Frankfurt am Main, Germany ISIN DE000A0HN5C6 WKN …€¦ · Frankfurt am Main, Germany ISIN DE000A0HN5C6 WKN A0HN5C Report of the Management Board pursuant to section 186, para

Annex 1

To the Invitation to the Extraordinary General Meeting

on Wednesday, 28 October, 2015 at 10 A.M. (CET)

Deutsche Wohnen AG

Frankfurt am Main, Germany

ISIN DE000A0HN5C6

WKN A0HN5C

Report of the Management Board pursuant to section 186, para. 4, sentence 2 of the German

Stock Corporation Act (“AktG”) on agenda item 1 for the Extraordinary General Meeting to be

held on Wednesday, 28 October 2015 regarding the reason for the exclusion of shareholders’

subscription rights

Annex 1 – Report of the Management Board purs. to sec. 186, para. 4, sent. 2 AktG

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I.

The management board (the „Management Board“) and the supervisory board (the „Supervisory

Board“) of Deutsche Wohnen AG, with its registered office in Frankfurt am Main, Germany

(“Deutsche Wohnen AG” or the “Company”), propose the following to the general meeting

(“General Meeting”):

Increase of the Company’s Share Capital against Contributions in kind with the

Exclusion of the Shareholders’ Subscription Rights and Authorization for the

Amendment of the Articles of Association

II.

The individual proposed resolution is as follows:

Increase of the Company’s Share Capital against Contributions in kind with the

Exclusion of the Shareholders’ Subscription Rights and Authorization for the

Amendment of the Articles of Association

1. The Company’s current share capital, which is currently registered with the

commercial register (Handelsregister) as EUR 336,426,511.00, divided into

336,426,511 ordinary bearer shares with no par value, each with a notional

value of EUR 1.00, will be increased by up to EUR 213,127,385.00 to up to

EUR 549,553,896.00 through the issuance of up to 213,127,385 ordinary

bearer shares with no par value (Stückaktien), each with a notional value of

EUR 1.00 (the “New Shares”), against contributions in kind.

The issue amount (Ausgabebetrag) of the New Shares is EUR 1.00. The

difference between the issue amount (Ausgabebetrag) of the New Shares and

the contribution value (Einbringungswert) of the contributions in kind shall be

allocated to the capital reserve pursuant to section 272, para. 2, no. 4 of the

German Commercial Code (the “HGB”).

2. The New Shares carry full dividend rights as of 1 January 2015.

3. The subscription rights of the shareholders of Deutsche Wohnen AG are

excluded. The shares resulting from the capital increase against contributions

in kind will be issued in connection with a takeover offer to the shareholders

of LEG Immobilien AG pursuant to sections 29 et seq. of the German

Securities Acquisition and Takeover Act (the “WpÜG”) by way of the

Exchange Offer for the purchase of all shares held by the shareholders of LEG

Immobilien AG at a ratio of 1:3.30. Each shareholder of LEG Immobilien AG

is therefore entitled to receive 3.30 New Shares in exchange for each tendered

LEG Share.

4. UBS Deutschland AG, Opernturm, Bockenheimer Landstraße 2-4, 60306

Frankfurt am Main, Germany, and DZ Bank AG Deutsche Zentral-

Genossenschaftsbank, Frankfurt am Main, Platz der Republik, 60265


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Frankfurt am Main, Germany, will, in general, each subscribe for half of the

New Shares in their capacity as Exchange Trustees (Umtauschtreuhänder) for

the shareholders of LEG Immobilien AG that have accepted the Exchange

Offer. Accordingly, the Exchange Trustees are hereby permitted to subscribe

for the New Shares and will contribute the LEG Shares tendered for the

exchange, as far as they are subject to the capital increase against

contributions in kind, as contributor in kind (Sacheinleger) in Deutsche

Wohnen AG.

5. The capital increase against contributions in kind shall only be implemented to

the extent to which the New Shares have been subscribed for by the Exchange

Trustees by the deadline stipulated in no. 9.

6. The Management Board intends to refrain from an appraisal of the

contributions in kind (section 183, para. 3 of the German Stock Corporation

Act (the “AktG”)) pursuant to sections 183a, 33a of the AktG.

7. The Management Board is authorized to determine further details regarding

the implementation of the capital increase against contributions in kind.

8. The Supervisory Board is authorized to amend the articles of association

according to the implementation of the capital increase against contributions in

kind.

9. The resolution concerning the increase of the share capital against

contributions in kind will become null and void if the completion of the capital

increase has not been filed for entry in the commercial register

(Handelsregister) within three months following the entry of this resolution in

the commercial register (Handelsregister), and in any event no later than

16 May 2016. The Management Board and the chairman of the Supervisory

Board are instructed to file for the entry of the resolution concerning the

increase of the share capital against contributions in kind in the commercial

register (Handelsregister) without undue delay once the requirements for its

registration have been met (in particular, in the event of pending rescission

actions (Anfechtungsklagen) upon the conclusion of a release procedure

(Freigabeverfahren) pursuant to section 246a of the AktG).

The Management Board is authorized to file for the entry of the resolution in the

commercial register (Handelsregister) as soon as the conditions of the resolution have

been met.

The base amount (Ausgangsbetrag) for the capital increase which is described in the

proposed resolution is based on the amount of share capital currently registered with the

commercial register (Handelsregister). Since 1 January 2015, additional shares of the

Company from conditional capital have been issued to former shareholders of GSW


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Immobilien AG who have exerted their right to compensation based on the domination

agreement concluded between the Company and GSW Immobilien AG. It is possible that

other shareholders of GSW Immobilien AG may exert their right to compensation until the

resolution regarding the capital increase is proposed or the capital increase is implemented.

The corresponding increases out of the conditional capital have not yet been registered with

the commercial register (Handelsregister).

III.

The Management Board of Deutsche Wohnen intends to acquire an interest in LEG by means of an

Exchange Offer and to subsequently integrate LEG into the Deutsche Wohnen Group.

Today, the Management Board has concluded a Business Combination Agreement

(Grundsatzvereinbarung) with LEG with respect to the public takeover offer and the future strategy

and structure of the newly created company group (see III.2.e) below).

In the context of the Exchange Offer, shares of Deutsche Wohnen shall be offered to the shareholders

of LEG. The shares of Deutsche Wohnen shall be issued by means of the proposed capital increase

against contributions in kind and – depending on the number of tendered LEG Shares – possibly also

by means of a capital increase from authorized capital. Because the shares issued by means of the

capital increases shall be offered in exchange for LEG Shares, the subscription rights of the

shareholders of Deutsche Wohnen will be excluded for the proposed capital increase against

contributions in kind.

Hereinafter, the Management Board reports on the reason for the exclusion of subscription rights for

the proposed capital increase against contributions in kind pursuant to section 186, para. 4, sentence 2

of the AktG. This report first describes the background of the planned transaction and the planned

transaction itself in this section III. In particular, this involves the description of Deutsche Wohnen

and LEG, the market environment and the business conditions of the transaction, the expected

synergies resulting from the transaction and an explanation of the valuation of the companies involved

in the transaction.

In section IV., the objective justification for the exclusion of subscription rights in the context of the

capital increase against contributions in kind will be given with regard to the purpose of the capital

measure.

1. Background of the Planned Transaction

a) Deutsche Wohnen

(1) Business activities

Deutsche Wohnen, with its registered office in Frankfurt am Main and its

principal place of business in Berlin, is currently one of the largest publicly

listed real estate stock companies in Germany, based on market capitalization.

The Company is active in residential property management, especially in


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letting residential units owned by the Company, management of its residential

portfolio and the sale of select residential properties. Through one of its

participations in another company, it also operates nursing homes and assisted

living facilities. In the context of this business strategy, Deutsche Wohnen

focuses on residential and nursing care real estate properties in high-growth

metropolitan regions in Germany. These include the greater Berlin area, the

Rhine-Main region, Mannheim/Ludwigshafen, the Rhineland and Dresden.

Other important areas include stable urban regions such as Hanover/Brunswick,

Magdeburg, Kiel/Lübeck, Halle/Leipzig and Erfurt. Deutsche Wohnen is listed

in Deutsche Börse’s MDAX Index.

(2) Segments

Deutsche Wohnenʼs business is divided into “Residential Property

Management”, “Sales” and “Nursing and Assisted Living Homes” segments.

The “Residential Property Management” segment is the core and focus of its

business, covering all activities in connection with the management and

administration of residential properties, management of lease contracts and

services for tenants. The “Sales” segment covers all activities relating to the

sale of residential units, buildings and land. Deutsche Wohnen AG’s

residential portfolio earmarked for sale is subdivided into block sales

(institutional sales) and single-unit privatization (residential property

privatization). The residential portfolio for block sales mainly includes

residential units in the so-called non-core regions that are not part of the

business strategy of Deutsche Wohnen as well as opportunistic sales. In

connection with single-unit privatizations, Deutsche Wohnen mainly seeks to

sell residential units to owner-occupants and investors. In its “Nursing and

Assisted Living Homes” segment Deutsche Wohnen predominantly manages

and markets its own nursing and residential properties for senior citizens

through one of ist participations in another company under the brand

KATHARINENHOF®.

(3) Portfolio

As of 30 June 2015, Deutsche Wohnen’s residential property portfolio

comprised 141,943 residential units with a total residential floor space of

approximately 8.6 million square metres, based on the total residential floor

space listed in the rental contracts. As of 30 June 2015, the average monthly

contractual rent, based on Deutsche Wohnen’s total residential portfolio,

amounted to EUR 5.78 per square metre. The vacancy rate as of this date was

roughly 2.10%. In addition to residential properties, as of 30 June 2015,

Deutsche Wohnen’s real estate portfolio included 2,072 commercial property

units with a total floor space of approximately 0.3 million square metres based

on the total commercial area listed in the rental agreements, as well as a total

of 30,502 parking garages, underground garage spaces and parking spaces.


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The residential real estate portfolio was evaluated by an external independent

appraiser – CBRE GmbH, Frankfurt (“CBRE”) – as of 30 June 2015 using a

DCF model in accordance with the standards of the Royal Institution of

Chartered Surveyors (RICS) in line with the Red Book, with the exception of

real estate properties for senior citizens used by Katharinenhof, for which the

appraisal as of 30 June 2014 was maintained. According to this appraisal, the

real estate portfolio of Deutsche Wohnen is valued at approximately EUR

10.283 billion (including commercial properties and undeveloped land,

excluding the senior citizen properties used by Katharinenhof) as of 30 June

2015. Deutsche Wohnen’s real estate properties for senior citizens used by

Katharinenhof were valued at EUR 143.8 million by CBRE as of 30 June 2014.

The data calculated by CBRE was updated (fortgeschrieben) by Deutsche

Wohnen in the interim report dated 30 June 2015. According to this report, the

market value as of 30 June 2015 is EUR 143.8 million.

Deutsche Wohnen’s residential real estate portfolio is currently classified into

strategic core- and growth-regions, as well as non-core regions. Within the

strategic core- and growth-regions, Deutsche Wohnen makes a further

distinction between core+-and core-regions.

Core+-regions are dynamic markets in which Deutsche Wohnen sees

considerable potential for rent price increases and a positive market

environment for sales. These markets are characterized by a demand surplus

for residential space. This is the result of a dynamic economic development

and an increase in households, inter alia due to an increase in single-person

households. Deutsche Wohnen’s core+-regions are the metropolitan regions of

(i) greater Berlin, (ii) Rhine-Main, (iii) Mannheim/Ludwigshafen, (iv) the

Rhineland and (v) Dresden. Based on the number of units, approximately 87%

of the units in the residential real estate portfolio were in the core+-regions as

of 30 June 2015.

By contrast, core-regions are regions with a market development that is

expected to be stable. These markets are characterized by a balanced supply

and demand situation, a good economic situation, a stable economic outlook,

average purchasing power and a steady number of households. In particular,

Deutsche Wohnen’s core-regions are (i) Hanover/Brunswick, (ii) Magdeburg,

(iii) Kiel/Lübeck, (iv) Halle/Leipzig, (v) Erfurt and (vi) Other. Based on the

number of units, approximately 11% of the units in the residential real estate

portfolio were in the core-regions as of 30 June 2015.

Non-core-regions are defined as geographic regions where the development is

stagnant and/or there is a negative trend. They include mainly rural areas and

scattered properties. Based on the number of units, approximately 2% of the

units in the residential real estate portfolio were in the non-core-regions as of

30 June 2015.


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In the course of the merger of Deutsche Wohnen and LEG, it is intended to

reclassify the residential real estate portfolio, with a focus on distinguishing

among “core+”, “core” and “high-yield-regions”. The reclassification will take

account of the new circumstances of the merged company and the diversified

regional portfolio. The core+-regions will include greater Berlin, the Rhineland,

Münsterland, Rhine-Main, Mannheim/Ludwigshafen and Dresden. The core-

regions will be defined as the geographic regions of Ostwestfalen, the core

cities of the Ruhr region, Hanover/Brunswick, the Lower Rhine, Kiel/Lübeck

and the core cities of the new federal states. The High-Yield regions will

include the rest of the Ruhr region, Bergisches Land/Sauerland, the rest of the

new federal states and all other regions.

(4) Share capital

The Company’s share capital is currently registered with the commercial

register (Handelsregister) as EUR 336,426,511.00, divided into 336,426,511

ordinary bearer shares, each with a notional value of EUR 1.00. Since 1

January 2015, in addition to this amount, shares of the Company from

conditional capital have been issued to former shareholders of GSW

Immobilien AG who have exerted their right to compensation based on the

domination agreement concluded between the Company and GSW Immobilien

AG. It is possible that other shareholders of GSW Immobilien AG may exert

their right to compensation until the resolution regarding the capital increase is

proposed or the capital increase is implemented. The corresponding increases

in conditional capital have not yet been registered with the commercial register

(Handelsregister).

b) LEG

(1) Business activities

LEG is a publicly traded real estate company with its seat of business in

Düsseldorf. The business model of LEG is focused on the letting and

management of residential units with a clear focus on North Rhine-Westphalia.

This business activity is complemented by the sale of residential units via LEG

Consult GmbH, a subsidiary of LEG. Erste WohnServicePlus GmbH,

Düsseldorf, a subsidiary of LEG, offers (in cooperation with Unitymedia

GmbH) multimedia products for LEG’s residential properties, and

EnergieServicePlus GmbH, Düsseldorf, of which LEG holds 51% of the

shares and RWE Vertrieb AG holds 49%, will assume responsibility for the

complete energy and technical management and supply of LEG properties.

(2) Segments


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LEG’s business is divided into the “Residential” and “Other” segments. The

“Residential” segment includes all residential and commercial properties, own-

used buildings, property companies (Bestandsgesellschaften) and LEG

Wohnen NRW. Real estate portfolios which have evolved from completed

project developments to long-term leasing and which are solely owned by the

group are also maintained in the “Residential” segment.

The “Other” segment includes development companies as well as the

companies LEG Management GmbH and LCS Consulting und Service GmbH.

Let properties that are available for sale from the development business are

also recognized in the “Other” segment. LEG Management GmbH, which is

included in the “Other” segment, focuses primarily on services in connection

with administrative functions and group management.

(3) Portfolio

By its own account, as of 30 June 2015, LEG’s real estate portfolio comprises

107,347 residential units, 1,059 commercial units and 26,648 parking garages

and parking spaces. The total living space amounts to roughly 6.9 million

square metres and the average rent for residential units of the total portfolio

amounted to EUR 5.16 per square metre as of 30 June 2015. As of this date,

the vacancy rate for residential units was 3.30%.

According to LEG, the portfolio can be classified into Growth Markets

(Wachstumsmärkte), Stable Markets (Stabile Märkte) and Higher-Yielding

Markets (Märkte mit höheren Renditen). According to its 2015 semi-annual

report, 33,574 residential units are situated in Growth Markets, with a vacancy

rate of 1.50% and an average rent of EUR 5.79 per square metre. According to

LEG, this price is below the average rent in the respective markets, meaning

that there is a rental potential of 18.00% here. 42,638 residential units are

situated in the Stable Markets segment, with a vacancy rate of 3.70% and an

average rent of EUR 4.89 per square metre. The rental potential here is

identified as 9.00%. In Higher-Yielding Markets, there are, according to LEG,

29,678 residential units with a vacancy rate of 5.30% and an average rent of

EUR 4.78 per square metre. The rental potential here is identified as 8.00%.

According to information provided by LEG in its report for Q2 2015 dated

14 August 2015, the overall portfolio was worth approximately EUR 6 billion

as of 30 June 2015.

In the course of the merger of Deutsche Wohnen and LEG, it is intended to

reclassify the residential real estate portfolio, with a focus on distinguishing

among “core+”, “core” and “high-yield-regions”. The reclassification will take

account of the new circumstances of the merged company and the diversified

regional portfolio (see section III.1.a)(3) above). It is possible that the future


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assessment of the quality of LEG’s markets and sub-portfolios by Deutsche

Wohnen may deviate from the current assessment by LEG as part of this

reclassification of the real estate portfolio.

(4) Share capital

LEG’s current share capital is EUR 58,259,788.00, divided into 58,259,788

registered shares, each with a notional value of EUR 1.00.

LEG has also issued convertible bonds with a nominal value of EUR 300

million (final maturity: 1 July 2021). A complete exercise of the conversion

rights, would, at the current conversion price of EUR 58.4317, lead to the

issuance of approximately 5.13 million shares and thus increase the total

number of shares by about 8.8%.

A change of control as a result of the Exchange Offer would trigger a “Change

of Control” provision under the terms and conditions of the convertible bonds,

according to which the bond holder may, under certain circumstances within

the additional acceptance period pursuant to section 16 of the WpÜG demand,

next to the immediate calling in of the bond its immediate conversion into

LEG Shares at a lower conversion price.

“Change of control” in connection with the Company’s Exchange Offer means

the fulfillment of all offer conditions (including any minimum acceptance

threshold within the offer) that have to occur before the end of the acceptance

period.

In the event of a conversion as a result of a change of control, the conversion

price will be reduced according to the following formula:

Where:

CPa = the adjusted conversion price;

CP = the conversion price on the day directly preceding the day on which the

change of control occurs;

Pr = the initial conversion premium of 30%;

c = the number of days from the day on which the change of control occurs

(inclusive) to the maturity date (exclusive); and


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t = the number of days from the day on which the the bonds are issued

(inclusive) to the maturity date (exclusive).

