Wohnimmobilienaktien Dezember 2015

Equity Research.

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QA_SR$CompanyRegion$Property

e$

Q&A Report

F Full report

Property Europe $) 04 December 2015

Q. Are German residential stocks about to peak due to the M&A climax?

German residential stocks have performed strongly over the last 12 months, rising by between 21% (TAG) and 68% (Grand City Properties), and clearly outperforming the German DAX, which is up 14%. This strong outperformance and the recent M&A climax in the sector (attempted merger between Deutsche Wohnen and LEG, Vonovia’s ongoing bid to take over Deutsche Wohnen) have raised concerns that residential stocks could be near their peak.

A. No, valuations still look attractive in light of strong FFO and NAV per share growth We would remain buyers of all the German and Austrian residential stocks in our coverage. FFO I/share growth could remain solid on ongoing LFL rental growth of 2-3% a year, economies of scale from recent acquisitions and low, or further declining, financing costs. Pressure on rents to increase further could persist in key German regions due to low vacancy rates, persistently strong demographic trends and limited new supply in the target segments of listed companies, as construction costs for new apartments are still significantly above market prices for existing apartments. The positive sector fundamentals and the low interest rate environment could trigger strong NAV growth in the next few years, as investment yields are currently 550-700bps above risk-free rates.

Thomas Neuhold, CFA Main author tneuhold@keplercheuvreux.com +43 1 537 12 4147 Property research team Biographies at the end of the report

IMPORTANT. Please refer to the last page of this report for “Important disclosures” and analyst certification(s).

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Beyond the Q. Investment case

German residential stocks still offer good value We would remain buyers of all the residential real estate companies under our coverage, given the ongoing appeal of: decent FFO I/share growth, excellent cash flow visibility, significant NAV/share growth due to structurally rising rents and high potential for further yield compression and attractive dividend yields of 3-5% for most companies in our coverage.

Including dividend payments, we reckon the total return potential for most of the stocks in our coverage is around 10-20%.

High expected FFO I per share growth We forecast attractive FFO I/share growth rates of 7-27% for 2014-17E, driven by 2-3% LFL rental growth, positive effects from recent acquisitions and low, or further declining, financing costs. The key drivers for the expected 2-3% LFL rental growth a year are low in-place rents (which imply ongoing good affordability), low vacancy rates in key German regions, sustained positive demographic trends (recently accelerated by immigration) and the lack of new supply in respective target market segments, as construction costs are well above market prices for existing properties and as market rent levels in the low- to mid-price segment are still too low to generate an attractive return on investment for new buildto-rent apartments in these price segments.

Strong potential for NAV per share growth The asset values of the listed real estate companies under our coverage are still low in absolute (value per sq m) and relative terms (rental yields versus bond yields). Rental yields amounted to 5.8-7.5% in Q3 2015, which implies a yield spread of 550-700bps over 10Y bund yields. We reckon the ongoing strong underlying development of the residential market and the lack of high-yielding low-risk investment opportunities could lead to strong yield compression in the German residential market in the coming years. This could lead to rising asset values and NAVs.

How to play the sector Vonovia is the largest, most liquid stock in the sector with the most diversified portfolio and an almost pan-regional presence in German residential growth markets. Deutsche Wohnen has the best quality portfolio located in the most liquid residential submarkets in Germany with significant reletting and further revaluation potential. LEG has strong rental growth and NAV growth potential and could fuel growth via acquisitions. Conwert, GCP and TAG offer good upside from asset restructuring. Buwog offers development exposure and seems to be the prime candidate in a further sector consolidation.

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Summary of valuation We would remain buyers of all the residential real estate companies under our coverage, given the ongoing appeal of: decent FFO I/share growth, excellent cash flow visibility, significant NAV/share growth due to structurally rising rents and high potential for further yield compression and attractive dividend yields of 34% for most companies in our coverage. Including dividend payments, we reckon the total return potential for most stocks in our coverage to be around 10-20%.

Table 1: Kepler Cheuvreux rating overview Company Deutsche Wohnen TAG Immobilien Conwert LEG Immobilien Vonovia Buwog Grand City Properties

Market cap (EURm) 8,703 1,410 1,119 4,742 13,791 1,905 2,719

Rating Buy Buy Buy Buy Buy Buy Buy

Target price (EUR) 29.00 13.00 14.75 80.00 34.00 22.00 21.50

Upside/downside 12% 16% 10% 6% 15% 15% 8% Source: Kepler Cheuvreux

What to own in the sector This remains a question of preference: Vonovia is the largest, most liquid stock in the sector with the most diversified portfolio and an almost panregional presence in German residential growth markets. It offers high FFO/share growth potential and an attractive dividend yield 2017E of around 3.8%. Its portfolio is valued at a rental yield of 7%, which creates decent revaluation potential. Vonovia could remain the main predator in the sector, even if its bid for Deutsche Wohnen fails.

Deutsche Wohnen has the best-quality portfolio located in the most liquid residential submarkets in Germany with significant reletting and further revaluation potential. Its balance sheet is strong with an expected LTV of 43% in 2016, which allows for further value-accretive acquisitions, probably targeted in its core markets.

LEG could continue to benefit from improving demographic trends in NRW, which has benefitted from recent immigration due to a strong presence of many large German companies, an improving job market and high population density. Average rents in LEG’s portfolio are at the lower end of the peer group and affordability in most NRW cities is good, which creates strong long-term rent growth potential in case of an ongoing positive demographic development in NRW. We also see good potential for revaluation gains at LEG due to rising rents and further yield compression (rental yield of 7.3% in Q3 2015).

Grand City Properties offers significant FFO upside from rent increases and vacancy reductions. Further acquisitions could be carried out by leveraging up its balance sheet, as the company has an expected LTV of only 32% in 2016E. TAG Immobilien also offers decent FFO upside from rent increases and vacancy reductions. It still has a high cost of debt: 3.49% in Q3 2015. The rollover of expensive debt (EUR1.23bn, 3.8% interest costs) until 2020 could add around EUR23m, or 27%, to FFO 2016E, in our view. The company is also the only really leveraged play on the sector with an expected LTV of 62% in 2016E. A dividend yield of 5.1% in 2016E is the highest in the peer group, while P/FFO multiples are the lowest.

Conwert is currently the only real restructuring play in the sector. With the recent change of CEO and the settlement of former shareholder disputes, the chance of a positive outcome has clearly improved. The stock is

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still trading at a steep discount to NAV. Successful execution of the restructuring programme (disposal of noncore assets, refinancing of expensive debt, streamlining operations) could unlock more value in the shares.

BUWOG remains the prime candidate in the ongoing sector consolidation, as its core shareholder, Immofinanz, plans to dispose of its remaining stake (c. 31%). The company has significant hidden reserves in its Austria privatisation portfolio (c. EUR1.6bn), as privatised apartments fetch market values, whereas book values are calculated using strictly regulated rents, which are 30-50% below market levels. In addition, the company is the only player offering exposure to the attractive residential real estate development business in Berlin and Vienna. It has c. 5,000 units, or around 10% of its portfolio under development.

Table 2: Valuation comparison Company Deutsche Wohnen TAG Immobilien Conwert LEG Immobilien Vonovia Buwog Grand City Properties

P/FFO 2015E

P/FFO 2016E

P/FFO 2017E

30.1 19.1 24.1 23.3 24.5 19.2 28.1

23.6 16.6 17.5 18.5 20.6 18.1 20.2

21.6 14.4 16.0 16.8 17.9 17.1 18.1

FFO/share CAGR 2014-17E 17% 7% 27% 16% 16% 7% 25%

DY 2015E

DY 2016E

DY 2017E

2.0% 4.9% 2.6% 2.8% 3.2% 3.6% 1.1%

2.5% 5.1% 3.4% 3.5% 3.4% 3.6% 1.5%

2.8% 5.3% 3.9% 3.9% 3.9% 3.6% 1.7%

Source: Kepler Cheuvreux

Table 3: Valuation comparison Company Deutsche Wohnen TAG Immobilien Conwert LEG Immobilien Vonovia Buwog

P/NAV 2015E 1.23 1.08 0.87 1.33 0.96 1.01

P/NAV 2016E 1.09 0.98 0.83 1.22 0.92 0.95

P/NAV 2017E 1.03 0.92 0.80 1.13 0.85 0.89

P/NNNAV 2015E 1.41 1.33 0.89 1.42 1.29 1.19

P/NNNAV 2016E 1.25 1.19 0.85 1.29 1.21 1.12

P/NNNAV 2017E 1.19 1.10 0.82 1.19 1.12 1.06 Source: Kepler Cheuvreux

Strong Q3 reporting season Our positive view on the sector was confirmed with recent Q3 reporting.

Table 4: KPIs for latest reported quarter Company Deutsche Annington Deutsche Wohnen Grand City Properties LEG Immobilien TAG Immobilien

9M 15 FFO per share change 14% 28% 39% 18% 5%

Conwert Buwog (Q1 2015/16)

45% 7%

NAV/share FFO I 2015 Comment change guidance change 18% c. 5% Better operating performance and quicker integration of acquisitions 45% Unchanged Guidance increase of 4-5% in H1 21% c. 6% Acquisitions drive guidance increase 4% Unchanged FFO I guidance increased by 9% due to acquisition for 2016 2% -7% Timing differences disposals/acquisitions, higher cash taxes and maintenance expenditure 6% Unchanged FFO I guidance increased by 8% for 2016 5% Unchanged Source: Kepler Cheuvreux

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Q&A in six charts Chart 2: Strong LFL rental growth (Q3 2015)

16%

2.0%

15% 7%

1.0%

Vonovia

Grand City Properties

Buwog

Vonovia

Source: Kepler Cheuvreux

Chart 3: Rent upside from reletting and vacancy reduction 31%

4,132 26.6% 3,897 3,534 31.1% 4,000 13%

16%

2,000

10%

1,285

1,000

5%

758

871

907

Dusseldorf

15%

3,590

3,294 3,096 24.6% 23.3% 18.8% 18.7% 18.5%

Cologne

15%

12%

15%

2,851

3,000

Berlin

22%

20%

Chart 4: Affordability still good in Germany 5,000

30% 25%

Source: company data, Kepler Cheuvreux

581

611

Dortmund

Conwert

BUWOG

Grand City Properties

Purchasing Power / Household (EUR) Gross rent / household (EUR) Gross rent ratio Source: Kepler Cheuvreux

Chart 6: Rental yields look rather high

826

749

770

998

1,079

TAG

Grand City Properties

BUWOG

Conwert

1,165

LEG

981

Deutsche Wohnen

500

Vonovia

1,000

1,500

New construction costs

0

Source: Destatis, Kepler Cheuvreux

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7.2% 5.8%

6.1%

0.5% Conwert

1,500

7.5%

6.0%

Grand City Properties

2,000

7.3%

7.0%

TAG

2,500

8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%

LEG

2,500

Deutsche Wohnen

3,000

Vonovia

Chart 5: Low asset values (EUR per sq m)

Source: LEG, Kepler Cheuvreux

BUWOG

TAG

LEG

Deutsche Wohnen

Vonovia

Munich

0

0%

5

671

35% 30% 25% 20% 15% 10% 5% 0%

10Y bunds

Conwert

LEG Immobilien

0.0% TAG Immobilien

0.5%

0% Deutsche Wohnen

5%

35%

2.5%

1.5%

1.5%

7%

2.4%

Essen

10%

2.5%

NRW

16%

2.5%

2.5%

LEG

20%

3.0%

3.2%

Deutsche Wohnen

17%

2.9%

Conwert

25%

3.5%

BUWOG

25%

TAG

27%

30%

Grand City Properties

Chart 1: High FFO I /share growth (2014-17E)

Source: company data, Kepler Cheuvreux

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Contents Summary of valuation

3

What to own in the sector

3

Q&A in six charts

5

Is the M&A climax signalling a peak?

7

Sector consolidation: back to square one, most likely

7

Strong performance reflects strong underlying trends

8

Sector fundamentals still strong

9

High expected FFO I/share growth

9

Decent upside for NAV

14

Investment conclusion

16

Company parts

17

Buwog (Buy, TP EUR22.00): Immofinanz to exit by April 2016

18

Conwert (Buy, TP EUR14.75): Turnaround taking shape

20

Deutsche Wohnen (Buy, TP EUR29.00): The high-quality play

22

Grand City Properties (Buy, TP EUR21.50): Turnaround specialist

24

LEG Immobilien (Buy, TP EUR80.00): Solid performer in a solid market

26

TAG Immobilien (Buy, TP EUR13.00): The leveraged play on German residential

28

Vonovia (Buy, TP EUR34.00): Residential behemoth and predator

30

Research ratings and important disclosures

32

Legal and disclosure information

34

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Is the M&A climax signalling a peak?

German residential real estate stocks have seen a strong share price performance in the last 12 months, with all stocks clearly outperforming the German DAX Index. In addition, M&A activity recently climaxed, with an attempted merger between Deutsche Wohnen and LEG (number two and three in the market) and plans by Vonovia (number one in terms of size) to take over Deutsche Wohnen.

Does the strong outperformance and M&A frenzy signal that a market peak is near for German residential stocks?

Sector consolidation: back to square one, most likely Climax in sector consolidation efforts probably in H1 2015 After the announcement of the planned merger of Deutsche Wohnen with LEG, Vonovia announced its intention to launch a bid for Deutsche Wohnen, leading to a cancellation of the merger between Deutsche Wohnen and LEG, the number two and three in terms of property assets under management.

Vonovia’s takeover offer for Deutsche Wohnen was launched on 1 December 2015.

