Wohnimmobilienaktien Dezember 2015

Equity Research. $QA_SR$CompanyRegion$Propertye$ Q&A Report

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

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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

[email protected]

+43 1 537 12 4147 Property research team

Biographies at the end of the report

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$)

Europe

04 December 2015

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2 keplercheuvreux.com

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 build-to-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 3-

4% 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 Market cap (EURm) Rating Target price (EUR) Upside/downside

Deutsche Wohnen 8,703 Buy 29.00 12% TAG Immobilien 1,410 Buy 13.00 16% Conwert 1,119 Buy 14.75 10% LEG Immobilien 4,742 Buy 80.00 6% Vonovia 13,791 Buy 34.00 15% Buwog 1,905 Buy 22.00 15% Grand City Properties 2,719 Buy 21.50 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 pan-

regional 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 non-

core 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 P/FFO 2015E P/FFO 2016E P/FFO 2017E FFO/share CAGR 2014-17E

DY 2015E DY 2016E DY 2017E

Deutsche Wohnen 30.1 23.6 21.6 17% 2.0% 2.5% 2.8% TAG Immobilien 19.1 16.6 14.4 7% 4.9% 5.1% 5.3% Conwert 24.1 17.5 16.0 27% 2.6% 3.4% 3.9% LEG Immobilien 23.3 18.5 16.8 16% 2.8% 3.5% 3.9% Vonovia 24.5 20.6 17.9 16% 3.2% 3.4% 3.9% Buwog 19.2 18.1 17.1 7% 3.6% 3.6% 3.6% Grand City Properties 28.1 20.2 18.1 25% 1.1% 1.5% 1.7%


Table 3: Valuation comparison

Company P/NAV 2015E P/NAV 2016E P/NAV 2017E P/NNNAV 2015E P/NNNAV 2016E P/NNNAV 2017E

Deutsche Wohnen 1.23 1.09 1.03 1.41 1.25 1.19 TAG Immobilien 1.08 0.98 0.92 1.33 1.19 1.10 Conwert 0.87 0.83 0.80 0.89 0.85 0.82 LEG Immobilien 1.33 1.22 1.13 1.42 1.29 1.19 Vonovia 0.96 0.92 0.85 1.29 1.21 1.12 Buwog 1.01 0.95 0.89 1.19 1.12 1.06


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

Table 4: KPIs for latest reported quarter

Company 9M 15 FFO per share change

NAV/share change

FFO I 2015 guidance change

Comment

Deutsche Annington 14% 18% c. 5% Better operating performance and quicker integration of acquisitions Deutsche Wohnen 28% 45% Unchanged Guidance increase of 4-5% in H1 Grand City Properties 39% 21% c. 6% Acquisitions drive guidance increase LEG Immobilien 18% 4% Unchanged FFO I guidance increased by 9% due to acquisition for 2016 TAG Immobilien 5% 2% -7% Timing differences disposals/acquisitions, higher cash taxes and

maintenance expenditure Conwert 45% 6% Unchanged FFO I guidance increased by 8% for 2016 Buwog (Q1 2015/16) 7% 5% Unchanged


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Q&A in six charts

Chart 1: High FFO I /share growth (2014-17E) Chart 2: Strong LFL rental growth (Q3 2015)

Source: Kepler Cheuvreux Source: company data, Kepler Cheuvreux

Chart 3: Rent upside from reletting and vacancy reduction Chart 4: Affordability still good in Germany

Source: Kepler Cheuvreux Source: LEG, Kepler Cheuvreux

Chart 5: Low asset values (EUR per sq m) Chart 6: Rental yields look rather high

Source: Destatis, Kepler Cheuvreux 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)

Source: company data, Kepler Cheuvreux

513,917

366,918

256,599

146,999 109,600

75,300 71,000 51,440 26,614

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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

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

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

Source: Kepler Cheuvreux Source: Kepler Cheuvreux

35%

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TAGImmobilien

Conwert LEGImmobilien

Vonovia Buwog Grand CityProperties

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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 7-

27% in 2014-17E.

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 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 build-

to-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 2-

3% LFL rental growth, positive effects from recent acquisitions and low, or further

declining financing costs.

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


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Vonovia Buwog Grand CityProperties

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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


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


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


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)


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


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

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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BUWOG Conwert

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Purchasing Power / Household (EUR) Gross rent / household (EUR) Gross rent ratio

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

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

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

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

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


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


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8%



BUWOG Conwert 10Y bunds

7.5% 7.4% 7.4% 7.1% 7.0% 7.0% 6.9% 7.0% 7.0% 7.1% 6.5%

6.0%

6.8%

7.8% 7.7% 8.1%

7.6% 7.5%

3.0%

1.8% 1.3%

1.9%

0.5% 0.5%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

2010 2011 2012 2013 2014 9M 15

Vonovia Deutsche Wohnen TAG 10 Y bunds

Property


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.

Property


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

Property $:m: m:m:m:

21.50 ReportT ype$ $Com panyRe gion$

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

keplercheuvreux.com

Buwog Buy (Buy)

Germany | Property | Mcap EUR 1.9bn Target Price EUR 22.00

Current Price

Up/downside

Change in TP

Change in EPS

none

EUR 19.1

15.0%

none

none 2015E

Immofinanz to exit by April 2016

Thomas Neuhold, CFA [email protected]

+43 1 537 12 4147 Market data

Bloomberg: BWO AV Reuters: BWOA.VI

Market cap (EURm) 1,905

Free float 61%

No. of shares outstanding (m) 100

Avg. daily volume('000) 168

YTD abs performance 16.8%

52-week high/low (EUR) 19.99/15.49

FY to 30/04 (EUR) 04/16E 04/17E 04/18E

Net rent 193.0 194.4 195.6

EBITDA 162.1 166.9 169.8

DPS 0.69 0.69 0.69

FFO (recurring) 99.1 105.3 111.6

FFO (incl. trading) 104.1 110.3 116.6

FFOps (recurring) 1.00 1.06 1.12

FFOps (incl. trading) 1.05 1.11 1.17

NAVps 18.85 20.15 21.51

NNNAVps 16.12 17.08 18.10

FY to 30/04 (EUR) 04/16E 04/17E 04/18E

P/FFO 19.2 18.1 17.1

P/FFO (incl. trading) 18.3 17.3 16.3

P/NAV -1 1.5% -5.1% -11.1%

P/NNNAV -1 18.7% 12.0% 5.6%

Dividend yield 3.6% 3.6% 3.6%

LTV 50.2% 46.6% 42.5%

FFO/NNAV 5.9% 6.0% 6.0%

EBITDA/Asset value 4.0% 4.1% 4.2%

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 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.