A complete exercise of the conversion rights in the event of an assumed

change of control on 1 December 2015 would result in the issuance of roughly

6,324,268 shares and thus increase the total number of shares by about 10.9%.

c) Competitive advantages and synergies resulting from the acquisition of LEG

With the merger of Deutsche Wohnen and LEG, Deutsche Wohnen is

acquiring a high-quality real estate portfolio that provides additional growth

options with an attractive risk/return profile.

(1) Focused combined real estate portfolio with more than 90% of the market

value based on the market value in core+-and core-regions

The combined company will have a focused residential property portfolio of

roughly 250,000 units. This corresponds to an increase of the current portfolio

of Deutsche Wohnen by approximately 107,000 units, or an increase by

around 75% according to the published figures for Deutsche Wohnen and LEG

for the first half of 2015. Additionally, the strong regional concentration of the

combined portfolio enables a continued high management efficiency (see more

on this below).

The portfolio of LEG is primarily located in dynamic markets with

considerable rent increase potential (about 42% based on the market value

(Fair Value)) as well as markets with stable rents (about 36% based on the

market value). The merger with LEG will thus enable Deutsche Wohnen to

increase the number of residential units in its core+-and core-regions

significantly. These markets will make up more than 90% of the combined

portfolio based on the market value after comnpletion of the transaction.

As a result, the core+-portfolio for the combined company will expand from

roughly 123,000 to roughly 157,000 units, primarily through acquisitions in

the Rhineland and Münsterland, and the core-portfolio will increase from

roughly 16,000 to roughly 58,000 units, primarily through acquisitions in core

cities in the Ruhr region and in Ostwestfalen. Based on the market value, about

73% of the combined portfolio will be in core+-regions and 18% in core-

regions. Berlin’s share of the combined portfolio will be almost 50% in terms

of market value, and, looking forward, it will thus represent a significant

growth driver for Deutsche Wohnen.

In addition, after the transaction about 10% (in terms of market value) of the

units in the combined portfolio will be in regions with above-average returns

(so called high yield Markets), which will contribute to an improvement in the


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return profile of Deutsche Wohnen. Significant sell-off portfolios were not

identified by the Management Board on the basis of public information.

The enlarged combined portfolio will enable Deutsche Wohnen to conduct

more active portfolio management through rent management, opportunities for

rounding out the portfolio (Arrondierung) and additional privatization

potential, and thus earn additional increases in revenue and returns. Achieving

critical mass in new core+-and core-regions will also provide additional

opportunities for external growth.

(2) Considerable synergy potential

The merger of the two companies will result in standardized structures and

processes. The Management Board of Deutsche Wohnen believes that,

following the integration, there will be revenue and cost synergies with a

positive effect on the combined FFO (without disposals) of approximately

EUR 35 million per year, before taxes. In addition, the Management Board

expects that the merger will increase the long-term privatization potential by

about 1,500 units, with an additional contribution to earnings

(Ergebnisbeitrag) of about EUR 20 million before taxes each year. Thus, a

total additional contribution to earnings (Ergebnisbeitrag) of about EUR 55

million before taxes per year is expected for the combined FFO (including

disposals).

The Management Board expects that these synergies can be fully realized

within four years after the implementaion of the transaction.

The expected synergy potential mainly arises from the following areas:

Reducing administrative costs (personnel and material costs): The cost ratio

for personnel and material costs, measured on the basis of rental rates, was

about 14.5% at Deutsche Wohnen in the fiscal year 2014. As a result of

scaling effects, the acquisitions carried out in recent years, including GSW

Immobilien AG, were integrated in the Deutsche Wohnen Group with a cost

ratio of about 5 to 10%. For 2015, the Management Board therefore expects

to be able to further reduce Deutsche Wohnen’s cost ratio for personnel and

material costs to about 12% of the rental rates. Based on this experience and

its integration track record, the Management Board expects, as a result of the

merger of Deutsche Wohnen and LEG, to be able to realize considerable cost

reductions through a simplified corporate structure, particularly by unifying

of holding functions, joint contract management and a standardized IT

infrastructure. In the medium term, it targets a cost ratio for personnel and

material costs in the joint company ranging from 11 to 12%.


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Consolidation of the West German operating platforms: The West German

portfolio of Deutsche Wohnen and LEG reveals potentials for optimization in

the local management of the holdings. Management costs per residential unit

are typically heavily dependent on the concentration of the holdings.

Concentrated holdings allow for an optimized division of tasks and thus more

efficient management. The overlap of the Deutsche Wohnen and LEG

portfolios in West Germany means that the concentration of holdings will

increase in numerous areas and therefore synergies can be created from the

uniform management of the holdings. The operational management of the

combined companyʼs West German portfolio is to be conducted through the

Dusseldorf office.

Increase in revenue and returns as a result of the merger of central functions

for the management of real estate holdings: Synergies can also be created by

establishing joint central customer services and back office functions. As the

joint service volume of the two companies will increase significantly, this

will enable a much more efficient operational management and thus an

increase in productivity. In particular, this includes centralized management

of the holdings, centralized support of the rental management (service points),

billing of utility costs and claims management. Thanks to greater

standardization and the adjustment of operating processes the rent potential

can be better realized and vacancy-related costs reduced.

Scaling of purchasing: The combined company will, according to the

assessment of the Company, also have more bargaining power for optimising

purchasing. This affects, in particular, contracts with energy suppliers,

insurance companies and system providers, and the procurement of IT

hardware and services. The realization of these potentials is dependent on

current contractual conditions, particularly the contract periods. In addition,

there is potential for a reduction of purchasing positions related to utilities

and common charges, which will initially only have a marginal impact on the

FFO (without disposals), but will lead to higher customer satisfaction in the

medium term due to lower costs for utilities and common charges.

Additional privatization potential: Value-creating and sustainable single-unit

privatizations are a key pillar of Deutsche Wohnen’s business model.

Deutsche Wohnen’s Management Board intends to increase the volume of

privatizations from over 1,500 units on average over the last three years for

the combined company to over 3,000 units per year in order to profit more

from the current attractive market environment. On the basis of the current

market environment and the realizable gross margins from sales, the

Management Board expects a significant additional contribution to earnings

(Ergebnisbeitrag) for the FFO (including disposals). In addition,


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privatizations will free up considerable financial resources that can be used

for value-creating investments as well as distributions to shareholders.

Assuming that the revenue and cost synergies can be fully realized within four

years, the capitalized value of the expected revenue and cost synergies of EUR

32 million per year is approximately EUR 990 million after taxes. This figure

is based on a capitalization rate of 4%, based on Deutsche Wohnen’s average

weighted capital costs, a growth factor for perpetuities of 1%, an effective tax

rate of 10% and the assumption of an approximately linear development of the

synergies until 2019.

The synergies are offset by expected expenses. Based on information currently

available, the Management Board estimates these expenses to be

approximately EUR 55 million, after taxes. These are comprised in about

equal proportion of transaction costs and integration costs. Based on the

aforementioned estimates by the Management Board regarding the level of

synergies on the one hand and the expenses required to achieve these synergies

on the other hand, the expected net present value of the synergies amounts to

approximately EUR 935 million after taxes. Taking into account the

privatization potential associated with the increase in the residential real estate

portfolio, which according to the estimate of the Management Board can be

realized within two years, the net value of the synergies is about EUR 1,530

million, after taxes.

(3) Maintaining the conservative capital structure and improving the key

financial indicators

The Management Board expects the acquisition in the form of an exchange of

shares to result in a loan-to-value ratio in the combined company of about 42%.

The average financing costs for the combined company, with an average

residual term on financial liabilities of around 10 years, will only be about 2%.

In addition, assuming that termination rights as a consequence of the

completion of the transaction (change of control provisions) are not exercised,

there will not be any significant maturities up to and including the fiscal year

2019. The conservative capital structure is part of the guidance provided by the

Deutsche Wohnen Management Board and should enable continued growth at

low financing costs and support the current A-/A3 rating of Deutsche Wohnen.

As a result, the combined company will enjoy comparatively attractive

financing conditions within the German exchange-listed real estate sector.

The acquisition together with the aforementioned synergies will lead to an

improvement of key financial indicators and a relative strengthening of

Deutsche Wohnen compared to its competitors. The Management Board

anticipates that the merger will enable efficiency advantages as compared to

publicly traded competitors. The Management Board expects that the FFO


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(without disposals) per share, following the full realization of the synergies in

the amount of EUR 35 million (before taxes) per year, will improve in the

lower two digit scale. Taking account of the net present value of the synergies,

the merger will have a broadly neutral impact on the adjusted EPRA NAV

(EPRA NAV minus goodwill plus net present value of the revenue and cost

synergies) per share of Deutsche Wohnen. Thus, taking further account of the

return and risk aspects as well as the growth potential of the combined

company, the merger will clearly create value for Deutsche Wohnen

shareholders (see in detail section III.3.(f)(3) below).

(4) Strengthened capital market profile

Finally, the acquisition strengthens the capital market profile of the combined

company. The expected combined market capitalization (free float) of the

Company and LEG (based on the Xetra closing prices on 18 September 2015

and on the basis of a 100% acceptance rate) in the amount of approximately

EUR 13.4 billion will strengthen the significance and the liquidity of the

Company’s shares and thus its attractiveness for investors. In addition, it is

expected that the solid credit rating of the combined group will allow it to

borrow capital at better conditions in perspective. These factors should also

ensure financing with equity capital and/or debt capital at improved conditions

independently from the market cycle and thus further optimize the capital costs

of the combined company. For example, it is possible that the Exchange Offer

will attract new groups of investors. Furthermore, increased liquidity will also,

in Deutsche Wohnen’s view, open up the possibility of being included in the

DAX 30 in the medium term.

2. Description of the Planned Transaction

Based on the proposed resolution of the Management Board, the acquisition of the shares

of LEG by Deutsche Wohnen is planned as follows:

a) Takeover offer in the form of an Exchange Offer

The Management Board of Deutsche Wohnen resolved to issue a voluntary

takeover offer in the form of an Exchange Offer to all shareholders of LEG

pursuant to sections 29, 31, para. 2, sentence 1, alternative 2 of the WpÜG and

published this decision pursuant to section 10, para. 1, 3, sentence 1 of the

WpÜG. The intention is to offer shares in Deutsche Wohnen to the

shareholders of LEG in exchange for their LEG shares at a ratio of 3.30 shares

of Deutsche Wohnen per share representing a notional amount of EUR 1.00 of

LEG‘s share capital.

The Company plans to make the Exchange Offer subject to the standard

conditions for such takeover offers, particularly a minimum acceptance rate of


- 15 -

50% plus one share, a condition related to a material adverse change of LEG’s

business situation and a condition related to the execution of the proposed

capital increase against contributions in kind.

The Management Board expects that a non-prohibition decision

(Nichtuntersagungsentscheidung) will be issued by the German Federal Cartel

Office before publication of the offer document. If this is not the case by the

time the offer document is published, the approval by the German Federal

Cartel Office will become a further closing condition (Vollzugsbedingung) of

the Exchange Offer.

b) Capital increase against contributions in kind with the exclusion of statutory

subscription rights of shareholders for the purpose of the implementation of the

Exchange Offer

Subject to the limitations described in c) (see below), the shares required for

the implementation of the Exchange Offer will be created by way of a capital

increase against contributions in kind with the exclusion of statutory

subscription rights of the shareholders.

The LEG Shares shall be contributed as contributions in kind, and the LEG

shareholders shall receive the newly created shares of the Company in

exchange for their shares. The Exchange Trustees authorized by the

shareholders of LEG to carry out the Exchange Offer shall be the only persons

admitted for the subscription of the New Shares. The subscription rights of the

shareholders of the Company shall be excluded.

Shareholders of LEG who accept the Exchange Offer will transfer their LEG

Shares to the Exchange Trustees. The Exchange Trustees will then contribute

the LEG Shares that they hold in trust to Deutsche Wohnen as contributions in

kind and subscribe the Company´s shares created as part of the planned capital

increase against contributions in kind. Once the New Shares of Deutsche

Wohnen are created, the Exchange Trustees will transfer the shares, in

accordance with the exchange ratio, via the settlement agent to the respective

shareholders of LEG.

Where shareholders of LEG would be entitled to fractional amounts of

Deutsche Wohnen shares according to the exchange ratio, such fractional

amount shall be sold by the Exchange Trustees. The proceeds from the sale of

the fractional amounts will be credited in cash pro rata to the affected

shareholders of LEG.

The maximum amount of this capital increase against contributions in kind is

such that, based on the number of LEG Shares currently outstanding and likely

to be created through the conversion of outstanding convertible bonds before


- 16 -

the end of the additional acceptance period, and the exchange ratio proposed in

the Exchange Offer, a sufficient number of Deutsche Wohnen shares for all the

tendered LEG Shares may be issued and shall amount to approximately 213.1

million shares (subject to the issuance of shares by means of the capital

increase against cash contributions from authorized capital (as set out inc))).

As the Exchange Trustees do not to bear a differential liability

(Differenzhaftung) under sections 188, para. 2 sentence 1, 36a, para. 2

sentence 3 of the AktG in the amount of the contribution value

(Einbringungswert) of the LEG Shares, the New Shares of Deutsche Wohnen

will be issued at the minimum issue amount (Ausgabebetrag) of EUR 1.00

(sections 8, para. 3, sentence 3, 9, para. 1 of the AktG) and the difference

between the issue amount (Ausgabebetrag) of the New Shares and the

contribution value (Einbringungswert) of the contribution in kind will be

allocated to the capital reserve pursuant to section 272, para. 2 Nr. 4 of the

HGB.

c) Utilization of the existing authorized capital to implement the target tax structure

Pursuant to sections 29, 31, para. 2, sentence 1, alternative 2 and 32 of the

WpÜG, the Exchange Offer must always be directed to all LEG shareholders,

insofar as the Federal Financial Supervisory Authority (“BaFin”) does not

grant an exemption pursuant to section 24 of the WpÜG.

However, for tax purposes Deutsche Wohnen does not intend to acquire more

than 94.9% of the shares of LEG. This is because according to section 1,

para. 3 and para. 3a of the German Real Estate Transfer Tax Act (“GrEStG”),

the acquisition of at least 95% of the shares in a company will lead to a real

estate transfer tax liability for real estate property in Germany belonging to the

Company’s assets, with the applicable tax rate in North-Rhine Westphalia,

LEG’s regional focus, currently being 6.5%. Based on the information

available to it, the Management Board of the Company estimates that the real

estate transfer tax incurred in the case of a full acquisition of LEG would

amount to approximately EUR 390 million.

The tax liability pursuant to section 1, para. 3 and para. 3a of the GrEStG

would arise if the acceptance rate of the Exchange Offer were to be so high

that the Exchange Trustees had to contribute such an amount of LEG shares as

contributions in kind to the Company that Deutsche Wohnen would end up

owning at least 95% of the share capital of LEG.

To the extent that the capital increase against contributions in kind would

result in Deutsche Wohnen owning more than 94.9% of the share capital of

LEG (taking account of any LEG Shares that may already be held by Deutsche

Wohnen that were not acquired as part of the Exchange Offer), Deutsche Bank


- 17 -

AG has agreed to acquire and take over all LEG Shares issued to the Exchange

Trustees above this acceptance rate (i.e. a maximum of 5.1% of the LEG

Shares currently outstanding and anticipated to be created through, inter alia,

the conversion of outstanding convertible bonds before the end of the

additional acceptance period) from the Exchange Trustees instead of Deutsche

Wohnen. The same applies in the event that shareholders of LEG Immobilien

AG are entitled to tender their shares in LEG Immobilien AG after the end of

the acceptance period in accordance with the content of the exchange offer by

analogy to § 39c of the WpÜG, because Deutsche Wohnen AG and Deutsche

Bank AG combined are holding at least 95% of the shares in LEG Immobilien

AG after implementation of the exchange offer.

In order to enable the Exchange Trustees, in accordance with the proposed

Exchange Offer, to provide the LEG shareholders with Deutsche Wohnen

shares even for this excessive number of LEG Shares, the Management Board

and Supervisory Board of the Company have issued corresponding

precautionary resolutions for the utilization of the authorized capital, with the

exclusion of the subscription right, on 21 September 2015. The maximum

amount of this capital increase against cash contributions from authorized

capital is calculated in a way that, based on the number of LEG Shares

currently outstanding and likely to be created through the conversion of

outstanding convertible bonds before the end of the additional acceptance

period and the exchange ratio proposed in the Exchange Offer, a sufficient

number of Deutsche Wohnen shares for 5.1% of the tendered LEG Shares may

be issued and amounts to 10,869,497 shares; in the event that this capital

increase against cash contributions from authorized capital is implemented, the

maximum number of shares issuable in the context of the capital increase

against contributions in kind that is to be resolved will be decreased

correspondingly. Accordingly, from today’s view, the maximum number of

shares to be issued in the context of this capital increase against cash

contributions from authorized capital and the capital increase against

contributions in kind that is to be resolved will not exceed 213,127,385 shares.

Again, only UBS Deutschland AG, Opernturm, Bockenheimer Landstraße 2-4,

60306 Frankfurt am Main and DZ BANK AG Deutsche Zentral-

Genossenschaftsbank, Frankfurt am Main, Platz der Republik, 60265 Frankfurt

am Main as the Exchange Trustees for the LEG shareholders, shall be allowed

to subscribe for the shares issued as part of the capital increase against cash

contributions from authorized capital. The issue amount (Ausgabebetrag) is

EUR 1.00, and the Exchange Trustees have irrevocably undertaken to transfer

the difference between the issue amount (Ausgabebetrag) of EUR 1.00 and the

agreed issue price (vereinbarter Emissionspreis) equal to the closing price on

18 September 2015 in the amount of EUR 24.05 per share to the Company.


- 18 -

Insofar as it is evident at the time of the implementation of the Exchange Offer

that the acquisition of all tendered LEG shares would result in Deutsche

Wohnen owning more than 94.9% of the share capital of LEG, the Exchange

Trustees will subscribe for the number of Deutsche Wohnen shares issued as

part of the capital increase against cash contributions from authorized capital

which is required to exchange the excess tendered LEG Shares. The Exchange

Trustees will make the cash contributions required for the subscription of these

shares with funds made available to them by Deutsche Bank AG in return for

the acquisition of up to 5.1% of LEG Shares. After the implementation of the

capital increase against cash contributions from authorized capital has been

registered with the commercial register (Handelsregister), the Exchange

Trustees will transfer the shares, in accordance with the exchange ratio,

together with the shares created through the capital increase against

contributions in kind, via the settlement agent to the LEG shareholders

accepting the Exchange Offer.