While we see clear merits in ongoing sector consolidation (lower overhead costs per unit, stronger purchasing power, lower cost of capital), we believe there is only a low likelihood of the bid succeeding. Deutsche Wohnen recently announced a clearly value-accretive acquisition, exploiting its underleveraged balance sheet, which has increased the intrinsic value of its shares well above the implied value per share offered by Vonovia, which did not raise its offer. In addition, we believe many investors prefer the status quo of having several large listed names in the sector with slightly different business models and regional footprints.

Chart 7: Number residential units (Q3 2015) 600,000

513,917

500,000 366,918

400,000

75,300

71,000

51,440

26,614 Conwert

109,600

100,000

BUWOG

146,999

200,000

GCP

256,599

300,000

TAG

LEG

Deutsche Wohnen

DW+LEG (failed)

Vonovia

Vonovia+DW

0

Source: company data, Kepler Cheuvreux

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Strong performance reflects strong underlying trends German residential real estate stocks have had a great performance over the last 12 months. All the stocks under our coverage have clearly outperformed the German benchmark DAX index by a high margin.

Chart 8: 12M performance 80% 68%

70% 60% 50% 37%

35%

40% 30%

21%

21%

23%

24%

20%

14%

10% 0% Deutsche Wohnen

TAG Immobilien

Conwert

LEG Immobilien

Vonovia

Buwog

Grand City Properties

DAX

Source: Bloomberg, Kepler Cheuvreux

Decent increase in FFO I and NAV per share estimates since last year We believe the key drivers of the strong outperformance by German residential real estate stocks have been the strong underlying development in key German residential submarkets, further acquisitions, and refinancing activities, which have led to a strong increase in FFO I/share and/or NAV per share forecasts in the last 12 months (see charts below).

Chart 9: Change in FFO I/share 2016 estimates -1Y 40% 35% 30% 25% 20% 15% 10% 5% 0% -5% -10% -15%

Chart 10: Change in NAV/share 2016 estimates -1Y 36%

45% 40% 20%

35% 30%

10%

29%

25%

5%

4%

20%

14%

15% 10% 5% -9% Vonovia Deutsche Wohnen

LEG

TAG

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1%

3%

5%

0% BUWOG Conwert

Source: Kepler Cheuvreux

8

47%

50%

Vonovia Deutsche Wohnen

LEG

TAG

BUWOG Conwert

Source: Kepler Cheuvreux

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Sector fundamentals still strong German residential real estate companies continue to be in the sweet spot.

Operationally, residential real companies benefit from attractive LFL rental growth, synergies from recent acquisitions and the low interest rate environment, which could lead to attractive FFO I/share growth rates of 727% in 2014-17E. The key drivers for the expected 2-3% LFL rental growth a year are low inplace rents (which imply ongoing good affordability), low vacancy rates in key German regions, sustained positive demographic trends (recently accelerated by immigration) and a lack of new supply in respective target market segments, as construction costs are well above market prices for existing properties, and market rent levels in the low- to mid-price segment are still too low to generate an attractive return on investment for new buildto-rent apartments in these price segments.

The outlook for NAV/share growth is excellent for the next few years. NAV growth will not only be driven by rising rents but also by a likely yield compression, as rental yields of 6.0-7.5% have hardly compressed in recent years despite a fall of 250bps in 10Y bund yields, implying a yield spread of 550-700bps currently.

High expected FFO I/share growth We forecast attractive FFO I/share growth rates of 7-27% in 2014-17E, driven by 23% LFL rental growth, positive effects from recent acquisitions and low, or further declining financing costs.

Chart 11: FFO I per share growth 2014-17E 30%

27%

25%

25% 20%

17%

16%

16%

15% 10%

7%

7%

5% 0% Deutsche Wohnen

TAG Immobilien

Conwert

LEG Immobilien

Vonovia

Buwog

Grand City Properties Source: Kepler Cheuvreux

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Average rents still rather low The average rents in the portfolios of listed companies in our coverage range from EUR4.84 (BUWOG) to EUR5.83 (Deutsche Wohnen) per sq m per month.

Chart 12: Average rent per sq m per month in Q3 2015 6.0 5.69

5.83

5.69

5.5

5.30

5.19 5.02 5.0

4.84

4.5

4.0 Vonovia

Deutsche Wohnen

LEG

TAG

Grand City Properties

BUWOG

Conwert

Source: company data, Kepler Cheuvreux

LFL rental growth has been strong in recent quarters, ranging between 1.5% (TAG) and 3.2% (Deutsche Wohnen) in Q3 2015. Except for TAG, all the companies in our coverage have guided for rental growth of 2.5-3.0% in the near term.

Chart 13: LFL rental growth in Q3 2015 3.5% 3.0%

3.2% 2.9% 2.5%

2.5%

2.5%

2.4%

2.5%

Grand City Properties

BUWOG

Conwert

2.0% 1.5%

1.5% 1.0% 0.5% 0.0% Vonovia

Deutsche Wohnen

LEG

TAG

Source: company data, Kepler Cheuvreux

High vacancy rates at same player create additional upside The vacancy rates in the portfolios of listed companies have declined continuously in recent years. For large players such as Deutsche Wohnen, Vonovia and LEG, we see limited potential for further vacancy reduction, as the vacancy rates are close to natural portfolio turnover rates. However, we believe companies such as GCP, TAG and Conwert still have significant potential to increase rental revenues by bringing their vacancy rates further down.

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Chart 14: Vacancy rates in Q3 2015 14%

12.5%

12% 10%

8.4%

8%

7.0%

6% 4%

4.4%

3.4%

3.2% 1.8%

2% 0% Vonovia

Deutsche Wohnen

LEG

TAG

Grand City Properties

BUWOG

Conwert

Source: company data, Kepler Cheuvreux

For many players, there is significant potential to increase rents by renting out empty apartments to new tenants at market levels. We see the greatest upside at Deutsche Wohnen (20%, high exposure to booming Berlin market), GCP (15% related to its strategy to acquire underperforming, undermanaged assets) and LEG (11%, good recent development of NRW housing market).

Chart 15: Reletting potential (market rents versus average rents) 25% 20%

20%

15%

15% 11% 10%

8%

8%

8%

BUWOG

Conwert

5%

5% 0% Vonovia

Deutsche Wohnen

LEG

TAG

Grand City Properties

Source: Kepler Cheuvreux

Significant rent upside Assuming they can increase rents to current market levels and decrease vacancy rates to zero, all the companies in our coverage have significant potential to increase their rental income from their existing portfolios by at least double-digit amounts.

Given the tightness of many residential submarkets in Germany currently and the companies’ efforts to reduce vacancy rates (e.g. modernisation, maintenance capex), the high gap between current rental income and potential rental income bodes well for rising rental revenues in the coming years.

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Chart 16: Total rent upside 35%

31%

30% 25%

22%

20% 15%

15%

15%

LEG

TAG

16% 13%

12%

10% 5% 0% Vonovia

Deutsche Wohnen

Grand City Properties

BUWOG

Conwert

Source: Kepler Cheuvreux

Structural drivers support further rental growth We believe there is more long-term upside to rents than to the current market level.

On the one hand, affordability in key German cities still looks good (see chart below).

Chart 17: Affordability still good in Germany 4,500 4,000

4,132 3,534 26.6%

3,500 2,851

3,000

35%

3,897

31.1%

3,590

3,294

3,096

24.6% 23.3%

25% 18.8%

2,500

18.7%

18.5%

2,000 1,500

20% 15%

1,285 758

1,000

30%

871

907

581

671

10% 611

500 0

5% 0%

Munich

Berlin

Cologne

Purchasing Power / Household (EUR)

Dusseldorf

Dortmund

NRW

Gross rent / household (EUR)

Essen Gross rent ratio Source: LEG, Kepler Cheuvreux

On the other, vacancy rates in key German cities have fallen to very low levels, reflecting natural vacancy due to tenant turnover, while demographic trends have remained strong, resulting in ongoing upward pressure on rents.

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Chart 18: Vacancy rates in key German cities (2012) 2.5% 2.0%

2.0%

1.7% 1.4%

1.5% 1.0%

0.8%

1.3%

0.7% 0.5%

0.5% 0.0% Berlin

D端sseldorf

Frankfurt

Hamburg

Cologne

Munich

Stuttgart Source: GSW, Kepler Cheuvreux

Immigration has been a key positive driver for the German residential market in recent years. In 2014 alone, c. 550,000 people immigrated to Germany on a net basis.

Chart 19: Net immigration to Germany 900 000 800 000 700 000 600 000 500 000 400 000 300 000 200 000 100 000 2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

- 100 000

Source: Destatis, Kepler Cheuvreux

The market could be further supported by the recently strong inflow of refugees. If they are allowed to stay and bring their families to Germany, these refugees could be another positive driver for the residential market. By the end of October 2015, c. 320,000 people had applied for asylum in Germany.

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Chart 20: Number of applications for asylum in Germany by month 60,000 50,000 40,000 30,000 20,000 10,000

2013

2014

December

November

October

September

August

July

June

May

April

March

February

January

0

2015 Source: Destatis. Kepler Cheuvreux

Decent upside for NAV The asset values of the listed real estate companies under our coverage are still low in absolute (value per sq m) and relative terms (rental yields versus bond yields). We reckon the ongoing strong underlying development of the residential market and the lack of high-yielding low-risk investment opportunities could lead to strong yield compression in the German residential market in the coming years. This could lead to rising asset values and NAVs.

Asset values still well below replacement costs At the end of Q3, the average value per sq m ranged between EUR749 (TAG) and EUR1,165 (Deutsche Wohnen) per sq m. This is still significantly below the replacement costs of comparable apartments. According to Destatis, the average construction cost per sq m for new residential buildings amounted to c. EUR2,500 YTD in 2015. We believe building even basic quality apartments costs more than EUR1,500 per sq m.

Chart 21: Asset valuation per sq m in Q3 2015 3,000 2,500

2,500 2,000 1,500

770 Grand City Properties

998

1,079 Conwert

749

BUWOG

826

TAG

1,165

LEG

981

Deutsche Wohnen

500

Vonovia

1,000

1,500

New construction costs

0

Source: company data, Destatis, Kepler Cheuvreux

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The conservative valuation of the German residential real estate companies in our coverage is also well reflected in rental yields. Rental yields amounted to 5.8-7.5% in Q3 2015.

Chart 22: Rental yields in Q3 2015 8% 7%

7.5%

7.3%

7.0%

7.2%

6.0%

6%

6.1%

5.8%

5% 4% 3% 2% 0.5%

1% 0% Vonovia

Deutsche Wohnen

LEG

TAG

Grand City Properties

BUWOG

Conwert

10Y bunds

Source: company data, Kepler Cheuvreux

Yield compression seems to have only started Rental yields have only slightly decreased for key German residential companies in the last five years despite an improving market outlook and a strong decline in government bond yields in Germany. In fact, the yield spread over 10Y government bond yields has widened decisively from 400-450bps in 2010 to 550-700bps in Q3 2015. That said, there seems to be strong potential for yield compression in the coming years.

Chart 23: Development of rental yields –hardly any yield compression despite drop in 10Y bond yields 9% 8% 7%

7.5% 6.9% 6.8%

7.8% 7.4% 7.0%

7.7% 7.4% 7.0%

8.1%

7.6% 7.0% 6.5%

7.1% 7.1%

7.0%

7.5%

6.0%

6% 5% 4%

3.0%

3%

1.8%

2%

1.9%

1.3%

0.5%

1%

0.5%

0% 2010

2011

2012 Vonovia

Deutsche Wohnen

2013 TAG

2014

9M 15

10 Y bunds Source: company data, Kepler Cheuvreux

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Investment conclusion High double-digit share price gains in a short period of time and a significant increase in M&A activity in the sector have in many cases been understandably interpreted as alarm signals by investors.

We believe valuations in the sector are still reasonable and that the outlook remains strong. Stocks trade at around 15-22x FFO I 2017E, which we do not regard as excessive in light of the expected high FFO I/share growth. P/NAV 2017E multiples amount to 0.8-1.1x, which looks more than reasonable in light of the still low asset valuation of underlying properties and the significant potential for yield compression. We also consider dividend yields of 3-5% to be attractive.

We would therefore remain buyers of all the German and Austrian residential stocks under our coverage. FFO I/share growth could remain solid on ongoing LFL rental growth of 2-3% a year, economies of scale from recent acquisitions and low, or further declining, financing costs. Pressure on rents to increase further could persist in key German regions due to low vacancy rates, persistently strong demographic trends and limited new supply in the target segments of listed companies, as construction costs for new apartments are still significantly above market prices for existing apartments. The positive sector fundamentals and the low interest rate environment could trigger strong NAV growth in the next few years, as investment yields are currently 550-700bps above risk-free rates.

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Company parts Buwog (Buy, TP EUR22.00): Immofinanz to exit by April 2016

18

Conwert (Buy, TP EUR14.75): Turnaround taking shape

20

Deutsche Wohnen (Buy, TP EUR29.00): The high-quality play

22

Grand City Properties (Buy, TP EUR21.50): Turnaround specialist

24

LEG Immobilien (Buy, TP EUR80.00): Solid performer in a solid market

26

TAG Immobilien (Buy, TP EUR13.00): The leveraged play on German residential

28

Vonovia (Buy, TP EUR34.00): Residential behemoth and predator

30

17

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Buwog

Buy

Germany | Property | Mcap EUR 1.9bn

Target Price Current Price Up/downside Change in TP Change in EPS

(Buy) EUR 22.00 EUR 19.1 15.0% none none 2015E

none

Immofinanz to exit by April 2016

Thomas Neuhold, CFA tneuhold@keplercheuvreux.com +43 1 537 12 4147

This investment case is unique, as Buwog is taking advantage of the ongoing residential real estate boom in Austria and Germany from various angles. It is the only listed player active in residential development. It has the highest share of targeted asset disposals in its portfolio, and it achieves the highest margins on disposals in addition to generating continuously rising cash flows from its rental business.

