Investment Research. Fair Value REIT-AG

Transcription

1 Independent Research Unabhängige Finanzmarktanalyse GmbH Investment Research Fair Value REIT-AG Start of coverage (results 2007) Please notice the information on the preparation of this document, the disclaimer, the advice regarding possible conflicts of interests, and the mandatory information required by 34b WpHG (Securities Trading Law) at the end of this document. This financial analysis in accordance with 34b WpHG is exclusively intended for distribution to individuals that buy or sell financial instruments at their own account or at the account of others in connection with their trading activities, occupation, or employment.

2 Table of Contents Summary 3 SWOT analysis 4 Company profile 5 Real estate assets of Fair Value REIT-AG 9 Management 12 History 13 German REIT (G-REIT) 14 German real estate market in Operating development in Outlook and forecasts 22 Valuation 23 Conclusion 25 APPENDIX 26 Page 2 Independent Research

3 A generalist among real estate companies Results 2007! Fair Value REIT-AG is a real estate investment trust specialising in the acquisition, rental, property management and sale of commercial properties. Apart from direct acquisition of real estate, the company's investment strategy also includes a special kind of indirect investment (acquisition of interests in closed-end real estate funds).! At present, the company, which is listed in the Prime Standard segment since November 16, 2007, has a portfolio with a total market value of about EUR276m and a rental income of about EUR22m per year.! In the course of a roll-up, investors in certain closed-end real estate funds are offered to swap their fund units for shares in Fair Value REIT-AG. The roll-up process is an important unique selling point of Fair Value. At the moment, there is no competitor with a similar investment strategy.! Fair Value acquired office properties from Sparkasse Südholstein for EUR49.4m by a sale-and-leaseback transaction. With a rental level of 97%, the properties generate about EUR3.1m in rental income per year.! Fair Value is looking to double its immovable assets within the coming two years. The company expects to make a net income of EUR1.3m-1.5m in 2008 and to increase net income to EUR3.5m-4.2m in Fair Value plans to pay a dividend for 2008 (EUR per share) for the first time.! Our valuation (NAV, DDM, peer group comparison; all weighted equally) leads to a fair value of EUR8.96 per share. Accordingly, we start our coverage of the Fair Value share with a price target of EUR8.90 and a Buy recommendation. Fair Value REIT-AG 4) Recommandation: Buy before: - as of - Price target (in EUR) (6 months) 8.90 Share price(xetra) (in EUR) /22/08 3:00 PM Share price potential 32.84% Company data Country GE Sector Finacial Services / REIT Market segment Prime Standard ISIN DE000A0MW975 Reuters FVIG.DE Bloomberg FVI Internet Share data Shares (m) Free float 42.28% Market cap. (EURm) 63.0 Trading Volume 1,922 52W High 11/16/07 EUR W Low 03/28/08 EUR5.53 Beta 0.60 Volatility (60 days) Multiples EV/Sales EV/EBIT P/E ratio Dividend yield % 2008E % 2009E % 2010E % Performance (in %) 1 month 3 months 6 months 12 months Absolut Relative to: DAX Prime Fin. Serv Index Weighting Prime Fin. Services 0.103% RX REIT Index 7.830% AP FY Sales EBIT EBT EAT EPS IFRS IFRS ,326-1,810 1,744 1, IFRS 2008E 12,400 5,378 2,268 2, IFRS 2009E 15,840 9,192 5,828 5, IFRS 2010E 18,400 10,856 7,082 7, CAGR E 62.0% neg. 59.5% 59.5% Figures in EUR'000 except EpS (in EUR), hist. PERs based on averaged share prices Author: Zafer Rüzgar (analyst) Page 3 Independent Research

4 STRENGTHS! Fair Value is faced with a relatively low level of competition thanks to its investment strategy! Efficient corporate structure, short ways of decision-making! Management has extensive expertise in real estate and significant track record! Considerable portfolio put together within a few months! Relatively low risk profile OPPORTUNITIES! Roll-up platform for acquisition of interests in closed-end real estate funds is unique selling point! Competitive edge thanks to REIT status; only two German REITs currently listed! Stable cash flows through long-term rental contracts, particularly in the case of Sparkasse properties! Share price ranges markedly below NAV WEAKNESSES! Relatively short corporate history! Dependence on IC Real Estate Group THREATS! Difficult capital market environment might impede investment financing! Loss of REIT status without company's fault! The high payout ratio provided by law prevents setting up of reserves und thus makes financing of future growth more difficult! Drop in demand for office and retail properties in the event of economic weakness, especially in regional locations Page 4 Independent Research

