WE GENERATE VALUE ANNUAL REPORT 2018 CONTENTS INTERVIEW WITH THE MANAGEMENT BOARD 2 WE GENERATE VALUE 6 REPORT OF THE SUPERVISORY BOARD 36 TLG IMMOBILIEN SHARES 42 KEY FIGURES ACCORDING TO EPRA 46 CORPORATE GOVERNANCE REPORT 52 MANAGEMENT REPORT 62 CONSOLIDATED FINANCIAL STATEMENTS 102 AUDIT OPINION 147 ANNUAL/QUARTERLY PERFORMANCE INSIDE COVER FINANCIAL CALENDAR/PUBLISHING DETAILS INSIDE COVER WE GENERATE VALUE | ANNUAL REPORT 2018 OF TLG IMMOBILIEN C This schematic illustration shows the volume study for the construction of three office buildings on Alexanderplatz in Berlin. KEY GROUP FIGURES ACCORDING TO IFRS 01/01/2018 – 01/01/2017 – Unit 31/12/2018 31/12/2017 Change in % Earnings indicators Rental income in EUR k 223,886 168,310 33.0 Net operating income from letting activities (NOI) in EUR k 196,726 154,904 27.0 Disposal profits in EUR k 7,833 10,377 – 24 . 5 Net income in EUR k 310,946 284,373 9.3 Funds from operations (FFO) in EUR k 133,990 102,683 30.5 FFO per share1 in EUR 1.30 1.29 0.8 Unit 31/12/2018 31/12/2017 Change Balance sheet metrics Investment property in EUR k 4,067,527 3,383,259 20.2 % Cash and cash equivalents in EUR k 153,893 201,476 – 23.6 % Total assets in EUR k 4,320,847 3,835,748 12.6 % Equity in EUR k 2,157,239 1,936,560 11.4 % Equity ratio in % 49.9 50.5 – 0.6 pp Interest-bearing liabilities in EUR k 1,579,442 1,541,692 2.4 % Net debt in EUR k 1,425,549 1,340,216 6.4 % Net LTV2 in % 34.7 39.2 – 4.5 pp EPRA NAV, adjusted in EUR k 2,715,723 2,112,689 28.5 % EPRA NAV, adjusted, per share1 in EUR 26.27 20.71 26.8 % Unit 31/12/2018 31/12/2017 Change Key portfolio performance indicators Property value3 in EUR k 4,109,449 3,400,582 20.8 % Lettable area in sqm 1,912,793 1,875,072 37,720 sqm Property value per sqm in EUR/sqm 2,148 1,814 18.5 % Properties number 409 426 – 17 units EPRA Vacancy Rate in % 3.3 3.6 – 0.3 pp WALT in years 6.1 6.3 – 0,2 years Annualised in-place rent4 in EUR k 227,154 214,057 6.1 % Average rent in EUR/sqm 10,44 10.05 3.9 % In-place rental yield in % 5.5 6.3 – 0.8 pp Average market rent in EUR/sqm 11.27 10.05 12.1 % In-place rental yield on market rent in % 6.2 6.6 – 0.4 pp 1 Total number of shares as at 31 December 2017: 102.0 m, as at 31 December 2018: 103.4 m. The weighted average number of shares was 79.7 m in 2017 and 102.8 m in 2018. ² Calculation: Net debt divided by real estate assets; for the composition see page 74 3 In line with values disclosed according to IAS 40, IAS 2, IAS 16 and IFRS 5. 4 The annualised in-place rent is calculated using the annualised rents agreed as at the reporting date – not factoring in rent-free periods. See “Portfolio facts and figures” " Portfolio overview p. 27 Page reference Link Portfolio Facts and Figures WE GENERATE VALUE | ANNUAL REPORT 2018 OF TLG IMMOBILIEN 1 NEW HORIZONS sustainable value growth through active portfolio, asset and property management LG IMMOBILIEN was once again able to improve its most important performance indicators significantly in 2018. The T value of its portfolio increased by 21% to around EUR 4.1 bn. This value growth was driven mainly by the successful conclusion of rental agreements, remeasurements and acquisitions. The share- holders of the company enjoyed a 9.4% increase in the share price and a dividend yield of over 3% in the financial year. The new management has initiated the next phase of growth by defining four strategic packages of measures with a view to improving the total shareholder return sustainably. Alongside even more active asset and property management and construction and conversion measures designed to increase the value of selected own properties, the portfolio remains focused on acquisitions of properties with potential for value growth and the disposal of non-strategic properties. The highly solid financing structure of the company combined with its Net LTV of around 35% will generate room to manoeuvre when it comes to financing future investments. EUR Following funds from operations (FFO) of EUR 134.0 m 0.91 proposed dividend in 2018, the company intends to increase its FFO based on 103.4 m shares as at by between 4.4% and 6.7% to between EUR 140 m 31 December 2018 and EUR 143 m. At this year’s general meeting, the Management Board and Supervisory Board will propose the payment of a dividend of EUR 0.91 per share. The adjusted EPRA Net Asset Value per share increased by 26.8% in the 2018 financial year, resulting in a total shareholder return of EUR 6.38 per share for 2018 with consideration for the dividend of EUR 0.82 per share paid in 2018. 