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Price

Property


Buwog key financials

FY to 30/04 (EUR) 2010 2011 2012 2013 2014 2015E 2016E 2017E

Per share FFOps (recurring) 0.55 0.65 0.80 0.69 0.92 1.00 1.06 1.12 FFOps (incl. trading) 0.55 0.71 0.88 0.82 0.98 1.05 1.11 1.17 NAVps 13.64 14.54 16.06 17.21 17.79 18.85 20.15 21.51 NNAVps 13.06 13.89 15.07 15.93 16.05 16.78 17.74 18.76 Net dividend 0.00 0.00 0.00 0.69 0.69 0.69 0.69 0.69 Valuation P/NAV -1 na na na -21.8% -10.5% 1.5% -5.1% -11.1% P/NNAV -1 na na na -15.5% -0.9% 14.0% 7.8% 1.9% P/FFO na na na 19.4 17.3 19.2 18.1 17.1 P/FFO (incl. trading) na na na 16.4 16.3 18.3 17.3 16.3 Dividend yield na na na 5.1% 4.3% 3.6% 3.6% 3.6% LTV 32.1% 28.6% 40.4% 47.3% 53.8% 50.2% 46.6% 42.5% Interest coverage 3.7 1.6 2.5 10.6 0.7 3.5 3.7 4.3 EBITDA yield na na na 3.8% 4.1% 4.3% 4.6% 4.9% ROE 13.3% 3.6% 6.9% 7.4% 2.6% 10.2% 9.9% 9.8% EV/Total revenues na na na 13.9 13.1 11.9 11.4 10.9 EV/EBITDA na na na 26.6 24.3 23.0 21.7 20.5 EV/EBIT na na na 18.4 14.3 14.5 13.8 13.2 EV/Capital employed na na na 0.9 1.0 1.0 1.0 0.9 EV/Debt-adjusted cash flow na na na 37.9 16.6 19.0 22.4 23.4 Income Statement (EURm) Gross rents 165.1 166.7 165.3 181.6 292.6 312.5 314.9 316.9 Net rents 104.6 106.0 103.4 110.1 180.7 193.0 194.4 195.6 EBITDA (recurring) 83.8 88.8 107.6 84.7 152.8 157.1 161.9 164.8 Net financial -11.2 -80.3 -58.1 4.5 -381.6 -46.2 -44.5 -39.8 FFO 54.6 65.2 79.3 69.2 91.7 99.1 105.3 111.6 Trading profits 26.7 30.8 44.7 38.9 54.6 51.5 54.6 56.6 FFO including trading profits 54.8 71.1 88.2 81.8 97.4 104.1 110.3 116.6 Profit on disposal -16.8 -27.5 -39.5 -34.0 -42.1 -39.1 -36.7 -36.7 Revaluation result (IFRS40 50.3 36.6 75.9 42.7 110.0 95.6 96.0 96.1 Net profit adjusted 86.6 48.2 97.7 110.8 39.8 158.7 164.4 171.0 Cash Flow Statement (EURm) Net profit before minorities 86.6 48.2 97.7 110.8 39.8 158.7 164.4 171.0 Depreciation 2.2 11.4 16.3 -0.7 0.0 1.0 1.5 1.9 Amortisation 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Goodwill amortisation 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Change in working capital 0.0 -49.1 356.8 23.3 -177.4 27.8 -11.7 -22.2 Others 48.2 146.5 -328.6 0.9 258.7 87.3 85.6 82.2 Cash Flow 86.7 169.4 -290.6 68.2 188.5 151.4 155.5 159.0 Capex -13.5 -12.6 -10.7 -7.0 -7.0 -7.0 -7.0 -7.0 Free cash flow 56.4 80.2 16.0 50.5 -38.0 133.1 100.1 93.1 Acquisitions 0.0 0.0 0.0 0.0 -942.0 0.0 0.0 0.0 Divestments 19.3 45.0 -21.4 66.8 133.8 123.1 115.4 115.4 Dividend paid 0.0 0.0 0.0 0.0 -68.7 -68.7 -68.7 -68.7 Share buy back 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Capital increases 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Others 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Change in net debt -29.2 -164.0 212.5 -284.0 890.4 -176.8 -238.1 -183.7 Attributable FCF 56.5 80.1 14.0 49.8 -45.0 123.4 90.1 82.7 Balance Sheet (EURm) Fixed assets 2,537.6 2,538.4 2,575.8 2,670.1 3,672.0 3,693.6 3,720.2 3,747.4 Current assets 251.8 376.0 402.6 683.7 498.2 555.0 514.6 480.8 Deferred tax assets 0.7 0.6 3.3 1.5 7.1 7.1 7.1 7.1 Total assets 2,790.1 2,915.0 2,981.7 3,355.3 4,177.3 4,255.7 4,241.9 4,235.3 Total equity 1,640.2 1,658.8 1,456.7 1,552.1 1,524.3 1,617.9 1,717.3 1,823.4 Current liabilities 255.2 264.2 387.5 340.1 355.6 373.7 375.9 377.7 Non current liabilities 818.6 901.8 1,025.2 1,339.1 2,138.1 2,071.4 1,922.4 1,773.2 Deferred tax liabilities 76.1 90.1 112.3 124.0 159.3 192.7 226.3 260.0 Balance sheet total 2,790.1 2,915.0 2,981.7 3,355.3 4,177.3 4,255.7 4,241.9 4,234.3 Net debt 785.5 706.1 1,020.7 1,251.1 1,956.3 1,834.3 1,710.9 1,570.7 Capital employed 2,482.3 2,462.0 2,617.8 2,963.0 3,736.0 3,749.5 3,760.0 3,761.4




keplercheuvreux.com

Conwert Buy (Buy)

Austria | Property | Mcap EUR 1.1bn Target Price EUR 14.75

Current Price

Up/downside

Change in TP

Change in EPS

none

EUR 13.4

10.4%

none

none 2015E

Turnaround taking shape


+43 1 537 12 4147 Market data

Bloomberg: CWI AV Reuters: CONW.VI


Free float 73%





FY to 31/12 (EUR) 12/15E 12/16E 12/17E

Net rent 150.3 147.5 144.6

EBITDA 119.1 123.1 118.7

DPS 0.35 0.45 0.52

FFO (recurring) 45.8 63.1 69.3

FFO (incl. trading) 49.5 68.6 71.6



NAVps 15.42 16.09 16.69

NNNAVps 14.98 15.65 16.25

FY to 31/12 (EUR) 12/15E 12/16E 12/17E

P/FFO 24.1 17.5 16.0


P/NAV -1 -13.4% -17.0% -20.0%

P/NNNAV -1 -10.8% -14.6% -17.8%


LTV 47.7% 40.4% 37.5%

FFO/NNAV 3.8% 5.0% 5.3%


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 EUR150-200m 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 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.