Company profile At the end of Q1 2015/16, the company owned and managed c. 51,500 residential units with a market value of c. EUR3.6bn. Roughly 50% of the units are located each in Germany and Austria. Around 57% of the portfolio is rent-restricted apartments. In Austria, in particular, the share of restricted apartments is very high, at c. 90%, with an average rent of only EUR4.20 per sqm a month, which is well below market levels.

Investment case A key differentiator for Buwog compared to its peers is its active asset disposal and development policy. The “unit sales” disposal business in Austria is particularly lucrative, as sales can be carried out at a margin significantly more than 50% above book value. The high sales margin is attributable to the fact that rents in its Austrian portfolio are restricted to levels well below market rents, but buyers pay market prices in privatisations. Buwog plans to sell around 16,500 units with a book value of EUR1.6bn, which could lead to substantial value creation from unit sales in the next few years. It plans to reinvest the proceeds in Germany. In addition, the company has a development pipeline worth c. EUR1.5bn in Vienna and Berlin, which could generate significant additional earnings in upcoming years.

Key drivers and catalysts Buwog’s key shareholder Immofinanz (still holds a c.31% stake) intends to dispose of its remaining shares by the end of Buwog’s fiscal-year 2015/16, (end-April). We believe Buwog could be an interesting target in the ongoing sector consolidation.

Valuation

Market data Bloomberg: BWO AV Market cap (EURm) Free float No. of shares outstanding (m) Avg. daily volume('000) YTD abs performance 52-week high/low (EUR)

Reuters: BWOA.VI 1,905 61% 100 168 16.8% 19.99/15.49

FY to 30/04 (EUR) Net rent EBITDA DPS FFO (recurring) FFO (incl. trading) FFOps (recurring) FFOps (incl. trading) NAVps NNNAVps

04/16E 193.0 162.1 0.69 99.1 104.1 1.00 1.05 18.85 16.12

04/17E 194.4 166.9 0.69 105.3 110.3 1.06 1.11 20.15 17.08

04/18E 195.6 169.8 0.69 111.6 116.6 1.12 1.17 21.51 18.10

FY to 30/04 (EUR) P/FFO P/FFO (incl. trading) P/NAV -1 P/NNNAV -1 Dividend yield LTV FFO/NNAV EBITDA/Asset value

04/16E 19.2 18.3 1.5% 18.7% 3.6% 50.2% 5.9% 4.0%

04/17E 18.1 17.3 -5.1% 12.0% 3.6% 46.6% 6.0% 4.1%

04/18E 17.1 16.3 -11.1% 5.6% 3.6% 42.5% 6.0% 4.2%

Sep 15

Dec 15

20 19 18

17 16 15 14 Dec 14

Mar 15

Jun 15

Price

We value the group using the blended outcome of a discounted cash flow model (DCF), a discounted dividend model (DDM) and a discounted NNNAV model. Our valuation model yields a target price of EUR22.

IMPORTANT. Please refer to keplercheuvreux.com\disclaimer for “Important disclosures” and analyst certification (s).

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Buwog key financials FY to 30/04 (EUR)

2010

2011

2012

2013

2014

2015E

2016E

2017E

Per share FFOps (recurring) FFOps (incl. trading) NAVps NNAVps Net dividend

0.55 0.55 13.64 13.06 0.00

0.65 0.71 14.54 13.89 0.00

0.80 0.88 16.06 15.07 0.00

0.69 0.82 17.21 15.93 0.69

0.92 0.98 17.79 16.05 0.69

1.00 1.05 18.85 16.78 0.69

1.06 1.11 20.15 17.74 0.69

1.12 1.17 21.51 18.76 0.69

Valuation P/NAV -1 P/NNAV -1 P/FFO P/FFO (incl. trading) Dividend yield LTV Interest coverage EBITDA yield ROE EV/Total revenues EV/EBITDA EV/EBIT EV/Capital employed EV/Debt-adjusted cash flow

na na na na na 32.1% 3.7 na 13.3% na na na na na

na na na na na 28.6% 1.6 na 3.6% na na na na na

na na na na na 40.4% 2.5 na 6.9% na na na na na

-21.8% -15.5% 19.4 16.4 5.1% 47.3% 10.6 3.8% 7.4% 13.9 26.6 18.4 0.9 37.9

-10.5% -0.9% 17.3 16.3 4.3% 53.8% 0.7 4.1% 2.6% 13.1 24.3 14.3 1.0 16.6

1.5% 14.0% 19.2 18.3 3.6% 50.2% 3.5 4.3% 10.2% 11.9 23.0 14.5 1.0 19.0

-5.1% 7.8% 18.1 17.3 3.6% 46.6% 3.7 4.6% 9.9% 11.4 21.7 13.8 1.0 22.4

-11.1% 1.9% 17.1 16.3 3.6% 42.5% 4.3 4.9% 9.8% 10.9 20.5 13.2 0.9 23.4

Income Statement (EURm) Gross rents Net rents EBITDA (recurring) Net financial FFO Trading profits FFO including trading profits Profit on disposal Revaluation result (IFRS40 Net profit adjusted

165.1 104.6 83.8 -11.2 54.6 26.7 54.8 -16.8 50.3 86.6

166.7 106.0 88.8 -80.3 65.2 30.8 71.1 -27.5 36.6 48.2

165.3 103.4 107.6 -58.1 79.3 44.7 88.2 -39.5 75.9 97.7

181.6 110.1 84.7 4.5 69.2 38.9 81.8 -34.0 42.7 110.8

292.6 180.7 152.8 -381.6 91.7 54.6 97.4 -42.1 110.0 39.8

312.5 193.0 157.1 -46.2 99.1 51.5 104.1 -39.1 95.6 158.7

314.9 194.4 161.9 -44.5 105.3 54.6 110.3 -36.7 96.0 164.4

316.9 195.6 164.8 -39.8 111.6 56.6 116.6 -36.7 96.1 171.0

Cash Flow Statement (EURm) Net profit before minorities Depreciation Amortisation Goodwill amortisation Change in working capital Others Cash Flow Capex Free cash flow Acquisitions Divestments Dividend paid Share buy back Capital increases Others Change in net debt Attributable FCF

86.6 2.2 0.0 0.0 0.0 48.2 86.7 -13.5 56.4 0.0 19.3 0.0 0.0 0.0 0.0 -29.2 56.5

48.2 11.4 0.0 0.0 -49.1 146.5 169.4 -12.6 80.2 0.0 45.0 0.0 0.0 0.0 0.0 -164.0 80.1

97.7 16.3 0.0 0.0 356.8 -328.6 -290.6 -10.7 16.0 0.0 -21.4 0.0 0.0 0.0 0.0 212.5 14.0

110.8 -0.7 0.0 0.0 23.3 0.9 68.2 -7.0 50.5 0.0 66.8 0.0 0.0 0.0 0.0 -284.0 49.8

39.8 0.0 0.0 0.0 -177.4 258.7 188.5 -7.0 -38.0 -942.0 133.8 -68.7 0.0 0.0 0.0 890.4 -45.0

158.7 1.0 0.0 0.0 27.8 87.3 151.4 -7.0 133.1 0.0 123.1 -68.7 0.0 0.0 0.0 -176.8 123.4

164.4 1.5 0.0 0.0 -11.7 85.6 155.5 -7.0 100.1 0.0 115.4 -68.7 0.0 0.0 0.0 -238.1 90.1

171.0 1.9 0.0 0.0 -22.2 82.2 159.0 -7.0 93.1 0.0 115.4 -68.7 0.0 0.0 0.0 -183.7 82.7

Balance Sheet (EURm) Fixed assets Current assets Deferred tax assets Total assets

2,537.6 251.8 0.7 2,790.1

2,538.4 376.0 0.6 2,915.0

2,575.8 402.6 3.3 2,981.7

2,670.1 683.7 1.5 3,355.3

3,672.0 498.2 7.1 4,177.3

3,693.6 555.0 7.1 4,255.7

3,720.2 514.6 7.1 4,241.9

3,747.4 480.8 7.1 4,235.3

Total equity Current liabilities Non current liabilities Deferred tax liabilities Balance sheet total

1,640.2 255.2 818.6 76.1 2,790.1

1,658.8 264.2 901.8 90.1 2,915.0

1,456.7 387.5 1,025.2 112.3 2,981.7

1,552.1 340.1 1,339.1 124.0 3,355.3

1,524.3 355.6 2,138.1 159.3 4,177.3

1,617.9 373.7 2,071.4 192.7 4,255.7

1,717.3 375.9 1,922.4 226.3 4,241.9

1,823.4 377.7 1,773.2 260.0 4,234.3

Net debt Capital employed

785.5 2,482.3

706.1 2,462.0

1,020.7 2,617.8

1,251.1 2,963.0

1,956.3 3,736.0

1,834.3 3,749.5

1,710.9 3,760.0

1,570.7 3,761.4

19

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Conwert

Buy

Austria | Property | Mcap EUR 1.1bn

Target Price Current Price Up/downside Change in TP Change in EPS

(Buy) EUR 14.75 EUR 13.4 10.4% none none 2015E

none

Turnaround taking shape

Thomas Neuhold, CFA tneuhold@keplercheuvreux.com +43 1 537 12 4147

Conwert has made good progress in repositioning its portfolio towards the booming German residential market in recent years. The key strategic focus is now on optimising its cost structure, reducing vacancy rates and further decreasing its exposure to the commercial sector via asset disposals.

Company profile Around 98% of Conwert’s EUR2.8bn real estate portfolio is located in Austria and Germany; 68% is residential real estate. Its core portfolio consists of EUR1.7bn residential (61% of total) and EUR0.2bn commercial assets (6%). On the residential side, Vienna (c. 15%) and Berlin (c. 15%) are key target markets. Management considers assets worth EUR941m (33%) to be non-core, and plans to dispose of them in the next few years.

Investment story Conwert’s strategic focus is to improve FFO from recurring operations by further lowering vacancy rates, optimising its cost base and reducing still high financing costs. It recently took out a EUR100m bridge loan to break/ adjust the strike price for swaps for a nominal amount of EUR500m. This will bring down cash interest costs further from 3.55% in Q3 to 2.6% in 2016. It plans to reduce the number of sites from 23 to 18 and the headcount by c. 20% by mid-2016, generating an additional EUR8m in annualised cost savings. Also, it plans to increase non-core asset disposals from EUR150200m in 2015 to EUR300-350m in 2016.

Key drivers and catalysts Successful asset disposals from the commercial portfolio, which could free up capital for reinvestment in German residential assets, could support the share price. Residential portfolio acquisitions seem unlikely in the short term, but could become a topic as of H2 2016. The expected ongoing positive development of the German and Austrian residential real estate markets could lead to an ongoing positive development of rents in the company’s residential portfolio and a further yield compression.

Valuation

Market data Bloomberg: CWI AV Market cap (EURm) Free float No. of shares outstanding (m) Avg. daily volume('000) YTD abs performance 52-week high/low (EUR)

Reuters: CONW.VI 1,106 73% 83 289 36.9% 13.42/8.94

FY to 31/12 (EUR) Net rent EBITDA DPS FFO (recurring) FFO (incl. trading) FFOps (recurring) FFOps (incl. trading) NAVps NNNAVps

12/15E 150.3 119.1 0.35 45.8 49.5 0.55 0.60 15.42 14.98

12/16E 147.5 123.1 0.45 63.1 68.6 0.76 0.83 16.09 15.65

12/17E 144.6 118.7 0.52 69.3 71.6 0.84 0.86 16.69 16.25

FY to 31/12 (EUR) P/FFO P/FFO (incl. trading) P/NAV -1 P/NNNAV -1 Dividend yield LTV FFO/NNAV EBITDA/Asset value

12/15E 24.1 22.3 -13.4% -10.8% 2.6% 47.7% 3.8% 4.4%

12/16E 17.5 16.1 -17.0% -14.6% 3.4% 40.4% 5.0% 4.9%

12/17E 16.0 15.5 -20.0% -17.8% 3.9% 37.5% 5.3% 4.9%

13.5 13.0 12.5 12.0 11.5

11.0 10.5 10.0 9.5 9.0 8.5 Dec 14

Mar 15

Jun 15

Sep 15

Dec 15

Price

We value Conwert using the blended outcome of a discounted cashflow model (DCF), a discounted dividend model (DDM) and our average discounted NNNAV model. Our valuation model yields a target price of EUR14.75. The stock looks attractively valued based on asset multiples. A successful execution of the turnaround strategy could create further upside.

IMPORTANT. Please refer to keplercheuvreux.com\disclaimer for “Important disclosures” and analyst certification (s).

