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Annex 1
To the Invitation to the Extraordinary General Meeting
on Wednesday, 28 October, 2015 at 10 A.M. (CET)
Deutsche Wohnen AG
Frankfurt am Main, Germany
ISIN DE000A0HN5C6
WKN A0HN5C
Report of the Management Board pursuant to section 186, para. 4, sentence 2 of the German
Stock Corporation Act (“AktG”) on agenda item 1 for the Extraordinary General Meeting to be
held on Wednesday, 28 October 2015 regarding the reason for the exclusion of shareholders’
subscription rights
Annex 1 – Report of the Management Board purs. to sec. 186, para. 4, sent. 2 AktG
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I.
The management board (the „Management Board“) and the supervisory board (the „Supervisory
Board“) of Deutsche Wohnen AG, with its registered office in Frankfurt am Main, Germany
(“Deutsche Wohnen AG” or the “Company”), propose the following to the general meeting
(“General Meeting”):
Increase of the Company’s Share Capital against Contributions in kind with the
Exclusion of the Shareholders’ Subscription Rights and Authorization for the
Amendment of the Articles of Association
II.
The individual proposed resolution is as follows:
Increase of the Company’s Share Capital against Contributions in kind with the
Exclusion of the Shareholders’ Subscription Rights and Authorization for the
Amendment of the Articles of Association
1. The Company’s current share capital, which is currently registered with the
commercial register (Handelsregister) as EUR 336,426,511.00, divided into
336,426,511 ordinary bearer shares with no par value, each with a notional
value of EUR 1.00, will be increased by up to EUR 213,127,385.00 to up to
EUR 549,553,896.00 through the issuance of up to 213,127,385 ordinary
bearer shares with no par value (Stückaktien), each with a notional value of
EUR 1.00 (the “New Shares”), against contributions in kind.
The issue amount (Ausgabebetrag) of the New Shares is EUR 1.00. The
difference between the issue amount (Ausgabebetrag) of the New Shares and
the contribution value (Einbringungswert) of the contributions in kind shall be
allocated to the capital reserve pursuant to section 272, para. 2, no. 4 of the
German Commercial Code (the “HGB”).
2. The New Shares carry full dividend rights as of 1 January 2015.
3. The subscription rights of the shareholders of Deutsche Wohnen AG are
excluded. The shares resulting from the capital increase against contributions
in kind will be issued in connection with a takeover offer to the shareholders
of LEG Immobilien AG pursuant to sections 29 et seq. of the German
Securities Acquisition and Takeover Act (the “WpÜG”) by way of the
Exchange Offer for the purchase of all shares held by the shareholders of LEG
Immobilien AG at a ratio of 1:3.30. Each shareholder of LEG Immobilien AG
is therefore entitled to receive 3.30 New Shares in exchange for each tendered
LEG Share.
4. UBS Deutschland AG, Opernturm, Bockenheimer Landstraße 2-4, 60306
Frankfurt am Main, Germany, and DZ Bank AG Deutsche Zentral-
Genossenschaftsbank, Frankfurt am Main, Platz der Republik, 60265
Annex 1 – Report of the Management Board purs. to sec. 186, para. 4, sent. 2 AktG
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Frankfurt am Main, Germany, will, in general, each subscribe for half of the
New Shares in their capacity as Exchange Trustees (Umtauschtreuhänder) for
the shareholders of LEG Immobilien AG that have accepted the Exchange
Offer. Accordingly, the Exchange Trustees are hereby permitted to subscribe
for the New Shares and will contribute the LEG Shares tendered for the
exchange, as far as they are subject to the capital increase against
contributions in kind, as contributor in kind (Sacheinleger) in Deutsche
Wohnen AG.
5. The capital increase against contributions in kind shall only be implemented to
the extent to which the New Shares have been subscribed for by the Exchange
Trustees by the deadline stipulated in no. 9.
6. The Management Board intends to refrain from an appraisal of the
contributions in kind (section 183, para. 3 of the German Stock Corporation
Act (the “AktG”)) pursuant to sections 183a, 33a of the AktG.
7. The Management Board is authorized to determine further details regarding
the implementation of the capital increase against contributions in kind.
8. The Supervisory Board is authorized to amend the articles of association
according to the implementation of the capital increase against contributions in
kind.
9. The resolution concerning the increase of the share capital against
contributions in kind will become null and void if the completion of the capital
increase has not been filed for entry in the commercial register
(Handelsregister) within three months following the entry of this resolution in
the commercial register (Handelsregister), and in any event no later than
16 May 2016. The Management Board and the chairman of the Supervisory
Board are instructed to file for the entry of the resolution concerning the
increase of the share capital against contributions in kind in the commercial
register (Handelsregister) without undue delay once the requirements for its
registration have been met (in particular, in the event of pending rescission
actions (Anfechtungsklagen) upon the conclusion of a release procedure
(Freigabeverfahren) pursuant to section 246a of the AktG).
The Management Board is authorized to file for the entry of the resolution in the
commercial register (Handelsregister) as soon as the conditions of the resolution have
been met.
The base amount (Ausgangsbetrag) for the capital increase which is described in the
proposed resolution is based on the amount of share capital currently registered with the
commercial register (Handelsregister). Since 1 January 2015, additional shares of the
Company from conditional capital have been issued to former shareholders of GSW
Annex 1 – Report of the Management Board purs. to sec. 186, para. 4, sent. 2 AktG
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Immobilien AG who have exerted their right to compensation based on the domination
agreement concluded between the Company and GSW Immobilien AG. It is possible that
other shareholders of GSW Immobilien AG may exert their right to compensation until the
resolution regarding the capital increase is proposed or the capital increase is implemented.
The corresponding increases out of the conditional capital have not yet been registered with
the commercial register (Handelsregister).
III.
The Management Board of Deutsche Wohnen intends to acquire an interest in LEG by means of an
Exchange Offer and to subsequently integrate LEG into the Deutsche Wohnen Group.
Today, the Management Board has concluded a Business Combination Agreement
(Grundsatzvereinbarung) with LEG with respect to the public takeover offer and the future strategy
and structure of the newly created company group (see III.2.e) below).
In the context of the Exchange Offer, shares of Deutsche Wohnen shall be offered to the shareholders
of LEG. The shares of Deutsche Wohnen shall be issued by means of the proposed capital increase
against contributions in kind and – depending on the number of tendered LEG Shares – possibly also
by means of a capital increase from authorized capital. Because the shares issued by means of the
capital increases shall be offered in exchange for LEG Shares, the subscription rights of the
shareholders of Deutsche Wohnen will be excluded for the proposed capital increase against
contributions in kind.
Hereinafter, the Management Board reports on the reason for the exclusion of subscription rights for
the proposed capital increase against contributions in kind pursuant to section 186, para. 4, sentence 2
of the AktG. This report first describes the background of the planned transaction and the planned
transaction itself in this section III. In particular, this involves the description of Deutsche Wohnen
and LEG, the market environment and the business conditions of the transaction, the expected
synergies resulting from the transaction and an explanation of the valuation of the companies involved
in the transaction.
In section IV., the objective justification for the exclusion of subscription rights in the context of the
capital increase against contributions in kind will be given with regard to the purpose of the capital
measure.
1. Background of the Planned Transaction
a) Deutsche Wohnen
(1) Business activities
Deutsche Wohnen, with its registered office in Frankfurt am Main and its
principal place of business in Berlin, is currently one of the largest publicly
listed real estate stock companies in Germany, based on market capitalization.
The Company is active in residential property management, especially in
Annex 1 – Report of the Management Board purs. to sec. 186, para. 4, sent. 2 AktG
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letting residential units owned by the Company, management of its residential
portfolio and the sale of select residential properties. Through one of its
participations in another company, it also operates nursing homes and assisted
living facilities. In the context of this business strategy, Deutsche Wohnen
focuses on residential and nursing care real estate properties in high-growth
metropolitan regions in Germany. These include the greater Berlin area, the
Rhine-Main region, Mannheim/Ludwigshafen, the Rhineland and Dresden.
Other important areas include stable urban regions such as Hanover/Brunswick,
Magdeburg, Kiel/Lübeck, Halle/Leipzig and Erfurt. Deutsche Wohnen is listed
in Deutsche Börse’s MDAX Index.
(2) Segments
Deutsche Wohnenʼs business is divided into “Residential Property
Management”, “Sales” and “Nursing and Assisted Living Homes” segments.
The “Residential Property Management” segment is the core and focus of its
business, covering all activities in connection with the management and
administration of residential properties, management of lease contracts and
services for tenants. The “Sales” segment covers all activities relating to the
sale of residential units, buildings and land. Deutsche Wohnen AG’s
residential portfolio earmarked for sale is subdivided into block sales
(institutional sales) and single-unit privatization (residential property
privatization). The residential portfolio for block sales mainly includes
residential units in the so-called non-core regions that are not part of the
business strategy of Deutsche Wohnen as well as opportunistic sales. In
connection with single-unit privatizations, Deutsche Wohnen mainly seeks to
sell residential units to owner-occupants and investors. In its “Nursing and
Assisted Living Homes” segment Deutsche Wohnen predominantly manages
and markets its own nursing and residential properties for senior citizens
through one of ist participations in another company under the brand
KATHARINENHOF®.
(3) Portfolio
As of 30 June 2015, Deutsche Wohnen’s residential property portfolio
comprised 141,943 residential units with a total residential floor space of
approximately 8.6 million square metres, based on the total residential floor
space listed in the rental contracts. As of 30 June 2015, the average monthly
contractual rent, based on Deutsche Wohnen’s total residential portfolio,
amounted to EUR 5.78 per square metre. The vacancy rate as of this date was
roughly 2.10%. In addition to residential properties, as of 30 June 2015,
Deutsche Wohnen’s real estate portfolio included 2,072 commercial property
units with a total floor space of approximately 0.3 million square metres based
on the total commercial area listed in the rental agreements, as well as a total
of 30,502 parking garages, underground garage spaces and parking spaces.
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The residential real estate portfolio was evaluated by an external independent
appraiser – CBRE GmbH, Frankfurt (“CBRE”) – as of 30 June 2015 using a
DCF model in accordance with the standards of the Royal Institution of
Chartered Surveyors (RICS) in line with the Red Book, with the exception of
real estate properties for senior citizens used by Katharinenhof, for which the
appraisal as of 30 June 2014 was maintained. According to this appraisal, the
real estate portfolio of Deutsche Wohnen is valued at approximately EUR
10.283 billion (including commercial properties and undeveloped land,
excluding the senior citizen properties used by Katharinenhof) as of 30 June
2015. Deutsche Wohnen’s real estate properties for senior citizens used by
Katharinenhof were valued at EUR 143.8 million by CBRE as of 30 June 2014.
The data calculated by CBRE was updated (fortgeschrieben) by Deutsche
Wohnen in the interim report dated 30 June 2015. According to this report, the
market value as of 30 June 2015 is EUR 143.8 million.
Deutsche Wohnen’s residential real estate portfolio is currently classified into
strategic core- and growth-regions, as well as non-core regions. Within the
strategic core- and growth-regions, Deutsche Wohnen makes a further
distinction between core+-and core-regions.
Core+-regions are dynamic markets in which Deutsche Wohnen sees
considerable potential for rent price increases and a positive market
environment for sales. These markets are characterized by a demand surplus
for residential space. This is the result of a dynamic economic development
and an increase in households, inter alia due to an increase in single-person
households. Deutsche Wohnen’s core+-regions are the metropolitan regions of
(i) greater Berlin, (ii) Rhine-Main, (iii) Mannheim/Ludwigshafen, (iv) the
Rhineland and (v) Dresden. Based on the number of units, approximately 87%
of the units in the residential real estate portfolio were in the core+-regions as
of 30 June 2015.
By contrast, core-regions are regions with a market development that is
expected to be stable. These markets are characterized by a balanced supply
and demand situation, a good economic situation, a stable economic outlook,
average purchasing power and a steady number of households. In particular,
Deutsche Wohnen’s core-regions are (i) Hanover/Brunswick, (ii) Magdeburg,
(iii) Kiel/Lübeck, (iv) Halle/Leipzig, (v) Erfurt and (vi) Other. Based on the
number of units, approximately 11% of the units in the residential real estate
portfolio were in the core-regions as of 30 June 2015.
Non-core-regions are defined as geographic regions where the development is
stagnant and/or there is a negative trend. They include mainly rural areas and
scattered properties. Based on the number of units, approximately 2% of the
units in the residential real estate portfolio were in the non-core-regions as of
30 June 2015.
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In the course of the merger of Deutsche Wohnen and LEG, it is intended to
reclassify the residential real estate portfolio, with a focus on distinguishing
among “core+”, “core” and “high-yield-regions”. The reclassification will take
account of the new circumstances of the merged company and the diversified
regional portfolio. The core+-regions will include greater Berlin, the Rhineland,
Münsterland, Rhine-Main, Mannheim/Ludwigshafen and Dresden. The core-
regions will be defined as the geographic regions of Ostwestfalen, the core
cities of the Ruhr region, Hanover/Brunswick, the Lower Rhine, Kiel/Lübeck
and the core cities of the new federal states. The High-Yield regions will
include the rest of the Ruhr region, Bergisches Land/Sauerland, the rest of the
new federal states and all other regions.
(4) Share capital
The Company’s share capital is currently registered with the commercial
register (Handelsregister) as EUR 336,426,511.00, divided into 336,426,511
ordinary bearer shares, each with a notional value of EUR 1.00. Since 1
January 2015, in addition to this amount, shares of the Company from
conditional capital have been issued to former shareholders of GSW
Immobilien AG who have exerted their right to compensation based on the
domination agreement concluded between the Company and GSW Immobilien
AG. It is possible that other shareholders of GSW Immobilien AG may exert
their right to compensation until the resolution regarding the capital increase is
proposed or the capital increase is implemented. The corresponding increases
in conditional capital have not yet been registered with the commercial register
(Handelsregister).
b) LEG
(1) Business activities
LEG is a publicly traded real estate company with its seat of business in
Düsseldorf. The business model of LEG is focused on the letting and
management of residential units with a clear focus on North Rhine-Westphalia.
This business activity is complemented by the sale of residential units via LEG
Consult GmbH, a subsidiary of LEG. Erste WohnServicePlus GmbH,
Düsseldorf, a subsidiary of LEG, offers (in cooperation with Unitymedia
GmbH) multimedia products for LEG’s residential properties, and
EnergieServicePlus GmbH, Düsseldorf, of which LEG holds 51% of the
shares and RWE Vertrieb AG holds 49%, will assume responsibility for the
complete energy and technical management and supply of LEG properties.
(2) Segments
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LEG’s business is divided into the “Residential” and “Other” segments. The
“Residential” segment includes all residential and commercial properties, own-
used buildings, property companies (Bestandsgesellschaften) and LEG
Wohnen NRW. Real estate portfolios which have evolved from completed
project developments to long-term leasing and which are solely owned by the
group are also maintained in the “Residential” segment.
The “Other” segment includes development companies as well as the
companies LEG Management GmbH and LCS Consulting und Service GmbH.
Let properties that are available for sale from the development business are
also recognized in the “Other” segment. LEG Management GmbH, which is
included in the “Other” segment, focuses primarily on services in connection
with administrative functions and group management.
(3) Portfolio
By its own account, as of 30 June 2015, LEG’s real estate portfolio comprises
107,347 residential units, 1,059 commercial units and 26,648 parking garages
and parking spaces. The total living space amounts to roughly 6.9 million
square metres and the average rent for residential units of the total portfolio
amounted to EUR 5.16 per square metre as of 30 June 2015. As of this date,
the vacancy rate for residential units was 3.30%.
According to LEG, the portfolio can be classified into Growth Markets
(Wachstumsmärkte), Stable Markets (Stabile Märkte) and Higher-Yielding
Markets (Märkte mit höheren Renditen). According to its 2015 semi-annual
report, 33,574 residential units are situated in Growth Markets, with a vacancy
rate of 1.50% and an average rent of EUR 5.79 per square metre. According to
LEG, this price is below the average rent in the respective markets, meaning
that there is a rental potential of 18.00% here. 42,638 residential units are
situated in the Stable Markets segment, with a vacancy rate of 3.70% and an
average rent of EUR 4.89 per square metre. The rental potential here is
identified as 9.00%. In Higher-Yielding Markets, there are, according to LEG,
29,678 residential units with a vacancy rate of 5.30% and an average rent of
EUR 4.78 per square metre. The rental potential here is identified as 8.00%.
According to information provided by LEG in its report for Q2 2015 dated
14 August 2015, the overall portfolio was worth approximately EUR 6 billion
as of 30 June 2015.
In the course of the merger of Deutsche Wohnen and LEG, it is intended to
reclassify the residential real estate portfolio, with a focus on distinguishing
among “core+”, “core” and “high-yield-regions”. The reclassification will take
account of the new circumstances of the merged company and the diversified
regional portfolio (see section III.1.a)(3) above). It is possible that the future
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assessment of the quality of LEG’s markets and sub-portfolios by Deutsche
Wohnen may deviate from the current assessment by LEG as part of this
reclassification of the real estate portfolio.
(4) Share capital
LEG’s current share capital is EUR 58,259,788.00, divided into 58,259,788
registered shares, each with a notional value of EUR 1.00.
LEG has also issued convertible bonds with a nominal value of EUR 300
million (final maturity: 1 July 2021). A complete exercise of the conversion
rights, would, at the current conversion price of EUR 58.4317, lead to the
issuance of approximately 5.13 million shares and thus increase the total
number of shares by about 8.8%.
A change of control as a result of the Exchange Offer would trigger a “Change
of Control” provision under the terms and conditions of the convertible bonds,
according to which the bond holder may, under certain circumstances within
the additional acceptance period pursuant to section 16 of the WpÜG demand,
next to the immediate calling in of the bond its immediate conversion into
LEG Shares at a lower conversion price.
“Change of control” in connection with the Company’s Exchange Offer means
the fulfillment of all offer conditions (including any minimum acceptance
threshold within the offer) that have to occur before the end of the acceptance
period.
In the event of a conversion as a result of a change of control, the conversion
price will be reduced according to the following formula:
Where:
CPa = the adjusted conversion price;
CP = the conversion price on the day directly preceding the day on which the
change of control occurs;
Pr = the initial conversion premium of 30%;
c = the number of days from the day on which the change of control occurs
(inclusive) to the maturity date (exclusive); and
Annex 1 – Report of the Management Board purs. to sec. 186, para. 4, sent. 2 AktG
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t = the number of days from the day on which the the bonds are issued
(inclusive) to the maturity date (exclusive).
A complete exercise of the conversion rights in the event of an assumed
change of control on 1 December 2015 would result in the issuance of roughly
6,324,268 shares and thus increase the total number of shares by about 10.9%.
c) Competitive advantages and synergies resulting from the acquisition of LEG
With the merger of Deutsche Wohnen and LEG, Deutsche Wohnen is
acquiring a high-quality real estate portfolio that provides additional growth
options with an attractive risk/return profile.
(1) Focused combined real estate portfolio with more than 90% of the market
value based on the market value in core+-and core-regions
The combined company will have a focused residential property portfolio of
roughly 250,000 units. This corresponds to an increase of the current portfolio
of Deutsche Wohnen by approximately 107,000 units, or an increase by
around 75% according to the published figures for Deutsche Wohnen and LEG
for the first half of 2015. Additionally, the strong regional concentration of the
combined portfolio enables a continued high management efficiency (see more
on this below).