8.5

9.0

9.5

10.0

10.5

11.0

11.5

12.0

12.5

13.0

13.5


Price

Property


Conwert key financials

FY to 31/12 (EUR) 2010 2011 2012 2013 2014 2015E 2016E 2017E

Per share FFOps (recurring) -0.13 0.12 0.19 0.29 0.41 0.55 0.76 0.84 FFOps (incl. trading) 0.53 0.89 0.46 0.49 0.46 0.60 0.83 0.86 NAVps 16.35 17.03 15.44 15.40 15.70 15.42 16.09 16.69 NNAVps 16.14 16.16 14.75 14.36 14.92 14.64 15.31 15.91 Net dividend 0.30 0.35 0.00 0.10 0.00 0.35 0.45 0.52 Valuation P/NAV -1 -43.2% -37.9% -42.7% -42.5% -40.4% -13.4% -17.0% -20.0% P/NNAV -1 -42.5% -34.6% -40.0% -38.4% -37.3% -8.8% -12.8% -16.0% P/FFO -73.8 87.3 46.0 30.0 23.0 24.1 17.5 16.0 P/FFO (incl. trading) 17.6 11.9 19.2 18.2 20.4 22.3 16.1 15.5 Dividend yield 3.2% 3.3% 0.0% 1.1% 0.0% 2.6% 3.4% 3.9% LTV 58.8% 55.0% 54.1% 55.7% 52.3% 47.7% 40.4% 37.5% Interest coverage 2.2 1.3 1.0 1.5 1.4 1.9 3.0 3.5 EBITDA yield 6.8% 5.1% 4.6% 4.8% 4.9% 4.9% 5.8% 5.8% ROE 1.8% 1.8% -14.9% 0.7% -1.1% 7.3% 7.9% 7.5% EV/Total revenues 5.0 2.9 3.4 4.7 5.9 5.4 3.8 5.6 EV/EBITDA 14.8 19.7 21.9 20.7 20.5 20.3 17.3 17.2 EV/EBIT 26.4 20.5 -36.4 19.6 18.5 13.4 13.0 13.1 EV/Capital employed 0.8 0.8 0.8 0.8 0.8 0.9 0.9 0.9 EV/Debt-adjusted cash flow 24.5 8.0 8.1 8.2 8.2 15.3 13.0 14.3 Income Statement (EURm) Gross rents 187.7 210.0 188.1 227.3 237.3 229.4 223.5 219.1 Net rents 102.8 119.1 110.5 141.4 150.7 150.3 147.5 144.6 EBITDA (recurring) 147.2 75.7 62.6 89.5 98.9 106.3 110.4 111.8 Net financial -82.9 -96.6 -97.8 -76.8 -132.8 -73.9 -41.6 -33.7 FFO -10.5 10.0 15.9 24.4 33.7 45.8 63.1 69.3 Trading profits 37.7 49.1 34.6 27.3 11.1 12.8 12.7 6.9 FFO including trading profits 44.1 73.8 38.2 40.3 37.9 49.5 68.6 71.6 Profit on disposal -37.7 -49.1 -34.6 -27.3 -11.1 -12.8 -12.7 -6.9 Revaluation result (IFRS40 2.4 0.3 -37.2 7.6 13.0 62.6 42.7 39.0 Net profit adjusted 23.8 23.3 -167.8 7.6 -12.0 80.4 92.8 92.6 Cash Flow Statement (EURm) Net profit before minorities 25.6 18.5 -172.1 13.3 -8.9 86.1 99.3 99.1 Depreciation 84.1 5.3 1.5 1.0 1.3 1.5 1.3 1.3 Amortisation 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Goodwill amortisation 0.0 0.0 117.0 0.0 0.0 0.0 0.0 0.0 Change in working capital 22.8 77.0 89.8 50.1 79.0 -21.4 5.5 -7.6 Others -9.0 138.8 136.6 129.9 143.0 92.9 63.9 55.9 Cash Flow 98.3 162.3 120.2 136.6 122.5 117.8 121.9 117.4 Capex -111.9 -55.9 -79.9 -37.7 -46.0 -56.4 -53.6 -48.7 Free cash flow -28.5 134.3 95.5 121.7 144.4 27.2 61.0 54.3 Acquisitions -115.9 56.2 16.8 -145.9 -1.6 0.0 0.0 0.0 Divestments 232.5 262.1 237.3 134.5 67.3 211.2 326.3 134.7 Dividend paid -19.8 -23.8 -16.3 -12.4 -8.3 0.0 -29.0 -37.3 Share buy back 0.0 -30.9 0.0 -24.4 0.0 0.0 0.0 0.0 Capital increases 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Others -63.7 -367.3 -287.1 -82.1 -156.4 -258.8 -349.0 -143.6 Change in net debt -4.6 -30.6 -46.3 8.6 -45.4 20.4 -9.3 -8.1 Attributable FCF -36.0 131.2 90.7 112.7 143.3 16.1 45.0 37.5 Balance Sheet (EURm) Fixed assets 2,829.4 2,558.0 2,229.6 2,644.1 2,530.0 2,466.1 2,250.0 2,210.3 Current assets 702.9 596.3 587.4 499.2 437.8 400.0 408.7 395.4 Deferred tax assets 18.4 22.1 53.0 22.4 6.3 5.7 5.1 4.6 Total assets 3,550.7 3,176.4 2,870.1 3,165.7 2,974.1 2,871.7 2,663.8 2,610.3 Total equity 1,330.1 1,248.3 1,025.0 1,128.6 1,104.6 1,206.0 1,261.6 1,311.2 Current liabilities 578.2 462.8 404.8 504.7 289.0 266.4 248.4 194.1 Non current liabilities 1,606.7 1,442.6 1,405.9 1,485.9 1,529.4 1,374.9 1,131.5 1,083.1 Deferred tax liabilities 35.7 22.7 34.4 46.5 51.1 24.4 22.3 21.9 Balance sheet total 3,550.7 3,176.4 2,870.1 3,165.7 2,974.1 2,871.7 2,663.8 2,610.3 Net debt 1,927.6 1,592.8 1,416.0 1,644.4 1,431.1 1,266.7 983.7 896.8 Capital employed 3,393.8 2,995.2 2,605.2 2,915.9 2,734.4 2,645.7 2,416.9 2,380.1




keplercheuvreux.com

Deutsche Wohnen Buy (Buy)


Current Price

Up/downside

Change in TP

Change in EPS

none

EUR 25.9

12.1%

none

none 2015E

The high-quality play


+43 1 537 12 4147 Market data

Bloomberg: DWNI GR Reuters: DWNG.DE


Free float 100%


Avg. daily volume('000) 2,177



FY to 31/12 (EUR) 12/15E 12/16E 12/17E

Net rent 521 589 624

EBITDA 500 535 564

DPS 0.51 0.66 0.72

FFO (recurring) 289 369 402

FFO (incl. trading) 354 404 438



NAVps 21.09 23.74 25.12

NNNAVps 18.37 20.66 21.69

FY to 31/12 (EUR) 12/15E 12/16E 12/17E

P/FFO 30.1 23.6 21.6


P/NAV -1 22.7% 9.0% 3.0%

P/NNNAV -1 40.8% 25.2% 19.3%


LTV 41.5% 43.1% 40.3%

FFO/NNAV 4.3% 5.0% 5.2%


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.

