Prime Office REIT-AG EXCELLENCE IN GERMAN REAL ESTATE Roadshow FY 2011 results Zurich, London, Frankfurt, Brussels, Paris and Amsterdam April 2012 0
Disclaimer The statements contained herein may include statements of future expectations and other forward-looking statements that are based on management's current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation, general economic conditions, including in particular economic conditions in the core business of Prime Office REIT-AG and core markets, general competitive factors, the impact of acquisitions, including related integration issues, and reorganization measures. Furthermore, the development of financial markets, interest rate levels, currency exchange rates, as well as national and international changes in laws and regulations, in particular regarding tax matters, can have a corresponding impact. Many of these factors may be more likely to occur, or more pronounced, as a result of terrorist activities and their consequences. The company assumes no obligation to update any information contained herein. 1
Highlights FY 2011 (I) Substantial annual net income: 17.6 m Euro after -10.3 m Euro in the previous year Funds from operations (FFO) at 21.8 m Euro exceed target; adjusted by one-off effects (IPO costs), the FFO would amount to 26.1 m Euro Proposed dividend of about 12 m Euro or 0.23 Euro per share, at the upper end of the guidance Significant decrease of net leverage from 770.8 m Euro by 27.2% to 561.5 m Euro despite negative swap market values (appr. -54 m Euro); leverage decreases from 79.6% to 57.8% 2
Highlights FY 2011 (II) REIT equity ratio at 43.1% as at 31 December 2011 due to negative swap market values and thereby slightly below the 45% threshold; executive board aims to comply with the REIT criterion over the course of 2012 Total letting performance of about 50,000 sqm is testament to the successful asset management activities Market value of the property portfolio increases by 1.8 m Euro in spite of negative effects (increase of real property transfer taxes, sales of subordinated partial spaces (residential) in Essen) Net asset value increases to 471.6 m Euro (249.4 m Euro in the previous year) 3
Property report 2011 4
Prime Office portfolio (I) SZ-Tower, Munich T-Online Headquarters, Deutsche Telekom Allee, BMW Design Center Darmstadt Darmstadt Munich Sigmund-Schuckert-Haus, Nuremberg Westend-Ensemble, Frankfurt Hochtief AG, Grugapark / Essen Imtech Headquarters, Hamburg 5
Prime Office portfolio (II) 14 properties in 9 cities Vodafone Headquarters, Dusseldorf Medtronic Headquarters, Dusseldorf / Meerbusch 1 property Hamburg 2 properties 2 properties Essen Dusseldorf Breitwiesenstr,Stuttgart. Stuttgart / Fellbach 1 property 2 properties 1 property 2 properties Frankfurt Darmstadt Nuremberg Heilbronn Stuttgart Munich 1 property 2 properties Hochtief AG Headquarters, Essen Neckarturm, Heilbronn 10 properties are located in 6 of the 9 major German office markets 6
Key property data 31/12/2011 31/12/2010 in % Number of properties 14 14 0.0% Market value 1) according to valuation of CBRE (in m Euro) Lettable space (in sqm) Occupancy rate (in %) Vacancy rate (in %) Annual income from rent excl. of heating, lighting & other service costs (in m Euro) Gross initial yield (in %) Net initial yield (in %) Weighted average lease term (WALT) (in years) Average value per sqm (in Euro) 971.6 2) 969.8 0.2% 383,440 385,212-0.5% 96.1 99.7 n.a. 3.9 0.3 n.a. 65.4 67.0-2.4% 6.7 6.9 n.a. 6.0 6.2 n.a. 6.8 6.9-1.4% 2,533.90 2,517.57 0.6% Comment Net market value increase by +1.8 m Euro (0.2%) to 971.6 m Euro Appreciations due to early lease extensions in Stuttgart/Fellb. and Hamburg and letting in Stuttgart/Moehringen Market driven appreciations in Frankfurt, Heilbronn and Munich Charges from the real property transfer tax increase (2.5 m Euro) Sale of subordinated partial spaces (residential) 1 m Euro High occupancy rate of 96.1% Yield compression due to letting (and property market related) increases in market value: multiplier expansion WALT almost unchanged over the course of the year due to the letting performance of the asset management (total letting performance of about 50,000 sqm in 2011) 1) Market value in 2007: 1,152 m Euro 2) Plus about 1 m Euro from the sale of subordinated partial spaces (residential) 7
Letting report 2011 60.000 In sqm 50.000 40.000 43,000 50,000 Letting performance Increase of letting performance by about 7,000 sqm or 16.3% to about 50,000 sqm in 2011 (appr. 13 % of total lettable space) In addition, LOI for about 4,000 sqm (7 years), lease negotiations under way 30.000 Early lease extensions in Stuttgart/ Fellbach and Hamburg Additional early lease extensions are intended 20.000 10.000 0 1,000 3,000 2008 2009 2010 2011 8