Deutsche Bank AG receives a commission from Deutsche Wohnen in an

amount based, inter alia, on the sum given as a consideration for the

acquisition of the LEG Shares and on the period of time until the resale of

these shares. For two years, Deutsche Wohnen has the opportunity to name a

buyer for the LEG Shares to Deutsche Bank, after this period Deutsche Bank

AG will dispose of the shares at the best possible price. Deutsche Wohnen is

obliged to pay Deutsche Bank AG the difference between the purchase price

paid by the buyer in this process and the amount for which Deutsche Bank AG

acquired the LEG Shares.


- 19 -

d) Simplified Description of the Transaction Structure

e) Next Steps, Conclusion of a Business Combination Agreement

Depending on the acceptance rate in the Exchange Offer, the Management

Board is considering to conclude a domination and/or profit and loss transfer

agreement pursuant to section 291, para. 1, sentence 1 of the AktG following

the implementation of the Exchange Offer between Deutsche Wohnen and

LEG, or to negotiate mutual service agreements with LEG, insofar as this is

expedient for the best possible realization of synergies.

In addition, the Management Board has today concluded a Business

Combination Agreement with LEG with respect to the public takeover offer

and the future strategy and structure. The intention is to subdivide the

company created as a result of the merger into two main regions: Berlin and

North-Rhine Westphalia. The operational management of the combined

companyʼs West German portfolio is to be conducted through the Dusseldorf

office. The new corporate group will continue to pursue the previous growth

strategy, exploiting the expected synergies (see section III.1.c) above) in order

to realize additional added value for the shareholders of the combined

corporate group. The objectives of the future strategy are, in particular, to

maintain a conservative debt ratio, continued growth in the core-regions, the

development of new regions and the expansion of the privatization business in

order to utilize the currently attractive market environment.

Umtausch-

treuhänder Cash

≤ 100% LEG shares

≤ 94.9% LEG shares

+ cash

Deutsche

Wohnen

LEG

shareholders

≤ 100% new

Deutsche

Wohnen shares

≤ 100% new

Deutsche

Wohnen shares

Deutsche Bank

AG

≤ 5.1% LEG

shares


- 20 -

The Offeror will respect the legal rights of employees, works council members

and trade unions of the target company as well as collective bargaining

agreements (kollektivrechtliche Vereinbarungen). The current regulations of

the individual companies based on the social charter or purchase agreements

will remain in place in accordance with their period of validity.

Pursuant to the Business Combination Agreement, two members of the current

LEG Management Board will also become members of the Deutsche Wohnen

Management Board. No changes are planned with respect to the appointment

of the Chairman of the Deutsche Wohnen Management Board. The Chairman

of the LEG Management Board will serve as the Deputy Chairman of the

Deutsche Wohnen Management Board. The supervisory board of Deutsche

Wohnen shall be expanded to nine members, with three current supervisory

board members of LEG to join the Supervisory Board of Deutsche Wohnen.

The members of the LEG Management Board and the shareholder

representative of the LEG Supervisory Board shall be proposed by an

Integration Committee that is to be formed, which shall be comprised of the

respective Chairmen of the Management Boards and Supervisory Boards of

Deutsche Wohnen and LEG.

f) Timetable

The transaction timetable is as follows:

Within the four- to eight-week period beginning tomorrow, the offer

document regarding the Exchange Offer will be communicated to BaFin

(sections 34, 11, 14 para. 1 of the WpÜG).

The offer document will be published without delay pursuant to section 14,

para. 2 and 3 of the WpÜG if BaFin authorizes its publication or if a period

of ten working days (with the possibility of an extension of up to five

working days) has elapsed after BaFin has received the offer document and

BaFin has not prohibited the offer.

During this procedure, the Extraordinary General Meeting will take place on

Wednesday, 28 October 2015 at 10 A.M. (CET) and there will be a vote on

the resolution proposals mentioned under II.

The acceptance period, which is at least four weeks and, as a rule, lasts no

more than ten weeks, commences with the publication of the offer document;

the additional acceptance period of two weeks, which applies to takeover

offers, commences after this period (sections 34, 16, para. 1 and 2, 23, para. 1,

sentence 1, no. 2 of the WpÜG).

If the General Meeting passes the resolution that has been proposed, no

objection has been lodged and no rescission action (Anfechtungsklage) has


- 21 -

been initiated, the resolution regarding the share capital increase will be

registered following the expiration of the addtional acceptance period.

Following this procedure, the Exchange Offer may be implemented if the

other conditions have been met.

If the General Meeting passes the resolution that has been proposed, but a

rescission action (Anfechtungsklage) has been initiated, such resolution shall

be registered following a successful release procedure (Freigabeverfahren)

(section 246a of the AktG). In this case, the resolution may be registered after

the end of the additional acceptance period. In the event the other conditions

are fulfilled, the Exchange Offer will only be implemented at this later point

in time.

3. Explanation and Justification of the Exchange Ratio

a) Preliminary remarks

The determination of the exchange ratio is based on the Management Board’s

valuation of both LEG and Deutsche Wohnen. The same methods and

valuation parameters commonly used in the valuation of real estate companies

were applied in the valuation of both companies involved in the transaction.

In addition, Deutsche Wohnen has commissioned Deutsche Bank AG and

VICTORIAPARTNERS GmbH to examine the appropriateness of the fixed

exchange ratio and to each draft a fairness opinion to such effect. The

examination of the appropriateness of the exchange ratio by the Management

Board as set forth in this section III.3 is supported by the conclusion of these

fairness opinions. The corresponding fairness opinions are attached hereto as

Annex A and Annex B in letter form.

Before publishing the decision to submit this Exchange Offer, there was a

mutual due diligence review; however, pursuant to an agreement, as is

standard when acquiring an exchange-listed company, this review was limited

to the exchange of selected documents and information. In addition, publicly

available information was accessed, and in particular the following documents

were analyzed:

LEG’s listing prospectus dated 18 January 2013

LEG’s annual reports for the fiscal years 2013 and 2014

LEG’s interim reports for the first and second quarters of 2015

Furthermore, the Management Board analyzed analyst reports and other

documents that it believed to be useful with respect to the assessment of the


- 22 -

appropriateness of the exchange ratio and took into consideration the result of

this analysis in its assessment.

b) Valuation approaches and methods

The determination of the exchange ratio is based on the same methods applied

to the valuation of both companies. In particular, the valuation was carried out

on the basis of the following parameters:

Net asset value, measured according to the recommendations of the

European Public Real Estate Association (EPRA NAV). The Management

Board believes that the EPRA NAV is the most commonly used valuation

standard for determining the market value of the net asset value of real estate

companies that keep their property for long-term rental and management. The

properties are to be appraised based on the market value calculated using the

discounted cash flow (“DCF”) method. The EPRA NAV is calculated on the

basis of equity excluding minority interests, adjusted for (i) the exercise of

options, convertible bonds and other equity rights, (ii) the balance of (active

and passive) derivative financial instruments as well as (iii.) certain deferred

taxes. The EPRA NAV is thus derived from the DCF-based values that

account for the intrinsic value (equity) of a real estate company by adjusting

for positions for which it is assumed that there is no influence on long-term

assets held by owners in the regular course of business. For the purpose of the

EPRA NAV for the combined company, any effects arising from the

allocation of the purchase price pursuant to IFRS 3 (e.g. goodwill) in

connection with a potential acquisition of a majority stake in LEG are not

taken into account. Apart from that, the EPRA NAV for the companies

involved was determined both including and excluding goodwill (i.e.

goodwill formed as part of already completed transactions) and on the basis

of undiluted and diluted shares for the purpose of the comparison.

Market capitalization. The market capitalizations of LEG and Deutsche

Wohnen was determined on the basis of the closing prices on Xetra of the

Frankfurt Stock Exchange (Frankfurter Wertpapierbörse) on the last trading

day prior to the publication pursuant to section 10, para. 1, 3, sentence 1 of

the WpÜG, and the sum of the number of shares outstanding as of the

reference date and the number of shares determined on the basis of the

conversion of all outstanding convertible bonds for the respective company at

the respective current conversion price. For the purpose of comparison and to

check for potential reference date-related fluctuations regarding the market

capitalization, the volume-weighted average price (VWAP) for the 3 months

prior to the valuation was also determined and applied to the number of

shares of each company thus obtained (market capitalization on the basis of

the 3-month VWAP). The VWAP was calculated based on the closing prices

and the daily trading volumes on the Xetra trading platform. The comparison


- 23 -

of the market capitalization of each company is, in terms of a value

comparison, meaningful because both companies have a significant amount

of free float, and trading in both companies is considered to be liquid.

The absolute valuation of LEG and Deutsche Wohnen was initially carried out

without considering the related synergies associated with the transaction.

c) Alternative valuation methods

During deliberations, the Management Board considered alternative methods

for valuing the companies involved in the transaction, but these were rejected

as either unsuitable or less suitable.

Income or DCF approach. A valuation of the entire company based on the

income or DCF approach, a method used in some cases for the valuation of

companies in the context of mergers, and in which the determination of the

company’s value is based on projected earnings expectations from the

company’s plans, is a less common method for the valuation of residential

real estate companies. Unlike valuation on the basis of the income approach,

the EPRA NAV-based valuation used here allows for the appraisal of

individual pieces of property, the values of which are in turn based on future

recoverable cash flows from the management of these properties. Because of

the comparatively high visibility of future cash flows from the management

of residential properties, the Management Board is of the opinion that a

valuation on the basis of EPRA NAV leads to a more reliable result

compared to the valuation of a company as a whole based on the income

approach and therefore deems the valuation on the basis of the EPRA NAV

to be superior. In addition, the Management Board would have had no access

to data essential to the valuation of LEG on the basis of the income or DCF

approach, particularly data pursuant to IDW Standard S1. By contrast, LEG

discloses its EPRA NAV in every annual and interim report and has the real

estate valuation based on this key indicator reviewed annually by an

independent external expert in order to prepare its annual financial statements.

Valuation on the basis of liquidation values. A valuation on the basis of

liquidation values was determined to be less suitable, as the intention is for

both companies involved in the transaction to continue operating. In addition,

because of the continuation of the lease contracts in the event of a liquidation,

it is not expected that this valuation method would have led to a substantially

different value ratio compared with a valuation on the basis of the EPRA

NAVs.

Price targets (Kursziele) from analysts’ reports. The Management Board

evaluated available analysts’ reports from major providers for both Deutsche

Wohnen and LEG. The Management Board determined that a valuation based


- 24 -

solely on the price targets (Kursziele) in these reports is less suitable. First,

analysts’ reports are based on different methods for determining the target

price, which is typically issued for a 12-month period. Furthermore, the

valuation methods are not completely transparent and therefore not sufficient

for evaluating their meaningfulness. Both companies were analyzed and

valued by more than 15 analysts at major banks. Within this group, the price

targets (Kursziele) deviate widely from each other, calling into question the

meaningfulness of these price targets (Kursziele). A selection or weighting of

the price targets (Kursziele) would lead to a subjective valuation result.

Although an examination of the arithmetic average as well as the median of

the respective price targets (Kursziele) would mathematically support the

result of the valuation methods used by the Management Board, given the

high variance among such price targets (Kursziele) it, too, seems to be less

suitable.

FFO yields. The Management Board considered a separate valuation of

Deutsche Wohnen and LEG on the basis of their Funds from Operations

(FFO) yields and found it to be less suitable. Because of the limited time

horizon for which the companies involved publish estimates of their future

FFO and because of the different regional focus, the different growth profile

and related lack of comparability of the yields achieved, a comparison on the

basis of the FFO of Deutsche Wohnen and LEG is, in the estimation of the

Management Board, by itself less suitable for reviewing the appropriateness

of the comparative valuation of the two companies. However, for the purpose

of determining the plausibility of its valuation results, the Management Board

compared the FFO profiles of the two companies.

d) Valuation of Deutsche Wohnen

On the basis of the valuation parameters described in section b) Deutsche

Wohnen is valued as follows:

EPRA NAV. On the basis of the EPRA NAV as of 30 June 2015, the

(undiluted) value of Deutsche Wohnen including goodwill is EUR 6,839.3

million, and excluding goodwill is EUR 6,304.2 million. Therefore, the

EPRA NAV per share, based on the number of outstanding shares of

Deutsche Wohnen (337.4 million shares) including good will is EUR 20.27

(excluding goodwill: EUR 18.69).

For the calculation of the EPRA NAV, the underlying valuation of the real

estate held as financial investments (which represents about 99% of the total

real estate holdings of Deutsche Wohnen and about 86% of the assets) is

conducted initially using acquisition and production costs, including ancillary

costs. After the initial valuation, real estate held as financial investments is

measured at its market value (fair value).


- 25 -

The determination of the market value of individual properties was carried out

using the discounted cash flow (DCF) method and was independently

evaluated by CBRE according to the provisions of the Royal Institution of

Chartered Surveyors (RICS) pursuant to the Red Book and pursuant to

international valuation standards (IVS) on the basis of a DCF model. The

valuation by CBRE the real estate assets of Deutsche Wohnen was conducted

as of 30 June 2015, with the exception of senior citizen properties used by

Katharinenhof. The valuation of senior citizen properties used by

Katharinenhof was conducted by CBRE as of 30 June 2014, whereby the

determination of the EPRA NAVs for the purpose of this Management Board

report was based on the updated values of these senior citizen properties from

the interim report as of 30 June 2015.

According to CBRE, the future revenue and expense streams in connection

with the properties that were assessed were forecast along a 10-year detailed

review period, whereby a lease scenario was assumed, without taking account

of the potential privatization of individual residential units. As part of the

valuation, the cash flows were discounted using discount rates of

approximately 5.7% for the residential property portfolio and 7.0% for the

senior citizen property portfolio (weighted average) and capitalization rates of

approximately 4.6% for the residential property portfolio and 7.2% for the

senior citizen property portfolio (weighted average).

The result of the valuation by CBRE does not differ significantly from the

valuation of the real estate determined by the Company and reported in its

financial statements (on the basis of individual properties not more than 10%

or less than EUR 250.000,00 and, based on total holdings valued,

approximately -0.2%). The valuation reports prepared by CBRE for the real

estate assets as of 30 June 2015 (with the exception of the senior citizen

properties used by Katharinenhof) and the valuation reports prepared by

CBRE for the senior citizen properties used by Katharinenhof as of 30 June

2014 updated to 30 June 2015 are attached hereto as Annex C. For the

purpose of this report, the Management Board adopts as its own all of the

information and statements in these reports, and correspondingly includes

them as part of this Management Board report.

EPRA NAV (diluted). In addition to the undiluted EPRA NAV, in its

quarterly report as of 30 June 2015 Deutsche Wohnen also includes a diluted

EPRA NAV including goodwill in the amount of EUR 7,643.4 million. This

corresponds to a diluted EPRA NAV excluding good will of EUR 7,108.3

million.. The diluted EPRA NAV differs from the undiluted EPRA NAV on

the basis of the assumption that the conversion right from the 2013

convertible bond with the amount of EUR 250 million would have been

exercised at a conversion price of EUR 17.7877, and from the 2014


- 26 -

convertible bond with the amount of EUR 400 million at a conversion price

of EUR 21.4120, which would have reduced liabilities by a total of EUR

804.1 million. As a result of the conversion, the number of Deutsche Wohnen

shares existing as of 30 June 2015 would have increased by 32.7 million,

from 337.4 million to 370.1 million and the EPRA NAV per share to

EUR 20.65 (EUR 19.21 excluding goodwill).

The EPRA NAV was derived as follows:

30 June 2015

EUR mn

undiluted diluted

Investment properties .................................. 10,740.3 10,740.3

Other non-current assets ............................. 919.8 919.8

Current assets .............................................. 867.8 867.8

Total assets ................................................. 12,527.8 12,527.8

Non-current liabilities ................................. -5,795.5 -5,795.5

Current liabilities ........................................ -501.1 -501.1

Convertible bonds ....................................... 804.1

Total liabilities ........................................... -6,296.6 -5,492.5

Equity ......................................................... 6,231.2 7,035.3

Minority interests ........................................ -196.4 -196.4

Equity (before minority interests) ........... 6,034.7 6,838.8

Derivative financial instruments ................. 52.4 52.4

Deferred taxes ............................................. 752.2 752.2

EPRA NAV ................................................ 6,839.3 7,643.4

EPRA NAV per share ............................... 20.27 20.65

Goodwill ..................................................... 535.1 535.1

EPRA NAV excluding goodwill ............... 6,304.2 7,108.3

EPRA NAV excluding goodwill per

share ........................................................... 18.69

19.21

Market capitalization. Based on its market capitalization, the value of

Deutsche Wohnen amounts to EUR 8,900.8 million.

This calculation is based on the closing price of Deutsche Wohnen’s shares

on Xetra of the Frankfurt Stock Exchange (Frankfurter Wertpapierbörse) on

the last trading day prior to the publication pursuant to section 10, para. 1, 3,

sentence 1 of the WpÜG in the amount of EUR 24.05 multiplied by 370.1

million. 370.1 million is the total of the number of shares outstanding as of 15

September 2015 (337.4 million) and the number of shares that would result if

there were a conversion of all outstanding convertible bonds at the respective

current conversion price (32.7 million).

Based on the volume-weighted average price (VWAP) during the last 3

months up to the last trading day prior to the publication pursuant to

section 10, para. 1, 3 sentence 1 of the WpÜG of EUR 22.84 per share


- 27 -

(according to Bloomberg) and the, with regard to the market capitalization as

of 15 September 2015, relevant number of 370.1 million bearer shares, the

market capitalization would amount to EUR 8,453.3 million.

e) Valuation of LEG

Based on the previously described valuation parameters, LEG is valued as

follows:

EPRA NAV. On the basis of the EPRA NAV as of 30 June 2015, the

(undiluted) value of LEG including goodwill is EUR 2,969.8 million, and

excluding goodwill is EUR 2,943.9 million. Therefore, the EPRA NAV per

share (base around 58.3 million shares) including good will is EUR 50.98

(excluding goodwill: EUR 50.53).

For the 2014 consolidated financial statement, the market values were

determined internally by a subsidiary of LEG (with the exception of a real

estate portfolio which was acquired by Vonovia SE, formerly known as

Deutsche Annington). Parallel to this, the real estate portfolio was assessed by

an independent external appraiser as of 31 December 2014. This appraisal

report was not published. According to the interim report as of 30 June 2015,

the valuation methods used in this report are the same as the ones used in the

2014 consolidated financial statement. LEG Immo as well determined the

market values for real estate held as financial investments or for sale on the

basis of the forecast net cash flows from the management of properties using

the discounted cash flow (DCF) method. As part of the valuation as of 31

December 2014, the cash flows were discounted using discount rates of on

average 5.93% (weighted average) and capitalization rates in perpetuity of on

average 6.50% (weighted average).