The portfolio of LEG is primarily located in dynamic markets with
considerable rent increase potential (about 42% based on the market value
(Fair Value)) as well as markets with stable rents (about 36% based on the
market value). The merger with LEG will thus enable Deutsche Wohnen to
increase the number of residential units in its core+-and core-regions
significantly. These markets will make up more than 90% of the combined
portfolio based on the market value after comnpletion of the transaction.
As a result, the core+-portfolio for the combined company will expand from
roughly 123,000 to roughly 157,000 units, primarily through acquisitions in
the Rhineland and Münsterland, and the core-portfolio will increase from
roughly 16,000 to roughly 58,000 units, primarily through acquisitions in core
cities in the Ruhr region and in Ostwestfalen. Based on the market value, about
73% of the combined portfolio will be in core+-regions and 18% in core-
regions. Berlin’s share of the combined portfolio will be almost 50% in terms
of market value, and, looking forward, it will thus represent a significant
growth driver for Deutsche Wohnen.
In addition, after the transaction about 10% (in terms of market value) of the
units in the combined portfolio will be in regions with above-average returns
(so called high yield Markets), which will contribute to an improvement in the
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return profile of Deutsche Wohnen. Significant sell-off portfolios were not
identified by the Management Board on the basis of public information.
The enlarged combined portfolio will enable Deutsche Wohnen to conduct
more active portfolio management through rent management, opportunities for
rounding out the portfolio (Arrondierung) and additional privatization
potential, and thus earn additional increases in revenue and returns. Achieving
critical mass in new core+-and core-regions will also provide additional
opportunities for external growth.
(2) Considerable synergy potential
The merger of the two companies will result in standardized structures and
processes. The Management Board of Deutsche Wohnen believes that,
following the integration, there will be revenue and cost synergies with a
positive effect on the combined FFO (without disposals) of approximately
EUR 35 million per year, before taxes. In addition, the Management Board
expects that the merger will increase the long-term privatization potential by
about 1,500 units, with an additional contribution to earnings
(Ergebnisbeitrag) of about EUR 20 million before taxes each year. Thus, a
total additional contribution to earnings (Ergebnisbeitrag) of about EUR 55
million before taxes per year is expected for the combined FFO (including
disposals).
The Management Board expects that these synergies can be fully realized
within four years after the implementaion of the transaction.
The expected synergy potential mainly arises from the following areas:
Reducing administrative costs (personnel and material costs): The cost ratio
for personnel and material costs, measured on the basis of rental rates, was
about 14.5% at Deutsche Wohnen in the fiscal year 2014. As a result of
scaling effects, the acquisitions carried out in recent years, including GSW
Immobilien AG, were integrated in the Deutsche Wohnen Group with a cost
ratio of about 5 to 10%. For 2015, the Management Board therefore expects
to be able to further reduce Deutsche Wohnen’s cost ratio for personnel and
material costs to about 12% of the rental rates. Based on this experience and
its integration track record, the Management Board expects, as a result of the
merger of Deutsche Wohnen and LEG, to be able to realize considerable cost
reductions through a simplified corporate structure, particularly by unifying
of holding functions, joint contract management and a standardized IT
infrastructure. In the medium term, it targets a cost ratio for personnel and
material costs in the joint company ranging from 11 to 12%.
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Consolidation of the West German operating platforms: The West German
portfolio of Deutsche Wohnen and LEG reveals potentials for optimization in
the local management of the holdings. Management costs per residential unit
are typically heavily dependent on the concentration of the holdings.
Concentrated holdings allow for an optimized division of tasks and thus more
efficient management. The overlap of the Deutsche Wohnen and LEG
portfolios in West Germany means that the concentration of holdings will
increase in numerous areas and therefore synergies can be created from the
uniform management of the holdings. The operational management of the
combined companyʼs West German portfolio is to be conducted through the
Dusseldorf office.
Increase in revenue and returns as a result of the merger of central functions
for the management of real estate holdings: Synergies can also be created by
establishing joint central customer services and back office functions. As the
joint service volume of the two companies will increase significantly, this
will enable a much more efficient operational management and thus an
increase in productivity. In particular, this includes centralized management
of the holdings, centralized support of the rental management (service points),
billing of utility costs and claims management. Thanks to greater
standardization and the adjustment of operating processes the rent potential
can be better realized and vacancy-related costs reduced.
Scaling of purchasing: The combined company will, according to the
assessment of the Company, also have more bargaining power for optimising
purchasing. This affects, in particular, contracts with energy suppliers,
insurance companies and system providers, and the procurement of IT
hardware and services. The realization of these potentials is dependent on
current contractual conditions, particularly the contract periods. In addition,
there is potential for a reduction of purchasing positions related to utilities
and common charges, which will initially only have a marginal impact on the
FFO (without disposals), but will lead to higher customer satisfaction in the
medium term due to lower costs for utilities and common charges.
Additional privatization potential: Value-creating and sustainable single-unit
privatizations are a key pillar of Deutsche Wohnen’s business model.
Deutsche Wohnen’s Management Board intends to increase the volume of
privatizations from over 1,500 units on average over the last three years for
the combined company to over 3,000 units per year in order to profit more
from the current attractive market environment. On the basis of the current
market environment and the realizable gross margins from sales, the
Management Board expects a significant additional contribution to earnings
(Ergebnisbeitrag) for the FFO (including disposals). In addition,
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privatizations will free up considerable financial resources that can be used
for value-creating investments as well as distributions to shareholders.
Assuming that the revenue and cost synergies can be fully realized within four
years, the capitalized value of the expected revenue and cost synergies of EUR
32 million per year is approximately EUR 990 million after taxes. This figure
is based on a capitalization rate of 4%, based on Deutsche Wohnen’s average
weighted capital costs, a growth factor for perpetuities of 1%, an effective tax
rate of 10% and the assumption of an approximately linear development of the
synergies until 2019.
The synergies are offset by expected expenses. Based on information currently
available, the Management Board estimates these expenses to be
approximately EUR 55 million, after taxes. These are comprised in about
equal proportion of transaction costs and integration costs. Based on the
aforementioned estimates by the Management Board regarding the level of
synergies on the one hand and the expenses required to achieve these synergies
on the other hand, the expected net present value of the synergies amounts to
approximately EUR 935 million after taxes. Taking into account the
privatization potential associated with the increase in the residential real estate
portfolio, which according to the estimate of the Management Board can be
realized within two years, the net value of the synergies is about EUR 1,530
million, after taxes.
(3) Maintaining the conservative capital structure and improving the key
financial indicators
The Management Board expects the acquisition in the form of an exchange of
shares to result in a loan-to-value ratio in the combined company of about 42%.
The average financing costs for the combined company, with an average
residual term on financial liabilities of around 10 years, will only be about 2%.
In addition, assuming that termination rights as a consequence of the
completion of the transaction (change of control provisions) are not exercised,
there will not be any significant maturities up to and including the fiscal year
2019. The conservative capital structure is part of the guidance provided by the
Deutsche Wohnen Management Board and should enable continued growth at
low financing costs and support the current A-/A3 rating of Deutsche Wohnen.
As a result, the combined company will enjoy comparatively attractive
financing conditions within the German exchange-listed real estate sector.
The acquisition together with the aforementioned synergies will lead to an
improvement of key financial indicators and a relative strengthening of
Deutsche Wohnen compared to its competitors. The Management Board
anticipates that the merger will enable efficiency advantages as compared to
publicly traded competitors. The Management Board expects that the FFO
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(without disposals) per share, following the full realization of the synergies in
the amount of EUR 35 million (before taxes) per year, will improve in the
lower two digit scale. Taking account of the net present value of the synergies,
the merger will have a broadly neutral impact on the adjusted EPRA NAV
(EPRA NAV minus goodwill plus net present value of the revenue and cost
synergies) per share of Deutsche Wohnen. Thus, taking further account of the
return and risk aspects as well as the growth potential of the combined
company, the merger will clearly create value for Deutsche Wohnen
shareholders (see in detail section III.3.(f)(3) below).
(4) Strengthened capital market profile
Finally, the acquisition strengthens the capital market profile of the combined
company. The expected combined market capitalization (free float) of the
Company and LEG (based on the Xetra closing prices on 18 September 2015
and on the basis of a 100% acceptance rate) in the amount of approximately
EUR 13.4 billion will strengthen the significance and the liquidity of the
Company’s shares and thus its attractiveness for investors. In addition, it is
expected that the solid credit rating of the combined group will allow it to
borrow capital at better conditions in perspective. These factors should also
ensure financing with equity capital and/or debt capital at improved conditions
independently from the market cycle and thus further optimize the capital costs
of the combined company. For example, it is possible that the Exchange Offer
will attract new groups of investors. Furthermore, increased liquidity will also,
in Deutsche Wohnen’s view, open up the possibility of being included in the
DAX 30 in the medium term.
2. Description of the Planned Transaction
Based on the proposed resolution of the Management Board, the acquisition of the shares
of LEG by Deutsche Wohnen is planned as follows:
a) Takeover offer in the form of an Exchange Offer
The Management Board of Deutsche Wohnen resolved to issue a voluntary
takeover offer in the form of an Exchange Offer to all shareholders of LEG
pursuant to sections 29, 31, para. 2, sentence 1, alternative 2 of the WpÜG and
published this decision pursuant to section 10, para. 1, 3, sentence 1 of the
WpÜG. The intention is to offer shares in Deutsche Wohnen to the
shareholders of LEG in exchange for their LEG shares at a ratio of 3.30 shares
of Deutsche Wohnen per share representing a notional amount of EUR 1.00 of
LEG‘s share capital.
The Company plans to make the Exchange Offer subject to the standard
conditions for such takeover offers, particularly a minimum acceptance rate of
Annex 1 – Report of the Management Board purs. to sec. 186, para. 4, sent. 2 AktG
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50% plus one share, a condition related to a material adverse change of LEG’s
business situation and a condition related to the execution of the proposed
capital increase against contributions in kind.
The Management Board expects that a non-prohibition decision
(Nichtuntersagungsentscheidung) will be issued by the German Federal Cartel
Office before publication of the offer document. If this is not the case by the
time the offer document is published, the approval by the German Federal
Cartel Office will become a further closing condition (Vollzugsbedingung) of
the Exchange Offer.
b) Capital increase against contributions in kind with the exclusion of statutory
subscription rights of shareholders for the purpose of the implementation of the
Exchange Offer
Subject to the limitations described in c) (see below), the shares required for
the implementation of the Exchange Offer will be created by way of a capital
increase against contributions in kind with the exclusion of statutory
subscription rights of the shareholders.
The LEG Shares shall be contributed as contributions in kind, and the LEG
shareholders shall receive the newly created shares of the Company in
exchange for their shares. The Exchange Trustees authorized by the
shareholders of LEG to carry out the Exchange Offer shall be the only persons
admitted for the subscription of the New Shares. The subscription rights of the
shareholders of the Company shall be excluded.
Shareholders of LEG who accept the Exchange Offer will transfer their LEG
Shares to the Exchange Trustees. The Exchange Trustees will then contribute
the LEG Shares that they hold in trust to Deutsche Wohnen as contributions in
kind and subscribe the Company´s shares created as part of the planned capital
increase against contributions in kind. Once the New Shares of Deutsche
Wohnen are created, the Exchange Trustees will transfer the shares, in
accordance with the exchange ratio, via the settlement agent to the respective
shareholders of LEG.
Where shareholders of LEG would be entitled to fractional amounts of
Deutsche Wohnen shares according to the exchange ratio, such fractional
amount shall be sold by the Exchange Trustees. The proceeds from the sale of
the fractional amounts will be credited in cash pro rata to the affected
shareholders of LEG.
The maximum amount of this capital increase against contributions in kind is
such that, based on the number of LEG Shares currently outstanding and likely
to be created through the conversion of outstanding convertible bonds before
Annex 1 – Report of the Management Board purs. to sec. 186, para. 4, sent. 2 AktG
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the end of the additional acceptance period, and the exchange ratio proposed in
the Exchange Offer, a sufficient number of Deutsche Wohnen shares for all the
tendered LEG Shares may be issued and shall amount to approximately 213.1
million shares (subject to the issuance of shares by means of the capital
increase against cash contributions from authorized capital (as set out inc))).
As the Exchange Trustees do not to bear a differential liability
(Differenzhaftung) under sections 188, para. 2 sentence 1, 36a, para. 2
sentence 3 of the AktG in the amount of the contribution value
(Einbringungswert) of the LEG Shares, the New Shares of Deutsche Wohnen
will be issued at the minimum issue amount (Ausgabebetrag) of EUR 1.00
(sections 8, para. 3, sentence 3, 9, para. 1 of the AktG) and the difference
between the issue amount (Ausgabebetrag) of the New Shares and the
contribution value (Einbringungswert) of the contribution in kind will be
allocated to the capital reserve pursuant to section 272, para. 2 Nr. 4 of the
HGB.
c) Utilization of the existing authorized capital to implement the target tax structure
Pursuant to sections 29, 31, para. 2, sentence 1, alternative 2 and 32 of the
WpÜG, the Exchange Offer must always be directed to all LEG shareholders,
insofar as the Federal Financial Supervisory Authority (“BaFin”) does not
grant an exemption pursuant to section 24 of the WpÜG.
However, for tax purposes Deutsche Wohnen does not intend to acquire more
than 94.9% of the shares of LEG. This is because according to section 1,
para. 3 and para. 3a of the German Real Estate Transfer Tax Act (“GrEStG”),
the acquisition of at least 95% of the shares in a company will lead to a real
estate transfer tax liability for real estate property in Germany belonging to the
Company’s assets, with the applicable tax rate in North-Rhine Westphalia,
LEG’s regional focus, currently being 6.5%. Based on the information
available to it, the Management Board of the Company estimates that the real
estate transfer tax incurred in the case of a full acquisition of LEG would
amount to approximately EUR 390 million.
The tax liability pursuant to section 1, para. 3 and para. 3a of the GrEStG
would arise if the acceptance rate of the Exchange Offer were to be so high
that the Exchange Trustees had to contribute such an amount of LEG shares as
contributions in kind to the Company that Deutsche Wohnen would end up
owning at least 95% of the share capital of LEG.
To the extent that the capital increase against contributions in kind would
result in Deutsche Wohnen owning more than 94.9% of the share capital of
LEG (taking account of any LEG Shares that may already be held by Deutsche
Wohnen that were not acquired as part of the Exchange Offer), Deutsche Bank
Annex 1 – Report of the Management Board purs. to sec. 186, para. 4, sent. 2 AktG
- 17 -
AG has agreed to acquire and take over all LEG Shares issued to the Exchange
Trustees above this acceptance rate (i.e. a maximum of 5.1% of the LEG
Shares currently outstanding and anticipated to be created through, inter alia,
the conversion of outstanding convertible bonds before the end of the
additional acceptance period) from the Exchange Trustees instead of Deutsche
Wohnen. The same applies in the event that shareholders of LEG Immobilien
AG are entitled to tender their shares in LEG Immobilien AG after the end of
the acceptance period in accordance with the content of the exchange offer by
analogy to § 39c of the WpÜG, because Deutsche Wohnen AG and Deutsche
Bank AG combined are holding at least 95% of the shares in LEG Immobilien
AG after implementation of the exchange offer.
In order to enable the Exchange Trustees, in accordance with the proposed
Exchange Offer, to provide the LEG shareholders with Deutsche Wohnen
shares even for this excessive number of LEG Shares, the Management Board
and Supervisory Board of the Company have issued corresponding
precautionary resolutions for the utilization of the authorized capital, with the
exclusion of the subscription right, on 21 September 2015. The maximum
amount of this capital increase against cash contributions from authorized
capital is calculated in a way that, based on the number of LEG Shares
currently outstanding and likely to be created through the conversion of
outstanding convertible bonds before the end of the additional acceptance
period and the exchange ratio proposed in the Exchange Offer, a sufficient
number of Deutsche Wohnen shares for 5.1% of the tendered LEG Shares may
be issued and amounts to 10,869,497 shares; in the event that this capital
increase against cash contributions from authorized capital is implemented, the
maximum number of shares issuable in the context of the capital increase
against contributions in kind that is to be resolved will be decreased
correspondingly. Accordingly, from today’s view, the maximum number of
shares to be issued in the context of this capital increase against cash
contributions from authorized capital and the capital increase against
contributions in kind that is to be resolved will not exceed 213,127,385 shares.
Again, only UBS Deutschland AG, Opernturm, Bockenheimer Landstraße 2-4,
60306 Frankfurt am Main and DZ BANK AG Deutsche Zentral-
Genossenschaftsbank, Frankfurt am Main, Platz der Republik, 60265 Frankfurt
am Main as the Exchange Trustees for the LEG shareholders, shall be allowed
to subscribe for the shares issued as part of the capital increase against cash
contributions from authorized capital. The issue amount (Ausgabebetrag) is
EUR 1.00, and the Exchange Trustees have irrevocably undertaken to transfer
the difference between the issue amount (Ausgabebetrag) of EUR 1.00 and the
agreed issue price (vereinbarter Emissionspreis) equal to the closing price on
18 September 2015 in the amount of EUR 24.05 per share to the Company.
Annex 1 – Report of the Management Board purs. to sec. 186, para. 4, sent. 2 AktG
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Insofar as it is evident at the time of the implementation of the Exchange Offer
that the acquisition of all tendered LEG shares would result in Deutsche
Wohnen owning more than 94.9% of the share capital of LEG, the Exchange
Trustees will subscribe for the number of Deutsche Wohnen shares issued as
part of the capital increase against cash contributions from authorized capital
which is required to exchange the excess tendered LEG Shares. The Exchange
Trustees will make the cash contributions required for the subscription of these
shares with funds made available to them by Deutsche Bank AG in return for
the acquisition of up to 5.1% of LEG Shares. After the implementation of the
capital increase against cash contributions from authorized capital has been
registered with the commercial register (Handelsregister), the Exchange
Trustees will transfer the shares, in accordance with the exchange ratio,
together with the shares created through the capital increase against
contributions in kind, via the settlement agent to the LEG shareholders
accepting the Exchange Offer.
Deutsche Bank AG receives a commission from Deutsche Wohnen in an
amount based, inter alia, on the sum given as a consideration for the
acquisition of the LEG Shares and on the period of time until the resale of
these shares. For two years, Deutsche Wohnen has the opportunity to name a
buyer for the LEG Shares to Deutsche Bank, after this period Deutsche Bank
AG will dispose of the shares at the best possible price. Deutsche Wohnen is
obliged to pay Deutsche Bank AG the difference between the purchase price
paid by the buyer in this process and the amount for which Deutsche Bank AG
acquired the LEG Shares.
Annex 1 – Report of the Management Board purs. to sec. 186, para. 4, sent. 2 AktG
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d) Simplified Description of the Transaction Structure
e) Next Steps, Conclusion of a Business Combination Agreement
Depending on the acceptance rate in the Exchange Offer, the Management
Board is considering to conclude a domination and/or profit and loss transfer
agreement pursuant to section 291, para. 1, sentence 1 of the AktG following
the implementation of the Exchange Offer between Deutsche Wohnen and
LEG, or to negotiate mutual service agreements with LEG, insofar as this is
expedient for the best possible realization of synergies.