5 Company profile A generalist among real estate companies Fair Value REIT-AG at a glance Fair Value REIT-AG is a real estate investment trust (REIT) specialising in the acquisition, rental, property management and sale of commercial properties. The company operates exclusively in the German real estate market and focuses on certain regions, investing primarily in office, logistics and retail properties. Fair Value regards itself as a generalist. Apart from direct acquisition of real estate, the company's investment strategy also includes a special kind of indirect investment (acquisition of interests in closed-end real estate funds). At present, the company, which is listed in the Prime Standard segment of the Frankfurt Stock Exchange since November 16, 2007, has a portfolio with a total market value of about EUR276m and a rental income of about EUR22m per year. As at December 31, 2007, the portfolio of Fair Value had a rental level of 96%. Fair Value emerged from IC Grundbesitz Gesellschaft mbh & Co. Beteiligungs KG which changed its corporate form to Fair Value Immobilien AG. The company is based in Munich. Fair Value REIT-AG: Shareholder structure in % IC Immobilien Holding AG 9.39 H.F.S. Zweitmarkt Invest 2 GmbH & Co. KG 8.13 H.F.S. Zweitmarkt Invest 3 GmbH & Co. KG 7.44 H.F.S. Zweitmarkt Invest 4 GmbH & Co. KG 7.44 H.F.S. Zweitmarkt Invest 5 GmbH & Co. KG 7.44 IC Immobilien Service GmbH 6.34 IFB Beteiligungs-AG 5.44 Bayerische Beamten Lebensversicherung a.g IC Fonds GmbH 2.34 Free float * H.F.S. Zweitmarkt are controlled by UniCredito UniCredito's share of voting rights in Fair Value is 30.46% Source: Fair Value REIT-AG Participations division Swap of fund units for Fair Value shares The company's indirect investments are made by means of the Participations division. In the course of a roll-up, investors in certain closed-end real estate funds are offered to swap their fund units for shares in Fair Value REIT-AG on specified dates and at specified prices. This is done through a contribution in kind and was already successfully exercised in August/September 2007 with 14 real estate funds managed by IC Real Estate Group. Thus, Germany's first "upstream REIT" has been created. IC Real Estate Group is a full service provider which offers one-stop real estate services for national and international institutional investors through its group companies. Its holding company, IC Immobilien Holding AG, is listed in the Open Market of the Hamburg Stock Exchange. Page 5 Independent Research

6 Estimated market volume: EUR140bn Roll-up has advantages for both sides The roll-up process is an important unique selling point of Fair Value. At present, there is no competitor with a similar investment strategy. In our opinion, the roll-up has noteworthy advantages for both Fair Value and investors in closed-end real estate funds who are willing to sell. As a rule, it is relatively difficult for investors to exit a closed-end fund. It also entails high transaction costs. A sale on the secondary market is disadvantageous as well, as it leads to high discounts. By offering its shares, Fair Value gives investors access to a liquid market with a higher level of transparency. With its roll-up process, Fair Value gains an important access to a broad market volume (Fair Value estimates the relevant market volume in Germany at EUR140bn). Within a very short time, Fair Value generated approximately 80% of its total portfolio with the help of roll-up transactions. One of the main advantages for Fair Value is that the company does not necessarily depend on liquid funds in order to finance investments. As a rule, the transactions are exercised by means of a contribution in kind. However, we assume that investors' willingness to swap fund units will decline significantly in a negative capital market environment with share prices markedly short of the NAV. Closed-end fund Limited partner 1 Limited partner 2 Limited partner Fair Value Immobilien-AG (pre-reit) Swap Sale Shareholders 3 Participation 1 Identification of closed-end funds with appropriate properties with regard to Fair Value's portfolio 2 Offer to investors of closed-end funds: Fair Value shares (capital increase through contribution in kind) in exchange for fund participations or sale of fund participations to Fair Value 3 Fair Value shares in exchange: Aiming at fund majority Alternative for limited partners: Keeping hold of fund participation Source: Fair Value REIT-AG Page 6 Independent Research

7 Direct Investments division Fair Value deliberately avoids urban agglomerations Apart from the indirect investment business represented by the Participations division, Fair Value also has a Direct Investments division. Thanks to many years of management experience and a comprehensive network of investment companies and agents, the company has sufficiently broad access to possible investments. Fair Value deliberately avoids investments in urban agglomerations as it feels that this will entail a less volatile price development and a higher profitability. From our point of view, the company's assessment is underscored by the fact that the yield of its investment portfolio amounts to 8.0%. Since most competitors concentrate on the top five cities, the suburbs of major cities which Fair Value focuses on are often characterised by a lower level of competition. In absolute top locations the company operates rather opportunistically. In geographical terms, Fair Value focuses on Northern and Central Germany and the Berlin area, whereas the company is currently hardly represented in Southern Germany. Portfolio distribution by federal states (by market values) Real estate portfolio: Rental income by type of use Schleswig-Holstein 20% Thuringia 6% Bavaria 5% Berlin 3% Brandenburg 16% 9% 5% Saxony-Anhalt 5% 44% Saxony 6% Rhineland-Palatinate 0% North Rhine- Westphalia 15% Lower Saxony 7% Hesse 4% Mecklenburg- Western Pomerania 12% 42% Office Retail Logistics Other Source: Fair Value REIT-AG Source: Fair Value REIT-AG Good sector diversification of real estate portfolio The bulk of the company's investments is accounted for by office and logistics properties. As for retail properties, Fair Value makes investments only in selected locations in mediumsized cities. On the whole, the company's portfolio is well-balanced. In our opinion, the company's real estate portfolio is broadly diversified and well-integrated regarding type of use and yield profile. In the future, office properties are intended to represent 50% of the portfolio, while logistics and retail properties are to account for 25% each. Investment financing is less difficult Manageable investment range of EUR5m to EUR50m in the future The average investment volume of Fair Value's projects will range between EUR5m and EUR50m in the future. According to the company, there are very few private investors in this segment. In addition, investments of this size are not attractive enough for institutional investors. Thus, the market that Fair Value operates in is characterised by a relatively low level of competition. Furthermore, it is less difficult to finance investments of this size even in a weak capital market environment. Page 7 Independent Research

