ADO Properties (ADJ.DE)

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1 Europe/Germany Equity Research Real Estate Management & Development Rating OUTPERFORM Price (02 Nov 16, ) Target price ( ) Market Cap ( m) 1,452.0 Enterprise value ( m) 2,360.7 *Stock ratings are relative to the coverage universe in each analyst's or each team's respective sector. ¹Target price is for 12 months. Research Analysts Marios Pastou marios.pastou@credit-suisse.com Ben Richford ben.richford@credit-suisse.com ADO is a residential landlord focused 100% on the dynamic Berlin market. Its 2bn portfolio is weighted c.50% in central locations that include Mitte and Friedrichshain-Kreuzberg with the remainder spread across historically lower-growth districts including Spandau and Reinickendorf. An active modernisation programme is being rolled out unit-by-unit and privatisations aim to capture value uplift to market levels. ADO Properties (ADJ.DE) INITIATION Pure-play Berlin residential We initiate coverage of ADO Properties with an Outperform rating and a TP of 38.50, indicating 17% potential upside. ADO adds to our existing coverage of the German residential sector: Deutsche Wohnen (OP), Grand City Properties (N), Vonovia (N) and LEG Immobilien (UP). We believe Berlin's emergence as one of Europe's most vibrant cities has further to go: Despite a 20% increase in market rents over , Berlin remains the cheapest of Germany's main cities and a relatively lowcost place to work and live in an international context (ADO's average apartment costs c. 500pcm at market rates). Availability is tight (<2% market vacancy) and new supply is lagging demand just 7k multi-family units were completed in 2015 (source: JLL) compared to a need for 20k pa, and market rents are too low to stimulate new affordable housing. We prefer ADO's portfolio to Wohnen's: We have a preference for specialism and therefore prefer ADO's 100% focus on Berlin compared to Wohnen s 70%. ADO s greater concentration in central locations (50% vs. <25% for Wohnen) drives new lettings at 30% above in-place rents (7% higher than Wohnen's Berlin portfolio). Management plans to increase the portfolio to 30k units from c.18k, all of which will be residential blocks in Berlin, whereas Wohnen's acquisition targets are less clear, in our view. Risks: Majority control by Israeli parent ADO Group (37%, 4 of 7 board seats) and a short public market track record are our main concerns. Berlin is a city of renters (84% of households), and the recent rise in rents has become a political issue; added rent controls could slow ADO's capture of rent reversion. Competition in Berlin's investment market is increasing and driving up prices, although ADO's local presence helps, as it accesses a majority of deals offmarket. The sector is sensitive to bund yields, which have recently increased. Catalysts: (1) Q3 results (17 Nov no revaluation); (2) capture of market rent reversion; (3) further stabilisation of the Carlos portfolio; (4) acquisitions. Valuation: Our Spot Net Asset Value of is 15% ahead of H European Public Real Estate NAV. ADO trades at a 4% premium to our Spot NAV vs. 11% for Wohnen and an 8% sector average. Strong 24% YTD performance (vs. EPRA Germany: 9%) could be a concern, but we believe there is further momentum to come. Financial and valuation metrics Year 12/15A 12/16E 12/17E 12/18E Adjusted net income ( m) EPRA EPS (CS adj) ( ) Prev. EPRA EPS (CS adj) ( ) EPRA NAVPS ( ) Dividend ( ) Dividend cover (x) Interest cover (x) Dividend yield (12/16E,% 1.6 IC (12/16E, m) 2,289 Net debt (12/16E, m) 945 EV/IC (12/16E, x) 0.9 Net debt/equity (12/16E,%) 70.3 Free float (%) 67.7 Dividend cover (12/16E, x) 2.2 Number of shares (m) 44 Interest cover (12/16E, x) 3.2 Source: Company data, Thomson Reuters, Credit Suisse estimates DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

2 ADO Properties (ADJ.DE) Price (02 Nov 2016): ; Rating: OUTPERFORM; Target Price: 38.50; Analyst: Marios Pastou Income statement ( m) 12/15A 12/16E 12/17E 12/18E Gross revenue Property operating expenses (2) (3) (3) (4) Net rental income Asset management fees (exp Total non-property expenses (12) (17) (23) (28) Net operating profit Interest and investment income Interest expense/finance costs (24) (20) (23) (28) Net income before tax Surplus/deficit on inv property Income tax (expense) (27) (50) (39) (35) Exceptionals (7) (17) (6) (6) Reported net income Analyst after tax adjustments (118) (211) (144) (125) Net profit (CS) Cash flow ( m) 12/15A 12/16E 12/17E 12/18E EBIT Cash flow from operations Acquisitions & CAPEX (506) (600) (456) (474) Disposals Other investment/(outflows) (2) (0) (0) (0) Cash flow from investments (499) (582) (435) (452) Dividends paid 0 (13) (23) (33) Net share issue / (repurchase) Issuance (retirement) of debt Other Cash flow from financing activities Total cashflow 60 (19) 0 0 Balance sheet ( m) 12/15A 12/16E 12/17E 12/18E Cash & cash equivalents Accounts receivables Other current assets Intangibles Properties under development Investment properties 1,504 2,383 3,009 3,626 Other non-current assets Total assets 1,670 2,477 3,106 3,726 Accounts payables Other short term liabilities Debt ,366 Other liabilities Total liabilities 876 1,134 1,418 1,859 Reserves 786 1,324 1,659 1,830 Minorities & other Total Equity 794 1,344 1,687 1,867 Per share 12/15A 12/16E 12/17E 12/18E No. of shares (wtd avg.) (mn) EPRA EPS ( ) Prev. EPRA EPS ( ) EPRA EPS chg (%) DPS ( ) EPRA DPS chg Dividend yield (%) ROE chg (%) (50.41) (12.10) EPRA NAVPS ( ) EPRA NAVPS chg (%) Earnings 12/15A 12/16E 12/17E 12/18E Growth (%) Net rental income (NRI) Net operating income (NOI) Margin (%) EBITDA margin Pretax profit margin Net income margin Source: FTI, Company data, Thomson Reuters, Credit Suisse Securities (EUROPE) LTD. Estimates Company Background German residential company with 100% focus on Berlin in operation since The company was listed in July 2015 and continues to expand its portfolio through acquisitions. Blue/Grey Sky Scenario Our Blue Sky Scenario ( ) Our Blue Sky scenario considers incrementally higher investment demand through greater yield compression in the Berlin market, incrementally stronger occupier demand through higher like-for-like rental growth and a 5% higher premium to NAV. Our Grey Sky Scenario ( ) Our Grey Sky scenario considers incrementally lower investment demand through lower yield compression in the Berlin market, incrementally weaker occupier demand through lower like-for-like rental income growth and 20% lower premium to NAV Share price performance Oct- 15 Jan- 16 Apr- 16 Jul- 16 Oct- 16 ADJ.DE DEUTSCHE BORSE DAX INDEX The price relative chart measures performance against the DEUTSCHE BORSE DAX INDEX which closed at on 02/11/16 On 02/11/16 the spot exchange rate was 1/Eu 1.- Eu.9/US$1 ADO Properties (ADJ.DE) 2

3 Key Charts Figure 1: Berlin's population continues to increase, driven by overseas immigration Net Arrivals (pcm) Total Population (rhs) Net Arrivals 10k 8k 6k 4k 2k 0k -2k Overseas Migration Internal Migration Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Source: Federal Statistical Office of Germany, Credit Suisse research Population 3.60m 3.55m 3.50m 3.45m 3.40m 3.35m 3.30m Figure 2: and the supply of affordable housing has failed to keep pace Growth from % 6% 5% 4% 3% 2% 1% 0% 5.3% 6.4% 1.9% Population Growth Household Growth Development of Housing Units Source: JLL Berlin Residential City Profile: H1 2016, Credit Suisse research Figure 3: ADO's strategy of vacant modernisation enables the capture of market rent reversion Rent/sm/month CS Assumptions: Increase to market level New tenant, modernised unit In-place rent Rent table Rent table +10% New tenant, no modernisation Energetic modernisation, occupied unit Rent increase New-letting rent 11% of modernisation spend* (beyond rent table) +15% over 3 years (below rent table) Existing tenant, no modernisation Source: Credit Suisse research and estimates (*modernisation spend assumed as 10/sm) (see the Appendix for further details on rent caps in Berlin) Figure 4: Pricing remains low in comparison with larger-cap peers considering YTD performance 40% 30% 20% 10% 0% -10% Prem to 30-June EPRA NAV ex. Goodwill Prem to CS Spot NAV Prem to CS Spot GAV 20% 4% 2% 22% 11% 7% 7% -1% -3% 32% 20% 11% 34% ADO Wohnen Grand City LEG Vonovia Source: Company data, Thomson Reuters, Credit Suisse estimates (share price: 2 Nov) 9% 5% Figure 5: A smaller portfolio than peers, but continuing to grow through acquisitions Portfolio Valuation 4bn 3bn 2bn 1bn Deutsche Wohnen's Berlin portfolio: 9.9bn (H1 2016) Figure 6: which we expect to drive sector-leading FFO growth FFO I / share (Indexed to FY15) ADO Wohnen Grand City LEG Vonovia 0bn 12A 13A 14A 15A 16E 17E 18E 80 16E 17E 18E Source: Company data, Credit Suisse estimates Source: Company data, Thomson Reuters, Credit Suisse estimates ADO Properties (ADJ.DE) 3

