Not for distribution in the United States of America
LEG Immobilien AG (incorporated in Germany as a stock corporation)
€500,000,000 1.250% Fixed Rate Standalone Notes due 2024 ISIN XS1554456613, Common Code 155445661 and German Securities Code (WKN) A2E4W8 Issue Price: 99.409%
LEG Immobilien AG, with its registered office at Hans-Böckler-Straße 38, 40476 Düsseldorf, Germany, and registered in the commercial register of the Local Court of Düsseldorf, Germany, under HRB 69386 (the “Issuer” or the “Company”, and together with its fully consolidated subsidiaries, the “Group”, “LEG” or “LEG Group”) will issue on January 23, 2017 Notes in the aggregate principal amount of €500,000,000 due 2024 (the “Notes”). The Notes will bear interest at a rate of 1.250% per year. The Issuer will pay interest on the Notes annually in arrears on January 23, commencing on January 23, 2018. The Notes, which are governed by the laws of the Federal Republic of Germany (“Germany”), will be issued in a denomination of €100,000 each. The Notes will constitute direct, unconditional, unsecured and unsubordinated obligations of the Issuer, ranking pari passu among themselves and pari passu with all other unsecured and unsubordinated obligations of the Issuer, unless such obligations are accorded priority under mandatory provisions of statutory law. Unless previously redeemed or purchased and cancelled in accordance with the terms and conditions of the Notes (“Terms and Conditions”), the Notes will be redeemed at par on January 23, 2024 (the “Maturity Date”). The Notes may be redeemed before the Maturity Date, in whole but not in part, at their principal amount, together with, if applicable, accrued interest, notably in the event of any change in taxation or in an event of default, see “Terms and Conditions of the Notes—§6 Redemption—(2) Early Redemption for Reasons of Taxation” and “Terms and Conditions of the Notes—§10 Events of Default”. The Issuer will have the option to redeem the Notes prior to the Maturity Date, in whole but not in part, at their principal amount, together with accrued interest, if applicable, and a premium, see “Terms and Conditions of the Notes—§6 Redemption−(4) Early Redemption at the Option of the Issuer (Make- Whole)”. If a change of control occurs, each holder of Notes (“Holder”) will have the option to require the Issuer to redeem or, at the Issuer’s option, repurchase all or part of the Notes held by such Holder at their principal amount together with, if applicable, accrued interest, see “Terms and Conditions of the Notes—§6 Redemption−(5) Early Redemption at the Option of the Holders upon a Change of Control”. On issue the Notes are expected to be rated Baa1 by Moody’s Investors Service Ltd (“Moody’s”). At the date of this Prospectus (the “Prospectus”), the Issuer has a long-term issuer rating of Baa1 (stable outlook) assigned by Moody’s. A rating is not a recommendation to buy, sell or hold securities and may be subject to suspension, change or withdrawal at any time by the assigning rating agency. At the date of this Prospectus Moody’s is established in the European Union, registered under Regulation (EC) no. 1060/2009 of the European Parliament and of the Council dated September 16, 2009 on credit rating agencies, as amended (the “CRA Regulation”) and included in the list of registered credit rating agencies published by the European Securities and Markets Authority on its website (www.esma.europa.eu) in accordance with the CRA Regulation. The Notes have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the “Securities Act”) and are being offered and sold in transactions outside the United States of America (“United States”) to non-U.S. persons (as defined in Regulation S under the Securities Act (“Regulation S”)) in reliance on Regulation S. The Notes will initially be represented by a temporary global bearer note (the “Temporary Global Note”), without interest coupons. The Notes are issued in new global note (“NGN”) form and will be delivered on or around
the issue date of the Notes (currently expected to be on January 23, 2017) (the “Issue Date”) to a common safekeeper (“Common Safekeeper”) for Euroclear Bank SA/NV (“Euroclear”) and Clearstream Banking S.A., Luxembourg (“CBL”, and, together with Euroclear, the “Clearing System”). The Temporary Global Note will be exchangeable in whole or in part for a permanent global bearer note (the “Permanent Global Note” and, together with the Temporary Global Note, the “Global Notes”) without interest coupons, not earlier than 40 days after the Issue Date, upon certification as to non-U.S. beneficial ownership. The Global Notes are intended to be eligible collateral for the central banking system for the Euro (the “Eurosystem”) monetary policy. Whether NGNs are recognizable as eligible collateral for Eurosystem monetary policy and intra-day credit operations will depend upon satisfaction of the Eurosystem eligibility criteria. Prospective investors should be aware that an investment in the Notes involves risks and that if certain risks, in particular those described under “Risk Factors”, occur, the investors may lose all or a very substantial part of their investment. This Prospectus has been prepared on the basis that all offers of Notes will be made pursuant to an exemption under the European Union’s Directive 2003/71/EC, as amended (“Prospectus Directive”), from the requirement to produce a prospectus in connection with offers of Notes and is thus, for the purposes of the offering of the Notes, not a prospectus within the meaning of the Prospectus Directive. Accordingly, any person making or intending to make any offer within the European Economic Area (“EEA”) of the Notes which are the subject of the offering contemplated in this Prospectus should only do so in circumstances in which no obligation arises for the Issuer or the Joint Bookrunners to produce a prospectus for such offers. None of the Issuer or the Joint Bookrunners has authorized, nor do they authorize, the making of any offer of the Notes through any financial intermediary, other than offers made by the Joint Bookrunners which constitute the final placement of the Notes contemplated in this Prospectus. Application will be made to the Luxembourg Stock Exchange for the Notes to be listed on the official list of the Luxembourg Stock Exchange (“Official List”) and to be admitted to trading on the Luxembourg Stock Exchange’s Regulated Market. The Luxembourg Stock Exchange’s Regulated Market is a regulated market for the purposes of Directive 2004/39/EC of the European Parliament and of the Council of April 21, 2004 on Markets in Financial Instruments, as amended. Only for purposes of the admission to trading, this Prospectus constitutes a prospectus within the meaning of the Prospectus Directive, i.e. a listing prospectus according to Article 5.3 of the Prospectus Directive. By approving a prospectus, the Commission de Surveillance du Secteur Financier (the “CSSF”) shall give no undertaking as to the economic and financial soundness of the operation or the quality or solvency of the issuer pursuant to Article 7 para. 7 Loi relative aux prospectus pour valeurs mobilières. This Prospectus does not constitute an offer to sell, or the solicitation of an offer to buy Notes in any jurisdiction where such offer or solicitation is unlawful. The Notes are subject to U.S. tax law requirements and may, subject to certain exceptions, not be offered, sold or delivered within the United States or to U.S. persons. For a further description of certain restrictions on the offering and sale of the Notes and on the distribution of this Prospectus, see “Subscription and Sale—Selling Restrictions” below.
Joint Bookrunners HSBC J.P. Morgan
BNP Paribas Morgan Stanley Société Générale Corporate & Investment Banking
The date of this Prospectus is January 18, 2017
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RESPONSIBILITY STATEMENT
The Issuer is solely responsible for the information contained in this Prospectus. The Issuer hereby declares that, having taken all reasonable care to ensure that such is the case, the information contained in this Prospectus for which it is responsible, is, to the best of the Issuer’s knowledge, in accordance with the facts and contains no omission likely to affect its import.
NOTICE
This Prospectus should be read and construed with any supplement thereto.
The information contained in this Prospectus has been provided by LEG and the other sources identified herein. To the fullest extent permitted by law, no representation or warranty is made or implied by HSBC Bank plc, (“HSBC”), J.P. Morgan Securities plc, (“J.P. Morgan”), BNP Paribas (“BNP Paribas”), Morgan Stanley & Co. International plc (“Morgan Stanley”) and Société Générale (“Société Générale” and together with HSBC, J.P. Morgan, BNP Paribas and Morgan Stanley, the “Joint Bookrunners”) or any of their respective affiliates, and neither the Joint Bookrunners nor any of their respective affiliates make any representation or warranty or accept any responsibility, as to the accuracy or completeness of the information contained in this Prospectus or for any statement purported to be made by or on behalf of the Joint Bookrunners. Investors in the Notes must solely rely on the information contained in this Prospectus.
No person has been authorized to give any information or to make any representation concerning LEG or the Notes (other than as contained in this Prospectus) and, if given or made, any such other information or representation should not be relied upon as having been authorized by LEG or the Joint Bookrunners. In making an investment decision, investors must rely on their own examination of the Issuer, LEG, and the terms of the offering, including the merits and risks involved. Any decision to purchase Notes should be based solely on this Prospectus.
Any reproduction or distribution of this Prospectus, in whole or in part, and any disclosure of its contents or use of any information herein for any purpose other than considering an investment in the Notes is prohibited. Each offeree of the Notes, by accepting delivery of this Prospectus, agrees to the foregoing.
The Issuer has confirmed to the Joint Bookrunners that this Prospectus is true and accurate in all material respects and is not misleading; that any opinions and intentions expressed herein are honestly held and based on reasonable assumptions; that there are no other facts with respect to the Issuer the omission of which would make this Prospectus as a whole or any statement herein or opinions or intentions expressed herein misleading in any material respect; and that all reasonable enquiries have been made to verify the foregoing.
To the fullest extent permitted by law, the Joint Bookrunners do not accept any responsibility for the contents of this Prospectus or for any other statements made or purported to be made by the Joint Bookrunners or on their behalf in connection with the Issuer or the Notes. The Joint Bookrunners accordingly disclaim all and any liability whether arising in tort or contract or otherwise which they might otherwise have in respect of this Prospectus or any such statement.
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The Joint Bookrunners are acting exclusively for the Issuer and no other person in connection with the offering of the Notes. They will not regard any other person (whether or not such person is a recipient of this document) as their client in relation to the offering of the Notes and will not be responsible to anyone other than the Issuer for providing the protections afforded to their respective clients or for giving advice in relation to the offering or any transaction or arrangement referred to herein.
Neither the delivery of this Prospectus nor the offering, sale or delivery of the Notes shall, in any circumstances, create any implication that the information contained in this Prospectus is true subsequent to the date upon which this Prospectus has been published or most recently amended or supplemented or that there has been no adverse change in the financial position of the Issuer since the date hereof or, as the case may be, the date upon which this Prospectus has been most recently amended or supplemented or the date of the consolidated statement of financial position of the most recent financial statements, or that any other information supplied in connection with the Notes is correct at any time subsequent to the date on which it is supplied or, if different, the date indicated in the document containing the same.
None of the Issuer or the Joint Bookrunners, or any of their respective representatives, is making any representation to any offeree or purchaser of the Notes regarding the legality of an investment in the Notes by such offeree or purchaser under the laws applicable to such offeree or purchaser. Prospective investors should not construe anything in this Prospectus as legal, tax, business or financial advice. Each investor should consult with his or her own advisors as to the legal, tax, business, financial and related aspects of a purchase of the Notes.
This document may only be communicated or caused to be communicated in circumstances in which Section 21 para. 1 of the Financial Services and Markets Act 2000, as amended (“FSMA”) does not apply.
The Notes have not been and will not be registered under the Securities Act and are subject to U.S. tax law requirements. Subject to certain exceptions, Notes may not be offered, sold or delivered within the United States or to U.S. persons; see “Subscription and Sale—Selling Restrictions”.
The distribution of this Prospectus as well as the offering, sale, and delivery of the Notes in certain jurisdictions may be restricted by law. Persons into whose possession this Prospectus comes are required by the Issuer and the Joint Bookrunners to inform themselves about and to observe any such restrictions. This Prospectus does not constitute an offer of, or an invitation to purchase, any of the Notes in any jurisdiction in which such offer, exercise or invitation would be unlawful. None of the Issuer or the Joint Bookrunners or any of their respective affiliates accepts any legal responsibility for any violation by any person, whether or not a prospective investor, of any such restrictions.
Persons into whose possession this Prospectus comes are required by the Issuer and the Joint Bookrunners to inform themselves about and to observe any such restrictions. For a description of certain restrictions on offers, sales and deliveries of Notes and on the distribution of this Prospectus and other offering material relating to the Notes, see “Subscription and Sale—Selling Restrictions”.
This Prospectus may not be used for the purpose of an offer or solicitation by anyone in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation.
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This Prospectus does not constitute an offer or an invitation to subscribe for or purchase the Notes and should not be considered as a recommendation by the Issuer or the Joint Bookrunners that any recipient of this Prospectus should subscribe for or purchase Notes. Each recipient of this Prospectus shall be considered to have made its own investigation and appraisal of the condition (financial or otherwise) of the Issuer.
IN CONNECTION WITH THE ISSUANCE OF THE NOTES, THE JOINT BOOKRUNNERS (OR PERSONS ACTING ON BEHALF OF THE JOINT BOOKRUNNERS) MAY OVER- ALLOT THE NOTES OR EFFECT TRANSACTIONS WITH A VIEW TO SUPPORTING THE MARKET PRICE OF THE NOTES AT A LEVEL HIGHER THAN THAT WHICH MIGHT OTHERWISE PREVAIL. HOWEVER, THERE IS NO ASSURANCE THAT THE JOINT BOOKRUNNERS (OR PERSONS ACTING ON BEHALF OF THE JOINT BOOKRUNNERS) WILL UNDERTAKE STABILIZATION ACTION. ANY STABILIZATION ACTION MAY BEGIN ON OR AFTER THE DATE ON WHICH ADEQUATE PUBLIC DISCLOSURE OF THE TERMS OF THE OFFER OF THE NOTES IS MADE AND, IF BEGUN, MAY BE ENDED AT ANY TIME, BUT IT MUST END NO LATER THAN THE EARLIER OF 30 DAYS AFTER THE ISSUE DATE AND 60 DAYS AFTER THE DATE OF THE ALLOTMENT OF THE NOTES. ANY STABILIZATION ACTION OR OVER-ALLOTMENT MUST BE CONDUCTED BY THE JOINT BOOKRUNNERS (OR PERSON(S) ACTING ON BEHALF OF THE JOINT BOOKRUNNERS) IN ACCORDANCE WITH ALL APPLICABLE LAWS AND REGULATIONS.
This Prospectus contains assessments of market data and information derived therefrom, which could not be obtained from any independent sources. Such information is based on the Issuer’s own internal assessments and may therefore deviate from the assessments of competitors of LEG or future statistics by independent sources. As regards the market positions of LEG, LEG’s own estimations are mainly based on company data which is either derived from information by competitors or from data provided by independent research companies.
The language of this Prospectus is English. The German text of the Terms and Conditions is legally binding; the English-language text of the Terms and Conditions constitutes a translation. The financial statements listed in the section “Financial Statements” under pages F-1 et seqq. are translations of the respective German-language financial statements. The auditor’s reports listed in this section under are translations of the respective German-language auditor’s reports issued on the respective German-language financial statements and refer to the respective financial statements and the corresponding management report as a whole in each case.
NOTICE TO CERTAIN EUROPEAN INVESTORS
Notice to Prospective Investors in the European Economic Area
This Prospectus has been prepared on the basis that all offers of the Notes will be made pursuant to an exemption under the Prospectus Directive from the requirement to produce a prospectus in connection with offers of the Notes and is thus, for the purposes of the offering of the Notes, not a prospectus within the meaning of the Prospectus Directive. Accordingly, any person making or intending to make any offer within the EEA of the Notes which are the subject of the offering contemplated in this Prospectus should only do so in circumstances in which no obligation arises for the Issuer or the Joint Bookrunners to produce a prospectus for such offers. None of the Issuer or the Joint Bookrunners has authorized, nor does it or do they authorize, the making of any -5-
offer of the Notes through any financial intermediary other than offers made by the Joint Bookrunners which constitute the final placement of the Notes contemplated in this Prospectus.
Notice to Prospective Investors in the United Kingdom
In the United Kingdom, this Prospectus is for distribution only to persons (i) who are investment professionals falling within Article 19(5) of the FSMA or (ii) falling within Article 49(2)(a) to (d) of the FSMA (e.g., high net worth companies, unincorporated associations) or (iii) other persons to whom it may be lawfully communicated in accordance with the FSMA (all such persons falling within (i) – (iii) together being referred to as “Relevant Persons”). This Prospectus is directed only at Relevant Persons and must not be acted on or relied on by persons who are not Relevant Persons. In the United Kingdom, any investment or investment activity to which this Prospectus relates is available only to Relevant Persons and will be engaged in only with Relevant Persons.
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements. A forward-looking statement is a statement that does not relate to historical facts and events. They are based on analyses or forecasts of future results and estimates of amounts not yet determinable or foreseeable. These forward-looking statements are identified by the use of terms and phrases such as “anticipate”, “believe”, “estimate”, “expect”, “intend”, “plan”, “predict”, “project”, “target” and similar terms and phrases, including references and assumptions. This applies, in particular, to statements in this Prospectus containing information on future earning capacity, plans and expectations regarding LEG’s business and management, its growth and profitability, and general economic and regulatory conditions and other factors that affect it.
Forward-looking statements in this Prospectus are based on current estimates and assumptions that the Issuer makes to the best of its present knowledge. These forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results, including LEG’s financial position and results of operations, to differ materially from and be worse than results that have expressly or implicitly been assumed or described in these forward-looking statements. LEG’s business is also subject to a number of risks and uncertainties that could cause a forward-looking statement, estimate or prediction in this Prospectus to become inaccurate. Accordingly, investors are strongly advised to read the section “Description of the Issuer”. This section includes more detailed descriptions of factors that might have an impact on LEG’s business and the markets in which it operates.
In light of these risks, uncertainties and assumptions, future events described in this Prospectus may not occur. In addition, neither the Issuer nor the Joint Bookrunners assumes any obligation, except as required by law, to update any forward-looking statement or to conform these forward-looking statements to actual events or developments.
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TABLE OF CONTENTS
Section Page Risk Factors ...... 9 Market Risks ...... 10 Risks in Connection with LEG’s Business Activities ...... 14 Risks in Connection with the Valuation of LEG’s Properties ...... 28 Financial Risks ...... 29 Regulatory and Legal Risks...... 33 Risk Factors Relating to the Notes ...... 40 Terms and Conditions of the Notes ...... 50 Description of Rules regarding Resolutions of Holders ...... 96 Overview of the SchVG ...... 96 Individual Subjects of Resolutions ...... 96 Relevant Majorities for Holder Resolutions ...... 97 Procedures for Taking Holder Resolutions ...... 97 Holders’ Representative (gemeinsamer Vertreter) ...... 98 Sources of Market Data ...... 99 Description of the Issuer ...... 101 General Information on LEG Immobilien AG and LEG ...... 101 Selected Consolidated Financial Information...... 107 Business ...... 114 Litigation ...... 124 Material Agreements of the Issuer ...... 125 Trend Information and No Adverse Change ...... 135 Management and Supervisory Bodies of LEG Immobilien AG ...... 135 Shareholder Structure ...... 157 Recent Developments ...... 158 Taxation ...... 159 Taxation in Germany ...... 159 Taxation in Luxembourg ...... 163 The Proposed Financial Transactions Tax ...... 164 Responsibility of the Issuer for the Withholding of Taxes at Source ...... 164 Subscription and Sale ...... 165 Subscription ...... 165 -7-
Selling Restrictions ...... 165 General Information ...... 168 Notice to Prospective Investors in the European Economic Area ...... 168 Notice to Prospective Investors in the United Kingdom ...... 168 Interests of Natural and Legal Persons Involved in the Issue ...... 168 Authorization and Issue Date ...... 169 Use of Proceeds ...... 169 Delivery of Notes ...... 169 Costs and Expenses Relating to the Purchase of Notes ...... 169 Listing and Admission to Trading of the Notes ...... 169 Clearing System and Security Codes ...... 169 Ratings of the Issuer and the Notes ...... 170 Indication of Yield ...... 170 Documents Available ...... 170 Financial Information ...... F-1 Glossary ...... G-1 Names and Addresses ...... SIG 1
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RISK FACTORS
Below is a description of risk factors that are material for the assessment of the market risk associated with the Notes and risk factors that may affect the ability of the Issuer to fulfill its obligations under the Notes. Any of these risks could have a material adverse effect on the net assets, financial position and results of operations of LEG. The market price of the Notes could decline due to any of these risks, and investors could lose all or part of their investments.
Potential investors should carefully consider the specific risk factors outlined below in addition to all other information in this Prospectus and consult with their own professional advisors should they deem it necessary before deciding upon the purchase of Notes. In addition, investors should bear in mind that several of the described risks can occur simultaneously and thus have, possibly together with other circumstances, a stronger impact. The order in which the risks are described neither indicates the probability of their occurrence nor the gravity or significance of the individual risks nor the scope of their financial consequences. Additional risks of which LEG is not presently aware could also affect the business operations of LEG and have a material adverse effect on LEG’s net assets, business activities, financial position and results of operations.
Investors should note that, in accordance with the International Financial Reporting Standards, as applicable in the European Union (“IFRS”), LEG measures its investment property (i.e. properties held to earn rental income) at fair value. Fair value is the amount for which an asset or liability could be exchanged between knowledgeable, willing and independent parties, if it is not a liquidation or forced sale. LEG uses a complex model for the measurement of its investment property. This model is based on the expected discounted cash flow to be generated by the investment property over the next ten years and the expected sale value after the end of that period. The values calculated on the basis of this model are regularly reviewed by external auditors who estimate the value of certain parts of LEG’s residential property portfolio on a rolling basis each year. In turn, the valuation of LEG’s investment property is important for determining certain key measures, such as its NAV or LTV Ratio (both as defined under “Description of the Issuer—Selected Consolidated Financial Information—Additional Key Figures”). Any change in the fair value of investment property is shown in the consolidated income statement. Therefore, if one of the risks described below or other risks not yet identified occur, this would not just have an adverse effect on the business, net assets, financial position and results of operations of LEG, it would also be reflected more strongly in the measurement of LEG’s investment property. Such adverse effects can be considerable.
Words and terms that are defined in the Terms and Conditions below or elsewhere in this Prospectus have the same meaning in this section “Risk Factors”.
Potential investors should, among other things, consider the following:
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Market Risks
LEG is dependent on the macroeconomic and demographic trends in the state of North Rhine- Westphalia and its individual regional sub-markets, which are expected to vary in their development. Furthermore, LEG relies on being able to adapt its business activities on the housing market to these developments. Experience shows that the macroeconomic and demographic trends in North Rhine-Westphalia and its regional sub-markets are expected to be impacted not only by regional developments, but also by changes in the general economic condition in Germany.
Almost all of LEG’s properties are located in North Rhine-Westphalia. North Rhine- Westphalia is the most populated German state and consists of various socio-economically heterogeneous regional markets. Many parts of the Ruhr region are affected by structural change and are still suffering from the fact that mining is gradually diminishing. This gives rise to assorted challenges to the economy and the population. In Westphalia, another large, more rural and less densely populated region of North Rhine-Westphalia, there is a migration away from rural and into urban areas. By contrast, several studies have shown that the Rhineland is one of the most attractive economic regions in Germany. Accordingly, there are major differences between the economic and demographic forecasts for the different regions. In certain regions of North Rhine-Westphalia, such as the District of Märkisch (Märkischer Kreis), a population decline is expected in the coming years, while in other regions, for example the former German capital Bonn and the Westphalian city of Münster, the population is expected to grow. The population of the entire Federal Republic of Germany is expected to decrease by 0.5% between 2014 and 2040 (Source: IT.NRW, Population in NRW, please refer to section “Sources of Market Data” for the definition of this Source). Other macroeconomic indicators such as gross domestic product, the unemployment rate, purchasing power and household size are also likely to develop differently from region to region.
Like the projected regional developments, the trends in regional macroeconomic indicators are also dependent on the general economic development of North Rhine-Westphalia. Because of structural problems, state indebtedness has increased steadily. It amounted to €185 billion as of December 31, 2015 (Source: German Federal Statistical Office, Debt of the Länder, please refer to section “Sources of Market Data” for the definition of this Source). The amount of this debt and the uncertainty as to whether North Rhine-Westphalia will be able to achieve a balanced budget in the future could force the state government to cut spending and raise taxes and duties at state level in the short term. In 2014, for example, real estate transfer tax in North Rhine-Westphalia, which had already been raised by 1.5% in 2011, was increased once again by 1.5% to 6.5%. These increases had a negative impact on the valuation of LEG’s investment property. Also, in the future, similar measures could impact economic development in North Rhine-Westphalia and LEG’s business.
Economic and demographic developments significantly impact demand for LEG properties, the rents that LEG can achieve, the payment patterns of LEG tenants and other developments significant to the business of LEG. These factors have significant impacts on the vacancy rate, LEG’s income and the valuation of LEG’s properties. LEG is thus dependent on economic developments in North Rhine-Westphalia, and in particular on the trends in the regional sub-markets on which its portfolio focuses.
LEG has taken various measures to mitigate the impact of forecast regional economic developments, such as for example by investing only in carefully selected residential facilities and by implementing targeted marketing campaigns and initiatives to increase customer satisfaction.
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However, it cannot be ruled out that LEG will not find the right strategy to counteract adverse economic and demographic development, or leverage the changing situation in North Rhine- Westphalia to its advantage.
A downward trend in various macroeconomic indicators in North Rhine-Westphalia and the economic and demographic developments in the various North Rhine-Westphalian sub-markets could have a material adverse effect on the business, net assets, financial position, cash flow and results of operations of LEG.
The slow and uncertain recovery of the global economy from the recent financial and economic crisis, high government debt in many countries of the Eurozone, the financial deficit crisis in the Eurozone and geopolitical crises may have not just an unforeseeable negative impact on the euro and the Eurozone economies, but could also lead to market fluctuations, restricted access to debt and equity financing and defaults on payment by LEG’s partners.
Although the economic conditions have improved since the financial and economic crisis of 2008 and 2009, the recovery of the global economy is still characterized by a slow pace and uncertainty. The persistently weak economic growth, the high volatility on the credit and financial markets, fluctuations in exchange rates and the low consumer confidence on many markets are lingering problems putting pressure on the global economy. If the Eurozone fails to find a lasting solution to the sovereign debt and fiscal deficit crisis, individual member states could become insolvent or leave the euro in order to reintroduce a national currency. The euro area could even collapse altogether. This could have unforeseeable and serious, negative consequences (up to and including the end of the euro) for the economies of the Eurozone and its financial markets. In addition, the UK’s decision in the referendum to leave the European Union could massively shake the stability of the entire European Union both economically and politically. There are also geopolitical crises such as the conflict in Ukraine or Syria, the ensuing refugee crisis and the drastic economic sanctions imposed against the Russian Federation in particular. Countermeasures by the Russian Federation could be to the detriment of the entire European economy. This instability and the associated market volatility could even spread to economically strong countries such as Germany, and thus the German financial sector and housing market.
LEG is dependent on access to the financial markets to refinance its liabilities. The continuing high volatility and nervous sentiment on financial markets and a deterioration in the economic environment or the capital markets could affect its ability to refinance its current and future liabilities. It is possible that partners of LEG, particularly the counterparties in hedging arrangements, will be unable to fulfill their obligations under the respective agreements, for example due to a lack of liquidity, operational failures, bankruptcies or other reasons.
Each of the above risks could have a material adverse effect on the business, net assets, financial position, cash flow and income of LEG.
The current uncertainty regarding the future of the Eurozone and economic developments in Germany and the European Union is having a significant impact on the German property market. At present, this uncertainty is reflected in comparatively high valuations of German residential property portfolios and a favorable low interest rate environment. However, if interest rates rise (for example, because the economic situation in the euro area improves), then the above effects could be reversed, which could impair the German property market and the valuation of LEG’s property portfolio. If the macroeconomic situation continues to deteriorate, the prices paid for
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homes could fall, LEG would have more difficulty finding financing and LEG’s business partners could become insolvent.
The global financial and economic crisis and subsequent debt crisis increased uncertainty regarding future economic developments, particularly in the Eurozone. Furthermore, the central banks of developed countries, including the European Central Bank (“ECB”), have cut base interest rates to historic lows to stimulate economic growth. The low interest rates, at which the ECB has recently and is still providing the market with liquidity, and the continued acquisition of government bonds by the ECB could lead to asset inflation or a stronger currency devaluation.
Unlike during the global financial and economic crisis – when banks were able to refinance at reasonable costs only with difficulty, which significantly increased their refinancing costs overall and forced them to scale back their lending business – the debt crisis has increased confidence in companies with a conservative business model and solid financial profile, with the result that their debt interest tends to be lower. Generally, the crisis has heightened uncertainty regarding future economic development in Germany. Investment opportunities that offer stable and largely predictable cash flows (for example, residential investment) are therefore increasingly popular. As investments in residential properties are becoming more and more popular, not just property prices have risen, but also prices for residential property companies.
These developments could reverse if, for example, interest rates rise again. Such an increase is possible if the overall economy improves and investors become more interested in investments with a higher risk and return profile once more and less interested in property investments. However, a rise in interest rates could also have a negative impact on LEG in different ways, including the following:
When interest rates rise, generally the discount rate with which the fair value of LEG’s portfolio is calculated also rises, as the market prices paid for the units decline. If the discount rate is higher, so too is the discount, and the fair value of properties is correspondingly lower. Rising interest rates thus tend to have a negative impact on the fair value of LEG’s property portfolio. In the event of such a development, LEG would possibly have to report losses arising from the resulting adjustments to the fair value of its investment property, reducing its NAV and LTV ratio (both as defined under “Description of the Issuer—Selected Consolidated Financial Information— Additional Key Figures”). This could lead to LEG violating key provisions of its loan agreements, giving rise to termination rights for its creditors in particular (see “— Financial Risks—LEG’s debt and the terms of its current and future borrowings could make it more difficult or more expensive to find new sources of financing. If LEG Group companies do not comply with financial covenants or violate other terms of their loan agreements, LEG may have to pay higher interest rates or repay loans prior to the scheduled maturity date, and creditors could demand or realize collateral to a significant extent.”).
Rising interest rates could make home ownership less affordable for potential buyers. Demand for residential property depends on its affordability. Most buyers of new residential property finance their homes through mortgage loans. If loans are not available at acceptable terms, demand for residential property diminishes. Even potential buyers who do not need loans as they already own property and wish to sell this to finance a new purchase can be affected. For an increase in interest rates and a
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deterioration in the supply of property financing products could make it more difficult to find a buyer for their current home, as potential buyers may be dependent on such financing.
Access to loans which are secured by the properties of the LEG Group is a key factor for LEG’s business model. When negotiating such financing agreements or their renewal, LEG has to arrange interest rates and repayment schedules that impair neither its intended earnings nor its ability to pay dividends. It is also possible that LEG is unable to conclude hedging instruments, which are needed when agreeing variable interest rates, or that such instruments are only available at high prices. If the current low interest rate environment is followed by a phase of higher interest rates, LEG’s financing costs or the cost of hedging instruments could rise.
As of September 30, 2016, loans with a total amount of €1,155 million bore variable interest. LEG had agreed interest rate hedges for a total of 73.6% of these loans as of September 30, 2016. Higher interest rates would lead to rising interest expenses for existing, floating rate loans without interest rate hedges.
If the economic situation deteriorates – for instance because the European countries most affected by the debt crisis, especially Greece, leave the euro because the entire Eurozone breaks up, or because the UK implements its decision to leave the European Union – or a deflation scenario emerges, investors would perhaps prefer to invest in other, more liquid assets which they consider more advantageous in such a situation. Should the economic situation worsen, loan conditions could begin to tighten, negatively affecting LEG’s ability to finance property acquisitions through borrowing and its general ability to refinance debts as they mature. Any such deterioration can also lead to insolvencies among business partners of LEG (for example, financial institutions acting as counterparties in transactions to hedge interest rate risks), degrading the effectiveness of the hedges concluded by LEG. For further information on the risks with regard to interest rate developments and LEG’s principles for hedging interest rate risks, see “—Financial Risks—If the general interest rate level changes, LEG’s cost of financing may rise, which may impact the valuation of its properties and the prices at which LEG can sell them. Moreover, changes in interest rates could affect the discount rate that LEG applies to its pension obligations. To the extent that LEG attempts to mitigate the interest rate risk by entering into hedging arrangements, LEG is subject to the risks arising with regard to the valuation of the hedging instruments and the parties to these hedges.”
Any increase in interest rates could have a material adverse effect on the net assets, financial position and results of operations of LEG. The business, net assets, financial position, cash flow and income of LEG could also be significantly adversely affected if general economic conditions deteriorate or other factors described above occur.
The currently relatively high market prices for residential properties and residential property portfolios could inhibit LEG’s ability to implement its strategy of buying up additional residential property portfolios focused on North Rhine-Westphalia at attractive conditions. Any such development would affect the growth prospects for LEG’s business and prevent it from achieving additional economies of scale through acquisitions.
LEG’s goal is to buy up further residential portfolios in North Rhine-Westphalia and adjacent areas of neighboring federal states to expand its business, to use its knowledge of the North Rhine- Westphalian housing market and to achieve additional economies of scale by further leveraging its
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existing administrative structures. LEG could also decide to purchase properties or portfolios in regions other than North Rhine-Westphalia.
However, this strategy can only be implemented if attractive properties and portfolios are available at reasonable prices. There is currently a strong demand in Germany for residential properties, which is why such properties and portfolios may not be available at all or may only be available at unattractive terms. Following the recent and ongoing consolidation on the German housing market, the supply of portfolios or residential property companies could decrease even more. In addition, several domestic and foreign competitors might be pursuing similar purchasing goals as LEG. It may be that these competitors have greater financial resources, lower return requirements or lower capital costs than LEG, or are willing to accept higher risks and therefore to pay higher purchase prices. There can also be no assurance that LEG will be able to generate sufficient funds to finance its planned acquisitions (“—The current uncertainty regarding the future of the Eurozone and economic developments in Germany and the European Union is having a significant impact on the German property market. At present, this uncertainty is reflected in comparatively high valuations of German residential property portfolios and a favorable low interest rate environment. However, if interest rates rise (for example, because the economic situation in the euro area improves), then the above effects could be reversed, which could impair the German property market and the valuation of LEG’s property portfolio. If the macroeconomic situation continues to deteriorate, the prices paid for homes could fall, LEG would have more difficulty finding financing and LEG’s business partners could become insolvent.”).
The supply of residential properties and residential property portfolios is also reduced by the fact that local authorities and federal states in particular are selling fewer property portfolios. Many of these portfolios were privatized in Germany at the beginning of the economic and financial crisis in 2008. The pace of privatization has slowed since then. Regarding the decision to sell properties, the federal states and local authorities are influenced by public opinion on previous privatizations. Currently the political will to privatize further portfolios held by the public sector exists only in individual cases. This is leading to a shortage of supply that can, on the one hand, result in greater competition to acquire the properties suitable for LEG, with the result that prices on the German residential property market could continue to rise. On the other hand, LEG could be forced to pay even higher prices or to buy fewer properties (or none at all).
If LEG is no longer able to acquire suitable properties at favorable terms in the future, this would limit its future growth and thus its ability to achieve economies of scale with its administrative structures. In turn, this would have a material adverse effect on the business, net assets, financial position, cash flow and income of LEG.
Risks in Connection with LEG’s Business Activities
The privatization agreement by which the Company acquired a majority of its property portfolio prescribes social commitments that limit LEG’s ability to increase rents or to reduce the number of its employees. These social commitments provide for serious penalties in the event of non- compliance. LEG has also concluded other agreements that impose restrictions regarding its portfolio. LEG is therefore limited in its options for conducting its business with a view to maximizing profits.
In 2008, the Company and Rote Rose GmbH & Co. KG (“Rote Rose” and together with the Company, the “Buyers”) acquired companies with a property portfolio that today accounts for the
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core of around 70% of the total LEG portfolio. The purchase agreement imposed a social charter (“Social Charter”) on the companies that restricts various aspects of LEG’s business operations. The provisions of the Social Charter, which expire on August 30, 2018 unless stated otherwise, apply to all housing units that were owned by the acquired companies on August 29, 2008 (the “Target Portfolio”). As of September 30, 2016, this concerns 87,796 residential units (not including attics). Among others, the Social Charter includes the following restrictions and obligations:
Restrictions on the management of the residential property portfolio. According to the Social Charter, LEG is prohibited
(i) from implementing average annual rent increases for the Target Portfolio (including units sold) of more than 3.0 percentage points above the increase in the German consumer price index in the period from 2013 to 2017. If the permissible amount is not fully utilized in a year, the remainder can be carried forward to subsequent years. The ability to implement rent increases is also restricted by rent control and for residential units whose rent control expires in the period from 2013 to 2017 and that were already let to their current tenants on August 29, 2008.
(ii) from terminating leases that were already in place on August 29, 2008, unless there is a serious breach of contract by the tenant. This restriction does not expire on August 30, 2018 for leases that were concluded with tenants who had already reached the age of sixty years, by August 29, 2008. Such leases can only be terminated by LEG in cases of a serious breach of contract by the tenant.
(iii) from modernizing properties that were already let to their current tenants on August 30, 2008 if the nature and scope of such modernizations is aimed at a different social structure of tenants (luxury renovations). Measures such as ordinary modernizations, repairs or energy modernizations are however permitted.
(iv) from spending less than €12.50 per sqm on average for the maintenance and modernization of the following portfolios: (i) for the Target Portfolio (including units sold) and (ii) for a sub-portfolio of the Target Portfolio (including units sold) belonging to Wohnungsgesellschaft Münsterland mbH, Ravensberger Heimstättengesellschaft mbH and Ruhr-Lippe Wohnungsgesellschaft mbH, their respective subsidiaries and other companies directly or indirectly controlled by the Buyers. If higher expenses are incurred in a year, these can be counted towards the following year up to an amount of €5 per sqm, thereby reducing maintenance obligations accordingly.
No terminations of employment or collective agreements: If employment agreements were in place on August 29, 2008, the Social Charter prohibits both dismissals on the ground of business-related layoffs (betriebsbedingte Kündigung) and dismissals with the option of altered employment conditions (Änderungskündigung). The Social Charter also prohibits the termination of collective agreements (Tarifverträge) and works agreements (Betriebsvereinbarungen) in place on May 29, 2008.
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Restriction on the sale of properties: In each calendar year LEG is permitted to sell properties (including vacant units) to persons other than the current tenants, but only up to 2.5% of the units in the Target Portfolio. If the permissible amount is not fully utilized in a year, the remaining volume can be carried forward to subsequent years, though not more than 25% of the total Target Portfolio shall be sold to persons other than the current tenants before August 30, 2018. In the event of the sale of individual units, the tenant has a right to make the first proposal. The price at which the unit is offered to a third party must be at least 15% higher than the price at which the unit is offered to the tenant in the context of the first proposal right. Any third-party buyer must also join the Social Charter. However, the committee to interpret the Social Charter provided for by the Social Charter has resolved that the rent increase restrictions do not apply to third-party buyers and that the minimum maintenance requirements can be relaxed if up to 50 units are sold to a single third-party buyer.
Restrictions on the sale of companies and the pledging of shares: LEG can sell equity investments in companies that own residential properties that are part of the Target Portfolio, provided that LEG remains responsible for compliance with the Social Charter and – in the event of the sale of the entire investment to a legal entity – the buyer joins the Social Charter. Disposals require the approval of the federal state of North Rhine-Westphalia, which can delay or withhold its consent if the purchaser does not fulfill certain requirements relating to its financial position or the intended use. Further restrictions apply concerning the pledging of shares in the companies that hold the Target Portfolio. Among other things, these restrictions stipulate that in the event of a later enforcement of these rights of lien (Pfandrechte), the purchaser assumes all obligations under the Social Charter to the extent that they relate to the assets acquired.
Other obligations restricting LEG’s business activities: LEG is required to keep its business (measured by the percentage of revenue generated or the percentage of non- current assets employed) aimed towards the development, letting and sale of properties and to employ at least two thirds of its workforce in this area.
Social obligations: LEG is subject to additional social obligations, for example, the obligation to set up a charitable foundation with a foundation capital of at least €5 million to aid tenants in hardship. The foundation was set up on September 22, 2009 and has the agreed foundation capital of €5 million. The charitable foundation may not be dissolved.
Should LEG breach any of the above restrictions and fail to remedy the breach within six months after becoming aware of said breach, the purchase agreement provides for high penalties, from €100,000 for each discontinued apprenticeship to €50 million if, in a year, more than 2.5% of the units in the Target Portfolio are sold to persons other than the existing tenants. In any case, the penalty amounts to at least the proceeds that LEG generates from the violation, or twenty-five times the proceeds, depending on the nature of the violation. The penalties must be paid for each individual violation. With regard to certain restrictions, the amount of the minimum penalty doubles in case of repeated violations (i.e. up to €100 million). With regard to its potential liability for contractual penalties of up to €300 million, the Company has pledged shares in LEG NRW GmbH and in certain subsidiaries as collateral. The lien ends when the secured claims finally expire.
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As evidence of its compliance with the Social Charter, LEG must produce an annual report together with a major audit firm, to be submitted to the federal state of North Rhine-Westphalia for audit in the fourth quarter of the following year.
In addition to the Social Charter, other restrictions are imposed on LEG by further agreements with companies of the LEG Group, for example concerning parts of the property portfolio acquired from Deutsche Annington Immobilien SE (today: Vonovia SE) in December 2015. In particular, these include restrictions on transferring properties or shares in the Company holding the properties, rights for the benefit of tenants of making a first (partially discounted) proposal, restrictions on rent increases, a prohibition of luxury renovations and restrictions on the termination of certain rental agreements, employment contracts and works agreements (Betriebsvereinbarungen). Furthermore, some agreements contain restrictions on the encumbrance of property and impede the conversion into owner-occupied apartments. In total, the Social Charter or similar arrangements apply to around 70% of LEG’s properties as of the date of this Prospectus.
As a result of the commitments and obligations to which LEG is subjected to by the Social Charter and other similar agreements, LEG is restricted in its ability to conduct its business in a manner designed to maximize profits. These provisions limit LEG, for example, in its ability to (i) fully exploit rent increases to the extent permitted by law, even if such increases would be accepted by the market, (ii) create additional liquidity in the short term through the sale of units or (iii) terminate contracts in order to make LEG’s management structures more efficient. To ensure compliance with the Social Charter and other similar agreements, and to avoid the payment of penalties, LEG must implement various internal and external control systems. However, the internal controls and policies of LEG might not be sufficient in certain circumstances to successfully monitor compliance with its obligations. Unintentional violations of the Social Charter and other similar arrangements may occur, and LEG would have to pay corresponding penalties under certain circumstances.
Furthermore, compliance with the Social Charter is monitored very closely by both the state of North Rhine-Westphalia and the local public. With the help of the Commission for “Housing Industry Change and New Financial Investors in the Housing Markets in NRW” (Kommission “Wohnungswirtschaftlicher Wandel und neue Finanzinvestoren auf den Wohnungsmärkten in NRW”), the North Rhine-Westphalian state parliament is analyzing the impact of the privatization of property portfolios on the housing market. Also, various citizens’ groups have been formed to closely monitor and publicly discuss LEG’s strategy. Strategic decisions by LEG could therefore still harm its reputation even if they do not violate the Social Charter or similar arrangements.
All of the above risks could have a material adverse effect on the business, net assets, financial position, cash flow and income of LEG.
Rent arrears, rent reductions, higher vacancy rates and a lack of opportunities to demand economically appropriate rents could affect LEG’s revenues and earnings.
The economic success of LEG significantly depends on its ability to maintain and increase its rental income. This involves various risks:
Low demand: If demand for apartments in a particular location or in general is low due to economic, social or other reasons, this may lead to higher vacancy rates, which in turn reduces the current gross rental income. Vacancies leading to lower current
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gross rental income also occur when residential units cannot be rented on account of refurbishment work. Given low demand for housing, LEG could also be forced to rent its apartments on less favorable terms or to rent them to tenants who constitute a greater risk of default due to a lower credit rating.
Creditworthiness of tenants: If tenants do not or only partially meet their payment obligations (for example, because of the deterioration of their economic situation due to a loss of employment for instance) or if a larger number of tenants cancel their leases, this could impair the current gross rental income and the results of operations of LEG if it is not able to re-let such units in the short term. If LEG is able to re-let units, there is the risk that LEG will no longer achieve the original terms or that this is only possible if LEG makes further investments in order to maintain the attractiveness of the units concerned.
Rent development: The rental and lease income that LEG can generate and its ability to implement rent increases are dependent on several factors. In particular, these factors include the demand for housing, the local market rent, the condition and location of each apartment, the modernization work performed and its extent as well as tenant turnover. Furthermore, LEG is subject to the restrictions of German rental law when determining the rent for its properties (“—Regulatory and Legal Risks— LEG’s ability to raise rents is subject to legal restrictions. These requirements could become even more restrictive in the future.”) and possible obligations due to the use of public financing or the conclusion of privatization agreements (for example, the Social Charter). Under certain circumstances, LEG may therefore be unable to set rents in a manner or at an amount in line with its economic interests, even if a higher maintenance cost would economically justify higher rents.
Property-related risks: Rent arrears, rent reductions and higher vacancy rates can also arise, for example, if the location of properties is no longer attractive or if demand for housing decreases due to local market conditions, for example on account of demographic or economic developments. This would reduce the total amount of current gross rental income. LEG is also required to manage its properties in a way that they maintain the condition stipulated by the lease, the law and other contractual obligations (such as the Social Charter). If this is not possible or if the necessary maintenance work cannot be performed or cannot be performed on schedule, the rent can be reduced. If LEG resolves to renovate a property, this can lead to lost income owing to vacancies.
All these factors – individually or in combination with others – could have a material adverse effect on LEG’s income and results of operations, which in turn could have a material adverse effect on its net assets, financial position and results of operations.
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LEG has received subsidized loans for the financing of the construction, acquisition and modernization of a significant portion of its property portfolio, the terms of which provide for rent control. Under certain circumstances, LEG may not be able to adjust rents to the market level immediately after the restrictions associated with the subsidized loans expire. The agency that grants the subsidized loans can unilaterally exercise its right to raise the rate of interest payable to 6% p.a.
As of September 30, 2016, approximately 29.0% of LEG’s properties were rent-controlled as they were financed by NRW.Bank, a bank owned by the state of North Rhine-Westphalia. Such financing is granted in the form of low interest loans. As of September 30, 2016, the subsidized loans received by LEG had a carrying amount of €376.3 million. The state government of North Rhine- Westphalia determines the amount of rent that can be asked for properties that are built, purchased or modernized with the subsidized loans, granted by it, as compensation for construction, financing and property-related costs. The level of rent set this way is significantly less than current market rents for a large number of rent-controlled residential units. Nevertheless, LEG may not be able to raise rents to the market level after rent control ends because of the general restrictions on rent increases (“— Regulatory and Legal Risks—LEG’s ability to raise rents is subject to legal restrictions. These requirements could become even more restrictive in the future.”) or because the tenants are unwilling or unable to pay standard market rents for the apartments in question.
Moreover, according to the publicly subsidized loan agreements concluded by LEG, NRW.Bank is entitled to unilaterally raise the interest on the loans to up to 6% p.a. In such event, LEG is entitled to increase its rents accordingly. NRW.Bank has recently exercised this right only in selected cases. If NRW.Bank changes its policy and exercises this right to a greater extent, there is a risk that LEG will be effectively unable to raise its rents – whether because the tenants might not be able to pay the higher rents, or because the higher rent exceeds the market rent for comparable units or for other reasons.
If, after the expiry of the subsidized loans, LEG fails to adapt its rents to market level or the lender that granted LEG the subsidized loans exercises its right to raise its interest rates and LEG is unable to increase its rents accordingly. This could have a material adverse effect on LEG’s business, net assets, financial position, cash flow and results of operations.
LEG is exposed to risks arising from the structural condition of its properties, their maintenance and repair.
To ensure the safety of residents, sustainable demand for housing and appropriate income in the long term, rental properties must satisfy structural requirements and market demand, or be brought into such a condition. If a rental property is not maintained in a reasonable condition, this jeopardizes the health and safety of the tenants. Normally the costs incurred to keep a rental property maintained are borne primarily by the owner of the property. If repairs or improvements are needed because of changes in legal or market requirements (in terms of energy-saving measures, for example), the owner can face significant costs. In Germany, these expenses can only be charged to the tenants as part of the rent under certain conditions and only in the amount of a certain percentage of the costs incurred. This means that only a small share of these costs are paid by the tenants, while the majority must be paid by the owner of the property. It is even possible that in regions with intense competition, LEG is unable to raise rents to the extent permitted by law, whether because of prevailing market conditions
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or because tenants who receive social benefits – such tenants account for a considerable share of LEG’s tenants – are not allowed to pay higher rents or for other reasons.
The structural condition of LEG’s properties is monitored continuously, and LEG has established a reporting system to monitor maintenance activities and to plan corresponding budgets. Nevertheless, there are numerous factors that can cause significant unplanned costs to be incurred for refurbishment or modernization. Such factors concern, for example, the materials and substances used in construction, currently unknown violations of building codes or the age of the buildings in question. The average year of construction of the properties in the LEG portfolio is 1964.
LEG will incur additional and unexpected costs if the actual costs arising for the maintenance or improvement of its properties exceed LEG’s estimates, if LEG is not permitted to increase its rents in conjunction with maintenance work due to legal or contractual restrictions, or if hidden defects are found during maintenance or improvement work. The value of LEG’s properties and the rental income they generate can plummet considerably if competing buildings of a similar nature are built or renovated in the same area as the properties. The current political discussion of extending subsidies for new residential construction increases the likelihood – if the program is implemented accordingly – of greater competition from new buildings.
If LEG is unable to perform appropriate maintenance or renovations in response to the above factors, this could impair the rental income generated by the property in question. Tenants would then be entitled to withhold rental payments, to reduce their rent or even to terminate their leases.
The above risks could have a material adverse effect on LEG’s business, net assets, financial position, cash flow and results of operations.
LEG is exposed to risks relating to past or future acquisitions of property portfolios. Among other things, these risks relate to unexpected liabilities, unexpected poorer conditions of buildings, higher interest expenses and difficulties in incorporating and leveraging the desired synergies. It is also possible that portfolios will be acquired in the future that develop less favorable than expected. This risk can be particularly significant if LEG decides to acquire portfolios in regions outside North Rhine-Westphalia, where the LEG Group does not have knowledge of the market to the same extent as it does for acquisitions in North Rhine-Westphalia. Furthermore, increases in real estate transfer tax can also raise the transaction costs for the acquisition of property.
LEG intends to grow by acquiring selected portfolios and thereby achieving economies of scale. Under this strategy, since its initial public offering (“IPO”) in February 2013 LEG has acquired more than 40,000 residential units in 18 individual transactions, which account for approximately 30% of LEG’s residential portfolio. As LEG is keen to continue its acquisition activities, it is still evaluating portfolios to find properties that match both its existing holdings and its management platform.
However, direct and indirect properties investments entail substantial risks. Apart from the risks arising from the acquired properties themselves, for instance undetected damage not covered by contractual arrangements, such acquisitions tie up management resources that may then be missing elsewhere in the LEG Group. The acquisition of further property portfolios by LEG can be financed by taking up additional liabilities or by issuing new shares and offering them on the capital market. If LEG is not able to raise the capital on the capital market at reasonable terms, it would be unable or more limited with regard to making further acquisitions or (if financing through borrowed funds is
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available) such acquisitions would only be made possible by taking on additional debt. Additional liabilities incurred in connection with future acquisitions can significantly reduce LEG’s LTV Ratio (as defined under “Description of the Issuer—Selected Consolidated Financial Information— Additional Key Figures”) and lead to higher interest expenses. If LEG is unable to raise the debt or equity financing necessary for the acquisition of further property portfolios, or if it is only able to raise them at unfavorable terms, this could have a material adverse effect on its future business development and competitive capability.
The integration of employees from newly acquired companies could also fail or take longer than expected. It is possible that the desired synergies, economies of scale and cost savings are not or only partially achievable or do not occur until later. All these circumstances could result in higher administrative and management costs.
It is also possible that LEG can perform only limited economic, technical and legal due diligence for the properties in question. This means that LEG may not be able to check whether the original owners of the building or the buildings themselves were issued all the permits required for new buildings, whether all conditions and requirements for permits have been met and whether all the necessary licenses and fire and occupational safety certificates were obtained or if all similar requirements have been met. In addition, the building may have hidden defects and thus considerable investments in modernization could become necessary. LEG may possibly also not be able to perform all the follow-up examinations, inspections and evaluations or inventories following the acceptance of building work, or to obtain the results of such investigations. It could therefore be that specific risks in the acquisition of residential property portfolios are/were not recognized or are/were not correctly assessed. Sellers usually provide various warranties in the purchase agreements that LEG concludes in connection with property purchases. However, it is likely that these warranties do not cover all risks or that such risks are only insufficiently covered. It is also possible that warranties given by sellers are unenforceable, for example due to the seller’s insolvency. In some cases, the seller of the property gives no assurance or warranty that the information provided in the context of due diligence is complete and correct, or that the information in question also applies to the period between the completion of due diligence and the closing of the purchase agreement. Such risks can therefore materialize despite thorough due diligence, which could have a material adverse effect on the net assets, financial position, cash flow and results of operations of LEG.
The above risks – particularly in the event of the acquisition of extensive property portfolios – could result in LEG overestimating earnings and underestimating synergy potential and the rental and cost risks, and thereby paying a purchase price that exceeds the actual value of the portfolio. Furthermore, LEG could incorrectly value property portfolios for other reasons, for example, if the rent dynamics on the relevant markets will develop less favorably than forecast by LEG at the time of purchase. Therefore, neither a specific target return from rentals nor a certain resale price can be guaranteed for the acquired property portfolios.
Similar risks could arise if LEG acquires equity investments in property companies. Here, too, LEG could overestimate the revenue potential and the synergies associated with the investment, or underestimate the liabilities and risks associated with the respective property company, which could then lead to the purchase price paid exceeding the actual value of the portfolio.
Despite thorough due diligence, such risks persist and could have a material adverse effect on the business, net assets, financial position, cash flow and results of operations of LEG.
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It is also possible, that portfolios that may be acquired in the future will develop less favorably than expected. For example, it may not be possible to implement intended rent increases as planned as there is an absence of tenants who are willing and able to pay higher rents. Vacancy rates could possibly rise as well (due to unforeseen demographic developments, for example). This risk can be particularly significant if LEG decides to acquire portfolios in regions outside North Rhine- Westphalia, where LEG lacks an in-depth knowledge of the market. Furthermore, the integration of acquired portfolios usually ties up considerable resources, which can have a negative impact on the management of LEG’s existing property portfolio. The successful integration of acquired property portfolios – depending on the size of the acquired portfolio – can also hinge on how well LEG succeeds in bringing together two different workforces and corporate cultures, harmonizing IT systems and establishing common processes.
An acquisition of properties triggers a duty to pay real estate transfer tax, whereby the parties to the purchase contract usually agree that the buyer must pay the real estate transfer tax (see “— Regulatory and Legal Risks—LEG’s business is subject to the general legal framework in Germany. Adverse changes in the regulatory environment, for example, legal obligations relating to the conclusion of leases and environmental modernization, restrictions on modernization measures or additional obligations and provisions (including taxes) that give rise to costs when selling properties, could negatively impact LEG’s business development.”). A rise in real estate transfer tax, particularly in North Rhine-Westphalia, could increase LEG’s costs to acquire further properties if LEG is unable to find a tax-neutral scheme. This could result in LEG not being able to implement its planned growth strategy, or not being able to implement it as planned.
If it is not possible to achieve the intended results through acquisitions and investment, this could have a material adverse effect on the business, net assets, financial position, cash flow and results of operations of LEG.
LEG is exposed to various risks relating to its former development activities, such as investment obligations in connection with unfinished development projects or liability risks regarding projects that have been or will be sold.
Following the privatization of LEG NRW GmbH by the state of North Rhine-Westphalia and its purchase by the Company in 2008, in February 2009 the Company resolved to discontinue and wind up all of LEG’s development activities. These development activities comprised LEG’s activities in the field of property development, the construction of residential and commercial property projects and a biomass cogeneration plant (Biomasse-Heizkraftwerk).
Since it was resolved to wind up these activities, LEG has not started any new projects and has decided to sell or wind up the projects already initiated as far as possible and appropriate given its existing commitments.
It is possible that the sale of the remaining projects will take longer than expected and that LEG will not generate its expected returns. It is also possible that the remaining projects can be sold only at a loss. In addition, winding up business can result in additional costs, for instance due to the early termination of various agency agreements.
LEG could be exposed to liability risks in connection with its former development activities. For example, the public financing granted for individual projects may have to be repaid under certain circumstances. LEG is also exposed to liability risks of buyers seeking compensation for damages
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incurred. LEG has an obligation to 47 buyers of terraced houses, for example, to mitigate the effects of groundwater leaking into the cellars of residential units due to structural defects. LEG is fulfilling this obligation by continuously pumping the groundwater out of the properties in question. This removal and disposal of water, for which a permit is required under the German Water Resources Act (Wasserhaushaltsgesetz), incurs costs currently amounting to several hundred thousand euro per year. Changes regarding the permit for groundwater extraction, that will come into effect as of December 31, 2018, could lead to LEG having to reduce the amount of water it may extract or it may carry higher disposal costs, thereby giving rise to higher annual costs. Strengthening measures for buildings are therefore in planning, to end the extraction of groundwater. LEG NRW GmbH is currently in negotiations for a complex settlement agreement that offers the owners of the homes affected by groundwater flooding three options: (i) the rebuilding of the structural waterproofing in the cellar (the white tank), (ii) a fixed compensation payment or (iii) the acquisition of the residential unit at a fixed amount. As an agreement has not yet been reached with the owners, the maximum impact for LEG cannot yet be conclusively quantified. Renovation costs of €9.5 million are anticipated, though there is no guarantee that this budget will not be exceeded.
While LEG has established reserves for additional costs that might result from winding up its development business, these reserves could prove to be insufficient.
Each of the above risks could have a material adverse effect on the business, net assets, financial position, cash flow and results of operations of LEG.
Given the potentially illiquid nature of the property market, there is the possibility that LEG cannot sell parts of its portfolio, or that it can only sell them at unfavorable terms. There is also the risk that LEG is unable to generate positive earnings contributions by selling properties.
The property market in which LEG invests and on which it does business is characterized by limited liquidity. To the extent that the Social Charter of LEG allows it to resell properties, LEG’s general ability to sell parts of its portfolio is dependent on the transaction prices offered on the market and market liquidity. If LEG has to sell some of its portfolio, for example, to generate liquid funds needed to run its business, there is no guarantee that LEG will be able to sell these properties at favorable terms or at all. In the event of a forced sale (for example, if creditors realize collateral), there would probably be a significant difference between the fair value of a property or property portfolio sold and the price that would be achieved in a normal sale. In addition to the lower than expected cash inflow, LEG would also have to report a loss in its consolidated statement of financial position in such event.
LEG has engaged in more active portfolio management, i.e. to sell properties to a greater extent than in the past, in order to streamline its portfolio or to achieve book profits and thereby make the value potential of its portfolio more transparent. This sales strategy is only feasible if the transaction markets are sufficiently liquid and LEG’s price expectations are possible, which in turn depends on the assessment of the properties for sale by potential buyers on the respective markets.
If a sale of properties is not possible or cannot be implemented in line with LEG’s price expectations, this could have a material adverse effect on LEG’s business, net assets, financial position and results of operations.
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LEG is exposed to risks associated with joint ventures and strategic partnerships, which can lead to joint ventures not achieving the planned revenues or to strategic partnerships not generating the expected benefits.
LEG has entered into joint ventures with an energy supplier and a craft contractor.
On March 25, 2015 the Company and innogy SE (formerly: RWE Vertriebs AG) (“Innogy”) entered into a shareholders’ agreement regarding the operation and acquisition of EnergieServicePlus GmbH. It is an integrated energy management company that handles and supplies all of LEG’s energy and energy-related needs. LEG holds a share of 51% in EnergieServicePlus GmbH, while Innogy holds the other 49%. The service range of EnergieServicePlus GmbH extends from investment in energy-efficient building services to all aspects of heat and energy supply and special gas and electricity contracts for tenants. Furthermore, the Company offers a comprehensive range of services in connection with utilities bills, energy portfolio management and the management of occupied and vacant properties.
In December 2016, the Company and B&O Service und Messtechnik AG (“B&O”) entered into a shareholders’ agreement regarding the operation and acquisition of TSP – TechnikServicePlus GmbH (“TSP”). TSP handles exclusively the low-cost repair work for LEG’s properties and employs roughly 280 craftsmen. LEG holds a share of 51% in TSP, while B&O holds 49%.
Joint ventures entail risks that arise from the integration of employees, processes, technologies, products and the execution of mutually agreed business plans. Such transactions can lead to significant administrative and other expenses. There is the risk that the interests of the partners do not necessarily coincide as, for example, the interests of LEG as the owner of the properties are significantly more extensive than those of the joint venture as an energy service provider. If there is a disagreement between the partners and certain conditions are met, Innogy could exercise an exit clause with the result that LEG would have to pay a purchase price for Innogy’s shares and the joint venture would lose Innogy’s energy industry expertise, which would bring its overall success into question. Comparable risks exist for LEG’s joint venture with B&O.
In the context of strategic partnerships, LEG often enters into long-term contracts with partners, such as craft enterprises or other service providers or communications companies. These agreements usually stipulate a defined list of requirements for LEG and the partner, which can only be slightly adjusted during the term of the agreement. If it emerges that the list of requirements no longer sufficiently meets LEG’s needs, or service performance exceeds original planning due to higher quantities ordered, LEG has only limited opportunities to modify the agreement or even to secure a different contractor who may possibly offer better terms. In such cases there is the risk that additional expenses are incurred or that revenue falls short of expectations.
The occurrence of one or more of the above risks could have a material adverse effect on the business, net assets, financial position and results of operations of LEG.
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LEG has launched an extensive efficiency enhancement program to achieve annual cost savings of around €5 million beginning in 2016 and approximately €5 million more beginning in 2017, though the measures initiated might not lead to the intended savings effects.
LEG has launched an extensive efficiency enhancement program. Under this program, LEG plans to achieve sustainable cost savings of around €5 million per year beginning in 2016 and of approximately €5 million more per year beginning in 2017.
In devising the efficiency program, LEG has comprehensively analyzed and identified a number of specific measures to achieve its savings targets. These measures range from the insourcing of certain services previously purchased externally, to the merging of administrative sectors and a far- reaching reorganization of the operational management platform.
Even though these measures have been identified and their implementation is well underway, there is a risk that the measures do not have the desired savings effects or they could even have negative and as yet unforeseeable repercussions. Moreover, there is the risk that individual measures cannot be implemented or at least cannot be implemented as originally envisioned. If the efficiency program does not produce the planned effects, this could have a material adverse effect on the business, net assets, financial position and results of operations of LEG.
LEG could be exposed to risks from contaminated sites, including wartime ordnance, the contamination of land and building materials or possible violations of building codes. Some of the buildings in LEG’s property portfolio are located in mining areas and could be affected by mining damage.
It is possible that the properties LEG owns or acquires may contain ground contamination, hazardous substances, other contamination or wartime ordnance (possibly even unexploded ordnance). Construction materials can also contain hazardous materials (e.g. polychlorinated biphenyls – PCBs – or asbestos). Acquired properties can pose other environmental risks as well. For example, several of LEG’s units have Floor Flex tiles (vinyl-asbestos tiles), which contain small quantities of asbestos and were used as flooring. Floor Flex tiles contain asbestos that is not fragile and usually does not release asbestos fibers. Under the North Rhine-Westphalian Asbestos Directive, except in the event of structural changes, there is generally no obligation to remove non-fragile asbestos. Nevertheless, LEG bears the risk of a costly removal and disposal of the above hazardous substances, other contamination, wartime ordnance and soil pollution. If such contamination is found (especially in connection with the rental or sale of properties), this can lead to reduced rent, claims for damages and other warranty claims or the termination of leases. The removal of harmful substances and related additional measures could have a negative impact on LEG and cause considerable additional costs. LEG is also exposed to the risk that it may no longer be possible to seek recourse from the parties who caused the pollution or the former owners of properties. Furthermore, the presence of ordnance, hazardous substances, contamination and soil pollution or the mere suspicion of such contamination can have a negative impact on the value of a property and LEG’s ability to let or sell the property.
LEG’s business also entails the risk of violations of building codes or environmental protection provisions. Even though LEG performs thorough inspections when buying individual buildings, there is the risk that building codes or environmental protection provisions have not been adhered to. It is also possible that landlords’ obligations in relation to fire and environmental protection are extended in the future, with the result that additional renovation, maintenance and
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modernization measures could be required (“—Regulatory and Legal Risks—LEG’s business is subject to the general legal framework in Germany. Adverse changes in the regulatory environment, for example, legal obligations relating to the conclusion of leases and environmental modernization, restrictions on modernization measures or additional obligations and provisions (including taxes) that give rise to costs when selling properties, could negatively impact LEG’s business development.”). The cost estimates for such measures are based on the assumption that the necessary permits are approved immediately and as requested by LEG. However, there is no assurance that this assumption will be correct. If permits are not issued immediately or are subject to conditions, there can be significant delays until the problems are resolved. This can lead to the costs being higher than expected and the rent for the properties in question being lower.
A number of LEG’s properties are in locations where there has been mining at a depth of up to 100 meters. German mining law assumes that damage occurring on the surface in the vicinity of mining activities is caused by these activities, but mine operators and their legal successors, who are ultimately liable for such potential damage, can rebut this presumption. It is also possible that the operators no longer exist or that they lack the sufficient financial resources and LEG cannot seek recourse from the operators for this reason, for legal reasons or because it has waived its claims. Even if properties in the northern Ruhr area are damaged by past or current mining, there is the possibility that LEG’s ability to be reimbursed for the potentially significant costs of necessary repair work or to receive other compensation from the relevant mining companies is limited by waivers agreed with certain mining companies. If mining damage occurs or such damage is not properly rectified, this could affect LEG’s ability to sell or rent the properties in question or to use them as collateral for loans. In addition, mining damage could inflict harm on tenants for which LEG would have to pay compensation.
The occurrence of one or more of the above events could cause additional costs and have a material adverse effect on the business, net assets, financial position, cash flow and income of LEG.
Given the age of LEG’s property portfolio, substantial investments are required not just for its maintenance, but also to comply with evolving environmental and regulatory requirements and to satisfy customer requirements.
As of the date of this Prospectus, the buildings owned by LEG have an average age of more than 50 years. Expensive maintenance and modernization measures could be needed owing to the age of the buildings and the possibility of asbestos in the buildings. A number of other factors, such as possible non-compliance with building codes, possible contamination, rafters with PCB or wood preservatives or the possible use of materials harmful to the environment or health, could require LEG to carry out extensive renovation, maintenance and modernization work. Furthermore, LEG cannot always procure the records and documents that it needs to fully review whether buildings were built and are used according to construction planning and building regulations. Such circumstances could cause additional costs and reduce the revenue generated by the sale and letting of those buildings. Customer wishes can also necessitate additional investment in modernization work.
All of the above factors can cause additional costs and have a material adverse effect on the business, net assets, financial position, cash flow and results of operations of LEG.
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LEG could suffer significant losses due to damages that are not covered by insurance policies or that exceed its coverage.
LEG’s properties are amply insured against damage by fire and natural hazards. However, the insurance policies are subject to certain limitations and restrictions of liability, for example for damage caused by nuclear energy or war. It is therefore possible that damage occurs that is excluded from cover or that exceeds the respective limits of coverage. It is also possible that an insurance company that issues LEG a policy becomes insolvent. This could have a material adverse effect on the business, net assets, financial position, cash flow and income of LEG.
LEG has a relatively small number of employees in administrative and management functions who it may not be able to replace under certain circumstances.
LEG has only a small number of executives and other employees in central areas who are responsible for managing the core business of LEG. The success of LEG depends largely on the performance of its executives and its qualified employees in key positions, and in particular on the performance of its Management Board and other executives with significant industry experience. It is crucial for LEG to be able to retain or hire qualified employees when expansion exceeds the existing resources or if departed qualified employees have to be replaced. There is fierce competition for executives in the property industry. It is therefore not certain that LEG will be able to hire the necessary managers and new employees in the future. The resignation of Management Board members and other key executives and the difficulty in recruiting new highly qualified executives could not just adversely affect the growth of LEG, but could also make it difficult to maintain business operations at their current level.
The occurrence of one or more of the above risks could have a material adverse effect on the business, net assets, financial position, cash flow and income of LEG.
LEG relies on a cooperative relationship with its employees, employee representatives and the trade unions.
A significant number of LEG’s employees are members of the ver.di trade union. LEG has entered into various collective agreements (Tarifverträge) and a variety of works agreements (Betriebsvereinbarungen) that regulate working conditions and employees’ remuneration. These collective agreements are negotiated with the trade unions at the appropriate time. LEG has a positive and constructive relationship with its employees and ver.di, which it endeavors to maintain. Nevertheless, LEG is exposed to the risk of strikes or other industrial action in the course of collective bargaining. On account of the Social Charter, LEG is also prohibited from terminating certain employment contracts, collective agreements (Tarifverträge) or works agreements (Betriebsvereinbarungen) for a defined period. (“—The privatization agreement by which the Company acquired a majority of its property portfolio prescribes social commitments that limit LEG’s ability to increase rents or to reduce the number of its employees. These social commitments provide for serious penalties in the event of non-compliance. LEG has also concluded other agreements that impose restrictions regarding its portfolio. LEG is therefore limited in its options for conducting its business with a view to maximizing profits.”)
The occurrence of one or more of the above risks could have a material adverse effect on the business, net assets, financial position, cash flow and income of LEG.
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If LEG’s reputation is damaged or its customers are dissatisfied with LEG, demand for LEG’s residential units could diminish. This would make it more difficult or impossible to raise capital at favorable terms.
If LEG is unable to preserve its reputation and provide good customer service, this could negatively affect customer satisfaction with LEG and demand for LEG’s services and properties. In particular, a deterioration of LEG’s reputation could complicate the letting of LEG’s residential units, which could lead to rents not being paid according to the contract or tenants terminating their leases. If LEG’s reputation suffers because it is unable to meet customer service expectations it could be difficult to retain existing tenants and to find new ones. This could even impair LEG’s ability to raise capital at favorable terms or to find suppliers of credit at all.
The occurrence of one or more of the above risks could have a material adverse effect on the business, net assets, financial position, cash flow and income of LEG.
LEG’s IT systems could be affected by disruptions or interference.
LEG’s IT system is indispensable for its business operations and success. Interruptions, failures or disruptions in its IT systems, such as the SAP software could lead to delays or interruptions in LEG’s business processes. IT system disruptions or interference could disrupt business operations and cause higher costs. It is possible that future technological developments impair the functionality of the software and IT systems used by LEG and necessitate further action to prevent or counteract malfunctions, which in turn requires significant financial resources. LEG cannot guarantee that expected or identified vulnerabilities can always be avoided by appropriate preventive security measures. Furthermore, LEG’s IT systems can be at risk due to security breaches and cyber-attacks by unauthorized persons within or outside LEG. In addition, LEG has outsourced administrative functions, such as payroll, to external service providers. Disruptions in the operations of any of these external service providers can have a material adverse effect on LEG’s business.
The occurrence of one or more of the above risks could have a material adverse effect on the business, net assets, financial position, cash flow and income of LEG.
Risks in Connection with the Valuation of LEG’s Properties
It is possible that the property valuation and the financial information in this Prospectus incorrectly assess the value of LEG’s properties.
LEG’s property valuation is reviewed by the auditor as part of the preparation of the annual financial statements. The property valuation is based on assumptions that could later prove to be incorrect. As is customary, the assumptions which valuations are based on are checked by random sampling. The property valuation is based on a variety of factors that are also reflected in the subjective evaluations of LEG. In particular, these factors take into account the general market environment, interest rates, the situation on the rental market and developments on-site. The property valuation is therefore subject to many uncertainties. Furthermore, there is the possibility that valuation methods that are currently generally accepted and that were applied in the preparation of the valuation are later found to be unsuitable. Even the assumptions that earlier or future appraisals are based on can later be found to be erroneous.
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The values that are attributed to the properties appraised in existing annual and interim financial statements or those published in the future could exceed the proceeds that LEG can generate from the sale of properties. This can also be the case for disposals that occur on the measurement date or shortly thereafter. The valuation of properties is therefore not necessarily indicative of the future or currently possible selling price of LEG’s properties or its property portfolio.
If factors or assumptions on which the valuation or other assumptions are based change, it could cause the fair value determined for the relevant valuation date to fall short of the carrying amount of the property in question, resulting in a fair value loss. Under such circumstances, LEG would have to report the negative change in value resulting from the fair value adjustments to investment property for the relevant accounting period immediately. If such losses are significant, they could have a material adverse effect on LEG’s net assets, financial position and results of operations.
Inaccurate appraisals in conjunction with the valuation of properties or property portfolios and other unforeseeable events could result in LEG being unable to achieve its forecast returns, which could have a material adverse effect on the business, net assets, financial position, cash flow and income of LEG.
If interest rates change, the market deteriorates or LEG’s rent levels or vacancy rates develop unfavorably, LEG could be forced to make fair value adjustments to its investment property and report significant losses.
LEG measures its investment property (i.e. properties held to earn rental income or for capital gains, or for both purposes and which are not used by LEG itself) at fair value in its financial statements. The fair values are determined using a complex model that takes into account the forecast of discounted cash flows generated by the management and sale of LEG’s residential units. If the market situation deteriorates, for example because interest rates rise or rent levels or vacancy rates develop unfavorably, LEG must revise the value of its portfolio downwards in its consolidated statement of financial position.
If LEG is forced to make significant negative fair value adjustments, this would have a material adverse effect on its NAV and LTV Ratio (both as defined under “Description of the Issuer—Selected Consolidated Financial Information—Additional Key Figures”), which in turn could adversely affect the net assets, financial position and results of operations of LEG.
Financial Risks
LEG’s debt and the terms of its current and future borrowings could make it more difficult or more expensive to find new sources of financing. If LEG Group companies do not comply with financial covenants or violate other terms of their loan agreements, LEG may have to pay higher interest rates or repay loans prior to the scheduled maturity date, and creditors could demand or realize collateral to a significant extent.
LEG has incurred liabilities in the form of loans and a convertible bond to refinance existing obligations in the past and intends to do so in the future as well. Furthermore, LEG has restructured large segments of its financing liabilities and significantly extended the maturity profile of its loans, resulting in an average maturity profile of approximately 10.94 years (as of September 30, 2016 and taking into account subsidized long-term liabilities). By 2021 at the latest, LEG will have to refinance
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obligations under a convertible bond issued in 2014 with a volume of €300 million, unless investors decide to convert their bonds into shares in the Company. It is possible that LEG – for example as a result of market conditions, its business situation or the LTV Ratio (as defined under “Description of the Issuer—Selected Consolidated Financial Information—Additional Key Figures”) of LEG or its individual companies – is unable or only partially able to refinance its financial obligations by taking up new debt or renewing existing loans.
The total value (carrying amount) of LEG’s outstanding financing liabilities as of September 30, 2016 in accordance with IFRS was €3.78 billion (€377.0 million of which are attributable to subsidized loans). The nominal amount of its financing liabilities as of the same date was €3.99 billion (around €576.5 million of which are attributable to subsidized loans).
The vast majority of the subsidized loans were granted by Wohnungsbauförderungsanstalt des Landes Nordrhein-Westfalen (“WfA”). The legal successor of WfA is NRW.Bank. The WfA is a public institution that provides financial assistance for housing construction at interest rates below the market level. In accordance with IFRS, these loans are reported at fair value (i.e. at less than their nominal amount). Given the extent of these liabilities, LEG’s LTV Ratio (as defined under “Description of the Issuer—Selected Consolidated Financial Information—Additional Key Figures”) was 48.8% as of September 30, 2016, measured on the basis of the carrying amounts of the financing liabilities in accordance with IFRS. Based on the loans’ nominal amounts, this figure is 51.7%. LEG has recently refinanced many of its existing loans and was thus able to reduce its ongoing debt service on these loans. However, given the amount of its liabilities, banks could refuse to grant new loans, they might only grant LEG loans at less attractive financial terms, not renew existing credit facilities or only renew them at less favorable financial terms or demand additional collateral.
Creditors are entitled to terminate their financing agreements if LEG violates key covenants of its loan agreements and is unable to rectify such violations in time. In particular, the loan agreements stipulate that LEG must comply with certain financial covenants relating in particular to its maximum LTV Ratio (as defined under “Description of the Issuer—Selected Consolidated Financial Information—Additional Key Figures”) and DRRs (debt-to-rent ratios) and its minimum DCSRs (debt-service coverage ratios). Failure to comply with such covenants could, in particular, have the following serious consequences:
Creditors would be entitled to terminate the agreement, which would mean that the outstanding loan amounts would become immediately due and payable.
The default on a different loan agreement would entitle other creditors to cancel their loan agreements with LEG.
Creditors would also be entitled to demand extraordinary (partial) repayments or higher interest rates.
LEG’s right to distribute profits and rental income that it generates from properties that serve as collateral for the loans in question would be restricted, with the result that LEG would possibly no longer be able to fulfill its other obligations or distribute profits to the Company’s shareholders.
If one or more of LEG’s loans falls due as a result of an early cancellation, LEG would be unable to refinance its loans on maturity either on attractive terms or at all.
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As collateral for its loan repayment obligations, LEG has provided land charges and mortgages on properties as collateral and has assigned receivables from rental and lease agreements, potential insurance claims and potential receivables from property sales. LEG has also pledged shares in certain companies of the LEG Group to its creditors or is obliged to pledge them. If LEG is unable to fulfill its obligations under the financing agreements, its creditors could claim and realize collateral without further negotiation, including properties and pledged shares. This could result in LEG losing some of its property portfolio or having to make a forced sale at unfavorable economic terms. The Social Charter imposes additional restrictions on LEG in terms of the realization of pledged shares and limits the private sale of properties before a foreclosure, which could exacerbate the negative effect (“—Risks in Connection with LEG’s Business Activities—The privatization agreement by which the Company acquired a majority of its property portfolio prescribes social commitments that limit LEG’s ability to increase rents or to reduce the number of its employees. These social commitments provide for serious penalties in the event of non-compliance. LEG has also concluded other agreements that impose restrictions regarding its portfolio. LEG is therefore limited in its options for conducting its business with a view to maximizing profits.”).
A single-digit percentage of residential units owned by LEG are based on leaseholds (Erbbaurechte). The registration of land charges and mortgages on these units requires the consent of the legal owners. Although the owners are legally obliged to give their consent, provided that the desired encumbrance does not exceed the usual level, it could be difficult and time consuming to actually obtain this consent in the desired amount.
If one or more of the above risks occurs, it could have a material adverse effect on the business, net assets, financial position, cash flow and income of LEG.
If the general interest rate level changes, LEG’s cost of financing may rise, which may impact the valuation of its properties and the prices at which LEG can sell them. Moreover, changes in interest rates could affect the discount rate that LEG applies to its pension obligations. To the extent that LEG attempts to mitigate the interest rate risk by entering into hedging arrangements, LEG is subject to the risks arising with regard to the valuation of the hedging instruments and the parties to these hedges.
The total carrying amount of LEG’s outstanding financing liabilities in accordance with IFRS was €3.78 billion as of September 30, 2016. LEG’s business model is built on realizing the value of its properties as effectively as possible. When concluding financing agreements or contracts to renew such agreements, LEG relies on being able to agree interest rates and repayment plans that impair neither its intended earnings nor its ability to pay dividends. The European Central Bank’s base interest rate is currently at an historical low, which is having beneficial effects on the interest rates demanded by creditors. However, this trend could reverse, causing both interest rates and financing costs to rise.
LEG regularly enters into financing agreements with floating interest rates. Although LEG usually hedges its floating rate financing agreements with standard hedging instruments, the hedging instruments used by LEG do not completely offset a possible change in interest rates. Around one third of LEG’s loans had floating interest rates as of September 30, 2016, around three quarters of which LEG hedged. The measurement of hedging instruments, which in turn is dependent on interest rates, also affects LEG’s equity and (to a smaller extent) its results of operations. As of December 31, 2015, a rise in interest rates would have increased LEG’s equity, though its earnings before income
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taxes would have been lower. A corresponding reduction in interest rates would have had the opposite effect (i.e. LEG’s equity would have decreased, but its earnings would have been higher). There is also the possibility that, because of the currently prevailing interest rates, LEG is unable to conclude, renew or renegotiate the required hedging instruments – or can only do so at considerably higher cost.
LEG is exposed to the risk that its hedging counterparties fail to perform their obligations, whether due to a lack of liquidity, operational failure, bankruptcy or other reasons. Following the latest financial crisis, the risk of a counterparty defaulting has grown more relevant. The market conditions have led to a number of renowned companies and financial institutions becoming insolvent or being forced into mergers.
Interest rate developments do not just directly affect LEG’s financing costs, they are also reflected in the measurement of its properties and pension obligations. LEG’s investment property is reported at fair value in its financial statements. The fair values are determined using a complex model that takes into account the forecast of discounted cash flows generated by the management and sale of LEG’s residential units. If the discount rate rises as a result of the market interest rate, it may have a material adverse effect on the measurement of LEG’s properties.
Changes in interest rates can also affect the reserves established by LEG for pensions and similar commitments. These amounted to €177.5 million as of September 30, 2016. These obligations are calculated by discounting the forecast future payment obligations. In accordance with International Accounting Standard 19, forecast cash flows are discounted using the interest rates for high-quality corporate bonds with similar maturities. The current low interest rates for such corporate bonds could have a negative impact on LEG’s equity if they decline further.
If one of these factors occurs, it could have a material adverse effect on the business, net assets, financial position, cash flow and income of LEG.
LEG is exposed to risks arising from the remeasurement of derivatives, in particular in conjunction with the convertible bond issued in fiscal year 2014.
In fiscal year 2014, LEG generated a negative result from the market valuation of derivatives of €42.3 million (fiscal year 2013: positive result of €2.4 million). This negative result was mainly due to changes in the market valuation of the convertible bond issued in fiscal year 2014, which amounted to €33.7 million. The effect was even more significant in fiscal year 2015 – the negative effect from the fair value measurement of derivatives amounted to €75.8 million. The convertible bond contributed an effect of €74.0 million to this. This effect has no impact on liquidity, but it reduces the Company’s equity.
The fair value of the convertible bond is calculated based on the development of the price of the Company’s shares on the Frankfurt Stock Exchange. LEG is exposed to the risk that further losses are incurred when determining the fair value of the convertible bond if its share price rises.
If one of the above risks occurs, this could have a material adverse effect on the business, net assets, financial position and income of LEG.
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The cash flows and possible future dividend payments by the Company are dependent on the profitability of its subsidiaries or have to be increased by borrowings.
The Company is a holding company whose operating activities are run not by itself but by its subsidiaries. To cover its operating costs, the Company relies in part on the distributions that it receives from its subsidiaries and other investment holdings, or from the scheduled repayments of the loans that it has granted to its subsidiaries. In turn, the distributions by these subsidiaries are dependent on their operating results and their ability to pay dividends. It is not certain that these funds will always suffice to meet all of LEG’s payment obligations in the future. If the funds are not sufficient, LEG would be forced to raise additional funds.
The occurrence of any of the above risks could have a material adverse effect on the business, net assets, financial position, cash flow and results of operations of LEG.
LEG bears the risk that the Company’s ratings are downgraded, which could have a negative impact on LEG’s financing options and the contracts it has entered into.
On May 13, 2015 Moody’s Investors Service issued the Company a long-term issuer rating of Baa1 (i.e. a medium rating with some speculative elements and moderate credit risk). If the specific factors taken into account in the rating change, this can affect Moody’s assessment and thus lead to downgrading. For example, Moody’s could downgrade the Company if the value of LEG’s assets or its interest coverage ratio falls significantly, or if LEG’s LTV Ratio (as defined under “Description of the Issuer—Selected Consolidated Financial Information—Additional Key Figures”) rises sharply, if LEG were unable to maintain a sufficient value for its assets without encumbrance or to reduce its debt, or if the German housing market deteriorates in general. Furthermore, it is possible that Moody’s changes its method at any time, which can affect the rating awarded to the Company.
If the Company’s rating deteriorates, it would be more difficult for LEG to maintain its current financing strategy, which could have a material adverse effect on the business, net assets, financial position, cash flow and income of LEG.
Regulatory and Legal Risks
LEG’s ability to raise rents is subject to legal restrictions. These requirements could become even more restrictive in the future.
By law, lessors have limited options for raising rents on existing leases. If the parties to leases have not agreed on graduated rent (only permissible within certain limits) or a rent index and the tenant rejects a change in the lease, a unilateral rent increase is only possible within the following limits:
Subject to statutory and contractual requirements, if the rent has remained unchanged in the previous 15 months, the landlord can exercise its right to amend the lease, but only up to the amount of the standard market rent. Standard local market rents are generally set out in rent indexes that are usually published every two years by the respective local authority. Rent indexes, which are devised according to scientific principles and accepted by the local authority and local landlord and tenant interest groups, are referred to as qualified rent indexes. Unlike simple rent indexes, qualified rent indexes establish a rebuttable presumption that the rent ranges they cover reflect
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the normal rents for the community. Generally, rent cannot be increased by more than 20% over three years (cap). In accordance with the German Rental Rights Amendment Act (Mietrechtsänderungsgesetz), which became effective as of May 1, 2013, the federal states can lower this cap to 15% if the sufficient supply of rental accommodation for the populations is particularly at risk in a community or part of a community. So far several state governments, including the North Rhine-Westphalia state government, have exercised this option.
Moreover, subject to the legal or contractual requirements, in the event of modernization work that (i) sustainably saves on final energy (energy modernization) or (ii) sustainably reduces water consumption or (iii) sustainably increases the value in use of the rented premises or (iv) improves the general living conditions in the long term or (v) in the event of modernization work performed on account of circumstances for which the lessor is not responsible and that is not maintenance work, the lessor can pass on the costs to the tenants by increasing the annual rent by currently up to 11% of the costs incurred (less the costs that would have been incurred for maintenance work anyway). This does not apply if the tenant can prove that the rent increase would mean unreasonable hardship. The German federal government is currently considering restricting such increases to a significantly lower percentage of the total costs of modernization work and to the period necessary to amortize the costs. Under certain circumstances, tenants have a special right of termination after a rent increase.
The German act to slow rent increases on tight housing markets and to improve the customer principle in accommodation services (German Rental Rights Revision Act (Mietrechtsnovellierungsgesetz)) that became effective on June 1, 2015 limits rent increases and sets rent caps (known as the rent brake). By 2020 the federal states can determine which regions with tight housing markets will be subject to restrictions for a period of up to five years. In these regions, when re-letting housing, lessors cannot demand rents higher than (i) 110% of the standard local comparative rent or (ii) the rent paid by the previous tenant, whichever is higher. This does not apply to housing being let for the first time or after comprehensive modernization. North Rhine-Westphalia has already adopted an ordinance introducing these rent restrictions for multiple towns and cities from July 1, 2015 onwards. The restrictions will affect the value of the properties in question, which could have substantial negative impacts for LEG’s portfolio.
Under certain circumstances, tenants have a special right of termination after a rent increase. Additional difficulties can arise if the local authority concerned has not created a rent index – which it has no obligation to do. If the local authority publishes a rent index, it must be updated every two years. Local authorities that publish qualified rent indexes must update them every two years with regard to market developments and produce a new qualified rent index at least every four years. Some local authorities update their rent indexes at longer intervals, which makes it difficult for lessors to adjust their rents in line with actual prevailing market conditions. Additional uncertainty can arise from court rulings that declare the rent indexes issued by local authorities to be void.
Furthermore, changes to the legal framework at the level of the European Union or in Germany, such as the rental law reform currently discussed by the federal government, could have a further negative impact on LEG’s ability to implement rent increases. Affordable housing is still a political issue that receives a great deal of attention. It is impossible to predict whether and to what
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extent the challenges caused by the recent wave of immigration will affect the legal framework for tenants and landlords.
If rent control is expanded, this will limit LEG’s options to raise rents, which in turn could have a material adverse effect on its net assets, financial position and results of operations.
Tenants enjoy considerable protection against termination and eviction. In addition, LEG uses standard leases with standard terms and conditions that are very strictly scrutinized by the courts.
LEG has legal relations with a large number of people, in particular its employees, buyers and the tenants of its apartments. In this context, it uses standard documents and standard contract forms. If it were to be found that such documents or contracts contain terms disadvantageous to LEG, or if the clauses of such documents or contracts were found to be invalid and therefore replaced with terms less favorable for LEG, it would affect a large number of standard conditions or contracts.
Furthermore, general terms and conditions (allgemeine Geschäftsbedingungen) must adhere to the applicable legal requirements for such terms and conditions. This means that their content and the way in which the user makes them available to the other party are strictly assessed to determine if they inappropriately discriminate against the other party. General terms and conditions (allgemeine Geschäftsbedingungen) are invalid if they are not formulated clearly and comprehensibly, or if the other party is unfairly disadvantaged or discriminated against. In particular, case law on general terms and conditions (allgemeine Geschäftsbedingungen) results in frequent amendments of the legal framework, hence it is impossible to be fully protected against the risks of using such standardized contract terms. Examples of such changes in the legal framework include the various decisions by the German Federal Supreme Court on the reallocation of incidental costs to tenants and the invalidity of clauses concerning cosmetic repairs, especially those that prescribe the type and frequency of cosmetic repairs to be made by the tenant. The invalidity of such clauses means that the lessor is responsible for maintenance work and the related costs. Even if contracts are prepared with the assistance of legal counsel, it is impossible for LEG to avoid such problems from the outset or in future as the legal framework can change at any time, particularly as a result of case law. It is therefore impossible for LEG to avoid the disadvantages resulting from this.
Tenants also enjoy strong legal protection against eviction. This protection can cause delayed evictions, which can result in considerable losses by the time tenants are evicted.
The above mentioned legal risks could have a material adverse effect on the business, net assets, financial position, cash flow and income of LEG.
LEG’s business is subject to the general legal framework in Germany. Adverse changes in the regulatory environment, for example, legal obligations relating to the conclusion of leases and environmental modernization, restrictions on modernization measures or additional obligations and provisions (including taxes) that give rise to costs when selling properties, could negatively impact LEG’s business development.
LEG’s business is subject to the general legal framework for the residential market, including for example rental law, and also the special provisions of other laws, such as social laws, building codes and preservation regulations. In some states, including North Rhine-Westphalia, the state has allowed the local authorities in communities where an adequate supply of rented accommodation for the population is considered to be at risk to enact statutes that prohibit owners (i) from leaving
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apartments vacant for a period of more than three months, (ii) from converting apartments so that they can no longer be used for residential purposes, (iii) from destroying housing or (iv) using apartments predominantly for professional or business purposes. Restrictions based on such laws could be made more significant by the current refugee crisis and the need for affordable housing it will potentially entail.
Adverse changes in German or European law or changes in the interpretation or application of existing laws could have a negative impact on LEG. In particular, if tenant protection laws on the conversion of rental apartments into owner-occupied apartments become stricter, this could negatively affect the sale of apartments. If the provisions governing the tenant’s responsibility for incidental costs or modernization investments change, this could have negative repercussions on the profitability of LEG’s investments and its results of operations.
More restrictive environmental laws could cause additional costs for LEG. Since 2011, for example, the owners of properties with central water heating systems are required to have these tested for potential legionella contamination at least every three years, which incurs additional costs.
Additional costs could also arise if the legal requirements for existing and approved buildings or their use are increased. Building codes and environmental regulations are of particular importance in this context. The current version of the German Energy Saving Ordinance (Energieeinsparverordnung), the amendment of which became effective on May 1, 2014, not only prescribes specific renovation measures aimed at reducing energy consumption (such as investment in insulation) for example, but also that the lessor provides prospective tenants with proof of the apartment’s energy efficiency as per the German Energy Saving Ordinance (Energieeinsparverordnung) on request prior to concluding a new lease. This also applies to contracts for the sale of properties. Furthermore, a seller or lessor advertising an apartment in commercial media must include in the advertisement the indicator for the overall energy efficiency of the apartment as per its current energy certificate. Further costs must be incurred to obtain this energy certificate. Lessors are required by the German Energy Saving Ordinance (Energieeinsparverordnung) to renovate the heat insulation in a rented building. For example, the lessors of buildings with boilers fired with liquid or gas fuel that were installed before January 1, 1985 had to replace these by the end of 2015. Roofs had to meet a certain minimum insulation standard by the end of 2015. It is also possible that additional requirements will be adopted in the future with respect to ensuring accessibility and special housing for elderly.
If it is found during renovation or modernization work that the building on which work is to be done is protected by heritable protection law (Denkmalschutz), the duty to comply with preservation regulations can lead to (i) substantial delays in renovation or modernization, (ii) certain renovation or modernization work no longer being possible or (iii) the costs for the project in question rising significantly. These factors could cause LEG to be unable to fulfill its contractual obligations to a buyer, with the result that the buyer would not have to pay the purchase price or would have to pay it at a later point in time.
Changes to the legal regulations on the sale of properties at the level of the European Union or in Germany could also have a negative impact on LEG. As both a general election in Germany and state elections in North Rhine-Westphalia are pending in 2017, there is the risk that the rate of legislative changes increases overall in the next two years, which will in turn reduce the predictability of such changes.
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The occurrence of one or more of the risks above could have a material adverse effect on the business, net assets, financial position, cash flow and income of LEG.
LEG could remain exposed to liability claims for several years after a property sale.
In connection with the sale of properties, LEG usually provides buyers with assurances, warranties and negative pledges relating to certain characteristics of the properties. The obligations resulting from this usually remain in effect for several years after the sale. In particular, LEG could be exposed to claims for damages made by buyers on the grounds that LEG did not fulfill its obligations or that the assurances and declarations made are inaccurate or that material defects known to LEG were not disclosed. After litigation or legal disputes with buyers, LEG could be forced to pay damages to the buyers.
Legal or settlement costs, including the costs of defense against legitimate or illegitimate claims, and potential claims for damages in connection with liabilities for properties sold by LEG property, could have a material adverse effect on the business, net assets, financial position, cash flow and income of LEG.
It is possible that the control and prevention mechanisms of LEG’s compliance structure did or do not provide adequate protection against all legal or financial risks. Any irregularities could lead to government investigations or claims by third parties against LEG with significant financial or other consequences, and could also greatly harm LEG’s reputation.
In 2010, LEG established a compliance committee and appointed a compliance officer, an ombudsman for the whistleblower system and a data protection officer. The code of conduct and the risk management regulations were introduced throughout the Group to protect LEG against legal risks and other potential damage. These binding corporate principles regulate lawful conduct, corruption prevention, conflicts of interest, information and data protection, discrimination, environmental protection and the protection of corporate assets. They apply to all employees and to the members of the management board (Vorstand) of the Company (“Management Board”) and to the supervisory board (Aufsichtsrat) of the Company (“Supervisory Board”). Moreover, LEG has introduced a binding code of conduct for its main business partners and trained its employees in compliance matters, including antitrust risks. To monitor compliance, LEG has implemented regular reporting requirements and close cooperation between the departments responsible for risk management and compliance management. However, under certain circumstances the above compliance regulations could be insufficient to completely rule out all unauthorized practices, legal violations or corruption within LEG.
Compliance violations could have a material adverse effect on the net assets, financial position, income and reputation of LEG.
LEG’s business is subject to the general tax framework in Germany. LEG’s tax burden could increase, for example as a result of current or future tax assessments, tax audits or litigation or as a result of changes in tax laws or changes to their application or interpretation.
LEG’s business is subject to the general tax framework in Germany. LEG’s tax burden is dependent on various aspects of tax laws as well as their application and interpretation. Tax laws can be changed retroactively and their application/interpretation can be amended by the tax authorities and
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courts. In addition, the effect of court rulings is sometimes limited by tax authorities to the specific matter by way of non-application decrees. These possibilities can also increase LEG’s tax burden.
The companies of the LEG Group are subject to regular tax audits in Germany. The tax authorities are currently auditing Group companies for fiscal years 2005 to 2008. For some Group companies the audit for fiscal years 2009 to 2012 has already begun. These tax audits or other investigations carried out by the competent tax authorities could result in additional taxes being assessed. In particular, this can lead to changes in the investment holding structure of the LEG Group, other measures or impairment on properties in respect of which the tax authorities could take the view that these must be disregarded for tax purposes. Furthermore, the cost, in particular interest expenses, might be treated as non-deductible, the application of the extended trade tax reduction for property holding companies could be denied or real estate transfer tax could be charged. Tax entities could be found to be invalid, for example, if one or more profit transfer agreements are classified as void because they were not set up properly or because other conditions required for tax entities are not satisfied. Such findings might lead not only to increased tax liabilities for LEG, but also to interest being charged on them.
Under certain conditions, LEG can demand broad indemnification from tax claims from the public development bank of the state of North Rhine-Westphalia and Beteiligungsverwaltungsgesellschaft des Landes Nordrhein-Westfalen, as the previous owners of the Company’s subsidiaries, for periods up to and including December 31, 2007. As far as reserves were already established for cases of this kind by the end of 2007, such claims for indemnification are excluded. Furthermore, LEG has established reserves for the risks associated with tax audits on the basis of past experience. However, these provisions could prove insufficient.
If one of the above risks occurs, this could have a material adverse effect on the business, net assets, financial position, cash flow and income of LEG.
LEG may have to pay higher real estate transfer taxes for acquired properties or shares.
Since its IPO in February 2013, LEG has acquired more than 40,000 residential units in 18 individual transactions. In connection with these acquisitions, it is exposed to a variety of risks relating to the payment of real estate transfer tax.
Firstly, there is the risk that the companies acquired have existing real estate transfer tax risks from previous transactions. Even though LEG reviews the history of potential acquisition targets extensively, a taxable issue may not be noticed or it could be classified in LEG’s audit as not taxable. The extent to which contractual guarantees cover possible risks is uncertain.
Furthermore, LEG has acquired various majority interests in companies that hold properties in which the seller has retained a minority interest. The majority interests are below the level that would cause real estate transfer tax to be triggered by a unification of shares. Usually, however, LEG has at least undertaken towards the seller to nominate a buyer who will buy the remaining shares from the minority shareholder within a certain period. If it does not do so in time, LEG is required to buy the remaining shares itself. In such event, the acquisition of the company in question would trigger real estate transfer tax. Purchasers of such minority interests often have specific return and profitability expectations, and there is a risk that LEG cannot fulfill current and future obligations to name a corresponding buyer, or that it can do so only at terms unattractive to LEG.
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Furthermore, LEG has acquired around 9,000 residential units in transaction structures in which the real estate was initially transferred by the seller at a small fraction of its market value to a seller’s subsidiary in which LEG then acquired a majority interest. Real estate transfer tax was only paid on the transfer value for the sale of land, while the share transfer is treated as free from real estate transfer tax as there is no unification of shares. The tax authority took a different view and assessed the transaction in such a way that both the real estate transfer and the share transfer were economically linked and that the total purchase price for the real estate transfer and the share transfer would be subject to real estate transfer tax leading to a real estate transfer tax charge increase of €9.5 million. LEG appealed against the notice of assessment issued in this context and a suspension of its execution was granted. Due to a pending court case in an analogous case the appeal is currently suspended.
If LEG’s tax assessment for all the portfolio acquisitions performed with this transaction structure proves incorrect, higher real estate transfer tax would have to be paid on the total market value of the land in these transactions. The additional expense would then amount to €26.8 million (including the above €9.5 million).
If one of the above risks occurs, this could have a material adverse effect on the business, net assets, financial position, cash flow and income of LEG.
LEG may have to pay real estate transfer taxes for Group restructuring activities.
LEG has claimed the application of the real estate transfer tax benefits for group restructurings for a spin-off of around 800 apartments in 2014 and for mergers of former development companies with around 30 apartments in 2015. Given the restrictive interpretation of the scope of the corresponding real estate transfer tax regulation by the tax authority, the large number of proceedings on this matter pending before the Supreme Tax Court and the discussion as to whether real estate transfer tax benefits for group restructuring qualify as government aid under EU law, there is the risk that the restructuring measures triggered real estate transfer tax, which could have a severe negative impact on the business, net assets, financial position, cash flow and income of LEG.
There is the possibility that the tax authorities do not recognize all tax deductions for interest payments.
Multiple regulations impose limits on the deductibility of interest expenses for corporation and trade tax. These regulations have recently been repeatedly and substantially amended. Among other things, the tax deductibility of interest expense is dependent on the net of interest income and interest expenses, LEG’s general tax structure, the taxable EBITDA for the relevant year and previous years, and on whether the equity ratios of the companies of the LEG Group identified for this purpose do not differ significantly from each other. In principle, the tax deductibility of interest expenses is limited to 30% of the taxable EBITDA for the fiscal year concerned. Exceptions are possible, for example, if the equity ratio satisfies certain requirements (known as an escape clause). These equity ratio requirements must be satisfied by the tax group between LEG NRW GmbH and most of its subsidiaries for corporation and trade tax from 2012 onwards. Otherwise, under certain circumstances it may not be possible for LEG to fully deduct the interest expenses owed on current and future liabilities, thereby increasing its tax burden. Interest expenses that are not tax-deductible in accordance with the above provisions can be carried-forward to subsequent years.
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Given certain conditions, interest carry-forwards and tax loss carry-forwards can be used to reduce future taxable income. They can therefore result in the capitalization of deferred tax assets. However, these deferred tax assets might be written down, especially if tax groups are denied by the tax authorities. As a result of past or future restructuring of LEG’s investment holding structure, there is also the possibility that interest carry-forwards and tax loss carry-forwards are forfeited. This can be the case, for example, if more than 25% of the shares or voting rights in any or all Group companies that have reported carry-forwards are directly or indirectly transferred to one or more buyers with aligned interests within five years. If interest carry-forwards or tax loss carry-forwards were forfeited, the deferred tax assets would be impaired, thereby increasing LEG’s tax burden.
If one of the above risks occurs, it could have a material adverse effect on the business, net assets, financial position, cash flow and income of LEG.
Risk Factors Relating to the Notes
The Notes may not be a suitable investment for all investors.
Potential investors should consider whether an investment in the Notes is appropriate in their respective circumstances and should consult with their legal, business, and tax advisors to determine the consequences of an investment in the Notes and to form an independent opinion whether to invest in the Notes.
An investment in the Notes is only suitable for investors who:
(i) possess sufficient knowledge and experience in financial and business matters to make a meaningful evaluation of the chances and risks of an investment in the Notes and the information contained in this Prospectus or any supplement hereto;
(ii) have access to, and knowledge of, appropriate analytical tools to evaluate such chances and risks in the context of the potential investor’s particular financial situation and to evaluate the impact the Notes will have on their overall investment portfolio;
(iii) fully understand the terms of the Notes and are familiar with the behavior of the financial markets;
(iv) are capable of bearing the economic risk of an investment in the Notes, including where the currency for principal or interest payments is different from the potential investor’s currency;
(v) know that it may not be possible to dispose of the Notes for a substantial period of time, if at all, before maturity; and
(vi) are able to evaluate (either alone or with the help of a financial advisor) possible scenarios for economic, interest rate and other factors that may affect a potential investor’s investment and ability to bear the applicable risks.
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If a loan is used to finance the acquisition of the Notes, the loan may significantly increase the risk of a loss.
If a loan is used to finance the acquisition of Notes by a potential investor and the Notes subsequently go into default, or if the trading price diminishes significantly, the investor may not only have to face a potential loss on its investment, but will also have to repay the loan and pay interest thereon. A loan may significantly increase the risk of a loss. Potential investors should not assume that they will be able to repay the loan or pay interest thereon from the profits of an investment in the Notes. Instead, potential investors should assess their financial situation prior to an investment in the Notes, as to whether they are able to pay interest on the loan, repay the loan on demand, and the possibility that they may suffer losses instead of realizing gains.
An investment in the Notes may be subject to inflation risks.
The inflation risk is the risk of future money depreciation. The real yield from an investment is reduced by inflation. The higher the rate of inflation, the lower the real yield on the Notes. If the inflation rate were to increase and match or exceed the nominal yield, the real yield of the Notes would be zero or even negative.
The Holders are subject to exchange rate risks and exchange controls.
The Notes are denominated in euros. Potential investors should bear in mind that an investment in the Notes involves currency risks. This presents certain risks relating to currency conversions if financial activities of a Holder are denominated principally in a currency or currency unit other than the euro (the “Investor’s Currency”). These include the risk that exchange rates may change significantly (including changes due to devaluation of the euro or revaluation of the Investor’s Currency) and the risk that authorities with jurisdiction over the Investor’s Currency may impose or modify exchange controls. An appreciation in the value of the Investor’s Currency relative to the Euro would decrease (i) the Investor’s Currency-equivalent yield on the Notes, (ii) the Investor’s Currency equivalent value of the principal payable on the Notes, and (iii) the Investor’s Currency-equivalent market value of the Notes.
In addition, government and monetary authorities may impose (as some have done in the past) exchange controls that could adversely affect an applicable currency exchange rate. As a result, Holders may receive less interest or principal than expected, or no interest or principal at all.
The Holders are exposed to risks relating to fixed interest notes.
The Notes bear interest at a fixed rate. A Holder of a fixed interest rate note carries the risk that the price of such note may fall as a result of changes in the current interest rate on the capital market (the “Market Interest Rate”). While the nominal interest rate of a note with a fixed interest rate is fixed in advance for the entire duration or during a certain period, the Market Interest Rate typically changes on a daily basis. As the Market Interest Rate changes, the price of a note with a fixed interest rate also changes – but in the opposite direction. If the Market Interest Rate increases, the price of a note with a fixed interest rate typically falls until the yield of such note approximately equals the Market Interest Rate. If the Market Interest Rate decreases, the price of a fixed interest rate note typically increases until the yield of such note is approximately equal to the Market Interest Rate. Potential investors should be aware that movements of the Market Interest Rate can adversely affect the market price of the Notes and can lead to losses for Holders if they sell their Notes.
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Holders are subject to the risk of a partial or total failure of the Issuer to make interest and/or redemption payments.
Any person who purchases Notes is relying on the creditworthiness of the Issuer and has no rights against any other person. Holders are subject to the risk of a partial or total failure of the Issuer to make interest and/or redemption payments that the Issuer is obliged to make under the Notes. The worse the creditworthiness of the Issuer, the higher the risk of a loss. A materialization of the credit risk may result in partial or complete failure of the Issuer to make interest and/or redemption payments under the Notes.
In addition, even if the likelihood that the Issuer will be in a position to fully perform all obligations under the Notes when they fall due, actually has not decreased, market participants could nevertheless be of that opinion. Market participants may in particular be of this opinion if market participants’ assessment of the creditworthiness of corporate debtors in general or debtors operating in the same industry as the Issuer adversely changes. If any of these risks occur, third parties may only be willing to purchase the Notes for a lower price than before the materialization of said risk, or not at all. The market value of the Notes may therefore decrease and investors could lose some or all of their investment.
The Holders’ only remedy against the Issuer is the institution of legal proceedings to enforce payment or to file an application for insolvency proceedings.
The only remedy against the Issuer available to the Holders for recovery of amounts which have become due in respect of the Notes will be the institution of legal proceedings to enforce payment of the amounts or to file an application for the institution of insolvency proceedings. On an insolvency or liquidation of the Issuer, any Holder may only declare its Notes due and payable and may claim the amounts due and payable under the Notes after the Issuer has discharged or secured in full (i.e., not only with a quota) all claims that rank senior to the Notes.
The Notes will be effectively subordinated to the Issuer’s debt to the extent such debt is secured by assets that are not also securing the Notes.
Although the Terms and Conditions require the Issuer and its material subsidiaries to secure the Notes equally if they provide security for the benefit of capital market indebtedness, the requirement to provide equal security to the Notes is limited to capital market indebtedness and is subject to a number of significant exceptions and carve-outs as set out in detail in the Terms and Conditions included in this Prospectus. To the extent the Issuer or any of its subsidiaries provides security interest over their assets for the benefit of other debt without also securing the Notes, the Notes will be effectively junior to such debt with respect to such assets.
As a result of the foregoing, holders of (present or future) secured debt of LEG may recover disproportionately more on their claims than the Holders in an insolvency, bankruptcy or similar proceeding. The Issuer may not have sufficient assets remaining to make payments under the Notes.
The Notes may not, or may cease to satisfy the criteria to be recognized as eligible collateral for the Eurosystem.
The Notes are issued in new global note form. The new global note form has been introduced to allow for the possibility of debt instruments being issued and held in a manner which will permit
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them to be recognized as eligible collateral for monetary policy of the Eurosystem and intra-day credit operations by the Eurosystem upon issue or at any or all times during their existence. However, in any particular case such recognition will depend upon satisfaction of the Eurosystem eligibility criteria at the relevant time and the Notes may not, or may cease to qualify as eligible collateral for the Eurosystem. Investors should make their own assessment as to whether the Notes meet such Eurosystem eligibility criteria.
If the Notes are redeemed prior to maturity, a Holder of such Notes is exposed to the risk of a lower yield than expected.
The Issuer may redeem all or some of the outstanding Notes prior to maturity under certain circumstances as specified in the Terms and Conditions. If the Notes are redeemed prior to maturity, the Holders are exposed to the risk that due to such early redemption his investment will have a lower than expected yield. In such circumstances, the investor may be unable to reinvest the redemption proceeds in a comparable security at an effective interest rate as high as that of the Notes. Also, if Holders have purchased the Notes above par, the redemption proceeds may be lower than the price such Holders paid to acquire their Notes.
The Issuer’s ability to redeem or repurchase the Notes upon the occurrence of a change of control event may be limited by its access to funds.
Upon the occurrence of a change of control event, the Holders will have the right to require the redemption or, at the option of the Issuer, repurchase (or procure the purchase) in whole or in part of all of their Notes at 101.00% of the principal amount of such Notes, plus unpaid interest accrued up to (but excluding) the date of redemption. The Issuer’s ability to redeem or repurchase the Notes upon such a change of control event will be limited by its access to funds at the time of the redemption or repurchase. Upon a change of control event, the Issuer may be required to repay 101.00% of the principal amount of such Notes, plus accrued and unpaid interest within a short period of time. The source of funds for these repayments would be the available cash or cash generated from other sources. However, there can be no assurance that there will be sufficient funds available upon a change of control event to make these repayments and any required redemption or repurchases of tendered Notes.
An active public trading market for the Notes may not develop.
Application will be made for the Notes to be initially admitted to trading on the Regulated Market of the Luxembourg Stock Exchange and to be listed on the Official List of the Luxembourg Stock Exchange. However, no assurance can be given as to whether such admission to trading and/or listing will be obtained and for how long it may be sustained.
Further, there can be no assurance regarding the future development of a market for the Notes or the ability of Holders to sell their Notes or the price at which Holders may be able to sell their Notes. If such a market were to develop, the Notes could trade at prices that may be higher or lower than the initial offering price depending on many factors, including prevailing interest rates, LEG’s operating results, the market for similar securities and other factors, including general economic conditions, performance and prospects, as well as analyst recommendations. The liquidity of, and the trading market for, the Notes may also be adversely affected by a general decline in debt securities markets. Such a decline may affect the liquidity and trading of the Notes independent of LEG’s financial performance and prospects. In an illiquid market, Holders may be unable to sell Notes at fair
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market prices, or at all. The possibility to sell Notes might additionally be restricted by country specific reasons. A potential investor must therefore be prepared to retain the Notes for an unspecified time period.
Transfer of the Notes will be restricted, which may adversely affect the value of the Notes.
The Notes have not been registered under the Securities Act, or any U.S. state securities laws. Consequently the Notes may not be offered or sold in the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws, and Holders who have acquired the Notes may be required to bear the cost of their investment in the Notes until their maturity. It is the Holders’ obligation to ensure that their offers and sales of the Notes within the United States and other countries comply with applicable securities laws.
The development of market prices of the Notes depends on various factors.
The market value of the Notes is influenced by a change in the creditworthiness (or the perception thereof) of the Issuer and by the credit rating of the Issuer and a number of other factors including Market Interest Rate levels and rate of return.
The development of market prices of the Notes depends on various interacting factors, including but not limited to, changes of Market Interest Rate levels, the policies of central banks, overall economic developments, political events, inflation rates or the lack of or excess demand for the relevant type of Note. Holders are therefore exposed to the risk of an unfavorable development of market prices of the Notes which could materialize upon a sale of Notes.
The trading market for debt securities may be volatile and may be adversely impacted by many events.
The market for debt securities issued by the Issuer is influenced by a number of interrelated factors, including economic, financial and political conditions and events in Germany as well as economic conditions and, to varying degrees, market conditions, interest rates, currency exchange rates and inflation rates in other European and other industrialized countries. There can be no assurance that events in Germany, Europe or elsewhere will not cause market volatility or that such volatility will not adversely affect the price of the Notes or that economic and market conditions will not have any other adverse effect. Accordingly, the price at which a Holder will be able to sell his Notes may be at a discount to the issue price, which could be substantial, or the purchase price paid by such Holder.
Ratings may not reflect all risks and are subject to change.
Ratings assigned to the Issuer by rating agencies are an indicator of the Issuer’s ability to meet its obligations under the Notes in a timely manner. The lower the assigned rating is on the respective scale the higher the respective rating agency assesses the risk that the Issuer’s obligations will not be met at all or not be met in a timely manner. The market value of the Notes from time to time is likely to be dependent upon the level of credit rating assigned to the long-term debt of the Issuer. Rating agencies may change, suspend or withdraw their ratings at short notice. A change, suspension or withdrawal of a rating may affect the price and the market value of the Notes. A Holder may thus incur financial disadvantages as he may not be able to sell the Notes or will only be able to
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do so at a discount to the issue price, which could be substantial, or the purchase price paid by such Holder.
One or more independent credit rating agencies may assign credit ratings to the Notes. Such ratings may not reflect the potential impact of all risks related to the structure, market and additional factors discussed herein, and other factors that may affect the value of the Notes. In addition, Moody’s or any other rating agency may change its methodologies for rating securities with features similar to the Notes in the future. This may include the relationship between ratings assigned to an issuer’s senior securities and ratings assigned to securities with features similar to the Notes, sometimes called “notching”. If the rating agencies were to change their practices for rating such securities in the future and the ratings of the Notes were to be lowered as a consequence thereof, this could have a material adverse effect on the trading price of the Notes. A credit rating is not a recommendation to buy, sell or hold securities and may be revised or withdrawn by the rating agency at any time.
Incidental costs related in particular to the purchase and sale of Notes may have a significant impact on the profit potential of the Notes.
When Notes are purchased or sold, several types of incidental costs (including transaction fees and commissions) may be incurred in addition to the purchase or sale price of the Notes. These incidental costs may significantly reduce or eliminate any profit from holding the Notes. Credit institutions generally charge commissions which are either fixed minimum commissions or pro rata commissions, depending on the order value. To the extent that additional – domestic or foreign – parties are involved in the execution of an order, including but not limited to domestic dealers or brokers in foreign markets, investors may also be charged for the brokerage fees, commissions and other fees and expenses of such parties (third-party costs).
In addition to such costs directly related to the purchase of Notes (direct costs), investors may also incur follow-up costs (such as custody fees). Investors should inform themselves about any additional costs incurred in connection with the purchase, custody or sale of the Notes before investing in the Notes. These additional costs may significantly reduce or eliminate any profit from holding the Notes.
Because the Global Notes are held by or on behalf of Euroclear and CBL, potential investors will have to rely on their procedures for transfer, payment and communication with the Issuer.
The Notes will be represented by the Global Notes. These will be deposited with a Common Safekeeper for Euroclear and CBL. Investors will not be entitled to receive definitive notes. Euroclear and CBL will maintain records of the beneficial interests in the Global Notes. While the Notes are represented by the Global Notes, investors will only be able to trade their beneficial interests through Euroclear and CBL and the Issuer will discharge its payment obligations under the Notes by making payments to, or to the order of, the Clearing System for distribution to their account holders. A holder of a beneficial interest in the Global Notes must rely on the procedures of Euroclear and CBL to receive payments under the Notes. The Issuer has no responsibility or liability for the records relating to, or payments made in respect of beneficial interests in, the Global Notes.
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No assurance can be given as to the impact of any possible judicial decision or change of laws or administrative practices after the date of this Prospectus.
The Terms and Conditions are based on the laws of Germany in effect as of the date of this Prospectus. No assurance can be given as to the impact of any possible judicial decision or change in German law or administrative practice or the official application or interpretation of German law after the date of this Prospectus.
A potential investor may not rely on the Issuer, the Joint Bookrunners or any of their respective affiliates in connection with its determination as to the legality or suitability of its acquisition of the Notes.
Each potential investor in the Notes must determine, based on its own independent review and such professional advice as it deems appropriate under the circumstances, whether its acquisition of the Notes is fully consistent with its (or if it is acquiring the Notes in a fiduciary capacity, the beneficiary’s) financial needs, objectives and condition, complies and is fully consistent with all investment policies, guidelines and restrictions applicable to it (whether acquiring the Notes as principal or in a fiduciary capacity) and is a fit, proper and suitable investment for it (or if it is acquiring the Notes in a fiduciary capacity, for the beneficiary), notwithstanding the clear and substantial risks inherent in investing in or holding the Notes.
A potential investor may not rely on the Issuer, the Joint Bookrunners or any of their respective affiliates in connection with its determination as to the legality of its acquisition of the Notes or as to the other matters referred to above.
Without independent review and advice, a potential investor may not adequately understand the risks inherent with an investment in the Notes and may lose parts or all of its capital invested without taking such or other risks into consideration before investing in the Notes.
The Terms and Conditions, including the terms of payment of principal and interest, can be amended by a Holders’ resolution and any such resolution will be binding for all Holders. Any such resolution may effectively be passed with the consent of less than a majority of the aggregate principal amount of the Notes then outstanding.
The Terms and Conditions may be amended or other measures relating to the Notes may be resolved by majority resolution of the Holders. The voting process under the Terms and Conditions will be governed by the German Act on Issues of Debt Securities ((Gesetz über Schuldverschreibungen aus Gesamtemissionen) “SchVG”), pursuant to which the required participation of Holder votes (quorum) is principally set at 50% of the aggregate principal amount of the Notes then outstanding. In case there is no sufficient quorum, there is no minimum quorum requirement at a second meeting (unless the resolution to be passed requires a qualified majority, in which case Holders representing at least 25% of the principal amount of Notes then outstanding must participate in the meeting or voting). As the relevant majority for Holders’ resolutions is generally based on votes cast, rather than on principal amount of the Notes outstanding, the aggregate principal amount required to vote in favor of an amendment will vary based on the Holders participating in such vote. Therefore, a Holder is subject to the risk of being outvoted by a majority resolution of other Holders and losing rights towards the Issuer against his will in the event that Holders holding a sufficient aggregate principal amount of the Notes participate in the vote and agree to amend the
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Terms and Conditions or on other matters relating to the Notes by majority vote in accordance with the Terms and Conditions and the SchVG.
The insolvency laws of Germany may not be as favorable to Holders as the laws of other jurisdictions. Furthermore, the Issuer may shift its center of main interest to jurisdictions that are less favorable to Holders and thereby preclude or limit the ability of Holders to recover payments due on the Notes.
The Issuer is organized under the laws of Germany and has its registered office in Germany and all its assets are located in Germany. A court is therefore likely to hold that the center of main interest of the Issuer is in Germany. Consequently, provided that this presumption will not be rebutted and the center of main interest will not be shifted to another jurisdiction by the Issuer, any insolvency proceedings with regard to the Issuer are likely to be initiated in Germany and would most likely be governed by the insolvency laws of Germany. The provisions of German insolvency law may differ substantially from the insolvency laws of other jurisdictions, including with respect to any consolidation of assets and liabilities of a group of companies in the event of insolvency, preferred satisfaction of secured creditors from enforcement proceedings (Absonderungsrecht), the ability to obtain post-petition interest and the duration of the insolvency proceedings, and hence may be less favorable to Holders than comparable provisions of other jurisdictions. The Issuer may shift its center of main interest, and thereby the applicable restructuring or insolvency laws, to another jurisdiction, which could offer less favorable terms to Holders than the laws of Germany. In addition, even without such intentional shift of the center of main interests by the Issuer, it cannot be ruled out that a court or other competent authority of such other jurisdiction, will deem the restructuring or insolvency laws of such jurisdiction to be applicable and opens restructuring or insolvency proceedings under the laws of such jurisdiction with or without the consent of the Issuer.
Thus, the ability of Holders to recover payments due on the Notes may be or may become more limited or precluded than would be the case under the laws of other jurisdictions.
In case of certain events of default, the Notes will only be redeemable if Holders holding at least 15% of the aggregate principal amount of the Notes then outstanding declare the Notes due and payable. Such declaration of acceleration may be rescinded by majority resolution of the Holders.
The Terms and Conditions provide that, in case of certain events of default, any notice declaring the Notes due and payable shall become effective only when HSBC Bank plc, London, United Kingdom, (the “Paying Agent”) has received such default notices from Holders representing at least 15% of the aggregate principal amount of the Notes then outstanding. In addition, under the SchVG, even if the threshold of 15% for a default notice has been reached, the Holders could rescind such acceleration by majority resolution within three months. A simple majority of votes would be sufficient for a resolution on the rescission of such acceleration but, in any case, more Holders would have to consent to a rescission than have delivered default notices.
Holders should be aware that, as a result, they may not be able to accelerate the Notes upon the occurrence of certain events of default, unless the required quorum of Holders delivers default notices and such acceleration is not rescinded by majority resolution of the Holders.
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Since no Holders’ Representative will be appointed as from the Issue Date, it may be difficult for Holders to take collective action with respect to the Notes.
No initial representative for the Holders (“Holders’ Representative”) will be appointed under the Terms and Conditions and as a consequence it will become more difficult for Holders to take collective action with respect to the Notes. Any appointment of a Holders’ Representative of the Notes post-issuance of the Notes will, therefore, require a majority resolution of the Holders.
If a Holders’ Representative has been appointed by majority resolution of the Holders, it is possible that a Holder may be deprived of its individual right to pursue and enforce its rights under the Terms and Conditions against the Issuer, if such right was passed to the Holders’ Representative by a majority vote. In such case, the Holders’ Representative becomes exclusively responsible to claim and enforce the rights of all of the Holders.
The Holders have no voting rights in shareholders’ meetings.
The Notes are non-voting with respect to general shareholders’ meetings of the Issuer. Consequently, the Holders cannot influence any decisions by the Issuer to defer interest payments or to optionally settle such arrears of interest or any other decisions by the Issuer’s shareholders meeting concerning the capital structure or any other matters relating to the Issuer.
Changes in Accounting Standards may lead to adjustments in the relevant accounting positions of the Issuer. This may lead to a different perception of the market regarding the Issuer’s creditworthiness and thus, the market price of the notes might decrease.
The Issuer’s consolidated financial statements are prepared in accordance with IFRS and the additional requirements pursuant to Section 315a para. 1 of the German Commercial Code (Handelsgesetzbuch (“HGB”)). New or changed accounting standards may lead to adjustments in the relevant accounting positions of the Issuer. This may lead to a different perception of the market regarding the Issuer’s creditworthiness. As a result, there is a risk that the market price of the Notes might decrease.
The income form the Notes may be reduced by taxes.
Potential investors should be aware that they may be required to pay taxes or other charges or duties in accordance with the laws and practices of the country where the Notes are transferred or other jurisdictions. In some jurisdictions, no official statements of the tax authorities or court decisions may be available for financial instruments such as the Notes. Potential investors should not rely on the tax discussions contained in this Prospectus, but ask for their own tax advisor’s advice on their individual taxation with respect to the acquisition, sale and redemption of the Notes. Only these advisors are in a position to duly consider the specific situation of the relevant investor. In addition, potential investors should be aware that tax laws and regulations as well as the interpretation and application thereof by the fiscal courts and the fiscal authorities may change, possibly with retroactive effect, which may result in a higher tax or administrative burden in connection with the taxation and withholding of income from the Notes.
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The Financial Transactions Tax could apply to certain dealings in the Notes.
The European Commission has published a proposal for a directive for a common financial transactions tax (“FTT”) in Belgium, Germany, Greece, Spain, France, Italy, Austria, Portugal, Slovenia and Slovakia (the “Participating Member States”). The proposed FTT could, if introduced in its current form, apply to certain dealings in the Notes in certain circumstances, in particular where at least one party is a financial institution. The FTT, if introduced, could apply to persons both within and outside of the Participating Member States. As a result, Holders may incur additional costs for the execution of transactions with the Notes. Potential investors should refer with respect to the FTT to the section “Taxation—Taxation in Luxembourg—(ii) Resident holders of Notes”.
Luxembourg Withholding Tax
Under the Relibi Law (as defined under “Taxation—Taxation in Luxembourg—(ii) Resident holders of Notes”), payments of interest or similar income made or ascribed by a paying agent established in Luxembourg to or for the immediate benefit of an individual beneficial owner who is a resident of Luxembourg will be subject to a withholding tax of 20%. Such withholding tax will be in full discharge of income tax if the beneficial owner is an individual acting in the course of the management of his/her private wealth. Responsibility for the withholding of the tax will be assumed by the Luxembourg paying agent. Payments of interest under the Notes coming within the scope of the Relibi Law will be subject to a withholding tax at a rate of 20%.
Under the Relibi Law, Luxembourg resident individuals, acting in the course of their private wealth who are the beneficial owners of interest payments, can opt to self-declare and pay a 20% levy on interest payments made after December 31, 2007 by paying agents located in a EU Member State other than Luxembourg or in a member state of the European Economic Area other than a EU Member State. In such case, the 20% levy is calculated on the same amounts as for the payments made by Luxembourg paying agents. The Luxembourg resident individual who is the beneficial owner of interest is responsible for the declaration and the payment of the 20% final levy. The option for the 20% levy must cover all interest payments made by paying agents to the beneficial owner during the entire civil year.
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TERMS AND CONDITIONS OF THE NOTES
ANLEIHEBEDINGUNGEN TERMS AND CONDITIONS (die Anleihebedingungen) (the Terms and Conditions)
§ 1 § 1 WÄHRUNG, STÜCKELUNG, FORM, CURRENCY, DENOMINATION, FORM, BESTIMMTE DEFINITIONEN CERTAIN DEFINITIONS
(1) Währung; Stückelung. Diese Emission von (1) Currency; Denomination. This issue of notes Schuldverschreibungen (die Schuldver- (the Notes) of LEG Immobilien AG (the schreibungen) der LEG Immobilien AG (die Issuer), is being issued in the aggregate Emittentin) wird am 23. Januar 2017 (der principal amount of €500,000,000 (in words: Begebungstag) im Gesamtnennbetrag von five hundred million Euro) in a denomination € 500.000.000 (in Worten: fünfhundert of €100,000 each (the Specified Millionen Euro) in einer Stückelung von Denomination) on January 23, 2017 (the € 100.000 (die Festgelegte Stückelung) Issue Date). begeben.
(2) Form. Die Schuldverschreibungen lauten auf (2) Form. The Notes are being issued in bearer den Inhaber. form.
(3) Vorläufige Globalurkunde – Austausch gegen (3) Temporary Global Note – Exchange for Dauerglobalurkunde. Permanent Global Note.
(a) Die Schuldverschreibungen werden (a) The Notes are initially represented by a anfänglich durch eine vorläufige Global- temporary global note (the Temporary urkunde (die Vorläufige Globalurkunde) Global Note) without coupons. The ohne Zinsscheine verbrieft. Die Temporary Global Note will be Vorläufige Globalurkunde wird gegen exchangeable for Notes in the Specified Schuldverschreibungen in der Festge- Denomination represented by a legten Stückelung, die durch eine permanent global note (the Permanent Dauerglobalurkunde (die Dauerglobal- Global Note and, together with the urkunde und, zusammen mit der Temporary Global Note, the Global Vorläufigen Globalurkunde, die Global- Notes) without coupons. Any claim for urkunden) ohne Zinsscheine verbrieft interest payments under the Notes shall sind, ausgetauscht. Jegliche Zinszah- be represented by the relevant Global lungsansprüche aus den Schuldverschrei- Note. The Temporary Global Note and bungen sind durch die jeweilige the Permanent Global Note shall each be Globalurkunde verbrieft. Die Vorläufige signed by or on behalf of the Issuer and Globalurkunde und die Dauerglobal- shall each be authenticated by or on urkunde werden jeweils von oder im behalf of the Paying Agent. Definitive Namen der Emittentin unterschrieben certificates representing individual Notes und sind jeweils von der Zahlstelle oder and coupons will not be issued. in deren Namen mit einer Kontroll- unterschrift versehen. Einzelurkunden für die Schuldverschreibungen und Zins-
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scheine werden nicht ausgegeben.
