyze prices of transactions in private company stocks that occurred within five months prior to the IPO. The tables show private transaction price, transaction type, public offering price, and discount from IPO price or premium over private transaction price (expressed as a percentage), as well as various other information. Beginning with the earliest, the time periods covered in the studies are as follows: January 1980 through June 1981; January 1985 through June 1986; August 1987 through January 1989; February 1989 through July 1990; August 1990 through January 1992; February 1992 through July 1993; January 1994 through June 1995; November 1995 through April 1997; May 1997 through March 2000; May 1997 through December 2000 (expanded study). The Emory Pre-IPO Studies are available at Valuation Adv isors Lack of Marketability Discount Study. The study was developed by Brian Pearson of Valuation Advisors, LLC (VAL), and compares the initial public offering (IPO) stock price to pre-ipo common stock, common stock option and convertible preferred stock prices. This study is a Web-based tool used to quantify lack of marketability discounts. The study includes pre-ipo transactions from 1995 to present. In addition to using the study to determine and defend your business valuation discounts, it can also be used to develop industry information for the selection of companies for use in the market-based valuation approach, and to analyze venture capital investments. This is updated monthly and available online from Business Valuation Resources. Restricted Stock Studies. National Association of Certified Valuation Analysts East Brickyard Road, Suite 200, Salt Lake City, UT 84106, , com. This is a series of studies undertaken independent of each other, comparing private block sale prices of restricted stocks to same-day public trading prices, with the differences considered proxies for a discount for lack of marketability. Beginning with the earliest, the names of these studies and the time periods they cover are: SEC Institutional Investor Study ( ); Gelman Study ( ); Trout Study ( ); Moroney Study ( ); Maher Study ( ); Standard Research Consultants Study ( ); Silber Study ( ); FMV Opinions Study ( ); Management Planning Study ( ); Johnson Study ( ); and Columbia Financial Advisors Study ( ). The FMV Restricted Stock Study. The study contains detailed information used to quantify marketability discounts in the business valuation, business appraisal, venture capital, and the merger and acquisition professions. It contains 55 data fields for each of its 475 transactions. Available from Business Valuation Resources, LLC, 1000 SW Broadway, Suite 1200, Portland, OR 97205; (888) BUS-VALU [ ], fax: (503) LiquiStat Database. Pluris Valuation Advisors LLC. 17 Battery Place, Suite 1343, New York, NY The LiquiStat database, a study by Espen Robak at Pluris Valuation Advisors LLC, is a continuously updated database of transactions in the secondary market for illiquid securities. Different from other studies, the LiquiStat database specializes in the analysis of discounts taken when investors not affiliated with the issuing company sell restricted stock in private transactions to other investors. The Liqui- Stat database is available at

3 412 Business Valuation Discounts and Premiums DISCOUNTS FROM NET ASSET VALUE FOR LIMITED PARTNERSHIP INTERESTS Comprehensiv e Guide for the Valuation of Family Limited Partnerships, 3rd edition. Partnership Profiles, Inc. P.O. Box 7938, Dallas, TX, 75209, This book offers empirical support for valuing minority interests in family limited partnerships. Based on eight years worth of partnership secondary market data collected by Partnership Profiles, this book s key premise is that discounts from net asset value are the result of the rate of return sought by an investor. The authors develop a methodology of deriving a risk premium to use in building up discount rates for real estate entities using REIT and publicly held real estate partnership return data. The book also includes all of the historical Partnership Profiles discount studies since 1992, the authors articles on FLP valuation and the most important court decisions regarding FLP valuations reprinted from This 200+ page book is a step-by-step guide that illustrates how to use closed-end fund and public limited partnership data to value privately held FLP interests. It is a comprehensive compilation of research that demonstrates the use of the Income and Market Approach for FLP appraisals involving real estate, marketable securities, and oil and gas interests. The third edition includes the results of a new study on how much of a discount for marketability is imbedded in public limited partnership data, as well as two new studies on how to objectively support a discount for lack of marketability. Partnership Re-Sale Discount Study. Partnership Profiles, Inc. P.O. Box 7938, Dallas, TX 75209, , The Re-Sale Discount Study has been replaced with a new report called the Executive Summary Report. This report is not available for order separately, but it is included