4 Table of contents Key Charts 3 Investment Summary 5 Key Positives 5 Key Risks 5 Valuation 6 Absolute Value 6 Relative Value 7 Blue Sky / Grey Sky valuation sensitivity 9 Free Cash Flow / FFO 10 Credit Suisse HOLT 11 Company Overview 12 Operations 13 Privatisations 14 Portfolio 15 Berlin portfolio comparison 22 The Berlin residential market 24 Balance Sheet 26 Management, Shareholders and History 27 Financial Model Outputs 29 Credit Suisse PEERs Analysis 31 Appendix 32 Rent controls key terms...32 Other key property terms...33 Third-party property valuations...34 ADO Key dates...34 Credit Suisse HOLT Scorecard definitions...34 European Real Estate coverage universe...36 European Real Estate historical shareholder returns...37 ADO Properties (ADJ.DE) 4

5 Investment Summary Key Positives 100% Berlin focus (c.50% in central districts by value). Berlin is one of Germany's most dynamic markets, with GDP per capita growth ahead of the German average, continuing population increases and a shortage of affordable housing supply, coupled with still modest rent levels vs. other major German cities. Portfolio reversionary potential of 30% (new letting rent vs. in-place) which will be captured over the long term due to the imposition of market rent restrictions. New lettings have recently exceeded the levels assumed by valuers (c.10% higher in H1 2016). Experienced management team based in Berlin led by CEO and co-founder Rabin Savion. Management is aligned with minority shareholders via a long-term compensation structure incentivising shareholder return outperformance and NAV per share maximisation. Geographical concentration and lack of legacy operations allow for a competitive operational efficiency despite smaller scale than major listed peers. We estimate ADO has the lowest cost base as a percentage of asset value among its peers. Access to attractive acquisitions due to established local network (the majority of ADO's transactions are conducted off-market) and mid-scale advantage (portfolios are too small for larger listed peers yet too big for smaller local investors) with a recent transaction average of c. 50m. Low marginal cost of debt (c.1% for seven years) has enabled management to lower average cost of in-place debt to below 2%. Further refinancing to come in 2017/18 of 82m (10% of total borrowings as of H1 2016) with an average in-place fixed rate of 2.7%. Key Risks Political risk appears to be higher than for peers, with the local government in Berlin applying tighter rent controls for new tenants last year. The government may implement further measures if required to preserve market affordability as rent levels continue to increase. This could slow the capture of market rent reversion for ADO. Sensitivity to macro events such as future interest rate increases. German residential real estate share price performance has historically shown a strong negative correlation with the bund yield. Majority control by Israeli parent ADO Group (37%, 4 of 7 board seats), as the interests of majority and minority shareholders may not align. ADO also has a short public market track record (IPO in July 2015). Availability of attractively priced portfolios is becoming scarce as competition from other investors intensifies and rent multiples increase. Recent portfolio acquisitions of lower-quality properties (in terms of building type and location) in less central Berlin districts (e.g. the Carlos Portfolio) could reduce potential returns and will require additional modernisation spend to achieve market rent reversion. This portfolio has a lower rent potential of c.15% and roughly 10% of units have undergone modernisation. Berlin focus could affect ADO negatively should the capital underperform the pan- German residential sector. ADO Properties (ADJ.DE) 5

6 Valuation Our target price of reflects our absolute valuation (with a CS Spot NAV per share of 31.80) and our relative valuation that takes into account further drivers of value. These include: extracting further rental growth and market value from recent portfolio acquisitions that require modernisation (e.g. the Carlos portfolio), long-term capture of market rent reversion in a restricted Berlin market, active portfolio modernisation of vacant units to achieve market rents and bypass rent controls, and a portfolio 100% located in Berlin, a market that continues to experience economic growth and strong demand / limited supply. Absolute Value We prefer to base our company valuations on a NAV framework given that real estate is an asset class in its own right with an observable value and as the companies conduct regular third-party appraisals. We are sceptical of earnings-based valuation methods given that they do not adjust for quality, reward high leverage and are more subjective, although we provide an analysis of the industry-standard recurring cash flow measure, FFO (funds from operations). Our company valuations are based on Spot NAV, our estimate of absolute value that consistently includes all assets and liabilities at their estimated current market value. Our Spot NAV is based on our estimated EPRA NAV at 31 December The breakdown of our Spot NAV calculation is summarised below. Figure 7: Our Spot NAV calculation Reported H EPRA NAV m 1,061 Property revaluation (+8.7% in H2) m 151 Net acquisitions (incl. capex) m 455 Increase in net debt m (200) CS assumption for H Other* m (39) Estimated FY 2016 EPRA NAV m 1,427 Goodwill m - No Goodwill on the balance sheet Mark-to-market of debt m (24) Estimate for FY16 CS Spot NAV m 1,403 Diluted share count (H2 2016) m 44.1 Includes H2 share placement CS Spot NAV per share H EPRA NAV per share Reported Difference 15% Source: Company data, Credit Suisse estimates (*includes a reduction in cash placed on deposit and an increase in minority interests) Below we discuss the key elements of NAV we consider: Portfolio valuation: Third-party appraisals for ADO's portfolio are carried out halfyearly by CBRE (the most recent was on 30 June 2016). Closest peer Wohnen also conducted a half-year revaluation in 2016, whereas LEG and Vonovia did not. We note that the equity market is paying 2% higher implied values than appraised levels for ADO, which we explore in Figure 10. Privatisations of condominiums by ADO in H achieved premiums of roughly 17% over the appraised value, with an average selling price of more than 3,040/sm. This compares with a portfolio average value of 1,760/sm (excluding Carlos). Average prices of Berlin condominiums increased 10% in the 12 months to 30 June to 3,320/sm according to JLL, with higher-value central locations at c. 4k/sm. Management continues to unlock value through condominium sales, with 3% of units marked for privatisation and a further 22% with future potential (see Figure 26). ADO Properties (ADJ.DE) 6

7 Advertised block sales support the applied rent multiple, with our sample showing asking rents of 17-25x depending on location. For a portfolio of five buildings in 'good' locations, a top-end 25x multiple is marketed, which is higher than ADO's current 23x portfolio multiple (excluding Carlos). We note the issue of comparability of quality and/or location applies here and higher rents than ADO could indicate lower future value growth and warrant a lower multiple. Based on comments from management for portfolios in central locations such as those owned by ADO, current multiples are 25-30x. For outer districts of Berlin, portfolio multiples are 16-22x depending on location and quality the Carlos portfolio was acquired at a 16x multiple in Q with a current valuation of 18x. Figure 8: In-place rent multiple is supported by the market Berlin Location Units Area Asking Price Net Rent Yield / Multiple Notes ADO Portfolio - 30 June Source No. sm m /sm vs. ADO sm % x Segment /sm A Pankow (South) ,875 55% Built 1930, renovated 1995 Central 1,857 B Lichtenberg ,523 36% - 4.0% 25x Built 1910, redeveloped 2015 Central 1,857 C Mitte ,130 15% Built 1955 Central 1,857 C Mitte ,029 9% buildings, built Central 1,857 A Pankow ,917 51% - 4.5% 22x Good condition North 1,269 A Pankow ,912 51% % 22x Recently renovated to a high standard North 1,269 B Pankow ,470 16% % 18x Built 1910, redeveloped 2009 North 1,269 A Treptow-Köpenick ,074 26% % 20x 6 units redeveloped East 1,642 B Treptow-Köpenick ,565-5% % 22x Exterior only renovation East 1,642 A Steglitz-Zehlendorf % 22x Built 1986, well maintained South 1,711 B Steglitz-Zehlendorf ,565-9% - 6.0% 17x Commercial space included South 1,711 C Tempelhof-Schöneberg ,853 67% Built 1905, Altbau style South 1,711 A Spandau ,920 65% % 21x Built 1985, well maintained West 1,163 C Spandau ,153-1% Built 1900, renovated West 1,163 A Various ,992 13% - 4.0% 25x 5 buildings, good districts of Berlin Various* 1,761 ADO Multiplier - Current Rent (excl. Carlos) 1, x Implied 23.3x ADO Multiplier - Current Rent (total portfolio) 1, x Implied 22.1x Source: A. Prime Location, B. Rightmove Overseas, C.Adhoc Immobilien, Credit Suisse research (*excludes the Carlos portfolio) Debt: Although ADO has a low average cost of debt of just below 2%, this is above rates currently available; therefore the mark-to-market of debt is a liability. We include our estimate of the mark-to-market of debt. Tax: German residential companies are not eligible for REIT status at present. We agree with the deferred tax adjustment included in EPRA NAV on the basis that it is unlikely to be crystallised through portfolio disposals. Goodwill: We exclude any goodwill and other intangibles as these generally relate to real estate value; no adjustment is required for ADO. Other: We recognise that company property management platforms are valuable, but consider this a part of our relative pricing model (within cost load). Relative Value Recent negative sector share price performance has reduced premiums to EPRA NAV, which previously traded at peak levels. Our pricing model determines relative value by considering additional future value drivers and adding or subtracting them from the average current market premium / (discount) to NAV to determine our target price as follows: Cost load: We consider the relative value of the property management platform by calculating the future admin cost leakage as a percentage of asset value. Different approaches to management make a comparison challenging, with ADO preferring to insource all management activities yet outsource maintenance through external contractors, which likely reduces its staff and related costs. As ADO is a relatively young company with no legacy issues, it typically achieves higher-than-average operating margins. We calculate cost as a percentage of asset value by using EBIT margin on the recurring rental business as this will capture additional profitable income streams from property management as well as cost efficiency (Figure 25). ADO Properties (ADJ.DE) 7