Die Schuldverschreibungen werden in The Notes are issued in new global note Form einer New Global Note (NGN) (NGN) form and are kept in custody on ausgegeben und von einem von den behalf of the ICSDs by a common ICSDs bestellten common safekeeper safekeeper (the Common Safekeeper) (der Common Safekeeper) im Namen der appointed by the ICSDs. ICSDs verwahrt.
(b) Die Vorläufige Globalurkunde wird (b) The Temporary Global Note shall be gegen die Dauerglobalurkunde nach exchanged for the Permanent Global Ablauf von mindestens 40 Tagen nach Note not earlier than 40 days after the dem Begebungstag ausgetauscht. Ein Issue Date. Such exchange shall only be solcher Austausch darf nur nach Vorlage made upon delivery of certifications to von Bescheinigungen erfolgen, wonach the effect that the beneficial owner or der oder die wirtschaftlichen Eigentümer owners of the Notes is or are, as der Schuldverschreibungen keine U.S.- applicable, not (a) U.S. person(s) (other Person(en) ist bzw. sind (ausgenommen than certain financial institutions or bestimmte Finanzinstitute oder certain persons holding Notes through bestimmte Personen, die such financial institutions). Payment of Schuldverschreibungen über solche interest on Notes represented by a Finanzinstitute halten). Solange die Temporary Global Note will be made Schuldverschreibungen durch eine only after delivery of such certifications. Vorläufige Globalurkunde verbrieft sind, A separate certification shall be required werden Zinszahlungen erst nach Vorlage in respect of each such payment of solcher Bescheinigungen vorgenommen. interest. Any such certification received Eine gesonderte Bescheinigung ist für on or after the 40th day after the Issue jede solche Zinszahlung erforderlich. Date will be treated as a request to Jede Bescheinigung, die am oder nach exchange the Temporary Global Note dem 40. Tag nach dem Begebungstag pursuant to this paragraph (b). Any Notes eingeht, wird als ein Ersuchen behandelt delivered in exchange for the Temporary werden, die Vorläufige Globalurkunde Global Note shall be delivered only gemäß diesem Absatz (b) auszutauschen. outside of the United States (as defined in Schuldverschreibungen, die im Aus- paragraph (7)). tausch für die Vorläufige Globalurkunde geliefert werden, dürfen nur außerhalb der Vereinigten Staaten (wie in Absatz (7) definiert) geliefert werden.
(4) Register der ICSDs. Der Gesamtnennbetrag (4) Records of the ICSDs. The aggregate der durch die Globalurkunde verbrieften principal amount of Notes represented by the Schuldverschreibungen entspricht dem Global Note shall be the aggregate amount jeweils in den Registern beider ICSDs from time to time entered in the records of eingetragenen Gesamtbetrag. Die Register both ICSDs. The records of the ICSDs der ICSDs (unter denen die Register zu (which expression means the records that verstehen sind, die jeder ICSD für seine each ICSD holds for its customers which Kunden über den Betrag ihres Anteils an den reflect the amount of such customer’s interest Schuldverschreibungen führt) sind maß- in the Notes) shall be conclusive evidence of
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geblicher Nachweis des Gesamtnennbetrags the aggregate principal amount of Notes der durch die Globalurkunde verbrieften represented by the Global Note and, for these Schuldverschreibungen, und eine zu diesem purposes, a statement issued by an ICSD Zweck von einem ICSD jeweils ausgestellte stating the aggregate principal amount of Bescheinigung mit dem Gesamtnennbetrag Notes so represented at any time shall be der so verbrieften Schuldverschreibungen ist conclusive evidence of the records of the maßgeblicher Nachweis des Inhalts des relevant ICSD at that time. Registers des betreffenden ICSD zu dem fraglichen Zeitpunkt.
Bei jeder Rück- oder Zinszahlung auf die On any redemption or payment of durch die Globalurkunde verbrieften Schuld- interest being made in respect of, or verschreibungen bzw. beim Kauf und der purchase and cancellation of, any of the Entwertung der durch die Globalurkunde Notes represented by the Global Note the verbrieften Schuldverschreibungen stellt die Issuer shall procure that details of any Emittentin sicher, dass die Einzelheiten der redemption, payment of interest or Rückzahlung, der Zinszahlung oder des purchase and cancellation (as the case Kaufs und der Entwertung bezüglich der may be) in respect of the Global Note Globalurkunde entsprechend in die shall be entered accordingly in the Unterlagen der ICSDs eingetragen werden, records of the ICSDs and, upon any such und dass nach dieser Eintragung vom entry being made, the aggregate principal Gesamtnennbetrag der in die Register der amount of the Notes recorded in the ICSDs aufgenommenen und durch die records of the ICSDs and represented by Globalurkunde verbrieften Schuldverschrei- the Global Note shall be reduced by the bungen der Gesamtnennbetrag der zurück- aggregate principal amount of the Notes gezahlten bzw. gekauften und entwerteten so redeemed or purchased and cancelled. Schuldverschreibungen abgezogen wird.
Sofern nur ein Teil der Schuld- On an exchange of a portion only of the verschreibungen, die durch eine vorläufige Notes represented by a Temporary Global Globalurkunde verbrieft sind, ausgetauscht Note, the Issuer shall procure that details of wird, wird die Emittentin sicherstellen, dass such exchange shall be entered accordingly in die Einzelheiten dieses Austauschs the records of the ICSDs. entsprechend in die Register der ICSDs aufgenommen werden.
(5) Clearingsystem. Jede Globalurkunde wird (5) Clearing System. Each Global Note will be solange von einem oder im Namen eines kept in custody by or on behalf of the Clearingsystems verwahrt, bis sämtliche Clearing System until all obligations of the Verbindlichkeiten der Emittentin aus den Issuer under the Notes have been satisfied. Schuldverschreibungen erfüllt sind. Clearing System means the following: Clearingsystem bezeichnet Clearstream Clearstream Banking, société anonyme, Banking, société anonyme, Luxemburg Luxembourg (CBL) and Euroclear Bank (CBL) und Euroclear Bank SA/NV, Brüssel SA/NV, Brussels (Euroclear) (CBL and (Euroclear) (CBL und Euroclear jeweils ein Euroclear each an ICSD and together the ICSD und zusammen die ICSDs) sowie jeder ICSDs) and any successor in such capacity. Funktionsnachfolger.
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(6) Gläubiger von Schuldverschreibungen. (6) Holder of Notes. Holder means any holder of Gläubiger bezeichnet jeden Inhaber eines a proportionate co-ownership or other Miteigentumsanteils oder anderen beneficial interest or right in the Notes. vergleichbaren Anteils oder Rechts an den Schuldverschreibungen.
(7) Vereinigte Staaten. Für die Zwecke dieser (7) United States. For the purposes of these Anleihebedingungen bezeichnet Vereinigte Terms and Conditions, United States means Staaten die Vereinigten Staaten von Amerika the United States of America (including the (einschließlich deren Bundesstaaten und des States thereof and the District of Columbia) District of Columbia) sowie deren Territorien and its possessions (including Puerto Rico, (einschließlich Puerto Rico, der U.S. Virgin the U.S. Virgin Islands, Guam, American Islands, Guam, American Samoa, Wake Samoa, Wake Island and Northern Mariana Island und den Northern Mariana Islands). Islands).
§ 2 § 2 STATUS STATUS
Die Schuldverschreibungen begründen The obligations under the Notes constitute direct, unmittelbare, unbedingte, nicht besicherte und unconditional, unsecured and unsubordinated nicht nachrangige Verbindlichkeiten der obligations of the Issuer ranking pari passu Emittentin, die untereinander und mit allen among themselves and pari passu with all other anderen nicht besicherten und nicht nachrangigen unsecured and unsubordinated obligations of the Verbindlichkeiten der Emittentin gleichrangig Issuer, unless such obligations are accorded sind, soweit solchen Verbindlichkeiten nicht priority under mandatory provisions of statutory durch zwingende gesetzliche Bestimmungen ein law. Vorrang eingeräumt wird.
§ 3 § 3 NEGATIVVERPFLICHTUNG NEGATIVE PLEDGE
(1) Negativverpflichtung. Die Emittentin (1) Negative Pledge. The Issuer undertakes, so verpflichtet sich, solange Schuldverschrei- long as any Notes are outstanding, but only bungen ausstehen, jedoch nur bis zu dem up to the time all amounts of principal and Zeitpunkt, an dem alle Beträge an Kapital interest have been placed at the disposal of und Zinsen der Zahlstelle zur Verfügung the Paying Agent, not to create or permit to gestellt wurden, keine dinglichen subsist, and to procure that none of its Sicherungsrechte an ihren Vermögenswerten Material Subsidiaries will create or permit to zur Besicherung von Kapitalmarkt- subsist, any security interest in rem over its verbindlichkeiten mit Ausnahme Verbriefter assets to secure any Capital Market Kapitalmarktverbindlichkeiten zu bestellen Indebtedness other than Securitized Capital oder fortbestehen zu lassen, und zu Market Indebtedness unless, subject to gewährleisten, dass keine ihrer Wesentlichen paragraph (3), the Issuer’s obligations under Tochtergesellschaften die zuvor genannten the Notes are secured equally with (or, in Sicherungsrechte bestellt oder fortbestehen case such Capital Market Indebtedness is lässt, es sei denn, die Verbindlichkeiten der subordinated debt, senior in priority to) the Emittentin aus den Schuldverschreibungen Capital Market Indebtedness secured by such werden, vorbehaltlich Absatz (3), durch das security interest.
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betreffende Sicherungsrecht gleichrangig mit der jeweiligen Kapitalmarktverbindlichkeit (oder, sofern es sich dabei um eine nachrangige Verbindlichkeit handelt, im Vergleich dazu vorrangig) besichert.
(2) Beschränkung. Die Verpflichtungserklärun- (2) Limitation. The undertakings pursuant to gen nach Absatz (1) gelten jedoch nicht für paragraph (1) shall not apply to a security eine Sicherheit, die (i) über Vermögens- which (i) was granted over assets of a gegenstände einer Tochtergesellschaft der subsidiary of the Issuer that becomes a Emittentin, die erst nach dem Begebungstag Subsidiary only after the Issue Date provided zu einer Tochtergesellschaft der Emittentin that the security was not created in wurde, gewährt wurde, vorausgesetzt, dass anticipation of the acquisition of the die Sicherheit nicht im Zusammenhang mit Subsidiary, (ii) is mandatory according to dem Erwerb der Tochtergesellschaft applicable laws, (iii) is required as a begründet wurde, (ii) nach anwendbarem prerequisite for governmental approvals, Recht zwingend vorgeschrieben ist, (iv) existed on the Issue Date, (v) is granted (iii) Voraussetzung für die Gewährung by a Subsidiary over any existing or future staatlicher Genehmigungen ist, (iv) bereits claims of this Subsidiary against the Issuer or am Begebungstag bestand, (v) durch eine any of its Subsidiaries as a result of passing Tochtergesellschaft zur Sicherung von on proceeds from the sale of any issuance of gegenwärtigen oder zukünftigen Ansprüchen any securities, provided that such security dieser Tochtergesellschaft gegen die serves as security for obligations of this Emittentin oder eine ihrer Tochtergesell- Subsidiary under such securities, (vi) secures schaften aufgrund der Weiterleitung von Capital Market Indebtedness existing at the Erlösen aus der Emission von Wertpapieren time of an acquisition that becomes an gewährt wurde, soweit diese Sicherheit zur obligation of the Issuer as a consequence of Sicherung von Verpflichtungen dieser such acquisition, (vii) constitutes the renewal, Tochtergesellschaft aus diesen Wertpapieren extension or replacement of any security dient, (vi) eine im Zeitpunkt einer pursuant to the foregoing (i) through (vi), or Akquisition bestehende (viii) does not fall within the scope of Kapitalmarktverbindlichkeit besichert, die application of (i) through (vii) above and infolge der Akquisition eine Verpflichtung which secures Capital Market Indebtedness der Emittentin wird, (vii) eine Erneuerung, with a principal amount (when aggregated Verlängerung oder Ersetzung einer Sicherheit with the principal amount of other Capital gemäß vorstehender Ziffern (i) bis (vi) Market Indebtedness which has the benefit of darstellt oder (viii) nicht in den security (issued by the Issuer or any Material Anwendungsbereich von (i) bis (vii) fällt und Subsidiary) other than any falling within the Kapitalmarktverbindlichkeiten besichert, scope of application of (i) through (vii) deren Kapitalbetrag (zusammen mit dem above) not exceeding €200,000,000 (or its Kapitalbetrag anderer equivalent in other currencies as of the date Kapitalmarktverbindlichkeiten, für die of granting this Security). dingliche Sicherheiten (begeben durch die Emittentin oder eine Wesentliche Tochtergesellschaft) bestehen, die nicht in den Anwendungsbereich von (i) bis (vii) fallen) € 200.000.000 (bzw. den Gegenwert in anderen Währungen am Tag der
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Bestellung dieser Sicherheit) nicht überschreitet.
Eine nach diesem Absatz (2) zu bestellende Any security which is to be provided Sicherheit kann auch zugunsten einer Person, pursuant to this paragraph (2) may also be die als Treuhänder der Gläubiger tätig ist, provided to a person acting as trustee for the bestellt werden. Holders.
(3) Bestellung Zusätzlicher Sicherheiten. Ent- (3) Provision of Additional Security. Whenever steht für die Emittentin eine Verpflichtung the Issuer becomes obligated to secure (or zur Besicherung der Schuldverschreibungen procure that a Material Subsidiary secures) gemäß diesem § 3 (oder entsteht die the Notes pursuant to this § 3, the Issuer shall Verpflichtung, für deren Besicherung durch be entitled to discharge such obligation by eine Wesentliche Tochtergesellschaft Sorge providing (or procuring that the relevant zu tragen), so ist die Emittentin berechtigt, Material Subsidiary provides) a security diese Verpflichtung dadurch zu erfüllen, dass interest in the relevant collateral to a security sie ein Sicherungsrecht an dem jeweiligen trustee, such security trustee to hold such Sicherungsgegenstand zugunsten eines collateral and the security interest that gave Sicherheitentreuhänders bestellt (bzw. rise to the creation of such collateral, equally, dadurch, dass sie die betreffende Wesentliche for the benefit of the Holders and the holders Tochtergesellschaft zur Begründung eines of the Capital Market Indebtedness secured solchen Sicherungsrechts veranlasst), und by the security interest that gave rise to the zwar in einer Weise, dass der Sicher- creation of such security interest in such heitentreuhänder diesen Sicherungsgegen- collateral, such equal rank to be created in stand dinglich oder, falls rechtlich nicht rem or, if impossible to create in rem, möglich, aufgrund schuldrechtlicher contractually. Vereinbarung gleichrangig zugunsten der Gläubiger der Schuldverschreibungen und der Gläubiger derjenigen Kapitalmarkt- verbindlichkeit hält, die aufgrund der Besicherung zur Bestellung dieses Sicherungsrechts an dem betreffenden Sicherungsgegenstand führte.
§ 4 § 4 VERZINSUNG INTEREST
(1) Zinssatz und Zinszahlungstage. Die (1) Rate of Interest and Interest Payment Dates. Schuldverschreibungen werden bezogen auf The Notes shall bear interest on their ihren Nennbetrag verzinst, und zwar vom principal amount at the rate of 1.250 per cent. 23. Januar 2017 (der Verzinsungsbeginn) per annum from (and including) January 23, (einschließlich) mit 1,250 % p.a. bis zum 2017 (the Interest Commencement Date) to Fälligkeitstag (ausschließlich). Die Zinsen (but excluding) the Maturity Date. Interest sind jährlich nachträglich am 23. Januar shall be payable annually in arrear on zahlbar (jeweils ein Zinszahlungstag). Die January 23 (each such date, an Interest erste Zinszahlung erfolgt am 23. Januar 2018. Payment Date). The first payment of interest shall be made on January 23, 2018.
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(2) Zahlungsverzug. Wenn die Emittentin aus (2) Late Payment. If the Issuer for any reason irgendeinem Grund die Schuldverschreibun- fails to redeem the Notes when due, interest gen bei Fälligkeit nicht zurückzahlt, wird der shall continue to accrue on the outstanding ausstehende Betrag vom Tag der Fälligkeit amount from (and including) the due date to (einschließlich) bis zum Tag der (but excluding) the date of actual redemption tatsächlichen Rückzahlung der Schuldver- of the Notes at the default rate of interest schreibungen (ausschließlich) mit dem established by law 2 . Claims for further gesetzlichen Verzugszins 1 verzinst. Die damages in case of late payment are not Geltendmachung eines weitergehenden excluded. Schadens im Falle eines Zahlungsverzugs ist nicht ausgeschlossen.
(3) Berechnung der Zinsen. Sind Zinsen für (3) Calculation of Interest. Where interest is to einen Zeitraum zu berechnen, der kürzer ist be calculated in respect of a period which is als die Zinsperiode (wie in diesem Absatz (3) shorter than an Interest Period (as defined in definiert), wird der Zins auf Grundlage der this paragraph (3)), the interest will be tatsächlichen Anzahl der in dem betreffenden calculated on the basis of the actual number Zeitraum abgelaufenen Kalendertage (ein- of calendar days elapsed in the relevant schließlich des ersten, aber ausschließlich des period, from (and including) the first date in letzten Tages dieses Zeitraums) geteilt durch the relevant period to (but excluding) the last die tatsächliche Anzahl der Kalendertage der date of the relevant period, divided by the Zinsperiode (einschließlich des ersten, aber actual number of calendar days in the Interest ausschließlich des letzten Tages dieses Period in which the relevant period falls Zeitraums), in den der maßgebliche Zeitraum (including the first such day of the relevant fällt, ermittelt. Interest Period, but excluding the last day of the relevant Interest Period).
Zinsperiode bezeichnet den Zeitraum ab dem Interest Period means the period from (and Verzinsungsbeginn (einschließlich) bis zum including) the Interest Commencement Date ersten Zinszahlungstag (ausschließlich) und to (but excluding) the first Interest Payment anschließend den Zeitraum vom jeweiligen Date and thereafter from (and including) each Zinszahlungstag (einschließlich) bis zum relevant Interest Payment Date to (but darauffolgenden Zinszahlungstag (aus- excluding) the next following Interest schließlich). Payment Date.
§ 5 § 5 ZAHLUNGEN PAYMENTS
(1) Zahlung von Kapital und Zinsen. Die (1) Payment of Principal and Interest. Payment Zahlung von Kapital und Zinsen auf die of principal and interest in respect of the Schuldverschreibungen erfolgt, vorbehaltlich Notes shall be made, subject to paragraph (2) Absatz (2), an die Zahlstelle zur Weiter- below, to the Paying Agent for forwarding to leitung an das Clearingsystem oder dessen the Clearing System or to its order for credit
1 Der gesetzliche Verzugszinssatz beträgt fünf Prozentpunkte über dem von der Deutschen Bundesbank jeweils veröffentlichen Basiszinssatz, §§ 288 Abs. 1, 247 Abs. 1 BGB. 2 The default rate of interest established by statutory law is five percentage points above the base rate of interest published by Deutsche Bundesbank from time to time, sections 288 paragraph 1, 247 paragraph 1 of the German Civil Code (Bürgerliches Gesetzbuch).
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Order zur Gutschrift auf den Konten der to the accounts of the relevant accountholders jeweiligen Kontoinhaber des Clearing- of the Clearing System. systems.
(2) Zahlungsweise. Vorbehaltlich geltender (2) Manner of Payment. Subject to applicable steuerlicher und sonstiger gesetzlicher fiscal and other laws and regulations, Regelungen und Vorschriften werden auf die payments of amounts due in respect of the Schuldverschreibungen fällige Zahlungen in Notes shall be made in Euro. Euro geleistet.
(3) Erfüllung. Die Emittentin wird durch (3) Discharge. The Issuer shall be discharged by Zahlung an das Clearingsystem oder dessen payment to, or to the order of, the Clearing Order von ihrer Zahlungspflicht befreit. System.
(4) Geschäftstag. Ist der Tag für eine Zahlung in (4) Business Day. If the date for payment of any Bezug auf eine Schuldverschreibung ein Tag, amount in respect of any Note is not a der kein Geschäftstag ist, so hat der Business Day then the Holder shall not be Gläubiger keinen Anspruch auf Zahlung vor entitled to payment until the next such day in dem nächsten Geschäftstag am jeweiligen Ort the relevant place and shall not be entitled to und ist nicht berechtigt, weitere Zinsen oder further interest or other payment in respect of sonstige Zahlungen aufgrund dieser such delay. For these purposes, Business Day Verspätung zu verlangen. Für diese Zwecke means a day (other than a Saturday or a bezeichnet Geschäftstag einen Tag (außer Sunday) on which banks are open for general einem Samstag oder Sonntag), an dem business in Frankfurt am Main and London Banken in Frankfurt am Main und in London and on which the Clearing System as well as für den allgemeinen Geschäftsverkehr all relevant parts of the Trans-European geöffnet sind und an dem das Clearingsystem Automated Real-time Gross Settlement sowie alle maßgeblichen Bereiche des Trans- Express Transfer System 2 (TARGET2) are European Automated Real-time Gross operational to effect payments. Settlement Express Transfer System 2 (TARGET2) betriebsbereit sind, um Zahlungen vorzunehmen.
(5) Bezugnahmen auf Kapital und Zinsen. (5) References to Principal and Interest. Bezugnahmen in diesen Anleihebedingungen References in these Terms and Conditions to auf Kapital der Schuldverschreibungen principal in respect of the Notes shall be schließen, soweit anwendbar, die folgenden deemed to include, as applicable: the Final Beträge ein: Rückzahlungsbetrag, Wahl- Redemption Amount, the Call Redemption Rückzahlungsbetrag (Call), Wahl- Amount, the Put Redemption Amount, Rückzahlungsbetrag (Put), gegebenenfalls Additional Amounts which may be payable gemäß § 8 zahlbare Zusätzliche Beträge und under § 8 and any other premium and any alle Aufschläge oder sonstigen auf die other amounts which may be payable under Schuldverschreibungen oder im Zusammen- or in respect of the Notes. References in these hang damit gegebenenfalls zahlbaren Terms and Conditions to interest in respect of Beträge. Bezugnahmen in diesen Anleihe- the Notes shall be deemed to include, as bedingungen auf Zinsen auf die Schuld- applicable, any Additional Amounts which verschreibungen schließen, soweit may be payable under § 8. anwendbar, sämtliche gegebenenfalls gemäß
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§ 8 zahlbaren Zusätzlichen Beträge ein.
(6) Hinterlegung von Kapital und Zinsen. Die (6) Deposit of Principal and Interest. The Issuer Emittentin ist berechtigt, beim Amtsgericht may deposit with the local court in Frankfurt Frankfurt am Main Kapital- oder Zinsbeträge am Main principal or interest not claimed by zu hinterlegen, die von den Gläubigern nicht Holders within twelve months after the innerhalb von zwölf Monaten nach dem Maturity Date, even though such Holders Fälligkeitstag beansprucht worden sind, auch may not be in default of acceptance of wenn die Gläubiger sich nicht in payment. If and to the extent that the deposit Annahmeverzug befinden. Wenn und soweit is effected and the right of withdrawal is eine solche Hinterlegung erfolgt und auf das waived, the respective claims of such Holders Recht der Rücknahme verzichtet wird, against the Issuer shall cease. erlöschen die diesbezüglichen Ansprüche der Gläubiger gegen die Emittentin.
§ 6 § 6 RÜCKZAHLUNG REDEMPTION
(1) Rückzahlung bei Endfälligkeit. Soweit nicht (1) Redemption at Maturity. Unless previously zuvor bereits ganz oder teilweise zurück- redeemed in whole or in part or purchased gezahlt oder angekauft und entwertet, werden and cancelled, the Notes shall be redeemed at die Schuldverschreibungen zu ihrem Rück- their Final Redemption Amount on zahlungsbetrag am 23. Januar 2024 (dem January 23, 2024 (the Maturity Date). The Fälligkeitstag) zurückgezahlt. Der Final Redemption Amount in respect of each Rückzahlungsbetrag einer jeden Note shall be its principal amount. Schuldverschreibung entspricht dabei ihrem Nennbetrag.
(2) Vorzeitige Rückzahlung aus steuerlichen (2) Early Redemption for Reasons of Taxation. If Gründen. Die Schuldverschreibungen können as a result of any change in, or amendment jederzeit insgesamt, jedoch nicht teilweise, to, the laws or regulations of the Federal nach Wahl der Emittentin mit einer Republic of Germany (or in the event the Kündigungsfrist von mindestens 45 und Issuer becoming subject to another tax höchstens 60 Tagen durch Erklärung jurisdiction pursuant to § 8(4), the laws or gegenüber der Zahlstelle und gemäß § 15 regulations of such other tax jurisdiction) gegenüber den Gläubigern gekündigt und zu affecting taxation or the obligation to pay ihrem Nennbetrag zuzüglich bis zum für die duties of any kind, or any change in, or Rückzahlung festgesetzten Tag (aus- amendment to, an official interpretation or schließlich) aufgelaufener Zinsen vorzeitig application of such laws or regulations, zurückgezahlt werden, falls die Emittentin als which amendment or change becomes Folge einer Änderung oder Ergänzung der effective on or after the date on which the Gesetze oder Vorschriften der Bundes- Notes were issued, the Issuer is required to republik Deutschland (oder für den Fall, dass pay Additional Amounts on the next die Emittentin gemäß § 8(4) einer anderen succeeding Interest Payment Date, and this Steuerrechtsordnung unterworfen wird, der obligation cannot be avoided by the use of Gesetze oder Vorschriften dieser anderen measures available to the Issuer which are, in Steuerrechtsordnung), die Steuern oder die the judgement of the Issuer, in each case Verpflichtung zur Zahlung von Abgaben taking into account the interests of Holders,
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jeglicher Art betreffen, oder als Folge einer reasonable, the Notes may be redeemed, in Änderung oder Ergänzung der offiziellen whole but not in part, at the option of the Auslegung oder Anwendung dieser Gesetze Issuer, at any time upon not less than 45 und Vorschriften (vorausgesetzt, diese days’ nor more than 60 days’ prior notice of Änderung oder Ergänzung wird am oder nach redemption given to the Paying Agent and, in dem Tag der Begebung der Schuld- accordance with § 15, to the Holders, at the verschreibungen wirksam) am nächstfolgen- principal amount together with interest den Zinszahlungstag zur Zahlung von accrued to (but excluding) the date fixed for Zusätzlichen Beträgen verpflichtet sein wird redemption. und diese Verpflichtung nicht durch das Ergreifen der Emittentin zur Verfügung stehender Maßnahmen vermieden werden kann, die nach Auffassung der Emittentin zumutbar sind (wobei jeweils die Interessen der Gläubiger zu berücksichtigen sind).
Eine solche Kündigung darf allerdings nicht However, no such notice of redemption may (i) früher als 90 Tage vor dem be given (i) earlier than 90 days prior to the frühestmöglichen Termin erfolgen, an dem earliest date on which the Issuer would be die Emittentin verpflichtet wäre, solche obligated to pay such Additional Amounts if Zusätzlichen Beträge zu zahlen, falls eine a payment in respect of the Notes was then Zahlung auf die Schuldverschreibungen dann due, or (ii) if at the time such notice is given, fällig wäre, oder (ii) erfolgen, wenn zu dem such obligation to pay such Additional Zeitpunkt, zu dem die Kündigung erklärt Amounts does not remain in effect. wird, die Verpflichtung zur Zahlung von Zusätzlichen Beträgen nicht mehr wirksam ist.
Eine solche Kündigung hat gemäß § 15 zu Any such notice shall be given in accordance erfolgen. Sie ist unwiderruflich, muss den für with § 15. It shall be irrevocable, must die Rückzahlung festgelegten Termin nennen specify the date fixed for redemption and und eine zusammenfassende Erklärung must set forth a statement summarizing the enthalten, welche die das Rückzahlungsrecht facts constituting the basis for the right of the der Emittentin begründenden Umstände Issuer so to redeem. darlegt.
(3) Vorzeitige Rückzahlung nach Wahl der (3) Early Redemption at the Option of the Issuer. Emittentin.
(a) Die Emittentin kann die (a) The Issuer may, upon prior notice of Schuldverschreibungen (ausgenommen redemption given to the Paying Agent Schuldverschreibungen, deren and, in accordance with § 15, to the Rückzahlung der Gläubiger bereits in Holders, redeem, at its option, the Notes Ausübung seines Wahlrechts nach (except for any Note which is the subject Absatz (5) verlangt hat) insgesamt oder of the prior exercise by the Holder teilweise, nach ihrer Wahl durch thereof of the option to require the Erklärung gegenüber der Zahlstelle und redemption of such Note under paragraph gemäß § 15 gegenüber den Gläubigern (5)) in whole or in part within the period
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kündigen und innerhalb des Zeitraums from October 23, 2023 to the Maturity vom 23. Oktober 2023 bis zum Date at their Final Redemption Amount Fälligkeitstag zu ihrem together with any unpaid interest to (but Rückzahlungsbetrag zusammen mit allen excluding) the date fixed for redemption. nicht gezahlten Zinsen, die bis zum für die Rückzahlung festgesetzten Tag (ausschließlich) aufgelaufen sind, zurückzahlen
(b) Eine solche Kündigungserklärung ist (b) Such notice shall be irrevocable and must unwiderruflich und muss die folgenden specify (i) whether the Notes are to be Angaben beinhalten: (i) die Erklärung, ob redeemed in whole or in part and, if in die Schuldverschreibungen ganz oder part, the aggregate principal amount of teilweise zurückgezahlt werden und im the Notes which are to be redeemed, and letzteren Fall den Gesamtnennbetrag der (ii) the date fixed for redemption, which zurückzuzahlenden shall be not less than 30 nor more than 60 Schuldverschreibungen, und (ii) den für days after the date on which notice is die Rückzahlung festgesetzten Tag, der given by the Issuer to the Holders. nicht weniger als 30 und nicht mehr als 60 Tage nach dem Tag der Kündigung durch die Emittentin gegenüber den Gläubigern liegen darf.
(c) Werden die Schuldverschreibungen nur (c) In the case of a partial redemption of teilweise zurückgezahlt, werden die Notes, Notes to be redeemed shall be zurückzuzahlenden selected in accordance with the Schuldverschreibungen in customary proceedings of the relevant Übereinstimmung mit den üblichen Clearing System. Such partial redemption Verfahren des betreffenden shall be reflected in the records of CBL Clearingsystems ausgewählt. Die and Euroclear as either a pool factor or a teilweise Rückzahlung wird in den reduction in principal amount, at the Registern von CBL und Euroclear nach discretion of CBL and Euroclear. deren Ermessen entweder als Pool-Faktor oder als Reduzierung des Nennbetrags wiedergegeben.
(4) Vorzeitige Rückzahlung nach Wahl der (4) Early Redemption at the Option of the Issuer Emittentin (Make-Whole). Die Emittentin (Make-Whole). The Issuer may, upon not less kann die Schuldverschreibungen than 45 days’ nor more than 60 days’ prior (ausgenommen Schuldverschreibungen, notice of redemption given to the Paying deren Rückzahlung der Gläubiger bereits in Agent and, in accordance with § 15, to the Ausübung seines Wahlrechts nach Absatz (5) Holders, redeem on any date specified by it verlangt hat) insgesamt, jedoch nicht (the Call Redemption Date), at its option, the teilweise, nach ihrer Wahl mit einer Notes (except for any Note which is the Kündigungsfrist von mindestens 45 und subject of the prior exercise by the Holder höchstens 60 Tagen durch Erklärung thereof of its option to require the redemption gegenüber der Zahlstelle und gemäß § 15 of such Note under paragraph (5)) in whole gegenüber den Gläubigern kündigen und an but not in part, at their Call Redemption
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einem von ihr anzugebenden Tag (dem Wahl- Amount together with any unpaid interest Rückzahlungstag (Call)) zu ihrem Wahl- accrued to (but excluding) the Call Rückzahlungsbetrag (Call) zusammen mit Redemption Date (but excluding accrued allen nicht gezahlten Zinsen zurückzahlen, interest accounted for in the Call Redemption die bis zum Wahl-Rückzahlungstag (Call) Amount). It shall be irrevocable and must (ausschließlich) (aber ohne aufgelaufene specify the Call Redemption Date and the Zinsen, die in dem Wahl-Rückzahlungsbetrag Call Redemption Amount at which such (Call) berücksichtigt sind) aufgelaufen sind. Notes are to be redeemed. Sie ist unwiderruflich und muss den Wahl- Rückzahlungstag (Call) und den Wahl- Rückzahlungsbetrag (Call) angeben, zu dem die betreffenden Schuldverschreibungen zurückgezahlt werden.
Der Wahl-Rückzahlungsbetrag (Call) je The Call Redemption Amount per Note Schuldverschreibung entspricht (i) dem means the higher of (i) the principal amount Nennbetrag je Schuldverschreibung oder per Note and (ii) the Make-Whole Amount (ii), falls höher, dem Abgezinsten Marktpreis per Note. The Make-Whole Amount will be (Make-Whole Amount) je Schuldverschrei- an amount calculated by an independent bung. Der Abgezinste Marktpreis (Make- financial adviser appointed by the Issuer at Whole Amount) wird von einem von der the Issuer's expense (the Independent Emittentin auf eigene Kosten bestellten Financial Adviser) on the Redemption unabhängigen Sachverständigen (der Calculation Date by discounting the principal Unabhängige Sachverständige) am amount and the remaining interest payments Rückzahlungs-Berechnungstag berechnet, to the Maturity Date on an annual basis, indem der Nennbetrag und die verbleibenden assuming a 365-day year or a 366-day year, Zinszahlungen bis zum Fälligkeitstag auf as the case may be, and the actual number of jährlicher Basis unter Zugrundelegung eines days elapsed in such year and using the Bund Jahres mit 365 bzw. 366 Tagen und der Zahl Rate plus 25 basis points. der tatsächlich in dem Jahr verstrichenen Tage und mit der Bund-Rendite plus 25 Basispunkte abgezinst werden.
Die Bund-Rendite entspricht der bis zur The Bund Rate shall be the yield to maturity Fälligkeit am Rückzahlungs-Berechnungstag per annum at the Redemption Calculation bestehenden Rendite p.a. einer unmittelbaren Date of a direct obligation of the Federal Verbindlichkeit der Bundesrepublik Deutsch- Republic of Germany with a constant land (Bund oder Bundesanleihen) mit einer maturity (as officially compiled and Festlaufzeit (wie offiziell bestimmt und in published in the most recent financial den mindestens zwei (und höchstens fünf) statistics that have become publicly available Geschäftstage vor dem jeweiligen Wahl- at least two Business Days (but not more than Rückzahlungstag (Call) zuletzt verfügbaren five Business Days) prior to the relevant Call öffentlich zugänglichen Finanzstatistiken Redemption Date (or, if such financial veröffentlicht (oder falls solche statistischen statistics are not so published or available, Finanzinformationen nicht veröffentlicht oder any publicly available source of similar zugänglich sind, wie in einer von dem market data selected by the Independent Unabhängigen Sachverständigen Financial Adviser)) most nearly equal to the ausgewählten anderen öffentlich period from the relevant Call Redemption
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zugänglichen Quelle vergleichbarer Date to the Maturity Date; provided, Marktdaten angegeben)), die der Zeitspanne however, that if the period from the relevant vom jeweiligen Wahl-Rückzahlungstag Call Redemption Date to the Maturity Date is (Call) bis zum Fälligkeitstag der not equal to the constant maturity of the Schuldverschreibung am ehesten entspricht. direct obligation of the Federal Republic of Sollte jedoch die Zeitspanne vom jeweiligen Germany for which a weekly average yield is Wahl-Rückzahlungstag (Call) bis zum given, the Bund Rate shall be obtained by Fälligkeitstag nicht der Festlaufzeit einer linear interpolation (calculated to the nearest solchen unmittelbaren Verbindlichkeit der one-twelfth of a year) from the weekly Bundesrepublik Deutschland entsprechen, für average yields of a direct obligation of the die eine wöchentliche Durchschnittsrendite Federal Republic of Germany for which such angegeben wird, so ist die Bund-Rendite im yields are given, except that if the period Wege der linearen Interpolation (berechnet from the relevant Call Redemption Date to auf das nächste Zwölftel eines Jahres) aus the Maturity Date is less than one year, the den wöchentlichen Durchschnittsrenditen weekly average yield on an actually traded einer unmittelbaren Verbindlichkeit der direct obligation of the Federal Republic of Bundesrepublik Deutschland zu ermitteln, für Germany adjusted to a constant maturity of die solche Renditen angegeben werden. one year shall be used. Sofern die Zeitspanne vom Wahl-Rück- zahlungstag (Call) bis zum Fälligkeitstag kürzer als ein Jahr ist, so ist die wöchentliche Durchschnittsrendite einer tatsächlich gehandelten unmittelbaren Verbindlichkeit der Bundesrepublik Deutschland, angepasst an eine Festlaufzeit von einem Jahr, anzuwenden.
Rückzahlungs-Berechnungstag ist der Redemption Calculation Date means the zehnte Geschäftstag vor dem Wahl- tenth Business Day prior to the Call Rückzahlungstag (Call). Redemption Date.
(5) Vorzeitige Rückzahlung nach Wahl der (5) Early Redemption at the Option of the Gläubiger bei Vorliegen eines Kontroll- Holders upon a Change of Control. wechsels.
(a) Tritt nach dem Begebungstag ein (a) If a Change of Control occurs after the Kontrollwechsel ein, so ist jeder Issue Date, each Holder shall have the Gläubiger berechtigt, aber nicht right, but not the obligation, to require verpflichtet, von der Emittentin die the Issuer to redeem or, at the Issuer’s vollständige oder teilweise Rückzahlung option, purchase (or procure the purchase oder, nach Wahl der Emittentin, den of) in whole or in part his Notes, within Ankauf (oder die Veranlassung eines 60 days after a Put Event Notice under Ankaufs) seiner Schuldverschreibungen subparagraph (b) has been published (the innerhalb von 60 Tagen, nachdem die Put Period), at the Put Redemption Gläubigerwahl-Rückzahlungsereignis- Amount (the Put Option). Such Put Mitteilung gemäß Unterabsatz (b) Option shall operate as set out below bekannt gegeben wurde (der under subparagraphs (b) to (c). Ausübungszeitraum), zum Wahl-
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Rückzahlungsbetrag (Put) (das Gläubiger-Rückzahlungswahlrecht) zu verlangen. Dieses Gläubiger- Rückzahlungswahlrecht ist wie nachstehend unter den Unterabsätzen (b) bis (c) beschrieben auszuüben.
Ein Kontrollwechsel gilt jedes Mal als A Change of Control shall be deemed to eingetreten (unabhängig davon, ob der have occurred at each time (whether or Vorstand oder der Aufsichtsrat der not approved by the management board Emittentin zugestimmt haben), wenn eine or supervisory board of the Issuer) that oder mehrere Personen, die gemeinsam any person or persons acting in concert handeln, (die relevante(n) Person(en)) (Relevant Person(s)) or any person or oder ein oder mehrere Dritte, die im persons acting on behalf of any such Auftrag der relevanten Person(en) Relevant Person(s), at any time directly handeln, zu irgendeiner Zeit unmittelbar or indirectly acquire(s) or come(s) to own oder mittelbar (i) 30 % oder mehr des (i) 30 per cent. or more of the share Grundkapitals der Emittentin oder capital of the Issuer or (ii) such number (ii) eine solche Anzahl von Aktien der of the shares in the capital of the Issuer Emittentin, auf die 30 % oder mehr der carrying 30 per cent. or more of the Stimmrechte entfallen, erwirbt bzw. voting rights. erwerben oder hält bzw. halten.
Der Wahl-Rückzahlungsbetrag (Put) Put Redemption Amount means for each bezeichnet für jede Schuldverschreibung Note 101 per cent. of the principal 101 % des Nennbetrags einer solchen amount of such Note, plus unpaid interest Schuldverschreibung zuzüglich nicht accrued to (but excluding) the Put Date. gezahlter bis zum Wahl-Rückzahlungstag (Put) (ausschließlich) aufgelaufener Zinsen.
(b) Tritt nach dem Begebungstag ein (b) If a Change of Control occurs after the Kontrollwechsel ein, so teilt die Issue Date, then the Issuer shall, without Emittentin dies unverzüglich, nachdem undue delay, after the Issuer becoming die Emittentin davon Kenntnis erlangt aware thereof, give notice of the Change hat, den Gläubigern gemäß § 15 mit (eine of Control (a Put Event Notice) to the Gläubigerwahl-Rückzahlungsereignis- Holders in accordance with § 15 Mitteilung) und gibt dabei die Art des specifying the nature of the Change of Kontrollwechsels und das in diesem Control and the procedure for exercising Absatz (5) vorgesehene Verfahren zur the Put Option contained in this Ausübung des Gläubiger-Rückzahlungs- paragraph (5) (including the information wahlrechts an (mit Angaben zum on the Clearing System account of the Clearingsystem-Konto der Zahlstelle für Paying Agent for purposes of die Zwecke von Unterabsatz (c)(ii)(x) subparagraph (c)(ii)(x) of this dieses Absatzes (5)). paragraph (5)).
(c) Zur Ausübung des Gläubiger- (c) To exercise the Put Option, the Holder Rückzahlungswahlrechts muss der must deliver on any Business Day within
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Gläubiger an einem Geschäftstag the Put Period (i) to the Paying Agent at innerhalb des Ausübungszeitraums, its specified office a duly signed and (i) bei der bezeichneten Geschäftsstelle completed notice of exercise in the then der Zahlstelle eine ordnungsgemäß current form obtainable from the Paying ausgefüllte und unterzeichnete Agent (a Put Notice) and (ii) the Ausübungserklärung in der jeweils bei aggregate Specified Denomination of der Zahlstelle erhältlichen maßgeblichen Notes for which the Holder wishes to Form einreichen (die Gläubiger- exercise its Put Option by either Ausübungserklärung) und (x) transferring such Notes to the (ii) Schuldverschreibungen in Höhe des Clearing System account of the Paying Gesamtbetrags der Festgelegten Agent or (y) giving an irrevocable Stückelung einreichen, für die der instruction to the Paying Agent to Gläubiger sein Gläubiger- withdraw such Notes from a securities Rückzahlungswahlrecht ausüben möchte, account of the Holder with the Paying und zwar entweder durch Agent. The Issuer shall redeem or, at its (x) Übertragung dieser Schuldverschrei- option, purchase (or procure the purchase bungen auf das Clearingsystem-Konto of) the relevant Note(s) on the date seven der Zahlstelle oder (y) Abgabe einer days after the expiration of the Put Period unwiderruflichen Anweisung an die (the Put Date) unless previously Zahlstelle, die Schuldverschreibungen redeemed or purchased and cancelled. aus einem Wertpapierdepot des Payment in respect of any Note so Gläubigers bei der Zahlstelle delivered will be made in accordance auszubuchen. Die Emittentin wird die with the customary procedures through betreffende(n) Schuldverschreibung(en) the Clearing System. A Put Notice, once sieben Tage nach Ablauf des given, shall be irrevocable. Ausübungszeitraums (der Wahl- Rückzahlungstag (Put)) zurückzahlen oder nach ihrer Wahl ankaufen (oder ankaufen lassen), soweit sie nicht bereits vorher zurückgezahlt oder angekauft und entwertet wurde(n). Die Zahlung in Bezug auf solchermaßen eingereichte Schuldverschreibungen erfolgt gemäß den üblichen Verfahren über das Clearingsystem. Eine einmal abgegebene Gläubiger-Ausübungserklärung ist unwiderruflich.
(6) Vorzeitige Rückzahlung bei Geringem (6) Early Redemption in case of Minimal Ausstehenden Gesamtnennbetrag der Schuld- Outstanding Aggregate Principal Amount of verschreibungen. Wenn 80 % oder mehr des the Notes. If 80 per cent. or more of the Gesamtnennbetrags der Schuldverschrei- aggregate principal amount of the Notes have bungen nach diesem § 6 von der Emittentin been redeemed or purchased by the Issuer or oder einer direkten oder indirekten any direct or indirect Subsidiary of the Issuer Tochtergesellschaft der Emittentin zurück- pursuant to the provisions of this § 6, the gezahlt oder angekauft wurden, ist die Issuer may at any time, on not less than 30 or Emittentin jederzeit berechtigt, nach more than 60 days’ notice to the Holders vorheriger Bekanntmachung gegenüber den given in accordance with § 15, redeem, at its
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Gläubigern gemäß § 15 mit einer Frist von option, the remaining Notes in whole but not mindestens 30 und höchstens 60 Tagen nach in part at the principal amount thereof plus ihrer Wahl die ausstehenden unpaid interest accrued to (but excluding) the Schuldverschreibungen insgesamt, aber nicht date of actual redemption. teilweise, zum Nennbetrag zuzüglich bis zum tatsächlichen Rückzahlungstag (ausschließlich) nicht gezahlter, aufgelaufener Zinsen zurückzuzahlen.
§ 7 § 7 ZAHLSTELLE PAYING AGENT
(1) Bestellung; bezeichnete Geschäftsstelle. Die (1) Appointment; Specified Office. The initial anfänglich bestellte Zahlstelle und deren Paying Agent and its initial specified offices anfänglich bezeichnete Geschäftsstelle ist: shall be:
HSBC Bank plc HSBC Bank plc 8 Canada Square 8 Canada Square London E14 5HQ London E14 5HQ United Kingdom United Kingdom
Die Zahlstelle behält sich das Recht vor, The Paying Agent reserves the right at any jederzeit ihre bezeichneten Geschäftsstellen time to change its specified offices to some durch eine andere Geschäftsstelle in other office in the same city. derselben Stadt zu ersetzen.
(2) Änderung oder Beendigung der Bestellung. (2) Variation or Termination of Appointment. Die Emittentin behält sich das Recht vor, The Issuer reserves the right at any time to jederzeit die Bestellung der Zahlstelle zu vary or terminate the appointment of the ändern oder zu beenden und zusätzliche oder Paying Agent and to appoint another Paying eine oder mehrere andere Zahlstellen zu Agent, additional or other paying agents. The bestellen. Die Emittentin wird zu jedem Issuer shall at all times maintain a Paying Zeitpunkt eine Zahlstelle unterhalten. Eine Agent. Any variation, termination, Änderung, Beendigung, Bestellung oder ein appointment or change shall only take effect Wechsel wird nur wirksam (außer im (other than in the case of insolvency, when it Insolvenzfall, in dem eine solche Änderung shall be of immediate effect) after not less sofort wirksam wird), sofern die Gläubiger than 30 nor more than 45 days’ prior notice hierüber gemäß § 15 vorab unter Einhaltung thereof shall have been given to the Holders einer Frist von mindestens 30 und höchstens in accordance with § 15. 45 Tagen informiert wurden.
(3) Erfüllungsgehilfen der Emittentin. Die (3) Agents of the Issuer. The Paying Agent and Zahlstelle und jede andere nach Absatz (2) any other paying agent appointed pursuant to bestellte Zahlstelle handeln ausschließlich als paragraph (2) act solely as the agents of the Erfüllungsgehilfen der Emittentin und Issuer and do not assume any obligations übernehmen keinerlei Verpflichtungen towards or relationship of agency or trust gegenüber den Gläubigern, und es wird kein with any Holder. Auftrags- oder Treuhandverhältnis zwischen
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ihnen und den Gläubigern begründet.
§ 8 § 8 STEUERN TAXATION
(1) Zahlungen ohne Einbehalt oder Abzug von (1) Payments Free of Taxes. All amounts Steuern. Alle in Bezug auf die payable in respect of the Notes shall be made Schuldverschreibungen zu zahlenden Beträge without withholding or deduction for or on werden ohne Einbehalt oder Abzug von oder account of any present or future taxes or aufgrund von gegenwärtigen oder duties of whatever nature imposed or levied zukünftigen Steuern oder Abgaben gleich at source by way of withholding or deduction welcher Art gezahlt, die von oder im Namen by or on behalf of the Federal Republic of der Bundesrepublik Deutschland oder einer Germany or any political subdivision or any steuererhebungsberechtigten Gebietskörper- authority thereof or therein having power to schaft oder Steuerbehörde dieses Landes im tax, unless such withholding or deduction is Wege des Einbehalts oder Abzugs an der required by law. Quelle auferlegt oder erhoben werden, es sei denn, ein solcher Einbehalt oder Abzug ist gesetzlich vorgeschrieben.
(2) Zahlung Zusätzlicher Beträge. Ist ein (2) Payments of Additional Amounts. If such Einbehalt oder Abzug in Bezug auf zu withholding or deduction with respect to zahlende Beträge auf die Schuld- amounts payable in respect of the Notes is verschreibungen gesetzlich vorgeschrieben, required by law, the Issuer will pay such so wird die Emittentin diejenigen additional amounts (the Additional Amounts) zusätzlichen Beträge (die Zusätzlichen as shall be necessary in order that the net Beträge) zahlen, die erforderlich sind, damit amounts received by the Holders, after such die den Gläubigern zufließenden Netto- withholding or deduction shall equal the beträge nach einem solchen Einbehalt oder respective amounts which would otherwise Abzug jeweils den Beträgen entsprechen, die have been receivable in the absence of such ohne einen solchen Einbehalt oder Abzug withholding or deduction; except that no such erhalten worden wären; eine Verpflichtung Additional Amounts shall be payable on zur Zahlung solcher Zusätzlichen Beträge account of any taxes or duties which: besteht jedoch nicht für Steuern oder Abgaben:
(a) die anders als durch Einbehalt oder (a) are payable otherwise than by Abzug in Bezug auf Zahlungen, welche withholding or deduction from payments, die Emittentin an den Gläubiger leistet, made by the Issuer to the Holder, or zu entrichten sind; oder
(b) die von einer als Depotbank oder (b) are payable by any Person acting as Inkassobeauftragte im Namen eines custodian bank or collecting agent on Gläubigers handelnden Person oder sonst behalf of a Holder, or otherwise in any auf andere Weise zu entrichten sind als manner which does not constitute a dadurch, dass die Emittentin von den von withholding or deduction by the Issuer ihr zu leistenden Zahlungen von Kapital from payments of principal or interest oder Zinsen einen Einbehalt oder Abzug made by it, or
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vornimmt; oder
(c) die aufgrund einer bestehenden oder (c) are payable by reason of the Holder früheren persönlichen oder geschäft- having, or having had, some personal or lichen Beziehung des Gläubigers zur business relation to the Federal Republic Bundesrepublik Deutschland zu zahlen of Germany and not merely by reason of sind, und nicht allein deshalb, weil the fact that payments in respect of the Zahlungen auf die Schuldverschrei- Notes are, or for purposes of taxation are bungen aus Quellen in der Bundes- deemed to be, derived from sources in, or republik Deutschland stammen (oder für are secured in, the Federal Republic of Zwecke der Besteuerung so behandelt Germany, or werden) oder dort besichert sind; oder
(d) die durch eine Zahlstelle von der Zahlung (d) are withheld or deducted by a paying einzubehalten oder abzuziehen sind, agent from a payment if the payment wenn die Zahlung von einer anderen could have been made by another paying Zahlstelle ohne einen solchen Einbehalt agent without such withholding or oder Abzug hätte vorgenommen werden deduction, or können; oder
(e) die aufgrund (i) einer Richtlinie oder (e) are withheld or deducted pursuant to Verordnung der Europäischen Union (i) any European Union Directive or betreffend die Besteuerung von Regulation concerning the taxation of Zinserträgen oder Sparguthaben oder interest income or savings, or (ii) any (ii) zwischenstaatlicher Abkommen oder international treaty or understanding Vereinbarungen über deren Besteuerung, relating to such taxation and to which the an denen die Bundesrepublik Federal Republic of Germany or the Deutschland oder die Europäische Union European Union is a party, or (iii) any beteiligt ist, oder (iii) einer gesetzlichen provision of law implementing, or Vorschrift, die der Umsetzung dieser complying with, or introduced to Richtlinie, Verordnung oder dieses conform with, such Directive, Abkommens oder dieser Vereinbarung Regulation, treaty or understanding, or dient, diesen entspricht oder zur Anpassung an diese eingeführt wurde, einzubehalten oder abzuziehen sind; oder
(f) die nicht erhoben oder einbehalten oder (f) would not have been imposed, withheld abgezogen worden wären, wenn es der or deducted but for the failure of the Gläubiger oder der wirtschaftliche Holder or beneficial owner of Notes Eigentümer der Schuldverschreibungen (including, for these purposes, any (für die vorliegenden Zwecke einschließ- financial institution through which the lich Finanzinstitute, über die der Holder or beneficial owner holds the Gläubiger oder wirtschaftliche Eigen- Notes or through which payment on the tümer die Schuldverschreibungen hält Notes is made), following a written oder über die Zahlungen auf die request by or on behalf of the Issuer or a Schuldverschreibungen erfolgen) nicht Paying Agent addressed to the Holder or unterlassen hätte, nach einer an den beneficial owner (and made at a time that Gläubiger oder wirtschaftlichen would enable the Holder or beneficial
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Eigentümer gerichteten schriftlichen owner acting reasonably to comply with Aufforderung der Emittentin, einer that request, and in all events, at least 30 Zahlstelle oder in deren Namen (die so days before any withholding or deduction rechtzeitig erfolgt, dass der Gläubiger would be required), to comply with any bzw. der wirtschaftliche Eigentümer certification, identification, information dieser Aufforderung mit zumutbaren or other reporting requirement whether Anstrengungen nachkommen kann, in required by statute, treaty, regulation or jedem Fall aber mindestens 30 Tage, administrative practice of the Federal bevor ein Einbehalt oder Abzug Republic of Germany, that is a erforderlich wäre), einer aufgrund von precondition to exemption from, or Gesetzen, Abkommen, Verordnungen reduction in the rate of withholding or oder der Verwaltungspraxis in der deduction of, taxes imposed by the Bundesrepublik Deutschland Federal Republic of Germany (including, vorgeschriebenen Bescheinigungs-, without limitation, a certification that the Identifizierungs-, Informations-, oder Holder or beneficial owner is not resident sonstigen Nachweispflicht nachzu- in the Federal Republic of Germany), but kommen, die Voraussetzung für eine in each case, only to the extent the Befreiung von in der Bundesrepublik Holder or beneficial owner is legally Deutschland erhobenen Steuern oder für entitled to provide such certification, eine Reduzierung der Höhe des information or documentation, or Einbehalts oder Abzugs solcher Steuern ist (u. a. eine Bescheinigung, dass der Gläubiger bzw. der wirtschaftliche Eigentümer nicht in der Bundesrepublik Deutschland ansässig ist), jedoch jeweils nur, soweit der Gläubiger bzw. der wirtschaftliche Eigentümer rechtlich berechtigt ist, die Bescheinigung, Information oder Dokumentation vorzulegen; oder
(g) die Grundsteuern, Erbschaftsteuern, (g) are estate, inheritance, gift, sales, excise, Schenkungsteuern, Umsatzsteuern, transfer, personal property or similar Verbrauchsteuern, Verkehrsteuern, taxes, or Vermögensteuern oder ähnliche Steuern darstellen, oder
(h) die wegen einer Rechtsänderung zu (h) are payable by reason of a change in law zahlen sind, welche später als 30 Tage that becomes effective more than 30 days nach Fälligkeit der betreffenden Zahlung after the relevant payment becomes due, wirksam wird; oder or
(i) die aufgrund jeglicher Kombination der (i) are payable due to any combination of Absätze (a) bis (h) zu entrichten sind. items (a) to (h),
Zudem werden keine Zusätzlichen Beträge nor shall any Additional Amounts be paid im Hinblick auf Zahlungen auf die with respect to any payment on a Note to a Schuldverschreibungen an einen Gläubiger Holder who is a fiduciary or partnership or
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gezahlt, welcher die Zahlung als Treuhänder who is other than the sole beneficial owner of oder Personengesellschaft oder als sonstiger such payment to the extent such payment nicht alleiniger wirtschaftlicher Eigentümer would be required by the laws of the Federal der Zahlung erhält, soweit nach den Gesetzen Republic of Germany to be included in the der Bundesrepublik Deutschland eine solche income, for tax purposes, of a beneficiary or Zahlung für Steuerzwecke dem Einkommen settlor with respect to such fiduciary or a des Begünstigten bzw. Gründers eines member of such partnership or a beneficial Treuhandvermögens oder eines Gesell- owner who would not have been entitled to schafters der Personengesellschaft zugerech- such Additional Amounts had such net würde, der jeweils selbst nicht zum Erhalt beneficiary, settlor, member or beneficial von Zusätzlichen Beträgen berechtigt owner been the Holder of the Note. gewesen wäre, wenn der Begünstigte, Gründer eines Treuhandvermögens, Gesell- schafter oder wirtschaftliche Eigentümer selbst Gläubiger der Schuldverschreibungen wäre.
Zur Klarstellung wird festgehalten, dass die For the avoidance of doubt, the withholding in der Bundesrepublik Deutschland gemäß tax levied in the Federal Republic of dem zum Begebungstag geltenden Steuer- Germany at the level of the custodian bank recht auf der Ebene der Depotbank erhobene plus the solidarity surcharge imposed thereon Kapitalertragsteuer zuzüglich des darauf as well as church tax, where such tax is anfallenden Solidaritätszuschlags sowie levied by way of withholding, pursuant to tax Kirchensteuer, soweit eine solche im Wege law as in effect as of the Issue Date do not des Steuerabzugs erhoben wird, keine constitute a tax or duty as described above in Steuern oder Abgaben der vorstehend respect of which Additional Amounts would beschriebenen Art darstellen, für die von der be payable by the Issuer. Emittentin Zusätzliche Beträge zu zahlen wären.
Falls aufgrund einer Änderung der In case that due to a change in law the Rechtslage die in der Bundesrepublik withholding tax levied in the Federal Deutschland gemäß dem zum Begebungstag Republic of Germany at the level of the geltenden Steuerrecht auf der Ebene der custodian bank and the solidarity surcharge Depotbank erhobene Kapitalertragsteuer und imposed thereon including church tax, where der darauf anfallende Solidaritätszuschlag such tax is levied by way of withholding, einschließlich Kirchensteuer, soweit eine pursuant to tax law as in effect as of the Issue solche im Wege des Steuerabzugs erhoben Date have to be levied at the level of the wird, künftig auf Ebene der Emittentin zu Issuer in the future, these, too, do not erheben sind, stellen auch diese keine Steuern constitute a tax or duty as described above in oder Abgaben der vorstehend beschriebenen respect of which Additional Amounts would Art dar, für die von der Emittentin be payable by the Issuer. Zusätzliche Beträge zu zahlen wären.
(3) FATCA. Ungeachtet sonstiger hierin (3) FATCA. Notwithstanding any other enthaltener Bestimmungen, darf die provisions contained herein, the Issuer shall Emittentin Beträge, die gemäß einer be permitted to withhold or deduct any beschriebenen Vereinbarung in amounts required pursuant to an agreement
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Section 1471(b) des U.S. Internal Revenue described in Section 1471(b) of the U.S. Code von 1986 (der Code) erforderlich sind Internal Revenue Code of 1986 (the Code) or oder die anderweitig aufgrund der otherwise imposed pursuant to Sections 1471 Sections 1471 bis 1474 des Codes (oder jeder through 1474 of the Code (or any amended or Änderung oder Nachfolgeregelung), der successor provisions), any regulations or Regelungen oder Verträge darunter, der agreements thereunder, official offiziellen Auslegungen davon oder jeglicher interpretations thereof, or any law rechtsausführender und zwischenstaatlicher implementing and intergovernmental Zusammenarbeit dazu beruhen, einbehalten approach thereto (FATCA Withholding). The oder abziehen (FATCA Quellensteuer). Die Issuer will have no obligation to pay Emittentin ist aufgrund einer durch die additional amounts or otherwise indemnify Emittentin, eine Zahlstelle oder eine andere an investor for any such FATCA Partei abgezogenen oder einbehaltenen Withholding deducted or withheld by the FATCA Quellensteuer nicht zur Zahlung Issuer, any paying agent or any other party. zusätzlicher Beträge oder anderweitig zur Entschädigung eines Investors verpflichtet.
(4) Andere Steuerjurisdiktion. Falls die (4) Other Tax Jurisdiction. If at any time the Emittentin zu irgendeinem Zeitpunkt einer Issuer becomes subject to any taxing anderen Steuerrechtsordnung als der jurisdiction other than, or in addition to, the gegenwärtig maßgeblichen Steuerrechts- currently relevant taxing jurisdiction of the ordnung der Emittentin oder einer Issuer, references in this § 8 to the zusätzlichen Steuerrechtsordnung unter- jurisdiction of the Issuer shall be read and worfen wird, sollen die Bezugnahmen in construed as references to the jurisdiction of diesem § 8 auf die Rechtsordnung der the Issuer and/or to such other jurisdiction(s). Emittentin als Bezugnahmen auf die Rechtsordnung der Emittentin und/oder diese anderen Rechtsordnungen gelesen und ausgelegt werden.
§ 9 § 9 VORLEGUNGSFRIST, VERJÄHRUNG PRESENTATION PERIOD, PRESCRIPTION
Die Vorlegungsfrist gemäß § 801 Absatz 1 Satz 1 The presentation period provided for in BGB für die Schuldverschreibungen wird auf section 801 paragraph 1, sentence 1 German Civil zehn Jahre verkürzt. Die Verjährungsfrist für Code is reduced to ten years for the Notes. The Ansprüche aus den Schuldverschreibungen, die period of limitation for claims under the Notes innerhalb der Vorlegungsfrist zur Zahlung presented during the period for presentation will vorgelegt wurden, beträgt zwei Jahre vom Ende be two years calculated from the expiration of the der betreffenden Vorlegungsfrist an. relevant presentation period.
§ 10 § 10 KÜNDIGUNGSGRÜNDE EVENTS OF DEFAULT
(1) Kündigungsgründe. Tritt ein Kündigungs- (1) Events of Default. If an Event of Default grund ein und dauert dieser an, so ist jeder occurs and is continuing, each Holder shall Gläubiger berechtigt, seine sämtlichen be entitled to declare due and payable by Forderungen aus den Schuldverschreibungen submitting a Termination Notice pursuant to
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durch Abgabe einer Kündigungserklärung paragraph (2) to the Paying Agent its entire gemäß Absatz (2) gegenüber der Zahlstelle claims arising from the Notes and demand fällig zu stellen und (vorbehaltlich des (subject to paragraph (4) below) immediate nachfolgenden Absatzes (4)) deren unverzüg- redemption at the principal amount thereof liche Rückzahlung zu ihrem Nennbetrag together with unpaid interest accrued to (but zuzüglich bis zum Tag der tatsächlichen excluding) the date of actual redemption. Rückzahlung (ausschließlich) nicht gezahlter, Each of the following is an Event of Default: aufgelaufener Zinsen zu verlangen. Jedes der folgenden Ereignisse stellt einen Kündigungsgrund dar:
(a) Die Emittentin zahlt auf die (a) The Issuer fails to pay principal, interest Schuldverschreibungen fällige Kapital- or any other amounts due under the Notes oder Zinsbeträge oder sonstige Beträge within 15 days from the relevant due nicht innerhalb von 15 Tagen nach date; or Fälligkeit; oder
(b) die Emittentin erfüllt eine andere (b) the Issuer fails to duly perform any other wesentliche Verpflichtung aus den material obligation arising from the Schuldverschreibungen nicht und die Notes and such failure, if capable of Nichterfüllung dauert – sofern sie geheilt remedy, continues unremedied for more werden kann – jeweils länger als 60 Tage than 60 days after the Paying Agent has fort, nachdem die Zahlstelle eine received a written request thereof in the schriftliche Aufforderung in der in manner set forth in paragraph (2) from a Absatz (2) vorgesehenen Art und Weise Holder to perform such obligation; or von einem Gläubiger erhalten hat, die Verpflichtung zu erfüllen; oder
(c) eine nicht im Rahmen der Schuld- (c) any Financial Indebtedness of the Issuer verschreibungen bestehende Finanz- or any Material Subsidiary (other than verbindlichkeit der Emittentin oder einer under the Notes) becomes due and Wesentlichen Tochtergesellschaft wird payable prior to its specified maturity infolge eines Kündigungsgrunds (unab- (whether by declaration, automatic hängig von der Bezeichnung) vor ihrer acceleration or otherwise) as a result of festgelegten Fälligkeit fällig und zahlbar an event of default (howsoever (sei es durch Kündigung, automatische described), provided that the aggregate Fälligstellung oder auf andere Weise), amount of Financial Indebtedness wobei der Gesamtbetrag der Finanz- amounts to at least 1 per cent. of the verbindlichkeiten mindestens 1 % der Total Assets as of the immediately Summe Aktiva zum unmittelbar voraus- preceding Reporting Date for which gehendenden Berichtsstichtag, zu dem Consolidated Financial Statements of the ein Konzernabschluss der Emittentin Issuer have been published. For the veröffentlicht worden ist, beträgt. Zur avoidance of doubt, this paragraph (1)(c) Klarstellung wird festgehalten, dass shall not apply, where the Issuer or the dieser Absatz (1)(c) keine Anwendung relevant Material Subsidiary contests in findet, wenn die Emittentin oder die good faith that such payment obligation jeweilige Wesentliche Tochtergesell- exists, is due or the requirements for the schaft nach Treu und Glauben bestreitet, acceleration are satisfied; or
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dass diese Zahlungsverpflichtung besteht, fällig ist oder die Anforderungen für die vorzeitige Fälligstellung erfüllt sind; oder
(d) die Emittentin gibt ihre Zahlungs- (d) the Issuer announces its inability to meet unfähigkeit bekannt oder stellt ihre its financial obligations or ceases its Zahlungen generell ein; oder payments generally; or
(e) gegen die Emittentin wird ein Insolvenz- (e) insolvency proceedings against the Issuer verfahren eingeleitet und nicht innerhalb are instituted and have not been von 60 Tagen aufgehoben oder ausge- discharged or stayed within 60 days, or setzt, oder die Emittentin beantragt oder the Issuer applies for or institutes such leitet ein solches Verfahren ein, oder proceedings; or
(f) die Emittentin geht in Liquidation, es sei (f) The Issuer enters into liquidation unless denn, dies geschieht im Zusammenhang this is done in connection with a merger mit einer Verschmelzung oder einer or other form of combination with anderen Form des Zusammenschlusses another company and such company mit einer anderen Gesellschaft und die assumes all obligations of the Issuer in andere Gesellschaft übernimmt alle connection with the Notes. Verpflichtungen, die die Emittentin im Zusammenhang mit den Schuldverschrei- bungen eingegangen ist.
(2) Kündigungserklärungen. Eine Erklärung (2) Termination Notices. Any notice by a Holder eines Gläubigers (i) gemäß Absatz (1)(b) (i) in accordance with paragraph (1)(b) or oder (ii) zur Kündigung seiner Schuld- (ii) to terminate its Notes in accordance with verschreibungen gemäß diesem § 10 (eine this § 10 (a Termination Notice) shall be Kündigungserklärung) hat in der Weise zu made by means of a written declaration to the erfolgen, dass der Gläubiger der Zahlstelle Paying Agent in the German or English eine entsprechende schriftliche Erklärung in language delivered by hand or mail together deutscher oder englischer Sprache persönlich with evidence by means of a certificate of the übergibt oder per Brief übermittelt und dabei Holder’s Custodian (as defined in § 17(4)) durch eine Bescheinigung seiner Depotbank that such Holder, at the time of such (wie in § 17(4) definiert) nachweist, dass er Termination Notice, is a holder of the die betreffenden Schuldverschreibungen zum relevant Notes. Zeitpunkt der Kündigungserklärung hält.
(3) Heilung. Zur Klarstellung wird festgehalten, (3) Cure. For the avoidance of doubt, the right to dass das Recht zur Kündigung der declare Notes due in accordance with this Schuldverschreibungen gemäß diesem § 10 § 10 shall terminate if the situation giving erlischt, falls der Kündigungsgrund vor rise to it has been cured before the right is Ausübung des Rechts geheilt worden ist; es exercised and it shall be permissible to cure ist zulässig, den Kündigungsgrund gemäß the Event of Default pursuant to Absatz (1)(c) durch Rückzahlung der paragraph (1)(c) by repaying in full the maßgeblichen Finanzverbindlichkeiten in relevant Financial Indebtedness. voller Höhe zu heilen.
(4) Quorum. In den Fällen gemäß den (4) Quorum. In the events specified in
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Absätzen (1)(b) bis (f) wird eine paragraph (1)(b) to (f), any notice declaring Kündigungserklärung erst wirksam, wenn bei Notes due shall become effective only when der Zahlstelle Kündigungserklärungen von the Paying Agent has received such default Gläubigern im Nennbetrag von mindestens notices from the Holders representing at least 15 % des Gesamtnennbetrages der dann 15 per cent. of the aggregate principal ausstehenden Schuldverschreibungen einge- amount of the Notes then outstanding. gangen sind.
§ 11 § 11 VERPFLICHTUNGSERKLÄRUNGEN COVENANTS
(1) Beschränkungen für das Eingehen von (1) Limitations on the Incurrence of Financial Finanzverbindlichkeiten. Die Emittentin Indebtedness. The Issuer undertakes that it verpflichtet sich, nach dem Begebungstag will not, and will procure that none of its keine Finanzverbindlichkeiten (mit Aus- Subsidiaries will, after the Issue Date, incur nahme von Finanzverbindlichkeiten zur any Financial Indebtedness (except for Refinanzierung bestehender Finanzverbind- Financial Indebtedness for refinancing lichkeiten mit einem Gesamtnennbetrag, der existing Financial Indebtedness with an dem Gesamtnennbetrag der refinanzierten aggregate principal amount that is equal to or Finanzverbindlichkeiten entspricht oder less than the aggregate principal amount of diesen unterschreitet) einzugehen und the refinanced Financial Indebtedness) if, sicherzustellen, dass ihre Tochtergesell- immediately after giving effect to the schaften nach dem Begebungstag keine incurrence of such additional Financial Finanzverbindlichkeiten eingehen, wenn Indebtedness (taking into account the unmittelbar nach dem wirksamen Eingehen application of the net proceeds of such solcher weiterer Finanzverbindlichkeiten incurrence), (unter Berücksichtigung der Verwendung der damit erzielten Nettoerlöse):
(a) das Verhältnis der (i) Summe (x) der (a) the ratio of (i) the sum of (x) the Konsolidierten Nettofinanzverbindlich- Consolidated Net Financial Indebtedness keiten der Gruppe zum unmittelbar of the Group as of the immediately vorangegangenen Berichtsstichtag, zu preceding Reporting Date for which dem ein Konzernabschluss der Emittentin Consolidated Financial Statements of the veröffentlicht worden ist, und (y) der Issuer have been published and (y) the Neuen Finanzverbindlichkeiten, die seit New Financial Indebtedness incurred dem unmittelbar vorangegangenen since the immediately preceding Berichtsstichtag eingegangen wurden, zu Reporting Date for which Consolidated dem ein Konzernabschluss der Emittentin Financial Statements of the Issuer have veröffentlicht worden ist, zu der been published to (ii) the sum of (without (ii) Summe (unter Ausschluss einer duplication) (x) the Total Assets as of the Doppelberücksichtigung) (x) der Summe immediately preceding Reporting Date Aktiva zum unmittelbar for which Consolidated Financial vorangegangenen Berichtsstichtag, zu Statements of the Issuer have been dem ein Konzernabschluss der Emittentin published, (y) the purchase prices of any veröffentlicht worden ist, (y) der Real Estate Property (without any Kaufpreise für Immobilienvermögen deductions for assumed Financial (ohne Abzüge für übernommene Indebtedness) acquired or contracted for
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Finanzverbindlichkeiten), das seit dem acquisition since the immediately unmittelbar vorangegangenen preceding Reporting Date for which Berichtsstichtag, zu dem ein Consolidated Financial Statements of the Konzernabschluss der Emittentin Issuer have been published and (z) the veröffentlicht worden ist, erworben proceeds of any Financial Indebtedness wurde oder für dessen Erwerb seit incurred since the immediately preceding diesem Zeitpunkt eine Verpflichtung Reporting Date for which Consolidated eingegangen wurde, und (z) des Erlöses Financial Statements of the Issuer have aus Finanzverbindlichkeiten, die seit dem been published (but only to the extent unmittelbar vorangegangenen Berichts- such proceeds were not used to acquire stichtag eingegangen wurden, zu dem ein Real Estate Property or to reduce Konzernabschluss der Emittentin Financial Indebtedness) (such ratio, with veröffentlicht worden ist (jedoch nur respect to any date, the Loan-to-Value soweit dieser Erlös nicht zum Erwerb Ratio as of that date) would exceed von Immobilienvermögen oder zur 60 per cent.; or Verringerung von Finanzverbindlich- keiten verwendet wurde) (dieses Verhältnis in Bezug auf einen beliebigen Zeitpunkt der Verschuldungsgrad (LTV) zu dem entsprechenden Zeitpunkt) 60 % überstiege; oder
(b) nur falls neue Verbindlichkeiten nach (b) only if new Financial Indebtedness is dem 31. Juli 2017 eingegangen werden, incurred after 31 July 2017, (i) the sum of (i) die Summe (x) der Besicherten (x) the Secured Financial Indebtedness as Finanzverbindlichkeiten der Gruppe zum of the immediately preceding Reporting unmittelbar vorangegangenen Date for which Consolidated Financial Berichtsstichtag, zu dem ein Statements of the Issuer have been Konzernabschluss der Emittentin published and (y) the New Secured veröffentlicht worden ist, und (y) der Financial Indebtedness incurred since the Neuen Besicherten immediately preceding Reporting Date Finanzverbindlichkeiten, die seit dem for which Consolidated Financial unmittelbar vorangegangenen Statements of the Issuer have been Berichtsstichtag eingegangen wurde, zu published would exceed 45 per cent. of dem ein Konzernabschluss der Emittentin (ii) the sum of (without duplication) veröffentlicht worden ist, würde einen (x) Total Assets as of the immediately Betrag in Höhe von 45 % (ii) der Summe preceding Reporting Date for which (unter Ausschluss einer Consolidated Financial Statements of the Doppelberücksichtigung) (x) der Summe Issuer have been published, (y) the Aktiva zum unmittelbar purchase prices of any Real Estate vorangegangenen Berichtsstichtag, zu Property (without any deductions for dem ein Konzernabschluss der Emittentin assumed Financial Indebtedness) veröffentlicht worden ist, (y) der acquired or contracted for acquisition Kaufpreise für Immobilienvermögen since the immediately preceding (ohne Abzüge für übernommene Reporting Date for which Consolidated Finanzverbindlichkeiten), das seit dem Financial Statements of the Issuer have unmittelbar vorangegangenen been published and (z) the proceeds of Berichtsstichtag, zu dem ein any Financial Indebtedness incurred
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Konzernabschluss der Emittentin since the immediately preceding veröffentlicht worden ist, erworben Reporting Date for which Consolidated wurde oder für dessen Erwerb seit Financial Statements of the Issuer have diesem Zeitpunkt eine Verpflichtung been published (but only to the extent eingegangen wurde, und (z) des Erlöses such proceed were not used to acquire aus Finanzverbindlichkeiten, die seit dem Real Estate Property or to reduce unmittelbar vorangegangenen Financial Indebtedness); or Berichtsstichtag eingegangen wurden, zu dem ein Konzernabschluss der Emittentin veröffentlicht worden ist (jedoch nur soweit dieser Erlös nicht zum Erwerb von Immobilienvermögen oder zur Verringerung von Finanzverbindlichkeiten verwendet wurde) übersteigen; oder
(c) nur falls neue Verbindlichkeiten nach (c) only if new Financial Indebtedness is dem 31. Juli 2017 eingegangen werden, incurred after 31 July 2017, (i) the sum of (i) die Summe des (x) Unbelasteten (i) the Unencumbered Assets as of the Vermögens zum unmittelbar immediately preceding Reporting Date vorangegangenen Berichtsstichtag, zu for which Consolidated Financial dem ein Kon-zernabschluss der Statements of the Issuer have been Emittentin veröffentlicht worden ist, und published and (y) the Net Unencumbered des (y) seit dem unmittelbar Assets recorded (to be added or deducted, vorangegangenen Berichtsstichtag, zu as applicable) since the immediately dem ein Konzernabschluss der Emittentin preceding Reporting Date for which veröffentlicht worden ist, erfassten Consolidated Financial Statements of the (hinzuzurechnenden bzw. Issuer have been published will be less abzuziehenden) Unbelasteten than 125 per cent. of (ii) the sum of Nettovermögens geringer wäre als 125 % (x) the Unsecured Financial Indebtedness der (ii) Summe der (x) Unbesicherten (excluding Financial Indebtedness under Finanzverbindlich-keiten (unter convertible bonds or equivalent Ausschluss von Finanzverbindlichkeiten instruments) as of the immediately unter Wandelschuldverschreibungen und preceding Reporting Date for which vergleichbaren Instrumenten) zum Consolidated Financial Statements of the unmittelbar vorangegangenen Issuer have been published and (y) the Berichtsstichtag, zu dem ein Kon- New Unsecured Financial Indebtedness zernabschluss der Emittentin (excluding Financial Indebtedness under veröffentlicht worden ist, und der (y) convertible bonds or equivalent Unbesicherten Neue instruments) incurred since the Finanzverbindlichkeiten (unter immediately preceding Reporting Date Ausschluss von Finanz-verbindlichkeiten for which Consolidated Financial aus Wandelschuldverschreibungen und Statements of the issuer have been vergleichbaren Instrumenten), die seit published (each of (x) and (y) to the dem unmittelbar vorangegangenen extent such indebtedness is still Berichtsstichtag, zu dem ein outstanding on the calculation date). Konzernabschluss der Emittentin veröffentlicht worden ist, eingegangen
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wurden ((x) und (y) jeweils soweit diese Verbindlichkeiten am Berechnungszeitpunkt noch ausstehen).
(2) Einhaltung des Konsolidierten (2) Maintenance of the Consolidated Coverage Deckungsgrads. Die Emittentin verpflichtet Ratio. The Issuer undertakes to ensure that sich sicherzustellen, dass an jedem the ratio of (i) the aggregate amount of Berechnungsstichtag das Verhältnis des Consolidated Adjusted EBITDA in the (i) Gesamtbetrags des Konsolidierten respective most recent four consecutive Bereinigten EBITDA in den letzten vier quarters ending prior to the Reporting Date aufeinanderfolgenden Quartalen, die vor dem for which Consolidated Financial Statements Berichtsstichtag geendet haben, zu dem ein of the Issuer have been published to (ii) the Konzernabschluss der Emittentin aggregate amount of Net Cash Interest in the veröffentlicht worden ist, zu dem respective most recent four consecutive (ii) Gesamtbetrag des Zahlungswirksamen quarters ending prior to the Reporting Date Zinsergebnisses in den letzten vier for which Consolidated Financial Statements aufeinanderfolgenden Quartalen, die vor dem of the Issuer have been published will be no Berichtsstichtag geendet haben, zu dem ein less than 1.80 to 1.00. Konzernabschluss der Emittentin veröffentlicht worden ist, nicht weniger als 1,80 zu 1,00 beträgt.
(3) Berichte. Solange Schuldverschreibungen (3) Reports. For so long as any Notes are ausstehen, veröffentlicht die Emittentin die outstanding, the Issuer shall post on its folgenden Angaben auf ihrer Internetseite: website,
(a) Innerhalb von 120 Tagen nach dem Ende (a) within 120 days after the end of each of des Geschäftsjahrs der Emittentin einen the Issuer’s fiscal years, annual reports Geschäftsbericht mit einem geprüften containing the audited consolidated Konzernabschluss nach den in der EU financial statements in accordance with anwendbaren International Financial IFRS as adopted by the EU and the Reporting Standards (IFRS) und einem management report in accordance with Lagebericht nach § 315 HGB; und section 315 of the German Commercial Code; and
(b) innerhalb von 60 Tagen nach dem Ende (b) within 60 days after the end of each of jedes der ersten drei Quartale jedes the first three fiscal quarters in each fiscal Geschäftsjahrs der Emittentin einen year of the Issuer, unaudited condensed ungeprüften verkürzten Konzern- consolidated quarterly financial Zwischenabschluss nach den in der EU statements in accordance with IFRS as anwendbaren IFRS bzw. eine adopted by the EU or a quarterly Quartalsmitteilung entsprechend den statement in accordance with the Anforderungen der Frankfurter requirements of the Frankfurt Stock Wertpapierbörse. Exchange.
§ 12 § 12 ERSETZUNG, SITZVERLEGUNG SUBSTITUTION, TRANSFER OF DOMICILE
(1) Ersetzung. Die Emittentin ist berechtigt, (1) Substitution. The Issuer may, without the
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wenn kein Zahlungsverzug hinsichtlich consent of the Holders, if no payment of Kapital oder Zinsen auf die Schuld- principal of or interest on any of the Notes is verschreibungen vorliegt, jederzeit ohne die in default, at any time substitute for the Issuer Zustimmung der Gläubiger ein mit der any Affiliate of the Issuer as principal debtor Emittentin Verbundenes Unternehmen an in respect of all obligations arising from or in Stelle der Emittentin als Hauptschuldnerin connection with these Notes (the Substitute (die Nachfolgeschuldnerin) für alle Debtor) provided that: Verpflichtungen aus oder im Zusammenhang mit den Schuldverschreibungen einzusetzen, vorausgesetzt, dass:
(a) die Nachfolgeschuldnerin alle Verpflich- (a) the Substitute Debtor, in a manner legally tungen der Emittentin im Zusammenhang effective, assumes all obligations of the mit den Schuldverschreibungen rechts- Issuer in respect of the Notes; wirksam übernimmt;
(b) die Nachfolgeschuldnerin und die (b) the Substitute Debtor and the Issuer have Emittentin alle für die Ersetzung obtained all necessary governmental and notwendigen Genehmigungen und regulatory approvals and consents for Zustimmungen von staatlichen Stellen such substitution, that the Substitute und Aufsichtsbehörden erhalten haben, Debtor has obtained all necessary die Nachfolgeschuldnerin alle für die governmental and regulatory approvals Erfüllung ihrer Verpflichtungen aus den and consents for the performance by the Schuldverschreibungen notwendigen Substitute Debtor of its obligations under Genehmigungen und Zustimmungen von the Notes and that all such approvals and staatlichen Stellen und Aufsichts- consents are in full force and effect and behörden erhalten hat und sämtliche that the obligations assumed by the dieser Genehmigungen und Substitute Debtor in respect of the Notes Zustimmungen in vollem Umfang gültig are valid and binding in accordance with und wirksam sind und die their respective terms and enforceable by Verpflichtungen der each Holder; Nachfolgeschuldnerin aus den Schuldverschreibungen gemäß ihren Bestimmungen wirksam und rechtsverbindlich und durch jeden Gläubiger durchsetzbar sind;
(c) die Nachfolgeschuldnerin alle für die (c) the Substitute Debtor can transfer to the Erfüllung der Zahlungsverpflichtungen Paying Agent in the currency required aus den Schuldverschreibungen erforder- and without being obligated to withhold lichen Beträge in der erforderlichen or deduct any taxes or other duties of Währung an die Zahlstelle überweisen whatever nature levied by the country in kann, ohne zum Einbehalt oder Abzug which the Substitute Debtor or the Issuer von Steuern oder sonstigen Abgaben has its domicile or tax residence, all gleich welcher Art verpflichtet zu sein, amounts required for the fulfilment of the die in dem Land erhoben werden, in dem payment obligations arising under the die Nachfolgeschuldnerin oder die Notes; Emittentin ihren Sitz hat oder steuerlich
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ansässig ist;
(d) die Nachfolgeschuldnerin sich verpflich- (d) the Substitute Debtor has agreed to tet hat, jeden Gläubiger hinsichtlich indemnify and hold harmless each Holder solcher Steuern, Abgaben, Festsetzungen against any tax, duty, assessment or oder behördlichen Lasten freizustellen, governmental charge imposed on such die einem Gläubiger im Zusammenhang Holder in respect of such substitution; mit der Ersetzung auferlegt werden;
(e) die Emittentin (in derartiger Eigenschaft, (e) the Issuer (in such capacity, the die Garantin) unwiderruflich und Guarantor) irrevocably and unbedingt gegenüber den Gläubigern die unconditionally guarantees (the Zahlung aller von der Nachfolgeschuld- Guarantee) in favour of each Holder the nerin auf die Schuldverschreibungen payment of all sums payable by the zahlbaren Beträge zu Bedingungen Substitute Debtor in respect of the Notes garantiert (die Garantie), die sicher- on terms which ensure that each Holder stellen, dass jeder Gläubiger in der will be put in an economic position that wirtschaftlichen Position ist, die genauso is at least as favourable as that which vorteilhaft ist wie die Position, in der die would have existed if the substitution had Gläubiger wären, wenn die Ersetzung not taken place; and nicht stattgefunden hätte; und
(f) die Emittentin einem zu diesem Zweck (f) the Issuer shall have delivered to an agent bestellten Beauftragten ein Rechts- appointed for that purpose one legal gutachten bezüglich jeder betroffenen opinion for each jurisdiction affected of Rechtsordnung von anerkannten lawyers of recognized standing to the Rechtsanwälten vorgelegt hat, das effect that subparagraphs (a) to (d) above bestätigt, dass die Bestimmungen in den have been satisfied. vorstehenden Unterabsätzen (a) bis (d) erfüllt worden sind.
Für die Zwecke dieses § 12 bezeichnet For purposes of this § 12, Affiliate shall mean Verbundenes Unternehmen ein verbundenes any affiliated company within the meaning of Unternehmen im Sinne von § 15 AktG. section 15 of the German Stock Corporation Act (Aktiengesetz).
(2) Bekanntmachung. Jede Ersetzung der (2) Notice. Any substitution of the Issuer Emittentin gemäß diesem § 12 sowie das pursuant to this § 12 and the date of Datum, an dem die Ersetzung wirksam wird, effectiveness of such substitution shall be ist gemäß § 15 bekanntzugeben. published in accordance with § 15.
(3) Änderung von Bezugnahmen. Mit (3) Change of References. Upon effectiveness of Wirksamwerden der Ersetzung gilt jede the substitution any reference in these Terms Bezugnahme in diesen Anleihebedingungen and Conditions to the Issuer (other than auf die Emittentin (mit Ausnahme der references to the Issuer in § 11) shall from Bezugnahme auf die Emittentin in § 11) ab then on be deemed to refer to the Substitute dem Zeitpunkt der Ersetzung als Debtor and any reference to the Federal Bezugnahme auf die Nachfolgeschuldnerin, Republic of Germany with respect to the und jede Bezugnahme auf die Bundes- Issuer shall from then on be deemed to refer
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republik Deutschland im Hinblick auf die to the relevant taxing jurisdiction with respect Emittentin gilt ab diesem Zeitpunkt als to the Substitute Debtor. Upon effectiveness Bezugnahme auf die im Hinblick auf die of the substitution any reference to the Issuer Nachfolgeschuldnerin maßgebliche Steuer- in § 11 shall from then on be deemed to refer jurisdiktion. Mit Wirksamwerden der to the Guarantor. In addition, in § 3 and Ersetzung gilt jede Bezugnahme auf die § 10(1)(c) to (f) a reference to the Guarantor Emittentin in § 11 ab dann als Bezugnahme shall be deemed to have been included in auf die Garantin. Zudem gilt eine Bezug- addition to the reference according to the first nahme auf die Garantin in § 3 und § 10(1)(c) sentence of this paragraph (3) to the bis (f) als einbezogen (zusätzlich zur Bezug- Substitute Debtor. Furthermore, in the event nahme auf die Nachfolgeschuldnerin gemäß of such substitution, a further event of default dem ersten Satz dieses Absatzes (3)). shall be deemed to be included in § 10(1); Darüber hinaus gilt im Falle einer solchen such event of default shall exist in the case Ersetzung ein weiterer Kündigungsgrund in that the Guarantee is or becomes invalid for § 10(1) als vereinbart; ein solcher any such reason. Kündigungsgrund soll bestehen, falls die Garantie aus irgendeinem Grund unwirksam ist oder wird.
(4) Weitere Ersetzungen. Die Nachfolge- (4) Further Substitution. At any time after a schuldnerin ist jederzeit nach einer Ersetzung substitution pursuant to paragraph (1) above, gemäß vorstehendem Absatz (1) berechtigt, the Substitute Debtor may, without the ohne die Zustimmung der Gläubiger eine consent of the Holders, effect a further weitere Ersetzung vorzunehmen, voraus- substitution provided that all the provisions gesetzt, dass alle Bestimmungen der specified in paragraphs (1) to (3) above shall vorstehenden Absätze (1) bis (3) sinngemäß apply, mutatis mutandis, and, without Anwendung finden und, ohne hierauf limitation, references in these Terms and beschränkt zu sein, Bezugnahmen in diesen Conditions to the Issuer shall, where the Anleihebedingungen auf die Emittentin, context so requires, be deemed to be or sofern der Zusammenhang dies verlangt, include references to any such further (auch) als Bezugnahmen auf jede weitere Substitute Debtor, provided that in no event Nachfolgeschuldnerin gelten, wobei die shall any substitution under this § 12 have the Ersetzung gemäß diesem § 12 in keinem Fall effect of releasing the Issuer from any of its die Wirkung einer Befreiung der Emittentin obligations under its Guarantee. von irgendwelchen Verpflichtungen aus ihrer Garantie hat.
(5) Sitzverlegung. Eine Verlegung des Sitzes der (5) Transfer of Domicile. A transfer of domicile Emittentin in ein anderes Land oder Gebiet of the Issuer to another country or territory is ist nur zulässig, wenn die vorstehend in den only permissible if the requirements set forth Absätzen (1) und (2) genannten in paragraphs (1) and (2) above are complied Voraussetzungen entsprechend erfüllt sind. with accordingly. Paragraph (3) second half- Absatz (3) zweiter Halbsatz des ersten Satzes sentence of the first sentence shall apply findet entsprechende Anwendung. mutatis mutandis.
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§ 13 § 13 BEGEBUNG WEITERER FURTHER ISSUES, PURCHASES SCHULDVERSCHREIBUNGEN, ANKAUF UND AND CANCELLATION ENTWERTUNG
(1) Begebung weiterer Schuldverschreibungen. (1) Further Issues. Subject to § 11, the Issuer Die Emittentin ist, vorbehaltlich der may from time to time, without the consent Bestimmungen des § 11, berechtigt, jederzeit of the Holders, issue further Notes having the ohne Zustimmung der Gläubiger weitere same terms and conditions as the Notes in all Schuldverschreibungen mit in jeder Hinsicht respects (or in all respects except for the gleicher Ausstattung (gegebenenfalls mit relevant issue date, interest commencement Ausnahme des jeweiligen Begebungstags, date, first interest payment date and/or issue des Verzinsungsbeginns, der ersten Zins- price) so as to form a single series with the zahlung und/oder des Ausgabepreises) in der Notes. Weise zu begeben, dass sie mit diesen Schuldverschreibungen eine einheitliche Serie bilden.
(2) Ankauf. Die Emittentin ist berechtigt, jeder- (2) Purchases. The Issuer may at any time zeit Schuldverschreibungen im Markt oder purchase Notes in the open market or anderweitig zu jedem beliebigen Preis zu otherwise and at any price. Notes purchased kaufen. Die von der Emittentin erworbenen by the Issuer may, at the option of the Issuer, Schuldverschreibungen können nach Wahl be held, resold or surrendered to the Paying der Emittentin von ihr gehalten, weiter- Agent for cancellation. verkauft oder bei der Zahlstelle zwecks Entwertung eingereicht werden.
(3) Entwertung. Sämtliche vollständig (3) Cancellation. All Notes redeemed in full zurückgezahlten Schuldverschreibungen sind shall be cancelled forthwith and may not be unverzüglich zu entwerten und können nicht reissued or resold. wiederbegeben oder wiederverkauft werden.
§ 14 § 14 ÄNDERUNG DER ANLEIHEBEDINGUNGEN AMENDMENTS OF THE TERMS AND DURCH BESCHLÜSSE DER GLÄUBIGER, CONDITIONS BY RESOLUTIONS OF HOLDERS, GEMEINSAMER VERTRETER JOINT REPRESENTATIVE
(1) Änderung der Anleihebedingungen. Die (1) Amendment of the Terms and Conditions. Emittentin kann mit den Gläubigern The Issuer may agree with the Holders on Änderungen der Anleihebedingungen durch amendments to the Terms and Conditions by Mehrheitsbeschluss der Gläubiger nach virtue of a majority resolution of the Holders Maßgabe der §§ 5 ff. des Gesetzes über pursuant to sections 5 et seqq. of the German Schuldverschreibungen aus Gesamt- Act on Issues of Debt Securities (Gesetz über emissionen (SchVG) in seiner jeweils Schuldverschreibungen aus geltenden Fassung beschließen. Die Gesamtemissionen – SchVG), as amended Gläubiger können insbesondere einer from time to time. In particular, the Holders Änderung wesentlicher Inhalte der may consent to amendments which materially Anleihebedingungen, einschließlich der in change the substance of the Terms and
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§ 5 Abs. 3 SchVG vorgesehenen Maß- Conditions, including such measures as nahmen, durch Beschlüsse mit den in dem provided for under section 5 paragraph 3 of nachstehenden Absatz (2) genannten Mehr- the SchVG by resolutions passed by such heiten zustimmen. Ein ordnungsgemäß majority of the votes of the Holders as stated gefasster Mehrheitsbeschluss ist für alle under paragraph (2) below. A duly passed Gläubiger gleichermaßen verbindlich. majority resolution shall be binding equally upon all Holders.
(2) Mehrheit. Vorbehaltlich des nachstehenden (2) Majority. Except as provided by the Satzes und der Erreichung der erforderlichen following sentence and provided that the Beschlussfähigkeit, beschließen die quorum requirements are being met, the Gläubiger mit der einfachen Mehrheit der an Holders may pass resolutions by simple der Abstimmung teilnehmenden Stimm- majority of the voting rights participating in rechte. Beschlüsse, durch welche der the vote. Resolutions which materially wesentliche Inhalt der Anleihebedingungen change the substance of the Terms and geändert wird, insbesondere in den Fällen des Conditions, in particular in the cases of § 5 Abs. 3 Nr. 1 bis 9 SchVG, bedürfen zu section 5 paragraph 3 numbers 1 through 9 of ihrer Wirksamkeit einer Mehrheit von the SchVG, may only be passed by a majority mindestens 75 % der an der Abstimmung of at least 75 per cent. of the voting rights teilnehmenden Stimmrechte (eine participating in the vote (a Qualified Qualifizierte Mehrheit). Majority).
(3) Abstimmung ohne Versammlung. (3) Vote without a meeting. Subject to Vorbehaltlich Absatz (4) sollen Beschlüsse paragraph (4), resolutions of the Holders der Gläubiger ausschließlich durch eine shall exclusively be made by means of a vote Abstimmung ohne Versammlung nach § 18 without a meeting in accordance with SchVG gefasst werden. Die Aufforderung zur section 18 of the SchVG. The request for Stimmabgabe enthält nähere Angaben zu den voting will provide for further details relating Beschlüssen und den Abstimmungs- to the resolutions and the voting procedure. modalitäten. Die Gegenstände und The subject matter of the vote as well as the Vorschläge zur Beschlussfassung werden den proposed resolutions shall be notified to the Gläubigern mit der Aufforderung zur Holders together with the request for voting. Stimmabgabe bekannt gemacht. Die The exercise of voting rights is subject to the Ausübung der Stimmrechte ist von einer Holders’ registration. The registration must Anmeldung der Gläubiger abhängig. Die be received at the address stated in the Anmeldung muss unter der in der request for voting no later than the third day Aufforderung zur Stimmabgabe mitgeteilten preceding the beginning of the voting period. Adresse spätestens am dritten Tag vor Beginn As part of the registration, Holders must des Abstimmungszeitraums zugehen. Mit der demonstrate their eligibility to participate in Anmeldung müssen die Gläubiger ihre the vote by means of a special confirmation Berechtigung zur Teilnahme an der of the Custodian in accordance with Abstimmung durch einen in Textform § 17(4)(i)(a) and (b) hereof in text form and erstellten besonderen Nachweis der by submission of a blocking instruction by Depotbank gemäß § 17(4)(i)(a) und (b) und the Custodian stating that the relevant Notes durch Vorlage eines Sperrvermerks der are not transferable from (and including) the Depotbank, aus dem hervorgeht, dass die day such registration has been sent to (and betreffenden Schuldverschreibungen ab dem including) the day the voting period ends. Tag der Absendung der Anmeldung
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(einschließlich) bis zum Tag, an dem der Abstimmungszeitraum endet (einschließlich), nicht übertragbar sind, nachweisen.
(4) Zweite Gläubigerversammlung. Wird für die (4) Second Noteholders’ Meeting. If it is Abstimmung ohne Versammlung gemäß ascertained that no quorum exists for the vote Absatz (3) die mangelnde Beschlussfähigkeit without meeting pursuant to paragraph (3), festgestellt, kann der Abstimmungsleiter eine the scrutineer may convene a noteholders’ Gläubigerversammlung einberufen, die als meeting, which shall be deemed to be a zweite Versammlung im Sinne des § 15 second noteholders’ meeting within the Abs. 3 Satz 3 SchVG anzusehen ist. Die meaning of section 15 paragraph 3 sentence 3 Teilnahme an der zweiten Gläubiger- of the SchVG. Attendance at the second versammlung und die Ausübung der Stimm- noteholders’ meeting and exercise of voting rechte sind von einer Anmeldung der rights is subject to the Holders’ registration. Gläubiger abhängig. Die Anmeldung muss The registration must be received at the unter der in der Bekanntmachung der address stated in the convening notice no Einberufung mitgeteilten Adresse spätestens later than the third day preceding the second am dritten Tag vor der zweiten Gläubiger- noteholders’ meeting. As part of the versammlung zugehen. Mit der Anmeldung registration, Holders must demonstrate their müssen die Gläubiger ihre Berechtigung zur eligibility to participate in the vote by means Teilnahme an der Abstimmung durch einen of a special confirmation of the Custodian in in Textform erstellten besonderen Nachweis accordance with § 17(4)(i)(a) and (b) hereof der Depotbank gemäß § 17(4)(i)(a) und (b) in text form and by submission of a blocking und durch Vorlage eines Sperrvermerks der instruction by the Custodian stating that the Depotbank, aus dem hervorgeht, dass die relevant Notes are not transferable from (and betreffenden Schuldverschreibungen ab dem including) the day such registration has been Tag der Absendung der Anmeldung sent to (and including) the stated end of the (einschließlich) bis zum angegebenen Ende noteholders’ meeting. der Gläubigerversammlung (einschließlich) nicht übertragbar sind, nachweisen.
(5) Gemeinsamer Vertreter. Die Gläubiger (5) Holders’ Representative. The Holders may können durch Mehrheitsbeschluss die by majority resolution provide for the Bestellung oder Abberufung eines appointment or dismissal of a joint gemeinsamen Vertreters (der Gemeinsame representative (the Holders’ Representative), Vertreter), die Aufgaben und Befugnisse des the duties and responsibilities and the powers Gemeinsamen Vertreters, die Übertragung of such Holders’ Representative, the transfer von Rechten der Gläubiger auf den of the rights of the Holders to the Holders’ Gemeinsamen Vertreter und eine Representative and a limitation of liability of Beschränkung der Haftung des Gemeinsamen the Holders’ Representative. Appointment of Vertreters bestimmen. Die Bestellung eines a Holders’ Representative may only be Gemeinsamen Vertreters bedarf einer passed by a Qualified Majority if such Qualifizierten Mehrheit, wenn er ermächtigt Holders’ Representative is to be authorized to werden soll, Änderungen des wesentlichen consent, in accordance with paragraph (2) Inhalts der Anleihebedingungen gemäß hereof, to a material change in the substance Absatz (2) zuzustimmen. of the Terms and Conditions.
(6) Veröffentlichung. Bekanntmachungen (6) Publication. Any notices concerning this § 14
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betreffend diesen § 14 erfolgen ausschließ- shall be made exclusively pursuant to the lich gemäß den Bestimmungen des SchVG. provisions of the SchVG.
§ 15 § 15 MITTEILUNGEN NOTICES
(1) Mitteilungen. Alle die Schuldverschrei- (1) Notices. Except as stipulated in § 14(6), all bungen betreffenden Mitteilungen werden im notices concerning the Notes shall be Bundesanzeiger veröffentlicht, wenn nicht in published in the Federal Gazette and, if § 14(6) anders vorgesehen, sowie, falls legally required, in the form of media gesetzlich vorgeschrieben, in den gesetzlich determined by law in addition thereto. Any vorgesehenen zusätzlichen Medien. Jede notice so given will be deemed to have been derartige Mitteilung gilt am dritten Kalender- validly given to the Holders on the third tag nach dem Tag der Veröffentlichung (oder calendar day following the date of such bei mehrfacher Veröffentlichung am dritten publication (or, if published more than once, Kalendertag nach dem Tag der ersten solchen on the third calendar day following the date Veröffentlichung) als wirksam gegenüber den of the first such publication). Gläubigern erfolgt.
(2) Mitteilungen an das Clearingsystem. Wenn (2) Notification to the Clearing System. If the eine Veröffentlichung von Mitteilungen nach publication of notices pursuant to dem vorstehenden Absatz (1) nicht weiterhin paragraph (1) above is no longer required by rechtlich oder nach den Regeln der law or the rules of the stock exchange on Wertpapierbörse, an denen die Schuld- which the Notes are listed, the Issuer may verschreibungen notiert sind, erforderlich ist, deliver the relevant notice to the Clearing kann die Emittentin die betreffende System, for communication by the Clearing Mitteilung an das Clearingsystem zur System to the Holders. Any such notice shall Weiterleitung an die Gläubiger übermitteln. be deemed to have been validly given to the Jede derartige Mitteilung gilt am fünften Holders on the fifth calendar day following Kalendertag nach dem Tag der Mitteilung an the day on which the said notice was given to das Clearingsystem als wirksam gegenüber the Clearing System. den Gläubigern erfolgt.
(3) Mitteilungen an die Emittentin. Mitteilungen (3) Notification to the Issuer. Notices to be given eines Gläubigers an die Emittentin haben in by any Holder to the Issuer shall be made by der Weise zu erfolgen, dass der Gläubiger der means of a written declaration to be delivered Zahlstelle eine entsprechende schriftliche by hand or mail to the Paying Agent. Such Erklärung persönlich übergibt oder per Brief notice may be given by any Holder to the übermittelt. Eine derartige Mitteilung kann Paying Agent through the Clearing System in von jedem Gläubiger gegenüber der such manner as the Paying Agent and the Zahlstelle durch das Clearingsystem in der Clearing System may approve for such von der Zahlstelle und dem Clearingsystem purpose. dafür vorgesehenen Weise erfolgen.
§ 16 § 16 DEFINITIONEN DEFINITIONS
Abgezinster Marktpreis (Make-Whole Amount) Make-Whole Amount has the meaning assigned hat die diesem Begriff in § 6(4) zugewiesene
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Bedeutung. to such term in § 6(4).
Ausübungszeitraum hat die diesem Begriff in Put Period has the meaning assigned to such § 6(5)(c) zugewiesene Bedeutung. term in § 6(5)(c).
Begebungstag hat die diesem Begriff in § 1(1) Issue Date has the meaning assigned to such term zugewiesene Bedeutung. in § 1(1).
Berichtsstichtag ist der 31. März, 30. Juni, Reporting Date means 31 March, 30 June, 30. September und 31. Dezember eines jeden 30 September and 31 December of each year. Jahres.
Besicherte Finanzverbindlichkeiten bezeichnet Secured Financial Indebtedness means that den Teil der Konsolidierten portion of the Consolidated Net Financial Nettofinanzverbindlichkeiten, der mit Indebtedness that is secured by a Lien on Sicherungsrechten an Immobilien oder sonstigen properties or other assets of the Issuer or any of Vermögenswerten der Emittentin oder ihrer its Subsidiaries (each as determined in Tochtergesellschaften besichert ist (jeweils nach accordance with IFRS). IFRS ermittelt).
Bund-Rendite hat die diesem Begriff in § 6(4) Bund Rate has the meaning assigned to such zugewiesene Bedeutung. term in § 6(4).
CBL hat die diesem Begriff in § 1(5) CBL has the meaning assigned to such term in zugewiesene Bedeutung. § 1(5).
Clearingsystem hat die diesem Begriff in § 1(5) Clearing System has the meaning assigned to zugewiesene Bedeutung. such term in § 1(5).
Code hat die diesem Begriff in § 8(3) Code has the meaning assigned to such term in zugewiesene Bedeutung. § 8(3).
Common Safekeeper hat die diesem Begriff in Common Safekeeper has the meaning assigned § 1(3)(a) zugewiesene Bedeutung. to such term in § 1(3)(a).
Dauerglobalurkunde hat die diesem Begriff in Permanent Global Note has the meaning § 1(3)(a) zugewiesene Bedeutung. assigned to such term in § 1(3)(a).
Depotbank hat die diesem Begriff in § 17(4) Custodian has the meaning assigned to such term zugewiesene Bedeutung. in § 17(4).
Eingehen bezeichnet in Bezug auf eine Incur means, with respect to any Financial Finanzverbindlichkeit oder eine sonstige Indebtedness or other obligation of any Person, to Verbindlichkeit einer Person die Begründung, die create, assume, guarantee or otherwise become Übernahme, Abgabe einer Garantie oder liable in respect of such Financial Indebtedness or Bürgschaft dafür oder eine anderweitige other obligation, and incurrence and incurred Übernahme der Haftung für diese Finanz- have the meanings correlative to the foregoing. verbindlichkeit oder sonstige Verbindlichkeit; das Eingehen bzw. eingegangen sind entsprechend
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auszulegen.
Emittentin hat die diesem Begriff in § 1(1) Issuer has the meaning assigned to such term in zugewiesene Bedeutung. § 1(1).
Euroclear hat die diesem Begriff in § 1(5) Euroclear has the meaning assigned to such term zugewiesene Bedeutung. in § 1(5).
Fälligkeitstag hat die diesem Begriff in § 6(1) Maturity Date has the meaning assigned to such zugewiesene Bedeutung. term in § 6(1).
FATCA Quellensteuer hat die diesem Begriff in FATCA Withholding has the meaning assigned § 8(3) zugewiesene Bedeutung. to such term in § 8(3).
Festgelegte Stückelung hat die diesem Begriff in Specified Denomination has the meaning § 1(1) zugewiesene Bedeutung. assigned to such term in § 1(1).
Finanzverbindlichkeiten bezeichnet (unter Financial Indebtedness means (without Ausschluss einer Doppelberücksichtigung) alle duplication) any indebtedness (excluding any Verbindlichkeiten (ausgenommen solche indebtedness owed to another member of the gegenüber anderen Mitgliedern der Gruppe) aus: Group) for or in respect of:
(i) aufgenommenen Geldern; (i) money borrowed;
(ii) allen im Rahmen von Akzeptkrediten (ii) any amount raised by acceptance under oder eines dematerialisierten Äquivalents any acceptance credit facility or a aufgenommenen Beträge; dematerialized equivalent;
(iii) allen im Rahmen von Fazilitäten zum (iii) any amount raised pursuant to any note Kauf kurzfristiger Schuldtitel oder aus purchase facility or the issue of bonds, der Begebung von Anleihen, notes, commercial papers or any similar Schuldverschreibungen, Commercial instrument; Paper oder vergleichbaren Instrumenten aufgenommenen Beträgen;
(iv) veräußerten oder diskontierten (iv) receivables sold or discounted (other than Forderungen (außer bei einem any receivables to the extend they are Forderungsverkauf ohne sold on a non-recourse basis); Rückgriffsrecht);
(v) der Aufnahme von Beträgen im Rahmen (v) any amounts raised under any other anderer Rechtsgeschäfte (einschließlich transaction (including any forward sale or Termingeschäften), die die wirtschaft- purchase agreement) having the liche Wirkung einer Kreditaufnahme commercial effect of a borrowing, but haben, ausgenommen jedoch Bank- excluding bank guarantee facilities made garantie-Fazilitäten, die der Emittentin or to be made available by financial oder einer Tochtergesellschaft von institutions to the Issuer or a Subsidiary Finanzinstituten gewährt werden oder under which the Issuer or the respective gewährt werden sollen und in deren Subsidiary may request the issue of a
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Rahmen die Emittentin bzw. die bank guarantee or bank guarantees in jeweilige Tochtergesellschaft die favour of a person who agrees to Ausstellung einer oder mehrerer purchase a Real Estate Property owned Bankgarantien zugunsten einer Person by the Issuer or a Subsidiary; verlangen kann, die sich zum Erwerb von Immobilienvermögen von der Emittentin oder einer Tochtergesellschaft verpflichtet hat;
(vi) einer Gegenverpflichtung zur Frei- (vi) any counter-indemnity obligation in stellung in Bezug auf eine Bürgschaft, respect of a guarantee, indemnity, bond, eine Freistellungsverpflichtung, eine standby or documentary letter of credit or Garantie, ein Garantie- oder any other instrument issued by a bank or Dokumentenakkreditiv oder ein anderes financial institution; and von einer Bank oder einem Finanzinstitut ausgestelltes Instrument; und
(vii) Verbindlichkeiten aus einer Garantie, (vii) the amount of any liability in respect of Bürgschaft oder Freistellungsverpflich- any guarantee or indemnity for any of tung in Bezug auf Verbindlichkeiten der the items referred to in paragraphs (i) to in den vorstehenden Absätzen (i) bis (vi) (vi) above, genannten Art,
jeweils nur falls und soweit der jeweilige in each such case only if and to the extent the Betrag oder die jeweilige Verpflichtung nach relevant amount or obligation is recorded as IFRS als „Verbindlichkeit“ erfasst wird. “indebtedness” in accordance with IFRS.
Garantie hat die diesem Begriff in § 12(1)(e) Guarantee has the meaning assigned to such term zugewiesene Bedeutung. in § 12(1)(e).
Garantin hat die diesem Begriff in § 12(1)(e) Guarantor has the meaning assigned to such term zugewiesene Bedeutung. in § 12(1)(e).
Gemeinsamer Vertreter hat die diesem Begriff in Holders’ Representative has the meaning § 14(5) zugewiesene Bedeutung. assigned to such term in § 14(5).
Geschäftstag hat die diesem Begriff in § 5(4) Business Day has the meaning assigned to such zugewiesene Bedeutung. term in § 5(4).
Gläubiger hat die diesem Begriff in § 1(6) Holder has the meaning assigned to such term in zugewiesene Bedeutung. § 1(6).
Gläubiger-Ausübungserklärung hat die diesem Put Notice has the meaning assigned to such term Begriff in § 6(5)(c) zugewiesene Bedeutung. in § 6(5)(c).
Gläubiger-Rückzahlungswahlrecht hat die Put Option has the meaning assigned to such diesem Begriff in § 6(5)(a) zugewiesene term in § 6(5)(a). Bedeutung.
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Gläubigerwahl-Rückzahlungsereignis- Put Event Notice has the meaning assigned to Mitteilung hat die diesem Begriff in § 6(5)(b) such term in § 6(5)(b). zugewiesene Bedeutung.
Globalurkunden hat die diesem Begriff in Global Notes has the meaning assigned to such § 1(3)(a) zugewiesene Bedeutung. term in § 1(3)(a).
Gruppe bezeichnet die Emittentin und ihre Group means the Issuer together with its Tochtergesellschaften. Subsidiaries.
ICSDs hat die diesem Begriff in § 1(5) ICSDs has the meaning assigned to such term in zugewiesene Bedeutung. § 1(5).
IFRS bezeichnet die International Financial IFRS means the International Financial Reporting Standards des International Reporting Standards as published by the Accounting Standard Board in jeweils geltender International Accounting Standards Board, as in Fassung. effect from time to time.
Immobilienvermögen bezeichnet (unter Real Estate Property means (without duplication) Ausschluss einer Doppelberücksichtigung) das the real estate property of the Issuer and the im Konzernabschluss der Emittentin in den Subsidiaries that is recognized as of the Bilanzpositionen „als Finanzinvestition gehaltene immediately preceding Reporting Date for which Immobilien“, „zur Veräußerung gehaltene Consolidated Financial Statements of the Issuer Vermögenswerte“ „Vorauszahlungen auf als have been published, or is required to be Finanzinvestition gehaltene Immobilien“ und recognized in accordance with IFRS since the „Vorauszahlungen für Unternehmenserwerbe“ immediately preceding Reporting Date for which zum unmittelbar vorausgehendenden Consolidated Financial Statements of the Issuer Berichtsstichtag, zu dem ein Konzernabschluss have been published, in the balance sheet items der Emittentin veröffentlicht worden ist, “investment properties”, “assets held for sale”, angesetzte oder nach IFRS seit dem unmittelbar “prepayments for investment properties” and vorangegangenen Berichtsstichtag, zu dem ein “prepayments for business combinations” of the Konzernabschluss der Emittentin veröffentlicht Consolidated Financial Statements of the Issuer. worden ist, anzusetzende Immobilienvermögen der Emittentin und der Tochtergesellschaften.
Kapitalmarktverbindlichkeit bezeichnet jede Capital Market Indebtedness means any present gegenwärtige oder künftige Verpflichtung zur or future obligation for the payment of borrowed Rückzahlung aufgenommener Geldbeträge money (including obligations by reason of any (einschließlich Verbindlichkeiten aus Garantien guarantee or other liability agreement for such oder sonstigen Haftungsvereinbarungen für obligations of third parties) which is in the form solche Verbindlichkeiten Dritter), die verbrieft ist of, or represented by, bonds, notes or other in Form von Anleihen, Schuldverschreibungen securities which are capable of being quoted, oder sonstigen Wertpapieren, die an einer Börse, listed, dealt in or traded on a stock exchange, einem außerbörslichen Markt oder an einem over-the-counter-market or other recognised anderen anerkannten Wertpapiermarkt notiert, securities market (for the avoidance of doubt: zugelassen oder gehandelt werden können (zur Schuldschein loans/promissory notes shall be no Klarstellung: Schuldscheindarlehen sind keine Capital Market Indebtedness). Kapitalmarktverbindlichkeit).
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Konsolidierte Nettofinanzverbindlichkeiten Consolidated Net Financial Indebtedness means bezeichnet die nach IFRS ermittelten the net financial indebtedness of the Issuer and Nettofinanzverbindlichkeiten der Emittentin und any of its Subsidiaries, on a consolidated basis ihrer Tochtergesellschaften auf konsolidierter determined in accordance with IFRS as Basis als „Finanzschulden“ abzüglich „Flüssige “financing liabilities” less “cash and cash Mittel“ (jeweils wie im Konzernabschluss der equivalents” (each shown in the Consolidated Emittentin ausgewiesen). Financial Statements of the Issuer).
Konsolidiertes Bereinigtes EBITDA bezeichnet Consolidated Adjusted EBITDA means the den unter der Überschrift „EBITDA“ number set out in the item “EBITDA” adjusted angegebenen Zahlenwert bereinigt um das for “net income on the remeasurement of „Ergebnis aus der Bewertung von als Finanz- investment properties”, “net income from the investitionen gehaltenen Immobilien“, das disposal of real estate inventory”, “net income „Ergebnis aus der Veräußerung von Vorrats- from the disposal of investment properties”, non- immobilien“, das „Ergebnis aus der Veräußerung recurring project costs and other extraordinary von als Finanzinvestitionen gehaltenen and prior-period expenses and income (in each Immobilien“, die Projektkosten mit case subject to the determination specified in Einmalcharakter und anderen außerordentlichen these Terms and Conditions). sowie periodenfremden Aufwendungen und Erträgen (jeweils vorbehaltlich der Bestimmungen in diesen Anleihebedingungen).
Kontrollwechsel hat die diesem Begriff in Change of Control has the meaning assigned to § 6(5)(a) zugewiesene Bedeutung. such term in § 6(5)(a).
Konzernabschluss bezeichnet in Bezug auf eine Consolidated Financial Statements means, with Person den nach IFRS erstellten Konzern- respect to any Person, the consolidated financial abschluss mit Anhang und Lagebericht für diese statements and notes to those financial statements Person und ihre Tochterunternehmen sowie and the group management report of that Person Konzernzwischenabschlüsse und and its subsidiaries prepared in accordance with Quartalsmitteilungen (zum relevanten Zeitpunkt). IFRS as well as interim consolidated financial statements and quarterly statements (as of the relevant date).
Kündigungserklärung hat die diesem Begriff in Termination Notice has the meaning assigned to § 10(2) zugewiesene Bedeutung. such term in § 10(2).
Kündigungsgrund hat die diesem Begriff in Event of Default has the meaning assigned to § 10(1) zugewiesene Bedeutung. such term in § 10(1).
Nachfolgeschuldnerin hat die diesem Begriff in Substitute Debtor has the meaning assigned to § 12(1) zugewiesene Bedeutung. such term in § 12(1).
Neue Finanzverbindlichkeiten bezeichnet den New Financial Indebtedness means the amount Betrag der eingegangenen Finanzverbind- of Financial Indebtedness incurred minus (i) the lichkeiten abzüglich (i) des Betrags der amount of Financial Indebtedness repaid and (ii) zurückgezahlten Finanzverbindlichkeiten und (ii) “cash and cash equivalents” (each as determined „Flüssiger Mittel“ (jeweils nach IFRS ermittelt). in accordance with IFRS).
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Neue Besicherte Finanzverbindlichkeiten New Secured Financial Indebtedness means the bezeichnet den Betrags der eingegangenen amount of Secured Financial Indebtedness Besicherten Finanzverbindlichkeiten abzüglich incurred minus the amount of Secured Financial des Betrags der zurückgezahlten Besicherten Indebtedness repaid (each as determined in Finanzverbindlichkeiten (jeweils nach IFRS accordance with IFRS). ermittelt).
Person bezeichnet natürliche Personen, Körper- Person means any individual, corporation, schaften, Personengesellschaften, Joint Ventures, partnership, joint venture, association, joint stock Vereinigungen, Aktiengesellschaften, Trusts, company, trust, unincorporated organization, nicht rechtsfähige Vereinigungen, Gesellschaften limited liability company or government (or any mit beschränkter Haftung, staatliche Stellen (oder agency or political subdivision thereof) or any Behörden oder Gebietskörperschaften) oder other entity. sonstige Rechtsträger.
Qualifizierte Mehrheit hat die diesem Begriff in Qualified Majority has the meaning assigned to § 14(2) zugewiesene Bedeutung. such term in § 14(2).
Relevante Person(en) hat die diesem Begriff in Relevant Person(s) has the meaning assigned to § 6(5)(a) zugewiesene Bedeutung. such term in § 6(5)(a).
Rückzahlungs-Berechnungstag hat die diesem Redemption Calculation Date has the meaning Begriff in § 6(4) zugewiesene Bedeutung. assigned to such term in § 6(4).
Rückzahlungsbetrag hat die diesem Begriff in Final Redemption Amount has the meaning § 6(1) zugewiesene Bedeutung. assigned to such term in § 6(1).
Schuldverschreibungen hat die diesem Begriff in Notes has the meaning assigned to such term in § 1(1) zugewiesene Bedeutung. § 1(1).
SchVG hat die diesem Begriff in § 14(1) SchVG has the meaning assigned to such term in zugewiesene Bedeutung. § 14(1).
Sicherungsrecht bezeichnet (unter Ausschluss Lien means (without duplication) any lien, einer Doppelberücksichtigung) Sicherungsrechte, mortgage, trust deed, deed of trust, deed, pledge, Grundpfandrechte, Sicherung-Treuhandverträge, security interest, assignment for collateral Sicherungsurkunden, Verpfändungsverträge, purposes, deposit arrangement, or other security Sicherungsabtretungen, agreement, excluding any right of setoff but Sicherungsübereignungen, including, without limitation, any conditional sale Hinterlegungsvereinbarungen oder sonstige or other title retention agreement, any financing Sicherungsabreden, ausgenommen Rechte zur lease having substantially the same economic Aufrechnung, jedoch u. a. einschließlich bedingte effect as any of the foregoing, and any other like Kaufverträge oder Vereinbarungen unter agreement granting or conveying a security Eigentumsvorbehalt, interest in rem to a Person that is not a member of Finanzierungsleasingverträge, die wirtschaftlich the Group, in each case to secure outstanding im Wesentlichen den vorgenannten Financial Indebtedness, but in each case Vereinbarungen gleichkommen, sowie sonstige excluding Vereinbarungen, die ein dingliches
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Sicherungsrecht gewähren oder übertragen und zwar einer Person, die nicht Mitglied der Gruppe ist, jeweils zur Besicherung ausstehender Finanzverbindlichkeiten, jedoch keine
(i) in Abteilung 2 eines deutschen (i) any encumbrance registered in Grundbuchs eingetragenen Belastungen; department 2 of the German land register;
(ii) Sicherungsrechte, die im Zusammenhang (ii) any lien arising in connection with a mit der Veräußerung von Vermögenswerts disposal of an asset in the ordinary course im Rahmen der gewöhnlichen of business including, without limitation, Geschäftstätigkeit entstehen, u. a. any lien created in assets subject to a sale Sicherungsrechte an Vermögenswerten, agreement for the purposes of financing die Gegenstand eines Kaufvertrags sind, the purchase price; zur Finanzierung des Kaufpreises;
(iii) Sicherungsrechte, für die dem maßgeb- (iii) any lien in respect of which an lichen Mitglied der Gruppe eine unbe- unconditional deletion consent has been dingte Löschungsbewilligung übermittelt delivered to the relevant member of the wurde; Group;
(iv) Sicherungsrechte, die kraft Gesetzes (oder (iv) any lien arising by operation of law (or by kraft einer Vereinbarung mit derselben agreement having the same effect) or in Wirkung) oder im Rahmen der the ordinary course of business; gewöhnlichen Geschäftstätigkeit entstehen;
(v) Barsicherheiten, die im Zusammenhang (v) any cash collateral posted in connection mit Währungs- und Zinsabsicherungs- with cross-currency and interest rate geschäften gestellt werden; hedging transactions;
(vi) Sicherungsrechte an Bankkonten nach (vi) any lien on bank accounts under general Maßgabe der allgemeinen terms and conditions of any provider of Geschäftsbedingungen des Anbieters von bank accounts; and Bankkonten; und
(vii) Sicherungsrechte für (vii) any lien securing Financial Indebtedness Finanzverbindlichkeiten, die am outstanding on the Issue Date. Begebungstag ausstehen.
Summe Aktiva bezeichnet den Wert der Total Assets means the value of the consolidated konsolidierten Bilanzsumme der Emittentin und total assets of the Issuer and the Subsidiaries, as der Tochtergesellschaften, der in einer nach IFRS such amount appears, or would appear, on a erstellten konsolidierten Bilanz der Emittentin consolidated balance sheet of the Issuer prepared erscheint oder erschienen würde, wobei die in accordance with IFRS, provided that “Total „Summe Aktiva“ die Zuflüsse aus den einzu- Assets” shall include the proceeds of the gehenden Finanzverbindlichkeiten einschließt. Financial Indebtedness to be incurred.
Tochtergesellschaft bezeichnet jede Person, die Subsidiary means any Person that must be
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bei der Erstellung der Konzernabschlüsse der consolidated with the Issuer for the purposes of Emittentin mit ihr konsolidiert werden muss. preparing Consolidated Financial Statements of the Issuer.
Unabhängige Sachverständige hat die diesem Independent Financial Adviser has the meaning Begriff in § 6(4) zugewiesene Bedeutung. assigned to such term in § 6(4).
Unbelastetes Nettovermögen bezeichnet den Net Unencumbered Assets means the value of Wert des erworbenen Immobilienvermögens der any Real Estate Property of the Issuer and its Emittentin und ihrer Tochtergesellschaften, das Subsidiaries not subject to any Lien acquired plus nicht Gegenstand eines Sicherungsrechts ist, the value of all other assets of the Issuer and its zuzüglich des Werts aller sonstigen erworbenen Subsidiaries not subject to any Lien acquired Vermögenswerte der Emittentin und ihrer minus the value of such assets (previously not Tochtergesellschaften, die nicht Gegenstand eines being subject to a Lien) which (i) have been Sicherungsrechts sind, abzüglich des Werts disposed of or (ii) have become subject to a Lien solcher Vermögenswerte (die nicht Gegenstand (each as determined in accordance with IFRS). eines Sicherungsrechts waren), die (i) veräußert wurden oder (ii) Gegenstand eines Sicherungs- rechts geworden sind (jeweils nach IFRS ermittelt).
Unbelastetes Vermögen bezeichnet (unter Unencumbered Assets means (without Ausschluss einer Doppelberücksichtigung) duplication) (i) the value of any Real Estate (i) den Wert des Immobilienvermögens der Property of the Issuer and its Subsidiaries that is Emittentin und ihrer Tochtergesellschaften, das not subject to any Lien, plus (ii) the value of all nicht Gegenstand eines Sicherungsrechts ist, other assets of the Issuer and its Subsidiaries that zuzüglich (ii) des Werts aller sonstigen is not subject to any Lien (where in case of (i) Vermögenswerte der Emittentin und ihrer and (ii) the value of Real Estate Property and Tochtergesellschaften, die nicht Gegenstand eines other assets shall be equal to such amounts that Sicherungsrechts sind (wobei im Fall von (i) und appear, or would appear, on a consolidated (ii) der Wert des Immobilienvermögens und der balance sheet of the Issuer prepared in sonstigen Vermögenswerte dem Betrag accordance with IFRS). entspricht, der in einer nach IFRS erstellten konsolidierten Bilanz der Emittentin erscheint oder erscheinen würde).
Unbesicherte Finanzverbindlichkeiten bezeich- Unsecured Financial Indebtedness means that net den Teil des Gesamtbetrags aller portion of the aggregate amount of all ausstehenden Finanzverbindlichkeiten der outstanding Financial Indebtedness of the Group Gruppe, bei dem es sich nicht um Besicherte that is not Secured Financial Indebtedness (as Finanzverbindlichkeiten handelt (nach IFRS determined in accordance with IFRS). ermittelt).
Unbesicherte Neue Finanzverbindlichkeiten New Unsecured Financial Indebtedness means bezeichnet den Betrag der eingegangenen the amount of Unsecured Financial Indebtedness Unbesicherten Finanzverbindlichkeiten abzüglich incurred minus the amount of Unsecured des Betrags der zurückgezahlten Unbesicherten Financial Indebtedness repaid (each as Finanzverbindlichkeiten (jeweils nach IFRS determined in accordance with IFRS).
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ermittelt).
Verbriefte Kapitalmarktverbindlichkeit bezeich- Securitized Capital Market Indebtedness means net jede Kapitalmarktverbindlichkeit aus oder im any Capital Market Indebtedness incurred in Zusammenhang mit einer Verbriefung oder respect of or in connection with any securitization vergleichbaren Finanzierungsvereinbarung in or similar financing arrangement relating to Bezug auf Vermögenswerte der Emittentin oder assets owned by the Issuer or its Subsidiaries and ihrer Tochtergesellschaften, bei der die where the recourse of the holders of such Capital Rückgriffsrechte der Gläubiger der betreffenden Market Indebtedness against the Issuer is limited Kapitalmarktverbindlichkeit auf die Emittentin solely to such assets or any income generated ausschließlich auf die betreffenden Vermögens- therefrom. werte oder die daraus erzielten Erträge beschränkt sind.
Verbundenes Unternehmen hat die diesem Affiliate has the meaning assigned to such term Begriff in § 12(1) zugewiesene Bedeutung. in § 12(1).
Vereinigte Staaten hat die diesem Begriff in United States has the meaning assigned to such § 1(7) zugewiesene Bedeutung. term in § 1(7).
Verschuldungsgrad (LTV) hat die diesem Loan-to-Value Ratio has the meaning assigned to Begriff in § 11(1)(a) zugewiesene Bedeutung. such term in § 11(1)(a).