EPRA NAV (diluted). In addition to the undiluted EPRA NAV, in its

quarterly report as of 30 June 2015 LEG also reported a diluted EPRA NAV,

including goodwill, in the amount of EUR 3,329.7 million. This corresponds

to a diluted EPRA NAV of EUR 3,303.8 million, excluding goodwill. The

diluted EPRA NAV was calculated on the assumption that the conversion

right for the outstanding convertible bond with the amount of EUR 300

million was exercised at a conversion price of EUR 58.4317, which would

have reduced liabilities by EUR 359.9 million. This would have increased the

number of LEG Shares as of 30 June 2015 by about 5.1 million from at this

point of thime 58.3 million to 63.4 million and the EPRA NAV per share to

EUR 52.52 (EUR 52.12 excluding goodwill).

Pro forma EPRA NAV (diluted). With the end of the acceptance period and

the fulfilment of the closing conditions (Vollzugsbedingungen) of the

Exchange Offer that must be met before the end of the acceptance period, a


- 28 -

“change of control” provision will be triggered, pursuant to which the

bondholders, inter alia, can demand the conversion at an adjusted conversion

price. Depending on the date on which the acceptance period ends, the

conversion price may be reduced; in the event of an assumed change of

control on 1 December 2015 (approximately 5 1/2 years before the final

maturity of the bond) to EUR 47.4363 (see III.1.b)(3) for the rules of the

bond conditions governing this calculation). In this case, the number of LEG

Shares will increase from (currently) about 58.3 million by about 6.3 million

to 64.6 million. Based on the diluted EPRA NAV and taking into

consideration the adjusted conversion price this results in an EPRA NAV on

a pro-forma basis of EUR 51.56 per share including goodwill (EUR 51.16

excluding goodwill) (the “Pro Forma EPRA NAV (diluted)”).

The EPRA NAV for the valuation as of 30 June 2015 was derived as follows:

30 June 2015

EUR mn

undiluted diluted

Pro-forma

diluted

Investment properties ......................... 6,000.9 6,000.9 6,000.9

Other non-current assets .................... 252.7 252.7 252.7

Current assets ..................................... 321.2 321.2 321.2

Assets held for sale ............................ 8.3 8.3 8.3

Total assets ........................................ 6,583.1 6,583.1 6,583.1

Non-current liabilities ........................ -3,245.5 -3,245.5 -3,245.5

Current liabilities ............................... -890.1 -890.1 -890.1

Convertible bonds .............................. 359.9 359.9

Total liabilities .................................. -4,135.6 -3,775.7 -3,775.7

Equity ................................................ 2,447.5 2,807.4 2,807.4

Non-controlling shares ....................... -14.9 -14.9 -14.9

Equity (before minority

interests) ............................................ 2,432.6 2,792.5 2,792.5

Derivative financial instruments ........ 119.3 119.3 119.3

Deferred taxes .................................... 417.9 417.9 417.9

EPRA NAV ....................................... 2,969.8 3,329.7 3,329.7

EPRA NAV per share ...................... 50.98 52.52 51.56

Goodwill ............................................ 25.9 25.9 25.9

EPRA NAV excluding goodwill ...... 2,943.9 3,303.8 3,303.8

EPRA NAV excluding goodwill

per share ........................................... 50.53 52.12 51.16

Market capitalization. Based on its market capitalization, LEG’s value is

EUR 4,454.7 million.

This calculation is based on the closing price of LEG’s shares on Xetra of the

Frankfurt Stock Exchange (Frankfurter Wertpapierbörse) on the last trading

day prior to the publication pursuant to section 10, para. 1, 3, sentence 1 of


- 29 -

the WpÜG in the amount of EUR 70.27 multiplied by 63.4 million. 63.4

million is the total of the number of shares (58.3 million) outstanding as of

this reference date (Stichtag) and the number of shares that would result if

there were a conversion of all outstanding convertible bonds at the conversion

price as of 18 September 2015 (5.1 million).

Based on the volume-weighted average price (VWAP) during the last 3

months up to the last trading day prior to the publication pursuant to

section 10, para. 1, 3 sentence 1 of the WpÜG of EUR 66.36 per share

(according to Bloomberg), the market capitalization would amount to

EUR 4,206.7 million.

f) Appropriateness of the exchange ratio on the basis of the valuation of Deutsche

Wohnen and LEG

(1) On the basis of the valuations of Deutsche Wohnen and LEG presented in d)

and e), the value ratio of the two companies is as follows, whereby the

calculations are based on the assumption of the acquisition of 100% of LEG:

EPRA NAV including goodwill. Based on the valuation of the two

companies on the basis of their respective EPRA NAVs, including

goodwill, as of 30 June 2015, the value ratio (Wertverhältnis) of

Deutsche Wohnen to LEG is 2.30 to 1, compared to an implicit

value ratio on the basis of the exchange ratio of 1.75 to 1 (calculated

on the basis of the current number of outstanding Deutsche Wohnen

and LEG shares). Accordingly, Deutsche Wohnen will receive, on

the basis of the respective EPRA NAVs as of 30 June 2015, EUR

15.45 per share of Deutsche Wohnen issued, compared to an EPRA

NAV for Deutsche Wohnen of EUR 20.27. Correspondingly, the

implementation of the transaction, before taking into account

synergies and based on the total number of shares used to calculate

the EPRA NAV (529.6 million, following completion of the

transaction), would lead to a dilution of the EPRA NAV of EUR

1.75 (or 8.6%) per share.

EPRA NAV excluding goodwill. Based on the valuation of the two

companies on the basis of their respective EPRA NAVs, excluding

goodwill, as of 30 June 2015, the value ratio (Wertverhältnis) of

Deutsche Wohnen to LEG is 2.14 to 1, compared to an implicit

value ratio on the basis of the exchange ratio of 1.75 to 1 (calculated

on the basis of the current number of outstanding Deutsche Wohnen

and LEG shares). Accordingly, Deutsche Wohnen will receive, on

the basis of the respective EPRA NAVs as of 30 June 2015, EUR

15.31 per share of Deutsche Wohnen issued, compared to an EPRA

NAV for Deutsche Wohnen of EUR 18.69. Correspondingly, the


- 30 -



the EPRA NAV (529.6 million, following completion of the

transaction) would lead to a dilution of the EPRA NAV of EUR

1.23 (or 6.6%) per share.

EPRA NAV (diluted) and pro forma EPRA NAV (diluted), both

including goodwill. For the comparison on the basis of the diluted

EPRA NAV, the pro forma EPRA NAV (diluted) was used for LEG,

because, as a result of the offer, an adjustment of the conversion

price in favour of the holder of the LEG convertible bond and a

corresponding increase in the maximum number of LEG Shares

submitted as part of the offer is expected. Based on the valuation of

both companies on the basis of the EPRA NAV (diluted) for

Deutsche Wohnen and pro forma EPRA NAV (diluted) for LEG as

of 30 June 2015, each including goodwill, the value ratio

(Wertverhältnis) of Deutsche Wohnen to LEG is 2.30 to 1,

compared to an implicit value ratio on the basis of the exchange

ratio of 1.74 to 1 (calculated on the basis of the number of Deutsche

Wohnen and LEG shares underlying the relevant EPRA NAV).

Accordingly, Deutsche Wohnen will receive, on the basis of the pro

forma EPRA NAV (diluted) as of 30 June 2015, EUR 15.62 per

share of Deutsche Wohnen issued, compared to an EPRA NAV

(diluted) for Deutsche Wohnen of EUR 20.65. Correspondingly, the



the relevant EPRA NAV (583.2 million, following completion of

the transaction) would lead to a dilution of the EPRA NAV of EUR

1.84 (or 8.9 %) per share.

EPRA NAV (diluted) and pro forma EPRA NAV (diluted), both

excluding goodwill. Based on the valuation of both companies on

the basis of the EPRA NAV (diluted) for Deutsche Wohnen and pro

forma EPRA NAV (diluted) for LEG as of 30 June 2015, each

excluding goodwill, the value ratio (Wertverhältnis) of Deutsche

Wohnen to LEG is 2.15 to 1, compared to an implicit value ratio on

the basis of the exchange ratio of 1.74 to 1 (calculated on the basis

of the number of Deutsche Wohnen and LEG shares underlying the

relevant EPRA NAV). Accordingly, Deutsche Wohnen will receive,

on the basis of the pro forma EPRA NAV (diluted) as of 30 June

2015, EUR 15.50 per share of Deutsche Wohnen issued, compared

to an EPRA NAV (diluted) for Deutsche Wohnen of EUR 19.21.

Correspondingly, the implementation of the transaction, before

taking into account synergies and based on the total number of


- 31 -

shares used to calculate the relevant EPRA NAV (583.2 million,

following completion of the transaction) would lead to a dilution of

the EPRA NAV of EUR 1.35 (or 7.0 %) per share.

Market capitalization on the basis of closing prices. Based on the

valuation of the two companies on the basis of the closing price on

Xetra of the Frankfurt Stock Exchange (Frankfurter

Wertpapierbörse) on the last trading day prior to the publication

pursuant to section 10, para. 1, 3 sentence 1 of the WpÜG the value

ratio (Wertverhältnis) of Deutsche Wohnen to LEG is 2.00 to 1. For

purposes of the calculation of the market capitalization, the diluted

number of shares of both companies was taken as a basis (for LEG

without consideration of an adjustment of the conversion price as a

result of the change of control), because it reflects the approach and

level of knowledge of market participants at the time of the

valuation (18 September 2015). All bonds were at this time in the

money, so that a conversion was expected; however, the market

could not yet have expected a possible change of control. Calculated

on the basis of the closing prices on Xetra of the Frankfurt Stock

Exchange (Frankfurter Wertpapierbörse) on the last trading day

prior to the publication pursuant to section 10, para. 1, 3 of the

WpÜG, Deutsche Wohnen will receive EUR 20.90 per share of

Deutsche Wohnen issued, compared to the closing price of Deutsche

Wohnen of EUR 24.05. Correspondingly, the implementation of the

transaction, before taking into account of synergies and based on the

total maximum number of outstanding shares of Deutsche Wohnen

following completion of the transaction (583.2 million) would lead

to a mathematical dilution of the market price (Kurswert) of

Deutsche Wohnen shares of EUR 1.15 (or 4.8%) per share.

Market capitalization on the basis of weighted average prices.

Based on the valuation of the two companies on the basis of the

volume-weighted average price (VWAP) of the shares during the

last 3 months up to the last trading day prior to the publication

pursuant to section 10, para. 1, 3 sentence 1 of the WpÜG, the value

ratio (Wertverhältnis) of Deutsche Wohnen to LEG is 2.01 to 1. For

purposes of the calculation of the market capitalization, the diluted

number of shares of both companies was taken as a basis (for LEG

without consideration of an adjustment of the conversion price as a

result of the change of control), because it reflects the approach and

level of knowledge of market participants at the time of the

valuation (18 September 2015). All bonds were at this time in the

money, so that a conversion was expected; however, the market

could not yet have expected a possible change of control. Calculated


- 32 -

on the basis of the volume-weighted average price (VWAP) of the

shares during the last 3 months up to the last trading day prior to the

publication pursuant to section 10, para. 1, 3 of the WpÜG,

Deutsche Wohnen will receive EUR 19.74 per share of Deutsche

Wohnen issued, compared to the average price of Deutsche Wohnen

of EUR 22.84. Correspondingly, the implementation of the

transaction, before taking into account synergies and based on the

total maximum number of outstanding shares of Deutsche Wohnen

following completion of the transaction (583.2 million) would lead

to a mathematical dilution of the average price (Durchschnittswert)

of Deutsche Wohnen shares of EUR 1.13 (or 5.0%) per share.

On the basis of the parameters analyzed here, the dilution was calculated as follows:

EPRA

NAV

EPRA

NAV

(excluding

goodwill)

EPRA

diluted

against

pro forma

EPRA

diluted

EPRA

diluted

against

pro forma

EPRA

diluted

(excluding

goodwill)

Market

capitalization

(closing

price)

Market

capitalization

(3-month

VWAP)

For Deutsche Wohnen

per share in EUR 20.27 18.69 20.65 19.21 24.05 22.84

For LEG per share in

EUR 50.98 50.53 51.56 51.16 70.27 66.36

For LEG per Deutsche

Wohnen share offered

for exchange in EUR1 15.45 15.31 15.62 15.50 20.90 19.74

Difference per

Deutsche Wohnen

share to be offered in

EUR2 4.83 3.37 5.03 3.71 3.15 3.10

Total number of

Deutsche Wohnen

shares to be issued3

192.3

mn

192.3

mn

213.1

mn

213.1

mn

213.1

mn

213.1

mn

Total of the difference

for all Deutsche

Wohnen shares to be

issued in EUR4

927.9

mn

648.8

mn

1,072.0

mn

789.7

mn

671.0

mn

661.4

mn

Total number of

Deutsche Wohnen

529.6

mn

529.6

mn

583.2

mn

583.2

mn

583.2

mn

583.2

mn

1 Respective value per LEG share, multiplied by the exchange ratio (1 to 3.30). 2 Calculated on the basis of the difference of the respective value for Deutsche Wohnen per Deutsche Wohnen share and the value

for LEG per Deutsche Wohnen share to be issued (line 1 minus line 3 of this table). 3 Calculated for undiluted values on the basis of the outstanding number of shares as of the relevant date and for diluted values and

market capitalization on the assumption of the full conversion of outstanding convertible bonds (in the case of LEG, on the basis

of the adjusted conversion price as a result of the change of control), each multiplied by the exchange ratio. 4 Difference per Deutsche Wohnen share to be issued (line 4 of this table) multiplied by the total number of Deutsche Wohnen

shares to be issued (line 5 of this table).


- 33 -

EPRA

NAV

EPRA

NAV

(excluding

goodwill)

EPRA

diluted

against

pro forma

EPRA

diluted

EPRA

diluted

against

pro forma

EPRA

diluted

(excluding

goodwill)

Market

capitalization

(closing

price)

Market

capitalization

(3-month

VWAP)

shares after the

transaction5

Dilution per Deutsche

Wohnen share after the

transaction in EUR6 (1.75) (1.23) (1.84) (1.35) (1.15) (1.13)

Dilution per Deutsche

Wohnen share after the

transaction in %7 (8.6%) (6.6%) (8.9%) (7.0%) (4.8%) (5.0%)

(2) The dilution outlined above on the basis of various key performance

indicators is, however, offset by an increase in value resulting from the

synergies related to the merger. It is recognized that such synergies must be

taken into consideration when determining the appropriateness of the

exchange ratio in connection with a capital increase against contributions in

kind. The synergies result – as presented in detail under III.1.c) – primarily

from the reduction of administrative costs (personell and material costs),

particularly as a result of the combination of holding functions, the merger of

the West German operating platforms, the increase in revenue and returns as

a result of active portfolio management, the standardization of the corporate

structures and the scaling of purchasing.

The capitalized net present value of the revenue and cost synergies, after

deduction of the costs required to achieve them is approximately EUR 935

million (see section III.1.c) above).

Taking account of the synergies, the individual dilutions/increases in value

are as follows:

5 Sum of the total number of Deutsche Wohnen shares to be issued (line 5 of this table) and, (for undiluted values) the undiluted

number of the number of Deutsche Wohnen shares currently outstanding, or (for diluted values and market capitalization) the number of outstanding Deutsche Wohnen shares assuming the full conversion of outstanding convertible bonds.

6 Total of the difference for all Deutsche Wohnen shares issued (line 6 of this table) divided by the total number of Deutsche

Wohnen shares after the transaction (line 7 of this table). 7 Dilution per Deutsche Wohnen share after the transaction in EUR (line 8 of this table) divided by the respective value for

Deutsche Wohnen per share (line 1 of this table).


- 34 -

EPRA

NAV

EPRA

NAV

(excluding

goodwill)

EPRA

diluted

against pro

forma

EPRA

diluted

EPRA

diluted

against pro

forma

EPRA

diluted

(excluding

goodwill)

Market

capitalizati

on (closing

price)

Market

capitalizati

on (3-

month

VWAP)

Dilution (gross) per

share in EUR (1.75) (1.23) (1.84) (1.35) (1.15) (1.13)

Dilution (gross) per

share in % (8.6%) (6.6%) (8.9%) (7.0%) (4.8%) (5.0%)

Synergies per share in

EUR 1.77 1.77 1.60 1.60 1.60 1.60

Value creation/dilution

after synergies per share

in EUR 0.01 0.54 (0.23) 0.25 0.45 0.47

Value creation/dilution

after synergies per share

in % 0.1% 2.9% (1.1%) 1.3% 1.9% 2.1%

The above shows that the transaction, with the exception of the valuation on

the basis of diluted EPRA NAVs, leads to an increase in value, even without

taking account of the additional privatization potential. The dilution for

valuation on the basis of the diluted EPRA NAVs is approximately 1% and is

therefore very low. If one considers the synergies of the merger resulting from

the additional privatization potential with an additional profit contribution of

approximately EUR 20 million before taxes per year, the transaction creates

value under all valuation methods in the high single digit percentage range.

(3) The appropriateness of the relative market valuation of the two companies is

also proven by a comparison of their Funds from Operations (FFO) profiles.

Funds from Operations (FFO) is a relevant liquidity indicator for listed real

estate companies, which is derived from the profit and loss statement. Based

on the profit or loss for a period, adjustments are made for depreciations and

amortizations, special items, non-liquidity-related financing expenses or

financing income and non-liquidity-related tax expenses or tax income. FFO

(including disposals) is adjusted for results from sales in order to determine

the FFO (without disposals).

The following illustration is based on the estimates communicated by LEG to

the market in its interim report as of 30 June 2015 of its FFOs for fiscal years

2015 and 2016. Given that LEG (as well as Deutsche Wohnen) does not

communicate any estimates of its future FFO (including sales) to the market,

the comparison is based on the key figure FFO (excluding sales).


- 35 -

Deutsche Wohnen LEG

Outlook for 2015 FFO (without

disposals) in EUR mn ............... 285-290 200-204

Return on EPRA NAV

(undiluted) as of 30 June 2015 .. 4.2% 6.7-6.9%

Deutsche Wohnen LEG

Outlook for 2016 FFO (without

disposals) in EUR mn ............... 330 233-238

Return on EPRA NAV

(undiluted) as of 30 June 2015 .. 4.8% 7.8-8.0%

As a result of the expected medium-term realization of revenue and cost

synergies in the amount of EUR 32 million per year after taxes, the FFO

profile (without disposals) profile will improve, despite the premium offered

to LEG shareholders:

Deutsche

Wohnen LEG

Combined

company

FFO in EUR mn (2015) ............. 285-290 200-204 485-494

Synergies (after taxes) in EUR

mn .............................................. 32

New FFO in EUR mn (2015)8 ...