8 Available borrowing margins: We add value for access to lower margins as this is not included in the debt mark-to-market in NAV. ADO's bank loans are asset secured and the marginal cost of c.1% (for seven years) is competitive, although higher than that of Wohnen, which we believe has access to the lowest marginal cost of debt in the sector owing to its A3 (Moody's) credit rating. ADO's debt is not currently rated. Tax leakage: As the German residential companies are tax-paying non-reits, we deduct the NPV of any expected cash tax leakage from future value. Consistent with peers, we expect ADO to have little tax obligation on recurring earnings due to its structuring via Luxembourg despite having few tax losses carried forward. Balance sheet strength: We deduct value for companies with high leverage and low balance sheet flexibility. ADO's LTV target of 45-50% pending further portfolio expansion is at the mid-to-upper end compared with its German residential peers. Corporate structure: We deduct value for less shareholder-friendly corporate structures or governance. ADO benefits from an entrepreneurial management team that lives in Berlin and has significant experience in the German real estate market, although we note the largest shareholder likely imposes an additional level of control. External growth: We add value for expected value creation from acquisitions and capital expenditure. ADO has a track record of selective capital expenditure and superior LFL rental growth driven largely by vacant unit modernisation. However, we think acquisitions in the Berlin market will become increasingly unattractive as investment demand continues to increase, driving prices upwards. Franchise value: We add value for expected value creation based on past performance and our understanding of the business model. ADO scores highly due to high returns post-ipo (July 2015), 100% Berlin focus and management's target of growing residential units to 30k by Other: We also add our estimate of next year's growth in net assets to the warranted price to reach our target price of 38.50, which is our estimate of the share price in 12 months' time. Lastly, we add the expected dividend to estimated total return. Figure 9: ADO trades at a lower premium to our Spot NAV compared with closest peer Wohnen 40% 30% 20% 10% 0% -10% Prem to 30-June EPRA NAV ex. Goodwill Prem to CS Spot NAV Prem to CS Spot GAV 20% 4% 2% 22% 11% 7% 7% -1% -3% 32% 20% 11% 34% ADO Wohnen Grand City LEG Vonovia Source: Company data, Thomson Reuters, Credit Suisse estimates (share price: 2 Nov) 9% 5% Figure 10: Implied capital values are 2% higher than reported levels psm 30- June reported value Implied capital value* 2,000 Implied gross yield (rhs) 1,800 1,600 1,400 1,200 1, ADO Wohnen Grand City LEG Vonovia Source: Company data, Thomson Reuters, Credit Suisse estimates *Implied by adding the difference between market cap and CS net assets to property value (share price: 2 Nov) 9% 8% 7% 6% 5% 4% 3% 2% ADO Properties (ADJ.DE) 8

9 Figure 11: Credit Suisse relative value pricing model German Residential ADO Deutsche Grand City Wohnen LEG Vonovia Date of last reported NAV 30-Jun 30-Jun 30-Jun 30-Jun 30-Jun Last-Reported Company NAV A Last-Reported Company NAV ex goodwill CS-Spot NAV per share B Difference 15% 10% 9% 10% 23% C B/A-1 Share Price D Observed Prem/(Disc) to CS Spot NAV 4% 11% -3% 20% 9% E D/B-1 Average Premium to Spot NAV 8% 8% 8% 8% 8% F Relative Pricing Factors Within Sub-Sector (1=Best) Cost Load =1 = Available Borrowing Margins =3 1 =3 =3 2 Tax Leakage =1 =1 5 =1 =1 Balance Sheet Strength =3 =1 =1 =3 =3 Corporate Structure & Governance 4 =1 5 =1 =1 External Growth =2 =2 1 5 =2 Franchise Value =2 =1 5 =2 =2 Warranted Adjustment to Average -4% 4% -16% -5% -7% G Warranted Price H B x (1+F+G) One Year Growth Rate 16% 19% 14% 12% 15% I Target Price J H x (1+I) Target Price Upside to Share Price 17% 21% 8% -4% 6% K J/D-1 Dividend 2% 3% 4% 4% 5% One Year Forward Total Return 19% 24% 12% 0% 11% Source: Thomson Reuters, Company data, Credit Suisse estimates; share prices as of 2 November 2016 (For our updated view on the sector, please see German residential landlords: Vonovia upgrade to Neutral on improving efficiency and strong yield compression also published today.) Figure 12: ADO Sensitivity Analysis Blue Sky / Grey Sky valuation sensitivity We adjust our assumptions to create both a more positive (Blue Sky) and a more negative (Grey Sky) scenario than our published (base case) target price. Our scenarios are created by adjusting our 2018E NAV per share by amending our assumptions for property yield movement and LFL rental growth. We also layer on a higher/lower market premium/discount to NAV, which could reflect changes in market sentiment towards listed real estate for wider political, economic or property market factors. Our Blue Sky scenario assumes further incremental yield compression over the next three reporting years due to strong investor demand that further reduces the yield spread over fixed income alternatives, as well as stronger rental growth due to increased occupier demand from immigration and low supply. These inputs increase property valuations and income potential our 2018E NAV under this scenario is 9% ahead of our reported base case. An additional premium of 5% to our Spot NAV gives a Blue Sky valuation of 43.40, indicating 32% potential upside to the current share price. Our Grey Sky scenario envisages growing concerns over tighter regulation in the Berlin residential market and increases in bund yields that dampen real estate pricing. Our 2018E NAV here is 8% below our reported base case. An additional discount of 20% to our Spot NAV gives a Grey Sky valuation of 29.20, indicating 11% potential downside. Input: Yield Shift Input: LFL Rental Growth EPRA NAV Extra prem/(disc) TP / Upside/downside E Impact to Spot NAV Valuation to share price Base Case -57 bps -20 bps -10 bps 5.8% 5.0% 5.3% % % Blue Sky -62 bps -30 bps -20 bps 6.3% 5.5% 5.8% % 5% % Grey Sky -52 bps -10 bps 0 bps 5.3% 4.5% 4.8% % -20% % Source: Credit Suisse estimates; NB. Potential upside/downside based on the price as of 2 November ADO Properties (ADJ.DE) 9

10 Free Cash Flow / FFO The listed German residential sector warrants a greater emphasis on earnings than the commercial property sectors, in our view, given its low capital value volatility, homogeneity and high operational requirements. We therefore include an analysis based on the industry-standard recurring cash flow measure, FFO, even though we note the following shortfalls of this approach as a valuation metric: Does not differentiate for quality of earnings, e.g. differences in property quality or nonproperty earnings such as third-party property management fees; Does not consider differences in portfolio capex; Does not adjust for rental growth patterns in particular regions; Does not consider differences in risk, e.g. rewards high levels of leverage; Does not account for improving / worsening future earnings; Does not consider marginal borrowing costs compared with in-place costs; and Ignores non-recurring items such as restructuring or refinancing costs. Given that FFO is a non-gaap measure, it is open to some interpretation and hence we compare the calculation methodologies used by each company under our coverage. We standardise the calculation of FFO where possible to ensure consistency. ADO has provided FFO I run-rate guidance of at least 50m by the end of 2016 (compared with 30.7m reported for the full-year 2015), but management sees further potential upside from more acquisitions and refinancing. Figure 13: FFO calculation variances between companies ADO Wohnen Grand City LEG Vonovia Best Practice No. of shares used Average Average Average Average Period-end 1 Average Adjust for equity hybrid interest? N/A N/A Y N/A N 1 Y Calculation traceable to the Income Statement? Y Y Y Y Y Y Add back Inv. Property Disposal Gains for FFO II? Y Y N 3 Y 2 Y 2 Y Adjusted-FFO provided (AFFO)? Y N Y Y Y Y Capex deducted for AFFO? Maintenance capex N/A Total capex 4 Total capex 4 Maintenance capex Maintenance capex 1 Vonovia now include an FFO calculation based on average shares within the company presentation (H1 2016), but the calculation based on period-end shares headlines the financial report. The per share calculations include equity hybrid interests. 2 LEG exclude gains/losses on disposal of inventories. Vonovia include disposals of assets held for sale and adjust for tax. 3 the excess amount of the sale price to the cost price of the properties (rather than book value). 4 includes modernisation of investment properties. We feel the calculation should only include recurring capital expenditures used to maintain the quality of the underlying assets rather than income yielding modernisation, however these are not reported separately. Source: Company data, Credit Suisse research Figure 14: We estimate ADO's FFO will grow most, driven by acquisitions and capturing reversion FFO I / share (Indexed to FY15) ADO Wohnen Grand City LEG Vonovia Figure 15: reducing its higher-than-average FFO multiple over time FFO I Multiple 2015A 2016E 2017E 2018E 35x 30x 25x 20x 15x 10x 5x 32x 28x 22x 19x 31x 26x 23x 22x 18x 17x 14x 13x 22x 18x 17x 16x 23x 21x 19x 17x 80 16E 17E 18E 0x ADO Wohnen Grand City LEG Vonovia Source: Company data, Thomson Reuters, Credit Suisse estimates Source: Company data, Thomson Reuters, Credit Suisse estimates (share price: 2 Nov) ADO Properties (ADJ.DE) 10