Vorläufige Globalurkunde hat die diesem Temporary Global Note has the meaning Begriff in § 1(3)(a) zugewiesene Bedeutung. assigned to such term in § 1(3)(a).
Wahl-Rückzahlungsbetrag (Call) hat die diesem Call Redemption Amount has the meaning Begriff in § 6(4) zugewiesene Bedeutung. assigned to such term in § 6(4).
Wahl-Rückzahlungstag (Call) hat die diesem Call Redemption Date has the meaning assigned Begriff in § 6(4) zugewiesene Bedeutung. to such term in § 6(4).
Wahl-Rückzahlungsbetrag (Put) hat die diesem Put Redemption Amount has the meaning Begriff in § 6(5)(a) zugewiesene Bedeutung. assigned to such term in § 6(5)(a).
Wahl-Rückzahlungstag (Put) hat die diesem Put Date has the meaning assigned to such term Begriff in § 6(5)(c) zugewiesene Bedeutung. in § 6(5)(c).
Wesentliche Tochtergesellschaft bezeichnet eine Material Subsidiary means any Subsidiary of the Tochtergesellschaft der Emittentin, deren Issuer whose total assets as shown in its audited Bilanzsumme gemäß ihrem geprüften und nicht non-consolidated annual accounts are at least konsolidierten Jahresabschluss mindestens 3 % equal to 3 per cent. of the Total Assets. der Summe Aktiva ausmacht.
Zahlstelle hat die diesem Begriff in § 7(1) Paying Agent has the meaning assigned to such zugewiesene Bedeutung. term in § 7(1).
Zahlungswirksames Zinsergebnis bezeichnet Net Cash Interest means all cash interest and alle an Personen, die nicht Mitglied der Gruppe other financing charges accrued to persons who sind, aufgelaufenen, bar zu zahlenden Zinsen und are not members of the Group less the amount of
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sonstigen Finanzierungskosten abzüglich des any interest and other financing charges accrued Betrags aller durch Mitglieder der Gruppe von to be received by members of the Group from Personen, die nicht Mitglied der Gruppe sind, zu persons who are not members of the Group, in erhaltenden und aufgelaufenen Zinsen und each case, excluding any one-off financing sonstigen Finanzierungskosten, jeweils ausge- charges (including without limitation, any one-off nommen einmalige Finanzierungskosten (u. a. fees and/or break costs). einmalige Entgelte und/oder Vorfälligkeits- entschädigungen).
Zinsperiode hat die diesem Begriff in § 4(3) Interest Period has the meaning assigned to such zugewiesene Bedeutung. term in § 4(3).
Zinszahlungstag hat die diesem Begriff in § 4(1) Interest Payment Date has the meaning assigned zugewiesene Bedeutung. to such term in § 4(1).
Zusätzliche Beträge hat die diesem Begriff in Additional Amounts has the meaning assigned to § 8(2) zugewiesene Bedeutung. such term in § 8(2).
§ 17 § 17 ANWENDBARES RECHT, ERFÜLLUNGSORT UND GOVERNING LAW, PLACE OF PERFORMANCE GERICHTSSTAND, GERICHTLICHE AND PLACE OF JURISDICTION, ENFORCEMENT GELTENDMACHUNG
(1) Anwendbares Recht. Form und Inhalt der (1) Governing Law. The Notes, as to form and Schuldverschreibungen sowie die Rechte und content, and all rights and obligations of the Pflichten der Gläubiger und der Emittentin Holders and the Issuer, shall be governed by bestimmen sich in jeder Hinsicht nach German law. deutschem Recht.
(2) Erfüllungsort. Erfüllungsort ist Frankfurt am (2) Place of Performance. Place of performance Main, Bundesrepublik Deutschland. is Frankfurt am Main, Federal Republic of Germany.
(3) Gerichtsstand. Gerichtsstand für sämtliche (3) Place of Jurisdiction. To the extent legally im Zusammenhang mit den Schuldver- permissible, the courts of Frankfurt am Main, schreibungen entstehenden Klagen oder Federal Republic of Germany, will have sonstigen Verfahren ist, soweit rechtlich jurisdiction for any actions or other legal zulässig, Frankfurt am Main, Bundesrepublik proceedings arising out of or in connection Deutschland. Für Entscheidungen gemäß § 9 with the Notes. The local court of Düsseldorf Abs. 2, § 13 Abs. 3 und § 18 Abs. 2 SchVG will have jurisdiction for all judgments in ist gemäß § 9 Abs. 3 SchVG das Amtsgericht accordance with section 9 paragraph 2, Düsseldorf zuständig. Für Entscheidungen section 13 paragraph 3 and section 18 über die Anfechtung von Beschlüssen der paragraph 2 SchVG in accordance with Anleihegläubiger ist gemäß § 20 Abs. 3 section 9 paragraph 3 SchVG. The regional SchVG das Landgericht Düsseldorf court in the district of Düsseldorf will have zuständig. exclusive jurisdiction for all judgments over contested resolutions by Holders in accordance with section 20 paragraph 3
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SchVG.
(4) Gerichtliche Geltendmachung. Jeder (4) Enforcement. Any Holder of Notes may in Gläubiger von Schuldverschreibungen ist any proceedings against the Issuer, or to berechtigt, in jedem Rechtsstreit gegen die which such Holder and the Issuer are parties, Emittentin oder in jedem Rechtsstreit, in dem protect and enforce in his own name his der Gläubiger und die Emittentin Partei sind, rights arising under such Notes on the basis seine Rechte aus diesen Schuldverschrei- of (i) a statement issued by the Custodian bungen im eigenen Namen auf der folgenden with whom such Holder maintains a Grundlage zu sichern und geltend zu machen: securities account in respect of the Notes (i) einer Bescheinigung der Depotbank, bei (a) stating the full name and address of the der er für die Schuldverschreibungen ein Holder, (b) specifying the aggregate principal Wertpapierdepot unterhält, welche (a) den amount of Notes credited to such securities vollständigen Namen und die vollständige account on the date of such statement and Adresse des Gläubigers enthält, (b) den (c) confirming that the Custodian has given Gesamtnennbetrag der Schuldverschrei- written notice to the Clearing System bungen bezeichnet, die unter dem Datum der containing the information pursuant to (a) Bestätigung auf dem Wertpapierdepot and (b) and (ii) a copy of the Global Note verbucht sind und (c) bestätigt, dass die representing the relevant Notes certified as Depotbank gegenüber dem Clearingsystem being a true copy of the original Global Note eine schriftliche Erklärung abgegeben hat, die by a duly authorized officer of the Clearing die vorstehend unter (a) und (b) bezeichneten System or a depository of the Clearing Informationen enthält, und (ii) einer Kopie System, without the need for production in der die betreffenden Schuldverschreibungen such proceedings of the actual records or the verbriefenden Globalurkunde, deren Überein- Global Note representing the Notes. For stimmung mit dem Original eine vertretungs- purposes of the foregoing, Custodian means berechtigte Person von dem Clearingsystem any bank or other financial institution of oder einer Verwahrstelle des Clearingsystems recognized standing authorized to engage in bestätigt hat, ohne dass eine Vorlage der securities custody business with which the Originalbelege oder der die Schuldverschrei- Holder maintains a securities account in bungen verbriefenden Globalurkunde in respect of the Notes, including the Clearing einem solchen Verfahren erforderlich wäre. System. Each Holder may, without prejudice Für die Zwecke des Vorstehenden bezeichnet to the foregoing, protect and enforce his Depotbank jede Bank oder ein sonstiges rights under these Notes also in any other anerkanntes Finanzinstitut, das berechtigt ist, way which is admitted in the country of the das Depotgeschäft zu betreiben und bei proceedings. der/dem der Gläubiger ein Wertpapierdepot für die Schuldverschreibungen unterhält, einschließlich dem Clearingsystem. Unbe- schadet der vorstehenden Bestimmungen ist jeder Gläubiger berechtigt, seine Rechte aus diesen Schuldverschreibungen auch auf jede andere im Land des Verfahrens zulässige Weise geltend zu machen.
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§ 18 § 18 SPRACHE LANGUAGE
Diese Anleihebedingungen sind in deutscher These Terms and Conditions are written in the Sprache abgefasst; eine Übersetzung in die German language and provided with an English englische Sprache ist beigefügt. Nur die deutsche language translation. The German version shall Fassung ist rechtlich bindend. Die englische be the only legally binding version. The English Übersetzung ist unverbindlich. translation is for convenience only.
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DESCRIPTION OF RULES REGARDING RESOLUTIONS OF HOLDERS
The SchVG provides that holders of debt securities may, with the consent of the respective issuer (where required), amend the terms and conditions or resolve on other matters concerning debt securities by way of majority resolutions. If provided for in the terms and conditions, this shall apply mutatis mutandis to obligations securing such debt securities. A majority resolution in accordance with the SchVG is binding for all holders of one series of debt securities. The SchVG applies to debt securities that form an issue of identical debt securities (Gesamtemission) which are governed by German law. Consequently, the SchVG applies to the Notes.
The following sections provide an overview of the statutory provisions of the SchVG with respect to the Notes.
Overview of the SchVG
Under the SchVG and in accordance with the Terms and Conditions, it is possible to extensively change and therefore restructure the Terms and Conditions and to adopt further measures concerning the Notes with the Issuer’s consent (where required). Any such amendments or measures are only binding in respect of the Notes and do not apply to any other issue of debt securities of the Issuer.
The Terms and Conditions also contain rules on the appointment of a Holders’ Representative.
Individual Subjects of Resolutions
As provided for by the SchVG, the Notes do not provide for an exclusive list of admissible amendments to the Terms and Conditions or other measures on which the Holders may take a resolution. In accordance with Section 5 para. 3 sent. 1 no. 1-10 SchVG, the individual subjects for resolutions may include (but are not limited to):
(a) amendments to the principal claim (due date, amount, currency, rank, debtors, object of performance) of the Notes;
(b) amendments to or removal of ancillary conditions of the Notes;
(c) modification or waiver of a right of termination and removal of the effect of the collective right of termination;
(d) substitution and release of security;
(e) amendments to legal transactions with joint obligors; and
(f) amendments to ancillary claims (due date, amount, exclusion, currency, rank, debtors, object of performance).
In addition, resolutions not affecting the contents of the Terms and Conditions may be passed, including:
(a) exchange of the Notes for other debt securities or shares; and
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(b) appointment, duties and removal of a Holders’ Representative.
Relevant Majorities for Holder Resolutions
The Terms and Conditions use the applicable majorities provided for by the SchVG. Hence, any resolutions which materially alter the Terms and Conditions or adopt other measures, in particular in the cases listed in Section 5 para. 3 sent. 1 no. 1-9 SchVG, require a majority of at least 75% of the votes participating in the vote (a “Qualified Majority”). All other resolutions may generally be passed with a simple majority of 50% of the participating votes.
Procedures for Taking Holder Resolutions
General
Resolutions of the Holders with respect to the Notes can be passed in a meeting (Gläubigerversammlung) in accordance with Sections 5 et seq. SchVG or by way of a vote without a meeting pursuant to Section 18 and Sections 9 et seq. SchVG (Abstimmung ohne Versammlung).
The Issuer or a Holders’ Representative may convene and Holders who together hold 5% of the outstanding nominal amount of the Notes for specified reasons permitted by the SchVG may demand in writing (i) to convene a creditors’ meeting (Gläubigerversammlung) or (ii) hold a vote without a meeting, as the case may be.
The Issuer bears the costs of the vote and/or the meeting and, if a court has convened a meeting, also the costs of such court proceedings.
All resolutions adopted must be properly published. Resolutions which amend or supplement the Terms and Conditions have to be implemented by supplementing or amending the Global Note.
If a resolution constitutes a breach of the SchVG or the Terms and Conditions, Holders who have filed a complaint within 14 days after publication of the resolution may bring an action to set aside such resolution. Such action must be filed with the competent court within one month following the publication of the resolution.
Resolution by Physical Meeting
The meeting will be convened by way of a notice given to the Holders no later than 14 calendar days prior to the meeting. Attendance and exercise of voting rights at the meeting may be made subject to prior registration of Holders. The convening notice will provide what proof will be required for attendance and voting at the meeting. Each Holder may be represented in the meeting by proxy.
A resolution in a meeting can only be passed if a quorum of at least 50% of the outstanding aggregate principal amount of the Notes is represented in the meeting. The chairman shall ascertain each Holder’s entitlement to cast a vote based on evidence provided by such Holder and shall prepare a list of the Holders present or represented by proxy in the meeting.
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Resolution without a Physical Meeting
The voting will be conducted by a scrutineer (Abstimmungsleiter). Such scrutineer shall be (i) a notary public appointed by the Issuer, (ii) the Holders’ Representative, if the vote was solicited by it, or (iii) a person appointed by the competent court.
A vote without a meeting will be convened by way of a notice given to the Holders to solicit their votes (Aufforderung zur Stimmabgabe) no later than 14 calendar days prior to the commencement of the vote. The solicitation notice shall set out the period within which votes may be cast (at least 72 hours), the agenda and the subject matter of the vote and the details of the conditions to be met for the votes to be valid. During the applicable voting period, Holders may cast their votes to the scrutineer. Each Holder may be represented by proxy.
A resolution by way of a vote without a meeting can only be passed if a quorum of at least 50% of the outstanding Notes by value participates in the vote during the voting period. The scrutineer shall ascertain each Holder’s entitlement to cast a vote based on evidence provided by such Holder and shall prepare a list of the Holders entitled to vote.
Resolution by (second) Physical Meeting
If the quorum of 50% of the outstanding aggregate principal amount of the Notes is not met, the scrutineer or the chairman, as the case may be, may convene a (second) physical meeting of the Holders at which no quorum will be required, provided that where a resolution may only be adopted by a Qualified Majority, a quorum requires the presence of at least 25%, of the outstanding Notes. For such (second) physical meeting the provisions set out under (b) apply mutatis mutandis.
Holders’ Representative (gemeinsamer Vertreter)
The Holders’ Representative may generally be appointed by way of a majority resolution passed by the Holders. If at the same time rights are assigned to the Holders’ Representative, thereby enabling it to consent to material amendments to the Terms and Conditions on behalf of the Holders, the appointment requires a Qualified Majority.
The Holders may at any time and without reason terminate the appointment of the Holders’ Representative by majority resolution passed by a simple majority. The Holders’ Representative is bound by the Holders’ instructions (which are based on the relevant majority resolutions).
Any individual or competent legal entity may be appointed as Holders’ Representative, provided that, for the avoidance of conflicts of interest, certain disclosure requirements are to be met.
The duties and rights of the Holders’ Representative are determined by the SchVG and any resolutions of the Holders. To the extent that the exercise of the Holders’ rights has been transferred to the Holders’ Representative, the Holders themselves may not assert these rights, unless a majority resolution of the Holders provides otherwise. The Holders’ Representative’s liability may be restricted in accordance with the SchVG.
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SOURCES OF MARKET DATA
To the extent not otherwise indicated, the information contained in this Prospectus on the market environment, market developments, growth rates, market trends and competition in the markets in which LEG operates are based on the Issuer’s assessments. These assessments, in turn, are based in part on internal observations of the market and on various market studies. The following sources were used in the preparation of this Prospectus:
Agency of Information and Technology North Rhine-Westphalia (IT.NRW), Population Forecast 2014 to 2040/60 (“IT.NRW, Population in NRW”);
Agency of Information and Technology North Rhine-Westphalia (IT.NRW), Statistics, Subject: Private Households by Household Size, 2005-2014 (“IT.NRW, Private Households in NRW”);
Agency of Information and Technology North Rhine-Westphalia (IT.NRW), Statistical Analyses and Studies, Volume 85 “Effects of Demographic Change, Modeling the Development of Private Households in North Rhine-Westphalia” (“IT.NRW, Household Development by 2035”);
Agency of Information and Technology North Rhine-Westphalia (IT.NRW), Statistics, Subject: Extrapolations Residential Building and Housing Stock, 31.12.2015 (“IT.NRW, Housing Stock”);
Agency of Information and Technology North Rhine-Westphalia (IT.NRW), Press Release from March 21, 2016 (068/16): “2015 Attracted 70% More Foreigners from Abroad to NRW” (“IT.NRW, Press Release 068/16”);
Agency of Information and Technology North Rhine-Westphalia (IT.NRW), Press Release from July 14, 2016 (182/16): “Strongest Increase of Inhabitants in NRW since 25 years” (“IT.NRW, Press Release 182/16”);
Deutsche Börse Group, Indices– Frankfurt Stock Exchange, Retrieved on April 12, 2016 („Deutsche Börse Group“);
Empirica, Statistics, Subject: Net Cold Rent NRW Q4-2015 until Q3-2016 (“Empirica, LEG calculation based on Empirica Net Cold Rent”);
Empirica, Statistics, Subject: CBRE-empirica-Vacancy Index 2014 (“Empirica, CBRE-empirica-Vacancy Index”);
German Federal Statistical Office (Statistisches Bundesamt), Database: Labor Market, Subject: Unemployment Rate by State (“German Federal Statistical Office, Unemployment Rate by State”);
German Federal Statistical Office (Statistisches Bundesamt), Database: Public Finance and Taxes, Subject: Public Finance-debt, financial assets of public budgets – Annual Statistics (final results): “Debt of the Länder” (“German Federal Statistical Office, Debt of the Länder”);
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National Accounts of the German Federal States (VGRdL), Gross Domestic Product (“GDP”) (“National Accounts of the German Federal States, VGRdL”); and
Working Group for Modern Construction e.V. (Arbeitsgemeinschaft für zeitgemäßen Bauen e.V.), Cost Drivers for Housing Construction, Research Report No. 67, April 8, 2015 (“ARGE eV”).
It should be noted in particular that reference has been made in this Prospectus to information concerning markets and market trends. Such information was obtained from the above-mentioned market studies and other sources. The Issuer has accurately reproduced such information and, as far as it is aware and able to ascertain from information published by such third parties, no facts have been omitted that would render the reproduced information inaccurate or misleading. Nevertheless, prospective investors are advised to consider this data with caution. For example, market studies are often based on information or assumptions that may not be accurate or appropriate, and their methodology is inherently predictive and speculative.
Irrespective of the assumption of responsibility for the content of this Prospectus by the Issuer, the Issuer has not independently verified the figures, market data or other information on which third parties have based their studies. Accordingly, the Issuer makes no representation or warranty as to the accuracy of any such information from third-party studies included in this Prospectus. Prospective investors should note that the Issuer’s own estimates and statements of opinion and belief are not always based on studies of third parties.
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DESCRIPTION OF THE ISSUER
General Information on LEG Immobilien AG and LEG
Formation, Incorporation, Legal and Commercial Name, Fiscal Year and Registered Office, Business Address
The Company was founded by way of the articles of association of the Company (“Articles of Association”) dated May 9, 2008 as a limited partnership with a limited liability company as general partner (Gesellschaft mit beschränkter Haftung & Co. Kommanditgesellschaft) under German law. The company name was “Lancaster GmbH & Co. KG”, the registered office was Frankfurt am Main (Germany), and the Company was entered in the commercial register of the Local Court of Frankfurt am Main under HRA 44671. The founders were Lancaster Holding GmbH, a limited liability company (Gesellschaft mit beschränkter Haftung) under German law that is currently registered in the commercial register of the Local Court of Düsseldorf, Germany, under HRB 59563, as the general partner and Saturea B.V. as the limited partner, with Saturea B.V. holding all of the shares in both the limited partnership and Lancaster Holding GmbH. Lancaster Holding GmbH was founded on July 4, 2007 as Galatea Einhundertzweiundzwanzigste Vermögensverwaltungs-GmbH. Following its formation, it changed its name initially to Vendetta 1 GmbH and, on June 3, 2008, to Lancaster Holding GmbH. Saturea B.V. is an affiliated company of Whitehall Street Global 2007 Funds, Whitehall Street International 2008 Funds and GS LEG Investors Funds. The Company acted as a vehicle for the acquisition of LEG NRW GmbH and subsequently operated as a holding company (see “—Material Agreements of the Issuer—Purchase Agreement for LEG NRW GmbH and Certain Affiliated Companies”).
On September 1, 2008, the shareholders’ meeting resolved to relocate the registered office of the Company to Düsseldorf. On September 19, 2008, the Company was entered in the commercial register of the Local Court of Düsseldorf, Germany, under HRA 20189. On October 31, 2012, the shareholders’ meeting resolved to change the legal form of the Company to a limited liability company (Gesellschaft mit beschränkter Haftung) under German law and to change the name of the Company to “LEG Immobilien GmbH”. These changes were implemented in accordance with the provisions of the German Transformation Act (Umwandlungsgesetz). On November 28, 2012, the change of legal form and name were entered in the commercial register of the Local Court of Düsseldorf, Germany, and LEG Immobilien GmbH was entered in the commercial register of the Local Court of Düsseldorf, Germany, under HRB 69127. On January 2, 2013, the shareholders’ meeting resolved to change the legal form of the Company to a stock corporation (Aktiengesellschaft) under German law and to change the name of the Company to “LEG Immobilien AG”. This change was also implemented in accordance with the provisions of the German Transformation Act (Umwandlungsgesetz). The change of legal form and name were entered in the commercial register of the Local Court of Düsseldorf, Germany, on January 11, 2013. The Company is the holding company of the LEG Group. LEG currently operates its business under the commercial name “LEG”. LEG’s fiscal year is the calendar year.
The registered office and business address of the Company is Hans-Böckler-Str. 38, 40476 Düsseldorf, Germany (tel.: +49 211 4568-0). The Company is entered in the commercial register of the Local Court of Düsseldorf, Germany, under HRB 69386.
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History and Development
The Company
On August 29, 2008, the Company acquired 74.97% of the shares in LEG NRW GmbH (prior to its change of corporate name: LEG Landesentwicklungsgesellschaft Nordrhein-Westfalen GmbH) from Beteiligungsgesellschaft des Landes Nordrhein-Westfalen mbH, a special-purpose investment vehicle of the State of North Rhine-Westphalia and NRW.Bank, the state-owned development bank of the State of North Rhine-Westphalia, with economic effect as from January 1, 2008. Under the same purchase agreement, Rote Rose acquired a further 15.43% of the shares in LEG NRW GmbH. 1.83% of the remaining 9.6% of the share capital was held in the form of treasury shares, with 7.77% held by minority shareholders. At that time, around 40% of the shares in Rote Rose were held by Saturea B.V. and around 60% of the shares were held by Perry Luxco RE S.à r.l.
Under the same purchase agreement, the Company and Rote Rose jointly also acquired a total of 50% of the shares in Ravensberger Heimstättengesellschaft mit beschränkter Haftung (“RH GmbH”), Ruhr-Lippe Wohnungsgesellschaft mit beschränkter Haftung (“RLW GmbH”) and Wohnungsgesellschaft Münsterland mit beschränkter Haftung (“WGM GmbH) from Deutsche Rentenversicherung Westfalen, Körperschaft des öffentlichen Rechts. Further information on this purchase agreement can be found under “—Material Agreements of the Issuer—Purchase Agreement for LEG NRW GmbH and Certain Affiliated Companies”. The remaining 50% of the shares in each of these companies were held by LEG NRW GmbH.
Since September 2008, almost all of the minority shareholders of LEG NRW GmbH have accepted the Company’s offer to purchase the remaining outstanding shares in LEG NRW GmbH. In addition, several share transfers between the Company and LEG NRW GmbH have been effected. The aforementioned transactions resulted in 81.4% of the outstanding shares in LEG NRW GmbH being held by the Company and 16.8% being held by Rote Rose. At the date of this Prospectus, 0.02% of the shares in LEG NRW GmbH were held by minority shareholders and the remaining 1.8% of the shares were held by LEG NRW GmbH itself.
In August 2010, RH GmbH bought back 49% of its own shares from LEG NRW GmbH. In turn, LEG NRW GmbH acquired 28.83% of the shares in RH GmbH from the Company and 5.93% of the shares in RH GmbH from Rote Rose in exchange for consideration of €51.2 million and €10.5 million respectively. These transactions resulted in LEG NRW GmbH holding approximately 35.76% of the outstanding shares in RH GmbH, corresponding to around 70.13% of the economic interest in the company.
In August 2011, WGM GmbH bought back 49% of its own shares from LEG NRW GmbH. In turn, LEG NRW GmbH acquired 28.83% of the shares in WGM GmbH from the Company and 5.93% of the shares in WGM GmbH from Rote Rose in exchange for a consideration of €47.2 million and €9.7 million respectively. These transactions resulted in LEG NRW GmbH holding around 35.76% of the outstanding shares in WGM GmbH, corresponding to around 70.13% of the economic interest in the company.
The shareholdings in RLW GmbH were restructured in July 2012. RLW GmbH acquired 30% of its own shares from LEG NRW GmbH; in turn, LEG NRW GmbH acquired a total of 24.12% of the shares in RLW GmbH from this company and 4.96% of the shares in RLW GmbH from Rote Rose in exchange for a consideration of €93.1 million and €19.2 million respectively. This
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restructuring resulted in LEG NRW GmbH holding around 49.08% of the outstanding shares in RLW GmbH, corresponding to around 70.13% of the economic interest in the company.
The share transfers described in the paragraphs above were implemented as part of a more extensive restructuring of the RH GmbH-, WGM GmbH- and RLW GmbH-subgroups: In order to disclose hidden reserves and hence generating distributable profits, the legal and/or beneficial ownership of properties belonging to RH GmbH, WGM GmbH and RLW GmbH was transferred to wholly-owned limited partnerships of the respective transferring companies. Following these transfers and the share buy-backs described above, the limited partnerships were merged into RH GmbH, WGM GmbH and RLW GmbH respectively or liquidated.
In separate transactions on December 12 and December 17, 2012, the owners of Rote Rose – Saturea B.V. and Perry Luxco RE S.à r.l. – transferred a total of 94.9% of their shares in Rote Rose to LEG Immobilien GmbH (i.e. the Company prior to its change of legal form and name). This transfer was implemented partially as a contribution in kind, partially in exchange for the issue of new shares in LEG Immobilien GmbH, and partially as a contribution toward the capital reserves of LEG Immobilien GmbH. As a result, only 5.1% of the shares in Rote Rose were still held by Saturea B.V. and Perry Luxco RE S.à r.l. Following the transfer, LEG Immobilien GmbH became LEG Immobilien AG as a result of the change in its legal form to a stock corporation (Aktiengesellschaft) under German law and the corresponding change in its name (see “—Formation, Incorporation, Legal and Commercial Name, Fiscal Year and Registered Office”).
On June 23, 2014, LEG Immobilien AG sold the remaining 15.24% of its shares in WGM GmbH and the remaining 15.24% of its shares in RH GmbH as well as 3.5% of its shares in RLW GmbH to LEG NRW GmbH.
On December 23, 2014, LEG Immobilien AG acquired the remaining 5.1% of the shares in Rote Rose from Saturea B.V. and Perry Luxco RE S.à r.l. in exchange for a consideration of €6.0 million, leading to the Company now holding all of the shares in Rote Rose.
LEG NRW GmbH
LEG NRW GmbH, the largest equity interest held by the Company, was formed on June 22, 1970 following the merger of the state-owned companies Rheinische Heimstätte GmbH, with registered office in Düsseldorf, Gemeinnützige Siedlungsgesellschaft “Rheinisches Heim” GmbH, with registered office in Bonn, and Gemeinnützige Siedlungsgesellschaft “Rote Erde” GmbH, with registered office in Münster, with Westfälisch-Lippische Heimstätte GmbH, with registered office in Dortmund. The four predecessor companies of LEG NRW GmbH were all founded between 1916 and 1918. The primary activities of LEG NRW GmbH initially involved urban development, renovation and the construction of residential properties and small housing estates. In 1980, LEG NRW GmbH extended its activities to include the development and sale of fallow land.
In the following years, LEG NRW GmbH continuously expanded its residential portfolio through construction projects and the acquisition of majority and minority interests in other real estate companies.
On February 22, 2012, the shareholders’ meeting of LEG NRW GmbH resolved to change the company name from LEG Landesentwicklungsgesellschaft Nordrhein-Westfalen GmbH to LEG NRW GmbH. This change became effective on February 28, 2012.
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Duration and Corporate Purpose of the Company
The Company was founded for an indefinite period.
In accordance with Article 2 of the Articles of Association of the Company, the corporate purpose of the Company is the conduct of real estate business and any related business of any kind, in particular the management, rental, construction and modification, acquisition and sale of apartments as well as the provision of other services in connection with real estate, either by itself or by companies in which the Company holds an interest.
The Company is authorized to undertake all business connected directly or indirectly with the corporate purpose of the Company. In line with the corporate purpose of the Company, it may establish branches in its home country and abroad under the same or a different name, establish companies, acquire or divest interests in other companies.
The Company may combine companies in which it holds a stake under its uniform management or confine itself to the administration of its shareholdings. It may conclude affiliation agreements of any nature and may outsource or transfer its operations, wholly or in part, to its subsidiaries. The Company may also limit itself to fulfill its corporate purpose only in part.
Group Structure
The Company is the holding company of the LEG Group. The Company’s business is primarily conducted by the relevant operating subsidiaries. The Group’s consolidated financial statements include all significant subsidiaries whose financial and business policy can be controlled by the Company, either directly or indirectly and the equity interests of the Group whose financial and business policy can be influenced by the Group to a significant extent. As of September 30, 2016, the LEG Group comprised 63 subsidiaries.
The chart below shows the most important direct and indirect subsidiaries of the Company and the shareholders of the respective subsidiary as of the date of this Prospectus; however the shares held by the respective company itself are not taken into account when computing the percentage of participation:
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(*) Profit and loss transfer agreement with LEG NRW GmbH.
In 2012, and with effect for 2012, the consolidated tax group for income tax purposes of LEG NRW GmbH was extended to include LEG Group’s property holding companies. For this purpose, profit and loss transfer agreements were concluded, amongst others, with the subsidiaries of LEG NRW GmbH outlined in the structure chart above, but with the exception of LEG Management GmbH and LEG Wohnen NRW GmbH, as they were already a party to existing profit and loss transfer agreements. The expansion of the consolidated tax group allows for the possibility to claim previously unused interest carryforward as deductible expenses.
Significant portions of LEG's business operations are conducted at the level of LEG NRW GmbH. As a limited liability company (Gesellschaft mit beschränkter Haftung) under German law, LEG NRW GmbH is managed by its managing directors (Geschäftsführer), Thomas Hegel, Eckhard Schultz and Holger Hentschel, who are responsible for the day-to-day administration of LEG NRW GmbH and who represent the Company vis-à-vis third parties and in court proceedings. The members of the Management Board of the Company and the managing directors of LEG NRW GmbH are the same persons. The managing directors are appointed and removed by the shareholders’ meeting, which also decides on material corporate actions, such as capital increases and reductions, the adoption of the annual financial statements of LEG NRW GmbH, the redemption of shares and amendments to the articles of association. In addition to that, the shareholders’ meeting is vested with the right to give binding instructions to the managing directors whenever it sees fit and with respect to all business decisions, even the day-to-day administration of LEG NRW GmbH. The rights of the Company in LEG NRW GmbH’s shareholders’ meeting are exercised by the Management Board of the Company (for more information on the Management Board of the Company, see “—Management and Supervisory Bodies of LEG Immobilien AG—Management Board”). Since shares in LEG NRW GmbH are not only held by the Company and LEG NRW GmbH but also – in the amount of 0.02% –
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by four minority shareholders, resolutions of the shareholders’ meeting that require an unanimous vote may be blocked by those minority shareholders.
Significant Subsidiaries
The following table provides an overview of the Company’s significant subsidiaries. The shareholdings reflect the Company’s direct and indirect economic interest in the respective entity. This means that shares held by the respective company itself are not taken into account when computing the percentage of participation. The shareholdings below are presented as of September 30, 2016 and rounded to two decimal points. This data has been extracted from the Company’s accounting systems. Otherwise, the financial data presented in this table has been extracted from the unconsolidated financial statements prepared in accordance with German GAAP of the respective entity as of December 31, 2015. Since then, no material change occurred.
Company share Capital Receivables Name and (directly Issued capital reserves/ Payables to the from the registered and (excluding own Retained Company by Company by Profit/loss office Business indirectly) shares) earnings Equity affiliates affiliates (1) (in (in € (in %) (in €) (in €) € million) (in €) (in €) thousand) LEG NRW Construction, GmbH, acquisition Düsseldorf, and Germany management of residential real estate 99.98 150,121,022.78 365,517,777.3 1,066.1 540,706,572.86 961,054,707.87 611 LEG Construction Wohnen and GmbH, management Düsseldorf, of residential Germany real estate 100.00 92,033,000 375,465,719.4 559.0 127,162,748.22 33,589,586.19 – LEG Construction Wohnungs- and bau management Rheinland of residential GmbH, real estate Düsseldorf, Germany 100.00 3,758,300 16,961,601.27 112.6 45,554,885.14 4,775,975.33 – LEG Construction Rheinland and Köln GmbH, management Düsseldorf, of residential Germany real estate 100.00 11,249,000 17,935,535.39 34.0 25,989,839.14 46,137.32 – Wohnungs- Construction gesellschaft and Münsterland management mbH, of residential Münster, real estate Germany 100.00 3,129,360 9,668,000 165.0 36,008,972.03 235,441,62 – Ruhr-Lippe Construction Wohnungs- and gesellschaft management mbH, of residential Dortmund, real estate Germany 100.00 7,875,000 310,690,964.8 318.6 4,214,709.88 3,821,978.81 – LEG Property Wohnen management NRW services vis- GmbH, à-vis Düsseldorf, affiliates Germany 100.00 50,000 295,026.43 0.3 1,912,290.99 627,866.26 – LEG Management Management services vis- GmbH, à-vis Düsseldorf, affiliates and Germany third parties 100.00 250,000 874,198.53 1.1 9,696,649.89 6,886,345.83 –
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(1) A “–” means that a profit transfer agreement exists.
Auditor
The Company appointed PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungs- gesellschaft, Kapelle-Ufer 4, 10117 Berlin, Germany (“PwC”) as the statutory auditor for the fiscal years 2016, 2015, 2014 and 2013. PwC audited the IFRS consolidated financial statements of the Company for the fiscal years ended December 31, 2015, 2014 and 2013, in each case issuing an unqualified auditor’s report. PwC is a member of the German Chamber of Public Accountants (Wirtschaftsprüferkammer), Rauchstraße 26, 10787 Berlin, Germany.
Selected Consolidated Financial Information
The following tables contain key consolidated financial information of LEG as of and for the nine months ended September 30, 2016 and September 30, 2015, and as of and for the fiscal years ended December 31, 2015, December 31, 2014 and December 31, 2013. The financial information contained in the following tables has been taken or derived from the Company’s unaudited condensed consolidated interim financial statements as of and for the nine months ended September 30, 2016 and the Company’s consolidated financial statements as of and for the fiscal years ended December 31, 2015, December 31, 2014 and December 31, 2013 as well as the Company’s accounting records or internal management reporting systems. The Company’s consolidated financial statements as of and for the fiscal years ended December 31, 2015, December 31, 2014 and December 31, 2013 have been prepared in accordance with IFRS and the additional requirements of the German commercial law pursuant to Section 315a para. 1 HGB and were audited by PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft who issued an unqualified auditor’s report in each case. The Company’s unaudited condensed consolidated interim financial statements as of and for the nine months ended September 30, 2016 have been prepared in accordance with IFRS for interim financial reporting (IAS 34). The other operating data stated below have been derived from the Company’s accounting records or internal management reporting systems.
When the financial information stated in the following tables is labeled as “audited”, it means that it has been taken from LEG Immobilien AG’s audited consolidated financial statements as of and for the fiscal years ended December 31, 2015, December 31, 2014 and December 31, 2013. Financial information which has not been taken from the aforementioned consolidated financial statements but rather from the unaudited condensed consolidated interim financial statements as of and for the nine months ended September 30, 2016, the Company’s accounting records or internal management reporting systems or calculations of financial information from the above mentioned sources is labeled in the following tables as “unaudited”. Unless otherwise indicated, all the financial information presented in the text and the tables of this section of the Prospectus are shown in millions of euros (€ million) and is commercially rounded to one digit after the decimal point. Unless otherwise stated, all percentage changes in the text and the tables are rounded to the first digit after the decimal point. As a result of rounding effects, the aggregated figures in the tables may differ from the totals shown and the aggregated percentages may not exactly equal 100.0%. Parentheses around any figures in the tables indicate negative values. A dash (“–”) means that the relevant figure is not available or not existent, while a zero (“0”) means that the relevant figure has been rounded to zero.
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The following consolidated financial information of LEG should be read in conjunction with the unaudited condensed consolidated interim financial statements as of and for the nine months ended September 30, 2016 and the audited consolidated financial statements as of and for the fiscal years ended December 31, 2015, December 31, 2014 and December 31, 2013 contained in this Prospectus in the section entitled “Financial Information”, including the explanatory notes thereto, as well as the other financial information to be found elsewhere in this Prospectus.
Selected Data from the Consolidated Statement of Comprehensive Income
For the nine months ended September 30, For the year ended December 31, 2016 2015 2015 2014 2013 (unaudited) (audited) (in € million) (in € million) Net rental and lease income 290.8 242.4 320.5 284.9 257.7 Rental and lease income...... 568.4 482.1 644.6 576.8 532.1 Net cold rent ...... 381.3 325.3 436.1 390.1 360.5 Cost of sales in connection with rental lease income ...... (277.6) (239.7) (324.1) (291.9) (274.4) Net income from the disposal of investment properties ...... 8.3 0.7 3.6 (1.7) (1.7) Net income from the remeasurement of investment properties(1) ...... 9.3 – 285.5 143.0 81.6 Net income from the disposal of real estate inventory ...... (1.5) (0.5) (1.2) (3.1) (3.1) Net income from other services ...... 2.3 0.1 0.9 (0.3) 2.3 Administrative and other expenses ...... (66.0) (32.7) (58.1) (41.6) (51.5) Other income ...... 6.6 0.6 0.9 0.5 0.2 Operating earnings ...... 249.8 210.6 552.1 381.7 285.5 Interest income ...... 0.0 0.6 0.6 1.2 1.0 Interest expenses ...... (89.6) (145.9) (181.5) (128.5) (131.4) Net income from investment securities and other equity investments ...... 2.2 2.7 4.3 7.1 0.8 Net income from associates ...... 0.3 0.1 0.0 0.3 0.3 Net income from the fair value measurement of derivatives ...... (31.7) (77.9) (75.8) (42.3) 2.4 Earnings before income taxes ...... 131.0 (9.8) 299.7 219.5 158.6 (2) Income taxes ...... (45.0) (12.1) (82.0) (63.9) (21.7) (2) Net profit or loss for the period ...... 86.0 (21.9) 217.7 155.6 136.9
(1) LEG’s portfolio is reassessed annually in accordance with IAS 40. The subsequent fair values are internally calculated by LEG. Independent of the annual valuation pursuant to IAS 40, in the nine months ended September 30, 2016, a net income from the remeasurement of investment properties of €9.3 million resulted, since, as part of the sales negotiations regarding a real estate portfolio a remeasurement of that portfolio was carried out. (2) Adjustment due to finalizing of purchase price allocation. In the consolidated financial statements of LEG for the year ended December 31, 2014 the purchase price allocation with regard to the acquisition of the Vitus portfolio, effective as of November 1, 2014, was only provisional. After the conclusion of the purchase price allocation in the year 2015, the adjustments were made retrospectively as of the acquisition date.
Selected Data from the Consolidated Statement of Financial Position
As of September 30, As of December 31, 2016 2015 2014 2013 (unaudited) (audited) (in € million) (in € million) Non-current assets ...... 7,469.9 6,898.4 6,086.2(1) 5,262.2 Current assets ...... 382.9 290.0 165.8 144.5 Assets held for sale ...... 76.8 6.7 58.4 16.4 (1) Total assets ...... 7,929.6 7,195.1 6,310.4 5,423.1 Equity ...... 2,927.0 2,985.0 2,490.4(1) 2,276.1
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As of September 30, As of December 31, 2016 2015 2014 2013 (unaudited) (audited) (in € million) (in € million) Non-current liabilities ...... 4,143.5 3,419.3 3,158.8 2,840.6 (1) Current liabilities ...... 859.1 790.8 661.2 306.4 (1) Total equity and liabilities ...... 7,929.6 7,195.1 6,310.4 5,423.1
(1) Adjustment due to finalizing of purchase price allocation. In the consolidated financial statements of LEG for the year ended December 31, 2014 the purchase price allocation with regard to the acquisition of the Vitus portfolio, effective as of November 1, 2014, was only provisional. After the conclusion of the purchase price allocation in the year 2015, the adjustments were made retrospectively as of the acquisition date.
Selected Data from the Consolidated Statement of Cash Flows
For the nine months ended September 30, For the fiscal year ended December 31, 2016 2015 2015 2014 2013 (unaudited) (audited) (in € million) (in € million) Net cash from/(used in) operating activities ...... 146.1 120.0 166.9 146.9 102.1 Net cash from/(used in) investing activities ...... (432.1) (135.8) (495.9) (607.4) (163.3) Net cash from/(used in) financing activities ...... 337.0 264.1 451.9 479.7 38.2 Change in cash and cash equivalents ...... 51.0 248.3 122.9 19.2 (23,0) Change in cash and cash equivalents at beginning of period ...... 252.8 129.9 129.9 110.7 133.7 Cash and cash equivalents at end of period...... 303.8 378.2 252.8 129.9 110.7
Additional Key Figures
In the Group’s view, the key performance indicators described in this section constitute the most important indicators for measuring the operating and financial performance of the Group’s business.
LEG believes that the following additional performance measures are of use for potential investors (together “Performance Measures”):
EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization, “EBITDA”) – net income or expense before income taxes and depreciation and amortization on property and on intangible assets;
Adjusted EBITDA (Adjusted Earnings Before Interest, Tax, Depreciation and Amortization, “Adjusted EBITDA”) – Adjusted EBITDA is calculated by adjusting EBITDA for net income or expense from the measurement of investment property, LTIP (long-term incentive program), non-recurring project costs, net income from the disposal of investment properties and net income from the disposal of inventory properties. Project costs that are non-recurring refer to major projects of LEG;
EPRA NAV (Net Asset Value, “NAV”) – net asset value as defined by the European Public Real Estate Association (the “EPRA”) (“EPRA NAV”). It is calculated based on NAV, excluding the fair value of financial instruments (net) and deferred taxes on loans by Wohnungsbauförderungsanstalt of the state North Rhine-Westphalia (“WFA Loans”) and derivatives, deferred taxes on investment property and goodwill resulting from deferred taxes on investment property, WFA Loans and derivatives
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(Firmenwert, welcher aus latenten Steuern auf EPRA-Anpassungen resultiert). The EPRA NAV thus includes fair value adjustments for all main consolidated statement of financial position items that are not recognized at fair value as part of the NAV in the IFRS accounts;
LTV ratio – the ratio of net financing liabilities (not including cash value of tax liabilities due to the retrospective taxation of reserves that were generated following the conversion of some of LEG’s subsidiaries from special non-commercial and thus tax-exempt housing companies to companies organized under private law, and thus taxable companies, at the beginning of the 1990s, so called “EK02 Reserves”) to the sum of investment properties, assets held for sale, prepayments for investment properties and prepayments for company acquisitions (“LTV Ratio”);
FFO I (Funds From Operations) – the proceeds from operating activities (not including net income/expense from the sale or remeasurement of investment property and sale of inventory property), in which Adjusted EBITDA for the respective periods is adjusted to generally reflect interest income and expenses impacting cash (zahlungswirksamen Zinsaufwendungen und -erträge) and income taxes impacting cash (zahlungswirksamen Steuern) (“FFO I”);
AFFO – Capex Adjusted FFO I, in which FFO I is adjusted for capital expenditures on investment properties (“AFFO”); and
FFO II (Funds From Operations) – proceeds from operating activities as defined for FFO I, but including the sale of investment property, in which FFO I is adjusted for the proceeds generated on disposal of investment property (“FFO II”).
LEG believes that the Performance Measures are useful in evaluating LEG’s operating performance, the net value of LEG’s property portfolio, the level of LEG’s indebtedness and of cash flows generated by LEG’s housing business. However, the Performance Measures are not recognized as measures under IFRS and should not be considered as substitutes for figures on result before taxes, net earnings, cash flow from/used in operating activities or other income statement or cash flow data, as determined in accordance with IFRS, or as measures of profitability or liquidity. The Performance Measures do not necessarily indicate whether cash flow will be sufficient or available for LEG’s cash requirements, nor whether any such measure is indicative of LEG’s historical operating results. The Performance Measures are not meant to be indicative of future results. Because not all companies calculate these measures and figures in the same way, LEG’s presentation of the Performance Measures is not necessarily comparable with similarly titled measures used by other companies.
Overview
The following presents a summary of some additional key financial figures for the periods shown:
For the nine months ended September 30, For the fiscal year ended December 31, 2016 2015 2015 2014 2013 (unaudited, (unaudited) unless specified otherwise) Number residential units at period end (in units 127,941 109,602 108,916 106,961 94,311
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For the nine months ended September 30, For the fiscal year ended December 31, 2016 2015 2015 2014 2013 (unaudited, (unaudited) unless specified otherwise) without mansards (ohne Mansarden)) ...... EBIT (operating earnings) (in € million)(1) ...... 249.8 210.6 552.1 381.7 285.5 EBITDA (in € million)(2) ...... 257.3 217.1 561.0 390.3 294.1 Adjusted EBITDA (in € million) ...... 276.2 225.4 293.7 259.3 231.7 In-place rent at end of period (in €/sqm) (3) ...... 5.25 5.19 5.21 5.07 4.96 Vacancy rate at end of period (in %)(4) ...... 3.5 3.2 2.6 2.8 2.9 EPRA-NAV at end of period (in € million) ...... 4,061.5 3,378.2 4,027.1 3,294.7 2,616.1 EPRA-NAV per share at end of period (in €)(5) .. 59.32 53.29 59.31 53.10 49.39 LTV at end of period (in %) ...... 48.8 48.3 44.2 47.3 47.7 FFO I (in € million) ...... 210.6 158.5 206.0 163.6 141.2 FFO I per share (in €)(6) ...... 3.35 2.76 3.53 3.04 2.67 AFFO (CAPEX-adjusted FFO I) (in € million) .. 163.8 125.0 146.2 120.2 97.5 AFFO per share (in €)(6) ...... 2.60 2.17 2.51 2.23 1.84 FFO II (in € million) ...... 218.3 159.2 209.6 161.9 139.5 FFO II per share (in €)(6) ...... 3.47 2.77 3.60 3.00 2.63
(1) Earnings Before Interest and Taxes, consolidated net income before net finance costs and taxes (“EBIT”), also referred to by LEG as “operating earnings”. Numbers indicated are audited for the years up until December 31, 2015, 2014 and 2013. (2) EBITDA is defined as EBIT (operating income) adjusted for depreciation and amortization on property and on intangible assets. (3) Monthly net cold rent (excluding utilities) on the basis of rents as of period end. (4) As of the year 2015, LEG changed the definition for “vacancy rate”, so that the definition now conforms with EPRA’s best practice recommendations. According to EPRA, vacancy rate is defined as the ratio of market rent for vacant units to market rent for all units. Before, LEG defined the vacancy rate as the number of vacant units at period end divided by total number of residential units in the portfolio at period end. The figures as of September 30, 2016, December 31, 2015 and December 31, 2014 were calculated on the basis of the definition of vacancy rate by EPRA, whereas the figures as of December 31, 2013 were calculated on the basis of the aforementioned definition. The changes in the calculation methodology for those figures had no influence on the figure itself. As of December 31, 2014, LEG calculated the figure on the basis of both definitions, which in both cases resulted in almost the same result. (5) Net asset value divided by the number of outstanding shares at period end. December 31, 2013: 52,963,444; December 31, 2014: 62,042,680 (including 4,979,236 shares from a possible conversion of convertible bonds); December 31, 2015: 67,903,987 (including 5,134,199 shares from a possible conversion of convertible bonds); September 30, 2015: 63,393,987 (including 5,134,199 shares from a possible conversion of convertible bonds); September 30, 2016: 68,466,130 (including 5,277,945 shares from a possible conversion of convertible bonds). (6) FFO I, AFFO and FFO II divided by the average number of shares outstanding at period end: December 31, 2013: 52,963,444; December 31, 2014: 53,885,944; December 31, 2015: 58,286,212; September 30, 2015: 57,493,242; September 30, 2016: 62,955,742.
Adjusted EBITDA
Adjusted EBITDA is calculated by adjusting EBITDA for net income or expense from the measurement of investment property, LTIP (long-term incentive program), non-recurring project costs, net income from the disposal of investment properties and net income from the disposal of inventory properties. Project costs that are non-recurring refer to major projects of LEG. The following table shows the calculation of Adjusted EBITDA for the periods shown:
For the nine months ended September 30, For the fiscal year ended December 31, 2016 2015 2015 2014 2013 (unaudited) (audited, unless specified otherwise) (in € million) (in € million) EBIT (operating earnings) ...... 249.8 210.6 552.1 381.7 285.5 Depreciation and amortization of intangible assets and on property(1) ...... 7.6 6.5 8.9 8.6 8.6 EBITDA (unaudited) ...... 257.3 217.1 561.0 390.3 294.1 Net income from the remeasurement of (9.3) – (285.5) (143.0) (81.6)
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For the nine months ended September 30, For the fiscal year ended December 31, 2016 2015 2015 2014 2013 (unaudited) (audited, unless specified otherwise) (in € million) (in € million) investment property ...... LTIP (long-term incentive program) ...... 0.0 0.2 0.2 1.2 3.3 Non-recurring project costs (unaudited)(2) ...... 35.0 8.3 20.4 6.0 11.1 Net income from the disposal of investment properties ...... 8.3 0.7 (3.6) 1.7 1.7 Net income from the disposal of inventory properties ...... (1.5) (0.5) 1.2 3.1 3.1 Adjusted EBITDA (unaudited) ...... 276.2 225.4 293.7 259.3 231.7 Adjusted EBITDA-margin (unaudited) (in %)(3) ...... 72.4 69.3 67.3 66.5 64.3
(1) In each case adjusted for net income from the disposal of investment properties and net income from the disposal of inventory properties. (2) For the nine months ended September 30, 2016 these refer to transaction costs with regard to the acquisition (in particular, real estate transfer tax (Grunderwerbsteuer)) of a portfolio comprising 13,569 residential units (“Charlie- Portfolio”) (€32.1 million), transaction costs for other acquisitions (€2.3 million), other project costs (€6.9 million) and income from deconsolidation (€6.3 million). For the nine months ended September 30, 2015, these refer to launching costs of energy services activities as well as costs of integrating an acquired real estate portfolio with 9,400 units, economically effective as of November 1, 2014. For the fiscal year ended December 31, 2015, non-recurring project costs referred to, in particular, transaction costs with respect to an acquisition portfolio as well as legal and advisor fees in connection with negotiating the – meanwhile withdrawn – takeover offer by Deutsche Wohnen AG. For the fiscal year ended December 31, 2014, non-recurring project costs referred to, in particular, the acquisition of the Leopard Portfolio (as defined under “—Business—Material Agreements of the Issuer—Acquisitions of Property Portfolios”). For the fiscal year ended December 31, 2013, non-recurring project costs referred to, in particular, the IPO of the Company. (3) The Adjusted EBITDA-margin shows the ratio of Adjusted EBITDA to net cold rent for the respective period.
EPRA NAV
EPRA NAV is used as a measure of the Group’s long-term equity, as attributable to the shareholders of the Company. It is calculated based on NAV, excluding the fair value of financial instruments (net) and deferred taxes on WFA Loans and derivatives, deferred taxes on investment property and goodwill resulting from deferred taxes on investment property, WFA Loans and derivatives (Firmenwert, welcher aus latenten Steuern auf EPRA-Anpassungen resultiert). The EPRA NAV thus includes fair value adjustments for all main consolidated statement of financial position items that are not recognized at fair value as part of the NAV in the IFRS accounts. LEG recognizes all relevant assets at fair value so that, in this regard, no adjustments were necessary for the figures as of September 30, 2016, December 31, 2015, December 31, 2014 and December 31, 2013.
The following table shows the calculation of EPRA NAV for the periods shown:
As of September 30, As of December 31, 2016 2015 2014 2013 (unaudited) (unaudited, unless specified otherwise) (in € million) (in € million) Equity attributable to the shareholders of the parent company ...... 2,904.1 2,967.8(1) 2,476.2(1)(2) 2,248.8(1) Effect of exercise of options, convertible and other equity interests(3) ...... 491.5 427.2 308.7 – NAV ...... 3,395.6 3,395.0 2,784.9 2,248.8 Fair value measurement of derivative financial instruments...... 208.3 165.5 136.1 52.0 Deferred taxes on WFA Loans and derivatives...... 25.3 35.4 32.2 44.2 Deferred taxes on investment property ...... 471.6 465.7 376.0 271.1 Goodwill resulting from deferred taxes on (2) investment property(4) ...... (39.3) (34.5) (34.5) – (6) (6) (2)(6) EPRA-NAV(5) ...... 4,061.5 4,027.1 3,294.7 2,616.1
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(1) Audited. (2) Adjustment due to finalizing of purchase price allocation. In the consolidated financial statements of LEG for the year ended December 31, 2014 the purchase price allocation with regard to the acquisition of the Vitus portfolio, effective as of November 1, 2014, was only provisional. After the conclusion of the purchase price allocation in the year 2015, the adjustments were made retrospectively as of the acquisition date. (3) Reflects the possible conversion of convertible bonds as well as equity options (diluted). (4) Includes, in essence, deferred taxes on investment property. (5) Some of the financing liabilities of LEG are due to loan agreements that bear interest below market rates and which are therefore discounted using the effective interest method pursuant to IAS 39 (see footnote (1) in the following section “LTV Ratio”). The corresponding interest benefit is recognized as a liability. It will be reversed on a straight-line basis over the remaining term of the corresponding loan, which is measured at amortized cost in subsequent periods. (6) Includes, as of December 31, 2015 €26.4 million and as of December 31, 2014 €26.4 million goodwill in synergies from the purchase of a portfolio from Deutsche Annington Immobilien SE (today: Vonovia SE), as well as, as of September 30, 2016 additional €18.2 million goodwill in synergies from the purchase of a portfolio with 3,539 units and a goodwill reduction in synergies from the purchase of a portfolio with 13,570 units from Vonovia SE.
LTV Ratio
The following table shows the calculation of the LTV Ratio for the periods shown:
As of September 30, As of December 31, 2016 2015 2014 2013 (unaudited and in € million, unless (audited and in € million, specified otherwise) unless specified otherwise) Financing liabilities(1) ...... 3,780.3 3,241.6 2,960.3 2,583.7 Deferred purchase price liabilities ...... 119.3 – – – – less cash and cash equivalents ...... 303.8 252.8 129.9 110.7 Net financing liabilities (net debt) ...... 3,595.8 2,988.8 2,830.4 2,473.0 Investment properties ...... 7,288.8 6,398.5 5,914.3 5,163.4 Assets held for disposal ...... 76.8 6.7 58.4 16.4 Prepayments for investments ...... 5.1 203.1 16.8 6.9 Prepayments for business combinations ...... – 146.1 – – Total (unaudited) ...... 7,370.7 6,754.4 5,989.5 5,186.7 LTV (%)(1)(2) ...... 48.8 44.2 47.3 47.7
(1) The amount of financing liabilities refers to the sum of current and non-current financing liabilities as of the respective date as shown in the Group’s consolidated statement of financial position prepared in accordance with IFRS. Some of these financing liabilities arise from loan agreements that bear interest below market rates and have therefore been discounted using the effective interest rate method in accordance with IAS 39. The book value of these loans, that bear interest below market rates, amounted to €377.0 million as of September 30, 2016 and €350.9 million as of September 30, 2015, as of December 31, 2015, it amounted to €345.3 million; as of December 31, 2014, it amounted to €352.4 million and as of December 31, 2013, it amounted to €348.2 million. Without these adjustments, the nominal amounts of redemption commitments amounted to €576.5 million as of September 30, 2016 and €555.6 million as of December 31, 2015; €579.7 million as of December 31, 2014 and €589.1 million as of December 31, 2013. If nominal amounts were applied, the loan-to-value ratio would amount to 51.5% as of September 30, 2016, to 47.4% as of December 31, 2015, to 51.1% as of December 31, 2014 and to 52.3% as of December 31, 2013. (2) Excludes liabilities due to the taxation of EK02 Reserves. The cash value of the tax liabilities due to the pro rata taxation of the EK02 Reserves amounted to €9.3 million as of September 30, 2016, to €17.8 million as of December 31, 2015, to €25.9 million as of December 31, 2014 and to €33.5 million as of December 31, 2013.
Funds from Operations, FFO
Funds from operations is a measure of liquidity for real estate companies. The Group differentiates between FFO I (not including net income/expense from the sale or remeasurement of investment property and sale of inventory property), in which Adjusted EBITDA for the respective periods is adjusted to generally reflect interest income and expenses impacting cash (zahlungswirksamen Zinsaufwendungen und – erträge) and income taxes impacting cash (zahlungswirksamen Steuern); AFFO (Capex-adjusted FFO I), in which FFO I is adjusted for capital
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expenditures on investment properties and FFO II (including the sale of investment property), in which the proceeds generated on disposal of investment property is added to the FFO I for the respective periods.
The following table shows the calculation of FFO I, AFFO (Capex-adjusted FFO I) and FFO II:
For the nine months ended September 30, For the fiscal year ended December 31, 2016 2015 2015 2014 2013 (unaudited) (unaudited) (in € million) (in € million) Adjusted EBITDA(1) ...... 276.2 225.4 293.7 259.3 231.7 Cash interest expenses and income (adjusted)(2) ...... (62.3) (66.7) (87.5) (94.5) (91.0) Cash income taxes(3) ...... (3.1) (0.2) (0.2) (1.2) 0.5 FFO I (not including disposal of investment property) ...... 210.8 158.5 206.0 163.6 141.2 Adjusted non-controlling interests(4) ...... (0.2) – – – – FFO I...... 210.6 158.5 206.0 163,6 141.2 CAPEX(5) ...... (46.8) (33.5) (59.8) (43.4) (43.7) AFFO (CAPEX-adjusted FFO I) ...... 163.8 125.0 146.2 120.2 97.5 FFO I ...... 210.6 158.5 206.0 163.6 141.2 Net income from the disposal of investment properties 8.3 0.7 3.6 (1.7) (1.7) Net cash taxes from sale of investment property ...... (0.6) – – – – FFO II ...... 218.3 159.2 209.6 161.9 139.5
(1) For a calculation of Adjusted EBITDA see the section titled “Adjusted EBITDA” above. (2) The adjustment was due to penalties for the dissolution of fixed loans (Vorfälligkeitsentschädigungen) and closing interest rate swaps (in an amount of €4.5 million in the nine months ended September 30, 2016; €46.7 million in the nine months ended September 30, 2015; €47.8 million in 2015; €0.1 million in 2014; €0.0 million in 2013), that were mainly due to refinancing measures. (3) The figures for taxes paid have been adjusted to exclude payments made in connection with the taxation of the Group’s former tax-exempt EK02 Reserves in the amount of €9.3 million in the nine months ended September 30, 2016, €9.3 million in 2015, €9.3 million in 2014 and €9.3 million in 2013. The positive figure for the year 2013 is also due to the fact that tax reserves were dissolved. (4) The adjustment for non-controlling interests regards a joint venture with Innogy (formerly: RWE Vertriebs AG) (EnergieServicePlus GmbH), in which Innogy holds 49% of the shares. Since FFO I is used as an assessment base to calculate the dividend distributable to the shareholders of LEG, FFO I is adjusted for any non-controlling interests, such that the FFO I as attributable to the shareholders of the Company is shown. (5) Capex (Capital Expenditures): Capitalized cost of modernization measures of investment properties.
Business
Overview
By its own estimates, LEG ranks as one of Germany’s leading residential property companies, measured in terms of portfolio value and the number of own units managed. As of September 30, 2016, LEG’s portfolio comprised 127,941 residential units (not including attics), (108,916 residential units (not including attics) as of December 31, 2015) at around 170 locations, mainly in North Rhine- Westphalia, Germany’s most populated state. As of September 30, 2016, LEG measured its investment property at €7,288.8 million (€6,398.5 million as of December 31, 2015; €5,914.3 million as of December 31, 2014).
LEG has strong roots in North Rhine-Westphalia and builds on a long and successful history there. Since 2008, it has developed from a state-owned public company into, by its own assessment, a
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leading private housing company. Despite these changes, LEG is still committed to its goal of offering low-cost, good-quality accommodation.
As of September 30, 2016, LEG had 127,941 residential units (not including attics), 1,145 commercial units and 31,527 garages and parking spaces. The average apartment size is 64 sqm with three rooms. Buildings comprise an average of seven residential units and three stories. As of September 30, 2016, the average occupancy rate in LEG’s housing portfolio was 96.5%, resulting in an EPRA vacancy rate of 3.5%. Based on the rent roll as of September 30, 2016, the average lease term for LEG’s portfolio was 11.4 years (not counting any moves occurring in the year 2016).
In 2015, LEG generated net rental and lease income of €320.5 million (€284.9 million for 2014 as a whole), Adjusted EBITDA of €293.7 million (€259.3 million for 2014 as a whole) and FFO I of €206.0 million (€163.6 million for 2014 as a whole). Diluted EPRA NAV amounted to €4,027.1 million as of December 31, 2015, or €59.31 per share (€3,294.7 million or €53.10 per share as of December 31, 2014). LEG’s LTV Ratio was 44.2% as of December 31, 2015 (47.3% as of December 31, 2014).
For further information on the performance indicators, their calculation and the reconciliation of Adjusted EBITDA, FFO I, diluted EPRA NAV and LTV Ratio to the closest comparable IFRS figures, please, see “—Selected Consolidated Financial Information—Additional Key Figures”.
Competitive Strengths
In LEG’s opinion, LEG’s success to date is mainly thanks to the following competitive strengths, from which also competitive advantages for future development can be derived:
One of the largest apartment building portfolios in Germany with a regional focus and a market- leading position in the core region of North Rhine-Westphalia
With around 130,000 residential units and more than 1,000 commercial units as of September 30, 2016, LEG is, according to its own opinion, the market leader on the housing market in North Rhine-Westphalia. This densely populated region is the most populated federal state in Germany (Source: Federal Statistical Office) with 17.9 million inhabitants (as of December 31, 2015, Source: IT.NRW, Press Release 182/16) and thus also one of the largest metropolitan regions in Europe.
North Rhine-Westphalia has an attractive economic and demographic structure. In 2015, the people of North Rhine-Westphalia generated a GDP of €645.6 billion (Source: National Accounts of the German Federal States, VGRdL). Thus, North Rhine-Westphalia, often referred to as one of Germany’s economic heavyweights, generated 21.3% of German GDP. Measured by the DAX®, nine of Germany’s biggest and most liquid listed companies are based in North Rhine-Westphalia as of October 2016 (Source: Deutsche Börse Group). Its labor market is developing positively. In the period from 2005 to 2015, the unemployment rate was reduced from 12.0% to 7.7% (as of December 31, 2015, Source: German Federal Statistical Office, Unemployment Rate by State). As almost 50% of North Rhine-Westphalian households earn a monthly income of less than €2,000, there is a broad customer base in need of affordable quality living space as offered by LEG (Source: IT.NRW, Private Households in NRW). The number of households in North Rhine-Westphalia – the best indicator of housing demand according to LEG – is expected to rise by 4.9% between 2014 and 2035 (Source: IT.NRW, Household Development by 2035). Even more important in LEG’s assessment is that the number of single- and two-person households is expected to increase by 9.1% over the same period
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(Source: IT.NRW, Household Development by 2035). These population projections do not take into account the current inflow of migrants and refugees from crisis areas into Germany, which have triggered a noticeable additional impetus in demand for affordable housing. North Rhine-Westphalia is a regional focus for net immigration. The net inflow from abroad to North Rhine-Westphalia, including refugees, was 278,000 people in 2015 (Source: IT.NRW, Press Release 068/16).
On the supply side, however, construction activity, particularly in the lower and middle price segments, is expected to remain at a historically low level as, with regard to the costs of new buildings, it is difficult to achieve attractive yields on cost when letting at affordable prices. According to industry estimates, the new German Energy Saving Ordinance (Energieeinsparverordnung) has led to a further increase in construction costs (Source: ARGE eV).
In the past, rents have developed largely independently of general economic fluctuations and have remained stable even during severe economic downturns, for example, at the height of the economic and financial crisis in 2009. LEG expects this trend to continue in the future as well. Given the expected long-term growth trend in housing demand (particularly for housing suitable for single- and two-person households) and the limited supply of new housing, LEG expects generally high occupancy rates and upward pressure on rents moving ahead. Since 50% of LEG’s apartments are around 60 sqm, LEG assumes that it is well positioned to benefit from the forecast positive general trend towards single- and two-person households and the additional demand for affordable housing due to net immigration.
As the leading North Rhine-Westphalian housing company, according to its own opinion, LEG believes that its professional management platform, its deep understanding of the market and its close proximity to its customers make it excellently positioned to use the upside potential on the market to its advantage and to achieve optimal rental income.
Strong rental growth combined with efficient capital use
On the basis of a high share of attractive high growth markets in its portfolio with key economic centers such as Düsseldorf or Cologne and university cities (such as Aachen and Münster), its regional expertise, a strong focus on service with an on-site presence and the good technical substance of its property portfolio, LEG has been able to significantly increase its rents in recent years.
Given its investment strategy geared towards sustainability, the property portfolio is generally in a good condition. Investments to modernize the portfolio are subject to strict investment and return criteria. In fiscal year 2015, LEG achieved like-for-like rent growth of 2.7% with what it believes to be a moderate investment of €16.1 per sqm. From a current perspective, this leaves LEG with the financial scope to distribute attractive dividends from its own cash flow.
Leading operational profitability as the basis for attractive dividends
Measured in terms of the key figure Adjusted EBITDA in relation to rental income, the LEG Group – by its own assessment – is characterized by leading profitability among the major German housing companies. In fiscal year 2015, the key figure of the Adjusted EBITDA margin was further improved from 66.5% to 67.3%. In LEG’s opinion, this earnings strength is thanks to the structural efficiency advantages of a regionally concentrated portfolio with corresponding economies of scale, high cost discipline and the good technical substance of the property portfolio.
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Scalable management platform well positioned for value-adding external growth
Since its IPO in February 2013, LEG has acquired more than 40,000 residential units on its core markets in North Rhine-Westphalia. Given the high synergies with the existing portfolio and the scalability of the management platform, these acquisitions have contributed to a significant increase in profitability. Thanks to its broad presence in around 170 locations, mainly in North Rhine-Westphalia, its financial flexibility and its excellent reputation on the market, LEG – in its own assessment – is an attractive partner for portfolio transactions in North Rhine-Westphalia.
LEG’s regional expertise also raises the reaction speed of its decision-making process and is a key success factor for evaluating the future development prospects of a portfolio.
A strong statement of financial position and secure long-term financing at attractive conditions
A key cornerstone of LEG’s strategy is securing sustainably low capital costs (equity and debt). LEG therefore relies on a strong statement of financial position with a sustainable LTV Ratio of less than 50% (September 30, 2016: 48.8%) and long-term secured financing at low rates (September 30, 2016: 2.05%; remaining term of loans: 10.94 years). In LEG’s opinion, this ensures a high level of forecasting certainty for future profit and dividend growth.
Innovation leadership in tenant-oriented services
LEG has successfully extended its value chain to include tenant-oriented services. In 2014, it launched its multimedia business with a partner and in 2015 added energy services to its range. These services serve to further strengthen customer loyalty and, according to LEG, generate significant additional revenues.
Experienced management and employee team with proven track record
LEG’s management team has extensive experience on the residential property market. On average, the members of the Management Board have been working in the industry for more than 20 years and have been with LEG for 15 years. They are highly experienced and have proved that they can successfully implement a value-enhancing growth strategy in the residential property sector.
Strategy
LEG’s strategy is geared towards achieving further growth while maintaining and increasing profitability.
Organic growth in rental income
LEG’s portfolio covers around 170 locations, mainly located in North Rhine-Westphalia. Based on its economic strength and demographic structure, North Rhine-Westphalia is an attractive market for providers of affordable apartments that are tailored to the needs of single- and two-person households, young families and seniors. The current in-place rent for LEG residential units is less than the market rent in North Rhine-Westphalia, in particular on account of the rent control for subsidized properties. Together with selective, value-enhancing measures, LEG plans to leverage its regional focus to organically increase its rental income. In doing this, LEG benefits from its deep understanding of the local markets and their respective customers as well as its strong focus on service orientation and good on-site presence. At the same time, however, tenant fluctuation is to be
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kept low, thereby limiting vacancies to a stable, low level and guaranteeing a continued high level of capital efficiency for investments.
Further expansion of tenant-oriented services
The portfolio of around 127,941 rental apartments as of September 30, 2016, and thus access to approximately 350,000 tenants, is to be exploited to tap additional sources of revenue by offering smart value-added concepts. In this context, LEG intends to position itself as an innovation leader in the residential sector for the development of new tenant-oriented services. The multimedia package, for instance, offers an attractive product package including internet use at a reasonable price. Entering the market for energy services and pilot projects for senior care are having a positive effect on customer satisfaction. These services are already noticeably contributing to earnings today.
Increasing tenant satisfaction to reduce turnover
The long-term success of a company depends to a large extent on customer satisfaction. LEG is determined to provide its tenants with good living quality. LEG is constantly investing in maintenance and modernization, and has considerably expanded its range of services for tenants and is continuously working to reduce its reaction time to tenant requests. LEG is striving to make its tenant service even more professional. To strengthen tenants’ identification with LEG’s locations, LEG organizes regular activities and social events, such as tenant festivals. Another key component is expanding its range of tenant-oriented services, such as its multimedia package. The expansion of energy services is expected to have a positive effect on the development of utilities costs in the medium term as a result of the planned cost savings for tenants.
Improving the cost base of the LEG Group to increase efficiency gains
In recent years, operating earnings have risen at a much faster rate than rental income. This was driven by economies of scale and the efficiency enhancement measures introduced, together with generally high cost discipline.
Growth through acquisitions of selected portfolios with a focus on North Rhine-Westphalia based on LEG’s profound market knowledge
LEG aims to create value additions by acquiring selected portfolios or property companies located in North Rhine-Westphalia and adjacent areas of neighboring federal states that can easily be assimilated into the fully integrated operating platform of LEG. By using the existing platform, this should allow for further economies of scale. For the portfolios acquired since the IPO, LEG has significantly improved the operating key figures for the newly acquired properties and thus created considerable additional value. LEG therefore sees great potential in the acquisition of portfolios with above-average vacancy rates, a certain maintenance backlog and underdeveloped rents, in order to leverage this potential with its leading management experience.
Residential Property Business
LEG’s business activities are focused on the residential property business, in particular on the management of the properties held by LEG Group companies. At the core of the operating business is the housing portfolio.
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LEG’s portfolio
LEG’s portfolio comprises 127,941 residential units (not including attics), 1,145 commercial units and 31,527 parking units spread across around 170 locations, mainly in North Rhine-Westphalia, Germany’s most populated state (as of September 30, 2016). On average, LEG’s residential units measure 64 sqm and its apartment buildings comprise three stories. The following table provides an overview of certain key figures for the LEG property portfolio. Unless stated otherwise, the figures were taken from LEG’s management information system.
As of September 30, As of December 31, 2016 2015 2014 2013 (unaudited) (unaudited) Number of residential units(1) ...... 127,941 108,916 106,961 94,311 Floor area (thousand sqm) ...... 8,181 6,979 6,855 6,034 In-place rent (per month in €/sqm)(2) ...... 5.25 5.21 5.07 4.96 In-place rent for residential units without rent control (per month in €/sqm)(2) ...... 5.52 5.48 5.33 5.27 In-place rent for residential units with rent control (per month in €/sqm)(2) ...... 4.66 4.67 4.61 4.49 Market rent (per month in €/sqm)(3) ...... – 5.71 5.66 5.52 Vacancy rate (%)(4) ...... 3.5 2.6 2.8 2.9 Market value (fair value) of investment property (€ million) ...... 7,289(5) 6,102 5,674 4,865 Market value (fair value) of investment property (residential) (€/sqm)(6) ...... 858(5) 873 827 806 Multiplier for current in-place rent (residential) .. 14.0 14.5 13.9 13.9 Share of residential units (not including attics) with rent control (%) ...... 29.0 31.7 33.5 37.6 Other Number of commercial units ...... 1,145 1,053 1,059 1,031 Number of parking units ...... 31,527 26,840 26,695 22,903 Gross asset value (GAV) of other properties (commercial, parking units, other) (€ million) 323 297 295 318 Maintenance and modernization Maintenance and modernization expense for the LEG property portfolio (€/sqm) (7) ...... 11.30 16.1 13.81 14.00
(1) Not including attics or acquired units with rights and liabilities transfers (Nutzen-Lasten-Wechsel) after the respective reporting date. (2) Monthly net cold rent (not including utilities) on the basis of rents as of September 30, 2016 (for the nine month period ended September 30, 2016) or as of December 31, (with regard to the years 2015, 2014 and 2013). (3) Market rent used by CBRE GmbH to calculate the fair value of the residential property portfolio of LEG. The market rent is determined on the basis of an analysis of the local property market, the rent agreed by LEG in the respective fiscal year, the market knowledge of CBRE GmbH and third-party information (such as rental portals on the internet). This value is therefore an indicator of the average rent that could theoretically be realized on the relevant market. However, this does not mean that an adjustment of the in-place rent to the market rent would be possible as rent increases are subject to strict legal and contractual restrictions. Furthermore, there would not necessarily be sufficient demand for LEG residential units if they were offered at such a price on average. (4) As of the year 2015, LEG changed the definition for “vacancy rate”, so that the definition now conforms with EPRA’s best practice recommendations. According to EPRA, vacancy rate is defined as the ratio of market rent for vacant units to market rent for all units. Before, LEG defined the vacancy rate as the number of vacant units at period end divided by total number of residential units in the portfolio at period end. The figures as of September 30, 2016, December 31, 2015 and December 31, 2014 were calculated on the basis of the
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definition of vacancy rate by EPRA, whereas the figures as of December 31, 2013 were calculated on the basis of the aforementioned definition. The changes in the calculation methodology for those figures had no influence on the figure itself. As of December 31, 2014, LEG calculated the figure on the basis of both definitions, which in both cases resulted in almost the same result. (5) The market value (fair value) of investment property as of September 30, 2016 is calculated by updating the market value (fair value) as of December 31, 2015 taking into account the acquisitions and disposals between January 1, 2016 and September 30, 2016. (6) The average market value per square meter of lettable area is defined as the market value (fair value) of the investment property divided by the overall lettable area at period’s end. (7) For the nine months ended September 30, 2016 and for the fiscal years ended December 31 2015, 2014 and 2013. The maintenance and modernization expense per square meter for LEG’s property portfolio is defined as the total of the maintenance expenses and modernization investments in LEG’s property portfolio, divided by the average overall area in the period in question.
On the basis of macro-economic indicators, LEG’s portfolio is clustered into three market segments – orange markets which have a higher growth potential (so-called high growth markets), green markets which have a more stable outlook (so called stable markets with attractive yields) and purple markets, which have less favorable macro-economic fundamentals (so-called higher yielding markets). Within the orange market segment, LEG’s portfolio (each as of September 30, 2016) consists of 39,027 residential units with a vacancy rate of 1.7% and an in-place rent of €5.84 per sqm (compared to a total of 4,084,562 residential units in this market with an average vacany rate of 2.7% and an average market rent of €7.15 per sqm (Source: IT.NRW, Housing Stock; Empirica, LEG calculation based on Empirica Net Cold Rent; Empirica, CBRE-empirica-Vacancy Index). Within the green market segment, LEG’s portfolio (each as of September 30, 2016) consists of 46,728 residential units with a vacancy rate of 3.5% and an in-place rent of €4.99 per sqm (compared to a total of 2,901,458 residential units in this market with an average vacany rate of 3.7% and an average market
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rent of €5.92 per sqm (Source: IT.NRW, Housing Stock; Empirica, LEG calculation based on Empirica Net Cold Rent; Empirica, CBRE-empirica-Vacancy Index). And within the purple market segment, LEG’s portfolio (each as of September 30, 2016) consists of 40,291 residential units with a vacancy rate of 6.0% and an in-place rent of €4.92 per sqm (compared to a total of 1,902,055 residential units in this market with an average vacany rate of 4.8% and an average market rent of €5.39 per sqm (Source: IT.NRW, Housing Stock; Empirica, LEG calculation based on Empirica Net Cold Rent; Empirica, CBRE-empirica-Vacancy Index).
Property Management
Overview
LEG conducts its business using an integrated, clearly structured platform. LEG has centralized functions (such as purchasing and technology). Its activities in the field of strategic rental and vacancy management are also largely centralized. However, LEG has organized its rental and tenant service activities locally in accordance with its Group-wide service and quality standards. For this purpose, LEG is represented by a total of eight branches, and around 100 local tenant offices and one central customer service.
The clear focus of LEG’s business is on the management of residential units and – to a very small extent – commercial units. The commercial units mostly form part of the residential buildings owned and managed by LEG, primarily shops within its residential buildings (such as small food shops). The parking spaces that are also let are mainly used by the tenants of LEG’s properties. They are usually let together or in conjunction with an apartment. Strategic concepts, investment decisions and other important matters affecting the commercial properties as a whole are developed and implemented in a central department that bundles LEG’s industry expertise in commercial units. The commercial properties and the parking spaces are managed by LEG’s branch network, which is also responsible for the management of the respective residential units.
LEG’s staff is predominantly employed at LEG Wohnen NRW GmbH and LEG Management GmbH. These two companies on the one hand and the companies of the LEG Group to which the properties belong on the other hand have concluded various agency agreements. They serve as representatives for the legal property owners on this basis.
In January 2017, LEG started together with its joint venture partner B&O Service und Messtechnik AG a craftsmen service, partly insourcing services that were previously purchased from third parties. Roughly 280 craftsmen employed by the joint venture company conduct low-cost repair work, thus enabling LEG to provide its tenants better services at lower cost.
Investments
Capital Expenditures and Total Investments
The following table shows the amount of investments made by LEG in the relevant period:
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For the nine months For the year ended September 30, ended December 31, 2016 2015 2015 2014 2013 (unaudited, (unaudited) unless otherwise specified) (in € million) (in € million) Capital expenditures in investment properties (audited) ..... 44.9 36.5 54.4 45.7 41.8 Total investment (CAPEX) ...... 46.8 33.5 59.8 43.4 43.7 Sum ...... 91.7 70.0 114.2 89.1 85.5
The LEG Group pursues the strategy to increase its rental income by making investments into its real estate properties held as investment properties. Since 2013, approximately 500 individual investment projects were carried out per year. Those investments were, in the majority, financed through resources generated from LEG’s operating activities.
Most Relevant Investments by LEG from January 1, 2013 until the Date of this Prospectus
During the period starting from September 30, 2016 until the date of this Prospectus, LEG did not make any significant investments.
The number of total investments increased by 31% from €70.0 million for the nine months ended September 30, 2015 to €91.7 million for the nine months ended September 30, 2016. Investment activities in the nine months ended September 30, 2016 focused on measures to facilitate the new letting of vacant apartments as well as the implementation of more major projects in North Rhine-Westphalia. The investments were financed through the ongoing cashflow of LEG.
In 2015, total investments increased by 28.2% from €89.1 million in 2014 to €114.2 million in 2015. Investment activities in both periods focused on measures to facilitate the new letting of vacant apartments in North Rhine-Westphalia. They contributed €15.3 million to the rise in total investments. Newly acquired portfolios accounted for €10.7 million of total investments. The investments were financed through the ongoing cashflow of LEG.
In 2014, total investments increased by 4.2% from €85.5 million in 2013 to €89.1 million in 2014 due to an increase in maintenance. Again, investment activities focused on measures to facilitate the new letting of vacant apartments in North Rhine-Westphalia. The investments were financed through the ongoing cashflow of LEG.
The most relevant investments in investment properties were:
In 2015, LEG invested €23 million in measures related to increasing energy efficiency. For example, LEG spent approximately €1.6 million on renovating its apartments in Monheim, while a further €100,000 was invested in playgrounds in the Berlin Quarter (Berliner Viertel). In Münster, LEG spent €2.6 million in renovating and thermal insulation measures of 188 apartments in the urban area. In the period from 2008 to the end of 2015, LEG renovated 800 apartments in the Meylant district in Dortmund-Wickede alone, investing a total of €14.6 million in the process. The investments were financed through subsidies by the state of North Rhine-Westphalia and the ongoing cashflow of LEG.
In 2014, LEG invested approximately €17.2 million in measures related to increasing energy efficiency. For example, approximately €1.3 million went towards the maintenance and energy modernization of 66 apartments at the Münster location. Well over 100 residents in eleven buildings
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benefitted from the comprehensive renovation work. In Arnsberg, too, LEG spent more than €1.2 million on renovating residential properties from an energy efficiency perspective. LEG invested approximately €840,000 in energy-saving renovations in Duisburg in 2014. The investments were financed through the ongoing cashflow of LEG.
In 2013, LEG invested a total of almost €15.2 million in measures relating to increasing energy efficiency. For example, in 2013, LEG invested approximately €850,000 in maintenance and energy modernization of 40 apartments at the Monheim location. Well over 100 residents in five buildings benefitted from the comprehensive renovation work. In Ratingen, too, LEG spent €644,000 on renovating residential properties from an energy efficiency perspective. With regard to an energy modernization in Duisburg, LEG invested approximately €698,000 in 2013. The investments were financed through the ongoing cashflow of LEG.
Most relevant Ongoing Investments by LEG
The most relevant ongoing investments by LEG are with regard to the Meylant district in Dortmund-Wickede and the Berlin Quarter (Berliner Viertel) location in Monheim. With regard to the Meylant district, the number of renovated apartments shall increase to almost 1,000 apartments until the end of 2016. In sum, LEG plans to invest over €16 million here. In Monheim, LEG plans to invest approximately €25 million up until 2021 in the energy renovation of 1,300 apartments. The investments will be financed through subsidies by the state of North Rhine-Westphalia and the ongoing cashflow of LEG.
Most Relevant Future Investments by LEG
For the fiscal year 2016, an investment budget of €59.7 million for major projects and modernization measures was approved. In addition, further resources are available, as required, for a number of smaller investment measures. The largest investment measures that will be carried out in the year 2016 are the remodeling and the enlargement of the commercially used property in Einsteinstraße in Kamen with an investment sum of approximately €4.8 million, the substantial modernization (thermal insulation, new windows, electrical installations, etc.) of 200 apartments comprising approximately 15,000 sqm of residential area in Dortmund-Scharnhorst with an investment volume of approximately €3.4 million and the investment of a further €1.6 million to create accessible living space in combination with energetic modernization of 24 apartments in Dortmund-Wickede. It is planned to finance the investments through the ongoing cashflow of LEG.
Furthermore, LEG currently intends to increase its investments for the years 2017 and beyond. As of the date of this Prospectus, LEG intends to invest a total of €200 million over the next three years. LEG also plans to invest €7.5 million into the construction of 51 apartments in Münster.
Real Estate Purchases
LEG’s strategy also envisions creating added value through the acquisition of selected real estate portfolios. The acquisition of real estate portfolios is typically financed through half of own resources and half through debt (bank loans).
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Litigation
In the context of LEG’s business activities, its group companies are regularly party to rental and warranty disputes in addition to labor disputes. Apart from the court proceedings described below, the group companies are not currently involved, and have not been involved in the past 12 months, in administrative, court or arbitration proceedings (including pending or threatened proceedings) that could or recently had a significant impact on the financial position or profitability of the Company or the LEG Group.
The matters described below are the administrative, court or arbitration proceedings (including pending or threatened proceedings) that could or (for concluded proceedings) could have had a significant impact on the financial position or profitability of the Company or the LEG Group.
Ongoing Proceedings
CALOR CARRÉ GmbH, part of LEG, is the defendant in judicial proceedings brought by a commercial tenant for the alleged violation of a competition clause in the lease agreement. The Düsseldorf Regional Court (Landgericht) ruled in December 2014 that CALOR CARRÉ GmbH must accept a rent reduction. However, the court rejected the applicant’s claim for compensation of €0.3 million as the applicant was unable to prove that damage had occurred. Both parties have appealed to the Düsseldorf Higher Regional Court (Oberlandesgericht). The parties are also in settlement negotiations.
Furthermore, LEG NRW GmbH is currently in negotiations in connection with the groundwater flooding described in “—Risk Factors—Risks in Connection with LEG’s Business Activities—LEG is exposed to various risks relating to its former development activities, such as investment obligations in connection with unfinished development projects or liability risks regarding projects that have been or will be sold.” over a complex settlement agreement that offers the owners of the residential units affected by groundwater flooding three options: (i) the rebuilding of the structural waterproofing in the cellar (the white tank), (ii) a fixed compensation payment or (iii) the acquisition of the residential unit at a fixed amount. This is intended to find a conclusive solution as the current method for preventing water from penetrating the buildings (lowering the water level and channeling the water into a marsh area) is being done only on the basis of a temporary license under water resources law. If an agreement is not reached with the owners, the dispute could lead to court proceedings. A corresponding reserve has been established.
A further dispute relates to an action brought by an LEG company against two contractors it had commissioned. LEG Wohnen GmbH had agreed a cooperation agreement with the city of Dorsten governing the performance of urban development measures by means of public subsidies. In this agreement, the city of Dorsten undertook, among other things, to remove the top two floors of two apartment buildings owned by LEG Wohnen GmbH in a large estate in the area of Dorsten. The city of Dorsten commissioned a construction company and a planning company to carry out the work, during the performance of which damage to the other floors occurred due to penetrating water and microbial contamination. The parties are in dispute over the extent of the damage, pre-existing damage to the buildings and the alleged contributory negligence of LEG Wohnen GmbH. LEG Wohnen GmbH has sued the construction company and the planning company on the basis of an assigned right for payment of damages amounting to approximately €0.7 million. The court of first instance ruled that the defendants were jointly and severally obliged to pay compensation for the damage caused by penetrating water. The defendants have appealed against this ruling. The court
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proceedings are currently pending before the court of appeals of the Hamm Higher Regional Court (Oberlandesgericht). The potential payment of damages is not expected to suffice to cover the costs of restoring the buildings for rental.
LEG has acquired some portfolios in combined asset/share deal transaction structures. So far the real estate transfer tax assessments received were in line with LEG’s own assessment of tax law. For the most recent acquisition performed in line with this model, the tax authority now holds a different legal opinion whereby this acquisition leads to an increased real estate transfer tax charge of €9.5 million. LEG appealed against the notice of assessment basis issued in this context and a suspension of its execution was granted. If LEG’s tax assessment for all the portfolio acquisitions performed with this transaction structure proves incorrect, higher real estate transfer tax would have to be paid on the total market value of the land in these transactions. The additional expense would then amount to €26.8 million (including the above €9.5 million).
Concluded Legal Proceedings
LEG Standort und Projektentwicklung Köln GmbH, a subsidiary of LEG, was – in the context of LEG’s former development activities – the holder of a 51% share in the capital of Biomasse Heizkraftwerk Siegerland GmbH & Co. KG, the operator of a biomass heating plant. LEG Standort und Projektentwicklung Köln GmbH was involved in a far-reaching shareholder dispute with the minority shareholder. The minority shareholder sued LEG at the Cologne Regional Court (Landgericht) and the Cologne Higher Regional Court (Oberlandesgericht) in various proceedings. All parties to these disputes concluded a comprehensive notarial settlement agreement on September 11, 2015. Under the terms of the settlement agreement, the parties regulated all claims, and LEG and a third party acquired the entire equity investment of the minority shareholder in Biomasse Heizkraftwerk Siegerland GmbH & Co. KG and its general partner.
Material Agreements of the Issuer
The following section summarizes significant agreements to which LEG Group companies are parties.
Purchase Agreement for LEG NRW GmbH and Certain Affiliated Companies
In 2008, the Company and Rote Rose acquired 90.4% of shares in LEG NRW GmbH (before being renamed into LEG Landesentwicklungsgesellschaft Nordrhein-Westfalen GmbH) and 50% of the shares in each of RH GmbH, RLW GmbH and WGM GmbH. The remaining 50% of the shares in RH GmbH, RLW GmbH and WGM GmbH were retained by LEG NRW GmbH, companies of the state of North Rhine-Westphalia and another public institution (together referred to as the “Sellers”). LEG NRW GmbH, RH GmbH, RLW GmbH and WGM GmbH (the “Target Companies”), together with certain subsidiaries, owned a property portfolio that today accounts for the core of around 70% of the total LEG portfolio. The purchase agreement for the acquisition of this portfolio (the “SPA”) was signed by the parties on June 10/11, 2008 and also provided for the assignment of some shareholder loans that had been granted to the Target Companies to the Buyers. The purchase price for the shares and shareholder loans amounted to €787.1 million; liabilities of €2.6 billion remained with the Target Companies and their subsidiaries. The large majority of the remaining minority interests of LEG NRW GmbH were subsequently acquired by the Company. For further information on the acquisition of these shares, see “—General Information on LEG Immobilien AG and LEG— History and Development”.
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The SPA includes a Social Charter, which restricts various aspects of LEG’s business. Unless agreed otherwise, the provisions of the Social Charter expire on August 30, 2018 and cover the Target Portfolio (i.e., all residential units that were owned by the Target Companies and their subsidiaries on August 29, 2008). The restrictions and obligations of the Social Charter include:
Restrictions in relation to the management of property portfolios. In accordance with the Social Charter, LEG:
(i) is prohibited from is prohibited from implementing average annual rent increases for the Target Portfolio of more than 3.0 percentage points above the increase in the German consumer price index in the period from 2013 to 2017. This applies if such rent increases would be permissible under rental law. However, these restrictions apply only to residential units that are not subject to any rent restriction during this period, or for which such a restriction expires and for which the tenancy agreement with the current tenants were already in place on August 29, 2008. Rent increases due to modernization work in accordance with Section 559 of the German Civil Code (Bürgerliches Gesetzbuch, BGB) are irrelevant in this respect. If the framework for rent increases is not fully exhausted in the course of a year, the difference can be carried forward to subsequent years. The Social Charter also provides that the early repayment of subsidized loans does not exempt LEG from the restrictions of statutory regulations on subsidized housing, even if they would otherwise expire after repayment of the loans.
(ii) is only permitted to terminate leases that were already in place on August 29, 2008 in the event of a severe breach of contract by the tenant. This restriction also does not expire on August 30, 2018, provided that the respective tenant had already reached the age of sixty on August 29, 2008. Additionally, such leases can be terminated only in the event of severe breaches of contract by the tenant thereafter.
(iii) is prohibited from modernizing properties that were already let to their current tenants on August 30, 2008 if the nature and scope of such modernizations is aimed at a different social structure of tenants (luxury renovations). However, ordinary modernizations, repairs and measures to increase energy efficiency are not affected by this and remain permissible.
(iv) must not spend less than €12.50/sqm per year on average on modernizations and investments for the following portfolios: (i) the Target Portfolio (including residential units sold) and (ii) a sub-portfolio of the Target Portfolio (including residential units sold) owned by the three Westphalian companies, their subsidiaries or another company directly or indirectly controlled by the Buyers. Excess expenses up to €5.00/sqm in individual years can be credited to the following year, thereby reducing the maintenance obligation accordingly.
Non-termination of employment agreements. The Social Charter prohibits both dismissals on the ground of business-related layoffs (betriebsbedingte Kündigung) and dismissals with the option of altered employment conditions (Änderungskündigung) that were already in place on August 29, 2008. The Social Charter also prohibits the termination of collective agreements (Tarifverträge) and works agreements (Betriebsvereinbarungen) that were already in place on
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May 29, 2008. Such restrictions were applicable to the majority of LEG Group employees as of September 30, 2016.
Restrictions on property sales. Each calendar year, LEG is permitted to sell properties (including vacant residential units) to non-tenants but only up to 2.5% of the units in the Target Portfolio. If this limit is not reached in a calendar year, the difference can be carried forward to subsequent years. However, not more than 25.0% of the Target Portfolio shall be sold to non-tenants before August 30, 2018. In the event of the sale of individual residential units, the tenant has the right to make a first proposal, this right must be exercised within six months. The price at which the unit is offered to a third party must be at least 15% higher than the price at which the unit is offered to the tenant in the context of the first proposal right. Any third-party buyer must also join the Social Charter. However, the committee to interpret the Social Charter provided for by the Social Charter (see below) has decided that regulations restricting rent increases do not apply to third parties, and that the minimum maintenance obligations can be loosened if portfolios of 50 or fewer units are sold.
Restrictions on the disposal of companies and pledged shares. LEG is entitled to sell shares in companies that own residential property that forms part of the Target Portfolio provided that it remains responsible for the fulfilment of the Social Charter and if – in the event of the sale of all shares in a company – the buyer joins the Social Charter. The state of North Rhine- Westphalia must approve disposals. It can refuse or delay its approval if the financial position of the seller or the planned use of the companies sold do not meet certain requirements. There are other restrictions relating to shares in the companies that hold the Target Portfolio if such shares are pledged. For example, these restrictions provide that, in the event of the enforcement of the shares, all obligations under the Social Charter are transferred to the acquirer if they relate to the acquired assets.
Other obligations restricting LEG’s business. LEG is required to keep the focus of its business (measured by the percentage of revenue generated or the percentage of non-current assets employed) on the development, letting and sale of properties and to employ at least two thirds of its workforce in this area.
Social obligations. LEG is subject to further social obligations, such as (i) the obligation to set up a charitable foundation with a foundation capital of at least €5 million to support disadvantaged tenants, or (ii) the obligation to offer continuing vocational training for its employees. The foundation was set up on September 22, 2009 and cannot be dissolved.
If the Company violates one of the above obligations and does not remedy the violation within six months after becoming aware of said breach, the SPA provides for mandatory minimum penalties of between €100,000 for unlawful redundancies and up to €50 million, for example in the event of the sale of more than 2.5% of the units in the Target Portfolio to non-tenants in a calendar year. In any event, the amount of the penalty is equal to the proceeds from the respective violation and, depending on the nature of the violation, a multiple of the proceeds of up to twenty-five times the respective proceeds. The penalties relate to each individual breach of contract and, if the breach is repeated, will be doubled up to a maximum of €100 million. Intent or negligence on the part of the Company is not required. The Company has pledged its shares in LEG NRW GmbH and certain subsidiaries in order to hedge (i) its possible liability for violations of the Social Charter and (ii) its
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possible liability from compensation provisions of a total amount of €300 million. The lien ends when the secured claims finally expire.
The Social Charter also stipulates that all disputes concerning the interpretation of the Social Charter are to be decided by a committee.
In order to demonstrate compliance with the Social Charter, the Company must prepare an annual report prepared in cooperation with a recognized auditor and submit it to the state of North Rhine-Westphalia for examination.
Compliance with the Social Charter is monitored very closely by the agencies of the state of North Rhine-Westphalia and the public. Various citizens’ initiatives have developed to monitor LEG’s strategy and its compliance with the provisions of the Social Charter in particular.
The Company’s obligations under the Social Charter apply in addition to its legal and other contractual obligations. In addition to the provisions of the Social Charter in the SPA, there are further agreements containing such provisions for other purchased portfolios. The restrictions of these social charters are essentially similar to those of the SPA, though some impose additional restrictions on encumbrance with land charges.
The Sellers indemnify the Buyers against any taxes levied in connection with the Target Companies and that relate to the period prior to December 31, 2007. However, each individual seller is liable only for its direct or indirect share of the Target Portfolio at the time of signing the SPA. In addition, the indemnification does not apply to tax obligations for EK02 holdings or to the extent that
(i) the assessed taxes result from the Buyers’ activities after August 29, 2008;
(ii) the assessed taxes were reported in the consolidated statement of financial position as of December 31, 2007 of the respective company as taxes or tax liabilities; or
(iii) the tax assessment includes a reduction of the overall tax burden of the acquired company or its subsidiaries.
The indemnification is limited to 75% of the purchase price and becomes time-barred three months after completion of the respective tax assessment. The SPA contains detailed regulations with regard to claims, and a failure to comply with these requirements can lead to the Buyers losing their claims.
Acquisitions of Property Portfolios
The LEG portfolio has grown significantly in the period covered by this Prospectus, namely from January 1, 2013 to the date of this Prospectus. This growth was achieved through acquisitions that included the following portfolios:
Date of purchase agreement Residential units Locations May 2013 ...... 2,126 Primarily Dortmund, Essen, Bochum, Gladbeck June 2013 ...... 538 Primarily Minden, Düsseldorf , Hagen, Osnabrück, Duisburg July 2013 ...... 829 Solingen November 2013 ...... 735 Gelsenkirchen, Waltrop, Mark, Recklinghausen
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Date of purchase agreement Residential units Locations December 2013 ...... 548 Cologne, Radevormwald December 2013 ...... 1,930 Duisburg, Hattingen, Moers August 2014 ...... 2,406 Duisburg, Essen, Krefeld, Witten October 2014 (“Leopard 9,591 Mönchengladbach, Wuppertal, Leverkusen Portfolio”) ...... April 2015 ...... 710 Cologne, Leverkusen, St Augustin June/November 2015 ...... 3,539(1) Arnsberg, Bad Oeynhausen, Bergneustadt, Bielefeld, Detmold, Dorsten, Lippstadt, Lünen, Minden, Oerlinghausen, Recklinghausen, Wegberg August 2015 ...... 2,037(1) Duisburg, Moers, Essen, Mülheim December 2015 (Charlie Portfolio)... 13,569(2) Gelsenkirchen, Bergkamen, Marl, Herne, Herten, Dortmund, Koblenz, Mönchengladbach, Ratingen, Krefeld, Gütersloh, Bielefeld, Essen, Siegburg December 2015 ...... 1,291(3) Siegen April 2016 ...... 1,135(4) Primarily Recklinghausen, Herne Closing at the end of the year 2016/beginning 2017 ...... 322 Duisburg, Kamp-Lintfort, Herten
Closing at the end of the year 2016/beginning 2017 ...... 556 Hamm, Krefeld, Duisburg, Wesseling, Düsseldorf, Velbert, Gladbeck
(1) Transaction closed on January 1, 2016. (2) Ownership transferred to LEG on April 1, 2016. (3) Of these 1,291 residential units, 999 residential units were economically transferred as of January 1, 2016. The remaining 292 residential units were economically transferred on July 1, 2016. (4) Of these 1,135 residential units, 608 are subject to rent control; the other 527 residential units are not subject to rent control. The average in-place rent for these residential units is €4.46/sqm. The average in-place rent for the rent- controlled residential units is €4.21/sqm, the average in-place rent for those without rent control is €4.77/ sqm. The vacancy rate for residential units is 5.4% (all data as of December 31, 2015). Ownership transferred as of May 31, 2016.
The acquisition of the Leopard Portfolio and the Charlie Portfolio were by far the largest acquisitions by the LEG Group since the acquisition of LEG NRW GmbH and certain associated companies.
Financing Agreements
LEG has entered into various loan agreements.
Loans in an aggregate amount of approximately €3,702 million were outstanding as of September 30, 2016. In addition to the large loans, described hereinafter, LEG had outstanding obligations under loan agreements (in particular from subsidized WfA Loans, see “—WfA Loans”) in an aggregate amount of €574 million as of September 30, 2016 and liabilities to creditors of a convertible bond with a nominal amount of €300 million.
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Large Loans
Most of the major loans were granted for the (re)financing of properties and are secured by (re)financed properties in the form of specific or general land charges.
Interest and Interest Rate Hedging
The loan facilities bear interest at fixed rates between 1.24% and 5.29% p.a. or at a variable rate of 1-, 3- or 6-month EURIBOR plus a margin (as of September 30, 2016). The margins for the floating-rate loans are dependent, among other things, on the quality of the financed portfolio, the total term chosen by the borrower and, in some cases, the LTV Ratio. The margins can increase if, for example, the threshold for certain financial covenants are exceeded.
As stipulated in the loan agreements for most of the floating-rate loans, interest rate hedges (fixed-for-floating interest rate swaps) have been concluded in full or in part to hedge interest rate risks from variable EURIBOR interest rates (for loans with a total nominal amount of €885 million as of September 30, 2016, as of this date, loans with a total nominal amount of €334 million were not hedged, and loans with a total nominal amount of €2,039 million were fixed-interest). As the loan is repaid, either on schedule or ahead of schedule, borrowers are required to reduce the collateral volume accordingly or leave the collateral level at a certain percentage of the loan amount.
Regular Principal Repayments
Most of the loan agreements provide for regular quarterly or semi-annual principal repayments during their term in the form of annuities or linear repayment. The repayment rates of these loans and their facilities are between 1.0% p.a. and 1.7% p.a. as of September 30, 2016 (as a percentage of the outstanding loan amount or, in the case of annuities, as a percentage of the initial loan amount). Some loans or tranches are not repaid on a regular basis. For some loans, repayment rates are increased if certain LTV Ratio levels are exceeded. The other outstanding amounts must then be repaid as of the end of the fixed term.
Early Repayment
Most of the loan agreements allow voluntary early (partial) repayment. All of the agreements must be repaid early in full or in part upon the occurrence of certain events (such as a change of control, sale of property, insurance cases).
Most of the loan agreements expressly permit the sale of some or a sub-portfolio of the financed units. In this event, the LEG company that borrowed the loan must repay certain loan amounts from the sale proceeds. The loan agreements usually assign a loan amount to each financed property and stipulate a certain percentage of the amount assigned (> 100%). This must be repaid early if the property is sold against the release of collateral before final maturity.
If certain financial thresholds set out in the loan agreements are exceeded, the borrowers are required to partially repay the loan in question in order to prevent the bank from being entitled to terminate the agreement or to impose restrictions on the use of rental income (“—Financial Covenants”).
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In the event of early repayment, in most cases the borrower must replace the interest loss incurred up to the end of the current fixed interest period and pay the costs in connection with the cancellation of interest rate hedges.
Collateral
Land charges that can be enforced immediately in full or in part have been provided as collateral for (re)financed properties.
In addition to the land charges, the loans are usually collateralized by rights of lien or the assignment of receivables from interest rate hedging instruments for the loan in question and by the assignment of portfolio-based rental income, claims from any property sale and insurance claims.
Most of the loan agreements also stipulate liens on the rent payment account and special accounts (for example, for the collection of sales proceeds, insurance claims (“—Early Repayment”) and cash trap events (“— Financial Covenants”)).
In many cases, there are negative declarations not to pledge any shares in the borrowing legal entity to a third party. For other loan agreements, claims from companies of the LEG Group are subordinate to the receivables of certain borrowers.
Financial Covenants
The loan agreements include the usual financial covenants for residential properties.
Most loan agreements provide for a specific maximum LTV Ratio. The LTV Ratio is the ratio of the outstanding loan amount (including senior subsidized loans) to the value of the financed portfolio. The value of the individual portfolios was appraised prior to the first claim and then at least every third year or at the bank’s request to verify compliance with the LTV Ratio covenants. The maximum contractual LTV Ratio, which is dependent on the quality and size of the financed portfolio and the lender, is between 60.0% and 82.5% based on the nominal amount.
Most of the loan agreements also include a liquidity-related financial covenant: The debt service coverage ratio respectively interest coverage ratio (“DSCR”) is the ratio of the rental income from the financed property portfolio (as defined in the loan agreements and generally after deduction of the non-allocable operating costs) to the debt service for the loan and the senior WfA Loan. This ratio must reach a certain level. The prescribed minimum DSCR values are between 110% and 550%.
Other loan agreements demand a certain occupancy rate or a certain debt-to-rent ratio (“DRR”, which defines a ratio of total credit volume to annual income, as defined in the loan agreement). This is between 700% and 1,333% of the financed portfolio.
LEG Wohnen GmbH, LEG NRW GmbH and Ruhr-Lippe Wohnungsgesellschaft mbH have each borrowed loans for several property portfolios. Some of the underlying loan agreements therefore provide for a debt threshold at the level of the respective borrower.
A breach of the financial covenants would allow the bank to terminate the loan in question and to call the entire volume of the loan due early if the breach is not remedied within a short period by voluntary (partial) repayment (“—Termination Rights”).
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Some loan agreements contain other financial covenants where non-compliance occurs earlier and that do not entitle the bank to terminate the agreement, but rather to impose restrictions on the use of rental income. In such cases, rental income must be paid to a bank account pledged to the financing bank (cash trap) and used in a certain order of priority (in particular to cover operating costs and necessary maintenance measures and debt service). The remaining balance of the pledged bank account would then be used for the early repayment of the loan (cash sweep) until the financial covenants are complied with again. LEG complied with the financial covenants in the period covered by this Prospectus, namely from January 1, 2013 to the date of this Prospectus.
Assurances, Warranties
The loan agreements contain several assurances and warranties that are usually issued both when signing the agreements and when calling individual tranches. LEG complied with the assurances and warranties in the period covered by this Prospectus, namely from January 1, 2013 to the date of this Prospectus.
Termination Rights
In particular, lenders can terminate the loan agreements if interest, principal or other payments are not made on maturity, thresholds of financial covenants are breached, the respective borrower becomes insolvent, assurances and warranties prove to be false, the respective borrower violates other information duties or does not comply with other material contractual obligations unless the violation in question is rectified within a contractually agreed period.
A contractual component of many of the loan agreements are the general terms and conditions of the respective lender, which provide for very far-reaching termination rights, in particular if the financial situation of the borrower or the value of the collateral deteriorates significantly or threatens to deteriorate such that the repayment of the loan would be at risk even if the collateral were realized.
Change of Control
Almost all the loan agreements with the subsidiaries of LEG NRW GmbH contain change of control clauses that entitle the respective lender to declare an extraordinary termination or to demand acceptable changes to the loan agreement if LEG (in some cases jointly with Rote Rose) no longer directly or indirectly holds at least 50% of the shares or voting rights in the borrower in question.
Additional Obligations
Under some of the loan agreements, the borrowers are required to comply with the Social Charter and to confirm this to the lender at regular intervals.
Some of the loan agreements also contain maintenance obligations for the property portfolio that collateralizes the loan in question. In line with these, the respective borrower must maintain its property portfolio in good, consistent or standard market condition. With regard to certain tranches for investment expenditure, there are more detailed requirements that require the borrower to use the funds in accordance with proven spending or investment plans.
In accordance with loan agreements, the borrowing companies of the LEG Group have undertaken to insure the financed properties against standard risks (for example, fire and common natural hazards).
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The borrowers must provide the respective lender with financial and other information regularly and on request.
Most of the loan agreements require that companies that are majority owned by LEG NRW GmbH are responsible for the asset and property management of the borrowing legal entity.
The Company has no indications that these or other obligations under the loan agreements are not complied with by LEG.
WfA Loans
In aggregate, companies of the LEG Group have borrowed around 1,900 loans from WfA. WfA is a former public law institution with the purpose of granting subsidized loans in the interests of North Rhine-Westphalian housing policy. The legal successor of WfA is NRW.Bank. The outstanding WfA Loans have a total nominal amount of €574 million (as of September 30, 2016).
The instruments of North Rhine-Westphalian housing subsidies and the legal framework of the WfA Loans have changed over the years. Among other things, the loans were granted for housing construction, to cover current costs and for construction measures for the modernization and energy modernization of residential units. The loan agreements usually refer to the administrative act by which the public-law relationship between the lender and the respective borrower was established.
Usually, the interest rate changes over the term of the WfA Loan, starting at 0% p.a. or a low interest rate that then increases or is raised at the discretion of the lender (with the approval of the competent minister of state) to up to 6% (“—Risk Factors—Risks in Connection with LEG’s Business Activities—LEG has received subsidized loans for the financing of the construction, acquisition and modernization of a significant portion of its property portfolio, the terms of which provide for rent control. Under certain circumstances, LEG may not be able to adjust rents to the market level immediately after the restrictions associated with the subsidized loans expire. The agency that grants the subsidized loans can unilaterally exercise its right to raise the rate of interest payable to 6% p.a.”). The lender’s discretion is not significantly restricted by the financing agreements or the pertinent laws. However, as higher interest rates can lead to higher rents, the lender is not permitted to raise interest rates if the resulting rent increase would mean unreasonable hardship for the tenant. The borrower must be notified of the interest rate increase in writing, and the increase can take effect no earlier than two months after receipt of the relevant notice. In accordance with the legal terms “cost rent” and “maximum rent” in the relevant laws, rent increases are permitted if the lender intentionally increases the interest on the loan. Furthermore, the borrower must frequently also pay the administrative fees of up to 0.5% p.a. of the initial nominal value of the loan.
For long-term repayment, the WfA loan agreements provide for rates of between 0% p.a. (in the initial years) and 6% p.a. without ordinary bullet payments. This results in significantly longer loan terms than for other loans.
2014 Convertible Bond
On April 10, 2014, the Company issued convertible bonds with a total nominal amount of €300 million (the “2014 Convertible Bond”). The 2014 Convertible Bond consists of 3,000 bonds with a nominal value of €100,000 each. The 2014 Convertible Bond bears interest at 0.50% p.a. on its fixed nominal amount, with interest payments semi-annually in arrears on April 10 and October 10.
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The maturity date and last interest payment date of the 2014 Convertible Bond is July 1, 2021. LEG is authorized to buy, redeem, hold or resell bonds on the market or otherwise at any time.
The terms and conditions of issue of the 2014 Convertible Bond include, in particular, the following terms:
The Company is entitled to terminate the 2014 Convertible Bond (in whole, but not partially) if the share price on at least 20 trading days during a period of 30 consecutive trading days, commencing on or after July 22, 2019, amounts to at least 130% of the relevant conversion price on these trading days in XETRA trading. In the event of such termination, the Company must redeem each bond on the redemption date at its nominal amount plus interest accrued up to the redemption date (not inclusively).
The Company is entitled to terminate the 2014 Convertible Bond (in whole, but not partially) if the total nominal amount of the outstanding bonds drops to 20% or less of the total nominal amount of the bonds originally issued.
Each bondholder is entitled to demand from the Company the repayment of some or all of its bonds for which the conversion right was not exercised and for which no early repayment was announced in accordance with the two above paragraphs as of July 1, 2019 plus the interest accrued by this date (not inclusively).
The Company is entitled to repay the 2014 Convertible Bond (in whole, but not partially) plus interest accrued by the redemption date by delivery of shares in the amount of the conversion price at the time.
Since May 21, 2014, each bondholder has been entitled to convert bonds into shares of the Company at a conversion price to be calculated on the basis of the terms and conditions of issue. As of the date of this Prospectus, no such conversions have been declared in connection with the 2014 Convertible Bond to the best of the Company’s knowledge. The Company can use both its authorized capital and its conditional capital to satisfy the claims of such bondholders. In addition, instead of the delivery of shares, it has the right to satisfy claims in full or in part by way of cash payment, whereby for the calculation of this cash payment the share price in XETRA trading for the preceding 20 trading days is relevant.
In the event of a change of control at the Company, each bondholder of the 2014 Convertible Bond is entitled to call due all or some of its bonds prematurely, in which case a conversion premium must be paid on the conversion price.
The conversion price per share is currently €56.8403. Its calculation is dependent on certain standard market rules for dilution protection (for example, in the event of capital increases or dividend payments). Based on the current conversion price of €56.8403, the Company would have to deliver up to 5.3 million shares in the event of the full conversion of the 2014 Convertible Bond, which would increase the share capital of the Company by up to 8.35%.
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Trend Information and No Adverse Change
Since December 31, 2015, there has been no material adverse change in the prospects of the Issuer.
Management and Supervisory Bodies of LEG Immobilien AG
Overview
The executive bodies of the Company are the Management Board, the Supervisory Board and the general shareholders’ meeting. The powers of these executive bodies are defined in the German Stock Corporation Act (Aktiengesetz), the Company’s Articles of Association and the rules of procedure of both the Supervisory Board and Management Board.
The Management Board is responsible for managing the Company and conducting its business in accordance with applicable law, the Company’s Articles of Association and its rules of procedure, including the schedule of responsibilities. The Management Board represents the Company in dealings with third parties.
Simultaneous management board and supervisory board membership in a German stock corporation is not permitted under German law; however, simultaneous membership that results from a member of the supervisory board taking a seat on the management board of the same German stock corporation for a maximum period of one year is permissible in exceptional cases. During this period, such individual may not perform any duties for the supervisory board. LEG does not make use of this derogation.
The Supervisory Board determines the exact number of members of the Management Board. Pursuant to the Company’s Articles of Association, the Management Board comprises at least two members. The Supervisory Board also appoints the members of the Management Board and is entitled to dismiss each of them for good cause. As set out in the German Stock Corporation Act (Aktiengesetz), the Supervisory Board advises on, and oversees, the Management Board’s administration of the Company, but is not itself authorized to manage the Company. The Articles of Association or the Supervisory Board must, however, designate the type of transactions and measures that may be performed only with the prior approval (consent) of the Supervisory Board. Matters subject to the prior consent of the Supervisory Board or of a committee of the Supervisory Board entrusted with them by the Supervisory Board pursuant to Section 6.2 of the Company’s Articles of Association and Section 9.1 of the rules of procedure of the Company’s Management Board currently include, in particular (matters listed only in Section 9.1 of the rules of procedure of the Company’s Management Board and not in Section 6.2 of the Company’s Articles of Association are marked with a “*”):
the establishment and closing of branch offices;
the conclusion, alteration or termination of affiliation agreements pursuant to Sections 291 and 292 of the German Stock Corporation Act (Aktiengesetz);
the execution of measures pursuant to the German Transformation Act (Umwandlungsgesetz);
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the preparation of the business plan (including capital expenditures, personnel and finance plan) for the Group for the following fiscal year*;
other capital expenditures (including maintenance and modernization) which are not included in the Company’s business plan and which exceed an amount of €5 million (plus VAT) in each individual case, or regardless of the amount in the individual case, if an aggregate amount of €20 million (plus VAT) is reached in a fiscal year or would be reached as a result of the transaction*;
the establishment or liquidation of companies and partnerships and the acquisition or sale of participations in companies or business operations, if the value (including the assumption of liabilities) exceeds an amount of €5 million (plus VAT) in each individual case*;
the commencement of significant new and the abandonment of significant existing operating areas*;
purchase or sale of properties if the individual transaction exceeds a volume of €5 million*;
application for, extension or termination of credit facilities or loan agreements exceeding a nominal value of €50 million (plus VAT) in each individual case, or regardless of the amount, if an aggregate amount of €250 million (plus VAT) in a fiscal year is reached or would be reached as a result of the transaction*;
the provision of collateral or securities of any kind with a nominal value of over €100 million (plus VAT) in each individual case or regardless of the amount, if an aggregate amount of €250 million (plus VAT) in a fiscal year is reached or would be reached as a result of the transaction *;
the initiation of litigation – including pre- and non-procedural dispute resolution – of fundamental importance for the Company, in particular, but not limited to, litigation and disputes with key business partners with an amount in dispute of more than €5 million*;
the establishment of or the material amendment of existing employee participation programs, profit sharing or similar incentive programs*;
any fundamental change of the valuation methods used in the context of the financial reporting of the Company*;
any change or agreement on the interpretation of the Social Charter agreed upon in the privatization agreement of June 10/11, 2008 regarding LEG NRW GmbH and certain affiliated companies*; and
approval of contracts with auditors concerning additional advisory services, if the cumulative fees for these services exceed or are expected to exceed 50% of the remuneration for the annual audit*.
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The Management Board is also required to obtain the prior consent of the Supervisory Board or the respective Supervisory Board committee which has been appointed for these purposes by the Supervisory Board, if the Management Board through instructions, approvals, votes, or in any other manner plays a part in transactions similar to those described above (with the exception of the preparation of the business plan for the group) in affiliated companies. The Management Board is also required to ensure, to the extent legally permissible, that the aforementioned measures (with the exception of the preparation of the business plan for the group) in affiliated companies require its prior approval and may only grant its approval after the approval by the Supervisory Board or by a Supervisory Board committee which has been appointed for these purposes by the Supervisory Board has been obtained. The Supervisory Board may issue a general authorization in advance for a specific type of business or for the event that the individual type of business meets certain requirements. This authorization can also be revoked.
Each member of the Management Board and of the Supervisory Board owes the Company a duty of loyalty and of good care. Each member of these bodies must take a broad spectrum of interests into consideration, particularly those of the Company and its shareholders, employees and creditors. In addition, the Management Board must also take into consideration the shareholders’ right to equal treatment and equal access to information about matters relating to the Company. Should members of the Management Board or of the Supervisory Board breach their duties, they may be individually or jointly and severally with the other members of the Management Board or the Supervisory Board liable to the Company for compensatory damages, as the case may be.
Under German law, a shareholder generally has no right to proceed directly against members of the management board or supervisory board if he/she believes they have breached their duties to the company. In general, only the company is entitled to enforce claims for damages against members of the management board or supervisory board. With respect to claims against supervisory board members, the company is represented by the management board, and with respect to claims against management board members, the company is represented by the supervisory board. Under a decision of the German Federal Supreme Court (Bundesgerichtshof), the supervisory board is required to assert damages claims against the management board if they are likely to succeed unless significant interests of the company conflict with the pursuit of such claims and outweigh or are at least on par with the reasons for bringing such claim. If the governing body authorized to represent the company decides not to pursue a claim, the company’s claims for damages against members of the management board or supervisory board must nevertheless be asserted if the general shareholders’ meeting adopts a resolution to this effect by a simple majority. The general shareholders’ meeting may appoint a special representative to assert the claims. Shareholders whose shares cumulatively make up 10% of the share capital or a pro rata share of €1 million may also petition the court to appoint a special representative. In addition, the general shareholders’ meeting may appoint special auditors to audit transactions, particularly management transactions, by simple majority vote. If the general shareholders’ meeting rejects a motion to appoint a special auditor, the court must appoint a special auditor upon the petition of shareholders whose shares cumulatively constitute 1% of the share capital at the time the petition is filed or constitute a pro rata share of €100,000 if facts exist that justify the suspicion that the transaction was accompanied by dishonesty or gross violations of the law or the articles of association. If the general shareholders’ meeting appoints a special auditor, the court must appoint another special auditor upon the petition of shareholders whose shares cumulatively constitute 1% of the share capital at the time the petition is filed or constitute a pro rata share of €100,000 if this appears necessary due to the identity of the special auditor who was appointed.
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In the shareholders’ forum of the German Federal Gazette (Bundesanzeiger), shareholders and shareholder associations can solicit other shareholders to file a petition, jointly or by proxy, for a special audit, for the appointment of a special representative or to convene a general shareholders’ meeting or exercise voting rights in a general shareholders’ meeting. If existing facts justify the suspicion that the company has incurred damage as a result of impropriety or a gross violation of the law or of the articles of association, shareholders who collectively hold 1% of the share capital or a pro rata share of €100,000 may also, under certain further conditions, seek damages from members of the company’s governing bodies in their own names through court proceedings seeking leave to file a claim for damages. Such claims, however, become inadmissible if the company itself files a claim for damages.
The company may only waive or settle claims for damages against members of the management board or supervisory board three years after such claims arose if the general shareholders’ meeting grants its consent by simple majority vote unless a minority of the shareholders whose shares cumulatively constitute 10% of the share capital objects to the minutes.
Under German law, individual shareholders and all other persons are prohibited from using their influence on the company to cause a member of the management board or the supervisory board to take an action detrimental to the company. This does not apply if the member of the management board or the supervisory board was destined to take the detrimental action by exercising the management power on account of a domination agreement (Beherrschungsverrtag) or by exercising the management power of a principal company in which the company is integrated. A shareholder with a controlling influence may not use that influence to cause the company to act contrary to its own interests unless there is a domination agreement (Beherrschungsvertrag) between the shareholder and the company and the influence remains within the bounds of certain mandatory provisions of law or compensation is paid for the disadvantages that arise. Any person who uses his influence on the company to cause a member of the management board or supervisory board to act to the detriment of the company or its shareholders must compensate the company and the affected shareholders, respectively, for the resulting losses. In addition, the members of the management board and supervisory board are jointly and severally liable in this connection if their actions or omissions amount to a breach of their duty of due care.
All members of the Management Board and of the Supervisory Board may be reached at the Company’s business address at Hans-Böckler-Str. 38, 40476 Düsseldorf, Germany (tel.: +49 211 4568-0).
Management Board
Current Composition of the Management Board
According to the Articles of Association, the Management Board must consist of at least two persons. The Supervisory Board appoints the members of the Management Board for a period of no more than five years. The Supervisory Board may appoint a Management Board member as chairman of the Management Board and another member as deputy chairman. The Management Board currently consists of three members with Mr. Thomas Hegel appointed as chairman and Mr. Eckhard Schultz as deputy chairman.
Reappointment or extension, each for a maximum period of up to five years, is permissible. The Supervisory Board may revoke the appointment of a Management Board member before his/her
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term of office expires for good cause (such as a gross breach of fiduciary duty) or if the general shareholders’ meeting passes a vote of no confidence with respect to such member, unless the no confidence vote was clearly unreasonable. The Supervisory Board is also responsible for entering into, amending and terminating employment agreements with Management Board members and in general for representing the Company in and out of court against the Management Board. The Management Board is directly responsible for managing the Company at its own discretion.
If the Management Board consists of at least three members, a Management Board meeting has a qorum if all Management Board members have been invited and no less than half of the members (generally including the chairman) participate in the meeting either in person or by electronic media. Members who abstain from voting are also considered to be participating. Unless otherwise stipulated by law, by the Articles of Association or by the rules of procedure, the Management Board adopts resolutions by a majority of the votes cast by the participating members and by a majority of the votes cast outside of meetings. If the vote is tied, a resolution is not adopted. If the Management Board consists of only two members, then both members must participate in the adoption of resolutions and resolutions must be adopted unanimously. Further details, particularly regarding composition, duties, overall responsibility, allocation of responsibilities for particular divisions and internal organization are governed by the rules of procedure for the Management Board which were issued by the Supervisory Board, and entered into force on January 17, 2013. The rules of procedure for the Management Board have been amended in the meantime, most recently on November 19, 2014.
The Company is represented vis-à-vis third parties and also in court proceedings by two members of the Management Board or by one member of the Management Board jointly with an authorized signatory. The Supervisory Board may determine that all or specific members of the Management Board are authorized to represent the Company individually.
The rules of procedure for the Management Board require that the delegation of responsibilities to the individual Management Board members is established on the basis of the business distribution plan (Geschäftsverteilungsplan). The business distribution plan is part of the rules of procedure of the Management Board and is prepared by the Supervisory Board.
The table below lists the current members of the Company’s Management Board.
Name Age Member since Appointed up to Responsibilities Thomas Hegel 60 May 4, 2009(1) January 31, 2021 Chief Executive Officer; chairman of the Management Board Eckhard Schultz 50 November 28, January 31, 2021 Chief Financial Officer; deputy 2012(2) chairman of the Management Board Holger Hentschel 49 November 28, December 31, Chief Operating Officer 2012(2) 2019
(1) Date refers to the day on which Mr. Hegel became managing director of Lancaster Holding GmbH, the general partner of Lancaster GmbH & Co. KG (i.e. the Company before it changed its legal form and name). (2) Date refers to the day on which Mr. Schultz and Mr. Hentschel became managing directors of LEG Immobilien GmbH (i.e. the Company before it changed its legal form and name).
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The Supervisory Board of LEG Immobilien AG has decided on a target quota of 0.0% (“zero”) for the proportion of women as defined by Section 111 para. 5 of the German Stock Corporation Act (Aktiengesetz) with regard to the three-person Management Board of LEG Immobilien AG. This target quota is complied with.
The following description provides summaries of the curricula vitae of the current members of the Company’s Management Board and indicates their principal activities outside the Group to the extent those activities are significant with respect to the Group.
Thomas Hegel was born in 1956 in Gummersbach, Germany. He is chairman of the Management Board and chief executive officer of the Company, positions he has held since May 2009. Mr. Hegel studied Law at Cologne University from 1977 to 1983, and passed the First State Exam in 1983 and the Second State Exam in 1987. From 1983 to 1984, Mr. Hegel was a research assistant at the Institute for Banking Law at Cologne University, and from 1984 to 1987 he was a law clerk at the Higher Regional Court of Cologne. In 1987, Mr. Hegel began his professional career in the legal department of the Confederation of German Employers’ Associations (Bundesvereinigung der Deutschen Arbeitgeberverbände). Starting in 1988 and through 2002, he worked at Deutsche Bau- und Grundstücks-AG, in Bonn, in various positions, including in managerial functions in the housing industry and city planning/west departments. In 2002, Mr. Hegel joined Corpus Asset Wohnen GmbH, a subsidiary of the Corpus-Immobilien Group, as managing director, where he focused on real estate management. In 2004, he was appointed a member of the management board of the Corpus-Immobilien Group. In 2005, he additionally took on the responsibility for the central human resources department. In March 2006, Mr. Hegel joined LEG NRW GmbH as managing director responsible for the acquisition, corporate development, communications, human resources, legal, business support services, IT, internal audit and compliance divisions. In addition to his work for LEG, he practices law and runs a small law firm based close to Cologne together with his wife since 1987.
Alongside his office as the Company’s chief executive officer and chairman of the Management Board, Mr. Hegel is, or has been within the last five years, a member of the administrative, management or supervisory bodies of or a partner in the following companies and partnerships outside the LEG Group:
Currently:
AVW Versicherungsmakler GmbH (deputy chairman of the supervisory board);
Bundesarbeitsgemeinschaft der deutschen Immobilienunternehmen der Privatwirtschaft (national association of private German property companies) (deputy chairman);
GdW Bundesverband deutscher Wohnungs- und Immobilienunternehmen e. V. (Federal association of German housing and real estate companies) (member of the executive board);
ista International GmbH (member of the advisory board);
LEG NRW Mieter-Stiftung (tenants’ foundation) (chairman of the board of trustees);
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Rechtsanwälte Wolter & Hegel (law firm) (partner);
VdW Verband der Wohnungs- und Immobilienwirtschaft Rheinland Westfalen e. V. (Rhineland Westphalia regional housing and real estate industry association) (member of the VdW association council in an advisory capacity);
Weisse Rose GmbH (managing director);
Business forum of the FDP (member); and
Zentraler Immobilien Ausschuss e. V. (German Property Federation) (member of the executive committee, member of the housing committee).
Previously:
Fördervereins der Aus- und Fortbildung im EBZ e.V. (development association for training and further education at the European Training Centre for the Housing and Real Estate Industry) (member of the board of trustees);
Lancaster Holding GmbH (managing director); and
Westfälische Provinzial Versicherung Aktiengesellschaft (member of the advisory board until November 2015).
Eckhard Schultz was born in 1964 in Wolfsburg. Mr. Schultz completed a vocational training as a bank clerk from 1985 to 1987 and studied economics at Ruhr University in Bochum from 1987 to 1992. Mr. Schultz began his professional career in 1993 and held various positions in the loans and corporate banking department of the Bayerische Hypotheken- und Wechselbank and in the competence center financial services of Roland Berger Strategy Consultants until 2001. Starting in 2002, he held the position of Head of Controlling of the former Bayerische Immobilien Group (Schörghuber Unternehmensgruppe). Also in 2002, he completed his studies at the European Business School (ebs) and received a degree as a real estate economist in 2003. In 2004, he was appointed a member of the management board of the Bayerische Immobilien AG. In 2005, he became a member of the Royal Institution of Chartered Surveyors (MRICS). From 2006 to 2009, he was managing director of Bayerische Bau- und Immobilien GmbH & Co. KG (BBIG), the holding company responsible for the entire real estate development and property portfolio division of Schörghuber Unternehmensgruppe. Mr. Schultz joined LEG NRW GmbH on May 1, 2009 and has since been chief financial officer and is responsible for treasury, corporate finance, accounting, tax, portfolio management, investor relations, controlling, risk management and reporting departments.