8 Investment process Phase 1 Evaluation of the investment property Phase 2 Due diligence Phase 3 Valuation and negotiations Phase 4 Investment decision Phase 5 Contract finalisation and execution - Database entry of the identified investment property - Pre-selection of investment property based on additional information - Should there be a match with the investment profile: Signing of a non-binding letter of intent (LOI) - Due diligence with the help of IC Real Estate Group: - Economic due diligence (evaluation of long-term value potential) - Technical due diligence (review of the property s structure and compliance with rules and regulations) - Legal and tax-based due diligence (review of existing contract, land registry entries, etc.) - In case of acquisition of interests in property companies / real estate funds: Corporate and tax-law audit - Negotiations about important parts of the contract based on the LOI - Valuation of investment property and determination of an appropriate purchase price - Working out a non-binding purchase agreement - Negotiations about financing details with banks - Investment decision based on the due diligence report - Additional approval through the Supervisory Board if transaction volume is over 50m, if it's not accounted for in the annual budget - Secure financing - Finalisation of purchase contract - Acquisition of the investment property - Payment of the agreed purchase price and meeting of all contractual obligations Source: Fair Value REIT-AG Cooperation with IC Real Estate Group makes sense Extensive cooperation with IC Real Estate Group Fair Value has spun off activities of lower strategic significance outside the asset management business to IC Real Estate Group by means of service agreements. These activities primarily include commercial and technical management of the properties as well as maintenance of the facilities. Administration of the properties in the investment funds is also carried out by IC Real Estate Group. In our opinion, the cooperation leads to a significant dependence of Fair Value on IC Real Estate Group. However, the cooperation also ensures an efficient corporate structure. IC Real Estate Group has 200 employees and manages an investment volume of about EUR4.5bn. Tenants of Fair Value's portfolio (as of 12/31/2007) in % Sparkasse Südholstein IDLG immobiliendienstleistungen 9.71 Metro AG 8.18 BBV Holding AG 4.98 Kaufland Stiftung & Co. KG 4.55 Schweizerhof Hotel GmbH & Co. KG 4.07 Marktkauf Handelsgesellschaft mbh & Co. KG 3.95 Toys R Us Deutschland GmbH 3.52 HPI Hotelbesitz GmbH 2.66 ABB Grundbesitz GmbH 2.64 Other Source: Fair Value REIT-AG Page 8 Independent Research

9 Real estate assets of Fair Value REIT-AG Rental yield: 8.0%; vacancy rate: 2.8% Fair Value's total portfolio is worth about EUR276m The company's total portfolio (properties of the Participations and Direct Investments divisions) includes 81 properties with a total rental area of 466,000 sqm. Fair Value's share in rental income amounts to about EUR22m per year, which corresponds to an average rental yield of 8.0% per year. The vacancy rate is 2.8% and the average remaining lease term is 6.87 years. As at December 31, 2007, the portfolio had a total market value of about EUR608m, while Fair Value's share amounted to about EUR276m. Total portfolio Fair Value REIT-AG as at 12/31/2007 Retail Office Logistics Other Total Number of properties Rental area (in m sqm) Fair Value's share Market value as at 12/31/2007 (in EURm) Fair Value's share Annual rental income (in EURm) Fair Value's share Average returns 7.6% 8.0% 10.4% 7.8% 8.0% Vacancy rate 4.0% 2.3% 1.4% 0.0% 2.8% Source: Independent Research; Fair Value REIT-AG Long-term cash flows with low default risk Direct investments in Q Fair Value put together most of its real estate portfolio in H One transaction which stood out was the acquisition of a total of 32 office properties in Schleswig-Holstein. There, Fair Value acquired office properties from Sparkasse Südholstein for EUR49.4m by a saleand-leaseback transaction. With a rental level of 97%, this portfolio generates a rental income of about EUR3.1m per year. We welcome this transaction. In our opinion, Fair Value thus acquired a real estate portfolio with a high profitability, even though the initial yield of 6.4% remains below the yield generated by the remaining portfolio (8.0%). The reason for the lower yield is the high creditworthiness of the tenant, Sparkasse Südholstein, and the long lease term of 13.5 years of the portfolio. Fair Value acquired its real estate portfolio for about EUR1,146 per sqm. The low purchase price is due to the tax advantage provided by the exit tax regulation. Page 9 Independent Research

10 Real estate portfolio in its Direct Investments division Number of properties 32 Rental area (in sqm) 43,108 Vacancy rate 3.9% Market value as at 12/31/2007 (in EURm) Annual rental income (in EURm) 3.09 Net yield 6.4% Source: Independent Research; Fair Value REIT-AG Already 42% of the property let Office building Düsseldorf Airport Center In addition, the company acquired an office property under construction at Düsseldorf Airport in October The purchase price amounts to EUR12.6m and is to be paid according to construction progress. The property, which will have a rental area of 4,671 sqm, is scheduled for completion in Q Based on a target rent of EUR885,000 (EUR14 per sqm, office and parking space rent) Fair Value expects an initial yield of 6.8% once the property is fully let. By now, already 42% of the property is let. At the moment, the largest tenant is ProLogis Germany Management GmbH. In view of the high attractiveness of the location we proceed from the assumption that the property will be fully let by the time of its completion. Since the property has a first-class location, it is not in line with the company's strategy. Therefore, we consider the acquisition a purely opportunistic investment. Source: Fair Value REIT-AG Page 10 Independent Research