11 Credit Suisse HOLT HOLT is a proprietary Credit Suisse model based on standardised historical data that offer insight into relative valuations. It uses future discounted cash flows, which is considered a good fit for the long-term nature of real estate. The market-implied discount rate is adjusted for firm-specific risk factors. Based on HOLT, Continental Europe is fairly priced globally, with Asia (excl. Japan) the most expensive. Within Europe, Germany appears to offer better value than the UK, France, Belgium, Sweden and Switzerland. Figure 16: Continental Europe offers broadly fair value on a global comparison Source: Credit Suisse HOLT Figure 17: Germany offers slightly better potential within Europe Source: Credit Suisse HOLT Within the HOLT REIT scorecard for Germany, ADO ranks in the upper quartile with strong future momentum and operational quality, but looks expensive from a valuation perspective. By comparison, Wohnen ranks below ADO based on its higher-priced valuation and lower operational quality. Please see the appendix for the definition of the three factors we use for the HOLT scorecard. Figure 18: HOLT German REIT Scorecard Percentiles Source: Credit Suisse HOLT ADO Properties (ADJ.DE) 11

12 Company Overview ADO was co-founded in 2006 by current CEO Rabin Savion with backing from fellow Israeli investors and was listed in 2015 during a time of increased market volatility. Existing shareholder ADO Group retained its holding post-ipo. ADO has a 100% focus on the attractive Berlin market, with a portfolio consisting of 17.6k residential units* plus 1k commercial units within residential properties and associated parking spaces and garages with a total value of 2bn*. *pro forma including Q3 acquisitions of 1.9k units for c. 220m. Figure 19: Historical premium / (discount) to EPRA NAV Share Price Premium/(Discount) to EPRA NAV 50% 40% 30% 20% 10% 0% -10% Note: Lower end of the price range achieved at IPO due to market volatility (e.g. crisis in Greece). Initial Public Offering - Final Offer Price: 20/share ( price range) - First day of trade: 23 July Jul-2015 Aug-2015 Sep-2015 Oct-2015 Share Placement - 20/4 - Final Price: 28.5/share (2% disc.)* - 100m proceeds - 3.5m shares placed - First day of trade: 22 April EPRA NAREIT Index Included from 30th July Nov-2015 Dec-2015 Jan-2016 Feb-2016 Mar-2016 Apr-2016 Prem/(disc.) to EPRA NAV (month-end) May-2016 Share Placement - 13/9 - Final Price: 35.5/share (6% disc.)* - 199m proceeds - 5.6m shares placed - First day of trade: 15 Sept Source: Company data, Thomson Reuters, Credit Suisse estimates (*discount calculated based on the day's closing share price) ADO's share price has increased significantly since the IPO in July Year-to-date shareholder returns of 24% compare to 18% for closest peer Deutsche Wohnen (vs. EPRA Germany total returns: 9%). The share price has increased c.65% (vs. EPRA Germany: c.16%) since the first day of trading from the IPO price of 20. The German residential sector has benefited from a low interest rate environment with a low bund rate, strong investor interest in the residential sector as a long-term play and continued rental growth potential due to controls restricting in-place rental values vs. market levels. Jun-2016 Jul-2016 Aug-2016 Sep-2016 Oct-2016 Figure 20: Total shareholder returns have outperformed peers year-to-date Total Shareholder Return 50% 40% 30% 20% 10% 0% -10% -20% -30% month 3 months Year-to-date 1 year ADO Wohnen Grand City LEG Vonovia Source: Thomson Reuters, Credit Suisse research (share price: 2 November) Figure 21: and the German / European real estate markets; negative bund correlation, however Jul-15 Aug-15 ADO EPRA NAREIT Dev. Europe Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 EPRA NAREIT Germany German bund yield (rhs) Source: Thomson Reuters, Credit Suisse research (Indexed to 100 from the date of IPO) May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov ADO Properties (ADJ.DE) 12

13 ADO's target set at the IPO was to develop the portfolio to 30k residential units by 2020, which we think remains achievable based on the current strategy and acquisition potential. The current acquisition pipeline under review is 300m, which, according to management, could be completed within the next six months (if successful). Since IPO, the portfolio has expanded by c.4k units. The average deal size has been 50m (the smallest being 14m), with the majority conducted off market. Targeted acquisition sizes are too large for most private investors yet too small for peers such as Wohnen and Vonovia, with the latter tending to focus on deals well above 100m. Initially, the investment strategy focused on the central locations within Berlin's S-Bahn ring. As vacancy has fallen to record lows, management has expanded with the natural migration to the city suburbs, particularly following the 376m Carlos portfolio acquired from Wohnen in Q (5.7k units in Spandau and Reinickendorf). Figure 22: The portfolio has more than doubled since 2014; targets 30k unit portfolio by 2020 Portfolio Valuation 4bn 3bn 2bn 1bn Deutsche Wohnen's Berlin portfolio: 9.9bn (H1 2016) Figure 23: Single-market focus on Berlin, the highest concentration within our coverage Former West Germany (excl. NRW) Former East Germany (excl. Berlin) 100% 80% 60% 40% 20% NRW Berlin 0bn 12A 13A 14A 15A 16E 17E 18E 0% ADO Wohnen Grand City LEG Vonovia Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse research (portfolios reported H1 2016) We believe ADO's portfolio has a higher urban exposure than Wohnen's, which has a Greater Berlin portfolio with just 17% of units located in the higher-value districts of Mitte, Friedrichshain-Kreuzberg and Charlottenburg-Wilmersdorf. ADO by comparison has 39% of units located centrally, although we note a direct comparison is difficult as ADO does not provide a portfolio breakdown by district. We explore this further on page 22. ADO's management has said it prefers to acquire under-managed portfolios with higherthan-average vacancy levels whilst subsequently deploying its portfolio management capabilities to stabilise the units. Each acquisition is analysed individually to assess the possible future returns achievable high vacancy, poorly managed units at a multiple of over 30x and an average in-place rent of 4.75/sm/month are deemed unattractive by many; however, ADO's management looks for ways to unlock future value. Operations Operational efficiency is high at ADO due to its concentration on one location and the lack of legacy issues, which we see as crucial for lower-yielding portfolios such as those found in the Berlin market. ADO has internalised a majority of its property management, although it continues to utilise external maintenance contractors (a similar strategy to Wohnen), which lowers the overhead burden and the number of employees managed internally. ADO has defined separate construction, property, facilities and lettings management teams who work together to drive returns for example, the lettings department will define market rent achievable for a vacant property, which assists construction management in the decision to modernise a unit fully, or simply re-let it if rent uplifts do not support the investment. ADO Properties (ADJ.DE) 13