In addition, the Management Board has today concluded a Business
Combination Agreement with LEG with respect to the public takeover offer
and the future strategy and structure. The intention is to subdivide the
company created as a result of the merger into two main regions: Berlin and
North-Rhine Westphalia. The operational management of the combined
companyʼs West German portfolio is to be conducted through the Dusseldorf
office. The new corporate group will continue to pursue the previous growth
strategy, exploiting the expected synergies (see section III.1.c) above) in order
to realize additional added value for the shareholders of the combined
corporate group. The objectives of the future strategy are, in particular, to
maintain a conservative debt ratio, continued growth in the core-regions, the
development of new regions and the expansion of the privatization business in
order to utilize the currently attractive market environment.
Umtausch-
treuhänder Cash
≤ 100% LEG shares
≤ 94.9% LEG shares
+ cash
Deutsche
Wohnen
LEG
shareholders
≤ 100% new
Deutsche
Wohnen shares
≤ 100% new
Deutsche
Wohnen shares
Deutsche Bank
AG
≤ 5.1% LEG
shares
Annex 1 – Report of the Management Board purs. to sec. 186, para. 4, sent. 2 AktG
- 20 -
The Offeror will respect the legal rights of employees, works council members
and trade unions of the target company as well as collective bargaining
agreements (kollektivrechtliche Vereinbarungen). The current regulations of
the individual companies based on the social charter or purchase agreements
will remain in place in accordance with their period of validity.
Pursuant to the Business Combination Agreement, two members of the current
LEG Management Board will also become members of the Deutsche Wohnen
Management Board. No changes are planned with respect to the appointment
of the Chairman of the Deutsche Wohnen Management Board. The Chairman
of the LEG Management Board will serve as the Deputy Chairman of the
Deutsche Wohnen Management Board. The supervisory board of Deutsche
Wohnen shall be expanded to nine members, with three current supervisory
board members of LEG to join the Supervisory Board of Deutsche Wohnen.
The members of the LEG Management Board and the shareholder
representative of the LEG Supervisory Board shall be proposed by an
Integration Committee that is to be formed, which shall be comprised of the
respective Chairmen of the Management Boards and Supervisory Boards of
Deutsche Wohnen and LEG.
f) Timetable
The transaction timetable is as follows:
Within the four- to eight-week period beginning tomorrow, the offer
document regarding the Exchange Offer will be communicated to BaFin
(sections 34, 11, 14 para. 1 of the WpÜG).
The offer document will be published without delay pursuant to section 14,
para. 2 and 3 of the WpÜG if BaFin authorizes its publication or if a period
of ten working days (with the possibility of an extension of up to five
working days) has elapsed after BaFin has received the offer document and
BaFin has not prohibited the offer.
During this procedure, the Extraordinary General Meeting will take place on
Wednesday, 28 October 2015 at 10 A.M. (CET) and there will be a vote on
the resolution proposals mentioned under II.
The acceptance period, which is at least four weeks and, as a rule, lasts no
more than ten weeks, commences with the publication of the offer document;
the additional acceptance period of two weeks, which applies to takeover
offers, commences after this period (sections 34, 16, para. 1 and 2, 23, para. 1,
sentence 1, no. 2 of the WpÜG).
If the General Meeting passes the resolution that has been proposed, no
objection has been lodged and no rescission action (Anfechtungsklage) has
Annex 1 – Report of the Management Board purs. to sec. 186, para. 4, sent. 2 AktG
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been initiated, the resolution regarding the share capital increase will be
registered following the expiration of the addtional acceptance period.
Following this procedure, the Exchange Offer may be implemented if the
other conditions have been met.
If the General Meeting passes the resolution that has been proposed, but a
rescission action (Anfechtungsklage) has been initiated, such resolution shall
be registered following a successful release procedure (Freigabeverfahren)
(section 246a of the AktG). In this case, the resolution may be registered after
the end of the additional acceptance period. In the event the other conditions
are fulfilled, the Exchange Offer will only be implemented at this later point
in time.
3. Explanation and Justification of the Exchange Ratio
a) Preliminary remarks
The determination of the exchange ratio is based on the Management Board’s
valuation of both LEG and Deutsche Wohnen. The same methods and
valuation parameters commonly used in the valuation of real estate companies
were applied in the valuation of both companies involved in the transaction.
In addition, Deutsche Wohnen has commissioned Deutsche Bank AG and
VICTORIAPARTNERS GmbH to examine the appropriateness of the fixed
exchange ratio and to each draft a fairness opinion to such effect. The
examination of the appropriateness of the exchange ratio by the Management
Board as set forth in this section III.3 is supported by the conclusion of these
fairness opinions. The corresponding fairness opinions are attached hereto as
Annex A and Annex B in letter form.
Before publishing the decision to submit this Exchange Offer, there was a
mutual due diligence review; however, pursuant to an agreement, as is
standard when acquiring an exchange-listed company, this review was limited
to the exchange of selected documents and information. In addition, publicly
available information was accessed, and in particular the following documents
were analyzed:
LEG’s listing prospectus dated 18 January 2013
LEG’s annual reports for the fiscal years 2013 and 2014
LEG’s interim reports for the first and second quarters of 2015
Furthermore, the Management Board analyzed analyst reports and other
documents that it believed to be useful with respect to the assessment of the
Annex 1 – Report of the Management Board purs. to sec. 186, para. 4, sent. 2 AktG
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appropriateness of the exchange ratio and took into consideration the result of
this analysis in its assessment.
b) Valuation approaches and methods
The determination of the exchange ratio is based on the same methods applied
to the valuation of both companies. In particular, the valuation was carried out
on the basis of the following parameters:
Net asset value, measured according to the recommendations of the
European Public Real Estate Association (EPRA NAV). The Management
Board believes that the EPRA NAV is the most commonly used valuation
standard for determining the market value of the net asset value of real estate
companies that keep their property for long-term rental and management. The
properties are to be appraised based on the market value calculated using the
discounted cash flow (“DCF”) method. The EPRA NAV is calculated on the
basis of equity excluding minority interests, adjusted for (i) the exercise of
options, convertible bonds and other equity rights, (ii) the balance of (active
and passive) derivative financial instruments as well as (iii.) certain deferred
taxes. The EPRA NAV is thus derived from the DCF-based values that
account for the intrinsic value (equity) of a real estate company by adjusting
for positions for which it is assumed that there is no influence on long-term
assets held by owners in the regular course of business. For the purpose of the
EPRA NAV for the combined company, any effects arising from the
allocation of the purchase price pursuant to IFRS 3 (e.g. goodwill) in
connection with a potential acquisition of a majority stake in LEG are not
taken into account. Apart from that, the EPRA NAV for the companies
involved was determined both including and excluding goodwill (i.e.
goodwill formed as part of already completed transactions) and on the basis
of undiluted and diluted shares for the purpose of the comparison.
Market capitalization. The market capitalizations of LEG and Deutsche
Wohnen was determined on the basis of the closing prices on Xetra of the
Frankfurt Stock Exchange (Frankfurter Wertpapierbörse) on the last trading
day prior to the publication pursuant to section 10, para. 1, 3, sentence 1 of
the WpÜG, and the sum of the number of shares outstanding as of the
reference date and the number of shares determined on the basis of the
conversion of all outstanding convertible bonds for the respective company at
the respective current conversion price. For the purpose of comparison and to
check for potential reference date-related fluctuations regarding the market
capitalization, the volume-weighted average price (VWAP) for the 3 months
prior to the valuation was also determined and applied to the number of
shares of each company thus obtained (market capitalization on the basis of
the 3-month VWAP). The VWAP was calculated based on the closing prices
and the daily trading volumes on the Xetra trading platform. The comparison
Annex 1 – Report of the Management Board purs. to sec. 186, para. 4, sent. 2 AktG
- 23 -
of the market capitalization of each company is, in terms of a value
comparison, meaningful because both companies have a significant amount
of free float, and trading in both companies is considered to be liquid.
The absolute valuation of LEG and Deutsche Wohnen was initially carried out
without considering the related synergies associated with the transaction.
c) Alternative valuation methods
During deliberations, the Management Board considered alternative methods
for valuing the companies involved in the transaction, but these were rejected
as either unsuitable or less suitable.
Income or DCF approach. A valuation of the entire company based on the
income or DCF approach, a method used in some cases for the valuation of
companies in the context of mergers, and in which the determination of the
company’s value is based on projected earnings expectations from the
company’s plans, is a less common method for the valuation of residential
real estate companies. Unlike valuation on the basis of the income approach,
the EPRA NAV-based valuation used here allows for the appraisal of
individual pieces of property, the values of which are in turn based on future
recoverable cash flows from the management of these properties. Because of
the comparatively high visibility of future cash flows from the management
of residential properties, the Management Board is of the opinion that a
valuation on the basis of EPRA NAV leads to a more reliable result
compared to the valuation of a company as a whole based on the income
approach and therefore deems the valuation on the basis of the EPRA NAV
to be superior. In addition, the Management Board would have had no access
to data essential to the valuation of LEG on the basis of the income or DCF
approach, particularly data pursuant to IDW Standard S1. By contrast, LEG
discloses its EPRA NAV in every annual and interim report and has the real
estate valuation based on this key indicator reviewed annually by an
independent external expert in order to prepare its annual financial statements.
Valuation on the basis of liquidation values. A valuation on the basis of
liquidation values was determined to be less suitable, as the intention is for
both companies involved in the transaction to continue operating. In addition,
because of the continuation of the lease contracts in the event of a liquidation,
it is not expected that this valuation method would have led to a substantially
different value ratio compared with a valuation on the basis of the EPRA
NAVs.
Price targets (Kursziele) from analysts’ reports. The Management Board
evaluated available analysts’ reports from major providers for both Deutsche
Wohnen and LEG. The Management Board determined that a valuation based
Annex 1 – Report of the Management Board purs. to sec. 186, para. 4, sent. 2 AktG
- 24 -
solely on the price targets (Kursziele) in these reports is less suitable. First,
analysts’ reports are based on different methods for determining the target
price, which is typically issued for a 12-month period. Furthermore, the
valuation methods are not completely transparent and therefore not sufficient
for evaluating their meaningfulness. Both companies were analyzed and
valued by more than 15 analysts at major banks. Within this group, the price
targets (Kursziele) deviate widely from each other, calling into question the
meaningfulness of these price targets (Kursziele). A selection or weighting of
the price targets (Kursziele) would lead to a subjective valuation result.
Although an examination of the arithmetic average as well as the median of
the respective price targets (Kursziele) would mathematically support the
result of the valuation methods used by the Management Board, given the
high variance among such price targets (Kursziele) it, too, seems to be less
suitable.
FFO yields. The Management Board considered a separate valuation of
Deutsche Wohnen and LEG on the basis of their Funds from Operations
(FFO) yields and found it to be less suitable. Because of the limited time
horizon for which the companies involved publish estimates of their future
FFO and because of the different regional focus, the different growth profile
and related lack of comparability of the yields achieved, a comparison on the
basis of the FFO of Deutsche Wohnen and LEG is, in the estimation of the
Management Board, by itself less suitable for reviewing the appropriateness
of the comparative valuation of the two companies. However, for the purpose
of determining the plausibility of its valuation results, the Management Board
compared the FFO profiles of the two companies.
d) Valuation of Deutsche Wohnen
On the basis of the valuation parameters described in section b) Deutsche
Wohnen is valued as follows:
EPRA NAV. On the basis of the EPRA NAV as of 30 June 2015, the
(undiluted) value of Deutsche Wohnen including goodwill is EUR 6,839.3
million, and excluding goodwill is EUR 6,304.2 million. Therefore, the
EPRA NAV per share, based on the number of outstanding shares of
Deutsche Wohnen (337.4 million shares) including good will is EUR 20.27
(excluding goodwill: EUR 18.69).
For the calculation of the EPRA NAV, the underlying valuation of the real
estate held as financial investments (which represents about 99% of the total
real estate holdings of Deutsche Wohnen and about 86% of the assets) is
conducted initially using acquisition and production costs, including ancillary
costs. After the initial valuation, real estate held as financial investments is
measured at its market value (fair value).
Annex 1 – Report of the Management Board purs. to sec. 186, para. 4, sent. 2 AktG
- 25 -
The determination of the market value of individual properties was carried out
using the discounted cash flow (DCF) method and was independently
evaluated by CBRE according to the provisions of the Royal Institution of
Chartered Surveyors (RICS) pursuant to the Red Book and pursuant to
international valuation standards (IVS) on the basis of a DCF model. The
valuation by CBRE the real estate assets of Deutsche Wohnen was conducted
as of 30 June 2015, with the exception of senior citizen properties used by
Katharinenhof. The valuation of senior citizen properties used by
Katharinenhof was conducted by CBRE as of 30 June 2014, whereby the
determination of the EPRA NAVs for the purpose of this Management Board
report was based on the updated values of these senior citizen properties from
the interim report as of 30 June 2015.
According to CBRE, the future revenue and expense streams in connection
with the properties that were assessed were forecast along a 10-year detailed
review period, whereby a lease scenario was assumed, without taking account
of the potential privatization of individual residential units. As part of the
valuation, the cash flows were discounted using discount rates of
approximately 5.7% for the residential property portfolio and 7.0% for the
senior citizen property portfolio (weighted average) and capitalization rates of
approximately 4.6% for the residential property portfolio and 7.2% for the
senior citizen property portfolio (weighted average).
The result of the valuation by CBRE does not differ significantly from the
valuation of the real estate determined by the Company and reported in its
financial statements (on the basis of individual properties not more than 10%
or less than EUR 250.000,00 and, based on total holdings valued,
approximately -0.2%). The valuation reports prepared by CBRE for the real
estate assets as of 30 June 2015 (with the exception of the senior citizen
properties used by Katharinenhof) and the valuation reports prepared by
CBRE for the senior citizen properties used by Katharinenhof as of 30 June
2014 updated to 30 June 2015 are attached hereto as Annex C. For the
purpose of this report, the Management Board adopts as its own all of the
information and statements in these reports, and correspondingly includes
them as part of this Management Board report.
EPRA NAV (diluted). In addition to the undiluted EPRA NAV, in its
quarterly report as of 30 June 2015 Deutsche Wohnen also includes a diluted
EPRA NAV including goodwill in the amount of EUR 7,643.4 million. This
corresponds to a diluted EPRA NAV excluding good will of EUR 7,108.3
million.. The diluted EPRA NAV differs from the undiluted EPRA NAV on
the basis of the assumption that the conversion right from the 2013
convertible bond with the amount of EUR 250 million would have been
exercised at a conversion price of EUR 17.7877, and from the 2014
Annex 1 – Report of the Management Board purs. to sec. 186, para. 4, sent. 2 AktG
- 26 -
convertible bond with the amount of EUR 400 million at a conversion price
of EUR 21.4120, which would have reduced liabilities by a total of EUR
804.1 million. As a result of the conversion, the number of Deutsche Wohnen
shares existing as of 30 June 2015 would have increased by 32.7 million,
from 337.4 million to 370.1 million and the EPRA NAV per share to
EUR 20.65 (EUR 19.21 excluding goodwill).
The EPRA NAV was derived as follows:
30 June 2015
EUR mn
undiluted diluted
Investment properties .................................. 10,740.3 10,740.3
Other non-current assets ............................. 919.8 919.8
Current assets .............................................. 867.8 867.8
Total assets ................................................. 12,527.8 12,527.8
Non-current liabilities ................................. -5,795.5 -5,795.5
Current liabilities ........................................ -501.1 -501.1
Convertible bonds ....................................... 804.1
Total liabilities ........................................... -6,296.6 -5,492.5
Equity ......................................................... 6,231.2 7,035.3
Minority interests ........................................ -196.4 -196.4
Equity (before minority interests) ........... 6,034.7 6,838.8
Derivative financial instruments ................. 52.4 52.4
Deferred taxes ............................................. 752.2 752.2
EPRA NAV ................................................ 6,839.3 7,643.4
EPRA NAV per share ............................... 20.27 20.65
Goodwill ..................................................... 535.1 535.1
EPRA NAV excluding goodwill ............... 6,304.2 7,108.3
EPRA NAV excluding goodwill per
share ........................................................... 18.69
19.21
Market capitalization. Based on its market capitalization, the value of
Deutsche Wohnen amounts to EUR 8,900.8 million.
This calculation is based on the closing price of Deutsche Wohnen’s shares
on Xetra of the Frankfurt Stock Exchange (Frankfurter Wertpapierbörse) on
the last trading day prior to the publication pursuant to section 10, para. 1, 3,
sentence 1 of the WpÜG in the amount of EUR 24.05 multiplied by 370.1
million. 370.1 million is the total of the number of shares outstanding as of 15
September 2015 (337.4 million) and the number of shares that would result if
there were a conversion of all outstanding convertible bonds at the respective
current conversion price (32.7 million).
Based on the volume-weighted average price (VWAP) during the last 3
months up to the last trading day prior to the publication pursuant to
section 10, para. 1, 3 sentence 1 of the WpÜG of EUR 22.84 per share
Annex 1 – Report of the Management Board purs. to sec. 186, para. 4, sent. 2 AktG
- 27 -
(according to Bloomberg) and the, with regard to the market capitalization as
of 15 September 2015, relevant number of 370.1 million bearer shares, the
market capitalization would amount to EUR 8,453.3 million.
e) Valuation of LEG
Based on the previously described valuation parameters, LEG is valued as
follows:
EPRA NAV. On the basis of the EPRA NAV as of 30 June 2015, the
(undiluted) value of LEG including goodwill is EUR 2,969.8 million, and
excluding goodwill is EUR 2,943.9 million. Therefore, the EPRA NAV per
share (base around 58.3 million shares) including good will is EUR 50.98
(excluding goodwill: EUR 50.53).
For the 2014 consolidated financial statement, the market values were
determined internally by a subsidiary of LEG (with the exception of a real
estate portfolio which was acquired by Vonovia SE, formerly known as
Deutsche Annington). Parallel to this, the real estate portfolio was assessed by
an independent external appraiser as of 31 December 2014. This appraisal
report was not published. According to the interim report as of 30 June 2015,
the valuation methods used in this report are the same as the ones used in the
2014 consolidated financial statement. LEG Immo as well determined the
market values for real estate held as financial investments or for sale on the
basis of the forecast net cash flows from the management of properties using
the discounted cash flow (DCF) method. As part of the valuation as of 31
December 2014, the cash flows were discounted using discount rates of on
average 5.93% (weighted average) and capitalization rates in perpetuity of on
average 6.50% (weighted average).
EPRA NAV (diluted). In addition to the undiluted EPRA NAV, in its
quarterly report as of 30 June 2015 LEG also reported a diluted EPRA NAV,
including goodwill, in the amount of EUR 3,329.7 million. This corresponds
to a diluted EPRA NAV of EUR 3,303.8 million, excluding goodwill. The
diluted EPRA NAV was calculated on the assumption that the conversion
right for the outstanding convertible bond with the amount of EUR 300
million was exercised at a conversion price of EUR 58.4317, which would
have reduced liabilities by EUR 359.9 million. This would have increased the
number of LEG Shares as of 30 June 2015 by about 5.1 million from at this
point of thime 58.3 million to 63.4 million and the EPRA NAV per share to
EUR 52.52 (EUR 52.12 excluding goodwill).