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Property


Deutsche Wohnen key financials

FY to 31/12 (EUR) 2010 2011 2012 2013 2014 2015E 2016E 2017E

Per share FFOps (recurring) 0.40 0.54 0.54 0.70 0.74 0.86 1.10 1.20 FFOps (incl. trading) 0.56 0.65 0.70 0.48 0.92 1.05 1.20 1.30 NAVps 11.78 11.50 12.48 14.51 18.10 21.09 23.74 25.12 NNAVps 11.62 11.18 12.06 13.75 17.61 19.82 22.11 23.14 Net dividend 0.20 0.23 0.21 0.20 0.44 0.51 0.66 0.72 Valuation P/NAV -1 -38.6% -13.4% -1.2% -4.9% -10.2% 22.7% 9.0% 3.0% P/NNAV -1 -37.7% -11.0% 2.3% 0.4% -7.7% 30.5% 17.0% 11.8% P/FFO 17.9 18.4 22.8 19.7 22.0 30.1 23.6 21.6 P/FFO (incl. trading) 12.9 15.3 17.6 28.7 17.7 24.6 21.6 19.9 Dividend yield 2.8% 2.3% 1.7% 1.4% 2.7% 2.0% 2.5% 2.8% LTV 62.4% 56.4% 57.8% 58.0% 51.4% 41.5% 43.1% 40.3% Interest coverage 1 2 2 2 1 1 4 5 EBITDA yield 5.8% 5.3% 4.4% 2.7% 4.5% 3.7% 3.7% 4.0% ROE 2.7% 5.1% 10.8% 7.9% 20.2% 13.1% 14.0% 7.8% EV/Total revenues 7.9 7.0 10.0 15.5 10.6 10.9 14.1 13.1 EV/EBITDA 17.3 19.0 22.8 36.9 22.2 26.9 26.9 25.0 EV/EBIT 13.1 15.0 14.3 26.8 7.2 10.2 11.1 17.2 EV/Capital employed 0.9 1.0 1.0 1.0 1.0 1.2 1.1 1.1 EV/Debt-adjusted cash flow 10.4 15.4 22.7 47.9 16.3 34.0 29.0 27.6 Income Statement (EURm) Gross rents 190 196 240 373 626 644 729 772 Net rents 151 157 194 292 506 521 589 624 EBITDA (recurring) 123 131 177 230 402 435 500 528 Net financial -123 -93 -107 -131 -380 -396 -120 -113 FFO 33 48 68 114 218 289 369 402 Trading profits 13 11 20 23 52 65 35 36 FFO including trading profits 46 58 88 138 270 354 404 438 Profit on disposal -13 -11 -20 -23 -52 -65 -35 -36 Revaluation result (IFRS40 47 40 119 101 953 820 769 260 Net profit adjusted 24 51 146 212 856 714 918 552 Cash Flow Statement (EURm) Net profit before minorities 24 51 146 212 856 714 918 552 Depreciation 3 3 3 6 6 3 3 3 Amortisation 0 0 0 0 0 0 0 0 Goodwill amortisation 0 0 0 0 0 0 0 0 Change in working capital -16 -14 46 -22 72 -95 0 0 Others 0 0 0 0 0 0 0 1 Cash Flow 60 68 33 106 170 80 387 412 Capex -18 -25 -33 -45 -64 -90 -90 -90 Free cash flow 14 19 26 16 125 -171 262 287 Acquisitions -96 -251 -1,366 -796 -162 -570 -1,200 0 Divestments 182 149 164 184 261 550 175 175 Dividend paid 0 -16 -24 -34 -57 -129 -173 -221 Share buy back 0 0 0 0 0 0 1 1 Capital increases 0 179 444 187 0 880 0 0 Others 0 0 0 0 0 0 0 0 Change in net debt -101 -79 756 442 -168 -560 935 -242 Attributable FCF 9 13 21 9 112 -184 247 272 Balance Sheet (EURm) Fixed assets 2,841 2,988 4,663 9,569 10,576 11,506 13,390 13,565 Current assets 118 251 164 368 519 167 168 169 Deferred tax assets 79 63 81 190 352 352 352 352 Total assets 3,038 3,302 4,908 10,127 11,446 12,025 13,910 14,086 Total equity 890 1,083 1,610 3,944 4,876 6,363 7,135 7,479 Current liabilities 312 344 461 543 531 330 331 331 Non current liabilities 1,744 1,778 2,694 5,351 5,482 4,554 5,546 5,259 Deferred tax liabilities 92 96 143 289 558 778 898 1,018 Balance sheet total 3,038 3,302 4,908 10,127 11,446 12,025 13,910 14,087 Net debt 1,761 1,674 2,683 5,219 5,138 4,533 5,523 5,233 Capital employed 2,709 2,833 4,410 9,317 10,288 11,372 13,255 13,430




keplercheuvreux.com

Grand City Properties Buy (Buy)


Current Price

Up/downside

Change in TP

Change in EPS

none

EUR 20.0

7.6%

none

none 2015E

Turnaround specialist


+43 1 537 12 4147 Market data

Bloomberg: GYC GR Reuters: GYC.F


Free float 67%





FY to 31/12 (EUR) 12/15E 12/16E 12/17E

Net rent 218.8 282.7 299.7

EBITDA 240.3 222.5 239.3

DPS 0.21 0.30 0.33

FFO (recurring) 109.4 152.1 170.3

FFO (incl. trading) 132.7 152.1 170.3



NAVps 13.29 15.10 17.40

NNNAVps 9.89 11.60 13.43

FY to 31/12 (EUR) 12/15E 12/16E 12/17E

P/FFO 28.1 20.2 18.1


P/NAV -1 50.4% 32.4% 14.9%

P/NNNAV -1 102.1% 72.3% 48.8%


LTV 35.2% 32.1% 26.7%

FFO/NNAV 6.1% 7.4% 7.3%


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 value-accretive acquisitions, which we regard as rather likely, but which we have not yet factored in.