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Conwert key financials FY to 31/12 (EUR)

2010

2011

2012

2013

2014

2015E

2016E

2017E

Per share FFOps (recurring) FFOps (incl. trading) NAVps NNAVps Net dividend

-0.13 0.53 16.35 16.14 0.30

0.12 0.89 17.03 16.16 0.35

0.19 0.46 15.44 14.75 0.00

0.29 0.49 15.40 14.36 0.10

0.41 0.46 15.70 14.92 0.00

0.55 0.60 15.42 14.64 0.35

0.76 0.83 16.09 15.31 0.45

0.84 0.86 16.69 15.91 0.52

Valuation P/NAV -1 P/NNAV -1 P/FFO P/FFO (incl. trading) Dividend yield LTV Interest coverage EBITDA yield ROE EV/Total revenues EV/EBITDA EV/EBIT EV/Capital employed EV/Debt-adjusted cash flow

-43.2% -42.5% -73.8 17.6 3.2% 58.8% 2.2 6.8% 1.8% 5.0 14.8 26.4 0.8 24.5

-37.9% -34.6% 87.3 11.9 3.3% 55.0% 1.3 5.1% 1.8% 2.9 19.7 20.5 0.8 8.0

-42.7% -40.0% 46.0 19.2 0.0% 54.1% 1.0 4.6% -14.9% 3.4 21.9 -36.4 0.8 8.1

-42.5% -38.4% 30.0 18.2 1.1% 55.7% 1.5 4.8% 0.7% 4.7 20.7 19.6 0.8 8.2

-40.4% -37.3% 23.0 20.4 0.0% 52.3% 1.4 4.9% -1.1% 5.9 20.5 18.5 0.8 8.2

-13.4% -8.8% 24.1 22.3 2.6% 47.7% 1.9 4.9% 7.3% 5.4 20.3 13.4 0.9 15.3

-17.0% -12.8% 17.5 16.1 3.4% 40.4% 3.0 5.8% 7.9% 3.8 17.3 13.0 0.9 13.0

-20.0% -16.0% 16.0 15.5 3.9% 37.5% 3.5 5.8% 7.5% 5.6 17.2 13.1 0.9 14.3

Income Statement (EURm) Gross rents Net rents EBITDA (recurring) Net financial FFO Trading profits FFO including trading profits Profit on disposal Revaluation result (IFRS40 Net profit adjusted

187.7 102.8 147.2 -82.9 -10.5 37.7 44.1 -37.7 2.4 23.8

210.0 119.1 75.7 -96.6 10.0 49.1 73.8 -49.1 0.3 23.3

188.1 110.5 62.6 -97.8 15.9 34.6 38.2 -34.6 -37.2 -167.8

227.3 141.4 89.5 -76.8 24.4 27.3 40.3 -27.3 7.6 7.6

237.3 150.7 98.9 -132.8 33.7 11.1 37.9 -11.1 13.0 -12.0

229.4 150.3 106.3 -73.9 45.8 12.8 49.5 -12.8 62.6 80.4

223.5 147.5 110.4 -41.6 63.1 12.7 68.6 -12.7 42.7 92.8

219.1 144.6 111.8 -33.7 69.3 6.9 71.6 -6.9 39.0 92.6

Cash Flow Statement (EURm) Net profit before minorities Depreciation Amortisation Goodwill amortisation Change in working capital Others Cash Flow Capex Free cash flow Acquisitions Divestments Dividend paid Share buy back Capital increases Others Change in net debt Attributable FCF

25.6 84.1 0.0 0.0 22.8 -9.0 98.3 -111.9 -28.5 -115.9 232.5 -19.8 0.0 0.0 -63.7 -4.6 -36.0

18.5 5.3 0.0 0.0 77.0 138.8 162.3 -55.9 134.3 56.2 262.1 -23.8 -30.9 0.0 -367.3 -30.6 131.2

-172.1 1.5 0.0 117.0 89.8 136.6 120.2 -79.9 95.5 16.8 237.3 -16.3 0.0 0.0 -287.1 -46.3 90.7

13.3 1.0 0.0 0.0 50.1 129.9 136.6 -37.7 121.7 -145.9 134.5 -12.4 -24.4 0.0 -82.1 8.6 112.7

-8.9 1.3 0.0 0.0 79.0 143.0 122.5 -46.0 144.4 -1.6 67.3 -8.3 0.0 0.0 -156.4 -45.4 143.3

86.1 1.5 0.0 0.0 -21.4 92.9 117.8 -56.4 27.2 0.0 211.2 0.0 0.0 0.0 -258.8 20.4 16.1

99.3 1.3 0.0 0.0 5.5 63.9 121.9 -53.6 61.0 0.0 326.3 -29.0 0.0 0.0 -349.0 -9.3 45.0

99.1 1.3 0.0 0.0 -7.6 55.9 117.4 -48.7 54.3 0.0 134.7 -37.3 0.0 0.0 -143.6 -8.1 37.5

Balance Sheet (EURm) Fixed assets Current assets Deferred tax assets Total assets

2,829.4 702.9 18.4 3,550.7

2,558.0 596.3 22.1 3,176.4

2,229.6 587.4 53.0 2,870.1

2,644.1 499.2 22.4 3,165.7

2,530.0 437.8 6.3 2,974.1

2,466.1 400.0 5.7 2,871.7

2,250.0 408.7 5.1 2,663.8

2,210.3 395.4 4.6 2,610.3

Total equity Current liabilities Non current liabilities Deferred tax liabilities Balance sheet total

1,330.1 578.2 1,606.7 35.7 3,550.7

1,248.3 462.8 1,442.6 22.7 3,176.4

1,025.0 404.8 1,405.9 34.4 2,870.1

1,128.6 504.7 1,485.9 46.5 3,165.7

1,104.6 289.0 1,529.4 51.1 2,974.1

1,206.0 266.4 1,374.9 24.4 2,871.7

1,261.6 248.4 1,131.5 22.3 2,663.8

1,311.2 194.1 1,083.1 21.9 2,610.3

Net debt Capital employed

1,927.6 3,393.8

1,592.8 2,995.2

1,416.0 2,605.2

1,644.4 2,915.9

1,431.1 2,734.4

1,266.7 2,645.7

983.7 2,416.9

896.8 2,380.1

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Deutsche Wohnen

Buy

Germany | Property | Mcap EUR 8.7bn

Target Price Current Price Up/downside Change in TP Change in EPS

(Buy) EUR 29.00 EUR 25.9 12.1% none none 2015E

none

The high-quality play

Thomas Neuhold, CFA tneuhold@keplercheuvreux.com +43 1 537 12 4147

Deutsche Wohnen has many features that justify a valuation premium versus peers. These include its strong exposure to the booming residential market in Berlin, the biggest rent reversion potential in the sector, significant FFO growth potential from recent acquisitions and its successful debt refinancing.

Company profile Deutsche Wohnen is one of the largest private residential real estate property owners in Germany. In Q3, the company owned and managed around 147,000 residential units with a market value of around EUR11bn, of which around 107,000 units are located in the booming Greater Berlin region. Other major areas of presence are Hanover/Brunswick/Madgeburg (c. 11,000 units) and Rhine-Main (c. 9,100 units).

Investment case We see ongoing, good FFO growth opportunities for Deutsche Wohnen in the coming years. The company features the highest positive rent reversion potential with new-letting rents currently 20% above in-place rents. Moreover, its high exposure to the booming Berlin market could lead to significant revaluation gains in the next few years. Finally, the company has a strong balance sheet with an expected LTV of 43% in 2016, paving the way for further value-accretive acquisitions.

Key drivers and catalysts In the short-term, the outcome of the ongoing takeover offer by Vonovia for Deutsche Wohnen could be an important event for DW shares. As the intrinsic value of DW seems to be above the implied offer price, we regard a takeover of Deutsche Wohnen as unlikely. Otherwise, the expected ongoing positive development of the Berlin residential real estate markets, the selective value-enhancing investments in portfolio quality and strong management execution could lead to decent FFO and NAV growth in the next few years.

Valuation We value Deutsche Wohnen using the blended outcome of a discounted cash flow model (DCF), a discounted dividend model (DDM) and our average discounted NNNAV model. Our valuation model yields a target price of EUR29.

IMPORTANT. Please refer to keplercheuvreux.com\disclaimer for “Important disclosures� and analyst certification (s).

Market data Bloomberg: DWNI GR Market cap (EURm) Free float No. of shares outstanding (m) Avg. daily volume('000) YTD abs performance 52-week high/low (EUR)

Reuters: DWNG.DE 8,703 100% 336 2,177 32.1% 26.08/18.45

FY to 31/12 (EUR) Net rent EBITDA DPS FFO (recurring) FFO (incl. trading) FFOps (recurring) FFOps (incl. trading) NAVps NNNAVps

12/15E 521 500 0.51 289 354 0.86 1.05 21.09 18.37

12/16E 589 535 0.66 369 404 1.10 1.20 23.74 20.66

12/17E 624 564 0.72 402 438 1.20 1.30 25.12 21.69

FY to 31/12 (EUR) P/FFO P/FFO (incl. trading) P/NAV -1 P/NNNAV -1 Dividend yield LTV FFO/NNAV EBITDA/Asset value

12/15E 30.1 24.6 22.7% 40.8% 2.0% 41.5% 4.3% 4.2%

12/16E 23.6 21.6 9.0% 25.2% 2.5% 43.1% 5.0% 3.9%

12/17E 21.6 19.9 3.0% 19.3% 2.8% 40.3% 5.2% 4.0%

Sep 15

Dec 15

27 26 25 24 23

22 21 20 19 18 17 Dec 14

Mar 15

Jun 15

Price

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Deutsche Wohnen key financials FY to 31/12 (EUR)

2010

2011

2012

2013

2014

2015E

2016E

2017E

Per share FFOps (recurring) FFOps (incl. trading) NAVps NNAVps Net dividend

0.40 0.56 11.78 11.62 0.20

0.54 0.65 11.50 11.18 0.23

0.54 0.70 12.48 12.06 0.21

0.70 0.48 14.51 13.75 0.20

0.74 0.92 18.10 17.61 0.44

0.86 1.05 21.09 19.82 0.51

1.10 1.20 23.74 22.11 0.66

1.20 1.30 25.12 23.14 0.72

-38.6% -37.7% 17.9 12.9 2.8% 62.4% 1 5.8% 2.7% 7.9 17.3 13.1 0.9 10.4

-13.4% -11.0% 18.4 15.3 2.3% 56.4% 2 5.3% 5.1% 7.0 19.0 15.0 1.0 15.4

-1.2% 2.3% 22.8 17.6 1.7% 57.8% 2 4.4% 10.8% 10.0 22.8 14.3 1.0 22.7

-4.9% 0.4% 19.7 28.7 1.4% 58.0% 2 2.7% 7.9% 15.5 36.9 26.8 1.0 47.9

-10.2% -7.7% 22.0 17.7 2.7% 51.4% 1 4.5% 20.2% 10.6 22.2 7.2 1.0 16.3

22.7% 30.5% 30.1 24.6 2.0% 41.5% 1 3.7% 13.1% 10.9 26.9 10.2 1.2 34.0

9.0% 17.0% 23.6 21.6 2.5% 43.1% 4 3.7% 14.0% 14.1 26.9 11.1 1.1 29.0

3.0% 11.8% 21.6 19.9 2.8% 40.3% 5 4.0% 7.8% 13.1 25.0 17.2 1.1 27.6

Income Statement (EURm) Gross rents Net rents EBITDA (recurring) Net financial FFO Trading profits FFO including trading profits Profit on disposal Revaluation result (IFRS40 Net profit adjusted

190 151 123 -123 33 13 46 -13 47 24

196 157 131 -93 48 11 58 -11 40 51

240 194 177 -107 68 20 88 -20 119 146

373 292 230 -131 114 23 138 -23 101 212

626 506 402 -380 218 52 270 -52 953 856

644 521 435 -396 289 65 354 -65 820 714

729 589 500 -120 369 35 404 -35 769 918

772 624 528 -113 402 36 438 -36 260 552

Cash Flow Statement (EURm) Net profit before minorities Depreciation Amortisation Goodwill amortisation Change in working capital Others Cash Flow Capex Free cash flow Acquisitions Divestments Dividend paid Share buy back Capital increases Others Change in net debt Attributable FCF

24 3 0 0 -16 0 60 -18 14 -96 182 0 0 0 0 -101 9

51 3 0 0 -14 0 68 -25 19 -251 149 -16 0 179 0 -79 13

146 3 0 0 46 0 33 -33 26 -1,366 164 -24 0 444 0 756 21

212 6 0 0 -22 0 106 -45 16 -796 184 -34 0 187 0 442 9

856 6 0 0 72 0 170 -64 125 -162 261 -57 0 0 0 -168 112

714 3 0 0 -95 0 80 -90 -171 -570 550 -129 0 880 0 -560 -184

918 3 0 0 0 0 387 -90 262 -1,200 175 -173 1 0 0 935 247

552 3 0 0 0 1 412 -90 287 0 175 -221 1 0 0 -242 272

Balance Sheet (EURm) Fixed assets Current assets Deferred tax assets Total assets

2,841 118 79 3,038

2,988 251 63 3,302

4,663 164 81 4,908

9,569 368 190 10,127

10,576 519 352 11,446

11,506 167 352 12,025

13,390 168 352 13,910

13,565 169 352 14,086

Total equity Current liabilities Non current liabilities Deferred tax liabilities Balance sheet total

890 312 1,744 92 3,038

1,083 344 1,778 96 3,302

1,610 461 2,694 143 4,908

3,944 543 5,351 289 10,127

4,876 531 5,482 558 11,446

6,363 330 4,554 778 12,025

7,135 331 5,546 898 13,910

7,479 331 5,259 1,018 14,087

Net debt Capital employed

1,761 2,709

1,674 2,833

2,683 4,410

5,219 9,317

5,138 10,288

4,533 11,372

5,523 13,255

5,233 13,430

Valuation P/NAV -1 P/NNAV -1 P/FFO P/FFO (incl. trading) Dividend yield LTV Interest coverage EBITDA yield ROE EV/Total revenues EV/EBITDA EV/EBIT EV/Capital employed EV/Debt-adjusted cash flow

23

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Grand City Properties

Buy

Germany | Property | Mcap EUR 2.4bn

Target Price Current Price Up/downside Change in TP Change in EPS

(Buy) EUR 21.50 EUR 20.0 7.6% none none 2015E

none

Turnaround specialist

Thomas Neuhold, CFA tneuhold@keplercheuvreux.com +43 1 537 12 4147

GCP has established itself as a turnaround specialist in German residential real estate. A large gap between in-place rents and market rents as well as a high vacancy rate create significant potential for organic rental and FFO growth. A high investment yield on the property portfolio means potential for NAV growth if the group continues to execute its turnaround strategy. A healthy balance sheet with a low LTV and a strong financing profile could spell high organic growth via acquisitions without needing to tap the equity market.