Pro forma EPRA NAV (diluted). With the end of the acceptance period and
the fulfilment of the closing conditions (Vollzugsbedingungen) of the
Exchange Offer that must be met before the end of the acceptance period, a
Annex 1 – Report of the Management Board purs. to sec. 186, para. 4, sent. 2 AktG
- 28 -
“change of control” provision will be triggered, pursuant to which the
bondholders, inter alia, can demand the conversion at an adjusted conversion
price. Depending on the date on which the acceptance period ends, the
conversion price may be reduced; in the event of an assumed change of
control on 1 December 2015 (approximately 5 1/2 years before the final
maturity of the bond) to EUR 47.4363 (see III.1.b)(3) for the rules of the
bond conditions governing this calculation). In this case, the number of LEG
Shares will increase from (currently) about 58.3 million by about 6.3 million
to 64.6 million. Based on the diluted EPRA NAV and taking into
consideration the adjusted conversion price this results in an EPRA NAV on
a pro-forma basis of EUR 51.56 per share including goodwill (EUR 51.16
excluding goodwill) (the “Pro Forma EPRA NAV (diluted)”).
The EPRA NAV for the valuation as of 30 June 2015 was derived as follows:
30 June 2015
EUR mn
undiluted diluted
Pro-forma
diluted
Investment properties ......................... 6,000.9 6,000.9 6,000.9
Other non-current assets .................... 252.7 252.7 252.7
Current assets ..................................... 321.2 321.2 321.2
Assets held for sale ............................ 8.3 8.3 8.3
Total assets ........................................ 6,583.1 6,583.1 6,583.1
Non-current liabilities ........................ -3,245.5 -3,245.5 -3,245.5
Current liabilities ............................... -890.1 -890.1 -890.1
Convertible bonds .............................. 359.9 359.9
Total liabilities .................................. -4,135.6 -3,775.7 -3,775.7
Equity ................................................ 2,447.5 2,807.4 2,807.4
Non-controlling shares ....................... -14.9 -14.9 -14.9
Equity (before minority
interests) ............................................ 2,432.6 2,792.5 2,792.5
Derivative financial instruments ........ 119.3 119.3 119.3
Deferred taxes .................................... 417.9 417.9 417.9
EPRA NAV ....................................... 2,969.8 3,329.7 3,329.7
EPRA NAV per share ...................... 50.98 52.52 51.56
Goodwill ............................................ 25.9 25.9 25.9
EPRA NAV excluding goodwill ...... 2,943.9 3,303.8 3,303.8
EPRA NAV excluding goodwill
per share ........................................... 50.53 52.12 51.16
Market capitalization. Based on its market capitalization, LEG’s value is
EUR 4,454.7 million.
This calculation is based on the closing price of LEG’s shares on Xetra of the
Frankfurt Stock Exchange (Frankfurter Wertpapierbörse) on the last trading
day prior to the publication pursuant to section 10, para. 1, 3, sentence 1 of
Annex 1 – Report of the Management Board purs. to sec. 186, para. 4, sent. 2 AktG
- 29 -
the WpÜG in the amount of EUR 70.27 multiplied by 63.4 million. 63.4
million is the total of the number of shares (58.3 million) outstanding as of
this reference date (Stichtag) and the number of shares that would result if
there were a conversion of all outstanding convertible bonds at the conversion
price as of 18 September 2015 (5.1 million).
Based on the volume-weighted average price (VWAP) during the last 3
months up to the last trading day prior to the publication pursuant to
section 10, para. 1, 3 sentence 1 of the WpÜG of EUR 66.36 per share
(according to Bloomberg), the market capitalization would amount to
EUR 4,206.7 million.
f) Appropriateness of the exchange ratio on the basis of the valuation of Deutsche
Wohnen and LEG
(1) On the basis of the valuations of Deutsche Wohnen and LEG presented in d)
and e), the value ratio of the two companies is as follows, whereby the
calculations are based on the assumption of the acquisition of 100% of LEG:
EPRA NAV including goodwill. Based on the valuation of the two
companies on the basis of their respective EPRA NAVs, including
goodwill, as of 30 June 2015, the value ratio (Wertverhältnis) of
Deutsche Wohnen to LEG is 2.30 to 1, compared to an implicit
value ratio on the basis of the exchange ratio of 1.75 to 1 (calculated
on the basis of the current number of outstanding Deutsche Wohnen
and LEG shares). Accordingly, Deutsche Wohnen will receive, on
the basis of the respective EPRA NAVs as of 30 June 2015, EUR
15.45 per share of Deutsche Wohnen issued, compared to an EPRA
NAV for Deutsche Wohnen of EUR 20.27. Correspondingly, the
implementation of the transaction, before taking into account
synergies and based on the total number of shares used to calculate
the EPRA NAV (529.6 million, following completion of the
transaction), would lead to a dilution of the EPRA NAV of EUR
1.75 (or 8.6%) per share.
EPRA NAV excluding goodwill. Based on the valuation of the two
companies on the basis of their respective EPRA NAVs, excluding
goodwill, as of 30 June 2015, the value ratio (Wertverhältnis) of
Deutsche Wohnen to LEG is 2.14 to 1, compared to an implicit
value ratio on the basis of the exchange ratio of 1.75 to 1 (calculated
on the basis of the current number of outstanding Deutsche Wohnen
and LEG shares). Accordingly, Deutsche Wohnen will receive, on
the basis of the respective EPRA NAVs as of 30 June 2015, EUR
15.31 per share of Deutsche Wohnen issued, compared to an EPRA
NAV for Deutsche Wohnen of EUR 18.69. Correspondingly, the
Annex 1 – Report of the Management Board purs. to sec. 186, para. 4, sent. 2 AktG
- 30 -
implementation of the transaction, before taking into account
synergies and based on the total number of shares used to calculate
the EPRA NAV (529.6 million, following completion of the
transaction) would lead to a dilution of the EPRA NAV of EUR
1.23 (or 6.6%) per share.
EPRA NAV (diluted) and pro forma EPRA NAV (diluted), both
including goodwill. For the comparison on the basis of the diluted
EPRA NAV, the pro forma EPRA NAV (diluted) was used for LEG,
because, as a result of the offer, an adjustment of the conversion
price in favour of the holder of the LEG convertible bond and a
corresponding increase in the maximum number of LEG Shares
submitted as part of the offer is expected. Based on the valuation of
both companies on the basis of the EPRA NAV (diluted) for
Deutsche Wohnen and pro forma EPRA NAV (diluted) for LEG as
of 30 June 2015, each including goodwill, the value ratio
(Wertverhältnis) of Deutsche Wohnen to LEG is 2.30 to 1,
compared to an implicit value ratio on the basis of the exchange
ratio of 1.74 to 1 (calculated on the basis of the number of Deutsche
Wohnen and LEG shares underlying the relevant EPRA NAV).
Accordingly, Deutsche Wohnen will receive, on the basis of the pro
forma EPRA NAV (diluted) as of 30 June 2015, EUR 15.62 per
share of Deutsche Wohnen issued, compared to an EPRA NAV
(diluted) for Deutsche Wohnen of EUR 20.65. Correspondingly, the
implementation of the transaction, before taking into account
synergies and based on the total number of shares used to calculate
the relevant EPRA NAV (583.2 million, following completion of
the transaction) would lead to a dilution of the EPRA NAV of EUR
1.84 (or 8.9 %) per share.
EPRA NAV (diluted) and pro forma EPRA NAV (diluted), both
excluding goodwill. Based on the valuation of both companies on
the basis of the EPRA NAV (diluted) for Deutsche Wohnen and pro
forma EPRA NAV (diluted) for LEG as of 30 June 2015, each
excluding goodwill, the value ratio (Wertverhältnis) of Deutsche
Wohnen to LEG is 2.15 to 1, compared to an implicit value ratio on
the basis of the exchange ratio of 1.74 to 1 (calculated on the basis
of the number of Deutsche Wohnen and LEG shares underlying the
relevant EPRA NAV). Accordingly, Deutsche Wohnen will receive,
on the basis of the pro forma EPRA NAV (diluted) as of 30 June
2015, EUR 15.50 per share of Deutsche Wohnen issued, compared
to an EPRA NAV (diluted) for Deutsche Wohnen of EUR 19.21.
Correspondingly, the implementation of the transaction, before
taking into account synergies and based on the total number of
Annex 1 – Report of the Management Board purs. to sec. 186, para. 4, sent. 2 AktG
- 31 -
shares used to calculate the relevant EPRA NAV (583.2 million,
following completion of the transaction) would lead to a dilution of
the EPRA NAV of EUR 1.35 (or 7.0 %) per share.
Market capitalization on the basis of closing prices. Based on the
valuation of the two companies on the basis of the closing price on
Xetra of the Frankfurt Stock Exchange (Frankfurter
Wertpapierbörse) on the last trading day prior to the publication
pursuant to section 10, para. 1, 3 sentence 1 of the WpÜG the value
ratio (Wertverhältnis) of Deutsche Wohnen to LEG is 2.00 to 1. For
purposes of the calculation of the market capitalization, the diluted
number of shares of both companies was taken as a basis (for LEG
without consideration of an adjustment of the conversion price as a
result of the change of control), because it reflects the approach and
level of knowledge of market participants at the time of the
valuation (18 September 2015). All bonds were at this time in the
money, so that a conversion was expected; however, the market
could not yet have expected a possible change of control. Calculated
on the basis of the closing prices on Xetra of the Frankfurt Stock
Exchange (Frankfurter Wertpapierbörse) on the last trading day
prior to the publication pursuant to section 10, para. 1, 3 of the
WpÜG, Deutsche Wohnen will receive EUR 20.90 per share of
Deutsche Wohnen issued, compared to the closing price of Deutsche
Wohnen of EUR 24.05. Correspondingly, the implementation of the
transaction, before taking into account of synergies and based on the
total maximum number of outstanding shares of Deutsche Wohnen
following completion of the transaction (583.2 million) would lead
to a mathematical dilution of the market price (Kurswert) of
Deutsche Wohnen shares of EUR 1.15 (or 4.8%) per share.
Market capitalization on the basis of weighted average prices.
Based on the valuation of the two companies on the basis of the
volume-weighted average price (VWAP) of the shares during the
last 3 months up to the last trading day prior to the publication
pursuant to section 10, para. 1, 3 sentence 1 of the WpÜG, the value
ratio (Wertverhältnis) of Deutsche Wohnen to LEG is 2.01 to 1. For
purposes of the calculation of the market capitalization, the diluted
number of shares of both companies was taken as a basis (for LEG
without consideration of an adjustment of the conversion price as a
result of the change of control), because it reflects the approach and
level of knowledge of market participants at the time of the
valuation (18 September 2015). All bonds were at this time in the
money, so that a conversion was expected; however, the market
could not yet have expected a possible change of control. Calculated
Annex 1 – Report of the Management Board purs. to sec. 186, para. 4, sent. 2 AktG
- 32 -
on the basis of the volume-weighted average price (VWAP) of the
shares during the last 3 months up to the last trading day prior to the
publication pursuant to section 10, para. 1, 3 of the WpÜG,
Deutsche Wohnen will receive EUR 19.74 per share of Deutsche
Wohnen issued, compared to the average price of Deutsche Wohnen
of EUR 22.84. Correspondingly, the implementation of the
transaction, before taking into account synergies and based on the
total maximum number of outstanding shares of Deutsche Wohnen
following completion of the transaction (583.2 million) would lead
to a mathematical dilution of the average price (Durchschnittswert)
of Deutsche Wohnen shares of EUR 1.13 (or 5.0%) per share.
On the basis of the parameters analyzed here, the dilution was calculated as follows:
EPRA
NAV
EPRA
NAV
(excluding
goodwill)
EPRA
diluted
against
pro forma
EPRA
diluted
EPRA
diluted
against
pro forma
EPRA
diluted
(excluding
goodwill)
Market
capitalization
(closing
price)
Market
capitalization
(3-month
VWAP)
For Deutsche Wohnen
per share in EUR 20.27 18.69 20.65 19.21 24.05 22.84
For LEG per share in
EUR 50.98 50.53 51.56 51.16 70.27 66.36
For LEG per Deutsche
Wohnen share offered
for exchange in EUR1 15.45 15.31 15.62 15.50 20.90 19.74
Difference per
Deutsche Wohnen
share to be offered in
EUR2 4.83 3.37 5.03 3.71 3.15 3.10
Total number of
Deutsche Wohnen
shares to be issued3
192.3
mn
192.3
mn
213.1
mn
213.1
mn
213.1
mn
213.1
mn
Total of the difference
for all Deutsche
Wohnen shares to be
issued in EUR4
927.9
mn
648.8
mn
1,072.0
mn
789.7
mn
671.0
mn
661.4
mn
Total number of
Deutsche Wohnen
529.6
mn
529.6
mn
583.2
mn
583.2
mn
583.2
mn
583.2
mn
1 Respective value per LEG share, multiplied by the exchange ratio (1 to 3.30). 2 Calculated on the basis of the difference of the respective value for Deutsche Wohnen per Deutsche Wohnen share and the value
for LEG per Deutsche Wohnen share to be issued (line 1 minus line 3 of this table). 3 Calculated for undiluted values on the basis of the outstanding number of shares as of the relevant date and for diluted values and
market capitalization on the assumption of the full conversion of outstanding convertible bonds (in the case of LEG, on the basis
of the adjusted conversion price as a result of the change of control), each multiplied by the exchange ratio. 4 Difference per Deutsche Wohnen share to be issued (line 4 of this table) multiplied by the total number of Deutsche Wohnen
shares to be issued (line 5 of this table).
Annex 1 – Report of the Management Board purs. to sec. 186, para. 4, sent. 2 AktG
- 33 -
EPRA
NAV
EPRA
NAV
(excluding
goodwill)
EPRA
diluted
against
pro forma
EPRA
diluted
EPRA
diluted
against
pro forma
EPRA
diluted
(excluding
goodwill)
Market
capitalization
(closing
price)
Market
capitalization
(3-month
VWAP)
shares after the
transaction5
Dilution per Deutsche
Wohnen share after the
transaction in EUR6 (1.75) (1.23) (1.84) (1.35) (1.15) (1.13)
Dilution per Deutsche
Wohnen share after the
transaction in %7 (8.6%) (6.6%) (8.9%) (7.0%) (4.8%) (5.0%)
(2) The dilution outlined above on the basis of various key performance
indicators is, however, offset by an increase in value resulting from the
synergies related to the merger. It is recognized that such synergies must be
taken into consideration when determining the appropriateness of the
exchange ratio in connection with a capital increase against contributions in
kind. The synergies result – as presented in detail under III.1.c) – primarily
from the reduction of administrative costs (personell and material costs),
particularly as a result of the combination of holding functions, the merger of
the West German operating platforms, the increase in revenue and returns as
a result of active portfolio management, the standardization of the corporate
structures and the scaling of purchasing.
The capitalized net present value of the revenue and cost synergies, after
deduction of the costs required to achieve them is approximately EUR 935
million (see section III.1.c) above).
Taking account of the synergies, the individual dilutions/increases in value
are as follows:
5 Sum of the total number of Deutsche Wohnen shares to be issued (line 5 of this table) and, (for undiluted values) the undiluted
number of the number of Deutsche Wohnen shares currently outstanding, or (for diluted values and market capitalization) the number of outstanding Deutsche Wohnen shares assuming the full conversion of outstanding convertible bonds.
6 Total of the difference for all Deutsche Wohnen shares issued (line 6 of this table) divided by the total number of Deutsche
Wohnen shares after the transaction (line 7 of this table). 7 Dilution per Deutsche Wohnen share after the transaction in EUR (line 8 of this table) divided by the respective value for
Deutsche Wohnen per share (line 1 of this table).
Annex 1 – Report of the Management Board purs. to sec. 186, para. 4, sent. 2 AktG
- 34 -
EPRA
NAV
EPRA
NAV
(excluding
goodwill)
EPRA
diluted
against pro
forma
EPRA
diluted
EPRA
diluted
against pro
forma
EPRA
diluted
(excluding
goodwill)
Market
capitalizati
on (closing
price)
Market
capitalizati
on (3-
month
VWAP)
Dilution (gross) per
share in EUR (1.75) (1.23) (1.84) (1.35) (1.15) (1.13)
Dilution (gross) per
share in % (8.6%) (6.6%) (8.9%) (7.0%) (4.8%) (5.0%)
Synergies per share in
EUR 1.77 1.77 1.60 1.60 1.60 1.60
Value creation/dilution
after synergies per share
in EUR 0.01 0.54 (0.23) 0.25 0.45 0.47
Value creation/dilution
after synergies per share
in % 0.1% 2.9% (1.1%) 1.3% 1.9% 2.1%
The above shows that the transaction, with the exception of the valuation on
the basis of diluted EPRA NAVs, leads to an increase in value, even without
taking account of the additional privatization potential. The dilution for
valuation on the basis of the diluted EPRA NAVs is approximately 1% and is
therefore very low. If one considers the synergies of the merger resulting from
the additional privatization potential with an additional profit contribution of
approximately EUR 20 million before taxes per year, the transaction creates
value under all valuation methods in the high single digit percentage range.
(3) The appropriateness of the relative market valuation of the two companies is
also proven by a comparison of their Funds from Operations (FFO) profiles.
Funds from Operations (FFO) is a relevant liquidity indicator for listed real
estate companies, which is derived from the profit and loss statement. Based
on the profit or loss for a period, adjustments are made for depreciations and
amortizations, special items, non-liquidity-related financing expenses or
financing income and non-liquidity-related tax expenses or tax income. FFO
(including disposals) is adjusted for results from sales in order to determine
the FFO (without disposals).
The following illustration is based on the estimates communicated by LEG to
the market in its interim report as of 30 June 2015 of its FFOs for fiscal years
2015 and 2016. Given that LEG (as well as Deutsche Wohnen) does not
communicate any estimates of its future FFO (including sales) to the market,
the comparison is based on the key figure FFO (excluding sales).
Annex 1 – Report of the Management Board purs. to sec. 186, para. 4, sent. 2 AktG
- 35 -
Deutsche Wohnen LEG
Outlook for 2015 FFO (without
disposals) in EUR mn ............... 285-290 200-204
Return on EPRA NAV
(undiluted) as of 30 June 2015 .. 4.2% 6.7-6.9%
Deutsche Wohnen LEG
Outlook for 2016 FFO (without
disposals) in EUR mn ............... 330 233-238
Return on EPRA NAV
(undiluted) as of 30 June 2015 .. 4.8% 7.8-8.0%
As a result of the expected medium-term realization of revenue and cost
synergies in the amount of EUR 32 million per year after taxes, the FFO
profile (without disposals) profile will improve, despite the premium offered
to LEG shareholders:
Deutsche
Wohnen LEG
Combined
company
FFO in EUR mn (2015) ............. 285-290 200-204 485-494
Synergies (after taxes) in EUR
mn .............................................. 32
New FFO in EUR mn (2015)8 ...
517-526
per share in EUR (undiluted) .. 0.84-0.86 3.43-3.50 0.98-0.99
Value creation (undiluted) ...... 15.4%
per share (diluted) .................. 0.77-0.78 3.15-3.22 0.89-0.90
Value creation (diluted) ......... 15.0%
Deutsche
Wohnen LEG
Combined
company
FFO in EUR mn (2016) ............. 330 233-238 563-568
Synergies (after taxes) in EUR
mn .............................................. 32
New FFO in EUR mn (2016)9 ...