11 Fair Value currently participates in 13 closed-end funds In September 2007, Fair Value acquired stakes in 14 closed-end real estate funds, 7 of which were majority stakes. In the meantime, the company sold one of the stakes (nursing care home) again, as it might have been rated a residential property and thus have threatened the company's REIT status. The portfolio of the company's subsidiaries and associated participations consists of 49 properties with a total retnal area of 422,557 sqm and a total market value of EUR558m. Real estate portfolio in its Participations division Subsidiaries with majority participation Number of properties 21 Rental area (in sqm) 118,239 Vacancy rate 4.3% Market value as at 12/31/2007 (in EURm) Annual rental income (in EURm) Net yield 9.6% Source: Independent Research; Fair Value REIT-AG Real estate portfolio in its Participations division Associated companies Number of properties 28 Rental area (in sqm) 304,318 Fair Value's share 108,026 Vacancy rate 5.7% Market value as at 12/31/2007 (in EURm) Fair Value's share Annual rental income (in EURm) Fair Value's share Net yield 7.8% Source: Independent Research; Fair Value REIT-AG Page 11 Independent Research

12 Management Fair Value's Board of Management currently consists of two members CEO and CFO of Fair Value REIT-AG Responsible for Asset and Portfolio Management Mr. Frank Schaich (48) has been active in key management positions since the foundation of IC GmbH in Between 1993 and 2002 he was a managing director for several IC Real Estate Group companies and the funds under management by IC. He was then appointed to the Board of Management at IC Immobilien Holding AG, where he was responsible for fund business. Mr. Schaich has more than 25 years of experience on international real estate markets. In this period he gained extensive experience in syndicating, financing, and placing closed-end real estate funds as well as in asset and portfolio management. Since September 17, 2007, Mr. Schaich is CEO/CFO of Fair Value. He is responsible for Strategy, Finance, Controlling, and Investor Relations. Mr. Manfred Heiler (63) was head of Thurn und Taxis Liegenschaftsverwaltung (real estate division) from 1974 to 1986 and managing director of Thurn und Taxis Gesamtverwaltung from 1987 to He was then managing director of Dr. Höcherl GmbH & Co. Gewerbebau KG. From 1994 to 2007 he was managing director of Commerz Immobilien GmbH in Düsseldorf. Over the course of his 30 years of activity on international real estate markets he was responsible for acquiring of real estate in Europe and North America, (re-)development, asset and portfolio management and the subsequent sale of real estate. Mr. Heiler therefore has comprehensive knowledge in all areas of the real estate business. He is a law-graduate and since December 1, 2007 he is CIO (Chief Investment Officer) of Fair Value. He is responsible for Strategic Asset and Portfolio Management as well as Investments and Disinvestments. The Supervisory Board consists of Prof. Dr. Heinz Rehkugler (Chairman of the Supervisory Board), Christian Hopfer (Deputy Chairman of the Supervisory Board), and Dr. Oscar Kienzle. Prof. Dr. Heinz Rehkugler, born in 1943, is a Professor of Financial Economics and Banking at the University of Freiburg since His work focuses on real estate economics, analysing companies and financial products using quantity-based methods, and private asset management. Professor Rehkugler is in charge of research at the German Real Estate Academy at the University of Freiburg (DIA) and head of the Real Estate panel of experts for the DVFA analysts association. Page 12 Independent Research

13 Fair Value REIT-AG: History January 2004 Foundation of IC Grundbesitzgesellschaft mbh with the objective of setting up a secondary market fund September 2004 Change of name to IC Grundbesitz GmbH & Co. Renditeportfolio KG March 2005 Change of name to IC Grundbesitz GmbH & Co. Fair Value KG (short: Fair Value KG). Purpose was the purchase of stakes in closedend real estate funds on the secondary market July 2007 Change of corporate form to Fair Value Immobilien AG Aug./Sep Exchange offer to shareholders of IC Fonds and BBV Immobilienfonds: Fair Value acquires stakes in 14 closed-end funds October 2007 First direct investments. Acquisition of 34 office properties from Sparkasse Südholstein (savings bank). Cash capital increase and capital increase through contribution in kind to a total of EUR96.75m November 2007 Further cash capital increase of EUR5m November 2007 November 16: Listing of Fair Value Immobilien AG in the Prime Standard segment December 2007 December 6: Fair Value Immobilien AG gets REIT status and is now operating under the name Fair Value REIT-AG December 2007 December 19: Becomes second company to be admitted to Deutsche Börse s REIT segment Source: Fair Value REIT-AG Page 13 Independent Research