517-526

per share in EUR (undiluted) .. 0.84-0.86 3.43-3.50 0.98-0.99

Value creation (undiluted) ...... 15.4%

per share (diluted) .................. 0.77-0.78 3.15-3.22 0.89-0.90

Value creation (diluted) ......... 15.0%

Deutsche

Wohnen LEG

Combined

company

FFO in EUR mn (2016) ............. 330 233-238 563-568

Synergies (after taxes) in EUR

mn .............................................. 32

New FFO in EUR mn (2016)9 ...

595-600

per share in EUR (undiluted) .. 0.98 4.00-4.09 1.12-1.13

Value creation (undiluted) ...... 14.8-15.7%

per share (diluted) .................. 0.89 3.68-3.75 1.02-1.03

8 The calculation of the undiluted FFO per share is based on the number of shares of both companies currently outstanding and the

calculation of the diluted FFO per share is based on the number resulting from the assumption of the full conversion of

outstanding convertible bonds (for the combined company with respect to LEG, on the basis of the adjusted conversion price as a result of the change of control). No adjustment of the respective FFOs with respect to the interest effect (Zinseffekt) from the

conversion of the bonds has been carried out because of a lack of relevance and because of a lack of the relevant information for

LEG. 9 The calculation of the undiluted FFO per share is based on the number of shares of both companies currently outstanding and the

calculation of the diluted FFO per share is based on the number resulting from the assumption of the full conversion of

outstanding convertible bonds (for the combined company with respect to LEG, on the basis of the adjusted conversion price as a

result of the change of control). No adjustment of the respective FFOs with respect to the interest effect (Zinseffekt) from the conversion of the bonds has been carried out because of a lack of relevance and because of a lack of the relevant information for

LEG.


- 36 -

Deutsche

Wohnen LEG

Combined

company

Value creation (diluted) ......... 14.3-15.3%

The above comparison shows that, based on a comparison of the FFO

(without disposals), the planned merger creates value from the perspective of

Deutsche Wohnen shareholders in the lower two digit percentage range.

However, with respect to the above comparison it should be noted that long-

term single-unit privatizations with a corresponding contribution to the FFO

(including disposals) are a significant pillar of Deutsche Wohnen’s business

model, while a corresponding privatization program does not, to the

knowledge of the Management Board, exist to an appreciable extent at LEG.

Correspondingly, the Management Board assumes that while a comparison of

the companies on the basis of the FFO (including disposals) would be value

creating, it would not be so to the same extent as a comparison on the basis of

the FFO (without disposals).

IV.

Pursuant to section 186, para. 4 sentence 2 of the AktG, the Management Board hereby presents to the

General Meeting the following report on the justification for the intended exclusion of the

shareholdersʼ subscription rights as part of the aforementioned proposed resolution for a capital

increase against contributions in kind. In this respect, the statements made in section III. regarding the

entire transaction also apply to this report and are an integral component of it.

A proposal is made to the General Meeting to increase the share capital of the Company from

EUR 336,426,511.00 registered with the commercial register (Handelsregister) by up to

EUR 213,127,385.00 to up to EUR 549,553,896.00 against contributions in kind.

In general, shareholders have a legal subscription right when there is a capital increase (section 186,

para. 1, sentence 1 of the AktG). However, the Supervisory Board and the Management Board

propose to the General Meeting to exclude the subscription right of shareholders pursuant to

section 186, para. 3 of the AktG in the resolution on the increase of the share capital.

The purpose of the proposed capital increase with the exclusion of the shareholdersʼ subscription

rights is to enable the Company to acquire an interest in LEG by increasing the Company’s share

capital through the issuance of shares in the Company against the contribution of shares of LEG as

contributions in kind. The shares issued in the course of the proposed capital increase of the Company

shall be issued in connection with the Exchange Offer made to all shareholders of LEG pursuant to

sections 29, 31 para. 2, sentence 1, alternative 2 of the WpÜG to acquire all LEG Shares held by the

shareholders of LEG at a ratio of 1 to 3.30, i.e. LEG shareholders receive 3.30 shares in Deutsche

Wohnen for 1 LEG share.


- 37 -

The purpose of the proposed exclusion of the shareholders’ subscription rights is in the companyʼs

interest (Gesellschaftsinteresse) of Deutsche Wohnen. The exclusion of the shareholders’ subscription

rights is suitable and necessary for the furtherance of the interests of Deutsche Wohnen and is

proportional to the disadvantages of the shareholders of Deutsche Wohnen. The exchange ratio

between the LEG Shares and the shares of Deutsche Wohnen of 1 to 3.30 is not unreasonably to the

detriment of the shareholders of Deutsche Wohnen.

1. The interest of Deutsche Wohnen in the exclusion of the shareholders’ subscription

rights

The purpose of the proposed exclusion of the shareholders’ subscription rights –

acquiring an interest in LEG via a capital increase against contributions in kind and

the Exchange Offer to the shareholders of LEG – is in the interest of the Company.

This criterion is satisfied if the corporate bodies involved in the decision making

justifiably take the view that the capital increase against contributions in kind is in the

best interest of the Company and thus of all shareholders. According to the synergies

described above under III.1.c), the Company is especially interested in concentrating

on a growth market through the merger with LEG and achieving the described

synergy potential:

The merger with LEG therefore offers annual revenue and cost synergies which the

Management Board deems feasible given full integration within four years after

completion of the transaction and which it figures to amount to approximately EUR

35 million before taxes. The capitalized net present value of the synergies amounts to

approximately EUR 935 million, taking into account the costs required to realize the

synergies (see above under III.1.c)).

Furthermore, the acquisition of LEG strengthens the capital market profile of the

combined company. The combined market capitalization of the free float makes

Deutsche Wohnen among the largest real estate companies in Europe and strengthens

the liquidity of the stock. In addition, it will be easier to raise equity and debt capital

because the combined company’s position in the competition for investors would be

improved.

According to expectations of the Management Board, with an average remaining term

of the financial liabilities of around 10 years and financing costs of approximately 2%

the combined group has good financial indicators as compared to its competitors as

well as a conservative capital structure with a leverage ratio (loan-to-value) of around

42%. In comparison to its main competitors, it has a very efficient cost structure and,

measured in terms of the number of residential units, it would be the second largest

listed residential real estate company in Germany, with the completion of the

transaction reducing the gap to the largest company considerably.


- 38 -

2. Suitability and necessity of the exclusion of the shareholders’ subscription rights

The Management Board considers the exclusion of the shareholders’ subscription

rights to be suitable and necessary to achieve the underlying purpose in the interest of

the Company.

The exclusion of the shareholders’ subscription rights is suitable to achieve the

purpose pursued in the interest of the Company because the Exchange Offer to the

shareholders of LEG, i.e. the offer to exchange all of their LEG Shares for New

Shares of the Company from the proposed capital increase against contributions in

kind requires an exclusion of the Company’s shareholders’ subscription rights.

The exclusion of the shareholders’ subscription rights is also necessary to achieve this

purpose. In its deliberations the Management Board has considered alternatives for

structuring the proposed transaction, but it has rejected them as impractical or less

suitable:

Due to the magnitude of the financing required for the acquisition of LEG, a debt

financing of the acquisition is not feasible. As of 30 June 2015 Deutsche Wohnen’s

loan-to-value ratio amounts to approximately 40.9% (reported net financial debt of

EUR 4,455 million in relation to properties held as investment properties, non-current

assets held for sale, as well as land and buildings held for sale, amounting to a

reported value of EUR 10,901.7 million). As of 30 June 2015, LEG had a loan-to-

value ratio of approximately 49.4% (reported net financial debt of EUR 3,022.7

million in relation to properties held as investment properties, assets held for sale and

prepayments on properties held as investment properties amounting to a reported total

value of EUR 6,120.6 million). If the acquisition of all shares in LEG including the

proposed premium were entirely debt financed, then the combined company would

have a loan-to-value ratio of around 72.2%. This leverage ratio would lie significantly

above the industry standard and would be contrary to the expectations of investors

concerning the management of Deutsche Wohnen, which has been known in the past

to clearly aim for a conservative capital structure. In addition, a negative impact on

Deutsche Wohnen’s credit rating could be expected given such an increase in the

leverage ratio, and in turn would significantly increase the refinancing risk in relation

to existing financial liabilities and, at least in the medium term, the financing costs of

the Company.

This loan-to-value ratio would be significantly above the industry standard and thus

excludes the borrowing of funds in the required amount – in any case, due to the

financing costs, a fully debt-financed acquisition would be associated with high

economic risks for the Company.

A capital increase against cash contributions without an exclusion of the shareholders’

subscription rights, in order to pursue the contemplated transaction using cash and

allowing the shareholders of the Company to subscribe for the shares issued in the


- 39 -

context of the transaction, is less suitable than an acquisition by way of an Exchange

Offer for several reasons. First, such a capital increase against cash contributions

would have to finance the entire takeover offer even in case of an acceptance rate of

100%. Neither the extent to which shareholders subscribe for new shares nor the

subscription price (Bezugspreis) in the course of such capital increase – at least with

such a volume – can be predicted with any certainty and depends, in particular, on the

market conditions at the time of the implementation of the capital increase. In order to

obtain reasonable assurance as to the financial viability of the offer, a rights issue

would have to precede the beginning of the acceptance period of the Exchange Offer.

This in turn means that the capital increase would have to be implemented before the

actual acceptance rate and the success of the takeover offer could be determined.

Consequently, following the capital increase against cash contributions, the Company

would be significantly overcapitalized if the offer were not implemented, for example,

due to a competing offer or non-occurrence of offer conditions, or were only partially

implemented, for example due to an acceptance rate lower than was assumed when

calculating the size of the capital increase. Finally, the implementation of such a

measure would, for lack of sufficient authorized capital, require a direct resolution of

the General Meeting; therefore, implementation of the measure before the beginning

of the acceptance period would be associated with significant timing risks.

In connection with the Exchange Offer, a combined equity- and debt-financed

acquisition of the shares in LEG is also less suitable than a capital increase against

contributions in kind with the exclusion of the shareholders’ subscription rights, even

though a partial debt financing could in principle complement a capital increase

against cash contributions without an exclusion of the shareholders’ subscription

rights and lead to a reduction of the market risk. However, taking into account the

current debt financing of LEG’s portfolio, the transaction would lead to a significant

increase of the loan-to-value ratio of the combined company. Moreover, this would

not change the fact that the Company would be overcapitalized if the Exchange Offer

were either not implemented at all or not fully implemented.

Finally, an acquisition by way of a merger by absorption (Verschmelzung durch

Aufnahme) (section 2, no. 1 of the German Transformation Act (“UmwG”)) is also

less suitable. Firstly, the subscription rights of the Company’s shareholders would be

excluded in the same way as in the case of a capital increase against contributions in

kind, because the shares issued in the course of the merger-linked capital increase

(Verschmelzung mit Kapitalerhöhung) (section 69 UmwG) mandatorily would have to

be awarded to the shareholders of LEG. Secondly, in contrast to the contemplated

acquisition of a maximum of 94.9% of the shares in LEG in case of a capital increase

against contributions in kind excluding the shareholders’ subscription right, the

merger would lead to the acquisition of all shares in LEG and thus trigger a German

real estate transfer tax with regard to the real estate of LEG located in Germany.


- 40 -

3. Appropriateness of the exclusion of subscription rights and appropriateness of the

exchange ratio

The exclusion of the subscription rights is also appropriate in order to achieve the goal

to acquire an interest in LEG, which is in the companyʼs interest

(Gesellschaftsinteresse), by means of a capital increase against contributions in kind

and an Exchange Offer to the shareholders of LEG. Moreover, the exchange ratio

between the LEG Shares and the shares of Deutsche Wohnen is not unreasonably low

at the expense of the shareholders of Deutsche Wohnen.

In the context of the capital increase against contributions in kind, the exclusion of

subscription rights will inevitably cause a dilution of membership rights

(Mitgliedschaftsrechte) of the shareholders of Deutsche Wohnen. The dilution of the

existing participations in Deutsche Wohnen associated with the exclusion of

subscription rights is, however, proportionate to the objective pursued in the interest

of the Company and therefore justified.

In addition, the exclusion of subscription rights in the context of the capital increase

against contributions in kind will lead to a dilution of the intrinsic value of the shares

of the Deutsche Wohnen shareholders. However, this dilution is, under nearly all of

the methods for valuing the shares considered, almost completely balanced out by

revenue and cost synergies that can be realized as a result of the transaction. This is

because, with the exception of the valuation on the basis of the diluted EPRA NAVs,

the transaction leads to a creation of value from the perspective of Deutsche Wohnen.

The dilution for valuation on the basis of the diluted EPRA NAVs is approximately

1% and is therefore very low (see section III.3.f) above). Considering the sustainable

revenue potential associated with the additional volume of privatizations, the

transaction creates value under all valuation methods in the high single digit

percentage range. This valuation is supported by a comparison of the FFO profiles of

the companies.

It is recognized that synergies must be taken into consideration when assessing the

appropriateness of the exchange ratio in connection with a capital increase against

contributions in kind. It is also recognized that an appropriate premium may be

granted in favor of the new shareholders in order to help the Exchange Offer succeed.

The Management Board therefore considers the exchange ratio underlying the capital

increase against contributions in kind as appropriate from the perspective of Deutsche

Wohnen.

* * *

Frankfurt am Main, Germany, September 2015

Deutsche Wohnen

The Management

* * *

Annex A

To the Report of the Management Board pursuant to section 186, para. 4, sentence 2 of the

German Stock Corporation Act (“AktG”) on agenda item 1 for the Extraordinary General

Meeting to be held on Wednesday, 28 October 2015 regarding the reason for the exclusion of

shareholders’ subscription rights

Annex B


German Stock Corporation Act (“AktG”) on agenda item 1 for the Extraordinary General

Meeting to be held on Wednesday, 28 October 2015 regarding the reason for the exclusion of

shareholders’ subscription rights

Deutsche Wohnen AG Valuation Report ▪ CBRE

V-1 of V-50

Annex C


German Stock Corporation Act (“AktG”) on agenda item 1 for the Extraordinary General Mee-

ting to be held on Wednesday, 28 October 2015 regarding the reason for the exclusion of share-

holders’ subscription rights

VALUATION REPORT FOR THE DETERMINATION OF FAIR VALUE

in the form of a condensed valuation report (“Valuation Report”) of the determination of Fair Value

carried out by CBRE in accordance with the International Financial Reporting Standards (IFRS), the

International Standards for the Valuation of Real Estate for Investment Purposes (“International Valuation

Standards”) and the RICS Valuation – Professional Standards, (January 2014) (Red Book), published by the

Royal Institution of Chartered Surveyors, for the purpose of the integration into the corporate

management report for the extraordinary general meeting in Q3 or Q4 2015 by Deutsche Wohnen AG

(the “Company”). The Report covers the Residential Portfolio of 2,277 investment assets, comprised of

141,858 residential units, 2,447 commercial units and 34,015 miscellaneous rented units (garages, parking

spaces, antennas) and Land consisting of 23 undeveloped sites with an area of 758,532 sq m and the

Nursing and Assisted Living Portfolio, comprised of 17 assets.

Date of Valuation: Residential Portfolio: June 30, 2015

Nursing and Assisted Living Portfolio: June 30, 2014

Date of Valuation Report: September 18, 2015

Valuer:

CBRE GmbH

Bockenheimer Landstraße 24

60323 Frankfurt

Germany

Addressee: Deutsche Wohnen AG

Pfaffenwiese 300

65929 Frankfurt am Main

Germany

CBRE is a "Gesellschaft mit beschränkter Haftung" (limited liability company), registered under commercial law in Germany under

the company registration number 13347. The German company CBRE GmbH was established on April 3, 1973 and has its registered

office at Bockenheimer Landstraße 24, 60323 Frankfurt/Main, Germany.

CBRE is not a company that is regulated by any regulatory authority; however in its valuation department it employs amongst others

a publicly appointed and sworn-in valuer (Öffentlich bestellter und vereidigter Sachverständiger), members of the Royal Institution

of Chartered Surveyors (RICS), and valuers certified by HypZert GmbH.


V-2 of V-50

SUMMARY OF THE VALUATION CONCLUSIONS

Upon the assumption that, after reasonable inquiry of the Company, there are no onerous restrictions or

unusual outgoings of which we have no knowledge and based on the specific comments and

assumptions outlined in this Valuation Report, we are of the opinion that the aggregate of the individual

Fair Values (net) of the freehold / ground-leasehold interests in the assets, rounded at asset level, are:

the Residential Portfolio

as at June 30, 2015:

the Nursing and Assisted Living Portfolio


10,282,752,000 EUR

(Ten billion, two hundred and eighty-two million,

seven hundred and fifty-two thousand Euros)

net of purchasers’ costs and VAT

of which the value of the Land is 19,191,500 EUR.

143,820,000 EUR

(One hundred and forty-three million, eight hun-

dred and twenty thousand Euros)


The assessment of Fair Values was carried out at asset level. The aggregate of the individual Fair Values

presented here takes into account the marketing period and the transaction costs of the individual assets

and does not reflect any discounts or premiums on the sale of the whole portfolio or if parts of the

portfolio were to be marketed simultaneously or in lots.

CBRE has not been engaged to update the CBRE valuations for the purpose of the Valuation Report, has

no obligation to do so and has not updated the CBRE valuations after these valuation dates. CBRE is

currently in the process of updating the Fair Value of the Nursing and Assisted Living Portfolio for internal

purposes with the date of valuation being August 31, 2015. This valuation will not be completed prior to

the date of the Valuation Report.

For a detailed breakdown of values between freehold-equivalent and leasehold assets please refer to Part

5 “Valuation Conclusions”.

One asset in the Residential Portfolio has a negative Fair Value as shown below:

This negative Fair Value is reflected in the total aggregate figure given above.

For the avoidance of doubt, we have not included assets which are held by the Company for their own

occupation in this valuation.