595-600
per share in EUR (undiluted) .. 0.98 4.00-4.09 1.12-1.13
Value creation (undiluted) ...... 14.8-15.7%
per share (diluted) .................. 0.89 3.68-3.75 1.02-1.03
8 The calculation of the undiluted FFO per share is based on the number of shares of both companies currently outstanding and the
calculation of the diluted FFO per share is based on the number resulting from the assumption of the full conversion of
outstanding convertible bonds (for the combined company with respect to LEG, on the basis of the adjusted conversion price as a result of the change of control). No adjustment of the respective FFOs with respect to the interest effect (Zinseffekt) from the
conversion of the bonds has been carried out because of a lack of relevance and because of a lack of the relevant information for
LEG. 9 The calculation of the undiluted FFO per share is based on the number of shares of both companies currently outstanding and the
calculation of the diluted FFO per share is based on the number resulting from the assumption of the full conversion of
outstanding convertible bonds (for the combined company with respect to LEG, on the basis of the adjusted conversion price as a
result of the change of control). No adjustment of the respective FFOs with respect to the interest effect (Zinseffekt) from the conversion of the bonds has been carried out because of a lack of relevance and because of a lack of the relevant information for
LEG.
Annex 1 – Report of the Management Board purs. to sec. 186, para. 4, sent. 2 AktG
- 36 -
Deutsche
Wohnen LEG
Combined
company
Value creation (diluted) ......... 14.3-15.3%
The above comparison shows that, based on a comparison of the FFO
(without disposals), the planned merger creates value from the perspective of
Deutsche Wohnen shareholders in the lower two digit percentage range.
However, with respect to the above comparison it should be noted that long-
term single-unit privatizations with a corresponding contribution to the FFO
(including disposals) are a significant pillar of Deutsche Wohnen’s business
model, while a corresponding privatization program does not, to the
knowledge of the Management Board, exist to an appreciable extent at LEG.
Correspondingly, the Management Board assumes that while a comparison of
the companies on the basis of the FFO (including disposals) would be value
creating, it would not be so to the same extent as a comparison on the basis of
the FFO (without disposals).
IV.
Pursuant to section 186, para. 4 sentence 2 of the AktG, the Management Board hereby presents to the
General Meeting the following report on the justification for the intended exclusion of the
shareholdersʼ subscription rights as part of the aforementioned proposed resolution for a capital
increase against contributions in kind. In this respect, the statements made in section III. regarding the
entire transaction also apply to this report and are an integral component of it.
A proposal is made to the General Meeting to increase the share capital of the Company from
EUR 336,426,511.00 registered with the commercial register (Handelsregister) by up to
EUR 213,127,385.00 to up to EUR 549,553,896.00 against contributions in kind.
In general, shareholders have a legal subscription right when there is a capital increase (section 186,
para. 1, sentence 1 of the AktG). However, the Supervisory Board and the Management Board
propose to the General Meeting to exclude the subscription right of shareholders pursuant to
section 186, para. 3 of the AktG in the resolution on the increase of the share capital.
The purpose of the proposed capital increase with the exclusion of the shareholdersʼ subscription
rights is to enable the Company to acquire an interest in LEG by increasing the Company’s share
capital through the issuance of shares in the Company against the contribution of shares of LEG as
contributions in kind. The shares issued in the course of the proposed capital increase of the Company
shall be issued in connection with the Exchange Offer made to all shareholders of LEG pursuant to
sections 29, 31 para. 2, sentence 1, alternative 2 of the WpÜG to acquire all LEG Shares held by the
shareholders of LEG at a ratio of 1 to 3.30, i.e. LEG shareholders receive 3.30 shares in Deutsche
Wohnen for 1 LEG share.
Annex 1 – Report of the Management Board purs. to sec. 186, para. 4, sent. 2 AktG
- 37 -
The purpose of the proposed exclusion of the shareholders’ subscription rights is in the companyʼs
interest (Gesellschaftsinteresse) of Deutsche Wohnen. The exclusion of the shareholders’ subscription
rights is suitable and necessary for the furtherance of the interests of Deutsche Wohnen and is
proportional to the disadvantages of the shareholders of Deutsche Wohnen. The exchange ratio
between the LEG Shares and the shares of Deutsche Wohnen of 1 to 3.30 is not unreasonably to the
detriment of the shareholders of Deutsche Wohnen.
1. The interest of Deutsche Wohnen in the exclusion of the shareholders’ subscription
rights
The purpose of the proposed exclusion of the shareholders’ subscription rights –
acquiring an interest in LEG via a capital increase against contributions in kind and
the Exchange Offer to the shareholders of LEG – is in the interest of the Company.
This criterion is satisfied if the corporate bodies involved in the decision making
justifiably take the view that the capital increase against contributions in kind is in the
best interest of the Company and thus of all shareholders. According to the synergies
described above under III.1.c), the Company is especially interested in concentrating
on a growth market through the merger with LEG and achieving the described
synergy potential:
The merger with LEG therefore offers annual revenue and cost synergies which the
Management Board deems feasible given full integration within four years after
completion of the transaction and which it figures to amount to approximately EUR
35 million before taxes. The capitalized net present value of the synergies amounts to
approximately EUR 935 million, taking into account the costs required to realize the
synergies (see above under III.1.c)).
Furthermore, the acquisition of LEG strengthens the capital market profile of the
combined company. The combined market capitalization of the free float makes
Deutsche Wohnen among the largest real estate companies in Europe and strengthens
the liquidity of the stock. In addition, it will be easier to raise equity and debt capital
because the combined company’s position in the competition for investors would be
improved.
According to expectations of the Management Board, with an average remaining term
of the financial liabilities of around 10 years and financing costs of approximately 2%
the combined group has good financial indicators as compared to its competitors as
well as a conservative capital structure with a leverage ratio (loan-to-value) of around
42%. In comparison to its main competitors, it has a very efficient cost structure and,
measured in terms of the number of residential units, it would be the second largest
listed residential real estate company in Germany, with the completion of the
transaction reducing the gap to the largest company considerably.
Annex 1 – Report of the Management Board purs. to sec. 186, para. 4, sent. 2 AktG
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2. Suitability and necessity of the exclusion of the shareholders’ subscription rights
The Management Board considers the exclusion of the shareholders’ subscription
rights to be suitable and necessary to achieve the underlying purpose in the interest of
the Company.
The exclusion of the shareholders’ subscription rights is suitable to achieve the
purpose pursued in the interest of the Company because the Exchange Offer to the
shareholders of LEG, i.e. the offer to exchange all of their LEG Shares for New
Shares of the Company from the proposed capital increase against contributions in
kind requires an exclusion of the Company’s shareholders’ subscription rights.
The exclusion of the shareholders’ subscription rights is also necessary to achieve this
purpose. In its deliberations the Management Board has considered alternatives for
structuring the proposed transaction, but it has rejected them as impractical or less
suitable:
Due to the magnitude of the financing required for the acquisition of LEG, a debt
financing of the acquisition is not feasible. As of 30 June 2015 Deutsche Wohnen’s
loan-to-value ratio amounts to approximately 40.9% (reported net financial debt of
EUR 4,455 million in relation to properties held as investment properties, non-current
assets held for sale, as well as land and buildings held for sale, amounting to a
reported value of EUR 10,901.7 million). As of 30 June 2015, LEG had a loan-to-
value ratio of approximately 49.4% (reported net financial debt of EUR 3,022.7
million in relation to properties held as investment properties, assets held for sale and
prepayments on properties held as investment properties amounting to a reported total
value of EUR 6,120.6 million). If the acquisition of all shares in LEG including the
proposed premium were entirely debt financed, then the combined company would
have a loan-to-value ratio of around 72.2%. This leverage ratio would lie significantly
above the industry standard and would be contrary to the expectations of investors
concerning the management of Deutsche Wohnen, which has been known in the past
to clearly aim for a conservative capital structure. In addition, a negative impact on
Deutsche Wohnen’s credit rating could be expected given such an increase in the
leverage ratio, and in turn would significantly increase the refinancing risk in relation
to existing financial liabilities and, at least in the medium term, the financing costs of
the Company.
This loan-to-value ratio would be significantly above the industry standard and thus
excludes the borrowing of funds in the required amount – in any case, due to the
financing costs, a fully debt-financed acquisition would be associated with high
economic risks for the Company.
A capital increase against cash contributions without an exclusion of the shareholders’
subscription rights, in order to pursue the contemplated transaction using cash and
allowing the shareholders of the Company to subscribe for the shares issued in the
Annex 1 – Report of the Management Board purs. to sec. 186, para. 4, sent. 2 AktG
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context of the transaction, is less suitable than an acquisition by way of an Exchange
Offer for several reasons. First, such a capital increase against cash contributions
would have to finance the entire takeover offer even in case of an acceptance rate of
100%. Neither the extent to which shareholders subscribe for new shares nor the
subscription price (Bezugspreis) in the course of such capital increase – at least with
such a volume – can be predicted with any certainty and depends, in particular, on the
market conditions at the time of the implementation of the capital increase. In order to
obtain reasonable assurance as to the financial viability of the offer, a rights issue
would have to precede the beginning of the acceptance period of the Exchange Offer.
This in turn means that the capital increase would have to be implemented before the
actual acceptance rate and the success of the takeover offer could be determined.
Consequently, following the capital increase against cash contributions, the Company
would be significantly overcapitalized if the offer were not implemented, for example,
due to a competing offer or non-occurrence of offer conditions, or were only partially
implemented, for example due to an acceptance rate lower than was assumed when
calculating the size of the capital increase. Finally, the implementation of such a
measure would, for lack of sufficient authorized capital, require a direct resolution of
the General Meeting; therefore, implementation of the measure before the beginning
of the acceptance period would be associated with significant timing risks.
In connection with the Exchange Offer, a combined equity- and debt-financed
acquisition of the shares in LEG is also less suitable than a capital increase against
contributions in kind with the exclusion of the shareholders’ subscription rights, even
though a partial debt financing could in principle complement a capital increase
against cash contributions without an exclusion of the shareholders’ subscription
rights and lead to a reduction of the market risk. However, taking into account the
current debt financing of LEG’s portfolio, the transaction would lead to a significant
increase of the loan-to-value ratio of the combined company. Moreover, this would
not change the fact that the Company would be overcapitalized if the Exchange Offer
were either not implemented at all or not fully implemented.
Finally, an acquisition by way of a merger by absorption (Verschmelzung durch
Aufnahme) (section 2, no. 1 of the German Transformation Act (“UmwG”)) is also
less suitable. Firstly, the subscription rights of the Company’s shareholders would be
excluded in the same way as in the case of a capital increase against contributions in
kind, because the shares issued in the course of the merger-linked capital increase
(Verschmelzung mit Kapitalerhöhung) (section 69 UmwG) mandatorily would have to
be awarded to the shareholders of LEG. Secondly, in contrast to the contemplated
acquisition of a maximum of 94.9% of the shares in LEG in case of a capital increase
against contributions in kind excluding the shareholders’ subscription right, the
merger would lead to the acquisition of all shares in LEG and thus trigger a German
real estate transfer tax with regard to the real estate of LEG located in Germany.
Annex 1 – Report of the Management Board purs. to sec. 186, para. 4, sent. 2 AktG
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3. Appropriateness of the exclusion of subscription rights and appropriateness of the
exchange ratio
The exclusion of the subscription rights is also appropriate in order to achieve the goal
to acquire an interest in LEG, which is in the companyʼs interest
(Gesellschaftsinteresse), by means of a capital increase against contributions in kind
and an Exchange Offer to the shareholders of LEG. Moreover, the exchange ratio
between the LEG Shares and the shares of Deutsche Wohnen is not unreasonably low
at the expense of the shareholders of Deutsche Wohnen.
In the context of the capital increase against contributions in kind, the exclusion of
subscription rights will inevitably cause a dilution of membership rights
(Mitgliedschaftsrechte) of the shareholders of Deutsche Wohnen. The dilution of the
existing participations in Deutsche Wohnen associated with the exclusion of
subscription rights is, however, proportionate to the objective pursued in the interest
of the Company and therefore justified.
In addition, the exclusion of subscription rights in the context of the capital increase
against contributions in kind will lead to a dilution of the intrinsic value of the shares
of the Deutsche Wohnen shareholders. However, this dilution is, under nearly all of
the methods for valuing the shares considered, almost completely balanced out by
revenue and cost synergies that can be realized as a result of the transaction. This is
because, with the exception of the valuation on the basis of the diluted EPRA NAVs,
the transaction leads to a creation of value from the perspective of Deutsche Wohnen.
The dilution for valuation on the basis of the diluted EPRA NAVs is approximately
1% and is therefore very low (see section III.3.f) above). Considering the sustainable
revenue potential associated with the additional volume of privatizations, the
transaction creates value under all valuation methods in the high single digit
percentage range. This valuation is supported by a comparison of the FFO profiles of
the companies.
It is recognized that synergies must be taken into consideration when assessing the
appropriateness of the exchange ratio in connection with a capital increase against
contributions in kind. It is also recognized that an appropriate premium may be
granted in favor of the new shareholders in order to help the Exchange Offer succeed.
The Management Board therefore considers the exchange ratio underlying the capital
increase against contributions in kind as appropriate from the perspective of Deutsche
Wohnen.
* * *
Frankfurt am Main, Germany, September 2015
Deutsche Wohnen
The Management
* * *
Annex A
To the Report of the Management Board pursuant to section 186, para. 4, sentence 2 of the
German Stock Corporation Act (“AktG”) on agenda item 1 for the Extraordinary General
Meeting to be held on Wednesday, 28 October 2015 regarding the reason for the exclusion of
shareholders’ subscription rights
Annex B
To the Report of the Management Board pursuant to section 186, para. 4, sentence 2 of the
German Stock Corporation Act (“AktG”) on agenda item 1 for the Extraordinary General
Meeting to be held on Wednesday, 28 October 2015 regarding the reason for the exclusion of
shareholders’ subscription rights
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Annex C
To the Report of the Management Board pursuant to section 186, para. 4, sentence 2 of the
German Stock Corporation Act (“AktG”) on agenda item 1 for the Extraordinary General Mee-
ting to be held on Wednesday, 28 October 2015 regarding the reason for the exclusion of share-
holders’ subscription rights
VALUATION REPORT FOR THE DETERMINATION OF FAIR VALUE
in the form of a condensed valuation report (“Valuation Report”) of the determination of Fair Value
carried out by CBRE in accordance with the International Financial Reporting Standards (IFRS), the
International Standards for the Valuation of Real Estate for Investment Purposes (“International Valuation
Standards”) and the RICS Valuation – Professional Standards, (January 2014) (Red Book), published by the
Royal Institution of Chartered Surveyors, for the purpose of the integration into the corporate
management report for the extraordinary general meeting in Q3 or Q4 2015 by Deutsche Wohnen AG
(the “Company”). The Report covers the Residential Portfolio of 2,277 investment assets, comprised of
141,858 residential units, 2,447 commercial units and 34,015 miscellaneous rented units (garages, parking
spaces, antennas) and Land consisting of 23 undeveloped sites with an area of 758,532 sq m and the
Nursing and Assisted Living Portfolio, comprised of 17 assets.
Date of Valuation: Residential Portfolio: June 30, 2015
Nursing and Assisted Living Portfolio: June 30, 2014
Date of Valuation Report: September 18, 2015
Valuer:
CBRE GmbH
Bockenheimer Landstraße 24
60323 Frankfurt
Germany
Addressee: Deutsche Wohnen AG
Pfaffenwiese 300
65929 Frankfurt am Main
Germany
CBRE is a "Gesellschaft mit beschränkter Haftung" (limited liability company), registered under commercial law in Germany under
the company registration number 13347. The German company CBRE GmbH was established on April 3, 1973 and has its registered
office at Bockenheimer Landstraße 24, 60323 Frankfurt/Main, Germany.
CBRE is not a company that is regulated by any regulatory authority; however in its valuation department it employs amongst others
a publicly appointed and sworn-in valuer (Öffentlich bestellter und vereidigter Sachverständiger), members of the Royal Institution
of Chartered Surveyors (RICS), and valuers certified by HypZert GmbH.
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SUMMARY OF THE VALUATION CONCLUSIONS
Upon the assumption that, after reasonable inquiry of the Company, there are no onerous restrictions or
unusual outgoings of which we have no knowledge and based on the specific comments and
assumptions outlined in this Valuation Report, we are of the opinion that the aggregate of the individual
Fair Values (net) of the freehold / ground-leasehold interests in the assets, rounded at asset level, are:
the Residential Portfolio
as at June 30, 2015:
the Nursing and Assisted Living Portfolio
as at June 30, 2014:
10,282,752,000 EUR
(Ten billion, two hundred and eighty-two million,
seven hundred and fifty-two thousand Euros)
net of purchasers’ costs and VAT
of which the value of the Land is 19,191,500 EUR.
143,820,000 EUR
(One hundred and forty-three million, eight hun-
dred and twenty thousand Euros)
net of purchasers’ costs and VAT
The assessment of Fair Values was carried out at asset level. The aggregate of the individual Fair Values
presented here takes into account the marketing period and the transaction costs of the individual assets
and does not reflect any discounts or premiums on the sale of the whole portfolio or if parts of the
portfolio were to be marketed simultaneously or in lots.
CBRE has not been engaged to update the CBRE valuations for the purpose of the Valuation Report, has
no obligation to do so and has not updated the CBRE valuations after these valuation dates. CBRE is
currently in the process of updating the Fair Value of the Nursing and Assisted Living Portfolio for internal
purposes with the date of valuation being August 31, 2015. This valuation will not be completed prior to
the date of the Valuation Report.
For a detailed breakdown of values between freehold-equivalent and leasehold assets please refer to Part
5 “Valuation Conclusions”.
One asset in the Residential Portfolio has a negative Fair Value as shown below:
This negative Fair Value is reflected in the total aggregate figure given above.
For the avoidance of doubt, we have not included assets which are held by the Company for their own
occupation in this valuation.
Asset Cluster Postcode City AddressFair Value
EUR
1150.67 BC_0102 14193 Berlin Nikischstr. 4, 4a, 6; Regerstr. 11, 11a - c, 13 -2,999,300
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The following table shows the aggregated key valuation data for the portfolios (excluding Land):
Residential Portfolio Nursing and Assisted Living
Portfolio
Fair Value: 10,263,560,500 EUR 143,820,000 EUR
Total lettable area: 8,883,891 sq m 102,289 sq m
Average Fair Value per sq m lettable area: 1,155 EUR 1,406 EUR
Current annual rental income (gross): 609,583,745 EUR 11,440,901 EUR1
Potential annual rental income (gross): 628,900,635 EUR 11,594,021 EUR
Estimated annual rental value (gross): 714,077,329 EUR 11,153,814EUR
Multiplier (based on current rent): 16.8 times 12.6 times
Multiplier (based on potential rent): 16.3 times 12.4 times
Multiplier (based on rental value): 14.4 times 12.9 times
Net initial yield (based on current rent): 4.4% 6.7%
Net initial yield (based on potential rent): 4.6% 6.8%
Net initial yield (based on rental value): 5.3% 6.5%
For further information please refer to Part 6 “Valuation Key Definitions”.
Our opinion of Fair Value is based upon the scope of work and valuation assumptions as, set out in Part 4
“Explanation of Valuation” and Part 5 “Valuation Conclusions” of this Valuation Report and has been
derived mainly using comparable recent market evidence on arm’s length terms.
1 Thereof 97.4% are generated by owner-occupied leases and 2.6% by third-party leases (retail, residential, parking
spaces).