Acquisition spree in 2015 GCP recently announced the acquisition of another 5,000 units. The number of units owned will increase to c. 76,000. The group has been able to substantially increase its portfolio in 2015, adding c. 33,000 units to its portfolio so far this year. The majority of the recently acquired assets are in North Rhine-Westphalia. The recently acquired 5,000 units generate net rents of EUR15m per year and currently have a vacancy rate of 15%. The transactions are expected to close in January 2016.

Positive impact on rental income and FFO GCP increased its guidance for annualised rental income from EUR380m to EUR405m and for FFO I (pre-hybrid costs) from EUR138m to EUR146m, following the recent acquisition. Including likely rental growth and further vacancy reductions, the actual figures could be higher. The annualised rental income potential including vacancy reduction and increasing rents to market levels could be EUR525m.

Leeway for further acquisitions We expect GCP to report an LTV of c. 35% at the end of 2015E. Including the hybrid bonds, the company’s LTV could be c. 49%. We believe it has still firepower for further acquisitions without needing to issue fresh equity.

Value-accretive acquisitions create additional upside We value GCP using the blended outcome of a discounted cash flow model (DCF), a discounted dividend model (DDM) and a discounted NAV model.

Our TP amounts to EUR21.50. Additional upside could stem from valueaccretive acquisitions, which we regard as rather likely, but which we have not yet factored in.

IMPORTANT. Please refer to keplercheuvreux.com\disclaimer for “Important disclosures” and analyst certification (s).

Market data Bloomberg: GYC GR Market cap (EURm) Free float No. of shares outstanding (m) Avg. daily volume('000) YTD abs performance 52-week high/low (EUR)

Reuters: GYC.F 2,432 67% 122 361 64.3% 19.99/11.79

FY to 31/12 (EUR) Net rent EBITDA DPS FFO (recurring) FFO (incl. trading) FFOps (recurring) FFOps (incl. trading) NAVps NNNAVps

12/15E 218.8 240.3 0.21 109.4 132.7 0.71 0.86 13.29 9.89

12/16E 282.7 222.5 0.30 152.1 152.1 0.99 0.99 15.10 11.60

12/17E 299.7 239.3 0.33 170.3 170.3 1.11 1.11 17.40 13.43

FY to 31/12 (EUR) P/FFO P/FFO (incl. trading) P/NAV -1 P/NNNAV -1 Dividend yield LTV FFO/NNAV EBITDA/Asset value

12/15E 28.1 23.2 50.4% 102.1% 1.1% 35.2% 6.1% 6.2%

12/16E 20.2 20.2 32.4% 72.3% 1.5% 32.1% 7.4% 5.1%

12/17E 18.1 18.1 14.9% 48.8% 1.7% 26.7% 7.3% 5.2%

Sep 15

Dec 15

20

19 18 17 16 15 14 13

12 11 Dec 14

Mar 15

Jun 15

Price

keplercheuvreux.com

Property

Grand City Properties key financials FY to 31/12 (EUR)

2011

2012

2013

2014

2015E

2016E

2017E

Per share FFOps (recurring) FFOps (incl. trading) NAVps NNAVps Net dividend

0.88 4.34 21.11 18.54 0.00

0.26 0.66 4.21 2.59 0.00

0.50 0.70 10.50 9.44 0.00

0.56 0.95 9.96 8.92 0.00

0.71 0.86 13.29 11.69 0.21

0.99 0.99 15.10 13.40 0.30

1.11 1.11 17.40 15.23 0.33

na na na na na 58.6% 2.3 na 132.5% na na na na na

-10.1% 46.3% 14.5 5.8 0.0% 47.3% 4.9 12.5% 61.9% 8.7 8.0 2.9 0.8 7.9

-47.0% -41.1% 11.1 7.9 0.0% 39.1% 10.3 11.7% 50.9% 10.0 8.5 3.3 0.7 13.5

-7.2% 3.7% 16.4 9.7 0.0% 45.4% 6.9 7.1% 25.1% 9.8 14.0 6.2 1.0 15.3

50.4% 71.0% 28.1 23.2 1.1% 35.2% 9.2 6.3% 25.4% 11.7 15.8 8.3 1.0 16.6

32.4% 49.2% 20.2 20.2 1.5% 32.1% 8.3 5.0% 16.7% 10.7 20.2 10.2 1.1 15.7

14.9% 31.2% 18.1 18.1 1.7% 26.7% 9.5 5.5% 16.0% 9.8 18.2 9.1 1.0 15.0

Income Statement (EURm) Gross rents Net rents EBITDA (recurring) Net financial FFO Trading profits FFO including trading profits Profit on disposal Revaluation result (IFRS40 Net profit adjusted

24.9 16.2 11.6 -13.9 4.4 0.0 21.7 0.0 71.2 55.6

39.9 23.9 22.7 -13.3 11.4 1.7 28.9 -1.7 78.3 83.0

99.6 68.7 54.2 -3.5 38.1 15.1 53.2 -15.1 189.2 226.2

216.8 145.5 112.0 -54.7 76.1 0.2 129.2 -0.2 191.9 207.4

326.0 218.8 171.9 -24.5 109.4 23.3 132.7 -23.3 218.6 313.5

421.3 282.7 222.5 -26.7 152.1 0.0 152.1 0.0 218.4 276.7

446.5 299.7 239.3 -25.2 170.3 0.0 170.3 0.0 241.7 307.9

Cash Flow Statement (EURm) Net profit before minorities Depreciation Amortisation Goodwill amortisation Change in working capital Others Cash Flow Capex Free cash flow Acquisitions Divestments Dividend paid Share buy back Capital increases Others Change in net debt Attributable FCF

55.6 0.0 0.0 0.0 -3.8 34.4 18.7 -0.1 14.9 -66.2 56.4 -11.1 0.0 0.0 -0.2 6.2 13.5

83.0 0.1 0.0 0.0 19.6 11.8 16.5 0.0 34.4 -62.5 10.8 0.0 0.0 18.4 71.7 -72.9 32.2

226.2 0.3 0.0 0.0 7.6 31.5 68.9 -1.0 60.4 -381.8 -28.1 0.0 0.0 201.5 199.5 -51.5 55.6

207.4 0.9 0.0 0.0 1.8 95.9 112.3 -1.8 112.0 -388.5 62.4 0.0 0.0 0.0 351.6 -137.5 98.1

313.5 0.7 0.0 0.0 20.0 107.0 202.5 -3.0 196.2 -1,305.0 40.0 0.0 0.0 161.8 0.0 558.4 176.4

276.7 0.9 0.0 0.0 29.3 165.9 225.0 -3.0 251.3 -170.0 0.0 -32.8 0.0 0.0 0.0 4.3 226.3

307.9 1.0 0.0 0.0 14.9 178.3 245.7 -3.0 257.6 0.0 0.0 -45.6 0.0 0.0 0.0 -163.3 232.4

Balance Sheet (EURm) Fixed assets Current assets Deferred tax assets Total assets

262.6 25.4 1.4 289.3

435.2 117.7 1.8 554.7

1,400.0 248.6 2.5 1,651.1

2,216.0 401.8 11.2 2,629.1

3,672.0 224.6 11.2 3,907.8

4,062.5 293.0 11.2 4,366.7

4,306.1 387.8 0.0 4,693.9

Total equity Current liabilities Non current liabilities Deferred tax liabilities Balance sheet total

89.2 18.1 167.7 14.3 289.3

202.9 35.1 287.3 29.3 554.7

767.9 111.3 691.7 80.2 1,651.1

1,041.7 153.3 1,293.1 141.0 2,629.1

1,642.7 331.6 1,737.8 195.6 3,907.8

1,932.7 492.8 1,680.0 261.2 4,366.7

2,245.2 516.6 1,609.5 333.7 4,705.1

Net debt Capital employed

151.4 261.8

192.7 417.2

534.5 1,395.2

989.7 2,177.2

1,277.8 3,640.7

1,291.5 4,027.1

1,136.4 4,261.5

Valuation P/NAV -1 P/NNAV -1 P/FFO P/FFO (incl. trading) Dividend yield LTV Interest coverage EBITDA yield ROE EV/Total revenues EV/EBITDA EV/EBIT EV/Capital employed EV/Debt-adjusted cash flow

25

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LEG Immobilien

Buy

Germany | Property | Mcap EUR 4.7bn

Target Price Current Price Up/downside Change in TP Change in EPS

(Buy) EUR 80.00 EUR 75.5 5.9% none none 2015E

none

Solid performer in a solid market

Thomas Neuhold, CFA tneuhold@keplercheuvreux.com +43 1 537 12 4147

LEG is well positioned to deliver double-digit FFO growth in 2017 thanks to rising rents and recent acquisitions. The improving demographic situation in NRW could positively impact rental growth and support a stronger yield compression in the next few years. The company could fuel organic growth via further acquisitions, exploiting its strong balance sheet.

Company profile LEG is one of the largest private residential real estate property owners in Germany. As of Q3 2015, it owned and managed around 110,000 residential units with a market value of around EUR6.2bn, of which almost 100% were located in North Rhine-Westphalia (NRW). We believe one of the company’s key assets is its experienced management team, which has been with it for many years and has ample experience in the residential real estate industry and an excellent knowledge of that market in NRW.

Investment case LEG is in a position to deliver decent FFO growth in 2016, driven by sound rental growth, further efficiency improvements and the positive impact of recent acquisitions. In addition, it has one of the strongest balance sheets in the sector: its equity ratio stood at 36% and LTV amounted to 48% at the end of Q3 2014, which could allow for further acquisitions. Recent demographic trends in Germany, particularly in NRW, have been positive driven by strong immigration. A likely continuation of this trend could lead to further rent increases and a stronger yield compression, as LEG’s portfolio was still valued at a conservative 7.3% rental yield in Q3 2015.

Key drivers and catalysts The expected ongoing positive development of the German residential real estate markets could lead to decent FFO and NAV growth in the next few years. Value-accretive acquisitions could add to the positive expected organic growth momentum.

Valuation We value LEG using the blended outcome of a discounted cash flow model (DCF), a discounted dividend model (DDM) and our average discounted NNNAV model. Our valuation model yields a target price of EUR80.

Potential acquisitions (in our view very likely) could create additional upside, which is not reflected in our figures.

IMPORTANT. Please refer to keplercheuvreux.com\disclaimer for “Important disclosures” and analyst certification (s).

Market data Bloomberg: LEG GR Market cap (EURm) Free float No. of shares outstanding (m) Avg. daily volume('000) YTD abs performance 52-week high/low (EUR)

Reuters: LEGn.DE 4,742 74% 63 338 21.9% 77.30/59.78

FY to 31/12 (EUR) Net rent EBITDA DPS FFO (recurring) FFO (incl. trading) FFOps (recurring) FFOps (incl. trading) NAVps NNNAVps

12/15E 336.8 297.5 2.11 203.9 204.9 3.25 3.26 56.77 53.37

12/16E 373.4 338.0 2.66 256.5 257.5 4.09 4.10 61.93 58.53

12/17E 402.7 371.0 2.93 282.5 283.5 4.50 4.52 66.64 63.24

FY to 31/12 (EUR) P/FFO P/FFO (incl. trading) P/NAV -1 P/NNNAV -1 Dividend yield LTV FFO/NNAV EBITDA/Asset value

12/15E 23.3 23.1 33.1% 41.6% 2.8% 45.4% 6.4% 4.3%

12/16E 18.5 18.4 22.0% 29.1% 3.5% 42.7% 7.3% 4.7%

12/17E 16.8 16.7 13.4% 19.5% 3.9% 40.9% 7.4% 5.0%

Sep 15

Dec 15

78 76 74 72 70

68 66 64 62 60 58 Dec 14

Mar 15

Jun 15

Price

keplercheuvreux.com

Property

LEG Immobilien key financials FY to 31/12 (EUR)

2010

2011

2012

2013

2014

2015E

2016E

2017E

7.49 7.21 136.18 123.42 0.00

7.45 7.05 133.97 120.09 0.00

7.52 7.44 44.78 40.60 0.41

2.67 2.63 48.56 43.44 1.73

2.87 2.84 52.33 45.74 1.96

3.25 3.26 56.77 50.70 2.11

4.09 4.10 61.93 55.86 2.66

4.50 4.52 66.64 60.57 2.93

Valuation P/NAV -1 P/NNAV -1 P/FFO P/FFO (incl. trading) Dividend yield LTV Interest coverage EBITDA yield ROE EV/Total revenues EV/EBITDA EV/EBIT EV/Capital employed EV/Debt-adjusted cash flow

na na na na na 45.2% 1.2 na na na na na na na

na na na na na 47.0% 1.0 na -0.6% na na na na na

na na na na na 47.9% 1.0 na 4.9% na na na na na

-13.7% -3.5% 15.7 15.9 4.1% 47.8% 1.6 4.4% 6.1% 8.3 22.6 16.8 0.9 18.7

-1.9% 12.3% 17.9 18.1 3.8% 47.5% 1.9 4.1% 6.1% 9.3 24.2 15.6 1.0 19.3

33.1% 49.0% 23.3 23.1 2.8% 45.4% 3.1 3.8% 9.6% 11.0 26.2 13.8 1.2 24.4

22.0% 35.3% 18.5 18.4 3.5% 42.7% 3.3 4.4% 14.2% 10.3 23.0 11.9 1.1 23.0

13.4% 24.7% 16.8 16.7 3.9% 40.9% 3.4 4.8% 13.4% 9.7 20.9 11.7 1.1 21.9

Income Statement (EURm) Gross rents Net rents EBITDA (recurring) Net financial FFO Trading profits FFO including trading profits Profit on disposal Revaluation result (IFRS40 Net profit adjusted