Asset Cluster Postcode City AddressFair Value

EUR

1150.67 BC_0102 14193 Berlin Nikischstr. 4, 4a, 6; Regerstr. 11, 11a - c, 13 -2,999,300


V-3 of V-50

The following table shows the aggregated key valuation data for the portfolios (excluding Land):

Residential Portfolio Nursing and Assisted Living

Portfolio

Fair Value: 10,263,560,500 EUR 143,820,000 EUR

Total lettable area: 8,883,891 sq m 102,289 sq m

Average Fair Value per sq m lettable area: 1,155 EUR 1,406 EUR

Current annual rental income (gross): 609,583,745 EUR 11,440,901 EUR1

Potential annual rental income (gross): 628,900,635 EUR 11,594,021 EUR

Estimated annual rental value (gross): 714,077,329 EUR 11,153,814EUR

Multiplier (based on current rent): 16.8 times 12.6 times

Multiplier (based on potential rent): 16.3 times 12.4 times

Multiplier (based on rental value): 14.4 times 12.9 times

Net initial yield (based on current rent): 4.4% 6.7%

Net initial yield (based on potential rent): 4.6% 6.8%

Net initial yield (based on rental value): 5.3% 6.5%

For further information please refer to Part 6 “Valuation Key Definitions”.

Our opinion of Fair Value is based upon the scope of work and valuation assumptions as, set out in Part 4

“Explanation of Valuation” and Part 5 “Valuation Conclusions” of this Valuation Report and has been

derived mainly using comparable recent market evidence on arm’s length terms.

1 Thereof 97.4% are generated by owner-occupied leases and 2.6% by third-party leases (retail, residential, parking

spaces).


V-4 of V-50

CONTENTS

1 BASIS OF VALUATION ............................................................................................................. 6

1.1 Preamble ............................................................................................................................................................. 6

1.2 Valuation Instructions ..................................................................................................................................... 6

1.3 Purpose of Valuation ...................................................................................................................................... 7

1.4 Addressee/Reliance......................................................................................................................................... 7

1.5 Publication.......................................................................................................................................................... 7

1.6 Date of Valuation ............................................................................................................................................. 7

1.7 Subject Assets ................................................................................................................................................... 7

1.8 Tenure (except Land) ...................................................................................................................................... 7

1.9 Concept of Value ............................................................................................................................................. 7

1.10 Currency .............................................................................................................................................................. 8

1.11 Sources of Information .................................................................................................................................. 9

1.12 Place of Performance and Jurisdiction ..................................................................................................... 9

1.13 Assignment of Rights ..................................................................................................................................... 9

1.14 Declaration of Independence ...................................................................................................................... 9

2 RESIDENTIAL PORTFOLIO (EXCLUDING LAND) ......................................................................... 10

2.1 Portfolio Structure ......................................................................................................................................... 10

2.2 Regional Allocation ....................................................................................................................................... 10

2.3 Total Lettable Area by Type of Use .......................................................................................................... 11

2.4 Current Gross Rental Income (annualised) by Type of Use ............................................................. 11

2.5 Residential Units by Regional Portfolios ................................................................................................ 12

2.5.1 Lettable Area by Regional Portfolios ............................................................................................................... 14

2.5.2 Vacancy Rate by Regional Portfolios ............................................................................................................... 14

2.5.3 Current Gross Rental Income (annualised) by Regional Portfolios ....................................................... 15

2.5.4 Fair Value by Regional Portfolios ...................................................................................................................... 15

2.5.5 Fair Value (EUR per sq m) by Regional Portfolios ....................................................................................... 16

2.6 Fair Value of Residential Portfolio ............................................................................................................ 16

2.7 Key Valuation Data ........................................................................................................................................ 18

3 NURSING AND ASSISTED LIVING PORTFOLIO ......................................................................... 19

3.1 Portfolio Structure ......................................................................................................................................... 19

3.2 Tenants and Tenancies ................................................................................................................................ 19

3.3 Regional Allocation ....................................................................................................................................... 19

3.4 Asset Type ....................................................................................................................................................... 20

3.5 Current Gross Rental Income (annualised) by Federal State ......................................................... 20

3.6 Fair Value by Federal State ......................................................................................................................... 21

3.7 Fair Value of Nursing and Assisted Living Portfolio ......................................................................... 22

3.8 Key Valuation Data ....................................................................................................................................... 22

4 EXPLANATION OF VALUATION .............................................................................................. 24

4.1 Inspections ...................................................................................................................................................... 24

4.1.1 Basis of Inspections .............................................................................................................................................. 24 4.1.2 Inspection Dates and Coverage ....................................................................................................................... 26

4.2 Method of Valuation ................................................................................................................................... 26

4.2.1 Discounted Cash Flow (DCF) ............................................................................................................................. 26 4.2.2 Land Approach ....................................................................................................................................................... 28


V-5 of V-50

4.3 General Valuation Assumptions .............................................................................................................. 30

4.3.1 Constituents of the Subject Assets .................................................................................................................. 30 4.3.2 Structural Surveys .................................................................................................................................................. 30 4.3.3 Accommodation .................................................................................................................................................... 32 4.3.4 Environmental Aspects ........................................................................................................................................ 32 4.3.5 Title and Tenancies ............................................................................................................................................... 33 4.3.6 Pending Litigation, Legal Restrictions (Easements on Real Estate, Rent Regulations etc.) .......... 35 4.3.7 Monument Protection ......................................................................................................................................... 35 4.3.8 Tenants ..................................................................................................................................................................... 35 4.3.9 Taxes, Contributions, Charges .......................................................................................................................... 35 4.3.10 Insurance ......................................................................................................................................................... 35 4.3.11 Legal Requirements / Authorisation for the Construction and Use of the Subject

Assets 35 4.3.12 Infrastructure and Exploration .................................................................................................................. 37 4.3.13 Assumptions Regarding the Future ........................................................................................................ 37

4.4 Valuation Parameters .................................................................................................................................. 37

4.4.1 Non-Recoverable Management Costs .......................................................................................................... 37 4.4.2 Non-Recoverable Repair and Maintenance Costs ..................................................................................... 37 4.4.3 Capital Expenditure and other Factors affecting the Value .................................................................... 38 4.4.4 Tenant Improvements ......................................................................................................................................... 38 4.4.5 Non-Recoverable Operating Costs (Vacancy) ............................................................................................ 40 4.4.6 Inflation ..................................................................................................................................................................... 40 4.4.7 Discount Rate and Exit Capitalisation Rate .................................................................................................. 40 4.4.8 Estimated Rental Value (ERV) ............................................................................................................................. 41 4.4.9 Market Rental Trends during the Period of Detailed Considerations .................................................. 41 4.4.10 Rent Control and Public Subsidies .......................................................................................................... 43 4.4.11 Structural and Fluctuation Vacancy ........................................................................................................ 43 4.4.12 Purchaser’s Costs .......................................................................................................................................... 45

5 VALUATION CONCLUSIONS .................................................................................................. 46

6 VALUATION KEY DEFINITIONS ............................................................................................... 48


V-6 of V-50

1 BASIS OF VALUATION

1.1 Preamble

Residential Portfolio:

Since 2009, CBRE GmbH („CBRE“) valuates the assets contained in the Residential Portfolio of the

Company at the respective valuation dates for accounting purposes. The assets were evaluated for

accounting purposes the last time on June 30, 2015.

Nursing and Assisted Living Portfolio:

CBRE has previously valued parts of the Nursing and Assisted Living Portfolio as at December 31, 2012 and

June 30, 2013 and all parts of the portfolio as at June 30, 2014 for accounting purposes.

1.2 Valuation Instructions

CBRE has been appointed to carry out a Fair Value valuation of the Company’s assets. CBRE has prepared

a valuation report in the form of a condensed valuation report (“Valuation Report”) for the valuations with

the valuation dates being:

Residential Portfolio: June 30, 2015

Nursing and Assisted Living Portfolio: June 30, 2014

Residential Portfolio: CBRE has not conducted any re-inspections of the assets except for the recently

acquired assets. For further details please refer to Part 4.1.2 “Inspection Dates and Coverage”.

Nursing and Assisted Living Portfolio: CBRE has inspected all the assets for the above mentioned

instruction with the valuation date June 30, 2014.

The assets have been valued individually at asset level (valuation units).

We understand that the assets are principally held as investments and that the Company requires the

value of the freehold or leasehold interests as appropriate.

We confirm that regarding this instruction we are acting solely for the Company and that we have no

conflicts of interests in relation to this instruction.

This valuation is based on information provided for the purposes of the above mentioned valuations and

the current data provided by the Company as at:

Residential Portfolio: April 30, 2015 (rent roll, expiration dates of subsidies, modernized assets);

June 30, 2015 (Overview of sold rental units)

Nursing and Assisted Living Portfolio: the data provided by the Company as at June 23, 2014.







V-7 of V-50

1.3 Purpose of Valuation

We acknowledge that our Valuation Report will be used by the Principal exclusively for integration into

the corporate management report for the extraordinary general meeting in Q3 or Q4 2015.

1.4 Addressee/Reliance

The present Valuation Report is addressed to:

Deutsche Wohnen AG, Pfaffenwiese 300, 65929 Frankfurt am Main, Germany

1.5 Publication

CBRE acknowledges and agrees that the Valuation Report will be published in unaltered form (subject to

prior written approval by CBRE) in the corporate management report for the extraordinary general

meeting in Q3 or Q4 2013.

Apart from that, neither the whole nor any part of the Valuation Report nor any references thereto may

be published in any form without CBRE’s prior approval of the form and context in which it will appear

(e.g. in the form of documents or circulars).

1.6 Date of Valuation

Residential Portfolio: the effective valuation date is June 30, 2015.

Nursing and Assisted Living Portfolio: the effective valuation date is June 30, 2014.

1.7 Subject Assets

In accordance with the valuation instructions, the subjects of the valuation are:

Residential Portfolio: the assets held as at June 30, 2015 comprised of 2,277 assets with 141,858 residential

units, of which 21,935 are subject to public rent control, 2,447 commercial units and 34,015 miscellaneous

rented units (garages, parking spaces, antennas) and Land (23 assets) with an area of 758,532 sq m.

Nursing and Assisted Living Portfolio: comprised of 17 assets.

1.8 Tenure (except Land)

Residential Portfolio: the portfolio is comprised of 2,189 assets which are freehold-equivalent and 88

assets which are ground leasehold-equivalent with the Company as ground leaseholder. The average,

unweighted leasehold term ends on March 21, 2059. The 88 ground leasehold assets account for 2.4% of

the aggregate Fair Value of the portfolio.

Nursing and Assisted Living Portfolio: the portfolio is comprised of 17 assets which are all freehold-

equivalent.

1.9 Concept of Value

The assessment of Fair Value has been carried out by CBRE in accordance with the guidelines of the


V-8 of V-50

International Financial Reporting Standards (IFRS), the International Standards for the Valuation of Real

Estate for Investment Purposes (International Valuation Standards) and the RICS Valuation – Professional

Standards (January 2014) (Red Book) of the Royal Institution of Chartered Surveyors.

The assets have been valued to “Fair Value” in accordance with IAS 40 in connection with IFRS 13.9 of the

International Financial Reporting Standards (IFRS) published by the International Accounting Standards

Board (IASB), which is defined as:

“Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly

transaction in the principal (or most advantageous) market at the measurement date. “

"Fair Value", for the purpose of financial reporting under International Financial Reporting Standards is

effectively the same as "Market Value", which is defined as:

“The estimated amount for which an asset or liability should exchange on the valuation date between a

willing buyer and a willing seller in an arm´s-length transaction after proper marketing and where the

parties had each acted knowledgeably, prudently and without compulsion.”

We have valued the assets individually and no account has been taken of any discounts or premiums that

may be negotiated in the market if all or part of the portfolios were to be marketed simultaneously, either

in lots or as a whole.

We confirm that we have sufficient current local and national knowledge of the particular asset market

involved and have the skills and understanding to undertake the valuation competently.

The assets have been valued by valuers who are qualified for the purpose of the valuation in accordance

with the RICS Valuation – Professional Standards (January 2014). Where the knowledge and skill

requirements of the Red Book have been met in aggregate by more than one valuer within CBRE, we

confirm that a list of those valuers has been retained within the working papers, together with

confirmation that each named valuer complies with the requirements of the Red Book.

Note:

The valuation represents the figures that would appear in a hypothetical contract of sale at the valuation

date. No allowances have been made for any expenses of realisation nor for taxation which might arise in

the event of a disposal. Our valuations are net of purchasers' statutory and other normal acquisition costs.

No account has been taken of any inter-company leases or arrangements, nor of any mortgages,

debentures or other charge. No account has been taken of the availability or otherwise of capital-based

Government or European Community grants. All rents and capital values stated in this report are

presented without VAT.

The values stated in this report represent our objective opinion of Fair Value in accordance with the

definition set out above as at the valuation date. Amongst other things, this assumes that the assets had

been properly marketed and that exchange of contracts took place on this date.

1.10 Currency

The currency used in the Valuation Report is Euro.


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1.11 Sources of Information

We have carried out our work based upon information supplied to us by the Company, which we have

assumed to be correct and comprehensive.

All documents provided were checked for plausibility.


The figures in this report are based on the rent roll provided by the Company, dated April 30, 2015, and

an overview of sold rental units, dated June 30, 2015.

Nursing and Assisted Living Portfolio

The figures are based on the rent roll (including occupancy rate, number of beds, investment costs, floor

areas, rents) and leases provided by the Company as at June 23, 2014.

1.12 Place of Performance and Jurisdiction

German law applies. The place of performance and jurisdiction is Frankfurt am Main.

1.13 Assignment of Rights

The Addressee of this Valuation Report is not entitled to assign its rights - in whole or in part - to third

parties.

1.14 Declaration of Independence

We hereby confirm that to the best of our knowledge and belief CBRE has carried out the assessment of

Fair Value in its capacity as an external valuer. We further confirm that CBRE is not aware of any actual or

potential conflict of interest that might have influenced its independent status. This declaration also

includes all other departments of CBRE GmbH, including the Investment and Agency Departments.

The total fees, including the fee for this assignment, earned by CBRE GmbH from the Company are less

than 2.5% of the total German revenues earned by CBRE GmbH in 2014. It is not anticipated that this

situation will change in the financial year ending December 31, 2015. We confirm that we do not have any

material interest in Deutsche Wohnen AG or the assets.


V-10 of V-50

2 RESIDENTIAL PORTFOLIO (EXCLUDING LAND)

2.1 Portfolio Structure

The majority of the 2,277 assets in the Residential Portfolio are residential buildings (1,999 assets). The

remainder comprises mixed-use buildings (85 assets), commercial buildings (54 assets), parking units (134

units) and other units (5 units). The portfolio includes 178,320 rental units, comprised of 141,858 residential

units, 2,447 commercial units (office, retail and other commercial), 3,647 other units and 30,368 parking

spaces.

2.2 Regional Allocation

As shown on the following map, the assets of the portfolio are located in 156 towns and cities throughout

Germany, mainly concentrated in the Berlin and Rhine-Main economic regions.

Microsoft MapPoint Europa 2010; CBRE GmbH


V-11 of V-50

2.3 Total Lettable Area by Type of Use

(Total lettable area: 8,883,891 sq m)

2.4 Current Gross Rental Income (annualised) by Type of Use

(Total rental income: 609,583,745 EUR)


V-12 of V-50

2.5 Residential Units by Regional Portfolios

The Company, Deutsche Wohnen AG, has divided the Residential Portfolio (excluding Land) into 12

“Regional Portfolios”. The following table, which is provided for informational purposes only, refers to

residential units only and illustrates, together with the other graphics, the distribution of total lettable

areas, Fair Values and Fair Values per sq m in these Regional Portfolios.


V-13 of V-50

(Please refer to the Part 6 “Valuation Key Definitions”.)2

2 taking into account occupied units only

Regional Portfolio

Number of

Residential

Units

Residential

Accommo-

dation

sq m

Current

Residential

Rent

EUR per sq m

per month²

Residential

Market Rent

EUR per sq m

per month

G ross

Multiplier

(based on

current

rent)

G ross

Multiplier

(based on

potential

rent)

G ross

Multiplier

(based on

market

rent)

Berlin area 101,928 6,087,637 5.74 6.75 17.8 17.3 14.9

Dresden 2,654 168,432 5.11 5.68 16.8 15.4 14.1

Erfurt 618 33,564 5.88 6.01 13.9 13.4 13.2

Halle/Leipzig 1,684 98,315 5.18 5.28 12.7 12.3 12.1

Hanover-Brunswick 8,790 574,342 5.39 5.78 13.8 13.3 12.5

Kiel/Lübeck 1,974 126,430 5.12 5.25 12.1 11.6 11.4

Magdeburg 2,101 123,893 5.24 5.41 13.4 12.7 12.4

Mannheim/Ludwigshafen 4,772 297,790 5.61 6.02 13.6 13.2 12.4

Rhineland 4,573 293,276 5.82 6.27 14.1 13.5 12.7

Rhine-Main 9,127 552,091 7.22 8.19 16.7 16.2 14.5

Other Core 519 32,270 4.94 5.59 12.5 11.8 10.5

Other Non-Core 3,118 207,251 4.78 4.96 12.0 11.0 10.6

Total 141,858 8,595,291 5.76 6.61 16.8 16.3 14.4


V-14 of V-50

2.5.1 Lettable Area by Regional Portfolios

(Total lettable area: 8,883,891 sq m)

2.5.2 Vacancy Rate by Regional Portfolios


V-15 of V-50

2.5.3 Current Gross Rental Income (annualised) by Regional Portfolios

(Total rental income: 609,583,745 EUR)

2.5.4 Fair Value by Regional Portfolios

(Total Fair Value: 10,263,560,500 EUR)


V-16 of V-50

2.5.5 Fair Value (EUR per sq m) by Regional Portfolios

2.6 Fair Value of Residential Portfolio



assumptions set out in this Valuation Report, we are of the opinion that the aggregate of the individual

Fair Values (net) of the freehold / ground leasehold interests of the assets in the Residential Portfolio

(excluding Land), as at June 30, 2015, rounded at asset level, is:

10,263,560,500 EUR


V-17 of V-50

(Ten billion, two hundred and sixty-three million, five hundred and sixty thousand, five hundred Euros)

The assessment of Fair Value was carried out at asset level. The aggregate of the individual Fair Values


and does not reflect any discount or premium on the sale of the whole portfolio or if parts of the



no obligation to do so and has not updated the CBRE valuation after this valuation date.


This negative Fair Value is included in the total figure given above.