emporia Stuttgart-Moehringen Breitwiesenstrasse 5-7, Stuttgart-Moehringen Property Rentable area: 24,906 sqm WALT: 9.0 years Market value (31/12/2011): 41.7 m Euro Value per sqm: 1,674 Euro Annual rent: 1.1 m Euro Average rent per sqm: 8.04 Euro Gross initial yield (GIY): 2.7% Letting activities Letting performance as at 31 December 2011: Cenit AG: about 7,500 sqm, 10 years Hochtief Solutions AG: about 2,600 sqm, 5 years With 10.50 Euro/sqm, both rents are at the upper range of the market rent in the Stuttgart region LOI for about 4,000 sqm (7 years, 10.50 Euro/sqm) signed at year end 2011: Tenant needs another 8-10 weeks to prepare potential signature of the almost fully negotiated lease Alternative: additional prospective tenant for 2,500 sqm 2 prospects for the remaining spaces from the automotive sector (seek leases for 5 years) Full occupancy expected in 2012 9
Westend-Ensemble Frankfurt Ludwig-Erhard-Anlage 2-8, Frankfurt / Main Property Rentable area: 35,101 sqm WALT: 0.9 years Market value (31/12/2011): 161.8 m Euro Value per sqm: 4,610 Euro Annual rent: 10.9 m Euro Average rent per sqm: 25.80 Euro Gross initial yield (GIY): 6.7% Letting activities Start of lease planned for 2014 No concrete progress in the letting activities for the Westend-Ensemble 3 prospects have postponed searches for space until further notice due to the market and banking environment Other potential tenants in place Letting target (occupancy by new tenants from 1 January 2014) still realistic Ongoing refurbishment for fire prevention purposes of Deutsche Post (tenant investment: about 20 m Euro) will improve building standard beyond original expectations by mid 2012 Upon completion of the refurbishment for fire prevention purposes, another showroom will be set up in the Senckenberg-Carré 10
Dusseldorf xcite Am Seestern 1, Dusseldorf Property Rentable area: 35,819 sqm WALT: 1.3 years Market value (31/12/2011): 75.7 m Euro Value per sqm: 2,113 Euro Annual rent: 7.1 m Euro Average rent per sqm: 16.63 Euro Gross initial yield (GIY): 9.4% Letting activities Start of lease planned for 2014 Positive feedback since marketing has started in September 2011 Several prospects incl. sub-contractors and potentially major tenants for up to 60% of the lettable space Talks about sub-contractors are held with Vodafone and now also with a potential office operator Potential major tenant for 15,000-20,000 sqm over 10 years and at 13.00 Euro/sqm: xcite-spaces now compete with only two other properties Two other lease offers (financial services, industrial firm) have been made (and are being worked on) 11
Financial data 2011 (IFRS) 12
Key financial data in FY 2011 (I) Gross rental income Rental and lease income In m Euro 76,0 75.1 75.3 In m Euro 66,0 65.6 64.9 64,0 74,0 62,0 72,0 60,0 2010 2011 2010 2011 Operating earnings (EBIT) Comments In m Euro 59,0 58,0 57,0 56,0 55,0 54,0 55.9 58.7 2010 2011 Gross rental income almost unchanged year-on-year Higher rental and lease expenses due to marketing costs, construction costs for a show room and construction/reconstruction costs for newly let spaces weigh on rental and lease income EBIT has grown in spite of one-off effects from the IPO, inter alia due to the positive valuation result of 2.8 m Euro 13
Key financial data in FY 2011 (II) Financial result In m Euro 0,0-20,0-40,0-60,0-80,0-41.2-65.8 2010 2011 Comments Finance expenses decreased by a significant 16.0 m Euro or 23.5% in spite of almost unchanged interest expenses Improved financial result thanks to lower finance expenses and higher finance income Substantial year-on-year increase of the income for the period (EPS: 0.50 Euro vs. -0.59 Euro last year) FFO under the level of the previous year due to IPO-related one-off effects (4.3 m Euro) Income for the reporting period In m Euro 20,0 10,0 0,0-10,0-20,0 17.6-10.3 2010 2011 Funds from operations In m Euro 30,0 26.3 21.8 20,0 10,0 0,0 2010 2011 14
Key financial data in FY 2011 (III) Funds from operations in FY 2011 2011 2010 m Euro m Euro Operating earnings (EBIT) 58.7 55.9 - Unrealised valuation gains from the fair value measurement of investment properties 2.9 0.0 + Unrealised valuation losses from the fair value measurement of investment properties 0.0 5.6 + Depreciation and amortisation 0.1 0.1 - Interest paid (balance of interest paid and received) 35.6 33.4 + Interest adjustment at the end of the period 1.4-1.9 Funds from operations (FFO) 21.8 26.3 15