487.3 240.6 201.3 -167.9 112.4 -4.3 108.2 -4.3 31.0 24.2

497.6 243.7 185.4 -178.7 111.8 -6.0 105.8 -6.0 11.0 -11.5

499.7 247.7 201.6 -196.6 136.5 -3.2 135.1 -3.2 120.3 94.4

532.1 257.7 212.8 -128.0 141.2 -4.8 139.5 -4.8 81.6 130.6

576.8 284.9 247.7 -169.3 163.6 -4.8 161.9 -4.8 143.0 151.4

656.1 336.8 296.6 -206.4 203.9 1.0 204.9 1.0 275.8 276.7

703.7 373.4 337.0 -102.5 256.5 1.0 257.5 1.0 323.6 451.8

740.5 402.7 370.0 -110.5 282.5 1.0 283.5 1.0 297.4 460.4

Cash Flow Statement (EURm) Net profit before minorities Depreciation Amortisation Goodwill amortisation Change in working capital Others Cash Flow Capex Free cash flow Acquisitions Divestments Dividend paid Share buy back Capital increases Others Change in net debt Attributable FCF

24.2 6.6 0.0 0.0 28.8 88.1 87.9 -43.4 69.0 -6.0 19.0 0.0 0.0 -51.2 0.0 -30.8 65.9

-11.5 6.6 0.0 0.0 37.5 61.7 45.8 -41.4 35.9 -6.7 16.7 0.0 0.0 -47.2 0.0 1.3 34.5

94.4 8.6 0.0 0.0 32.5 91.6 74.3 -94.6 9.0 0.2 13.4 0.0 0.0 0.0 0.0 -22.6 12.5

130.6 8.7 0.0 0.0 -49.9 99.2 156.9 -177.8 -75.6 -0.7 15.2 -21.7 0.0 0.0 0.0 82.8 -75.8

151.4 8.6 0.0 0.0 -14.9 141.9 158.9 -226.2 -87.0 -2.8 70.1 -91.6 0.0 202.9 0.0 -91.6 -88.2

276.7 8.4 0.0 0.0 0.1 191.3 200.6 -40.0 161.7 -225.0 20.0 -112.0 0.0 368.8 0.0 -213.5 160.2

451.8 8.4 0.0 0.0 0.1 78.8 215.4 -40.0 176.5 -600.0 20.0 -132.5 0.0 0.0 0.0 536.1 176.0

460.4 8.4 0.0 0.0 0.1 52.7 224.1 -40.0 185.2 0.0 20.0 -166.7 0.0 0.0 0.0 -39.4 184.2

Balance Sheet (EURm) Fixed assets Current assets Deferred tax assets Total assets

4,794.7 195.7 11.3 5,001.7

4,835.7 144.6 8.1 4,988.4

5,033.1 184.6 20.8 5,238.5

5,259.6 158.2 5.3 5,423.1

6,247.6 149.8 12.7 6,410.1

6,789.7 152.0 12.7 6,954.5

7,131.2 155.3 12.7 7,299.2

7,382.5 158.6 12.7 7,553.8

Total equity Current liabilities Non current liabilities Deferred tax liabilities Balance sheet total

2,240.6 1,150.1 1,408.3 202.7 5,001.7

2,145.9 253.7 2,372.5 216.3 4,988.4

2,085.5 390.1 2,548.3 213.9 5,237.8

2,276.1 294.7 2,621.1 231.2 5,423.1

2,734.3 287.1 3,102.6 292.4 6,416.4

3,072.6 290.4 3,222.2 375.6 6,960.8

3,352.1 293.8 3,192.5 474.2 7,312.7

3,562.3 297.2 3,169.5 564.4 7,593.5

Net debt Capital employed

2,126.7 4,639.9

2,224.8 4,668.1

2,366.0 4,759.4

2,473.0 5,080.6

2,923.0 6,082.5

3,040.9 6,623.5

3,008.6 6,963.9

2,983.0 7,214.0

Per share FFOps (recurring) FFOps (incl. trading) NAVps NNAVps Net dividend

27

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TAG Immobilien

Buy

Germany | Property | Mcap EUR 1.4bn

Target Price Current Price Up/downside Change in TP Change in EPS

(Buy) EUR 13.00 EUR 11.2 15.7% none none 2015E

none

The leveraged play on German residential

Thomas Neuhold, CFA tneuhold@keplercheuvreux.com +43 1 537 12 4147

TAG’s strategy to focus on higher yielding assets with a more leveraged balance sheet could play out well in our base scenario of a further positive development of the German residential market. The valuation looks attractive and the high dividend yield of 5% could well support the share price.

Company profile TAG is a mid-sized player in the German residential market with residential property assets worth EUR3.4bn at the end of Q3. The company's regional focus lies on the following five regions: Hamburg, Berlin, Thuringia/Saxony, Salzgitter and North Rhine-Westphalia (NRW). The portfolio comprises an interesting mix of assets that deliver predictable and steadily increasing rental income, e.g. in Hamburg, Berlin, as well as assets that offer significant value-creation potential by reducing vacancy rates and increasing rents, e.g. in Salzgitter. TAG seems to be focusing on the lowerto mid-price segment of residential real estate.

Investment case Management has a strong track record of acquiring undermanaged portfolios at attractive prices. By exploiting revenue potential from higher rents and lower vacancies and cost potential by generating economies of scale and cost synergies, it has created significant value in the past.

Ongoing successful capital recycling could be a key driver for the shares.

Key drivers and catalysts We believe TAG has several drivers in place that could lead to a significant FFO increase in the long run. 1) The annualised net rental income of TAG’s portfolio amounted to EUR262.5m in Q3 with a vacancy rate of 8.8%. A reduction in the vacancy rate to 5% could boost FFO by around EUR8m. 2) LFL rental growth could add EUR3-4m a year to FFO. 3) Average interest costs stood at 3.49% in Q3 on debt of EUR2.34bn. Around EUR1.29bn of debt with average interest costs of 3.8% will mature by 2020. Assuming refinancing costs of 2%, cash interest expenses could decline by around EUR23m by 2020. In terms of NAV growth, the current yield of 7.3% leaves significant long-term revaluation upside once the ongoing yield compression reaches B cities and B locations in A cities.

Market data Bloomberg: TEG GR Market cap (EURm) Free float No. of shares outstanding (m) Avg. daily volume('000) YTD abs performance 52-week high/low (EUR)

Reuters: TEGG.DE 1,410 96% 126 456 16.8% 13.05/9.25

FY to 31/12 (EUR) Net rent EBITDA DPS FFO (recurring) FFO (incl. trading) FFOps (recurring) FFOps (incl. trading) NAVps NNNAVps

12/15E 207.9 176.9 0.55 74.0 94.5 0.59 0.75 10.44 8.46

12/16E 216.3 168.4 0.57 85.1 88.6 0.68 0.71 11.45 9.46

12/17E 222.2 173.6 0.60 97.6 101.1 0.78 0.81 12.20 10.22

FY to 31/12 (EUR) P/FFO P/FFO (incl. trading) P/NAV -1 P/NNNAV -1 Dividend yield LTV FFO/NNAV EBITDA/Asset value

12/15E 19.1 14.9 7.6% 32.8% 4.9% 63.8% 6.9% 4.9%

12/16E 16.6 15.9 -1.8% 18.7% 5.1% 61.5% 7.1% 4.5%

12/17E 14.4 13.9 -7.9% 9.9% 5.3% 59.6% 7.6% 4.5%

13.5 13.0 12.5 12.0 11.5

11.0 10.5 10.0 9.5 9.0 8.5 Dec 14

Mar 15

Jun 15

Sep 15

Dec 15

Price

Valuation We value TAG using a blended average of a discounted cash flow model (DCF), a discounted dividend model (DDM) and average discounted NNNAV. The shares trade at a strong discount versus key sector peers on P/FFO multiples and offer an attractive dividend yield 2016E of 5.1%.

IMPORTANT. Please refer to keplercheuvreux.com\disclaimer for “Important disclosures” and analyst certification (s).

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TAG Immobilien key financials FY to 31/12 (EUR)

2010

2011

2012

2013

2014

2015E

2016E

2017E

Per share FFOps (recurring) FFOps (incl. trading) NAVps NNAVps Net dividend

-0.21 -0.22 6.24 6.09 0.00

-0.01 0.09 8.72 7.83 0.20

0.30 0.53 9.96 9.03 0.25

0.47 0.47 10.00 8.58 0.35

0.63 0.97 10.10 8.32 0.50

0.59 0.75 10.44 8.52 0.55

0.68 0.71 11.45 9.52 0.57

0.78 0.81 12.20 10.28 0.60

-23.5% -21.6% -22.3 -22.0 0.0% 53.5% 1.0 4.1% 6.7% 9.0 24.3 14.0 0.9 43.4

-24.8% -16.2% -718.6 69.6 3.0% 64.4% 1.9 6.5% 14.8% 10.1 15.3 12.4 0.9 26.8

-23.8% -15.9% 25.1 14.3 3.3% 63.9% 3.0 7.9% 21.3% 13.2 12.7 11.5 0.9 29.0

-11.6% 3.1% 18.7 18.8 4.0% 65.1% 1.4 4.2% 2.5% 9.3 24.0 27.4 1.0 21.6

-10.8% 8.3% 14.3 9.3 5.5% 67.3% 1.3 4.7% 2.7% 4.0 21.2 16.6 1.0 17.9

7.6% 31.9% 19.1 14.9 4.9% 63.8% 1.8 4.9% 13.9% 7.9 20.6 13.3 1.1 16.2

-1.8% 18.0% 16.6 15.9 5.1% 61.5% 2.2 4.6% 17.3% 11.9 21.6 11.3 1.0 19.3

-7.9% 9.3% 14.4 13.9 5.3% 59.6% 2.5 4.8% 13.6% 11.6 20.8 13.0 1.0 19.3

Income Statement (EURm) Gross rents Net rents EBITDA (recurring) Net financial FFO Trading profits FFO including trading profits Profit on disposal Revaluation result (IFRS40 Net profit adjusted

51.8 40.2 30.9 -31.2 -12.5 -0.2 -12.7 -0.2 16.8 18.5

115.4 79.0 109.1 -61.4 -0.7 7.8 7.1 7.8 28.9 66.9

192.5 145.3 261.7 -86.6 39.6 -0.2 69.5 -0.2 29.4 179.1

251.0 199.1 145.9 -104.6 61.7 -0.1 61.5 -0.1 -15.9 28.0

257.4 209.5 117.4 -118.0 74.5 40.3 114.8 40.3 46.8 28.2

258.2 207.9 156.4 -95.9 74.0 20.5 94.5 20.5 99.9 141.5

268.6 216.3 164.9 -76.8 85.1 3.5 88.6 3.5 155.9 194.8

276.0 222.2 170.1 -69.1 97.6 3.5 101.1 3.5 107.5 168.5

Cash Flow Statement (EURm) Net profit before minorities Depreciation Amortisation Goodwill amortisation Change in working capital Others Cash Flow Capex Free cash flow Acquisitions Divestments Dividend paid Share buy back Capital increases Others Change in net debt Attributable FCF

18.5 0.8 0.0 0.0 161.9 0.0 -179.9 -0.6 -18.8 -78.1 8.8 0.0 0.0 87.4 0.0 0.7 -19.1

66.9 1.3 0.0 0.0 45.2 0.0 -60.3 -0.7 -8.0 -85.4 46.9 0.0 0.0 68.7 0.0 -22.1 -12.7

179.1 1.7 0.0 0.0 -156.9 0.0 174.6 -3.2 14.3 -388.5 38.5 -19.1 0.0 385.5 0.0 -30.7 11.3

28.0 2.3 0.0 0.0 149.6 0.0 -74.3 -7.7 67.6 -82.6 112.7 -32.7 0.0 -34.0 0.0 -31.0 65.6

28.2 3.4 0.0 0.0 -6.6 0.0 -42.9 -7.7 -16.9 -191.0 566.5 -45.8 0.0 -122.1 0.0 -190.8 -19.4

141.5 3.4 0.0 0.0 29.5 0.0 60.5 -7.7 102.8 -113.9 202.0 -59.3 0.0 0.0 0.0 -131.6 99.8

194.8 3.4 0.0 0.0 0.0 0.0 92.8 -7.7 88.6 0.0 35.0 -69.0 0.0 0.0 0.0 -54.5 85.6

166.5 3.4 0.0 0.0 0.0 0.0 101.1 -7.7 96.9 0.0 35.0 -71.5 1.0 0.0 0.0 -61.4 93.4

Balance Sheet (EURm) Fixed assets Current assets Deferred tax assets Total assets

913.8 272.7 4.0 1,190.5

1,921.4 126.2 0.1 2,047.6

3,494.0 304.5 1.5 3,800.0

3,580.6 182.1 0.6 3,763.3

3,356.7 299.9 77.6 3,734.2

3,488.6 96.8 77.6 3,663.0

3,609.4 97.8 77.6 3,784.8

3,682.0 98.8 77.6 3,858.4

Total equity Current liabilities Non current liabilities Deferred tax liabilities Balance sheet total

365.3 273.3 539.0 12.9 1,190.5

594.6 265.3 1,126.5 66.9 2,053.3

1,156.5 532.1 1,988.2 123.4 3,800.0

1,127.4 181.2 2,334.0 120.7 3,763.3

1,005.1 174.0 2,344.0 211.1 3,734.2

1,087.3 199.0 2,135.6 241.1 3,663.0

1,213.1 199.0 2,131.7 241.1 3,784.8

1,308.0 199.0 2,110.3 241.1 3,858.4

518.2 834.5

1,265.6 1,910.9

2,338.6 3,596.4

2,343.1 3,577.8

2,256.3 3,388.4

2,221.0 3,465.7

2,215.6 3,586.6

2,192.7 3,659.1

Valuation P/NAV -1 P/NNAV -1 P/FFO P/FFO (incl. trading) Dividend yield LTV Interest coverage EBITDA yield ROE EV/Total revenues EV/EBITDA EV/EBIT EV/Capital employed EV/Debt-adjusted cash flow

Net debt Capital employed

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$:m:

ReportT ype$

m:m:m:

$Com panyRe gion$

Vonovia

Buy

Germany | Property | Mcap EUR 13.8bn

Target Price Current Price Up/downside Change in TP Change in EPS

European Large Caps Selected List

(Buy) EUR 34.00 EUR 29.6 14.9% none none 2015E

none

Residential behemoth and predator

Thomas Neuhold, CFA tneuhold@keplercheuvreux.com +43 1 537 12 4147

After several acquisitions over the last two years, Vonovia is by far the largest listed residential real estate company in Germany and one of the largest players in Europe. The strong underlying trends in Germany (especially in some of Vonovia’s key submarkets), cost synergies from acquisitions, lower financing costs and positive effects from planned value-enhancing investments all bode well for strong FFO growth in the next few years.