14 German REIT (G-REIT) Incentive to disclose hidden reserves Exit tax stands out To put it simple, a REIT is a corporation that owns and manages real estate. The company is required to distribute the bulk of its profit. The profit is not taxed on the corporate level, but the shareholders have to pay tax on the dividend according to their personal tax rates. A special feature of G-REITs and pre-reits which applies until December 31, 2009 is the exit tax regulation. It provides a tax-privileged disclosure of hidden reserves in the event of a sale of real estate. The regulation is meant to create an incentive for companies to either adopt a REIT-AG structure or sell its real estate portfolio to REITs, as only one-half of the according capital gain is subject to tax. Only two G-REITs listed today High expectations not yet fulfilled German legislation had hoped that the exit tax regulation, in particular, would accelerate the incorporation of REITs. However, the high expectations attached to G-REITs have not yet been fulfilled. The authorities had expected that up to 20 REITs would go public in 2007 and 2008 after the REIT Act took effect. Apart from Fair Value REIT-AG, there is only one other REIT corporation in Germany today, namely alstria office REIT-AG. In our opinion, this restrained start is due to the weak stock market environment. Given the difficult refinancing conditions and the devaluation of many real estate companies' portfolios, the market currently cannot absorb IPOs of real estate companies, in our view. We feel that the early listing of Fair Value REIT-AG gives the company an even greater advantage over latecomers. First REITs in the US in 1960 REITs were first incorporated in the US in 1960 and have by now been established as a vehicle for real estate investment in numerous countries (e.g. Australia, Belgium, France, Canada, Japan), while the national REIT regulations differ in some cases. In the following we set forth the legal requirements applying to G-REITs. Page 14 Independent Research

15 Characteristics of a German REIT (G-REIT) based on the REIT legislation of March 23, 2007 Business purpose Acquisition, renting or leasing of domestic and foreign properties. Real estate trading is not allowed. Legal form Free float requirement Public limited company (AG) listed on an EU stock market (regulated market: Entry Standard or AIM excluded) with headquarters in Germany. At least 25% of the shares must be held in free float when going public, thereafter at least 15%. Level of direct investment No individual investor is allowed to hold a stake of 10% or more in a REIT. Dividend A REIT is required to distribute at least 90% of its distributable profits as a dividend. Income requirement At least 75% of revenues must stem from original activities, i.e. from renting, leasing or the sale of immovable assets. Asset requirement At least 75% of a REIT's assets have to be immovable assets. Tax A REIT pays neither corporate nor trade taxes. Taxation of profits takes place on shareholder level. Exit tax Equity requirement Companies which put their properties into a REIT are only required to pay tax on half of the realised profits or uncovered hidden reserves (until 2009). Immovable assets have to be equity-backed by at least 45%. The rest can be fully financed by debt. Real estate trading Residential property Foreign properties A REIT is not allowed to trade immovable assets. Within a five-year period only a maximum of 50% of the average amount of immovable assets can be sold. A REIT is not allowed to invest into German properties whose living space accounts for more than 50% of total space and which were built before January 1, A REIT portfolio may include foreign properties when they meet REIT regulations in the country of their location. Excursus: Pre-REIT!!!! Same business purpose as a REIT No exemption from corporate and trade taxes Once a pre-reit has been founded, the application for admission to a stock market must be filed within 3 years Same exit tax regulation as with a REIT Source: Federal Cental Tax Office, Federal Law Gazette from June, 1(BGBl I 2007, 914), Fair Value REIT-AG Page 15 Independent Research

16 The German real estate market in 2007 Decline in vacancy rates and increase in rents Positive conditions in 2007 In 2007, the German real estate market was above all characterised by the robust economic development despite the unfolding financial crisis. Thanks to the positive conditions (increase in production activity, decline in unemployment, new jobs in services sector), demand for office, retail, industrial and logistics properties as well as residential properties kept increasing. As a result, vacancy rates went down and rents climbed in the real estate markets. This led to higher transaction volumes and an increase in real estate turnover. The fact that (commercial) real estate has become more and more of an independent asset class with a low level of correlation to the price development of bonds and stocks revived real estate turnover markedly as well. Development of real estate turnover in Germany since 1988 (in EURbn) E 2009E 2010E 2011E Post-reunification boom Source: Federal Finance Office, Federal Statistical Office, DEGI RESEARCH Increase in real estate transfer tax from 2% to 3,5% as of 01/01/1997 Revised version of Section 23 (1) No. 1 of the German Income Tax Act; expiry of coninuation in accordance with Section 7c of the German Income Tax Act Pull-in effects in 2006 due to VAT increase and discontinuation of homeowner's allowance Setback expected in 2008 Real estate turnover climbs to EUR194.5bn in 2007 Altogether, this led to a new record real estate turnover of EUR194.5bn in 2007 based on revenue from real estate transfer tax (source: DEGI). Compared to 2006 levels, the transaction volume put on EUR19.5bn or 11%, respectively. The transaction volume increased 18.3% in Eastern Germany and approximately 10% in Western Germany. DEGI as a tendency expects a weaker development in the current fiscal year and predicts a moderate 4.7% decline to approximately EUR185bn. However, this amount would still exceed the long-term average transaction volume by more than 20%. The main factors of uncertainty are the subprime crisis and its effect on the real economy. However, DEGI proceeds from the assumption that commercial properties will remain sought-after investments next year, primarily with institutional investors who are operating internationally. Page 16 Independent Research