Alongside his office as the Company’s chief financial officer and deputy chairman of the Management Board, Mr. Schultz is, or has been within the last five years, a member of the administrative, management or supervisory bodies of or a partner in the following companies and partnerships outside the LEG Group:
Currently:
GdW Bundesverband deutscher Wohnungs- und Immobilienunternehmen e. V. (member of the accounting and finance committee).
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Previously:
Stadtsparkasse Düsseldorf (member of the customer advisory board).
Holger Hentschel was born in 1966 in Kettwig. From 1985 to 1990, Mr. Hentschel completed a vocational training as a real estate and residential trade merchant at Neue Heimat NRW in Düsseldorf and simultaneously studied Business Management/IT at Deutsche Angestellten Akademie (DAA). Mr. Hentschel joined the LEG Group in 1987 and has held various positions during his 25-year employment. At the beginning of his professional career with the LEG Group he held several positions in the central accounting, rent management and controlling departments at LEG Wohnen GmbH. From 1993 to 1995, he served as assistant to the management board of LEG Wohnen GmbH, and from 1996 to 1997 he held the head of corporate secretary position of LEG NRW GmbH. In 1997, he became deputy branch manager of the Düsseldorf branch of LEG NRW GmbH, and was responsible for all business tasks. In 1999, he became head of LEG NRW GmbH’s central asset management department, which includes the operational cost and rent management departments since 2001. Between 2004 and 2006, he further served as managing director of the management companies LEG Wohnen Dortmund GmbH, LEG Facility Management GmbH and LEG Gesellschaft für Wohneigentum mbH. In addition, he served as managing director of LEG Consult GmbH, formerly LEG Gesellschaft für Vertrieb und Mieterprivatisierung GmbH, between 2004 and 2007. He served as head of portfolio management there from 2007 to 2009. In May 2009, Mr. Hentschel assumed executive functions within LEG NRW GmbH and since April 1, 2010, he has held the position of chief operating officer (COO; formerly called “head of operations”) and is responsible for all operating activities of the Group. He was appointed managing director of LEG Immobilien GmbH (now LEG Immobilien AG) on November 28, 2012. and appointed managing director of LEG NRW GmbH on January 2, 2013.
Alongside his office as the Company’s chief operating officer and member of the Management Board, Mr. Hentschel is, or has been within the last five years, a member of the administrative, management or supervisory bodies of or a partner in the following companies and partnerships outside the LEG Group:
Currently:
Arbeitsgemeinschaft Großer Wohnungsunternehmen (AGW – Association of large housing enterprises) (chairman of the residential market working group);
Förderverein für die Aus- und Fortbildung im Europäischen Bildungszentrum e. V. (Development association for training and further education at the European Training Centre for the Housing and Real Estate Industry) (member of the management board);
EBZ European Training Centre for the Housing and Real Estate Industry (charitable foundation) (member of the board of trustees);
LEG NRW Mieter-Stiftung (deputy chairman of the board of trustees);
Techem GmbH (member of the advisory board);
VdW Verband der Wohnungs- und Immobilienwirtschaft Rheinland Westfalen e. V. (member of the association council); and
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VdW Private real estate companies segment (chairman).
Other than listed above, Mr. Hentschel has not been a member of any administrative, management or supervisory body of any other company or partnership outside the LEG Group within the last five years.
Management Service Agreements
On January 17, 2013, the supervisory board of LEG Immobilien AG resolved management service agreements for the Management Board, which entered into effect on February 1, 2013.
The term of office was extended by resolution of the Supervisory Board of March 24, 2015.
The existing management service agreements with the Company of the Management Board members Thomas Hegel and Eckhard Schultz have a term until January 31, 2021, the management service agreement with Holger Hentschel has a term until December 31, 2019. The management service agreements may generally only be terminated by mutual agreement or for good cause. If a member of the Management Board is dismissed for good cause, without being at fault, each party can terminate the management service agreement by giving six months’ prior notice. Upon termination pursuant to this rule, a severance payment will be paid on the basis of the base compensation and the variable component of the remuneration. Should a full fiscal year not yet have been completed upon termination, an assumption of a 100% completion of the variable remuneration component shall be assumed. Such severance payment will be paid for the shorter period of either the remaining term after the notice period or for 24 months. In case of an early termination of the management service agreements, the severance payments may not, under any circumstances, exceed two years’ compensation.
Remuneration and Other Benefits for the Management Board Members
The remuneration system takes into account joint and personal performance to ensure the Company’s long-term success. The remuneration system is based on performance and success. The key criteria are a long-term focus, appropriateness and sustainability. On July 19, 2013, the general shareholders’ meeting of LEG Immoblien AG approved, pursuant to Section 120 para. 4 of the German Stock Corporation Act (Aktiengesetz), the remuneration system for the Management Board members.
The individual Management Board service agreements were amended, essentially with respect to the remuneration components, or replaced with effect from July 1, 2015, while the existing rights and duties of the members of the Management Board continued to apply. The remuneration of Holger Hentschel was recently adjusted on May 31, 2016.
On the basis of the service agreements, as currently amended, the total maximum annual target remuneration (excluding ancillary benefits) amounted to €1,235,000.00 per fiscal year (of which €747,500.00 is variable) for Mr. Hegel, to €1,164,000.00 per fiscal year (of which €717,600.00 is variable) for Mr. Schultz and to €903,070.00 per fiscal year (of which €560,000.00 is variable) for Mr. Hentschel. The remuneration consists of an annual base salary amounting to €520,000.00 for Mr. Hegel, €468,000.00 for Mr. Schultz and €350,000.00 for Mr. Hentschel as well as a variable bonus. The variable bonus comprises two components: a variable remuneration element with a short-term incentive function (short-term incentive, “STI”) and a variable remuneration
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element with a long-term incentive function (long-term incentive, “LTI”). The variable remuneration with a short-term incentive function is an annual payment dependent upon the results achieved in the ordinary course of business and is measured by performance in relation to four key financial indicators: (i) in-place rents; (ii) net rental and lease income; (iii) Adjusted EBITDA (each of (i) to (iii) weighted at 20% of the total STI amount); and (iv) FFO I per share (weighted at 40% of the total STI amount). These figures are provided and defined in the business plan approved by the Supervisory Board. Assuming the aforementioned performance targets are fully achieved, the STI component amounts to €325,000.00 for Mr. Hegel, €312,000.00 for Mr. Schultz and €250,000.00 for Mr. Hentschel. The STI calculated using the defined targets may be increased or reduced – up to a total of 30% – at the discretion of the Supervisory Board. The variable remuneration with a long-term incentive function is based on the sustainable corporate development and structured over a period of four years. If the defined targets (target LTI) are fully achieved, the LTI amount is divided into three equal tranches, one for each fiscal year following the fiscal year in which the LTI was granted. The performance period for which the target attainment level is established mounts to two to three years for each of these tranches. The LTI remuneration actually paid out depends on the achievement of two targets defined in a long-term incentive agreement with the Supervisory Board. The long-term incentive target agreement defines the required levels of total shareholder return and performance of the share price of the Company in comparison to the EPRA Germany index. The amount is determined after the relevant performance period of each tranche has ended and will be paid out, at the latest, 30 days following the approval of the Group’s annual financial statements for the respective performance period. Assuming the aforementioned performance targets are fully achieved, the long- term incentive component amounts to €390,000.00 for Mr. Hegel, €364,000.00 for Mr. Schultz, and €300,000.00 for Mr. Hentschel and is paid over a period of three years following the period during which the incentive is granted. The LTI calculated using the defined targets can be increased or reduced – up to 30% in total – at the discretion of the Supervisory Board. Should the targets not be met, there is no minimum amount for the short and long-term incentive remuneration. The service agreements allow the Supervisory Board, in its equitable discretion, to increase or decrease the target achievement degree for both the short term incentive and long-term incentive by up to 20% to reflect extraordinary circumstances, thereby exceeding or limiting the aforementioned total maximum annual target compensation. The aforementioned remuneration includes the remuneration for performing duties at subsidiaries (in particular at LEG NRW GmbH).
The following Management Board remuneration was paid in the fiscal year 2015:
Remuneration in Name thousands of euros Thomas Hegel ...... 982 Eckhard Schultz ...... 911 Holger Hentschel ...... 658 Total ...... 2,551
In aggregate, Management Board remunerations were paid in an amount of €2,551,000 in 2015.
In addition, Management Board members are entitled to ancillary benefits that include, amongst others, a life insurance policy, which also covers private accidents. The Company will contribute 50% to the Management Board member’s statutory or private pension and benefit plans as well as to their health and nursing insurances, in each case up to the maximum amount to be paid by
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an employer for statutory pension, health and nursing insurances. The Company will further contribute additional €20,000.00 per calendar year to an occupational pension scheme for Mr. Schultz. Moreover, the Company assumes Mr. Hentschel’s entitlement to pension benefits under corporate pension plans from LEG Wohnen NRW GmbH. This grants a retirement pension and surviving dependents’ benefits. A reserve has been established for this retirement pension which, in total, amounted to €300,358.00 as of December 31, 2015. No reserves have been established for Thomas Hegel and Eckhard Schultz as of December 31, 2015. All members of the Management Board also receive a company car for business and private use and are entitled to use the Company’s driver service for business use including drives between their private places of residence and the Company. They also receive reimbursement for travel expenses in accordance with the travel expenses policy adopted by the Supervisory Board for the Management Board. All service agreements of the Management Board members provide that in the case of an incapacity to work for health reasons or other reasons the Management Board member is not responsible for, the relevant base salary will continue to be paid for six months, however only until the end of the term of the service agreement. Finally, in case of death of a Management Board member, the dependents are entitled to the relevant base salary for the remainder of the month of death plus the following three months but only until the end of the term of the service agreement. None of the members of the Management Board is subject to post-contractual non-compete obligations.
The members of the Management Board are covered under four D&O insurance policies with coverage for up to €100 million in total per insured event and year, the costs of which are borne by the Company. The D&O insurance provides for a deductible amounting to 10% for each insured event, up to one-and-a-half times the individual member’s fixed annual remuneration.
Shareholdings of the Management Board Members
In 2013, as part of the IPO, the Company’s selling shareholders have decided to compensate the members of the Management Board for the value created for the selling shareholders in the past by way of a transfer of shares in the Company. The share transfers fell due in three equal installments, each on the first, second, and third anniversary of the first trading day. The third and last installment was transferred to the members of the Management Board on February 1, 2016. In connection with this transfer, personal taxes and social security contributions (together, “Personal Tax Burden”) became due. In order to cover their respective Personal Tax Burdens, the members of the Management Board had the option to (i) sell a certain number of their shares in the Company or (ii) use them as collateral in connection with a bridge financing.
On the date of this Prospectus, Thomas Hegel holds 54,602 shares, Eckhard Schultz holds 50,313 shares and Holger Hentschel holds 9,091 shares.
Supervisory Board
The Supervisory Board was constituted with nine members on January 2, 2013. On the proposal of the Management Board and the Supervisory Board of LEG Immobilien AG, it was resolved at the ordinary general meeting on June 25, 2014 to reduce the Supervisory Board to six members.
In accordance with the Company’s Articles of Association and Sections 95 and 96 of the German Stock Corporation Act (Aktiengesetz), the Supervisory Board now consists of six members. As the company generally does not employ more than 500 employees and no employees of its
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subsidiaries are allocated to the Company, the Company is neither subject to the German Codetermination Act (Mitbestimmungsgesetz) nor to the German One Third Participation Act (Drittelbeteiligungsgesetz). For that reason, all members of the Supervisory Board are appointed by the Company’s general shareholders’ meeting. The general shareholders’ meeting may appoint substitute members for one or more Supervisory Board members, who, in accordance with specific determinations by the general shareholders’ meeting, may become members of the Supervisory Board if a previously elected Supervisory Board member leaves its office before the end of its term. The term of the substitute member expires as soon as a successor for the departing Supervisory Board member is appointed by a majority of at least 75% of the votes cast, but no later than the expiration of the departing Supervisory Board member’s term. Re-election of a member of the Supervisory Board is possible. The Supervisory Board has stipulated a maximum term of service on the Supervisory Board of 15 years, irrespective of a member’s age, (first appointment plus two reappointments). In accordance with the rules of procedure of the Supervisory Board, only people who have not yet reached the age of 75 shall, in general, be nominated.
The Supervisory Board of LEG Immobilien AG has decided on a quota of 16.6% (corresponding to one woman on the six-person Supervisory Board) as the target for the proportion of women as defined by Section 111 para. 5 of the German Stock Corporation Act (Aktiengesestz) on the six-person Supervisory Board of LEG Immobilien AG. This target quota is complied with.
Unless the general shareholders’ meeting has set a shorter term, the term of each Supervisory Board member, as well as the term of each substitute member, if elected, expires at the end of the annual general shareholders’ meeting discharging the members of the Supervisory Board for the fourth fiscal year following the commencement of the member’s term of office, not including the fiscal year in which the term commences. The appointment of a successor for a member leaving his or her office before the end of his or her term of office is valid for the remainder of the term of office of the departing member, provided that the general shareholders’ meeting has not determined a shorter term of office for the successor.
Supervisory Board members elected by the general shareholders’ meeting may be removed by a resolution of the general shareholders’ meeting if such resolution is approved by at least 75% of the votes cast. In addition, regular and substitute members of the Supervisory Board may resign, without good cause, by giving four weeks’ written notice to the Company, represented by a member of the Management Board. The resignation may, however, require the payment of damages if it violates the member’s duty of loyalty, that is, if it is declared untimely. The right to resign for good cause without any notice period remains unaffected by the foregoing. Following the general shareholders’ meeting, in the course of which the members of the Supervisory Board are elected by the general shareholders’ meeting for a new term, the Supervisory Board will elect a chairman and a deputy chairman from among its members to serve for the duration of those members’ terms. Should the chairman or deputy chairman leave office prior to the expiration of his or her term, the Supervisory Board must elect a new chairman or a deputy chairman from among its members without delay to complete the remaining term of office of the departing chairman or deputy chairman.
Under mandatory statutory provisions and the Articles of Association, the Supervisory Board is authorized to issue rules of procedure and form committees of at least three individuals from among its members. The Supervisory Board’s rules of procedure were approved by the Supervisory Board on January 17, 2013 and have taken effect as of the same date. The Supervisory Board’s rules of procedure have been amended in the meantime, most recently on March 25, 2014.
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The Supervisory Board is authorized to make amendments to the Articles of Association that only affect their wording. The Supervisory Board must hold at least two meetings within each half calendar year. Meetings of the Supervisory Board are usually convened by its chairman with 14 days’ prior written notice, by email or by facsimile. The day on which the notice is sent and the day of the meeting itself are not included when calculating this period. In urgent cases, the chairman can shorten the notice period to a minimum of three banking days.
The Articles of Association provide that at least half of the Supervisory Board members must participate in voting on a resolution to constitute a quorum. Any member who is present but abstains from voting is deemed to have participated in the vote for purposes of the required quorum. Absent members may participate in the casting of votes pursuant to Section 108 para. 3 of the German Stock Corporation Act (Aktiengesetz). Unless otherwise required by law or by the Articles of Association, resolutions of the Supervisory Board are passed by a simple majority of the votes cast. For purposes of passing a resolution, abstentions do not count as votes cast. If a vote in the Supervisory Board results in a tie, the matter is dismissed. The Articles of Association provide that, per the chairman’s instruction, resolutions may be passed by submitting votes to the chairman in writing, by telephone, by email or facsimile, or by equivalent means of communication. The Articles of Association exclude the right of a member of the Supervisory Board to object to such instruction by the chairman.
Members of the Company’s Supervisory Board
The current members of the Company’s Supervisory Board are listed in the table below.
Primary professional activity Name Age Member since Appointed until outside of the LEG Group Michael Zimmer 53 January end of 2018 Managing partner of FAIR (chairman) 2013 general GmbH shareholders’ meeting Stefan Jütte (deputy 70 January end of 2018 Member of the supervisory chairman) 2013 general Board of HSH Nordbank AG shareholders’ meeting Natalie Hayday 40 June 2015 end of 2018 Investment analysis at general Obermark GmbH shareholders’ meeting Dr. Johannes Ludewig 71 January end of 2018 Chair of the German National 2013 general Regulatory Control Council shareholders’ meeting Dr. Claus Nolting 66 May 2016 end of 2020 Independent lawyer and general consultant at Lone Star shareholders’ Germany Acquisitions GmbH meeting Dr. Jochen Scharpe 57 January end of 2018 Managing director of AMCI 2013 general GmbH, Jade Beteiligungs- shareholders’ Management GmbH and
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meeting ReTurn Immobilien GmbH
The following description provides summaries of the curricula vitae of the current members of the Company’s Supervisory Board and indicates their principal activities outside the Group to the extent those activities are significant with respect to the Group.
Michael Zimmer was born in Cologne in 1963. In 1995, Mr. Zimmer founded the CORPUS SIREO Immobiliengruppe and served as its chief executive officer through 2009. During his term as chief executive officer, he was involved in large real estate transactions, such as the reutilization of residential and commercial property portfolios owned by Deutsche Post AG and residential properties owned by ThyssenKrupp AG, as well as the reutilization and asset management of commercial properties in Germany and other European countries. Since 2002, Mr. Zimmer has been the managing director of FAIR GmbH, a real estate investment company that focuses its investments on real estate in large German cities.
Alongside his office as chairman of the Company’s Supervisory Board, Michael Zimmer is, or has within the last five years, been a member of the administrative, management or supervisory bodies or a partner in the following companies or partnerships outside of the LEG Group:
Currently:
FAIR GmbH (managing director);
FAIR Beteiligungen GmbH (managing director);
FAIR Advisory GmbH & Co. KG (managing director of the general partner FAIR Beteiligungen GmbH and sole limited partner);
FAIR I GmbH & Co. KG (managing director of the general partner); and
Cornelius Stiftung für Kinder suchtkranker Eltern (Cornelius foundation for children of addicted parents) (chairman of the board of trustees).
Previously:
CORPUS SIREO Holding GmbH (Chief Executive Officer);
CORPUS SIREO Asset Management Commercial GmbH (managing director);
AWH Beteiligungen GmbH (previously LAMDA Beteiligungen GmbH) (managing director); and
AWH Verwaltung GmbH (previously THITA Verwaltung GmbH) (managing director).
Stefan Jütte was born in Leipzig in 1946. He trained as a bank clerk at the Stadtsparkasse Hildesheim from 1963 to 1966. He graduated as a state-certified business economist from the Academy of Economics and Technology (Akademie für Wirtschaft und Technik) in Rinteln in 1973, before completing his studies in business administration as “Diplom-Kaufmann” (equivalent to an MBA) at the University of Göttingen in 1979. Mr Jütte’s professional career began in 1963 at the
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Stadtsparkasse Hildesheim. He moved to Norddeutsche Landesbank in 1967, where he held a variety of positions until 1975, including in the credit business and as an authorized signatory for its equity investments. He worked in a number of different positions at DSL Bank from 1980 to 1990: as manager of the residential lending department from 1980 to 1982, as manager of the corporate development division from 1982 to 1985 and as manager of the corporate lending division from 1985 to 1990. In 1990, he switched to the Sparkasse Münster, first as a deputy member of the management board and from 1992 onwards as member of the management board with responsibility for corporate and private customers and foreign business operations. He returned to DSL Bank in 1994, where he was responsible, as a member of the management board, for the lending business, corporate and private customers, before becoming spokesman of the management board of DSL Bank in 1997. After DSL Bank merged with Deutsche Postbank AG in 2000, Stefan Jütte became a member of the management board of Deutsche Postbank AG, where he served as chairman of the board from 2009 to 2012.
Alongside his office as deputy chairman of the Company’s Supervisory Board, Stefan Jütte is, or has within the last five years, been a member of the administrative, management or supervisory bodies or a partner in the following companies or partnerships outside of the LEG Group:
Currently:
HSH Nordbank AG (member of the supervisory board).
Previously:
Deutsche Postbank AG (chairman of the management board);
Deutsche Postbank Luxemburg S.A. (member of the supervisory board);
Bundesverband deutscher Banken e. V. (Association of German Banks) (member of the management board);
BVVG Bodenverwertungs- und verwaltungs GmbH (member of the supervisory board);
CORPUS SIREO Holding GmbH & Co. KG (member of the supervisory board);
IVG Immobilien AG (chairman of the supervisory board);
IVG Institutional Funds GmbH (member of the supervisory board);
PB Capital Corp. (member of the management board);
PB Firmenkunden AG (chairman of the supervisory board);
PB (USA) Holding Inc. (member of the management board);
Postbank Factoring GmbH (chairman of the supervisory board);
Postbank Filialvertrieb AG (chairman of the supervisory board); and
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Postbank Leasing GmbH (chairman of the supervisory board).
Natalie Hayday was born in Guildford, England, in January 1976. She holds both US and British citizenship. She attended Wellesley College in Massachusetts (US) from 1993 to 1997, graduating with a Bachelor of Arts in political sciences with a minor in economics (cum laude). Natalie Hayday began her professional career in 1997 at UBS WARBURG in New York as an analyst in the investment banking division of the Corporate Advisory Group. She moved to Goldman, Sachs & Co., New York, in 1999, where she worked in a variety of positions in the investment banking department of the high technology group and the global investment research department until 2007, when she moved within the Goldman Sachs group to Frankfurt am Main as executive director in the investment banking department. Between 2009 and 2012, she worked as an advisor to H. E. Sheikh H. A Al-Banawi (chairman and CEO of BIG, Saudi Arabia) and as head of business development at BIG (December 2011 – December 2012) in Jeddah, Dubai and Frankfurt am Main. From 2013 to 2016, Ms Hayday worked as an independent capital market and investor relations consultant in Frankfurt am Main for various companies and asset managers. Ms Hayday has worked for the Obermark Group since April 15, 2016, essentially providing support there in the recommendation of investment opportunities and in the co-operation with portfolio companies.
Alongside her office as member of the Company’s Supervisory Board, Ms Hayday is, or has within the last five years, not been a member of any administrative, management or supervisory bodies or a partner in companies or partnerships outside of the LEG Group.
Dr. Johannes Ludewig was born in Hamburg in 1945. He graduated from the University of Hamburg as a Diplom-Kaufmann (equivalent to an MBA) in 1971, before earning a Master of Science in industrial engineering at Stanford University in 1972. He obtained a doctorate (Dr. rer. pol.) at the University of Hamburg in 1973, and he also studied from 1973 to 1974 at the École Nationale d’Administration (ENA) in Paris (France). Dr. Ludewig began his professional career with the German Federal Government in 1975 and has spent 22 years in various government positions: from 1975 through 1983 he worked in the Federal German Ministry of Economics in the departments energy, business cycle, economic policy and from 1983 through 1994 he worked in the Federal German Chancellery (Bundeskanzleramt) (from 1991 on as Director General for economic and financial policy as well as the Coordinator for the New Federal States) and from 1995 until 1997 he was State Secretary in the Federal German Ministry of Economics as well as the Representative Agent of the Federal German Government for the new federal states. From 1997 through 1999, he was CEO and chairman of the board of management of Deutsche Bahn AG and from 2000 through 2002, managing director of Ludewig Consulting. From 2002 through 2011 he worked as executive director of the Community of European Railway and Infrastructure Companies (CER) in Brussels. Since 2006, Dr. Ludewig is the chairman of the German Regulatory Control Council (Nationaler Normenkontrollrat) and since 2007 he is a member of the High Level Group of Independent Stakeholders on Administrative Burdens of the European Commission.
Alongside his office as member of the Company’s Supervisory Board, Dr. Ludewig is, or has within the last five years been, a member of the administrative, management or supervisory bodies of or a partner in the following companies or partnerships outside the LEG Group:
Currently:
German National Regulatory Control Council, Berlin (chairman).
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Previously:
Community of European Railway and Infrastructure Companies (CER) in Brussels (executive director);
High Level Group of Independent Stakeholders on Administrative Burden of the European Commission (member);
Flughafen Heringsdorf GmbH, Zirchow/Usedom (chairman of the supervisory board);
DEVK-Rückversicherungs- und Beteiligungs-AG, Cologne (member of the supervisory board); and
Kühne Logistics University, Hamburg (member of the supervisory board).
Dr. Claus Nolting was born in Wolfsburg on June 9, 1951. After finishing his service as a regular soldier in 1973, he began studying law at the Universities of Marburg and Bonn, which he completed in 1978 by passing the first state law examination in 1978, before going on to complete his practical training as a lawyer in North Rhine-Westphalia. He passed the second state law examination in 1981. He earned his doctorate in 1983 at the University of Bonn, where he worked as a research assistant from 1981 to 1983. Dr. Nolting subsequently worked as a lawyer in Cologne and Bonn until 1985, when he switched to the Association of German Mortgage Banks (Verband deutscher Hypothekenbanken), where he worked until 1989 as a legal adviser. In the period from 1989 to 2002, he was employed at the Bayerische Vereinsbank / Hypovereinsbank in a number of leading positions (member of the management board of Bayerische Vereinsbank / CEO of Bayerische Handelsbank; HVB Real Estate / member of the management board of Hypovereinsbank). Dr. Nolting worked as an independent lawyer and also as a senior advisor to Cerberus Germany in the period from 2003 to 2006. He was appointed CEO of COREALCREDIT BANK AG (previously Allgemeine Hypothekenbank Rheinboden AG) in 2006. He held this office until 2014. He has worked as a senior advisor for Lone Star Germany since 2015.
Alongside his office as member of the Company’s Supervisory Board, Dr. Nolting is, or has within the last five years been, a member of the administrative, management or supervisory bodies of or a partner in the following companies or partnerships outside the LEG Group:
Currently:
IKB Deutsche Industriebank AG (member of the supervisory board);
TLG Immobilien AG (member of the supervisory board); and
Hamburg Trust REIM GmbH (member of the supervisory board).
Previously:
COREALCREDIT BANK AG (CEO).
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Apart from the positions described above, Dr. Nolting has within the last five years not been a member of any administrative, management or supervisory body or a partner of companies or enterprises outside of the LEG Group.
Dr. Jochen Scharpe was born in Werdohl in 1959. He graduated from the University of Münster in 1984 with a degree in economics and earned his doctorate in economics at the University of Siegen in 1992. In 1989, he started his professional career with the accounting firm KPMG Peat Marwick GmbH in Frankfurt am Main in the areas of audit and corporate finance. From 1996 through 1999, Dr. Scharpe was a managing director of Eisenbahnimmobilien GmbH (now CA Immo Deutschland GmbH), and from 1999 to 2004 he was a managing director of Siemens Real Estate GmbH. Since 2004, Dr. Scharpe is the managing director of AMCI GmbH and Re-Turn Immobilien GmbH. In addition, he served as chairman of the supervisory board of LEG NRW GmbH in the period from 2008 to 2014 and also as chairman of the supervisory board of LEG Wohnen NRW GmbH between 2010 and 2015.
Alongside his office as member of the Company’s Supervisory Board, Dr. Scharpe is, or has within the last five years been, a member of the administrative, management or supervisory bodies of and/or a partner in the following companies and partnerships outside the LEG Group:
Currently:
AMCI GmbH (managing director);
FFIRE Immobilienverwaltung AG (deputy chairman of the supervisory board);
Geneba N.V. (member of the supervisory board); and
Re-Turn Immobilien GmbH (managing director).
Previously:
GSW Immobilien AG (deputy chairman of the supervisory board); and
Jade Beteiligungs Management GmbH (managing director).
Remuneration System for the Supervisory Board Members
The remuneration of the Company's Supervisory Board members is regulated by Section 8.10 of the Company’s Articles of Association. Pursuant to statutory law, the Supervisory Board members’ remuneration shall take into account the responsibilities and scope of their activities as well as the economic situation of the Company.
The members of the Supervisory Board receive an annual fixed base remuneration of €50,000.00. The chairman of the Supervisory Board receives double, the deputy chairman one and a half times this amount. Supervisory Board members who belong to the audit committee receive an additional fixed annual remuneration of €15,000, and the chairman of the audit committee receives double this amount. No remuneration is paid for membership in or serving as chairman of the nomination committee. For each meeting of the Supervisory Board or of a committee which the members attend in person, they each receive an additional attendance fee of €2,000.00 per meeting. All of the above-mentioned remuneration is payable after the end of the fiscal year. Members of the
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Supervisory Board who have belonged to the Supervisory Board or to a committee set up by the Supervisory Board only for a part of the fiscal year receive appropriate pro rata remuneration for this fiscal year. Furthermore, the members of the Supervisory Board receive reimbursement for their expenses. The following Supervisory Board remuneration was paid in the fiscal year 2015:
Name Remuneration in € Nathan Brown(1) ...... 30,208.33 Natalie Hayday(2) ...... 47,500.00 Stefan Jütte ...... 126,750.00 Dr. Johannes Ludewig ...... 67,541.67 Dr. Jochen Scharpe ...... 76,500.00 Jürgen Schulte Laggenbeck(3) ...... 54,000.00 Michael Zimmer ...... 127,500.00
(1) Resigned on June 24, 2015. (2) Member since June 24, 2015. (3) Resigned on December 31, 2015.
The remuneration described in the paragraph above has been in effect only since July 1, 2015. Previously, no separate remuneration was paid for being a member of a committee and no remuneration was paid for taking part in meetings of the Supervisory Board or of a committee that the member attended in person. Furthermore, the remuneration was limited to a maximum total of €100,000 per year and Supervisory Board member.
A total Supervisory Board remuneration of €530,000.00 was paid in 2015.
Shareholdings of the Members of the Supervisory Board
On the date of this Prospectus, Michael Zimmer holds 52,320 LEG shares. Dr. Scharpe currently has a shareholding in the amount of 4,000 LEG shares.
Committees of the Supervisory Board
In accordance with the Company’s Articles of Association, the Supervisory Board may form committees from among its members. In accordance with the Supervisory Board’s rules of procedure (Sections 8 to 11), the Supervisory Board forms an audit committee, a nomination committee and an executive committee from among its members. Other committees may be formed as required. The Supervisory Board’s decision-making authority may be delegated to these committees to the extent permitted by law. The following committees have been established by the Supervisory Board:
The audit committee handles, in particular, the monitoring of the accounting process, the effectiveness of the internal control system, the risk management system and the internal audit system, the audit of the annual financial statements, especially the review of the independence of the auditor, the additional services rendered by the auditor, the issuing of the audit mandate to the auditor for the annual and interim financial statements, the determination of focal points of the audit and the fee agreement and – unless another committee is entrusted with this – compliance. It prepares the resolutions of the Supervisory Board on the annual financial statements (and, where appropriate, the consolidated financial statements) and the agreements with the auditor of the financial statements (especially the issuing of the audit engagement, the determination of focal points of the audit and the fee agreement). The chairman of the audit committee shall have specialist knowledge and experience
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in the application of accounting principles and internal control processes. Furthermore, the chairman of the audit committee shall be independent. In particular, he/she may not be a former member of the Company’s Management Board whose appointment ended less than two years prior to his appointment as chairman of the audit committee. The audit committee takes suitable measures to determine and to monitor the independence of the auditor of the financial statements. The audit committee decides instead of the Supervisory Board on whether to approve contracts with auditors of the financial statements for additional consultancy services if these contracts require approval in accordance with the Articles of Association or the rules of procedure for the Management Board. The current members of the audit committee are:
Name Responsibilities Stefan Jütte ...... Chairman Dr. Jochen Scharpe ...... Deputy chairman Natalie Hayday...... Member
In accordance with Section 107 para. 4 of the German Stock Corporation Act (Aktiengesetz), the Company must have no less than one independent member on the audit committee who has expertise in the fields of accounting or auditing of financial statements within the meaning of Section 100 para. 5 of the German Stock Corporation Act (Aktiengesetz). Members of the Supervisory Board and of the audit committee are considered independent if they do not have any business or personal relationship with the Company, with its Management Board, with its controlling shareholders or affiliated parties that could cause a conflict of interest. With regard to the Supervisory Board and the audit committee of the Company, the Supervisory Board members Stefan Jütte, Natalie Hayday and Dr. Jochen Scharpe possess the relevant expertise in the fields of accounting and auditing of financial statements.
The nomination committee meets as required and gives recommendations to the Supervisory Board for its proposals of election of suitable candidates to the general shareholders’ meeting. It consists of the chairman of the Supervisory Board and the other members of the executive committee. The chairman of the Supervisory Board is also the chairman of the nominating committee.
The current members of the nomination committee are:
Name Responsibilities Michael Zimmer...... Chairman Stefan Jütte ...... Deputy chairman Dr. Johannes Ludewig ...... Member
The executive committee provides advice on key issues and makes proposals to the Supervisory Board, especially with regard to the appointment and dismissal of members of the Management Board, the appointment of the chairman of the Management Board, the entering into, amendment and termination of the employment contracts of the members of the Management Board and on the structure of the remuneration system for the Management Board, including the material contractual elements and the total remuneration of the individual members of the Management Board. In contrast, it is the Supervisory Board that appoints and dismisses the members of the Management Board and determines the entering into, amendment and termination of the employment contracts of members of the Management Board as well as the structure of the remuneration system. The executive committee is authorized to represent the Company or to grant a consent on behalf of the Supervisory Board with regard to certain transactions vis-à-vis members of the Management Board.
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To the extent legally permissible, it may also act in place of the Supervisory Board in matters of urgency. In addition, the executive committee discusses the facts relating to any acquisitions and provides the Supervisory Board with appropriate recommendations for resolutions.
The executive committee consists of the chairman of the Supervisory Board, the deputy chairman of the Supervisory Board and one other member to be elected by the Supervisory Board. The chairman of the Supervisory Board is also the chair of the executive committee.
The current members of the executive committee are:
Name Responsibilities Michael Zimmer...... Chairman Stefan Jütte ...... Deputy chairman Dr. Johannes Ludewig ...... Member
Specific Information Regarding the Members of the Management Board and of the Supervisory Board
In the last five years, no member of the Management Board or Supervisory Board has been convicted of fraudulent offences. In the last five years, no member of the Management Board or Supervisory Board has been associated with any bankruptcy, receivership or liquidation acting in its capacity as a member of any administrative, management or supervisory body or as a senior manager. In the last five years, no official public incriminations and/or sanctions have been filed by statutory or legal authorities (including designated professional bodies) against the members of the Management Board or the Supervisory Board, nor have sanctions been imposed by the aforementioned authorities. No court has ever disqualified any of the members of either board from acting as a member of the administrative, management, or supervisory body of an issuer, or from acting in the management or conduct of the affairs of any issuer for the previous five years.
To the extent that Management or Supervisory Board members directly or indirectly hold shares in the Company, there can be special interests arising from their shareholding, apart from their positions on the governing body. Currently, Mr. Hegel, Mr. Schultz, Mr. Hentschel, Mr. Zimmer and Dr. Scharpe hold shares in the Company. Conflicts of interest can also arise as a result of the fact that members of the Management Board and Supervisory Board simultaneously exercise executive functions in the LEG Group or are simultaneously members of the works councils or senior staff committees in the LEG Group; this is currently not the situation in the LEG Group. In other respects, the members of the Company’s Management Board and of the Supervisory Board have no existing or potential conflicts of interest with respect to obligations to the Company based on their private interests, membership in governing bodies of companies, or other obligations.
No member of the Management Board or of the Supervisory Board of the Company has entered into an employment contract with a company of the LEG Group that provides for special benefits such as a severance payment at the end of the business relationship (other than pensions or compensation in the case of an early termination of the service agreement, which is determined on the basis of the remaining term of the agreement and the contractually agreed remuneration). The members of the Management Board are not bound by any non-compete clauses and can therefore exercise competing activities after their term of office has expired. There are no family links between the members of the Management Board and those of the Supervisory Board, either between themselves or in relation to the members of the other body.
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General Shareholders’ Meeting
Pursuant to Section 175 of the German Stock Corporation Act (Aktiengesetz), the annual general shareholders’ meeting must take place within the first eight months of the fiscal year. It takes place at the discretion of the body convening the meeting either at the registered office of the Company or at the seat of a German stock exchange. Except where other persons are authorized to do so by law and by the Articles of Association, the general shareholders’ meeting shall be convened by the Management Board. The general shareholders’ meeting has to be convened and the agenda notified no less than 30 days before the day up to the end of which the shareholders have to register before the meeting. The day on which the general shareholders’ meeting is convened and the closing date on which the deadline for registering as an attendee expires are not included. The invitation convening the general shareholders’ meeting has to be announced by publication in the German Federal Gazette (Bundesanzeiger).
The general shareholders’ meeting can be convened by the Management Board, the Supervisory Board or also on the demand of shareholders whose shares make up 5% of the share capital in total. Shareholders or shareholder associations may solicit other shareholders to make such a request, jointly or by proxy, in the shareholders’ forum of the German Federal Gazette (Bundesanzeiger) to submit a demand of this kind jointly with them or on their behalf.
In accordance with the Company’s Articles of Association, shareholders are entitled to participate in the general shareholders’ meeting and to exercise their voting rights only if they have applied to participate in the general shareholders’ meeting and are registered in the Company’s shareholder register. Their application for participation must be received by the Company by the end of the sixth day prior to the date of the general shareholders’ meeting, unless a shorter period of time was set forth in the convocation of the general shareholders’ meeting, in text form in the German or English language, the day of the meeting itself and the day of the receipt of the notice not being included when calculating this period. The chairman of the general shareholders’ meeting is authorized to permit the transmission of the shareholders’ meeting, participation in resolutions and the exercise of the shareholders’ other rights via electronic or other media where this is legally permitted. Voting rights may be exercised by proxy. The grant of a proxy, revocation or proof of power of attorney to the Company must be in text form, facilitations of which may be granted in the notice. Such facilitations may be limited to the proof of power of attorney to the proxies nominated by the Company. The Company must provide for at least one electronic method by which such proof of proxy may be submitted. The Management Board is authorized to enable shareholders to participate in the general shareholders’ meeting even without being present in person or through an authorized representative and to exercise all or specific rights wholly or in part by electronic means of communication. The Management Board is further authorized to enable shareholders to cast their votes without participating in person in the general shareholders’ meeting, in writing or by electronic means of communication (postal vote). If the Management Board makes use of this authority, it must fix the details of the postal vote and list them in the invitation to the general shareholders’ meeting.
Each share entitles its holder to one vote at the general shareholders’ meeting. Unless otherwise stipulated by mandatory statutory provisions or provisions of the Articles of Association, resolutions of the general shareholders’ meeting are adopted by a simple majority of the votes cast or, if a capital majority is required, by a simple majority of the registered share capital represented at the meeting. According to the current version of the German Stock Corporation Act (Aktiengesetz), resolutions of fundamental importance require both a majority of votes cast and a majority of at least
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75% of the registered share capital represented at the vote on the resolution. The resolutions of fundamental importance include in particular:
changes to the corporate purpose of the Company;
approval of contracts within the meaning of Section 179a of the German Stock Corporation Act (Aktiengesetz) (transfer of the entire assets of the company);
the exclusion of subscription rights;
the creation of authorized or conditional capital;
reductions in capital;
the dissolution of the Company;
the continuation of the liquidated company after the resolution on liquidation or expiry of time;
the approval to conclude, amend or terminate affiliation agreements;
the integration of a stock corporation into another stock corporation and squeeze-out of the minority shareholders; and
measures within the meaning of the German Transformation Act (Umwandlungsgesetz) such as mergers, split-offs and changes of legal form.
Neither German law nor the Company’s Articles of Association limit the right of foreign shareholders or shareholders not domiciled in Germany to hold shares or exercise the voting rights associated therewith.
Shareholder Structure
The Company’s share capital as of the date of this Prospectus amounts to €63,188,185.00 divided into 63,188,185 ordinary registered shares with no-par value (Stückaktien). On the basis of the notifications received by the Company as of the date of this Prospectus in accordance with the German Securities Trading Act (Wertpapierhandelsgesetz) and pursuant to information provided by the respective shareholders, the following shareholders directly or indirectly hold more than 3% of the Company’s ordinary shares and voting rights as of the date of this Prospectus. It should be noted that the number of voting rights last notified could have changed since such notifications were submitted to the Company without requiring the relevant shareholder to submit a corresponding voting rights notification if no notifiable thresholds have been reached or crossed.
Share of voting rights Shareholder (in %) BlackRock, Inc...... 12.06(1) Sun Life Financial Inc...... 10.03(2) CBRE Clarion Securities LLC ...... 4.99(3) Total ...... 27.08
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(1) Indirect shareholdings as notified by BlackRock, Inc. for December 21, 2016. BlackRock, Inc. is the ultimate controlling entity of a group of companies and further notified the Company that on December 21, 2016 (i) its indirect subsidiary BlackRock Investment Management (UK) Limited held or was attributed 6.13% and (ii) its indirect subsidiary BLACKROCK (Luxembourg) S.A. held or was attributed 3.90% of the voting rights in the Company. Further, BlackRock Global Funds separately notified the Company that it directly held 4.71% of the Company’s voting rights on December 14, 2016. (2) Indirect shareholdings as notified by Sun Life Financial Inc. for June 20, 2016. Sun Life Financial Inc. is the ultimate controlling entity of a group of companies and further notified the Company that on June 20, 2016 its indirect subsidiary Massachusetts Financial Services Company (MFS) held or was attributed 9.29% of the voting rights in the Company. (3) Indirect shareholdings as notified by CBRE Clarion Securities LLC for July 11, 2016. All voting rights were attributed to CBRE Clarion Securities LLC pursuant to Section 22 of the German Securities Trading Act (Wertpapierhandelsgesetz) from persons or entities that individually held or were attributed less than 3% of the voting rights in the Company.
Other shareholders, including those shareholders whose shareholdings represent less than 3% of the total voting rights in the Company, hold the remaining 72.92% of the shares of the Company.
Each of the Company’s shares carries one vote at the Company’s shareholder meeting.
The Company is not controlled by any of its shareholders.
Recent Developments and No Significant Changes
There have been no recent events particular to the Issuer which are relevant to the evaluation of the Issuer’s solvency. From September 30, 2016 until the date of this Prospectus no significant changes occurred in the financial or in the trading position of LEG.
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TAXATION
The following is a general discussion of certain German and Luxembourg tax consequences of the acquisition, ownership and disposal of the Notes offered by the Issuer. This discussion does not purport to be a comprehensive description of all tax considerations that may be relevant to a decision to purchase these Notes. In particular, this discussion does not consider any specific facts or circumstances that may apply to a particular purchaser. This summary is based on the laws of Germany and the Grand Duchy of Luxembourg (“Luxembourg”) currently in force and as applied on the date of this Prospectus, which are subject to change, possibly with retroactive or retrospective effect.
Prospective purchasers of the Notes are advised to consult their own tax advisors as to the tax consequences of the purchase, ownership and disposition of the securities, including the effect of any state or local taxes, under the tax laws applicable in Germany, Luxembourg and each country of which they are residents.
Taxation in Germany
Income Tax
Notes Held by German Tax Residents as Private Assets
Taxation of Interest. Payments of interest on the Notes to its Holders who are tax residents of Germany (i.e., persons whose residence or habitual abode is located in Germany) are subject to German income tax (Einkommensteuer). In each case where German income tax arises, a solidarity surcharge (Solidaritätszuschlag) is levied in addition to such tax. Furthermore, church tax may be levied, where applicable. If interest claims are disposed of separately (i.e., without the Notes), the proceeds from the disposition are subject to income tax. The same applies to proceeds from the redemption of interest claims if the Notes are disposed of separately.
On payments of interest on the Notes to individual tax residents of Germany, income tax is generally levied as a flat income tax at a rate of 25% (plus the solidarity surcharge in an amount of 5.5% of such tax resulting in a total tax charge of 26.375%, and, if applicable, church tax). The total investment income of an individual will be decreased by a lump sum deduction (Sparer- Pauschbetrag) of €801 (€1,602 for married couples and registered partners jointly assessed). A deduction of expenses actually incurred is excluded.
If the Notes are kept or administrated in a custodial account which the Holder of the Notes maintains with a German branch of a German or non-German credit institute (Kreditinstitut) or financial services institution (Finanzdienstleistungsinstitut) or with a German securities trading business (Wertpapierhandelsunternehmen) or with a German securities trading bank (Wertpapierhandelsbank) (each within the meaning of the German Banking Act (Kreditwesengesetz (KWG)) in Germany (each a “Disbursing Agent”), the flat income tax will generally be levied by way of withholding at the aforementioned rate (including the solidarity surcharge and, if applicable, church tax) from the gross interest payment to be made by the Disbursing Agent. For Holders who are subject to church tax, an electronic information system for church withholding tax purposes applies in relation to investment income, with the effect that church tax will be collected by the Disbursing Agent by way of withholding unless the Holder has filed a blocking notice (Sperrvermerk) with the
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German Federal Central Tax Office (Bundeszentralamt für Steuern) in which case the Holder will be assessed to church tax.
In general, no withholding tax will be levied if the Holder of the Notes filed a withholding exemption certificate (Freistellungsauftrag) with the Disbursing Agent, but only to the extent the interest income derived from the Notes, together with other investment income, does not exceed the maximum exemption amount shown on the withholding exemption certificate. Similarly, no withholding tax will be deducted if the Holder of the Notes has submitted to the Disbursing Agent a certificate of non-assessment (Nichtveranlagungsbescheinigung) issued by the relevant local tax office.
In computing the withholding tax, the Disbursing Agent generally deducts from the basis of the withholding tax negative investment income realized by a Holder via the Disbursing Agent. The Disbursing Agent also deducts accrued interest on the Notes or other Notes paid separately upon the acquisition of the respective security by a private Holder via the Disbursing Agent. In addition, subject to certain requirements and restrictions the Disbursing Agent credits foreign withholding taxes levied on investment income in a given year regarding Notes held by a private Holder in the custodial account with the Disbursing Agent.
If no Disbursing Agent is involved in the payment process or no or not sufficient tax was withheld, the Holder of the Notes will have to include its income on the Notes in its tax return and the flat income tax of 25% (plus the solidarity surcharge and, if applicable, church tax) will be collected by way of assessment.
Payment of the flat income tax by way of withholding will generally satisfy any income tax liability (including the solidarity surcharge and, if applicable, church tax) of the Holder of the Notes with respect to such investment income. Holders of the Notes may apply for a tax assessment on the basis of general rules applicable to them if the resulting income tax burden is lower than 25% (Günstigerprüfung).
Taxation of Capital Gains. Capital gains realized by individual tax residents of Germany from the disposition or redemption of Notes are subject to the flat income tax on investment income at a rate of 25% (plus the solidarity surcharge in an amount of 5.5% of such tax, resulting in a total tax charge of 26.375%, and, if applicable, church tax), irrespective of any holding period.
Capital losses from the Notes held as private assets are generally tax-recognized irrespective of the holding period of the Notes. The losses may, however, not be used to offset other income like employment or business income but may only be offset against investment income subject to certain limitations. Losses not utilized in one year may be carried forward into subsequent years but may not be carried back into preceding years. According to the view of German tax authorities losses suffered upon a bad debt loss (Forderungsausfall) and a waiver of a receivable (Forderungsverzicht) (to the extent the waiver does not qualify as a hidden contribution) shall, in general, not be deductible for tax purposes. With respect to a bad debt loss a German lower fiscal court has recently confirmed the view of the German tax authorities in a non-final decision. Furthermore capital losses may not be recognized by the German tax authorities if the Notes are sold at a market price, which is lower than the transaction costs or if the level of transaction costs is restricted because of a mutual agreement that the transaction costs are calculated by subtracting a certain amount from the sales price. This view has however been challenged in 2014 by a final judgement of a German lower fiscal court.
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If the Issuer exercises the right to substitute the debtor of the Notes, the substitution might, for German tax purposes, be treated as an exchange of the Notes for new notes issued by the Substitute Debtor and subject to similar taxation rules as the Notes. In particular, such a substitution could result in the recognition of a taxable gain or loss for any Holder of a Note. The Substitute Debtor is obligated to indemnify each Holder for any tax incurred by such Holder as a result of a substitution of the Issuer pursuant to the section “Terms and Conditions of the Notes–§12 Substitution, Transfer of Domicile”. The indemnities to be paid may constitute taxable income.
If the Notes are kept or administrated in a custodial account which the Holder of the Notes maintains with a Disbursing Agent, the flat income tax will generally be levied by way of withholding (plus solidarity surcharge and, if applicable, church tax unless the Holder has filed a blocking notice (Sperrvermerk) with the German Federal Central Tax Office (Bundeszentralamt für Steuern) in which case the Holder will be assessed to church tax) from the difference between the redemption amount (or the proceeds from the disposition) after deduction of expenses directly related to the redemption (or disposition) and the issue price (or the purchase price) of the Notes. If Notes kept or administrated in the same custodial account were acquired at different points in time, the Notes first acquired will be deemed to have been sold first for the purposes of determining the capital gains (FIFO method). The FIFO method is applied on the level of the individual custodial account. Where Notes are acquired and/or sold in a currency other than Euro, the sales price and the acquisition costs have to be converted into Euro on the basis of the foreign exchange rates prevailing on the sale date and the acquisition date respectively with the result that any currency gains or losses are part of the capital gains. If interest claims are disposed of separately (i.e. without the Notes), the proceeds from the disposition are subject to taxation. The same applies to proceeds from the payment of interest claims if the Notes have been disposed of separately.
If the Notes have been transferred to the custodial account of the Disbursing Agent only after their acquisition, and no evidence on the acquisition data has been validly provided to the Disbursing Agent by the depositary bank or institution which previously held the Notes in its custodial account, withholding tax will be levied on 30% of the proceeds from the disposition or redemption of the Notes. The transfer of the Notes to the custodial account of another person is considered as a disposition of the Notes and withholding tax will be levied from the difference between the stock market price and the issue price of the Notes, minus the costs of transfer. If a stock market price is not available, withholding tax will be levied on 30% of the issue price.
If no Disbursing Agent is involved in the payment process, the Holder of the Notes will be required to include capital gains from the disposition or redemption of the Notes in its tax return and the flat income tax of 25% (plus the solidarity surcharge and, if applicable, church tax) will be collected by way of assessment. The same applies if the withholding tax on a disposition or redemption has been calculated from 30% of the disposal proceeds and the capital gain calculated on the basis of the actual acquisition costs of the Notes is higher than the basis for the withholding tax.
Payment of the flat income tax by way of withholding will generally satisfy any income tax liability (including the solidarity surcharge and, if applicable, church tax) of the Holder of the Notes with respect to such investment income. Holders of the Notes may apply for a tax assessment on the basis of general rules applicable to them if the resulting income tax burden is lower than 25%.
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Notes Held by German Tax Residents as Business Assets
Payments of interest on the Notes and capital gains from the disposition or redemption of Notes held as business assets by German tax resident individuals or corporations (including via a partnership, as the case may be), are generally subject to German income tax or corporate income tax (Körperschaftsteuer) (in each case, plus the solidarity surcharge and, if applicable, church tax in case of individuals). The interest and capital gain will also be subject to trade tax (Gewerbesteuer) if the Notes form part of the property of a German trade or business. The trade tax rate depends on the municipal multiplier of the respective municipality.
If the Notes are kept or administrated in a custodial account which the Holder of the Notes maintains with a Disbursing Agent, tax at a rate of 25% (plus the solidarity surcharge and, if applicable, church tax in case of individuals unless the Holder has filed a blocking notice (Sperrvermerk) with the German Federal Central Tax Office (Bundeszentralamt für Steuern) in which case the Holder will be assessed to church tax) will also be withheld from interest payments on Notes held as business assets. In these cases, the withholding tax does not satisfy the income tax liability of the Holder of the Notes, as in the case of the Notes held by tax residents as private assets, but will be credited as advance payment against the income or corporate income tax liability (plus the solidarity surcharge and, if applicable, church tax in case of individuals) of the Holder of the Notes.
Generally and subject to further requirements, no withholding will be required with regard to capital gains derived from Notes held by corporations resident in Germany, provided that, regarding certain legal entities, the legal form of the corporation has been evidenced by a certificate of the competent tax office. Upon application, the same applies to Notes, held as business assets by individuals or partnerships.
Notes Held by Non-German Tax Residents
In general, interest and capital gains are not subject to German taxation for non-residents (i.e., persons having neither their residence nor their habitual abode nor legal domicile nor place of effective management in Germany), unless the Notes form part of the business property of a permanent establishment (Betriebsstätte) or business for which a permanent representative (ständiger Vertreter) in Germany has been appointed. Interest or capital gains may, however, be subject to German income tax if the capital investments are secured by real estate situated in Germany, or if they otherwise constitute taxable income in Germany.
Non-German tax residents are, in general, exempt from German withholding tax on interest and capital gains and from any solidarity surcharge thereon. However, if the interest or capital gain is subject to German taxation, as set forth in the preceding paragraph, and the Notes are kept or administrated in a custodial account with a Disbursing Agent, withholding tax will be levied as explained above under “—Notes Held by German Tax Residents as Private Assets” or under “—Notes Held by German Tax Residents as Business Assets”, respectively.
Inheritance and Gift Tax
No inheritance or gift taxes with respect to any Notes will generally arise under the laws of Germany, if, in the case of inheritance tax, neither the decedent nor the beneficiary, or in the case of gift tax, neither the donor nor the donee, is a resident of Germany and such Notes are not attributable to a German trade or business for which a permanent establishment is maintained, or a permanent
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representative has been appointed, in Germany. Exceptions to this rule apply to certain German citizens who previously maintained a residence in Germany.
Other Taxes
No stamp, issue, registration or similar taxes or duties will be payable in Germany in connection with the issuance, delivery, execution or transfer of the Notes. Currently, neither a net assets tax (Vermögensteuer) nor a financial transfer tax is levied in Germany. The aforementioned transactions are exempt from value added tax. Under certain circumstances, entrepreneurs may waive the exemption from value added tax.
Taxation in Luxembourg
The following information is of a general nature only and is based on the laws presently in force in Luxembourg, though it is not intended to be, nor should it be construed to be, legal or tax advice. The information contained within this section is limited to Luxembourg withholding tax issues, and prospective investors in the Notes should therefore consult their own professional advisers as to the effects of state, local or foreign laws, including Luxembourg tax law, to which they may be subject.
Please be aware that the residence concept used under the respective headings below applies for Luxembourg income tax assessment purposes only. Any reference in the present section to a withholding tax or a tax of a similar nature, or to any other concepts, refers to Luxembourg tax law and/or concepts only.
(i) Non-resident holders of Notes
Under Luxembourg general tax laws currently in force, there is no withholding tax on payments of principal, premium or interest made to non-resident holders of Notes, nor on accrued but unpaid interest in respect of the Notes, nor is any Luxembourg withholding tax payable upon redemption or repurchase of the Notes held by non-resident holders of Notes.
(ii) Resident holders of Notes
Under Luxembourg general tax laws currently in force and subject to the law of December 23, 2005, as amended (the “Relibi Law”), there is no withholding tax on payments of principal, premium or interest made to Luxembourg resident holders of Notes, nor on accrued but unpaid interest in respect of Notes, nor is any Luxembourg withholding tax payable upon redemption or repurchase of Notes held by Luxembourg resident holders of Notes.
Under the Relibi Law, payments of interest or similar income made or ascribed by a paying agent established in Luxembourg to or for the immediate benefit of an individual beneficial owner who is a resident of Luxembourg will be subject to a withholding tax of 20%. Such withholding tax will be in full discharge of income tax if the beneficial owner is an individual acting in the course of the management of his/her private wealth. Responsibility for the withholding of the tax will be assumed by the Luxembourg paying agent. Payments of interest under the Notes coming within the scope of the Relibi Law will be subject to a withholding tax at a rate of 20%.
Under the Relibi Law, Luxembourg resident individuals, acting in the course of their private wealth who are the beneficial owners of interest payments, can opt to self-declare and pay a 20% levy
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on interest payments made after December 31, 2007 by paying agents located in a EU Member State other than Luxembourg or in a member state of the European Economic Area other than a EU Member State. In such case, the 20% levy is calculated on the same amounts as for the payments made by Luxembourg paying agents. The Luxembourg resident individual who is the beneficial owner of interest is responsible for the declaration and the payment of the 20% final levy. The option for the 20% levy must cover all interest payments made by paying agents to the beneficial owner during the entire civil year.
The Proposed Financial Transactions Tax
The European Commission and certain EU Member States (including Germany) currently intend to introduce a FTT. On February 14, 2013, the Commission published a proposal for a Council Directive that focuses on levying a FTT of 0.1% (0.01% for derivatives) on secondary market transactions in securities involving at least one financial intermediary. According to latest public statements made by representatives of the participating EU Member States, the FTT may be levied for the first time in 2018.
However, the FTT proposal is still subject to negotiation between the participating Member States and full details are not available. Therefore, it is currently uncertain whether and when the proposed FTT will be enacted by the participating EU Member States and when it will take effect with regard to dealings in the Notes. The proposal may be altered prior to any implementation and other EU Member States may decide to participate. Prospective Holders of the Notes are advised to seek their own professional advice in relation to the FTT.
Responsibility of the Issuer for the Withholding of Taxes at Source
The Issuer does not assume any responsibility for the withholding of taxes at source.
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SUBSCRIPTION AND SALE
Subscription
The Issuer and the Joint Bookrunners will enter into a subscription agreement dated January 18, 2017 (the “Subscription Agreement”). Under the Subscription Agreement, the Issuer has agreed to issue and sell to the Joint Bookrunners, and the Joint Bookrunners have agreed, subject to certain customary closing conditions, to subscribe and pay for the Notes on January 23, 2017. The Issuer has agreed to pay certain fees to the Joint Bookrunners and to reimburse the Joint Bookrunners for certain expenses incurred in connection with the issuance of the Notes.
Under certain circumstances, the Joint Bookrunners may terminate the Subscription Agreement. In such event, no Notes will be delivered to investors. Furthermore, the Issuer has agreed to indemnify the Joint Bookrunners against certain liabilities it may incur in connection with the offer and sale of the Notes.
From time to time, the Joint Bookrunners or their respective affiliates have provided from time to time, and expect to provide in the future, investment services to the Issuer and/or its affiliates, for which the Joint Bookrunners or their respective affiliates have received or will receive customary fees and commissions.
Selling Restrictions
General
The Joint Bookrunners have acknowledged that no representation is made by the Issuer or any of the Joint Bookrunners that any action will be taken in any jurisdiction that would permit a public offering of the Notes, or possession or distribution of the Prospectus (in preliminary, proof or final form) or any other offering or publicity material relating to the Notes (including roadshow materials and investor presentations), in any country or jurisdiction where action for that purpose is required. Each of the Joint Bookrunners has represented, warranted and agreed that it will comply to the best of its knowledge and belief in all material respects with all applicable laws and regulations in each jurisdiction in which it acquires, offers, sells or delivers Notes. They will also ensure that no obligations are imposed on the Issuer in any such jurisdiction as a result of any of the foregoing actions. The Issuer will not have any responsibility for, and the Joint Bookrunners will obtain any consent, approval or permission required by it for, the sale of Notes under the laws and regulations in force in any jurisdiction to which it is subject or in or from which it makes any acquisition, offer, sale or delivery. The Joint Bookrunners are not authorized to make any representation or use any information in connection with the issue, subscription and sale of the Notes other than as contained in, or which is consistent with, the Prospectus or any amendment or supplement to it.
United States of America
The Notes have not been and will not be registered under the Securities Act and may not be offered or sold within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. Each of the Joint Bookrunners has represented, warranted and agreed that they have not offered or sold, and agree that they will not offer or sell, any Notes constituting part of their respective allotment within the United States except in accordance with Rule 903 of Regulation S under the Securities Act. Accordingly, neither they, their
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affiliates, nor any persons acting on their behalf have engaged or will engage in any directed selling efforts with respect to the Notes. Terms used in this paragraph have the meanings given to them by Regulation S.
In addition, the Joint Bookrunners have represented, warranted and agreed that, except to the extent permitted under U.S. Treasury Regulations Section 1.163-5(c)(2)(i)(D) (the "D Rules"):
(a) they have not offered or sold Notes, and during the 40-day restricted period shall not offer or sell Notes, directly or indirectly to a United States person or to a person who is within the United States or its possessions, and they have not delivered and shall not deliver within the United States or its possessions definitive Notes that are sold during the restricted period;
(b) they have and throughout the restricted period they shall have in effect procedures reasonably designed to ensure that their employees or agents who are directly engaged in selling Notes are aware that the Notes may not be offered or sold during the restricted period to a United States person or to a person who is within the United States or its possessions, except as permitted by the D Rules;
(c) if they are a United States person, they are acquiring the Notes for purposes of resale in connection with their original issuance and not for the purpose of resale directly or indirectly to a United States person or a person within the United States or its possessions and they shall acquire or retain Notes for their own account only in accordance with the requirements of U.S. Treasury Regulations Section 1.163- 5(c)(2)(i)(D)(6);
(d) with respect to each affiliate that acquires Notes from them for the purpose of offering or selling such Notes during the restricted period, they either (i) repeat and confirm the representations contained in clauses (a), (b) and (c) of this paragraph on behalf of such affiliate or (ii) agree that they shall obtain from such affiliate for the benefit of the Issuer the representations contained in Clauses (a), (b) and (c) of this paragraph; and
(e) they shall obtain for the benefit of the Issuer the representations and agreements contained in clauses (a), (b), (c) and (d) of this paragraph from any person other than their affiliate with whom they enter into a written contract, as defined in U.S. Treasury Regulations section Section 1.163-5(c)(2)(i)(D)(4), for the offer or sale of Notes during the restricted period.
Terms used in this paragraph have the meanings given to them by the U.S. Internal Revenue Code of 1986, as amended and Treasury Regulations thereunder, including the D Rules.
European Economic Area
In relation to each member state of the EEA that has implemented the Prospectus Directive (each, a “Relevant Member State”), each Joint Bookrunner has represented, warranted and agreed that with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the “Relevant Implementation Date”) it has not made and will not make an offer of Notes which are the subject of the offering contemplated by this Prospectus to the public in
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that Relevant Member State, except that it may, with effect from and including the Relevant Implementation Date, make an offer of such Notes in that Relevant Member State:
a) to any legal entity which is a qualified investor as defined in the Prospectus Directive; or
b) to fewer than 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the Joint Bookrunners; or
c) in any other circumstances falling within Article 3(2) of the Prospectus Directive; provided that no such offer of the Notes shall require the Issuer or any Joint Bookrunner to publish a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant to Article 16 of the Prospectus Directive.
For the purposes of this provision, the expression an “offer of Notes to the public” in relation to any Notes in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the Notes to be offered so as to enable an investor to decide to purchase or subscribe for Notes.
United Kingdom
Each of the Joint Bookrunners has represented, warranted and agreed that:
a) it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received by it in connection with the issue or sale of any Notes in circumstances in which Section 21(1) of the FSMA does not apply to the Issuer; and
b) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the Notes in, from or otherwise involving the United Kingdom.
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GENERAL INFORMATION
Application has been made to the CSSF, which is the Luxembourg competent authority for the purposes of obtaining the approval of this Prospectus, that, only for purposes of the admission to trading, constitutes a prospectus within the meaning of the Prospectus Directive, i.e. a listing prospectus according to Article 5.3 of the Prospectus Directive. The Prospectus will be published in electronic form on the website of the Luxembourg Stock Exchange (Bourse de Luxembourg). By approving this Prospectus, the CSSF assumes no responsibility for the economic and financial soundness of the transactions contemplated by this Prospectus or the quality or solvency of the Issuer.
Notice to Prospective Investors in the European Economic Area
This Prospectus has been prepared on the basis that all offers of the Notes will be made pursuant to an exemption under the Prospectus Directive from the requirement to produce a prospectus in connection with offers of the Notes and is therefore, for the purposes of the offering of the Notes, not a prospectus within the meaning of the Prospectus Directive. Accordingly, any person making or intending to make any offer of Notes within the EEA should only do so in circumstances in which no obligation arises for the Issuer or the Joint Bookrunners to produce a prospectus for such offers. None of the Issuer or the Joint Bookrunners has authorized, nor do they authorize, the making of any offer of the Notes through any financial intermediary, other than offers made by the Joint Bookrunners which constitute the final placement of the Notes contemplated in this Prospectus.
Notice to Prospective Investors in the United Kingdom
In the United Kingdom, this Prospectus is for distribution to Relevant Persons only. This Prospectus is directed only at Relevant Persons and may not be acted on or relied on by persons who are not Relevant Persons. In the United Kingdom, any investment or investment activity to which this Prospectus relates is only available to Relevant Persons and will only be engaged in with Relevant Persons.
Interests of Natural and Legal Persons Involved in the Issue
From time to time, the Joint Bookrunners and their affiliates have performed, and may in the future perform, investment banking and advisory services for the Issuer for which they have received, or will receive, customary fees and expenses.
In particular, the Joint Bookrunners have entered into a contractual relationship with the Company in connection with the issuance of the Notes.
In addition, in the ordinary course of their business activities, the Joint Bookrunners and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivate securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers. Such investments and securities activities may involve securities and/or instruments of the Issuer or its affiliates. The Joint Bookrunners and their respective affiliates that have a lending relationship with the Issuer routinely hedge their credit exposure to the Issuer, as applicable, consistent with their customary risk management policies. Typically, the Joint Bookrunners and their respective affiliates would hedge such exposure by entering into transactions which consist of either the purchase of credit default swaps or the creation
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of short positions in securities, potentially including the Notes. Any such short positions could adversely affect future trading prices of the Notes.
The Joint Bookrunners and their respective affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities or instruments.
Authorization and Issue Date
The issuance of the Notes was authorized by the Supervisory Board on November 15, 2016 and was resolved by the Management Board on January 16, 2017. The Issue Date of the Notes is expected to be January 23, 2017.
Use of Proceeds
The net proceeds from the issuance of the Notes, estimated by the Issuer to be approximately €493.9 million, will mainly be used to refinance existing subsidized loans and bank loans, as well as for general corporate purposes. The estimated total expenses related to the admission to trading of the Notes are estimated by the Issuer to be approximately €15,000.
Delivery of Notes
Delivery and payment of the Notes will be made on or around the Issue Date, which is expected to be on January 23, 2017. The Notes so purchased will be delivered via book-entries through the Clearing System and their depository banks against payment of the issue price thereof.
Costs and Expenses Relating to the Purchase of Notes
The Issuer will not charge any costs, expenses or taxes directly to any investor in connection with the Notes. Investors must, however, inform themselves about any costs, expenses or taxes in connection with the Notes which are generally applicable in their respective country of residence, including any charges their own depository banks charge them for purchasing or holding securities. Listing and Admission to Trading of the Notes
Application will be made to the Luxembourg Stock Exchange (Bourse de Luxembourg) for the Notes to be listed on the Official List of the Luxembourg Stock Exchange and to be admitted to trading on the Luxembourg Stock Exchange’s Regulated Market. The Luxembourg Stock Exchange’s Regulated Market is a regulated market for the purposes of Directive 2004/39/EC, as amended. The first day of trading of the Notes on the Luxembourg Stock Exchange (Bourse de Luxembourg) is expected to be on January 23, 2017. Clearing System and Security Codes
The Notes will be accepted for clearance through: Clearstream Banking, société anonyme 42 Avenue JF Kennedy 1855 Luxembourg The Grand Duchy of Luxembourg
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and
Euroclear Bank SA/NV 1 Boulevard du Roi Albert II 1210 Brussels Kingdom of Belgium
The Notes have the following securities codes:
International Securities Identification Number (ISIN) ...... XS1554456613
Common Code ...... 155445661
German Securities Identification Number (WKN) ...... A2E4W8
Ratings of the Issuer and the Notes
Moody’s3 has assigned the long-term issuer rating “Baa1”4 (stable outlook) to the Issuer.
The Notes are expected to be rated “Baa1”4 by Moody’s.
Indication of Yield
The yield in respect of the Notes from January 23, 2017 (the “Interest Commencement Date”) up to (but excluding) the Maturity Date is 1.339% per annum, calculated on the basis of the issue price of the Notes. Such yield is calculated in accordance with the ICMA (International Capital Markets Association) Method.
Documents Available
So long as Notes are outstanding, copies of the following documents will be available from the registered office of the Issuer at and from the specified offices of the Paying Agent:
(a) the Articles of Association;
(b) a copy of this Prospectus and any supplement thereto;
(c) a copy of the unaudited condensed consolidated interim financial statements of LEG Immobilien AG for the period from January 1 to September 30, 2016;
(d) a copy of the audited consolidated financial statements of LEG Immobilien AG for the year ended December 31, 2015 (IFRS);
3 Moody’s is established in the European Community and is registered under the CRA Regulation. The European Securities and Markets Authority publishes on its website (www.esma.europa.eu/page/list-registered- and-certified-CRAs) a list of credit rating agencies registered in accordance with the CRA Regulation. That list is updated within five working days following the adoption of a decision under Article 16, 17 or 20 CRA Regulation. The European Commission shall publish that updated list in the Official Journal of the European Union within 30 days following such update. 4 Moody’s defines “Baa1” as follows: “Obligations rated Baa1 are judged to be medium-grade and subject to moderate credit risk and as such may possess certain speculative characteristics. […] Moody’s appends numerical modifiers 1, 2, and 3 to each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category.”
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(e) a copy of the audited consolidated financial statements of LEG Immobilien AG for the year ended December 31, 2014 (IFRS);
(f) a copy of the audited consolidated financial statements of LEG Immobilien AG for the year ended December 31, 2013 (IFRS); and
(g) a copy of the audited annual financial statements of LEG Immobilien AG for the year ended December 31, 2015 (HGB).
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FINANCIAL INFORMATION Unaudited condensed consolidated interim financial statements of LEG Immobilien AG for the period from January 1 to September 30, 2016 Consolidated Statement of Financial Position ...... page F-3 Consolidated Statement of Comprehensive Income ...... page F-4 Statement of Changes in Consolidated Equity ...... page F-5 Consolidated Statement of Cash Flows ...... page F-6 Notes ...... pages F-7 to F-20
Audited consolidated financial statements of LEG Immobilien AG for the year ended December 31, 2015 (IFRS) Consolidated Statement of Financial Position ...... page F-22 Consolidated Statement of Comprehensive Income ...... page F-23 Statement of Changes in Consolidated Equity ...... page F-24 Consolidated Statement of Cash Flows ...... page F-25 Notes ...... pages F-26 to F-90 Auditor’s Report ...... page F-98
Audited consolidated financial statements of LEG Immobilien AG for the year ended December 31, 2014 (IFRS) Consolidated Statement of Financial Position ...... page F-100 Consolidated Statement of Comprehensive Income ...... page F-101 Statement of Changes in Consolidated Equity ...... page F-102 Consolidated Statement of Cash Flows ...... page F-103 Notes ...... pages F-104 to F-169 Auditor’s Report ...... page F-181
Audited consolidated financial statements of LEG Immobilien AG for the year ended December 31, 2013 (IFRS) Consolidated Statement of Financial Position ...... page F-183 Consolidated Statement of Comprehensive Income ...... page F-184 Statement of Changes in Consolidated Equity ...... page F-185 Consolidated Statement of Cash Flows ...... page F-186 Notes ...... pages F-187 to F-246 Auditor’s Report ...... page F-254
F-1 Interim Consolidated Financial Statements
CONSOLIDATED STATEMENT OF FINANCIAL POSITION ...... F-3 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME ...... F-4 STATEMENT OF CHANGES IN CONSOLIDATED EQUITY ...... F-5 CONSOLIDATED STATEMENT OF CASH FLOWS ...... F-6 SELECTED NOTES ...... F-7
F-2 Interim consolidated financial statements CONSOLIDATED STATEMENT OF FINANCIAL POSITION
T22 – Consolidated statement of financial position
€ million 30.09.2016 31.12.2015 Assets Non-current assets ...... 7,469.9 6,898.4 Investment properties ...... 7,288.8 6,398.5 Prepayments for investment properties ...... 5.1 203.1 Property, plant and equipment ...... 61.2 59.1 Intangible assets ...... 78.0 63.1 Investments in associates ...... 9.1 8.8 Other financial assets ...... 2.9 148.8 Receivables and other assets ...... 6.1 2.7 Deferred tax assets ...... 18.7 14.3 Current assets ...... 382.9 290.0 Real estate inventory and other inventory ...... 7.2 5.1 Receivables and other assets ...... 70.0 30.5 Income tax receivables ...... 1.9 1.6 Cash and cash equivalents ...... 303.8 252.8 Assets held for sale ...... 76.8 6.7 TOTAL ASSETS ...... 7,929.6 7,195.1
€ million 30.09.2016 31.12.2015 Equity and liabilities Equity ...... 2,927.0 2,985.0 Share capital ...... 63.2 62.8 Capital reserves ...... 811.3 779.2 Cumulative other reserves ...... 2,029.6 2,125.8 Equity attributable to shareholders of the parent company ...... 2,904.1 2,967.8 Non-controlling interests ...... 22.9 17.2 Non-current liabilities ...... 4,143.5 3,419.3 Pension provisions ...... 172.3 142.8 Other provisions ...... 11.3 11.4 Financing liabilities ...... 3,394.5 2,745.6 Other liabilities ...... 134.2 106.7 Tax liabilities ...... 0.3 8.5 Deferred tax liabilities ...... 430.9 404.3 Current liabilities ...... 859.1 790.8 Pension provisions ...... 5.2 7.0 Other provisions ...... 18.1 19.1 Provisions for taxes ...... 0.4 0.4 Financing liabilities ...... 385.8 496.0 Other liabilities ...... 421.5 253.1 Tax liabilities ...... 15.5 15.2 Liabilities directly associated with assets classified as held for sale ...... 12.6 – TOTAL EQUITY AND LIABILITIES ...... 7,929.6 7,195.1
F-3 Interim consolidated financial statements CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
T23 – Consolidated statement of comprehensive income
01.01. – 01.01. – € million Q3 2016 Q3 2015 30.09.2016 30.09.2015 Net rental and lease income ...... 100.4 83.3 290.8 242.4 Rental and lease income ...... 196.7 161.8 568.4 482.1 239.7מ 277.6מ 78.5מ 96.3מ ...... Cost of sales in connection with rental lease income 0.7 8.3 0.5מ Net income from the disposal of investment properties ...... 8.2 Income from the disposal of investment properties ...... 115.5 8.9 136.2 66.9 64.7מ 127.1מ 8.3מ 107.0מ ..... Carrying amount of the disposal of investment properties Cost of sales in connection with disposed investment 1.5מ 0.8מ 1.1מ 0.3מ ...... properties Net income from the remeasurement of investment properties ... 8.3 – 9.3 – 0.5מ 1.5מ 0.5מ 0.2מ ...... Net income from the disposal of real estate inventory Income from the real estate inventory disposed of ...... 1.3 0.5 1.8 0.9 0.6מ 1.1מ 0.4מ 0.7מ ...... Carrying amount of the real estate inventory disposed of 0.8מ 2.2מ 0.6מ 0.8מ ...... Costs of sales of the real estate inventory disposed of Net income from other services ...... 1.1 0.0 2.3 0.1 Income from other services ...... 2.5 2.1 7.1 6.1 6.0מ 4.8מ 2.1מ 1.4מ ...... Expenses in connection with other services 32.7מ 66.0מ 12.9מ 11.4מ ...... Administrative and other expenses Other income ...... 6.4 0.2 6.6 0.6 OPERATING EARNINGS ...... 112.8 69.6 249.8 210.6 Interest income ...... 0.0 0.1 0.0 0.6 145.9מ 89.6מ 32.7מ 28.5מ ...... Interest expenses Net income from investment securities and other equity 2.7 2.2 0.1מ 0.8מ ...... investments Net income from associates ...... – 0.1 0.3 0.1 77.9מ 31.7מ 41.6מ 3.1מ .... Net income from the fair value measurement of derivatives 9.8מ 131.0 4.6מ EARNINGS BEFORE INCOME TAXES ...... 80.4 12.1מ 45.0מ 7.0מ 17.9מ ...... Income taxes 21.9מ 86.0 11.6מ NET PROFIT OR LOSS FOR THE PERIOD ...... 62.5 Change in amounts recognised directly in equity Thereof recycling 31.4 15.0מ 5.1מ 1.5מ ..... Fair value adjustment of interest rate derivatives in hedges 41.8 19.7מ 6.5מ 1.8מ ...... (Change in unrealised gains/(losses Change in income taxes on amounts recognized directly in 10.4מ equity ...... 0.3 1.4 4.7 Thereof non-recycling Actuarial gains and losses from the measurement of pension – 22.6מ – 22.6מ ...... obligations – 29.2מ – 29.2מ ...... Change in unrealised gains/losses Income taxes on amounts recognised directly in equity ...... 6.6 – 6.6 – 9.5 48.4 16.7מ TOTAL COMPREHENSIVE INCOME ...... 38.4 Net profit or loss for the period attributable to: 0.0 0.4 0.1מ Non-controlling interests ...... 0.0 21.9מ 85.6 11.5מ Parent shareholders ...... 62.5 Total comprehensive income attributable to: 0.0 0.4 0.1מ Non-controlling interests ...... 0.0 9.5 48.0 16.6מ Parent shareholders ...... 38.4 0.38מ 1.36 0.20מ EARNINGS PER SHARE (BASIC AND DILUTED) IN € ...... 0.99
F-4 Interim consolidated financial statements STATEMENT OF CHANGES IN CONSOLIDATED EQUITY
T24 – Statement of changes in consolidated equity
Cumulative other reserves Actuarial gains and losses Fair value from the adjustment Equity measurement of interest attributable Share Capital Revenue of pension derivatives to shareholders Noncontrolling Consolidated € million capital reserves reserves obligations in hedges of the Group interests equity 2,491.6 14.3 2,477.3 65.1מ 38.5מ AS OF 01.01.2015 ...... 57.1 578.9 1,944.9 1.2מ – 1.2מ – – 1.2מ – – ...... Adjustment arising from final PPA Vitus 2,490.4 14.3 2,476.1 65.1מ 38.5מ AS OF 01.01.2015 ADJUSTED ...... 57.1 578.9 1,943.7 21.9מ 0.0 21.9מ – – 21.9מ – – ...... Net profit or loss for the period Other comprehensive income ...... – – – – 31.4 31.4 0.0 31.4
9.5 0.0 9.5 31.4 – 21.9מ–– ...... F-5 TOTAL COMPREHENSIVE INCOME 1.3 5.6 4.3מ – – 4.3מ – – ...... Change in consolidated companies Capital increase ...... 1.2 71.7 8.1 – – 81.0 0.5 81.5 0.1מ – 0.1מ – – 0.1מ – – ...... Withdrawals from reserves 39.8מ – 39.8מ – – 39.8מ – – ...... Change in put options 116.1מ 4.2מ 111.9מ – – 111.9מ – – ...... Distributions Contribution in connection with Management and Supervisory Board .... – 0.1 – – – 0.1 – 0.1 2,426.8 16.2 2,410.6 33.7מ 38.5מ AS OF 30.09.2015 ...... 58.3 650.7 1,773.8 2,985.0 17.2 2,967.8 33.9מ 30.1מ AS OF 01.01.2016 ...... 62.8 779.3 2,189.7 Net profit or loss for the period ...... – – 85.6 – – 85.6 0.4 86.0 37.6מ 0.0 37.6מ 15.0מ 22.6מ – – – ...... Other comprehensive income 48.4 0.4 48.0 15.0מ 22.6מ TOTAL COMPREHENSIVE INCOME ...... – – 85.6 Change in consolidated companies/other ...... – – – – – – 12.4 12.4 Capital increase ...... 0.4 32.0 – – – 32.4 1.2 33.6 0.4מ 0.4מ – – – – – – ...... Withdrawals from reserves 2.2מ – 2.2מ – – 2.2מ – – ...... Change in put options 149.8מ 7.9מ 141.9מ – – 141.9מ – – ...... Distributions Contribution in connection with Management and Supervisory Board .... – 0.0 – – – 0.0 – 0.0 2,927.0 22.9 2,904.1 48.9מ 52.7מ AS OF 30.09.2016 ...... 63.2 811.3 2,131.2 Interim consolidated financial statements CONSOLIDATED STATEMENT OF CASH FLOWS
T25 – Consolidated statement of cash flows
01.01. – 01.01. – € million 30.09.2016 30.09.2015 Operating earnings ...... 249.8 210.6 Depreciation on property, plant and equipment and amortisation on intangible assets ...... 7.6 6.5 – 9.3מ ...... Gains)/Losses from the remeasurement of investment properties) (Gains)/Losses from the disposal of assets held for sale and investment 2.2מ 9.1מ ...... properties (Gains)/Losses from the disposal of intangible assets and property, plant and equipment ...... 0.1 0.0 2.8מ 1.6מ ...... Decrease)/Increase in pension provisions and other non-current provisions) 4.8 1.3מ ...... Other non-cash income and expenses 28.2מ 39.6מ ...... Decrease)/Increase in receivables, inventories and other assets) Decrease/(Increase) in liabilities (not including financing liabilities) and provisions ...... 22.1 3.7 67.3מ 62.4מ ...... Interest paid Interest received ...... 0.1 0.6 Received income from investments ...... 1.8 2.9 Taxes received ...... 0.2 1.4 10.0מ 12.3מ ...... Taxes paid NET CASH FROM/(USED IN) OPERATING ACTIVITIES ...... 146.1 120.0 Cash flow from investing activities 202.1מ 526.0מ ...... Investments in investment properties Proceeds from disposals of non-current assets held for sale and investment properties ...... 13.1 75.6 1.2מ 6.6מ ...... Investments in intangible assets and property, plant and equipment Proceeds from disposals of intangible assets and property, plant and equipment . . . 0.0 0.1 8.2מ 18.6מ ...... Acquisition of shares in consolidated companies Proceeds from disposals of shares in consolidated companies ...... 106.0 – 135.8מ 432.1מ ...... NET CASH FROM/(USED IN) INVESTING ACTIVITIES Cash flow from financing activities Borrowing of bank loans ...... 842.3 1,320.9 1,016.4מ 355.8מ ...... Repayment of bank loans 2.5מ 2.6מ ...... Repayment of lease liabilities Other proceeds ...... 4.2 5.2 4.2מ 9.2מ ...... Other payments Capital increase ...... – 72.9 111.8מ 141.9מ ...... Distribution to shareholders NET CASH FROM/(USED IN) FINANCING ACTIVITIES ...... 337.0 264.1 Change in cash and cash equivalents ...... 51.0 248.3 Cash and cash equivalents at beginning of period ...... 252.8 129.9 CASH AND CASH EQUIVALENTS AT END OF PERIOD ...... 303.8 378.2 Composition of cash and cash equivalents Cash in hand, bank balances ...... 303.8 378.2 CASH AND CASH EQUIVALENTS AT END OF PERIOD ...... 303.8 378.2
F-6 Interim consolidated financial statements SELECTED NOTES
SELECTED NOTES ON THE IFRS INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS AT 30 SEPTEMBER 2016
1. Basic information on the Group LEG Immobilien AG, Dusseldorf (hereinafter: “LEG Immo”), its subsidiary LEG NRW GmbH, Dusseldorf (hereinafter: “LEG”) and the subsidiaries of the latter company (hereinafter referred to collectively as the “LEG Group”) are among the largest residential companies in Germany. The LEG Group held a portfolio of 129,086 units (residential and commercial) on 30 September 2016. LEG Immo and its subsidiaries engage in two core activities as an integrated property company: the value-adding long-term management of its residential property portfolio in connection with the strategic acquisition of residential portfolios in order to generate economies of scale for its management platform and the expansion of tenant-oriented services. The interim consolidated financial statements are prepared in euros. Unless stated otherwise, all figures have been rounded to millions of EURO (EUR million). For technical reasons, tables and references can include rounded figures that differ from the exact mathematical values.
2. Interim consolidated financial statements LEG Immo prepared the interim consolidated financial statements in accordance with the provisions of the International Financial Reporting Standards (IFRS) for interim reporting, as endorsed in the EU, and their interpretation by the International Financial Reporting Interpretations Committee (IFRS IC). Based on the option under IAS 34.10, the notes to the financial statements were presented in a condensed form. The condensed interim consolidated financial statements have not been audited or subjected to an audit review. The LEG Group primarily generates income from the rental and letting of investment properties. Rental and lease business, in essence, is unaffected by seasonal and cyclical influences.
3. Accounting policies The accounting policies applied in the interim consolidated financial statements of the LEG Group are the same as those presented in the IFRS consolidated financial statements of LEG Immo as at 31 December 2015. Income tax expenses in the reporting period were deferred on the basis of the tax rate expected for the fiscal year as a whole. These interim consolidated financial statements as at 30 September 2016 should therefore be read in conjunction with the consolidated financial statements as at 31 December 2015. The LEG Group has fully applied the new standards and interpretations that are mandatory from 1 January 2016. This did not affect the net assets, financial position, or results of operations. The amendment to IAS 1 will affect the representation of the notes to the consolidated financial statements as at the end of the year.
4. Changes in the Group In the course of various portfolio acquisitions (see section 7) four companies were acquired and included in consolidation for the first time as at 1 January 2016. Some of the acquisitions are business combinations (see section 5). LEG Wohnen Service GmbH was consolidated for the first time as at 31 March 2016. The company was established as part of the reorganization of the LEG Group’s operating platform. LEG Marl GmbH (formerly Deutsche Annington Wohnungsgesellschaft III mbH) was included in consolidation for the first time as at 1 April 2016, followed by Grainger Recklinghausen Portfolio one GmbH and Grainger Recklinghausen Portfolio two GmbH as at 1 June 2016. As at 31 May 2016, all shares in Johannismarkt Grundstücksgesellschaft mbH were sold and deconsolidated. As at 1 July 2016, LEG Achte Grundstücksverwaltung GmbH and LEG Neunte Grundstücksverwaltung GmbH were included in consolidation for the first time. As at 30 September 2016, the shares in LEG Marl GmbH were sold and deconsolidated.
F-7 Interim consolidated financial statements SELECTED NOTES (Continued)
5. Business combinations On 30 November 2015, LEG Immo signed a purchase agreement with Sahle Wohnen GmbH & Co. KG to acquire 94.9% of shares in SW Westfalen Invest GmbH and three other asset purchase agreements, consisting of a property portfolio of 3,539 residential units. The portfolio is distributed over twelve different locations in NRW, while its most important local markets are Detmold (1,151 units), Bielefeld (950 units) and Lippstadt (315 units). 23 employees (FTES) were taken on in the context of the transaction. Following antitrust approval, the transaction was closed on 1 January 2016. As at 1 January 2016, the acquisition of these companies is treated as a business combination as defined by IFRS 3 as significant business processes had been acquired. The purchase price allocation presented in the notes to the consolidated financial statements as at 31 December 2015 was still provisional here with respect to the following items: – Measurement of investment properties – Total consideration – Contingent liabilities – Operating costs – Accounting for leases – Deferred taxes After the conclusion of purchase price allocation, adjustments are made retrospectively as at the acquisition date 1 January 2016. The following changes were made in comparison to the provisional purchase price allocation: – Measurement of investment properties: The improved data situation, particularly with regard to the buildings’ technical condition and rental agreements, led to a fair value adjustment of EUR –4.1 million to EUR 200.9 million. – Deferred taxes and scope of the busines combination: After the evaluation of the transaction in terms of income tax and contractual agreements was completed, the properties’ carrying amounts for tax purposes were increased. This will result in higher tax-reducing depreciation in the future and contributes significantly to the decline in deferred taxes from EUR –22.0 million (deferred tax liability) to EUR 3.6 million (deferred tax asset). Furthermore, the liability for the put option was recognised as a separate transaction (EUR 8.2 million). – Operating costs: The net amount of receivables and liabilities from not yet invoiced operating costs for the period before the acquisition comes to EUR –0.5 million and accordingly reduces the net assets acquired. Because it was agreed that net invoicing amounts for periods before the acquisition date are to be borne by the seller, there is no effect on goodwill (decrease in cash purchase price component of EUR 0.5 million). The purchase price allocation is final as at 30 September 2016. The consideration for the business combination breaks down as follows: T26 – Consideration 01.01.2016 01.01.2016 € million final preliminary Change 0.5מ Net purchase price ...... 201.1 201.6 0.5מ TOTAL CONSIDERATION ...... 201.1 201.6
F-8 Interim consolidated financial statements SELECTED NOTES (Continued)
5. Business combinations (Continued) The purchase price can be allocated to the assets and liabilities acquired, measured at fair value, as follows:
T27 – Purchase price allocation
01.01.2016 01.01.2016 € million final preliminary Change 4.1מ Investment properties ...... 200.9 205.0 Deferred tax assets ...... 3.6 – 3.6 Other assets ...... 0.6 – 0.6 TOTAL ASSETS ...... 205.1 205.0 0.1 – 11.0מ 11.0מ ...... Financing liabilities 8.2 8.2מ – ...... Liabilities for put options 22.0 22.0מ – ...... Deferred tax liabilities 0.6מ – 0.6מ ...... Other financing liabilities 0.5מ – 0.5מ ...... Other liabilities 29.1 41.2מ 12.1מ ...... TOTAL LIABILITIES Net assets at fair value ...... 193.0 163.8 29.2 Non-controlling interests ...... 6.8 5.7 1.1 Net assets at fair value without non-controlling interests ...... 186.2 158.1 28.1 0.5מ CONSIDERATION ...... 201.1 201.6 28.6מ GOODWILL ...... 14.9 43.5
The synergies anticipated from the business combination essentially consist of planned cost savings, additional income potential and tax savings. On 22 December 2015, LEG Immo concluded a purchase agreement with Vonovia SE regarding the acquisition of 13,570 residential units. The purchase price was around EUR 600 million, equating to an initial rental yield of 8.0%. The portfolio is spread over various locations in and on the border of North Rhine-Westphalia. 26 employees were taken on in the wake of the transaction. Following antitrust approval, the transaction was closed on 1 April 2016. As at 1 April 2016, the acquisition of the company was treated as a business combination as defined by IFRS 3 as significant business processes had been acquired. The acquisition was a combined asset and share deal. The provisional consideration for the business combination breaks down as follows:
T28 – Provisional consideration
€ million 01.04.2016 Net purchase price ...... 589.1 TOTAL CONSIDERATION ...... 589.1
F-9 Interim consolidated financial statements SELECTED NOTES (Continued)
5. Business combinations (Continued) The provisional purchase price can be allocated to the assets and liabilities acquired, measured at fair value, as follows:
T29 – Provisional purchase price allocation
€ million 01.04.2016 Investment properties ...... 604.6 Property, plant and equipment ...... 0.1 Inventory ...... 2.9 Receivables and other assets ...... 0.2 Cash and cash equivalents ...... 1.7 TOTAL ASSETS ...... 609.5 5.1מ ...... Other financing liabilities 0.1מ ...... Pension provisions 7.4מ ...... Deferred tax liabilities 3.3מ ...... Other liabilities 15.9מ ...... TOTAL LIABILITIES Net assets at fair value ...... 593.6 Non-controlling interests ...... 4.7 Net assets at fair value without non-controlling interests ...... 588.9 CONSIDERATION ...... 589.1 GOODWILL ...... 0.2
The transaction costs of the business combination amount to EUR 33.4 million and include essentially real estate transfer tax. Non-controlling interests in LEG Marl GmbH (formerly: Deutsche Annington WG III mbH) amount to 5.1% and were measured at the proportionate share of the recognised net assets acquired. If the portfolio had already been acquired on 1 January 2016, income from property management would have increased by around EUR 12 million. Given that the set of data has still to be completed the purchase price allocation is provisional with regard to the following items: – Measurement of investment properties – Total consideration – Contingent liabilities – Operating costs – Accounting for leases – Deferred taxes
6. Judgements and estimates The preparation of interim consolidated financial statements in accordance with IFRS requires assumptions and estimates to be made that affect the recognition of assets and liabilities, income and expenses and the disclosure of contingent liabilities. These assumptions and estimates particularly relate to the measurement of investment properties, the recognition and measurement of pension provisions, the recognition and measurement of other provisions, the measurement of financing liabilities, and the eligibility for recognition of deferred tax assets. Although the management believes that the assumption and estimates used are appropriate, any unforeseeable changes in these assumptions could impact the net assets, financial position and results of operations. For further information, please refer to the consolidated financial statements as at 31 December 2015.
F-10 Interim consolidated financial statements SELECTED NOTES (Continued)
7. Selected notes to the consolidated statement of financial position On 30 September 2016, the LEG Group held 127,941 apartments and 1,145 commercial units in its portfolio. Investment property developed as follows in the financial year 2015 and in 2016 up to the reporting date of the interim consolidated financial statements:
T30 – Investment properties
€ million 30.09.2016 31.12.2015 CARRYING AMOUNT AS OF 01.01...... 6,398.5 5,914.3 Acquisitions ...... 1,030.8 189.6 Other additions ...... 46.4 64.7 55.7מ 92.4מ ...... Reclassified to assets held for sale Reclassified from assets held for sale ...... 0.0 0.4 0.3מ 1.2מ ...... Reclassified to property, plant and equipment Reclassified from property, plant and equipment ...... 0.1 – – 102.7מ ...... Disposal of carrying amount Fair value adjustment ...... 9.3 285.5 CARRYING AMOUNT AS OF 30.09./31.12...... 7,288.8 6,398.5
The additions included the following acquisitions:
Portfolio acquisition 1 Portfolio acquisition 1 comprises the recognition of property portfolios that were purchased as part of the acquisition of Sahle Wohnen GmbH & Co. KG. See section 5, Business combinations.
Portfolio acquisition 2 The acquisition of a property portfolio of around 2,037 residential units was notarised on 11 August 2015. The portfolio generates annual net cold rent of around EUR 7.7 million. The average in-place rent is around EUR 5.04 per square metre and the initial vacancy rate is around 6.7%. The transaction was closed on 1 January 2016. The portfolio acquisition does not constitute a business combination.
Portfolio acquisition 3 The acquisition of a property portfolio of around 1,291 residential units was notarised on 16 December 2015. The portfolio generates annual net cold rent of initially around EUR 4.6 million. The average in-place rent is EUR 5.16 per square metre; the initial vacancy rate is 17.3%. The economic transfer of 999 residential units took place as at 1 January 2016. For the remaining 292 residential units, the transaction was closed as at 1 July 2016. The portfolio acquisition does not constitute a business combination.
Portfolio acquisition 4 Portfolio 4 includes the recognition of property portfolios acquired from LEG in the context of the business combination. See section 5, Business combinations.
Portfolio acquisition 5 On 12 April 2016, LEG Immo signed a contract for the acquisition of a portfolio of approximately 1,100 apartments, located in LEG’s core market, by way of a share purchase. The agreed purchase price is EUR 53 million; liabilities of around EUR 20 million were assumed. LEG’s obligations under the contract were settled by issuing new LEG shares. The portfolio generated rental income of around EUR 4 million in the last financial year. The transaction was closed as at 30 May 2016 and does not constitute a business combination. The reclassification to assets held for disposal and carrying amount disposals mainly relate to four block sales.
F-11 Interim consolidated financial statements SELECTED NOTES (Continued)
7. Selected notes to the consolidated statement of financial position (Continued) Portfolio sale 1 439 residential units were sold by way of a purchase agreement dated 12 April 2016. In connection with the sale negotiations, the property portfolio was revalued resulting in income from the remeasurement of investment properties of EUR 960 thousand. The carrying amount was disposed with closing of the transaction on 31 May 2016.
Portfolio sale 2 The sale of a property portfolio with 1,286 residential units was notarised on 29 September 2016. The revaluation of the property portfolio resulted in income from the remeasurement of investment properties of EUR 6.8 million. The carrying amount will be disposed with closing of the transaction on 1 January 2017.
Portfolio sale 3 Another block sale of 426 residential units took place on 16 September 2016. The revaluation of the property portfolio resulted in income from remeasurement of investment properties of EUR 1.5 million. The carrying amount will be disposed with closing of the transaction on 31 December 2016.
Portfolio sale 4 A property portfolio of 1,953 residential units was sold on 31 August 2016. The carrying amount was disposed with closing of the transaction on 30 September 2016. The carrying amounts of the property portfolios sold amounted to EUR 126.1 million in total. All in all, EUR 106.0 million proceeds from disposals of investment properties were paid in cash. Apart from the two block sales described above, investment property was measured regularly at the reporting date. No further fair value adjustment was made as at 30 September 2016. With regard to the calculation methods and parameters, please refer to the consolidated financial statements as at 31 December 2015. Significant market developments and measurement parameters affecting the market values of LEG Immo are reviewed each quarter. If necessary, the property portfolio is revalued. As at 30 September 2016, the results of this review did not require any value adjustment. However, this reflects the value development resulting from our extensive modernisation work, which is shown in the capitalised modernisation costs. In addition, the LEG Group’s portfolio still includes land and buildings accounted for in accordance with IAS 16. Cash and cash equivalents mainly consist of bank balances. Changes in the components of consolidated equity are shown in the statement of changes in consolidated equity. Financing liabilities are composed as follows:
T31 – Financing liabilities
€ million 30.09.2016 31.12.2015 Financing liabilities from real estate financing ...... 3,752.8 3,215.0 Financing liabilities from lease financing ...... 27.5 26.6 FINANCING LIABILITIES ...... 3,780.3 3,241.6
Financing liabilities from property financing serve the financing of investment properties. Financing liabilities from real estate financing include a convertible bond with a nominal value of EUR 300.0 million. The convertible bond was classified as a financing liability on account of the issuer’s contractual cash settlement option and recognised in accordance with IAS 39. There are several embedded and separable derivatives that are treated as a single compound derivative in accordance with IAS 39. AG29 and carried at fair value. The underlying debt instrument is recognised at amortised cost.
F-12 Interim consolidated financial statements SELECTED NOTES (Continued)
7. Selected notes to the consolidated statement of financial position (Continued) Extensive acquisition financing and refinancing was performed in the first nine months of the year. The disbursement in connection with these transactions served to increase financing liabilities by EUR 852.5 million. This was offset by the derecognition of the previous loans and repayments, which reduced total financing liabilities by EUR 314.6 million. The change in maturities compared with 31 December 2015 is due in particular to the financing in the first nine months of the year, which led to an increase in medium-term and non-current financing liabilities. The LEG Group concludes derivative financial instruments to hedge against interest rate risks from real estate financing, unless fixed-rate loans are chosen. Stand-alone derivative financial instruments are accounted for at fair value through profit or loss. Derivatives included in hedge accounting are accounted for on a pro rata basis directly in equity in other comprehensive income for the designated component of the hedge, and through profit or loss for the non-designated component including accrued interest.
T32 – Maturity of financing liabilities from real estate financing
Remaining term Remaining term Remaining term € million < 1 year > 1 and 5 years > 5 years Total 30.09.2016 ...... 380.3 835.2 2,537.3 3,752.8 31.12.2015 ...... 491.3 638.7 2,085.0 3,215.0
8. Selected notes to the consolidated statement of comprehensive income Net rental and lease income is broken down as follows:
T33 – Net rental and lease income
01.01. – 01.01. – € million 30.09.2016 30.09.2015 Net cold rent ...... 381.3 325.3 0.6מ 0.9מ ...... Net income from operating costs 36.5מ 44.9מ ...... Maintenance expenses 27.4מ 30.2מ ...... Staff costs 4.7מ 5.5מ ...... Impairment losses on rent receivables 3.3מ 4.0מ ...... Depreciation 10.4מ 5.0מ ...... Others NET RENTAL AND LEASE INCOME ...... 290.8 242.4 NET OPERATING INCOME MARGIN (IN %) ...... 76.3 74.5 Non-recurring project costs – rental and lease ...... 0.9 1.8 Depreciation ...... 4.0 3.3 ADJUSTED NET RENTAL AND LEASE INCOME ...... 295.7 247.5 ADJUSTED NET OPERATING INCOME – MARGIN (IN %) ...... 77.6 76.1
In the reporting period, the LEG Group increased its net rental and lease income by EUR 48.4 million (20.0 %) compared with the same period of the previous year. The main driver of this development was the EUR 56.0 million (17.2%) rise in net cold rent. In-place rent per square metre on a like-for-like basis rose by 2.4% in the reporting period as against the previous year. This was offset by a EUR 8.4 million (23.0%) increase in maintenance expenses. The rental-related staff costs rose by 10.2% to EUR 30.2 million and at a considerably slower year-on-year rate than in-place rent. The NOI margin adjusted for one-time project costs of 77.6% was considerably higher than in the previous year (76.1%) despite higher maintenance expenses.
F-13 Interim consolidated financial statements SELECTED NOTES (Continued)
8. Selected notes to the consolidated statement of comprehensive income (Continued) Net income from the disposal of investment properties is composed as follows:
T34 – Net income from the disposal of investment properties
01.01. – 01.01. – € million 30.09.2016 30.09.2015 Income from the disposal of investment properties ...... 136.2 66.9 64.7מ 127.1מ ...... Carrying amount of investment properties disposed of INCOME/LOSS FROM THE DISPOSAL OF INVESTMENT PROPERTIES ..... 9.1 2.2 0.5מ 0.5מ ...... Staff costs 0.3מ 0.3מ ...... Other operating expenses COST OF SALE IN CONNECTION WITH INVESTMENT PROPERTIES 1.5מ 0.8מ ...... SOLD NET INCOME FROM THE DISPOSAL OF INVESTMENT PROPERTIES ...... 8.3 0.7
Administrative and other expenses are composed as follows:
T35 – Administrative and other expenses
01.01. – 01.01. – € million 30.09.2016 30.09.2015 14.0מ 47.3מ ...... Other operating expenses 16.4מ 16.0מ ...... Staff costs 0.8מ 0.8מ ...... Purchased services 1.5מ 1.9מ ...... Depreciation, amortisation and write-downs 32.7מ 66.0מ ...... ADMINISTRATIVE AND OTHER EXPENSES Depreciation and amortisation ...... 1.9 1.5 Non-recurring project costs and extraordinary and prior-period expenses ...... 40.4 6.5 LTIP (long-term incentive programme) ...... 0.0 0.2 24.5מ 23.7מ ...... Adjusted administrative and other expenses
Administrative and other expenses increased by EUR 33.3 million year-on-year. This increase was due chiefly to one-time incidental acquisition and integration costs for the acquisition of property portfolios, which contributed to project costs rising by EUR 34.0 million to EUR 40.4 million. EUR 34.4 million of this is attributable to real estate transfer tax, which was recognised directly under expenses instead of being capitalised as cost because the acquisitions were accounted for as business combinations. Adjusted for these non-recurring effects, current administrative expenses decreased slightly as planned due to the implementation of efficiency enhancement measures and amounted to EUR 23.7 million in the reporting period, down EUR 0.8 million (3.3%) year-on-year. Net interest income is composed as follows:
T36 – Interest income
01.01. – 01.01. – € million 30.09.2016 30.09.2015 Interest income from bank balances ...... 0.0 0.2 Interest income from finance leases ...... 0.0 0.3 Other interest income ...... 0.0 0.1 INTEREST INCOME ...... 0.0 0.6
F-14 Interim consolidated financial statements SELECTED NOTES (Continued)
8. Selected notes to the consolidated statement of comprehensive income (Continued)
T37 – Interest expenses
01.01. – 01.01. – € million 30.09.2016 30.09.2015 49.7מ 51.1מ ...... Interest expenses from real estate financing 27.4מ 16.6מ ...... Interest expense from loan amortisation 7.2מ 0.3מ ...... Prepayment penalty 17.5מ 11.3מ ...... Interest expense from interest derivatives for real estate financing 2.2מ 2.4מ ...... Interest expense from change in pension provisions 1.3מ 2.1מ ...... Interest expense from interest on other assets and liabilities 1.0מ 1.5מ ...... Interest expenses from lease financing 39.6מ 4.3מ ...... Other interest expenses 145.9מ 89.6מ ...... INTEREST EXPENSES
The decline in interest expenses from loan amortisation and prepayment penalties was due in particular to the discontinuation of the non-recurring effects of the loans that were replaced as part of the planned refinancing in the 2015 financial year. Other interest expense resulted mainly from the reversal of the amounts for interest rate derivatives reported in OCI for hedge accounting amounting to EUR 4.2 million (previous year: EUR 39.5 million), which were released in connection with the refinancing. Interest expenses from loan amortisation include the measurement of the convertible bond at amortised cost in the amount of EUR 4.9 million. In addition, the increase in the loan volume due to acquisition financing resulted in a slight rise in interest expenses from financing of real estate. The refinancing in 2015 and 2016 and the related replacement of derivatives also had the effect of reducing interest expenses from interest rate derivatives. This was offset by the effects of the lower interest rates on interest rate derivatives.
Income taxes T38 – Income taxes 01.01. – 01.01. – € million 30.09.2016 30.09.2015 1.1מ 3.7מ ...... Current income taxes 11.0מ 41.3מ ...... Deferred taxes 12.1מ 45.0מ ...... INCOME TAXES
An effective Group tax rate of 22.6% was assumed as at 30 September 2016 in accordance with Group tax planning (previous year: 22.7%). Current income taxes as at the comparative reporting date of 30 September 2015 included prior-period tax expenses of EUR 1.0 million. A deferred tax expense of EUR 4.7 million was recognised for the change in deferred tax assets for tax loss carryforwards as against 31 December 2015 (previous year: deferred tax income of EUR 4.2 million).
Earnings per share Basic earnings per share are calculated by dividing the net profit for the period attributable to the shareholders by the average number of shares outstanding during the reporting period. On 30 May 2016, LEG Immo implemented a capital increase against contributions in kind in a nominal amount of EUR 418,397, with shareholders’ pre-emptive rights disapplied.
F-15 Interim consolidated financial statements SELECTED NOTES (Continued)
8. Selected notes to the consolidated statement of comprehensive income (Continued)
T39 – Earnings per share (basic)
01.01. – 01.01. – 30.09.2016 30.09.2015 21.9מ Net profit or loss attributable to shareholders in € million ...... 85.6 Average numbers of shares outstanding ...... 62,955,742 57,493,242 0.38מ EARNINGS PER SHARE (BASIC) IN € ...... 1.36
As at 30 September 2016, LEG Immo had potential ordinary shares from a convertible bond, which authorise the bearer to convert it into up to 5.3 million shares. Diluted earnings per share are calculated by increasing the average number of shares outstanding by the number of all potentially dilutive shares. The net profit/loss for the period is adjusted for the expenses no longer incurring for the interest coupon, the measurement of the embedded derivatives and the amortisation of the convertible bond and the resulting tax effect in the event of the conversion rights being exercised in full. Owing in particular to the expenses no longer incurring in the event of conversion for the measurement of the embedded derivative, the potential ordinary shares from the convertible bond are not dilutive within the meaning of IAS 33.41. The diluted earnings per share are therefore equal to the basic earnings per share.
9. Notes on Group segment reporting As a result of the restructuring of internal management reporting in the 2016 financial year, the management of LEG Immo in two segments has no longer applied since 30 June 2016. In future, the Group will be managed as one segment.
10. Financial instruments The table below shows the financial assets and liabilities broken down by measurement category and class. Receivables and liabilities from finance leases and derivatives used as hedging instruments are included even though they are not assigned to an IAS 39 measurement category. With respect to reconciliation, non-financial assets and non-financing liabilities are also included although they are not covered by IFRS 7. The fair values of financial instruments are determined on the basis of corresponding market values or measurement methods. For cash and cash equivalents and other short-term primary financial instruments, the fair value is approximately the same as the carrying amount at the end of the respective reporting period. For non-current receivables, other assets and liabilities, the fair value is calculated on the basis of the forecast cash flows, applying the reference interest rates as of the end of the reporting period. The fair values of derivative financial instruments are determined based on the benchmark interest rates in place as of the reporting date. For financial instruments at fair value, the discounted cash flow method is used to determine fair value using corresponding quoted market prices, with individual credit ratings and other market conditions being taken into account in the form of standard credit and liquidity spreads when calculating present value. If no quoted market prices are available, the fair value is calculated using standard measurement methods applying instrument- specific market parameters. When calculating the fair value of derivative financial instruments, the input parameters for the valuation models are the relevant market prices and interest rates observed as of the end of the reporting period, which are obtained from recognised external sources. The derivatives are therefore attributable to Level 2 of the fair value hierarchy as defined in IFRS 13.72 ff (measurement on the basis of observable inputs). Both the Group’s own risk and the counterparty risk were taken into account in the calculation of the fair value of derivatives in accordance with IFRS 13.
F-16 Interim consolidated financial statements SELECTED NOTES (Continued)
10. Financial instruments (Continued)
T40 – Classes of financial instruments for financial assets and liabilities 2016
Carrying amounts as Measurement (IAS 39) per statement Fair value of financial through positions Amortised profit or Measurement Fair value € million 30.09.2016 cost loss IAS 17 30.09.2016 Assets Other financial assets ...... 2.9 2.9 LaR...... 0.2 0.2 0.2 AfS ...... 2.7 2.7 n/a* Receivables and other assets ...... 76.1 76.1 LaR...... 45.0 45.0 45.0 Other non-financial assets ...... 31.1 31.1 Cash and cash equivalents ...... 303.8 303.8 LaR...... 303.8 303.8 303.8 TOTAL ...... 382.8 351.7 382.8 Of which IAS 39 measurement categories LaR...... 349.0 349.0 349.0 AfS ...... 2.7 2.7 n/a* Equity and liabilities 4,252.8מ 3,780.3מ ...... Financial liabilities 4,224.6מ 3,752.8מ 3,752.8מ ...... FLAC 28.2מ 27.5מ 27.5מ ...... Liabilities from lease financing 555.7מ 555.7מ ...... Other liabilities 52.5מ 52.5מ 52.5מ ...... FLAC 185.1מ 185.1מ 185.1מ ...... Derivatives HFT 68.8מ 68.8מ ...... Hedge accounting derivatives 249.3מ 249.3מ ...... Other non-financial liabilities Liabilities directly associated with assets 12.5מ 12.6מ 12.6מ ...... classified as held for sale 4,821.0מ 27.5מ 185.1מ 3,817.9מ 4,348.6מ ...... TOTAL Of which IAS 39 measurement categories 4,289.4מ 3,817.9מ 3,817.9מ ...... FLAC 185.1מ 185.1מ 185.1מ ...... Derivatives HFT
* The fair value of shares valuated at cost could not reliably be calculated. There is no intention of disposal. LaR = Loans and Receivables HFT = Held for Trading AfS = Available for Sale FLAC = Financial Liabilities at Cost FAHFT = Financial Assets Held for Trading FLHFT = Financial Liabilities Held for Trading
F-17 Interim consolidated financial statements SELECTED NOTES (Continued)
10. Financial instruments (Continued)
T41 – Classes of financial instruments for financial assets and liabilities 2015
Carrying amounts as Measurement (IAS 39) per statement Fair value of financial through positions Amortised profit or Measurement Fair value € million 31.12.2015 cost loss IAS 17 31.12.2015 Assets Other financial assets ...... 148.8 148.8 LaR...... 0.1 0.1 0.0 0.1 AfS ...... 148.7 148.7 n/a* Receivables and other assets ...... 33.2 29.6 LaR...... 27.6 27.6 27.6 Other non-financial assets ...... 5.6 5.6 Cash and cash equivalents ...... 252.8 252.8 LaR...... 252.8 252.8 252.8 TOTAL ...... 434.8 429.2 0.0 431.2 Of which IAS 39 measurement categories LaR...... 280.5 155.2 155.2 AfS ...... 148.7 148.7 n/a* Equity and liabilities 3,570.0מ 3,241.6מ ...... Financial liabilities 3,542.7מ 3,215.0מ 3,215.0מ ...... FLAC 27.3מ 26.6מ 26.6מ ...... Liabilities from lease financing 359.8מ 359.8מ ...... Other liabilities 31.3מ 31.3מ 31.3מ ...... FLAC 168.8מ 168.8מ 168.8מ ...... Derivatives HFT 42.3מ 42.3מ ...... Hedge accounting derivatives 117.4מ 117.4מ ...... Other non-financial liabilities Liabilities directly associated with assets classified as held for sale ...... 3,929.8מ 26.6מ 168.8מ 3,246.3מ 3,601.4מ ...... TOTAL Of which IAS 39 measurement categories 3,574.0מ 3,246.3מ 3,246.3מ ...... FLAC 168.8מ 168.8מ 168.8מ ...... Derivatives HFT
* The fair value of shares valuated at cost could not reliably be calculated. There is no intention of disposal. LaR = Loans and Receivables HFT = Held for Trading AfS = Available for Sale FLAC = Financial Liabilities at Cost FAHFT = Financial Assets Held for Trading FLHFT = Financial Liabilities Held for Trading
11. Related-party disclosures Please see the IFRS consolidated financial statements as at 31 December 2015 for the presentation of the IFRS 2 programmes for long-term incentive Management Board agreements.
F-18 Interim consolidated financial statements SELECTED NOTES (Continued)
11. Related-party disclosures (Continued) By resolution of the Supervisory Board on 31 May 2016, a new Management Board agreement was concluded with Mr Holger Hentschel. The following adjustments to Mr Holger Hentschel’s remuneration were resolved with effect from 1 July 2016: – Increase in basic remuneration from EUR 300,000.00 p.a. to EUR 350,000.00 p.a. – Increase in the STI programme (in the case of 100% target attainment) from EUR 200,000.00 p.a. to EUR 250,000.00 p.a. – Increase in the annual LTI programme (in the case of 100% target attainment) from EUR 250,000.00 p.a. to EUR 300,000.00 p.a. The replacement of the old agreement by the new agreement is accounted for as a modification of existing agreements in accordance with IFRS 2.28 f. This requires that the old commitment of the LTI programme for Mr Holger Hentschel is accounted for as before, and any incremental fair value arising from the new commitment is also recognised as an expense from the modification date. The incremental fair value is defined as the difference between the fair value of the original programme and the fair value of the new programme, each calculated as at the date of modification.
T42 – Fair value of LTI commitments 2016
Fair value Fair value Incremental € thousand existing contract new contract fair value Holger Hentschel ...... 144 172 28 TOTAL ...... 144 172 28
For the 2016 financial year, the employment agreements for the other Management Board members provide for an LTI programme that is subject to the same contractual premises as the LTI remuneration in 2015.
12. Other LEG has acquired certain portfolios in combined asset deal/share deal transaction structures. The real estate transfer tax assessments issued in this regard have so far followed LEG’s evaluation under tax law. For the most recent acquisition made according to this model, the tax authorities expressed a different legal opinion, which would result in EUR 9.5 million higher real estate transfer tax on this acquisition. LEG appealed against the basic assessment notice issued in this context and applied for a suspension of execution, which was granted even without the provision of collateral. Because LEG estimates the appeal will prevail, as do various tax experts, the matter does not need to be recognised on the balance sheet. It will be presented as a contingent liability. Should LEG’s tax assessment regarding all portfolio acquisitions undertaken in this transaction structure be proven inaccurate, higher real estate transfer tax would be charged on the total market value of the land in these transactions. The additional charge would be approximately EUR 26.8 million (including the above-mentioned EUR 9.5 million). Other than this, there were no changes with regard to contingent liabilities in comparison to 31 December 2015.
13. The Management Board and the Supervisory Board Mr Jürgen Schulte-Laggenbeck resigned as a member of the Supervisory Board effective 31 December 2015. Dr Claus Nolting was elected to the Supervisory Board as his successor by the Annual General Meeting on 19 May 2016. There were no other changes to the composition of the Management Board and the Supervisory Board as at 30 September 2016 compared with the disclosures as at 31 December 2015.
F-19 Interim consolidated financial statements SELECTED NOTES (Continued)
14. Events after the end of the reporting period There were no significant events after the end of the interim reporting period on 30 September 2016.
Dusseldorf, 9 November 2016 LEG Immobilien AG The Management Board THOMAS HEGEL, Erftstadt (CEO) ECKHARD SCHULTZ, Neuss (CFO) HOLGER HENTSCHEL, Erkrath (COO)
F-20 Audited Consolidated Financial Statements of LEG Immobilien AG for the year ended December 31, 2015 (IFRS)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION ...... F-22 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME ...... F-23 STATEMENT OF CHANGES IN CONSOLIDATED EQUITY ...... F-24 CONSOLIDATED STATEMENT OF CASH FLOWS ...... F-25 NOTES ...... F-26 CONSOLIDATED STATEMENT OF CHANGES IN ASSETS/ANNEX I ...... F-91 CONSOLIDATED STATEMENT OF CHANGES IN PROVISIONS/ANNEX II ...... F-92 OVERVIEW OF VOTING RIGHT NOTIFICATIONS/ANNEX III ...... F-93 AUDITOR’S REPORT ...... F-98
F-21 Consolidated financial statements CONSOLIDATED STATEMENT OF FINANCIAL POSITION
T46 – Consolidated statement of financial position
€ million Notes 31.12.2015 31.12.2014 Assets Non-current assets ...... 6,898.4 6,086.2 Investment properties ...... E.1 6,398.5 5,914.3 Prepayments for investment properties ...... 203.1 16.8 Property, plant and equipment ...... E.2 59.1 64.6 Intangible assets ...... E.3 63.1 64.01 Investments in associates ...... E.4 8.8 8.9 Other financial assets ...... E.5 148.8 2.4 Receivables and other assets ...... E.6 2.7 2.5 Deferred tax assets ...... E.15 14.3 12.7 Current assets ...... 290.0 165.8 Real estate inventory and other inventory ...... E.7 5.1 6.2 Receivables and other assets ...... E.6 30.5 27.1 Income tax receivables ...... E.15 1.6 2.6 Cash and cash equivalents ...... E.8 252.8 129.9 Assets held for sale ...... E.9 6.7 58.4 TOTAL ASSETS ...... 7,195.1 6,310.4
€ million Notes 31.12.2015 31.12.2014 Equity and liabilities Equity ...... E.10 2,985.0 2,490.4 Share capital ...... 62.8 57.1 Capital reserves ...... 779.2 578.9 Cumulative other reserves ...... 2,125.8 1,840.11 Equity attributable to shareholders of the parent company ...... 2,967.8 2,476.1 Non-controlling interests ...... 17.2 14.3 Non-current liabilities ...... 3,419.3 3,158.8 Pension provisions ...... E.11 142.8 158.3 Other provisions ...... E.12 11.4 14.6 Financing liabilities ...... E.13 2,745.6 2,546.5 Other liabilities ...... E.14 106.7 114.6 Tax liabilities ...... E.15 8.5 16.5 Deferred tax liabilities ...... E.15 404.3 308.3 Current liabilities ...... 790.8 661.2 Pension provisions ...... E.11 7.0 6.3 Other provisions ...... E.12 19.1 17.5 Provisions for taxes ...... E.15 0.4 0.4 Financing liabilities ...... E.13 496.0 413.8 Other liabilities ...... E.14 253.1 206.61 Tax liabilities ...... E.15 15.2 16.6 TOTAL EQUITY AND LIABILITIES ...... 7,195.1 6,310.4
1 Adjustment arising from final purchase price allocation
F-22 Consolidated financial statements CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
T47 – Consolidated statement of comprehensive income
01.01. – 01.01. – € million Notes 31.12.2015 31.12.2014 Net rental and lease income ...... F.1 320.5 284.9 Rental and lease income ...... 644.6 576.8 291.9מ 324.1מ ...... Cost of sales in connection with rental lease income 1.7מ Net income from the disposal of investment properties ...... F.2 3.6 Income from the disposal of investment properties ...... 112.3 37.6 37.2מ 107.0מ ...... Carrying amount of the disposal of investment properties 2.1מ 1.7מ ...... Cost of sales in connection with disposed investment properties Net income from the remeasurement of investment properties ...... F.3 285.5 143.0 3.1מ 1.2מ Net income from the disposal of real estate inventory ...... F.4 Income from the real estate inventory disposed of ...... 1.0 5.7 5.0מ 0.7מ ...... Carrying amount of the real estate inventory disposed of 3.8מ 1.5מ ...... Costs of sales of the real estate inventory disposed of 0.3מ Net income from other services ...... F.5 0.9 Income from other services ...... 8.9 9.3 9.6מ 8.0מ ...... Expenses in connection with other services 41.6מ 58.1מ Administrative and other expenses ...... F.6 Other income ...... 0.9 0.5 OPERATING EARNINGS ...... 552.1 381.7 Interest income ...... F.7 0.6 1.2 128.5מ 181.5מ Interest expenses ...... F.8 Net income from investment securities and other equity investments ...... 4.3 7.1 Net income from associates ...... 0.0 0.3 42.3מ 75.8מ Net income from the fair value measurement of derivatives ...... F.9 EARNINGS BEFORE INCOME TAXES ...... 299.7 219.5 63.91מ 82.0מ Income taxes ...... F.10 NET PROFIT OR LOSS FOR THE PERIOD ...... 217.7 155.6 Change in amounts recognised directly in equity Thereof recycling 30.9מ Fair value adjustment of interest rate derivatives in hedges ...... 31.2 42.1מ Change in unrealised gains/(losses) ...... 41.5 11.2 10.3מ ...... Income taxes on amounts recognised directly in equity Thereof non-recycling 22.2מ Actuarial gains and losses from the measurement of pension obligations .... 8.4 31.8מ Change in unrealised gains/(losses) ...... 12.1 9.6 3.7מ ...... Income taxes on amounts recognised directly in equity TOTAL COMPREHENSIVE INCOME ...... 257.3 102.5 Net profit or loss for the period attributable to: 1.01 0.1מ ...... Non-controlling interests Parent shareholders ...... 217.8 154.61 Total comprehensive income attributable to: 0.51 0.1מ ...... Non-controlling interests Parent shareholders ...... 257.4 102.01 EARNINGS PER SHARE (BASIC AND DILUTED) IN € ...... F.11 3.74 2.87
1 Adjustment arising from final purchase price allocation of Vitus transaction
F-23 Consolidated financial statements STATEMENT OF CHANGES IN CONSOLIDATED EQUITY
T48 – Statement of changes in consolidated equity
Cumulative other reserves Actuarial gains and losses Fair value from the adjustment Equity measurement of interest attributable Share Capital Revenue of pension derivatives to shareholders Noncontrolling Consolidated € million capital reserves reserves obligations in hedges of the Group interests equity 2,276.1 27.3 2,248.8 34.4מ 16.6מ AS OF 01.01.2014 ...... 53.0 440.9 1,805.9 Net profit or loss for the period ...... – – 155.8 – – 155.8 1.0 156.8 53.1מ 0.5מ 52.6מ 30.7מ 21.9מ – – – ...... Other comprehensive income 103.7 0.5 103.2 30.7מ 21.9מ TOTAL COMPREHENSIVE INCOME ...... – – 155.8 0.5מ 14.4מ Change in consolidated companies ...... – – 13.9 – – 13.9 F-24 Capital increase ...... 4.1 198.8 62.0 – – 264.9 0.9 265.8 63.1מ – 63.1מ – – 1.1מ 62.0מ – ...... Withdrawals from reserves 91.6מ – 91.6מ – – 91.6מ – – ...... Distributions Contribution in connection with Management and Supervisory Board . . . – 1.2 – – – 1.2 – 1.2 2,491.6 14.3 2,477.3 65.1מ 38.5מ AS OF 31.12.2014 ...... 57.1 578.9 1,944.9 Net profit/loss for the period – adjustment arising from final PPA 1.2מ 0.0 1.2מ – – 1.2מ – – ...... Vitus 2,490.4 14.3 2,476.1 65.1מ 38.5מ AS OF 31.12.2014 ADJUSTED ...... 57.1 578.9 1,943.7 2,490.4 14.3 2,476.1 65.1מ 38.5מ AS OF 01.01.2015 ...... 57.1 578.9 1,943.7 217.7 0.1מ Net profit or loss for the period ...... – – 217.8 – – 217.8 Other comprehensive income ...... – – – 8.4 31.2 39.6 – 39.6 257.3 0.1מ TOTAL COMPREHENSIVE INCOME ...... – – 217.8 8.4 31.2 257.4 Change in consolidated companies/other ...... – – 7.7 – – 7.7 6.8 14.5 Capital increase ...... 5.7 370.1 171.2 – – 547.0 0.7 547.7 209.0מ 0.2מ 208.8מ – – 38.8מ 170.0מ – ...... Withdrawals from reserves 116.1מ 4.3מ 111.8מ – – 111.8מ – – ...... Distributions Contribution in connection with Management and Supervisory Board . . . – 0.2 – – – 0.2 – 0.2 2,985.0 17.2 2,967.8 33.9מ 30.1מ AS OF 31.12.2015 ...... 62.8 779.2 2,189.8 Consolidated financial statements CONSOLIDATED STATEMENT OF CASH FLOWS
T49 – Consolidated statement of cash flows
01.01. – 01.01. – € million Notes 31.12.2015 31.12.2014 Operating earnings ...... 552.1 381.7 Depreciation on property, plant and equipment and amortisation on intangible assets ...... 9.0 8.6 143.0מ 285.5מ ...... Gains)/Losses from the remeasurement of investment properties) (Gains)/Losses from the disposal of assets held for sale and investment 0.4מ 5.3מ ...... properties (Decrease)/Increase in pension provisions and other non-current 1.1 6.0מ ...... provisions Other non-cash income and expenses ...... 5.9 6.7 0.3מ 3.3מ ...... Decrease)/Increase in receivables, inventories and other assets) Decrease/(Increase) in liabilities (not including financing liabilities) and 5.6מ 7.0מ ...... provisions 95.5מ 88.2מ ...... Interest paid Interest received ...... 0.7 1.0 Received income from investments ...... 4.4 7.9 Taxes received ...... 1.5 1.4 16.7מ 11.4מ ...... Taxes paid NET CASH FROM/(USED IN) OPERATING ACTIVITIES ...... 166.9 146.9 Cash flow from investing activities 226.2מ 421.9מ ...... Investments in investment properties Proceeds from disposals of non-current assets held for sale and investment properties ...... 80.6 70.1 3.1מ 3.1מ ...... Investments in intangible assets and property, plant and equipment Proceeds from disposals of intangible assets and property, plant and equipment ...... 0.1 0.0 Proceeds from disposals of financial assets and other assets ...... 0.0 0.3 448.5מ 151.6מ ...... Acquisition of shares in consolidated companies 607.4מ 495.9מ ...... NET CASH FROM/(USED IN) INVESTING ACTIVITIES Cash flow from financing activities Borrowing of bank loans ...... 1,281.1 208.8 127.3מ 1,086.9מ ...... Repayment of bank loans 3.2מ 3.8מ ...... Repayment of lease liabilities Issue of convertible bond ...... – 296.1 Capital contribution ...... 375.8 202.9 6.0מ 7.9מ ...... Other payments 91.6מ 111.8מ ...... Distribution to shareholders Other proceeds ...... 5.4 – NET CASH FROM/(USED IN) FINANCING ACTIVITIES ...... 451.9 479.7 Change in cash and cash equivalents ...... 122.9 19.2 Cash and cash equivalents at beginning of period ...... 129.9 110.7 CASH AND CASH EQUIVALENTS AT END OF PERIOD ...... 252.8 129.9 Composition of cash and cash equivalents Cash in hand, bank balances ...... 252.8 129.9 CASH AND CASH EQUIVALENTS AT END OF PERIOD ...... 252.8 129.9
F-25 Consolidated financial statements NOTES
A. General information on the consolidated financial statements of LEG Immobilien AG 1. Basic information on the Group LEG Immobilien AG, Dusseldorf (hereinafter: “LEG Immo”), its subsidiary LEG NRW GmbH, Dusseldorf (hereinafter: “LEG”) and the subsidiaries of the latter company (hereinafter referred to collectively as the “LEG Group”) are among the largest residential companies in Germany. The LEG Group held a portfolio of 109,969 units (residential and commercial) on 31 December 2015. LEG Immo and its subsidiaries engage in two core activities as an integrated property company: the value-adding long-term management of its residential property portfolio in connection with the strategic acquisition of residential portfolios in order to generate economies of scale for its management platform and the expansion of tenantoriented services. LEG Immo went public on 1 February 2013 with the initial listing of its shares in the Regulated Market (Prime Standard) of the Frankfurt Stock Exchange. These consolidated financial statements were approved for publication by LEG Immo’s Management Board on 8 March 2016.