EUR



V-18 of V-50

2.7 Key Valuation Data

The following table shows the aggregated key valuation data for the Residential Portfolio (excluding

Land):

Fair Value 10,263,560,500 EUR

Total lettable area: 8,883,891 sq m

Average Fair Value per sq m lettable area: 1,155 EUR

Current annual rental income (gross): 609,583,745 EUR

Potential annual rental income (gross): 628,900,635 EUR

Estimated annual rental value (gross): 714,077,329 EUR

Multiplier (based on current rent): 16.8 times

Multiplier (based on potential rent): 16.3 times

Multiplier (based on rental value): 14.4 times

Net initial yield (based on current rent): 4.4%

Net initial yield (based on potential rent): 4.6%

Net initial yield (based on rental value): 5.3%



V-19 of V-50

3 NURSING AND ASSISTED LIVING PORTFOLIO

3.1 Portfolio Structure

This portfolio consists of 17 nursing or assisted living assets in the following referred to as the “Nursing

and Assisted Living Portfolio”.

3.2 Tenants and Tenancies

Between the date of Valuation as at June 30, 2014 and the date of this Valuation Report, a stake of the

company Katharinenhof Seniorenwohn- und Pflegeanlagen Betriebs-GmbH was sold to a third party. As

at the date of this Valuation Report, neither Deutsche Wohnen AG nor a subsidiary has a majority

ownership in the Katharinenhof Seniorenwohn- und Pflegeanlagen Betriebs-GmbH. Deutsche Wohnen

AG holds a minority interest of 49.0%.

3.3 Regional Allocation

As shown on the following map, the nursing and assisted living assets are located in 10 German cities.

Microsoft MapPoint Europa 2010; CBRE GmbH


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3.4 Asset Type

3.5 Current Gross Rental Income (annualised) by Federal State

(Total rental income: 11,440,901 EUR3)


spaces).

Address ZIP CityBuilding

YearAsset Type

Total lettable

Area

in sq m

O ccupancy

Rate

in %

Number

of Beds

Number

of Rooms

Assisted

Living

Units

Estimated Rental

Value

in EUR

Total Fair Value

in EUR

Sächsische Str. 46 10707 Berlin 2002 Nursing Home 7,385 97% 120 110 1,371,768 17,600,000

Ernst-Thälmann-Str. 29a 15370 Fredersdorf 2001 Nursing Home 5,954 95% 122 99 875,238 10,700,000

Schützenstr. 14 21682 Stade 2001 Nursing Home 5,427 99% 131 99 928,017 12,300,000

Belziger Str. 53 c 10823 Berlin 2001 Sheltered Housing 3,023 100% - - 53 456,390 6,440,000

Von-Suttner-Str. 1 14612 Falkensee 2001 Nursing Home 9,992 100% 110 99 25 1,091,007 13,300,000

Str. der Befreiung 114 08141 Reinsdorf 2004 Nursing Home 2,830 100% 60 54 127,350 1,680,000

Stiftstraße 11 08118 Hartenstein 1997 Nursing Home 3,151 100% 80 62 175,214 2,160,000

Schlossallee 1 01723 Wilsdruff 2001 Nursing Home 2,998 100% 60 46 89,940 1,070,000

Hans-Albers-Straße 3 14480 Potsdam 1996 Nursing Home 12,988 100% 133 79 89 820,329 10,400,000

Brauereihof 19 13585 Berlin 2007 Senior Residence 18,448 97% 42 42 199 2,317,256 27,700,000

Am Kurpark 1 09429 Wolkenstein 2002 Nursing Home 3,661 100% 80 68 164,745 1,960,000

Am Kurpark 1 09429 Wolkenstein 2002 Sheltered Housing 1,940 100% - - 39 162,223 2,100,000

Friedrich-Bosse-Str. 93 04159 Leipzig 2001 Nursing Home 4,300 100% 90 85 387,000 4,830,000

Schlüterstraße 62 10625 Berlin 2002 Nursing Home 5,249 91% 102 68 566,848 7,840,000

Bruno-Bürgel-Weg 1-5 12439 Berlin 2003 Nursing Home 5,583 99% 118 107 602,948 8,950,000

Bennigsenstr. 23/24 12159 Berlin 2006 Nursing Home 3,571 95% 74 67 374,962 5,280,000

Britzer Damm 140 12347 Berlin 2006 Nursing Home 5,789 91% 131 123 642,579 9,510,000

102,289 98% 1,453 1,208 405 11,153,814 143,820,000


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3.6 Fair Value by Federal State

(Total Fair Value: 143,820,000 EUR)


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3.7 Fair Value of Nursing and Assisted Living Portfolio

Based on the assumption that, after reasonable inquiry of the Company, there are no onerous restrictions

or unusual outgoings of which we have no knowledge and based on the specific comments and


Fair Values (net) of the freehold interests of the assets in the Nursing and Assisted Living Portfolio, as at

June 30, 2014, rounded at asset level, is:

143,820,000 EUR

(One hundred forty-three million, eight hundred and twenty thousand Euro)





CBRE has not been engaged to update the CBRE valuation for the purpose of the Valuation Report, has

no obligation to do so and has not updated the CBRE valuations after this valuation date. CBRE is


purposes with the date of valuation being August 31, 2015. The valuation will not be completed prior to

the date of this Valuation Report.

3.8 Key Valuation Data

The following table shows the aggregated key valuation data for the Nursing and Assisted Living Portfolio:

Fair Value 143,820,000 EUR

Total lettable area: 102,289 sq m

Average Fair Value per sq m lettable area: 1,406 EUR

Current annual rental income (gross):4 11,440,901 EUR

Potential annual rental income (gross): 11,594,021 EUR

Estimated annual rental value (gross): 11,153,814 EUR

Multiplier (based on current rent): 12.6 times

Multiplier (based on potential rent): 12.4 times

Multiplier (based on rental value): 12.9 times

Net initial yield (based on current rent): 6.7%

Net initial yield (based on potential rent): 6.8%

Net initial yield (based on rental value): 6.5%


spaces).


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(Please refer to the Valuation Key Definitions.)


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4 EXPLANATION OF VALUATION

4.1 Inspections

4.1.1 Basis of Inspections

Residential Portfolio

In accordance with the instruction, the valuation of the Residential Portfolio has been carried out

individually on asset level. For the purpose of the inspections we amalgamated the assets into

homogeneous clusters. The cluster criteria were location and situation, type of assets and date of

construction, as follows:

LOCATION/SITUATION: all assets in a single inspection cluster must be part of one housing estate or –

if they are individual buildings – must be situated in the same neighbourhood,

TYPE OF ASSETS: These were mainly differentiated into:

A) Detached/Semi-detached houses

B) Apartment buildings

C) Commercial assets, such as office buildings, business and retail assets, mixed-use assets

where the proportion of commercial value is greater than 20%

DATE OF CONSTRUCTION: The categories of construction date were defined as follows:

1945 and earlier

1946 to 1959

1960 to 1969

1970 to 1979

1980 to 1989

1990 to 2001

2002 onwards

For the inspections a reference asset was selected from each cluster, on the basis of the desktop analysis

and the information available.

During our inspections we verified that each of the buildings in the valuation clusters were internally

consistent and checked whether adjoining buildings had homogeneous characteristics that could enabled

them to be amalgamated.

Garages, parking spaces and other rent-earning units such as antennas are part of a building unit, except

if they are economically independent units.

At cluster level, we made an assessment of the location (“micro location”), the level of quality according to

the local rental table, the condition of the buildings (asset score) and the typical condition of the

apartments, as a basis of our allowances for regular maintenance and tenant improvement costs.

At asset level, the basis of valuation calculations, we took individual account of asset-specific parameters

such as administration costs, structural vacancy, current rent, market rental value, public subsidy (if any),

ground leases (where appropriate) and relevant entries in section II of the land register.


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Nursing and Assisted Living Portfolio

All assets in this portfolio have been individually inspected, both externally and internally.


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4.1.2 Inspection Dates and Coverage

Residential Portfolio: As agreed, for the purpose of the accounting valuation as at June 30, 2015, we did

not conduct any re-inspection except for the newly-acquired assets. The inspections of these 39 assets

took place in the period from June 19 to 23, 2015.

The following table shows the breakdown of the inspected assets which were components of the

Residential Portfolio as at the date of valuation (June 30, 2015):

From a total of 2,277 assets, we have conducted 2,070 external inspections (79.0% of the Gross Current

Annual Rental Income), 193 internal inspections (20.9% of the Gross Current Annual Rental Income) and

14 assets (single apartments in buildings for privatisation) have not been inspected (0.1% of the Gross

Current Annual Rental Income).

In respect to those assets that were not re-inspected, the Company confirmed that it is not aware of any

material changes to the physical attributes of the assets, or the nature of their location, that might have

occurred since the last inspection.

21 of the total of 23 undeveloped sites (99.99% weighted by Fair Value) were inspected in the period from

December 12, 2012 to January 4, 2013. Two undeveloped sites were not inspected.

Nursing and Assisted Living Portfolio: As agreed, for the purpose of the accounting valuation with the

valuation date as at June 30, 2014, we have undertaken internal inspections of the 17 nursing and assisted

living assets, which took place in the period from June 23 to 27, 2014.

4.2 Method of Valuation

4.2.1 Discounted Cash Flow (DCF)

The determination of the Fair Value of the individual assets has been carried out using the internationally

recognised Discounted Cash Flow (DCF) method. This method, which is based on dynamic investment

calculations, allows valuation parameters to be reflected explicitly and, therefore, provides a transparent

arithmetical determination of Fair Value. In the DCF method, the future income and expenditure flows

associated with the subject asset are explicitly forecasted over a 10-year period of detailed consideration,

assuming a letting scenario which does not take into account any potential privatisations of individual

apartments. The cash flows calculated for the period of detailed consideration are discounted, monthly in

advance, to the date of valuation, allowing the effect on the current Fair Value of the receipts and

payments at varying dates during the 10-year period to be properly reflected.

Year of

InspectionTotal

No

Inspection

External

Inspection

Internal

Inspection

2015 39 0 39 0

2014 217 0 211 6

2013 349 0 315 34

2012 1,658 0 1,505 153

no inspection 14 14 0 0

Total 2,277 14 2,070 193


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The discount rate chosen does not only reflect the market situation, location, condition and letting

situation of the asset and the yield expectations of a potential investor, but also the level of security of the

forecasted future cash flows. As the discounting process means that the effect of future cash flows

reduces in importance while at the same time the uncertainty of forecasting tends to increase over time, it

is usual in real estate investment that considerations for the sustainable net rental income after a ten-year

time horizon (the period of detailed consideration) be capitalised, using a growth-implicit yield, and then

discounted to the date of valuation.

The assumptions adopted in the valuation model reflect the average estimates that would be made at the

respective date of valuation by investors active in the market. The result of the DCF method is, therefore,

the price that a relevant investor in the market would be prepared to pay for the asset at the respective

date of valuation, in order to achieve a return from the proposed investment that is in line with present

asset market expectations.

4.2.2 Land Approach

For the purpose of the valuation, all assets have been assigned to one of the following categories, based

on the information provided by the Company or gained during discussions with the local authorities:

A) Future Development

land capable of development (Baureifes Land); zoned for development, with public roads and

utilities infrastructure

unserviced land zoned for development (Rohbauland)

land with hope value for development (Bauerwartungsland)

B) Other

Woodland, agricultural land (Forst- und Agrarland) and gardens

The land assets in the portfolio were valued on the basis of their status as at the valuation date using two

different valuation methods:

Comparison method (“Vergleichswertverfahren”)

Land capable of development (Baureifes Land) as well as woodland, agricultural land (Forst- und

Agrarland) and gardens was valued using the comparison method.

The official Bodenrichtwert (guideline land value) was used for each asset or, if it was not available, the

valuation was based on local comparables. Using our professional judgement, we have applied

adjustment factors in accordance with individual asset characteristics in determining the site value. If

infrastructure costs were outstanding or could be expected to be payable on individual sites, these were

deducted.

Deductive valuation approach for potential building land by Walter Seele5

Land with hope value for development (Bauerwartungsland) and unserviced land zoned for development

(Rohbauland) was valued using the deductive valuation approach according to Seele.

5 Source: Seele, 1998, Bodenwertermittlung durch deduktiven Preisvergleich, Zeitschrift Vermessungswesen und

Raumordnung


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According to the Seele approach, the prices for potential building land are determined not only by prices

of comparable land capable of development (Baureifes Land) and the waiting period. They are also

dependent on the proportion of land that needs to be developed (Erschließungsflächenanteil) and the

development costs.


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The approach has been recommended for application by the “GIF” (society for real estate economic

research) in Germany.

We would like to draw your attention to the fact that the market for the above mentioned types of Land

(Type A) is relatively small and the development of this type of Land often depends on decisions made by

local or municipal authorities such as planning authorities (Bauplanungsämter), which leads to a lack of

comparable evidence and in a greater uncertainty of our valuation assumptions. It should be noted that

the price which can be achieved for development land (in any of the above categories) is extremely

sensitive to minor changes to any of a number of factors, including statutory consents, timing, availability

and cost of development finance, construction costs and market movements and therefore may differ

from the Fair Value. We would therefore recommend that the situation and the valuations are kept under

regular review.

4.3 General Valuation Assumptions

We have made various assumptions as to tenure, letting, town planning, and the condition and repair of

buildings and sites – including ground and groundwater contamination – as set out below.

If any of the information or assumptions on which the valuation is based are subsequently found to be

incorrect, the valuation figures may also be incorrect and should be reconsidered.

No special assumptions (as defined by RICS)6 have been made.

4.3.1 Constituents of the Subject Assets

Fixtures in the subject assets, such as passenger and goods lifts, other conveyor installations, central

heating installations and other building services installations have been regarded as integral parts of the

subject asset and are therefore included in our valuation. Tenant's fixtures and fittings that would

normally be the asset of the tenant have not been reflected in our valuation.

4.3.2 Structural Surveys

We have not carried out building surveys, tested services, made independent site investigations,

inspected woodwork, exposed parts of the structure which were covered, unexposed or inaccessible, nor

arranged for any investigations to be carried out to determine whether or not any deleterious or

hazardous materials or techniques have been used, or are present, in any part of the assets. We are

unable, therefore, to give any assurance that the assets are free from defect.

In the absence of any information to the contrary, we have assumed that:

there are no abnormal ground conditions or archaeological remains that might adversely affect

the current or future occupation, development or value of the assets;

the assets are free from rot, infestation, structural or latent defects;

no currently known deleterious or hazardous materials or suspect techniques, including but not

limi-ted to composite panelling, have been used in the construction of, or subsequent alterations

or additions to, the assets; and

6 An assumption that either assumes facts that differ from the actual facts existing at the valuation date, or that would

not be made by a typical market participant in a transaction on the valuation date (e.g. fully let).


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the building services, and all associated controls and software, are in working order and free from

defect.


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We included the age and the general condition of the assets into the evaluation. Comments made in the

assets details do not purport to express an opinion about, or advise upon, the condition of uninspected

parts and should not be taken as making an implied representation or statement about such parts.

4.3.3 Accommodation

For the purposes of this determination of Fair Value we have not measured the buildings or the sites. The

calculations are based on the floor areas in the tenancy schedule and the additional information provided

by the Company. We have not checked these on site.

Unless advised specifically to the contrary, we have assumed that the floor areas supplied to us, in

principle, are correct and in accordance with appropriate measuring practice.

All areas quoted in this Valuation Report are approximate.

4.3.4 Environmental Aspects

We have not undertaken, nor are we aware of the content of, any environmental audit or other

environmental investigation or soil survey which may have been carried out on the assets and which may

draw attention to any contamination or the possibility of any such contamination, other than as detailed

below.

We have not carried out any investigation into the past or present uses of the assets, nor of any

neighbouring land, in order to establish whether there is any potential for contamination and have

therefore assumed that none exists.


According to the information provided by the Company some areas of the asset Dominicusstraße 37-43

odd, Ebersstraße 20, Feurigstraße 41-48, Prinz-Georg-Straße 1, 2, 10827 Berlin (asset: 1400.2129) are

contaminated with asbestos. According to the Company there is no immediate need for action but

regular monitoring is necessary and some elements will probably have to be replaced. We have therefore

taken the costs, as provided by the Company, of 253,968 EUR, into account in this valuation.

In the asset Gregor-Mendel-Straße 2-6 even, Lentzeallee 93-103 odd, Milowstraße 2-12 even, Spilstraße 1,

3, 14195 Berlin (asset: 1400.2502), some redundant heating pipes in the basement are clad with material

that contains asbestos. According to environmental investigations by Baubiologie und Umweltanalytik of

September 16, 2009, there is no immediate risk but decontamination will have to be arranged. Following

privatisation of the residential units of this asset, the Company owns around 28% of the units at the date

of valuation. The total decontamination costs are 95,000 EUR and the Company is responsible for around

50,000 EUR.

For all other assets, in accordance with instructions, we have assumed that the subject assets are free

from contamination and that the present and previous uses do not indicate a substantial potential for

contamination for the purposes of our valuation.


In the absence of any further information to the contrary, we have assumed that:

the assets are not contaminated and are not adversely affected by any existing or proposed


V-33 of V-50

environmental law,

any processes which are carried out on the assets which are regulated by environmental

legislation are properly licensed by the appropriate authorities.

We have assumed that either the assets possess current Energy Performance Certificates as required

under Government Directives or the Company can present the documents if required.

4.3.5 Title and Tenancies

Details of title/tenure under which the assets are held and of lettings to which it is subject are as supplied

to us. We have not generally examined nor had access to all the deeds, leases or other documents

relating thereto. Where information from deeds, leases or other documents is recorded in this report, it

represents our understanding of the relevant documents without obtaining separate legal advice.

Unless stated otherwise in this report and in the absence of any information to the contrary, we have

assumed that:

the assets possess good and marketable title free from any onerous or hampering restrictions or

conditions;

only minor or inconsequential costs will be incurred if any modifications or alterations are

necessary in order for occupiers of each asset to comply with the provisions of the relevant anti

disability discrimination legislation;

there are no tenant’s improvements, others than those mentioned in 4.4.4, that will materially

affect our opinion of the rent that would be obtained on review or renewal;

the permission of the owner (if required) to transfer the here valued asset will not be withheld;

and

the potential rent of all vacant space is given (with the exception of structural vacancy).

We have not been provided with Legal Due Diligence Reports by the Company.

In accordance with our valuation instructions, our determination of Fair Value is based on the information

provided to us, which also applies to rented accommodation, tenancies, current rental income, remaining

lease terms and other lease conditions.

From the information provided,

we note that 3.9% (by number of assets) of the assets of the Residential Portfolio (corresponding

to 2.4% of the Fair Value) are on sites held on the equivalent of ground leases (Erbbaurechte).

We note that all other assets of the Residential Portfolio, including sites, as well as the Nursing

and Assisted Living Portfolio as at the dates of valuation June 30, 2015 and June 30, 2014, are

owned (freehold or as condominiums) by the Company and/or its subsidiaries.