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Grand City Properties key financials

FY to 31/12 (EUR) 2011 2012 2013 2014 2015E 2016E 2017E

Per share FFOps (recurring) 0.88 0.26 0.50 0.56 0.71 0.99 1.11 FFOps (incl. trading) 4.34 0.66 0.70 0.95 0.86 0.99 1.11 NAVps 21.11 4.21 10.50 9.96 13.29 15.10 17.40 NNAVps 18.54 2.59 9.44 8.92 11.69 13.40 15.23 Net dividend 0.00 0.00 0.00 0.00 0.21 0.30 0.33 Valuation P/NAV -1 na -10.1% -47.0% -7.2% 50.4% 32.4% 14.9% P/NNAV -1 na 46.3% -41.1% 3.7% 71.0% 49.2% 31.2% P/FFO na 14.5 11.1 16.4 28.1 20.2 18.1 P/FFO (incl. trading) na 5.8 7.9 9.7 23.2 20.2 18.1 Dividend yield na 0.0% 0.0% 0.0% 1.1% 1.5% 1.7% LTV 58.6% 47.3% 39.1% 45.4% 35.2% 32.1% 26.7% Interest coverage 2.3 4.9 10.3 6.9 9.2 8.3 9.5 EBITDA yield na 12.5% 11.7% 7.1% 6.3% 5.0% 5.5% ROE 132.5% 61.9% 50.9% 25.1% 25.4% 16.7% 16.0% EV/Total revenues na 8.7 10.0 9.8 11.7 10.7 9.8 EV/EBITDA na 8.0 8.5 14.0 15.8 20.2 18.2 EV/EBIT na 2.9 3.3 6.2 8.3 10.2 9.1 EV/Capital employed na 0.8 0.7 1.0 1.0 1.1 1.0 EV/Debt-adjusted cash flow na 7.9 13.5 15.3 16.6 15.7 15.0 Income Statement (EURm) Gross rents 24.9 39.9 99.6 216.8 326.0 421.3 446.5 Net rents 16.2 23.9 68.7 145.5 218.8 282.7 299.7 EBITDA (recurring) 11.6 22.7 54.2 112.0 171.9 222.5 239.3 Net financial -13.9 -13.3 -3.5 -54.7 -24.5 -26.7 -25.2 FFO 4.4 11.4 38.1 76.1 109.4 152.1 170.3 Trading profits 0.0 1.7 15.1 0.2 23.3 0.0 0.0 FFO including trading profits 21.7 28.9 53.2 129.2 132.7 152.1 170.3 Profit on disposal 0.0 -1.7 -15.1 -0.2 -23.3 0.0 0.0 Revaluation result (IFRS40 71.2 78.3 189.2 191.9 218.6 218.4 241.7 Net profit adjusted 55.6 83.0 226.2 207.4 313.5 276.7 307.9 Cash Flow Statement (EURm) Net profit before minorities 55.6 83.0 226.2 207.4 313.5 276.7 307.9 Depreciation 0.0 0.1 0.3 0.9 0.7 0.9 1.0 Amortisation 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Goodwill amortisation 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Change in working capital -3.8 19.6 7.6 1.8 20.0 29.3 14.9 Others 34.4 11.8 31.5 95.9 107.0 165.9 178.3 Cash Flow 18.7 16.5 68.9 112.3 202.5 225.0 245.7 Capex -0.1 0.0 -1.0 -1.8 -3.0 -3.0 -3.0 Free cash flow 14.9 34.4 60.4 112.0 196.2 251.3 257.6 Acquisitions -66.2 -62.5 -381.8 -388.5 -1,305.0 -170.0 0.0 Divestments 56.4 10.8 -28.1 62.4 40.0 0.0 0.0 Dividend paid -11.1 0.0 0.0 0.0 0.0 -32.8 -45.6 Share buy back 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Capital increases 0.0 18.4 201.5 0.0 161.8 0.0 0.0 Others -0.2 71.7 199.5 351.6 0.0 0.0 0.0 Change in net debt 6.2 -72.9 -51.5 -137.5 558.4 4.3 -163.3 Attributable FCF 13.5 32.2 55.6 98.1 176.4 226.3 232.4 Balance Sheet (EURm) Fixed assets 262.6 435.2 1,400.0 2,216.0 3,672.0 4,062.5 4,306.1 Current assets 25.4 117.7 248.6 401.8 224.6 293.0 387.8 Deferred tax assets 1.4 1.8 2.5 11.2 11.2 11.2 0.0 Total assets 289.3 554.7 1,651.1 2,629.1 3,907.8 4,366.7 4,693.9 Total equity 89.2 202.9 767.9 1,041.7 1,642.7 1,932.7 2,245.2 Current liabilities 18.1 35.1 111.3 153.3 331.6 492.8 516.6 Non current liabilities 167.7 287.3 691.7 1,293.1 1,737.8 1,680.0 1,609.5 Deferred tax liabilities 14.3 29.3 80.2 141.0 195.6 261.2 333.7 Balance sheet total 289.3 554.7 1,651.1 2,629.1 3,907.8 4,366.7 4,705.1 Net debt 151.4 192.7 534.5 989.7 1,277.8 1,291.5 1,136.4 Capital employed 261.8 417.2 1,395.2 2,177.2 3,640.7 4,027.1 4,261.5




keplercheuvreux.com

LEG Immobilien Buy (Buy)


Current Price

Up/downside

Change in TP

Change in EPS

none

EUR 75.5

5.9%

none

none 2015E

Solid performer in a solid market


+43 1 537 12 4147 Market data

Bloomberg: LEG GR Reuters: LEGn.DE


Free float 74%





FY to 31/12 (EUR) 12/15E 12/16E 12/17E

Net rent 336.8 373.4 402.7

EBITDA 297.5 338.0 371.0

DPS 2.11 2.66 2.93

FFO (recurring) 203.9 256.5 282.5

FFO (incl. trading) 204.9 257.5 283.5



NAVps 56.77 61.93 66.64

NNNAVps 53.37 58.53 63.24

FY to 31/12 (EUR) 12/15E 12/16E 12/17E

P/FFO 23.3 18.5 16.8


P/NAV -1 33.1% 22.0% 13.4%

P/NNNAV -1 41.6% 29.1% 19.5%


LTV 45.4% 42.7% 40.9%

FFO/NNAV 6.4% 7.3% 7.4%


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.

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LEG Immobilien key financials

