Adler Real Estate AG. Fewer vacancies, more properties. Buy (Buy) EUR (16.50 EUR ) BANKHAUS LAMPE // 1 28/03/2017

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1 BANKHAUS LAMPE // 1 Adler Real Estate AG Fewer vacancies, more properties 28/03/2017 Buy (Buy) EUR (16.50 EUR ) Close 24/03/ EUR Bloomberg: ADL GY WKN: Sector Share price performance Real Estate 52 week high EUR 52 week low EUR Compared to SDAX YTD -9.3% 1 month -7.5% 12 months 8.4% Adler Real Estate delivered a better-than-expected result for 2016 and issued its guidance for the current year. This pointed towards an FFO of about 40 m and also exceeded our previous expectations. Contrary to our expectations, the company does not expect the portfolio to shrink and its guidance suggests that vacancies will fall sharply. We have raised our estimates and target price and we reiterate our BUY rating. INVESTMENT CASE Adler Real Estate arrived at a better-than-expected operating result for The FFO stood at 27.5 m (vs. 25 m guidance and our expectation). Valuation gains (also in the inventory) were also higher than expected and the company generated an NAVpS adj. of (BHLe 14.42). The main reasons for the increase in our estimates are however: The company no longer expects the portfolio to shrink based on non-core realestate sales and sees a very good chance of replacing these properties via new acquisitions, citing a 10,000 unit pipeline of various smaller portfolios that it is examining. Adler expects to reduce the vacancy rate in the portfolio from currently 10% by 300 bp in the course of the year. CATALYSTS The quarterly operating results are set to trend upwards thanks to rising rents, reduced vacancy, improving efficiency and falling refinancing costs. Share data EV (m EUR; 2017) 2,480 Market Cap (m EUR) No. of shares (m) 47.7 Free float 42.4% VALUATION We have raised our price target by 0.50 to based on the higher NAV adj. and the positive impacts from the higher FFO estimates. Adler is trading at a discount to the NAV, but it appears expensive in terms of P/FFO. However, the FFO does not take account of Accentro s privatisation business. Next event Quarterly Results 15/05/2017 Change in model Sales FFO EPS 2017e 1.1% 15.7% 66.1% 2018e 3.6% 16.2% 9.2% 2019e 3.5% 13.5% 7.7% Analyst Dr. Georg Kanders, Analyst Phone: +49 (0) georg.kanders@bankhaus-lampe.de See end of document for disclaimer. in m EUR e 2018e 2019e Sales FFO FFO margin 12.2% 16.3% 23.1% 28.0% 32.4% Net financial debt 2,093 2,172 1,731 1,677 1,598 Net asset value per share FFOPS (in EUR) DPS (in EUR) Dividend yield 0.0% 0.0% 0.0% 0.0% 1.4% EV/EBITDA P/NAV P/FFO

2 BANKHAUS LAMPE // 2 PRICE TARGET CALCULATION Our price target calculation is based on our NAV estimate for 2019 (excluding minorities and goodwill) and thus arrives at a figure of Adjustment for Accentro One problem when evaluating Adler Real Estate is that the business potential offered by its subsidiary Accentro is not adequately reflected in the NAV. For instance, Accentro it trading at almost twice its book value, even though this includes a goodwill item of more than 17 m. This therefore requires an adjustment in our model, which is based on the implicit valuation reserves. In our view, we have conservatively applied 7x a sustainably achievable EBIT of 25 m (Accentro forecast for 2017: m). We therefore arrive at a figure of 175 m. However, from this we subtract valuation reserves in the inventory assets ( 52.1 m), which were included in the NAV as per 31/12/2016 (was 30.6 m as of 30/09/2016). Since the participation rate is 87%, we arrive at an adequate value of about m, or 1.78 per share. We do not expect Adler Real Estate to pay a dividend before However, as we take account of dividends for the period e in our valuation, we also add our estimated dividend payments for the period e to the expected NAV, in this case The dividend and Accentro-adjusted NAV for 2019 comes to 20.78, and the dividend-adjusted implicit valuation reserves climb from 11.2% for the straightforward model to 15.8%. Calculation of price target Share price / PT Share price / NAV / adj. NAV Implicit valuation (in ) PT/NAV reserves 27/03/ E 2019E Adler Real Estate % Adler Real Estates, adj. NAV % Adler Real Estates, adj. NAV % Source: BHL Research Price target The residential asset class has a positive effect on the risk profile. Besides this, the growth potential from the improvement and reduction in the cost of refinancing and the company's more efficient set-up has to be taken into account. Compared with the sector, however, the company has a much stronger focus on locations with weaker demographic prospects, such as Duisburg and Wilhelmshaven, and it continues to have an above-average LTV of about 55%. Overall, we consider a risk premium of ~9% (the adjusted NAV arising from implicit valuation reserve in terms of the current real estate assets) to be appropriate. This brings us to a rounded price target of Since our price target is more than 10% above the current share price, we reiterate our BUY rating.