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CONTENTS
1 BASIS OF VALUATION ............................................................................................................. 6
1.1 Preamble ............................................................................................................................................................. 6
1.2 Valuation Instructions ..................................................................................................................................... 6
1.3 Purpose of Valuation ...................................................................................................................................... 7
1.4 Addressee/Reliance......................................................................................................................................... 7
1.5 Publication.......................................................................................................................................................... 7
1.6 Date of Valuation ............................................................................................................................................. 7
1.7 Subject Assets ................................................................................................................................................... 7
1.8 Tenure (except Land) ...................................................................................................................................... 7
1.9 Concept of Value ............................................................................................................................................. 7
1.10 Currency .............................................................................................................................................................. 8
1.11 Sources of Information .................................................................................................................................. 9
1.12 Place of Performance and Jurisdiction ..................................................................................................... 9
1.13 Assignment of Rights ..................................................................................................................................... 9
1.14 Declaration of Independence ...................................................................................................................... 9
2 RESIDENTIAL PORTFOLIO (EXCLUDING LAND) ......................................................................... 10
2.1 Portfolio Structure ......................................................................................................................................... 10
2.2 Regional Allocation ....................................................................................................................................... 10
2.3 Total Lettable Area by Type of Use .......................................................................................................... 11
2.4 Current Gross Rental Income (annualised) by Type of Use ............................................................. 11
2.5 Residential Units by Regional Portfolios ................................................................................................ 12
2.5.1 Lettable Area by Regional Portfolios ............................................................................................................... 14
2.5.2 Vacancy Rate by Regional Portfolios ............................................................................................................... 14
2.5.3 Current Gross Rental Income (annualised) by Regional Portfolios ....................................................... 15
2.5.4 Fair Value by Regional Portfolios ...................................................................................................................... 15
2.5.5 Fair Value (EUR per sq m) by Regional Portfolios ....................................................................................... 16
2.6 Fair Value of Residential Portfolio ............................................................................................................ 16
2.7 Key Valuation Data ........................................................................................................................................ 18
3 NURSING AND ASSISTED LIVING PORTFOLIO ......................................................................... 19
3.1 Portfolio Structure ......................................................................................................................................... 19
3.2 Tenants and Tenancies ................................................................................................................................ 19
3.3 Regional Allocation ....................................................................................................................................... 19
3.4 Asset Type ....................................................................................................................................................... 20
3.5 Current Gross Rental Income (annualised) by Federal State ......................................................... 20
3.6 Fair Value by Federal State ......................................................................................................................... 21
3.7 Fair Value of Nursing and Assisted Living Portfolio ......................................................................... 22
3.8 Key Valuation Data ....................................................................................................................................... 22
4 EXPLANATION OF VALUATION .............................................................................................. 24
4.1 Inspections ...................................................................................................................................................... 24
4.1.1 Basis of Inspections .............................................................................................................................................. 24 4.1.2 Inspection Dates and Coverage ....................................................................................................................... 26
4.2 Method of Valuation ................................................................................................................................... 26
4.2.1 Discounted Cash Flow (DCF) ............................................................................................................................. 26 4.2.2 Land Approach ....................................................................................................................................................... 28
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4.3 General Valuation Assumptions .............................................................................................................. 30
4.3.1 Constituents of the Subject Assets .................................................................................................................. 30 4.3.2 Structural Surveys .................................................................................................................................................. 30 4.3.3 Accommodation .................................................................................................................................................... 32 4.3.4 Environmental Aspects ........................................................................................................................................ 32 4.3.5 Title and Tenancies ............................................................................................................................................... 33 4.3.6 Pending Litigation, Legal Restrictions (Easements on Real Estate, Rent Regulations etc.) .......... 35 4.3.7 Monument Protection ......................................................................................................................................... 35 4.3.8 Tenants ..................................................................................................................................................................... 35 4.3.9 Taxes, Contributions, Charges .......................................................................................................................... 35 4.3.10 Insurance ......................................................................................................................................................... 35 4.3.11 Legal Requirements / Authorisation for the Construction and Use of the Subject
Assets 35 4.3.12 Infrastructure and Exploration .................................................................................................................. 37 4.3.13 Assumptions Regarding the Future ........................................................................................................ 37
4.4 Valuation Parameters .................................................................................................................................. 37
4.4.1 Non-Recoverable Management Costs .......................................................................................................... 37 4.4.2 Non-Recoverable Repair and Maintenance Costs ..................................................................................... 37 4.4.3 Capital Expenditure and other Factors affecting the Value .................................................................... 38 4.4.4 Tenant Improvements ......................................................................................................................................... 38 4.4.5 Non-Recoverable Operating Costs (Vacancy) ............................................................................................ 40 4.4.6 Inflation ..................................................................................................................................................................... 40 4.4.7 Discount Rate and Exit Capitalisation Rate .................................................................................................. 40 4.4.8 Estimated Rental Value (ERV) ............................................................................................................................. 41 4.4.9 Market Rental Trends during the Period of Detailed Considerations .................................................. 41 4.4.10 Rent Control and Public Subsidies .......................................................................................................... 43 4.4.11 Structural and Fluctuation Vacancy ........................................................................................................ 43 4.4.12 Purchaser’s Costs .......................................................................................................................................... 45
5 VALUATION CONCLUSIONS .................................................................................................. 46
6 VALUATION KEY DEFINITIONS ............................................................................................... 48
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1 BASIS OF VALUATION
1.1 Preamble
Residential Portfolio:
Since 2009, CBRE GmbH („CBRE“) valuates the assets contained in the Residential Portfolio of the
Company at the respective valuation dates for accounting purposes. The assets were evaluated for
accounting purposes the last time on June 30, 2015.
Nursing and Assisted Living Portfolio:
CBRE has previously valued parts of the Nursing and Assisted Living Portfolio as at December 31, 2012 and
June 30, 2013 and all parts of the portfolio as at June 30, 2014 for accounting purposes.
1.2 Valuation Instructions
CBRE has been appointed to carry out a Fair Value valuation of the Company’s assets. CBRE has prepared
a valuation report in the form of a condensed valuation report (“Valuation Report”) for the valuations with
the valuation dates being:
Residential Portfolio: June 30, 2015
Nursing and Assisted Living Portfolio: June 30, 2014
Residential Portfolio: CBRE has not conducted any re-inspections of the assets except for the recently
acquired assets. For further details please refer to Part 4.1.2 “Inspection Dates and Coverage”.
Nursing and Assisted Living Portfolio: CBRE has inspected all the assets for the above mentioned
instruction with the valuation date June 30, 2014.
The assets have been valued individually at asset level (valuation units).
We understand that the assets are principally held as investments and that the Company requires the
value of the freehold or leasehold interests as appropriate.
We confirm that regarding this instruction we are acting solely for the Company and that we have no
conflicts of interests in relation to this instruction.
This valuation is based on information provided for the purposes of the above mentioned valuations and
the current data provided by the Company as at:
Residential Portfolio: April 30, 2015 (rent roll, expiration dates of subsidies, modernized assets);
June 30, 2015 (Overview of sold rental units)
Nursing and Assisted Living Portfolio: the data provided by the Company as at June 23, 2014.
CBRE has not been engaged to update the CBRE valuations for the purpose of the Valuation Report, has
no obligation to do so and has not updated the CBRE valuations after these valuation dates. CBRE is
currently in the process of updating the Fair Value of the Nursing and Assisted Living Portfolio for internal
purposes with the date of valuation being August 31, 2015. This valuation will not be completed prior to
the date of the Valuation Report.
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1.3 Purpose of Valuation
We acknowledge that our Valuation Report will be used by the Principal exclusively for integration into
the corporate management report for the extraordinary general meeting in Q3 or Q4 2015.
1.4 Addressee/Reliance
The present Valuation Report is addressed to:
Deutsche Wohnen AG, Pfaffenwiese 300, 65929 Frankfurt am Main, Germany
1.5 Publication
CBRE acknowledges and agrees that the Valuation Report will be published in unaltered form (subject to
prior written approval by CBRE) in the corporate management report for the extraordinary general
meeting in Q3 or Q4 2013.
Apart from that, neither the whole nor any part of the Valuation Report nor any references thereto may
be published in any form without CBRE’s prior approval of the form and context in which it will appear
(e.g. in the form of documents or circulars).
1.6 Date of Valuation
Residential Portfolio: the effective valuation date is June 30, 2015.
Nursing and Assisted Living Portfolio: the effective valuation date is June 30, 2014.
1.7 Subject Assets
In accordance with the valuation instructions, the subjects of the valuation are:
Residential Portfolio: the assets held as at June 30, 2015 comprised of 2,277 assets with 141,858 residential
units, of which 21,935 are subject to public rent control, 2,447 commercial units and 34,015 miscellaneous
rented units (garages, parking spaces, antennas) and Land (23 assets) with an area of 758,532 sq m.
Nursing and Assisted Living Portfolio: comprised of 17 assets.
1.8 Tenure (except Land)
Residential Portfolio: the portfolio is comprised of 2,189 assets which are freehold-equivalent and 88
assets which are ground leasehold-equivalent with the Company as ground leaseholder. The average,
unweighted leasehold term ends on March 21, 2059. The 88 ground leasehold assets account for 2.4% of
the aggregate Fair Value of the portfolio.
Nursing and Assisted Living Portfolio: the portfolio is comprised of 17 assets which are all freehold-
equivalent.
1.9 Concept of Value
The assessment of Fair Value has been carried out by CBRE in accordance with the guidelines of the
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International Financial Reporting Standards (IFRS), the International Standards for the Valuation of Real
Estate for Investment Purposes (International Valuation Standards) and the RICS Valuation – Professional
Standards (January 2014) (Red Book) of the Royal Institution of Chartered Surveyors.
The assets have been valued to “Fair Value” in accordance with IAS 40 in connection with IFRS 13.9 of the
International Financial Reporting Standards (IFRS) published by the International Accounting Standards
Board (IASB), which is defined as:
“Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction in the principal (or most advantageous) market at the measurement date. “
"Fair Value", for the purpose of financial reporting under International Financial Reporting Standards is
effectively the same as "Market Value", which is defined as:
“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.”
We have valued the assets individually and no account has been taken of any discounts or premiums that
may be negotiated in the market if all or part of the portfolios were to be marketed simultaneously, either
in lots or as a whole.
We confirm that we have sufficient current local and national knowledge of the particular asset market
involved and have the skills and understanding to undertake the valuation competently.
The assets have been valued by valuers who are qualified for the purpose of the valuation in accordance
with the RICS Valuation – Professional Standards (January 2014). Where the knowledge and skill
requirements of the Red Book have been met in aggregate by more than one valuer within CBRE, we
confirm that a list of those valuers has been retained within the working papers, together with
confirmation that each named valuer complies with the requirements of the Red Book.
Note:
The valuation represents the figures that would appear in a hypothetical contract of sale at the valuation
date. No allowances have been made for any expenses of realisation nor for taxation which might arise in
the event of a disposal. Our valuations are net of purchasers' statutory and other normal acquisition costs.
No account has been taken of any inter-company leases or arrangements, nor of any mortgages,
debentures or other charge. No account has been taken of the availability or otherwise of capital-based
Government or European Community grants. All rents and capital values stated in this report are
presented without VAT.
The values stated in this report represent our objective opinion of Fair Value in accordance with the
definition set out above as at the valuation date. Amongst other things, this assumes that the assets had
been properly marketed and that exchange of contracts took place on this date.
1.10 Currency
The currency used in the Valuation Report is Euro.
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1.11 Sources of Information
We have carried out our work based upon information supplied to us by the Company, which we have
assumed to be correct and comprehensive.
All documents provided were checked for plausibility.
Residential Portfolio:
The figures in this report are based on the rent roll provided by the Company, dated April 30, 2015, and
an overview of sold rental units, dated June 30, 2015.
Nursing and Assisted Living Portfolio
The figures are based on the rent roll (including occupancy rate, number of beds, investment costs, floor
areas, rents) and leases provided by the Company as at June 23, 2014.
1.12 Place of Performance and Jurisdiction
German law applies. The place of performance and jurisdiction is Frankfurt am Main.
1.13 Assignment of Rights
The Addressee of this Valuation Report is not entitled to assign its rights - in whole or in part - to third
parties.
1.14 Declaration of Independence
We hereby confirm that to the best of our knowledge and belief CBRE has carried out the assessment of
Fair Value in its capacity as an external valuer. We further confirm that CBRE is not aware of any actual or
potential conflict of interest that might have influenced its independent status. This declaration also
includes all other departments of CBRE GmbH, including the Investment and Agency Departments.
The total fees, including the fee for this assignment, earned by CBRE GmbH from the Company are less
than 2.5% of the total German revenues earned by CBRE GmbH in 2014. It is not anticipated that this
situation will change in the financial year ending December 31, 2015. We confirm that we do not have any
material interest in Deutsche Wohnen AG or the assets.
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2 RESIDENTIAL PORTFOLIO (EXCLUDING LAND)
2.1 Portfolio Structure
The majority of the 2,277 assets in the Residential Portfolio are residential buildings (1,999 assets). The
remainder comprises mixed-use buildings (85 assets), commercial buildings (54 assets), parking units (134
units) and other units (5 units). The portfolio includes 178,320 rental units, comprised of 141,858 residential
units, 2,447 commercial units (office, retail and other commercial), 3,647 other units and 30,368 parking
spaces.
2.2 Regional Allocation
As shown on the following map, the assets of the portfolio are located in 156 towns and cities throughout
Germany, mainly concentrated in the Berlin and Rhine-Main economic regions.
Microsoft MapPoint Europa 2010; CBRE GmbH
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2.3 Total Lettable Area by Type of Use
(Total lettable area: 8,883,891 sq m)
2.4 Current Gross Rental Income (annualised) by Type of Use
(Total rental income: 609,583,745 EUR)
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2.5 Residential Units by Regional Portfolios
The Company, Deutsche Wohnen AG, has divided the Residential Portfolio (excluding Land) into 12
“Regional Portfolios”. The following table, which is provided for informational purposes only, refers to
residential units only and illustrates, together with the other graphics, the distribution of total lettable
areas, Fair Values and Fair Values per sq m in these Regional Portfolios.
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(Please refer to the Part 6 “Valuation Key Definitions”.)2
2 taking into account occupied units only
Regional Portfolio
Number of
Residential
Units
Residential
Accommo-
dation
sq m
Current
Residential
Rent
EUR per sq m
per month²
Residential
Market Rent
EUR per sq m
per month
G ross
Multiplier
(based on
current
rent)
G ross
Multiplier
(based on
potential
rent)
G ross
Multiplier
(based on
market
rent)
Berlin area 101,928 6,087,637 5.74 6.75 17.8 17.3 14.9
Dresden 2,654 168,432 5.11 5.68 16.8 15.4 14.1
Erfurt 618 33,564 5.88 6.01 13.9 13.4 13.2
Halle/Leipzig 1,684 98,315 5.18 5.28 12.7 12.3 12.1
Hanover-Brunswick 8,790 574,342 5.39 5.78 13.8 13.3 12.5
Kiel/Lübeck 1,974 126,430 5.12 5.25 12.1 11.6 11.4
Magdeburg 2,101 123,893 5.24 5.41 13.4 12.7 12.4
Mannheim/Ludwigshafen 4,772 297,790 5.61 6.02 13.6 13.2 12.4
Rhineland 4,573 293,276 5.82 6.27 14.1 13.5 12.7
Rhine-Main 9,127 552,091 7.22 8.19 16.7 16.2 14.5
Other Core 519 32,270 4.94 5.59 12.5 11.8 10.5
Other Non-Core 3,118 207,251 4.78 4.96 12.0 11.0 10.6
Total 141,858 8,595,291 5.76 6.61 16.8 16.3 14.4
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2.5.1 Lettable Area by Regional Portfolios
(Total lettable area: 8,883,891 sq m)
2.5.2 Vacancy Rate by Regional Portfolios
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2.5.3 Current Gross Rental Income (annualised) by Regional Portfolios
(Total rental income: 609,583,745 EUR)
2.5.4 Fair Value by Regional Portfolios
(Total Fair Value: 10,263,560,500 EUR)
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2.5.5 Fair Value (EUR per sq m) by Regional Portfolios
2.6 Fair Value of Residential Portfolio
Upon the assumption that, after reasonable inquiry of the Company, there are no onerous restrictions or
unusual outgoings of which we have no knowledge and based on the specific comments and
assumptions set out in this Valuation Report, we are of the opinion that the aggregate of the individual
Fair Values (net) of the freehold / ground leasehold interests of the assets in the Residential Portfolio
(excluding Land), as at June 30, 2015, rounded at asset level, is:
10,263,560,500 EUR
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(Ten billion, two hundred and sixty-three million, five hundred and sixty thousand, five hundred Euros)
The assessment of Fair Value was carried out at asset level. The aggregate of the individual Fair Values
presented here takes into account the marketing period and the transaction costs of the individual assets
and does not reflect any discount or premium on the sale of the whole portfolio or if parts of the
portfolio were to be marketed simultaneously or in lots.
CBRE has not been engaged to update the CBRE valuations for the purpose of the Valuation Report, has
no obligation to do so and has not updated the CBRE valuation after this valuation date.
One asset in the Residential Portfolio has a negative Fair Value as shown below:
This negative Fair Value is included in the total figure given above.
For the avoidance of doubt, we have not included assets which are held by the Company for their own
occupation in this valuation.
Asset Cluster Postcode City AddressFair Value
EUR
1150.67 BC_0102 14193 Berlin Nikischstr. 4, 4a, 6; Regerstr. 11, 11a - c, 13 -2,999,300
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2.7 Key Valuation Data
The following table shows the aggregated key valuation data for the Residential Portfolio (excluding
Land):
Fair Value 10,263,560,500 EUR
Total lettable area: 8,883,891 sq m
Average Fair Value per sq m lettable area: 1,155 EUR
Current annual rental income (gross): 609,583,745 EUR
Potential annual rental income (gross): 628,900,635 EUR
Estimated annual rental value (gross): 714,077,329 EUR
Multiplier (based on current rent): 16.8 times
Multiplier (based on potential rent): 16.3 times
Multiplier (based on rental value): 14.4 times
Net initial yield (based on current rent): 4.4%
Net initial yield (based on potential rent): 4.6%
Net initial yield (based on rental value): 5.3%
For further information please refer to Part 6 “Valuation Key Definitions”.
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3 NURSING AND ASSISTED LIVING PORTFOLIO
3.1 Portfolio Structure
This portfolio consists of 17 nursing or assisted living assets in the following referred to as the “Nursing
and Assisted Living Portfolio”.
3.2 Tenants and Tenancies
Between the date of Valuation as at June 30, 2014 and the date of this Valuation Report, a stake of the
company Katharinenhof Seniorenwohn- und Pflegeanlagen Betriebs-GmbH was sold to a third party. As
at the date of this Valuation Report, neither Deutsche Wohnen AG nor a subsidiary has a majority
ownership in the Katharinenhof Seniorenwohn- und Pflegeanlagen Betriebs-GmbH. Deutsche Wohnen
AG holds a minority interest of 49.0%.
3.3 Regional Allocation
As shown on the following map, the nursing and assisted living assets are located in 10 German cities.
Microsoft MapPoint Europa 2010; CBRE GmbH
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3.4 Asset Type
3.5 Current Gross Rental Income (annualised) by Federal State
(Total rental income: 11,440,901 EUR3)
3 Thereof 97.4% are generated by owner-occupied leases and 2.6% by third-party leases (retail, residential, parking
spaces).