FY to 31/12 (EUR) 2010 2011 2012 2013 2014 2015E 2016E 2017E

Per share FFOps (recurring) 7.49 7.45 7.52 2.67 2.87 3.25 4.09 4.50 FFOps (incl. trading) 7.21 7.05 7.44 2.63 2.84 3.26 4.10 4.52 NAVps 136.18 133.97 44.78 48.56 52.33 56.77 61.93 66.64 NNAVps 123.42 120.09 40.60 43.44 45.74 50.70 55.86 60.57 Net dividend 0.00 0.00 0.41 1.73 1.96 2.11 2.66 2.93 Valuation P/NAV -1 na na na -13.7% -1.9% 33.1% 22.0% 13.4% P/NNAV -1 na na na -3.5% 12.3% 49.0% 35.3% 24.7% P/FFO na na na 15.7 17.9 23.3 18.5 16.8 P/FFO (incl. trading) na na na 15.9 18.1 23.1 18.4 16.7 Dividend yield na na na 4.1% 3.8% 2.8% 3.5% 3.9% LTV 45.2% 47.0% 47.9% 47.8% 47.5% 45.4% 42.7% 40.9% Interest coverage 1.2 1.0 1.0 1.6 1.9 3.1 3.3 3.4 EBITDA yield na na na 4.4% 4.1% 3.8% 4.4% 4.8% ROE na -0.6% 4.9% 6.1% 6.1% 9.6% 14.2% 13.4% EV/Total revenues na na na 8.3 9.3 11.0 10.3 9.7 EV/EBITDA na na na 22.6 24.2 26.2 23.0 20.9 EV/EBIT na na na 16.8 15.6 13.8 11.9 11.7 EV/Capital employed na na na 0.9 1.0 1.2 1.1 1.1 EV/Debt-adjusted cash flow na na na 18.7 19.3 24.4 23.0 21.9 Income Statement (EURm) Gross rents 487.3 497.6 499.7 532.1 576.8 656.1 703.7 740.5 Net rents 240.6 243.7 247.7 257.7 284.9 336.8 373.4 402.7 EBITDA (recurring) 201.3 185.4 201.6 212.8 247.7 296.6 337.0 370.0 Net financial -167.9 -178.7 -196.6 -128.0 -169.3 -206.4 -102.5 -110.5 FFO 112.4 111.8 136.5 141.2 163.6 203.9 256.5 282.5 Trading profits -4.3 -6.0 -3.2 -4.8 -4.8 1.0 1.0 1.0 FFO including trading profits 108.2 105.8 135.1 139.5 161.9 204.9 257.5 283.5 Profit on disposal -4.3 -6.0 -3.2 -4.8 -4.8 1.0 1.0 1.0 Revaluation result (IFRS40 31.0 11.0 120.3 81.6 143.0 275.8 323.6 297.4 Net profit adjusted 24.2 -11.5 94.4 130.6 151.4 276.7 451.8 460.4 Cash Flow Statement (EURm) Net profit before minorities 24.2 -11.5 94.4 130.6 151.4 276.7 451.8 460.4 Depreciation 6.6 6.6 8.6 8.7 8.6 8.4 8.4 8.4 Amortisation 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Goodwill amortisation 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Change in working capital 28.8 37.5 32.5 -49.9 -14.9 0.1 0.1 0.1 Others 88.1 61.7 91.6 99.2 141.9 191.3 78.8 52.7 Cash Flow 87.9 45.8 74.3 156.9 158.9 200.6 215.4 224.1 Capex -43.4 -41.4 -94.6 -177.8 -226.2 -40.0 -40.0 -40.0 Free cash flow 69.0 35.9 9.0 -75.6 -87.0 161.7 176.5 185.2 Acquisitions -6.0 -6.7 0.2 -0.7 -2.8 -225.0 -600.0 0.0 Divestments 19.0 16.7 13.4 15.2 70.1 20.0 20.0 20.0 Dividend paid 0.0 0.0 0.0 -21.7 -91.6 -112.0 -132.5 -166.7 Share buy back 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Capital increases -51.2 -47.2 0.0 0.0 202.9 368.8 0.0 0.0 Others 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Change in net debt -30.8 1.3 -22.6 82.8 -91.6 -213.5 536.1 -39.4 Attributable FCF 65.9 34.5 12.5 -75.8 -88.2 160.2 176.0 184.2 Balance Sheet (EURm) Fixed assets 4,794.7 4,835.7 5,033.1 5,259.6 6,247.6 6,789.7 7,131.2 7,382.5 Current assets 195.7 144.6 184.6 158.2 149.8 152.0 155.3 158.6 Deferred tax assets 11.3 8.1 20.8 5.3 12.7 12.7 12.7 12.7 Total assets 5,001.7 4,988.4 5,238.5 5,423.1 6,410.1 6,954.5 7,299.2 7,553.8 Total equity 2,240.6 2,145.9 2,085.5 2,276.1 2,734.3 3,072.6 3,352.1 3,562.3 Current liabilities 1,150.1 253.7 390.1 294.7 287.1 290.4 293.8 297.2 Non current liabilities 1,408.3 2,372.5 2,548.3 2,621.1 3,102.6 3,222.2 3,192.5 3,169.5 Deferred tax liabilities 202.7 216.3 213.9 231.2 292.4 375.6 474.2 564.4 Balance sheet total 5,001.7 4,988.4 5,237.8 5,423.1 6,416.4 6,960.8 7,312.7 7,593.5 Net debt 2,126.7 2,224.8 2,366.0 2,473.0 2,923.0 3,040.9 3,008.6 2,983.0 Capital employed 4,639.9 4,668.1 4,759.4 5,080.6 6,082.5 6,623.5 6,963.9 7,214.0




keplercheuvreux.com

TAG Immobilien Buy (Buy)


Current Price

Up/downside

Change in TP

Change in EPS

none

EUR 11.2

15.7%

none

none 2015E

The leveraged play on German residential


+43 1 537 12 4147 Market data

Bloomberg: TEG GR Reuters: TEGG.DE


Free float 96%





FY to 31/12 (EUR) 12/15E 12/16E 12/17E

Net rent 207.9 216.3 222.2

EBITDA 176.9 168.4 173.6

DPS 0.55 0.57 0.60

FFO (recurring) 74.0 85.1 97.6

FFO (incl. trading) 94.5 88.6 101.1



NAVps 10.44 11.45 12.20

NNNAVps 8.46 9.46 10.22

FY to 31/12 (EUR) 12/15E 12/16E 12/17E

P/FFO 19.1 16.6 14.4


P/NAV -1 7.6% -1.8% -7.9%

P/NNNAV -1 32.8% 18.7% 9.9%


LTV 63.8% 61.5% 59.6%

FFO/NNAV 6.9% 7.1% 7.6%


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 lower- to 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.

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%.