17 Office real estate market Take-up surpasses boom year 2000 Take-up increases most in Düsseldorf Development of the office real estate market was positive in the fiscal year It was characterised by high demand and further decline in vacancy rates. Most of Germany's nine office centres posted an increase in rents. Turnover fell slightly short of 2006 levels in Leipzig, Cologne and Berlin only. With a total take-up of 3,568,700 sqm, the office real estate market performed even better than in boom year The increase was strongest in Düsseldorf (+61.5% to 520,700 sqm), followed by Dresden (+27.7% to 60,000 sqm). Together, office centres registered a 13.7% increase. Change in vacancies and prime rents 2006/2007 Stuttgart Change against the previous year in % Munich Leipzig Cologne Hamburg Frankfurt/M Düsseldorf Dresden Berlin -20.0% -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0% Source: DEGI RESEARCH Vacancies Prime rent Regional locations benefit from positive market development, too Positive outlook for the current year The positive development was due to dynamic demand from nearly all industries with a high level of office space (banks, insurance companies, financial service providers, public administration, among others). Demand for high-quality space in inner-city areas was particularly high. In view of the good sentiment of companies operating in Germany, DEGI expects turnover to remain high in the current year, although it should not match the good result of In 2007, vacanies decreased markedly by 9%. In the nine office centres the vacancy volume dropped to 8.6m sqm, which corresponds to an average decline in vacancy rates by 590 basis points. In spite of this positive development on the supply side, the vacancy rate remains on a relatively high level (10.8%). This is particularly true of Frankfurt/Main (14.2%) as well as the Eastern German centres Dresden (13.7%) and Leipzig (19.5%). The combination of record turnover and a decline in supply of space led to an increase in rents, especially in top locations with high-quality fixtures. All office centres registered a rise in prime rents (which account for a mere 5% of the total market, however). This development was led by Frankfurt/Main, where the prime rent climbed by 13.8% to EUR37.00 per sqm, followed by Munich with a 7.9% rise. The office real estate markets of medium-sized towns and regional locations benefited from this development as well but Page 17 Independent Research

18 have not yet registered any noteworthy rise in rents. According to DEGI, the German office real estate market should see another increase in rents in 2008 despite the imminent recession in the US, although the increase ought to be lower than in Vacancies in regional locations and office centres Prime rents in regional locations and office centres Prime yields in regional locations and office centres Vacancy (in %) Prime rent (in EUR/sqm/month) Prime yield (in %) Regional locations total Regional locations Western Germany Regional locations Eastern Germany Office centres Regional locations total Regional locations Western Germany Regional locations Eastern Germany Office centres Regional locations total Regional locations Western Germany Regional locations Eastern Germany Office centres Source: DEGI RESEARCH Source: DEGI RESEARCH Source: DEGI RESEARCH Interest focuses on office properties Transaction volume increased by about 33% to EUR61.3bn On the commercial investment market, the positive development of the office real estate market continued. In the past year, the transaction volume increased by about 33% to EUR61.3bn in Germany, which marked a new record. A significant portion of this volume was accounted for by the office centres of Berlin, Düsseldorf, Frankfurt/Main, Hamburg and Munich, which registered a 56% rise to EUR28.9bn. The list was topped by Frankfurt/Main with a 95% jump to EUR7.9bn (4.1). The buyers' interest clearly focused on office properties, which represented 74% of the total commercial real estate market of Munich, for example. Page 18 Independent Research

19 Retail real estate market Weak environment in the retail sector High potential for renewal and restructuring of shopping malls Sustained increase in retail space Last year, the retail industry failed to keep up with Germany's overall economic development and suffered a nominal 1.2% (real: even 2.2%) decline in sales to about EUR387bn. Consumer restraint was primarily due to the VAT increase, the strong rise in energy and food prices, and a higher propensity to save in order to build up higher old-age savings. DEGI expects retail sales to put on 2.0% in 2008 and 2.5% in 2009 (in nominal terms) thanks to a further increase in employment and slightly higher incomes, among other things. At the moment, the situation of the German retail sector is characterised by a steady increase in retail space, which is disproportionately high in relation to the decreasing population. Total retail space currently amounts to about 119m sqm or, respectively, 1.45 sqm per capita. Constant high demand in top locations expected Another 6m sqm of retail space are to be created by The oversupply of retail space is primarily due to a surplus of old and out-of-fashion shopping malls that are unproductive for lack of size. However, this leads to a high potential for renewal and restructuring. The increase in retail space is particularly steady in conurbations and large cities. As a result, demand for retail space remains constantly high in top locations integrated in inner-city shopping areas or near urban agglomerations with good transport connections. The intense competition for high-quality space in top locations is reflected in a significant rise in prime rents. According to Fair Value, rents went up even in class B locations in high-sales and highly-frequented retail areas. It is particularly here that the letting business is characterised by the contrast between high-price prestige locations and low-price discount store concepts. However, rents in these areas on average not even reached one-half of the prime rents received in shopping strongholds. Therefore, we welcome Fair Value's strategy of strengthening its office and logistics real estate business in the future. Page 19 Independent Research

20 Logistics real estate market Logistics market is a growth market Very attractive market for Fair Value The logistics market is a growth market, both in Germany and worldwide. Apart from the traditional core segments of transportation, handling, and storage, it now includes other services as a result of rising demand for modern logistics space. For example, logistics service providers increasingly take on logistics-relevant side activities and added-value services that their customers provided themselves before. The increasing integration of world trade and the decline in transportation costs creates new markets and thus new links between sources and targets. The German logistics real estate market benefits from this, as demand for modern, flexible and high-capacity logistics space significantly exceeds supply. This opens up a very attractive market to institutional investors like Fair Value. Germany benefits from its geographical position and good infrastructure Logistics properties offer initial yields of about 6% to 7% Germany benefits from its geographical position and good infrastructure, especially following the Eastern Enlargement of the EU, and has established itself as a hub for international logistics. One can identify various transportation corridors and major logistics centres throughout Germany. Transportation is conducted by rail, air, ocean and inland waterways. All of these sectors posted noticeable increases in the past years. Thanks to these favourable conditions, demand for logistics space was very high in the major centres (e.g. Berlin, Hamburg, Ruhr) in According to a survey held by the German Federal Office for Building and Regional Planning (BBR), 60% of market participants operating in major centres felt that demand for logistics space is high in H2 2007, while the vacancy rate is low. Approximately 60% of the respondents said that market opportunities were highest with distribution halls in top locations, followed by transfer stations in top locations. 75% of the respondents saw great market opportunities here. Logistics properties offered initial yields of about 6% to 7% in For 2008, DEGI predicts initial yields of between 7% and 8.5%. Rents and yields in the logistics sector City Rent spread Prime yield EUR/sqm in % Berlin Frankfurt/Main Hamburg Munich Leipzig Cologne Düsseldorf Stuttgart Source: DEGI RESEARCH Page 20 Independent Research