with an annual subscription to the database. This complete package includes Executive Summary Report on Partnership Re- Sale Discounts, Detailed Partnership Data, PartnerDisc, and Partnership Profiles Minority Interest Discount Database. The Partnership Re-Sale Discounts report provides a detailed analysis of the current state of price-to-value discounts based on the prices at which minority interests in real estate partnerships traded in the secondary market, together with a historical look at discounts. This summary reports price-to-value discounts for each partnership included in the survey as well as average price-to-value discounts for the entire group of partnerships and based upon five categories including: (i) Equity Distributing (low to no debt); (ii) Equity Distributing (moderate to high debt); (iii) Equity Non-Distributing; (iv) Undeveloped Land; and (v) Triple-Net-Lease. Minority Interest Discount Database. Partnership Profiles, Inc. P.O. Box 7938, Dallas, TX 75209, , Available online. This online database can be queried from your desktop to identify detailed limited partnership data on over 325 publicly held limited partnerships. In this latest edition, it has added new partnerships and updated prices and historical financial data on actively traded limited partnership interests. This is a software database for business valuation professionals, real estate appraisers, and CPAs who need empirical data to support minority interest discounts when valuing family limited partnerships and other fractional interests involving real estate. This database includes data compiled since 1994 in connection with Partnership Profiles annual Partnership Re-Sale Discount Studies. The software program includes an interface allowing appraisers to select the attributes that are comparable to

4 Discounts from Net Asset Value for Closed-End Investment Funds 413 the FLP or other minority interest being valued, and the database will locate and display those partnerships that match the chosen criteria. The partnership information can be downloaded into a spreadsheet for further analysis. The Direct Inv estment Spectrum. Partnership Profiles, Inc. P.O. Box 225, Argyle, TX 76226, Published bimonthly, available in print. The Direct Investments Spectrum covers the investment arena consisting of nonlisted real estate investments trusts (REITs), limited partnerships, limited liability companies (LLCs), and other direct investment programs. While most of these investment programs are publicly held and registered with the Securities and Exchange Commission (SEC), they are not listed for trading on any recognized securities exchange. These investments are offered through NASD-registered securities brokerage firms. The Spectrum covers prospective offerings, current offerings, and programs that have completed their offering(s). The Spectrum also reports the prices at which interests in these programs have traded in the informal Secondary Market. DISCOUNTS FROM NET ASSET VALUE FOR REITS AND REOCS NAREIT Industry Data & Performance. National Association of Real Estate Investment Trusts (NAREIT) Eye Street, N.W., Suite 600, Washington D.C , NAREIT, NAREIT provides investors and real estate professionals with a library of current and historical data, including performance returns for the U.S. and global markets, dividend yields, market capitalizations, leverage ratios, and much more. This is a comprehensive resource for insight into the Real Estate Investment Trust (REIT), Real Estate Operating Company (REOC), and publicly traded real estate industry, providing a broad range of relevant data, including an overall industry pro le, securities offerings information, and performance statistics. Realty Stock Review. REIT Zone Publications, LLC. Published semimonthly, available in print and online. Publishes data on REITs and REOCs (Real Estate Operating Companies) including estimated adjusted net asset values from investment analysts, benchmark returns such as from Morgan Stanley REIT Index, NAREIT Index, and the Wilshire Real Estate Securities Index. This publication also presents sideby-side analysis of more than 100 REITs and REOCs compared to one another on more than 12 variables, including price, net asset value (NAV), premium/discount, debt, dividend, market capitalization, total return, and more. Types of property in the study range include apartments, factory outlet centers, office, industrial, self-storage, and more. DISCOUNTS FROM NET ASSET VALUE FOR CLOSED-END INVESTMENT FUNDS Barron s Quarterly Closed End Funds. Dow Jones & Company, Inc. 200 Liberty Street, 9th Floor, New York, NY 10281, (212) , Available online. For the closed-end funds the following data are offered: ticker, objective, reported asset value, NAV, market price, premium/discount, 52-week average premium/discount,