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Property


TAG Immobilien key financials

FY to 31/12 (EUR) 2010 2011 2012 2013 2014 2015E 2016E 2017E

Per share FFOps (recurring) -0.21 -0.01 0.30 0.47 0.63 0.59 0.68 0.78 FFOps (incl. trading) -0.22 0.09 0.53 0.47 0.97 0.75 0.71 0.81 NAVps 6.24 8.72 9.96 10.00 10.10 10.44 11.45 12.20 NNAVps 6.09 7.83 9.03 8.58 8.32 8.52 9.52 10.28 Net dividend 0.00 0.20 0.25 0.35 0.50 0.55 0.57 0.60 Valuation P/NAV -1 -23.5% -24.8% -23.8% -11.6% -10.8% 7.6% -1.8% -7.9% P/NNAV -1 -21.6% -16.2% -15.9% 3.1% 8.3% 31.9% 18.0% 9.3% P/FFO -22.3 -718.6 25.1 18.7 14.3 19.1 16.6 14.4 P/FFO (incl. trading) -22.0 69.6 14.3 18.8 9.3 14.9 15.9 13.9 Dividend yield 0.0% 3.0% 3.3% 4.0% 5.5% 4.9% 5.1% 5.3% LTV 53.5% 64.4% 63.9% 65.1% 67.3% 63.8% 61.5% 59.6% Interest coverage 1.0 1.9 3.0 1.4 1.3 1.8 2.2 2.5 EBITDA yield 4.1% 6.5% 7.9% 4.2% 4.7% 4.9% 4.6% 4.8% ROE 6.7% 14.8% 21.3% 2.5% 2.7% 13.9% 17.3% 13.6% EV/Total revenues 9.0 10.1 13.2 9.3 4.0 7.9 11.9 11.6 EV/EBITDA 24.3 15.3 12.7 24.0 21.2 20.6 21.6 20.8 EV/EBIT 14.0 12.4 11.5 27.4 16.6 13.3 11.3 13.0 EV/Capital employed 0.9 0.9 0.9 1.0 1.0 1.1 1.0 1.0 EV/Debt-adjusted cash flow 43.4 26.8 29.0 21.6 17.9 16.2 19.3 19.3 Income Statement (EURm) Gross rents 51.8 115.4 192.5 251.0 257.4 258.2 268.6 276.0 Net rents 40.2 79.0 145.3 199.1 209.5 207.9 216.3 222.2 EBITDA (recurring) 30.9 109.1 261.7 145.9 117.4 156.4 164.9 170.1 Net financial -31.2 -61.4 -86.6 -104.6 -118.0 -95.9 -76.8 -69.1 FFO -12.5 -0.7 39.6 61.7 74.5 74.0 85.1 97.6 Trading profits -0.2 7.8 -0.2 -0.1 40.3 20.5 3.5 3.5 FFO including trading profits -12.7 7.1 69.5 61.5 114.8 94.5 88.6 101.1 Profit on disposal -0.2 7.8 -0.2 -0.1 40.3 20.5 3.5 3.5 Revaluation result (IFRS40 16.8 28.9 29.4 -15.9 46.8 99.9 155.9 107.5 Net profit adjusted 18.5 66.9 179.1 28.0 28.2 141.5 194.8 168.5 Cash Flow Statement (EURm) Net profit before minorities 18.5 66.9 179.1 28.0 28.2 141.5 194.8 166.5 Depreciation 0.8 1.3 1.7 2.3 3.4 3.4 3.4 3.4 Amortisation 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Goodwill amortisation 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Change in working capital 161.9 45.2 -156.9 149.6 -6.6 29.5 0.0 0.0 Others 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Cash Flow -179.9 -60.3 174.6 -74.3 -42.9 60.5 92.8 101.1 Capex -0.6 -0.7 -3.2 -7.7 -7.7 -7.7 -7.7 -7.7 Free cash flow -18.8 -8.0 14.3 67.6 -16.9 102.8 88.6 96.9 Acquisitions -78.1 -85.4 -388.5 -82.6 -191.0 -113.9 0.0 0.0 Divestments 8.8 46.9 38.5 112.7 566.5 202.0 35.0 35.0 Dividend paid 0.0 0.0 -19.1 -32.7 -45.8 -59.3 -69.0 -71.5 Share buy back 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.0 Capital increases 87.4 68.7 385.5 -34.0 -122.1 0.0 0.0 0.0 Others 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Change in net debt 0.7 -22.1 -30.7 -31.0 -190.8 -131.6 -54.5 -61.4 Attributable FCF -19.1 -12.7 11.3 65.6 -19.4 99.8 85.6 93.4 Balance Sheet (EURm) Fixed assets 913.8 1,921.4 3,494.0 3,580.6 3,356.7 3,488.6 3,609.4 3,682.0 Current assets 272.7 126.2 304.5 182.1 299.9 96.8 97.8 98.8 Deferred tax assets 4.0 0.1 1.5 0.6 77.6 77.6 77.6 77.6 Total assets 1,190.5 2,047.6 3,800.0 3,763.3 3,734.2 3,663.0 3,784.8 3,858.4 Total equity 365.3 594.6 1,156.5 1,127.4 1,005.1 1,087.3 1,213.1 1,308.0 Current liabilities 273.3 265.3 532.1 181.2 174.0 199.0 199.0 199.0 Non current liabilities 539.0 1,126.5 1,988.2 2,334.0 2,344.0 2,135.6 2,131.7 2,110.3 Deferred tax liabilities 12.9 66.9 123.4 120.7 211.1 241.1 241.1 241.1 Balance sheet total 1,190.5 2,053.3 3,800.0 3,763.3 3,734.2 3,663.0 3,784.8 3,858.4 Net debt 518.2 1,265.6 2,338.6 2,343.1 2,256.3 2,221.0 2,215.6 2,192.7 Capital employed 834.5 1,910.9 3,596.4 3,577.8 3,388.4 3,465.7 3,586.6 3,659.1




keplercheuvreux.com

Vonovia Buy (Buy)

Germany | Property | Mcap EUR 13.8bn Target Price EUR 34.00 European Large Caps Selected List

Current Price

Up/downside

Change in TP

Change in EPS

none

EUR 29.6

14.9%

none

none 2015E

Residential behemoth and predator


+43 1 537 12 4147 Market data

Bloomberg: VNA GR Reuters: VNAn.DE


Free float 93%


Avg. daily volume('000) 2,407



FY to 31/12 (EUR) 12/15E 12/16E 12/17E

Net rent 1,407 1,516 1,560

EBITDA 934 1,082 1,118

DPS 0.94 1.01 1.16

FFO (recurring) 564 670 771

FFO (incl. trading) 651 742 793



NAVps 30.67 32.24 34.88

NNNAVps 22.91 24.47 26.40

FY to 31/12 (EUR) 12/15E 12/16E 12/17E

P/FFO 24.5 20.6 17.9


P/NAV -1 -3.5% -8.2% -15.2%

P/NNNAV -1 29.2% 20.9% 12.1%


LTV 46.4% 41.6% 38.1%

FFO/NNAV 5.2% 5.8% 6.2%


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 lower- to 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.

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.