14 Figure 24: No legacy issues results in higher-thanaverage margins 80% 76% 72% 68% 64% EBITDA Margin Recurring Overhead % GRI (rhs) 20% 16% 12% 8% 4% Figure 25: and we estimate ADO has the lightest cost load of our German residential coverage Est. cost load as % of asset value 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 60% 12A 13A 14A 15A 16E 17E 18E 0% 0.0% ADO Wohnen Grand City LEG Vonovia Source: Company data, Credit Suisse estimates (overheads excl. operational employees) Source: Company data, Credit Suisse estimates (2016E opex compared to average value) Privatisations Figure 26: Privatisation potential of almost 4k units in the longer term Units 4.5k 4.0k 3.5k 3.0k 2.5k 2.0k 1.5k 1.0k 0.5k 0.0k 2.5% Privatisation Portfolio 10.8% Mid term potential The portfolio consists of 386 condominiums that will be sold to individual buyers in the near term, plus further potential units in the medium to long term. 57 units were sold in H for 10.6m at an average price of 3,040/sm, 9% ahead of 2015 privatisations. We calculate the gain on privatisations to be 17%, which is less than the headline 64% reported based on the book value of central locations, as these units were acquired as condominiums and have been carried at higher book values compared to those acquired as rental-only. Targeted condominium disposals over a number of years remain ADO's preferred strategy as it expects further price increases. 100 units are planned for disposal in 2016 although following our meeting with management, we note that ADO does not rely on such disposals as a source of income and would consider reducing this to 50 p.a. to maximise profits. ADO tends not to modernise the properties prior to sale as private owners typically prefer to refurbish to their own standard. We visited a higher-value property in Charlottenburg (a higher-than-average 5-6k/sm selling price) close to the Ku'damm (Berlin's answer to Regent Street, London) a large Altbau property with a market rent of 15/sm/month. 10.7% 24% Long term potential % Portfolio (by units) Total Figure 27: Average sales price achieved has increased 9% YoY at a 17% premium to book value 3.2k 3.0k 2.8k 2.6k 2.4k 2.2k 2.0k Privatisation price /psm Gain on privatisations (rhs) Units disposed of in the period H1 15 H2 15 H % 20% 18% 16% 14% 12% 10% Source: Company data, Credit Suisse research Source: Company data, Credit Suisse estimates ADO Properties (ADJ.DE) 14

15 Portfolio ADO's Berlin focused portfolio is c.50% concentrated (by value) in the central districts of Charlottenburg-Wilmersdorf, Friedrichshain, Kreuzberg, Mitte, North Neukölln, North Steglitz, Prenzlauer Berg (the southern and most urban region of Pankow), South Reinickendorf and Schöenberg. Originally, only centrally located acquisitions were considered, but as the lack of availability and rising rents force tenants to districts further from the city centre, ADO's investment has followed, facilitated greatly by the Carlos acquisition, which increased the company's exposure to the west and northern regions of Berlin. These have less rent potential, but lower in-place rents are attractive to those priced out of the city centre. Figure 28: ADO's portfolio segmentation as of 30 June 2016 Source: Company data (H Financial Report), Credit Suisse research (portfolio share by value) Of the total in-place rent, 12% relates to commercial units within residential properties, which comprise mainly ground floor retail units but also some office space. These units are supported by ADO's property search website, which enables prospective tenants to view available apartments, business locations and garages. This commercial element achieves higher-than-average rents of 8.5/sm/month from 1k units as of 30 June. Figure 29: ADO's rents and values are higher than German residential peers we cover Low ADO High Net Cold Rent /sm/mth Yield % 4.6% 4.6% 7.3% Vacancy % 1.8% 2.8% 8.3% Portfolio Value bn Resi Portfolio m sm Total Resi Units k Figure 30: We estimate the average age of the resi portfolio at c.85 years; 64% low-rise below 6 storeys % Portfolio 70% 60% 50% 40% 30% 20% 10% 6 23% No. of floors % < 4 20% 5 44% Average size sm Capital value psm 861 1,540 1,540 0% < Source: Company data, Credit Suisse estimates (range includes our German resi coverage) Source: Company data, Credit Suisse research ADO Properties (ADJ.DE) 15

16 58% of the residential portfolio is categorised as pre-1918 construction, which despite requiring potentially higher levels of future maintenance and/or modernisation, is in high demand. Such buildings are defined as Altbau (literal meaning: 'old-build'), which are 4-6 storeys, situated in inner-city residential areas with high floor-to-ceiling levels and ornate fixtures and fittings that prospective tenants will pay a premium for. Portfolio value and rent potential CBRE has valued ADO's portfolio at 1,540/sm (21.3x multiple of in-place rent, incl. condos), a 9% increase over the six-month period to 30 June. Valuations for central locations are 21% higher at 1,860/sm and continue to increase, although lower-value districts to the West of Berlin (which make up 17% of the portfolio) showed the strongest growth in the first half of Comparatively, Wohnen's Greater Berlin portfolio has a lower 1,460/sm average valuation off a 20x multiple, an increase of 7% over the same period. Excluding the Carlos portfolio, average portfolio values are 1,760/sm (22.6x multiple of in-place rent). Valuations are supported by replacement values in the Berlin market management estimates inner-city construction costs at 2,300-2,400/sm (excl. land). The sale of condominiums by ADO in H to private individuals at an average of 3,040/sm highlights the value difference to the rental portfolio. Factoring in land costs, which bring total replacement costs to between 3,500/sm and 4,500/sm (depending on location), a low 2.5-3% yield is achievable assuming ADO's reported central location market rent of 9.9/sm. Figure 31: Strong H growth of c.9% excluding those held as condominiums 2.0k 1.8k 1.6k 1.4k 1.2k 1.0k 9.2% Central Locations Value/sm 7.5% 7.7% H Value Growth (rhs) 8.8% 9.4% 8.5% North East South West Total incl. condo 8.9% Total excl. condo 10% 9% 8% 7% 6% 5% Figure 32: Replacement values in Berlin support further valuation uplifts Value/Cost psm 5.0k 4.5k 4.0k 3.5k 3.0k 2.5k 2.0k 1.5k 1.0k 0.5k Portfolio Range (H1 16) Average Share Price implied av. Portfolio Valuation Development in Berlin Construction Cost (excl. land) - range average quality Potential End-Value Total replacement cost (incl. land) - range Source: Company data, Credit Suisse research Source: Company data, Credit Suisse estimates (share price: 2 November 2016) As a result, management estimates c.7k units are being built in Berlin compared to c.20k units required annually. In addition, 90% of these units are built as condominiums for private sale, which further exacerbates the supply problem (see page 24 for further details). Those who already own land are more likely to build due to lower upfront cost. ADO is currently mapping potential build regions on its existing land stock / portfolio and looking to add additional floors / roof conversions where possible. Average in-place rents are 5.9/sm/month, in line with those of Wohnen, increasing to 6.4/sm excluding Carlos. ADO continues to capture market reversion with in-place rents 30% below new letting levels. Market rents in central locations show the greatest potential with new lettings 57% higher than current contracts at 9.9/sm. CBRE's assumed market rent levels are 11% lower than current new letting rents achieved, which provides further potential valuation upside, although we acknowledge these may not be based on comparable units. ADO Properties (ADJ.DE) 16

17 Figure 33: New letting rents are 30% above current averages driven by central locations 60% 50% 40% 30% 20% 10% 0% Average new letting rent to in-place rent Total Portfolio Central North East South West Central North East South West Central North East South West Central North East South West Central North East South West Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Source: Company data, Credit Suisse research (normalised for higher value lettings in the East for Q4 15 and Q1 16) Figure 34: and recent lettings are c.10% above valuers' assumptions at 30 June 26x 24x 22x 20x 18x 16x 14x 12x 10x Central Locations Current Rent New Letting Rent CBRE Market Rent Rent Multiples North East South West Total Portfolio Source: Company data, Credit Suisse research (North and West new letting rents negatively influenced by high proportion of Carlos units let in the period) Rental Growth (like-for-like) ADO reports rent growth inclusive of vacancy reductions, with guidance of at least 5% in 2016 compared with over 7% in 2015 (actual). Lower future growth is largely due to the introduction of the Mietpreisbremse in mid-2015 capping the increase in rent levels of vacant unmodernised units, the inclusion of the Carlos portfolio in LFL growth for the first time in H1 2016, which has less reversionary potential / capped rents, and lower potential levels of vacancy reduction as the portfolio stabilises (total occupancy is 97.2%). ADO's rents increased 5.2% in H1 2016, of which c.1% related to vacancy reduction as confirmed by management; rents in the Carlos portfolio grew 3.5%. LFL vacancy reduction has been confirmed for the first time in Q and is comparable with the basis of calculation of rental growth both are calculated on a cash flow basis. LFL vacancy reductions for prior periods are based on floor area and not comparable to LFL rental increases (e.g. 170 bps in 2015). Figure 35: 2016 rental growth of at least 5%, based on management guidance 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 1.5% 1.8% 2.5% From Modernisation From Fluctuations excl. Capex 1.0% 2.4% 1.3% 1.6% 3.1% 3.3% 2.7% 0.8% 3.8% From Rent Increases Total like-for-like LFL Residential Rental Growth (incl. vacancy) 1.8% 0.8% 1.4% 1.6% 0.5% 0.7% 3.2% 3.1% 3.0% 12A 13A 14A 15A 16E 17E 18E Source: Company data, Credit Suisse estimates (including vacancy reduction) Figure 36: ADO captures full rent reversion through vacant modernisation to new property standards Rent/sm/month CS Assumptions: Increase to market level New tenant, modernised unit In-place rent Rent table Rent table +10% New tenant, no modernisation Energetic modernisation, occupied unit Rent increase New-letting rent 11% of modernisation spend* (beyond rent table) +15% over 3 years (below rent table) Existing tenant, no modernisation Source: Credit Suisse research and estimates (*modernisation spend assumed as 10/sm) (see the Appendix for further details on rent caps in Berlin) ADO Properties (ADJ.DE) 17