Address ZIP CityBuilding
YearAsset Type
Total lettable
Area
in sq m
O ccupancy
Rate
in %
Number
of Beds
Number
of Rooms
Assisted
Living
Units
Estimated Rental
Value
in EUR
Total Fair Value
in EUR
Sächsische Str. 46 10707 Berlin 2002 Nursing Home 7,385 97% 120 110 1,371,768 17,600,000
Ernst-Thälmann-Str. 29a 15370 Fredersdorf 2001 Nursing Home 5,954 95% 122 99 875,238 10,700,000
Schützenstr. 14 21682 Stade 2001 Nursing Home 5,427 99% 131 99 928,017 12,300,000
Belziger Str. 53 c 10823 Berlin 2001 Sheltered Housing 3,023 100% - - 53 456,390 6,440,000
Von-Suttner-Str. 1 14612 Falkensee 2001 Nursing Home 9,992 100% 110 99 25 1,091,007 13,300,000
Str. der Befreiung 114 08141 Reinsdorf 2004 Nursing Home 2,830 100% 60 54 127,350 1,680,000
Stiftstraße 11 08118 Hartenstein 1997 Nursing Home 3,151 100% 80 62 175,214 2,160,000
Schlossallee 1 01723 Wilsdruff 2001 Nursing Home 2,998 100% 60 46 89,940 1,070,000
Hans-Albers-Straße 3 14480 Potsdam 1996 Nursing Home 12,988 100% 133 79 89 820,329 10,400,000
Brauereihof 19 13585 Berlin 2007 Senior Residence 18,448 97% 42 42 199 2,317,256 27,700,000
Am Kurpark 1 09429 Wolkenstein 2002 Nursing Home 3,661 100% 80 68 164,745 1,960,000
Am Kurpark 1 09429 Wolkenstein 2002 Sheltered Housing 1,940 100% - - 39 162,223 2,100,000
Friedrich-Bosse-Str. 93 04159 Leipzig 2001 Nursing Home 4,300 100% 90 85 387,000 4,830,000
Schlüterstraße 62 10625 Berlin 2002 Nursing Home 5,249 91% 102 68 566,848 7,840,000
Bruno-Bürgel-Weg 1-5 12439 Berlin 2003 Nursing Home 5,583 99% 118 107 602,948 8,950,000
Bennigsenstr. 23/24 12159 Berlin 2006 Nursing Home 3,571 95% 74 67 374,962 5,280,000
Britzer Damm 140 12347 Berlin 2006 Nursing Home 5,789 91% 131 123 642,579 9,510,000
102,289 98% 1,453 1,208 405 11,153,814 143,820,000
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3.6 Fair Value by Federal State
(Total Fair Value: 143,820,000 EUR)
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3.7 Fair Value of Nursing and Assisted Living Portfolio
Based on the assumption that, after reasonable inquiry of the Company, there are no onerous restrictions
or unusual outgoings of which we have no knowledge and based on the specific comments and
assumptions set out in this Valuation Report, we are of the opinion that the aggregate of the individual
Fair Values (net) of the freehold interests of the assets in the Nursing and Assisted Living Portfolio, as at
June 30, 2014, rounded at asset level, is:
143,820,000 EUR
(One hundred forty-three million, eight hundred and twenty thousand Euro)
The assessment of Fair Value was carried out at asset level. The aggregate of the individual Fair Values
presented here takes into account the marketing period and the transaction costs of the individual assets
and does not reflect any discount or premium on the sale of the whole portfolio or if parts of the
portfolio were to be marketed simultaneously or in lots.
CBRE has not been engaged to update the CBRE valuation for the purpose of the Valuation Report, has
no obligation to do so and has not updated the CBRE valuations after this valuation date. CBRE is
currently in the process of updating the Fair Value of the Nursing and Assisted Living Portfolio for internal
purposes with the date of valuation being August 31, 2015. The valuation will not be completed prior to
the date of this Valuation Report.
3.8 Key Valuation Data
The following table shows the aggregated key valuation data for the Nursing and Assisted Living Portfolio:
Fair Value 143,820,000 EUR
Total lettable area: 102,289 sq m
Average Fair Value per sq m lettable area: 1,406 EUR
Current annual rental income (gross):4 11,440,901 EUR
Potential annual rental income (gross): 11,594,021 EUR
Estimated annual rental value (gross): 11,153,814 EUR
Multiplier (based on current rent): 12.6 times
Multiplier (based on potential rent): 12.4 times
Multiplier (based on rental value): 12.9 times
Net initial yield (based on current rent): 6.7%
Net initial yield (based on potential rent): 6.8%
Net initial yield (based on rental value): 6.5%
4 Thereof 97.4% are generated by owner-occupied leases and 2.6% by third-party leases (retail, residential, parking
spaces).
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(Please refer to the Valuation Key Definitions.)
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4 EXPLANATION OF VALUATION
4.1 Inspections
4.1.1 Basis of Inspections
Residential Portfolio
In accordance with the instruction, the valuation of the Residential Portfolio has been carried out
individually on asset level. For the purpose of the inspections we amalgamated the assets into
homogeneous clusters. The cluster criteria were location and situation, type of assets and date of
construction, as follows:
LOCATION/SITUATION: all assets in a single inspection cluster must be part of one housing estate or –
if they are individual buildings – must be situated in the same neighbourhood,
TYPE OF ASSETS: These were mainly differentiated into:
A) Detached/Semi-detached houses
B) Apartment buildings
C) Commercial assets, such as office buildings, business and retail assets, mixed-use assets
where the proportion of commercial value is greater than 20%
DATE OF CONSTRUCTION: The categories of construction date were defined as follows:
1945 and earlier
1946 to 1959
1960 to 1969
1970 to 1979
1980 to 1989
1990 to 2001
2002 onwards
For the inspections a reference asset was selected from each cluster, on the basis of the desktop analysis
and the information available.
During our inspections we verified that each of the buildings in the valuation clusters were internally
consistent and checked whether adjoining buildings had homogeneous characteristics that could enabled
them to be amalgamated.
Garages, parking spaces and other rent-earning units such as antennas are part of a building unit, except
if they are economically independent units.
At cluster level, we made an assessment of the location (“micro location”), the level of quality according to
the local rental table, the condition of the buildings (asset score) and the typical condition of the
apartments, as a basis of our allowances for regular maintenance and tenant improvement costs.
At asset level, the basis of valuation calculations, we took individual account of asset-specific parameters
such as administration costs, structural vacancy, current rent, market rental value, public subsidy (if any),
ground leases (where appropriate) and relevant entries in section II of the land register.
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Nursing and Assisted Living Portfolio
All assets in this portfolio have been individually inspected, both externally and internally.
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4.1.2 Inspection Dates and Coverage
Residential Portfolio: As agreed, for the purpose of the accounting valuation as at June 30, 2015, we did
not conduct any re-inspection except for the newly-acquired assets. The inspections of these 39 assets
took place in the period from June 19 to 23, 2015.
The following table shows the breakdown of the inspected assets which were components of the
Residential Portfolio as at the date of valuation (June 30, 2015):
From a total of 2,277 assets, we have conducted 2,070 external inspections (79.0% of the Gross Current
Annual Rental Income), 193 internal inspections (20.9% of the Gross Current Annual Rental Income) and
14 assets (single apartments in buildings for privatisation) have not been inspected (0.1% of the Gross
Current Annual Rental Income).
In respect to those assets that were not re-inspected, the Company confirmed that it is not aware of any
material changes to the physical attributes of the assets, or the nature of their location, that might have
occurred since the last inspection.
21 of the total of 23 undeveloped sites (99.99% weighted by Fair Value) were inspected in the period from
December 12, 2012 to January 4, 2013. Two undeveloped sites were not inspected.
Nursing and Assisted Living Portfolio: As agreed, for the purpose of the accounting valuation with the
valuation date as at June 30, 2014, we have undertaken internal inspections of the 17 nursing and assisted
living assets, which took place in the period from June 23 to 27, 2014.
4.2 Method of Valuation
4.2.1 Discounted Cash Flow (DCF)
The determination of the Fair Value of the individual assets has been carried out using the internationally
recognised Discounted Cash Flow (DCF) method. This method, which is based on dynamic investment
calculations, allows valuation parameters to be reflected explicitly and, therefore, provides a transparent
arithmetical determination of Fair Value. In the DCF method, the future income and expenditure flows
associated with the subject asset are explicitly forecasted over a 10-year period of detailed consideration,
assuming a letting scenario which does not take into account any potential privatisations of individual
apartments. The cash flows calculated for the period of detailed consideration are discounted, monthly in
advance, to the date of valuation, allowing the effect on the current Fair Value of the receipts and
payments at varying dates during the 10-year period to be properly reflected.
Year of
InspectionTotal
No
Inspection
External
Inspection
Internal
Inspection
2015 39 0 39 0
2014 217 0 211 6
2013 349 0 315 34
2012 1,658 0 1,505 153
no inspection 14 14 0 0
Total 2,277 14 2,070 193
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The discount rate chosen does not only reflect the market situation, location, condition and letting
situation of the asset and the yield expectations of a potential investor, but also the level of security of the
forecasted future cash flows. As the discounting process means that the effect of future cash flows
reduces in importance while at the same time the uncertainty of forecasting tends to increase over time, it
is usual in real estate investment that considerations for the sustainable net rental income after a ten-year
time horizon (the period of detailed consideration) be capitalised, using a growth-implicit yield, and then
discounted to the date of valuation.
The assumptions adopted in the valuation model reflect the average estimates that would be made at the
respective date of valuation by investors active in the market. The result of the DCF method is, therefore,
the price that a relevant investor in the market would be prepared to pay for the asset at the respective
date of valuation, in order to achieve a return from the proposed investment that is in line with present
asset market expectations.
4.2.2 Land Approach
For the purpose of the valuation, all assets have been assigned to one of the following categories, based
on the information provided by the Company or gained during discussions with the local authorities:
A) Future Development
land capable of development (Baureifes Land); zoned for development, with public roads and
utilities infrastructure
unserviced land zoned for development (Rohbauland)
land with hope value for development (Bauerwartungsland)
B) Other
Woodland, agricultural land (Forst- und Agrarland) and gardens
The land assets in the portfolio were valued on the basis of their status as at the valuation date using two
different valuation methods:
Comparison method (“Vergleichswertverfahren”)
Land capable of development (Baureifes Land) as well as woodland, agricultural land (Forst- und
Agrarland) and gardens was valued using the comparison method.
The official Bodenrichtwert (guideline land value) was used for each asset or, if it was not available, the
valuation was based on local comparables. Using our professional judgement, we have applied
adjustment factors in accordance with individual asset characteristics in determining the site value. If
infrastructure costs were outstanding or could be expected to be payable on individual sites, these were
deducted.
Deductive valuation approach for potential building land by Walter Seele5
Land with hope value for development (Bauerwartungsland) and unserviced land zoned for development
(Rohbauland) was valued using the deductive valuation approach according to Seele.
5 Source: Seele, 1998, Bodenwertermittlung durch deduktiven Preisvergleich, Zeitschrift Vermessungswesen und
Raumordnung
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According to the Seele approach, the prices for potential building land are determined not only by prices
of comparable land capable of development (Baureifes Land) and the waiting period. They are also
dependent on the proportion of land that needs to be developed (Erschließungsflächenanteil) and the
development costs.
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The approach has been recommended for application by the “GIF” (society for real estate economic
research) in Germany.
We would like to draw your attention to the fact that the market for the above mentioned types of Land
(Type A) is relatively small and the development of this type of Land often depends on decisions made by
local or municipal authorities such as planning authorities (Bauplanungsämter), which leads to a lack of
comparable evidence and in a greater uncertainty of our valuation assumptions. It should be noted that
the price which can be achieved for development land (in any of the above categories) is extremely
sensitive to minor changes to any of a number of factors, including statutory consents, timing, availability
and cost of development finance, construction costs and market movements and therefore may differ
from the Fair Value. We would therefore recommend that the situation and the valuations are kept under
regular review.
4.3 General Valuation Assumptions
We have made various assumptions as to tenure, letting, town planning, and the condition and repair of
buildings and sites – including ground and groundwater contamination – as set out below.
If any of the information or assumptions on which the valuation is based are subsequently found to be
incorrect, the valuation figures may also be incorrect and should be reconsidered.
No special assumptions (as defined by RICS)6 have been made.
4.3.1 Constituents of the Subject Assets
Fixtures in the subject assets, such as passenger and goods lifts, other conveyor installations, central
heating installations and other building services installations have been regarded as integral parts of the
subject asset and are therefore included in our valuation. Tenant's fixtures and fittings that would
normally be the asset of the tenant have not been reflected in our valuation.
4.3.2 Structural Surveys
We have not carried out building surveys, tested services, made independent site investigations,
inspected woodwork, exposed parts of the structure which were covered, unexposed or inaccessible, nor
arranged for any investigations to be carried out to determine whether or not any deleterious or
hazardous materials or techniques have been used, or are present, in any part of the assets. We are
unable, therefore, to give any assurance that the assets are free from defect.
In the absence of any information to the contrary, we have assumed that:
there are no abnormal ground conditions or archaeological remains that might adversely affect
the current or future occupation, development or value of the assets;
the assets are free from rot, infestation, structural or latent defects;
no currently known deleterious or hazardous materials or suspect techniques, including but not
limi-ted to composite panelling, have been used in the construction of, or subsequent alterations
or additions to, the assets; and
6 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 (e.g. fully let).
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the building services, and all associated controls and software, are in working order and free from
defect.
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We included the age and the general condition of the assets into the evaluation. Comments made in the
assets details do not purport to express an opinion about, or advise upon, the condition of uninspected
parts and should not be taken as making an implied representation or statement about such parts.
4.3.3 Accommodation
For the purposes of this determination of Fair Value we have not measured the buildings or the sites. The
calculations are based on the floor areas in the tenancy schedule and the additional information provided
by the Company. We have not checked these on site.
Unless advised specifically to the contrary, we have assumed that the floor areas supplied to us, in
principle, are correct and in accordance with appropriate measuring practice.
All areas quoted in this Valuation Report are approximate.
4.3.4 Environmental Aspects
We have not undertaken, nor are we aware of the content of, any environmental audit or other
environmental investigation or soil survey which may have been carried out on the assets and which may
draw attention to any contamination or the possibility of any such contamination, other than as detailed
below.
We have not carried out any investigation into the past or present uses of the assets, nor of any
neighbouring land, in order to establish whether there is any potential for contamination and have
therefore assumed that none exists.
Residential Portfolio:
According to the information provided by the Company some areas of the asset Dominicusstraße 37-43
odd, Ebersstraße 20, Feurigstraße 41-48, Prinz-Georg-Straße 1, 2, 10827 Berlin (asset: 1400.2129) are
contaminated with asbestos. According to the Company there is no immediate need for action but
regular monitoring is necessary and some elements will probably have to be replaced. We have therefore
taken the costs, as provided by the Company, of 253,968 EUR, into account in this valuation.
In the asset Gregor-Mendel-Straße 2-6 even, Lentzeallee 93-103 odd, Milowstraße 2-12 even, Spilstraße 1,
3, 14195 Berlin (asset: 1400.2502), some redundant heating pipes in the basement are clad with material
that contains asbestos. According to environmental investigations by Baubiologie und Umweltanalytik of
September 16, 2009, there is no immediate risk but decontamination will have to be arranged. Following
privatisation of the residential units of this asset, the Company owns around 28% of the units at the date
of valuation. The total decontamination costs are 95,000 EUR and the Company is responsible for around
50,000 EUR.
For all other assets, in accordance with instructions, we have assumed that the subject assets are free
from contamination and that the present and previous uses do not indicate a substantial potential for
contamination for the purposes of our valuation.
Nursing and Assisted Living Portfolio:
In the absence of any further information to the contrary, we have assumed that:
the assets are not contaminated and are not adversely affected by any existing or proposed
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environmental law,
any processes which are carried out on the assets which are regulated by environmental
legislation are properly licensed by the appropriate authorities.
We have assumed that either the assets possess current Energy Performance Certificates as required
under Government Directives or the Company can present the documents if required.
4.3.5 Title and Tenancies
Details of title/tenure under which the assets are held and of lettings to which it is subject are as supplied
to us. We have not generally examined nor had access to all the deeds, leases or other documents
relating thereto. Where information from deeds, leases or other documents is recorded in this report, it
represents our understanding of the relevant documents without obtaining separate legal advice.
Unless stated otherwise in this report and in the absence of any information to the contrary, we have
assumed that:
the assets possess good and marketable title free from any onerous or hampering restrictions or
conditions;
only minor or inconsequential costs will be incurred if any modifications or alterations are
necessary in order for occupiers of each asset to comply with the provisions of the relevant anti
disability discrimination legislation;
there are no tenant’s improvements, others than those mentioned in 4.4.4, that will materially
affect our opinion of the rent that would be obtained on review or renewal;
the permission of the owner (if required) to transfer the here valued asset will not be withheld;
and
the potential rent of all vacant space is given (with the exception of structural vacancy).
We have not been provided with Legal Due Diligence Reports by the Company.
In accordance with our valuation instructions, our determination of Fair Value is based on the information
provided to us, which also applies to rented accommodation, tenancies, current rental income, remaining
lease terms and other lease conditions.
From the information provided,
we note that 3.9% (by number of assets) of the assets of the Residential Portfolio (corresponding
to 2.4% of the Fair Value) are on sites held on the equivalent of ground leases (Erbbaurechte).
We note that all other assets of the Residential Portfolio, including sites, as well as the Nursing
and Assisted Living Portfolio as at the dates of valuation June 30, 2015 and June 30, 2014, are
owned (freehold or as condominiums) by the Company and/or its subsidiaries.
We assume that there are no circumstances having an effect on value resulting from
encumbrances and restrictions in Section II of the land register;
the tenancies listed in the rent roll were still in existence at the date of valuation and
there are no entries affecting value in the Baulastenverzeichnis (register of public land charges).
Mortgages or other liabilities that currently exist or that in the future might encumber one or more of the
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subject assets have not been taken into account.
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4.3.6 Pending Litigation, Legal Restrictions (Easements on Real Estate, Rent Regulations etc.)
In accordance with the information provided by the Company, we have assumed, without verification,
that the assets are free from any pending litigation, that the ownership is unencumbered and that there
are no other legal restrictions such as easements on real estate, rent regulations, restrictive covenants in
leases or other payment obligations that might adversely affect value.
4.3.7 Monument Protection
Based on the information provided to us by the Company, the following percentages of assets are listed
monuments:
Residential Portfolio: 14.8% of the assets (representing 20.4% of the Fair Value aggregated on
portfolio level excluding the Land) and
Nursing and Assisted Living Portfolio: we were not provided with any information concerning
monument protection and therefore have assumed that the assets are not listed.
4.3.8 Tenants
We have not conducted credit enquiries on the financial status of any tenants of the Residential Portfolio
and of the Nursing and Assisted Living Portfolio. We have, however, reflected our general understanding
of purchasers’ likely perceptions of the financial status of tenants.
In the absence of information to the contrary, we have assumed that there are no significant rent arrears
in both portfolios.
4.3.9 Taxes, Contributions, Charges
We have assumed that all public taxes, contributions, charges etc. which could have an effect on the value
will have been levied and, as far as they are due, paid as at the date of valuation.