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Price

Property


Vonovia key financials

FY to 31/12 (EUR) 2010 2011 2012 2013 2014 2015E 2016E 2017E

Per share FFOps (recurring) 0.80 0.75 0.85 1.00 1.06 1.21 1.44 1.66 FFOps (incl. trading) 0.98 1.01 1.03 1.12 1.24 1.40 1.59 1.70 NAVps 13.35 14.84 15.38 22.85 24.22 30.67 32.24 34.88 NNAVps 10.63 11.38 12.19 17.15 18.40 23.21 24.77 26.70 Net dividend 0.00 0.00 0.00 0.70 0.78 0.94 1.01 1.16 Valuation P/NAV -1 na na na -21.7% -14.1% -3.5% -8.2% -15.2% P/NNAV -1 na na na 4.2% 13.0% 27.5% 19.5% 10.8% P/FFO na na na 17.9 19.7 24.5 20.6 17.9 P/FFO (incl. trading) na na na 16.0 16.8 21.2 18.6 17.4 Dividend yield na na na 3.9% 3.8% 3.2% 3.4% 3.9% LTV 80.6% 65.6% 60.8% 50.8% 42.0% 46.4% 41.6% 38.1% Interest coverage 1 1 1 1 2 3 4 4 EBITDA yield na na na 4.7% 4.6% 3.7% 4.5% 4.8% ROE 11.1% 21.0% 7.0% 14.8% 9.2% 18.1% 10.2% 11.2% EV/Total revenues na na na 8.6 9.4 12.1 10.8 10.2 EV/EBITDA na na na 21.5 21.9 26.7 22.0 20.8 EV/EBIT na na na 9.4 12.7 10.0 13.3 11.3 EV/Capital employed na na na 0.9 0.9 1.0 0.9 0.9 EV/Debt-adjusted cash flow na na na 14.2 13.3 8.4 16.0 15.6 Income Statement (EURm) Gross rents 1,039 1,059 1,047 1,048 1,138 2,022 2,177 2,241 Net rents 724 731 729 728 789 1,407 1,516 1,560 EBITDA (recurring) 411 413 396 376 428 842 1,004 1,091 Net financial -344 -347 -431 -285 -272 -402 -300 -278 FFO 159 151 170 224 287 564 670 771 Trading profits 71 68 52 52 69 92 78 27 FFO including trading profits 196 203 207 251 337 651 742 793 Profit on disposal -71 -68 -52 -52 -69 -92 -78 -27 Revaluation result (IFRS40 26 451 206 554 371 1,560 715 951 Net profit adjusted 191 423 171 481 400 1,410 1,128 1,326 Cash Flow Statement (EURm) Net profit before minorities 191 423 171 481 400 1,410 1,128 1,326 Depreciation 5 6 6 7 7 6 9 9 Amortisation 0 0 0 0 0 0 0 0 Goodwill amortisation 0 0 0 0 0 0 0 0 Change in working capital 44 103 -2 -72 27 495 63 27 Others 330 571 467 450 469 2,248 723 768 Cash Flow 500 549 439 383 506 2,104 1,145 1,153 Capex -3 -3 -7 -8 -10 -15 -15 -15 Free cash flow 469 582 379 251 454 2,492 1,115 1,138 Acquisitions -44 -58 -91 -95 -1,551 -2,150 0 0 Divestments 89 135 285 271 368 717 848 196 Dividend paid 0 0 0 0 -168 -363 -438 -469 Share buy back 0 0 0 0 0 0 0 0 Capital increases 0 0 334 379 1,024 2,000 0 0 Others 0 0 0 0 0 0 0 0 Change in net debt -35 32 -192 -763 1,107 5,733 -1,120 -503 Attributable FCF 464 577 377 245 446 2,450 1,085 1,102 Balance Sheet (EURm) Fixed assets 8,516 9,972 9,938 10,350 12,965 26,647 26,589 27,365 Current assets 1,665 411 662 740 1,779 1,330 1,961 1,904 Deferred tax assets 0 0 9 3 15 0 0 0 Total assets 10,181 10,383 10,608 11,093 14,759 27,978 28,550 29,269 Total equity 1,818 2,230 2,677 3,818 4,961 10,953 11,723 12,669 Current liabilities 893 907 990 444 504 1,375 974 894 Non current liabilities 6,926 6,554 6,216 5,906 8,162 13,221 13,174 12,696 Deferred tax liabilities 544 692 724 925 1,133 2,429 2,679 3,012 Balance sheet total 10,181 10,383 10,608 11,093 14,759 27,978 28,550 29,271 Net debt 6,802 6,487 5,980 5,217 5,323 11,048 9,871 9,330 Capital employed 9,544 9,772 9,778 10,267 12,741 25,929 25,825 26,583

Property


Research ratings and important disclosures Disclosure checklist - Potential conflict of interests

Stock ISIN Disclosure (See Below) Currency Price

Buwog AT00BUWOG001 nothing to disclose EUR 19.13 Conwert AT0000697750 6 EUR 13.36 Deutsche Wohnen DE000A0HN5C6 14, 16, 18 EUR 25.87 Grand City Properties LU0775917882 nothing to disclose EUR 19.99 Immofinanz AT0000809058 nothing to disclose EUR 2.38 LEG Immobilien DE000LEG1110 nothing to disclose EUR 75.55 TAG Immobilien DE0008303504 14, 16, 18 EUR 11.24 Vonovia DE000A1ML7J1 14, 16, 18 EUR 29.60

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.

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 A B Buy 45.8% 0.0% Hold 37.4% 0.0% Reduce 16.4% 0.0% Not Rated/Under Review/Accept Offer 0.4% 0.0% Total 100.0% 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.

Property


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 non-US 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 Regulator Abbreviation

Kepler Capital Markets S.A - France Autorité des Marchés Financiers AMF

Kepler Capital Markets, Sucursal en España Comisión Nacional del Mercado de Valores CNMV

Kepler Capital Markets, Frankfurt branch Bundesanstalt für Finanzdienstleistungsaufsicht BaFin

Kepler Capital Markets, Milan branch Commissione Nazionale per le Società e la Borsa CONSOB

Kepler Capital Markets, Amsterdam branch Autoriteit Financiële Markten AFM

Kepler Capital Markets, Zurich branch Swiss Financial Market Supervisory Authority FINMA

Kepler Capital Markets, Inc. Financial Industry Regulatory Authority FINRA

Kepler Capital Markets, London branch Financial Conduct Authority FCA

Kepler Capital Markets, Vienna branch Austrian Financial Services Authority FMA

Crédit Agricole Cheuvreux, SA - France Autorité des Marchés Financiers AMF

Crédit Agricole Cheuvreux España S.V Comisión Nacional del Mercado de Valores CNMV

Crédit Agricole Cheuvreux Niederlassung Deutschland Bundesanstalt für Finanzdienstleistungsaufsicht BaFin

Crédit Agricole Cheuvreux S.A., branch di Milano Commissione Nazionale per le Società e la Borsa CONSOB

Crédit Agricole Cheuvreux Amsterdam Autoriteit Financiële Markten AFM

Crédit Agricole Cheuvreux Zurich Branch Swiss Financial Market Supervisory Authority FINMA

Crédit Agricole Cheuvreux North America, Inc. Financial Industry Regulatory Authority FINRA

Crédit Agricole Cheuvreux International Limited Financial Conduct Authority FCA

Crédit Agricole Cheuvreux Nordic AB Finansinspektionen 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..

Property


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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Equity Research Local insight, European scale

keplercheuvreux.com

Property research team

Thomas Neuhold, CFA Head of Austrian Research

Main Author

[email protected]

+43 1 537 12 4147

Benjamin Terdjman [email protected]

+41 22 994 1758

Pierre-Loup Etienne Head of Property Research

[email protected]

+33 1 53 65 3529

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.

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.

Dirk Becker [email protected]

+49 69 7569 6119

Giovanni Ovi [email protected]

+39 02 8550 7209

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

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