21 Operating development in 2007 Significant increase in total assets despite short corporate history In light of its very short corporate history there are no historical financial figures for Fair Value REIT-AG. We also do not feel that figures for 2007 are representative, because the company only began operations after the exchange of fund units in Q4. With this in mind, the sudden jump in total assets as to EUR230m as at December 31, 2007, is very remarkable, in our opinion. The equity ratio was 41%. Debt totalled EUR112m in Investment in 14 closedend real estate funds Cash capital increase and capital increase through contribution in kind in Q3 Balance sheet expansion was based on two cash capital increases in October and November 2007 by issuing a total of 1,577,434 shares at a price of EUR10.00 and EUR10.50 per share, respectively, as well as a capital increase through contribution in kind in October by issuing 7,729,448 shares at a price of EUR10.00 each. As part of the capital increase through contribution in kind, according to Fair Value, more than 2,000 investors in closed-end funds swapped their fund units for shares in the company. This means that in one single move Fair Value was able to invest in 14 closed-end real estate funds, 7 of which with a majority stake. Fair Value REIT-AG Selected key data of the consolidated income statement Unit : EUR'000 Fiscal year : Dec Accounting standards : IFRS Rental income 4,326 Valuation result -725 Income from equity accounted-participations 7,225 Net income expenses -1,491 Consolidated profit 1,744 Source: Fair Value REIT-AG Expenses for going public: EUR1.8m No dividend yet Results characterised by special items In 2007, rental income amounted to EUR4.3m. It primarily stems from the portfolio of closedend real estate funds, in which the company holds a majority. Rental income from the savings bank (Sparkasse) portfolio, which was acquired in October 2007, did not play a major role here, because risks and rewards were transferred not until December 21, General administrative expenses totalled EUR3.5m and were burdened by a one-off expense of EUR1.4m for conception and change of legal form. In addition, one-off expenses for going public amounted to EUR1.8m. Valuation gains and losses were almost equal in The balance was EUR-725,000. Income from equity-accounted participations amounted to EUR7.2m. Here, it is especially noteworthy that there was an income relevant amount of EUR14.8m resulting from the difference between acquisition costs and the fair value of the proportionate net assets. This positive effect due to a lucky buy was partially offset by an impairment of EUR7.6m as a result of fund-specific costs. Under the bottom line there was a group profit of EUR1.7m. Due to the REIT status, no income taxes incurred. Fair Value does not intend to pay a dividend for 2007, because according to the relevant German Commercial Code (HGB) there was a loss of EUR1.9m. Page 21 Independent Research

22 Outlook and forecasts Planned doubling of real estate assets by end of 2009 Fair Value's targets for 2008 and 2009 Within the next two years Fair Value intends to double its immovable assets. It is to be financed through equity and debt. Equity financing is especially dependent on the capital market environment. Furthermore, we do not expect the company to make a capital increase at its current price level (about 40% below NAV). The expansion of real estate assets is to focus mainly on office and logistics properties. The company is also planning to expand the share of its direct investments from its current level of about 25% to 50%. DPS 2008: EUR per share Group profit of between EUR1.3 and 1.5m expected in 2008 In 2008, Fair Value expects a group profit in the range of EUR m. In 2009, an increase to between EUR3.5 and 4.2m is planned. The company intends to pay a dividend within the range of EUR per share for the first time in Fair Value REIT-AG Forecast of selected key data of the consolidated income statement Unit : EUR'000 Fiscal year : Dec E 2009E 2010E Accounting standards : IFRS Rental income 12,400 15,840 18,400 Valuation result -2,200-2,400-2,600 Income from equity accounted participations 5,378 9,192 10,856 Net income expenses -3,110-3,364-3,774 Consolidated profit 2,268 5,828 7,082 EPS (in EUR) DPS (in EUR) Source: Independent Research Valuation loss of EUR2.2m cannot be ruled out Clear increase in rental income due to inclusion of full-year We feel the earnings targets for 2008 and 2009 are within reach. We also expect Fair Value to be able to pay the planned dividend for For the current year, we forecast rental income (equal to sales) of EUR12.4m. Including the majority holdings and the savings bank (Sparkasse) portfolio for the full-year there is a clear increase compared to Rental income from associated companies is expected to amount to EUR4.6m. We have not taken valuation gains into consideration in our forecast. However, in line with the company's own planning, we have assumed a valuation loss of EUR2.2m in This valuation loss results from the shortened remaining term of over-rents. Forecasted cost of debt: 5.5% Forecast for direct investments: EUR40m In 2008 and 2009 we assume direct investments of EUR40m in each year. For the financing of these investments we assume borrowing of EUR33m and 35m, respectively. Cost of debt is 5.5%, in our opinion. Based on our assumptions the investments should produce an additional annual rental income of EUR2.56m. It has to be considered that the office property at Düsseldorf Airport will also produce rental income (about EUR885,000) for the first time from The property, which is currently classified as a property under construction, is to be reclassified as an investment property in As we have not anticipated any capital increase in our forecasts, the equity ratio will decline in the forecasting period. However, it is to be expected that according to IFRS minority interests will count as equity in the future. Accordingly, there will be no violation against the REIT legislation. Page 22 Independent Research