2. Consolidated financial statements The consolidated financial statements of the LEG Group as of 31 December 2015 have been prepared in accordance with the International Financial Reporting Standards (IFRS) adopted and published by the International Accounting Standards Board (IASB) as applicable in the European Union. The consolidated financial statements have been prepared in accordance with the provisions of Regulation (EC) No. 1606/2002 of the European Parliament and of the Council dated 19 July 2002, concerning the application of international accounting standards in conjunction with section 315a(3) of the Handelsgesetzbuch (HGB – German Commercial Code) and the additional provisions of commercial law. Individual items of the statement of comprehensive income and the statement of financial position have been aggregated to improve the clarity of presentation. These items are discussed in the notes to the consolidated financial statements. The statement of comprehensive income has been prepared using the cost of sales method. The consolidated financial statements have been prepared in euro. Unless stated otherwise, all figures have been rounded to millions of euro (EUR million). For technical reasons, tables and references can include rounded figures that differ from the exact mathematical values. The consolidated financial statements are prepared on the basis of accounting for assets and liabilities at amortised cost. Exceptions to this are investment property, securities held for sale and derivative financial instruments, which are carried at their fair value as at the end of the reporting period. The consolidated financial statements and the Group management report are published in the Bundesanzeiger (Federal Gazette). The preparation of consolidated financial statements in accordance with the IFRS requires estimates and judgements on the part of the management. Areas with greater scope for judgement or areas in which assumptions and estimates are of material importance to the consolidated financial statements are listed in D.22 and D.23. The consolidated financial statements of LEG Immo constitute exempting consolidated financial statements within the meaning of section 291 HGB for LEG NRW GmbH, Ruhr-Lippe Wohnungsgesellschaft mbH and Wohnungsgesellschaft Münsterland mbH. These companies are not required to prepare subgroup financial statements as they are included in the consolidated financial statements of LEG Immo, no non-controlling interests have applied for the preparation of consolidated financial statements and a Group management report in accordance with section 291(3) sentence 1 no. 2 HGB, and the other conditions of section 291(2) no. 2 and no. 3 HGB have been met. No subsidiaries have exercised the exemption provisions set out in section 264(3) HGB or section 264b HGB.
F-26 Consolidated financial statements NOTES (Continued)
B. New accounting standards 1. International Financial Reporting Standards (IFRSs) and Interpretations (IFRICs) that have been published but that are not yet effective
The IASB has published the following IFRSs and IFRICS that are not yet effective: Table T50
T50 – Published IFRS and IFRIC that are not yet effective
Effective for reporting Content periods beginning on New standards IFRS 9 ...... “Financial Instruments: Classification and 01.01.2018* Measurement” IFRS 14 ...... “Regulatory Deferral Accounts” 01.01.2016* IFRS 15 ...... “Revenue from Contracts with Customers” 01.01.2018* IFRS 16 ...... “Leases” 01.01.2019* Amendments to standards IFRS 11 ...... “Joint Operations” 01.01.2016* IAS 16/IAS 38...... “Property, Plant and Equipment and Intangible Assets” 01.01.2016* IAS 16/IAS 41...... “Property, Plant and Equipment and Agriculture” 01.01.2016* IAS27...... “Separate Financial Statements” 01.01.2016* IFRS 10/IAS 28 ...... “Sales or Contributions of Assets between an Investor not defined and its Associate/Joint Venture” IAS1...... “Disclosure Initiative” 01.01.2016* IAS7...... “Disclosure Initiative” 01.01.2017* IAS12...... “Recognition of deferred tax assets for unrealised 01.01.2017* losses” IFRS 10/IFRS 12/IAS 28 . . . “Applying the Consolidation Exception” 01.01.2016* IAS19...... “Defined Benefit Plans: Employee Contributions” 01.02.2015 Various standards ...... Annual Improvements to IFRSs 2010 – 2012 01.02.2015 Various standards ...... Annual Improvements to IFRSs 2012 – 2014 01.01.2016*
* (not yet endorsed) LEG Immo does not adopt new standards early. In December 2014 the IASB published amendments to IAS 1, Disclosure Initiative. The amendments are intended to remove boundaries with regard to judgements by the preparer in the presentation of the financial statements. Subject to the approval of the EU, the amendments are effective for reporting periods beginning on or after 1 January 2016. They will not affect the net assets, financial position or results of operations. However, changes in disclosures in the notes are expected. The LEG Group is currently reviewing the implications of the standard. The IASB completed its project to replace IAS 39, Financial Instruments: Recognition and Measurement, in July 2014 with the publication of the final version of IFRS 9, Financial Instruments. IFRS 9 contains revised regulations on the classification and measurement of financial assets and a new loss allowance model that also takes expected losses into account in the calculation of loss allowances. Furthermore, it also includes the new hedge accounting regulations already published in November 2013. The standard therefore replaces all earlier versions of IFRS 9 and, subject to EU endorsement, is effective for the first time for reporting periods beginning on or after 1 January 2018. The adoption of IFRS 9 is expected to result in changes to the accounting of financial instruments at the LEG Group. The LEG Group is reviewing the impact of the standard. In May 2014 the IASB published IFRS 15 Revenue from Contracts with Customers. IFRS 15 replaces the previous IFRS provisions on revenue recognition: IAS 18 and IAS 11. The goal of the new standard on revenue recognition is to compile the many regulations already contained in various standards and interpretations into a uniform model of revenue recognition. The standard establishes a five-step model to help determine the amount and timing of revenue recognition. Other changes can arise on account of the new regulations for revenue
F-27 Consolidated financial statements NOTES (Continued)
B. New accounting standards (Continued) recognition on transfer of control, multi-component transactions with revenue recognised over the period of performance and extended disclosures in the notes. Subject to EU endorsement, the standard is effective for reporting periods beginning on or after 1 January 2018. The LEG Group is reviewing the impact of the standard. No material effects on the net assets, financial position, or results of operations are expected. The IASB completed its project to replace IAS 17, Leases, in January 2016 with the publication of the final version of IFRS 16, Leases. IFRS 16 establishes a new accounting model based on the right to use an asset for leases in the lessee’s financial statements. The current classification system that distinguishes between operating and finance leases will be replaced for lessees in future (“one-model approach”). For lessees, all leases will be shown “on-balance sheet”. Thus, lessees will recognise a “right of use” asset and a lease liability for all leases. Subject to EU endorsement, the standard is effective for reporting periods beginning on or after 1 January 2019. This will affect the net assets, financial position and results of operations of the LEG Group. The precise extent is currently under analysis.
2. International Financial Reporting Standards (IFRS) and Interpretations (IFRIC) effective for the first time The following changes in IFRSs and interpretations were effective for the first time in the LEG Immo consolidated financial statements in the 2015 financial year: Table T51
T51 – Amended standards and new interpretations effective for the first time
Effective for reporting Content periods beginning on Amendments to standards Various standards ...... Annual Improvements to IFRSs 2011 – 2013 01.01.2015 New interpretations IFRIC 21 ...... “Levies” 17.06.2014 IFRIC 21, Levies, published in May 2013, clarifies when to recognise a liability for a levy imposed by a government. It is effective for the first time for annual periods beginning on or after 17 June 2014. In accordance with IFRIC 21, real estate tax for the entire 2015 financial year were recognised as at 1 January 2015. There was no effect on the net assets, financial position or results of operations as at the end of the financial year.
C. Basis of consolidation and consolidation methods 1. Scope of consolidated financial statements and consolidation methods a) Subsidiaries The consolidated financial statements of the LEG Group contain all the material subsidiaries LEG Immo controls within the meaning of IFRS 10. An entity is to be included in consolidation by another entity when, in substance, the former is controlled by the latter, even if it does not hold more than 50% of the voting rights in the other entity. LEG Immo only controls its subsidiaries if the following three requirements of IFRS 10.7 are met: 1) the parent company has power over the relevant activities of the subsidiary 2) variable returns from the subsidiaries go to the parent company and 3) the parent company has the ability to use its power over the subsidiary to affect the amount of the returns. Subsidiaries are consolidated from the date at which LEG Immo first obtains control. Subsidiaries are deconsolidated as soon as LEG Immo no longer controls them. The financial statements of subsidiaries are prepared using uniform accounting policies and as at the end of the same reporting period as LEG Immo’s financial statements.
F-28 Consolidated financial statements NOTES (Continued)
C. Basis of consolidation and consolidation methods (Continued) Capital is consolidated in accordance with the acquisition method, whereby the cost at the time of acquisition is offset against the pro rata share of net assets. Under the acquisition method, the net assets of the acquired subsidiary at the acquisition date is calculated taking into account the fair values of the identifiable assets, liabilities and contingent liabilities, deferred taxes and any goodwill at this date. Non-controlling interests represent the share of profit and net assets not attributable to the shareholders of LEG Immo. Non-controlling interests are reported separately in the consolidated statement of comprehensive income and the consolidated statement of financial position. They are reported in the consolidated statement of financial position under equity but separately from the equity attributable to the shareholders of the parent company. All intragroup receivables and liabilities, income and expenses and gains and losses from intragroup transactions are eliminated. b) Associates Associates are equity interests whose financial and operating policies can be significantly influenced by the LEG Group. Significant influence is presumed when LEG Immo holds between 20% and 50% of the voting rights in this company, either directly or indirectly, unless it can be clearly demonstrated that this is not the case. Associates are accounted for using the equity method. Under the equity method, investments in associates are recognised at cost in the Group’s financial statements, adjusted for changes in the LEG Group’s interest in the net assets of the associate and any impairment losses. Losses from associates in excess of the carrying amount of the investment, or other non-current receivables from the financing of the respective associate, are not recognised unless there is an obligation to make additional payments. Owing to their immateriality for the net assets, financial position and results of operations of the Group, certain individual associates are measured at fair value or, if the fair value cannot be reliably determined for unlisted equity instruments, at cost and reported in other non-current financial assets. A list of the LEG Group’s shareholdings can be found in section J.
2. Changes in the Group a) Subsidiaries The scope of consolidated financial statements of the LEG Group developed as follows:
T52 – Number of consolidated subsidiaries
2015 2014 AS OF 01.01...... 48 43 Additions ...... 10 8 Additions due to change of consolidation method ...... 1 0 3מ 5מ ...... Disposals AS OF 31.12...... 54 48
LEG Grundbesitz Erwerb 1 GmbH & Co. KG was consolidated for the first time as at 1 January 2015. EnergieServicePlus GmbH was founded by way of notarised agreement on 17 February 2015. The object of the company is to provide energy supply services and energy-related services. It was included in consolidation for the first time as at 1 March 2015. Noah Asset 4 GmbH was consolidated for the first time as at 1 June 2015. Solis GmbH, Dusseldorf, Rheinweg Grundstücksgesellschaft mbH, Dusseldorf, and Jupp Grundstücksgesellschaft mbH, Dusseldorf, were acquired and included in consolidation for the first time as at 1 July 2015 in the context of a portfolio acquisition. Further details can be found in section E.1.
F-29 Consolidated financial statements NOTES (Continued)
C. Basis of consolidation and consolidation methods (Continued) LEG Grundbesitz Erwerb 2 GmbH & Co. KG and LEG Grundbesitz Erwerb 3 GmbH & Co. KG were consolidated for the first time as at 1 July 2015. LEG Wohnviertel Dyk GmbH was consolidated for the first time as at 31 July 2015. The disposals relate to former subsidiaries of the LEG Group merging within the LEG Group. LEG Bauträger GmbH, LEG Standort- und Projektentwicklung Bielefeld GmbH and LEG Standort- und Projektentwicklung Essen GmbH were merged with LEG Solution GmbH retrospectively as at 1 January 2015. GEWG Beteiligungs GmbH was merged with GEWG GmbH as at 1 July 2015 and GEWG KG was merged with its general partner as at 31 March 2015. These changes in the scope of consolidated financial statements have no effect on the net assets, financial position and results of operations of the Group. b) Associates The following table shows the development of associates accounted for using the equity method:
T52 – Number of associates accounted for using the equity method
2015 2014 AS OF 01.01...... 44 10מ ...... Additions/Disposals AS OF 31.12...... 34
3. Business combinations The purchase price allocation of the acquisition of the Vitus Group as at 1 November 2014 was still provisional with respect to the following items – investment property – deferred taxes – operating costs – consideration transferred in the LEG Group’s consolidated financial statements as at 31 December 2014. After the conclusion of purchase price allocation, adjustments are made retrospectively as at the acquisition date (IFRS 3.45). The finalisation involved the following changes: – Consideration transferred: The purchase price was determined on the basis of the statements of financial position as at 30 September 2014 (purchase price statement of financial position). These were provisional as at the date of the 2014 consolidated financial statements being prepared. The finalisation of the purchase price statement of financial position resulted in a subsequent purchase price adjustment of EUR 0.5 million. – Deferred taxes: The finalisation of the tax carrying amounts for the property assets resulted in a net reduction of deferred taxes by EUR 1.2 million. An adjustment of the offsetting in the final purchase price allocation resulted in a decline of deferred tax assets and liabilities by EUR 1.6 million each.
F-30 Consolidated financial statements NOTES (Continued)
C. Basis of consolidation and consolidation methods (Continued) Total consideration and net assets acquired are as follows:
T54 – Consideration
01.11.2014 01.11.2014 € million final provisional Change 0.5מ Net purchase price ...... 463.4 462.9 – 0.9מ 0.9מ ...... Contingent reimbursement of the purchase price 0.5מ TOTAL CONSIDERATION ...... 462.5 462.0
T55 – Purchase price allocation
01.11.2014 01.11.2014 € million final provisional Change Investment properties ...... 436.3 436.3 – Cash and cash equivalents ...... 6.9 6.9 – Other assets ...... 7.3 8.9 1.6 Assets held for sale ...... 24.5 24.5 – TOTAL ASSETS ...... 475.0 476.6 1.6 – 18.8מ 18.8מ ...... Other financing liabilities – 15.5מ 15.5מ ...... Pension provisions 2.8מ 36.1מ 33.3מ ...... Deferred tax liabilities – 6.1מ 6.1מ ...... Other liabilities 2.8מ 76.5מ 73.7מ ...... TOTAL LIABILITIES 1.2מ Net assets at fair value ...... 401.3 400.1 – 0.3מ 0.3מ ...... Non-controlling interests 1.2מ Net assets at fair value without non-controlling interests ...... 401.6 400.4 0.5מ CONSIDERATION ...... 462.5 462.0 GOODWILL ...... 60.9 61.6 0.7
The final goodwill for the acquisition of the Vitus Group therefore declined by EUR 0.7 million to EUR 60.9 million. The finalisation of purchase price allocation affected the consolidated financial statements as at 31 December 2014 as follows: – Other liabilities: The subsequent purchase price adjustment resulted in a EUR 0.5 million increase in other liabilities. – Income taxes: The adjustment of deferred taxes described above was required only as at the acquisition date. The deferred taxes as at 31 December 2014 were unchanged. As a result, the expense from deferred income taxes for the period from 1 November to 31 December 2014 increased by EUR 1.2 million. – Cumulative other reserves: The increase in income taxes resulted in a decline in equity of EUR 1.2 million (cumulative other reserves).
4. IFRS 12 disclosures a) Disclosures on subsidiaries included in consolidation An overview of the subsidiaries in which LEG Immo holds investments as at 31 December 2015 (IFRS 12.10 et seq.) can be found in section J.
F-31 Consolidated financial statements NOTES (Continued)
C. Basis of consolidation and consolidation methods (Continued) LEG Immo holds 82.9% in LEG NRW GmbH directly and 17.07% indirectly through Rote Rose GmbH & Co. KG (Rote Rose). LEG NRW GmbH holds the other investments in the subsidiaries listed above. The direct and indirect shares of capital held by LEG Immo in the subsidiaries are also equal to its shares of the voting rights. The companies not included in consolidation are not considered material in terms of the key performance indicators net profit for the year, total assets and revenue, and are therefore not included in the scope of consolidated financial statements. b) Disclosures on subsidiaries with significant non-controlling interests The financial information on significant, non-controlling interests in subsidiaries is summarised below (IFRS 12.B10). Intragroup transactions were not eliminated in the amounts disclosed. As at 31 December 2015, EnergieServicePlus GmbH, Residential segment, is the only subsidiary with significant non-controlling interests, after LEG Immo sold 49% of the shares in EnergieServicePlus GmbH to RWE on 30 April 2014. EUR 0.3 million of consolidated net income relates to the significant non-controlling interests of EnergieServicePlus GmbH. The carrying amount in the Group recognised for the non-controlling interests in EnergieServicePlus GmbH as at 31 December 2015 was EUR 0.8 million. By way of increasing the shareholdings on 11 September 2015, Biomasse Heizkraftwerk Siegerland GmbH & Co. KG, Other segment, became a 94.86%-subsidiary of LEG Immo. There are therefore no significant non-controlling interests in Biomasse Heizkraftwerk GmbH & Co.KG as at 31 December 2015.
The sale of shares in EnergieServicePlus GmbH is accounted as equity transaction as well as the acquisition of further shares in Biomasse Heizkraftwerk Siegerland GmbH & Co.KG. Both transactions are presented as “Changes in the scope of consolidated financial statements/Other” in revenue reserves of the statement of changes in equity.
T56 – Statement of financial position
Biomasse Heizkraftwerk GmbH & Co. KG EnergieServicePlus GmbH Total € million 2015 2014 2015 2014 2015 2014 Non-current Assets ...... – 17.5 1.8 0.0 1.8 17.5 14.7מ 0.8מ 0.0 0.8מ 14.7מ – ...... Liabilities Non-current net assets ...... – 2.8 1.0 0.0 1.0 2.8 Current Assets ...... – 1.7 1.2 0.0 1.2 1.7 6.6מ 1.0מ 0.0 1.0מ 6.6מ – ...... Liabilities 4.9מ 0.2 0.0 0.2 4.9מ – ...... Current net assets
F-32 Consolidated financial statements NOTES (Continued)
C. Basis of consolidation and consolidation methods (Continued) T57 – Statement of profit or loss
Biomasse Heizkraftwerk GmbH & Co. KG EnergieServicePlus GmbH Total € million 2015 2014 2015 2014 2015 2014 Revenue/other operating income ...... 0.0 7.7 2.1 0.0 2.1 7.7 1.8מ 0.0 0.0 0.0 1.8מ Earnings before income taxes ...... 0.0 1.8מ 0.0 0.0 0.0 1.8מ Net profit from continued operations . . . 0.0 1.8מ 0.0 0.0 0.0 1.8מ Net profit ...... 0.0 TOTAL COMPREHENSIVE 1.8מ 0.0 0.0 0.0 1.8מ INCOME ...... 0.0 Attributable to: interests without 0.9מ 0.0 0.0 0.0 0.9מ significant influence ...... 0.0 Paid dividend to owner without significant interest ...... 0.0 0.0 0.0 0.0 0.0 0.0
T58 – Statement of cash flows
Biomasse Heizkraftwerk GmbH & Co. KG EnergieServicePlus GmbH Total € million 2015 2014 2015 2014 2015 2014 Net cash from/used in Operating activities ...... – 1.7 0.1 0.0 0.1 1.7 – 0.2מ – 0.2מ – – ...... Investing activities 1.4מ 0.5 0.0 0.5 1.4מ – ...... Financing activities CHANGE IN CASH AND CASH EQUIVALENTS ...... – 0.3 0.4 – 0.4 0.3 c) Disclosures on associates 1. Disclosures on significant associates The investments in associates affect the statement of financial position and the statement of comprehensive income of the LEG Group as follows:
T59 – Investments in associates
€ million 2015 2014 Recognition ...... 8.8 8.9 Total comprehensive income ...... 0.0 0.3
The disclosures on the equity investments in associates classified as material are listed below.
T60 – Material associates
Share of capital Equity Result in % € million* € million* Kommunale Haus und Wohnen GmbH, Rheda-Wiedenbrück ...... 40.62 19.4 0.7 Beckumer Wohnungsgesellschaft mbH, Beckum ...... 33.37 3.5 0.0
* For Beckumer Wohnungsgesellschaft mbH, this relates to the equity and the results of the separate HGB financial statements as of 31 December 2015, for Kommunale Haus und Wohnen GmbH the equity and the results of the separate HGB financial statements as of 31 December 2014.
F-33 Consolidated financial statements NOTES (Continued)
C. Basis of consolidation and consolidation methods (Continued) The companies listed above perform property management activities. The relationships with the associates are of an operational nature. All the companies listed above are recognised in the consolidated financial statements using the equity method. There are no quoted market prices. The compiled financial information for the key associates of the Group is shown below. The financial information shown below is consistent with the amounts in the financial statements of the associates.
T61 – Statement of financial position
Kommunale Haus und Beckumer Wohnen GmbH Wohnungsgesellschaft mbH Total € million 31.12.2015 31.12.2014 31.12.2015 31.12.2014 31.12.2015 31.12.2014 Non-current assets ...... 42.1 43.0 7.6 7.9 49.7 50.9 Current assets ...... 2.7 1.9 0.5 0.5 3.2 2.4 Cash and cash equivalents ...... 1.7 2.2 0.9 0.9 2.6 3.1 Other assets ...... – – – – – – Non-current liabilities ...... – – – – – – Current liabilities ...... 27.1 28.2 5.5 5.8 32.6 34.0 Financing liabilities ...... – – – – – – Non-financing liabilities ...... – – – – – – Net assets ...... 19.4 18.9 3.5 3.5 22.9 22.4
T62 – Statement of profit or loss
Kommunale Haus und Beckumer Wohnen GmbH Wohnungsgesellschaft mbH Total € million 2015 2014 2015 2014 2015 2014 Revenue ...... 6.0 6.1 1.2 1.2 7.2 7.3 Depreciation ...... 1.1 1.1 0.3 0.3 1.4 1.4 Interest income ...... – – – – – – Interest expense ...... 0.6 0.6 0.1 0.1 0.7 0.7 Income taxes ...... – – – – – – Net profit from continued operations . . . 0.7 0.6 0.0 0.1 0.7 0.7 Net profit from discontinued operations ...... – – – – – – Other comprehensive income ...... – – – – – – Total comprehensive income ...... 0.7 0.6 0.0 0.1 0.7 0.7
F-34 Consolidated financial statements NOTES (Continued)
C. Basis of consolidation and consolidation methods (Continued) Statement of reconciliation from compiled financial information to carrying amount of the equity investments:
T63 – Reconciliation Kommunale Haus und Beckumer Wohnen GmbH Wohnungsgesellschaft mbH Total € million 31.12.2015 31.12.2014 31.12.2015 31.12.2014 31.12.2015 31.12.2014 Net assets of associates as of 01.01. . . . 18.9 18.3 3.5 3.4 22.4 21.7 Net profit/loss ...... 0.7 0.6 0.0 0.1 0.7 0.7 – 0.1מ – – – 0.1מ ...... Addition to reserves – 0.1מ – – – 0.1מ ...... Dividend Net assets of associates as of 31.12. . . . 19.4 18.9 3.5 3.5 22.9 22.4 Group share in % ...... 40.62 40.62 33.37 33.37 – – Interest in net assets of associates ..... 7.7 7.7 1.2 1.2 8.9 8.9 Carrying amount of the investment .. 7.7 7.7 1.2 1.2 8.9 8.9
2. Disclosures on insignificant associates The following table shows the associates classified as insignificant.
T64 – Non-material associates
Share of capital Equity Result in % € million € million Mönchengladbach Nordpark Area of Sports GmbH, Moenchengladbach ...... 50.00 0.0 0.0 Grundstücksgesellschaft Sendenhorst mbH, Sendenhorst ...... 49.00 0.4 0.8 Area of Sports GmbH & Co. KG, Moenchengladbach ...... 50.00 0.1 0.0 The summary financial information of the individually insignificant associates of the Group can be found in the table below.
T65 – Summarised fiscal information € million 31.12.2015 31.12.2014 Group share of profit or loss from continued operations ...... 0.2 0.3 Group share of post-tax profit or loss from discontinued operations ...... 0.0 0.0 Group share of total comprehensive income ...... 0.0 0.0 Total comprehensive income ...... 0.2 0.3
The carrying amounts of the individually insignificant associates of the Group are shown below.
T66 – Carrying amounts € million 31.12.2015 31.12.2014 Total carrying amounts ...... 0.1 0.1
F-35 Consolidated financial statements NOTES (Continued)
C. Basis of consolidation and consolidation methods (Continued) The unrecognised losses of associates are shown in the following table.
T67 – Unrecognised losses € million 31.12.2015 31.12.2014 Unrecognised losses for period ...... 0.0 0.0 Cumulative unrecognised losses ...... 0.0 0.2
D. Accounting policies 1. Investment property Investment property consists of the LEG Group’s properties that are held to earn rentals or for capital appreciation or both, rather than for owner occupancy or sale in the ordinary course of business. Investment property includes land with residential and commercial buildings, undeveloped land, land with transferable leasehold land interests, parking spaces and garages. In accordance with IFRS 5, investment property that is held for sale and that is highly likely to be sold within the next 12 months is recognised as an asset held for sale under current assets. Its measurement is consistent with the measurement of investment property. Mixed-used properties are separated into the owner-occupied part and the part rented to third parties to the extent that it is legally possible to separate the property in question, and neither the owner-occupied portions nor the portions rented to third parties are immaterial. The portion rented to third parties is allocated to investment property, while the owner-occupied portion is recognised under property, plant and equipment. The ratio of the respective areas is used to allocate the components. Property is transferred from investment property when there is a change in use evidenced by the commencement of owner-occupancy or the development with a view to sale. Unless acquired as part of a business combination, investment property is recognised at cost including incidental costs on acquisition. In accordance with the option provided by IAS 40 in conjunction with IFRS 13, investment property is subsequently recognised at fair value. IFRS 13.9 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value assumes the sale of an asset (exit price). It corresponds to the (theoretical) price to be paid to the seller in the event of a (hypothetical) sale of a property at the measurement date, regardless of an entity’s specific intention or ability to sell. The concept of highest and best use of the property is assumed in calculating fair value (IFRS 13.27 et seq.). This implies the use or value maximisation of the asset as far as it is physically possible, legally permissible and financially feasible. Further details can be found in section D.17. Changes in the fair value of property are recognised in profit or loss for the period in which they occur. Prepayments for property acquisitions are presented as prepayments for investment property. Prepayments for investment property that is acquired as part of a business combination are presented as prepayments for investment property (in case of an asset deal) or as other financial assets (in case of a share deal). Subsequent costs for extension, partial replacement or maintenance of properties (IAS 40.17) are capitalised if they constitute the replacement of parts of a unit in accordance with the component approach (IAS 40.19) and the costs can be reliably determined. In addition, such costs are capitalised if the activities will result in increased future benefits and the costs can be reliably determined. Capitalised costs are not depreciated, as depreciation is not generally recognised in connection with the fair value option provided by IAS 40. Individual units are sold to tenants, owner-occupants and private investors as part of portfolio optimisation measures. Fair values are calculated internally by LEG Immo. In addition to the fair values calculated internally by LEG Immo, the property portfolio was valued by an independent, third-party expert as at 31 December 2015. LEG uses the third-party valuation to check the plausibility of its own calculations and as a general confirmation of the value of the portfolio as a whole through a second opinion.
F-36 Consolidated financial statements NOTES (Continued)
D. Accounting policies (Continued) The properties are reviewed individually by LEG Immo at the level of individual building entrances in terms of their location, condition, fixtures and fittings, current contractual rent and potential for development. The fair values calculated are consistent with the IFRS market values, i.e. the amount for which the respective property could be exchanged between market participants under current market conditions on the measurement date in an orderly transaction (IAS 40.5 rev. in conjunction with IFRS 13.15). The fair values of investment property and properties held for sale are calculated on the basis of the forecast net cash flows from property management using the discounted cash flow (DCF) method. For properties with no positive net cash flow (generally vacant buildings), the fair value is calculated using a liquidation value method. Undeveloped land is usually valued on the basis of an indirect comparison of indicative land values. A detailed planning period of ten years was applied in DCF measurement. After the end of the tenth year, a sales value is recognised that is calculated by capitalising the forecast annual net profit for the eleventh period, taking the property-specific remaining useful life into account. It is generally assumed that the minimum and maximum remaining useful lives of the individual properties are 20 years and 80 years respectively. The contractually agreed rental income for the respective property and other property- specific value parameters are applied in the first year of the detailed planning period. The average monthly inplace rent for the rented apartments in the property portfolio (referring here and hereinafter to both investment property and properties held for sale) used for the measurement in buildings used primarily for residential purposes was EUR 5.20/sqm as at the end of the reporting period (2014: EUR 5.09/sqm). These properties can also contain commercial units of minor significance in some cases. The future development of annual rent was projected on the basis of individual assumptions for the planning period. A distinction was made between rental income from existing tenancies and new lettings due to forecast fluctuation. During the detailed planning period market rent increases annually at an individually determined rate. For new lettings, rent in the amount of the assumed market rent is applied. The market rent growth applied ranges from 0% to 2%, depending on the assessment of the respective market and property. Rent from existing tenancies is projected on the basis of the statutory environment and the assessment of the respective market and property, and is assumed to converge with the overall market trend over time. The vacancy rate in terms of rental space used for measurement amounted to 3.36% as at the measurement date (2014: 3.0%). The assumptions with regard to the future development of the vacancy rate are based on location and individual property characteristics. Publicly subsidised properties are treated differently depending on the existence and duration of potential rent control. If rent control is set to end within the ten-year detailed planning period, a rent adjustment to-wards the market rent is assumed for the subsequent year, taking into account the statutory requirements. For the remaining subsidised properties for which rent control will expire by 2081 at the latest, a discount on the capitalisation rate was recognised depending on the remaining duration of rent control. Average annual maintenance costs of EUR 11.49/sqm are assumed for reactive and periodical maintenance work depending on the condition and year of construction of the respective properties used predominantly for residential purposes (2014: EUR 11.22/sqm). Administrative costs are applied at a flat rate per residential unit of EUR 289.66 p.a. (2014: EUR 284.20 p.a.) and per parking or garage space of EUR 37.78 p.a. (2014: EUR 37.06 p.a.). For residential buildings with a commercial component or other type of use, administrative costs for the non-residential component are calculated at 1% (2014: 1%) of gross commercial income. Management costs are largely based on the cost approaches known from the Second Computation Ordinance (II. BV, as of 1 January 2014). The II. BV management costs are adjusted in relation to the change in the consumer price index every three years. For continuity, the valuation model treats the increase of the last regular adjustment of management costs according to II. BV as an annual increase spread over three years. In addition, the development of maintenance and management costs was dynamic in the period under review. The cost increase of 2% per year is derived from the increase in the consumer price index expected in the medium term. Around 1.41% (2014: 1.47%) of the units in the portfolio are classified as commercial properties. In some cases, these properties can also contain residential units, but they are characterised by their primarily commercial
F-37 Consolidated financial statements NOTES (Continued)
D. Accounting policies (Continued) character. Owing to the differing rent terms and market conditions compared with the residential portfolio, these properties are also subject to different assumptions with regard to the key parameters affecting their value. The average rent of the primarily commercial properties is EUR 6.92/sqm (2014: EUR 6.95/sqm), with average maintenance costs of EUR 7.12/sqm (2014: EUR 6.82/sqm) in the detailed planning period. The vacancy rate in terms of usable space was 13.4% as at the measurement date (2014: 12.8%). Administrative costs are calculated at 1% (2014: 1%) of gross commercial income. Cash flows are discounted using standard market discount rates with matching maturities of 5.7% on average (weighted average; 2014: 5.93%) and standard market capitalisation rates to determine the resale value of the properties in the tenth year of use of 6.63% (weighted average; 2014: 6.50%); this takes into account the property-specific management cost ratio and reflects the individual risk/opportunity profile of the respective property. In addition to location criteria, the determination of an appropriate interest rate takes into account the property type, property condition, age, potential rental growth, the forecast for the location and potential government subsidies in particular. The change between 2014 and 2015 reflects the general positive development of the property market and the continuously improved operating business with a corresponding impact on the discounting and capitalisation rates. Owing to the limited availability of market data, i.e. data and measurement parameters not directly observable on the market, the complexity of property valuation and the level of specification of property, the fair value measurement of investment property is assigned to level 3 of the measurement hierarchy of IFRS 13.86 (measurement based on unobservable inputs). Further details can be found in section D.17. In measurement, investment property is broken down into categories defined by type of use: – residential property – commercial property – garages, underground garages or parking spaces/other properties – leasehold and undeveloped land Commercial property is defined as properties with more than 1,000 sqm usable space or in which 50% of the building is used as commercial space. Other properties are essentially units with outside advertising media and wireless antennas. Properties are also broken down according to three market clusters using a scoring system: growth markets (“orange”), stable markets (“green”) and higher yielding markets (“purple”).
F-38 Consolidated financial statements NOTES (Continued)
D. Accounting policies (Continued) The table below shows the measurement method used to determine the fair value of investment property and the material unobservable inputs used.
T68 – Information about fair value measurements using significant unobservable inputs (Level 3)
Estimated rental Estimated vacancy development development Discount rate Capitalisation rate Sensitivities GAV Sensitivities GAV Residential Residential (sqm-weighted, in %)4 (sqm-weighted, in %)4 (variance discount rate, in %) (variance cap rate, in %) (sqm-weighted, in %) (sqm-weighted, in %) Valuation מ מ 3 € Segment million GAV assets technique min. avg. max. min. avg. max. 25 bp +25 bp 25 bp +25 bp min. durchschn. max. T0 Residential assets1 1.5 1.8 1.4 0.6 2.3מ 2.6 4.2מ High-growth markets ..... 2,855 DCF 4.3 5.5 7.2 2.8 6.0 8.9 4.5 מ מ F-39 Stable markets ...... 1,936 DCF 4.4 5.7 7.0 3.4 6.7 12.8 4.0 3.8 2.1 2.0 0.6 0.9 1.3 3.3 5.7 1.1 0.7 0.3 1.7מ 1.8 3.5מ Higher-yielding markets . . . 1,219 DCF 4.6 5.9 6.6 4.1 7.3 12.6 3.7 1.1 1.4 1.1 0.5 1.8מ 1.8 3.6מ NonNRW...... 91 DCF 4.4 5.5 6.2 4.2 7.1 9.1 3.7 – – – – 1.7מ 1.8 2.1מ Commercial assets2 ...... 159 DCF 4.8 6.7 10.7 5.0 7.3 11.8 2.2 – – – – 1.7מ 1.9 4.3מ Parking + other assets .... 118 DCF 5.3 – 6.9 4.0 – 13.3 4.7 Earnings/ reference value Leasehold + land values . . . 23 method 2.1מ 2.2 3.9מ TOTAL IAS 40/IFRS 5 .. 6,401 DCF 4.3 5.7 10.7 2.8 6.6 13.3 4.1
1 Excluding 321 residential units in commercial buildings; including 290 commercial and other units in mixed residential assets. 2 Excluding 290 commercial units in mixed residential assets; including 321 residential units in commercial buildings. 3 Valuation technique information without consideration of IAS 16 assets. In exceptional cases liquidation value approach. 4 Sqm-weighted interest rates refer to residential and commercial assets. Consolidated financial statements NOTES (Continued)
D. Accounting policies (Continued) The table below shows the measurement method used to determine the fair value of investment property as at 31 December 2014:
T69 – Information about fair value measurements using significant unobservable inputs (Level 3)
Estimated rental Estimated vacancy development development Discount rate Capitalisation rate Sensitivities GAV Sensitivities GAV Residential Residential (sqm-weighted, in %)4 (sqm-weighted, in %)4 (variance discount rate, in %) (variance cap rate, in %) (sqm-weighted, in %) (sqm-weighted, in %) Valuation מ מ 3 € Segment million GAV assets technique min. avg. max. min. avg. max. 25 bp +25 bp 25 bp +25 bp min. avg. max. T0 Residential assets1 1.1 1.7 1.4 0.9 2.2מ 2.6 4.1מ High-growth markets ..... 2,337 DCF 4.5 5.8 7.8 3.0 6.0 8.5 4.5 מ מ F-40 Stable markets ...... 2,067 DCF 4.6 5.9 9.0 3.6 6.3 12.7 3.7 3.4 2.4 2.1 0.5 0.9 1.4 3.3 4.7 1.1 0.7 0.3 1.7מ 1.8 3.5מ Higher-yielding markets . . . 1,157 DCF 4.7 6.1 6.8 4.4 7.2 12.9 3.7 2.7 1.5 1.2 0.5 1.7מ 2.6 2.8מ NonNRW...... 114 DCF 4.6 5.8 6.4 4.3 6.5 8.9 3.7 – – – – 1.7מ 1.9 2.0מ Commercial assets2 ...... 172 DCF 4.8 6.8 10.7 5.0 7.2 12.2 2.1 – – – – 1.6מ 1.8 4.1מ Parking + other assets .... 99 DCF 5.5 – 7.5 3.8 0.0 13.3 4.5 Earnings/ reference value Leasehold + land values . . . 27 method 2.1מ 2.3 3.6מ TOTAL IAS 40/IFRS 5 .. 5,973 DCF 4.5 5.9 10.7 3.0 6.5 13.3 4.0
1 Excluding 309 residential units in commercial buildings; including 295 commercial and other units in mixed residential assets. 2 Excluding 295 commercial units in mixed residential assets; including 309 residential units in commercial buildings, commercial, parking, other assets as well as IAS 16 assets. 3 Valuation technique information without consideration of IAS 16 assets. In exceptional cases liquidation value approach. For 9,574 acquired residential units information included from the fair value measurement by CBRE as of 30 September 2014. 4 Sqm-weighted interest rates refer to residential and commercial assets. Consolidated financial statements NOTES (Continued)
D. Accounting policies (Continued) With the acquisition of the shares in LEG from Beteiligungsverwaltungsgesellschaft des Landes Nordrhein- Westfalen and NRW-Bank, Anstalt des öffentlichen Rechts, effective 29 August 2008, the LEG Group undertook to uphold social conditions including compliance with the usual provisions on tenant protection and safeguarding the property portfolio in question. These social conditions include the following obligations: Under the terms of the Social Charter, tenants have a right of first refusal at preferential conditions in certain cases. Planned sales of rented buildings or complexes with more than one rented residential unit can only go ahead if certain conditions are met. In some cases, the operating companies of the LEG Group are subject to restrictions on rent increases with respect to certain tenants with rights of first refusal and in connection with assistance in the form of loans at below-market rates of interest or investment subsidies. Legal requirements with regard to the privatisation of residential properties must also be observed. The company is required to spend a predetermined average amount per square metre on maintenance and improvement measures. Certain parts of the portfolio are also subject to unconditional restrictions on sale.
2. Property, plant and equipment Property, plant and equipment is recognised at cost and depreciated on a straight-line basis over its expected useful life. Subsequent expenditure is capitalised if this serves to increase the value in use of the respective item. The useful lives and residual values are examined annually and adjusted as necessary. Any subsidies received are deducted in calculating cost. Depreciation is recognised using the following useful lives, which are applied uniformly throughout the Group:
T70 – Useful life of property, plant and equipment in years 2015 2014 Owner-occupied residential properties ...... 80 80 Owner-occupied commercial properties ...... 50 50 Technical equipment and machinery/Other operating and office equipment ...... 5–23 5–23 The carrying amounts of property, plant and equipment are tested for impairment when there are indications that the carrying amount of an asset exceeds its recoverable amount. Property, plant and equipment is derecognised when sold or when no further economic benefit is expected from the continued use or the disposal of the asset. The gains or losses resulting from derecognition of the asset are recognised directly in profit or loss in the consolidated statement of comprehensive income. In accordance with the tax regulation on the depreciation of low-value assets that has been in place since January 2010, low-value assets with a net value of up to EUR 150 are written off in full in the year of their acquisition. Assets with a net value of between EUR 150.01 and EUR 1,000 are assigned to an omnibus item and depreciated on a straight-line basis over a period of five years. Deviations from the economic life of the respective assets are considered immaterial.
3. Intangible assets and goodwill Purchased intangible assets are capitalised at cost. Such assets are software licenses with a definite useful life. Software licenses are amortised on a straight-line basis over an expected economic life of between three and five years from the date on which they are provided. The following principles are applied to the recognition of internally generated intangible assets: Development costs that are directly allocated to the development and testing of identifiable individual software products controlled by the Group are recognised as intangible assets if the recognition criteria set out in IAS 38 are met.
F-41 Consolidated financial statements NOTES (Continued)
D. Accounting policies (Continued) Development costs not meeting these criteria are expensed in the period in which they are incurred. Development costs that have already been expensed are not capitalised in a subsequent period. Goodwill arises from the acquisition of a business and represents the excess of consideration transferred over the fair values of the net assets less non-controlling interests as at the acquisition date. It is tested for impairment annually rather than being amortised. Impairment losses on goodwill cannot be reversed. Basic information on and the premises of the impairment method used in the LEG Group in accordance with IAS 36 (Impairment of Assets) can be found in the section “Accounting policies” under “Impairment of assets”. Furthermore, in accordance with IAS 36, goodwill and intangible assets with an indefinite useful life are tested for impairment at least once per year. The goodwill resulting from purchase price allocation (PPA) is allocated to the cash-generating units (CGUs) expected to benefit from the business combination. In the LEG Group, the Residential like-for-like and Vitus CGUs will benefit from the acquisition of the Vitus portfolio. The allocation of goodwill firstly takes into account the economic substance of the assets and liabilities assumed. Secondly, it also considers the ratio of synergies that the two CGUs are expected to generate from the business combination. First-time consolidation resulted in net deferred tax liabilities that increase goodwill of EUR 33.3 million. This portion of goodwill results from assets and liabilities of the Vitus CGU; EUR 33.3 million of the goodwill is therefore allocated to this CGU. The synergies anticipated from the business combination essentially consist of planned cost savings, additional income potential and tax savings, which will be implemented almost exclusively in the Residential like-for-like CGU. The remaining portion of goodwill of EUR 27.6 million is therefore allocated to this CGU. In the goodwill impairment test, the recoverable amount is represented by the fair value less costs of disposal (FVLCOD). The FVLCOD is calculated as the present value of the free cash flows before interest and after taxes expected from continuing a CGU or a group of CGUs. A general tax rate of 31.2% (previous year: 31.2%) is applied to EBIT here. The cash flow forecast reflects past experience and takes into account management expectations of future market developments. These cash flow forecasts are based on the resolved medium-term planning, which covers a horizon of five years (detailed planning period). Administrative costs are accounted for appropriately. There is also a cash flow forecast going beyond the five-year planning horizon. This is prepared by deriving a sustainable free cash flow from the detailed planning period and extrapolating this using a growth rate based on the specific market development. A weighted average cost of capital that reflects the capital market’s return requirements for debt and equity to the LEG Group is used to discount the free cash flows. A cost of capital after taxes is also used on the basis of the calculated free cash flows after taxes. Risks of free cash flows are taken into account by a matched risk capitalisation rate. A uniform capitalisation rate of 3.0% (previous year: 3.1%) was used for the CGUs analysed in the goodwill impairment test, representing a corresponding pre-tax capitalisation rate of 3.4% (previous year: 3.5%), taking into account a typical tax rate on EBIT of 31.2%. The changes in the capitalisation rates as against the previous year result from current forecasts for the medium and long-term development of the capital market. A sustainable growth rate of 0.5% p.a. is assumed for both CGUs. The goodwill impairment tests performed for the two CGUs in question (Residential like-for-like and Vitus) did not give rise to any impairment requirements. The key premises and assumptions influencing impairment on a CGU were reviewed in the form of standardised sensitivity analyses.
F-42 Consolidated financial statements NOTES (Continued)
D. Accounting policies (Continued) EBIT margin The risk of a 10% reduction in the EBIT margin was analysed for the reduced earnings scenario analysis. This calculation did not give rise to any impairment requirements for the two CGUs.
Weighted costs of capital The risks from assumptions regarding the capitalisation rate used as standard to calculate the present value of FVLCOD were tested by simulating impairment on each CGU with a change in the costs of capital of +/–50 bp. This scenario analysis also did not give rise to any impairment requirements for the two CGUs.
4. Impairment of assets Each year the LEG Group tests intangible assets and property, plant and equipment in accordance with IAS 36 for impairment losses. In doing so it determines whether there are indications of possible impairment. If there are such indications, the recoverable amount of the asset in question is calculated. This is the higher of its fair value less costs to sell and its value in use. A standard pre-tax interest rate is applied for discounting. Impairment testing is generally performed at the level of individual assets. If largely independent future cash flows cannot be determined for individual assets, cash-generating units (CGUs) are formed as groups of assets whose future cash flows are interdependent. In the LEG Group CGUs are mostly analysed at the operating segment level. Given the consistency between the management structure and the legal structure, the identified CGUs also always consist of at least one legal entity. Thus, the data needed for the asset impairment test can be derived from annual financial statement and planning data. The carrying amount of a CGU is determined by adding together the carrying amounts of the assets less those of the liabilities associated with the assets included (net position). Furthermore, the necessary working capital for the CGU has to be included. There were no assets and liabilities used jointly by several CGUs (corporate assets and liabilities) that would have been assigned to the CGUs pro rata in the past financial year. In the financial year, in addition to the CGUs affected by the goodwill impairment test, an impairment text was required for the Biomasse CGU, which consists of the legal entity Biomasse Heizkraftwerk GmbH & Co.KG. The recoverable amount for the Biomasse CGU was calculated on the basis of its FVLCOD. A capitalisation rate of 3.2% p.a. (previous year: 3.3% p.a.) was applied, reflecting an assumed tax rate of 28.6% and a pre-tax capitalisation rate of 3.5% (previous year: 3.6%). As the FVLCOD covered the carrying amount of the CGU, no additional calculation of the value in use was required. There is detailed planning for the Biomasse CGU until the end of its useful life. A sustainable growth rate was therefore not taken into account. The key premises and assumptions influencing impairment on a CGU were reviewed in the form of standardised sensitivity analyses.
EBIT margin The risk of a 10% reduction in the EBIT margin was analysed for the reduced earnings scenario analysis. This calculation did not give rise to any impairment requirements for the Biomasse CGU.
Weighted costs of capital The risks from assumptions regarding the capitalisation rate used as standard to calculate the present value of FVLCOD were tested by simulating impairment on each CGU with a change in the costs of capital of +/–50 bp. This scenario analysis also did not give rise to any impairment requirements for the Biomasse CGU. Investment property is not subject to impairment testing in accordance with IAS 36 as it is recognised at fair value. If the recoverable amount of an asset is lower than its carrying amount, an impairment loss is recognised immediately in profit or loss.
F-43 Consolidated financial statements NOTES (Continued)
D. Accounting policies (Continued) 5. Other financial assets The LEG Group recognises financial assets as at the trade date. In accordance with IAS 39, subsidiaries that are not consolidated due to immateriality are classified as available-for-sale financial assets for measurement purposes. Available-for-sale financial assets are recognised at fair value as at the end of the reporting period or, if this cannot be reliably determined, at cost. Shares in unconsolidated subsidiaries or subsidiaries recognised using the equity method are not quoted. Owing to the considerable volatility and the lack of an active market, the fair value of these instruments cannot be reliably determined. There is currently no intention to sell these shares in the near future. Available for sale financial instruments are measured at fair value on acquisition. Gains and losses on subsequent measurement at fair value are reported directly in equity (cumulative other reserves). On disposal of a financial asset, the cumulative net gain or loss on remeasurement previously recognised in other reserves is reversed and recognised in profit or loss in the statement of comprehensive income. In the event of any impairment, the impairment loss in other reserves is corrected in profit or loss. If impairment is reversed, the respective amount is recognised in profit or loss for debt instruments and recognised directly in equity for equity instruments. Impairment cannot be reversed on AfS instruments at cost; any impairment is recognised in profit or loss.
6. Accounting for leases as the lessee Leased assets for which beneficial ownership lies with the LEG Group (finance leases in accordance with IAS 17) are recognised as non-current assets at the lower of the present value of minimum lease payments or the fair value of the leased property, and are depreciated on a straight-line basis. The depreciation period is the shorter of the lease term and the useful life of the asset. In cases where ownership of the asset is transferred to the LEG Group at the end of the lease term, the depreciation period is the economic life of the asset. A corresponding liability is recognised in the amount of the present value of the future minimum lease payments. This liability is reduced in subsequent periods by the financial charge included in instalments. Leases for which beneficial ownership does not lie with the LEG Group are classified as operating leases. The expenses resulting from these leases are recognised in profit or loss.
7. Accounting for leases as the lessor Leases for residential properties grant tenants an option to terminate the agreement at short-notice on the basis of the statutory regulations. In accordance with IAS 17, these agreements are classified as operating leases as the significant risks and rewards remain with the LEG Group. The same applies to the current agreements for commercial property. Income from operating leases is recognised in the statement of comprehensive income in rental and lease income on a straight-line basis over the term of the respective leases.
8. Real estate inventory and other inventory Other inventories are carried at cost, which is calculated on the basis of the allocable direct costs for service provision plus production-related overheads. Inventories are carried at the lower of cost and net realisable value as at the end of the reporting period.
9. Receivables and other assets On initial recognition, trade receivables and other financial assets are carried at their fair value plus transaction costs. Subsequent measurement is at amortised cost.
F-44 Consolidated financial statements NOTES (Continued)
D. Accounting policies (Continued) Potential default risks are recognised in the form of appropriate allowances based on past experience and individual risk assessments, taking into account the forecast net cash flows. For financial instruments carried at amortised cost, a distinction is made between specific allowances and general allowances. Generalised individual allowances are used to recognise impairment on financial assets when it is unlikely that all the contractually agreed payments (interest or principal) will be achieved on maturity.
10. Cash and cash equivalents Cash and cash equivalents include cash, demand deposits, other short-term, highly liquid financial assets with original maturities of three months or less and bank overdrafts. Utilised bank overdrafts are shown in the statement of financial position in current financial liabilities.
11. Assets held for sale In addition to individual non-current assets, assets held for sale can include groups of assets (disposal groups) or components of entities (discontinued operations) if their disposal is considered to be highly probable within the next twelve months. Classification in accordance with IFRS 5 is retained only if the asset can be sold immediately in its present condition, at conditions subject only to terms that are usual and customary for the disposal of such assets. Liabilities that are directly associated with the planned disposal are a component of the disposal group or the discontinued operations and are also reported separately. In accordance with IFRS 5, assets held for sale are stated at the lower of carrying amount and fair value less costs to sell. Items of investment property classified as assets held for sale are measured at fair value in accordance with IAS 40.
12. Provisions for pensions Pension and similar obligations result from commitments to employees. Obligations arising from defined benefit plans are measured in accordance with the projected unit credit method. Using this method, forecast future increases in salaries and benefits are taken into consideration in addition to benefits and entitlements known at the end of the reporting period. The biometric basis is provided by the 2005G Heubeck mortality tables. The Group has both defined benefit and defined contribution plans. The amount of the pension benefits payable under defined benefit plans is based on the qualifying period of employment and the pensionable income. In Germany, the regulatory framework is the Betriebsrentengesetz (Germany Company Pension Act), according to which pensions rise in line with the rate of inflation. LEG bears the actuarial risks, such as the longevity risk, the interest rate risk and the inflation risk. There are no additional plan-specific risks at LEG. Remeasurement components in connection with defined benefit plans, which cover actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions, are recognised in other comprehensive income in the period in which they arise. No past service costs were incurred in the year under review or the previous year. The interest effect included in pension expenses is shown in interest expenses in the consolidated statement of comprehensive income. Past service costs are shown under operating result in the individual functions.
13. Other provisions Other provisions are recognised if the LEG Group has a present legal or constructive obligation as a result of past events that is uncertain with regard to settlement and/or amount. They are recognised at the present value of the expected settlement amount. Non-current provisions are carried at their discounted settlement amount as at the end of the reporting period on the basis of corresponding market interest rates with matching maturities.
F-45 Consolidated financial statements NOTES (Continued)
D. Accounting policies (Continued) 14. Financial liabilities On initial recognition, financial liabilities are carried at fair value plus transaction costs and adjusted for any premiums or discounts. The fair value at the grant date is the present value of future payment obligations based on a market interest rate with matching maturity and risk. In subsequent periods financial liabilities are measured at amortised cost using the effective interest method. The effective interest rate is determined on initial recognition of the financial liability. Changes in terms affecting the amount and timing of interest and principal payments result in the remeasurement of the carrying amount of the liability in the amount of the present value on the basis of the effective interest rate originally calculated. Any differences compared to the previous carrying amount are recognised in profit or loss. If changes in terms lead to significant differences in contractual conditions in accordance with IAS 39. AG 62, the original liability is treated as if it had been repaid in full in accordance with IAS 39.40 and a new liability is recognised at fair value.
15. Interest derivatives The LEG Group uses derivative financial instruments to hedge interest rate risks arising from property financing. Derivative financial instruments are recognised at fair value. Changes in the fair value of derivatives are recognised in profit or loss unless the respective instruments are designated as hedges in accordance with IAS 39. Derivatives used as hedging instruments are used to hedge uncertain future cash flows. The LEG Group is exposed to future cash flow risks as a result of floating-rate financial liabilities in particular. Changes in fair value are divided into an effective and an ineffective portion. Effectiveness is determined using the dollar offset method. The effective portion is the portion of the gain or loss on remeasurement that is recognised as an effective hedge against the cash flow risk. The effective portion, net of deferred taxes, is recognised directly in other comprehensive income (equity). The ineffective portion of the gain or loss on remeasurement is reported in net finance costs in the consolidated statement of comprehensive income. The amounts recognised directly in equity are transferred to the consolidated statement of comprehensive income if gains or losses in connection with the underlying are recognised in profit or loss. In the event of the early termination of the hedge, the amounts recognised in equity are reclassified to profit or loss if gains or losses in connection with the underlying are recognised in profit or loss. If the underlying is terminated, then the amounts remaining in other comprehensive income (OCI) are immediately recognised in profit or loss.
16. Fair values of financial instruments The fair values of financial instruments are determined on the basis of corresponding market values or measurement methods. For cash and cash equivalents and other short-term primary financial instruments, the fair value is approximately the same as the carrying amount at the end of the respective reporting period. For non-current receivables, other assets and liabilities, the fair value is calculated on the basis of the forecast cash flows, applying the reference interest rates as at the end of the reporting period. The fair values of derivative financial instruments are calculated using the reference interest rates as at the end of the reporting period plus own risk or counterparty risk. For financial instruments at fair value, the discounted cash flow method is used to determine fair value using corresponding quoted market prices, with individual credit ratings and other market conditions being taken into account in the form of standard credit and liquidity spreads when calculating present value. If no quoted market prices are available, the fair value is calculated using standard measurement methods applying instrument- specific market parameters. When calculating the fair value of derivative financial instruments, the input parameters for the valuation models are the relevant market prices and interest rates observed as at the end of the reporting period, which are obtained from recognised external sources. Accordingly, derivatives are assigned to level 2 of the fair value hierarchy set out in IFRS 13.72 et seq. (measurement on the basis of observable input data). Please see section 17.
F-46 Consolidated financial statements NOTES (Continued)
D. Accounting policies (Continued) Both the Group’s own risk and the counterparty risk were taken into account in the calculation of the fair value of derivatives in accordance with IFRS 13.
17. Put options LEG is the writer of several put options on the basis of which non-controlling shareholders can tender their interests in companies controlled by LEG to LEG Immo. They are recognised as financial liabilities in the amount of the present value of the claim to payment of the option holder (fair value). The liability is recognised against the equity attributable to the writer (LEG), if material risks and rewards of the interest remain at the non- controlling shareholders. If LEG can avoid repurchase by appointing a third party, at least the corresponding opportunity costs are recognised. There is no additional reporting of the put options as independent derivatives in this case. The financial instruments are subsequently measured at amortised cost using the effective interest method.
18. Calculation of fair value All assets, equity instruments and liabilities measured at fair value in line with the requirements of other standards (except IAS 17 Leases and IFRS 2 Share-based Payment) are measured uniformly in line with IFRS 13. IFRS 13.9 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value assumes the sale of an asset (exit price). This also applies if the enterprise has neither the intention nor the capacity to sell the asset at the measurement date or to transfer the liability at this point in time. In calculating the fair value of non-financial assets, the concept of highest and best use is applied (IFRS 13.27 et seq.). This implies the use or value maximisation of the asset as far as it is physically possible, legally permissible and financially feasible. Fair value measurement of investment property is assigned to level 3 of the measurement hierarchy of IFRS 13.86 (measurement based on unobservable inputs). For information on the measurement of investment property, please see the comments in section D.1. For the measurement of derivative financial instruments, please see section D.16 and section I.3. The fair value hierarchy can be summarised as follows:
T71 – Fair value hierarchy
Level 1 Level 2 Level 3 Purchase price allocation in the context of business combinations ...... X Investment properties ...... X Financing liabilities ...... X Other liabilities (particularly derivative) ...... X
19. Recognition of income and expenses Income is recognised when it is probable that the economic benefit will flow to the Group and the amount of the income can be measured reliably. The following recognition criteria must also be met in order for income to be recognised: a) Rental and lease income Income from the rental and lease of properties for which the corresponding rental and lease agreements are classified as operating leases is recognised on a straight-line basis over the term of the respective lease agreement. When incentives are provided to tenants, the cost of incentive is recognised over the lease term, on a straight-line basis, as a reduction of rental and lease income. Rental and lease income also includes tenant payments for utilities and service charges if the costs and the amount of the income can be reliably determined and the services have been provided.
F-47 Consolidated financial statements NOTES (Continued)
D. Accounting policies (Continued) b) Income from the disposal of property Income from the disposal of property is recognised when the LEG Group transfers substantially all the risks and rewards incident to ownership to the buyer. A transfer is generally assumed to take place when the LEG Group transfers title and effective control of the property sold to the buyer and it is probable that the income from the disposal will flow to the LEG Group. By contrast, income is not recognised if the LEG Group assumes return guarantees, grants a right of return to the buyer or enters into other material obligations with respect to the buyer that prevent the transfer of risks and rewards of ownership to the buyer. c) Income from services and third-party management Income from the performance of service projects is recognised in the period in which the service is provided. This is determined in accordance with the percentage of completion of the respective project and the ratio of the services rendered as at the end of the reporting period to the total services to be provided. Income from third-party management is only recognised once the corresponding services have been rendered. d) Interest and similar income Interest income is recognised using the effective interest method in the period in which it arises. e) Dividend income Dividend income is recognised when the right to receive the respective payment arises. f) Expenses Operating expenses are recognised in profit or loss when the respective service is utilised or the expenses are caused.
20. Government grants Government grants within the meaning of IAS 20 are recognised if there is reasonable assurance that the grants will be received and that the company will comply with the corresponding conditions. Expense-related grants are recognised as income over the period that is expected to be necessary to offset the expenses for which the grants compensate. The LEG Group has primarily received government grants in the form of loans at below-market interest rates. These loans at below-market rates are property loans and are reported as financial liabilities. They provide benefits compared to regular loans, such as lower interest rates or periods free of interest and principal payments. The loans were measured at fair value when the company was acquired in 2008 and carried at amortised cost in subsequent periods. On initial recognition, new investment loans and loans at below-market rates are measured at their present value based on the applicable market interest rate at the grant date. The difference between the nominal amount and the present value of the loan is recognised as deferred income and reversed on a straight-line basis over the remaining term of the corresponding loan, which is measured at amortised cost in subsequent periods.
21. Income taxes Income tax expense represents the sum of current tax expense and deferred taxes. LEG is only subject to taxation in Germany. Some judgements have to be made in assessing income tax receivables and liabilities. It cannot be ruled out that the tax authorities will make a different assessment. The uncertainty this entails is taken into account by only recognising uncertain tax receivables and liabilities when LEG considers their probability of occurrence to be higher than 50%. Any changes in judgements, e.g. due to
F-48 Consolidated financial statements NOTES (Continued)
D. Accounting policies (Continued) final tax assessments, affect current and deferred tax items. The best estimate of the provisionally expected tax payment is used for recognised uncertain income tax items. Current tax expense is calculated on the basis of the taxable income for the respective year. Taxable income differs from the consolidated net profit for the period, as shown in the consolidated statement of comprehensive income, due to income and expenses that are only taxable or tax-deductible in future periods, if at all. The Group’s liabilities and provisions for current taxes are calculated on the basis of the applicable tax rates. Deferred taxes are recognised for the temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax base for the purpose of calculating taxable income. Deferred tax liabilities are generally recognised for all taxable temporary differences, while deferred tax assets are recognised to the extent that it is probable that taxable income will be available against which the deductible temporary differences can be utilised. Deferred tax assets also include reductions in taxes resulting from the expected utilisation of existing tax loss carryforwards (or similar items) in subsequent periods if realisation is reasonably assured. In addition, deferred taxes are recognised for outside basis differences if the relevant conditions are met. Deferred tax liabilities and deferred tax assets are calculated on the basis of the tax rates (and tax legislation) that are expected to be in force when the liability is settled or the asset is realised. This is based on the tax legislation in force or adopted by the Bundestag (Lower House of the German Parliament) and, where applicable, the Bundesrat (Upper House of the German Parliament) as at the end of the reporting period. The measurement of deferred tax assets and liabilities reflects the tax consequences arising from the manner in which the Group expects to settle the deferred tax liabilities or realise the deferred tax assets as at the end of the reporting period. Current or deferred taxes are recognised in profit or loss unless they relate to items that are recognised in other comprehensive income or recognised directly in equity. In this case, the corresponding current and deferred taxes are recognised in other comprehensive income or directly in equity. Deferred tax assets and deferred tax liabilities are offset if the Group has a legally enforceable right to offset current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to income taxes levied by the same tax authority and to the same taxable entity. In addition, only deferred taxes that relate to items of the statement of financial position with the same maturity are netted. The tax liability from the settlement of corporation tax from previously unutilised “EK 02” taxable equity is discounted using the applicable tax discount rate of 5.5%.
22. Judgements The management is required to use judgement in applying the accounting policies. This applies in particular to the following items: – For assets held for sale, it must be determined whether the assets can be sold in their present condition and whether their disposal can be considered highly likely within the meaning of IFRS 5. If this is the case, the assets and any corresponding liabilities are reported and measured as assets and liabilities held for disposal. – It must be determined whether property should be classified as inventories or investment property depending on the intended use. – Buildings that are both owner-occupied and used by third parties must be reported as separate assets in accordance with IAS 16 and IAS 40, unless the owner-occupied component is immaterial.
23. Use of estimates The preparation of IFRS consolidated financial statements requires assumptions and estimates affecting the carrying amounts of the assets and liabilities recognised, income and expenses and the disclosure of contingent liabilities.
F-49 Consolidated financial statements NOTES (Continued)
D. Accounting policies (Continued) Among other things, these assumptions and estimates relate to: – Measurement of investment property: significant measurement parameters include the expected cash flows, the assumed vacancy rate and the discount and capitalisation rates. If market values cannot be derived from transactions for similar properties, they are measured using the DCF method, under which future cash flows are discounted to the end of the reporting period. These estimates involve assumptions concerning the future. In light of the large number of properties affected and their geographical distribution, individual measurement uncertainties are subject to statistical smoothing. Measurement is performed on the basis of publicly available market data (e.g. property market reports by expert committees, data from the service provider INWIS, etc.) and the extensive knowledge of the LEG Group and its subsidiaries in the respective regional submarkets. – Recognition and measurement of provisions for pensions and similar obligations: Provisions for pensions and similar obligations are measured on the basis of actuarial calculations, applying assumptions with regard to interest rates, future wage and salary increases, mortality tables and future pension growth. – Recognition and measurement of other provisions: Recognition and measurement is subject to uncertainty concerning future price growth and the amount, timing and probability of utilisation of the respective provision. – Measurement of financial liabilities: The measurement of financial liabilities depends in particular on estimates of future cash flows and potential changes in terms. Estimates of the company-specific risk premium are also required. – Recognition of deferred tax assets: Deferred tax assets are recognised if it is probable that future tax benefits will be realised. The actual taxable income in future financial years, and hence the extent to which deferred tax assets can be utilised, can deviate from the estimates made when the deferred tax assets are recognised. Deferred tax assets for tax loss carryforwards are recognised on the basis of future taxable income for a planning period of five financial years. – Share-based Payment (IFRS 2): Assumptions and judgements regarding the development of performance indicators and fluctuation are required in accounting for stock option plans. They are calculated using option pricing models. – Goodwill impairment test: The calculation of the FVLCOD requires assumptions and judgements regarding future EBIT development and sustainable growth rates in particular. Further information on assumptions and estimates made by management can be found in the disclosures to the individual items of the financial statements. All assumptions and estimates are based on the prevailing circumstances and assessments as at the end of the reporting period. The estimation of future business development also takes into account the future economic environment that is currently assumed to be realistic in the industries and regions in which the LEG Group operates. Although the management considers assumptions and estimates applied to be appropriate, unforeseeable changes to these assumptions could affect the Group’s net assets, financial position and results of operations.
24. Share-based payment The LEG Group has share-based remuneration plans (share option plans) for members of the Management Board of LEG Immo. In line with IFRS 2, the share option plans in the context of the long-term incentive programme are treated as cash-settled share-based remuneration. The provisions for these obligations are established at the level of the expected expense, with them being distributed pro rata across the defined vesting period. The fair value of the options is determined using recognised financial models. In addition, former shareholders of the LEG Group have concluded an agreement with the Management Board on the granting of shares in LEG depending on a successful IPO or exit. In line with IFRS 2, these share option plans are classified and recognised as equity-settled share-based remuneration. The fair value of the shares is calculated using recognised financial models as at the grant date and distributed on a straight-line basis over the
F-50 Consolidated financial statements NOTES (Continued)
D. Accounting policies (Continued) vesting period in which the enterprise receives the counterperformance in the form of employee service. The expenses are recognised in staff costs and recognised directly in equity. Details of share-based payment can be found in section I.6.
E. Notes to the consolidated statement of financial position 1. Investment property Investment property developed as follows in the 2015 and 2014 financial years:
T72 – Investment properties
€ million 2015 2014 CARRYING AMOUNT AS OF 01.01...... 5,914.3 5,163.4 Acquisitions ...... 189.6 615.9 Other additions ...... 64.7 43.4 52.6מ 55.7מ ...... Reclassified to assets held for sale Reclassified from assets held for sale ...... 0.4 – 1.3מ 0.3מ ...... Reclassified to property, plant and equipment Reclassified from property, plant and equipment ...... – 2.5 Fair value adjustment ...... 285.5 143.0 CARRYING AMOUNT AS OF 31.12...... 6,398.5 5,914.3
The following acquisitions were performed in the reporting period: In connection with the acquisition of the Vitus Group with effect from 1 November 2014, the exchange of properties at the respective peripheral locations was agreed with the seller, Vonovia SE. The acquisitions include two property portfolios acquired from Vonovia SE. At the same time, LEG Immo sold individual portfolios taken over from the Vitus Group as agreed. The transactions were closed on 1 January 2015 in each case. The additions also include the acquisition of a property portfolio of around 713 residential units that was notarised on 27 April 2015. The portfolio is distributed across the attractive North Rhine-Westphalian locations of Cologne, Leverkusen and Sankt Augustin and generates annual net cold rent of EUR 3.5 million. The average in-place rent is EUR 5.33 per square metre; the initial vacancy rate is 2.9%. The transaction was closed on 1 June 2015. A property portfolio of around 2,400 residential units was acquired by way of a purchase agreement dated 17 September 2014. The purchase price is around EUR 111.4 million. The transaction was closed on 1 July 2015. The acquisition of each of the above property portfolio is treated as a group of assets in the consolidated financial statements. A business within the meaning of IFRS 3.3 was not acquired as there was no transfer of material business processes. Other additions in the financial year primarily relate to investments in existing properties. The largest investments in 2015 included the continued energy renovation of building shells in Monheim and the modernisation of building technology in connection with the revitalisation of the listed Reuter estate in Bonn. The reclassification to properties held for sale essentially includes properties sold as part of a portfolio streamlining programme and the sale of four commercial properties. Please also see section E.9. The units were sold to independent market participants in the course of the ordinary sales process.
F-51 Consolidated financial statements NOTES (Continued)
E. Notes to the consolidated statement of financial position (Continued) Investment property broke down as follows in the 2015 and 2014 financial years:
T73 – Composition of investment properties
31.12.2015 31.12.2014 Investment Properties held Investment Properties held € million properties for sale properties for sale Developed land ...... 6,256.1 6.4 5,792.1 57.5 Undeveloped land ...... 18.9 0.2 20.1 0.8 Other ...... 123.5 0.0 102.1 0.1 TOTAL ...... 6,398.5 6.6 5,914.3 58.4
The development in fair values in the financial year was again determined by the positive development of the market environment. The monitoring of general transaction activities is primarily reflected in a declining discount rate. As in the previous year, operating business made a solid contribution to increasing property values in the form of in-place rent increases and the reduction of vacancies. Sensitivities were as follows as at 31 December 2015:
T74 – Sensitivity analysis 2015
Sensitivities GAV Sensitivities GAV € million (variance discount rate, in %) (variance cap rate, in %) Valuation bp +25 bp 25מ bp +25 bp 25מ Segment GAV assets technique3 Residential assets1 Discounted cash 2.3מ 2.6 4.2מ High-growth markets . . . 2,855 flows 4.5 Discounted cash 2.0מ 2.1 3.8מ Stable markets ...... 1,936 flows 4.0 Higher-yielding Discounted cash 1.7מ 1.8 3.5מ markets ...... 1,219 flows 3.7 Discounted cash 1.8מ 1.8 3.6מ NonNRW...... 91 flows 3.7 Discounted cash 1.7מ 1.8 2.1מ Commercial assets2 ...... 159 flows 2.2 Discounted cash 1.7מ 1.9 4.3מ Parking + other assets ...... 118 flows 4.7 Earnings/ reference value Leasehold + land values ..... 23 method – – – – Discounted cash 2.1מ 2.2 3.9מ TOTAL IAS 40/IFRS 5 .... 6,401 flows 4.1
1 Excluding 321 residential units in commercial buildings; including 290 commercial and other units in mixed residential assets. 2 Excluding 290 commercial units in mixed residential assets; including 321 residential units in commercial buildings. 3 Valuation technique information without consideration of IAS 16 assets. In exceptional cases liquidation value approach.
F-52 Consolidated financial statements NOTES (Continued)
E. Notes to the consolidated statement of financial position (Continued) Sensitivities were as follows as at 31 December 2014:
T75 – Sensitivity analysis 2014
Sensitivities GAV Sensitivities GAV € million (variance discount rate, in %) (variance cap rate, in %) Valuation bp +25 bp 25מ bp +25 bp 25מ Segment GAV assets technique3 Residential assets1 Discounted cash 2.2מ 2.6 4.1מ High-growth markets . . . 2,337 flows 4.5 Discounted cash 2.1מ 2.4 3.4מ Stable markets ...... 2,067 flows 3.7 Higher-yielding Discounted cash 1.7מ 1.8 3.5מ markets ...... 1,157 flows 3.7 Discounted cash 1.7מ 2.6 2.8מ NonNRW...... 114 flows 3.7 Discounted cash 1.7מ 1.9 2.0מ Commercial assets2 ...... 172 flows 2.1 Discounted cash 1.6מ 1.8 4.1מ Parking + other assets ...... 99 flows 4.5 Earnings/ reference value Leasehold + land values ..... 27 method – – – – Discounted cash 2.1מ 2.3 3.6מ TOTAL IAS 40/IFRS 5 .... 5,973 flows 4.0
1 Excluding 286 residential units in commercial buildings; including 265 commercial and other units in mixed residential assets. 2 Excluding 265 commercial units in mixed residential assets; including 286 residential units in commercial buildings. 3 In exceptional cases liquidation value approach. Some investment property is let under the terms of commercial rental agreements and leases. These rental agreements and leases generally have a term of ten years and contain extension options for a maximum of two-times five years. The Group also has land with third-party heritable building rights with an original contractual term that is generally between 75 and 99 years. The rental agreements for residential property concluded by the LEG Group can be terminated by the tenant at any time giving three months’ notice to the end of the month. Accordingly, fixed cash flows in the amount of three monthly rents are expected from these rental agreements. The following amounts are expected to be due over the coming years based on the minimum lease instalments for long-term rental agreements for commercial property that were in place as at 31 December 2015:
T76 – Amount based on minimum lease instalments for long-term rental agreements (commercial properties)
Remaining term Remaining term Remaining term € million up to 1 year >1 to 5 years >5 years Total 31.12.2015 ...... 13.1 22.0 16.4 51.5 31.12.2014 ...... 14.0 29.1 24.2 67.3 Land with third-party heritable building rights under finance leases had a net carrying amount of EUR 3.3 million as at the end of the reporting period (2014: EUR 3.4 million).
F-53 Consolidated financial statements NOTES (Continued)
E. Notes to the consolidated statement of financial position (Continued) Investment property is used almost exclusively as securities for financial liabilities. See also E.13.
2. Property, plant and equipment The development of property, plant and equipment is shown in the consolidated statement of changes in assets (Annex I). Assets under finance leases had the following net carrying amounts as at the end of the reporting period:
T77 – Assets under finance leases
€ million 31.12.2015 31.12.2014 Heat-generating plants ...... 12.1 12.5 Measuring instruments ...... 7.1 7.8 Heritable building rights ...... 3.3 3.4 Power lines ...... 0.8 0.9 Hardware ...... 0.0 0.1 TOTAL ...... 23.3 24.7
The year-on-year decline in the net carrying amounts resulted primarily from depreciation in the financial year.
3. Intangible assets The development of intangible assets is shown in the consolidated statement of changes in assets (Annex I).
4. Investments in associates The following tables provide a summary of the financial information for associates accounted for using the equity method:
T78 – Companies accounted for using the equity method
€ million 31.12.2015 31.12.2014 Investments in associates ...... 8.8 8.9 Net income from associates ...... 0.0 0.3
T79 – Companies accounted for using the equity method
€ million 31.12.2015 31.12.2014 Assets1 ...... 55.8 56.6 Liabilities1 ...... 32.7 34.1 Group share of net assets ...... 8.8 8.9
2015 2014 Revenue1 ...... 7.3 7.3 Gain/Loss1 ...... 0.7 0.7 Group share of net profit ...... 0.3 0.3
1 Equivalent to 100% share. Losses at associates are recognised up to a carrying amount of zero. Any losses in excess of this amount are carried forward in an auxiliary account if there is no obligation to make additional payments.
F-54 Consolidated financial statements NOTES (Continued)
E. Notes to the consolidated statement of financial position (Continued) Unrecognised pro rata losses developed as follows:
T80 – Unrecognised pro rata losses
€ million 2015 2014 For period ...... – 0.0 Cumulative ...... – 0.2 The carrying amounts developed as follows in the financial year:
T81 – Carrying amount reconciliation
€ million 2015 2014 01.01...... 8.9 9.2 Share of profit ...... 0.0 0.3 Transfer ...... 0.0 0.0 0.6מ 0.1מ ...... Disposals 31.12...... 8.8 8.9
5. Other financial assets Other financial assets are composed as follows:
T82 – Other financial assets
€ million 31.12.2015 31.12.2014 Investments in affiliates not included in consolidation ...... 146.1 0.1 Investments in equity investments and associates ...... 1.2 1.2 Other financial assets ...... 1.5 1.1 TOTAL ...... 148.8 2.4
Details of other financial assets can be found in section I.3.
6. Receivables and other assets Receivables and other assets are composed as follows:
T83 – Receivables and other assets
€ million 31.12.2015 31.12.2014 Trade receivables, gross ...... 30.5 25.1 10.5מ 12.5מ ...... Impairment losses TOTAL ...... 18.0 14.6 Thereof attributable to rental and leasing ...... 5.4 6.3 Thereof attributable to property disposals ...... 3.8 3.5 Thereof attributable to other receivables ...... 8.9 4.8 Thereof with a remaining term up to 1 year ...... 16.2 12.3 Thereof with a remaining term of between 1 – 5 years ...... 1.8 2.2
F-55 Consolidated financial statements NOTES (Continued)
E. Notes to the consolidated statement of financial position (Continued)
€ million 31.12.2015 31.12.2014 Receivables from uninvoiced operating costs ...... 4.9 5.7 Loans ...... 0.1 0.1 Other financial assets ...... 3.6 4.3 Other miscellaneous assets ...... 6.6 4.9 TOTAL ...... 15.2 15.0 Thereof with a remaining term up to 1 year ...... 14.3 14.8 Thereof with a remaining term of between 1 – 5 years ...... 0.9 0.3 TOTAL RECEIVABLES AND OTHER ASSETS ...... 33.2 29.6
Details of related parties can be found in section I.7.
7. Real estate inventory and other inventory Real estate inventory and other inventories are composed as follows:
T84 – Real estate and other inventories
€ million 31.12.2015 31.12.2014 Undeveloped land ...... 1.4 1.4 Land under development ...... 2.2 2.8 Other inventories ...... 1.5 2.0 TOTAL ...... 5.1 6.2
Further information on inventories can be found in the following table:
T85 – Additional information
€ million 31.12.2015 31.12.2014 Amount of inventories recognised as an expense in the reporting period ...... 1.4 7.0 Amount of inventories with tenancy of more than 1 year ...... 3.7 4.1 The decrease in inventories essentially results from the winding up of the Development division.
8. Cash and cash equivalents T86 – Cash and cash equivalents
€ million 31.12.2015 31.12.2014 Bank balances ...... 252.7 129.8 Cash on hand ...... 0.1 0.1 CASH AND CASH EQUIVALENTS ...... 252.8 129.9 Restricted disposal balances – notary trust accounts –...... 7.4 8.4 Bank balances have variable interest rates for overnight deposits. Short-term deposits are made for periods of between one day and three months, depending on the Group’s liquidity requirements. Cash and cash equivalents include balances with a fixed purpose. These are reported as balances with restricted access.
9. Assets held for sale In accordance with IFRS 5, assets held for sale consist solely of those assets for which a decision on disposal has been made as at the end of the reporting period, the disposal of the property within twelve months of the decision is considered to be highly likely and active marketing activities have been initiated.
F-56 Consolidated financial statements NOTES (Continued)
E. Notes to the consolidated statement of financial position (Continued) T87 – Assets held for sale
€ million 2015 2014 CARRYING AMOUNT AS OF 01.01...... 58.4 16.4 Reclassified from investment properties ...... 55.7 52.6 0.0 0.4מ ...... Reclassified to investment properties 37.2מ 107.1מ ...... Disposal due to sale of land and buildings 0.2מ Disposal due to sale of companies ...... 0.0 Addition due to acquisitions ...... – 24.5 Other additions ...... 0.1 2.3 CARRYING AMOUNT AS OF 31.12...... 6.7 58.4
Investment property was sold again in the reporting period for the purposes of selective portfolio streamlining.
The item “Disposals due to the sale of land and buildings” includes developed and undeveloped properties and residential and commercial buildings. The increase resulted primarily from a major portfolio streamlining programme, under which sale agreements were concluded for properties at a carrying amount of EUR 35.6 million up to 30 September 2015. The transactions were closed in the final quarter of 2015. In addition, a commercial property with a carrying amount of EUR 8.0 million was sold in the reporting period.
The other disposals related to further block and individual sales.
The additions due to the purchase of companies reported in the previous year included land and buildings from the acquisition of the former Vitus companies from Vonovia SE. See also section F.2.
10. Equity The change in equity components is shown in the statement of changes in equity. a) Share capital The Annual General Meeting of 24 June 2015 revised Article 8.10 (Supervisory Board), revoked the authorised capital previously in place and created new Authorised Capital 2015. It also amended the Contingent Capital 2013/2014 resolved by the Annual General Meetings on 17 January 2013 and 25 June 2014 and revised Article 4.1 and Article 4.2 of the Articles of Association accordingly. The Management Board has been authorised, with the approval of the Supervisory Board, to increase the share capital of the company on one or more occasions by up to a total of EUR 28,531,722.00 by issuing up to 28,531,722 new registered shares against cash or non-cash contributions by 23 June 2020. The share capital is contingently increased by up to EUR 28,531,722.00 through the issue of up to 28,531,722 new no-par value registered shares (Contingent Capital 2013/2015). On 24 June 2015, with the approval of the Supervisory Board, the Managing Board of LEG Immo resolved to partially utilise the existing authorised capital and to increase the share capital of the company, with shareholders’ pre-emption rights disapplied, by nominally EUR 1,196,344 thousand by issuing 1,196,344 new registered shares in the company, which will be entitled to dividends for the 2015 financial year. This was entered in the commercial register on 24 June 2015. After partial utilisation, Authorised Capital 2014 amounts to EUR 21,185,378.00. On 12 November 2015, with the approval of the Supervisory Board, the Managing Board of LEG Immo resolved to partially utilise the existing authorised capital and to increase the share capital of the company, with shareholders’ pre-emption rights disapplied, by nominally EUR 4,510,000 thousand by issuing 4,510,000 new registered shares in the company, which will be entitled to dividends for the 2015 financial year. This was entered in the commercial register on 13 November 2015. After partial utilisation, Authorised Capital 2015 amounts to EUR 24,021,722.00.
F-57 Consolidated financial statements NOTES (Continued)
E. Notes to the consolidated statement of financial position (Continued) The transaction costs of the two capital increases amounted to EUR 4.5 million and were deducted directly from the capital reserves. The notifications in accordance with section 160(1) no. 8 AktG can be found in Annex III. b) Capital reserves An amount of EUR 170.0 million was withdrawn from capital reserves and added to net retained profits. The gross proceeds from the capital increases amount to EUR 380,303,009.76 (1,196,344 shares at EUR 61.54 per share = EUR 73,623,009.76 and 4,510,000.00 shares at EUR 68 per share = EUR 306,680,000.00). This gives rise to an increase in capital reserves of EUR 370.1 million (EUR 5,706,344 is share capital). c) Cumulative other reserves Cumulative other reserves consist of the Group’s retained earnings and other reserves. Retained earnings are composed of the net profits generated by the companies included in consolidation in prior periods and the current period, to the extent that these have not been distributed. Other reserves consist of adjustments to the fair values of derivatives used as hedging instruments and actuarial gains and losses from the remeasurement of pension provisions. In the 2015 financial year, there was a distribution to the shareholders of the company for 2014 in the form of a dividend of EUR 111.8 million. d) Non-controlling interests Non-controlling interests in other comprehensive income were composed as follows:
T88 – Non-controlling interest in other comprehensive income
€ million 31.12.2015 31.12.2014 0.2מ Actuarial gains and losses from the measurement of pension obligations ...... 0.0 0.3מ Fair value adjustment of interest rate derivatives in hedges ...... 0.0 0.5מ NON-CONTROLLING INTEREST IN OTHER COMPREHENSIVE INCOME ... 0.0
11. Provisions for pensions Expenses for defined contribution plans amounted to EUR 3.8 million in the year under review (2014: EUR 3.5 million). These essentially comprise contributions to the statutory pension scheme. In connection with defined benefit plans, the LEG Group uses statistical and actuarial calculations by actuaries to ensure that future developments are taken into account in the calculation of expenses and obligations. Among other things, these calculations are based on assumptions regarding the discount rate and future wage and salary developments. In accordance with IAS 19, provisions for pensions for defined benefit plans are calculated on the basis of actuarial assumptions. The following parameters were applied in the financial years:
T89 – Calculation of pension provisions in % 31.12.2015 31.12.2014 Discounting rate ...... 2.20 1.80 Salary trend ...... 2.75 2.75 Pension trend ...... 2.00 2.00
F-58 Consolidated financial statements NOTES (Continued)
E. Notes to the consolidated statement of financial position (Continued) A change in the individual parameters, with the other assumptions remaining unchanged, would have affected the present value of the obligation as follows as at 31 December 2015 (present value of obligation as at 31 December 2015: EUR 149.8 million):
T90 – Sensitivity of pension provisions 2015
€ million Discounting rate (increase and decrease around 0.5% pts.) ...... 139.3 161.4 Salary trend (increase and decrease around 0.5% pts.) ...... 151.3 148.1 Mortality (increase and decrease around 10%) ...... 144.1 156.0 Pension trend (increase and decrease around 0.25% pts.) ...... 153.9 145.7 A change in the individual parameters, with the other assumptions remaining unchanged, would have affected the present value of the obligation as follows as at 31 December 2014 (present value of obligation as at 31 December 2014: EUR 164.6 million):
T91 – Sensitivity of pension provisions 2014
€ million Discounting rate (increase and decrease around 0.5% pts.) ...... 152.7 177.8 Salary trend (increase and decrease around 0.5% pts.) ...... 166.5 162.6 Mortality (increase and decrease around 10%) ...... 158.5 171.3 Pension trend (increase and decrease around 0.25% pts.) ...... 169.2 160.0 Increases or reductions in the discount rate, the salary trend, the pension trend and mortality do not affect the calculation of the defined benefit obligation (DBO) with the same absolute amount. If several assumptions are changed at the same time, the total amount is not necessarily the same as the total of the individual effects resulting from the changes in assumptions. It should also be noted that the sensitivities reflect a change in the DBO only for the specific respective degree of the change in assumptions (e. g. 0.5%). If the assumptions change to a different extent this will not necessarily have a straight-line impact on the DBO. The following table shows the development of pension obligations. In the absence of plan assets, the present value of the obligation in both years is the same as both the recognised provision and the plan deficit.
T92 – Development of pension obligations
€ million 2015 2014 PRESENT VALUE OF OBLIGATIONS AS OF 01.01...... 164.6 118.4 Service cost ...... 2.1 1.5 Interest expenses ...... 2.9 4.0 Addition due to acquisitions ...... – 15.9 – 0.9מ ...... Disposals 6.6מ 6.8מ ...... Payments 31.4 12.1מ ...... Remeasurement 0.4 3.2מ ...... Thereof losses (gains) from changes in experience 31.0 8.9מ ...... Thereof losses (gains) arising from changes in financial assumptions Thereof losses (gains) arising from changes in demographic assumptions ...... – – PRESENT VALUE OF OBLIGATIONS AS OF 31.12...... 149.8 164.6
EUR 43.7 million of the present value of the obligation relates to current employees covered by the plan (2014: EUR 53.1 million), EUR 11.8 million to employees who have left the company and whose rights are not yet vested (2014: EUR 11.5 million) and EUR 94.3 million to pensioners (2014: EUR 100.0 million).
F-59 Consolidated financial statements NOTES (Continued)
E. Notes to the consolidated statement of financial position (Continued) A pension payment of EUR 7.0 million (2014: EUR 7.0 million) is expected for 2016. The duration of the defined benefit obligation is 14 years (2014: 14 years).
12. Other provisions Other provisions are composed as follows:
T93 – Other provisions
€ million 31.12.2015 31.12.2014 Provisions for partial retirement ...... 1.4 1.8 STAFF PROVISIONS ...... 1.4 1.8 Construction book provisions ...... 4.3 4.7 Provisions for other risks ...... 20.2 17.9 Provisions for litigation risks ...... 2.2 4.4 Provisions for lease properties ...... 0.7 1.9 Provision for costs of annual financial statements ...... 1.2 1.0 Archiving provision ...... 0.5 0.4 OTHER PROVISIONS ...... 29.1 30.3
Details of the development of provisions can be found in Annex II. Construction book provisions contain amounts for outstanding measures and guarantees relating to development projects and property development measures. The other provisions essentially relate to obligations from a former residential property development project with 47 detached houses. The cash outflows from provisions are expected to amount to EUR 19.2 million within one year (previous year: EUR 17.6 million) and EUR 12.7 million after one year (previous year: EUR 16.2 million).
13. Financing liabilities Financing liabilities are composed as follows:
T94 – Financing liabilities
€ million 31.12.2015 31.12.2014 Financing liabilities from real estate financing ...... 3,215.0 2,932.4 Financing liabilities from lease financing ...... 26.6 27.9 FINANCING LIABILITIES ...... 3,241.6 2,960.3
Financing liabilities from property financing serve the financing of investment properties. Financing liabilities from real estate financing include the placement of the convertible bond with a nominal value of EUR 300.0 million. The convertible bond was classified as a financing liability on account of the issuer’s contractual cash settlement option and recognised in accordance with IAS 39. There are several embedded and separable derivatives that are treated as a single compound derivative in accordance with IAS 39.AG29 and carried at fair value. The underlying debt instrument is recognised at amortised cost. Extensive refinancing was performed in the 2015 financial year. The disbursement in connection with the refinancing and acquisition financing served to increase financing liabilities by EUR 1.3 billion. This was offset by the derecognition of the previous loans, which reduced total financing liabilities by EUR 1.0 billion. In addition to the loans utilised, financial liabilities were also increased by loans amortisation. There was a counter effect from scheduled and unscheduled repayments.
F-60 Consolidated financial statements NOTES (Continued)
E. Notes to the consolidated statement of financial position (Continued) Properties are used almost exclusively as security for the loans; details of the amount of the land charges entered in the land register can be found in section I.8. The equity interests in individual companies and rent receivables also serve as security for certain loan agreements. The expected rent pledged as security amounted to EUR 460.5 million in the 2015 financial year (2014: EUR 406.7 million). In addition to security in the form of land charges, potential receivables from buildings insurance have been pledged to the creditors of the respective land charges. By contrast, the security provided in the form of pledged rent receivables is increased by the corresponding receivables for incidental costs. For certain loan agreements there are also additional surety bonds and the joint and several liabilities of additional LEG companies to the bank. a) Financing liabilities from real estate financing The maturities shown in the consolidated financial statements are based on the contractually agreed fixed interest periods and not the final maturities of the respective financing liabilities. The remaining terms of financing liabilities from real estate financing are composed as follows: Table T95
T95 – Maturity of financing liabilities from real estate financing
Remaining term Remaining term Remaining term € million < 1 year > 1 and 5 years > 5 years Total 31.12.2015 ...... 491.3 638.7 2,085.0 3,215.0 31.12.2014 ...... 409.6 1,528.7 994.1 2,932.4 The change in maturities compared with 31 December 2014 is due in particular to the refinancing in the second quarter, which led to a significant increase in non-current financing liabilities. b) Financing liabilities from lease financing Financing liabilities from lease financing are composed as follows: Table T96
T96 – Maturity of financing liabilities from lease financing
Remaining term Remaining term Remaining term € million < 1 year > 1 and 5 years > 5 years Total 31.12.2015 ...... 4.7 12.4 9.5 26.6 31.12.2014 ...... 4.4 11.6 11.9 27.9 Future minimum lease payments are derived as follows as at 31 December 2015: Table T97
T97 – Future minimum lease payments as at 31 December 2015
Remaining term Remaining term Remaining term Total € million < 1 year > 1 and 5 years > 5 years 31.12.2015 Minimum lease payments ...... 5.0 16.2 24.9 46.1 Financing costs ...... 0.3 3.8 15.4 19.5 PRESENT VALUE OF MINIMUM LEASE PAYMENTS ...... 4.7 12.4 9.5 26.6
F-61 Consolidated financial statements NOTES (Continued)
E. Notes to the consolidated statement of financial position (Continued) The reconciliation as at 31 December 2014 is as follows: Table T98
T98 – Future minimum lease payments as at 31 December 2014
Remaining term Remaining term Remaining term Total € million < 1 year > 1 and 5 years > 5 years 31.12.2014 Minimum lease payments ...... 4.9 15.9 28.0 48.8 Financing costs ...... 0.5 4.3 16.1 20.9 PRESENT VALUE OF MINIMUM LEASE PAYMENTS ...... 4.4 11.6 11.9 27.9
Detailed information on lease financing can be found in section E.2.
14. Other liabilities Other liabilities are composed as follows:
T99 – Other liabilities
€ million 31.12.2015 31.12.2014 Interest derivatives ...... 211.1 181.7 Advance payments received ...... 23.4 57.0 Liabilities from shareholder loans ...... 0.2 0.0 Trade payables ...... 46.4 42.2 Rental and lease liabilities ...... 13.9 11.8 Liabilities from other taxes ...... 1.4 3.7 Liabilities to employees ...... 7.9 6.4 Social security liabilities ...... 0.3 0.5 Operating cost liabilities ...... 0.5 0.3 Interest benefit recognised as a liability ...... 6.3 6.8 Other miscellaneous liabilities ...... 48.4 10.81 OTHER LIABILITIES ...... 359.8 321.2 Thereof with a remaining term up to 1 year ...... 253.3 206.61 Thereof with a remaining term of between 1 – 5 years ...... 11.9 12.4 Thereof with a remaining term of more than 5 years ...... 94.7 102.2
1 Adjustment arising from final purchase price allocation The increase in interest rate derivatives is attributable to the general decline in interest rates compared to 31 December 2014. In addition, the separable embedded derivatives for the convertible bond with a fair value of EUR 153.3 million resulted in a further increase in interest rate derivatives.
15. Tax liabilities Current and non-current tax liabilities in the amount of EUR 23.6 million (2014: EUR 33.1 million) essentially consist of the present value of the settlement of the “EK 02” taxable equity of several Group companies in the amount of EUR 17.8 million (2014: EUR 25.9 million). Under the 2008 German Annual Tax Act, the previous distribution-based regulation on the treatment of “EK 02” equity was repealed and flat-rate instalment payments were introduced in its place. The resulting tax amount is to be paid in equal annual instalments over a ten-year period from 2008 to 2017. This means that a distribution no longer results in corporation tax expense.
F-62 Consolidated financial statements NOTES (Continued)
E. Notes to the consolidated statement of financial position (Continued) Deferred tax assets and liabilities result from temporary differences between the IFRS and tax carrying amounts and tax loss carryforwards. They are broken down as follows:
T100 – Deferred tax assets and liabilities
31.12.2015 31.12.2014 Deferred Deferred Deferred Deferred € million tax assets tax liabilities tax assets tax liabilities Non-current assets Investment properties ...... 1.6 467.2 0.7 376.0 Other miscellaneous non-current assets ...... 3.7 7.3 5.7 8.2 Current assets ...... 5.9 1.9 11.2 2.7 Non-current liabilities Pension provisions ...... 20.7 – 25.8 – Other provisions ...... 3.3 – 3.5 0.1 Other non-current liabilities ...... 20.6 62.8 31.9 58.1 Current liabilities Other provisions ...... 1.5 15.0 0.8 14.6 Other current liabilities ...... 28.6 0.4 27.4 14.8 TOTAL DEFERRED TAXES FROM TEMPORARY DIFFERENCES ...... 85.9 554.6 107.0 474.5 Deferred taxes on loss carryforwards ...... 78.6 – 71.9 – TOTAL DEFERRED TAXES ...... 164.5 554.6 178.9 474.5 Netting ...... 150.3 150.3 166.2 166.2 CARRYING AMOUNT ...... 14.2 404.3 12.7 308.3
The deferred taxes from non-current assets and non-current liabilities in the table above are expected to reverse more than twelve months after the end of the reporting period.
T101 – Deferred tax assets from tax loss
€ million 31.12.2015 31.12.2014 Corporation tax ...... 42.9 40.1 Trade tax ...... 35.7 31.8 TOTAL ...... 78.6 71.9
Deferred tax assets from unused tax losses are recognised in the same amount as deferred tax liabilities from temporary differences. Deferred tax assets from unused tax losses in excess of this amount are only recognised to the extent that it is probable that the company will generate taxable income. No deferred tax assets were recognised on tax loss and interest carryforwards of EUR 348.3 million at the reporting date. In general the tax loss carryforwards are vesting. Interest expenses are tax-deductible up to the amount of interest income. Above and beyond this amount, deductibility is limited to 30% of taxable EBITDA for the financial year (interest barrier), unless the exemption limit or the equity escape clause comes into force. Non-deductible interest expenses in the current financial year are carried forward to subsequent periods. Deferred tax assets can only be recognised for interest carried forward to the extent that it is probable that the interest expenses can be utilised in subsequent financial years. Owing to the effective conclusion of profit transfer agreements between the subsidiaries that hold the property portfolios and the Group company LEG NRW GmbH in 2012 and the resulting fiscal entity for corporation and trade tax purposes, the interest barrier does not apply to the (extended) fiscal entity, as was the case in the previous year.
F-63 Consolidated financial statements NOTES (Continued)
E. Notes to the consolidated statement of financial position (Continued) In the 2015 financial year, the remeasurement of primary and derivative financial instruments decreased equity by EUR 10.3 million (2014: increase in equity of EUR 11.2 million), while actuarial gains and losses decreased equity by EUR 3.6 million (2014: increase in equity of EUR 9.6 million). As at the end of the reporting period, deferred taxes recognised directly in equity amounted to EUR 24.5 million (2014: EUR 38.4 million). No deferred tax liabilities were recognised on temporary differences in connection with shares in subsidiaries, associates and joint ventures that are not expected to reverse in the foreseeable future in accordance with IAS 12.39 of EUR 16.7 million (2014: EUR 15.9 million).
F. Notes to the consolidated statement of comprehensive income 1. Net rental and lease income T102 – Net rental and lease income
€million 2015 2014 Net cold rent ...... 436.1 390.1 Net income from operating costs ...... 1.2 1.3 45.7מ 54.4מ ...... Maintenance expenses 33.2מ 37.4מ ...... Staff costs 5.4מ 6.0מ ...... Impairment losses on rent receivables 4.2מ 4.6מ ...... Depreciation 18.0מ 14.4מ ...... Others NET RENTAL AND LEASE INCOME ...... 320.5 284.9 NET OPERATING INCOME MARGIN (IN %) ...... 73.5 73.0 Non-recurring project costs – rental and lease ...... 2.3 1.4 Depreciation ...... 4.6 4.2 ADJUSTED NET RENTAL AND LEASE INCOME ...... 327.4 290.5 ADJUSTED NET OPERATING INCOME – MARGIN (IN %) ...... 75.1 74.5
In the past financial year, the LEG Group increased its net rental and lease income by EUR 35.6 million compared to the previous year. The main drivers in this development were the EUR 46.0 million rise in net cold rent and, offsetting this, the EUR 8.7 million higher maintenance expenses. Rent increases and the acquisitions of property portfolios contributed to a rise in net cold rent of 11.8% from EUR 390.1 million in the previous year to EUR 436.1 million in the period under review. As a result of the acquisitions, volume-dependent management costs rose at a lower rate than net cold rent overall. Adjusted for one-time project costs, the NOI margin was increased year on year from 74.5% to 75.1% despite higher maintenance expenses. The EPRA vacancy rate, which is a ratio of rent lost due to vacancy to potential rent in the event of full occupancy, was reduced from 2.7% to 2.5% on a like-for-like basis as at 31 December 2015. The LEG Group invested selectively in its assets in the reporting period. Investing activities in the period under review focused on measures aimed at facilitating the new letting of vacant apartments. With growth of EUR 15.3 million, they contributed to the EUR 25.1 million increase in total investment to EUR 114.2 million. Newly acquired portfolios accounted for EUR 10.7 million of total investment.
F-64 Consolidated financial statements NOTES (Continued)
F. Notes to the consolidated statement of comprehensive income (Continued) 2. Net income from the disposal of investment properties Net income from the disposal of investment properties is composed as follows:
T103 – Net income from the disposal of investment properties
€million 2015 2014 Income from the disposal of investment properties ...... 112.3 37.6 37.2מ 107.0מ ...... Carrying amount of investment properties disposed of INCOME/LOSS FROM THE DISPOSAL OF INVESTMENT PROPERTIES ..... 5.3 0.4 0.8מ 0.7מ ...... Staff costs 1.3מ 0.4מ ...... Other operating expenses – 0.6מ ...... Purchased services COST OF SALE IN CONNECTION WITH INVESTMENT PROPERTIES 2.1מ 1.7מ ...... SOLD 1.7מ NET INCOME FROM THE DISPOSAL OF INVESTMENT PROPERTIES ...... 3.6
In connection with the acquisition of the Vitus Group with effect from 1 November 2014, the exchange of properties at the respective peripheral locations was agreed with the seller, Vonovia SE (formerly: Deutsche Annington Immobilien SE). As a result, the LEG Group sold properties with a carrying amount of EUR 24.5 million with effect from 1 January 2015. At the same time, it acquired properties in the amount of EUR 16.1 million at the same date. Additional investment properties were sold in the reporting period for the purposes of selective portfolio streamlining. Block sales resulted in a book gain of EUR 2.9 million (sales receipts EUR 57.8 million, carrying amount disposals EUR 54.9 million), while individual sales contributed a book gain of EUR 0.5 million (sales receipts EUR 11.7 million, carrying amount disposals EUR 11.2 million) to net income from the disposal of investment properties. In addition, commercial properties were sold at over the carrying amount in the reporting period (sales receipts EUR 15.4 million, carrying amount disposals EUR 14.1 million). As part of a portfolio streamlining programme, sale agreements were concluded for properties at a carrying amount of EUR 35.6 million up to 30 September 2015 (recognised in the statement of financial position as assets held for sale). The transactions were closed in the final quarter of 2015. The sales commissions of approximately EUR 0.7 million were already incurred on contract conclusion as at 30 September.
3. Net income from remeasurement of investment properties Net income from the remeasurement of investment property amounted to EUR 285.5 million in 2015 (2014: EUR 143.0 million). Based on the portfolio as at the end of the reporting period, this corresponds to an increase in value of around 4.8%. The increase in in-place rent and the development in the discount rate had a positive impact on net remeasurement income in the current financial year. This was countered by slightly higher maintenance and management cost rates. The average value of residential investment property (including IFRS 5 properties) was EUR 873/sqm as at 31 December 2015 (31 December 2014: EUR 827/sqm) including acquisitions and EUR 876/sqm not including acquisitions. Thus, a year-on-year increase of 5.9 % in the value in euro per square metre (including investments in the portfolio but not including acquisitions) was generated in the 2015 financial year.
F-65 Consolidated financial statements NOTES (Continued)
F. Notes to the consolidated statement of comprehensive income (Continued) 4. Net income from the disposal of real estate inventory Net income from the disposal of real estate inventory is composed as follows:
T104 – Net income from the disposal of inventory properties
€ million 2015 2014 Income from real estate inventory disposed of ...... 1.0 5.7 5.0מ 0.7מ ...... Carrying amount of real estate inventory disposed of GROSS PROFIT FROM THE DISPOSAL OF REAL ESTATE INVENTORY ...... 0.3 0.7
€ million 2015 2014 1.6מ 0.3מ ...... Other operating expenses 1.7מ 1.4מ ...... Staff costs 0.5מ Purchased services and other ...... 0.2 3.8מ 1.5מ ...... COST OF SALES OF REAL ESTATE INVENTORY DISPOSED OF 3.1מ 1.2מ ...... NET INCOME FROM THE DISPOSAL OF REAL ESTATE INVENTORY
The sale of the remaining properties of the former Development division continued in 2015. The remaining real estate inventory held as at 31 December 2015 amounted to EUR 3.6 million, EUR 2.2 million of which related to properties under development. As a result of further staff savings, the costs of sales in connection with the disposal of inventory properties was EUR 0.3 million lower than in the previous year. In addition, the release of a provision for a completed development project at EUR 1.2 million and lower additions to the provision for performance obligations for disposed properties had a positive impact of EUR 0.7 million on the costs of sales.
5. Net income from other services Net income from other services is composed as follows:
T105 – Net income from other services
€ million 2015 2014 INCOME FROM OTHER SERVICES ...... 8.9 9.3 3.3מ 2.8מ ...... Purchased services 3.0מ 2.2מ ...... Other operating expenses 0.9מ 0.8מ ...... Staff costs 2.4מ 2.2מ ...... Depreciation, amortisation and write-downs 9.6מ 8.0מ ...... EXPENSES IN CONNECTION WITH OTHER SERVICES 0.3מ NET INCOME FROM OTHER SERVICES ...... 0.9
Other services include electricity and heat fed to the grid, it services for third parties and management services for third-party properties. Following the Vitus acquisition, administrative services for housing portfolios of Vonovia SE were rendered for the period from 1 November to 31 December of the previous year. These services were discontinued from 1 January 2015 and contributed to net income in the previous year with earnings and expenses of EUR 0.4 million each. The expenses for generating electricity and heat were negatively affected in the previous year by an addition to a provision of EUR 1.0 million. Furthermore, the operating earnings from electricity and heat generation were increased slightly in the past financial year.
F-66 Consolidated financial statements NOTES (Continued)
F. Notes to the consolidated statement of comprehensive income (Continued) 6. Administrative and other expenses Administrative and other expenses are composed as follows:
T106 – Administrative and other expenses
€ million 2015 2014 16.9מ 32.3מ ...... Other operating expenses 21.6מ 22.7מ ...... Staff costs 0.9מ 1.0מ ...... Purchased services 2.2מ 2.1מ ...... Depreciation, amortisation and write-downs 41.6מ 58.1מ ...... ADMINISTRATIVE AND OTHER EXPENSES
The other operating expenses contained in the table above are composed as follows:
T107 – Other operating expenses
€ million 2015 2014 9.5מ 20.9מ ...... Legal and consulting costs 4.6מ 4.4מ ...... Rent and other costs of business premises 1.9מ 1.8מ ...... Annual financial statement, accounting and audit costs 0.4מ 0.5מ ...... Expenses for postage, telecommunications, IT 0.1מ 0.2מ ...... Temporary staff 0.4מ 0.4מ ...... Vehicles 0.4מ 0.4מ ...... Travel expenses 0.1מ 0.1מ ...... Advertising expenses 0.5 3.6מ ...... Other expenses Reimbursement of IPO costs by shareholders ...... – – 16.9מ 32.3מ ...... OTHER OPERATING EXPENSES
Administrative and other expenses were strongly defined by non-recurring effects overall. Higher project costs (up EUR 13.8 million), caused by transaction costs for the acquisition of a portfolio with 3,539 residential units (EUR 6.9 million), and legal and consulting costs relating to Deutsche Wohnen AG’s now negotiated takeover bid (EUR 3.7 million) primarily resulted in an increase in other operating expenses compared to the previous year. Expenses for the long-term incentive programme (LTIP) with former shareholders were EUR 1.0 million lower in the reporting period. Due to volume effects resulting from the consolidation of new companies, current administrative expenses temporarily increased as expected to EUR 36.7 million (previous year: EUR 33.1 million). Despite further portfolio growth of more than 20,000 units compared to 31 December 2015, current administrative expenses are expected to decline in the 2016 financial year due to the successful implementation of the efficiency programme.
7. Interest income Interest income is composed as follows:
T108 – Interest income
€ million 2015 2014 Interest income from bank balances ...... 0.2 0.9 Interest income from finance leases ...... 0.3 0.0 Other interest income ...... 0.1 0.3 INTEREST INCOME ...... 0.6 1.2
F-67 Consolidated financial statements NOTES (Continued)
F. Notes to the consolidated statement of comprehensive income (Continued) 8. Interest expenses Interest expenses are composed as follows:
T109 – Interest expenses
€ million 2015 2014 69.7מ 66.6מ ...... Interest expenses from real estate financing 24.6מ 38.6מ ...... Interest expense from loan amortisation 0.0 8.3מ ...... Prepayment penalty 26.3מ 21.5מ ...... Interest expense from interest derivatives for real estate financing 4.0מ 2.9מ ...... Interest expense from change in pension provisions 2.3מ 1.6מ ...... Interest expense from interest on other assets and liabilities 1.5מ 1.4מ ...... Interest expenses from lease financing 0.1מ 40.6מ ...... Other interest expenses 128.5מ 181.5מ ...... INTEREST EXPENSES
The increase in interest expenses from loan amortisation and prepayment penalties were due in particular to the effects of the loans that were replaced as part of the planned refinancing in the 2015 financial year. The increase in other interest expense was due to the reversal of the amounts for interest rate derivatives reported in OCI for hedge accounting amounting to EUR 39.5 million, which were released in connection with the refinancing. Interest expenses from loan amortisation include the measurement of the convertible bond at amortised cost in the amount of EUR 6.4 million. In addition, the refinancing at more favourable interest terms and lower general interest rates compared to 2014 also led to a reduction in interest expenses from real estate financing. The refinancing also reduced interest expenses from interest rate derivatives. This was offset by the effects of the lower interest rates on interest rate derivatives.
9. Net income from the fair value measurement of derivatives The gains and losses on the remeasurement of stand-alone derivatives and the ineffective portion of interest hedging instruments are reported in net income from the fair value measurement of derivatives. million 75.8מ The net income from the fair value measurement of derivatives in the past financial year was EUR .(million 42.3מ previous year: EUR) The net income from the fair value measurement of derivatives in the reporting period primarily results from :million (previous year 74.0מ changes in the fair value of derivatives from the convertible bond of EUR .(million 33.7מ EUR :million (previous year 0.5מ In the 2015 financial year, there were ineffective hedges to report of EUR EUR 0 million).
10. Income taxes Income tax expense and income is broken down by origin as follows:
T110 – Income taxes
€ million 2015 2014 6.8מ 1.6מ ...... Current income taxes 57.11מ 80.4מ ...... Deferred taxes 63.9מ 82.0מ ...... INCOME TAXES Tax reimbursement for prior years ...... 0,9 0,2
1 Adjustment arising from final purchase price allocation of Vitus transaction
F-68 Consolidated financial statements NOTES (Continued)
F. Notes to the consolidated statement of comprehensive income (Continued) Based on the consolidated net profit before income taxes and the expected income tax expense, the reconciliation to current income taxes is as follows:
T111 – Reconciliation to current income tax expenses
€ million 2015 2014 IFRS earnings before income taxes ...... 299.7 219.5 Group tax rate in % ...... 31.2 31.2 68.5מ 93.5מ ...... FORECAST INCOME TAXES Tax reduction due to tax-free income and off-balance sheet deductions ...... 21.1 17.6 2.5מ 2.2מ ...... Additional taxes due to non-deductible expenses and off-balance sheet additions Tax effect due to deferred tax assets on tax loss carryforwards and not recognised deferred tax 15.2מ 16.7מ ...... assets due to lack of recoverability Tax expenses relating to prior periods ...... 5.9 8.8 0.4מ 0.1מ ...... Tax effect of LTIP from former shareholders 2.5מ Others ...... 3.5 62.7מ 82.0מ ...... INCOME TAXES AS PER STATEMENT OF COMPREHENSIVE INCOME Effective tax rate in %, adjusted ...... 27.4 28.6 1.2מ – ...... Adjustment arising from final PPA of Vitus transaction INCOME TAXES AS PER STATEMENT OF COMPREHENSIVE INCOME, 63.9מ 82.0מ ...... ADJUSTED Effective tax rate in %, adjusted ...... 27.4 29.1 The deferred taxes from non-current assets and non-current liabilities are expected to reverse more than twelve months after the end of the reporting period. The tax rate applied in calculating theoretical income tax takes into account the current and expected future tax rates for corporate income tax (15%), the solidarity surcharge (5.5% of corporate income tax) and trade tax (15.4%) based on a basic rate of 3.5% and an average assessment rate of 440% (city of Dusseldorf).
11. Earnings per share Basic earnings per share are calculated by dividing the net profit for the period attributable to the shareholders by the average number of shares outstanding during the fiscal year.
T112 – Earnings per share (basic)
2015 2014 Net profit or loss attributable to shareholders in € million ...... 217.8 154.61 Average numbers of shares outstanding ...... 58,286,212 53,885,944 EARNINGS PER SHARE (BASIC) IN € ...... 3.74 2.871
1 Adjustment arising from final purchase price allocation of Vitus transaction As at 31 December 2015, LEG AG had potential ordinary shares from a convertible bond, which authorise the bearer to convert it into up to 5.1 million shares. Diluted earnings per share are calculated by increasing the average number of shares outstanding by the number of all potentially dilutive shares. The net profit/loss for the period is adjusted for the expenses no longer incurring for the interest coupon, the measurement of the embedded derivatives and the amortisation of the convertible bond and the resulting tax effect in the event of the conversion rights being exercised in full. Owing in particular to the expenses no longer incurring in the event of conversion for the measurement of the embedded derivative, the potential ordinary shares from the convertible bond are not dilutive within the meaning of IAS 33.41.
F-69 Consolidated financial statements NOTES (Continued)
F. Notes to the consolidated statement of comprehensive income (Continued) The diluted earnings per share are equal to the basic earnings per share.
G. Notes to the consolidated statement of cash flows 1. Composition of cash and cash equivalents The cash and cash equivalents shown in the statement of cash flows correspond to the cash and cash equivalents reported in the statement of financial position, i. e. cash on hand and bank balances, less the trust assets reported in the statement of financial position.
2. Other notes to the statement of cash flows In the 2015 financial year, a residual purchase price of EUR 5.6 million was settled for the seven former Vitus companies, after these were acquired in the previous year for EUR 455.4 million less the cash and cash equivalents assumed of EUR 6.9 million. LEG Immo made advanced payments of EUR 146.0 million in the financial year for the acquisition of SW Westfalen Invest GmbH, which has been part of the Group since 1 January 2016. In 2014, the remaining shares in Rote Rose were acquired for EUR 6.0 million. In addition, LEG Immo acquired additional shares in Biomasse by way of an equity transaction for a total of EUR 3.7 million in 2015. Further payments of EUR 4.2 million relate to repayments to the minority shareholder of a subsidiary. In addition, LEG Immo received EUR 5.4 million from RWE for the sale of shares in ESP and capital contributions. The cash outflow for the repayment of bank loans also included prepayment penalties and payments for the reversal of hedges incurred due to early loan repayments.
H. Notes on Group segment reporting In accordance with IFRS 8, LEG Immo’s segment reporting is based on the structure of internal management reporting. LEG distinguishes between the Residential and Other segments. The Residential segment comprises all residential and commercial property holdings and owner-occupied properties. The Residential segment comprises the portfolio companies and LEG Wohnen NRW. Property portfolios from completed project developments that are now let under long-term agreements and exclusively owned by the Group are also assigned to the Residential segment. The Other segment comprises the development companies and the companies LEG Management GmbH, LCS Consulting and Service GmbH. Leased properties from the development business that are available for disposal are also reported in the Other segment. LEG Management GmbH, which is assigned to the Other segment, primarily focuses on tasks relating to administrative functions and corporate management activities. FFO and LTV are the main performance indicators used by management. Intragroup transactions between the segments are conducted at arm’s length conditions.
F-70 Consolidated financial statements NOTES (Continued)
H. Notes on Group segment reporting (Continued) Group segment reporting for the period from 1 January to 31 December 2015 T113 – Segment reporting 2015
€ million Residential Other Reconciliation Group P&L position 644.6 2.6מ Rental and lease income ...... 643.3 3.9 324.1מ 2.2 1.8מ 324.5מ ...... Cost of sales of rental and letting 320.5 0.4מ NET RENTAL AND LEASE INCOME ...... 318.8 2.1 3.6 0.1 0.2מ Net income from the disposal of IAS 40 property ...... 3.7 285.5 – 1.6מ Net income from the measurement of IAS 40 property . . . 287.1 1.2מ 0.0 2.2מ Net income from the disposal of real estate inventory .... 1.0 0.9 32.9מ Net income from other services ...... 0.4 33.4 58.1מ 33.2 45.4מ 45.9מ ...... Administrative and other expenses Other income ...... 0.7 0.2 – 0.9 552.1 0.0 13.7מ SEGMENT EARNINGS ...... 565.8 Statement of financial position item Segment assets (IAS 40) ...... 6,350.5 48.0 – 6,398.5 Key figures Rentable area in sqm1 ...... 6,975,345 3,627 6,978,972 Monthly target rents as of end of reporting period ...... 36.3 0.0 36.3 EPRA vacancy rate in % ...... 2.6 0.0 2.6
1 excl. commercial areas
Group segment reporting for the period from 1 January to 31 December 2014 T114 – Segment reporting 2014
€ million Residential Other Reconciliation Group P&L position 576.8 2.2מ Rental and lease income ...... 573.8 5.2 291.9מ 1.7 2.5מ 291.1מ ...... Cost of sales of rental and letting 284.9 0.5מ NET RENTAL AND LEASE INCOME ...... 282.7 2.7 1.7מ – 0.5מ 1.2מ ...... Net income from the disposal of IAS 40 property 143.0 – 1.0מ Net income from the measurement of IAS 40 property . . . 144.0 3.1מ – 3.3מ Net income from the disposal of real estate inventory .... 0.2 0.3מ 28.6מ Net income from other services ...... 0.5 27.8 41.6מ 29.2 33.0מ 37.8מ ...... Administrative and other expenses 0.5 0.1מ Other income ...... 0.3 0.3 381.7 0.0 7.0מ SEGMENT EARNINGS ...... 388.7 Statement of financial position item Segment assets (IAS 40) ...... 5,864.9 49.4 – 5,914.3 Key figures Rentable area in sqm1 ...... 6,851,050 3,627 6,854,677 Monthly target rents as of end of reporting period ...... 34.8 0.0 34.8 EPRA vacancy rate in % ...... 2.8 3.3 2.8
1 excl. commercial areas
F-71 Consolidated financial statements NOTES (Continued)
I. Other disclosures 1. Overview of cost types The following cost types are contained in the various functions:
T115 – Cost types
€ million 2015 2014 Purchased services ...... 266.4 239.0 Staff costs ...... 62.9 58.2 Depreciation, amortisation and write-downs ...... 9.0 8.5 Other operating expenses ...... 60.9 44.8 Other operating expenses contain income from the reversal of write-downs and provisions, among other things.
2. Capital management The aim of the Group’s capital management is to ensure the continued existence of the company while generating income for its shareholders, in addition to providing all of the other stakeholders of the LEG Group with the benefits to which they are entitled. Overall, the aim is to increase the value of the Group as a whole. This end-to-end capital management strategy has not changed since the previous year. As is typical for the industry, the LEG Group monitors capital on the basis of loan-to-value (LTV). LTV describes the ratio of net debt to the fair value of investment property. Net debt is calculated by deducting cash and cash equivalents from financial liabilities. As in the previous year, the Group’s goal in the financial year was to maintain an appropriate level of gearing in order to ensure continued access to debt financing at economically appropriate costs. Gearing as at 31 December 2015 and 31 December 2014 was calculated as follows:
T116 – Net gearing (LTV)
€ million 31.12.2015 31.12.2014 Financing liabilities ...... 3,241.6 2,960.3 Cash and cash equivalents ...... 252.8 129.9 NET DEBT ...... 2,988.8 2,830.4 Investment properties ...... 6,398.5 5,914.3 Assets held for sale ...... 6.7 58.4 Prepayments for investment properties ...... 203.1 16.8 Prepayments for business combinations ...... 146.1 0.1 TOTAL ...... 6,754.4 5,989.6 NET GEARING (LTV) IN % ...... 44.2 47.3
The assets held for sale shown in the above table relate solely to investment property. The Group is subject to external capital requirements that were not breached in either the year under review or the previous year. The aims of capital management were achieved in the year under review. Details of restricted funds can be found in section D.10.
F-72 Consolidated financial statements NOTES (Continued)
I. Other disclosures (Continued) 3. Financial instruments a) Other disclosures on financial instruments The table below shows the financial assets and liabilities broken down by measurement category and class. Receivables and liabilities from finance leases and derivatives used as hedging instruments are included even though they are not assigned to an IAS 39 measurement category. Non-financial assets and non-financial assets are also included for the purposes of reconciliation even though they are not covered by IFRS 7:
T117 – Classes of financial instruments for financial assets and liabilities 2015
Carrying amounts as Measurement (IAS 39) per statement Fair value of financial through positions Amortised profit or Measurement Fair value € million 31.12.2015 cost loss IAS 17 31.12.2015 Assets Other financial assets ...... 148.8 148.8 LaR...... 0.1 0.1 0.0 0.1 AfS...... 148.7 148.7 148.7 Receivables and other assets ...... 33.2 33.2 LaR...... 27.6 27.6 27.6 Other non-financial assets ...... 5.6 5.6 Cash and cash equivalents ...... 252.8 252.8 LaR...... 252.8 252.8 252.8 TOTAL ...... 434.8 429.2 0.0 434.8 Of which IAS 39 measurement categories LaR...... 280.5 280.5 280.5 AfS...... 148.7 148.7 148.7 Equity and liabilities 3,570.0מ 3,241.6מ ...... Financial liabilities 3,542.7מ 3,215.0מ 3,215.0מ ...... FLAC 27.3מ 26.6מ 26.6מ ...... Liabilities from lease financing 359.8מ 359.8מ ...... Other liabilities 31.3מ 31.3מ 31.3מ ...... FLAC 168.8מ 168.8מ 168.8מ ...... Derivatives HFT 42.3מ 42.3מ ...... Hedge accounting derivatives 117.4מ 117.4מ ...... Other non-financial liabilities 3,929.8מ 26.6מ 168.8מ 3,246.3מ 3,601.4מ ...... TOTAL Of which IAS 39 measurement categories 3,574.0מ – 3,246.3מ ...... FLAC 168.8מ 0.0 168.8מ ...... Derivatives HFT
LaR = Loans and Receivables HFT = Held for Trading AfS = Available for Sale FLAC = Financial Liabilities at Cost FAHFT = Financial Assets Held for Trading FLHFT = Financial Liabilities Held for Trading
F-73 Consolidated financial statements NOTES (Continued)
I. Other disclosures (Continued) T118 – Classes of financial instruments for financial assets and liabilities 2014
Carrying amounts as per statement Measurement (IAS 39) of financial Fair value positions Amortised through Measurement Fair value € million 31.12.2014 cost profit or loss IAS 17 31.12.2014 Assets Other financial assets ...... 2.4 2.4 LaR ...... 0.1 0.1 0.0 0.1 AfS...... 2.3 2.3 2.3 Receivables and other assets ...... 29.6 29.6 LaR ...... 25.2 25.2 25.2 Other non-financial assets ...... 4.4 4.4 Cash and cash equivalents ...... 129.9 129.9 LaR ...... 129.9 129.9 129.9 TOTAL ...... 161.9 157.5 0.0 161.9 Of which IAS 39 measurement categories LaR ...... 155.2 155.2 155.2 AfS...... 2.3 2.3 2.3 Equity and liabilities 3,335.3מ 2,960.3מ ...... Financial liabilities 3,306.9מ 2,932.4מ 2,932.4מ ...... FLAC 28.4מ 27.9מ 27.9מ ...... Liabilities from lease financing 320.7מ 320.7מ ...... Other liabilities 37.8מ 37.8מ 37.8מ ...... FLAC 93.3מ 93.3מ 93.3מ ...... Derivatives HFT 88.4מ 88.4מ ...... Hedge accounting derivatives 101.2מ 101.2מ ...... Other non-financial liabilities 3,656.0מ 27.9מ 93.3מ 2,970.2מ 3,281.0מ ...... TOTAL Of which IAS 39 measurement categories 3,344.7מ 2,970.2מ 2,970.2מ ...... FLAC 93.3מ 93.3מ 93.3מ ...... Derivatives HFT
LaR = Loans and Receivables HFT = Held for Trading AfS = Available for Sale FLAC = Financial Liabilities at Cost FAHFT = Financial Assets Held for Trading FLHFT = Financial Liabilities Held for Trading It was not possible to reliably measure the fair value of investments carried at amortised cost (see AfS in the table above). There is no intention to sell these investments. The vast majority of trade payables and other liabilities have short remaining maturities, hence their carrying amounts approximate their fair value.
Originated financial instruments (liabilities from real estate and corporate financing, FLAC category), whose fair value does not correspond to their carrying amount are classified as financial liabilities. The fair value of loan liabilities is calculated as the present value of the future cash flows, taking into account the applicable risk-free interest rates and the leg-specific risk premium as at the end of the reporting period.
F-74 Consolidated financial statements NOTES (Continued)
I. Other disclosures (Continued) Net income for each measurement category is broken down as follows:
T119 – Net income € million 2015 2014 5.0מ 4.1מ ...... LaR AfS...... 1.9 1.8 FAHFT ...... – – 44.8מ 78.2מ ...... FLHFT 94.3מ 113.6מ ...... FLAC 142.3מ 194.0מ ...... TOTAL
Net income contains remeasurement effects in addition to interest income and expenses during the financial year. b) Risk management Principles of risk management:
The LEG Group is exposed to default risk, liquidity risk and market risk as a result of its use of financial instruments. In order to take these risks into account, the LEG Group has an effective risk management system supported by the clear functional organisation of the risk controlling process. The effectiveness of the risk management system is reviewed and assessed regularly on a company-wide basis by the Internal Audit and Compliance unit. Where adjustments are necessary or areas for improvement are identified, the Internal Audit and Compliance unit advises on, examines and monitors these activities. The framework for the Group’s financial policy is determined by the Management Board and monitored by the Supervisory Board. The implementation of financial policy is the responsibility of the Finance and Properties and Controlling and Risk Management units, while ongoing risk management is handled by Controlling and Risk Management. The use of derivative financial instruments is governed by a corresponding Treasury policy adopted by Management Board and acknowledged by the Supervisory Board. Derivative financial instruments can only be used to hedge existing underlyings, future cash flows and planned transactions whose occurrence is reasonably certain. Derivative financial instruments are only concluded to hedge against interest rate risks.
Default risk: Credit or default risk describes the risk that business partners – primarily the tenants of the properties held by the LEG Group – will be unable to meet their contractual payment obligations and that this will result in a loss for the LEG Group. In order to prevent and control default risk to the greatest possible extent, new lettings are subject to credit checks.
Default risk exists for all classes of financial instrument, and in particular for trade receivables. The LEG Group is not exposed to significant default risk with regard to any individual party. The concentration of default risk is limited due to the Group’s broad, heterogeneous tenant base.
There are gross receivables from rental and leasing activities of eur 17.4 million. Allowances of eur 11.9 million were recognised, hence net rent receivables of eur 5.5 million were reported as at 31 December 2015. Collateral for receivables (primarily rent deposits) of eur 9.6 million is taken into account in the offsetting of outstanding receivables if the legal conditions are met in the individual case. Offsetting is only possible if the receivable being offset: – is undisputed or – has been ruled legally binding or – is manifestly substantiated Offsetting by the lessor against receivables that are manifestly disputed or not covered by the lease (such as receivables from operating expenses) is not permitted. In addition, the restrictions of section 9(5) sentence 1 of the Wohnungsbindungsgesetz (WoBindG – German Controlled Tenancy Act) must also be noted in particular.
F-75 Consolidated financial statements NOTES (Continued)
I. Other disclosures (Continued) Allowances on rent receivables were essentially recognised using general allowances without taking collateral into account. With regard to cash and cash equivalents and derivatives, the leg Group only enters into corresponding agreements with banks with extremely good credit ratings. The credit ratings of counterparties are monitored and assessed by the leg Group on an ongoing basis, taking into account external ratings from various agencies (e.g. Standard & Poor’s, Moody’s, Fitch and others), the findings of internal research and financial market information. Depending on the availability of information with sufficient informative value, the leg Group refers to one or more of the data sources described above. In the event of a substantial deterioration in the credit rating of a counterparty, the leg Group takes efforts to ensure that its existing exposure is reduced as quickly as possible and that new exposures are no longer entered into with the respective counterparty. As shown in the table below, the carrying amounts of recognised financial assets less any write-downs represent the highest default risk. The carrying amount of financial assets represents the maximum default risk. The default risk for interest rate derivatives is limited to the amount of the positive fair values of derivatives. The table below shows the financial assets determined to be impaired as at the end of the reporting period: Table T120/121 Furthermore, the table below shows the maturity structure of the financial assets past due but not impaired as at the end of the reporting period. Table T122/123 Regarding the receivables neither past due nor impaired, there were no indications as at the end of the reporting period that the debtors will fail to meet their payment obligations.