3 BANKHAUS LAMPE // 3 Key figures Adler Real Estate AG Income statement in m EUR e 2018e 2019e Sales Cost of Sales Gross profit Sales and marketing General and administration Research and development Other operating result EBITDA Depreciation EBITA Amortisation of goodwill Amortisation of intangible assets EBIT Financial result Income on ordinary activities Extraordinary income/loss EBT Taxes Net income from cont. operations Net income from discont. operations Minority interest Net income (adj.) No. of shares EPS (in EUR) e 2018e 2019e Gross margin 69.6% 67.8% 82.0% 87.7% 89.0% EBITDA margin 135.8% 181.6% 138.7% 102.8% 102.4% EBITA margin 135.0% 180.9% 138.1% 102.2% 101.8% EBIT margin 135.0% 180.9% 138.1% 102.2% 101.8% EBT margin 72.8% 112.6% 86.5% 61.6% 66.0% Net profit margin 60.3% 70.1% 54.7% 41.8% 47.3% Tax rate 17.3% 37.7% 36.8% 32.2% 28.4% Growth rates yoy e 2018e 2019e Sales >100% 27.3% 3.0% 3.9% 2.3% EBITDA 4.2% 70.3% -21.3% -22.9% 1.9% EBIT 3.9% 70.6% -21.4% -21.4% 1.9% EBT -28.1% 96.8% -20.9% -26.0% 9.6% Net income (adj.) -33.3% 43.0% -19.2% -20.8% 15.9% EPS -60.3% -3.1% -25.1% -22.3% 15.9%

4 BANKHAUS LAMPE // 4 Adler Real Estate AG Balance sheet Assets (in m EUR) e 2018e 2019e Fixed assets 2,759 2,578 2,692 2,740 2,783 Property, plant and equipment 2,271 2,445 2,560 2,608 2,651 Intangible assets Financial assets Other long-term assets Current assets Inventories Accounts receivable Other current assets Securities Cash Total assets 3,076 3,430 3,230 3,294 3,402 Equity and liabilities (in m EUR) Shareholders equity ,026 1,113 1,222 Shareholders equity (before minority) ,025 1,111 Minorities Non-current liabilities 1,980 2,111 2,007 1,983 1,982 Pension provisions Other provisions Long-term financial debt 1,885 1,966 1,827 1,788 1,775 Other long-term debt Current liabilities Short-term debt Other accruals short-term Accounts payable Other liabilities Total equity and liabilities 3,076 3,430 3,230 3,294 3,402 Adler Real Estate AG Balance sheet structure Assets e 2018e 2019e Fixed assets 89.7% 75.1% 83.3% 83.2% 81.8% Property, plant and equipment 73.8% 71.3% 79.2% 79.2% 77.9% Intangible assets 4.3% 3.8% 4.1% 4.0% 3.9% Current assets 10.3% 24.9% 16.7% 16.8% 18.2% Inventories 5.2% 6.6% 7.0% 6.9% 6.7% Accounts receivable 0.5% 0.3% 0.4% 0.4% 0.3% Cash 1.6% 3.6% 7.0% 7.3% 9.0% Equity and liabilities Shareholders equity 25.3% 26.6% 31.8% 33.8% 35.9% Non-current liabilities 64.4% 61.5% 62.1% 60.2% 58.3% Pension provisions 0.1% 0.1% 0.2% 0.2% 0.1% Long-term financial debt 61.3% 57.3% 56.6% 54.3% 52.2% Current liabilities 10.3% 11.8% 6.1% 6.0% 5.8% Short-term debt 8.4% 9.6% 4.0% 4.0% 3.8% Accounts payable 0.7% 0.7% 0.7% 0.7% 0.7%