23 Valuation For the valuation of Fair Value REIT-AG we have used not only a NAV calculation, which is typical for real estate companies, but also a dividend discount model (DDM) and a peergroup comparison. Due to the company's REIT status, Fair Value will distribute a large portion of its profits in the future. We therefore feel that a valuation with a DDM makes sense. For the peer group comparison we have used German real estate companies with a similar business model due to the lack of REITs in Germany. These include companies which manage office and commercial properties. The fair value per share results from the equally-weighted average of the three valuation methods. NAV calculation E E 2009E 2010E Fair market value of investment properties 150, , , ,070 Equity-accounted participations 58,909 62,756 65,648 68,424 Other assets less other liabilities 10,924-5,254-6,726-8,406 Financial liabilities 112, , , ,866 Cash and cash equivalents 5,381 2,780 3,247 10,326 Minority interests 18,487 19,287 20,887 22,667 NAV 94,663 96,931 99, ,880 Number of shares (in m) 9,407 9,407 9,407 9,407 NAV per share Figures in EURm except for NAV per share (in EUR) Source: Independent Research; Fair Value REIT-AG Dividend discount model (DDM) in EUR 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E DPS Present values Sum of present vlaues 4.48 Terminal value 4.45 in % of total value : 50% Fair value per share 8.93 Model parameter DDM: Risk-free rate of return : 4.50% Beta : 0.6 Risk premium equity : 4.0% Anzahl der Aktien in Mio. Stück Cost of equity: 6.9% Date : 04/23/08 Kurs in Euro 8.93 Source: Independent Research Page 23 Independent Research

24 Peer group comparison Company P/E EV/Sales 2008E 2009E 2008E 2009E ALSTRIA OFFICE REIT-AG DIC Asset AG Deutsche Euroshop IFM Immobilien AG POLIS IMMOBILIEN AG Average Source: Independent Research; Bloomberg Share prices as of 04/22/2008 EPS Sales in EUR'000, EPS in EUR 2008E 2009E 2008E 2009E Fair Value REIT-AG ,400 15,840 Enterprise Value 187, ,407 Cash and cash equivalents Debt 5, ,134 Fair market capitalisation 80, ,654 Number of shares (in '000) 9,407 Fair value Average Weighting Fair value per share /2 1/ Source: Independent Research Valuation summary NAV DDM Peer group Fair value per share (EUR) Weighting 1/3 1/3 1/3 Final fair value per share (EUR) 8.96 Source: Independent Research Page 24 Independent Research

25 Conclusion Fair Value REIT-AG is a REIT which is specialising in the acquisition, rental, property management, and sale of commercial properties. The company is only focusing on the German real estate market, with a main focus on regional locations. Fair Value sees itself as a generalist. In addition to the acquisition of real estate, indirect investments (acquisition of interests in closed-end real estate funds) are also a part of the company's investment strategy. Indirect investments are made in the Participations division. In a so-called roll-up process, investors are given the opportunity to swap their fund units for shares in Fair Value REIT- AG on specified dates and at specified prices. The roll-up process is an important unique selling point of Fair Value. At present, there is no competitor with a similar investment strategy. The particular advantage lies in the fact that the company is not necessarily dependent on liquid funds in order to finance its investments. In addition to indirect investments in the Participations division, the Direct Investments division is also active in direct investments. In its investment decisions, Fair Value deliberately avoids urban agglomerations, as it feels that this will entail a less volatile price development and a higher profitability. The average future investment volume for Fair Value is to be between EUR5m and 50m. The total portfolio includes 81 properties with a total rental area of 466,000 sqm. Fair Value's share in rental income amounts to about EUR22m per year. As at December 31, 2007, the portfolio had a total market value of EUR608.3m, while Fair Value's share amounted to about EUR276m. In light of its very short corporate history there are no historical financial figures for Fair Value REIT AG. We also do not feel that figures for 2007 are representative, because the company only began operations after the exchange of fund units in Q4. With this in mind, the sudden jump in total assets as to EUR230m as at December 31, 2007, is very remarkable, in our opinion. The equity ratio was 41%. Debt totalled EUR112m in Within the next two years Fair Value intends to double its immovable assets. The expansion of real estate assets is to focus mainly on office and logistics properties. In 2008, Fair Value expects a group profit in the range of EUR m. In 2009, an increase to between EUR3.5 and 4.2m is planned. The company intends to pay a dividend within the range of EUR per share for the first time in For the valuation of Fair Value REIT-AG we have used not only a NAV calculation, which is typical for real estate companies, but also a dividend discount model (DDM) and a peergroup comparison. Based on our valuation we calculated a fair value of EUR8.96 per share. Accordingly we start our coverage of the Fair Value share with a price target of EUR8.90 and a Buy recommendation. Page 25 Independent Research