Key financial data in FY 2011 (IV) FFO Bridge In m Euro 30,0 28,0 26,0 0.6 (0.6) 0.2 (0.4) 24,0 (3.9) 22,0 (0.4) (0.3) (0.3) (0.6) 1.2 20,0 26.3 18,0 21.8 16,0 14,0 FFO 2010 Net rental income Other rental and lease revenues Other revenues Operating cost prepayments IPO costs Other legal and advisory fees Rental and lease expenses Other operating expenses Personnel costs Interest FFO 2011 16
Key financial data in FY 2011 (V) Total liabilities 1) Net leverage 2) In m Euro 800,0 780.9 In m Euro 800,0 770.8 750,0 700,0 712.6 700,0 600,0 561.5 650,0 500,0 31.12.2010 31.12.2011 31.12.2010 31.12.2011 In % LTV 80,0 70,0 60,0 50,0 75.2 65.2 31.12.2010 31.12.2011 Comments Total liabilities decreased by 8.7%: increase in current assets lead to a substantial reduction of net leverage Contrarian effect: a substantial increase in negative market values of derivative financial instruments leads to a temporary increase in non-current debt Substantial decrease of LTV to 65.2% due to the (partial) repayment of loans after the IPO Leverage decreases from 79.6% to 57.8% 1) current + non-current liabilities 2) Liabilities - current assets 17
Key financial data in FY 2011 (VI) Maturity profile Comments In m Euro 160 Total of loans to be prolonged until 2028 amount to 457.6 m Euro 140 120 100 80 60 40 95.5 56.1 42.1 128.8 80.3 54.8 In addition: CHF loan, for which the nominal amount is being provided for in CHF (59.6 m Euro). Repayment scheduled for September 2013 Interest adjustment at the end of the fixedrate period of property financings (Darmstadt) in H2/2012 20 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 18
Key financial data in FY 2011 (VII) Net Asset Value Equity In m Euro 500,0 471.6 In m Euro 450,0 418.0 400,0 350,0 300,0 249.4 250,0 221.0 200,0 150,0 2010 2011 2010 2011 Net Asset Value 2011 2010 m Euro m Euro Equity 418.0 221.0 Derivative financial instruments (assets), of - these: 22.2 15.9 current 16.0 0.0 non-current 6.2 15.9 - Deferred tax assets 0.0 5.1 Derivative financial instruments (liabilities), of + these: 75.8 44.6 current 0.0 0.0 non-current 75.8 44.6 + Deferred tax liabilities 0.0 4.8 Net Asset Value (NAV) 471.6 249.4 Net Asset Value per share (in Euro) 9.08 14.30 Comments Substantial increase of net asset value during the IPO: due to the issuance of 34.5 m shares, the NAV per share amounts to 9.08 Euro at year end Equity capital base substantially stronger, but REIT equity ratio has been dragged to 43.1%, i.e. below the statutory minimum (45%) of the REIT law, by the negative market values of the derivative financial instruments (-75.8 m Euro) Sanction-free period of 2 years during which to again reach the minimum equity ratio under the REIT law 19
Guidance The executive board continues to expect the economic environment in Germany to progress steadily and the office property market in Germany to do well. The executive board s efforts focus on a sustainable elimination of the discount to the NAV. The board anticipates in 2012 revenues including operating cost prepayments of 72-74 m Euro and FFO of 17-19 m Euro. Adjusted for one-off effects in connection with planning, reconstruction and marketing of the properties in Stuttgart, Frankfurt and Dusseldorf, the FFO would amount to 24-26 m Euro. Dividend of 9-12 m Euro for fiscal year 2012 planned in spite of reconstruction and vacancy effects 20
Prime Office on its way to the year 2014 2012 Gradual conclusion of lease contracts in the properties in Stuttgart, Dusseldorf and Frankfurt Reachievement of the REIT equity ratio by selling a property or a recovery of the negative swap market values Replacement of shares from DCM funds in block trades 2013 Start of the reconstruction activities in the properties in Frankfurt and Dusseldorf based on lease contracts in 2014 Planned dividend of 9-12 m Euro for fiscal year 2012 in spite of reconstruction and vacancy effects 2014 Tenants move in the properties in Frankfurt and Dusseldorf 21
Strategy of Prime Office Focus on Prime Office properties in major German cities Active and value-driven asset management Extension of the multi-tenant approach short -term Objective of becoming a leading office REIT in Germany Expansion of property portfolio Single property strategy Selective investments in value add mid-/ long-term 22
Prime Office investment highlights 1 Pure Play German office in major cities 2 Attractive prime office property portfolio 3 High occupancy rate and high credit-quality tenants 4 Strong track record in off market transactions and properties letting 5 NAV growth potential through decreasing yields (yield compression), follow-up leases and further property investments 6 REIT status and lean corporate structure 7 Highly experienced management and supervisory board with strong off market access 23