The LEG Group also recognises standardized allowances in addition to specific allowances, using various rates depending on the extent to which the respective receivables are past due. Table T124/125
T120 – Impaired financial assets 2015
Carrying amount € million; classes of financial instruments before Residual 31.12.2015 impairment Impairment carrying amount 0.3 1.3מ Loans ...... 1.6 157.3 2.2מ Other financial assets ...... 159.5 18.0 12.5מ Trade receivables ...... 30.5 Cash and cash equivalents ...... 252.8 – 252.8 428.4 16.0מ TOTAL ...... 444.4
T121 – Impaired financial assets 2014
Carrying amount € million; classes of financial instruments before Residual 31.12.2014 impairment Impairment carrying amount 0.3 1.3מ Loans ...... 1.6 12.3 1.6מ Other financial assets ...... 13.9 14.6 10.5מ Trade receivables ...... 25.1 Cash and cash equivalents ...... 129.9 – 129.9 157.1 13.4מ TOTAL ...... 170.5
F-76 Consolidated financial statements NOTES (Continued)
I. Other disclosures (Continued) T122 – Not impaired financial assets 2015
Of which past due as of end of reporting € million; classes of financial instruments Carrying period but not impaired 31.12.2015 amount < 90 days 90 – 180 days > 180 days Loans ...... 0.3 – – 0.3 Trade receivables ...... 2.9 2.5 0.1 0.3 Other financial assets ...... 0.7 0.4 0.1 0.2 TOTAL ...... 3.9 2.9 0.2 0.8
T123 – Not impaired financial assets 2014
Of which past due as of end of reporting € million; classes of financial instruments Carrying period but not impaired 31.12.2014 amount < 90 days 90 – 180 days > 180 days Trade receivables ...... 3.7 3.4 0.1 0.2 Other financial assets ...... 0.4 0.1 0.1 0.2 TOTAL ...... 4.1 3.5 0.2 0.4
T124 – Impairment losses 2015
Changes in As of Change consolidated As of € million 01.01.2015 remeasurement Addition Utilisation companies 31.12.2015 Loans and receivables .... 1.3 – – – – 1.3 12.3 – 7.5מ 10.0 0.7מ Trade receivables ...... 10.5 0.9 – 2.4מ Other financial assets .... 1.6 – 1.7 14.5 – 9.9מ 11.7 0.7מ TOTAL ...... 13.4
T125 – Impairment losses 2014
Changes in As of Change consolidated As of € million 01.01.2014 remeasurement Addition Utilisation companies 31.12.2014 Loans and receivables .... 1.3 – – – – 1.3 10.5 0.8 7.3מ Trade receivables ...... 7.9 – 9.1 1.6 0.1 2.4מ Other financial assets .... 2.2 – 1.7 13.4 0.9 9.7מ TOTAL ...... 11.4 – 10.8 c) Liquidity risks The leg Group defines liquidity risk as the risk that the Group will be unable to meet its own payment obligations at a contractually agreed date. To ensure that this is not the case, the leg Group’s liquidity requirements are monitored and planned on an ongoing basis by the Finance and Properties unit. Sufficient cash and cash equivalents to meet the Group’s obligations for a defined period are available at all times. The leg Group currently has credit facilities and bank overdrafts in the amount of around EUR 27.9 million (previous year: EUR 12.5 million). The following table shows the contractually agreed (undiscounted) interest and principal payments for the leg Group’s primary financial liabilities and its derivative financial instruments with negative fair value. The maturities are based on the contractually agreed fixed interest periods for the respective financial liabilities.
F-77 Consolidated financial statements NOTES (Continued)
I. Other disclosures (Continued) The rise in non-current financing liabilities from loans liabilities is due in particular to refinancing carried out in 2015. The embedded derivatives give rise to only indirect cash outflows over the term of the convertible bond. The cash outflows are included in the remaining terms of financing liabilities from loan liabilities and are reported there.
T126 – Type of liabilities on 31.12.2015
Remaining terms Carrying € million amount < 1 year 1 – 5 years > 5 years Financing liabilities from loan payable ...... 3,215.0 551.0 739.9 2,809.1 Financing liabilities from lease financing ...... 26.6 4.7 12.4 9.5 1.8מ Interest rate derivatives ...... 57.9 17.3 43.6 Embedded derivatives ...... 153.2 – – – Liabilities to employees ...... 7.9 7.7 – 0.2 Liabilities from operating costs ...... 0.5 0.5 – – Rent and lease liabilities ...... 13.9 13.9 – – Trade payables ...... 46.4 43.7 2.7 0.0 Others ...... 43.3 4.5 – 38.8 TOTAL ...... 3,411.7 643.5 798.6 2,855.8
Together with the acquisition financing and refinancing, this led to an increase and shift in the remaining terms of financing liabilities from loan liabilities.
T127 – Type of liabilities on 31.12.2014
Remaining terms Carrying 1–5 € million amount < 1 year years > 5 years Financing liabilities from loan payable ...... 2,932.4 490.9 1,672.8 1,613.5 Financing liabilities from lease financing ...... 27.9 4.4 11.6 11.9 Interest rate derivatives ...... 102.5 27.2 69.8 7.1 Embedded derivatives ...... 79.3 – – – Liabilities to employees ...... 6.4 6.1 0.0 0.3 Liabilities from operating costs ...... 0.3 0.3 – – Rent and lease liabilities ...... 11.8 11.8 – – Trade payables ...... 42.2 39.8 2.4 0.0 Others ...... 5.9 3.6 1.3 1.0 TOTAL ...... 3,129.4 584.1 1,757.9 1,633.8
All instruments for which payments were contractually agreed as at the end of the reporting period are included. Forecast figures for future new liabilities are not included. The variable interest payments for financial instruments are calculated using the most recent interest rates prior to the end of the reporting period. Financial liabilities that are repayable at any time are always allocated to the earliest repayment date.
Some of the LEG Group’s loan agreements contain financial covenants. In the event of a failure to comply with the agreed covenants, the LEG Group generally has the opportunity to resolve the situation; however, certain cases of non-compliance can result in the bank having the right to terminate the loan agreement with immediate effect. In addition, some agreements provide the bank with the possibility of increasing interest and principal payments or
F-78 Consolidated financial statements NOTES (Continued)
I. Other disclosures (Continued) demanding further security for compliance with the covenants in the event of noncompliance. In any case, a long- term failure to comply with the agreed covenants means that the financing bank is entitled to terminate the respective agreement. Compliance with covenants is monitored on an ongoing basis. There were no violations of the agreed covenants in the 2015 financial year. d) Market risk
The LEG Group is subject to significant interest rate risks on account of its business activities. Interest rate risk results, in particular, from floating-rate liabilities to banks. In order to limit interest rate risk, the LEG Group generally enters into fixed-income loans or floating-rate loans, sometimes in connection with interest payer swaps. Around 94% of financial liabilities to banks are hedged in this way.
Derivative financial instruments are used solely to hedge interest rates at the LEG Group. The Treasury policy prohibits the use of derivatives for speculative purposes.
The Group had the following derivative financial instruments as at 31 December 2015:
T128 – Derivatives 2015
€ million on 31.12.2015 Fair value thereof < 1 year Derivatives – HFT – Assets ...... – – thereof from interest rate swaps ...... – – – 168.8מ ...... Derivatives – HFT – Liabilities – 15.6מ ...... thereof from interest rate swaps – 153.2מ ...... thereof embedded derivatives – 42.3מ ...... Hedged derivatives
The Group had the following derivative financial instruments as at 31 December 2014:
T129 – Derivatives 2014
€ million on 31.12.2014 Fair value thereof < 1 year Derivatives – HFT – Assets ...... – – thereof from interest rate swaps ...... – – 0.0 93.3מ ...... Derivatives – HFT – Liabilities 0.0 14.0מ ...... thereof from interest rate swaps – 79.3מ ...... thereof embedded derivatives 1.3מ 88.4מ ...... Hedged derivatives
The derivatives entered into by the LEG Group are used as hedging instruments in accordance with IAS 39 if they meet the conditions for hedge accounting. The cash flows from hedged items in cash flow hedge accounting will be received between 2016 and 2026 and will be recognised in profit or loss at the same time.
The following table shows the amount recognised directly in other comprehensive income in the period under review. This corresponds to the effective portion of the change in fair value:
T130 – Equity implication
€ million 2015 2014 45.2מ 87.0מ ...... OPERATING BALANCE AS OF 01.01 64.9מ 15.9מ ...... Recognised in equity in reporting period Reserved from equity to statement of comprehensive income ...... 57.5 23.1 87.0מ 45.4מ ...... CLOSING BALANCE AS OF 31.12
F-79 Consolidated financial statements NOTES (Continued)
I. Other disclosures (Continued) Sensitivities:
In accordance with IFRS 7, interest rate risk is presented using sensitivity analyses to determine the impact that a change in market interest rates would have on the interest income and expense, trading gains and losses and the equity of the LEG Group as at the end of the reporting period.
The effects on the LEG Group’s equity and statement of comprehensive income are observed using a +/–50 bp parallel shift in the euro yield curve are analysed in the sensitivity analysis. The cash flow effects from the shift in the yield curve relate solely to interest expense and income for the next reporting period.
Based on the financial instruments held or issued by the LEG Group as at the end of the reporting period, a hypothetical change in the applicable interest rates for the respective instruments as quantified using sensitivity analysis would have had the following effects (before taxes) as at the end of the reporting period:
T131 – Financial instruments 2015 Comprehensive Equity effect income effect bp 50 מ bp +50bp 50 מ million on 31.12.2015 +50bp € Net position of all interest-sensitive financial instruments 2.5 2.5מ – – ...... Financing liabilities 3.5מ 3.7 24.3מ Interest rate derivatives ...... 26.9 7.8 7.5מ – – ...... Embedded derivatives bp = basis points
Embedded derivatives are subject to both interest rate risk and share price risk. Had the market price for the full instrument been 5% higher (lower) at the end of the reporting period as a result of a change in the price of LEG Immobilien AG shares, with the other parameters for the company remaining unchanged, the fair value of the embedded derivatives would have been EUR 16.8 million higher (lower).
T132 – Financial instruments 2014 Comprehensive Equity effect income effect bp 50 מ bp +50bp 50 מ million on 31.12.2014 +50bp € Net position of all interest-sensitive financial instruments 2.0 2.0מ – – ...... Financing liabilities 4.6מ 4.7 24.3מ Interest rate derivatives ...... 26.4 9.1 8.8מ – – ...... Embedded derivatives bp = basis points
F-80 Consolidated financial statements NOTES (Continued)
I. Other disclosures (Continued) e) Offsetting financial assets and financial liabilities The following financial assets are subject to offsetting:
T133 – Financial assets
Related amounts, which are not netted in the balance sheet Gross amount of the admitted Net amount of the financial liabilities, admitted financial Gross amount which have been assets, which are of the admitted netted in the considered in the Financial Received € million financial assets balance sheet balance sheet instruments cash deposits Net amount 31.12.2015 4.9 – – 4.9 190.6מ Inventories in progress ...... 195.5 243.0 – 9.8מ Cash and cash equivalents ...... 252.8 – 252.8 247.9 – 9.8מ 257.7 190.6מ TOTAL ...... 448.3 31.12.2014 6.5 – – 6.5 177.4מ Inventories in progress ...... 183.9 128.3 – 1.6מ Cash and cash equivalents ...... 129.9 – 129.9 134.8 – 1.6מ 136.4 177.4מ TOTAL ...... 313.8
The following financial liabilities are subject to offsetting:
T134 – Financing liabilities
Related amounts, which are not netted in the balance sheet Gross amount of the admitted Net amount of the financial assets, admitted Gross amount which have been financial liabilities, of the admitted netted in the which are considered Financial Rendered € million financial liabilities balance sheet in the balance sheet instruments cash deposits Net amount 31.12.2015 22.9מ – – 22.9מ 190.6 213.5מ . . Advanced payments received Financing liabilities from real 3,205.2מ – 9.8 3,215.0מ – 3,215.0מ ...... estate financing 3,228.1מ – 9.8 3,237.9מ 190.6 3,428.5מ ...... TOTAL 31.12.2014 5.8מ – – 5.8מ 177.4 183.2מ . . Advanced payments received Financing liabilities from real 2,930.8מ – 1.6 2,932.4מ – 2,932.4מ ...... estate financing 2,936.6מ – 1.6 2,938.2מ 177.4 3,115.6מ ...... TOTAL
The contractually agreed terms and conditions of banks for liens give rise to a claim to offset loan utilisation against the credit balances of the individual companies.
F-81 Consolidated financial statements NOTES (Continued)
I. Other disclosures (Continued) 4. Number of employees The average number of employees at the leg Group broken down by segment developed as follows compared with the previous year:
T135 – Average number of employees
Average Average number of Employee number of Employee employees capacity employees capacity 2015 (FTE) 2015 2014 (FTE) 2014 Residential ...... 686 581 744 615 Others ...... 246 230 247 228 TOTAL ...... 932 811 991 843
5. Total auditor’s fees The total fees paid to the auditor of the consolidated financial statements are composed as follows:
T136 – Total auditor’s fees
€ million 2015 2014 Audits of financial statements ...... 1.0 1.4 Other audit services ...... 0.5 0.5 TOTAL FEE ...... 1.5 1.9
6. IFRS 2 programmes a) Long-term incentive plan with former shareholders
As a result of the IPO of LEG Immo, claims arose as at 31 December 2015 from agreements between former shareholders and the Management Board. The costs of these agreements do not reduce liquidity at LEG Immo. Similarly, the regulations of IFRS 2 result in the different recognition of expenses at LEG Immo, in terms of both timing and amount.
In line with the regulations of IFRS 2, EUR 0.2 million of this was recognised as an expense at LEG Immo as at 31 December 2015 (2014: EUR 0.4 million). b) LTI Management Board agreements The agreements for members of the Management Board also provide for a long-term incentive programme to be offered for each financial year. The programme is designed for a four-year period and divided into three performance periods (until the end of the first, second and third financial year following the relevant financial year). The amount of LTI remuneration is dependent on the achievement of certain performance targets. The performance targets in question are total shareholder return and the development of LEG’s share price compared to the relevant EPRA Germany Index.
By way of resolution of the Supervisory Board on 24 March 2015 and individual Management Board agreements dated 14/15 April 2015, new Management Board agreements were concluded as at 1 July 2015. The new agreements provide for higher target LTIS. The replacement of the old agreements by the new agreements is accounted for as a modification of existing agreements in accordance with IFRS 2.28 f. This requires that the old commitment is accounted for as before, and any incremental fair value arising from the new commitment is also recognised as an expense from the modification date. The incremental fair value is defined as the difference between the fair value of the original programme and the fair value of the new programme, each calculated as at the date of modification.
F-82 Consolidated financial statements NOTES (Continued)
I. Other disclosures (Continued) T137 – Calculated fair value of LTIP-Promise
Fair value Fair value Incremental € million old contracts new contracts Fair value Thomas Hegel ...... 227 261 34 Eckhard Schultz ...... 212 244 32 Holger Hentschel ...... 151 170 19 TOTAL ...... 590 675 85
The programme is treated as cash-settled share-based payment in accordance with IFRS 2. On the basis of an assessment of the Management Board on the attainment of performance hurdles 2013–2015, staff costs of EUR 0.8 million (2014: EUR 0.5 million) were recognised as at 31 December 2015. A target level of 76% was achieved for LTI 2015 (LTI 2014: 93%; LTI 2013: 99%). Details on Management Board agreements can also be found in the remuneration report.
7. Related-party disclosures
Related parties are defined as companies and persons that have the ability to control the LEG Group or exercise significant influence over its financial and business policy. The existing control relationships were taken into account when determining the significant influence that related parties can exercise over the LEG Group’s financial and business policy.
Related persons
The related persons of LEG Immo include the Management Board and the Supervisory Board of LEG Immobilien AG. The Management Board of LEG Immobilien AG and the Management Team at LEG NRW GmbH consist of the same persons.
Related companies
LEG Immo’s related companies include all the subsidiaries and associates of the LEG Group and certain entities not included in consolidated financial statements. The following table shows the receivables from and liabilities to related companies as at the end of the reporting period and expenses and income involving related companies for the financial year:
T138 – Receivables from and liabilities to related companies
€ million 31.12.2015 31.12.2014 Statement of financial positions Receivables from equity investments ...... 0.0 0.4 Receivables from non-consolidated companies ...... 0.0 0.2 Receivables from associates ...... 0.0 0.0 Liabilities to shareholders ...... 0.2 1.0 Liabilities to equity investments ...... – – Liabilities to non-consolidated companies ...... 0.1 0.1 Liabilities to associates ...... – 0.0
T139 – Income from and expenses for related companies
€ million 2015 2014 Statement of comprehensive income Income from associates ...... 0.0 0.3 Income from equity investments ...... 1.9 1.6 Expenses for shareholders ...... – –
F-83 Consolidated financial statements NOTES (Continued)
I. Other disclosures (Continued) a) Related company disclosures
Related companies controlled by LEG Immo or which it significantly influences are included in the consolidated financial statements. Intragroup transactions under existing service and management agreements between the companies are eliminated as part of consolidation. There was no significant exchange of goods and services with the other unconsolidated subsidiaries or associates. b) Related person disclosures Total remuneration of the Management Board is shown in the table below:
T140 – Compensation package of the Management Board
€ thousand 2015 2014 Fixed remuneration ...... 1,174 1,060 Ancillary benefits ...... 79 76 Total fixed benefits ...... 1,253 1,136 Short-Term-Incentive-Programme (STI) ...... 764 690 Long-Term-Incentive-Programme (LTI) ...... 502 398 Total variable benefits ...... 1,266 1,088 TOTAL ...... 2,519 2,224
The additional benefits for members of the Management Board amounted to EUR 79 thousand in the past financial year (previous year: EUR 76 thousand).
The basis for calculating the STI is the achievement of the respective consolidated IFRS business plan. The STI consists of an annual payment measured on the basis of the following four targets: net cold rent, net rental and lease income, adjusted EBITDA and funds from operations I per share. The first three targets each account for 20% and the final target for 40% of the STI. The target STI cannot be exceeded overall. For 2015 (2014) an amount of EUR 0.3 million (EUR 0.3 million) was recognised in staff costs for Mr Thomas Hegel, of EUR 0.3 million (EUR 0.2 million) for Mr Eckhard Schultz and EUR 0.2 million (EUR 0.2 million) for Mr Holger Hentschel.
In addition, expenses of EUR 0.2 million were recognised from the long-term incentive plans with former shareholders in the reporting year (2014: EUR 0.4 million). Please see section I.6. No loans or advances were granted or extended to the members of the Management Board in the 2015 financial year.
The total remuneration of members of the Supervisory Board of LEG Immobilien AG amounted to EUR 0.5 million in 2015 (2014: EUR 0.5 million). No loans or advances were granted or extended to the members of the Supervisory Board in the 2015 financial year. Recognised expenses for the remuneration of members of the Management Board and Supervisory Board in accordance with IAS 24.17 can be summarised as follows:
T141 – Benefits to the Management and Supervisory Board
€ thousand 2015 2014 Current payable benefits ...... 2,356 2,330 Benefits after termination of the employment ...... 0 0 Other long-term payable benefits ...... 31 27 Benefits in cause of the termination of employment ...... 0 0 Share-based payment ...... 746 1,576 TOTAL ...... 3,133 3,933
Further information can be found in the remuneration report, which forms part of the management report.
F-84 Consolidated financial statements NOTES (Continued)
I. Other disclosures (Continued) 8. Contingent liabilities
The LEG Group has the following contingent liabilities:
T142 – Contingent liabilities € million 31.12.2015 31.12.2014 Land charges ...... 3,171.5 2,902.9 Letters of comfort Amount of maximum utilisation (maximum guarantee) ...... 0.5 0.5 The warranty agreements relate solely to letters of comfort for Group companies not included in consolidation. Appropriate provisions have been recognised for the rent guarantees issued in conjunction with disposals.
9. Other financial commitments The Group’s other financial commitments are composed as follows:
T143 – Other financial commitments € million 31.12.2015 31.12.2014 Future payments under operating leases ...... 76.9 73.4 Purchase obligations ...... 4.3 3.4 Future payments under operating leases result, in particular, from obligations for land with third-party heritable building rights in the amount of EUR 61.5 million (2014: EUR 59.4 million) and rental obligations in the amount of EUR 12.3 million (2014: EUR 12.3 million). Future payment obligations under non-cancellable operating leases are broken down as follows:
T144 – Minimum lease payments Remaining term Remaining term Remaining term € million < 1 year > 1 and 5 years > 5 years Total 31.12.2015 ...... 5.2 12.9 58.4 76.5 31.12.2014 ...... 4.2 12.0 57.2 73.4
The cost of minimum lease payments was EUR 3.2 million in the 2015 financial year (2014: EUR 3.2 million).
10. Management Board
LEG Immobilien AG is represented by the Management Board, which consists of the following members:
MR THOMAS HEGEL, CEO of LEG Immobilien AG, Erftstadt
MR ECKHARD SCHULTZ, CFO of LEG Immobilien AG, Neuss
MR HOLGER HENTSCHEL, COO of LEG Immobilien AG, Erkrath
Registered office of the company: Hans-Böckler-Straße 38 40476 Dusseldorf Germany Commercial register: HRB 69386
F-85 Consolidated financial statements NOTES (Continued)
I. Other disclosures (Continued) 11. Supervisory Board
The Supervisory Board of LEG Immobilien AG consists of six members. The following members were elected by the shareholders’ meeting:
MR NATHAN JAMES BROWN, CFO, Perry Capital UK LLP, London, United Kingdom – until 24 June 2015
MS NATALIE C. HAYDAY, freelance capital market and investor relations consultant, Frankfurt – from 24 June 2015
MR STEFAN JÜTTE, Deputy Chairman, businessman, Bonn
DR JOHANNES LUDEWIG, business consultant, Berlin
DR JOCHEN SCHARPE, managing partner, AMCI GmbH, Munich
MR JÜRGEN SCHULTE-LAGGENBECK, CFO Majid Al Futtaim, Dubai – until 31 December 2015
MR MICHAEL ZIMMER –Chairman–; businessman, Pulheim
12. Events after the reporting period Portfolio acquisition 1
On 30 November 2015, LEG Immo signed a purchase agreement with Sahle Wohnen GmbH & Co. KG to acquire 94.9% of shares in SW Westfalen Invest GmbH and three other asset purchase agreements, consisting of a property portfolio of 3,539 residential units. The portfolio is distributed over various (12) locations in NRW, while its most important local markets are Detmold (1,151 units), Bielefeld (950 units), Lippstadt (315 units). The current net cold rent is around EUR 14.2 million per year, rent per square metre EUR 5.19 and the vacancy rate is 3.6%. 23 employees (FTES) were taken on in the context of the transaction. Following antitrust approval, the transaction was closed on 1 January 2016.
As at 1 January 2016, the acquisition of these companies is treated as a business combination as defined by IFRS 3 as significant business processes had been acquired. The provisional consideration for the business combination breaks down as follows:
T145 – Provisional consideration
€ million Net purchase price ...... 201.6 Contingent reimbursement of the purchase price ...... 0.0 TOTAL CONSIDERATION ...... 201.6
F-86 Consolidated financial statements NOTES (Continued)
I. Other disclosures (Continued) The provisional purchase price can be allocated to the assets and liabilities acquired, measured at fair value, as follows:
T146 – Provisional purchase price allocation
€ million 01.01.2016 Investment properties ...... 205.0 Cash and cash equivalents ...... – Other assets ...... – Assets held for sale ...... – TOTAL ASSETS ...... 205.0 11.0מ ...... Financing liabilities 8.2מ ...... Other financing liabilities Pension provisions ...... – 22.0מ ...... Deferred tax liabilities Other liabilities ...... – 41.2מ ...... TOTAL LIABILITIES Net assets at fair value ...... 163.8 Non-controlling interests ...... 5.7 Net assets at fair value without non-controlling interests ...... 158.1 CONSIDERATION ...... 201.6 GOODWILL ...... 43.5
The purchase price was calculated on the basis of the statements of financial position as at 1 January 2016. Acquisition related costs of the business combination amount to EUR 6.3 million and essentially include real estate transfer tax and brokerage commission. Non-controlling interests in SW Westfalen Invest GmbH amount to 5.1% and are measured at the proportionate share of the recognised net assets acquired. The purchase price allocation is provisional with respect to the following items – total consideration – contingent liabilities – operating costs – deferred taxes
Portfolio acquisition 2 The acquisition of a property portfolio of around 2,037 residential units was notarised on 11 August 2015. The portfolio generates annual net cold rent of around EUR 7.7 million. The average in-place rent is around EUR 5.04 per square metre and the initial vacancy rate is around 6.7%. The transaction was closed on 1 January 2016.
Portfolio acquisition 3 The acquisition of a property portfolio of around 1,291 residential units was notarised on 16 December 2015. The portfolio generates annual net cold rent of initially around EUR 4.63 million. The average in-place rent is around EUR 5.16 per square metre and the initial vacancy rate is around 17.3%. For 999 residential units, the transaction closed as at 1 January 2016. For the remaining 292 residential units, the transaction will close as at 1 July 2016.
Prepayments totalling EUR 349.1 million were made for the acquisitions of portfolios 1, 2 und 3. Thereof EUR 203.1 million (portfolio acquisition 1: EUR 55.1 million, portfolio acquisition 2: EUR 95.4 million, portfolio acquisition 3: EUR 52.0 million, others EUR 0.6 million) were recognized as prepayments for investment properties; EUR 146.0 million for portfolio acquisition 1 were reported under other financial assets.
F-87 Consolidated financial statements NOTES (Continued)
I. Other disclosures (Continued) Portfolio acquisition 4
On 22 December 2015, LEG Immo concluded a purchase agreement with Vonovia SE regarding the acquisition of 13,570 residential units. The purchase price is around EUR 600 million, equating to an initial rental yield of 8.0%. The portfolio is spread over various locations in and on the border of North Rhine-Westphalia. The initial annual net cold rent is EUR 48 million, rent per square metre EUR 4.86, and the vacancy rate is 5.3%. 43 employees will be taken on in the wake of the transaction. The transaction is expected to be closed as at 1 April 2016.
Loans of EUR 130.0 million were refinanced after the end of the reporting period. There were no other transactions of material importance to the Group after the end of the financial year.
13. Declaration of compliance in accordance with section 161 AktG The Management Board and the Supervisory Board comply with the recommendations of the German Corporate Governance Code as presented in the management report. The declaration of compliance has been made permanently available to shareholders on the company’s website at http://www.leg-wohnen.de/ fileadmin/ user_upload/Assets/PDFs/Unter nehmen/Investor_Relations/Corporate_Gover nance/ Entsprechenserklaerung_161-AktG-Nov 2015.pdf
Dusseldorf, 8 March 2016
LEG Immobilien AG
The Management Board
THOMAS HEGEL
ECKHARD SCHULTZ
HOLGER HENTSCHEL
F-88 Consolidated financial statements NOTES (Continued)
J. List of shareholdings
The following table shows an overview of the basis of consolidation of the LEG GROUP:
T147 – Consolidated companies
Share of Equity* Result* capital % € thousand € thousand LEG Immobilien AG, Duesseldorf ...... Parent company 3מ Rote Rose GmbH & Co. KG, Duesseldorf ...... 1) 100.00 109,462 LEG NRW GmbH, Duesseldorf ...... 2) 99.98 1,066,108 611 LEG Wohnen GmbH, Duesseldorf ...... 2) 100.00 559,031 0 LEG Wohnungsbau Rheinland GmbH, Duesseldorf ...... 2) 100.00 112,639 0** Solis GmbH, Duesseldorf ...... 1) 94.90 103,833 1** Jupp Grundstücksgesellschaft mbH, Duesseldorf ...... 2) 100.00 17,466 1** Rheinweg Grundstücksgesellschaft mbH, Duesseldorf ...... 2) 100.00 86,392 1 LEG Rheinland Köln GmbH, Duesseldorf ...... 2) 100.00 33,969 0 Noah Asset 4 GmbH, Duesseldorf ...... 2) 94.90 273 198 LEG Wohnen Bocholt GmbH, Duesseldorf ...... 2) 100.00 25 0 LEG Bauen und Wohnen GmbH, Cologne ...... 2) 100.00 2,165 0 LCS Consulting und Service GmbH, Duesseldorf ...... 1) 100.00 2,556 0 LEG Consult GmbH, Duesseldorf ...... 3) 100.00 302 0 GWN Gemeinnützige Wohnungsgesellschaft Nordwestdeutschland GmbH, Muenster ...... 2) 94.86 74,582 0 GeWo Gesellschaft für Wohnungs – und Städtebau mbH, Castrop-Rauxel . . . 2) 94.00 22,542 0 hiltrup Grundbesitzverwertungsgesellschaft mbH, Muenster ...... 2) 100.00 77 0 LEG Rheinrefugium Köln GmbH, Cologne ...... 2) 94.00 34 0 Calor Caree GmbH, Duesseldorf ...... 2) 94.00 25 0 LEG Beteiligungsverwaltungsgesellschaft mbH, Duesseldorf ...... 1) 100.00 13,745 0 173מ 206מ LEG Grundbesitzerwerb 1 GmbH & Co. KG, Duesseldorf ...... 1) 100.00 10מ LEG Grundbesitzerwerb 2 GmbH & Co. KG, Duesseldorf ...... 1) 100.00 2 1מ LEG Grundbesitzerwerb 3 GmbH & Co. KG, Duesseldorf ...... 1) 100.00 16 LEG Grundstücksverwaltung GmbH, Duesseldorf ...... 2) 100.00 25,863 0 LEG Management GmbH, Duesseldorf ...... 1) 100.00 1,124 0 LEG Wohnen NRW GmbH, Duesseldorf ...... 1) 100.00 345 0 LEG Solution GmbH, Duesseldorf ...... 3) 100.00 66,718 0 2מ LEG Wohnviertel Dyk GmbH, Duesseldorf ...... 2) 100.00 23 LEG Standort – und Projektentwicklung Köln GmbH, Cologne ...... 2) 100.00 13,753 0 1,066מ 3,612מ Biomasse heizkraftwerk Siegerland GmbH & Co. KG, Cologne ...... 5) 94.86 0 57מ LEG Grundstücksentwicklung Muensterland GmbH, Duesseldorf ...... 2) 100.00 171מ 7,233מ Grundstücksentwicklungsgesellschaft Ennigerloh Süd – Ost mbH, Cologne . . 2) 94.90 Ravensberger heimstättengesellschaft mbH, Bielefeld ...... 2) 100.00 89,970 0 Gemeinnützige Bau – und Siedlungsgesellschaft Höxter – Paderborn GmbH, Höxter ...... 2) 100.00 11,909 0 Ruhr-Lippe Wohnungsgesellschaft mbH, Dortmund ...... 2) 100.00 318,566 0 Ruhr-Lippe Immobilien – Dienstleistungsgesellschaft mbH, Dortmund ..... 2) 100.00 7,452 0 Wohnungsgesellschaft Muensterland mbH, Muenster ...... 2) 100.00 164,978 0 Muensterland Immobilien – Dienstleistungsgesellschaft mbH, Muenster ..... 2) 100.00 114 0 LEG Erste Grundstücksverwaltungs GmbH, Duesseldorf ...... 2) 100.00 25 0 LEG Zweite Grundstücksverwaltungs GmbH, Duesseldorf ...... 2) 100.00 25 0 LEG Dritte Grundstücksverwaltungs GmbH, Duesseldorf ...... 2) 100.00 25 0 LEG Vierte Grundstücksverwaltungs GmbH, Duesseldorf ...... 2) 100.00 25 0 LEG Fünfte Grundstücksverwaltungs GmbH, Duesseldorf ...... 2) 100.00 25 0 LEG Sechste Grundstücksverwaltungs GmbH, Duesseldorf ...... 2) 100.00 25 0 LEG Siebte Grundstücksverwaltungs GmbH, Duesseldorf ...... 2) 100.00 25 0 Erste WohnServicePlus GmbH, Duesseldorf ...... 4) 100.00 25 0 WohnServicePlus GmbH, Duesseldorf ...... 4) 100.00 25 0 EnergieServicePlus GmbH, Duesseldorf ...... 4) 51.00 704 4 Grundstücksgesellschaft Duha mbH, Duesseldorf ...... 2) 94.90 4,038 0 Gladbau Baubetreuungs – und Verwaltungsgesellschaft mbH, Duesseldorf . . . 2) 94.90 23,813 4,137** AWM Grundstücksgesellschaft mbH, Duesseldorf ...... 2) 100.00 2,318 0 Vitus Service GmbH, Duesseldorf ...... 1) 100.00 29 0 BRE/GEWG GmbH, Duesseldorf ...... 1) 100.00 24,169 3,028** Gemeinnützige Eisenbahn Wohnungsbaugesellschaft mbH, Duesseldorf ..... 1) 94.90 6,496 29,032**
* Unless indicated otherwise, these figures show the equity and result as taken from the, not yet adopted, separate HGB financial statements as at 31 December 2015. A zero result is shown in the event of there being a profit transfer agreement in place. ** Result after profit transfer.
F-89 Consolidated financial statements NOTES (Continued)
J. List of shareholdings (Continued) Activities of subsidiaries:
1) Performance of services and management of equity investments within the LEG GROUP 2) Property management and location development 3) Performance of services for third parties 4) Performance of housing industry services 5) Electricity and heat generation
T148 – Non-consolidated companies
Share of Equity* Result* capital % € thousand € thousand Entwicklungsgesellschaft Rhein – Pfalz GmbH, Mainz ...... 2)100.00 25 0 74מ Entwicklungsgesellschaft Rhein – Pfalz GmbH & Co. KG, Mainz ...... 4)100.00 1,487 Biomasse Heizkraftwerk Siegerland Verwaltungs GmbH, Cologne ...... 2)100.00 32 0 2מ LEG Krefeld-Bockum Verwaltungs GmbH, Dusseldorf ...... 3)100.00 101 Grundstücksentwicklungsgesellschaft Essen – Kettwig – Ruhrufer GmbH, Essen ...... 3)100.00 0 0
* These figures are the HGB single-entity equity and result as at 31 December 2014.
Activities of the companies not included in consolidation: 1) Property management 2) General partner in a limited liability company 3) Shell company 4) Performance of services for third parties
T149 – Associates accounted for using the equity method
Share of Equity* Result* capital % € thousand € thousand 8מ Area of Sports GmbH & Co. KG, Moenchengladbach ...... 50.00 90 Kommunale Haus und Wohnen GmbH, Rheda – Wiedenbrueck ...... 40.62 19,434 655 Beckumer Wohnungsgesellschaft mbH, Beckum ...... 33.37 3,547 31
* For Beckumer Wohnungsgesellschaft mbH these figures are the HGB single-entity equity and result as at 31 December 2015, for the other companies, these figures are the HGB single-entity equity and result as at 31 December 2014.
T150 – Associates not accounted for using the equity method
Share of Equity* Result* capital % € thousand € thousand Projektverwaltungsgesellschaft Mönchengladbach – Area of Sports GmbH, 1מ Moenchengladbach ...... 50.00 24 Grundstücksgesellschaft Sendenhorst mbH, Sendenhorst ...... 49.00 408 777
* These figures are the HGB single-entity equity and result as at 31 December 2014.
F-90 Consolidated financial statements CONSOLIDATED STATEMENT OF CHANGES IN ASSETS / ANNEX I
T151 – Consolidated statement of changes in assets 2015
Cumulative depreciation, amortisation and write-downs/fair Costs values Carrying amounts Adjustment Additions Additions Disposal Disposal Additions Disposal due to from from to to assets from to As of finalisation As of consolidated investment investment held for As of As of consolidated investment As of As of As of € million 01.01.2015 PPA Vitus 01.01.2015* companies Additions Disposals properties properties sale 31.12.2015 01.01.2015 companies Additions Disposals properties 31.12.2015 31.12.2015 31.12.2014 Property, plant and 64.6 59.1 50.3מ 0.2 3.3 7.2מ – 46.6מ 109.4 – 3.6מ 0.3 3.5מ equipment ...... 111.2 – 111.2 – 5.0 Land, land rights and 22.8 22.6 3.9מ – – 0.5מ – 3.4מ 26.5 – 0.1מ buildings ...... 26.2 – 26.2 – 0.1 – 0.3 Technical equipment and 15.8 15.2 22.4מ – 0.2 2.4מ – 20.2מ 37.6 – – – 0.2מ machinery ...... 36.0 – 36.0 – 1.8 Other equipment, operating 1.4 1.4 7.1מ – 1.6 0.5מ – 8.2מ 8.5 – – – 1.7מ and office equipment . . . 9.6 – 9.6 – 0.6 24.6 19.9 16.9מ 0.2 1.5 3.8מ – 14.8מ 36.8 – 3.5מ – 1.6מ Finance leases ...... 39.4 – 39.4 – 2.5 64.8 63.0 11.4מ – 0.1 1.7מ – 9.8מ 74.5 – – – 0.1מ 0.6 – 73.9 0.7מ Intangible assets ...... 74.6 3.2 2.1 11.4מ – 0.1 1.7מ – 9.8מ 13.5 – – – 0.1מ Other intangible assets .... 13.0 – 13.0 – 0.6 61.6 60.9 – – – – – – 61.0 – – – – – – 60.9 0.7מ Goodwill ...... 61.6 129.4 122.1 61.7מ 0.2 3.4 8.9מ – 56.4מ 183.9 – 3.6מ 0.3 3.6מ 5.6 – 185.1 0.7מ F-91 TOTAL ...... 185.8
* Adjustment arising from final purchase price allocation of Vitus transaction
T152 – Consolidated statement of changes in assets 2014
Cumulative depreciation, amortisation and write-downs/fair Costs values Carrying amounts Adjustment Additions Additions Disposal Disposal Additions Disposal due to from from to to assets from to As of finalisation As of consolidated investment investment held for As of As of consolidated investment As of As of As of € million 01.01.2014 PPA Vitus 01.01.2014 companies Additions Disposals properties properties sale 31.12.2014 01.01.2014 companies Additions Disposals properties 31.12.2014 31.12.2014 31.12.2013 Property, plant and 66.7 64.6 46.6מ – 2.3 6.9מ 2.0מ 40.0מ 111.2 2.6מ 2.6מ 1.3 2.5מ equipment ...... 106.7 – 106.7 4.3 6.6 Land, land rights and 25.7 22.8 3.4מ – – 0.6מ 0.3מ 2.5מ 26.2 2.6מ 2.6מ buildings ...... 28.2 – 28.2 1.4 0.5 – 1.3 Technical equipment 17.9 15.8 20.2מ – 0.2 2.4מ – 18.0מ 36.0 – – – 0.3מ and machinery ..... 35.9 – 35.9 0.1 0.3 Other equipment, operating and office 1.4 1.4 8.2מ – 0.7 0.5מ 0.6מ 7.8מ 9.6 – – – 0.7מ equipment ...... 9.2 – 9.2 0.8 0.3 21.7 24.6 14.8מ – 1.4 3.4מ 1.1מ 11.7מ 39.4 – – – 1.5מ Finance leases ...... 33.4 – 33.4 2.0 5.5 4.3 64.8 9.8מ – 0.4 1.6מ 0.3מ 8.3מ 74.6 – – – 0.4מ Intangible assets ...... 12.6 – 12.6 61.8 0.5 Other intangible 4.3 3.2 9.8מ – 0.4 1.6מ 0.3מ 8.3מ 13.0 – – – 0.4מ assets ...... 12.6 – 12.6 0.3 0.5 Goodwill ...... – – – 61.5 – – – – – 61.6 – – – – – – 61.6 – 71.0 129.4 56.4מ – 2.7 8.5מ 2.3מ 48.3מ 185.8 2.6מ 2.6מ 1.3 2.9מ TOTAL ...... 119.3 – 119.3 66.1 7.1 Consolidated financial statements CONSOLIDATED STATEMENT OF CHANGES IN PROVISIONS / ANNEX II
T153 – Consolidated statement of changes in provisions 2015
thereof Changes in As of consolidated As of € million 01.01.2015 companies Utilisation Release Reclassification Addition Interest Discounting 31.12.2015 Non-current Current Staff provisions 0.7 0.7 1.4 – – 0.5 – – 0.9מ – Staff provisions ...... 1.8 18.4 10.7 29.1 – 0.2 8.7 – 3.3מ 6.8מ – Other provisions ...... 30.3 0.2 0.6 0.8 – – 0.1 – 0.1מ 1.1מ – Provisions of lease properties . . 1.9 3.5 0.8 4.3 – – 1.4 0.1מ 0.7מ 1.0מ – Construction book provisions . . 4.7 2.1 0.1 2.2 – – 0.4 0.1 2.0מ 0.7מ – Litigations risks ...... 4.4 12.6 9.2 21.8 – 0.2 6.8 – 0.5מ 4.0מ – Other provisions ...... 19.3 19.1 11.4 30.5 – 0.2 9.2 – 3.3מ 7.7מ – TOTAL ...... 32.1 F-92
T154 – Consolidated statement of changes in provisions 2014
thereof Changes in As of consolidated As of € million 01.01.2014 companies Utilisation Release Reclassification Addition Interest Discounting 31.12.2014 Non-current Current Staff provisions 0.9 0.9 1.8 – – 0.9 – 0.1מ 0.7מ – Staff provisions ...... 1.7 16.6 13.7 30.3 – 0.6 8.1 0.2מ 2.5מ 4.7מ Other provisions ...... 28.9 0.1 0.7 1.2 1.9 – 0.1 0.1 – – 0.3מ – Provisions of lease properties . . 2.0 3.1 1.6 4.7 – – 1.4 – 0.7מ 1.4מ – Construction book provisions . . 5.4 2.8 1.6 4.4 – – 1.2 – 0.4מ 0.3מ – Litigations risks ...... 3.9 10.0 9.3 19.3 – 0.5 5.4 0.2מ 1.4מ 2.7מ Other provisions ...... 17.6 0.1 17.5 14.6 32.1 – 0.6 9.0 0.2מ 2.6מ 5.4מ TOTAL ...... 30.6 0.1 Consolidated financial statements OVERVIEW OF VOTING RIGHT NOTIFICATIONS/ANNEX III
T155 – Overview of voting rights pursuant to Section 21 para. 1 WpHG
Attribution pursuant to Section 22 WpHG Name of shareholder(s) holding directly 3% Amount voting rights Name of Date Total of or more controlled threshold Threshold voting Amount voting which are undertaking Person/ Company Date Reason for crossed crossed or Total rights Attribution pursuant to para. 1 of voting rights attributed to holding 3% subject to notification City Country received notification or reached reached in % voting rights in %1 sent. 1 rights in % the notifier or more Falling below Ruffer LLP ...... London United Kingdom 30.01.15 threshold 30.01.15 3 1,707,381 2.99 No. 6 1,707,381 2.99 – – No. 1 1,494,103 2.62 Falling below No. 2, i.c.w. Section 22 para. 1 sent. 2 7,745 0.01 BlackRock, Inc.² .....NewYork, NY USA 10.03.15 threshold 06.03.15 10 5,622,560 9.85 No. 6, i.c.w. Section 22 para. 1 sent. 2 4,234,544 7.42 – – F-93 No. 1 1,494,103 2.62 No. 2, i.c.w. Section 22 para. 1 sent. 2 7,745 0.01 BlackRock Financial Falling below No. 6 131,135 0.23 Management, Inc.² . . New York, NY USA 10.03.15 threshold 06.03.15 10 5,622,560 9.85 No. 6, i.c.w. Section 22 para. 1 sent. 2 4,191,125 7.43 – – BlackRock Luxembourg Exceeding BlackRock holdco S.a` r.l.² .....Senningerberg Luxembourg 10.04.15 threshold 08.04.15 5 2,876,489 5,04 No. 6, i.c.w. Section 22 para. 1 sent. 2 2,876,489 5.04 Global Funds – BlackRock Global Exceeding Funds² ...... Luxembourg Luxembourg 13.05.15 threshold 11.05.15 5 3,119,791 5.47 – – – – – BLACKROCK (Luxembourg) Exceeding BlackRock S.A.² ...... Senningerberg Luxembourg 13.05.15 threshold 11.05.15 5 3,119,791 5.47 No. 6 3,119,791 5.47 Global Funds – BNP Paribas Investment Falling below No. 1 1,673,765 2.93 Partners S.A...... Paris France 27.05.15 threshold 22.05.15 3 1,673,765 2.93 No. 6, i.c.w. Section 22 para. 1 sent. 2 1,214,307 2.13 – – BlackRock Financial BlackRock holdco 2, Exceeding No. 1 1,716,621 3.01 BlackRock Management, Inc.² ...... Wilmington, DE USA 03.06.15 threshold 01.06.15 15 8,580,121 15.04 No. 6, i.c.w. Section 22 para. 1 sent. 2 7,009,789 12.28 Global Funds Inc. No. 1 1,716,621 3.01 BlackRock Financial Exceeding No. 6 195,958 0.34 BlackRock Management, Inc.² . . Wilmington, DE USA 03.06.15 threshold 01.06.15 15 8,580,121 15.04 No. 6, i.c.w. Section 22 para. 1 sent. 2 6,934,714 12.15 Global Funds – BlackRock Investment No. 1 642,949 1.13 Management (UK) England and Exceeding No. 6 5,078,574 8.90 BlackRock Limited² ...... London Wales 23.06.15 threshold 19.06.15 10 5,721,523 10.03 No. 6, i.c.w. Section 22 para. 1 sent. 2 1,493,296 2.62 Global Funds – Consolidated financial statements OVERVIEW OF VOTING RIGHT NOTIFICATIONS/ANNEX III
MFS International Boston, Falling below Value Fund ...... Massachusetts USA 29.06.15 threshold 24.06.15 3 1,740,019 2.99 – – – – – BlackRock International Exceeding No. 1 734,652 1,26 BlackRock holdings, Inc.² .....Wilmington, DE USA 08.10.15 threshold 06.10.15 15 9,150,986 15.71 No. 6, i.c.w. Section 22 para. 1 sent. 2 8,460,647 14,52 Global Funds – BR Jersey International Exceeding No. 1 734,652 1,26 BlackRock holdings L.P.² .....St.helier, Jersey Jersey 08.10.15 threshold 06.10.15 15 9,150,986 15.71 No. 6, i.c.w. Section 22 para. 1 sent. 2 8,460,647 14,52 Global Funds – BlackRock Group England and Exceeding No. 1 684,385 1.17 BlackRock Limited² ...... London Wales 08.10.15 threshold 06.10.15 15 9,097,254 15.61 No. 6, i.c.w. Section 22 para. 1 sent. 2 8,457,182 14.52 Global Funds – Commerzbank Frankfurt Falling below Aktiengesellschaft . . am Main Germany 19.11.15 threshold 18.11.15 5, 3 500 0.0008 No. 6 500 0.0008 – – BNY Mellon BlackRock Fund Trust & Managers England and Exceeding Depositary Limited² ...... London Wales 20.11.15 threshold 18.11.15 3 1,921,701 3.06 No. 6 1,921,701 3.06 (UK) Limited – BlackRock Luxembourg Exceeding BlackRock holdco S.a` r.l.² .....Luxembourg Luxembourg 20.11.15 threshold 18.11.15 10 6,479,885 10.32 No. 6, i.c.w. Section 22 para. 1 sent. 2 6,479,885 10.32 Global Funds –
1 Number of shares: 57,063,444 until 23.06.2015, 58,259,788 until 12.11.2015 and 62,769,788 from 13.11.2015. F-94 2 The amount stated does not necessarily equal the sum of the detailed attributed holdings. This results from voting rights having multiple attributions within the BlackRock group structure. Consolidated financial statements OVERVIEW OF VOTING RIGHT NOTIFICATIONS/ANNEX III
T156 – Overview of voting rights pursuant to Section 25 WpHG
Detailed information on (financial/ other) instruments Financial/other Threshold instruments Date threshold crossed or Voting rights purs. to Voting rights purs. Chain of Person/ Company subject to Date Reason for crossed or reached subject to Section 25 to Section 21, 22 controlled Instrument, maturity, notification City Country received notification reached in % notification1 WpHG WpHG undertakings expiration date Falling below 0.00% 0.00% 7.93% (4,618,924 BlackRock Global Funds ...... Luxembourg Luxembourg 29.09.15 threshold 25.09.15 5 (0 voting rights) (0 voting rights) voting rights) – – Call option with physical settlement, Commerzbank Frankfurt am Falling below 0.00% 0.00% 0.0008% expiration date 15.01.2016 Aktiengesellschaft ...... Main Germany 19.11.15 threshold 18.11.15 5 (0 voting rights) (0 voting rights) (500 voting rights) – expiration date 18.03.2016 Falling below 0.00% 0.00% 17.20% (10,793,732 BlackRock holdco 2, Inc...... Wilmington, DE USA 17.11.15 threshold 13.11.15 15, 10, 5 (0 voting rights) (0 voting rights) voting rights) – – F-95 BlackRock Financial Falling below 0.00% 0.00% 17.20% (10,793,732 Management, Inc...... Wilmington, DE USA 17.11.15 threshold 13.11.15 15, 10, 5 (0 voting rights) (0 voting rights) voting rights) – –
1 Number of shares: 57,063,444 until 23.06.2015, 58,259,788 until 12.11.2015 and 62,769,788 from 13.11.2015. Consolidated financial statements OVERVIEW OF VOTING RIGHT NOTIFICATIONS/ANNEX III
T157 – Overview of voting rights pursuant to Section 25a WpHG
Date Threshold Description threshold crossed or Voting rights Financial/other Financial/other Voting rights purs. of financial/ Person/Company subject Date Reason for crossed or reached subject to instruments purs. to instruments purs. to to Section 21, 22 other to notification City Country received notification reached in % notification 1 Section 25a WpHG Section 25 WpHG WpHG Chain of controlled undertakings instrument BlackRock Holdco 2, Inc.; BlackRock Financial Management, Inc.; BlackRock Holdco 4, LLC; 0.0003% (152 voting BlackRock Holdco 6, LLC; rights), thereof held BlackRock Delaware Holdings Exceeding 9.68% (5,524,011 indirectly: 0.0003% 0.00% (0 voting 9.68% (5,523,859 Inc.; BlackRock Institutional Trust Contract for BlackRock, Inc...... NewYork, NY USA 17.03.15 threshold 13.03.15 5 voting rights) (152 voting rights) rights) voting rights) Company, National Association Difference
BlackRock Holdco 4, LLC; 0.0003% (152 voting BlackRock Holdco 6, LLC; rights), thereof held BlackRock Delaware Holdings BlackRock Financial Exceeding 9.68% (5,524,011 indirectly: 0.0003% 0.00% (0 voting 9.68% (5,523,859 Inc.; BlackRock Institutional Trust Contract for Management, Inc...... NewYork, NY USA 17.03.15 threshold 13.03.15 5 voting rights) (152 voting rights) rights) voting rights) Company, National Association Difference
F-96 Falling below 0.00% 0.00% (0 voting 0.00% (0 voting 15.26% (8,706,824 BlackRock Holdco 2, Inc. .... Wilmington, DE USA 10.06.15 threshold 08.06.15 15, 10, 5 (0 voting rights) rights) rights) voting rights) – –
BlackRock Financial Falling below 0.00% 0.00% (0 voting 0.00% (0 voting 15.26% (8,706,824 Management, Inc...... Wilmington, DE USA 10.06.15 threshold 08.06.15 15, 10, 5 (0 voting rights) rights) rights) voting rights) – –
1.40% (813,348 1.71% (997,310 voting rights), voting rights), thereof held thereof held indirectly: 1.40% indirectly: 1.71% Falling below 4.91% (2,858,770 (813,348 voting (997,310 voting 1.80% (1,048,112 Equity UBS Group AG ...... Zurich Switzerland 16.09.15 threshold 14.09.15 5 voting rights) rights) rights) voting rights) UBS AG Swap
1.71% (997,310 1.40% (813,348 voting rights), voting rights), thereof held thereof held indirectly: 1.70% Falling below 4.91% (2,858,770 indirectly: 0.00% (0 (987,549 voting 1.80% (1,048,112 Equity UBSAG ...... Zurich Switzerland 16.09.15 threshold 14.09.15 5 voting rights) voting rights) rights) voting rights) – Swap
1 Number of shares: 57,063,444 until 23.06.2015, 58,259,788 until 12.11.2015 and 62,769,788 from 13.11.2015. Consolidated financial statements OVERVIEW OF VOTING RIGHT NOTIFICATIONS/ANNEX III
T158 – Overview of voting rights pursuant to Section 41 para. 4f WpHG
Voting rights attached to shares Total positions 1 (Sec.s 21, 22 WpHG) * Voting rights Date through threshold instruments crossed Voting rights (total of Total Direct Indirect Instruments acc. Person/Company subject to or (total of 7.a.) 7.b.1.+7.b.2.) (7.a.+7.b.) (Sec. 21 (Sec. 22 to Sec. 25 para. 1 notification City Country Date received Reason for notification reached in % in % in % WpHG) WpHG) Total No. 1 WpHG Lansdowne Partners International George Town, Statement of holdings pursuant 861,523/ 861,523/ Ltd...... Grand Cayman Cayman Islands 07.12.15 to section 41 para 4f WpHG 26.11.15 1.37 7.6 8.98 – 1.37 % 1.37 % –
Statement of holdings pursuant 11,701,387/ 11,701,387/ BlackRock, Inc...... Wilmington, DE USA 10.12.15 to section 41 para 4f WpHG 26.11.15 18.64 1.92 20.56 0/0.00% 18.64 % 18.64 % –
Lansdowne Developed Markets Fund George Town, Statement of holdings pursuant 269,978/ 269,978/ F-97 Limited ...... Grand Cayman Cayman Islands 11.12.15 to section 41 para 4f WpHG 26.11.15 0.43 6.9 7.33 – 0.43 % 0.43 % –
Instruments acc. to Sec. 25 para. 1 No. 2 WpHG Name of controlled undertaking holding Name of shareholder(s) Cash or Voting Voting holding directly 3% voting Person/Company subject to Type of physical rights rights rights or more which are notification instrument settlement absolute in % attributed to the notifier Voting rights in %, if 3% or more Instruments in %, if 5% or more Total in %, if 5% or more Lansdowne Partners International Lansdowne Partners International Ltd, (7.60 %), Ltd, (8.98 %), Lansdowne Partners International Contract for Lansdowne Partners (UK) LLP Lansdowne Partners (UK) LLP Ltd...... Difference Cash 4,773,011 7.60% (7.60 %) (8.98 %) BLACKROCK (Luxembourg) S,A, BLACKROCK (Luxembourg) BlackRock Global Funds, (8.70 %), BlackRock Fund Managers S,A, (8.76 %), BlackRock Contract for BNY Mellon Trust & Limited (3.07 %), BlackRock Investment Investment Management (UK) BlackRock, Inc...... Difference Cash 1,203,239 1.92% Depositary (UK) Limited Management (UK) Limited (13.05 %) Limited (14.85 %)
Lansdowne Developed Markets Contract for Lansdowne Developed Markets Lansdowne Developed Markets Fund Limited ...... Difference Cash 4,330,579 6.90% Master Fund Limited (6.90 %) Master Fund Limited (7.33 %)
1 Aktienanzahl: 57.063.444 bis zum 23.06.2015, 58.259.788 bis zum 12.11.2015 und 62.769.788 ab dem 13.11.2015. * Absolut/in % The following auditor’s report (Besta¨tigungsvermerk) has been issued in accordance with Section 322 of the German Commercial Code (Handelsgesetzbuch) on the consolidated financial statements and group management report (Konzernlagebericht) of LEG Immobilien AG, Dusseldorf, as of and for the fiscal year ended December 31, 2015. The group management report is neither included nor incorporated by reference in this Offering Memorandum.
AUDITOR’S REPORT
We have audited the consolidated financial statements prepared by the LEG Immobilien AG,Du¨sseldorf, comprising the statement of financial position, the statement of comprehensive income, statement of changes in equity, cash flow statement and the notes to the consolidated financial statements, together with the group management report for the business year from 1 January to 31 December 2015. The preparation of the consolidated financial statements and the group management report in accordance with the IFRSS, as adopted by the EU, and the additional requirements of German commercial law pursuant to § (Article) 315a Abs. (paragraph) 1 HGB (“Handelsgesetzbuch”: German Commercial Code) is the responsibility of the parent Company’s Board of Managing Directors. Our responsibility is to express an opinion on the consolidated financial statements and on the group management report based on our audit.
We conducted our audit of the consolidated financial statements in accordance with §317 HGB and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftspru¨fer (Institute of Public Auditors in Germany) (IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the consolidated financial statements in accordance with the applicable financial reporting framework and in the group management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Group and expectations as to possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the consolidated financial statements and the group management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the annual financial statements of those entities included in consolidation, the determination of the entities to be included in consolidation, the accounting and consolidation principles used and significant estimates made by the Company’s Board of Managing Directors as well as evaluating the overall presentation of the consolidated financial statements and the group management report. We believe that our audit provides a reasonable basis for our opinion. Our audit has not led to any reservations. In our opinion based on the findings of our audit the consolidated financial statements comply with the IFRSS as adopted by the EU and the additional requirements of German commercial law pursuant to §315a Abs. 1 HGB and give a true and fair view of the net assets, financial position and results of operations of the Group in accordance with these requirements. The group management report is consistent with the consolidated financial statements and as a whole provides a suitable view of the Group’s position and suitably presents the opportunities and risks of future development.
Dusseldorf, 8 March 2016
PricewaterhouseCoopers Aktiengesellschaft Wirtschaftspru¨fungsgesellschaft
THOMAS KIEPER PPA. MARTIN FLU¨ R Wirtschaftspru¨fer Wirtschaftspru¨fer
F-98 Audited Consolidated Financial Statements of LEG Immobilien AG for the year ended December 31, 2014
CONSOLIDATED STATEMENT OF FINANCIAL POSITION ...... F-100 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME ...... F-101 STATEMENT OF CHANGES IN CONSOLIDATED EQUITY ...... F-102 CONSOLIDATED STATEMENT OF CASH FLOWS ...... F-103 NOTES ...... F-104 CONSOLIDATED STATEMENT OF CHANGES IN ASSETS/ANNEX I ...... F-170 CONSOLIDATED STATEMENT OF CHANGES IN PROVISIONS/ANNEX II ...... F-172 OVERVIEW OF VOTING RIGHT NOTIFICATIONS/ ANNEX III ...... F-173 AUDITOR’S REPORT ...... F-181
F-99 Consolidated financial statements CONSOLIDATED STATEMENT OF FINANCIAL POSITION
T37 – Consolidated statement of financial position
€ million Notes 31.12.2014 31.12.2013 Assets Non-current assets ...... 6,086.9 5,262.2 Investment properties ...... E.1 5,914.3 5,163.4 Prepayments for investment properties ...... 16.8 6.9 Property, plant and equipment ...... E.2 64.6 66.7 Intangible assets ...... E.3 64.7 4.3 Investments in associates ...... E.4 8.9 9.2 Other financial assets ...... E.5 2.4 3.6 Receivables and other assets ...... E.6 2.5 2.8 Deferred tax assets ...... E.15 12.7 5.3 Current assets ...... 165.8 144.5 Real estate inventory and other inventory ...... E.7 6.2 10.1 Receivables and other assets ...... E.6 27.1 21.0 Income tax receivables ...... E.15 2.6 2.7 Cash and cash equivalents ...... E.8 129.9 110.7 Assets held for sale ...... E.9 58.4 16.4 TOTAL ASSETS ...... 6,311.1 5,423.1 € million Equity and liabilities Equity ...... E.10 2,491.6 2,276.1 Share capital ...... 57.1 53.0 Capital reserves ...... 578.9 440.9 Cumulative other reserves ...... 1,841.3 1,754.9 Equity attributable to shareholders of the parent company ...... 2,477.3 2,248.8 Non-controlling interests ...... 14.3 27.3 Non-current liabilities ...... 3,158.8 2,840.6 Pension provisions ...... E.11 158.3 112.3 Other provisions ...... E.12 14.6 12.7 Financing liabilities ...... E.13 2,546.5 2,396.7 Other liabilities ...... E.14 114.6 63.5 Tax liabilities ...... E.15 16.5 24.2 Deferred tax liabilities ...... E.15 308.3 231.2 Current liabilities ...... 660.7 306.4 Pension provisions ...... E.11 6.3 6.1 Other provisions ...... E.12 17.5 17.9 Provisions for taxes ...... E.15 0.4 0.0 Financing liabilities ...... E.13 413.8 187.0 Other liabilities ...... E.14 206.1 77.6 Tax liabilities ...... E.15 16.6 17.8 TOTAL EQUITY AND LIABILITIES ...... 6,311.1 5,423.1
F-100 Consolidated financial statements CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
T38 – Consolidated statement of comprehensive income
01.01.- 01.01.- € million Notes 31.12.2014 31.12.2013 Net rental and lease income ...... F.1 284.9 257.7 Rental and lease income ...... 576.8 532.1 Cost of sales in connection with rental lease income ...... –291.9 –274.4 Net income from the disposal of investment properties ...... F.2 –1.7 –1.7 Income from the disposal of investment properties ...... 37.6 15.2 Carrying amount of the disposal of investment properties ...... –37.2 –15.0 Cost of sales in connection with disposed investment properties ...... –2.1 –1.9 Net income from the remeasurement of investment properties ...... F.3 143.0 81.6 Net income from the disposal of real estate inventory ...... F.4 –3.1 –3.1 Income from the real estate inventory disposed of ...... 5.7 9.0 Carrying amount of the real estate inventory disposed of ...... –5.0 –7.6 Costs of sales of the real estate inventory disposed of ...... –3.8 –4.5 Net income from other services ...... F.5 –0.3 2.3 Income from other services ...... 9.3 9.7 Expenses in connection with other services ...... –9.6 –7.4 Administrative and other expenses ...... F.6 –41.6 –51.5 Other income and expenses ...... 0.5 0.2 OPERATING EARNINGS ...... 381.7 285.5 Interest income ...... F.7 1.2 1.0 Interest expenses ...... F.8 –128.5 –131.4 Net income from investment securities and other equity investments ...... 7.1 0.8 Net income from associates ...... 0.3 0.3 Net income from the fair value measurement of derivatives ...... –42.3 2.4 EARNINGS BEFORE INCOME TAXES ...... 219.5 158.6 Income taxes ...... F.9 –62.7 –21.7 NET PROFIT OR LOSS FOR THE PERIOD ...... 156.8 136.9 Change in amounts recognised directly in equity Thereof recycling Fair value adjustment of interest rate derivatives in hedges ...... –30.9 25.4 Change in unrealised gains/(losses) ...... –42.1 33.5 Income taxes on amounts recognised directly in equity ...... 11.2 –8.1 Thereof non-recycling Actuarial gains and losses from the measurement of pension obligations .... –22.2 5.8 Change in unrealised gains/(losses) ...... –31.8 8.3 Income taxes on amounts recognised directly in equity ...... 9.6 –2.5 TOTAL COMPREHENSIVE INCOME ...... 103.7 168.1 Net profit or loss for the period attributable to: Non-controlling interests ...... 1.0 1.7 Parent shareholders ...... 155.8 135.2 Total comprehensive income attributable to: Non-controlling interests ...... 0.5 2.0 Parent shareholders ...... 103.2 166.1 EARNINGS PER SHARE (BASIC AND DILUTED) IN € ...... F.10 2.89 2.55
F-101 Consolidated financial statements STATEMENT OF CHANGES IN CONSOLIDATED EQUITY
T39 – Statement of changes in consolidated equity
Cumulative other reserves Actuarial gains Fair value and losses from adjustment Equity the measurement of interest attributable to Share Capital Revenue of pension derivatives shareholders Noncontrolling Consolidated capital reserves reserves obligations in hedges of the Group interests equity € million AS OF 01.01.2013 ...... 53.0 436.1 1,653.4 –22.3 –59.6 2,060.6 24.9 2,085.5 Net profit or loss for the period ...... – – 135.2 – – 135.2 1.7 136.9 Other comprehensive income ...... – – – 5.7 25.2 30.9 0.3 31.2 TOTAL COMPREHENSIVE INCOME ...... – – 135.2 5.7 25.2 166.1 2.0 168.1 F-102 Change in consolidated companies ...... – – – – – – – – Capital increase ...... – 40.5 39.0 – – 79.5 0.5 80.0 Withdrawals from reserves ...... – –39.0 – – – –39.0 –0.1 –39.1 Distributions ...... – – –21.7 – – –21.7 – –21.7 Contribution in connection with Management and Supervisory Board – 3.3 – – – 3.3 – 3.3 AS OF 31.12.2013 ...... 53.0 440.9 1,805.9 –16.6 –34.4 2,248.8 27.3 2,276.1 AS OF 01.01.2014 ...... 53.0 440.9 1,805.9 –16.6 –34.4 2,248.8 27.3 2,276.1 Net profit or loss for the period ...... – – 155.8 – – 155.8 1.0 156.8 Other comprehensive income ...... – – – –21.9 –30.7 –52.6 –0.5 –53.1 TOTAL COMPREHENSIVE INCOME ...... – – 155.8 –21.9 –30.7 103.2 0.5 103.7 Change in consolidated companies ...... – – 13.9 – – 13.9 –14.4 –0.5 Capital increase ...... 4.1 198.8 62.0 – – 264.9 0.9 265.8 Withdrawals from reserves ...... – –62.0 –1.1 – – –63.1 – –63.1 Distributions ...... – – –91.6 – – –91.6 – –91.6 Contribution in connection with Management and Supervisory Board .... – 1.2 – – – 1.2 – 1.2 AS OF 31.12.2014 ...... 57.1 578.9 1,944.9 –38.5 –65.1 2,477.3 14.3 2,491.6 Consolidated financial statements CONSOLIDATED STATEMENT OF CASH FLOWS
T40 – Consolidated statement of cash flows
01.01.- 01.01.- € million Notes 31.12.2014 31.12.2013 Operating earnings ...... 381.7 285.5 Depreciation on property, plant and equipment and amortisation on intangible assets ...... 8.6 8.7 (Gains)/Losses from the remeasurement of investment properties ...... –143.0 –81.6 (Gains)/Losses from the disposal of assets held for sale and investment properties ...... –0.4 –0.1 (Decrease)/Increase in pension provisions and other non-current provisions ..... 1.1 –0.1 Other non-cash income and expenses ...... 6.7 8.3 (Decrease)/Increase in receivables, inventories and other assets ...... –0.3 12.0 Decrease/(Increase) in liabilities (not including financing liabilities) and provisions ...... –5.6 –29.8 Interest paid ...... –95.5 –91.9 Interest received ...... 1.0 0.9 Received income from investments ...... 7.9 1.5 Taxes received ...... 1.4 0.5 Taxes paid ...... –16.7 –11.8 NET CASH FROM/(USED IN) OPERATING ACTIVITIES ...... 146.9 102.1 Cash flow from investing activities Investments in investment properties ...... –226.2 –177.8 Proceeds from disposals of non-current assets held for sale and investment properties ...... 70.1 15.2 Investments in intangible assets and property, plant and equipment ...... –3.1 –1.3 Proceeds from disposals of financial assets and other assets ...... 0.3 0.6 Acquisition of shares in consolidated companies ...... –448.5 – NET CASH FROM/ (USED IN) INVESTING ACTIVITIES –607.4 –163.3 Cash flow from financing activities Borrowing of bank loans ...... 208.8 413.0 Repayment of bank loans ...... –127.3 –350.2 Repayment of lease liabilities ...... –3.2 –2.9 Issue of convertible bond ...... 296.1 – Capital contribution ...... 202.9 – Other payments ...... –6.0 – Distribution to shareholders ...... –91.6 –21.7 NET CASH FROM/(USED IN) FINANCING ACTIVITIES ...... 479.7 38.2 Change in cash and cash equivalents ...... 19.2 –23.0 Cash and cash equivalents at beginning of period ...... 110.7 133.7 CASH AND CASH EQUIVALENTS AT END OF PERIOD ...... 129.9 110.7 Composition of cash and cash equivalents Cash in hand, bank balances ...... 129.9 110.7 CASH AND CASH EQUIVALENTS AT END OF PERIOD ...... 129.9 110.7
F-103 Consolidated financial statements NOTES
A. General information on the consolidated financial statements of LEG Immobilien AG 1. Basic information on the Group
LEG Immobilien AG, Dusseldorf (hereinafter: “LEG Immo”), its subsidiary LEG NRW GmbH, Dusseldorf (hereinafter: “LEG”) and the subsidiaries of the latter company (hereinafter referred to collectively as the “LEG Group”) are among the largest residential companies in Germany. The LEG Group held a portfolio of 108,020 units (residential and commercial) on 31 December 2014.
LEG Immo and its subsidiaries engage in two core activities as an integrated property company: the value-adding long-term management of its residential property portfolio and the strategic acquisition of residential portfolios in order to generate long-term value enhancement.
LEG Immo went public on 1 February 2013 with the initial listing of its shares in the Regulated Market (Prime Standard) of the Frankfurt Stock Exchange.
These consolidated financial statements were approved for publication by LEG Immo’s Management Board on 19 March 2015.
2. Consolidated financial statements
The consolidated financial statements of the LEG Group have been prepared in accordance with the International Financial Reporting Standards (IFRS) adopted and published by the International Accounting Standards Board (IASB) as applicable in the European Union. The consolidated financial statements have been prepared in accordance with the provisions of Regulation (EC) No. 1606/2002 of the European Parliament and of the Council dated 19 July 2002, concerning the application of international accounting standards in conjunction with section 315a (3) of the Handelsgesetzbuch (HGB – German Commercial Code) and the additional provisions of commercial law. Individual items of the statement of comprehensive income and the statement of financial position have been aggregated to improve the clarity of presentation. These items are discussed in the notes to the consolidated financial statements. The statement of comprehensive income has been prepared using the cost of sales method. The consolidated financial statements have been prepared in euro. Unless stated otherwise, all figures have been rounded to millions of euro (EUR million). For technical reasons, tables and references can include rounded figures that differ from the exact mathematical values. The consolidated financial statements are prepared on the basis of the recognition of assets and liabilities at amortised cost. Exceptions to this are investment property, securities held for sale and derivative financial instruments, which are carried at their fair value as at the end of the reporting period. The consolidated financial statements and the Group management report are published in the Bundesanzeiger (Federal Gazette).
The preparation of consolidated financial statements in accordance with the IFRS requires estimates and judgments on the part of the management. Areas with greater scope for judgment or areas in which assumptions and estimates are of material importance to the consolidated financial statements are listed in D.22 and D.23.
The consolidated financial statements of LEG Immo constitute exempting consolidated financial statements within the meaning of section 291 HGB for LEG NRW GmbH, Ruhr-Lippe Wohnungsgesellschaft mbH and Wohnungsgesellschaft Münsterland mbH. These companies are not required to prepare subgroup financial statements as they are included in the consolidated financial statements of LEG Immo, no non-controlling interests have applied for the preparation of consolidated financial statements and a Group management report has been submitted by non-controlling interests in accordance with section 291 (3) sentence 1 no. 2 HGB, and the other conditions of section 291 (2) no. 2 and no. 3 HGB have been met.
No subsidiaries have exercised the exemption provisions set out in section 264 (3) HGB or section 264b HGB.
F-104 Consolidated financial statements NOTES (Continued)
B. New accounting standards
1. International Financial Reporting Standards (IFRS) and Interpretations (IFRIC) that have been published but that are not yet effective Amendments to the following standards have been made:
IFRIC 21 Levies, published in May 2013, clarifies when to recognise a liability for a levy imposed by a government. It is effective for the first time for annual periods beginning on or after 17 June 2014. It is assumed that this will not have a material effect on the consolidated financial statements of the LEG Group.
In November 2013 the IASB published an amendment of IAS 19: Employee Benefits: Defined Benefit Plans: Employee Contributions. This amendment now clarifies the accounting for contributions from employees or third parties contained in the conditions of a defined benefit plan that are linked to service. This amendment will not affect the LEG Group. The amendment is effective for annual periods beginning on or after 1 July 2014.
In December 2012 the IASB published Improvements to IFRS 2010-2012. They are the fifth collection of amendments and relate to six existing IFRS. The amendments are effective for reporting periods beginning on or after 1 July 2014. They will not affect the LEG Group.
In December 2013 the IASB published Improvements to IFRS 2011-2013. They are the sixth collection of amendments and relate to four existing IFRS. The amendments are effective for reporting periods beginning on or after 1 July 2014. It is assumed that they will not have a material effect on the LEG Group.
In September 2014 the IASB published Improvements to IFRS 2012-2014. They are the seventh collection of amendments and relate to four existing IFRS. Subject to the approval of the EU, the amendments are effective for reporting periods beginning on or after 1 January 2016. It is assumed that they will not have a material effect on the LEG Group.
In May 2014 the IASB published IFRS 11 Joint Arrangements. It clarifies that acquisitions of interests in joint operations that constitute a business as defined in IFRS 3, Business Combinations, must be accounted for in accordance with the principles of accounting for business combinations in line with IFRS 3 and other applicable IFRS, with the exception of those principles that conflict with the guidance in IFRS 11. Subject to the approval of the EU, the amendments are effective for reporting periods beginning on or after 1 January 2016. It is assumed that they will not have a material effect on the LEG Group.
In January 2014 the IASB published IFRS 14 Regulatory Deferral Accounts. The regulations of the standards allow entities preparing IFRS financial statements for the first time in accordance with IFRS 1, First-time Adoption of International Financial Reporting Standards, to retain regulatory deferral accounts previously recognised under national GAAP in connection with price regulating activities and to continue accounting for them in line with previous accounting policies. Subject to the approval of the EU, the amendments are effective for reporting periods beginning on or after 1 January 2016 and are not relevant to the LEG Group.
In May 2014 the IASB published amendments to IAS 16, Property, Plant and Equipment, and IAS 38, Intangible Assets. The aim of these amendments is to clarify which methods are appropriate for depreciation on property, plant and equipment and amortisation of intangible assets. Subject to the approval of the EU, the amendments are effective for reporting periods beginning on or after 1 January 2016. It is assumed that they will not have a material effect on the LEG Group.
In May 2014 the IASB published IFRS 15 Revenue from Contracts with Customers. IFRS 15 replaces IAS 18 and IAS 11. The goal of the new standard on revenue recognition is to compile the many regulations already contained in various standards and interpretations into a uniform model of revenue recognition. The standard establishes a five-step model to help determine the amount and timing of revenue recognition. Other changes can arise on account of the new regulations for revenue recognition on transfer of control, multi-component transactions with revenue recognised over the period of performance and extended disclosures in the notes. Subject to EU endorsement, the standard is effective for reporting periods beginning on or after 1 January 2017. The LEG Group is reviewing the impact of the standard.
F-105 Consolidated financial statements NOTES (Continued)
B. New accounting standards (Continued)
In June 2014 the IASB published amendments to IAS 16, Property, Plant and Equipment, and IAS 41, Agriculture, on accounting for bearer plants. Subject to the approval of the EU, the amendments are effective for reporting periods beginning on or after 1 January 2016. It is assumed that they will not have any effect on the LEG Group.
The IASB completed its project to replace IAS 39, Financial Instruments: Recognition and Measurement, in July 2014 with the publication of the final version of IFRS 9, Financial Instruments. IFRS 9 contains revised regulations on the classification and measurement of financial assets and a new loss allowance model that also takes expected losses into account in the calculation of loss allowances. Furthermore, it also includes the new hedge accounting regulations already published in November 2013. The standard therefore replaces all earlier versions of IFRS 9 and, subject to EU endorsement, is effective for the first time for reporting periods beginning on or after 1 January 2018. The adoption of IFRS 9 is expected to result in changes to the accounting of financial instruments at the LEG Group.
In August 2014 the IASB published amendments to IAS 27 Separate Financial Statements. As a result of the amendments, investments in subsidiaries, joint ventures and associates can also be accounted for using the equity method in IFRS separate financial statements in future. Subject to the approval of the EU, the amendments are effective for reporting periods beginning on or after 1 January 2016. It is assumed that they will not have any effect on the LEG Group.
In September 2014 the IASB published amendments to IFRS 10 and IAS 28, Sale or Contribution of Assets between an Investor and its Associate or Joint Venture. The amendments concern a conflict between the provisions of IAS 28, Investments in Associates and Joint Ventures, and IFRS 10, Consolidated Financial Statements. They clarify that, in transactions with associates or joint ventures, the extent to which a gain or loss is recognised is dependent on whether the assets sold or contributed constitute a business. The date of first-time adoption has been postponed by the IASB. It is assumed that they will not have any effect on the LEG Group.
In December 2014 the IASB published amendments to IFRS 10, IFRS 12 and IAS 28, Investment Entities – Applying Consolidation Exceptions. The amendments address issues in connection with the application of consolidation exceptions for investment entities. Subject to the approval of the EU, the amendments are effective for reporting periods beginning on or after 1 January 2016. It is assumed that they will not have any effect on the LEG Group.
In December 2014 the IASB published amendments to IAS 1, Disclosure Initiative. The amendments are intended to remove boundaries with regard to judgements by the preparer in the presentation of the financial statements. Subject to the approval of the EU, the amendments are effective for reporting periods beginning on or after 1 January 2016. They will not affect the LEG Group.
2. International Financial Reporting Standards (IFRS) and Interpretations (IFRIC) effective for the first time
In May 2011 the IASB published the amendment to IAS 27, Separate Financial Statements. Following the adoption of IFRS 10 and IFRS 12, the scope of IAS 27 is limited to accounting for investments in subsidiaries, associates and joint ventures in separate financial statements. The standard is effective for the first time in the EU for reporting periods beginning on or after 1 January 2014. It has no material effect on the LEG Group.
In May 2011 the IASB published IFRS 10, Consolidated Financial Statements. The standard replaces IAS 27 on group accounting and SIC-12 on the consolidation of special-purpose entities. The standard is effective for the first time in the EU for reporting periods beginning on or after 1 January 2014. It has no material effect on the LEG Group.
IFRS 11, Joint Arrangements, published by the IASB in May 2011, replaces IAS 31 and SIC-13. The standard is effective for the first time in the EU for reporting periods beginning on or after 1 January 2014. It does not affect the LEG Group.
The IASB also published IFRS 12, Disclosure of Interests in Other Entities, in May 2011. IFRS 12 provides uniform guidance for the disclosure requirements for group accounting. The standard is effective for the first time in the EU for reporting periods beginning on or after 1 January 2014. This has affected the disclosures in the notes of the LEG Group.
F-106 Consolidated financial statements NOTES (Continued)
B. New accounting standards (Continued)
The amendment to IAS 28, Investments in Associates and Joint Ventures, was also published in May 2011. The amendment to IAS 28 is effective in the EU for reporting periods beginning on or after 1 January 2014. It has no material effect on the financial statements of the LEG Group.
The amendments to IAS 32, Financial Instruments: Presentation – Offsetting Financial Assets and Financial Liabilities, that were published in December 2011 clarify the criteria for the offsetting of financial instruments. The amendment to IAS 32 is effective in the EU for reporting periods beginning on or after 1 January 2014. This has no material effect in terms of recognition and measurement for the LEG Group.
In June 2012 the IASB published an amendment to the transition regulations for the first-time adoption of IFRS 10, IFRS 11 and IFRS 12: Transition Guidance. Under the new regulations, control is assessed at the start of first-time adoption and not from the start of the comparative period. Furthermore, it is no longer necessary to disclose comparative information on unconsolidated structured entities. The amendment is effective for reporting periods beginning on or after 1 January 2014. It does not affect the LEG Group.
The amendments to IFRS 10, IFRS 12 and IAS 27 concerning investment entities that were published in October 2012 are effective for reporting periods beginning on or after 1 January 2014. The amendments require that investment entities account for their investments in subsidiaries in accordance with IAS 39 rather than IFRS 10 or IFRS 12. There are also special disclosure requirements for investment entities in accordance with IFRS 12. They do not affect the LEG Group.
In December 2013 the IASB published the amendment to IAS 36, Recoverable amount disclosures for non- financial assets. This contains amendments on disclosures relating to impairment and reversals. In addition, IFRS 13, Fair Value Measurement, corrected disclosure requirements included in IAS 36. The amendment to IAS 36 is effective in the EU for reporting periods beginning on or after 1 January 2014. It does not affect the LEG Group.
Furthermore, in December 2013, the IASB published amendments to IAS 39, Financial Instruments: Recognition and Measurement. The amendment to IAS 39 regulates the novation of an OTC derivative as a hedging instrument, continuing the hedge. The amendment is effective in the EU for reporting periods beginning on or after 1 January 2014. It does not affect the LEG Group.
C. Basis of consolidation and consolidation methods 1. Consolidation methods a) Subsidiaries
The consolidated financial statements of the LEG Group contain all the material subsidiaries the LEG Immo controls within the meaning of IFRS 10. An entity is to be included in consolidation by another entity when, in substance, the former is controlled by the latter, even if it does not hold more than 50% of the voting rights in the other entity.
LEG Immo only controls its subsidiaries if all three of the following requirements of IFRS 10.7 are met: 1) the investor has power over the relevant activities of the investee 2) variable returns from the subsidiaries go to the parent company and 3) the parent company has the ability to use its power to affect the amount of the investor’s returns.
First-time adoption of IFRS 10 as at 1 January 2014 did not result in any changes in the basis of consolidation and of the consolidation methods of the LEG Group.
Subsidiaries are consolidated from the date at which LEG Immo first obtains control. Subsidiaries are deconsolidated as soon as LEG Immo no longer controls them. The financial statements of subsidiaries are prepared using uniform accounting policies and as at the end of the same reporting period as LEG Immo’s financial statements.
F-107 Consolidated financial statements NOTES (Continued)
C. Basis of consolidation and consolidation methods (Continued) Capital is consolidated in accordance with the purchase method, whereby the cost at the time of acquisition is offset against the pro rata share of equity. Under the purchase method, the net assets of the acquired subsidiary at the acquisition date is calculated taking into account the fair values of the identifiable assets, liabilities and contingent liabilities, deferred taxes and any goodwill at this date. Non-controlling interests represent the portion of earnings and net assets not attributable to the shareholders of LEG Immo. Non-controlling interests are reported separately in the consolidated statement of comprehensive income and the consolidated statement of financial position. In the consolidated statement of financial position, non-controlling interests are reported in equity as a separate item from the equity attributable to the shareholders of the parent company. All intragroup receivables and liabilities, income and expenses and gains and losses from intragroup transactions are eliminated. b) Associates
Associates are equity interests whose financial and operating policies can be significantly influenced by the LEG Group. Significant influence is presumed when LEG Immo holds between 20% and 50% of the voting rights in this company, either directly or indirectly, unless it can be clearly demonstrated that this is not the case. Associates are accounted for using the equity method. Under the equity method, investments in associates are recognised at cost and the carrying amount is adjusted for changes in the LEG Group’s interest in the net assets of the associate and any impairment losses. Losses from associates in excess of the carrying amount of the investment, or other non-current receivables from the financing of the respective associate, are not recognised unless there is an obligation to make additional payments. Owing to their immateriality for the net assets, financial position and results of operations of the Group, certain individual associates are measured at fair value or, if the fair value cannot be reliably determined for unlisted equity instruments, at cost and reported in other non-current financial assets.
A list of the LEG Group’s shareholdings can be found in section j.
2. Changes in the Group a) Subsidiaries
The basis of consolidation of the LEG Group developed as follows: T41 – Number of consolidated subsidiaries 2014 2013 AS OF 01.01...... 43 41 Additions ...... 8 7 Disposals ...... –3 –5 AS OF 31.12...... 48 43
Grundstücksgesellschaft DuHa mbH, Dusseldorf, was acquired and included in consolidation for the first time as at 1 July 2014 in the context of a portfolio acquisition. Further details can be found in section E.1. Seven companies were included in consolidation for the first time as at 1 November 2014 in the context of business acquisitions. Details can be found in section C.3.
The disposals relate to former subsidiaries of the LEG Group merging within the LEG Group. Effective 1 January 2014, Hiltrup Grundbesitzverwertungsgesellschaft mbH & Co. KG and LEG Objekt Krefeld-Bockum GmbH & Co. KG were merged with LEG Beteiligungsverwaltungsgesellschaft mbH. GWN Gemeinnützige Wohnungsgesellschaft Nordwestdeutschland GmbH & Co. Immobilien KG was merged with its general partner as at 31 March 2014. These changes in the basis of consolidation have no effect on the net assets, financial position and results of operations of the Group.
F-108 Consolidated financial statements NOTES (Continued)
C. Basis of consolidation and consolidation methods (Continued) b) Associates The following table shows the development of associates accounted for using the equity method: T42 – Number of associates accounted for using the equity method 2014 2013 AS OF 01.01...... 44 Additions / Disposals ...... 0 0 AS OF 31.12...... 44
3. Business combination
On 9 October 2014 LEG Immo signed a purchase agreement with Deutsche Annington to acquire 94.9% of shares in former Vitus companies, consisting of a property portfolio of around 9,600 residential units. The portfolio is distributed over various locations in NRW, while its most important local markets are Mönchengladbach, Wupper-tal and Leverkusen. The current in-place rent is around EUR 35 million per year, rent per square metre EUR 4.76 and the vacancy rate is 3.9%. 55 employees (FTES) were taken on in the context of the transaction. Following antitrust approval, the transaction was closed on 23 October 2014.
As at 1 November 2014 LEG treated the acquisitions as a business combination as defined by IFRS 3 as significant business processes had been acquired. The consideration for the business combination breaks down as follows: T43 – Preliminary consideration € million Net purchase price ...... 462.9 Contingent reimbursement of the purchase price ...... –0.9 TOTAL CONSIDERATION ...... 462.0
The purchase price was calculated on the basis of the balance sheets as at 30 September 2014. The transaction costs of the business combination amount to EUR 3.7 million and essentially include legal and consulting costs.
F-109 Consolidated financial statements NOTES (Continued)
C. Basis of consolidation and consolidation methods (Continued) The allocation of the total purchase price to the acquired assets and liabilities is based on an external appraisal. The provisional purchase price can be allocated to the assets and liabilities acquired, measured at fair value, as follows: T 44 – Preliminary purchase price allocation € million 01.11.2014 Investment properties ...... 436.3 Cash and cash equivalents ...... 6.9 Other assets ...... 8.9 Assets held for sale ...... 24.5 TOTAL ASSETS ...... 476.6 Other financing liabilities ...... –18.8 Pension provisions ...... –15.5 Deferred tax liabilities ...... –36.1 Other liabilities ...... –6.1 TOTAL LIABILITIES ...... –76.5 Net assets at fair value ...... 400.1 Non-controlling interests ...... –0.3 Net assets at fair value without non-controlling interests ...... 400.4 CONSIDERATION ...... 462.0 GOODWILL ...... 61.6
The tax due diligence identified a possible total vat risk of EUR 4.4 million with a probability of occurrence estimated at 20%. Any tax liability arising would be fully reimbursable in line with the provisions of the purchase agreement. In the context of purchase price allocation, a contingent liability to and a reimbursement receivable from the seller, both of EUR 0.9 million, were therefore recognised. In addition to the total consideration, the purchase price allocation is essentially provisional regarding the following items: – Investment property – Deferred taxes – Operating costs In purchase price allocation deferred tax assets on temporary differences and tax loss carryforwards were only recognised to the extent that leg expects to be able to use them.
Non-controlling interests in Gladbau GmbH amount to 5.1% and in GEWG GmbH to 5.1%, and are measured at the proportionate share of the recognised net assets acquired. Synergies in the form of cost savings in the management of the portfolio are anticipated from the goodwill. The goodwill is assigned to the “Vitus” CGU and the “Residential like-for-like” CGU. Please see D.3 regarding the development of goodwill and its allocation. Since 1 November 2014 the Vitus companies acquired generated income from property management of EUR 9.2 million and ebitda of EUR 3.7 million. Had the Vitus companies already been included in consolidation as at 1 January 2014, they would have contributed additional income from property management of EUR 46.2 million and additional EBITDA of EUR 24.0 million.
F-110 Consolidated financial statements NOTES (Continued)
C. Basis of consolidation and consolidation methods (Continued)
4. IFRS 12 disclosures a) Disclosures on subsidiaries included in consolidation
An overview of the subsidiaries in which LEG Immo holds investments as at 31 December 2014 (IFRS 12.10 et seq.) can be found in section j.
LEG Immo holds 82.9% in LEG NRW GmbH directly and 17.07% indirectly through Rote Rose GmbH & Co. KG (Rote Rose). LEG NRW GmbH holds the other investments in the subsidiaries listed above.
The direct and indirect shares of capital held by LEG Immo in the subsidiaries are also equal to its shares of the voting rights. The companies not included in consolidation are not considered material in terms of the key performance indicators net profit for the year, total assets and revenue, and are therefore not included in consolidated group. b) Disclosures on subsidiaries with significant non-controlling interests The financial information on significant, non-controlling interests in subsidiaries is summarised below (IFRS 12.B10). Intragroup transactions were not eliminated in the amounts disclosed.
As at 31 December 2014 Biomasse Heizkraftwerk GmbH & Co.KG, Other segment, is the only subsidiary with significant non-controlling interests. T45 – Statement of financial position – Biomasse Heizkraftwerk GmbH & Co. KG € million 2014 2013 Non-current Assets ...... 17.5 19.8 Liabilities ...... –14.7 –16.7 Non-current net assets ...... 2.8 3.1 Current Assets ...... 1.7 1.5 Liabilities ...... –6.6 –4.9 Current net assets ...... –4.9 –3.4 T46 – Statement of profit or loss – Biomasse Heizkraftwerk GmbH & Co. KG € million 2014 2013 Revenue ...... 7.7 8.6 Earnings before income taxes ...... –1.8 –0.4 Income taxes ...... 0.0 0.0 Net profit from continued operations ...... –1.8 –0.4 Net profit ...... –1.8 –0.4 Total comprehensive income ...... –1.8 –0.4 Attributable to: interests without significant influence ...... –0.9 –0.2 Paid dividend to owner without significant interest ...... 0.0 0.0 T47 – Statement of cash flows – Biomasse Heizkraftwerk GmbH & Co. KG € million 2014 2013 Net cash from / used in Operating activities ...... 1.7 2.2 Investing activities ...... – – Financing activities ...... –1.4 –2.1 CHANGE IN CASH AND CASH EQUIVALENTS ...... 0.3 0.1
F-111 Consolidated financial statements NOTES (Continued)
C. Basis of consolidation and consolidation methods (Continued) c) Disclosures on associates 1. Disclosures on significant associates
The investments in associates affect the statement of financial position and the income statement of the LEG Group as follows: T48 – Interests in associates € million 2014 2013 Recognition ...... 8.9 9.2 Total comprehensive income ...... 0.3 0.3 The disclosures on the equity investments in associates classified as material are listed below. Table T49 The companies listed below perform property management activities. The relationships with the associates are of an operational nature. All the companies listed above are recognised in the consolidated financial statements using the equity method. There are no quoted market prices.
T49 – Material associates Share of capital Equity Result in % € thousand € thousand Kommunale Haus und Wohnen GmbH, Rheda-Wiedenbrück ...... 40.62 18.8 0.6 Beckumer Wohnungsgesellschaft mbH, Beckum ...... 33.37 3.5 0.1 The compiled financial information for the key associates of the Group is shown below. The financial information shown below is consistent with the amounts in the financial statements of the associates.
T50 – Statement of financial position Kommunale Haus und Beckumer Wohnen GmbH Wohnungsgesellschaft mbH Total € million 31.12.2014 31.12.2013 31.12.2014 31.12.2013 31.12.2014 31.12.2013 Non-current assets ...... 43.0 41.9 7.9 8.4 50.9 50.3 Current assets ...... 1.9 2.2 0.5 0.3 2.4 2.5 Cash and cash equivalents ...... 2.2 1.9 0.9 0.7 3.1 2.6 Other assets ...... – – – – – – Non-current liabilities ...... – – – – – – Current liabilities ...... 28.2 27.7 5.8 6.0 34.0 33.7 Financing liabilities ...... – – – – – – Non-financing liabilities ...... – – – – – – Net assets ...... 18.9 18.3 3.5 3.4 22.4 21.7
F-112 Consolidated financial statements NOTES (Continued)
C. Basis of consolidation and consolidation methods (Continued) T51 – Statement of profit or loss Kommunale Haus und Beckumer Wohnen GmbH Wohnungsgesellschaft mbH Total € million 31.12.2014 31.12.2013 31.12.2014 31.12.2013 31.12.2014 31.12.2013 Revenue ...... 6.1 5.9 1.2 1.2 7.3 7.1 Depreciation ...... 1.1 1.1 0.3 0.3 1.4 1.4 Interest income ...... – – – – – – Interest expense ...... 0.6 0.7 0.1 0.1 0.7 0.8 Income taxes ...... – – – – – – Net profit from continued operations . . . 0.6 0.8 0.1 0.1 0.7 0.9 Net profit from discontinued operations ...... – – – – – – Other comprehensive income ...... – – – – – – Total comprehensive income ...... 0.6 0.8 0.1 0.1 0.7 0.9
Statement of reconciliation from compiled financial information to carrying amount of the equity investments: T52 – Reconciliation Kommunale Haus und Beckumer Wohnen GmbH Wohnungsgesellschaft mbH Total € million 31.12.2014 31.12.2013 31.12.2014 31.12.2013 31.12.2014 31.12.2013 Net assets of associates as of 01.01. . . . 18.3 17.7 3.4 3.3 21.7 21.0 Net profit / loss ...... 0.6 0.8 0.1 0.1 0.7 0.9 Dividend ...... – 0.2 – – – 0.2 Net assets of associates as of 31.12. . . . 18.9 18.3 3.5 3.4 22.4 21.7 Group share in % ...... 40.62 40.62 33.37 33.37 – – Interest in net assets of associates ..... 7.7 7.4 1.2 1.1 8.9 8.5 Carrying amount of the investment .. 7.7 7.4 1.2 1.1 8.9 8.5 d) Disclosures on insignificant associates The following table shows the associates classified as insignificant. T53 – Non-material associates Share of capital Equity Result in % € thousand € thousand Mönchengladbach Nordpark Area of Sports GmbH, Moenchengladbach ...... 50.00 0.0 0.0 Grundstücksgesellschaft Sendenhorst mbH, Sendenhorst ...... 49.00 –0.4 0.1 Projektgesellschaft Hauptbahnhof Remscheid mbH, Remscheid ...... 50.00 0.0 0.0 Area of Sports GmbH & Co. KG, Moenchengladbach ...... 50.00 0.1 0.0 The summary financial information of the individually insignificant associates of the Group can be found in the table below. T54 – Summarised fiscal information € million 31.12.2014 31.12.2013 Group share of profit or loss from continued operations ...... 0.3 0.3 Group share of post-tax profit or loss from discontinued operations ...... 0.0 0.0 Group share of total comprehensive income ...... 0.0 0.0 Total comprehensive income ...... 0.3 0.3
F-113 Consolidated financial statements NOTES (Continued)
C. Basis of consolidation and consolidation methods (Continued) The carrying amounts of the individually insignificant associates of the Group are shown below. T55 – Carrying amounts € million 31.12.2014 31.12.2013 Total carrying amounts ...... 0.1 0.7 The unrecognised losses of associates are shown in the following table. T56 – Unrecognised losses € million 31.12.2014 31.12.2013 Unrecognised losses for period ...... 0.0 0.0 Cumulative unrecognised losses ...... 0.2 0.2
D. Accounting policies 1. Investment property
Investment property consists of the LEG Group’s properties that are held to earn rentals or for capital appreciation or both, rather than for owner occupancy or sale in the ordinary course of business. Investment property includes land with residential and commercial buildings, undeveloped land, land with transferable leasehold land interests, parking spaces and garages.
In accordance with IFRS 5, investment property that is held for sale and that is highly likely to be sold within the next 12 months is recognised as an assets held for sale under current assets. Its measurement is consistent with the measurement of investment property. Mixed-used properties are separated into the owner-occupied part and the part rented to third parties to the extent that it is legally possible to separate the property in question, and neither the owner-occupied portions nor the portions rented to third parties are immaterial. The portion rented to third parties is allocated to investment property, while the owner-occupied portion is recognised under property, plant and equipment. The ratio of the respective areas is used to allocate the components. Property is transferred from investment property when there is a change in use evidenced by the commencement of owner-occupancy or the development with a view to sale. Unless acquired as part of a business combination, investment property is recognised at cost including incidental costs on acquisition. In accordance with the option provided by IAS 40 in conjunction with IFRS 13, investment property is subsequently recognised at fair value. IFRS 13.9 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value assumes the sale of an asset (exit price). It corresponds to the (theoretical) price to be paid to the seller in the event of a (hypothetical) sale of a property at the measurement date, regardless of an entity’s specific intention or ability to sell. The concept of highest and best use of the property is assumed in calculating its fair value (IFRS 13.27 et seq.). This implies a use or value maximisation of the asset as far as it is physically possible, legally permissible and financially feasible. Further details can be found in section D.17. Changes in the fair value of property are recognised in profit or loss for the period in which they occur.
Subsequent costs for extension, partial replacement or maintenance of properties (IAS 40.17) are capitalised if they constitute the replacement of parts of a unit in accordance with the component approach (IAS 40.19) and the costs can be reliably determined. In addition, such costs are capitalised if the activities will result in increased future benefits and the costs can be reliably determined. Capitalised costs are not depreciated, as scheduled depreciation is not generally recognised in connection with the fair value option provided by IAS 40. Individual units are sold to tenants, owner-occupants and private investors as part of portfolio optimisation measures.
F-114 Consolidated financial statements NOTES (Continued)
D. Accounting policies (Continued)
Fair values are determined internally by LEG Immo, with the exception of the property portfolio acquired from Deutsche Annington. The fair values of the properties acquired from Deutsche Annington were calculated by a third-party expert. Please see section C.3. In addition to the fair values calculated internally by LEG Immo, the property portfolio was valued by an independent, third-party expert as at 31 December 2014. LEG uses the third- party valuation to check the plausibility of its own calculations and as a general confirmation of the value of the portfolio as a whole through a second opinion.
The properties are reviewed individually by LEG Immo at the level of individual building entrances in terms of their location, condition, fixtures and fittings, current contractual rent and potential for development. The fair values calculated are consistent with the IFRS market values, i.e. the amount for which the respective property could be exchanged between market participants under current market conditions on the measurement date parties in an orderly transaction (IAS 40.5 rev. in conjunction with IFRS 13.15). The fair values of investment property and properties held for sale are calculated on the basis of the forecast net cash flows from property management using the discounted cash flow (DCF) method. For properties with no positive net cash flow (generally vacant buildings), the fair value is calculated using a liquidation value method. Undeveloped land is usually valued on the basis of an indirect comparison of indicative land values.
A detailed planning period of ten years was applied in DCF measurement. After the end of the tenth year, a sales value is recognised that is calculated by capitalising the forecast annual net profit for the eleventh period. The contractually agreed rental income for the respective property and other property-specific value parameters are applied in the first year of the detailed planning period. The average monthly in-place net rent for the rented apartments in the property portfolio (referring here and hereinafter to both investment property and properties held for sale) used for the measurement in buildings used primarily for residential purposes was EUR 5.09/sqm as at the end of the reporting period (2013: eur 5.00/sqm). These properties can also contain commercial units of minor significance in some cases. The future development of annual rent was projected on the basis of individual assumptions for the planning period. A distinction was made between rental income from existing tenancies and new lettings due to forecast fluctuation. During the detailed planning period market rent increases annually at an individually determined rate. For new lettings, rent in the amount of the assumed market rent is applied. The market rent growth applied ranges from 0% to 2%, depending on the assessment of the respective market and property. Rent from existing tenancies is projected on the basis of the statutory environment and the assessment of the respective market and property, and is assumed to converge with the overall market trend over time. The vacancy rate in terms of rental space used for measurement amounted to 3.0% as at the measurement date (2013: 3.5%). The assumptions with regard to the future development of the vacancy rate are based on location and individual property characteristics. Publicly subsidised properties are treated differently depending on the existence and duration of potential rent control. If rent control is set to end within the ten-year detailed planning period, a rent adjustment towards the market rent is assumed for the subsequent year, taking into account the statutory requirements. For the remaining subsidised properties for which rent control will expire by 2081 at the latest, a discount on the capitalisation rate was recognised depending on the remaining duration of rent control.
Average annual maintenance costs of EUR 11.22/ sqm are assumed for reactive and periodical maintenance work depending on the condition and year of construction of the respective properties used predominantly for residential purposes (2013: EUR 10.94/sqm).
Administrative costs are applied at a flat rate per residential unit of EUR 284.20 p.a. (2013: EUR 278.85 p.a.) and per parking or garage space of EUR 37.06 p.a. (2013: EUR 36.37 p.a.). For residential buildings with a commercial component or other type of use, administrative costs for the non-residential component are calculated at 1% (2013: 1%) of gross commercial income. Around 1.47% (2013: 1.75%) of the units in the portfolio are classified as commercial properties. In some cases, these properties can also contain residential units, but they are characterised by their primarily commercial character. Owing to the differing rent terms and market conditions compared with the residential portfolio, these properties are also subject to different assumptions with regard to the key parameters affecting their value.
F-115 Consolidated financial statements NOTES (Continued)
D. Accounting policies (Continued)
The average rent of the primarily commercial properties is EUR 6.95/sqm (2013: EUR 6.54/sqm), with average maintenance costs of EUR 6.82/sqm (2013: EUR 7.50/sqm) in the detailed planning period. The vacancy rate in terms of usable space was 12.8% as at the measurement date (2013: 10.2%). Administrative costs are calculated at 1% (2013: 1%) of gross commercial income. Cash flows are discounted using standard market discount rates with matching maturities of 5.93% on average (weighted average; 2013: 5.96%) and standard market capitalisation rates for perpetuals of 6.50% (weighted average; 2013: 6.61%); this takes into account the property-specific management cost ratio and reflects the individual risk/ opportunity profile of the respective property. In addition to location criteria, the determination of an appropriate interest rate takes into account the property type, property condition, age, potential rental growth, the forecast for the location and potential government subsidies in particular. The change between 2013 and 2014 essentially results from the consideration of the positive general trend on the property market, the improvement in operating activities, the impact of these developments on the discount rates applied and appropriate anticipation of the real estate transfer tax increase in nrw as at 1 January 2015. Owing to the limited availability of market data, i.e. data and measurement parameters not directly observable on the market, the complexity of property valuation and the level of specification of property, the fair value measurement of investment property is assigned to level 3 of the measurement hierarchy of IFRS 13.86 (measurement based on unobservable inputs): Further details can be found in section d.17. In measurement, investment property is broken down into categories defined by type of use: – residential property – commercial property – garages, underground garages or parking spaces/other properties – leasehold and undeveloped land Commercial property is defined as property upwards of 1,000 sqm of useable space or in which 50% of the building’s space is used for commercial purposes. Other properties are essentially units with outside advertising media and wireless antennas.
Properties are also broken down according to three market clusters using a scoring system developed by CBRE: orange (growth markets), green (stable markets) and purple (higher yielding markets).
F-116 Consolidated financial statements NOTES (Continued)
D. Accounting policies (Continued) The table below shows the measurement method used to determine the fair value of investment property and the material unobservable inputs used. Table T57
T57 – Information about fair value measurements using significant unobservable inputs (Level 3)
Estimated vacancy Capitalisation rate Sensitivities GAV Sensitivities GAV Estimated rental development Discount rate for terminal value (variance (variance development Residential Residential (sqm-weighted)4 (sqm-weighted)4 discount rate) cap rate) (sqm-weighted) (sqm-weighted) Valuation מ מ 3 € Segment million GAV assets technique min. avg. max. min. avg. max. 25 bp +25 bp 25 bp +25 bp min. durchschn. max. T0 Residential assets1 1.1 1.7 1.4 0.9 2.2מ 2.6 4.1מ High-growth markets ...... 2,337 DCF 4.5 5.8 7.8 3.0 6.0 8.5 4.5
3.3 1.4 0.9 0.5 2.1מ 2.4 3.4מ F-117 Stable markets with attractive yields .... 2,067 DCF 4.6 5.9 9.0 3.6 6.3 12.7 3.7 4.7 1.1 0.7 0.3 1.7מ 1.8 3.5מ Higher-yielding markets ...... 1,157 DCF 4.7 6.1 6.8 4.4 7.2 12.9 3.7 2.7 1.5 1.2 0.5 1.7מ 2.6 2.8מ NonNRW...... 114DCF 4.6 5.8 6.4 4.3 6.5 8.9 3.7 – – – – 1.7מ 1.9 2.0מ Commercial assets2 ...... 172DCF 4.8 6.8 10.7 5.0 7.2 12.2 2.1 – – – – 1.6מ 1.8 4.1מ Parking + other assets ...... 99DCF 5.5 – 7.5 3.8 – 13.3 4.5 Earnings/ reference value Leasehold + land values ...... 27method – – – – – – – – 2.1מ 2.3 3.6מ TOTAL IAS 40/IFRS 5 ...... 5,973 DCF 4.5 5.9 10.7 3.0 6.5 13.3 4.0
1 Excluding 309 residential units in commercial buildings; including 295 commercial and other units in mixed residential assets. 2 Excluding 295 commercial units in mixed residential assets; including 309 residential units in commercial buildings, commercial, parking, other assets as well as IAS 16 assets. 3 Valuation technique information without consideration of IAS 16 assets. In exceptional cases liquidation value approach. For 9,574 acquisition residential units information included from the fair value measurement by CBRE as of 30 September 2014. 4 sqm-weighted interest rates refer to residential and commercial assets. bp = basis points Consolidated financial statements NOTES (Continued)
D. Accounting policies (Continued) The table below shows the measurement method used to determine the fair value of investment property as at 31 December 2013: Table T58
T58 – Information about fair value measurements using significant unobservable inputs (Level 3)
Estimated vacancy Capitalisation rate Sensitivities GAV Sensitivities GAV Estimated rental development Discount rate for terminal value (variance (variance development Residential Residential (sqm-weighted)4 (sqm-weighted)4 discount rate) cap rate) (sqm-weighted) (sqm-weighted) Valuation מ מ 3 € Segment million GAV assets technique min. avg. max. min. avg. max. 25 bp +25 bp 25 bp +25 bp min. durchschn. max. T0 Residential assets1 1.5 1.8 1.4 0.9 2.3מ 2.5 4.1מ High-growth markets ...... 2,205 DCF 4.6 5.8 7.9 3.1 6.0 9.1 4.5
3.9 1.5 0.9 0.5 2.0מ 2.2 3.8מ F-118 Stable markets with attractive yields ..... 1,545 DCF 4.7 5.9 7.4 3.6 6.6 13.0 4.1 5.2 1.2 0.7 0.3 1.7מ 1.8 3.5מ Higher-yielding markets ...... 1,030 DCF 4.8 6.1 7.7 4.5 7.3 13.0 3.7 1.2 1.5 1.2 0.5 1.8מ 1.9 3.5מ NonNRW...... 85 DCF 4.7 5.8 6.5 4.6 7.2 9.0 3.7 – – – – 1.8מ 1.9 1.9מ Commercial assets2 ...... 186 DCF 4.8 6.9 13.0 5.0 7.4 14.0 2.0 – – – – 1.9מ 2.0 4.2מ Parking + other assets ...... 107 DCF 5.6 0.0 7.6 4.0 0.0 14.3 4.5 Earnings/ reference value Leasehold + land values ...... 22 method – – – – – – – – – – – – – – – – – – 2.0מ 2.2 3.8מ TOTAL IAS 40/IFRS 5 ...... 5,180 DCF 4.6 6.0 13.0 3.1 6.6 14.3 4.1
1 Excluding 286 residential units in commercial buildings; including 265 commercial and other units in mixed residential assets. 2 Excluding 265 commercial units in mixed residential assets; including 286 residential units in commercial buildings. 3 In exceptional cases liquidation value approach. 4 sqm-weighted interest rates refer to residential and commercial assets. bp = basis points Consolidated financial statements NOTES (Continued)
D. Accounting policies (Continued) With the acquisition of the shares in LEG from Beteiligungsverwaltungsgesellschaft des Landes Nordrhein- Westfalen and NRW-Bank, Anstalt des öffentlichen Rechts, effective 29 August 2008, the LEG Group undertook to uphold social conditions including compliance with the usual provisions on tenant protection and safeguarding the property portfolio in question. These social conditions include the following obligations: Under the terms of the social charter, tenants have a right of first refusal at preferential conditions in certain cases. Planned sales of rented buildings or complexes with more than one rented residential unit can only go ahead if certain conditions are met. In some cases, the operating companies of the LEG Group are subject to restrictions on rent increases with respect to certain tenants with rights of first refusal and in connection with assistance in the form of loans at below-market rates of interest or investment subsidies. Legal requirements with regard to the privatisation of residential properties must also be observed. The company is required to spend a predetermined average amount per square metre on maintenance and improvement measures. Certain parts of the portfolio are also subject to unconditional restrictions on sale.
2. Property, plant and equipment Property, plant and equipment is recognised at cost and depreciated on a straight-line basis over its expected economic life. Subsequent expenditure is capitalised if this serves to increase the value in use of the respective item. The useful lives and residual values are examined annually and adjusted as necessary. Any subsidies received are deducted in calculating cost. Depreciation is recognised using the following useful lives, which are applied uniformly throughout the Group:
T59 – Useful life of property, plant and equipment in years 2014 2013 Owner-occupied residential properties ...... 80 80 Owner-occupied commercial properties ...... 50 50 Technical equipment and machinery/Other operating and office equipment ...... 5–23 5–23 The carrying amounts of property, plant and equipment are tested for impairment when there are indications that the carrying amount of an asset exceeds its recoverable amount. Property, plant and equipment is derecognised when sold or when no further economic benefit is expected from the continued use or the disposal of the asset. The gains or losses resulting from derecognition of the asset are recognised directly in profit or loss in the consolidated statement of comprehensive income. In accordance with the tax regulation on the depreciation of low-value assets that has been in place since January 2010, low-value assets with a net value of up to EUR 150 are written off in full in the year of their acquisition. Assets with a net value of between EUR 150.01 and EUR 1,000 are assigned to an omnibus item and depreciated on a straight-line basis over a period of five years. Deviations from the economic life of the respective assets are considered immaterial.
3. Intangible assets and goodwill Acquired intangible assets are recognised at cost. Such assets are software licenses with a definite useful life. Software licenses are amortised on a straight-line basis over an expected economic life of between three and five years from the date on which they are provided. The following principles are applied to the recognition of internally generated intangible assets: Development costs that are directly allocated to the development and testing of identifiable individual software products controlled by the Group are recognised as intangible assets if the recognition criteria set out in IAS 38 are met.
F-119 Consolidated financial statements NOTES (Continued)
D. Accounting policies (Continued) Development costs not meeting these criteria are expensed in the period in which they are incurred. Development costs that have already been expensed are not capitalised in a subsequent period. Goodwill arises from the acquisition of a business and represents the excess of consideration transferred over the fair values of the net assets less non-controlling interests as at the acquisition date. It is not amortised, rather it is tested annually for impairment. Impairment losses on goodwill cannot be reversed. Basic information on and the premises of the impairment method used in the LEG Group in accordance with IAS 36 (Impairment of Assets) can be found in the section “Accounting policies” under “Impairment of assets”. The goodwill resulting from purchase price allocation (PPA) is allocated to the cash-generating units (CGU’S) expected to benefit from the business combination. In the LEG Group, the Residential like-for-like and Vitus CGUS will benefit from the acquisition of the Vitus portfolio. The allocation of goodwill firstly takes into account the economic substance of the assets and liabilities assumed. Secondly, it also considers the ratio of synergies that the two CGUS are expected to generate from the business combination. First-time consolidation resulted in net deferred tax liabilities that increase goodwill of EUR 34.6 million. This portion of goodwill results from assets and liabilities of the Vitus CGU; EUR 34.6 million of the goodwill is therefore allocated to this CGU. The synergies anticipated from the business combination essentially consist of planned cost savings, additional income potential and tax savings, which will be implemented almost exclusively in the Residential like-for-like CGU. The remaining portion of goodwill of EUR 27.0 million is therefore allocated to this CGU. In the goodwill impairment test, the recoverable amount is represented by the fair value less costs to sell (FVLCTS). The FVLCTS is calculated as the present value of the free cash flows before interest and after taxes expected from continuing a CGU or a group of CGUS. Here, a general tax rate of 31.2% is applied to EBIT (previous year: 31.2%). The cash flow forecast reflects past experience and takes into account management expectations of future market developments. These cash flow forecasts are based on the resolved medium-term planning, which covers a horizon of five years (detailed planning period). There is also a cash flow forecast going beyond the five-year planning horizon. This is prepared by deriving a sustainable free cash flow from the detailed planning period and extrapolating this using a growth rate based on the specific market development. A weighted average cost of capital that reflects the capital market’s return requirements for debt and equity to the LEG Group is used to discount the free cash flows. A cost of capital after taxes is also used on the basis of the calculated free cash flows after taxes. Risks of free cash flows are taken into account by a matched risk capitalisation rate. A uniform capitalisation rate of 3.1% (previous year: 3.9%) was used for the CGUS analysed in the goodwill impairment test, representing a corresponding pre-tax capitalisation rate of 3.5% (previous year: 4.7%), taking into account a typical tax rate on EBIT of 31.2%. The changes in the capitalisation rates as against the previous year result from current forecasts for the medium and long-term development of the capital market. A sustainable growth rate of 1.0% p.a. is assumed for both CGU’S. The goodwill impairment tests performed for the two CGU’S in question (Residential like-for-like and Vitus) did not give rise to any impairment requirements. The key premises and assumptions influencing impairment on a CGU were reviewed in the form of standardised sensitivity analyses.
EBIT margin The risk of a 10% reduction in the EBIT margin was analysed for the reduced earnings scenario analysis. This calculation did not give rise to any impairment requirements for the two CGUS.
F-120 Consolidated financial statements NOTES (Continued)
D. Accounting policies (Continued) Weighted costs of capital The risks from assumptions regarding the capitalisation rate used as standard to calculate the present value of FVLCTS were tested by simulating a change in the costs of capital of +/–50 bp. This scenario analysis also did not give rise to any impairment requirements for the two CGU’S.
4. Impairment of assets Each year the LEG Group tests intangible assets and property, plant and equipment in accordance with IAS 36 for impairment losses. In doing so it determines whether there are indications of possible impairment. If there are such indications, the recoverable amount of the asset in question is calculated. This is the higher of its fair value less costs to sell and its value in use. A standard pre-tax interest rate is applied for discounting. Furthermore, in accordance with IAS 36, goodwill and intangible assets with an indefinite useful life are tested for impairment at least once per year. Impairment testing is generally performed at the level of individual assets. If largely independent future cash flows cannot be determined for individual assets, cash-generating units (CGU’S) are formed as groups of assets whose future cash flows are interdependent. In the LEG Group CGU’S are mostly analysed at the operating segment level. Given the consistency between the management structure and the legal structure, the identified CGUS also always consist of at least one legal entity. Thus, the data needed for the asset impairment test can be derived from annual financial statement and planning data. The carrying amount of a CGU is determined by adding together the carrying amounts of the assets less those of the liabilities associated with the assets included (net position). Furthermore, the necessary working capital for the CGU has to be included. There were no assets and liabilities used jointly by several CGU’S (corporate assets and liabilities) that would have been assigned to the CGU’S pro rata in the past financial year. In the financial year, in addition to the CGUS affected by the goodwill impairment test, an impairment text was required for the Biomasse CGU, which consists of the legal entity Biomasse Heizkraftwerk GmbH & Co. KG. The recoverable amount for the Biomasse CGU was calculated on the basis of its FVLCTS. A capitalisation rate of 3.3% p.a. (previous year: 4.0% p.a.) was applied, reflecting an assumed tax rate of 31.2% and a pre-tax capitalisation rate of 3.6% (previous year: 4.7%). As the FVLCTS covered the carrying amount of the CGU, no additional calculation of the value in use was required. There is detailed planning for the Biomasse CGU until the end of its useful life. A sustainable growth rate was therefore not taken into account. The key premises and assumptions influencing impairment on a CGU were reviewed in the form of standardised sensitivity analyses.
EBIT margin The risk of a 10% reduction in the EBIT margin was analysed for the reduced earnings scenario analysis. This calculation did not give rise to any impairment requirements for the Biomasse CGU.
Weighted costs of capital The risks from assumptions regarding the capitalisation rate used as standard to calculate the present value of FVLCTS were tested by simulating impairment on each CGU with a change in the costs of capital of +/–50 bp. This scenario analysis also did not give rise to any impairment requirements for the Biomasse CGU. Investment property is not subject to impairment testing in accordance with IAS 36 as it is recognised at fair value. If the recoverable amount of an asset is lower than its carrying amount, an impairment loss is recognised immediately in profit or loss.
5. Other financial assets The LEG Group recognises financial assets as at the trade date.
F-121 Consolidated financial statements NOTES (Continued)
D. Accounting policies (Continued) In accordance with IAS 39, subsidiaries that are not consolidated due to immateriality are classified as available- for-sale financial assets for measurement purposes. Available-for-sale financial assets are recognised at fair value as at the end of the reporting period or, if this cannot be reliably determined, at cost. Shares in unconsolidated subsidiaries or subsidiaries recognised using the equity method are not quoted. Owing to the considerable volatility and the lack of an active market, the fair value of these instruments cannot be reliably determined. There is currently no intention to sell these shares in the near future. Available for sale financial instruments are measured at fair value on acquisition. Gains and losses on subsequent measurement at fair value are reported directly in equity (cumulative other reserves). On disposal of a financial asset, the cumulative net gain or loss on remeasurement previously recognised in other reserves is reversed and recognised in profit or loss in the statement of comprehensive income. In the event of any impairment, the impairment loss in other reserves is corrected in profit or loss. If impairment is reversed, the respective amount is recognised in profit or loss for debt instruments and recognised directly in equity for equity instruments. Impairment cannot be reversed on AfS instruments at cost; any impairment is recognised in profit or loss.
6. Accounting for leases as the lesseer Leased assets for which beneficial ownership lies with the LEG Group (finance leases in accordance with IAS 17) are recognised as non-current assets at the lower of the present value of minimum lease payments or the fair value of the leased property, and are depreciated on a straight-line basis. The depreciation period is the shorter of the lease term and the useful life of the asset. In cases where ownership of the asset is transferred to the LEG Group at the end of the lease term, the depreciation period is the economic life of the asset. A corresponding liability is recognised in the amount of the present value of the future minimum lease payments. This liability is reduced in subsequent periods by the financial charge included in instalments. Leases for which beneficial ownership does not lie with the LEG Group are classified as operating leases. The expenses resulting from these leases are recognised in profit or loss.
7. Accounting for leases as the lessor Leases for residential properties grant tenants an option to terminate the agreement at short-notice on the basis of the statutory regulations. In accordance with IAS 17, these agreements are classified as operating leases as the significant risks and rewards remain with the LEG Group. The same applies to the current agreements for commercial property. Income from operating leases is recognised in the statement of comprehensive income in rental and lease income on a straight-line basis over the term of the respective leases.
8. Real estate inventory and other inventories Other inventories are carried at cost, which is calculated on the basis of the allocable direct costs for service provision plus production-related overheads. Inventories are carried at the lower of cost and net realisable value as at the end of the reporting period. Details on the accounting treatment of borrowing costs can be found in section D.21.
9. Receivables and other assets On initial recognition, trade receivables and other financial assets are carried at their fair value plus transaction costs. Subsequent measurement is at amortised cost. Potential default risks are recognised in the form of appropriate allowances based on past experience and individual risk assessments, taking into account the forecast net cash flows. For financial instruments carried at amortised cost, a distinction is made between specific allowances and general allowances.
F-122 Consolidated financial statements NOTES (Continued)
D. Accounting policies (Continued) General allowances are used to recognise impairment on financial assets when it is unlikely that all the contractually agreed payments (interest or principal) will be achieved on maturity.
10. Cash and cash equivalents Cash and cash equivalents include cash, demand deposits, other short-term, highly liquid financial assets with original maturities of three months or less and bank overdrafts. Utilised bank overdrafts are shown in the statement of financial position in current financial liabilities.
11. Assets held for sale In addition to individual non-current assets, assets held for sale can include groups of assets (disposal groups) or components of entities (discontinued operations) if their disposal is considered to be highly probable within the next twelve months. Classification in accordance with IFRS 5 is retained only if the asset can be sold immediately in its present condition, at conditions subject only to terms that are usual and customary for the disposal of such assets. Liabilities that are directly associated with the planned disposal are a component of the disposal group or the discontinued operations and are also reported separately. In accordance with IFRS 5, assets held for sale are stated at the lower of carrying amount and fair value less costs to sell. Items of investment property classified as assets held for sale are measured at fair value in accordance with IAS 40.
12. Provisions for pensions Pension and similar obligations result from commitments to employees. Obligations under defined benefit plans are measured using the projected unit credit method, taking into account pensions and benefits as at the end of the reporting period in addition to expected future salary and pension increases. The biometric basis is provided by the 2005G mortality tables published by Dr Klaus Heubeck. The Group has both defined benefit and defined contribution plans. The amount of the pension benefits payable under defined benefit plans is based on the qualifying period of employment and the pensionable income. In Germany, the regulatory framework is the Betriebsrentengesetz (Company Pension Act), according to which pensions rise in line with the rate of inflation. LEG bears the actuarial risks, such as the longevity risk, the interest rate risk and the inflation risk. There are no additional plan-specific risks at LEG. Remeasurement components in connection with defined benefit plans, which cover actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions, are recognised in equity in cumulative other reserves in the period in which they arise. No past service costs were incurred in the year under review or the previous year. The interest effect included in pension expenses is shown in interest expenses in the consolidated statement of comprehensive income. Past service costs are shown under operating result in the individual functions.
13. Other provisions Other provisions are recognised if the LEG Group has a present legal or constructive obligation as a result of past events to make payments that is likely to be settled by an outflow of resources embodying economic benefits that can be reliably determined. They are recognised at the expected settlement amount. Non-current provisions are carried at their discounted settlement amount as at the end of the reporting period on the basis of corresponding market interest rates with matching maturities.
14. Financial liabilities On initial recognition, financial liabilities are carried at fair value plus transaction costs and adjusted for any premiums or discounts. The fair value at the grant date is the present value of future payment obligations based on a market interest rate with matching maturity and risk.
F-123 Consolidated financial statements NOTES (Continued)
D. Accounting policies (Continued) In subsequent periods financial liabilities are measured at amortised cost using the effective interest method. The effective interest rate is determined on initial recognition of the financial liability. Changes in terms affecting the amount and timing of interest and principal payments result in the remeasurement of the carrying amount of the liability in the amount of the present value on the basis of the effective interest rate originally calculated. Any differences compared to the previous carrying amount are recognised in profit or loss. If changes in terms lead to significant differences in contractual conditions in accordance with IAS 39. AG 62, the original liability is treated as if it had been repaid in full in accordance with IAS 39.40 and a new liability is recognised at fair value.
15. Derivative financial instruments The LEG Group uses derivative financial instruments to hedge interest rate risks arising from real estate financing. Derivative financial instruments are recognised at fair value. Changes in the fair value of derivatives are recognised in profit or loss unless the respective instruments are designated as hedges in accordance with IAS 39. Derivatives used as hedging instruments are used to hedge uncertain future cash flows. The LEG Group is exposed to future cash flow risks as a result of floating-rate financial liabilities in particular. Changes in fair value are divided into an effective and an ineffective portion. Effectiveness is determined using the dollar offset method. The effective portion is the portion of the gain or loss on remeasurement that is recognised as an effective hedge against the cash flow risk. The effective portion, net of deferred taxes, is recognised directly in cumulative other reserves in equity. The ineffective portion of the gain or loss on remeasurement is reported in net finance costs in the consolidated statement of comprehensive income. The amounts recognised directly in equity are transferred to the consolidated statement of comprehensive income if gains or losses in connection with the underlying are recognised in profit or loss. In the event of the early termination of the hedge, the amounts recognised in equity are reclassified to profit or loss if gains or losses in connection with the underlying are recognised in profit or loss. If the underlying is terminated, then the amounts remaining in other comprehensive income (OCI) are immediately recognised in profit or loss.
16. Fair values of financial instruments The fair values of financial instruments are determined on the basis of corresponding market values or measurement methods. For cash and cash equivalents and other short-term primary financial instruments, the fair value is approximately the same as the carrying amount at the end of the respective reporting period. For non-current receivables, other assets and liabilities, the fair value is calculated on the basis of the forecast cash flows, applying the reference interest rates as at the end of the reporting period. The fair values of derivative financial instruments are calculated using the reference interest rates as at the end of the reporting period plus own risk or counterparty risk. For financial instruments at fair value, the discounted cash flow method is used to determine fair value using corresponding quoted market prices, with individual credit ratings and other market conditions being taken into account in the form of standard credit and liquidity spreads when calculating present value. If no quoted market prices are available, the fair value is calculated using standard measurement methods applying instrument- specific market parameters. When calculating the fair value of derivative financial instruments, the input parameters for the valuation models are the relevant market prices and interest rates observed as at the end of the reporting period, which are obtained from recognised external sources. Accordingly, derivatives are assigned to level 2 of the fair value hierarchy set out in IFRS 13.72 et seq. (measurement on the basis of observable input data). Please see section D.17. Both the Group’s own risk and the counterparty risk were taken into account in the calculation of the fair value of derivatives in accordance with IFRS 13.
F-124 Consolidated financial statements NOTES (Continued)
D. Accounting policies (Continued) 17. Calculation of fair value All assets, equity instruments and liabilities measured at fair value in line with the requirements of other standards (except IAS 17 Leases and IFRS 2 Share-based Payment) are measured uniformly in line with IFRS 13. IFRS 13.9 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value assumes the sale of an asset (exit price). This also applies if the enterprise has neither the intention nor the capacity to sell the asset at the measurement date or to transfer the liability at this point in time. In calculating the fair value of non-financial assets, the concept of highest and best use is applied (IFRS 13.27 et seq.). This implies a use or value maximisation of the asset as far as it is physically possible, legally permissible and financially feasible. Fair value measurement of investment property is assigned to level 3 of the measurement hierarchy of IFRS 13.86 (measurement based on unobservable inputs). For information on the measurement of investment property, please see the comments in section 1. For the measurement of derivative financial instruments, please see section D.15 and section I.3. The fair value hierarchy can be summarised as follows:
T60 – Fair value hierarchy
Level 1 Level 2 Level 3 Purchase price allocation in the context of business combinations ...... X Investment properties ...... X Financing liabilities ...... X Other liabilities (particularly derivative) ...... X
18. Recognition of income and expenses Income is recognised when it is probable that the economic benefit will flow to the LEG Group and the amount of the income can be reliably determined. The following recognition criteria must also be met in order for income to be recognised: a) Rental and lease income Income from the rental and lease of properties for which the corresponding rental and lease agreements are classified as operating leases is recognised on a straight-line basis over the term of the respective lease agreement. When incentives to tenants are provided, the cost of incentive is recognised over the lease term, on a straight-line basis, as a reduction of rental and lease income. Rental and lease income also includes tenant payments for utilities and service charges if the costs and the amount of the income can be reliably determined and the services have been provided. b) Income from the disposal of property Income from the disposal of property is recognised when the LEG Group transfers substantially all the risks and rewards incident to ownership to the buyer. A transfer is generally assumed to take place when the LEG Group transfers title and effective control of the property sold to the buyer and it is probable that the income from the disposal will flow to the LEG Group. By contrast, income is not recognised if the LEG Group assumes return guarantees, grants a right of return to the buyer or enters into other material obligations with respect to the buyer that prevent the transfer of risks and rewards of ownership to the buyer. c) Income from services and third-party management Income from the performance of service projects is recognised in the period in which the service is provided. This is determined in accordance with the percentage of completion of the respective project and the ratio of the services rendered as at the end of the reporting period to the total services to be provided.
F-125 Consolidated financial statements NOTES (Continued)
D. Accounting policies (Continued) Income from third-party management is only recognised once the corresponding services have been rendered. d) Interest and similar income Interest income is recognised using the effective interest method in the period in which it arises. e) Dividend income Dividend income is recognised when the right to receive the respective payment arises. f) Expenses Operating expenses are recognised in profit or loss when the respective service is utilised or the expenses are caused.
19. Government grants Government grants within the meaning of IAS 20 are recognised if there is reasonable assurance that the grants will be received and that the company will comply with the corresponding conditions. Expense-related grants are recognised as income over the period that is expected to be necessary to offset the expenses for which the grants compensate. The LEG Group has primarily received government grants in the form of loans at below-market interest rates. These loans at below-market rates are property loans and are reported as financial liabilities. They provide benefits compared to regular loans, such as lower interest rates or periods free of interest and principal payments. The loans were measured at fair value when the company was acquired in 2008 and carried at amortised cost in subsequent periods. On initial recognition, new investment loans and loans at below-market rates are measured at their present value based on the applicable market interest rate at the grant date. The difference between the nominal amount and the present value of the loan is recognised as deferred income and reversed on a straight-line basis over the remaining term of the corresponding loan, which is measured at amortised cost in subsequent periods.