18 Rental growth is split into three categories defined as follows: From modernisation capex: growth beyond the rent table through portfolio improvements and targeted modernisation to improve quality and rent levels. This category also includes vacancy reduction related to new tenants occupying upgraded units and will continue to represent the largest uplift as rents for vacant modernised properties refurbished to a 'new property' standard can be increased to market level. This category includes energetic upgrades of occupied properties, such as the replacement of building facades or energy-efficient windows, of which 11% of spend related to the modernisation can be passed on to existing tenants see Figure 73 for a summary of rent controls in Berlin. Management has confirmed roughly 3-3.5% of growth p.a. from modernisation. From regular rent increases: increases for existing tenants implemented up to the legal limits set by the Mietspiegel (see the Appendix for further details) based on the property type, location and quality. The effects of the 2015 Mietspiegel will be included in 2016, although ADO's management expects the effects of this to be less significant for the company's portfolio than those of peers. The Mietspiegel will next be updated in May 2017 and can be implemented immediately (with three months' notice) assuming there have been no rent increase in the preceding 12 months and uplifts over the prior three years do not exceed 15%. From fluctuations (excl. capex, incl. vacancy reduction): increasing rent to market levels through the replacement of existing tenants and active marketing to reduce portfolio vacancy that does not relate to modernisation. This category will reduce following the implementation of the rent price brake in mid-2015 which limits new-letting rents of unmodernised units to the rent table +10%. Property Spend Reported total spend for the year to June 2016 was 27/sm, well above the average of 21/sm, driven by higher-than-expected modernisations of acquired units over the period (namely the Carlos portfolio). Management has guided towards levels closer to the long-term average for future years. Figure 37: Modernisation spend peaked in Q driven by newly acquired units in the prior year /sm Maintenance Capitalised Maintenance Modernisation Figure 38: although we expect this to reduce to average levels from 2017 based on guidance Maintenance Capitalised Maintenance Modernisation Q2 15 Q3 15 Q4 15 Q1 16 Q A 13A 14A 15A 16E 17E 18E Average Source: Company data, Credit Suisse research (annualised spend) Source: Company data, Credit Suisse estimates In comparison to other listed players, future spend is comparatively low, driven largely by ADO's preference for vacant unit modernisation over energetic upgrades of occupied units and total buildings. Roughly 50% of re-let vacant units are complete modernisations, with the remainder receiving a minor refresh depending on the returns achievable. ADO's internal marketing team works with construction management to plan relevant upgrades (unit-by-unit) based on the target market and new letting rents available in the area to drive returns. ADO Properties (ADJ.DE) 18

19 As discussed, fully modernised vacant units (roughly /sm or 10k-20k per unit depending on requirements) can be re-let to new tenants at market-level rents. ADO still conducts energetic upgrades where required (passing 11% of the modernisation spend on to tenants); however, vacant unit modernisation is the preferred strategy, achieving unlevered returns of above 20%. Other German residential companies we cover do not have the same level of rent reversion. Figure 39: We expect ADO's total property spend to be significantly lower than Vonovia and Wohnen Total spend / sm Vonovia Figure 40: An example of a full-specification apartment modernisation in Spandau Grand City Wohnen ADO LEG 0 12A 13A 14A 15A 16E 17E 18E Source: Company data, Credit Suisse estimates Source: Credit Suisse - property tour October 2016 (Carlos portfolio) Portfolio Vacancy Vacancy has reduced from 4.3% around the time of ADO's IPO to 2.8%; on a like-for-like basis, vacancy (floor area) declined by 150bps in H Vacancy levels in Berlin continue to decline, driven by affordable supply shortages and an increasing population. According to CBRE, 2014 vacancy in Berlin was 1.5% (Germany: 3%). In 2011, Berlin's Senate estimated a 6% increase in the number of households to 2030, which now appears conservative. By comparison, Wohnen's Greater Berlin portfolio has a vacancy of 1.6%. Of the 2.8% reported in Q2 2016, 0.3% relates to privatisations required to support higher purchase prices as individual condominium buyers pay a premium for vacant units. Excluding vacancy relating to modernisation and privatisation, occupancy is 99%. Figure 41: Vacancy has declined as previous acquisitions have been stabilised 6% 5% 4% 3% Vacancy Movement (rhs) Portfolio Vacancy 150bps 100bps 50bps 0bps Figure 42: and fewer units are held vacant for modernisation purposes 4.3% 4.0% 4.0% 3.8% 2.8% Vacancy Split: 0.5% 0.4% 0.5% 0.4% 0.3% 1.8% 2.0% 1.6% 0.8% 0.7% 0.9% 0.8% Privatisations Modernisation (Carlos Portfolio) Modernisation 2% 1% 0% 12A 13A 14A 15A 16E 17E 18E -50bps -100bps -150bps 0.9% 0.7% 1.0% 1.1% 0.4% 0.3% 0.6% 0.4% 0.7% 0.6% 0.4% 0.6% 0.4% Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Marketing (Carlos Portfolio) Marketing Source: Company data, Credit Suisse estimates (non-lfl) Source: Company data, Credit Suisse research ADO Properties (ADJ.DE) 19

20 Property Tour We have toured ADO's portfolio with management on two occasions. Our recent tour in October 2016 covered both the Carlos portfolio in Spandau to the west of the city centre and low-rise Altbau buildings in the centrally-located district of Charlottenburg, which achieve market rents well above average of 12-15/sm/month. Management confirmed that the majority of inner-city stock owned by ADO is this style of construction. Recent acquisitions by ADO have diluted the share of these more central, higher-value properties in the company's portfolio, but have also created a more balanced portfolio that includes more affordable units further from the city centre, which are popular with families. Figure 43: Inner-city turn of the century buildings in boutique locations of Charlottenburg Figure 44: contrast with the more recent prefabricated units in the Carlos portfolio, Spandau Source: Credit Suisse - property tour October 2016 Source: Credit Suisse - property tour October 2016 The Carlos Portfolio (26% of portfolio value) Acquired from Wohnen in Q for 376m ( 940/sm 15.6x multiplier of in-place rent), the 5.7k unit Carlos portfolio is located in the districts of Spandau (3.3k units) and Reinickendorf and presents ADO with the opportunity to enhance its asset quality through modernisation and re-letting over the long term (10-15 years).the portfolio formed part of the original GSW acquisition by Wohnen and was disposed of based on its less promising condition, structural age and location (per Wohnen's FY 2015 report). Management claims to have reversed the portfolio's capex backlog, spending c. 7m since acquisition including higher-than-expected vacant unit modernisations in the first year. Values have increased in line with the rest of the portfolio at c.20% to 30 June 2016 since acquisition, c.17% net of capex. Owing to its lower quality compared with ADO's existing portfolio (in terms of buildings and location), management confirmed that such a portfolio would not have been acquired six years ago; however, Berliners are tending to leave central locations due to a lack of availability and affordability. The portfolio offers a lower-cost option further away from the centre but with good transport links via express bus or train (20 minutes to the centre by car). The majority of tenants are families rather than the single-occupiers that tend to dominate the rental market in central regions. ADO already owned smaller buildings in the same region prior to the Carlos acquisition. An on-site ADO office provides tenants with the necessary property, lettings, facilities and construction management services. The local area has been enhanced to provide residents with green space and play areas for children and there are schools within walking distance plus local shops and services of average quality. ADO Properties (ADJ.DE) 20