Company profile Vonovia is the largest listed residential real estate company in Germany and one of the largest players in Europe. Its portfolio consisted of around 367,000 units with a property value of c. EUR23bn at the end of Q3. The portfolio is well diversified geographically in Germany with NRW (34% of units), Schleswig-Holstein, Hamburg, Lower Saxony (17%), Saxony/Thuringia (13%) and Berlin (8%) being the key markets. Like other German listed residential real estate peers, Vonovia focuses on the lowerto mid-priced segments of the market.

Investment story Vonovia has the best regionally diversified portfolio among its peers. Low average rents and asset valuations create significant FFO I and NAV upside in the long-term. The exploitation of synergies from recent acquisitions could lead to a strong FFO/share growth in the coming years. Moreover, Vonovia’s relatively healthy balance sheet could pave the way for further value-accretive acquisitions.

Key drivers and catalysts The acceptance of its current takeover offer for Deutsche Wohnen could be a major positive trigger for Vonovia, as the deal would have a relatively neutral impact on FFO and NAV per share, but would substantially increase the quality of its portfolio. Furthermore, an expansion of valuation multiples seems rather likely afterwards. However, the acceptance of the offer is not our base-case scenario. Additional value-accretive acquisitions could add to the expected positive organic growth momentum.

Market data Bloomberg: VNA GR Market cap (EURm) Free float No. of shares outstanding (m) Avg. daily volume('000) YTD abs performance 52-week high/low (EUR)

Reuters: VNAn.DE 13,791 93% 466 2,407 10.6% 33.23/23.74

FY to 31/12 (EUR) Net rent EBITDA DPS FFO (recurring) FFO (incl. trading) FFOps (recurring) FFOps (incl. trading) NAVps NNNAVps

12/15E 1,407 934 0.94 564 651 1.21 1.40 30.67 22.91

12/16E 1,516 1,082 1.01 670 742 1.44 1.59 32.24 24.47

12/17E 1,560 1,118 1.16 771 793 1.66 1.70 34.88 26.40

FY to 31/12 (EUR) P/FFO P/FFO (incl. trading) P/NAV -1 P/NNNAV -1 Dividend yield LTV FFO/NNAV EBITDA/Asset value

12/15E 24.5 21.2 -3.5% 29.2% 3.2% 46.4% 5.2% 3.5%

12/16E 20.6 18.6 -8.2% 20.9% 3.4% 41.6% 5.8% 4.0%

12/17E 17.9 17.4 -15.2% 12.1% 3.9% 38.1% 6.2% 4.0%

Sep 15

Dec 15

34 32 30

28 26 24 22 Dec 14

Mar 15

Jun 15

Price

Valuation We value Vonovia using the blended outcome of a discounted cash flow model (DCF), a discounted dividend model (DDM) and a discounted NNNAV model (NNNAV). Our valuation model yields a target price of EUR34.

IMPORTANT. Please refer to keplercheuvreux.com\disclaimer for “Important disclosures” and analyst certification (s).

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Vonovia key financials FY to 31/12 (EUR)

2010

2011

2012

2013

2014

2015E

2016E

2017E

Per share FFOps (recurring) FFOps (incl. trading) NAVps NNAVps Net dividend

0.80 0.98 13.35 10.63 0.00

0.75 1.01 14.84 11.38 0.00

0.85 1.03 15.38 12.19 0.00

1.00 1.12 22.85 17.15 0.70

1.06 1.24 24.22 18.40 0.78

1.21 1.40 30.67 23.21 0.94

1.44 1.59 32.24 24.77 1.01

1.66 1.70 34.88 26.70 1.16

Valuation P/NAV -1 P/NNAV -1 P/FFO P/FFO (incl. trading) Dividend yield LTV Interest coverage EBITDA yield ROE EV/Total revenues EV/EBITDA EV/EBIT EV/Capital employed EV/Debt-adjusted cash flow

na na na na na 80.6% 1 na 11.1% na na na na na

na na na na na 65.6% 1 na 21.0% na na na na na

na na na na na 60.8% 1 na 7.0% na na na na na

-21.7% 4.2% 17.9 16.0 3.9% 50.8% 1 4.7% 14.8% 8.6 21.5 9.4 0.9 14.2

-14.1% 13.0% 19.7 16.8 3.8% 42.0% 2 4.6% 9.2% 9.4 21.9 12.7 0.9 13.3

-3.5% 27.5% 24.5 21.2 3.2% 46.4% 3 3.7% 18.1% 12.1 26.7 10.0 1.0 8.4

-8.2% 19.5% 20.6 18.6 3.4% 41.6% 4 4.5% 10.2% 10.8 22.0 13.3 0.9 16.0

-15.2% 10.8% 17.9 17.4 3.9% 38.1% 4 4.8% 11.2% 10.2 20.8 11.3 0.9 15.6

Income Statement (EURm) Gross rents Net rents EBITDA (recurring) Net financial FFO Trading profits FFO including trading profits Profit on disposal Revaluation result (IFRS40 Net profit adjusted

1,039 724 411 -344 159 71 196 -71 26 191

1,059 731 413 -347 151 68 203 -68 451 423

1,047 729 396 -431 170 52 207 -52 206 171

1,048 728 376 -285 224 52 251 -52 554 481

1,138 789 428 -272 287 69 337 -69 371 400

2,022 1,407 842 -402 564 92 651 -92 1,560 1,410

2,177 1,516 1,004 -300 670 78 742 -78 715 1,128

2,241 1,560 1,091 -278 771 27 793 -27 951 1,326

Cash Flow Statement (EURm) Net profit before minorities Depreciation Amortisation Goodwill amortisation Change in working capital Others Cash Flow Capex Free cash flow Acquisitions Divestments Dividend paid Share buy back Capital increases Others Change in net debt Attributable FCF

191 5 0 0 44 330 500 -3 469 -44 89 0 0 0 0 -35 464

423 6 0 0 103 571 549 -3 582 -58 135 0 0 0 0 32 577

171 6 0 0 -2 467 439 -7 379 -91 285 0 0 334 0 -192 377

481 7 0 0 -72 450 383 -8 251 -95 271 0 0 379 0 -763 245

400 7 0 0 27 469 506 -10 454 -1,551 368 -168 0 1,024 0 1,107 446

1,410 6 0 0 495 2,248 2,104 -15 2,492 -2,150 717 -363 0 2,000 0 5,733 2,450

1,128 9 0 0 63 723 1,145 -15 1,115 0 848 -438 0 0 0 -1,120 1,085

1,326 9 0 0 27 768 1,153 -15 1,138 0 196 -469 0 0 0 -503 1,102

Balance Sheet (EURm) Fixed assets Current assets Deferred tax assets Total assets

8,516 1,665 0 10,181

9,972 411 0 10,383

9,938 662 9 10,608

10,350 740 3 11,093

12,965 1,779 15 14,759

26,647 1,330 0 27,978

26,589 1,961 0 28,550

27,365 1,904 0 29,269

Total equity Current liabilities Non current liabilities Deferred tax liabilities Balance sheet total

1,818 893 6,926 544 10,181

2,230 907 6,554 692 10,383

2,677 990 6,216 724 10,608

3,818 444 5,906 925 11,093

4,961 504 8,162 1,133 14,759

10,953 1,375 13,221 2,429 27,978

11,723 974 13,174 2,679 28,550

12,669 894 12,696 3,012 29,271

6,802 9,544

6,487 9,772

5,980 9,778

5,217 10,267

5,323 12,741

11,048 25,929

9,871 25,825

9,330 26,583

Net debt Capital employed

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Research ratings and important disclosures Disclosure checklist - Potential conflict of interests Stock ISIN Disclosure (See Below) Buwog AT00BUWOG001 nothing to disclose Conwert AT0000697750 6 Deutsche Wohnen DE000A0HN5C6 14, 16, 18 Grand City Properties LU0775917882 nothing to disclose Immofinanz AT0000809058 nothing to disclose LEG Immobilien DE000LEG1110 nothing to disclose TAG Immobilien DE0008303504 14, 16, 18 Vonovia DE000A1ML7J1 14, 16, 18 Source: Factset closing prices of 01/12/2015 Stock prices: Prices are taken as of the previous day’s close (to the date of this report) on the home market unless otherwise stated.

Currency EUR EUR EUR EUR EUR EUR EUR EUR

Price 19.13 13.36 25.87 19.99 2.38 75.55 11.24 29.60

Key: Kepler Capital Markets SA (KCM) holds or owns or controls 100% of the issued shares of Crédit Agricole Cheuvreux SA (CA Cheuvreux), collectively hereafter KEPLER CHEUVREUX .

1. KEPLER CHEUVREUX holds or owns or controls 5% or more of the issued share capital of this company; 2. The company, or its major shareholder, directly or indirectly, holds or owns or controls 5% or more of the issued share capital of KEPLER CHEUVREUX; 3. KEPLER CHEUVREUX is or may be regularly carrying out proprietary trading in equity securities of this company; 4. KEPLER CHEUVREUX has been lead manager or co-lead manager in a public offering of the issuer’s financial instruments during the last twelve months; 5. KEPLER CHEUVREUX is a market maker in the issuer’s financial instruments; 6. KEPLER CHEUVREUX is a liquidity provider in relation to price stabilisation activities for the issuer to provide liquidity in such instruments; 7. KEPLER CHEUVREUX acts as a corporate broker or a sponsor or a sponsor specialist (in accordance with the local regulations) to this company; 8. KEPLER CHEUVREUX and the issuer have agreed that KEPLER CHEUVREUX will produce and disseminate investment research on the said issuer as a service to the issuer; 9. KEPLER CHEUVREUX has received compensation from this company for the provision of investment banking or financial advisory services within the previous twelve months; 10. KEPLER CHEUVREUX may expect to receive or intend to seek compensation for investment banking services from this company in the next three months; 11. The author of, or an individual who assisted in the preparation of, this report (or a member of his/her household), or a person who although not involved in the preparation of the report had or could reasonably be expected to have access to the substance of the report prior to its dissemination has a direct ownership position in securities issued by this company; 12. An employee of KEPLER CHEUVREUX serves on the board of directors of this company; 13. As at the end of the month immediately preceding the date of publication of the research report Kepler Capital Markets, Inc. beneficially owned 1% or more of a class of common equity securities of the subject company; 14. KEPLER CHEUVREUX and UniCredit Bank AG have entered into a Co-operation Agreement to form a strategic alliance in connection with certain services including services connected to investment banking transactions. UniCredit Bank AG provides investment banking services to this issuer in return for which UniCredit Bank AG has received a consideration or a promise of consideration. Separately, through the Co-operation Agreement with UniCredit Bank AG for services provided by KEPLER CHEUVREUX in connection with such activities, KEPLER CHEUVREUX has also a received consideration or a promise of a consideration in accordance with the general terms of the Co-operation Agreement; 15. KEPLER CHEUVREUX and Crédit Agricole Corporate & Investment Bank (“CACIB”) have entered into a Co-operation Agreement to form a strategic alliance in connection with certain services including services connected to investment banking transactions. CACIB provides investment banking services to this issuer in return for which CACIB has received a consideration or a promise of consideration. Separately, through the Co-operation Agreement with CACIB for services provided by KEPLER CHEUVREUX in connection with such activities, KEPLER CHEUVREUX has also received a consideration or a promise of a consideration in accordance with the general terms of the Co-operation Agreement; 16. UniCredit Bank AG holds or owns or controls 5% or more of the issued share capital of KEPLER CHEUVREUX. UniCredit Bank AG provides investment banking services to this issuer in return for which UniCredit Bank AG has received a consideration or a promise of consideration; 17. CACIB holds or owns or controls 15% of more of the issued share capital of KEPLER CHEUVREUX. CACIB provides investment banking services to this issuer in return for which CACIB has received a consideration or a promise of consideration; 18. An employee of UniCredit Bank AG serves on the board of directors of KEPLER CHEUVREUX; 19. Two employees of CACIB serve on the board of directors of KEPLER CHEUVREUX. CACIB provides investment banking services to this issuer in return for which CACIB has received a consideration or a promise of consideration.

Rating history: Kepler Cheuvreux has not changed its rating on Buwog in the past 12 months.

KEPLER CHEUVREUX current rating for Conwert is Buy and was issued on 29/08/2015. The preceding rating was Hold and was issued on 26/03/2014.