20. Income taxes Income tax expense represents the sum of current tax expense and deferred taxes. LEG is only subject to taxation in Germany. Some judgements have to be made in assessing income tax receivables and liabilities. It cannot be ruled out that the tax authorities will make a different assessment. The uncertainty this entails is taken into account by only recognising uncertain tax receivables and liabilities when LEG considers their probability of occurrence to be higher than 50%. Any changes in judgements, e.g. due to final tax assessments, affect current and deferred tax items. The best estimate of the provisionally expected tax payment is used for recognised uncertain income tax items. Current tax expense is calculated on the basis of the taxable income for the respective year. Taxable income differs from the consolidated net profit for the period, as shown in the consolidated statement of comprehensive income, due to income and expenses that are only taxable or tax-deductible in future periods, if at all. The Group’s liabilities and provisions for current taxes are calculated on the basis of the applicable tax rates. Deferred taxes are recognised for the temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax base for the purpose of calculating taxable income. Deferred tax liabilities are generally recognised for all taxable temporary differences, while deferred tax assets are recognised to the extent that it is probable that taxable income will be available against which the deductible temporary differences can be utilised. Deferred tax assets also include reductions in taxes resulting from the expected utilisation of existing tax loss carryforwards (or similar items) in subsequent periods if realisation is assured to a reasonable extent. In addition, deferred taxes are recognised for outside basis differences if the relevant conditions are met.
F-126 Consolidated financial statements NOTES (Continued)
D. Accounting policies (Continued) Deferred tax liabilities and deferred tax assets are calculated on the basis of the tax rates (and tax legislation) that are expected to be in force when the liability is settled or the asset is realised. This is based on the tax legislation in force or adopted by the Bundestag (Lower House of the German Parliament) and, where applicable, the Bundesrat (Upper House of the German Parliament) as at the end of the reporting period. The measurement of deferred tax assets and liabilities reflects the tax consequences arising from the manner in which the Group expects to settle the deferred tax liabilities or realise the deferred tax assets as at the end of the reporting period. Current or deferred taxes are recognised in profit or loss unless they relate to items that are recognised in other comprehensive income or recognised directly in equity. In this case, the corresponding current and deferred taxes are recognised in other comprehensive income or directly in equity. Deferred tax assets and deferred tax liabilities are offset if the Group has a legally enforceable right to offset current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to income taxes levied by the same tax authority and to the same taxable entity. In addition, only deferred taxes that relate to items of the statement of financial position with the same maturity are netted. The tax liability from the settlement of corporation tax from previously unutilised “EK 02” taxable equity is discounted using the applicable tax discount rate of 5.5%.
21. Borrowing costs Borrowing costs are expensed in the period in which they are incurred. For inventories in accordance with IAS 2 borrowing costs are capitalised if there are qualifying assets. The same applies to property, plant and equipment and intangible assets.
22. Judgments The management is required to use judgment in applying the accounting policies. This applies in particular to the following items: – For assets held for sale, it must be determined whether the assets can be sold in their present condition and whether their disposal can be considered highly likely within the meaning of IFRS 5. If this is the case, the assets and any corresponding liabilities are reported and measured as assets and liabilities held for disposal. – It must be determined whether property should be classified as inventories or investment property depending on the intended use. – Buildings that are both owner-occupied and used by third parties must be reported as separate assets in accordance with IAS 16 and IAS 40, unless the owner-occupied component is immaterial.
23. Use of estimates The preparation of IFRS consolidated financial statements requires assumptions and estimates affecting the carrying amounts of the assets and liabilities recognised, income and expenses and the disclosure of contingent liabilities. Among other things, these assumptions and estimates relate to: – Measurement of investment property: significant measurement parameters include the expected cash flows, the assumed vacancy rate and the discount and capitalisation rates. If market values cannot be derived from transactions for similar properties, they are measured using the DCF method, under which future cash flows are discounted to the end of the reporting period. These estimates involve assumptions concerning the future. In light of the large number of properties affected and their geographical distribution, individual measurement uncertainties are subject to statistical smoothing. Measurement is performed on the basis of publicly available market data (e.g. property market reports by expert committees, data from the service provider INWIS, etc.) and the extensive knowledge of the LEG Group and its subsidiaries in the respective regional submarkets.
F-127 Consolidated financial statements NOTES (Continued)
D. Accounting policies (Continued) – Recognition and measurement of provisions for pensions and similar obligations: Provisions for pensions and similar obligations are measured on the basis of actuarial calculations, applying assumptions with regard to interest rates, future wage and salary increases, mortality tables and future pension growth. – Recognition and measurement of other provisions: Recognition and measurement is subject to uncertainty concerning future price growth and the amount, timing and probability of utilisation of the respective provision – Measurement of financial liabilities: The measurement of financial liabilities depends in particular on estimates of future cash flows and potential changes in terms. Estimates of the company-specific risk premium are also required – Recognition of deferred tax assets: Deferred tax assets are recognised if it is probable that future tax benefits will be realised. The actual taxable income in future financial years, and hence the extent to which deferred tax assets can be utilised, can deviate from the estimates made when the deferred tax assets are recognised. Deferred tax assets for tax loss carryforwards are recognised on the basis of future taxable income for a planning period of five financial years. – Share-based Payment (IFRS 2): Assumptions and judgements regarding the development of performance indicators and fluctuation are required in accounting for stock option plans. They are calculated using option pricing models. – Goodwill impairment test: The calculation of the FVLCTS requires assumptions and judgements regarding future EBIT development and sustainable growth rates in particular. Further information on assumptions and estimates made by management can be found in the disclosures to the individual items of the financial statements. All assumptions and estimates are based on the prevailing circumstances and assessments as at the end of the reporting period. The estimation of future business development also takes into account the future economic environment that is currently assumed to be realistic in the industries and regions in which the LEG Group operates. Although the management considers assumptions and estimates applied to be appropriate, unforeseeable changes to these assumptions could affect the Group’s net assets, financial position and results of operations.
24. Share-based payment The LEG Group has share-based remuneration plans (share option plans) for members of the Management Board of LEG Immo. In line with IFRS 2, the share option plans in the context of the long-term incentive programme are treated as cash-settled share-based remuneration. The provisions for these obligations are established at the level of the expected expense, with them being distributed pro rata across the defined vesting period. The fair value of the options is determined using recognised financial models. In addition, former shareholders of the LEG Group have concluded an agreement with the Management Board on the granting of shares in LEG depending on a successful IPO or exit. In line with IFRS, these share option plans are classified and recognised as equity-settled share-based remuneration. The fair value of the shares is calculated using recognised financial models as at the grant date and distributed on a straight-line basis over the vesting period in which the enterprise receives the counterperformance in the form of employee service. The expenses are recognised in staff costs and recognised directly in equity. Details of share-based payment can be found in section I.6.
F-128 Consolidated financial statements NOTES (Continued)
E. Notes to the consolidated statement of financial position 1. Investment property Investment property developed as follows in the 2014 and 2013 financial years:
T61 – Investment properties
€ million 2014 2013 CARRYING AMOUNT AS OF 01.01...... 5,163.4 4,937.1 Acquisitions ...... 615.9 128.5 Other additions ...... 43.4 43.7 Reclassified to assets held for sale ...... –52.6 –28.4 Reclassified to property, plantand equipment ...... –1.3 –0.3 Reclassified from property, plant and equipment ...... 2.5 1.2 Fair value adjustment ...... 143.0 81.6 CARRYING AMOUNT AS OF 31.12...... 5,914.3 5,163.4
The following acquisitions were performed in the reporting period. The additions include the capitalisation of a property portfolio of around 735 residential units by way of purchase agreement dated 7 November 2013. The annual net cold rent is EUR 2.1 million. The average in-place rent is EUR 4.64/sqm; the vacancy rate is 5.2%. The purchase price including incidental costs of acquisition is around EUR 26.2 million. The transaction was closed on 1 February 2014. A property portfolio of around 537 residential units was acquired by way of a purchase agreement dated 16 December 2013. The annual net cold rent is EUR 2.2 million. The average in-place rent is EUR 5.20/sqm; the vacancy rate is 0.4%. The purchase price including incidental costs of acquisition is EUR 26.0 million. The transaction was closed on 1 June 2014. The acquisition of a property portfolio of around 300 residential units was notarised on 16 April 2014. The portfolio generates annual net cold rent of EUR 1.4 million. The average in-place rent is EUR 5.43/sqm; the initial vacancy rate is 3.2%. The purchase price including incidental costs of acquisition is around EUR 20.4 million. The transaction was closed on 1 June 2014. The transfer of a portfolio of 1,922 residential units in NRW and the company behind them was closed as at 1 July 2014. The purchase price including incidental acquisition costs is around EUR 101.0 million. The portfolio currently generates annual net cold rent of EUR 7.9 million. When the agreement was signed, the average rent on the portfolio was EUR 4.96/sqm with a vacancy rate of 3.0%. A property portfolio of around 2,400 residential units was acquired by way of a purchase agreement dated 17 September 2014. The purchase price is around EUR 111.4 million. The transaction is expected to be closed in the first half of 2015.
T62 – Composition of investment properties 31.12.2014 31.12.2013 Investment Properties held Investment Properties held € million properties for sale properties for sale Developed land ...... 5,792.1 57.5 5,036.2 16.4 Undeveloped land ...... 20.1 0.8 17.4 – Other ...... 102.1 0.1 109.8 – TOTAL ...... 5,914.3 58.4 5,163.4 16.4
The acquisition of each of the above property portfolio is treated as a group of assets in the consolidated financial statements. A business within the meaning of IFRS 3.3 was not acquired as there was no transfer of material business processes.
F-129 Consolidated financial statements NOTES (Continued)
E. Notes to the consolidated statement of financial position (Continued) The acquisition of the property portfolio of around 9,600 residential units from Deutsche Annington is treated as a business combination as defined by IFRS 3. Please see section c.3. Other additions in the financial year primarily relate to investments in existing properties. The largest investments in 2014 included those in Dort-mund, Monheim and Gelsenkirchen. The reclassification to assets held for sale essentially relates to the sale of three commercial properties, seven block sales and other individual sales. Please also see section E.9. The units were sold to independent market participants in the course of the ordinary sales process. Investment property broke down as follows in the 2014 and 2013 financial years: Table T62 The development in fair values in the financial year, as in the previous year, was essentially determined by the declining discount rate and a solid development in operating business in the form of in-place rent increases and the reduction of vacancies as a result of the positive development of the market environment. Moreover, the real estate transfer tax increase in NRW as at 1 January 2015 has been appropriately anticipated. Sensitivities were as follows as at 31 December 2014: T63 – Sensitivity analysis 2014
Sensitivities GAV Sensitivities GAV € million (variance discount rate) (variance cap rate) Segment ...... GAV assets Valuation technique3 –25 bp +25 bp –25 bp +25 bp Residential assets1 ...... High-growth markets ...... 2.337 Discounted cash flows 4.5 –4.1 2.6 –2.2 Stable markets with attractive yields ...... 2.067 Discounted cash flows 3.7 –3.4 2.4 –2.1 Higher-yielding markets ...... 1.157 Discounted cash flows 3.7 –3.5 1.8 –1.7 NonNRW...... 114 Discounted cash flows 3.7 –2.8 2.6 –1.7 Commercial assets2 ...... 172 Discounted cash flows 2.1 –2.0 1.9 –1.7 Parking + other assets ...... 99 Discounted cash flows 4.5 –4.1 1.8 –1.6 Leasehold + land values ...... Earnings/reference 27 value method – – – – TOTAL IAS 40/IFRS 5 ...... 5.973 Discounted cash flows 4.0 –3.6 2.3 –2.1
1 Excluding 309 residential units in commercial buildings; including 295 commercial and other units in mixed residential assets. 2 Excluding 295 commercial units in mixed residential assets; including 309 residential units in commercial buildings, commercial, parking, other assets as well as IAS 16 assets. 3 Valuation technique information without consideration of IAS 16 assets. In exceptional cases liquidation value approach. For 9,574 acquisition residential units information included from the fair value measurement by CBRE as of 30 September 2014. bp = basis points
F-130 Consolidated financial statements NOTES (Continued)
E. Notes to the consolidated statement of financial position (Continued) T64 – Sensitivity analysis 2013
Sensitivities GAV Sensitivities GAV € million (variance discount rate) (variance cap rate) Segment ...... GAV assets Valuation technique3 –25 bp +25 bp –25 bp +25 bp Residential assets1 ...... High-growth markets ...... 2.205 Discounted cash flows 4.5 –4.1 2.5 –2.3 Stable markets with attractive yields ...... 1.545 Discounted cash flows 4.1 –3.8 2.2 –2.0 Higher-yielding markets ..... 1.030 Discounted cash flows 3.7 –3.5 1.8 –1.7 NonNRW...... 85 Discounted cash flows 3.7 –3.5 1.9 –1.8 Commercial assets2 ...... 186 Discounted cash flows 2.0 –1.9 1.9 –1.8 Parking + other assets ...... 107 Discounted cash flows 4.5 –4.2 2.0 –1.9 Leasehold + land values ..... Earnings/ reference 22 value method – – – – TOTAL IAS 40/IFRS 5 .... 5.180 Discounted cash flows 4.1 –3.8 2.2 –2.0
1 Excluding 286 residential units in commercial buildings; including 265 commercial and other units in mixed residential assets. 2 Excluding 265 commercial units in mixed residential assets; including 286 residential units in commercial buildings. 3 In exceptional cases liquidation value approach. bp = basis points Some investment property is let under the terms of commercial rental agreements and leases. These rental agreements and leases generally have a term of ten years and contain extension options for a maximum of two- times five years. The Group also has land with third-party heritable building rights with an original contractual term that is generally between 75 and 99 years. The rental agreements for residential property concluded by the leg Group can be terminated by the tenant at any time giving three months’ notice to the end of the month. Accordingly, fixed cash flows in the amount of three monthly rents are expected from these rental agreements. The following amounts are expected to be due over the coming years based on the minimum lease instalments for long-term rental agreements for commercial property that were in place as at 31 December 2014: Table T65 T65 – Amount based on minimum lease instalments for long-term rental agreements (commercial properties)
Remaining term Remaining term Remaining term € million up to 1 year >1 to 5 years >5 years Total 31.12.2014 ...... 14.0 29.1 24.2 67.3 31.12.2013 ...... 15.9 36.5 31.3 83.7 Land with third-party heritable building rights under finance leases had a net carrying amount of eur 3.4 million as at the end of the reporting period (2013: eur 0.3 million). The rise in this item as against the previous year is due to additions in the context of portfolio acquisitions. Investment property is used almost exclusively as securities for financial liabilities. See also e.13.
2. Property, plant and equipment This item is used to report land and buildings classified in accordance with IAS 16, technical equipment and operating and office equipment. The development of property, plant and equipment is shown in the consolidated statement of changes in assets (Annex I).
F-131 Consolidated financial statements NOTES (Continued)
E. Notes to the consolidated statement of financial position (Continued) Assets under finance leases had the following net carrying amounts as at the end of the reporting period: T66 – Assets under finance leases
€ million 31.12.2014 31.12.2013 Heat-generating plants ...... 12.5 14.1 Measuring instruments ...... 7.8 6.1 Heritable building rights ...... 3.4 0.2 Power lines ...... 0.9 1.1 Hardware ...... 0.1 0.1 TOTAL ...... 24.7 21.6
The decline in the carrying amount of heating facilities mainly resulted from depreciation in the financial year.
EUR 1.0 million of the rise in the carrying amount of measuring equipment results from the contracts assumed for measuring services as part of the acquisition of the Vitus portfolio from Deutsche Annington. Unlike in the previous year, finance lease leaseholds are reported separately. The increase in this item as against the previous year results from the acquisition of property portfolios over the course of the 2014 financial year. The reduction in other carrying amounts essentially results from depreciation in the financial year.
3. Intangible assets The development of intangible assets is shown in the consolidated statement of changes in assets (Annex I).
4. Investments in associates The following table provides a summary of the financial information for associates accounted for using the equity method: T67 – Companies accounted for using the equity method
€ million 31.12.2014 31.12.2013 Investments in associates ...... 8.9 9.2 Net income from associates ...... 0.3 0.3
T68 – Companies accounted for using the equity method
€ million 31.12.2014 31.12.2013 Assets1 ...... 56.6 57.6 Liabilities1 ...... 34.1 34.6 Group share of net assets ...... 8.9 9.2 2014 2013 Revenue1 ...... 7.3 8.1 Gain/Loss1 ...... 0.7 0.7 Group share of net profit ...... 0.3 0.3
1 Equivalent to 100 % share. Losses at associates are recognised up to a carrying amount of zero. Any losses in excess of this amount are carried forward in an auxiliary account if there is no obligation to make additional payments.
F-132 Consolidated financial statements NOTES (Continued)
E. Notes to the consolidated statement of financial position (Continued) Unrecognised pro rata losses developed as follows: T69 – Unrecognised pro rata losses
€ million 2014 2013 For period ...... 0.0 0.0 Cumulative ...... 0.2 0.2 The carrying amounts developed as follows in the financial year: T70 – Carrying amount reconciliation
€ million 2014 2013 01.01...... 9.2 8.3 Share of profit ...... 0.3 0.3 Transfer ...... 0.0 0.6 Disposals ...... –0.6 0.0 31.12. 8.9 9.2
5. Other financial assets Other financial assets are composed as follows: T71 – Other financial assets
€ million 31.12.2014 31.12.2013 Investments in affiliates not included in consolidation ...... 0.1 0.1 Investments in equity investments and associates ...... 1.2 1.5 Other financial assets ...... 1.1 2.0 TOTAL 2.4 3.6
Details of other financial assets can be found in section I.3.
6. Receivables and other assets Receivables and other assets are composed as follows: T72 – Receivables and other assets
€ million 31.12.2014 31.12.2013 Trade receivables, gross ...... 25.1 19.1 Impairment losses ...... –10.5 –7.9 TOTAL ...... 14.6 11.2 Thereof attributable to rental and leasing ...... 6.3 5.5 Thereof attributable to property disposals ...... 3.5 4.2 Thereof attributable to other receivables ...... 4.8 1.5 Thereof with a remaining term up to 1 year ...... 12.3 8.6 Thereof with a remaining term of between 1-5 years ...... 2.2 2.6
F-133 Consolidated financial statements NOTES (Continued)
E. Notes to the consolidated statement of financial position (Continued) € million 31.12.2014 31.12.2013 Receivables from uninvoiced operating costs ...... 5.7 6.7 Loans ...... 0.1 0.9 Other financial assets ...... 4.3 2.5 Other miscellaneous assets ...... 4.9 2.5 TOTAL ...... 15.0 12.6 Thereof with a remaining term up to 1 year ...... 14.8 12.4 Thereof with a remaining term of between 1-5 years ...... 0.3 0.2 TOTAL RECEIVABLES AND OTHER ASSETS ...... 29.6 23.8
Details of related parties can be found in section I.6.
7. Real estate inventory and other inventories Real estate inventory and other inventories are composed as follows: T73 – Real estate and other inventories
€ million 31.12.2014 31.12.2013 Undeveloped land ...... 1.4 1.4 Land under development ...... 2.8 7.8 Other work in progress ...... 0.0 0.1 Other inventories ...... 2.0 0.8 TOTAL ...... 6.2 10.1
Further information on inventories can be found in the following table: T74 – Additional information
€ million 31.12.2014 31.12.2013 Amount of inventories recognised as an expense in the reporting period ...... 7.0 8.7 Amount of inventories with tenancy of more than 1 year ...... 4.1 10.1 The decrease in inventories essentially results from the winding up of the Development division.
8. Cash and cash equivalents T75 – Cash and cash equivalents
€ million 31.12.2014 31.12.2013 Bank balances ...... 129.8 110.6 Cash on hand ...... 0.1 0.1 CASH AND CASH EQUIVALENTS ...... 129.9 110.7 Restricted disposal balances – notary trust accounts –...... 8.4 1.9
Bank balances have variable interest rates for overnight deposits. Short-term deposits are made for periods of between one day and three months, depending on the Group’s liquidity requirements. Cash and cash equivalents include balances with a fixed purpose. These are reported as balances with restricted access.
9. Assets held for sale In accordance with IFRS 5, assets held for sale consist solely of those assets for which a decision on disposal has been made as at the end of the reporting period, the disposal of the property within twelve months of the decision is considered to be highly likely and active marketing activities have been initiated.
F-134 Consolidated financial statements NOTES (Continued)
E. Notes to the consolidated statement of financial position (Continued) T76 – Assets held for sale
€ million 2014 2013 BUCHWERT ZUM 01.01...... 16.4 2.2 Reclassified from investment properties ...... 52.6 28.4 Reclassified to investment properties ...... 0.0 –0.1 Disposal due to sale of land and buildings ...... –37.2 –14.8 Disposal due to sale of companies ...... –0.2 –0.6 Addition due to acquisitions ...... 24.5 – Other additions ...... 2.3 1.3 CARRYING AMOUNT AS OF 31.12...... 58.4 16.4
Investment property was sold again in the reporting period for the purposes of selective portfolio streamlining. The rise in reclassification from investment property essentially relates to the sale of three commercial properties, seven block sales and other individual sales. The largest single item in the financial year was the sale of a commercial property on 2 December 2014 in the amount of EUR 8.0 million at LEG S Essen GmbH, transferred on 1 January 2015. The item “Disposals due to the sale of land and buildings” includes developed and undeveloped properties and residential and commercial buildings. The rise in disposals essentially related to one commercial property for which the purchase agreement was signed in December 2013 and that was transferred to the buyer in the second quarter of 2014. The purchase price and the carrying amount were both EUR 14.2 million. Disposals also related to other block and individual sales. The additions due to the purchase of companies include land and buildings from the acquisition of the former Vitus companies from Deutsche Annington.
10. Equity The change in equity components is shown in the statement of changes in equity. a) Issued capital The Annual General Meeting of 25 June 2014 revised Article 8.1 (Supervisory Board), revoked the authorised capital previously in place and created new Authorised Capital 2014. It also amended the Contingent Capital 2013 resolved by the Annual General Meeting on 17 January 2013 and revised Article 4.1 and Article 4.2 of the Articles of Association accordingly. The Management Board has been authorised, with the approval of the Supervisory Board, to increase the share capital of the company on one or more occasions by up to a total of EUR 26,481,722 by issuing up to 26,481,722 new registered shares against cash or non-cash contributions by 24 June 2019. The share capital thereof is contingently increased by up to EUR 26,481,722.00 through the issue of up to 26,481,722 new no-par value registered shares (Contingent Capital 2013/2014).
On 9 October 2014, with the approval of the Supervisory Board, the Managing Board of LEG Immo resolved to partially utilise the existing authorised capital and to increase the share capital of the company, with shareholders’ pre-emption rights disapplied, by nominally eur 4,100 thousand by issuing 4,100,000 new shares. This corresponds to 7.7% of the share capital before the capital increase. This was entered in the commercial register on 10 October 2014. Following partial utilisation, Author-ised Capital 2014 amounts to eur 22,381,722.
The transaction costs of the capital increase amounted to EUR 3,075,000. The capital reserves were reduced by this amount less the tax receivable arising from the deductibility of these costs as an operating expense, i.e. by EUR 2,114,831. The notifications in accordance with section 160(1) no. 8 AktG can be found in Annex iii.
F-135 Consolidated financial statements NOTES (Continued)
E. Notes to the consolidated statement of financial position (Continued) b) Capital reserves
An amount of EUR 62.0 million was withdrawn from capital reserves and added to net retained profits. The gross proceeds from the capital increase amount to EUR 205,000,000 (4,100,000 shares at EUR 50 per share). This gives rise to capital reserves of EUR 198,800,000 (EUR 4,100,000 is share capital). c) Cumulative other reserves Cumulative other reserves consist of the Group’s retained earnings and other reserves. Retained earnings are composed of the net profits generated by the companies included in consolidation in prior periods and the current period, to the extent that these have not been distributed. Other reserves consist of adjustments to the fair values of derivatives used as hedging instruments and actuarial gains and losses from the remeasurement of pension provisions. In the 2014 financial year, there was a distribution to the shareholders of the company for 2013 in the form of a dividend of EUR 91.6 million. d) Non-controlling interests Non-controlling interests in other comprehensive income were composed as follows: T77 – Non-controlling interest in other comprehensive income
€ million 31.12.2014 31.12.2013 Actuarial gains and losses from the measurement of pension obligations ...... –0.2 0.1 Fair value adjustment of interest rate derivatives in hedges ...... –0.3 0.2 NON-CONTROLLING INTEREST IN OTHER COMPREHENSIVE INCOME . . . –0.5 0.3
11. Provisions for pensions Expenses for defined contribution plans amounted to eur 3.5 million in the year under review (2013: EUR 3.7 million). These essentially comprise contributions to the statutory pension scheme.
In connection with defined benefit plans, the LEG Group uses statistical and actuarial calculations by actuaries to ensure that future developments are taken into account in the calculation of expenses and obligations. Among other things, these calculations are based on assumptions regarding the discount rate and future wage and salary developments.
In accordance with IAS 19, provisions for pensions for defined benefit plans are calculated on the basis of actuarial assumptions. The following parameters were applied in the financial years: T78 – Calculation of pension provisions in % 31.12.2014 31.12.2013 Discounting rate ...... 1.80 3.40 Salary trend ...... 2.75 2.75 Pension trend ...... 2.00 2.00 A change in the individual parameters, with the other assumptions remaining unchanged, would have affected the present value of the obligation as follows as at 31 December 2014 (present value of obligation as at 31 December 2014: EUR 164.6 million): T79 – Sensitivity of pension provisions
€ million Discounting rate (increase and decrease around 0.5 % pts.) ...... 152.7 177.8 Salary trend (increase and decrease around 0.5 % pts.) ...... 166.5 162.6 Mortality (increase and decrease around 10 %) ...... 158.5 171.3 Pension trend (increase and decrease around 0.25 % pts.) ...... 169.2 160.0
F-136 Consolidated financial statements NOTES (Continued)
E. Notes to the consolidated statement of financial position (Continued) A change in the individual parameters, with the other assumptions remaining unchanged, would have affected the present value of the obligation as follows as at 31 December 2013 (present value of obligation as at 31 December 2013: eur 118.4 million): T80 – Sensitivity of pension provisions
€ million Discounting rate (increase and decrease around 0.5 % pts.) ...... 110.9 126.8 Salary trend (increase and decrease around 0.5 % pts.) ...... 119.7 117.1 Mortality (increase and decrease around 10 %) ...... 114.5 122.8 Pension trend (increase and decrease around 0.25 % pts.) ...... 121.4 115.5 Increases or reductions in the discount rate, the salary trend, the pension trend and mortality do not affect the calculation of the defined benefit obligation (DBO) with the same absolute amount. If several assumptions are changed at the same time, the total amount is not necessarily the same as the total of the individual effects resulting from the changes in assumptions. It should also be noted that the sensitivities reflect a change in the DBO only for the specific respective degree of the change in assumptions (e.g. 0.5%). If the assumptions change to a different extent this will not necessarily have a straight-line impact on the DBO. The following table shows the development of pension obligations. In the absence of plan assets, the present value of the obligation in both years is the same as both the recognised provision and the plan deficit.
T81 – Development of pension obligations € million 2014 2013 PRESENT VALUE OF OBLIGATIONS AS OF 01.01...... 118.4 127.3 Service cost ...... 1.5 1.7 Interest expenses ...... 4.0 3.6 Addition due to acquisitions ...... 15.9 – Payments ...... –6.6 –6.0 Remeasurement ...... 31.4 –8.2 Thereof losses (gains) from changes in experience ...... 0.4 0.2 Thereof losses (gains) arising from changes in financial assumptions ...... 31.0 –8.4 Thereof losses (gains) arising from changes in demographic assumptions ...... – – PRESENT VALUE OF OBLIGATIONS AS OF 31.12...... 164.6 118.4
EUR 53.1 million of the present value of the obligation relates to current employees covered by the plan (2013: EUR 37.0 million), EUR 11.5 million to employees who have left the company and whose rights are not yet vested (2013: EUR 7.2 million) and EUR 100.0 million to pensioners (2013: EUR 74.2 million). A pension payment of EUR 7.0 million (2013: EUR 6.1 million) is expected for 2015. The duration of the defined benefit obligation (not including acquisitions) is 14 years (2013: 14 years).
F-137 Consolidated financial statements NOTES (Continued)
E. Notes to the consolidated statement of financial position (Continued) 12. Other provisions Other provisions are composed as follows:
T82 – Other provisions € million 31.12.2014 31.12.2013 Provisions for partial retirement ...... 1.8 1.7 STAFF PROVISIONS ...... 1.8 1.7 Construction book provisions ...... 4.7 5.4 Provisions for other risks ...... 17.9 16.4 Provisions for litigation risks ...... 4.4 3.9 Provisions for lease properties ...... 1.9 2.1 Provision for costs of annual financial statements ...... 1.0 0.9 Archiving provision ...... 0.4 0.2 OTHER PROVISIONS ...... 30.3 28.9
Details of the development of provisions can be found in Annex ii. Construction book provisions contain amounts for outstanding measures and guarantees relating to development projects and property development measures. The other provisions essentially relate to obligations from a former residential property development project with 47 detached houses. The cash outflows from provisions are expected to amount to EUR 17.6 million within one year (previous year: EUR 18.0 million) and EUR 16.2 million after one year (previous year: EUR 14.6 million).
13. Financial liabilities Financial liabilities are composed as follows:
T83 – Financing liabilities € million 31.12.2014 31.12.2013 Financing liabilities from real estate financing ...... 2,932.4 2,558.9 Financing liabilities from lease financing ...... 27.9 24.8 FINANCING LIABILITIES ...... 2,960.3 2,583.7
Financial liabilities from property financing serve the financing of investment property. The rise in financial liabilities from property financing results in part from placement of the convertible bond maturing as at 1 July 2021 with a nominal value of EUR 300.0 million (carrying amount as at 31 December 2014: EUR 255.2 million). The convertible bond was classified in full as a financial liability on account of the issuer’s contractual cash settlement option and recognised in accordance with IAS 39. There are several embedded and separable derivatives that are treated as a single compound derivative in accordance with IAS 39.AG29 and carried at fair value. The underlying debt instrument is recognised at amortised cost. A total volume of EUR 16.7 million was refinanced in the 2014 financial year. Other loans extended in the amount of EUR 51.3 million resulted in increased loan liabilities. Loans of EUR 111.2 million were agreed in the context of acquisition financing and EUR 21.5 million was assumed. In addition to the loans utilised, financial liabilities were also increased by loans amortisation. This was offset by scheduled and unscheduled repayments. Properties are used almost exclusively as security for the loans; details of the amount of the land charges entered in the land register can be found in section I.8.
F-138 Consolidated financial statements NOTES (Continued)
E. Notes to the consolidated statement of financial position (Continued) The equity interests in individual companies and rent receivables also serve as security for certain loan agreements. The expected rent pledged as security amounted to EUR 406.7 million in the 2014 financial year (2013: EUR 383.9 million). In addition to security in the form of land charges, potential receivables from buildings insurance have been pledged to the creditors of the respective land charges. By contrast, the security provided in the form of pledged rent receivables is increased by the corresponding receivables for incidental costs. For certain loan agreements there are also additional surety bonds and the joint and several liabilities of additional leg companies to the bank. a) Financial liabilities from real estate financing The maturities shown in the consolidated financial statements are based on the contractually agreed fixed interest periods and not the final maturities of the respective financial liabilities. The remaining terms of financial liabilities from real estate financing are composed as follows: Table T84 b) Financial liabilities from lease financing Financial liabilities from lease financing are composed as follows: Table T85 Future minimum lease payments are derived as follows as at 31 December 2014: Table T86
T84 – Maturity of financing liabilities from real estate financing Remaining Remaining Remaining term term term € million < 1 year > 1 and 5 years > 5 years Total 31.12.2014 ...... 409.6 1,528.7 994.1 2,932.4 31.12.2013 ...... 183.2 1,279.1 1,096.6 2,558.9
T85 – Maturity of financing liabilities from lease financing Remaining Remaining Remaining term term term € million < 1 year > 1 and 5 years > 5 years Total 31.12.2014 ...... 4.4 11.6 11.9 27.9 31.12.2013 ...... 3.9 10.5 10.4 24.8
T86 – Future minimum lease payments 2014 Remaining Remaining Remaining term term term Total € million < 1 year > 1 and 5 years > 5 years 31.12.2014 Minimum lease payments ...... 4.9 15.9 28.0 48.8 Financing costs ...... 0.5 4.3 16.1 20.9 PRESENT VALUE OF MINIMUM LEASE PAYMENTS ...... 4.4 11.6 11.9 27.9
F-139 Consolidated financial statements NOTES (Continued)
E. Notes to the consolidated statement of financial position (Continued) The reconciliation as at 31 December 2013 is as follows:
T87 – Future minimum lease payments 2013 Remaining Remaining Remaining term term term Total € million < 1 year > 1 and 5 years > 5 years 31.12.2013 Minimum lease payments ...... 4.3 14.6 15.6 34.5 Financing costs ...... 0.4 4.1 5.2 9.7 PRESENT VALUE OF MINIMUM LEASE PAYMENTS ...... 3.9 10.5 10.4 24.8
Detailed information on lease financing can be found in section E.2.
14. Other liabilities Other liabilities are composed as follows:
T88 – Other liabilities € million 31.12.2014 31.12.2013 Interest derivatives ...... 181.7 52.0 Advance payments received ...... 57.0 17.1 Trade payables ...... 42.2 36.8 Rental and lease liabilities ...... 11.8 11.7 Liabilities from other taxes ...... 3.7 2.4 Liabilities to employees ...... 6.4 5.0 Social security liabilities ...... 0.5 0.5 Operating cost liabilities ...... 0.3 0.5 Interest benefit recognised as a liability ...... 6.8 6.9 Other miscellaneous liabilities ...... 10.3 8.2 OTHER LIABILITIES ...... 320.7 141.1 Thereof with a remaining term up to 1 year ...... 206.1 77.5 Thereof with a remaining term of between 1 – 5 years ...... 12.4 12.7 Thereof with a remaining term of more than 5 years ...... 102.2 50.9
The rise in interest rate derivatives is due to the general decline in interest rates as against 31 December 2013. In addition, interest rate derivatives rose further as a result of the separable embedded derivatives of the convertible bond at a fair value of EUR 79.3 million.
15. Tax liabilities Current and non-current tax liabilities in the amount of EUR 33.1 million (2013: EUR 42 million) essentially consist of the present value of the settlement of the “EK 02” taxable equity of several Group companies in the amount of EUR 25.9 million (2013: EUR 33.5 million). Under the 2008 German Annual Tax Act, the previous distribution-based regulation on the treatment of “EK 02” equity was repealed and flat-rate instalment payments were introduced in its place. The resulting tax amount is to be paid in equal annual instalments over a ten-year period from 2008 to 2017. This means that a distribution no longer results in corporation tax expense.
F-140 Consolidated financial statements NOTES (Continued)
E. Notes to the consolidated statement of financial position (Continued) Deferred tax assets and liabilities result from temporary differences between the IFRS and tax carrying amounts and tax loss carryforwards. They are broken down as follows:
T89 – Deferred tax assets and liabilities 31.12.2014 31.12.2013 Deferred Deferred tax Deferred Deferred tax € million tax assets liabilities tax assets liabilities Investment properties Other non-current assets ...... 0.7 376.0 1.9 273.1 Other miscellaneous non-current assets ...... 5.7 8.2 4.2 9.4 Current assets ...... 11.2 2.7 6.0 2.2 Non-current liabilities Pension provisions ...... 25.8 – 13.3 – Other provisions ...... 3.5 0.1 3.3 0.3 Other non-current liabilities ...... 31.9 58.1 20.0 60.8 Current liabilities Other provisions ...... 0.8 14.6 0.4 1.4 Other current liabilities ...... 27.4 14.8 2.0 0.5 TOTAL DEFERRED TAXES FROM TEMPORARY DIFFERENCES ...... 107.0 474.5 51.1 347.7 Deferred taxes on loss carryforwards ...... 71.9 – 70.7 – TOTAL DEFERRED TAXES ...... 178.9 474.5 121.8 347.7 Netting ...... 166.2 166.2 116.5 116.5 CARRYING AMOUNT ...... 12.7 308.3 5.3 231.2
The deferred taxes from non-current assets and non-current liabilities in the table above are expected to reverse more than twelve months after the end of the reporting period.
T90 – Deferred tax assets from tax loss € million 31.12.2014 31.12.2013 Corporation tax ...... 40.1 42.6 Trade tax ...... 31.8 28.1 TOTAL ...... 71.9 70.7
Deferred tax assets from tax loss carryforwards are recognised in the same amount as deferred tax liabilities from temporary differences. Deferred tax assets from tax loss carryforwards in excess of this amount are only recognised to the extent that it is probable that the company will generate taxable income. Interest expenses are tax-deductible up to the amount of interest income. Above and beyond this amount, deductibility is limited to 30% of taxable EBITDA for the financial year (interest barrier), unless the exemption limit or the equity escape clause comes into force. Non-deductible interest expenses in the current financial year are carried forward to subsequent periods. Deferred tax assets can only be recognised for interest carried forward to the extent that it is probable that the interest expenses can be utilised in subsequent financial years. Owing to the effective conclusion of profit transfer agreements between the subsidiaries that hold the property portfolios and the Group company LEG NRW GmbH in 2012 and the resulting fiscal entity for corporation and trade tax purposes, the interest barrier does not apply to the (extended) fiscal entity, as was the case in the previous year.
F-141 Consolidated financial statements NOTES (Continued)
E. Notes to the consolidated statement of financial position (Continued) In the 2014 financial year, the remeasurement of primary and derivative financial instruments increased equity by EUR 11.2 million (2013: reduction in equity of EUR 8.1 million), while actuarial gains and losses increased equity by EUR 9.6 million (2013: reduction in equity of EUR 2.5 million). As at the end of the reporting period, deferred taxes recognised in equity amounted to EUR 38.4 million (2013: EUR 17.7 million). No deferred tax liabilities were recognised on temporary differences in connection with shares in subsidiaries, associates and joint ventures that are expected to reverse in the foreseeable future in accordance with IAS 12.29 of EUR 15.9 million (2013: EUR 17.0 million).
F. Notes to the consolidated statement of comprehensive income 1. Net rental and lease income
T91 – Net rental and lease income € million 2014 2013 Net cold rent ...... 390.1 360.5 Net income from operating costs ...... 1.3 –0.7 Maintenance expenses ...... –45.7 –41.8 Staff costs ...... –33.2 –33.0 thereof IPO-costs ...... – –2.1 Impairment losses on rent receivables ...... –5.4 –4.5 Depreciation ...... –4.2 –4.1 IPO-reimbursement ...... – 2.1 Others ...... –18.0 –20.8 NET RENTAL AND LEASE INCOME ...... 284.9 257.7 NET OPERATING INCOME MARGIN (IN %) ...... 73.0 71.5
In 2014 the leg Group increased its net rental and lease income by EUR 27.2 million compared to the previous year. The main drivers in this development were the EUR 29.6 million rise in net in-place rent and, offsetting this, the EUR 3.9 million higher maintenance expenses, due in part to a slight decline in the capitalisation rate. Rent increases and the acquisitions of property portfolios contributed to a rise in net in-place rent of 8.2% from EUR 360.5 million in the previous year to EUR 390.1 million in the period under review. Following the successful implementation of the IPO in February 2013, performance bonuses of EUR 4.7 million were granted to employees in the previous year. The share of this cost that was allocated to the cost of sales in connection with rental and lease income was EUR 2.1 million. The performance bonuses were charged in full to the shareholders Restio B.V. and Perry Luxco S.à r.l. The LEG Group invested selectively in its assets in the reporting period. Investing activities in the period under review focused on measures aimed at facilitating the new letting of vacant apartments. At EUR 89.1 million, total investment was EUR 3.6 million higher than in the previous year. The increase is due to the growth of the portfolio. Around EUR 2.6 million of total investments related to the newly acquired properties.
F-142 Consolidated financial statements NOTES (Continued)
F. Notes to the consolidated statement of comprehensive income (Continued) 2. Net income from the disposal of investment property Net income from the disposal of investment property is broken down as follows:
T92 – Net income from the disposal of investment properties € million 2014 2013 Income from the disposal of investment properties ...... 37.6 15.2 Carrying amount of investment properties disposed of ...... –37.2 –15.0 INCOME (+)/LOSS (–) FROM THE DISPOSAL OF INVESTMENT PROPERTIES .... 0.4 0.2
€ million 2014 2013 Staff costs ...... –0.8 –0.6 Other operating expenses ...... –1.3 –1.3 COST OF SALE IN CONNECTION WITH INVESTMENT PROPERTIES SOLD ...... –2.1 –1.9 NET INCOME FROM THE DISPOSAL OF INVESTMENT PROPERTIES ...... –1.7 –1.7
Net income from the disposal of investment property contains the gains and losses on the disposal of investment property. Please also see section D.11 for information on sales proceeds and carrying amount disposals. The higher sales volume led to higher commission on sales in the reporting period (up EUR 0.5 million). This was offset by the costs to sell of a commercial property disposed of in the second quarter of 2014, for which a provision of EUR 0.3 million was ultimately recognised in 2013. The costs to sell the investment property sold therefore rose by EUR 0.2 million in the reporting period.
3. Net income from the remeasurement of investment property Net income from the remeasurement of investment property amounted to EUR 143.0 million in 2014 (2013: EUR 81.6 million). Based on the portfolio as at the end of the reporting period, this corresponds to an increase in value of around 2.8%. The increase in in-place rent and the development in the discount rate had a positive impact on net remeasurement income in the current financial year. This was countered by the rise in real estate transfer tax and slightly higher maintenance and management cost rates. The average value of residential investment property (including IFRS 5 properties) was EUR 827/sqm as at 31 December 2014 (31 December 2013: EUR 806/sqm) including acquisitions and EUR 839 including acquisitions. Thus, a year-on-year increase of 4.1% in the value in euro per square metre (including investments in the portfolio but not including acquisitions) was generated in the 2014 financial year.
4. Net income from the disposal of real estate inventory Net income from the disposal of real estate inventory is composed as follows: Table T93 The disposal of the remaining properties of the former Development division continued in 2014 with decreasing sales volumes. The remaining real estate inventory held as at 31 December 2014 amounted to EUR 4.2 million, EUR 2.8 million of which related to properties under development. A reimbursement of development costs for a property already sold of EUR 0.5 million and minor staff savings led to a year-on-year decline in the cost of sales for the real estate inventory sold of EUR 0.7 million.
F-143 Consolidated financial statements NOTES (Continued)
F. Notes to the consolidated statement of comprehensive income (Continued) T93 – Net income from the disposal of inventory properties € million 2014 2013 Income from real estate inventory disposed of ...... 5.7 9.0 Carrying amount of real estate inventory disposed of ...... –5.0 –7.6 GROSS PROFIT FROM THE DISPOSAL OF REAL ESTATE INVENTORY ...... 0.7 1.4
€ million 2014 2013 Other operating expenses ...... –1.6 –1.7 Staff costs ...... –1.7 –2.0 Purchased services and other ...... –0.5 –0.8 COST OF SALES OF REAL ESTATE INVENTORY DISPOSED OF ...... –3.8 –4.5 NET INCOME FROM THE DISPOSAL OF REAL ESTATE INVENTORY ...... –3.1 –3.1
5. Net income from other services Net income from other services is composed as follows:
T94 – Net income from other services € million 2014 2013 INCOME FROM OTHER SERVICES ...... 9.3 9.7 Purchased services ...... –3.3 –3.0 Other operating expenses ...... –3.0 –1.5 Staff costs ...... –0.9 –0.6 Depreciation, amortisation and write-downs ...... –2.4 –2.3 EXPENSES IN CONNECTION WITH OTHER SERVICES ...... –9.6 –7.4 NET INCOME FROM OTHER SERVICES ...... –0.3 2.3
Other services include electricity and heat fed to the grid, IT services for third parties and management services for third-party properties. There were non-recurring effects in both the reporting period and the comparative period, which resulted in a decline in net income from other services. The decline in income from electricity production was offset by a rise in costs of materials and the one-time addition to a provision, which essentially contributed to the rise in costs in connection with other services. The acquisition of the former Vitus companies also resulted in higher income and expenses for third-party management services.
6. Administrative and other expenses Administrative and other expenses are composed as follows:
T95 – Administrative and other expenses € million 2014 2013 Other operating expenses ...... –16.9 –22.7 Staff costs ...... –21.6 –25.4 Purchased services ...... –0.9 –1.1 Depreciation, amortisation and write-downs ...... –2.2 –2.3 ADMINISTRATIVE AND OTHER EXPENSES ...... –41.6 –51.5
F-144 Consolidated financial statements NOTES (Continued)
F. Notes to the consolidated statement of comprehensive income (Continued) The other operating expenses contained in the table above are composed as follows:
T96 – Other operating expenses € million 2014 2013 Legal and consulting costs ...... –9.5 –14.4 Rent and other costs of business premises ...... –4.6 –4.4 Annual financial statement, accounting and audit costs ...... –1.9 –1.8 Expenses for postage, telecommunications, IT ...... –0.4 –0.6 Temporary staff ...... –0.1 –0.2 Vehicles ...... –0.4 –0.5 Travel expenses ...... –0.4 –0.4 Advertising expenses ...... –0.1 –0.1 Other expenses ...... 0.6 –9.4 Reimbursement of IPO costs by shareholders ...... – 9.1 OTHER OPERATING EXPENSES ...... –16.9 –22.7
Administrative and other expenses were strongly defined by non-recurring effects overall. The IPO on 1 February 2013 caused additional consulting and non-staff operating costs of EUR 6.6 million in the previous year, which are reported in other operating expenses; project-related, non-recurring costs declined by EUR 1.3 million. The increase in the provision for risks from a former Development project added EUR 4.1 million to other operating expenses in the previous year. The main reason for the reduction in staff costs is the absence of the performance bonuses paid in connection with the IPO in 2013. The share attributable to administrative and other expenses amounted to EUR 2.5 million in the previous year. The long-term incentive (LTI) programme resulted in non-cash expenses in the reporting period down by EUR 2.1 million. This was offset by rising ongoing staff costs, which were affected by higher expenses under the short-term incentive (STI) programme (increase of EUR 0.7 million). Despite the growing size of the portfolio and the increase in standard wages, current administrative expenses were reduced further from EUR 35.2 million in the previous year to EUR 33.1 million in the reporting period (EUR 0.5 million of which due to the Vitus portfolio included in consolidation for the first time as at 1 November 2014). In particular, this reflects the positive cost effects of the reduction in the number of Supervisory Board members and the decline in consulting and non-staff operating costs.
7. Interest income Interest income is composed as follows:
T97 – Interest income € million 2014 2013 Interest income from bank balances ...... 0.9 0.8 Interest income from discounting ...... 0.0 0.1 Other interest income ...... 0.3 0.1 INTEREST INCOME ...... 1.2 1.0
F-145 Consolidated financial statements NOTES (Continued)
F. Notes to the consolidated statement of comprehensive income (Continued) 8. Interest expenses Interest expenses are composed as follows:
T98 – Interest expenses € million 2014 2013 Interest expenses from real estate financing ...... –69.7 –67.8 Interest expense from loan amortisation ...... –24.6 –30.2 Interest expense from interest derivatives for real estate financing ...... –26.3 –25.3 Interest expense from change in pension provisions ...... –4.0 –3.6 Interest expense from interest on other assets and liabilities ...... –2.3 –2.3 Interest expenses from lease financing ...... –1.5 –1.6 Other interest expenses ...... –0.1 –0.6 INTEREST EXPENSES ...... –128.5 –131.4
The rise in interest expenses from property financing resulted in particular from the increase in the loan volume in the 2014 financial year. Countering this, lower general interest rates compared to 2013 also led to a reduction in interest expenses from property financing and an increase in interest expenses from interest rate derivatives. The drop in interest expenses from loan amortisation results in particular from the absence of onetime effects incurred for refinancing activities in 2013. This was offset by amortisation effects of the convertible bond of EUR 4.5 million included in the interest expenses from loan amortisation.
9. Net income from the fair value measurement of derivatives The gains and losses on the remeasurement of stand-alone derivatives and the ineffective portion of interest hedging instruments are reported in net income from the fair value measurement of derivatives. The net income from the fair value measurement of derivatives in the past financial year was EUR –42.3 million (previous year: EUR 2.4 million). The net income from the fair value measurement of derivatives in the reporting period primarily results from changes in the fair value of derivatives from the convertible bond of EUR –33.7 million (previous year: EUR 0 million). As in the previous year, there were no ineffective hedges to report in the 2014 financial year.
10. Income taxes Income tax expense and income is broken down by origin as follows:
T99 – Income taxes € million 2014 2013 Current income taxes ...... –6.8 0.5 Deferred taxes ...... –55.9 –22.2 INCOME TAXES ...... –62.7 –21.7 Tax reimbursement for prior years ...... 0.2 0.5
F-146 Consolidated financial statements NOTES (Continued)
F. Notes to the consolidated statement of comprehensive income (Continued) Based on the consolidated net profit before income taxes and the expected income tax expense, the reconciliation to current income tax expense is as follows:
T100 – Reconciliation to current income tax expenses € million 2014 2013 IFRS earnings before income taxes ...... 219.5 158.6 Group tax rate in % ...... 31.2 31.2 FORECAST INCOME TAXES ...... –68.5 –49.5 Tax reduction due to tax-free income and off-balance sheet deductions ...... 17.6 23.8 Additional taxes due to non-deductible expenses and off-balance sheet additions ...... –2.5 –3.2 Tax effect due to deferred tax assets on tax loss carryforwards and not recognised deferred tax assets due to lack of recoverability ...... –15.2 –3.1 Tax expenses relating to prior periods ...... 8.8 9.8 Tax effect of measurement of associates and joint ventures using the equity method ...... –0.4 –1.0 Others ...... –2.5 1.5 INCOME TAXES AS PER STATEMENT OF COMPREHENSIVE INCOME ...... –62.7 –21.7 Effective tax rate in % ...... 28.6 13.6
The deferred taxes from non-current assets and non-current liabilities are expected to reverse more than twelve months after the end of the reporting period. The tax rate applied in calculating theoretical income tax takes into account the current and expected future tax rates for corporate income tax (15%), the solidarity surcharge (5.5% of corporate income tax) and trade tax (15.4%) based on a basic rate of 3.5% and an average assessment rate of 440% (city of Dusseldorf).
11. Earnings per share Basic earnings per share are calculated by dividing the net profit for the period attributable to the shareholders by the average number of shares outstanding during the financial year.
T101 – Earnings per share 2014 2013 Net profit or loss attributable to shareholders in € million ...... 155.8 135.2 Average numbers of shares outstanding ...... 53,885,944 52,963,444 EARNINGS PER SHARE (BASIC) IN € ...... 2.89 2.55
As at 31 December 2014 LEG AG had potential ordinary shares from a convertible bond, which authorise the bearer to convert it into up to 3.1 million shares. Diluted earnings per share are calculated by increasing the average number of shares outstanding by the number of all potentially dilutive shares. The net profit for the period is adjusted for the expenses no longer incurred for the interest coupon, the measurement of the embedded derivatives, the amortisation of the convertible bond and the resulting tax effect in the event of conversion rights being exercised in full. Owing in particular to the expenses incurred in the event of conversion for the measurement of the embedded derivative, the potential ordinary shares from the convertible bond are not dilutive within the meaning of IAS 33.41. The diluted earnings per share are equal to the basic earnings per share.
F-147 Consolidated financial statements NOTES (Continued)
G. Notes to the consolidated statement of cash flows 1. Composition of cash and cash equivalents The cash and cash equivalents shown in the statement of cash flows correspond to the cash and cash equivalents reported in the statement of financial position, i.e. cash on hand and bank balances, less the trust assets reported in the statement of financial position.
2. Other notes to the statement of cash flows In the 2014 financial year seven former Vitus companies were acquired for EUR 455.4 million less the cash and cash equivalents assumed of EUR 6.9 million. In addition, the remaining shares in Rote Rose were acquired for EUR 6.0 million. There were no payments for the acquisition of subsidiaries in 2013. In the previous year, the cash outflow for the repayment of bank loans also included prepayment penalties and payments for the reversal of hedges incurred due to early loan repayments
H. Notes on Group segment reporting In accordance with IFRS 8, LEG Immo’s segment reporting is based on the structure of internal management reporting. LEG distinguishes between the Residential and Other segments. The Residential segment comprises all residential and commercial property holdings and owner-occupied properties. The Residential segment comprises the portfolio companies and LEG Wohnen NRW. Property portfolios from completed project developments that are now let under long-term agreements and exclusively owned by the Group are also assigned to the Residential segment. The Other segment comprises the development companies and the companies LEG Management GmbH, LCS Consulting and Service GmbH. Leased properties from the development business that are available for disposal are also reported in the Other segment. LEG Management GmbH, which is assigned to the Other segment, primarily focuses on tasks relating to administrative functions and corporate management activities. FFO and LTV are the main performance indicators used by management. Intragroup transactions between the segments are conducted at arm’s length conditions.
F-148 Consolidated financial statements NOTES (Continued)
H. Notes on Group segment reporting (Continued) Group segment reporting for the period from 1 January to 31 December 2014 T102 – Segment reporting 2014
€ million Residential Other Reconciliation Group P&L position 576.8 2.2מ Rental and lease income ...... 573.8 5.2 291.9מ 1.7 2.5מ 291.1מ ...... Cost of sales of rental and letting 284.9 0.5מ NET RENTAL AND LEASE INCOME ...... 282.7 2.7 1.7מ – 0.5מ 1.2מ ...... Net income from the disposal of IAS 40 property 143.0 – 1.0מ Net income from the measurement of IAS 40 property . . . 144.0 3.1מ – 3.3מ Net income from the disposal of real estate inventory .... 0.2 0.3מ 28.6מ Net income from other services ...... 0.5 27.8 41.6מ 29.2 33.0מ 37.8מ ...... Administrative and other expenses 0.5 0.1מ Other income ...... 0.3 0.3 381.7 0.0מ 7.0מ SEGMENT EARNINGS ...... 388.7 Statement of financial position item Segment assets (IAS 40) ...... 5,864.9 49.4 – 5,914.3 Key figures Rentable area in sqm1 ...... 6,851,050 3,627 6,854,677 Monthly target rents as of end of reporting period ...... 34.8 0.0 34.8 Vacancy rate by residential units in % ...... 2.8 3.3 2.8
1 excl. commercial areas
Group segment reporting for the period from 1 January to 31 December 2013 T103 – Segment reporting 2013
€ million Residential Other Reconciliation Group P&L position 532.1 2.1מ Rental and lease income ...... 527.9 6.3 274.4מ 2.2 3.1מ 273.5מ ...... Cost of sales of rental and letting NET RENTAL AND LEASE INCOME ...... 254.4 3.2 0.1 257.7 1.7מ – 1.4מ 0.3מ ...... Net income from the disposal of IAS 40 property Net income from the measurement of IAS 40 property . . . 83.2 –1.6 – 81.6 3.1מ 0.1 3.6מ Net income from the disposal of real estate inventory .... 0.4 2.3 31.2מ Net income from other services ...... 0.5 33.0 51.5מ 31.0 39.6מ 42.9מ ...... Administrative and other expenses Other income ...... 0.2 – – 0.2 285.5 – 10.0מ SEGMENT EARNINGS ...... 295.5 Statement of financial position item Segment assets (IAS 40) ...... 5,104.7 58.7 – 5,163.4 Key figures Rentable area in sqm1 ...... 6,029,983 3,627 6,033,610 Monthly target rents as of end of reporting period ...... 29.9 0.0 29.9 Vacancy rate by residential units in % ...... 2.9 0.0 2.9
1 excl. commercial areas
F-149 Consolidated financial statements NOTES (Continued)
I. Other disclosures 1. Overview of cost types The following cost types are contained in the various functions:
T104 – Cost types
€ million 2014 2013 Purchased services ...... 239.0 226.2 Staff costs ...... 58.2 61.8 Depreciation, amortisation and write-downs ...... 8.5 8.7 Other operating expenses ...... 44.8 54.4
Other operating expenses contain income from the reversal of write-downs and provisions, among other things.
2. Capital management The aim of the Group’s capital management is to ensure the continued existence of the company while generating income for its shareholders, in addition to providing all of the other stakeholders of the LEG Group with the benefits to which they are entitled. Overall, the aim is to increase the value of the Group as a whole. This end-to-end capital management strategy has not changed since the previous year. As is typical for the industry, the LEG Group monitors capital on the basis of net gearing. Net gearing describes the ratio of net debt to the fair value of investment property. Net debt is calculated by deducting cash and cash equivalents from financial liabilities. As in the previous year, the Group’s goal in the financial year was to maintain an appropriate level of gearing in order to ensure continued access to debt financing at economically appropriate costs. Gearing as at 31 December 2014 and in the previous year was calculated as follows:
T105 – Net gearing (LTV)
€ million 31.12.2014 31.12.2013 Financing liabilities ...... 2,960.3 2,583.7 Cash and cash equivalents ...... 129.9 110.7 NET DEBT ...... 2,830.4 2,473.0 Investment properties ...... 5,914.3 5,163.4 Assets held for sale ...... 58.4 16.4 Prepayments for investment properties ...... 16.8 6.9 TOTAL ...... 5,989.5 5,186.7 NET GEARING (LTV) IN % ...... 47.26 47.68
The assets held for sale shown in the above table relate solely to investment property. The Group is subject to external capital requirements that were not breached in either the year under review or the previous year. The aims of capital management were achieved in the year under review. Details of restricted funds can be found in section D.10.
F-150 Consolidated financial statements NOTES (Continued)
I. Other disclosures (Continued) 3. Financial instruments a) Other disclosures on financial instruments The table below shows the financial assets and liabilities broken down by measurement category and class. Receivables and liabilities from finance leases and derivatives used as hedging instruments are included even though they are not assigned to an IAS 39 measurement category. Non-financial assets and non-financial assets are also included for the purposes of reconciliation even though they are not covered by IFRS 7:
T106 – Classes of financial instruments for financial assets and liabilities 2014
Carrying amounts as per statement Measurement (IAS 39) of financial Fair value positions through Measurement Fair value € million 31.12.2014 Amortised cost profit or loss IAS 17 31.12.2014 Assets Other financial assets ...... 2.4 2.4 LaR...... 0.1 0.1 0.0 0.1 AfS...... 2.3 2.3 2.3 Receivables and other assets ...... 29.6 29.6 LaR...... 25.2 25.2 25.2 Other non-financial assets ...... 4.4 4.4 Cash and cash equivalents ...... 129.9 129.9 LaR...... 129.9 129.9 129.9 TOTAL ...... 161.9 157.5 0.0 161.9 Of which IAS 39 measurement categories LaR...... 155.2 155.2 155.2 AfS...... 2.3 2.3 2.3 Equity and liabilities Financial liabilities ...... –2,960.3 –3,335.3 FLAC ...... –2,932.4 –2,932.4 –3,306.9 Liabilities from lease financing ..... –27.9 –27.9 –28.4 Other liabilities ...... –320.7 –320.7 FLAC ...... –37.8 –37.8 –37.8 Derivatives HFT ...... –93.3 –93.3 –93.3 Hedge accounting derivatives ...... –88.4 –88.4 Other non-financial liabilities ...... –101.2 –101.2 TOTAL ...... –3,281.0 –2,970.2 –93.3 –27.9 –3,656.0 Of which IAS 39 measurement categories FLAC ...... –2,970.2 –2,970.2 –3,344.7 Derivatives HFT ...... –93.3 –93.3 –93.3
LaR = Loans and Receivables HFT = Held for Trading AfS = Available for Sale FLAC = Financial Liabilities at Cost FAHFT = Financial Assets Held for Trading FLHFT = Financial Liabilities Held for Trading
F-151 Consolidated financial statements NOTES (Continued)
I. Other disclosures (Continued) T107 – Classes of financial instruments for financial assets and liabilities 2013
Carrying amounts as per statement Measurement (IAS 39) of financial Fair value positions through Measurement Fair value € million 31.12.2013 Amortised cost profit or loss IAS 17 31.12.2013 Assets Other financial assets ...... 3.6 3.6 LaR ...... 0.1 0.1 0.0 0.1 AfS ...... 3.5 3.5 3.5 Receivables and other assets ...... 23.8 23.8 LaR ...... 21.8 21.8 21.8 Other non-financial assets ...... 2.0 2.0 Cash and cash equivalents ...... 110.7 110.7 LaR ...... 110.7 110.7 110.7 TOTAL ...... 138.1 136.1 0.0 138.1 Of which IAS 39 measurement categories LaR ...... 132.6 132.6 132.6 AfS ...... 3.5 3.5 3.5 Equity and liabilities 2,738.0מ 2,583.7מ ...... Financial liabilities 2,713.1מ 2,558.9מ 2,558.9מ ...... FLAC 24.9מ 24.8מ 24.8מ ...... Liabilities from lease financing 141.1מ 141.1מ ...... Other liabilities 29.7מ 29.7מ 29.7מ ...... FLAC 2.3מ 2.3מ 2.3מ ...... Derivatives HFT 49.7מ 49.7מ ...... Hedge accounting derivatives 59.4מ 59.4מ ...... Other non-financial liabilities 2,879.1מ 24.8מ 2.3מ 2,588.6מ 2,724.8מ ...... TOTAL Of which IAS 39 measurement categories 2,742.8מ 2,588.6מ 2,588.6מ ...... FLAC 2.3מ 2.3מ 2.3מ ...... Derivatives HFT
LaR = Loans and Receivables HFT = Held for Trading AfS = Available for Sale FLAC = Financial Liabilities at Cost FAHFT = Financial Assets Held for Trading FLHFT = Financial Liabilities Held for Trading It was not possible to reliably determine the fair value of investments carried at amortised cost (see AfS in the table above). There is no intention to sell these investments. The vast majority of trade payables and other liabilities have short remaining maturities, hence their carrying amounts approximate their fair value. Originated financial instruments (liabilities from real estate and corporate financing, FLAC category, whose fair value does not correspond to their carrying amount) are classified as financial liabilities. The fair value of loan
F-152 Consolidated financial statements NOTES (Continued)
I. Other disclosures (Continued) liabilities is calculated as the present value of the future cash flows, taking into account the applicable risk-free interest rates and the LEG-specific risk premium as at the end of the reporting period. Net income for each measurement category is broken down as follows:
T108 – Net income
€ million 2014 2013 2.5מ 5.0מ ...... LaR AfS ...... 1.8 1.2 FAHFT ...... – – 0.2מ 44.8מ ...... FLHFT 98.4מ 94.3מ ...... FLAC 99.9מ 142.3מ ...... TOTAL
Net income contains remeasurement effects in addition to interest income and expenses during the financial year. b) Risk management Principles of risk management: The LEG Group is exposed to default risk, liquidity risk and market risk as a result of its use of financial instruments. In order to take these risks into account, the LEG Group has an effective risk management system supported by the clear functional organisation of the risk controlling process. The effectiveness of the risk management system is reviewed and assessed regularly on a company-wide basis by the Internal Audit and Compliance unit. Where adjustments are necessary or areas for improvement are identified, the Internal Audit and Compliance unit advises on, examines and monitors these activities. The framework for the Group’s financial policy is determined by the Management Board and monitored by the Supervisory Board. The implementation of financial policy is the responsibility of the Finance and Properties and Controlling and Risk Management units, while ongoing risk management is handled by Controlling and Risk Management. The use of derivative financial instruments is governed by a corresponding Treasury policy adopted by Management Board and acknowledged by the Supervisory Board. Derivative financial instruments can only be used to hedge existing underlyings, future cash flows and planned transactions whose occurrence is reasonably certain. Derivative financial instruments are only concluded to hedge against interest rate risks.
Default risk: Credit or default risk describes the risk that business partners – primarily the tenants of the properties held by the LEG Group – will be unable to meet their contractual payment obligations and that this will result in a loss for the LEG Group. In order to prevent and control default risk to the greatest possible extent, new lettings are subject to credit checks. Default risk exists for all classes of financial instrument, and in particular for trade receivables. The LEG Group is not exposed to significant default risk with regard to any individual party. The concentration of default risk is limited due to the Group’s broad, heterogeneous tenant base. There are gross receivables from rental and leasing activities of EUR 15.5 million. Allowances of EUR 9.2 million were recognised, hence net rent receivables of EUR 6.3 million were reported as at 31 December 2014. Collateral for receivables (primarily rent deposits) of EUR 8.5 million is taken into account in the offsetting of outstanding receivables if the legal conditions are met in the individual case. Offsetting is only possible if the receivable being offset: – is undisputed or – has been ruled legally binding or – is manifestly substantiated.
F-153 Consolidated financial statements NOTES (Continued)
I. Other disclosures (Continued) Offsetting by the lessor against receivables that are manifestly disputed or not covered by the lease (such as receivables from operating expenses) is not permitted. In addition, the restrictions of section 9(5) sentence 1 of the Wohnungsbindungsgesetz (WoBindG – German Controlled Tenancy Act) must also be noted in particular. Allowances on rent receivables were essentially recognised using general allowances without taking collateral into account. With regard to cash and cash equivalents and derivatives, the LEG Group only enters into corresponding agreements with banks with extremely good credit ratings. The credit ratings of counterparties are monitored and assessed by the LEG Group on an ongoing basis, taking into account external ratings from various agencies (e.g. Standard & Poor’s, Moody’s, Fitch and others), the findings of internal research and financial market information. Depending on the availability of information with sufficient informative value, the LEG Group refers to one or more of the data sources described above. In the event of a substantial deterioration in the credit rating of a counterparty, the LEG Group takes efforts to ensure that its existing exposure is reduced as quickly as possible and that new exposures are no longer entered into with the respective counterparty. As shown in the table below, the carrying amounts of recognised financial assets less any write-downs represent the highest default risk. The carrying amount of financial assets represents the maximum default risk. The default risk for interest rate derivatives is limited to the amount of the positive fair values of derivatives. The table below shows the financial assets determined to be impaired as at the end of the reporting period: Table T109/110
T109 – Impaired financial assets 2014
Carrying amount Residual € million; classes of financial instruments 31.12.2014 before impairment Impairment carrying amount 0.3 1.3מ Loans ...... 1.6 12.3 1.6מ Other financial assets ...... 13.9 14.6 10.5מ Trade receivables ...... 25.1 Cash and cash equivalents ...... 129.9 – 129.9 157.1 13.4מ TOTAL ...... 170.5
T110 – Impaired financial assets 2013
Carrying amount Residual € million; classes of financial instruments 31.12.2013 before impairment Impairment carrying amount 1.2 1.3מ Loans ...... 2.5 12.9 2.8מ Other financial assets ...... 15.7 11.2 7.9מ Trade receivables ...... 19.1 Cash and cash equivalents ...... 110.7 – 110.7 136.0 12.0מ TOTAL ...... 148.0
Furthermore, the table below shows the maturity structure of the financial assets past due but not impaired as at the end of the reporting period. Table T111/112
T111 – Not impaired financial assets 2014
Of which past due as of end of reporting period but not impaired €million; classes of financial instruments 31.12.2014 Carrying amount < 90 days 90 – 180 days > 180 days Trade receivables ...... 3.7 3.4 0.1 0.2 Other financial assets ...... 0.4 0.1 0.1 0.2 TOTAL ...... 4.1 3.5 0.2 0.4
F-154 Consolidated financial statements NOTES (Continued)
I. Other disclosures (Continued) T112 – Not impaired financial assets 2013
Of which past due as of end of reporting period but not impaired €million; classes of financial instruments 31.12.2013 Carrying amount < 90 days 90 – 180 days > 180 days Trade receivables ...... 3.8 3.5 – 0.3 Other financial assets ...... – – – – TOTAL ...... 3.8 3.5 – 0.3
Regarding the receivables neither past due nor impaired, there were no indications as at the end of the reporting period that the debtors will fail to meet their payment obligations. The LEG Group also recognises portfolio allowances in addition to specific allowances, using various rates depending on the extent to which the respective receivables are past due.
T113 – Impairment losses 2014
Changes in As of consolidated As of € million 01.01.2014 Addition Utilisation companies 31.12.2014 Loans and receivables ...... 1.3 – – – 1.3 10.5 0.8 7.3מ Trade receivables ...... 7.9 9.1 1.6 0.1 2.4מ Other financial assets ...... 2.2 1.7 13.4 0.9 9.7מ TOTAL ...... 11.4 10.8
T114 – Impairment losses 2013
Changes in As of consolidated As of € million 01.01.2013 Addition Utilisation companies 31.12.2013 1.3 – 0.1מ Loans and receivables ...... 1.3 0.1 7.9 – 5.0מ Trade receivables ...... 7.0 5.9 2.2 – 0.2מ Other financial assets ...... 1.9 0.5 11.4 – 5.3מ TOTAL ...... 10.2 6.5 c) Liquidity risks The LEG Group defines liquidity risk as the risk that the Group will be unable to meet its own payment obligations at a contractually agreed date. To ensure that this is not the case, the LEG Group’s liquidity requirements are monitored and planned on an ongoing basis by the Finance and Properties unit. Sufficient cash and cash equivalents to meet the Group’s obligations for a defined period are available at all times. The LEG Group currently has credit facilities and bank overdrafts in the amount of around EUR 12.5 million (previous year: EUR 12.5 million).
F-155 Consolidated financial statements NOTES (Continued)
I. Other disclosures (Continued) The following table shows the contractually agreed (undiscounted) interest and principal payments for the LEG Group’s primary financial liabilities and its liability derivative financial instruments. The maturities are based on the contractually agreed fixed interest periods for the respective financial liabilities. Table T115
T115 – Type of liabilities on 31.12.2014
Remaining terms € million Carrying amount < 1 year 1 – 5 years > 5 years Financing liabilities from loan payable ...... 2,932.4 490.9 1,672.8 1,613.5 Financing liabilities from lease financing ...... 27.9 4.4 11.6 11.9 Interest rate derivatives ...... 102.5 27.2 69.8 7.1 Embedded derivatives ...... 79.3 – – – Liabilities to employees ...... 6.4 6.1 0.0 0.3 Liabilities from operating costs ...... 0.3 0.3 – – Rent and lease liabilities ...... 11.8 11.8 – – Trade payables ...... 42.2 39.8 2.4 0.0 Others ...... 5.9 3.6 1.3 1.0 TOTAL ...... 3,129.4 584.1 1,757.9 1,633.8
The rise in current financial liabilities from loans liabilities is due in particular to the EUR 300 million convertible bond issued in 2014. The embedded derivatives give rise to only indirect cash outflows over the term of the convertible bond. The cash outflows are included in the remaining terms of financial liabilities from loan liabilities and are reported there. Together with the acquisition financing and refinancing, this led to an increase and shift in the remaining terms of financial liabilities from loan liabilities.
T116 – Type of liabilities on 31.12.2013
Remaining terms € million Carrying amount < 1 year 1 – 5 years > 5 years Financing liabilities from loan payable ...... 2,558.9 222.0 1,456.0 1,740.1 Financing liabilities from lease financing ...... 24.8 3.9 10.5 10.4 5.8מ Interest rate derivatives ...... 52.0 22.7 36.6 Embedded derivatives ...... – – – – Liabilities to employees ...... 5.0 4.7 – 0.3 Liabilities from operating costs ...... 0.5 0.5 – – Rent and lease liabilities ...... 11.7 11.7 – – Trade payables ...... 36.8 33.2 3.6 0.0 Others ...... 5.1 3.9 1.1 0.1 TOTAL ...... 2,694.8 302.6 1,507.8 1,745.1
All instruments for which payments were contractually agreed as at the end of the reporting period are included. Forecast figures for future new liabilities are not included. The variable interest payments for financial instruments are calculated using the most recent interest rates prior to the end of the reporting period. Financial liabilities that are repayable at any time are always allocated to the earliest repayment date. Some of the LEG Group’s loan agreements contain financial covenants. In the event of a failure to comply with the agreed covenants, the LEG Group generally has the opportunity to resolve the situation; however, certain cases of non-compliance can result in the bank having the right to terminate the loan agreement with immediate effect. In addition, some agreements provide the bank with the possibility of increasing interest and principal payments or demanding further security for compliance with the covenants in the event of noncompliance. In any
F-156 Consolidated financial statements NOTES (Continued)
I. Other disclosures (Continued) case, a long-term failure to comply with the agreed covenants means that the financing bank is entitled to terminate the respective agreement. Compliance with covenants is monitored on an ongoing basis. There were no violations of the agreed covenants in the 2014 financial year. d) Market risk The LEG Group is subject to significant interest rate risks on account of its business activities. Interest rate risk results, in particular, from floating-rate liabilities to banks. In order to limit interest rate risk, the LEG Group generally enters into fixed-income loans or floating-rate loans, sometimes in connection with interest payer swaps. Around 94% of financial liabilities to banks are hedged in this way. Derivative financial instruments are used solely to hedge interest rates at the LEG Group. The Treasury policy prohibits the use of derivatives for speculative purposes. The Group had the following derivative financial instruments as at 31 December 2014:
T117 – Derivatives 2014
thereof € million on 31.12.2014 Fair value < 1 year Derivatives – HFT – Assets ...... – – thereof from interest rate swaps ...... – – – 93.3מ ...... Derivatives – HFT – Liabilities – 14.0מ ...... thereof from interest rate swaps – 79.3מ ...... thereof embedded derivatives 1.3מ 88.4מ ...... Hedged derivatives The Group had the following derivative financial instruments as at 31 December 2013:
T118 – Derivatives 2013
thereof € million on 31.12.2013 Fair value < 1 year Derivatives – HFT – Assets ...... – – thereof from interest rate swaps ...... – – 0.1מ 2.3מ ...... Derivatives – HFT – Liabilities 0.1מ 2.3מ ...... thereof from interest rate swaps thereof embedded derivatives ...... – – 1.1מ 49.7מ ...... Hedged derivatives The derivatives entered into by the LEG Group are used as hedging instruments in accordance with IAS 39 if they meet the conditions for hedge accounting. The cash flows from hedged items in cash flow hedge accounting will be received between 2016 and 2022 and will be recognised in profit or loss at the same time. The following table shows the amount recognised directly in other comprehensive income in the period under review. This corresponds to the effective portion of the change in fair value:
T119 – Equity implication
€ million 2014 2013 78.7מ 45.2מ ...... OPERATING BALANCE AS OF 01.01 10.3 64.9מ ...... Recognised in equity in reporting period Reserved from equity to statement of comprehensive income ...... 23.1 23.2 45.2מ 87.0מ ...... CLOSING BALANCE AS OF 31.12
F-157 Consolidated financial statements NOTES (Continued)
I. Other disclosures (Continued) Sensitivities In accordance with IFRS 7, interest rate risk is presented using sensitivity analyses to determine the impact that a change in market interest rates would have on the interest income and expense, trading gains and losses and the equity of the LEG Group as at the end of the reporting period. bp 50מ/+ The effects on the LEG Group’s equity and statement of comprehensive income are observed using a parallel shift in the euro yield curve are analysed in the sensitivity analysis. The cash flow effects from the shift in the yield curve relate solely to interest expense and income for the next reporting period. Based on the financial instruments held or issued by the LEG Group as at the end of the reporting period, a hypothetical change in the applicable interest rates for the respective instruments as quantified using sensitivity analysis would have had the following effects (before taxes) as at the end of the reporting period:
T120 – Financial instruments 2014
Comprehensive Equity effect income effect bp 50מ bp +50 bp 50מ million on 31.12.2014 +50 bp € Net position of all interest-sensitive financial instruments 2.0 2.0מ – – ...... Financing liabilities 4.6מ 4.7 24.3מ Interest rate derivatives ...... 26.4 9.1 8.8מ – – ...... Embedded derivatives bp = basis points
T121 – Financial instruments 2013
Comprehensive Equity effect income effect bp 50מ bp +50 bp 50מ million on 31.12.2013 +50 bp € Net position of all interest-sensitive financial instruments 1.6 1.6מ – – ...... Financing liabilities 6.1מ 6.1 30.9מ Interest rate derivatives ...... 30.9 Embedded derivatives ...... – – – – bp = basis points Embedded derivatives are subject to both interest rate risk and share price risk. Had the market price for the full instrument been 5% higher (lower) at the end of the reporting period as a result of a change in the price of LEG Immobilien AG shares, with the other parameters for the company remaining unchanged, the fair value of the embedded derivatives would have been EUR 17.6 million higher (lower).
F-158 Consolidated financial statements NOTES (Continued)
I. Other disclosures (Continued) e) Offsetting financial assets and financial liabilities The following financial assets are subject to offsetting:
T122 – Financial assets
Gross amount of the admitted Net amount of the financial liabilities, admitted financial Related amounts, Gross amount which have been assets, which are which are not netted in the balance sheet of the admitted netted in the considered in the Financial Received € million financial assets balance sheet balance sheet instruments cash deposits Net amount 31.12.2014 6.5 – – 6.5 177.4מ Inventories in progress ..... 183.9 128.3 – 1.6מ Cash and cash equivalents . . 129.9 – 129.9 134.8 – 1.6מ 136.4 177.4מ TOTAL ...... 313.8 31.12.2013 6.6 – – 6.6 171.0מ Inventories in progress ..... 161.1 108.3 – 2.4מ Cash and cash equivalents . . 110.7 – 110.7 114.9 – 2.4מ 117.3 171.0מ TOTAL ...... 271.8
The following financial liabilities are subject to offsetting:
T123 – Financing liabilities
Gross amount of the admitted Net amount of the financial assets, admitted financial Related amounts, Gross amount which have been liabilities, which which are not netted in the balance sheet of the admitted netted in the are considered in Financial Rendered € million financial liabilities balance sheet the balance sheet instruments cash deposits Net amount 31.12.2014 Advanced payments 5.8מ – – 5.8מ 177.4 183.2מ ...... received Financing liabilities from real 2,930.8מ – 1.6 2,932.4מ – 2,932.4מ ...... estate financing 2,936.6מ – 1.6 2,938.2מ 177.4 3,115.6מ ...... TOTAL 31.12.2013 Advanced payments 16.5מ – – 16.5מ 161.1 171.0מ ...... received Financing liabilities from real 2,556.5מ – 2.4 2,558.9מ – 2,558.9מ ...... estate financing 2,573.0מ – 2.4 2,575.4מ 161.1 2,729.9מ ...... TOTAL
The contractually agreed terms and conditions of banks for liens give rise to a claim to offset loan utilisation against the credit balances of the individual companies.
F-159 Consolidated financial statements NOTES (Continued)
I. Other disclosures (Continued) 4. Number of employees The average number of employees at the LEG Group broken down by segment developed as follows compared with the previous year:
T124 – Average number of employees
Average number of Employee capacity Average number of Employee capacity employees 2014 (FTE) 2014 employees 2013 (FTE) 2013 Residential ...... 744 615 615 505 Others ...... 247 228 251 231 TOTAL ...... 991 843 866 736
5. Total auditor’s fees The total fees paid to the auditor of the consolidated financial statements are composed as follows:
T125 – Total auditor’s fees
€ million 2014 2013 Audits of financial statements ...... 1.4 1.3 Other audit services ...... 0.5 0.1 TOTAL FEE ...... 1.9 1.4
6. IFRS 2 programmes a) Long-term incentive plan with former shareholders Since 2011 some members of the Management Board of LEG Immo have concluded bilateral agreements with the former shareholders of Saturea B.V. and Perry Luxco RE S.à r.l. The former shareholders of the LEG Group which granted the incentives intend to achieve a long-term increase in the equity until the time they sell their shares. Mr Hegel and Mr Schultz, the beneficiaries of the programme, made an important contribution to the future development of the LEG Group. The incentive programme is intended to allow the beneficiaries to participate in the success of the LEG Group and future value growth, while also incentivising them to increase the success and value of the LEG Group. The incentive payments would have been due from the shareholders when several conditions were met cumulatively. This included the occurrence of an exit event, which was defined as a reduction in the shares of the LEG Group held by the former shareholders to less than 10%. The LEG Group was also required to achieve a defined internal return and certain cash multiples by the exit date. The incentive payments are based on a percentage of the net cash flow received by the shareholders. There are various dates on which they were to be granted. The incentive programme provided for direct payment by the shareholders. The LEG Group would be not required to make these payments. Accordingly, the incentive programme was treated as a share-based option plan in accordance with IFRS 2. Based on the adjusted assessment of the LEG Group’s management concerning the probability and timing of the shareholders’ exit, and the expectations of the cash flows to be received by the shareholders as at the grant date (taking into account various business scenarios), the economic scenarios and the two performance criteria, no bonus payment was expected as at 31 December 2013. b) New LTIP Management Board agreements with former shareholders As part of LEG Immo’s IPO, on 17 January 2013 the previous long-term incentive agreements for members of management were dissolved and replaced by new agreements for the Management Board. Such an agreement was also concluded with a new member of the Management Board, Mr Hentschel, who was not a beneficiary of the old agreements.
F-160 Consolidated financial statements NOTES (Continued)
I. Other disclosures (Continued) The new agreements provide for shares in the holding company to be granted by the former shareholders to the members of the Management Board if the IPO results in a certain level of proceeds (less certain costs). The number of shares granted is determined with the aid of an established formula (partly dependent on the IPO price, IPO costs and an individual factor). Under this arrangement, the members of the Management Board are granted a third of their shares 12, 24 and 36 months after a successful IPO. In the event of the early departure of the beneficiary, the outstanding shares lapse by between 20% and 100% depending on the reason for departure. The replacement of the old agreements by the new agreements is accounted for as a modification of existing agreements in accordance with IFRS 2.28 f. This requires that the old commitment is accounted for as before, and any incremental fair value arising from the new commitment is also recognised as an expense from the modification date. The incremental fair value is defined as the difference between the fair value of the original programme and the fair value of the new programme, each calculated as at the date of modification. Owing to the design of the old and new programmes, there was a positive difference as at the date of modification, with the result that the modification of the old agreements resulted in the distribution of an additional expense of EUR 1.1 million in total over the vesting period. For the Management Board members Mr Hegel and Mr Schutz the fair value of the commitments was as follows:
T126 – Calculated current value of LTIP-Promise
Fair value Fair value Incremental € million old contracts new contracts Fair value Hegel ...... 4.5 4.2 – Schultz ...... 2.2 3.3 1.1 TOTAL ...... 6.7 7.5 1.1
The benefit granted to Mr Hentschel was determined as EUR 0.4 million as at the grant date in line with the regulations of IFRS 2.10 et seq. 94,922 shares were granted to Mr Hegel, 75,938 to Mr Schultz and 9,090 to Mr Hentschel. The exercise price per share granted was EUR 44. As a result of the successful IPO of LEG Immo, claims arose under the new agreements between the former shareholders and the Management Board as at 31 December 2014, subject to the early departure of members of the Management Board. The costs of these agreements do not reduce liquidity at LEG Immo. Similarly, the regulations of IFRS 2 result in the different recognition of expenses at LEG Immo, in terms of both timing and amount. In line with the regulations of IFRS 2, EUR 0.4 million of this was recognised as an expense at LEG as at 31 December 2014 (2013: EUR 0.6 million). c) LTI Management Board agreements The new agreements for members of the Management Board also provide for a long-term incentive programme to be offered for each financial year. The programme is designed for a four-year period and divided into three performance periods (until the end of the first, second and third financial year following the relevant financial year). The amount of LTI remuneration is dependent on the achievement of certain performance targets. The performance targets in question are total shareholder return and the development of LEG’s share price compared to the relevant EPRA Germany Index. If a Management Board member’s appointment ends under certain conditions, tranches pending as at the date of the legal end of the appointment (tranches for which the performance period has not yet ended) expire without substitution. The programme is treated as cash-settled share-based remuneration in accordance with IFRS 2. On the basis of an assessment of the Management Board on the attainment of performance hurdles, staff costs of EUR 0.5 million (2013: EUR 0.3 million) were recognised as at 31 December 2014. For LTI 2014 a target level of 78% was achieved and for LTI 2013 a target level of 91% was achieved. Details on Management Board agreements can also be found in the remuneration report.
F-161 Consolidated financial statements NOTES (Continued)
I. Other disclosures (Continued) d) Settlement agreements for Supervisory Board members Furthermore, in January 2013, the former shareholders concluded settlement agreements for consulting agreements with selected members of the Supervisory Board and incentive agreements with a company whose majority shareholder is a member of the Supervisory Board. In the event of a successful IPO, these consulting agreements provided for payments by the former shareholders while the incentive agreements provided for shares to be granted by the former shareholders. The agreements were recognised in accordance with the regulations on equity-settled share-based payment (see IFRS 2.43A et seq.). The benefit granted amounted to EUR 3.4 million as at the grant date. In one case the agreements provide for immediate vesting in the event of an IPO, in another case for graded vesting of claims by 1 December 2013 or 1 December 2014. Under the agreements there were total staff costs at LEG Immo of EUR 0.8 million as at 31 December 2014 (2013: EUR 2.7 million).
7. Related-party disclosures Related parties are defined as companies and persons that have the ability to control the LEG Group or exercise significant influence over its financial and business policy. The existing control relationships were taken into account when determining the significant influence that related parties can exercise over the LEG Group’s financial and business policy.
Related persons Until 22 January 2014 related persons included the officers of Saturea B.V. as a shareholder. On 23 January 2014 the shareholder Saturea B.V. sold a package of almost 15.2 million shares in an accelerated book-building procedure, thus reducing its holding from 28.65% to approximately 0.41%. Thus Saturea B.V. and its officers are no longer related parties within the meaning of IAS 24. The related persons of LEG Immo include the Management Board and the Supervisory Board of LEG Immobilien AG. The Management Board of LEG Immobilien AG and the management team at LEG NRW GmbH consist of the same persons.
Related companies Until 22 January 2014, Saturea B.V. as a shareholder and its shareholder, the Whitehall fund, were identified as related companies of LEG Immo. Furthermore, until 22 January 2014, the associated company subsidiary Weiße Rose GmbH and all the subsidiaries and associates of the LEG Group and certain entities not included in consolidated financial statements were considered related companies. The following table shows the receivables from and liabilities to related companies as at the end of the reporting period and expenses and income involving related companies for the financial year:
T127 – Receivables from and liabilities to related companies
€ million 31.12.2014 31.12.2013 Statement of financial positions Receivables from equity investments ...... 0.4 0.4 Receivables from non-consolidated companies ...... 0.2 0.1 Receivables from associates ...... 0.0 0.5 Liabilities to shareholders ...... 1.0 0.9 Liabilities to equity investments ...... – 1.1 Liabilities to non-consolidated companies ...... 0.1 0.1 Liabilities to associates ...... – 0.0
F-162 Consolidated financial statements NOTES (Continued)
I. Other disclosures (Continued) T128 – Income from and expenses for related companies
€ million 2014 2013 Statement of comprehensive income Income from associates ...... 0.3 0.3 Income from equity investments ...... 1.6 1.5 0.2מ – ...... Expenses for shareholders Expenses for non-consolidated companies ...... – – a) Related company disclosures Related companies controlled by LEG Immo or which it significantly influences are included in the consolidated financial statements. Intragroup transactions under existing service and management agreements between the companies are eliminated as part of consolidation. There was no significant exchange of goods and services with the other unconsolidated subsidiaries or associates. b) Related person disclosures Total remuneration of the Management Board is shown in the table below:
T129 – Compensation package of the Management Board
€ thousand 2014 2013 Fixed remuneration1 ...... 1,060 957 Ancillary benefits ...... 76 56 Total fixed benefits ...... 1,136 1,013 Performance bonus ...... 0 850 Short-Term-Incentive-Programme (STI) ...... 690 630 Long-Term-Incentive-Programme (LTI) ...... 398 718 Total variable benefits ...... 1,088 2,198 TOTAL ...... 2,224 3,211
1 The fixed remuneration also includes remuneration from the interim contract agreement from 2 January – 1 February 2013. The additional benefits for members of the Management Board amounted to EUR 76 thousand in the past financial year (previous year: EUR 56 thousand). The performance bonus shown in the table for 2013 was agreed for the successful IPO in February 2013. Staff costs of EUR 0.9 million were recognised for this as at 31 December 2013. The basis for calculating the STI is the achievement of the respective consolidated IFRS business plan. The STI consists of an annual payment measured on the basis of the following four targets: net cold rent, net rental and lease income, adjusted EBITDA and funds from operations I per share. The first three targets each account for 20% and the final target for 40% of the STI. The target STI cannot be exceeded overall. For 2014 (2013) an amount of EUR 0.3 million (EUR 0.3 million) was recognised in staff costs for Mr Hegel, of EUR 0.2 million (EUR 0.2 million) for Mr Schultz and EUR 0.2 million (EUR 0.1 million) for Mr Hentschel. In addition, expenses of EUR 0.4 million were recognised from the long-term incentive plans with former shareholders in the reporting year (2013: EUR 0.6 million). Details can be found in section I.6. No loans or advances were granted or extended to the members of the Management Board in the 2014 financial year. The total remuneration of members of the Supervisory Board of LEG Immobilien AG amounted to EUR 0.5 million in 2014 (2013: EUR 0.6 million).
F-163 Consolidated financial statements NOTES (Continued)
I. Other disclosures (Continued) In addition, for certain members of the Supervisory Board, expenses of EUR 0.8 million were recognised in the financial year to settle consulting and incentive agreements (2013: EUR 2.7 million). The additional staff costs are passed on as part of the cost reimbursement by the former shareholders. There are no reductions in liquidity or earnings at the level of LEG Immo. Details can be found in section I.6. No loans or advances were granted or extended to the members of the Supervisory Board in the 2014 financial year. Recognised expenses for the remuneration of members of the Management Board and Supervisory Board in accordance with IAS 24.17 can be summarised as follows (in thousands of euro):
T130 – Benefits to the Management and Supervisory Board
€ thousand 2014 2013 Current payable benefits ...... 2,330 3,053 Benefits after termination of the employment ...... 0 0 Other long-term payable benefits ...... 27 25 Benefits in cause of the termination of employment ...... 0 0 Share-based payment ...... 1,576 3,547 TOTAL ...... 3,933 6,625
Further information can be found in the remuneration report, which forms part of the management report.
8. Contingent liabilities The LEG Group has the following contingent liabilities:
T131 – Contingent liabilities
€ million 31.12.2014 31.12.2013 Land charges ...... 2,902.9 2,822.2 Letters of comfort Amount of maximum utilisation (maximum guarantee) ...... 0.5 0.5 The warranty agreements relate solely to letters of comfort for Group companies not included in consolidation. Appropriate provisions have been recognised for the rent guarantees issued in conjunction with disposals.
9. Other financial commitments The Group’s other financial commitments are composed as follows:
T132 – Other financial commitments
€ million 31.12.2014 31.12.2013 Future payments under operating leases ...... 73.4 64.8 Purchase obligations ...... 3.4 4.1 Future payments under operating leases result, in particular, from obligations for land with third-party heritable building rights in the amount of EUR 59.4 million (previous year: EUR 49.1 million) and rental obligations in the amount of EUR 12.3 million (previous year: EUR 14.7 million).
F-164 Consolidated financial statements NOTES (Continued)
I. Other disclosures (Continued) Future payment obligations under non-cancellable operating leases are broken down as follows:
T133 – Minimum lease payments
Remaining term Remaining term Remaining term € million < 1 year > 1 and 5 years > 5 years Total 31.12.2014 ...... 4.2 12.0 57.2 73.4 31.12.2013 ...... 4.2 12.4 48.2 64.8 The cost of minimum lease payments was EUR 3.2 million in the 2014 financial year (2013: EUR 3.2 million).
10. The Management Board LEG Immobilien AG is represented by the Management Board, which consists of the following members: MR THOMAS HEGEL, CEO of LEG Immobilien AG, Erftstadt MR ECKHARD SCHULTZ, CFO of LEG Immobilien AG, Neuss MR HOLGER HENTSCHEL, COO of LEG Immobilien AG, Erkrath Registered office of the company: Hans-Boeckler-Strasse 38 40476 Dusseldorf, Germany Commercial register: HRB 69386 Auditor: PricewaterhouseCoopers AG Frankfurt am Main Dusseldorf branch Moskauer Strasse 19 40227 Dusseldorf, Germany
11. The Supervisory Board The Supervisory Board of LEG Immobilien AG consists of six members and one alternate member. The following members were elected by the shareholders’ meeting: MR NATHAN JAMES BROWN, CFO, Perry Capital UK LLP, London, United Kingdom MR JAMES GARMAN, investment manager, Goldman Sachs International, London, United Kingdom – until 2 April 2014 MR DR. MARTIN HINTZE, bank manager, Goldman Sachs International, London, United Kingdom – until 2 April 2014 MR STEFAN JÜTTE, Deputy Chairman, businessman, Bonn MR DR. JOHANNES LUDEWIG, business consultant, Berlin MS HEATHER MULAHASANI, investment manager, Goldman Sachs International, London, United Kingdom – until 2 April 2014 MR DR. JOCHEN SCHARPE, managing partner, AMCI GmbH, Munich
F-165 Consolidated financial statements NOTES (Continued)
I. Other disclosures (Continued) MR JÜRGEN SCHULTE-LAGGENBECK, CFO, Otto GmbH & Co. KG, Hamburg MR MICHAEL ZIMMER – Chairman–; businessman, Pulheim Alternate members of the Supervisory Board MR MICHAEL FURTH, London, United Kingdom – until 25 February 2014 MR CHETAN GULATI, London, United Kingdom MR RICHARD SPENCER, Teddington, United Kingdom – until 25 February 2014 MR PATRICK TRIBOLET, Dallas, USA – until 25 February 2014
12. Events after the end of the reporting period LEG intends to secure the currently attractive interest rates and credit margins for the long term. Thus, loans of around EUR 900 million maturing in 2018 are to be refinanced early and replaced by new loan agreements with average terms of ten years. On the basis of current indications from financing partners, this will allow the reduction of average financing costs from 2.84% as at 31 December 2014 to provisionally less than 2.3%. At the same time, the average term is to be increased from 9.8 years to more than 11 years. The planned effects on earnings will be fully visible in 2016. The refinancing entails estimated non-recurring costs of around EUR 60 million. EnergieServicePlus GmbH was founded by way of notarised agreement on 17 February 2015. The object of the company is to provide energy supply services and energy-related services. There were no other transactions of material importance to the Group after the end of the financial year.
13. Declaration of compliance in accordance with section 161 AktG The Management Board and the Supervisory Board comply with the recommendations of the German Corporate Governance Code as presented in the management report. The declaration of compliance has been made permanently available to shareholders on the company’s website at http://www.leg-nrw.de/fileadmin/ user_upload/Assets/ PDFs/Unternehmen/Investor_Relations/Corporate_Governance/ Entsprechenserklaerung_161_ AktG_-_November_2014_e.pdf.
Dusseldorf, 19 March 2015 LEG Immobilien AG The Management Board THOMAS HEGEL, Erftstadt (CEO) ECKHARD SCHULTZ, Neuss (CFO) HOLGER HENTSCHEL, Erkrath (COO)
F-166 Consolidated financial statements NOTES (Continued)
J. List of shareholdings The following table shows an overview of the basis of consolidation of the LEG Group:
T134 – Consolidated companies
Share of Equity* Result* capital % € thousand € thousand LEG Immobilien AG, Dusseldorf ...... Parent company Rote Rose GmbH & Co. KG, Dusseldorf ...... 1) 100.00 108,542 10 LEG NRW GmbH, Dusseldorf ...... 2) 99.98 915,496 19,200 LEG Wohnen GmbH, Dusseldorf ...... 2) 100.00 584,868 0 LEG Wohnungsbau Rheinland GmbH, Dusseldorf ...... 2) 100.00 112,639 0 LEG Rheinland Köln GmbH, Dusseldorf ...... 2) 100.00 33,969 0 LEG Wohnen Bocholt GmbH, Dusseldorf ...... 2) 100.00 25 0 LEG Bauträger GmbH, Dusseldorf ...... 2) 100.00 5,412 0 LEG Bauen und Wohnen GmbH, Cologne ...... 2) 100.00 2,165 0 LCS Consulting und Service GmbH, Dusseldorf ...... 1) 100.00 2,556 0 LEG Consult GmbH, Dusseldorf ...... 3) 100.00 302 0 GWN Gemeinnützige Wohnungsgesellschaft Nordwestdeutschland GmbH, Muenster ...... 2) 94.86 74,582 0 GeWo Gesellschaft für Wohnungs- und Städtebau mbH, Castrop-Rauxel ...... 2) 94.00 22,542 0 Hiltrup Grundbesitzverwertungsgesellschaft mbH, Muenster ...... 2) 100.00 77 2 LEG Rheinrefugium Köln GmbH, Cologne ...... 2) 94.00 34 0 Calor Caree GmbH, Dusseldorf ...... 2) 94.00 25 0 LEG Beteiligungsverwaltungsgesellschaft mbH, Dusseldorf ...... 1) 100.00 13,745 0 LEG Grundstücksverwaltung GmbH, Dusseldorf ...... 2) 100.00 26 47 LEG Management GmbH, Dusseldorf ...... 1) 100.00 1,124 0 LEG Wohnen NRW GmbH, Dusseldorf ...... 1) 100.00 345 0 LEG Solution GmbH, Dusseldorf (previously: LEG Standort- und Projektentwicklung GmbH, Dusseldorf) ...... 3) 100.00 555 0 LEG Standort- und Projektentwicklung Köln GmbH, Cologne ...... 2) 100.00 13,753 0 LEG Standort- und Projektentwicklung Essen GmbH, Essen ...... 2) 100.00 54,314 0 LEG Standort- und Projektentwicklung Bielefeld GmbH, Bielefeld ..... 2) 100.00 6,438 0 1,624מ 2,446מ Biomasse Heizkraftwerk Siegerland GmbH & Co. KG, Cologne ...... 5) 51.00 0 57מ LEG Grundstücksentwicklung Münsterland GmbH, Muenster ...... 2) 94.90 Grundstücksentwicklungsgesellschaft Ennigerloh Süd-Ost mbH, 199מ 7,062מ Ennigerloh ...... 2) 94.90 Ravensberger Heimstättengesellschaft mbH, Bielefeld ...... 2) 100.00 89,970 0 Gemeinnützige Bau- und Siedlungsgesellschaft Höxter-Paderborn GmbH, Hoexter ...... 2) 100.00 11,909 349 Ruhr-Lippe Wohnungsgesellschaft mbH, Dortmund ...... 2) 100.00 318,566 0 Ruhr-Lippe Immobilien-Dienstleistungsgesellschaft mbH, Dortmund . . . 2) 100.00 7,452 0 Wohnungsgesellschaft Münsterland mbH, Muenster ...... 2) 100.00 164,978 0 Münsterland Immobilien-Dienstleistungsgesellschaft mbH, Muenster . . . 2) 100.00 114 0 LEG Erste Grundstücksverwaltungs GmbH, Dusseldorf ...... 2) 100.00 25 0 LEG Zweite Grundstücksverwaltungs GmbH, Dusseldorf ...... 2) 100.00 25 0 LEG Dritte Grundstücksverwaltungs GmbH, Dusseldorf ...... 2) 100.00 25 0 LEG Vierte Grundstücksverwaltungs GmbH, Dusseldorf ...... 2) 100.00 25 0 LEG Fünfte Grundstücksverwaltungs GmbH, Dusseldorf ...... 2) 100.00 25 0 Erste WohnServicePlus GmbH, Dusseldorf ...... 4) 100.00 25 20** WohnServicePlus GmbH, Dusseldorf ...... 4) 100.00 25 0 Grundstücksgesellschaft DuHa mbH, Dusseldorf ...... 2) 94.90 86,389 0 Gladbau Baubetreuungs- und Verwaltungsgesellschaft mbH, Moenchengladbach ...... 2) 94.90 19,676 26,247 AWM Grundstücksgesellschaft mbH, Moenchengladbach ...... 2) 100.00 2,364 47
F-167 Consolidated financial statements NOTES (Continued)
J. List of shareholdings (Continued) Consolidated companies
Share of Equity* Result* capital % € thousand € thousand Vitus Service GmbH, Moenchengladbach ...... 1) 100.00 243 214 518מ BRE/GEWG GmbH, Wuppertal ...... 1) 100.00 21,141 1,355מ 22,536מ Gemeinnützige Eisenbahn Wohnungsbaugesellschaft mbH, Wuppertal . . . 1) 94.90 3מ GEWG Beteiligungsgesellschaft mbH, Wuppertal ...... 1) 100.00 24 5,151מ GEWG Grundstücksgesellschaft GmbH & Co. KG, Wuppertal ...... 2) 100.00 33,916
* Unless indicated otherwise, these figures show the equity and result as taken from the, not yet adopted, separate HGB financial statements as at 31 December 2014. A zero result is shown in the event of there being a profit transfer agreement in place. ** Result after profit transfer. Activities of subsidiaries: 1) Performance of services and management of equity investments within the LEG Group 2) Property management and location development 3) Performance of services for third parties 4) Performance of housing industry services 5) Electricity and heat generation
T135 – Non-consolidated companies
Share of Equity* Result* capital % € thousand € thousand Entwicklungsgesellschaft Rhein-Pfalz GmbH, Mainz ...... 2) 100.00 25 0 199מ Entwicklungsgesellschaft Rhein-Pfalz GmbH & Co. KG, Mainz ...... 4) 100.00 1,561 Biomasse Heizkraftwerk Siegerland Verwaltungs GmbH, Cologne ...... 2) 51.00 32 0 4מ LEG Krefeld-Bockum Verwaltungs GmbH, Dusseldorf ...... 3) 100.00 103 Grundstücksentwicklungsgesellschaft Essen-Kettwig-Ruhrufer GmbH, Essen ...... 3) 100.00 0 0 53מ 33מ LEG Grundbesitzerwerb 1 GmbH & Co. KG, Dusseldorf ...... 1) 100.00
* These figures are the HGB single-entity equity and result as at 31 December 2013. The financial statements as at 31 December 2014 were used for LEG Grundbesitzerwerb 1 GmbH & Co. KG. Activities of the companies not included in consolidation: 1) Property management 2) General partner in a limited liability company 3) Shell company 4) Performance of services for third parties
T136 – Associates accounted for using the equity method
Share of Equity* Result* capital % € thousand € thousand Projektgesellschaft Hauptbahnhof Remscheid mbH, Remscheid ...... 50.00 45 25 8מ Area of Sports GmbH & Co. KG, Moenchengladbach ...... 50.00 90 Kommunale Haus und Wohnen GmbH, Rheda-Wiedenbrueck ...... 40.62 18,849 646 Beckumer Wohnungsgesellschaft mbH, Beckum ...... 33.37 3,516 70
* These figures are the HGB single-entity equity and result as at 31 December 2014.
F-168 Consolidated financial statements NOTES (Continued)
J. List of shareholdings (Continued) T137 – Associates not accounted for using the equity method
Share of Equity* Result* capital % € thousand € thousand Projektverwaltungsgesellschaft Mönchengladbach – Area of Sports GmbH, Moenchengladbach ...... 50.00 25 0 62 369מ Grundstücksgesellschaft Sendenhorst mbH, Sendenhorst ...... 49.00
* These figures are the HGB single-entity equity and result as at 31 December 2013.
F-169 Consolidated financial statements CONSOLIDATED STATEMENT OF CHANGES IN ASSETS/ANNEX I
T138 – Consolidated statement of changes in assets 2014
Cumulative depreciation, amortisation and write-downs/ Costs fair values Carrying amounts Additions from Additions from Disposal to Disposal to Additions from As of consolidated investment investment assets held As of As of consolidated As of As of As of € million 01.01.2014 companies Additions Disposals properties properties for sale 31.12.2014 01.01.2014 companies Additions Disposals 31.12.2014 31.12.2014 31.12.2013 Property, plant and 66.7 64.6 46.6מ 2.3 6.9מ 2.0מ 40.0מ 111.2 2.6מ 2.6מ 1.3 2.5מ equipment ...... 106.7 4.3 6.6 Land, land rights and 25.7 22.8 3.4מ – 0.6מ 0.3מ 2.5מ 26.2 2.6מ 2.6מ buildings ...... 28.2 1.4 0.5 – 1.3 Technical equipment 17.9 15.8 20.2מ 0.2 2.4מ – 18.0מ 36.0 – – – 0.3מ and machinery . . 35.9 0.1 0.3 Other equipment, operating and F-170 office 1.4 1.4 8.2מ 0.7 0.5מ 0.6מ 7.8מ 9.6 – – – 0.7מ equipment ..... 9.2 0.8 0.3 21.7 24.6 14.8מ 1.4 3.4מ 1.1מ 11.7מ 39.4 – – – 1.5מ Finance leases .... 33.4 2.0 5.5 4.3 64.8 9.8מ 0.4 1.6מ 0.3מ 8.3מ 74.6 – – – 0.4מ Intangible assets ..... 12.6 61.9 0.5 Other intangible 4.3 3.2 9.8מ 0.4 1.6מ 0.3מ 8.3מ 13.0 – – – 0.4מ assets ...... 12.6 0.3 0.5 Goodwill ...... – 61.6 – – – – – 61.6 – – – – – 61.6 – 71.0 129.4 56.4מ 2.7 8.5מ 2.3מ 48.3מ 185.8 2.6מ 2.6מ 1.3 2.9מ TOTAL ...... 119.3 66.2 7.1 Consolidated financial statements CONSOLIDATED STATEMENT OF CHANGES IN ASSETS/ANNEX I (Continued)
T139 – Consolidated statement of changes in assets 2013
Cumulative depreciation, amortisation and write-downs/fair Costs values Carrying amounts Additions from Additions from Disposal to Disposal to Additions from As of consolidated investment investment assets held As of As of consolidated As of As of As of € million 01.01.2013 companies Additions Disposals properties properties for sale 31.12.2013 01.01.2013 companies Additions Disposals 31.12.2013 31.12.2013 31.12.2012 Property, plant and 72.3 66.7 40.0מ 1.4 7.0מ – 34.4מ 106.7 1.2מ 1.1מ 0.3 2.3מ equipment ..... 106.7 – 4.3 Land, land rights and 28.7 25.7 2.5מ – 0.8מ – 1.7מ 28.2 1.2מ 1.1מ 0.3 0.2מ – – buildings .... 30.4 Technical equipment and 18.5 17.9 18.0מ 0.2 2.3מ – 15.9מ 35.9 – – – 0.9מ machinery . . . 34.4 – 2.4 F-171 Other equipment, operating and office 1.7 1.4 7.8מ 0.5 0.5מ – 7.8מ 9.2 – – – 0.5מ equipment . . . 9.5 – 0.2 Finance 23.4 21.7 11.7מ 0.7 3.4מ – 9.0מ 33.4 – – – 0.7מ leases ...... 32.4 – 1.7 5.9 4.3 8.3מ – 1.7מ – 6.6מ Intangible assets ... 12.5 – 0.1 – – – – 12.6 78.2 71.0 48.3מ 1.4 8.7מ – 41.0מ 119.3 1.2מ 1.1מ 0.3 2.3מ TOTAL ...... 119.2 – 4.4 Consolidated financial statements CONSOLIDATED STATEMENT OF CHANGES IN PROVISIONS/ANNEX II
T140 – Consolidated statement of changes in provisions 2014
Changes As of in consolidated As of thereof € million 01.01.2014 companies Utilisation Release Reclassification Addition Interest Discounting 31.12.2014 Non-current Current Staff provisions 0.9 0.9 1.8 – – 0.9 – 0.1מ 0.7מ – Staff provisions ...... 1.7 16.7 13.7 30.3 – 0.6 8.1 0.2מ 2.5מ 4.7מ Other provisions ...... 28.9 0.1 0.7 1.2 1.9 – 0.1 0.1 – – 0.3מ – Provisions of lease properties ...... 2.0 3.1 1.6 4.7 – – 1.4 – 0.7מ 1.4מ – Construction book provisions ...... 5.4 2.8 1.6 4.4 – – 1.2 – 0.4מ 0.3מ – Litigations risks ...... 3.9 10.0 9.3 19.3 – 0.5 5.4 0.2מ 1.4מ 2.7מ Other provisions ...... 17.6 0.1 17.5 14.6 32.1 – 0.6 9.0 0.2מ 2.6מ 5.4מ TOTAL ...... 30.6 0.1 F-172
T141 – Consolidated statement of changes in provisions 2013
Changes thereof As of in consolidated Reclassification to As of € million 01.01.2013 companies Utilisation Release assets held for sale Addition Interest Discounting 31.12.2013 Non-current Current Staff provisions 0.8 0.9 1.7 – – 0.6 – – 0.9מ – Staff provisions ...... 2.0 17.2 11.7 28.9 0.3מ 0.3 11.5 – 4.0מ 8.8מ – Other provisions ...... 30.2 1.0 1.0 2.0 0.1מ – – – – 0.3מ – Provisions of lease properties ...... 2.4 3.7 1.7 5.4 – 0.2 1.3 – 2.5מ 4.6מ – Construction book provisions ...... 11.0 3.6 0.3 3.9 – – 1.1 – 1.3מ 1.2מ – Litigations risks ...... 5.3 8.9 8.7 17.6 0.2מ 0.1 9.1 – 0.2מ 2.7מ – Other provisions ...... 11.5 18.0 12.6 30.6 0.3מ 0.3 12.1 – 4.0מ 9.7מ – TOTAL ...... 32.2 Consolidated financial statements OVERVIEW OF VOTING RIGHT NOTIFICATIONS/ANNEX III
T142 – Overview of voting rights pursuant to Section 21 para. 1 WpHG
Attribution pursuant to Section 22 WpHG Name of shareholder(s) holding directly 3% voting rights Date Threshold Total Attribution Amount of Attribution Amount of or more threshold crossed Total voting pursuant Amount of voting pursuant Amount of voting which are Date Reason for crossed or reached voting rights Name(s) of controlled under- to para. 1 voting rights in to para. 1 voting rights in attributed to Person/ Company subject to notification City Country received notification or reached in % rights in % taking(s) holding 3% or more sent. 1 rights % sent. 1 rights % the notifier Exceeding CBRE Clarion Securities, LLC ...... Radnor USA 23.01.14 threshold 23.01.14 5 2,835,200 5.35 – No. 6 2,835,200 5.35 – – – – Falling Wilmington, below 3, 5, 10, 15, The Goldman Sachs Group, Inc...... Delaware USA 30.01.14 threshold 27.01.14 20, 25, 30 214,826 0.41 – No. 1 214,826 0.41 – – – – Falling New York, below 3, 5, 10, 15, F-173 Goldman, Sachs & Co...... NY USA 30.01.14 threshold 27.01.14 20, 25, 30 214,826 0.41 – No. 1 214,826 0.41 – – – – Falling George Cayman below 3, 5, 10, 15, GS LEG Investors (Euro) Company ...... Town Islands 30.01.14 threshold 27.01.14 20, 25, 30 214,826 0.41 – No. 1 214,826 0.41 – – – – The Falling Nether- below 3, 5, 10, 15, Restio B.V...... Amsterdam lands 30.01.14 threshold 27.01.14 20, 25, 30 214,826 0.41 – No. 1 214,826 0.41 – – – – The Falling Nether- below 3, 5, 10, 15, Saturea B.V...... Amsterdam lands 30.01.14 threshold 27.01.14 20, 25, 30 214,826 0.41 – – – – – – – – United Exceeding Ruffer LLP ...... London Kingdom 27.01.14 threshold 27.01.14 3 2,277,859 4.30 – No. 6 2,277,859 4.30 – – – – No. 6, in connection with Exceeding Section 22 para. 1 Sun Life Financial Inc...... Toronto Canada 29.01.14 threshold 27.01.14 5 2,852,903 5.39 – – – – sentence 2 2,852,903 5.39 – No. 6, in connection with Exceeding Section 22 para. 1 Sun Life Global Investments Inc...... Toronto Canada 29.01.14 threshold 27.01.14 5 2,852,903 5.39 – – – – sentence 2 2,852,903 5.39 – No. 6, in connection with Sun Life Assurance Company of Canada – U.S. Wellesley Exceeding Section 22 para. 1 Operations Holdings, Inc...... Hills USA 29.01.14 threshold 27.01.14 5 2,852,903 5.39 – – – – sentence 2 2,852,903 5.39 – No. 6, in connection with Wellesley Exceeding Section 22 para. 1 Sun Life Financial (U.S.) Holdings, Inc...... Hills USA 29.01.14 threshold 27.01.14 5 2,852,903 5.39 – – – – sentence 2 2,852,903 5.39 – No. 6, in connection with Wellesley Exceeding Section 22 para. 1 Sun Life Financial (U.S.) Investments LLC ...... Hills USA 29.01.14 threshold 27.01.14 5 2,852,903 5.39 – – – – sentence 2 2,852,903 5.39 – Consolidated financial statements OVERVIEW OF VOTING RIGHT NOTIFICATIONS/ANNEX III (Continued)
Attribution pursuant to Section 22 WpHG Name of shareholder(s) holding directly 3% voting rights Date Threshold Total Attribution Amount of Attribution Amount of or more threshold crossed Total voting pursuant Amount of voting pursuant Amount of voting which are Date Reason for crossed or reached voting rights Name(s) of controlled under- to para. 1 voting rights in to para. 1 voting rights in attributed to Person/ Company subject to notification City Country received notification or reached in % rights in % taking(s) holding 3% or more sent. 1 rights % sent. 1 rights % the notifier No. 6, in connection with Sun Life of Canada (U.S.) Financial Services Exceeding Section 22 para. 1 Holdings, Inc...... Boston USA 29.01.14 threshold 27.01.14 5 2,852,903 5.39 – – – – sentence 2 2,852,903 5.39 – No. 6, in connection with Massachusetts Financial Services Company Exceeding Section 22 para. 1 (MFS) ...... Boston USA 29.01.14 threshold 27.01.14 5 2,852,903 5.39 – No. 6 2,475,231 4.67 sentence 2 377,672 0.71 – Exceeding
F-174 MFS International Value Fund ...... Boston USA 10.06.14 threshold 06.06.14 3 1,599,453 3.02 – – – – – – – – Falling below Perry Luxco RE S.à r.l...... Luxembourg Luxembourg 14.10.14 threshold 15.10.14 3,5 1,711,902 2.999 – – – – – – – – Falling Perry Global Holdings, L.L.C.; Wilmington, below Perry Luxco S.à r.l.; Perry Luxco Perry Partners L.P...... Delaware USA 14.10.14 threshold 15.10.14 3,5 1,711,902 2.999 RE S.à r.l. No. 1 1,711,902 2.999 – – – – British Falling Perry Global Holdings, L.L.C.; Road Town, Virgin below Perry Luxco S.à r.l.; Perry Luxco Perry Partners International Master Inc...... Tortola Islands 14.10.14 threshold 15.10.14 3,5 1,711,902 2.999 RE S.à r.l. No. 1 1,711,902 2.999 – – – – Perry Private Opportunities Falling Offshore Fund, L. P.; Perry Global Perry Private Opportunities Off- shore Fund Wilmington, below Holdings, L.L.C.; Perry Luxco S.à (Cayman) GP, L.L.C...... Delaware USA 14.10.14 threshold 15.10.14 3,5 1,711,902 2.999 r.l.; Perry Luxco RE S.à r.l. No. 1 1,711,902 2.999 – – – – Consolidated financial statements OVERVIEW OF VOTING RIGHT NOTIFICATIONS/ANNEX III (Continued)
Overview of voting rights pursuant to Section 21 para. 1 WpHG
Attribution pursuant to Section 22 WpHG Name of shareholder(s) holding directly 3% voting rights Date Threshold Total Attribution Amount of Attribution Amount of or more threshold crossed Total voting pursuant Amount of voting pursuant Amount of voting which are Date Reason for crossed or reached voting rights Name(s) of controlled under- to para. 1 voting rights to para. 1 voting rights attributed to Person/ Company subject to notification City Country received notification or reached in % rights in % taking(s) holding 3% or more sent. 1 rights in % sent. 1 rights in % the notifier Perry Partners L.P.; Perry Global Holdings, L.L.C.; Perry Luxco S.à r.l.; Perry Luxco RE S.à r.l.
Perry Partners International, Inc.; Perry Partners International Master
F-175 Inc.; Perry Global Holdings, L.L.C.; Perry Luxco S.à r.l.; Perry Luxco RE S.à r.l.
Perry Private Opportunities Fund GP, L.L.C.; Perry Private Opportunities Fund, L.P.; Perry Global Holdings, L.L.C.; Perry Luxco S.à r.l.; Perry Luxco RE S.à r.l.
Perry Private Opportunities Off- shore Fund (Cayman) GP, L.L.C.; Perry Private Opportunities Offshore Fund, L.P.; Perry Global Holdings, L.L.C.; New York, Falling below Perry Luxco S.à r.l.; Perry Corp...... NY USA 14.10.14 threshold 15.10.14 3,5 1,711,902 2.999 Perry Luxco RE S.à r.l. No. 1 1.711.902 2,999 – – – – Falling below Perry Luxco S.à r.l...... Luxembourg Luxembourg 14.10.14 threshold 15.10.14 3,5 1,711,902 2.999 Perry Luxco RE S.à r.l. No. 1 1,711,902 2.999 – – – – Wilmington, Falling below Perry Luxco S.à r.l.; Perry Global Holdings, L.L.C...... Delaware USA 14.10.14 threshold 15.10.14 3,5 1,711,902 2.999 Perry Luxco RE S.à r.l. No. 1 1,711,902 2.999 – – – – Perry Corp.; Perry Partners L.P.; Perry Global Holdings, L.L.C.; Perry Luxco S.à r.l.; Perry Luxco RE S.à r.l. Perry Corp.; Perry Partners International, Inc.; Perry Partners International Master Inc.; Perry Global Holdings, L.L.C.; Perry Luxco S.à r.l.; Perry Luxco RE S.à r.l. Consolidated financial statements OVERVIEW OF VOTING RIGHT NOTIFICATIONS/ANNEX III (Continued)
Attribution pursuant to Section 22 WpHG Name of shareholder(s) holding directly 3% voting rights Date Threshold Total Attribution Amount Attribution Amount of or more threshold crossed Total voting pursuant Amount of voting pursuant Amount of voting which are Date Reason for crossed or reached voting rights Name(s) of controlled under- to para. 1 of voting rights in to para. 1 voting rights attributed to Person/ Company subject to notification City Country received notification or reached in % rights in % taking(s) holding 3% or more sent. 1 rights % sent. 1 rights in % the notifier Perry Corp.; Perry Private Opportunities Fund GP, L.L.C.; Perry Private Opportunities Fund, L.P.; Perry Global Holdings, L.L.C.; Perry Luxco S.à r.l.; Perry Luxco RE S.à r.l. Perry Corp.; Perry Private Opportunities Offshore
F-176 Fund (Cayman) GP, L.L.C.; Perry Private Opportunities Offshore Fund, L.P.; Perry Global Holdings, Falling L.L.C.; below Perry Luxco S.à r.l.; Mr. Richard C. Perry ...... USA 14.10.14 threshold 15.10.14 3,5 1,711,902 2.999 Perry Luxco RE S.à r.l. No. 1 1,711,902 2.999 – – – – Perry Private Opportunities Fund L.P.; Falling Perry Global Holdings, L.L.C.; Wilmington, below Perry Luxco S.à r.l.; Perry Private Opportunities Fund GP, L.L.C...... Delaware USA 14.10.14 threshold 15.10.14 3,5 1,711,902 2.999 Perry Luxco RE S.à r.l. No. 1 1,711,902 2.999 – – – – George Town, Falling Perry Global Holdings, L.L.C.; Grand Cayman below Perry Luxco S.à r.l.; Perry Private Opportunities Offshore Fund, L.P. .... Cayman Islands 14.10.14 threshold 15.10.14 3,5 1,711,902 2.999 Perry Luxco RE S.à r.l. No. 1 1,711,902 2.999 – – – – Falling Perry Global Holdings, L.L.C.; Wilmington, below Perry Luxco S.à r.l.; Perry Private Opportunities Fund, L.P...... Delaware USA 14.10.14 threshold 15.10.14 3,5 1,711,902 2.999 Perry Luxco RE S.à r.l. No. 1 1,711,902 2.999 – – – – Perry Partners International Master Inc.; British Falling Perry Global Holdings, L.L.C.; Road Town, Virgin below Perry Luxco S.à r.l.; Perry Partners International, Inc...... Tortola Islands 14.10.14 threshold 15.10.14 3,5 1,711,902 2.999 Perry Luxco RE S.à r.l. No. 1 1,711,902 2.999 – – – – Falling below Deutsche Bank ...... Frankfurt Germany 20.10.14 threshold 15.10.14 3,5 0 0.00 – – – – – – – – No. 6, in Falling connection with below Section 22 para. 1 Invesco Limited ...... Hamilton Bermuda 24.11.14 threshold 20.11.14 3 1,700,184 2.98 – – – – sentence 2 1,700,184 2.98 – Consolidated financial statements OVERVIEW OF VOTING RIGHT NOTIFICATIONS/ANNEX III (Continued)
Attribution pursuant to Section 22 WpHG Name of shareholder(s) holding directly 3% voting rights Date Threshold Total Attribution Amount Amount Attribution Amount of or more threshold crossed Total voting pursuant of of voting pursuant Amount of voting which are Date Reason for crossed or reached voting rights Name(s) of controlled under- to para. 1 voting rights in to para. 1 voting rights attributed to Person/ Company subject to notification City Country received notification or reached in % rights in % taking(s) holding 3% or more sent. 1 rights % sent. 1 rights in % the notifier No. 6, in Falling connection with BlackRock New York, below Section 22 para. 1 Global BlackRock, Inc...... NY USA 27.08.14 threshold 25.08.14 15 7,937,612 14.99 – – – – sentence 2 7,937,612 14.99 Funds1 No. 6, in Falling connection with BlackRock Wilmington, below Section 22 para. 1 Global BlackRock Holdco 2, Inc...... Delaware USA 26.08.14 threshold 22.08.14 15 7,925,639 14.96 – – – – sentence 2 7,925,639 14.96 Funds2 No. 6, in
F-177 Falling connection with BlackRock New York, below Section 22 para. 1 Global BlackRock Financial Management, Inc...... NY USA 26.08.14 threshold 22.08.14 15 7,925,639 14.96 – – – – sentence 2 7,925,639 14.96 Funds3 Consolidated financial statements OVERVIEW OF VOTING RIGHT NOTIFICATIONS/ANNEX III (Continued)
Overview of voting rights pursuant to Section 21 para. 1 WpHG
Attribution pursuant to Section 22 WpHG Name(s) of Name of controlled shareholder(s) under- Amount holding directly Date Threshold Total taking(s) Attribution Amount of of 3% voting rights threshold crossed or Total voting holding pursuant Amount voting Attribution Amount voting or more which are Person/ Company subject Date Reason for crossed reached voting rights 3% or to para. 1 of voting rights pursuant to of voting rights attributed to the to notification City Country received notification or reached in % rights in % more sent. 1 rights in % para. 1 sent. 1 rights in % notifier BlackRock Advisors Holdings, Inc...... NewYork, USA 10.12.14 Falling below 08.12.14 10 5,688,778 9.97 – No. 1 575,612 1.01 No. 6, in 5,143,441 9.01 BlackRock Global NY threshold connection with Funds4 Section 22 para. 1 sentence 2 BlackRock International Holdings, Inc...... NewYork, USA 10.12.14 Falling below 08.12.14 10 5,688,778 9.97 – No. 1 575,612 1.01 No. 6, in 5,143,441 9.01 BlackRock Global
F-178 NY threshold connection with Funds4 Section 22 para. 1 sentence 2 BR Jersey International Holdings L.P...... St.Helier, Channel 10.12.14 Falling below 08.12.14 10 5,688,778 9.97 – No. 1 575,612 1.01 No. 6, in 5,143,441 9.01 BlackRock Global Jersey Islands threshold connection with Funds4 Section 22 para. 1 sentence 2 BlackRock Group Limited ...... London United 09.12.14 Falling below 05.12.14 10 5,683,999 9.96 – No. 1 540,074 0.95 No. 6, in 5,177,449 9.07 BlackRock Global Kingdom threshold connection with Funds4 Section 22 para. 1 sentence 2 BlackRock Luxembourg Holdco S.à r.l...... Senningerberg Luxembourg 21.08.14 Falling below 19.08.14 10 5,277,883 9.97 – – – – No. 6, in 5,277,883 9.97 BlackRock Global threshold connection with Funds5 Section 22 para. 1 sentence 2 BLACKROCK (Luxembourg) S.A. . . . Senningerberg Luxembourg 29.12.14 Falling below 23.12.14 5 2,719,786 4.77 – No. 6 2,719,786 4.77 – – – BlackRock Global threshold Funds BlackRock Investment Management (UK) Limited ...... London United 28.07.14 Falling below 23.07.14 3 1,588,388 2.99 – – – – No. 6, in 1,588,388 2.99 –6 Kingdom threshold connection with Section 22 para. 1 sentence 2 BlackRock Global Falling below Funds ...... Luxembourg Luxembourg 11.12.14 threshold 09.12.14 5 2,842,016 4.98 – – – – – – – – Consolidated financial statements OVERVIEW OF VOTING RIGHT NOTIFICATIONS/ANNEX III (Continued)
1 In addition, BlackRock, Inc. notified voting rights of 12.70 % (incl. attribution) on 25 September 2014. 2 In addition, BlackRock Holdco 2, Inc. notified voting rights of 12.63 % (incl. attribution) on 25 September 2014. 3 In addition, BlackRock Financial Management, Inc. notified voting rights of 12.62 % (incl. attribution) on 25 September 2014. 4 The amount stated does not necessarily equal the sum of the detailed attributed holdings. This results from voting rights having multiple attributions within the BlackRock group structure. 5 In addition, BlackRock Luxembourg Holdco S.à r.l. notified voting rights of 8.23 % (incl. attribution) on 25 September 2014. 6 In addition, BlackRock Investment Management (UK) Limited notified voting rights of 8.28 % (incl. attribution) on 25 September 2014.
T143 – Overview of voting rights pursuant to Section 25 WpHG
Date Voting threshold Financial / other rights purs. to Chain of Reason for crossed Threshold crossed Voting rights subject to instruments purs. to Section 21, 22 controlled Person/ Company subject to notification City Country Date received notification or reached or reached in % notification Section 25 WpHG WpHG undertakings The Goldman Sachs Group, Inc...... Wilmington, Delaware USA 30.01.14 Falling below 27.01.14 5, 10, 15, 20, 25, 30 0 % (0 voting rights) 0 % (0 voting rights) 0.41% (214,826 – threshold voting rights) F-179 Deutsche Bank AG ...... Frankfurt Germany 20.10.14 Falling below 15.10.14 5 0 % (0 voting rights) 0 % (0 voting rights) 0 % (0 voting – threshold rights) BlackRock Global Funds ...... Luxembourg Luxembourg 11.11.14 Falling below 20.10.14 5 0 % (0 voting rights) 0 % (0 voting rights) 5.77% (3,292,971 – threshold voting rights) BlackRock, Inc...... NewYork, NY USA 05.12.14 Falling below 03.12.14 5, 10 0 % (0 voting rights) 0 % (0 voting rights) 11.84% (6,756,850 – threshold voting rights) BlackRock Financial Management, Inc. . . . New York, NY USA 05.12.14 Falling below 03.12.14 5, 10 0 % (0 voting rights) 0 % (0 voting rights) 11.84% (6,756,850 – threshold voting rights) BlackRock Holdco 2, Inc...... Wilmington, Delaware USA 05.12.14 Falling below 03.12.14 5, 10 0 % (0 voting rights) 0 % (0 voting rights) 11.84% (6,756,850 – threshold voting rights)
T144 – Overview of voting rights pursuant to Section 25a WpHG
Date threshold Date Reason for crossed or Person/ Company subject to notification City Country received notification reached Lansdowne Developed Markets Master Fund Limited ...... George Town Cayman Islands 17.10.14 Exceeding threshold 13.10.14 Lansdowne Developed Markets Fund Limited ...... George Town Cayman Islands 17.10.14 Exceeding threshold 13.10.14 Deutsche Bank AG ...... Frankfurt Germany 20.10.14 Falling below threshold 15.10.14 BlackRock, Inc...... NewYork, NY USA 13.01.15 Exceeding threshold 09.01.15 BlackRock Holdco 2, Inc...... Wilmington, Delaware USA 13.01.15 Exceeding threshold 09.01.15 BlackRock Financial Management, Inc...... NewYork, NY USA 13.01.15 Exceeding threshold 09.01.15 Consolidated financial statements OVERVIEW OF VOTING RIGHT NOTIFICATIONS/ANNEX III (Continued)
Financial / other Threshold instruments Description of crossed or Voting rights Financial / other purs. to Voting rights Chain of financial / reached subject to instruments purs. to Section 25 purs. to Section controlled under- other Person/ Company subject to notification in % notification Section 25a WpHG WpHG 21, 22 WpHG takings instrument 6.80% (3,880,176 7.2729% voting rights) 0.47% (4,150,154 thereof held 0% (0 voting (269,978 Lansdowne Developed Markets Master Fund Limited ...... 5 voting rights) indirectly: 0 % rights) voting rights) – – 6.80% (3,880,176 voting rights) Lansdowne thereof held Developed 7.2729% indirectly: 6.80 % 0.47% Markets F-180 (4,150,154 (3,880,176 voting 0% (0 voting (269,978 Master Fund Lansdowne Developed Markets Fund Limited ...... 5 voting rights) rights) rights) voting rights) Limited – 0.24% (138,700 0.24% (138,700 0% (0 voting 0% (0 voting Deutsche Bank AG ...... 5 voting rights) voting rights) rights) rights) – – 0.0002% (93 voting 11.12% rights) thereof held 11.11% (6,342,630 indirectly: 0.0002% 0% (0 voting (6,342,537 Contract for BlackRock, Inc...... 5,10 voting rights) (93 voting rights) rights) voting rights) – Difference 0.0002% (93 voting 11.12% rights) thereof held 11.11% (6,342,630 indirectly: 0.0002% 0% (0 voting (6,342,537 Contract for BlackRock Holdco 2, Inc...... 5,10 voting rights) (93 voting rights) rights) voting rights) – Difference 0.0002% (93 voting 11.11% rights) thereof held 11.11% (6,340,243 indirectly: 0.0002% 0% (0 voting (6,340,150 Contract for BlackRock Financial Management, Inc...... 5,10 voting rights) (93 voting rights) rights) voting rights) – Difference The following auditor’s report (Besta¨tigungsvermerk) has been issued in accordance with Section 322 of the German Commercial Code (Handelsgesetzbuch) on the consolidated financial statements and group management report (Konzernlagebericht) of LEG Immobilien AG, Dusseldorf, as of and for the fiscal year ended December 31, 2014. The group management report is neither included nor incorporated by reference in this Offering Memorandum.