2 WE GENERATE VALUE | ANNUAL REPORT 2018 OF TLG IMMOBILIEN interview A FOCUS ON THE TOTAL SHAREHOLDER RETURN » TLG IMMOBILIEN is focused on investments and active value generation in its portfolio « jürgen overath, coo, and gerald klinck, cfo nder the new leadership of Gerald Klinck and Mr Klinck, Mr Overath, you took over the management of Jürgen Overath, TLG IMMOBILIEN will continue TLG IMMOBILIEN in September 2018. How well prepared the successful development it has achieved so far is the company for the challenges it will face in the whilst generating substantial value for all of the future? Ustakeholders of the company with a new strategic focus. gerald klinck The great strengths of TLG IMMOBILIEN are Active portfolio, asset and property management with definitely its well-balanced portfolio of office, retail and a view to generating higher rental income, investments hotel properties as well as its current financing structure. in generating rental and value growth in the property Through our properties, we are active mostly in steadily portfolio and external growth will improve the value of growing markets such as Berlin, the Rhine-Main area, the company and its profitability in the long term. This Dresden and Leipzig. In light of our current portfolio of strategy is based soundly on the efficient, balanced high-quality properties in central core locations and the financing structure of the Group. The shareholders will ongoing supply shortage combined with strong demand, profit from dividends and increases in NAV. The new we still see significant potential for value growth. Management Board of the Group explains its strategy in detail in the interview. WE GENERATE VALUE | ANNUAL REPORT 2018 OF TLG IMMOBILIEN 3 jürgen overath Peter Finkbeiner and Niclas Karoff, our Additionally, the strategic portfolio contains properties predecessors on the Management Board, have put the that generate a solid, sustainable cash flow with negligible company in a very solid position. Additionally, the value asset management work on our part. Overall, such proper- of our portfolio has more than doubled to EUR 4.1 bn since ties make up around 90% of our portfolio value. The non- the IPO at the end of 2014. The in-place rental yield is strategic portfolio contains all properties that are to be sold attractive, vacancy rates are very low and the majority of over the next few years. Those properties are worth around the properties have rental agreements that are nowhere EUR 400 m on our books. We will then implement the four close to approaching the end of their terms. As such, we aforementioned strategic packages of measures on the and our shareholders have all fared exceptionally well basis of this categorisation. over the past few years. However, a change of strategy is now required given the changing general conditions in Could you please add a few more details? the sector. gerald klinck I will start with an example of what we consider to be successful active asset management: in What does that mean specifically, what is happening in November, we were able to secure a ten-year rental agree- the sector and how will you respond? ment with a new, creditworthy tenant for around 15,000 sqm jürgen overath Ifo statistics indicate that the dynamism of space in the commercial property “Spreestern” in the of the economy is weakening and the prices of high-quality heart of Berlin. In light of the significantly higher rents that properties – the only type of property we would consider – are consistent with the market and the location, our revenue have increased significantly in recent years. This means from this agreement will be significantly higher than it was that it is growing increasingly difficult to make acquisitions in 2018. This will increase the value of our properties and at rates that leave room for value growth. As such, we have our portfolio has even more similar potential. to focus on potential that will make us less dependent on economic cycles. This is where our augmented strategy jürgen overath A few months ago, we carried out an comes in. extensive, detailed analysis of all of our properties. One focal point of the analysis was to identify opportunities What will change compared to the previous to make additional investments in our existing land and highly successful approach? buildings that might increase the long-term value of the gerald klinck TLG IMMOBILIEN will focus even more properties.