We assume that there are no circumstances having an effect on value resulting from

encumbrances and restrictions in Section II of the land register;

the tenancies listed in the rent roll were still in existence at the date of valuation and

there are no entries affecting value in the Baulastenverzeichnis (register of public land charges).

Mortgages or other liabilities that currently exist or that in the future might encumber one or more of the


V-34 of V-50

subject assets have not been taken into account.


V-35 of V-50

4.3.6 Pending Litigation, Legal Restrictions (Easements on Real Estate, Rent Regulations etc.)

In accordance with the information provided by the Company, we have assumed, without verification,

that the assets are free from any pending litigation, that the ownership is unencumbered and that there

are no other legal restrictions such as easements on real estate, rent regulations, restrictive covenants in

leases or other payment obligations that might adversely affect value.

4.3.7 Monument Protection

Based on the information provided to us by the Company, the following percentages of assets are listed

monuments:

Residential Portfolio: 14.8% of the assets (representing 20.4% of the Fair Value aggregated on

portfolio level excluding the Land) and

Nursing and Assisted Living Portfolio: we were not provided with any information concerning

monument protection and therefore have assumed that the assets are not listed.

4.3.8 Tenants

We have not conducted credit enquiries on the financial status of any tenants of the Residential Portfolio

and of the Nursing and Assisted Living Portfolio. We have, however, reflected our general understanding

of purchasers’ likely perceptions of the financial status of tenants.

In the absence of information to the contrary, we have assumed that there are no significant rent arrears

in both portfolios.

4.3.9 Taxes, Contributions, Charges

We have assumed that all public taxes, contributions, charges etc. which could have an effect on the value

will have been levied and, as far as they are due, paid as at the date of valuation.

4.3.10 Insurance

We have assumed that the subject assets are covered by a valid insurance that is adequate both in terms

of the sum assured and the types of potential loss covered.

4.3.11 Legal Requirements / Authorisation for the Construction and Use of the Subject Assets

No investigations of the compliance of the individual subject assets with legal requirements (including

(permanent) planning consent, building permit, acceptance, restrictions, building-, fire-, health- and

safety regulations etc.) or with any existing private-law provisions or agreements relating to the existence

and use of the site and building have been carried out.

In carrying out our valuations, we have assumed that all necessary consents and authorisations for the

use of the assets and the processes carried out at the assets were obtained, will continue to subsist and

that they are not subject to any onerous conditions.


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4.3.12 Infrastructure and Exploration

We have not undertaken planning enquiries but have relied upon the information provided where

appropriate. For the purposes of our valuation we assume that there are no adverse town planning,

planning of highways or other schemes or proposals that will have a detrimental effect on our valuations.

4.3.13 Assumptions Regarding the Future

To determine the Fair Value of the assets concerned, we have assumed that the existing or a similar use

during the remaining life of the building both in the nature as well as to the scope will persist.

4.4 Valuation Parameters

The assessment of Fair Value is based on future cash flows, which reflect normal market expectations,

taking into account past figures from the subject assets or comparable investments. The valuation

parameters have been assessed by CBRE, using its best judgement, based on the information provided by

the Company.

4.4.1 Non-Recoverable Management Costs


Residential leases generally involve non-recoverable management costs. For the purposes of this

valuation and on the basis of experience of CBRE and an analysis of costs of public and private housing

associations, non-recoverable management costs have been allowed for between 195 EUR and 295 EUR

per unit p.a. (depending on the number of residential units in the individual building). We have allowed

350 EUR p.a. for each residential unit in buildings that are undergoing privatisation as additional costs are

incurred under the Condominium Act (Wohneigentumsgesetz - WEG).

The weighted average of non-recoverable management costs amounts to 217 EUR per residential unit p.a.

For the commercial units we have allowed non-recoverable management costs of 4% of the gross rental

income on potential rent.


Based on experience of the typical allowances reflected in the market, the non-recoverable management

costs for the nursing and assisted living assets have been assessed at 2% of the gross market annual

rental income.

4.4.2 Non-Recoverable Repair and Maintenance Costs

The annual costs per square metre of lettable area adopted for the purposes of this valuation are average

figures for the types of use concerned, arrived at on the basis of experience by CBRE and the analysis of

costs of similar buildings by third-party firms. They take into account the necessary cost inputs for long-

term operation of the assets.


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The maintenance and repair costs for residential units allowed for in the valuation range between 2.00

and 20.00 EUR per sq m p.a., with a weighted average of 9.80 EUR per sq m p.a. The individual allowances

reflect both the state of repair of the building concerned (after rectification of outstanding repairs) as well

as the existence of lifts, special listed building conditions etc.


The non-recoverable repair and maintenance costs for the nursing and assisted living assets have been

allowed between 4.00 and 10.00 EUR per sq m p.a. The individual allowances reflect both the state of

repair of the building concerned (after rectification of outstanding repairs) as well as the existence of lifts,

special listed building conditions etc.

4.4.3 Capital Expenditure and other Factors affecting the Value

In addition to the non-recoverable ancillary costs, which are deducted monthly from the gross rental

income during the period of detailed consideration, capital expenditure on repair and maintenance work

already planned at the date of valuation has also been reflected. CBRE has not undertaken a technical

survey. We have undertaken limited inspections for valuation purposes only.


Based on our inspections and the information which we were provided with, it is our opinion that the

buildings and technical equipment have been regularly maintained. We therefore assume that there is

only a minor part of the portfolio with deferred or outstanding maintenance costs to be expected at

1,251,000 EUR.


Based on our inspection and the information which we were provided with, it is our opinion that the

buildings and technical equipment have been regularly maintained. We therefore assume that there are

no deferred or outstanding maintenance costs.

4.4.4 Tenant Improvements

Under German law, it is frequently the tenant’s responsibility to carry out decorative and minor repairs.

Upon a change in tenants, however, additional expenses for basic repairs and renovation of the interior of

the individual rental units must be incurred, e.g. in the bathrooms and kitchens of residential units, to

facilitate renewed letting.


For each of the buildings, based on current market experience and the average condition of the

apartments, we have allowed amounts for initial refurbishments and/or on tenant fluctuation ranging

from 0 to 150 EUR per sq m with an overall weighted average of 54 EUR per sq m for residential

accommodation.


For the nursing and assisted living assets we have allowed costs ranging between 10 and 150 EUR per sq

m.


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4.4.5 Non-Recoverable Operating Costs (Vacancy)


Based on an analysis by the German Tenants’ Association for apartment housing we have reflected non-

recoverable operating costs on vacant space at a flat rate of 16.80 EUR per sq m p.a. for the assets in

Western Germany and for Eastern German locations including Berlin we have allowed 12 EUR per sq m

p.a. This includes, for example, heating costs for a minimal level of heating, costs for caretaker or security

services and electricity and cleaning costs.


Based on experience a level of 12 EUR per sq m p. a. has been adopted for vacant accommodation.

4.4.6 Inflation

The DCF method used includes an explicit reflection of cost inflation. We have assumed inflation rates for

the portfolios as follows:

Full allowance for inflation has been made in particular for maintenance and repair costs, management

and operating costs and ground rents (Erbbauzinsen). The forecast inflation rates are based on figures

from Consensus Forecast and the ECB, collated by CBRE Research in June 2014/ June 2015.

4.4.7 Discount Rate and Exit Capitalisation Rate

The assessment of the discount rate involves several components. Starting from a basis interest rate,

additions and deductions are made according to various criteria specific to the buildings concerned.

The exit capitalisation rate is dependent on the discount rate. While the discount rate is an “Equated

Yield”, which explicitly reflects growth in the cash flows, the capitalisation rate is a “Net Initial Yield”, which

reflects growth assumptions implicitly. In order to derive the exit capitalisation rate from the discount rate,

the latter was corrected for explicit market rental growth components during the period of detailed

consideration.


The weighted average discount rate employed is approximately 5.7%.

The weighted average exit capitalisation rate employed is approximately 4.6%.


The weighted average discount rate employed is approximately 7.0%.

The weighted average exit capitalisation rate employed is approximately 7.2%.

as at year 1 year 2subsequent

years

Residential Portfolio June 30, 2015 1.5% 2.0% 2.0%

Nursing Home and Sheltered Housing Portfolio June 30, 2014 1.3% 1.9% 2.0%


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For the Residential Portfolio the resulting net present values were checked against our analysis of

comparable transactions (if available) from the sale price data collected by the relevant local valuation

committee (Gutachterausschuss) and an analysis of the internal lease and sale database of the CBRE

Valuation Department. If necessary in the absence of transaction data, asking prices for comparable

assets on offer at empirica systeme were also considered (with a discount of 10% from the offer price). If,

in particular instances, results of our DCF calculations did not reflect the Fair Value of an individual

building, the calculation was adjusted by means of a change in the discount rate and exit capitalisation

rate using expert and experienced judgement.

For the Nursing and Assisted Living Portfolio the resulting net present values were checked against our

analysis of comparable transactions and competitors. If, in particular instances, results of our DCF

calculations did not reflect the Fair Value of an individual building, the calculation was adjusted by means

of a change in the discount rate and exit capitalisation rate using expert and experienced judgement.

4.4.8 Estimated Rental Value (ERV)


For the purposes of this valuation, CBRE has estimated rental values at the valuation date for the lettable

accommodation and asset units. These are based on an analysis of the local asset market, using data

available to CBRE and accessible third-party sources. This includes:

Recent leases and tenancies concluded in the subject assets in the years 2014 and 2015

Analysis of the internal rental database of the CBRE Valuation Department

Publications by, and chargeable database queries of, market research institutes and real estate

companies


In the market segment of nursing homes, a sustainable rent needs to be determined as basis for the

valuation. This is calculated from investment costs per day and bed with additionally subtracting

replacement purchase costs per day and bed. Depending on e.g. the average occupancy rate and the

proportion of social security claimants, a sustainable rent was deducted for each asset.

4.4.9 Market Rental Trends during the Period of Detailed Considerations


During the 10-year period of detailed consideration of the forecast cash flows, explicit modelling of

changes in market rental values has been included, estimated by CBRE at administrative district

(Landkreis/Kreisfreie Stadt) level for all assets. The estimates are mainly based on data from the state

statistics offices, BulwienGesa AG's RIWIS database and the Prognos AG Zukunftsatlas. Depending on

location, the resulting trends of market rental value range in the Residential Portfolio between annual

increases of 0% to 1.65%, with a weighted average of 1.1%. In each case they have been adjusted for the

quality of situation and condition of the building.


Full allowance for inflation has been made for rental growth. The forecast inflation rates are based on

figures from Consensus Forecast and the ECB, collated by CBRE Research in June 2014 (please refer to

4.4.6 “Inflation”).


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4.4.10 Rent Control and Public Subsidies

A number of the residential units were subject to rent control as at the valuation dates. Instead of the rent

increase method of the BGB (Bürgerliches Gesetzbuch) these residential units are subject to an economic

rent (Kostenmiete). Contrary to Part 4.4.9 we have calculated with a rental growth of 0.5%, based on our

experience.


According to information provided by the Company, 15.5% of the residential units are subject to rent

control. At the valuation date, 9,212,153 EUR of direct public subsidies were payable to the Company

during the 10 years following that date.


According to information provided by the Company, six Nursing Homes were subject to public subsidies

(building cost subsidy). As a consequence, the assets have lower rents and lower investment costs per

resident and per day in comparison to a free financed asset.

4.4.11 Structural and Fluctuation Vacancy


As at the valuation date, the portfolio has an average vacancy rate of 2.7% (weighted by area). We are

assuming that the weighted average vacancy rate of the Residential Portfolio has the potential to decrease

to a structural vacancy rate of 0.8% with a range of 0% to 50% (in an exceptional case 100%) at asset level.

In addition to the structural vacancy rate we have calculated a turnover vacancy between 0 to 6 months

which corresponds to 0% to 5%, with an average of 1.6%.

The average stabilized vacancy rate of the Residential Portfolio is 2.5%.


As at the valuation date the Nursing and Assisted Living Portfolio has an average vacancy rate of 2.4%

(weighted by area).

Total

in % of Total

Residential

Units

< = 10 years 8,890 6.3%

11 - 25 years 3,263 2.3%

26 - 40 years 2,336 1.6%

41 - 55 years 3,627 2.6%

> 55 years 3,819 2.7%

Restricted Units 21,935 15.5%

Not Restricted 119,923 84.5%

Total 141,858 100.0%

Expiry of

Restriction in

Years

Residential Units


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4.4.12 Purchaser’s Costs

For the purposes of the valuation and in line with normal practice, no allowance has been made for any

personal costs or taxes that would be incurred by the purchaser in the course of the transaction.

Mortgages and any other existing charges on the assets have not been taken into consideration in this

valuation. Normal costs payable by the purchaser on transfer have been reflected as follows:

Agent’s fees 1.0% - 3.0%

Notary’s fees 0.3% - 1.1%

The transfer tax for each federal state is as shown in the table below, as at:

The net capital value is derived by deducting the purchaser's costs as shown from the calculated gross

capital value. It is therefore equivalent to the net proceeds that the vendor would receive on a notional

sale, not allowing for any personal costs or taxes to which the vendor would become liable as a result of

the sale. The amount of the deduction depends on the investment volume of the asset concerned.

June 30, 2014 June 30, 2015

Baden-Wurttemberg 5.0% 5.0%

Bavaria 3.5% 3.5%

Berlin 6.0% 6.0%

Brandenburg 5.0% 5.0%

Bremen 5.0% 5.0%

Hamburg 4.5% 4.5%

Hesse 5.0% 6.0%

Mecklenburg-Western Pomerania 5.0% 5.0%

Lower Saxony 5.0% 5.0%

North Rhine-Westphalia 5.0% 6.5%

Rhineland-Palatinate 5.0% 5.0%

Saarland 5.5% 6.5%

Saxony 3.5% 3.5%

Saxony-Anhalt 5.0% 5.0%

Schleswig-Holstein 6.5% 6.5%

Thuringia 5.0% 5.0%

Federal StateTransfer Tax


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5 VALUATION CONCLUSIONS




Fair Values (net) of the freehold / ground-leasehold interests in the assets, rounded at asset level, are:

the Residential Portfolio


the Nursing and Assisted Living Portfolio


10,282,752,000

(Ten billion, two hundred and eighty-two million,

seven hundred and fifty-two thousand Euros)


of which the value of the Land is 19,191,500 EUR.

143,820,000 EUR

(One hundred and forty-three million, eight

hundred and twenty thousand Euros)












This negative Fair Value is reflected in the total figure given above.



The table below shows the distribution of values between freehold-equivalent and ground leasehold

assets:

* 50 years or less unexpired

** Over 50 years unexpired


EUR


Residential PortfolioNursing and Assisted Living

Portfolio

Freehold-equivalent 10,035,425,300 143,820,000

*Short Leasehold 222,766,000 0

**Long Leasehold 24,560,700 0

Total 10,282,752,000 143,820,000

Fair Value in EUR


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The following table shows the aggregated key valuation data for the portfolios (excluding Land):

Residential Portfolio Nursing and Assisted Living

Portfolio

Fair Value: 10,263,560,500 EUR 143,820,000 EUR

Total lettable area: 8,883,891 sq m 102,289 sq m

Average Fair Value per sq m lettable area: 1,155 EUR 1,406 EUR

Current annual rental income (gross): 609,583,745 EUR 11,440,901 EUR7

Potential annual rental income (gross): 628,900,635 EUR 11,594,021 EUR

Estimated annual rental value (gross): 714,077,329 EUR 11,153,814EUR

Multiplier (based on current rent): 16.8 times 12.6 times

Multiplier (based on potential rent): 16.3 times 12.4 times

Multiplier (based on rental value): 14.4 times 12.9 times

Net initial yield (based on current rent): 4.4% 6.7%

Net initial yield (based on potential rent): 4.6% 6.8%

Net initial yield (based on rental value): 5.3% 6.5%



spaces).


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6 VALUATION KEY DEFINITIONS

Lettable area

The lettable area in this valuation is defined by the entry in the Company’s rent roll provided.

Total lettable area

Total lettable area in square metres – sum of residential and commercial floor area – and excluding land;

as at June 30, 2014 in respect of the Nursing and Assisted Living Portfolio and June 30, 2015 in respect of

the Residential Portfolio.

Residential units

Residential units - number of residential premises excluding parking units and other units;



Commercial units

Commercial units - number of commercial and special premises; excluding parking units and other units;



Parking units

Parking units [units] - number of external and internal parking spaces;



Other units

Other units - number of antennas;



Land:

The Land consists of land for future development (land capable of development, unserviced land zoned

for development and land with hope value for development) and other land (woodland, agricultural land).

Current annual rental income (gross):

The current gross rental income represents the rent paid for the units let on contractual agreements as at

June 30, 2014 in respect of the Nursing and Assisted Living Portfolio and June 30, 2015 in respect of the

Residential Portfolio, before deducting non-recoverable operating costs and VAT, multiplied by 12. Rent-

free periods have been taken into account.

Potential annual rental income (gross):

The potential rent is the sum of the current monthly gross rental income and the rental values of vacant

units – irrespective of any vacancy – as at June 30, 2014 in respect of the Nursing and Assisted Living

Portfolio and June 30, 2015 in respect of the Residential Portfolio, multiplied by 12.

Estimated annual rental value (gross):

The (monthly) market rental value of all units as at June 30, 2014 in respect of the Nursing and Assisted

Living Portfolio and June 30, 2015 in respect of the Residential Portfolio (irrespective of any vacancy),

multiplied by 12.


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Multiplier (based on current rent):

Net capital value divided by current rental income (gross)

Multiplier (based on potential rent):

Net capital value divided by potential rental income (gross)

Multiplier (based on rental value):

Net capital value divided by estimated rental value (gross)

Net initial yield (based on current rent):

Current rental income (net) divided by gross capital value

Current rental income (gross) minus non-recoverable operating costs / net capital value plus purchaser’s

costs

Net initial yield (based on potential rent):

Potential rental income (net) divided by gross capital value

Net initial yield (based on rental value):

Estimated rental income (net) divided by gross capital value

ppa. Sandro Höselbarth

Team Leader Residential Valuation Germany

Director

CBRE GmbH

Dr. Henrik Baumunk

Head of Residential Valuation Germany

Managing Director

CBRE GmbH

Documents

Frankfurt am Main, Germany ISIN DE000A0HN5C6 WKN …€¦ · Frankfurt am Main, Germany ISIN DE000A0HN5C6 WKN A0HN5C Report of the Management Board pursuant to section 186, para