4.3.10 Insurance
We have assumed that the subject assets are covered by a valid insurance that is adequate both in terms
of the sum assured and the types of potential loss covered.
4.3.11 Legal Requirements / Authorisation for the Construction and Use of the Subject Assets
No investigations of the compliance of the individual subject assets with legal requirements (including
(permanent) planning consent, building permit, acceptance, restrictions, building-, fire-, health- and
safety regulations etc.) or with any existing private-law provisions or agreements relating to the existence
and use of the site and building have been carried out.
In carrying out our valuations, we have assumed that all necessary consents and authorisations for the
use of the assets and the processes carried out at the assets were obtained, will continue to subsist and
that they are not subject to any onerous conditions.
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4.3.12 Infrastructure and Exploration
We have not undertaken planning enquiries but have relied upon the information provided where
appropriate. For the purposes of our valuation we assume that there are no adverse town planning,
planning of highways or other schemes or proposals that will have a detrimental effect on our valuations.
4.3.13 Assumptions Regarding the Future
To determine the Fair Value of the assets concerned, we have assumed that the existing or a similar use
during the remaining life of the building both in the nature as well as to the scope will persist.
4.4 Valuation Parameters
The assessment of Fair Value is based on future cash flows, which reflect normal market expectations,
taking into account past figures from the subject assets or comparable investments. The valuation
parameters have been assessed by CBRE, using its best judgement, based on the information provided by
the Company.
4.4.1 Non-Recoverable Management Costs
Residential Portfolio:
Residential leases generally involve non-recoverable management costs. For the purposes of this
valuation and on the basis of experience of CBRE and an analysis of costs of public and private housing
associations, non-recoverable management costs have been allowed for between 195 EUR and 295 EUR
per unit p.a. (depending on the number of residential units in the individual building). We have allowed
350 EUR p.a. for each residential unit in buildings that are undergoing privatisation as additional costs are
incurred under the Condominium Act (Wohneigentumsgesetz - WEG).
The weighted average of non-recoverable management costs amounts to 217 EUR per residential unit p.a.
For the commercial units we have allowed non-recoverable management costs of 4% of the gross rental
income on potential rent.
Nursing and Assisted Living Portfolio:
Based on experience of the typical allowances reflected in the market, the non-recoverable management
costs for the nursing and assisted living assets have been assessed at 2% of the gross market annual
rental income.
4.4.2 Non-Recoverable Repair and Maintenance Costs
The annual costs per square metre of lettable area adopted for the purposes of this valuation are average
figures for the types of use concerned, arrived at on the basis of experience by CBRE and the analysis of
costs of similar buildings by third-party firms. They take into account the necessary cost inputs for long-
term operation of the assets.
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Residential Portfolio:
The maintenance and repair costs for residential units allowed for in the valuation range between 2.00
and 20.00 EUR per sq m p.a., with a weighted average of 9.80 EUR per sq m p.a. The individual allowances
reflect both the state of repair of the building concerned (after rectification of outstanding repairs) as well
as the existence of lifts, special listed building conditions etc.
Nursing and Assisted Living Portfolio:
The non-recoverable repair and maintenance costs for the nursing and assisted living assets have been
allowed between 4.00 and 10.00 EUR per sq m p.a. The individual allowances reflect both the state of
repair of the building concerned (after rectification of outstanding repairs) as well as the existence of lifts,
special listed building conditions etc.
4.4.3 Capital Expenditure and other Factors affecting the Value
In addition to the non-recoverable ancillary costs, which are deducted monthly from the gross rental
income during the period of detailed consideration, capital expenditure on repair and maintenance work
already planned at the date of valuation has also been reflected. CBRE has not undertaken a technical
survey. We have undertaken limited inspections for valuation purposes only.
Residential Portfolio:
Based on our inspections and the information which we were provided with, it is our opinion that the
buildings and technical equipment have been regularly maintained. We therefore assume that there is
only a minor part of the portfolio with deferred or outstanding maintenance costs to be expected at
1,251,000 EUR.
Nursing and Assisted Living Portfolio:
Based on our inspection and the information which we were provided with, it is our opinion that the
buildings and technical equipment have been regularly maintained. We therefore assume that there are
no deferred or outstanding maintenance costs.
4.4.4 Tenant Improvements
Under German law, it is frequently the tenant’s responsibility to carry out decorative and minor repairs.
Upon a change in tenants, however, additional expenses for basic repairs and renovation of the interior of
the individual rental units must be incurred, e.g. in the bathrooms and kitchens of residential units, to
facilitate renewed letting.
Residential Portfolio:
For each of the buildings, based on current market experience and the average condition of the
apartments, we have allowed amounts for initial refurbishments and/or on tenant fluctuation ranging
from 0 to 150 EUR per sq m with an overall weighted average of 54 EUR per sq m for residential
accommodation.
Nursing and Assisted Living Portfolio:
For the nursing and assisted living assets we have allowed costs ranging between 10 and 150 EUR per sq
m.
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4.4.5 Non-Recoverable Operating Costs (Vacancy)
Residential Portfolio:
Based on an analysis by the German Tenants’ Association for apartment housing we have reflected non-
recoverable operating costs on vacant space at a flat rate of 16.80 EUR per sq m p.a. for the assets in
Western Germany and for Eastern German locations including Berlin we have allowed 12 EUR per sq m
p.a. This includes, for example, heating costs for a minimal level of heating, costs for caretaker or security
services and electricity and cleaning costs.
Nursing and Assisted Living Portfolio:
Based on experience a level of 12 EUR per sq m p. a. has been adopted for vacant accommodation.
4.4.6 Inflation
The DCF method used includes an explicit reflection of cost inflation. We have assumed inflation rates for
the portfolios as follows:
Full allowance for inflation has been made in particular for maintenance and repair costs, management
and operating costs and ground rents (Erbbauzinsen). The forecast inflation rates are based on figures
from Consensus Forecast and the ECB, collated by CBRE Research in June 2014/ June 2015.
4.4.7 Discount Rate and Exit Capitalisation Rate
The assessment of the discount rate involves several components. Starting from a basis interest rate,
additions and deductions are made according to various criteria specific to the buildings concerned.
The exit capitalisation rate is dependent on the discount rate. While the discount rate is an “Equated
Yield”, which explicitly reflects growth in the cash flows, the capitalisation rate is a “Net Initial Yield”, which
reflects growth assumptions implicitly. In order to derive the exit capitalisation rate from the discount rate,
the latter was corrected for explicit market rental growth components during the period of detailed
consideration.
Residential Portfolio:
The weighted average discount rate employed is approximately 5.7%.
The weighted average exit capitalisation rate employed is approximately 4.6%.
Nursing and Assisted Living Portfolio:
The weighted average discount rate employed is approximately 7.0%.
The weighted average exit capitalisation rate employed is approximately 7.2%.
as at year 1 year 2subsequent
years
Residential Portfolio June 30, 2015 1.5% 2.0% 2.0%
Nursing Home and Sheltered Housing Portfolio June 30, 2014 1.3% 1.9% 2.0%
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For the Residential Portfolio the resulting net present values were checked against our analysis of
comparable transactions (if available) from the sale price data collected by the relevant local valuation
committee (Gutachterausschuss) and an analysis of the internal lease and sale database of the CBRE
Valuation Department. If necessary in the absence of transaction data, asking prices for comparable
assets on offer at empirica systeme were also considered (with a discount of 10% from the offer price). If,
in particular instances, results of our DCF calculations did not reflect the Fair Value of an individual
building, the calculation was adjusted by means of a change in the discount rate and exit capitalisation
rate using expert and experienced judgement.
For the Nursing and Assisted Living Portfolio the resulting net present values were checked against our
analysis of comparable transactions and competitors. If, in particular instances, results of our DCF
calculations did not reflect the Fair Value of an individual building, the calculation was adjusted by means
of a change in the discount rate and exit capitalisation rate using expert and experienced judgement.
4.4.8 Estimated Rental Value (ERV)
Residential Portfolio:
For the purposes of this valuation, CBRE has estimated rental values at the valuation date for the lettable
accommodation and asset units. These are based on an analysis of the local asset market, using data
available to CBRE and accessible third-party sources. This includes:
Recent leases and tenancies concluded in the subject assets in the years 2014 and 2015
Analysis of the internal rental database of the CBRE Valuation Department
Publications by, and chargeable database queries of, market research institutes and real estate
companies
Nursing and Assisted Living Portfolio:
In the market segment of nursing homes, a sustainable rent needs to be determined as basis for the
valuation. This is calculated from investment costs per day and bed with additionally subtracting
replacement purchase costs per day and bed. Depending on e.g. the average occupancy rate and the
proportion of social security claimants, a sustainable rent was deducted for each asset.
4.4.9 Market Rental Trends during the Period of Detailed Considerations
Residential Portfolio:
During the 10-year period of detailed consideration of the forecast cash flows, explicit modelling of
changes in market rental values has been included, estimated by CBRE at administrative district
(Landkreis/Kreisfreie Stadt) level for all assets. The estimates are mainly based on data from the state
statistics offices, BulwienGesa AG's RIWIS database and the Prognos AG Zukunftsatlas. Depending on
location, the resulting trends of market rental value range in the Residential Portfolio between annual
increases of 0% to 1.65%, with a weighted average of 1.1%. In each case they have been adjusted for the
quality of situation and condition of the building.
Nursing and Assisted Living Portfolio:
Full allowance for inflation has been made for rental growth. The forecast inflation rates are based on
figures from Consensus Forecast and the ECB, collated by CBRE Research in June 2014 (please refer to
4.4.6 “Inflation”).
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4.4.10 Rent Control and Public Subsidies
A number of the residential units were subject to rent control as at the valuation dates. Instead of the rent
increase method of the BGB (Bürgerliches Gesetzbuch) these residential units are subject to an economic
rent (Kostenmiete). Contrary to Part 4.4.9 we have calculated with a rental growth of 0.5%, based on our
experience.
Residential Portfolio:
According to information provided by the Company, 15.5% of the residential units are subject to rent
control. At the valuation date, 9,212,153 EUR of direct public subsidies were payable to the Company
during the 10 years following that date.
Nursing and Assisted Living Portfolio:
According to information provided by the Company, six Nursing Homes were subject to public subsidies
(building cost subsidy). As a consequence, the assets have lower rents and lower investment costs per
resident and per day in comparison to a free financed asset.
4.4.11 Structural and Fluctuation Vacancy
Residential Portfolio:
As at the valuation date, the portfolio has an average vacancy rate of 2.7% (weighted by area). We are
assuming that the weighted average vacancy rate of the Residential Portfolio has the potential to decrease
to a structural vacancy rate of 0.8% with a range of 0% to 50% (in an exceptional case 100%) at asset level.
In addition to the structural vacancy rate we have calculated a turnover vacancy between 0 to 6 months
which corresponds to 0% to 5%, with an average of 1.6%.
The average stabilized vacancy rate of the Residential Portfolio is 2.5%.
Nursing and Assisted Living Portfolio:
As at the valuation date the Nursing and Assisted Living Portfolio has an average vacancy rate of 2.4%
(weighted by area).
Total
in % of Total
Residential
Units
< = 10 years 8,890 6.3%
11 - 25 years 3,263 2.3%
26 - 40 years 2,336 1.6%
41 - 55 years 3,627 2.6%
> 55 years 3,819 2.7%
Restricted Units 21,935 15.5%
Not Restricted 119,923 84.5%
Total 141,858 100.0%
Expiry of
Restriction in
Years
Residential Units
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4.4.12 Purchaser’s Costs
For the purposes of the valuation and in line with normal practice, no allowance has been made for any
personal costs or taxes that would be incurred by the purchaser in the course of the transaction.
Mortgages and any other existing charges on the assets have not been taken into consideration in this
valuation. Normal costs payable by the purchaser on transfer have been reflected as follows:
Agent’s fees 1.0% - 3.0%
Notary’s fees 0.3% - 1.1%
The transfer tax for each federal state is as shown in the table below, as at:
The net capital value is derived by deducting the purchaser's costs as shown from the calculated gross
capital value. It is therefore equivalent to the net proceeds that the vendor would receive on a notional
sale, not allowing for any personal costs or taxes to which the vendor would become liable as a result of
the sale. The amount of the deduction depends on the investment volume of the asset concerned.
June 30, 2014 June 30, 2015
Baden-Wurttemberg 5.0% 5.0%
Bavaria 3.5% 3.5%
Berlin 6.0% 6.0%
Brandenburg 5.0% 5.0%
Bremen 5.0% 5.0%
Hamburg 4.5% 4.5%
Hesse 5.0% 6.0%
Mecklenburg-Western Pomerania 5.0% 5.0%
Lower Saxony 5.0% 5.0%
North Rhine-Westphalia 5.0% 6.5%
Rhineland-Palatinate 5.0% 5.0%
Saarland 5.5% 6.5%
Saxony 3.5% 3.5%
Saxony-Anhalt 5.0% 5.0%
Schleswig-Holstein 6.5% 6.5%
Thuringia 5.0% 5.0%
Federal StateTransfer Tax
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5 VALUATION CONCLUSIONS
Upon the assumption that, after reasonable inquiry of the Company, there are no onerous restrictions or
unusual outgoings of which we have no knowledge and based on the specific comments and
assumptions set out in this Valuation Report, we are of the opinion that the aggregate of the individual
Fair Values (net) of the freehold / ground-leasehold interests in the assets, rounded at asset level, are:
the Residential Portfolio
as at June 30, 2015:
the Nursing and Assisted Living Portfolio
as at June 30, 2014:
10,282,752,000
(Ten billion, two hundred and eighty-two million,
seven hundred and fifty-two thousand Euros)
net of purchasers’ costs and VAT
of which the value of the Land is 19,191,500 EUR.
143,820,000 EUR
(One hundred and forty-three million, eight
hundred and twenty thousand Euros)
net of purchasers’ costs and VAT
The assessment of Fair Value was carried out at asset level. The aggregate of the individual Fair Values
presented here takes into account the marketing period and the transaction costs of the individual assets
and does not reflect any discount or premium on the sale of the whole portfolio or if parts of the
portfolio were to be marketed simultaneously or in lots.
CBRE has not been engaged to update the CBRE valuations for the purpose of the Valuation Report, has
no obligation to do so and has not updated the CBRE valuations after these valuation dates. CBRE is
currently in the process of updating the Fair Value of the Nursing and Assisted Living Portfolio for internal
purposes with the date of valuation being August 31, 2015. This valuation will not be completed prior to
the date of the Valuation Report.
One asset in the Residential Portfolio has a negative Fair Value as shown below:
This negative Fair Value is reflected in the total figure given above.
For the avoidance of doubt, we have not included assets which are held by the Company for their own
occupation in this valuation.
The table below shows the distribution of values between freehold-equivalent and ground leasehold
assets:
* 50 years or less unexpired
** Over 50 years unexpired
Asset Cluster Postcode City AddressFair Value
EUR
1150.67 BC_0102 14193 Berlin Nikischstr. 4, 4a, 6; Regerstr. 11, 11a - c, 13 -2,999,300
Residential PortfolioNursing and Assisted Living
Portfolio
Freehold-equivalent 10,035,425,300 143,820,000
*Short Leasehold 222,766,000 0
**Long Leasehold 24,560,700 0
Total 10,282,752,000 143,820,000
Fair Value in EUR
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The following table shows the aggregated key valuation data for the portfolios (excluding Land):
Residential Portfolio Nursing and Assisted Living
Portfolio
Fair Value: 10,263,560,500 EUR 143,820,000 EUR
Total lettable area: 8,883,891 sq m 102,289 sq m
Average Fair Value per sq m lettable area: 1,155 EUR 1,406 EUR
Current annual rental income (gross): 609,583,745 EUR 11,440,901 EUR7
Potential annual rental income (gross): 628,900,635 EUR 11,594,021 EUR
Estimated annual rental value (gross): 714,077,329 EUR 11,153,814EUR
Multiplier (based on current rent): 16.8 times 12.6 times
Multiplier (based on potential rent): 16.3 times 12.4 times
Multiplier (based on rental value): 14.4 times 12.9 times
Net initial yield (based on current rent): 4.4% 6.7%
Net initial yield (based on potential rent): 4.6% 6.8%
Net initial yield (based on rental value): 5.3% 6.5%
For further information please refer to Part 6 “Valuation Key Definitions”.
7 Thereof 97.4% are generated by owner-occupied leases and 2.6% by third-party leases (retail, residential, parking
spaces).
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6 VALUATION KEY DEFINITIONS
Lettable area
The lettable area in this valuation is defined by the entry in the Company’s rent roll provided.
Total lettable area
Total lettable area in square metres – sum of residential and commercial floor area – and excluding land;
as at June 30, 2014 in respect of the Nursing and Assisted Living Portfolio and June 30, 2015 in respect of
the Residential Portfolio.
Residential units
Residential units - number of residential premises excluding parking units and other units;
as at June 30, 2014 in respect of the Nursing and Assisted Living Portfolio and June 30, 2015 in respect of
the Residential Portfolio.
Commercial units
Commercial units - number of commercial and special premises; excluding parking units and other units;
as at June 30, 2014 in respect of the Nursing and Assisted Living Portfolio and June 30, 2015 in respect of
the Residential Portfolio.
Parking units
Parking units [units] - number of external and internal parking spaces;
as at June 30, 2014 in respect of the Nursing and Assisted Living Portfolio and June 30, 2015 in respect of
the Residential Portfolio.
Other units
Other units - number of antennas;
as at June 30, 2014 in respect of the Nursing and Assisted Living Portfolio and June 30, 2015 in respect of
the Residential Portfolio.
Land:
The Land consists of land for future development (land capable of development, unserviced land zoned
for development and land with hope value for development) and other land (woodland, agricultural land).
Current annual rental income (gross):
The current gross rental income represents the rent paid for the units let on contractual agreements as at
June 30, 2014 in respect of the Nursing and Assisted Living Portfolio and June 30, 2015 in respect of the
Residential Portfolio, before deducting non-recoverable operating costs and VAT, multiplied by 12. Rent-
free periods have been taken into account.
Potential annual rental income (gross):
The potential rent is the sum of the current monthly gross rental income and the rental values of vacant
units – irrespective of any vacancy – as at June 30, 2014 in respect of the Nursing and Assisted Living
Portfolio and June 30, 2015 in respect of the Residential Portfolio, multiplied by 12.
Estimated annual rental value (gross):
The (monthly) market rental value of all units as at June 30, 2014 in respect of the Nursing and Assisted
Living Portfolio and June 30, 2015 in respect of the Residential Portfolio (irrespective of any vacancy),
multiplied by 12.
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Multiplier (based on current rent):
Net capital value divided by current rental income (gross)
Multiplier (based on potential rent):
Net capital value divided by potential rental income (gross)
Multiplier (based on rental value):
Net capital value divided by estimated rental value (gross)
Net initial yield (based on current rent):
Current rental income (net) divided by gross capital value
Current rental income (gross) minus non-recoverable operating costs / net capital value plus purchaser’s
costs
Net initial yield (based on potential rent):
Potential rental income (net) divided by gross capital value
Net initial yield (based on rental value):
Estimated rental income (net) divided by gross capital value
ppa. Sandro Höselbarth
Team Leader Residential Valuation Germany
Director
CBRE GmbH
Dr. Henrik Baumunk
Head of Residential Valuation Germany
Managing Director
CBRE GmbH