5 414 Business Valuation Discounts and Premiums annualized market returns for the quarter, year, 3, 5, and 10-year, 1-year NAV return, dividend yield, expense ratio, phone number, and manager. Barron's online also offers comprehensive weekly mutual fund data, in the format formerly employed in the printed edition. The funds in these listings have at least 1,000 shareholders or $25 million in assets. Wall Street Journal Market Data Center. Dow Jones & Company, Inc. 200 Liberty Street, New York, NY 10281, 800-JOURNAL, Published daily, available in print and online. Offers data on closed-end funds trading on the AMEX, NASDAQ, NYSE, and NASDAQ small cap. The data includes yield change, 52-week low and high, dividend, yield, volume, close, and net change. The Inv estor s Guide to Closed-End Funds. Thomas J. Herzfeld Advisors, Inc. P.O. Box , Miami, FL 33116, , This is a monthly research report containing trading recommendations on all closed-end funds in every issue. The report also contains commentary by Thomas J. Herzfeld, closed-end fund announcements, dividends, and published managed portfolios showing the actual results of investment programs available to subscribers. DISCOUNT AND CAPITALIZATION RATES Morningstar. Product sales and support (312) , Global Headquarters 225 West Wacker Drive, Chicago, IL 60606; (312) Morningstar acquired Ibbotson Associates in Stocks, Bonds, Bills, and Inflation Classic Edition Yearbook is published annually in March. Available in print. Provides historical data on U.S. asset classes. Gives a comprehensive, historical view of the performance of capital markets dating back to Contains total returns and index values for large- and small-company stocks, long-term corporate bonds, long- and intermediate-term government bonds, Treasury bills, and inflation. Optional reports supplement the yearbook on a monthly, quarterly, or semiannual basis. Stocks, Bonds, Bills, and Inflation Valuation Edition Yearbook is published annually in March. Available in print. Complete with real-world examples and useful graphs to illustrate the analyses to help readers make decisions in cost-of-capital estimates. Contains an overview and comparison of the build-up method, Capital Asset Pricing Model, Fama- French 3-factor model, and discounted cash flow approach. Quarterly subscribers receive the yearbook plus three quarterly reports featuring updated industry risk premia for use in the build-up method. Cost of Capital Yearbook is published annually in June plus three quarterly updates in print. Contains valuable information and data on over 300 different industries, based on Standard Industrial Classification (SIC) code. Four separate company size designations based on equity capitalization are used. Detailed statistics for sales, profitability, capitalization, beta, multiples, ratios, equity returns, capital structure, and five separate measures of cost of equity and weighted average cost of capital.

6 Discount and Capitalization Rates 415 Beta Book is published semiannually in February and July. Available in print. Includes statistics on more than 5,000 companies that are essential for calculating cost of equity with the Capital Asset Pricing Model and Fama-French 3-factor model. Traditional 60- month levered and unlevered beta calculations using CAPM regressions are presented. Duff & Phelps, LLC, Risk Premium Report can be a useful tool for estimating the cost of equity capital. One data set allows the user to estimate the cost of equity using a buildup method. Another data set provides corrections to the textbook CAPM estimate of cost of equity capital for the size effect. Available through Morningstar ( com) and Business Valuation Resources ( For more information contact Roger Grabowski, Managing Director, Duff & Phelps, LLC, at (312) Appraiser News Online Economic Indicators. The Appraisal Institute. 550 W. Van Buren Street, Suite 1000, Chicago, IL 60607, , This is a source of equity yield rates for real property investments. The monthly Economic Indicators provide a continuous monitor of the economy and real estate markets by providing economic data from a variety of government websites. The monthly indicators include market rates and bond yields, disposable income data, housing data, unemployment rates, and other benchmarks. These indicators are published in the Appraisal Institute s quarterly magazine, Valuation, as well as the twice-monthly newsletter Appraiser News Online. Korpacz Real Estate Inv estor Surv ey. PricewaterhouseCoopers, LLP, (973) , Published quarterly, available in print and online. This report is a source of equity yield rates for real-property investments. These quarterly indicators feature the discount rate, overall cap rate, and residual cap rate for the following building types: Regional Mall, CBD Office, Warehouse, and Apartment. Also available to Appraisal Institute members through login. RERC Real Estate Report. Real Estate Research Corporation. 980 North Michigan Avenue, Suite 1110, Chicago, IL 60611, , This publication is a source of equity rates for real-property investments. The quarterly RERC Real Estate Report offers various investment criteria including required going-in and terminal capitalization rates, pretax yield rates, and other data for 10 property types on a national and regional level, as well as for 40 major metropolitan markets.