KEPLER CHEUVREUX current rating for Deutsche Wohnen is Buy and was issued on 26/06/2015. The preceding rating was Hold and was issued on 08/04/2014.

KEPLER CHEUVREUX current rating for Grand City Properties is Buy and was issued on 26/06/2015 (initiation of coverage).

KEPLER CHEUVREUX current rating for LEG Immobilien is Buy and was issued on 26/06/2015. The preceding rating was Hold and was issued on 08/04/2014.

Kepler Cheuvreux has not changed its rating on TAG Immobilien in the past 12 months.

Kepler Cheuvreux has not changed its rating on Vonovia in the past 12 months.

We did not disclose the rating to the issuer before publication and dissemination of this document.

Rating ratio Kepler Cheuvreux Q3 2015 Rating breakdown Buy Hold Reduce Not Rated/Under Review/Accept Offer Total

A 45.8% 37.4% 16.4% 0.4% 100.0%

B 0.0% 0.0% 0.0% 0.0% 0.0%

Source: Kepler Cheuvreux A: % of all research recommendations B: % of issuers to which Investment Banking Services are supplied

From 9 May 2006, KEPLER CHEUVREUX’s rating system consists of three ratings: Buy, Hold and Reduce. For a Buy rating, the minimum expected upside is 10% in absolute terms over 12 months. For a Hold rating the expected upside is below 10% in absolute terms. A Reduce rating is applied when there is expected downside on the stock. Target prices are set on all stocks under coverage, based on a 12-month view. Equity ratings and valuations are issued in absolute terms, not relative to any given benchmark.

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Analyst disclosures The functional job title of the person(s) responsible for the recommendations contained in this report is Equity Research Analyst unless otherwise stated on the cover.

Name of the Equity Research Analyst(s): Thomas Neuhold Regulation AC - Analyst Certification: Each Equity Research Analyst(s) listed on the front-page of this report, principally responsible for the preparation and content of all or any identified portion of this research report hereby certifies that, with respect to each issuer or security or any identified portion of the report with respect to an issuer or security that the equity research analyst covers in this research report, all of the views expressed in this research report accurately reflect their personal views about those issuer(s) or securities. Each Equity Research Analyst(s) also certifies that no part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendation(s) or view(s) expressed by that equity research analyst in this research report.

Each Equity Research Analyst certifies that he is acting independently and impartially from KEPLER CHEUVREUX shareholders, di rectors and is not affected by any current or potential conflict of interest that may arise from any KEPLER CHEUVREUX activities.

Analyst Compensation: The research analyst(s) primarily responsible for the preparation of the content of the research report attest that no part of the analyst’s(s’) compensation was, is or will be, directly or indirectly, related to the specific recommendations expressed by the research analyst(s) in the research report. The research analyst’s(s’) compensation is, however, determined by the overall economic performance of KEPLER CHEUVREUX. Registration of non-US Analysts: Unless otherwise noted, the non-US analysts listed on the front of this report are employees of KEPLER CHEUVREUX, which is a nonUS affiliate and parent company of Kepler Capital Markets, Inc. a SEC registered and FINRA member broker-dealer. Equity Research Analysts employed by KEPLER CHEUVREUX, are not registered/qualified as research analysts under FINRA/NYSE rules, may not be associated persons of Kepler Capital Markets, Inc. and may not be subject to NASD Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public appearances, and trading securities held by a research analyst account.

Please refer to www.keplercheuvreux.com for further information relating to research and conflict of interest management.

Regulators Location Kepler Capital Markets S.A - France Kepler Capital Markets, Sucursal en España Kepler Capital Markets, Frankfurt branch Kepler Capital Markets, Milan branch Kepler Capital Markets, Amsterdam branch Kepler Capital Markets, Zurich branch Kepler Capital Markets, Inc. Kepler Capital Markets, London branch Kepler Capital Markets, Vienna branch Crédit Agricole Cheuvreux, SA - France Crédit Agricole Cheuvreux España S.V Crédit Agricole Cheuvreux Niederlassung Deutschland Crédit Agricole Cheuvreux S.A., branch di Milano Crédit Agricole Cheuvreux Amsterdam Crédit Agricole Cheuvreux Zurich Branch Crédit Agricole Cheuvreux North America, Inc. Crédit Agricole Cheuvreux International Limited Crédit Agricole Cheuvreux Nordic AB

Regulator

Abbreviation

Autorité des Marchés Financiers Comisión Nacional del Mercado de Valores Bundesanstalt für Finanzdienstleistungsaufsicht Commissione Nazionale per le Società e la Borsa Autoriteit Financiële Markten Swiss Financial Market Supervisory Authority Financial Industry Regulatory Authority Financial Conduct Authority Austrian Financial Services Authority Autorité des Marchés Financiers Comisión Nacional del Mercado de Valores Bundesanstalt für Finanzdienstleistungsaufsicht Commissione Nazionale per le Società e la Borsa Autoriteit Financiële Markten Swiss Financial Market Supervisory Authority Financial Industry Regulatory Authority Financial Conduct Authority Finansinspektionen

AMF CNMV BaFin CONSOB AFM FINMA FINRA FCA FMA AMF CNMV BaFin CONSOB AFM FINMA FINRA FCA FI

Kepler Capital Markets S.A and Crédit Agricole Cheuvreux SA, are authorised and regulated by both Autorité de Contrôle Prudentiel and Autorité des Marchés Financiers.

For further information relating to research recommendations and conflict of interest management please refer to www.keplercheuvreux.com..

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Legal and disclosure information Other disclosures This product is not for retail clients or private individuals.

The information contained in this publication was obtained from various publicly available sources believed to be reliable, but has not been independently verified by KEPLER CHEUVREUX. KEPLER CHEUVREUX does not warrant the completeness or accuracy of such information and does not accept any liability with respect to the accuracy or completeness of such information, except to the extent required by applicable law.

This publication is a brief summary and does not purport to contain all available information on the subjects covered. Further information may be available on request. This report may not be reproduced for further publication unless the source is quoted.

This publication is for information purposes only and shall not be construed as an offer or solicitation for the subscription or purchase or sale of any securities, or as an invitation, inducement or intermediation for the sale, subscription or purchase of any securities, or for engaging in any other transaction. This publication is not for private individuals.

Any opinions, projections, forecasts or estimates in this report are those of the author only, who has acted with a high degree of expertise. They reflect only the current views of the author at the date of this report and are subject to change without notice. KEPLER CHEUVREUX has no obligation to update, modify or amend this publication or to otherwise notify a reader or recipient of this publication in the event that any matter, opinion, projection, forecast or estimate contained herein, changes or subsequently becomes inaccurate, or if research on the subject company is withdrawn. The analysis, opinions, projections, forecasts and estimates expressed in this report were in no way affected or influenced by the issuer. The author of this publication benefits financially from the overall success of KEPLER CHEUVREUX. The investments referred to in this publication may not be suitable for all recipients. Recipients are urged to base their investment decisions upon their own appropriate investigations that they deem necessary. Any loss or other consequence arising from the use of the material contained in this publication shall be the sole and exclusive responsibility of the investor and KEPLER CHEUVREUX accepts no liability for any such loss or consequence. In the event of any doubt about any investment, recipients should contact their own investment, legal and/or tax advisers to seek advice regarding the appropriateness of investing. Some of the investments mentioned in this publication may not be readily liquid investments. Consequently it may be difficult to sell or realise such investments. The past is not necessarily a guide to future performance of an investment. The value of investments and the income derived from them may fall as well as rise and investors may not get back the amount invested.

Some investments discussed in this publication may have a high level of volatility. High volatility investments may experience sudden and large falls in their value which may cause losses. International investing includes risks related to political and economic uncertainties of foreign countries, as well as currency risk.

To the extent permitted by applicable law, no liability whatsoever is accepted for any direct or consequential loss, damages, costs or prejudices whatsoever arising from the use of this publication or its contents.

KEPLER CHEUVREUX (and its affiliates) have implemented written procedures designed to identify and manage potential conflicts of interest that arise in connection with its research business, which are available upon request. The KEPLER CHEUVREUX research analysts and other staff involved in issuing and disseminating research reports operate independently of KEPLER CHEUVREUX Investment Banking business. Information barriers and procedures are in place between the research analysts and staff involved in securities trading for the account of KEPLER CHEUVREUX or clients to ensure that price sensitive information is handled according to applicable laws and regulations.

Country and region disclosures United Kingdom: This document is for persons who are Eligible Counterparties or Professional Clients only and is exempt from the general restriction in section 21 of the Financial Services and Markets Act 2000 on the communication of invitations or inducements to engage in investment activity on the grounds that it is being distributed in the United Kingdom only to persons of a kind described in Articles 19(5) (Investment professionals) and 49(2) (High net worth companies, unincorporated associations, etc.) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended). It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons. Any investment to which this document relates is available only to such persons, and other classes of person should not rely on this document.

United States: This communication is only intended for, and will only be distributed to, persons residing in any jurisdictions where such distribution or availability would not be contrary to local law or regulation. This communication must not be acted upon or relied on by persons in any jurisdiction other than in accordance with local law or regulation and where such person is an investment professional with the requisite sophistication to understand an investment in such securities of the type communicated and assume the risks associated therewith.

This communication is confidential and is intended solely for the addressee. It is not to be forwarded to any other person or copied without the permission of the sender.

This communication is provided for information only. It is not a personal recommendation or an offer to sell or a solicitation to buy the securities mentioned. Investors should obtain independent professional advice before making an investment.

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Property

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Italy: This document is issued by Kepler Capital Markets, Milan branch and Crédit Agricole Cheuvreux S.A., branch di Milano, authorised in France by the Autorité des Marchés Financiers (AMF) and the Autorité de Contrôle Prudentiel (ACP) and registered in Italy by the Commissione Nazionale per le Società e la Borsa (CONSOB) and is distributed by Kepler Capital Markets S.A and Crédit Agricole Cheuvreux, Société Anonyme (S.A.), authorised in France by the AMF and the ACP and registered in Italy by CONSOB. This document is for Eligible Counterparties or Professional Clients only as defined by the CONSOB Regulation 16190/2007 (art. 26 and art.

58).Other classes of persons should not rely on this document. Reports on issuers of financial instruments listed by Article 180, paragraph 1, letter a) of the Italian Consolidated Act on Financial Services (Legislative Decree No. 58 of 24/2/1998, as amended from time to time) must comply with the requirements envisaged by articles 69 to 69-novies of CONSOB Regulation 11971/1999. According to these provisions Kepler Capital Markets S.A and Crédit Agricole Cheuvreux, Société Anonyme (S.A.)warns on the significant interests of Kepler Capital Markets S.A and Crédit Agricole Cheuvreux, Société Anonyme (S.A.)indicated in Annex 1 hereof, confirms that there are not significant financial interests of Kepler Capital Markets S.A and Crédit Agricole Cheuvreux, Société Anonyme (S.A.)in relation to the securities object of this report as well as other circumstance or relationship with the issuer of the securities object of this report (including but not limited to conflict of interest, significant shareholdings held in or by the issuer and other significant interests held by Kepler Capital Markets S.A and Crédit Agricole Cheuvreux, Société Anonyme (S.A.)or other entities controlling or subject to control by Kepler Capital Markets S.A and Crédit Agricole Cheuvreux, Société Anonyme (S.A.)in relation to the issuer which may affect the impartiality of this document]. Equities discussed herein are covered on a continuous basis with regular reports at results release. Reports are released on the date shown on cover and distributed via print and email. Kepler Capital Markets, Milan branch and Crédit Agricole Cheuvreux S.A., branch di Milano analysts are not affiliated with any professional groups or organisations. All estimates are by Kepler Capital Markets S.A and Crédit Agricole Cheuvreux, Société Anonyme (S.A.) unless otherwise stated.

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Other countries: Laws and regulations of other countries may also restrict the distribution of this report. Persons in possession of this document should inform themselves about possible legal restrictions and observe them accordingly.

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Equity Research

Local insight, European scale

Europe Amsterdam +31 20 573 06 66 Frankfurt +49 69 756 960 Geneva +41 22 361 5151 London +44 20 7621 5100 Madrid +34 914365100 Milan +39 02 85507 1 Paris +33 1 53 65 35 00 Stockholm +46 8 723 51 00 Vienna +43 1 537 124 147 Zurich +41 43 333 66 66

America & Asia Boston +1 617 295 0100 New York +1 212 710 7600 San Francisco +1 415 255 9802

Property research team Thomas Neuhold, CFA Head of Austrian Research Main Author tneuhold@keplercheuvreux.com +43 1 537 12 4147

Thomas joined Kepler Cheuvreux as Head of Austrian Equity Research in January 2012.

His team was ranked second in Austria in the 2014 Extel Survey.

He previously spent two years as Head of Austrian Equity Research at Unicredit.

Thomas worked for eight years as an equity analyst at Unicredit, covering Austrian, eastern European and Israeli stocks in the capital goods, real estate, technology and financial sectors. He also has six years’ experience as a fund manager for long-only, absolute return and long/short hedge funds with a focus on eastern Europe for the Swiss private bank Vontobel and for a private company, where he was a shareholder.

Benjamin Terdjman bterdjman@keplercheuvreux.com +41 22 994 1758

Pierre-Loup Etienne Head of Property Research petienne@keplercheuvreux.com +33 1 53 65 3529

Dirk Becker dbecker@keplercheuvreux.com +49 69 7569 6119

Giovanni Ovi govi@keplercheuvreux.com +39 02 8550 7209

Thomas graduated in Business Administration from the University of Graz, Austria, in 1995, with a thesis on Tactical Asset Allocation. Thomas has been a CFA Charterholder since 2004.

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