21 Figure 45: Values have increased 20% since acquisition, in line with the remaining portfolio 2.0k 1.6k 1.2k 0.8k 0.4k 0.0k Carlos - value/sm Carlos - multiple* 0.94k 1.48k 1.04k Remaining portfolio - value/sm Remaining portfolio - multiple* 1.64k 1.12k 1.76k June 2015 Dec 2015 June 2015 Source: Company data, Credit Suisse estimates (*multiple of in-place rent) 30x 26x 22x 18x 14x 10x Figure 46: following modernisation of c.10% of units, a number that should stabilise going forward Apr-15 May-15 Units modernised Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Source: Company data, Credit Suisse research Accumulated modernisations (rhs) Jan-16 Feb-16 Mar-16 Apr-16 May-16 Monthly forecast range Jun-16 Jul-16 Aug-16 Forecast On acquisition, vacancy levels were 4.1% with average rents of 5.2/sm/month. Following modernisation of roughly 600 units (c.10%) plus re-letting, vacancy has reduced 130bps to 2.8% in August and average rents have increased marginally to 5.3/sm, compared to 6.4/sm for ADO's remaining portfolio. Management expects a c.2% vacancy rate by Q We note that the Spandau element of the portfolio (c.60% of units) requires additional stabilisation with a current vacancy rate of 3.7% compared with 1.7% in Reinickendorf. Market rent ranges between 5.75/sm and 7.25/sm depending on the level of modernisation and quality of the unit offering reversionary potential of c.15% (compared with a portfolio average of 30%). Currently 48% of the portfolio is rent restricted, which will gradually fall away by On average, each unit requires an additional 2k to 4k modernisation spend for required asbestos removal, although the standardised prefabricated construction enhances cost certainty above older Altbau-style residential. Such units, however, are less sought after and yield lower rents. The valuation of 1,124/sm at June 2016 represents a 20% increase over the acquisition price. Carlos is currently valued based on an 18x multiple of in-place rents (15x new letting) compared with 23x (19x new letting) for the remaining portfolio with continued portfolio upgrades to come and c. 25m further spend over the next five years (including vacant modernisations and energetic upgrades). Acquisitions Q A further 1.9k residential units have been acquired and integrated since Q for c. 220m / 1.7k/sm (22.5x multiplier) with 0.8% vacancy, increasing the portfolio value by c.13%. The acquisition consists of two portfolios in Neukölln, Schöneberg and Wilmersdorf. The units have an average in-place rent of 6.3/sm/month, which is in line with the current portfolio (excluding Carlos) and a rental potential of 21% compared with market levels, split 38% for the Altbau buildings and 17% for larger housing estates from the 1970s. Total rental income is 10m and management estimates FFO contribution of 7m (68% margin). ADO Properties (ADJ.DE) 21

22 Berlin portfolio comparison We have compared ADO's 100% Berlin portfolio with Wohnen's c.70% Greater Berlin portfolio; Wohnen is ADO's closest peer within our coverage (Grand City: 18% and Vonovia: 11% by value). Based on the number of units, ADO's portfolio has a greater concentration in central districts (39%) compared with Wohnen's (17%), although we note a direct comparison is not possible as ADO does not provide a portfolio breakdown by district. Wohnen's Greater Berlin portfolio is 6x larger than ADO's, with more than 110k units and valued off a 20x multiple of in-place rent, compared with ADO's 21x. Figure 47: We consider ADO's portfolio more centrally focused than Wohnen's Figure 48: which has a high concentration in southern Berlin, Marzahn-Hellersdorf and Spandau Source: Map: New Berliner, Company data, Credit Suisse research (based on no. of units) Source: Map: New Berliner, Company data, Credit Suisse research (based on no. of units) Average market rents in central locations are higher but continue to grow at rates well above the Berlin average. Eastern Berlin districts have lower market rents, although they increased considerably in H1 2016, especially Marzahn-Hellersdorf (+14%) where Wohnen has 13% of its portfolio, but rent levels remain low. Both have a large proportion of units in Spandau where market rents and growth levels are below average but demand for more affordable, modest apartments is high condominium prices in this region are ticking up (+31% in H1 16) supporting further valuation growth. We note 4% of Wohnen's portfolio is outside the main city districts. Figure 49: Central regions provide greater market rent reversion but growth is strong in the East C C C N N E E E S S S W Mitte Friedrichschain- Kreuzberg Charlottenburg- Wilmersdorf Av. Rent/sm/month Pankow Reinickendorf Treptow-Kӧpenick Marzahn-Hellersdorf Lichtenberg 12m growth (rhs) Steglitz-Zehlendorf Tempelhof- Schӧneberg Source: JLL Berlin Residential City Profile: H1 2016, Credit Suisse research Neukӧlln Spandau Berlin 15% 12% 9% 6% 3% 0% Figure 50: Prices of condominiums are growing by as much as 30% p.a. in some districts 5k 4k 3k 2k 1k 0k C C C N N E E E S S S W Mitte Friedrichschain- Kreuzberg Charlottenburg- Wilmersdorf Price/sm Pankow Reinickendorf Treptow-Kӧpenick Marzahn-Hellersdorf 12m growth (rhs) Lichtenberg Steglitz-Zehlendorf Tempelhof- Schӧneberg Source: JLL Berlin Residential City Profile: H1 2016, Credit Suisse research Neukӧlln Spandau Berlin 40% 32% 24% 16% 8% 0% ADO Properties (ADJ.DE) 22

23 Figure 51: ADO's rent is marginally lower following the acquisition of Carlos but has greater potential ADO - In-place rent ADO - Rent Potential (rhs) 6.0 DWNG - In-place rent DWNG - Rent Potential (rhs) 50% Figure 52: and LFL rent growth has been stronger; higher vacancy an opportunity 10% ADO - Vacancy ADO - LFL Rent Growth* DWNG - Vacancy DWNG - LFL Rent Growth* Rent / sm / month % 30% 20% 8% 6% 4% % 2% 5.0 FY 12 FY 13 FY 14 FY 15 H1 16 0% 0% FY 12 FY 13 FY 14 FY 15 H1 16 Source: Company data (Wohnen: Greater Berlin portfolio only), Credit Suisse research Source: Company data (Wohnen: Greater Berlin portfolio only), Credit Suisse research (* including LFL vacancy reduction) In-place rents are similar for each portfolio, although we believe ADO has higher market rent potential than Wohnen, driven largely by central regions where in-place rents are well below current market levels (57% potential). Previously, rent increases were exclusive to central districts, but this has now expanded beyond the S-Bahn ring as the population grows, the supply of housing remains low and more affordable rents are sought. As ADO reports LFL rent growth including vacancy reductions, we have added LFL vacancy to Wohnen's growth for comparison. As a significant portion of ADO's rent growth is driven by vacant modernisation, it is less affected by biennial updates to Berlin's rent table. Management guidance of at least 5% growth for 2016 (c.1% of which was vacancy related in H1 2016) compares with Wohnen's 2.5% pure rent growth. Based on H it is clear Wohnen's total portfolio growth is greatly influenced by the strength of its Berlin portfolio following updates to the rent table. The remaining portfolio dilutes the growth potential in such years (see Figure 53). ADO's historical total portfolio spend has been higher than Wohnen's, although recent guidance provided should invert this. Wohnen expects total spend levels of between 25 and 30/sm in future periods, a likely reaction to the rent price brake implemented in mid to gain 11% returns on modernisation spend. ADO will continue its strategy of vacant modernisation to achieve market rents. Figure 53: Wohnen's Berlin portfolio was the main growth driver in H Rent growth LFL (excl. vacancy) 5% 4% 3% 2% 1% 0% H H DWNG H Av. H Av. Figure 54: Greater total portfolio spend expected by Wohnen in future years based on guidance Total Spend / sm / p.a ADO DWNG 10 12A 13A 14A 15A 16E 17E 18E Source: Company data, Credit Suisse research Source: Company data, Credit Suisse estimates ADO Properties (ADJ.DE) 23

24 The Berlin residential market The population of Berlin is still growing and total households continue to outpace the supply of newly built affordable residential units. Berlin is the most densely populated city in Germany (3.9k inhabitants per sq.km in 2014 vs. 2.3k in Hamburg) with single-person households accounting for 55% of the total, compared with a national average of 41%. Berlin is a growth economy with annual GDP growth of 1.7% to mid-2015, ahead of Germany's 1.4%. Employment growth is forecast to be 1.8% in 2016, 70bps ahead of the German market, although unemployment of 9.5% is higher than Germany's 5.9% (according to the Federal Statistical Office). Figure 55: Population growth in Berlin continues, driven by overseas migration Net Arrivals (pcm) Total Population (rhs) Net Arrivals 10k 8k 6k 4k 2k 0k -2k Overseas Migration Internal Migration Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Source: Federal Statistical Office of Germany, Credit Suisse research Population 3.60m 3.55m 3.50m 3.45m 3.40m 3.35m 3.30m Figure 56: Household development has outpaced the supply of new residential units since 2011 Growth from % 6% 5% 4% 3% 2% 1% 0% 5.3% 6.4% 1.9% Population Growth Household Growth Development of Housing Units Source: JLL Berlin Residential City Profile: H1 2016, Credit Suisse research Although lower than other German cities, the purchasing power of Berlin residents has continued to increase following continued positive economic trends offering further growth potential in the housing market. Berlin's change in asking rents between 2012 and 2015 was 20%, the highest in Germany. CBRE reports rent growth is slowing in some regions due to limits on tenants' ability / willingness to pay, causing a trend to move to more affordable locations. According to census data, owner-occupier rates in the capital of c.16% are well below the overall German average of 46%, with regulations ensuring tenants are well protected. There are a number of rent controls in Germany aiming to reduce the financial burden on tenants with further restrictions in 'hot' markets such as Berlin. We have summarised the various controls in the Appendix see Figure 73. Figure 57: New housing supply is the lowest amongst German cities, driving down vacancy New apartments/1k residents (2014) New apartments/1k residents (2013) Vacancy Reduction (2014) (rhs) 50bps 40bps 30bps 20bps Figure 58: Lowest market rental levels dictated by rent controls and lower current purchasing power /sm/month 2015 Av. Market Rent Annual Increase (rhs) % 5% 4% 3% 1 10bps 7 2% 0 0bps 5 1% Source: CBRE Berlin Housing Market Report, Credit Suisse research (key figures for Germany's seven largest cities) Source: CBRE Berlin Housing Market Report, Credit Suisse research (key figures for Germany's seven largest cities) ADO Properties (ADJ.DE) 24