5 BANKHAUS LAMPE // 5 Adler Real Estate AG Cash flow statement in m EUR e 2018e 2019e Net income (adj.) Depreciation Amortisation of goodwill & intangible assets Change of provisions Other Operating Cash-flow before changes in w/c Change in inventory Change in accounts receivable Change in accounts payable Change in other working capital positions Operating Cash-flow Capex, excluding maintenance Payments for acquisitions Financial investments Income from asset disposals Income from financial investments Cash-flow from investing activities Free cash-flow Capital measures Increase/decrease in debt position Purchase of own shares Other financing Cash-flow Dividend paid Cash-flow from financing activities Increase/ decrease in liquid assets Effects of exchange rate changes Cash at beginning of period Change in total cash and cash equivalents Cash at end of period

6 BANKHAUS LAMPE // 6 Adler Real Estate AG Ratios e 2018e 2019e Per Share Data EPS Book value per share Free Cash-flow per share Dividend per share Valuation ratios EV/Sales EV/EBITDA EV/EBIT Price Earnings ratio (P/E) Price to book (total equity) Dividend yield 0.0% 0.0% 0.0% 0.0% 1.4% Profitability ratios EBITDA margin 135.8% 181.6% 138.7% 102.8% 102.4% EBIT margin 135.0% 180.9% 138.1% 102.2% 101.8% Net return on sales 55.6% 62.4% 49.0% 37.3% 42.3% Return on capital employed (ROCE) 6.1% 9.4% 8.0% 6.0% 6.0% Productivity ratios Capital turnover 2,215.1% 1,667.7% 1,685.7% 1,648.8% 1,634.5% Operating leverage Sales per employee (in thousands) 490, , , , ,084 EBIT per employee (in thousands) 662, , , , ,526 Number of employees (in thousands) Financial ratios Equity ratio 25.3% 26.6% 31.8% 33.8% 35.9% Net financial debt (in m EUR) 2,093 2,172 1,731 1,677 1,598 Net debt / Equity 269.0% 237.6% 168.7% 150.6% 130.8% Interest cover Net debt / EBITDA Working Capital (in m EUR) Change Working Capital (in m EUR) WC /sales 118.4% 129.1% 125.4% 120.6% 117.9% Stocks in days of sales Trade debtors in days of sales Trade creditors in days of COGS/Material cost Cash conversion cycle Invest. (property/plant/equity) / Depreciation % 578.4% 0.0% 0.0% 0.0% Others Sales CAGR (last 3 years) % 45.5% 10.9% 3.1% EBIT CAGR (last 3 years) % 11.7% 1.1% -14.9% Net income CAGR (last 3 years) % -8.3% -2.9% -9.5% Pay out ratio 0.0% 0.0% 0.0% 0.0% 16.5% Free cash-flow (in m EUR) Free cash flow yield -63.1% -0.8% 83.0% 14.3% 16.3%

7 BANKHAUS LAMPE // 7 Disclaimer Analyst declaration The relevant research analysts, as named on the front cover of this research report, certify that (a) all of the views expressed in this research report accurately reflect their personal views about the securities and companies mentioned in this research report; and (b) that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views expressed by them in this research report. Rating system Shares are rated based upon analyst forecasts with regard to the performance of the share during a period of twelve months. The rating Buy within this general concept means that the share s forecast performance is at least 10%. Hold means a price movement in a bandwidth of -10% to 10%. Sell means that the share s forecast performance is less than -10%. Explanation of valuation Unless shown otherwise, the stated upside targets are based upon either a discounted cash-flow pricing or upon a comparison of the performance ratios of companies that the respective analyst considers to be comparable, or upon a combination of these two analyses. Analysts modify the result of this fundamental assessment to incorporate the potential trend in market sentiment. Overview of changes in our recommendations/price targets in the previous twelve months for: Adler Real Estate AG (ADL GY), Close (24/03/2017): EUR, Analyst: Dr. Georg Kanders (Analyst). Date of publication Price at recommendation Rating Price target 16/03/ EUR Buy EUR The distribution of recommendations in our investments universe is currently as follows (date: 01/01/2017) Rating Basis: all analysed companies Basis: companies with investment banking relationships Buy Hold Sell Under Review 49.0% 75.0% 46.0% 25.0% 5.0% 0.0% 0.0% 0.0%

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