25 Supply levels remain low, with 1.5 residential units per 1k persons completed in 2014 (increasing from 0.8 in 2013), well below other German cities. As a result, vacancy levels continue to reduce, reported as 1.5% in According to JLL, current residential projects are targeted at the higher end of the market with an increasing number of international buyers, but more affordable housing will be required in both the rental and home ownership markets as 60% of the 2015 population growth was inward immigration from the European continent. An estimated 20k units are needed annually to meet the current city requirements, well above the 8.7k completions in 2015 (7.1k multi-family) and restricted further by the recent rise in land prices. High costs of land and construction coupled with a low average market rent value does not provide the stimulus required for the delivery of affordable residential. Only higher-value, luxury-level units provide attractive returns. Figure 59: Development activity in Berlin is picking up with 22k units in development, although just 38% will be rental apartments Source: CBRE and Berlin Hyp Housing Market Report Berlin 2016, Credit Suisse research ADO Properties (ADJ.DE) 25

26 Balance Sheet ADO utilises bank loans as its main source of funding with no convertible bonds or hybrid capital, in contrast with other German residential companies. Recently reported pro forma LTV was 45% (39% to 50% sector range) and an LTV target of 45-50% has been set following new acquisitions. We see further acquisition headroom of over 300m ( 108m of cash and other deposits at Q2 plus 200m (gross) from the placement of shares in September). Figure 60: LTV target is between 45% and 50%... Loan-to-value ratio* 70% 60% 50% LTV target: 45% - 50% 40% 30% 20% 10% Figure 61: which is higher than some peers 50% 45% 40% 35% 30% 25% Reported Q LTV - H Post-Q2 acquisitions Weighted av. cost of debt (rhs) 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0% 12A 13A 14A 15A 16E 17E 18E 20% ADO Wohnen Grand City LEG Vonovia 0.0% Source: Company data, Credit Suisse estimates (*adjusted for IPO proceeds prior to 2015) Source: Company data (June 2016), Credit Suisse research Figure 62: We expect average debt cost to decline further; interest cover improving 5% 4% 3% 2% 1% 0% Average Cost of Debt Almost all of the in-place borrowings are fixed interest or hedged. Available borrowing margin is c.1% (for seven years), which compares with an average cost of debt reported for H of 1.97%, down from 2.3% in December after refinancing a 129m bank loan at 3.6% with a 6.5-year bank loan of 150m at 1.33%. Debt costs are above key peer Wohnen's reported 1.7% (c.2% excluding convertibles) but below Vonovia's 2.5% (c.2.4% excluding hybrids). Interest cover has increased as loans from parent ADO Group transferred into equity at the IPO and we expect further improvements. We calculate ADO's interest cover at 30 June 2016 as 3x, lower than Wohnen's reported c.5x but similar to Vonovia's 3.7x. We expect further reductions from refinancing in 2017/18 and additional lower-cost debt to fund acquisitions; refinancing of new acquisitions will provide up to 200m of further liquidity. The six-year average debt duration is within the targeted 5-7 years for mortgage debt set by ADO. Interest cover* (rhs) 12A 13A 14A 15A 16E 17E 18E 5x 4x 3x 2x 1x 0x Figure 63: Average debt duration of 6 years; no significant upcoming refinancing requirements 800m 700m 600m 500m 400m 300m 200m 100m 0m 1.4% 25m Debt expiring 3.2% 57m 2.0% Average interest rate on expiry 1m 1.9% 1.9% 61m 674m Source: Company data, Credit Suisse estimates (*interest cover includes loans from ADO Group converted into equity at the IPO) Source: Company data, Credit Suisse research ADO Properties (ADJ.DE) 26

27 Management, Shareholders and History ADO was co-founded by current CEO Rabin Savion in 2006 and has grown in size rapidly following large portfolio acquisitions. Mr Savion has experience in real estate and investment management and has lived in Berlin since ADO was initially financed by parent company ADO Group, which converted its 287m of loans into equity at the IPO. Figure 64: Company history since incorporation in Co-founded in 2006 by Rabin Savion (CEO) with backing from fellow Israeli investors. - Waypoint portfolio acquired in January consisting of 1.1k units and 229 condominiums in inner city locations. - Carlos portfolio acquired in April consisting of 5.7k units located in Spandau and Reinickendorf for 376m from Deutsche Wohnen. - IPO at 20/share completed on 22 July following an initial offer period starting on 18 June ( 200m gross proceeds). - Incorporation changed from Cyprus to Luxembourg and shareholder loans from ADO Group converted into equity as nonrefundable capital. - Included in FTSE EPRA/NAREIT indexes from 30 July and he SDAX on 13 October. - Placement of 3.5m new shares in April at 28.5/share with gross proceeds of 100m. - Florian Goldgruber replaced Yaron Zaltsman as CFO from 1 July. - Q3 acquisition of 1.9k residential units in Schöneberg, Wilmersdorf and Nuekölln. - Placement of 5.6m new shares in September at 35.5/share with gross proceeds of 200m. Source: Company data, Credit Suisse research Parent company ADO Group is listed in Tel Aviv, Israel, and is a holding company with 37% ownership of ADO Properties. ADO Group participated in both of ADO Properties' equity offerings in 2016, which it funded via debt issuance and residual cash raised from the IPO of ADO Properties. ADO Group's parent and 42% shareholder is Shikun & Binui, a Tel Aviv-listed infrastructure and construction company, and the ultimate beneficiary of the structure is Shari Arison via Arison Holdings. The parent group controls the ADO Properties Board via four of seven seats, which are treated as related parties, as is the CEO due to his ownership of shares and options in ADO Group. Recently appointed CFO Florian Goldgruber has worked with ADO Properties as a consultant since before its IPO and is a former executive at Deutsche Annington (now Vonovia). Figure 65: Experienced management Board of Directors Chairman of the Board Executive Vice Chairman CEO Represents major shareholder? Moshe Lahmani Shlomo Zohar Rabin Savion Y Y N Chairman since 2015 (prev. Ofer Kotler). Joined Arison Investment 2007 as CFO and currently serves as deputy CEO (Arison Holdings is invested in Shikun & Binui, which is invested in ADO Group; the main shareholder of ADO Properties). Previously VP of global operations and FD at Amdocs. CPA. CEO of ADO Group from Former chairman of various companies including Israel Discount Bank, Israel Credit Cards, Mercantile Discount Bank and Discount Bancorp. Previously managing partner at Zohar ( ). Served as member of the Auditing Standards Committee and Internal Auditing Committee in Israel. MBA and CPA. Co-founded ADO in 2006 after moving to Berlin in Former VP of international development for Oxford Capital Investment (advisor to entrepreneurs) and international business director at MAN Properties (Israeli broker, part of CBRE). Previously senior property consultant for various real estate and hotel firms. Director Yaron Karisi Y Director Amit Segev Y Non-Exec Directors Various N CEO of Shikun & Binui since Deputy CEO of Shikun & Binui since Dr. Michael Bütter and Jörn Stobbe Senior Management CFO COO Florian Goldgruber Eyal Horn CFO from 1 July Previously head of capital markets at Vonovia after having responsibility for the company (previously Deutsche Annington) at Terra Firma. Former CFO of Arbireo Capital based in Frankfurt. CBA. Joined in 2007 as COO. Previously worked in operations and sales at Italo and a sales executive at Marcus Evans Group. Educational background in international business administration. Source: Company data, Credit Suisse research ADO Properties (ADJ.DE) 27

28 Figure 66: Group structure Figure 67: Executive pay has a 60% variable element* based on Board defined KPI's 100% 80% 60% 40% 20% Long term incentive Short term incentive Fixed Salary Board discretion Other annual measures Net cold rent NOI / share AFFO / share Share price (relative to EPRA Germany Index - 4 years) NAV / share development (4 years) 0% Total Compensation* Short term incentive Long term incentive (Settled in shares) Source: Company data, Thomson Reuters, Credit Suisse research Source: Company data (2015 Annual Report), Credit Suisse research (*assumes 100% payout of both the long-term and short-term incentive schemes) Executive compensation consists of a fixed element, a short-term incentive scheme paid on an annual basis and linked to operating income and adjusted funds from operations (which deducts capitalised maintenance spend from FFO I) on a per share basis, plus a longer-term scheme settled in shares based on EPRA NAV per share development and the company share price relative to the EPRA Germany Index over a 4-year period. The fixed salary, and short- and long-term incentives have a fixed term ending on 23 July 2019, the fourth anniversary of the IPO. Additional discretionary measures are set annually by the Board for the short-term scheme, which determines the performance requirement for each measure. ADO Properties (ADJ.DE) 28