AUDITOR’S REPORT
We have audited the consolidated financial statements prepared by the LEG Immobilien AG, Düsseldorf, comprising the statement of financial position, the statement of comprehensive income, statement of changes in equity, cash flow statement and the notes to the consolidated financial statements, together with the group management report for the business year from 1. January to 31. December 2014. The preparation of the consolidated financial statements and the group management report in accordance with the IFRSs, as adopted by the EU, and the additional requirements of German commercial law pursuant to § (Article) 315a Abs. (paragraph) 1 HGB (“Handelsgesetzbuch”: German Commercial Code) is the responsibility of the parent Company’s Board of Managing Directors. Our responsibility is to express an opinion on the consolidated financial statements and on the group management report based on our audit. We conducted our audit of the consolidated financial statements in accordance with §317 HGB and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer (Institute of Public Auditors in Germany) (IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the consolidated financial statements in accordance with the applicable financial reporting framework and in the group management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Group and expectations as to possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the consolidated financial statements and the group management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the annual financial statements of those entities included in consolidation, the determination of the entities to be included in consolidation, the accounting and consolidation principles used and significant estimates made by the Company’s Board of Managing Directors as well as evaluating the overall presentation of the consolidated financial statements and the group management report. We believe that our audit provides a reasonable basis for our opinion. Our audit has not led to any reservations. In our opinion based on the findings of our audit the consolidated financial statements comply with the IFRSs as adopted by the EU and the additional requirements of German commercial law pursuant to §315a Abs. 1 HGB and give a true and fair view of the net assets, financial position and results of operations of the Group in accordance with these requirements. The group management report is consistent with the consolidated financial statements and as a whole provides a suitable view of the Group’s position and suitably presents the opportunities and risks of future development.
Berlin, 19 March 2015
PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft
GREGORY HARTMAN PPA. MARTIN FLÜR Wirtschaftsprüfer Wirtschaftsprüfer
F-181 Audited Consolidated Financial Statements of LEG Immobilien AG for the year ended December 31, 2013
DETAILED INDEX OF FINANCIAL INFORMATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION ...... F-183 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME ...... F-184 STATEMENT OF CHANGES IN CONSOLIDATED EQUITY ...... F-185 CONSOLIDATED STATEMENT OF CASH FLOWS ...... F-186 NOTES ...... F-187 CONSOLIDATED STATEMENT OF CHANGES IN ASSETS/ANNEX I ...... F-247 CONSOLIDATED STATEMENT OF CHANGES IN PROVISIONS/ANNEX II ...... F-248 OVERVIEW OF VOTING RIGHT NOTIFICATIONS/ANNEX III ...... F-249 AUDITOR’S REPORT ...... F-254
F-182 CONSOLIDATED FINANCIAL STATEMENT CONSOLIDATED STATEMENT OF FINANCIAL POSITION
TABLE 29
€ million Notes 31.12.2013 31.12.2012 Assets Non-current assets ...... 5,262.2 5,051.2 Investment properties ...... E.1 5,163.4 4,937.1 Prepayments for investment properties ...... 6.9 – Property, plant and equipment ...... E.2 66.7 72.3 Intangible assets ...... E.3 4.3 5.9 Investments in associates ...... E.4 9.2 8.3 Other financial assets ...... E.5 3.6 4.9 Receivables and other assets ...... E.6 2.8 1.9 Deferred tax assets ...... E.15 5.3 20.8 Current assets ...... 144.5 184.4 Real estate inventory and other inventory ...... E.7 10.1 17.4 Receivables and other assets ...... E.6 21.0 31.3 Income tax receivables ...... E.15 2.7 2.0 Cash and cash equivalents ...... E.8 110.7 133.7 Assets held for sale ...... E.9 16.4 2.2 TOTAL ASSETS ...... 5,423.1 5,237.8 Equity and liabilities Equity ...... E.10 2,276.1 2,085.5 Share capital ...... 53.0 53.0 Capital reserves ...... 440.9 436.1 Cumulative other reserves ...... 1,754.9 1,571.5 Equity attributable to shareholders of the parent company ...... 2,248.8 2,060.6 Non-controlling interests ...... 27.3 24.9 Non-current liabilities ...... 2,840.6 2,583.1 Pension provisions ...... E.11 112.3 121.5 Other provisions ...... E.12 12.7 12.2 Financing liabilities ...... E.13 2,396.7 2,102.9 Other liabilities ...... E.14 63.5 101.2 Tax liabilities ...... E.15 24.2 31.4 Deferred tax liabilities ...... E.15 231.2 213.9 Current liabilities ...... 306.4 569.2 Pension provisions ...... E.11 6.1 5.8 Other provisions ...... E.12 17.9 20.1 Provisions for taxes ...... E.15 0.0 0.1 Financing liabilities ...... E.13 187.0 396.8 Other liabilities ...... E.14 77.6 125.5 Tax liabilities ...... E.15 17.8 20.9 TOTAL EQUITY AND LIABILITIES ...... 5,423.1 5,237.8
F-183 CONSOLIDATED FINANCIAL STATEMENT CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
TABLE 30
01.01. - 01.01. - € million Notes 31.12.2013 31.12.2012 Net rental and lease income ...... F.1 257.7 247.7 Rental and lease income ...... 532.1 500.2 Cost of sales in connection with rental lease income ...... –274.4 –252.5 Net income from the disposal of investment properties ...... F.2 –1.7 –1.4 Income from the disposal of investment properties ...... 15.2 13.4 Carrying amount of the disposal of investment properties ...... –15.0 –13.9 Cost of sales in connection with disposed investment properties ...... –1.9 –0.9 Net income from the remeasurement of investment properties ...... F.3 81.6 120.3 Net income from the disposal of real estate inventory ...... F.4 –3.1 –1.8 Income from the real estate inventory disposed of ...... 9.0 7.6 Carrying amount of the real estate inventory disposed of ...... –7.6 –6.9 Costs of sales of the real estate inventory disposed of ...... –4.5 –2.5 Net income from other services ...... F.5 2.3 3.0 Income from other services ...... 9.7 14.3 Expenses in connection with other services ...... –7.4 –11.3 Administrative and other expenses ...... F.6 –51.5 –59.4 Other income and expenses ...... 0.2 1.7 OPERATING EARNINGS 285.5 310.1 Interest income ...... F.7 1.0 1.5 Interest expenses ...... F.8 –131.4 –195.0 Net income from investment securities and other equity investments ...... 0.8 0.6 Net income from associates ...... 0.3 0.4 Net income from the fair value measurement of derivatives ...... 2.4 –3.1 EARNINGS BEFORE INCOME TAXES 158.6 114.5 Income taxes ...... F.9 –21.7 –2.4 NET PROFIT OR LOSS FOR THE PERIOD 136.9 112.1 Change in amounts recognised directly in equity Thereof recycling Fair value adjustment of interest rate derivatives in hedges ...... 25.4 –42.1 Change in unrealised gains/losses ...... 33.5 –55.8 Income taxes on amounts recognised directly in equity ...... –8.1 13.7 Thereof non-recycling Actuarial gains and losses from the measurement of pension obligations .... 5.8 –17.4 Change in unrealised gains/losses ...... 8.3 –25.0 Income taxes on amounts recognised directly in equity ...... –2.5 7.6 TOTAL COMPREHENSIVE INCOME 168.1 52.6 Net profit or loss for the period attributable to: Non-controlling interests ...... 1.7 17.7 Parent shareholders ...... 135.2 94.4 Total comprehensive income attributable to: Non-controlling interests ...... 2.0 8.4 Parent shareholders ...... 166.1 44.2 EARNINGS PER SHARE (BASIC AND DILUTED) IN € ...... F.10 2.5 5.9
F-184 CONSOLIDATED FINANCIAL STATEMENT STATEMENT OF CHANGES IN CONSOLIDATED EQUITY
TABLE 31
Cumulative other reserves Actuarial gains Fair value and losses from adjustment Equity the measurement of interest attributable to Non- Share Capital Revenue of pension derivatives shareholders controlling Consolidated capital reserves reserves obligations in hedges of the Group interests equity € million AS OF 01.01.2012 ...... – 544.3 1,246.1 –4.2 –15.3 1,770.9 375.0 2,145.9 Net profit or loss for the period ...... – – 94.4 – – 94.4 17.7 112.1 Other comprehensive income ...... – – – –14.7 –35.5 –50.2 –9.3 –59.5 TOTAL COMPREHENSIVE INCOME ...... – – 94.4 –14.7 –35.5 44.2 8.4 52.6 Change in consolidated companies ...... – – 312.9 –3.4 –8.8 300.7 –339.4 –38.7 F-185 Capital increase ...... 53.0 – – – – 53.0 0.1 53.1 Withdrawals from reserves ...... – –108.2 – – – –108.2 – –108.2 Distributions ...... – – – – – – –19.2 –19.2 AS OF 31.12.2012 ...... 53.0 436.1 1,653.4 –22.3 –59.6 2,060.6 24.9 2,085.5 AS OF 01.01.2013 ...... 53.0 436.1 1,653.4 –22.3 –59.6 2,060.6 24.9 2,085.5 Net profit or loss for the period ...... – – 135.2 – – 135.2 1.7 136.9 Other comprehensive income ...... – – – 5.7 25.2 30.9 0.3 31.2 TOTAL COMPREHENSIVE INCOME ...... – – 135.2 5.7 25.2 166.1 2.0 168.1 Change in consolidated companies ...... – – – – – – – – Capital increase ...... – 40.5 39.0 – – 79.5 0.5 80.0 Withdrawals from reserves ...... – –39.0 – – – –39.0 –0.1 –39.1 Distributions ...... – – –21.7 – – –21.7 – –21.7 Contribution in connection with Management and Supervisory Board ...... – 3.3 – – – 3.3 – 3.3 AS OF 31.12.2013 ...... 53.0 440.9 1,805.9 –16.6 –34.4 2,248.8 27.3 2,276.1 CONSOLIDATED FINANCIAL STATEMENT CONSOLIDATED STATEMENT OF CASH FLOWS
TABLE 32
01.01. - 01.01. - € million Notes 31.12.2013 31.12.2012 Operating earnings ...... 285.5 308.0 Depreciation on property, plant and equipment and amortisation on intangible assets ...... 8.7 8.6 (Gains)/Losses from the remeasurement of investment properties ...... –81.6 –120.3 (Gains)/Losses from associates ...... – –0.3 (Gains)/Losses from the disposal of assets held for sale and investment properties ...... –0.1 0.4 (Gains)/Losses from the disposal of intangible assets and property, plant and equipment ...... 0.0 –0.1 (Gains)/Losses from the disposal of investments in associates ...... – –0.0 (Reduction)/Increase in pension provisions and other non-current provisions .... –0.1 –3.0 (Gains)/Losses on the fair value measurement of derivatives ...... – 3.1 Other non-cash income and expenses ...... 8.3 –25.1 (Reduction)/Increase in receivables, inventories and other assets ...... 12.0 –7.9 Reduction/(Increase) in liabilities (not including financing liabilities) and provisions ...... –29.7 46.6 Change in deferred taxes in profit or loss ...... – –6.2 Interest paid ...... –91.9 –91.6 Interest received ...... 0.9 1.5 Received income from investments ...... 1.5 – Taxes received ...... 0.5 0.6 Taxes paid ...... –11.8 –10.7 NET CASH FROM/(USED IN) OPERATING ACTIVITIES ...... 102.2 103.6 Cash flow from investing activities Investments in investment properties ...... –177.8 –94.6 Proceeds from disposals of non-current assets held for sale and investment properties ...... 15.2 13.4 Investments in intangible assets and property, plant and equipment ...... –1.3 –2.5 Proceeds from disposals of intangible assets and property, plant and equipment . . 0.0 0.0 Investments in financial assets and other assets ...... 0.6 2.7 Proceeds from disposals of financial assets and other assets ...... – 0.0 Acquisition of shares in consolidated companies ...... – –0.2 Proceeds from disposals of shares in consolidated companies ...... – 0.1 NET CASH FROM/(USED IN) INVESTING ACTIVITIES –163.3 –81.1 Cash flow from financing activities Borrowing of bank loans ...... 413.0 709.4 Repayment of bank loans ...... –350.2 –588.4 Repayment of lease liabilities ...... –2.9 –2.6 Loan repayments to shareholders ...... – –79.4 Distribution to shareholders ...... –21.7 – Contributions and withdrawals from reserves from non-controlling interests ..... – –9.6 NET CASH FROM/(USED IN) FINANCING ACTIVITIES ...... 38.2 29.4 Change in cash and cash equivalents ...... –23.0 51.9 Cash and cash equivalents at beginning of period ...... 133.7 81.8 CASH AND CASH EQUIVALENTS AT END OF PERIOD ...... 110.7 133.7 Composition of cash and cash equivalents ...... Cash in hand, bank balances ...... 110.7 133.7 CASH AND CASH EQUIVALENTS AT END OF PERIOD ...... 110.7 133.7
F-186 CONSOLIDATED FINANCIAL STATEMENT NOTES
A. GENERAL INFORMATION ON THE CONSOLIDATED FINANCIAL STATEMENTS OF LEG IMMOBILIEN AG 1. Basic information about the Group
LEG Immobilien AG, Dusseldorf (hereinafter: »LEG Immo«; formerly LEG Immobilien GmbH), its subsidiary LEG NRW GmbH, Dusseldorf (formerly: LEG Landesent-wicklungsgesellschaft Nordrhein-Westfalen GmbH, Dusseldorf, hereinafter: »LEG«) and the subsidiaries of the latter company (hereinafter referred to collectively as the »LEG Group«) are among the largest housing companies in Germany. As of 31 December 2013, the LEG Group’s portfolio consisted of 95,342 units (residential and commercial).
LEG Immo, Hans-Boeckler-Strasse 38, 40476 Dusseldorf, Germany, was formed on 9 May 2008 and is entered in the commercial register of the Dusseldorf Local Court under HRB 69386. LEG NRW, the main subsidiary of LEG Immo, was formed in 1970. The company is also domiciled at Hans-Boeckler-Strasse 38, 40476 Dusseldorf, Germany, and is entered in the commercial register of the Dusseldorf Local Court under HRB 12200.
LEG Immo and its subsidiaries, acting as an integrated real estate company, pursue the long-term, growth- oriented management of their residential property portfolio, including the strategic acquisition of housing portfolios for long-term value growth.
Effective as of 29 August 2008, Lancaster GmbH & Co. KG acquired a majority of the shares in LEG from Beteiligungsverwaltungsgesellschaft des Landes Nordrhein-Westfalen and NRW Bank, Anstalt des öffentlichen Rechts.
The sole general partner of Lancaster GmbH & Co. KG was Lancaster Holding GmbH, Dusseldorf, which was formed in May 2008 and which was also responsible for the management of Lancaster GmbH & Co. KG. The company’s share capital amounted to EUR 25 thousand. The limited partner of Lancaster GmbH & Co. KG was Saturea B.V. Amsterdam, Netherlands, with a fixed capital contribution of one thousand euros. The sole shareholder of Saturea B.V. is Restio B.V., Amsterdam, Netherlands.
A change of legal form and the renaming of Lancaster GmbH & Co. KG to LEG Immobilien GmbH was entered in the commercial register on 28 November 2012.
By way of entry in the commercial register on 31 January 2013, LEG Immobilien GmbH underwent a change in legal form and was renamed LEG Immobilien AG.
LEG Immo went public on 1 February 2013, with the initial listing of its shares in the Regulated Market (Prime Standard) of the Frankfurt Stock Exchange.
The present consolidated financial statements were approved for publication by LEG Immo’s Management Board on 25 March 2014.
2. Consolidated financial statements
The consolidated financial statements of the LEG Group have been prepared in accordance with the International Financial Reporting Standards (IFRS) adopted and published by the International Accounting Standards Board (IASB) as required to be applied in the European Union. The consolidated financial statements have been prepared in accordance with the provisions of Regulation (EC) No. 1606/2002 of the European Parliament and of the European Council dated 19 July 2002, concerning the application of international accounting standards in conjunction with Section 315a (3) of the German Commercial Code (HGB) and the additional provisions of the HGB. Individual items of the statement of comprehensive income and the statement of financial position have been aggregated to improve the clarity of presentation. These items are discussed in the notes to the consolidated financial statements. The statement of comprehensive income is classified using the cost of sales method. The consolidated financial statements have been prepared in euros. Unless indicated otherwise, all figures are rounded to millions of euros (EUR million). For technical reasons, tables and references may contain rounded figures that differ from the exact mathematical values.
F-187 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
A. GENERAL INFORMATION ON THE CONSOLIDATED FINANCIAL STATEMENTS OF LEG IMMOBILIEN AG (Continued) The consolidated financial statements are prepared on the basis of the recognition of assets and liabilities at amortised cost. This does not include investment properties, securities held for disposal and derivative financial instruments, which are carried at their fair value as of the end of the reporting period. The consolidated financial statements and the Group management report are published in the electronic Federal Gazette (Bundesanzeiger).
The preparation of consolidated financial statements in accordance with the IFRS requires estimates and judgments on the part of the management. Areas with greater scope for judgment or areas in which assumptions and estimates are of material importance to the consolidated financial statements are listed in notes D.22 and D.23.
The consolidated financial statements of LEG Immo constitute exempting consolidated financial statements within the meaning of Section 291 HGB for LEG NRW GmbH, Ruhr-Lippe Wohnungsgesellschaft mbH and Wohnungsgesellschaft Münsterland mbH. These companies are not required to prepare subgroup financial statements as they are included in the consolidated financial statements of LEG Immo, no minority shareholders have applied for the preparation of consolidated financial statements and a Group management report has been submitted by minority shareholders in accordance with Section 291 (3) sentence 1 no. 2 HGB, and the other conditions of Section 291 (2) NO. 2 and NO.3HGB have been met.
No subsidiaries have exercised the exemption provisions set out in Section 264 (3) HGB or Section 264b HGB.
B. NEW ACCOUNTING STANDARDS 1. International Financial Reporting Standards (IFRS) and Interpretations (IFRIC) that have been published but which are not yet required to be applied Amendments to the following standards have been adopted:
The Section of IFRS 9 »Financial Instruments« published in November 2009 provides new guidance on the classification and measurement of financial assets. In the future, there will be only two measurement categories (amortised cost and fair value). The expanded section, published in October 2010, describes the classification and measurement of financing liabilities. Most of the existing provisions of IAS 39 are taken over. There is a change for financing liabilities measured at fair value. The amendments approved in November 2013 relate to using a new general model for hedge accounting in which the scope of possible hedging transactions and hedged items is extended and provides for new regulations on measuring effectiveness. The date for first application has been deferred by the IASB. The application of IFRS 9 is expected to result in changes to the accounting of financial instruments at the LEG Group.
In May 2011, the IASB published the amended IAS 27 »Separate Financial Statements«. Following the adoption of IFRS 10 and IFRS 12, the scope of IAS 27 is limited to the recognition of investments in subsidiaries, associates and joint ventures in single-entity financial statements. The standard provides for first-time application in the EU for reporting periods beginning on or after 1 January 2014. It is not expected to have a major impact on the LEG Group.
In May 2011, the IASB published IFRS 10 »Consolidated Financial Statements«. The standard substitutes the provisions of IAS 27 on group accounting and the provisions of SIC-12 on the consolidation of special-purpose entities. The standard provides for first-time application in the EU for reporting periods beginning on or after 1 January 2014. It is not expected to have a major impact on the LEG Group.
IFRS 11 »Joint Arrangements«, which was published by the IASB in May 2011, substitutes the provisions of IAS 31 and SIC-13. The standard provides for first-time application in the EU for reporting periods beginning on or after 1 January 2014. It will not have an impact on the LEG Group.
The IASB also published IFRS 12 »Disclosure of Interest in Other Entities« in May 2011. In the future, IFRS 12 will provide uniform guidance for the information to be disclosed as part of group accounting. The standard provides for first-time application in the EU for reporting periods beginning on or after 1 January 2014. It will not have an impact on the disclosures in the Notes of the LEG Group.
F-188 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
B. NEW ACCOUNTING STANDARDS (Continued)
The amended IAS 28 »Investments in Associates and Joint Ventures« was also published in May 2011. The amended IAS 28 is required to be applied in the EU for reporting periods beginning on or after 1 January 2014. It is not expected to have a major impact on the LEG Group’s financial statements.
The amendments to IAS 32 »Financial Instruments: Presentation: Offsetting Financial Assets and Financial Liabilities« that were published in December 2011 serve to clarify the conditions for the offsetting of financial instruments. The amendment to IAS 32 is to be applied in the EU for fiscal years beginning on or after 1 January 2014. The LEG Group does not expect this to have a material impact in terms of recognition and measurement.
In June 2012, the IASB published an amendment to the transition provisions for the first-time application of IFRS 10, IFRS 11 and IFRS 12: »Transition Guidance«. Under the new provisions, the assessment of control is performed on the date of first-time application and not from the start of the comparative prior period. Furthermore, it is no longer necessary to disclose comparative information on unconsolidated structured entities. The amendment is required to be applied for reporting periods beginning on or after 1 January 2014. It will not have an impact on the LEG Group.
The amendments to IFRS 10, IFRS 12 and IAS 27 concerning investment entities that were published in October 2012 are required to be applied for reporting periods beginning on or after 1 January 2014. The amendments require that investment entities recognise their investments in subsidiaries in accordance with IAS 39 rather than IFRS 10 or IFRS 12. Special disclosure requirements for investment entities are also introduced in accordance with IFRS 12. It is not expected to have an impact on the LEG Group.
In December 2013, the IASB published the amendment to IAS 36: »Recoverable Amount Disclosures for Non- Financial Assets«. This contains amendments on disclosures relating to impairments and reversals. In addition, IFRS 13, »Fair Value Measurement«, corrected disclosure requirements in IAS 36. The amendment to IAS 36 is to be applied in the EU for fiscal years beginning on or after 1 January 2014. It is not expected to have an impact on the LEG Group.
Furthermore, in December 2013, the IASB published amendments to IAS 39 »Financial Instruments: Recognition and Measurement«. With the amendment of IAS 39, the novation of an OTC derivative as a hedging instrument is regulated, without interrupting the hedge. The amendment is required to be applied in the EU for fiscal years beginning on or after 1 January 2014. It is not expected to have an impact on the LEG Group.
In November 2013, the IASB published an amendment of IAS 19: »Employee Benefits«: Defined Benefit Plans: Employee Contribution. This amendment now clarifies how the contributions of employees or third parties in the conditions of a defined benefit pension plan are to be accounted for when they are related to periods of service. Subject to approval from the EU, the amendment is applicable for reporting periods beginning on or after 1 July 2014. This amendment will not have an impact on the LEG Group.
In December 2012, the IASB published »Improvements to IFRS 2010-2012«. They are the fifth collection of amendments and relate to six IFRS. The amendments are subject to approval from the EU and are applicable for reporting periods beginning on or after 1 July 2014. We do not expect any major impact on the LEG Group.
In December 2013, the IASB published »Improvements to IFRS 2011-2011«. They are the sixth collection of amendments and relate to four IFRS. The amendments are subject to approval from the EU and are applicable for reporting periods beginning on or after 1 July 2014. We do not expect any major impact on the LEG Group.
The interpretation of IFRIC 21 »Levies« published in May 2013 clarifies when an entity has to recognise a liability to pay a levy as liabilities. The initial application is subject to approval from the EU and is applicable for reporting periods beginning on or after 1 January 2014. We do not expect any major impact on the LEG Group.
2. International Financial Reporting Standards (IFRS) and Interpretations (IFRIC) required to be applied for the first time
In December 2010, the IASB published the amended IFRS 1 »First-time Adoption of International Financial Reporting Standards: Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters«. The amendment is required to be applied in the EU for reporting periods beginning on or after 1 January 2013 and is not relevant for the LEG Group.
F-189 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
B. NEW ACCOUNTING STANDARDS (Continued)
The publication of IFRS 13 »Fair Value Measurement« in May 2011 defines uniform regulations for fair value measurement and the mandatory disclosures on fair value measurement in the Notes to the financial statements. The standard is required to be applied for reporting periods beginning on or after 1 January 2013. First-time application impacts recognition, measurement and the disclosures in the Notes of the LEG Immo consolidated financial statements.
The amendment to IAS 1 »Presentation of Financial Statements: Presentation of Items of Other Comprehensive Income« in June 2011 introduced new provisions for the presentation of items of other comprehensive income. The amendments to IAS 1 are required to be applied for reporting periods beginning on or after 1 July 2012. They do not affect the net assets, financial position and results of operations of the Group. There are merely changes in the presentation.
IAS 19 »Employee Benefits« was comprehensively revised in June 2011. One fundamental change relates to the abolition of the corridor method for the recognition of actuarial gains and losses. Actuarial gains and losses are to be recognised directly in other comprehensive income. In addition, there is a change to the classification of termination benefits. Accordingly, increased provisions for partial retirement agreements are to be recognised as other long-term employee benefits in line with IAS 19.8. It states that the costs for the increased provisions are not to be recognised in full at the beginning of the duration, but to be recognised pro rata in the period in which the employee is entitled to the benefit. The amendments to IAS 19 are required to be applied in the EU for reporting periods beginning on or after 1 January 2013. Since introducing IFRS, the LEG Group has reported actuarial gains and losses in other comprehensive income. This means that the amendments have only a minor effect on LEG’S consolidated statement of financial position and consolidated statement of comprehensive income, largely in connection with partial retirement agreements. There are increased disclosure requirements as a result of the amendments to IAS 19.
IFRIC 20 »Stripping Costs in the Production Phase of a Surface Mine« was published in October 2011. IFRIC 20 is required to be applied in the EU for reporting periods beginning on or after January 1, 2013 and is not relevant for the LEG Group. IFRIC 20 is to be applied in the EU for reporting periods beginning on or after 1 January 2013, and is not relevant for the LEG Group.
The IAS amendments to IFRS 7 »Financial Instruments: Presentation« that were published in December 2011 serve to clarify the conditions for the offsetting of financial instruments. The amendment to IFRS 7istobe applied in the EU for fiscal years beginning on or after 1 January 2013. First-time application has not had an impact on recognition and measurement. The only change relates to the disclosures in the notes to the consolidated financial statements.
In addition, the revised IAS 12 »Income Taxes: Deferred Tax-Recovery of Underlying Assets« was published in December 2011. For investment properties carried at fair value in accordance with IAS 40, this amendment introduces the rebuttable presumption that realisation will take the form of disposal. The amended IAS 12 is required to be applied in the EU for reporting periods beginning on or after 1 January 2013. It will not have an impact on the LEG Group.
In March 2012, IFRS 1 was amended with regard to the accounting treatment of government loans at below- market interest rates. The amendment is required to be applied for reporting periods beginning on or after 1 January 2013, and is not relevant as the LEG Group is no longer a first-time IFRS adopter as of the application date of 1 January 2013.
The annual Improvements to IFRS (2009-2011) were published in May 2012. These are required to be applied for reporting periods beginning on or after 1 January 2013. They will not have an impact on the LEG Group’s consolidated financial statements.
F-190 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
C. BASIS OF CONSOLIDATION AND CONSOLIDATION METHODS 1. Consolidation methods A) SUBSIDIARIES
The consolidated financial statements of the LEG Group contain all material subsidiaries over which LEG Immo has the power to govern the financial and operating policies, either directly or indirectly. Subsidiaries are consolidated from the date on which LEG Immo first obtains control. For LEG Group subsidiaries, control is deemed to exist when LEG Immo holds a majority of the voting rights, either directly or indirectly. Subsidiaries are de-consolidated as soon as LEG Immo no longer has control. The financial statements of subsidiaries are prepared using uniform accounting policies and the same reporting date as LEG Immo’s financial statements. Capital consolidation is performed using the acquisition method, under which the consideration transferred is offset against the proportionate share in the equity of the acquired entity. Under the acquisition method, the equity of the acquired entity at the acquisition date is calculated taking into account the fair values of the identifiable assets, liabilities and contingent liabilities, deferred taxes and any goodwill at this date. Non-controlling interests represent the portion of earnings and net assets that is not attributable to the shareholders of LEG Immo. Non-controlling interests are presented separately in the consolidated statement of comprehensive income and the consolidated statement of financial position. In the consolidated statement of financial position, non-controlling interests are presented within equity as a separate item from the equity attributable to the shareholders of the parent company. All intra-Group receivables and liabilities, income and expenses and gains and losses from intra-Group transactions are eliminated.
B) ASSOCIATES
Associates are equity interests whose financial and business policy can be significantly influenced by the LEG Group. Significant influence is presumed when LEG Immo holds between 20% and 50% of the voting rights in the respective company, either directly or indirectly, unless it can be clearly demonstrated that this is not the case. Associates are accounted for using the equity method. Under the equity method, investments in associates are recognised at cost, and the carrying amount is adjusted for changes in the LEG Group’s interest in the net assets of the associate and any impairment losses. Losses from associates in excess of the carrying amount of the investment, or other long-term receivables from the financing of the respective associate, are not recognised unless there is an obligation to make additional payments. Due to their immateriality for the net assets, financial position and results of operations of the Group, certain individual associates are carried at fair value or, if the fair value cannot be reliably determined for unlisted equity instruments, at cost and presented in other non-current financial assets.
A list of the LEG Group’s shareholdings can be found in Section J.
F-191 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
C. BASIS OF CONSOLIDATION AND CONSOLIDATION METHODS (Continued) 2. Changes in the Group A) SUBSIDIARIES The scope of consolidation of the leg Group developed as follows: TABLE 33
Number of consolidated subsidiaries 2013 2012 AS OF 01.01...... 41 411) Additions ...... 7 4 Disposals ...... –5 –4 AS OF 31.12...... 43 41 1) Previous year adjustment
LEG Erste Grundstücksverwaltungs GmbH and LEG Zweite Grundstücksverwaltungs GmbH were included in consolidation for the first time as of 30 June 2013. LEG Dritte Grundstücksverwaltungs GmbH was included in consolidation for the first time as of 30 September 2013. LEG Vierte Grundstücksverwaltungs GmbH and LEG Fünfte Grundstücksverwaltungs GmbH were included in consolidation for the first time as of 31 December 2013. The companies were formed in connection with the acquisition of property portfolios. Further details can be found in Section E.1. In addition, Erste WohnServicePlus GmbH and Wohn-ServicePlus GmbH were consolidated for the first time effective as of 31 December 2013. The companies provide services related to housing to companies operating in the residential housing industry.
The disposals related to the former subsidiaries LEG Wohnen Immobilien GmbH & Co. KG, LEG Wohnungs-bau Rheinland Immobilien GmbH & Co. KG, Wohnungs-gesellschaft Münsterland Immobilien mbH & Co. KG, Ruhr- Lippe Wohnungsgesellschaft Immobilien mbH & Co. KG and Ravensberger Heimstättengesellschaft Immobilien GmbH & Co. KG, which were merged with the corresponding corporate general partner.
B) ASSOCIATES The following table shows the development of associates accounted for using the equity method: TABLE 34
Number of associates accounted for using the equity method 2013 2012 AS OF 01.01...... 45 Disposals ...... 0 –1 AS OF 31.12...... 44
D. ACCOUNTING POLICIES 1. Investment properties
Investment properties consist of the LEG Group’s properties that are held to earn rentals or for capital appreciation or both, rather than for owner-occupancy or disposal in the ordinary course of business. Investment properties include land with residential and commercial buildings, undeveloped land, land with transferable leasehold land interest, parking spaces and garages.
In accordance with IFRS 5, investment properties that are held for disposal and that are highly likely to be sold within the next twelve months are presented in assets held for disposal under current assets. Measurement is consistent with the measurement of investment properties.
F-192 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
D. ACCOUNTING POLICIES (Continued) Mixed-used properties are separated into the owner-occupied part and the part rented to third parties to the extent that it is legally possible to separate the respective property, and neither the owner-occupied portions nor the portions rented to third parties are immaterial. The portion rented to third parties is allocated to investment properties, while the owner-occupied portion is presented in property, plant and equipment. The ratio of the respective areas is applied in allocating the components. Property is transferred from investment properties when there is a change in use evidenced by the commencement of owner-occupancy or the development with an intent to dispose of it. In addition, the acquisition of investment properties is recognised at cost plus corresponding ancillary transaction costs. In accordance with the option provided by IAS 40 in conjunction with IFRS 13, investment properties are subsequently carried at fair value. IFRS 13.9 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value generally assumes the disposal of an asset (»exit price«). It corresponds to the (theoretical) price to be paid to the seller in the case of a (hypothetical) sale of a property on the measurement date, irrespective of a company- specific intention or ability to sell. In calculating the fair value, the highest and best use of the property is assumed (»Concept of Highest and Best Use« IFRS 13.27ff.). This implies a use or value maximisation of the asset as far as it is physically possible, legally permissible and financially feasible. Further details can be found in Section 17. Changes to the fair value are recognised in profit or loss for the period in which they occur.
Subsequent costs for extension, partial replacement or maintenance of properties (IAS 40.17) are capitalised if they constitute the replacement of parts of a unit in accordance with the component approach (IAS 40.19) and the costs can be reliably determined. In addition, such costs are capitalised if the activities will result in increased future benefits and the costs can be reliably determined. Capitalised costs are not depreciated, as scheduled depreciation is not generally performed in connection with the fair value option provided by IAS 40. Individual units are sold to tenants, owner-occupants and private investors as part of portfolio optimisation measures.
Fair values are calculated internally by LEG Immo. For the whole portfolio (100%) the fair values calculated in this way are all checked annually for plausibility by a third-party expert. In this fiscal year, the plausibility check took place as of 31 December. This reporting date is also to be used for plausibility checks in future years. The properties are reviewed individually at the level of individual building entrances in terms of their location, condition, fixtures and fittings, current contractual rent and potential for development. The fair values calculated by LEG Immo correspond to the IFRS market values, i.e. the amount for which the respective property could be exchanged between market participants under current market conditions on the measurement date between the parties in an orderly transaction (IAS 40.5 rev. in conjunction with IFRS 13.15). The fair values of investment properties and properties held for disposal are calculated on the basis of the forecast net cash flows from property management using the discounted cash flow (DCF) method. For properties with no positive net cash flow (generally vacant buildings), the fair value is calculated using a liquidation value method. Undeveloped land is generally valued on the basis of an indirect comparison of indicative land values.
The DCF method applies a detailed planning period of ten years. After the end of the tenth year, a sales value is recognised that is calculated by capitalising the forecast annual net profit for the eleventh period. The contractually agreed rental income for the respective property and other property-specific value parameters are applied in the first year of the detailed planning period. The average monthly net cold rent excluding heating for the rented properties in the property portfolio (referring here and hereinafter to both investment properties and properties held for disposal) used for the measurement in buildings used primarily on a residential basis amounted to EUR 5.00 per square metre as of the end of the reporting period (2012: EUR 4.87 per square metre). In some cases, these properties may also contain commercial units of minor significance. The future development of annual rent was projected on the basis of individual assumptions for the planning period. A distinction was made between rental income from existing tenancies and new lettings due to forecast fluctuation. During the detailed planning period, market rent increases annually at an individually determined rate. For new lettings, rent in the amount of the assumed market rent is applied. Market rent growth applied varies from 0 to 2%, depending on the assessment of the respective market and property.
F-193 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
D. ACCOUNTING POLICIES (Continued) Rent from existing tenancies are projected on the basis of the statutory environment and the assessment of the respective market and property; and are assumed to converge with the overall development of the market over time. The vacancy rate in terms of rental space used for measurement amounted to 3.5% on the measurement date (2012: 3.4%). The assumptions with regard to the future development of the vacancy rate are based on the location and individual property characteristics. Publicly subsidised properties are treated differently depending on the existence and duration of potential rent control. If rent control is set to end within the ten-year detailed planning period, a rent adjustment towards the market rent is recognised for the subsequent year, taking into account the statutory requirements. For the remaining subsidised properties, for which rent control will expire by the latest in 2081, a discount on the capitalisation rate was recognised depending on the remaining duration of the rent control.
Average annual maintenance costs of EUR 10.94 per square metre are applied for reactive and periodical maintenance measures depending on the condition and year of construction of the respective property (2012: EUR 10.45 per square metre). The valuation model for investment properties was refined further in 2013, thanks to continued improvement in the available information on the life cycle of the individual properties. These changes had little to no influence on the results of portfolio valuation. The valuation now takes place for residential and commercial properties together within an integrated discounted-cash-flow model, taking into account conditions for the individual properties and the respective remaining useful life.
Administrative costs are applied at a flat rate per residential unit (EUR 278.85 p.a.) and per parking space or garage parking space (EUR 36.37 p.a.). For residential buildings with a commercial component or another type of use, administrative costs for the non-residential component are calculated to 1% (2012: 1%) of gross commercial income. Around 1.75% (2012: 1.66%) of the units in the Group’s portfolio are classified as commercial properties. In some cases, these properties may also contain residential units, but they are characterised by their primarily commercial character. Due to the differing rent terms and market conditions compared to the residential portfolio, these properties are also subject to different assumptions with regards to the key parameters affecting their value.
The average rent of the properties is EUR 6.54 per square metre (2012: EUR 6.64 per square metre), with average maintenance costs of EUR 7.50 per square metre (2012: EUR 7.68 per square metre) during the detailed planning period. The vacancy rate in terms on usable space amounted to 10.2% on the measurement date period (2012: 9.6%). Administrative costs are calculated at a rate of 1% (2012: 1%) of gross commercial income. Cash flows are discounted using standard market discount rates with matching maturities, giving a weighted average rate of 5.96% (weighted average; 2012: 6.06%) and standard market capitalisation rates for perpetuals, giving a weighted average of 6.61% (weighted average; 2012: 6.54%); this takes into account the property- specific management cost ratio and reflects the individual risk/opportunity profile of the respective property. In addition to location criteria, the determination of an appropriate interest rate takes into account the property type, property condition, age, potential rental growth, the forecast for the location and potential government subsidies, in particular. The change between 2012 and 2013 is primarily attributable to the recognition of the positive market development due to improved operating business and the impact of these developments on the discount rates applied. Due to the limited availability of market data and unobservable data and valuation parameters, the complexity of property valuation and the level of specification of property, the fair value measurement of investment properties is classified under Level 3 of the fair value hierarchy of IFRS 13.86 (measurement based on unobservable input factors); further details can be found in Section D.17. In the context of measurement, there is a classification of investment properties into categories defined by type of use: • Residential property • Commercial property • Garages, underground garages or parking spaces/ other properties
F-194 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
D. ACCOUNTING POLICIES (Continued) • Leasehold and land values Commercial property is defined as properties which have more than 1,000 square metre useable space or in which 50% of the building is used as commercial space. Other objects are generally units with outside advertising media and wireless antennas. There is also a breakdown into three market clusters on the basis of a scoring system developed by cbre: orange (high-growth markets), green (stable markets) and purple (higher-yielding markets). TABLE 35 shows the valuation technique used for determining the fair value of investment properties as well as the material unobservable input factors. TABLE 35
Information about fair value measurements using significant unobservable inputs (Level 3) Estimated Estimated Capitalisation Sensitivities rental vacancy rate for GAV Sensitivities development development terminal value (variance GAV Residential Residential Discount rate (sqm- (sqm- discount (variance (sqm- (sqm- weighted) 4) weighted) 4) rate) cap rate) weighted) weighted) GAV Valuation –25 +25 –25 +25 Segment € million assets technique 3) min. avg. max. min. avg. max. bps bps bps bps min. avg. max. T0 Residential assets1) ..... High-growth markets ....2,204.8 DCF 4.6 5.8 7.9 3.1 6.0 9.1 4.5 –4.1 2.5 –2.3 0.9 1.4 1.8 1.5 Stable markets with attractive yields ...... 1,544.9 DCF 4.7 5.9 7.4 3.6 6.6 13.0 4.1 –3.8 2.2 –2.0 0.5 0.9 1.5 3.9 Higher-yielding markets ...... 1,030.4 DCF 4.8 6.1 7.7 4.5 7.3 13.0 3.7 –3.5 1.8 –1.7 0.3 0.7 1.2 5.2 NonNRW...... 85.1 DCF 4.7 5.8 6.5 4.6 7.2 9.0 3.7 –3.5 1.9 –1.8 0.5 1.2 1.5 1.2 Commercial assets2) ..... 186.0 DCF 4.8 6.9 13.0 5.0 7.4 14.0 2.0 –1.9 1.9 –1.8 – – – – Parking + other assets .... 107.0 DCF 5.6 0.0 7.6 4.0 0.0 14.3 4.5 –4.2 2.0 –1.9 – – – – Leasehold + land values . . Earnings/ reference value 22.0 method – – – – – – – – – – – – – – TOTAL IAS 40/IFRS 5 . .5,180.0 DCF 4.6 6.0 13.0 3.1 6.6 14.3 4.1 –3.8 2.2 –2.0 – – – –
1) Excluding 286 residential units in commercial buildings; including 265 commercial and other units in mixed residential assets. 2) Excluding 265 commercial units in mixed residential assets; including 286 residential units in commercial buildings. 3) In exceptional cases liquidation value approach. 4) sqm-weighted interest rates refer to residential and commercial assets. bp = basis points
With the acquisition of the shares in LEG from Beteiligungsverwaltungsgesellschaft des Landes Nordrhein- Westfalen and NRW-Bank, Anstalt des öffentlichen Rechts, effective as of 29 August 2008, the LEG Group undertook to uphold social conditions including compliance with the usual provisions on tenant protection and safeguarding the relevant property portfolio. These social conditions include the following obligations: Under the terms of the Social Charter, tenants have a right of first refusal at preferential conditions in certain cases. Planned sales of rented buildings or complexes with more than one rented residential unit may be conducted only if certain conditions are met.
In some cases, the operating companies of the LEG Group are subject to restrictions on rent increases with respect to certain tenants with rights of first refusal and in connection with assistance in the form of loans at below- market rates of interest or investment subsidies. Legal requirements with regard to the privatisation of residential properties must also be observed. The company is required to spend a predetermined average amount per square metre on maintenance and improvement measures. Certain parts of the portfolio are also subject to unconditional restrictions on sale.
F-195 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
D. ACCOUNTING POLICIES (Continued) 2. Property, plant and equipment Property, plant and equipment is carried at cost and depreciated on a straight-line basis over its expected economic life. Subsequent expenditure is capitalised if this serves to increase the value in use of the respective item. The useful lives and residual values are examined annually and adjusted as necessary. Any subsidies received are deducted in calculating cost. Depreciation is performed using the following useful lives, which are applied uniformly throughout the Group: TABLE 36
Useful life of property, plant and equipment in years 2013 2012 Owner-occupied residential properties ...... 80 80 Owner-occupied commercial properties ...... 50 50 Technical equipment and machinery/Other operating and office equipment ...... 5-23 5-23 The carrying amounts of property, plant and equipment are tested for impairment as soon as there are indications that the carrying amount of an asset may exceed its recoverable amount. Property, plant and equipment is derecognised when sold or when no further economic benefit is expected from the continued use or the disposal of the asset. The gains or losses resulting from derecognition of the asset are recognised directly in profit or loss in the consolidated statement of comprehensive income. In accordance with the tax regulation on the depreciation of low-value assets that has been in place since January 2010, low-value assets with a net value of up to EUR 150 or less are written off in full in the year of their acquisition. Assets with a net value of between EUR 150.01 and EUR 1,000 are assigned to an omnibus item and depreciated on a straight-line basis over a period of five years. Deviations from the economic life of the respective assets are considered to be immaterial.
3. Intangible assets Acquired intangible assets are carried at cost. This relates to software licenses with a defined useful life. Software licenses are amortised on a straight-line basis over an expected economic life of between three and five years from the date on which they are provided. The following principles are applied to the recognition of internally generated intangible assets: Development costs that are directly allocated to the development and testing of identifiable individual software products controlled by the Group are recognised as intangible assets if the recognition criteria set out in IAS 38 are met. Development costs not meeting these criteria are expensed in the period in which they are incurred. Development costs that have already been expensed may not be capitalised in a subsequent period.
4. Impairment of non-financial assets
Within the LEG Group, intangible assets and property, plant and equipment are tested for impairment annually in accordance with IAS 36 in order to determine whether there is evidence of potential impairment. If such evidence exists, the recoverable amount for the respective asset is calculated; this being the higher of its fair value less costs to sell and its value in use. A standard pre-tax interest rate is applied. In the year under review, there was no need to perform impairment testing for intangible assets or property, plant and equipment as no triggering events occurred.
Investment properties are not subject to impairment testing in accordance with IAS 36 as they are carried at fair value. If the recoverable amount of an asset is lower than its carrying amount, an impairment loss is recognised immediately in profit or loss.
F-196 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
D. ACCOUNTING POLICIES (Continued) 5. Other financial assets
The LEG Group recognises financial assets on the trade date.
In accordance with IAS 39, subsidiaries that are not consolidated due to immateriality are classified as available- for-sale financial assets for valuation purposes. Available-for-sale financial assets are carried at their fair value as of the end of the reporting period or, if this cannot be reliably determined, at cost. Shares in unconsolidated subsidiaries or subsidiaries recognised using the equity method are not publicly listed. Due to the significant volatility and the lack of an active market, the fair value of these instruments cannot be reliably determined. Currently, there is no intention to sell these shares in the near future. Assets for sale (AfS) financial instruments are recognised at fair value on acquisition. Gains and losses on subsequent fair value measurement are recognised directly in equity (cumulative other reserves). On disposal of a financial asset, the cumulative net gain or loss on remeasurement previously recognised in other reserves is reversed and recognised in profit or loss in the statement of comprehensive income. If the value of a financial asset is subject to an impairment, an adjustment in the amount of the respective impairment is recognised in profit or loss. When an impairment is reversed, the respective amount is recognised in profit or loss for debt instruments and recognised directly in equity for equity instruments. Impairments may not be reversed in the case of AfS instruments carried at cost; any impairments are recognised in profit or loss.
6. Accounting for leases as the lessee
Leased assets for which the economic ownership lies with the LEG Group (finance leases in accordance with IAS 17) are recognised as non-current assets at the lower of the present value of minimum lease payments or the fair value of the leased property, and are depreciated on a straight-line basis. The depreciation period is the shorter of the lease term and the useful life of the asset. In cases where ownership of the asset is transferred to the LEG Group at the end of the lease term, the depreciation period is the economic life of the asset. A corresponding liability is recognised in the amount of the present value of the future minimum lease payments. Repayments net of finance charge serve to reduce the liability in subsequent periods.
Leases under which economic ownership does not lie with the LEG Group are classified as operating leases. The expenses resulting from these leases are recognised in profit or loss when the respective leased assets are used.
7. Accounting for leases as the lessor As a matter of principle, the relevant statutory provisions require that rental agreements for residential properties provide tenants with an option to terminate the agreement with short notice. In accordance with IAS 17, these agreements are classified as operating leases as, substantially, the risks and rewards incident to ownership remain with the LEG Group. The same applies for the current agreements for commercial property. Income from operating leases is recognised in the statement of comprehensive income in rental and lease income on a straight-line basis over the term of the respective leases.
8. Inventory properties and other inventories Other inventories are carried at cost, which is calculated on the basis of the allocable direct costs for service provision plus production-related overheads. Inventories are carried at the lower of cost and net realisable value as of the end of the reporting period. Details on the accounting treatment of borrowing costs can be found in Section D.21.
9. Receivables and other assets On initial recognition, trade receivables and other financial assets are carried at their fair value plus transaction. They are measured at amortised cost in subsequent periods.
F-197 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
D. ACCOUNTING POLICIES (Continued) Potential default risks are recognised in the form of appropriate valuation adjustments based on past experience and individual risk assessments, taking into account the forecast net cash flows. For financial instruments carried at amortised cost, a distinction is made between specific valuation allowances and portfolio-based valuation allowances. Portfolio-based allowances are used to recognise impairments on financial assets, for which it is unlikely that all of the contractually agreed payments (interest and/ or principal) will be achieved on maturity.
10. Cash and cash equivalents Cash and cash equivalents include cash, demand deposits, other short-term, highly liquid financial assets with original maturities of three months or less, and bank overdrafts. Utilised bank overdrafts are shown in the consolidated statement of financial position in current financing liabilities.
11. Assets held for sale In addition to individual non-current assets, assets held for sale may include groups of assets (disposal groups) or components of entities (discontinued operations) if their disposal is considered to be highly probable within the next twelve months. Classification in accordance with IFRS 5 is retained only if the asset can be sold immediately in its present condition, at conditions subject only to terms that are usual and customary for the disposal of such assets. Liabilities, which are directly associated with the planned disposal, form part of the disposal group or the discontinued operations and are also presented separately.
In accordance with IFRS 5, assets held for sale are stated at the lower of carrying amount and fair value less costs to sell. Investment property items classified as assets held for sale are measured at fair value in accordance with IAS 40.
12. Pension provisions Pension and similar obligations result from commitments to employees. Obligations under defined benefit plans are measured using the projected unit credit method, taking into account pensions and benefits as of the end of the reporting period as well as expected future salary and pension increases. The biometric basis is provided by the 2005G mortality tables published by Dr Klaus Heubeck. The Group has both defined benefit and defined contribution plans. The amount of the pension benefits payable under defined benefit plans is based on the qualifying period of employment and the pensionable income. In Germany, the regulatory framework is the Company Pension Act, according to which pensions rise in line with the rate of inflation. LEG carries the actuarial risks, such as the longevity risk, the interest rate risk and the inflation risk. At LEG, there are no additional plan-specific risks. Remeasurement components in connection with defined benefit plans, which cover actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions, are charged or credited directly to equity in cumulative other reserves in the period in which they arise. No past service costs were incurred in the current fiscal year or the previous fiscal year. The interest effect included in pension expenses is shown in interest expenses in the consolidated statement of comprehensive income. Past service costs are shown under operating result in the individual functions.
13. Other provisions
Other provisions are recognised if the LEG Group has a present legal or constructive obligation as a result of past events to make payments that is likely to be settled by an outflow of resources embodying economic benefits that can be reliably determined. The amount recognised as a provision is the best estimate of the expenditure required to settle the present obligation at the end of the reporting period. Non-current provisions are carried at their discounted settlement amount at the reporting date on the basis of corresponding market interest rates with matching maturities.
F-198 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
D. ACCOUNTING POLICIES (Continued) 14. Financing liabilities On initial recognition, financing liabilities are recognised at their fair value plus transaction costs and adjusted for any premiums and discounts. The fair value at the grant date corresponds to the present value of future payment obligations based on a market interest rate with matching maturity and risk. In subsequent periods, financing liabilities are measured at amortised cost using the effective interest method. The effective interest rate is determined at initial recognition of the financing liability. Changes in terms affecting the amount and timing of interest and principal payments result in remeasurement of the carrying amount of the liability in the amount of the present value on the basis of the effective interest rate originally calculated. Any differences compared to the previous carrying amount are recognised in profit or loss. If changes in terms lead to significant differences in contractual conditions in accordance with IAS 39.AG 62, the original liability is treated as if it had been repaid in full in accordance with IAS 39.40 and a new liability is recognised at fair value.
15. Derivative financial instruments The leg Group uses derivative financial instruments to hedge interest rate risks arising from real estate financing. Derivative financial instruments are carried at fair value. Changes in the fair value of derivatives are recognised in profit or loss unless the respective instruments are designated as hedging instrument in accordance with IAS 39. Derivatives used as hedging instruments are used to hedge uncertain future cash flows. The LEG Group is exposed to future cash flow risks as a result of floating-rate financing liabilities in particular. Changes in fair value are divided into an effective and an ineffective portion. Effectiveness is determined using the dollar offset method. The effective portion is the portion of the gain or loss on remeasurement that is recognised as an effective hedge against the cash flow risk. The effective portion, net of deferred taxes, is recognised directly in cumulative other reserves in equity.
The ineffective portion of the gain or loss on remeasurement is presented in net interest income in the consolidated statement of comprehensive income. The amounts recognised directly in equity are transferred to the consolidated statement of comprehensive income if gains or losses in connection with the underlying are recognised in profit or loss. In the event of an early termination of the hedge, the amounts recognised in profit or loss, if gains or losses in connection with the existing underlying are recognised in profit or loss. If the underlying is terminated, then the amounts remaining in other comprehensive income (OCI) are immediately recognised in profit or loss.
16. Fair values of financial instruments The fair values of financial instruments are determined on the basis of corresponding market values or measurement methods. For cash and cash equivalents and other short-term primary financial instruments, the fair value is approximately the same as the carrying amount at the respective reporting date. For non-current receivables, other assets and liabilities, the fair value is calculated on the basis of the forecast cash flows, applying the reference interest rates as of the end of the reporting period. The fair values of derivative financial instruments are calculated using the reference interest rates as of the end of the reporting period, plus the own risk or the counterparty risk. For financial instruments at fair value, the discounted cash flow method is used to determine fair value using corresponding quoted market prices, with individual credit ratings and other market conditions being taken into account in the form of standard credit and liquidity spreads when calculating present value. If no quoted market prices are available, the fair value is calculated using standard measurement methods applying instrument- specific market parameters. When calculating the fair value of derivative financial instruments, the input parameters for the valuation models are the relevant market prices and interest rates observed as of the end of the reporting period which are obtained from recognised external sources. Accordingly, derivatives are classified to Level 2 of the fair value hierarchy set out in ifrs 13.72ff (measurement on the basis of observable input data). Details can be found in Section D.17.
F-199 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
D. ACCOUNTING POLICIES (Continued) Both the Group’s own risk and the counterparty risk were taken into account in the calculation of the fair value of derivatives in accordance with IFRS 13.
17. Measurement of fair value All assets, equity instruments and liabilities, which are measured at fair value in line with the requirements of other standards (except IAS 17 »Leases« and IFRS 2 »Share-based Payment«) are measured uniformly in line with IFRS 13. IFRS 13.9 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value generally assumes the disposal of an asset (»exit price«). This also applies if the enterprise has neither the intention nor the capacity to sell the asset at the measurement date or to transfer the liability at this point in time. In calculating the fair value of non-financial assets, the highest and best use is assumed (»Concept of Highest and Best Use« ifrs 13.27ff.). This implies a use or value maximisation of the asset as far as it is physically possible, legally permissible and financially feasible. Fair value measurement of investment properties is classified to Level 3 of the fair value hierarchy of IFRS 13.86 (measurement based on unobservable input factors). For information on the measurement of investment properties, please see the comments in Chapter D.1. For the measurement of derivative financial instruments, please see Chapter D.16 and Chapter I.3. The fair value hierarchy can be summarised as follows: TABLE 37
Fair value hierarchy
Level 1 Level 2 Level 3 Investment properties ...... X Financing liabilities ...... X Other liabilities (particularly derivative) ...... X
18. Recognition of income and expenses
Income is recognised when it is probable that the economic benefit will flow to the LEG Group and the amount of the income can be reliably determined. The following recognition criteria must also be met in order for income to be recognised:
A) RENTAL AND LEASE INCOME Income from rental and lease of properties for which the corresponding rental and lease agreements are classified as operating leases is recognised on a straight-line basis over the term of the respective lease agreement. When incentives to tenants are provided, the cost of incentive is recognised over the lease term, on a straight-line basis, as a reduction of rental and lease income. Rental and lease income also includes tenant payments for utilities and service charges if the costs and the amount of the income can be reliably determined and the services have been provided.
B) INCOME FROM THE DISPOSAL OF INVESTMENT PROPERTIES
Income from the disposal of investment properties is recognised when the LEG Group transfers substantially all the risks and rewards incident to ownership to the buyer. A transfer is generally assumed to take place when the LEG Group transfers title and effective control of the sold property to the buyer, and it is probable that the income from the disposal will flow to the LEG Group.
By contrast, income is not recognised if the LEG Group assumes yield guarantees, provides rights of return to the buyer or enters into other material obligations with respect to the buyer that prevent the transfer of risks and rewards of ownership to the buyer.
F-200 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
D. ACCOUNTING POLICIES (Continued) C) INCOME FROM OTHER SERVICES Income from the rendering of service projects is recognised in the period in which the service is provided. This is determined in accordance with the percentage of completion of the respective project and the ratio of the services rendered as of the end of the reporting period to the total services to be provided. Income from third-party management is only recognised once the corresponding services have been rendered.
D) INTEREST INCOME Interest income is recognised using the effective interest method in the period in which it arises.
E) DIVIDEND INCOME Dividend income is recognised when the right to receive the respective payment arises.
F) EXPENSES Operating expenses are recognised in profit or loss when the respective service is utilised or the expenses are caused.
19. Government grants
Government grants within the meaning of IAS 20 are recognised if there is reasonable assurance that the grants will be received and that the company will comply with the corresponding conditions. Expense-related grants are recognised as income over the period that is expected to be necessary to offset the expenses for which the grants compensate. The LEG Group has primarily received government grants in the form of loans at below-market interest rates. These loans at below-market interest rates are property loans and are reported as financing liabilities. Compared to regular loans, they provide benefits, such as lower interest rates or periods free of interest and principal payments. The loans were measured at fair value when the company was acquired in 2008, and carried at amortised cost in subsequent periods. On initial recognition, new investment loans and loans at below-market interest rates are measured at their present value based on the applicable market interest rate at the grant date. The difference between the nominal amount and the present value of the loan is recognised as deferred income and reversed on a straight-line basis over the remaining term of the corresponding loan, which is measured at amortised cost in subsequent periods.
20. Taxes Income tax expense represents the sum of current tax expense and deferred taxes. Current tax expense is calculated on the basis of the taxable income for the respective year. Taxable income differs from the consolidated net profit for the period, as shown in the consolidated statement of comprehensive income, due to income and expenses that are only taxable or tax-deductible in future periods, if at all. The Group’s liabilities and provisions for current taxes are calculated on the basis of the applicable tax rates. Deferred taxes are recognised for differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax base for the purpose of calculating taxable income. Deferred tax liabilities are generally recognised for all taxable temporary differences, while deferred tax assets are recognised to the extent that it is probable that taxable income will be available against which the deductible temporary differences can be utilised. Deferred tax assets also include reductions in taxes resulting from the expected utilisation of existing tax loss carryforwards (or similar items) in subsequent periods if realisation is assured to a reasonable extent. In addition, deferred taxes are recognised for outside basis differences if the relevant conditions are met.
F-201 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
D. ACCOUNTING POLICIES (Continued) Deferred tax liabilities and deferred tax assets are calculated on the basis of the tax rates (and tax legislation) that are expected to be in force when the liability is settled or the asset is realised. This is based on the tax legislation in force or adopted by the Bundestag (Lower House of the German Parliament) and, where applicable, the Bundesrat (Upper House of the German Parliament) as of the end of the reporting period. The measurement of deferred tax assets and liabilities reflects the tax consequences arising from the manner in which the Group expects to settle the deferred tax liabilities or realise the deferred tax assets as of the end of the reporting period. Current or deferred taxes are recognised in profit or loss unless they relate to items that are recognised in other comprehensive income or recognised directly in equity. In this case, the corresponding current and deferred taxes are recognised in other comprehensive income or directly in equity. Deferred tax assets and deferred tax liabilities are offset if the Group has a legally enforceable right to offset current tax assets against current tax liabilities, and the deferred tax assets and liabilities relate to income taxes levied by the same tax authority and to the same taxable entity.
For the tax liability from the settlement of corporation tax from previously unutilised »EK 02« taxable equity is discounted using the applicable tax discount rate of 5.5%.
21. Borrowing costs
Borrowing costs are expensed in the period in which they are incurred. For inventories in accordance with IAS 2, borrowing costs are capitalised in case qualifying assets exist. The same applies for property, plant and equipment and intangible assets.
22. Judgments The management is required to use judgments in applying the accounting policies. This applies in particular to the following items: • For assets held for sale, it must be determined whether the assets can be sold in their present condition and whether their disposal can be considered highly likely within the meaning of IFRS 5. If this is the case, the assets and any corresponding liabilities are reported and measured as assets and liabilities held for disposal. • It must be determined whether property should be classified as inventories or investment properties depending on the intended use. • Buildings that are both owner-occupied and used by third parties must be reported as separate assets in accordance with IAS 16 and IAS 40, unless the owner-occupied component is immaterial.
23. Use of estimates
The preparation of IFRS consolidated financial statements requires assumptions and estimates affecting the carrying amounts of the assets and liabilities recognised, income and expenses and the disclosure of contingent liabilities. Among other things, these assumptions and estimates relate to: • Measurement of investment properties: significant measurement parameters include the expected cash flows, the assumed vacancy rate and the discount and capitalisation rates. If market values cannot be derived from transactions including similar properties, measurement is performed using the DCF method, under which future cash flows are discounted to the reporting date. These estimates involve assumptions concerning the future. In light of the large number of properties affected and their geographical spread, individual measurement uncertainties are subject to statistical smoothing. Measurement is performed on the basis of publicly available market data (e.g. property market reports by expert committees, data from the service provider INWIS, etc.) and the extensive knowledge of the LEG Group and its subsidiaries in the respective regional submarkets. • Recognition and measurement of pension provisions and similar obligations: pension provisions and similar obligations are measured on the basis of actuarial calculations, applying assumptions with regard to interest rates, future wage and salary increases, mortality tables and future pension growth.
F-202 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
D. ACCOUNTING POLICIES (Continued) • Recognition and measurement of other provisions: recognition and measurement is subject to uncertainty concerning future price growth and the amount, timing and probability of utilisation of the respective provision. • Measurement of financing liabilities: the measurement of financing liabilities depends in particular on estimates of future cash flows and potential changes in terms. Estimates of the company-specific risk premium are also required. • Recognition of deferred tax assets: deferred tax assets are recognised if it is probable that future tax benefits will be realised. The actual taxable income in future fiscal years, and hence the extent to which deferred tax assets can be utilised, may deviate from the estimates made when the deferred tax assets are recognised. Further information on assumptions and estimates made by management can be found in the disclosures to the individual items of the financial statements. All assumptions and estimates are based on the prevailing circumstances and assessments as of the end of the reporting period. The estimation of future business development also takes into account the future economic environment that is currently assumed to be realistic in the industries and regions in which the LEG Group is active. Although the management considers assumptions and estimates applied to be appropriate, unforeseeable changes to these assumptions could have an impact on the Group’s net assets, financial position and results of operations.
24. Share-based payment
The LEG Group has share-linked remuneration plans (share option plans) for members of the Management Board of LEG Immo. In line with IFRS 2, the share option plans in the context of the Long-Term Incentive Program are treated as cash-settled share-based remuneration. The provisions for these obligations are established at the level of the expected expense, with them being distributed pro rata across the defined vesting period. The fair value of the options is determined using recognised financial models.
In addition, former shareholders of the LEG Group have concluded an agreement with the Management Board on granting shares in LEG depending on a successful ipo or exit. In line with IFRS, these share option plans are to be classified and recognised as equity-settled share-based payment. The fair value of the shares are calculated using recognised financial models as of the grant date and distributed on a straight-line basis over the vesting period in which the enterprise receives the counterperformance in the employee service. The expenses are recognised in staff cost and recognised directly in equity. Details of share-based payment can be found in Section I.6 .
E. NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION 1. Investment properties Investment properties developed as follows in the fiscal years 2013 and 2012:
TABLE 38
Investment properties
€ million 2013 2012 CARRYING AMOUNT AS OF 01.01...... 4,937.1 4,736.1 Acquisitions ...... 128.5 52.5 Other additions ...... 43.7 41.5 Reclassified to assets held for sale ...... –28.4 –13.1 Reclassified to property, plant and equipment ...... – 0.3 – 0.3 Reclassified from property, plant and equipment ...... 1.2 0.1 Fair value adjustment ...... 81.6 120.3 CARRYING AMOUNT AS OF 31.12...... 5,163.4 4,937.1
F-203 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
E. NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Continued) The following acquisitions were performed in the reporting period.
The acquisition of a property portfolio of around 2,200 residential units was notarised on 15 May 2013. The portfolio generates annual net cold rent of EUR 6.1 million. The average in-place rent is EUR 4.74 per square metre; the initial vacancy rate is eight per cent. The transaction was closed on 1 August 2013. The acquisition price is subject to a non-disclosure agreement with the seller.
A property portfolio of around 538 residential units was acquired by way of a purchase agreement dated 4 June 2013. The portfolio generates annual net cold rent of EUR 2.0 million. The average in-place rent is EUR 4.92 per square metre; the vacancy rate is 8.7%. The rights and obligations were transferred on 1 August 2013. The purchase price including incidental acquisition costs was EUR 25.6 million.
The acquisition of a property portfolio of around 829 residential units was notarised on 11 July 2013. The portfolio generates annual net cold rent of EUR 2.6 million. The average in-place rent is EUR 4.92 per square metre; the initial vacancy rate is around six per cent. The purchase price including incidental acquisition costs is EUR 34.0 million. The transaction was closed on 1 October 2013.
A property portfolio of around 735 residential units was acquired by way of a purchase agreement dated 7 November 2013. The annual net cold rent is EUR 2.1 million. The average in-place rent is EUR 4.64 per square metre; the initial vacancy rate is 5.2%. The purchase price including incidental acquisition costs is EUR 26.0 million. The transaction was closed on 1 February 2014.
A property portfolio of around 537 residential units was acquired by way of a purchase agreement dated 16 December 2013. The annual net cold rent is EUR 2.2 million. The average in-place rent is EUR 5.20 per square metre; the initial vacancy rate is 0.4%. The purchase price including incidental acquisition costs is EUR 26.1 million. The transaction will be closed on 1 May 2014.
In addition, a provisional agreement was reached with another seller on the acquisition parameters for buying a portfolio with approximately 2,000 units. It is anticipated that the transaction will be closed in the next few months.
Each acquisition of a property portfolio is treated as a group of assets in the consolidated financial statements. A business within the meaning of IFRS 3.3 was not acquired as there was no transfer of material business processes.
Other additions in the fiscal year primarily relate to investments in existing properties. The largest investments in 2013 included those in Dortmund and Monheim.
Disposals from the residential property portfolio at carrying amounts primarily relate to the disposal of a residential and commercial property and to further individual disposals. Further details can be found in Section E.9. The units were sold to independent market participants in the course of the ordinary disposal process.
F-204 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
E. NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Continued) Investment properties were composed as follows in the fiscal years 2013 and 2012: TABLE 39
TABLE 39
Composition of investment properties
31.12.2013 31.12.2012 Properties held Properties held € million Investment properties for disposal Investment properties for disposal Developed land ...... 5,036.2 16.4 4,810.3 1.5 Undeveloped land ...... 17.4 – 22.2 0.1 Other ...... 109.8 – 105.1 0.0 TOTAL ...... 5,163.4 16.4 4,937.6 1.6
As of 31 December 2013, there were following sensitivities:
TABLE 40
Sensitivity analysis 2013
Sensitivities GAV Sensitivities GAV € million (variance discount rate) (variance cap rate) Valuation Segment GAV assets technique3) –25 bps +25 bps –25 bps +25 bps Residential assets1) ...... High-growth markets ...... Discounted 2,205 cash flows 4.5 –4.1 2.5 –2.3 Stable markets with attractive Discounted yields ...... 1,545 cash flows 4.1 –3.8 2.2 –2.0 Higher-yielding markets ...... Discounted 1,030 cash flows 3.7 –3.5 1.8 –1.7 NonNRW...... Discounted 85 cash flows 3.7 –3.5 1.9 –1.8 Commercial assets2) ...... Discounted 186 cash flows 2.0 –1.9 1.9 –1.8 Parking + other assets ...... Discounted 107 cash flows 4.5 –4.2 2.0 –1.9 Leasehold + land values ...... Earnings/ reference value 22 method – – – – Discounted TOTAL IAS 40/IFRS 5 ...... 5,180 cash flows 4.1 –3.8 2.2 –2.0
1) Excluding 286 residential units in commercial buildings; including 265 commercial and other units in mixed residential assets. 2) Excluding 265 commercial units in mixed residential assets; including 286 residential units in commercial buildings. 3) In exceptional cases liquidation value approach. bp = basis points
F-205 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
E. NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Continued) As of 31 December 2012, there were the following sensitivities:
TABLE 41
Sensitivity analysis 2012
€ million/% Discount rate 31.12.2012 Discount rate 31.12.2012 Developed land ...... 0.00 4,811.8 0.25 4,622.6 0.00 4,811.8 –0.25 5,011.8
The development in fair values in the fiscal year and the previous fiscal year is largely due to the reduction in the discount rate on the back of positive market development, as well as sound development in the Group’s operating business in the form of increased actual rent and lower vacancy rates.
As of the reporting date, the LEG Group still expects future fluctuations in fair value to be primarily attributable to factors beyond the Group’s control. In particular, this includes the discount rates used in measurement.
Some investment properties are let under the terms of commercial rental agreements and leases. These rental agreements and leases generally have a term of ten years and contain extension options for a maximum of two- times five years.
The Group also has land with third-party heritable building rights with an original contractual term that is generally between 75 and 99 years.
The rental agreements for residential property concluded by the LEG Group can be terminated by the tenant at any time giving three months’ notice to the end of the month. Accordingly, fixed cash flows in the amount of three monthly rents are expected from these rental agreements.
The following amounts are expected to be due over the coming years based on the minimum lease instalments for long-term rental agreements for commercial property that were in place as of 31 December 2013:
TABLE 42
Amount based on minimum lease instalments for long-term rental agreements (commercial properties)
€ million 31.12.2013 31.12.2012 Remaining term up to 1 year ...... 15.9 13.7 Remaining term > 1 to 5 years ...... 36.5 37.3 Remaining term > 5 years ...... 31.3 26.5 TOTAL ...... 83.7 77.5
Land with third-party heritable building rights under finance leases had a net carrying amount of EUR 0.3 million as of the end of the reporting period (2012: EUR 0.3 million).
Investment properties are used almost exclusively as securities for financing liabilities. For more details see Section E.13.
2. Property, plant and equipment This item is used to report land and buildings classified in accordance with IAS 16, technical equipment and office and operating equipment. The development of property, plant and equipment is shown in the consolidated statement of changes in assets (Annex I).
F-206 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
E. NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Continued) Assets under finance leases had the following net carrying amounts at the reporting date:
TABLE 43
Assets under finance leases
€ million 31.12.2013 31.12.2012 Heat-generating plants ...... 14.1 15.6 Measuring instruments ...... 6.1 6.1 Power lines ...... 1.1 1.3 Hardware ...... 0.1 0.1 Multifunctional printers ...... 0.0 0.1 Others ...... 0.2 0.2 TOTAL ...... 21.6 23.4
The reduction of the carrying amount resulted from the scheduled depreciation of the fiscal year.
3. Intangible assets The development of intangible assets is shown in the consolidated statement of changes in assets (Annex I).
4. Investments in associates The following table provides a summary of the financial information for associates accounted for using the equity method:
TABLE 44
Companies accounted for using the equity method
€ million 31.12.2013 31.12.2012 Investments in associates ...... 9.2 8.3 Net income from associates ...... 0.3 0.4
TABLE 45
Companies accounted for using the equity method
€ million 31.12.2013 31.12.2012 Assets1) ...... 57.6 56.6 Liabilities1) ...... 34.6 35.6 Group share of net assets ...... 9.2 8.3
2013 2012 Revenue1) ...... 8.1 7.0 Gain/Loss1) ...... 0.7 0.8 Group share of net profit ...... 0.3 0.3
1) Equivalent to 100% share.
Losses at associates are recognised up to a carrying amount of zero. Any losses in excess of this amount are carried forward in an auxiliary account if there is no obligation to make additional payments.
F-207 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
E. NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Continued) Unrecognised proportionate losses developed as follows:
TABLE 46
Unrecognised pro rata losses
€ million 2013 2012 For period ...... 0.0 0.0 Cumulative ...... 0.2 0.3
The carrying amounts in the fiscal year developed as follows:
TABLE 47 Carrying amount
Reconciliation € million 2013 2012 01.01...... 8.3 8.1 Share of profit ...... 0.3 0.3 Transfer ...... 0.6 0.0 Disposals ...... 0.0 –0.1 31.12...... 9.2 8.3
5. Other financial assets Other financial assets are composed as follows:
TABLE 48
Other financial assets
€ million 31.12.2013 31.12.2012 Investments in affiliates not included in consolidation ...... 0.1 0.1 Investments in equity investments and associates ...... 1.5 2.0 Other financial assets ...... 2.0 2.8 TOTAL ...... 3.6 4.9
Details of other financial assets can be found in Section I.3.
F-208 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
E. NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Continued) 6. Receivables and other assets Receivables and other assets are composed as follows:
TABLE 49
Receivables and other assets
€ million 31.12.2013 31.12.2012 Trade receivables, gross ...... 19.1 27.0 Impairment losses ...... –7.9 –7.1 TOTAL ...... 11.2 19.9 Thereof attributable to rental and leasing ...... 5.5 5.1 Thereof attributable to property disposals ...... 4.2 4.3 Thereof attributable to other receivables ...... 1.5 10.5 Thereof with a remaining term up to 1 year ...... 8.6 18.0 Thereof with a remaining term of between 1 – 5 years ...... 2.6 1.9
€ million 31.12.2013 31.12.2012 Receivables from uninvoiced operating costs ...... 6.7 5.2 Loans ...... 0.9 1.2 Other financial assets ...... 2.5 5.2 Other miscellaneous assets ...... 2.5 1.7 TOTAL ...... 12.6 13.3 Thereof with a remaining term up to 1 year ...... 12.4 13.3 Thereof with a remaining term of between 1 – 5 years ...... 0.2 – TOTAL RECEIVABLES AND OTHER ASSETS ...... 23.8 33.2
Of the receivables from uninvoiced operating costs, EUR 6.6 million related to 2013 (2012: EUR 4.3 million) and for prepayments in 2014 EUR 0.1 million (in 2012 for prepayments for 2013: EUR 0.9 million.) Further details can be found in Section I.3.
Details of related parties can be found in Section I.6.
7. Inventory properties and other inventories Inventory properties and other inventories are composed as follows:
TABLE 50
Real estate and other inventories
€ million 31.12.2013 31.12.2012 Land with completed buildings ...... 0.0 1.4 Undeveloped land ...... 1.4 3.1 Land under development ...... 7.8 11.8 Other work in progress ...... 0.1 0.2 Other inventories ...... 0.8 0.9 TOTAL 10.1 17.4
F-209 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
E. NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Continued) Further information on inventories can be found in the following table:
TABLE 51
Additional information
€ million 31.12.2013 31.12.2012 Amount of inventories recognised as an expense in the reporting period ...... 8.7 7.6 Amount of inventories with tenancy of more than 1 year ...... 10.1 16.6
The decrease in inventories results primarily from the winding up of the Development division.
8. Cash and cash equivalents
TABLE 52
Cash and cash equivalents
€ million 31.12.2013 31.12.2012 Bank balances ...... 110.6 133.6 Cash on hand ...... 0.1 0.1 CASH AND CASH EQUIVALENTS ...... 110.7 133.7 Restricted disposal balances – notary trust accounts –...... 1.9 1.61)
1) Previous year adjustment.
Bank balances have variable interest rates for overnight deposits. Short-term deposits are made for periods of between one day and three months, depending on the Group’s liquidity requirements. Cash and cash equivalents include balances with a fixed purpose. These are reported as balances with restricted access.
9. Assets held for sale In accordance with IFRS 5, assets held for sale consist solely of those assets for which a decision on disposal has been made as of the reporting date, the sale of the property within twelve months of the decision is considered to be highly likely, and active marketing activities have been initiated.
TABLE 53
Assets held for sale
€ million 2013 2012 CARRYING AMOUNT AS OF 01.01...... 2.2 2.4 Reclassified from investment properties ...... 28.4 13.1 Reclassified to investment properties ...... –0.1 – Disposal due to sale of land and buildings ...... –14.8 –13.9 Disposal due to sale of companies ...... –0.6 –2.1 Other additions ...... 1.3 2.7 CARRYING AMOUNT AS OF 31.12...... 16.4 2.2
F-210 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
E. NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Continued) The reclassification from investment property relates primarily to the disposal of a residential and commercial property. The transaction will be closed in 2014.
The properties reported in disposals due to the sale of land and buildings were sold as scheduled in the year under review, as part of the LEG Group’s sales program. This relates to developed and undeveloped land as well as residential and commercial properties. The largest single item of property sold in the year under review was an office building at LEG Bauträger GmbH in the amount of EUR 2.1 million.
10. Equity The change in equity components is presented in the statement of changes in equity.
A) SHARE CAPITAL Until 10 January 2013, the company had the legal form of a limited company under German law. The shareholders of LEG Immo were Saturea B.V., with an interest in the share capital of EUR 47.3 million, and Perry Luxco RE S.à r. l., with an interest in the share capital of EUR 5.7 million.
By way of entry in the commercial register on 11 January 2013, LEG Immobilien GmbH underwent a change in legal form and was renamed LEG Immobilien AG. The founders of LEG Immobilien AG are Saturea B.V. and Perry Luxco RE S.à r. l. Details can be found in Section I.11.
The notifications in accordance with Section 160(1) no. 8 AktG can be found in the Annexes III.
The Management Board is authorised, with the approval of the Supervisory Board, to increase the share capital of the company on one or more occasions by up to a total of EUR 26,481,722 by issuing up to 26,481,722 new registered shares against cash or contributions in kind up to 2 January 2018 (Authorised Capital).
The Annual General Meeting on 17 January 2013 resolved the amendment to the Articles of Association, and hence the contingent capital increase. The share capital is contingently increased by up to EUR 26,481,722 through the issue of up to 26,481,722 new no-par value bearer shares with dividend rights (contingent capital 2013). The contingent capital increase will be used to grant shares to the holders of debt instruments issued up until 16 January 2018.
B) CAPITAL RESERVES By way of agreement dated 17 January 2013, the shareholders Restio B.V. and Perry Luxco RE S.à r. l. contributed loan receivables in the amount of EUR 40.5 million to the capital reserves of LEG Immobilien AG as other contributions.
EUR 39.0 million were withdrawn from capital reserves and transferred to the unappropriated surplus.
C) CUMULATIVE OTHER RESERVES Cumulative other reserves consist of the Group’s retained earnings and other reserves.
Retained earnings are composed of the net profits generated by the companies included in consolidation in prior periods and the current period, to the extent that these have not been distributed.
Other reserves consist of adjustments to the fair values of derivatives used as hedging instruments and actuarial gains and losses from the remeasurement of pension provisions.
In the fiscal year 2013 , there was the first distribution in the form of a dividend to the shareholders of the company for 2012 of EUR 21.7 million.
F-211 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
E. NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Continued) D) NON-CONTROLLING INTERESTS Non-controlling interests primarily relate to Rote Rose GmbH & Co. KG, Dusseldorf.
Non-controlling interests in other comprehensive income were composed as follows:
TABLE 54
Non-controlling interest in other comprehensive income
€ million 31.12.2013 31.12.2012 Actuarial gains and losses from the measurement of pension obligations ...... 0.1 2.7 Fair value adjustment of interest rate derivatives in hedges ...... 0.2 6.6 NON-CONTROLLING INTEREST IN OTHER COMPREHENSIVE INCOME ... 0.3 9.3
11. Pension provisions Expenses for defined contribution plans amounted to EUR 3.7 million in the year under review (2012: EUR 3.5 million). These relate primarily to contributions to the statutory pension insurance.
In connection with defined benefit plans, the LEG Group uses statistical and actuarial calculations by actuaries in order to ensure that future developments are taken into account in the calculation of expenses and obligations. Among other things, these calculations are based on assumptions with regard to the discount rate and future wage and salary growth.
In accordance with IAS 19, pension provisions for defined benefit plans are calculated on the basis of actuarial assumptions. The following parameters were applied in the fiscal years 2012 and 2013:
TABLE 55
Calculation of pension provisions
% 31.12.2013 31.12.2012 Discounting rate ...... 3.40 2.90 Salary trend ...... 2.75 2.75 Pension trend ...... 2.00 2.00
A change of the individual parameters would have the following impact on the present value of the obligation (with other assumptions being unchanged):
TABLE 56
Sensitivity of pension provisions
€ million 31.12.2013 31.12.2012 Discounting rate (increase and decrease around 0.5% point) ...... –7.5 8.4 Salary trend (increase and decrease around 0.5% point) ...... 1.3 –1.3 Mortality (increase and decrease around 0.5% point) ...... –3.9 4.4 Pension trend (increase and decrease around 0.5% point) ...... 3.0 –2.9
Increases or reductions in the discount rate, the salary trend, the pension trend and the mortality rate do not impact the calculation of the defined benefit obligation (DBO) with the same absolute amount.
F-212 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
E. NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Continued) If several assumptions are changed at the same time, the total amount may not correspond to the total of the individual effects resulting from the change in assumptions. It should also be noted that the sensitivities reflect a change of the DBO only for the respective specific size of the change in assumptions (e.g. 0.5%). If assumptions change to a different extent, this need not have a straight-line impact on the DBO. The following table shows the development of pension obligations. With the lack of plan assets, the present value of the obligation in the two years corresponds to both the recognised provision and the plan deficit.
TABLE 57
Development of pension obligations
€ million 2013 2012 PRESENT VALUE OF OBLIGATIONS AS OF 01.01...... 127.3 103.0 Service cost ...... 1.7 1.1 Interest expenses ...... 3.6 4.3 Disposal due to sale ...... – –0.4 Payments ...... –6.0 –5.7 Remeasurement ...... –8.2 25.0 Thereof losses (gains) from changes in experience ...... 0.2 1.0 Thereof losses (gains) arising from changes in financial assumptions ...... –8.4 24.0 Thereof losses (gains) arising from changes in demographic assumptions ...... – – PRESENT VALUE OF OBLIGATIONS AS OF 31.12...... 118.4 127.3
The present value of the distribution breaks down across current employees covered by the plan (EUR 37.0 million), employees whose rights are not yet vested (EUR 7.2 million) and pensioners (EUR 74.2 million). In total, cumulative other reserves contain actuarial losses in the amount of EUR 24.3 million (2012: EUR 32.5 million). A pension payment of EUR 6.1 million is expected for 2014. The duration of the defined benefit obligation is 14 years.
12. Other provisions Other provisions are composed as follows:
TABLE 58
Other provisions € million 31.12.2013 31.12.2012 Provisions for partial retirement ...... 1.7 2.0 STAFF PROVISIONS ...... 1.7 2.0 Construction book provisions ...... 5.4 11.0 Provisions for other risks ...... 16.4 10.2 Provisions for litigation risks ...... 3.9 5.3 Provisions for lease properties ...... 2.1 2.4 Provision for costs of annual financial statements ...... 0.9 1.2 Archiving provision ...... 0.2 0.2 OTHER PROVISIONS ...... 28.9 30.3
F-213 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
E. NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Continued) Details of the development of provisions can be found in Annex II. Construction book provisions contain amounts for outstanding measures and guarantees relating to development projects and property development measures. The reduction in construction book provisions in 2013 was primarily due to the utilisation of the provision for a development project in Neuss Allerheiligen in the amount of EUR 3.6 million. In connection with obligations from a former residential property development project consisting of 47 single- family homes, EUR 4.1 million was transferred to provisions for other risks. This increase takes account of the change in the risk assessment for this project. To the end of the previous year, an additional provision of EUR 3.2 million had already been made for this project. The cash outflows for provisions are expected to amount to EUR 17.9 million within one year (previous year: EUR 20.1 million) and EUR 14.6 million after one year (previous year: EUR 15.3 million).
13. Financing liabilities Financing liabilities are composed as follows:
TABLE 59
Financing liabilities € million 31.12.2013 31.12.2012 Financing liabilities from real estate financing ...... 2,558.9 2,473.7 Financing liabilities from lease financing ...... 24.8 26.0 FINANCING LIABILITIES ...... 2,583.7 2,499.7
Financing liabilities from real estate financing result, in particular, from the financing of investment properties. In the fiscal year 2013, there was new refinancing with a total volume of EUR 277.4 million at LEG NRW GmbH, LEG Wohnen GmbH and GeWo Gesellschaft für Wohnungs- und Städtebau mbH. This resulted in a reduction of the number of loans. Other loans extended in the amount of EUR 93.0 million and non-cash effects resulted in increased loan liabilities. A further increase in liabilities of EUR 69.3 million resulted from the acquisition and initial financing of LEG Erste Grundstücksverwaltungs GmbH, LEG Zweite Grundstücksverwaltungs GmbH and LEG Dritte Grundstücksverwaltungs GmbH. This was offset by scheduled and unscheduled repayments. The liabilities are secured by way of real security in the form of land charges. Properties are used almost exclusively as security for the loans; details of the amount of the land charges entered in the land register can be found in Section I.8. The equity interests in individual companies and rent receivables also serve as security for certain loan agreements. The expected rent pledged as security amounted to EUR 383.9 million in the fiscal year 2013 (2012: EUR 368.0 million). In addition to security in the form of land charges, potential receivables from buildings insurance have been pledged to the creditors of the respective land charges. By contrast, the security provided in the form of pledged rent receivables is increased by the corresponding receivables for incidental costs. For certain loan agreements there are also additional surety bonds and the joint and several liabilities of additional LEG companies to the bank.
A) FINANCING LIABILITIES FROM REAL ESTATE FINANCING The maturities shown in the consolidated financial statements are based on the contractually agreed fixed interest periods and not the final maturities of the respective financing liabilities.
F-214 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
E. NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Continued) The remaining terms of financing liabilities from real estate financing are composed as follows:
TABLE 60
Maturity of financing liabilities from real estate financing
€ million 31.12.2013 31.12.2012 Remaining term < 1 year ...... 183.2 393.2 Remaining term > 1 and 5 years ...... 1,279.1 784.6 Remaining term > 5 years ...... 1,096.6 1,295.9 TOTAL ...... 2,558.9 2,473.7
B) FINANCING LIABILITIES FROM LEASE FINANCING Financing liabilities from lease financing are composed as follows:
TABLE 61
Maturity of financing liabilities from lease financing
€ million 31.12.2013 31.12.2012 Remaining term < 1 year ...... 3.9 2.7 Remaining term > 1 and 5 years ...... 10.5 10.0 Remaining term > 5 years ...... 10.4 13.3 TOTAL ...... 24.8 26.0
Future minimum lease payments are derived as follows as of 31 December 2013: TABLE 62
TABLE 62
Future minimum lease payments 2013
Present value of minimum € million Minimum lease payments Financing costs lease payments Remaining term < 1 year ...... 4.3 0.4 3.9 Remaining term > 1 and 5 years ...... 14.6 4.1 10.5 Remaining term > 5 years ...... 15.6 5.2 10.4 TOTAL 31.12.2013 ...... 34.5 9.7 24.8
The reconciliation for 31 December 2012 is as follows: TABLE 63
TABLE 63
Future minimum lease payments 2012
Present value of minimum € million Minimum lease payments Financing costs lease payments Remaining term < 1 year ...... 4.2 1.5 2.7 Remaining term > 1 and 5 years ...... 14.5 4.5 10.0 Remaining term > 5 years ...... 18.4 5.1 13.3 TOTAL 31.12.2012 ...... 37.1 11.1 26.0
Detailed information on lease financing can be found in Section E.2.
F-215 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
E. NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Continued) 14. Other liabilities Other liabilities are composed as follows:
TABLE 64
Other liabilities € million 31.12.2013 31.12.2012 Interest derivatives ...... 52.0 89.7 Advance payments received ...... 17.1 23.0 Liabilities from shareholder loans ...... – 40.7 Trade payables ...... 36.8 32.6 Rental and lease liabilities ...... 11.7 10.8 Liabilities from other taxes ...... 2.4 3.8 Liabilities to employees ...... 5.0 5.1 Social security liabilities ...... 0.5 0.6 Operating cost liabilities ...... 0.5 0.9 Cash collateral liabilities ...... 0.0 0.0 Interest benefit recognised as a liability ...... 6.9 7.8 Other miscellaneous liabilities ...... 8.2 11.7 OTHER LIABILITIES ...... 141.1 226.7 Thereof with a remaining term up to 1 year ...... 77.5 125.5 Thereof with a remaining term of between 1–5 years ...... 12.7 12.5 Thereof with a remaining term of more than 5 years ...... 50.9 88.7 The decline in interest rate derivatives is due to an increase of the yield curve in comparison to 31 December 2012. In addition, the termination of two interest rate derivatives in the fiscal year 2013 resulted in a further reduction in liabilities. The decrease in the interest benefit recognised as a liability was due to substantial contractual amendments accompanied by a change in the interest benefit compared with the original terms. In the reporting period, an amount of EUR 40.5 million was paid into the capital reserves by the shareholders Perry Luxco RE S.à r. l. and Restio B.V., by way of transfer of a shareholder loan to LEG Immobilien AG. The transaction resulted in the conversion of debt under other current liabilities into equity.
Of the advance payments received from uninvoiced operating costs, EUR 16.5 million related to the fiscal year 2013 (2012: EUR 23.0 million) and for prepayments for 2014 of EUR 0.6 million (in 2012 for prepayments for 2013: EUR 0.0 million.) Further details can be found in Section I.3.
15. Tax liabilities Current and non-current tax liabilities in the amount of EUR 42.0 million (2012: EUR 52.3 million) primarily consist of the present value of the settlement of the »EK 02« taxable equity of several Group companies in the amount of EUR 33.5 million (2012: EUR 40.7 million). Under the German Annual Tax Act 2008, the previous distribution-based provision on the treatment of »EK 02« equity was eliminated and flat-rate instalment payments were introduced in its place. The resulting tax amount is to be paid in equal annual instalments over a ten-year period from 2008 to 2017. This means that a distribution no longer results in corporation tax expense.
F-216 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
E. NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Continued) Deferred tax assets and liabilities result from temporary differences and tax loss carryforwards and are broken down as follows: TABLE 66
TABLE 66
Deferred tax assets and liabilities 31.12.2013 31.12.2012 Deferred Deferred Deferred Deferred € million tax assets tax liabilities tax assets tax liabilities Investment properties Other non-current assets ...... 1.9 273.1 5.7 227.1 Other miscellaneous non-current assets ...... 4.2 9.4 2.5 9.4 Current assets ...... 6.0 2.2 7.0 0.5 Non-current liabilities Pension provisions ...... 13.3 – 16.9 – Other provisions ...... 3.3 0.3 1.0 0.2 Other non-current liabilities ...... 20.0 60.8 29.3 84.8 Current liabilities Other provisions ...... 0.4 1.4 0.8 0.1 Other current liabilities ...... 2.0 0.5 20.3 7.4 TOTAL DEFERRED TAXES FROM TEMPORARY DIFFERENCES ...... 51.1 347.7 83.5 329.5 Deferred taxes on loss carryforwards ...... 70.7 – 52.9 – TOTAL DEFERRED TAXES ...... 121.8 347.7 136.4 329.5 Netting ...... 116.5 116.5 115.6 115.6 CARRYING AMOUNT ...... 5.3 231.2 20.8 213.9
The deferred taxes from non-current assets and non-current liabilities are expected to reverse more than twelve months after the end of the reporting period.
TABLE 65
Deferred tax assets from tax loss € million 31.12.2013 31.12.2012 Corporation tax ...... 42.6 31.1 Trade tax ...... 28.1 21.8 TOTAL ...... 70.7 52.9
Deferred tax assets from tax loss carryforwards are recognised in the same amount as deferred tax liabilities from temporary differences. Deferred tax assets from tax loss carryforwards in excess of this amount are only recognised to the extent that it is probable that the company will generate taxable income. Interest expenses are tax-deductible up to the amount of interest income. Above and beyond this amount, deductibility is limited to 30% of taxable EBITDA for the fiscal year (interest barrier), unless the exemption limit or the equity escape clause comes into force. Non-deductible interest expenses in the current fiscal year are carried forward to subsequent periods. Deferred tax assets may only be recognised for interest carried forward to the extent that it is probable that the interest expenses can be utilised in subsequent financial years. Due to the effective conclusion of profit transfer agreements between the subsidiaries that hold the property portfolios and the Group company LEG NRW GmbH in 2012, and the resulting fiscal entity for corporation and trade tax purposes, the interest barrier does not apply to the (extended) fiscal entity as was the case in the previous year.
F-217 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
E. NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Continued) In the fiscal year 2013, the remeasurement of primary and derivative financial instruments reduced equity by EUR 8.1 million (2012: increase in equity of EUR 13.7 million), while actuarial gains and losses reduced equity by EUR 2.5 million (2012: increase in equity of EUR 7.5 million). At the reporting date, deferred taxes recognised directly in equity amounted to EUR 17.7 million (2012: EUR 28.2 million). The total temporary differences from shares in subsidiaries, associates and joint ventures that are not expected to reverse in the foreseeable future in accordance with IAS 12.29, and hence for which no deferred taxes have been recognised, amounted to EUR 17.0 million as of the end of the reporting period (2012: EUR 14.6 million).
F. NOTES TO THE CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 1. Net rental and lease income A) RENTAL AND LEASE INCOME Rental and lease income is composed as follows:
TABLE 67
Rental and lease income € million 2013 2012 Rental income ...... 531.9 499.7 Other income ...... 0.2 0.5 INCOME FROM THE REVERSAL OF TENANT WRITE-DOWNS ...... 532.1 500.2
The increase in rental income is due to the increase in net cold rent excluding heating, the decrease in the vacancy rate compared with the previous year and the acquisition of three property portfolios.
B) COST OF SALES IN CONNECTION WITH RENTAL AND LEASE INCOME
TABLE 68
Cost of sale in connection with rental and lease income € million 31.12.2013 31.12.2012 Purchased services ...... –180.3 –164.9 Ongoing maintenance ...... – 41.8 –35.4 Staff costs ...... –33.0 –30.8 Depreciation and amortisation ...... – 4.1 – 4.1 Other operating expenses ...... –17.3 –17.3 Reimbursement of IPO costs by shareholders ...... 2.1 – COST OF SALE IN CONNECTION WITH RENTAL AND LEASE INCOME .... –274.4 –252.5 NET RENTAL AND LEASE INCOME ...... 257.7 247.7
The rise in purchased services is due to the higher level of allocable (EUR 167.8 million in 2013 compared to EUR 152.3 million in 2012) and non-allocable operating costs (EUR 4.3 million compared to EUR 3.7 million in 2012). Allocable operation costs minus a discount for vacancy is capitalised as work in progress. The corresponding income from the capitalisation is reported in rental income. Expenses for individual vacant properties cannot be disclosed separately, as the LEG Group’s cost accounting system does not contain the corresponding information for all cost types at the level of the individual residential units. Applying the vacancy rate for residential properties based on the number of apartments of 2.95% in 2013 (previous year: 3.15%) would result in expenses of EUR 8.1 million for vacant apartments (previous year: EUR 8.0 million).
F-218 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
F. NOTES TO THE CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Continued) Following the company’s successful IPO, performance bonuses of EUR 4.7 million were granted to employees. The share of these costs that was allocated to the cost of sales of rental and lease amonted to EUR 2.1 million. This was charged in full to the shareholders Saturea B.V. and Perry Luxco RE S.à r. l.
2. Net income from the disposal of investment properties Net income from the disposal of investment properties is composed as follows: TABLE 69
TABLE 69
Net income from the disposal of investment properties
€ million 2013 2012 Income from the disposal of investment properties ...... 15.2 13.4 Carrying amount of investment properties disposed of ...... –15.0 –13.9 INCOME (+)/LOSS (–) FROM THE DISPOSAL OF INVESTMENT PROPERTIES .... 0.2 – 0.5
€ million 2013 2012 Staff costs ...... – 0.6 – 0.5 Other operating expenses ...... –1.3 0.0 Purchased services ...... – – 0.4 COST OF SALE IN CONNECTION WITH INVESTMENT PROPERTIES SOLD ...... –1.9 – 0.9 NET INCOME FROM THE DISPOSAL OF INVESTMENT PROPERTIES ...... –1.7 –1.4
Net income from the disposal of investment properties contains the gains and losses on the disposal of investment properties. Details can also be found in Section D.11.
3. Net income from the remeasurement of investment properties Net income from the remeasurement of investment properties amounted to EUR 81.6 million in 2013 (2012: EUR 120.3 million). On the basis of the portfolio on the reporting date, this corresponds to an increase in value of approximately 1.7%. In the last fiscal year, the increase in actual rents had a positive impact on remeasurement income. A contrary effect resulted from the fact that, in comparison to the previous year, more conservative approaches regarding maintenance cost rates had to be used due to the regular adjustment of the directive on housing calculations in line with the Second Residential Housing Act. Details can be found in Section D.1. As of 31 December 2013, the average value of residential investment properties (including IFRS 5 properties) was EUR 808 per square metre not including acquisitions, and EUR 806 including acquisitions (31 December 2012: EUR 790). Thus, a year-on-year increase of 2.3% in value in euro per square metre (including investments in the portfolio but excluding acquisitions) was generated in the fiscal year 2013. This increase is within the range of the average annual growth rate achieved in previous years since 1 January 2010.
4. Net income from the disposal of inventory properties Net income from the disposal of inventory properties is composed as follows:
TABLE 70
Net Income from the disposal of inventory properties
€ million 2013 2012 Income from real estate inventory disposed of ...... 9.0 7.6 Carrying amount of real estate inventory disposed of ...... –7.6 –6.9 GROSS PROFIT FROM THE DISPOSAL OF REAL ESTATE INVENTORY ...... 1.4 0.7
F-219 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
F. NOTES TO THE CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Continued) € million 2013 2012 Other operating expenses ...... –1.7 –1.7 Staff costs ...... –2.0 –1.8 Purchased services and other ...... –0.8 1.0 COST OF SALES OF REAL ESTATE INVENTORY DISPOSED OF ...... –4.5 –2.5 NET INCOME FROM THE DISPOSAL OF REAL ESTATE INVENTORY ...... –3.1 –1.8
The disposal of the remaining properties of the former Development division continued in 2013. The rise in purchased services is due to the increasing total volume of disposal business and the ongoing winding up of development measures. Provisions remain for risks of the real estate inventory as of 31 December 2013. In the previous year, the result was positively impacted by reversals of provisions no longer required. The overall result was an increase in the cost of sales of real estate inventory sold in 2013.
5. Net income from other services Net income from other services is composed as follows:
TABLE 71
Net income from other services
€ million 2013 2012 INCOME FROM OTHER SERVICES ...... 9.7 14.3 Purchased services ...... –3.0 –5.4 Other operating expenses ...... –1.5 –2.3 Staff costs ...... – 0.6 –1.3 Depreciation, amortisation and write-downs ...... –2.3 –2.3 EXPENSES IN CONNECTION WITH OTHER SERVICES ...... –7.4 –11.3 NET INCOME FROM OTHER SERVICES ...... 2.3 3.0 Income from other services Other services include electricity and heat feed-in, IT services for third parties and management services for third-party properties. There were non-recurring effects in both the reporting period and the comparative period, which resulted in a decline in net income from other services. A land purchase agreement originally intended for development purposes was reversed in 2012. The original purchase price of EUR 2.9 million was reimbursed in full. An impairment of EUR 0.5 million had been recognised on the property in the meantime; this was reversed when the agreement was rescinded. Lower income is also a result of declining income from the generation of electricity and heat. This effect correlates with lower material costs for electricity and heat generation as well as lower electricity costs which contribute to the decline of expenses in connection with other services.
F-220 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
F. NOTES TO THE CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Continued) 6. Administrative and other expenses Administrative and other expenses are composed as follows:
TABLE 72
Administrative and other expenses
€ million 2013 2012 Other operating expenses ...... –22.7 –39.7 Staff costs ...... –25.4 –17.0 Purchased services ...... –1.1 – 0.6 Depreciation, amortisation and write-downs ...... –2.3 –2.1 ADMINISTRATIVE AND OTHER EXPENSES ...... –51.5 –59.4
The other operating expenses contained in the table above are composed as follows:
TABLE 73
Other operating expenses
€ million 2013 2012 Legal and consulting costs ...... –14.4 –35.4 Rent and other costs of business premises ...... –4.4 –2.8 Annual financial statement, accounting and audit costs ...... –1.8 –3.1 Expenses for postage, telecommunications, IT ...... –0.6 –0.6 Temporary staff ...... –0.2 –0.5 Vehicles ...... –0.5 –0.4 Travel expenses ...... –0.4 –0.3 Advertising expenses ...... –0.1 –0.1 Other expenses ...... –8.7 –3.9 Reimbursement of IPO costs by shareholders ...... 9.1 7.4 OTHER OPERATING EXPENSES ...... –22.7 –39.7
Administrative and other expenses were strongly defined by non-recurring effects overall. The IPO on 1 February 2013 caused further consulting and non-staff operating costs totalling EUR 6.6 million, which are reported in other operating expenses. Numerous restructuring and realignment projects were concluded with the IPO. As a result, in the fiscal year 2013 non-recurring project costs were reduced by EUR 13.0 million from EUR 19.1 million to EUR 6.1 million. There was a negative non-recurring effect of EUR 4.1 million in connection with obligations from a former residential property development project consisting of 47 single-family homes. This is reflected in other operating expenses. A correspondingly higher provision shows the change in the risk assessment for this project. To the end of the previous year, an additional provision of EUR 3.2 million had already been made for this project. Staff costs also include EUR 3.3 million for long-term, performance-based remuneration components (Long- Term Incentive Programme), which are non-cash items. Performance bonuses for the successful IPO resulted in an increase of EUR 2.5 million in the staff cost portion of administrative expenses. Staff and non-staff operating costs caused by the IPO were passed on in full to the shareholders Saturea B.V. and Perry Luxco RE S.à r. l. The share of the cost reimbursement attributable to administrative expenses (and the corresponding IPO costs) amounts to EUR 9.1 million.
F-221 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
F. NOTES TO THE CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Continued) Project costs (EUR 6.1 million), development project provisions (EUR 4.1 million), LTIP (EUR 3.3 million) and further non-recurring effects (EUR 0.5 million) total EUR 14.0 million. Adjusted for these effects and for depreciation on property, plant and equipment and amortisation of intangible assets (EUR 2.3 million), recurring administration and other expenses amounted to EUR 35.2 million, at the level of the previous year. Savings in ongoing consultancy expenses after concluding the reorganisation compensated for the higher requirements in connection with the IPO.
7. Interest income Interest income is composed as follows:
TABLE 74
Interest income
€ million 2013 2012 Interest income from bank balances ...... 0.8 1.1 Income from loans ...... – 0.1 Interest income from discounting ...... 0.1 0.0 Other interest income ...... 0.1 0.3 INTEREST INCOME ...... 1.0 1.5
8. Interest expenses Interest expenses are composed as follows:
TABLE 75
Interest expenses
€ million 2013 2012 Interest expenses from real estate financing ...... –67.8 –76.3 Interest expense from loan amortisation ...... –30.2 –52.9 Prepayment penalties ...... 0.0 –37.8 Interest expense from interest derivatives for real estate financing ...... –25.3 –15.8 Interest expense from change in pension provisions ...... –3.6 – 4.3 Interest expense from interest on other assets and liabilities ...... –2.3 –3.5 Interest expenses from lease financing ...... –1.6 –1.6 Other interest expenses ...... –0.6 –2.8 INTEREST EXPENSES ...... –131.4 –195.0
Total interest expenses from the financing of real estate declined as a result of the repayment of fixed-term loans and the conclusion of more favourable refinancing arrangements. Lower interest rates compared with 2012 also led to a further reduction in interest expenses from the financing of real estate. By contrast, the conclusion of new interest rate hedges within the refinanced companies resulted in a higher level of interest expense from interest rate derivatives for real estate financing. The decline in interest expenses from loan amortisation and prepayment penalties relates particularly to refinancing arrangements at Ruhr-Lippe Wohnungsgesellschaft mbH in 2012, and the recognition of prepayment penalties for the refinancing arrangements at LEG NRW GmbH and at GeWo Gesellschaft für Wohnungs- und Städtebau mbH in 2013. Here, the contractual basis was established in 2012. For this reason, the non-recurring income effects from the refinancing arrangements do not impact the fiscal year 2013.
F-222 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
F. NOTES TO THE CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Continued) The aforementioned effects are supported by further loan utilisations in 2013 at the companies refinanced between 2009 and 2012.
9. Income taxes Income tax expense and income is broken down by origin as follows:
TABLE 76
Income taxes
€ million 2013 2012 Current income taxes ...... 0.5 3.8 Deferred taxes ...... –22.2 –6.2 INCOME TAXES ...... –21.7 –2.4 Tax reimbursement for prior years ...... 0.5 2.5 Based on the consolidated net profit before income taxes and the expected income tax expense, the reconciliation to current income tax expense is as follows:
TABLE 77
Reconciliation to current income tax expenses
€ million 2013 2012 IFRS earnings before income taxes ...... 158.6 114.4 Group tax rate in % ...... 31.2 31.2 FORECAST INCOME TAXES ...... –49.5 –35.7 Tax reduction due to tax-free income and off-balance sheet deductions ...... 23.8 16.9 Additional taxes due to non-deductible expenses and off-balance sheet additions ...... –3.2 –11.4 Tax effect due to capitalisation of interest carryforwards (recognition not possible in previous year due to disallowance rule) ...... –3.1 26.4 Tax expenses relating to prior periods ...... 9.8 2.5 Tax effect of measurement of associates and joint ventures using the equity method ...... –1.0 – Others ...... 1.5 –1.1 INCOME TAXES AS PER STATEMENT OF COMPREHENSIVE INCOME ...... –21.7 –2.4 Effective tax rate in % ...... 13.6 2.1 The deferred taxes from non-current assets and non-current liabilities are expected to reverse more than twelve months after the end of the reporting period. The tax rate applied in calculating theoretical income tax takes into account the current and expected future tax rates for corporate income tax (15.0%), the solidarity surcharge (5.5% of corporate income tax) and trade tax (15.4%) based on a basic rate of 3.5% and an average assessment rate of 440% (City of Dusseldorf).
F-223 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
F. NOTES TO THE CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Continued) 10. Earnings per share Basic earnings per share are calculated by dividing the net profit for the period attributable to the shareholders by the average number of shares outstanding during the fiscal year.
TABLE 78
Earnings per share
2013 2012 Net profit or loss attributable to shareholders in € million ...... 135.2 94.4 Average numbers of shares outstanding ...... 52,963,444 18,163,620 EARNINGS PER SHARE (BASIC AND UNDILUTED) IN € ...... 2.5 5.9
Basic earnings per share are identical to diluted earnings per share and are consistent with IFRS.
G. NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS 1. Composition of cash and cash equivalents The cash and cash equivalents shown in the statement of cash flows correspond to the cash and cash equivalents reported in the statement of financial position, i.e. cash on hand and bank balances, less the trust assets reported in the statement of financial position.
2. Other notes to the statement of cash flows No payments were made for the acquisition of subsidiaries in the fiscal years 2013 and 2012. In 2013, one subsidiary measured in line with IFRS 5 was sold for EUR 0.6 million as of 31 December 2012. Proceeds from the disposal of consolidated companies amounted to EUR 0.1 million in 2013. The cash and cash equivalents sold as a result totalled EUR 0.2 million. The cash outflow for the repayment of bank loans also contains prepayment penalties and payments for the reversal of hedges incurred due to early loan repayments.
H. NOTES ON GROUP SEGMENT REPORTING In accordance with IFRS 8, LEG Immo’s segment reporting is based on the structure of internal management reporting. LEG distinguishes the Housing and Other segments. The Housing segment comprises all residential and commercial property holdings and owner-occupied properties. The Housing segment comprises the portfolio companies and LEG Wohnen NRW. Property portfolios from completed project developments that are now let under long-term agreements and exclusively owned by the Group are also assigned to the Housing segment. The Other segment comprises the development companies and the companies LEG Management GmbH, LCS Consulting and Service GmbH. Leased properties from the development business that are available for disposal are also reported in the Other segment. LEG Management GmbH, which is assigned to the Other segment, primarily focuses on tasks relating to administrative functions and corporate management activities. FFO and LTV are the main performance indicators used by management. Intra-Group transactions between the segments are carried out at arm’s length conditions.
F-224 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
H. NOTES ON GROUP SEGMENT REPORTING (Continued) Group segment reporting for the period from 1 January to 31 December 2013: TABLE 79
TABLE 79
Segment reporting 2013
€ million Housing Other Reconciliation Group Rental and lease income ...... 527.9 6.3 –2.1 532.1 Cost of sales of rental and letting ...... –273.5 –3.1 2.2 –274.4 NET RENTAL AND LEASE INCOME ...... 254.4 3.2 0.1 257.7 Net income from the disposal of IAS 40 property ...... –0.3 –1.4 – –1.7 Net income from the measurement of IAS 40 property .... 83.2 –1.6 – 81.6 Net income from the disposal of real estate inventory ..... 0.4 –3.6 0.1 –3.1 Net income from other services ...... 0.5 33.0 –31.2 2.3 Administrative and other expenses ...... –42.9 –39.6 31.0 –51.5 Other income ...... 0.2 – – 0.2 SEGMENT EARNINGS ...... 295.5 –10.0 – 285.5 Statement of financial position item Segment assets (IAS 40) ...... 5,104.7 58.7 – 5,163.4 Key figures Rentable area in sqm1) ...... 6,029,983 3,627 6,033,610 Monthly target rents as of end of reporting period ...... 29.9 0.0 29.9 Vacancy rate by residential units in % ...... 2.9 0.0 2.9
1) excl. commercial areas Group segment reporting for the period from 1 January to 31 December 2012: TABLE 80
TABLE 80
Segment reporting 2012
€ million Housing Other Reconciliation Group Rental and lease income ...... 495.8 6.4 –2.0 500.2 Cost of sales of rental and letting ...... –254.3 –1.4 3.2 –252.5 NET RENTAL AND LEASE INCOME ...... 241.5 5.0 1.2 247.7 Net income from the disposal of IAS 40 property ...... –0.8 – 0.6 – –1.4 Net income from the measurement of IAS 40 property .... 118.4 1.9 – 120.3 Net income from the disposal of real estate inventory ..... 0.7 –2.5 – –1.8 Net income from other services ...... – 43.2 –40.2 3.0 Administrative and other expenses ...... –50.6 –45.1 36.3 –59.4 Other income ...... 1.4 0.3 – 1.7 SEGMENT EARNINGS ...... 310.6 2.2 –2.7 310.1 Statement of financial position item Segment assets (IAS 40) ...... 4,861.0 76.1 – 4,937.1 Key figures Rentable area in sqm1) ...... 5,840,598 3,769 5,844,367 Monthly target rents as of end of reporting period ...... 28.3 0.0 28.3 Vacancy rate by residential units in % ...... 3.1 3.2 3.1
1) excl. commercial areas
F-225 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
I. OTHER DISCLOSURES 1. Overview of cost types The following cost types are contained in the various functions:
TABLE 81 Cost types
€ million 2013 2012 Purchased services ...... 226.2 206.7 Staff costs ...... 61.8 51.4 Depreciation, amortisation and write-downs ...... 8.7 8.6 Other operating expenses ...... 54.4 73.0 Other operating expenses contain income from the reversal of write-downs and provisions, among other things.
2. Capital management The Group’s capital management is aimed at ensuring the continued existence of the company while generating income for its shareholders, as well as providing all of the other stakeholders of the LEG Group with the benefits to which they are entitled. All in all, the aim is to increase the value of the Group as a whole. This end-to-end capital management strategy has not changed compared with 2012. As is typical for the industry, the LEG Group monitors capital on the basis of net gearing. Net gearing describes the ratio of net debt to the fair value of investment properties. Net debt is calculated by deducting cash and cash equivalents from financing liabilities. As in 2012, the Group’s aim in 2013 was to maintain an appropriate level of gearing in order to ensure continued access to debt financing at economically appropriate costs. Gearing as of 31 December 2013 and 2012 was calculated as follows:
TABLE 82 Net gearing (LTV)
€ million 31.12.2013 31.12.2012 Financing liabilities ...... 2,583.7 2,499.7 Cash and cash equivalents ...... 110.7 133.7 NET DEBT ...... 2,473.0 2,366.0 Investment properties ...... 5,163.4 4,937.1 Assets held for sale ...... 16.4 2.2 Prepayments for investment properties ...... 6.9 – TOTAL ...... 5,186.7 4,939.3 NET GEARING (LTV) IN % ...... 47.68 47.90
The assets held for sale shown in the above table relate solely to investment properties. The Group is subject to external capital requirements. It complied with these requirements at all times during the current fiscal year and the previous year. The aims of capital management were achieved in the current fiscal year. Details of restricted funds can be found in Section D.10.
F-226 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
I. OTHER DISCLOSURES (Continued) 3. Financial instruments A) OTHER DISCLOSURES ON FINANCIAL INSTRUMENTS The following table presents the financial assets and liabilities broken down by measurement category and classes. Receivables and liabilities from finance leases and derivatives used as hedging instruments are included even though they are not assigned to an IAS 39 measurement category. With respect to reconciliation, non- financial assets and non-financial liabilities are also included although they are not covered by IFRS 7: TABLE 83 & TABLE 85
TABLE 83 Classes of financial instruments for financial assets and liabilities 2013 Measurement (IAS 39) Measurement (IAS 17) Carrying Carrying amounts as per amounts as per statement of Fair value statement of financial posi- through profit financial posi- Fair value € million tions 31.12.2013 Amortised cost or loss tions 31.12.2013 31.12.2013 Assets Other financial assets ...... 3.6 3.6 LaR...... 0.1 0.1 0.0 0.1 AfS ...... 3.5 3.5 3.5 Receivables and other assets .... 23.8 23.8 LaR...... 21.8 21.8 21.8 Other non-financial assets ...... 2.0 2.0 Cash and cash equivalents ..... 110.7 110.7 LaR...... 110.7 110.7 110.7 TOTAL ...... 138.1 136.1 0.0 138.1 Of which IAS 39 measurement categories LaR...... 132.6 132.6 132.6 AfS ...... 3.5 3.5 3.5 Equity and liabilities 2,738.0מ 2,583.7מ ...... Financial liabilities 2,713.1מ 2,558.9מ 2,558.9מ ...... FLAC 24.9מ 24.8מ 24.8מ . . . Liabilities from lease financing 141.1מ 141.1מ ...... Other liabilities 29.7מ 29.7מ 29.7מ ...... FLAC 2.3מ 2.3מ 2.3מ ...... Derivatives HFT 49.7מ 0.0 0.0 49.7מ .... Hedge accounting derivatives 59.4מ 59.4מ .... Other non-financial liabilities 2,879.1מ 24.8מ 2.3מ 2,588.6מ 2,724.8מ ...... TOTAL Of which IAS 39 measurement categories 2,742.8מ 2,588.6מ 2,588.6מ ...... FLAC 2.3מ Derivatives HFT ...... –2.3 –2.3
LaR = Loans and Receivables HFT = Held for Trading AfS = Available for Sale FLAC = Financial Liabilities at Cost FAHFT = Financial Assets Held for Trading FLHFT = Financial Liabilities Held for Trading
F-227 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
I. OTHER DISCLOSURES (Continued) TABLE 85 Classes of financial instruments for financial assets and liabilities 2012
Measurement (IAS 39) Measurement (IAS 17) Carrying Carrying amounts as per amounts as per statement of Fair value statement of financial posi- through profit financial posi- Fair value € million tions 31.12.2012 Amortised cost or loss tions 31.12.2012 31.12.2012 Assets Other financial assets ...... 4.9 4.9 LaR...... 0.1 0.1 0.0 0.1 AfS ...... 4.8 4.8 4.8 Receivables and other assets .... 33.2 33.2 LaR...... 31.7 31.7 31.7 Other non-financial assets ...... 1.5 1.5 Cash and cash equivalents ..... 133.7 133.7 LaR...... 133.7 133.7 133.7 TOTAL ...... 171.8 170.3 0.0 171.8 Of which IAS 39 measurement categories LaR...... 165.5 165.5 165.5 AfS ...... 4.8 4.8 4.8 Equity and liabilities 2,678.8מ 2,499.7מ ...... Financial liabilities 2,653.5מ 2,473.7מ 2,473.7מ ...... FLAC 25.3מ 26.0מ 26.0מ . . . Liabilities from lease financing 226.7מ 226.7מ ...... Other liabilities 76.8מ 76.8מ 76.8מ ...... FLAC 5.6מ 5.6מ 5.6מ ...... Derivatives HFT 84.1מ 0.0 0.0 84.1מ .... Hedge accounting derivatives 60.2מ 60.2מ .... Other non-financial liabilities 2,905.5מ 26.0מ 5.6מ 2,550.5מ 2,726.4מ ...... TOTAL Of which IAS 39 measurement categories 2,730.3מ 2,550.5מ 2,550.5מ ...... FLAC 5.6מ 5.6מ 5.6מ ...... Derivatives HFT
LaR = Loans and Receivables HFT = Held for Trading AfS = Available for Sale FLAC = Financial Liabilities at Cost FAHFT = Financial Assets Held for Trading FLHFT = Financial Liabilities Held for Trading It was not possible to reliably determine the fair value of investments carried at amortised cost (see AfS in table 84). There is no intention to sell these investments. The vast majority of trade payables and other liabilities have short remaining maturities, meaning that their carrying amounts approximate their fair value. Originated financial instruments (liabilities from real estate and corporate financing, FLAC category, whose fair value does not correspond to their carrying amount) are classified as financial liabilities. The fair value of loan liabilities is calculated as the present value of the future cash flows, taking into account the applicable risk-free interest rates and the LEG-specific risk premium at the reporting date.
F-228 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
I. OTHER DISCLOSURES (Continued) Net income for each measurement category is broken down as follows:
TABLE 84 Net income
€ million 2013 2012 2.8מ 2.5מ ...... LaR AfS...... 1.2 1.4 FAHFT ...... – – 3.9מ 0.2מ ...... FLHFT 169.2מ 98.4מ ...... FLAC 174.5מ 99.9מ ...... TOTAL
Net income contains remeasurement effects as well as interest income and expense during the fiscal year.
B) RISK MANAGEMENT Principles of risk management: The LEG Group is exposed to default risk, liquidity risk and market risk as a result of its use of financial instruments. In order to take these risks into account, the LEG Group has an effective risk management system supported by the clear functional organisation of the risk controlling process. The effectiveness of the risk management system is reviewed and assessed regularly on a company wide basis by the Internal Audit and Compliance unit. Where adjustments are necessary or areas for improvement are identified, the Internal Audit and Compliance unit advises on, examines, and monitors these activities. The framework for the Group’s financial policy is determined by the Management Board and monitored by the Supervisory Board. The implementation of the financial policy is the responsibility of the Finance and Properties, while the implementation of ongoing management is the responsibility of the Management Accounting and Risk Management unit. The use of derivative financial instruments is governed by a corresponding Treasury guideline adopted by the Management Board and acknowledged by the Supervisory Board, and may only be undertaken in order to hedge existing underlyings, future cash flows and planned transactions whose occurrence is reasonably certain. Derivative financial instruments are only concluded to hedge against interest rate risks.
Default risk: Credit or default risk describes the risk that business partners – primarily the tenants of the properties held by the LEG Group – will be unable to meet their contractual payment obligations and that this will result in a loss for the LEG Group. In order to prevent and control default risk to the greatest possible extent, new lettings are subject to credit checks. Default risk exists for all classes of financial instrument, and in particular for trade receivables. The LEG Group is not exposed to significant default risk with regard to any individual party. The concentration of default risk is limited due to the Group’s broad, heterogeneous tenant base. Rental and leasing activities resulted in gross receivables of EUR 11.7 million. Write-downs of EUR 6.2 million were taken so that net rent receivables of EUR 5.5 million were reported as of 31 December 2013. Security for receivables (primarily rent deposits) in the amount of EUR 9.3 million is taken into consideration for the offsetting of outstanding receivables if the legal conditions are met. Total rent deposits amount to EUR 51.4 million. With regard to cash and cash equivalents and derivatives, the LEG Group only enters into corresponding agreements with banks with extremely good credit ratings. The credit ratings of counterparties are monitored and assessed by the LEG Group on an ongoing basis, taking into account external ratings from various agencies (e.g. Standard & Poor’s, Moody’s, Fitch and others), the findings of internal research and financial market
F-229 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
I. OTHER DISCLOSURES (Continued) information. Depending on the availability of information with sufficient informative value, the LEG Group refers to one or more of the data sources described above. In the event of a substantial deterioration in the credit rating of a counterparty, the LEG Group takes efforts to ensure that its existing exposure is reduced as quickly as possible and that new exposures are no longer entered into with the respective counterparty. As shown in the table below, the carrying amounts of recognised financial assets less any write-downs represent the highest default risk. The carrying amount of financial assets represents the maximum default risk. The default risk for interest rate derivatives is limited to the amount of the positive fair values of derivatives. The following tables show the financial assets for which valuation allowances had been recognised at the reporting date: TABLES 86 & 87
TABLE 86 Impaired financial assets 2013
Carrying amount Residual carrying € million; classes of financial instruments 31.12.2013 before impairment Impairment amount 1.2 1.3מ Loans ...... 2.5 12.9 2.8מ Other financial assets ...... 15.7 11.2 7.9מ Trade receivables ...... 19.1 Cash and cash equivalents ...... 110.7 – 110.7 136.0 12.0מ TOTAL ...... 148.0
TABLE 87 Impaired financial assets 2012
Carrying amount Residual carrying € million; classes of financial instruments 31.12.2012 before impairment Impairment amount 1.4 1.3מ Loans ...... 2.7 15.2 1.9מ Other financial assets ...... 17.1 19.9 7.1מ Trade receivables ...... 27.0 Cash and cash equivalents ...... 133.7 – 133.7 170.2 10.3מ TOTAL ...... 180.5
The following tables show the maturity structure of assets that were overdue but for which specific valuation allowances had not been recognised at the reporting date: TABLES 88 & 89
TABLE 88 Not impaired financial assets 2013
Carrying Of which past due as of end of reporting period but not impaired € million; classes of financial instruments 31.12.2013 amount <90 days 90–180 days >180 days Trade receivables ...... 3.8 3.5 – 0.3 Other financial assets ...... – – – – TOTAL ...... 3.8 3.5 – 0.3
F-230 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
I. OTHER DISCLOSURES (Continued) TABLE 89 Not impaired financial assets 2012
Carrying Of which past due as of end of reporting period but not impaired € million; classes of financial instruments 31.12.2012 amount <90 days 90–180 days >180 days Trade receivables ...... 4.5 3.2 – 1.3 Other financial assets ...... – – – – TOTAL ...... 4.5 3.2 – 1.3
With regard to receivables that are not overdue and for which no valuation allowances have been recognised, there was no evidence that the debtors will fail to meet their payment obligations as of the reporting date. In addition to specific valuation allowances, the LEG Group recognises portfolio valuation allowances using various rates depending on the extent to which the respective receivables are overdue.
TABLE 90 Impairment losses 2013
As of Change due to As of € million 01.01.2013 remeasurement Addition Utilisation 31.12.2013 1.3 0.1מ Loans and receivables ...... 1.3 0.0 0.1 7.9 5.0מ Trade receivables ...... 7.0 – 5.9 2.2 0.2מ Other financial assets ...... 1.9 – 0.5 11.4 5.3מ TOTAL ...... 10.2 0.0 6.5
TABLE 91 Impairment losses 2012
As of Change due to As of € million 01.01.2012 remeasurement Addition Utilisation 31.12.2012 1.3 0.5מ – – Loans and receivables ...... 1.8 7.0 9.6מ Trade receivables ...... 5.4 – 11.2 1.9 0.2מ Other financial assets ...... 0.2 – 1.9 10.2 10.3מ TOTAL ...... 7.4 – 13.1
C) LIQUIDITY RISK The LEG Group defines liquidity risk as the risk that the Group will be unable to meet its own payment obligations at a contractually agreed date. To ensure that this is not the case, the LEG Group’s liquidity requirements are monitored and planned continuously by the Finance and Properties unit. Sufficient cash and cash equivalents to meet the Group’s obligations for a defined period are available at all times. The LEG Group currently has credit facilities and bank overdrafts in the amount of around EUR 12.5 million (previous year: EUR 13.3 million). The following table shows the contractually agreed (undiscounted) interest and principal payments for the LEG Group’s primary financing liabilities and derivative financial instruments with a negative fair value. The maturities are based on the contractually agreed fixed interest periods for the respective financing liabilities.
F-231 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
I. OTHER DISCLOSURES (Continued) TABLE 92 Type of liabilities on 31.12.2013
Carrying Remaining terms € million amount <1 year 1–5 years >5 years Financing liabilities from loan payable ...... 2,558.9 222.0 1,456.0 1,740.1 Financing liabilities from lease financing ...... 24.8 3.9 10.5 10.4 5.8מ Interest rate derivatives ...... 52.0 22.7 36.6 Liabilities to employees ...... 5.0 4.7 – 0.3 Liabilities from operating costs ...... 0.5 0.5 – – Rent and lease liabilities ...... 11.7 11.7 – – Liabilities from shareholder loans ...... – – – – Trade payables ...... 36.8 33.2 3.6 0.0 Others ...... 5.1 3.9 1.1 0.1 TOTAL ...... 2,694.8 302.6 1,507.8 1,745.1
The decrease in current loan liabilities is attributable, in particular, to the fact that the short-term loans granted to LEG NRW GmbH and GeWo Gesellschaft für Wohnungs- und Städtebau mbH, as of 31 December 2012, were refinanced in 2013. Together with the acquisition financing, this led to an increase and shift of the remaining terms of financing liabilities from loan liabilities. TAB 93
TABLE 93 Type of liabilities on 31.12.2012
Carrying Remaining terms € million amount <1 year 1–5 years >5 years Financing liabilities from loan payable ...... 2,473.7 427.8 952.6 1,938.5 Financing liabilities from lease financing ...... 26.0 4.2 14.5 18.4 Interest rate derivatives ...... 89.7 23.7 65.8 1.0 0.2 0.0מ Liabilities to employees ...... 5.1 4.9 Liabilities from operating costs ...... 0.9 0.9 – – Rent and lease liabilities ...... 10.8 10.8 – – Liabilities from shareholder loans ...... 40.7 40.7 – – Trade payables ...... 32.6 29.6 3.0 0.0 Others ...... 8.7 7.8 0.8 0.0 TOTAL ...... 2,688.2 550.4 1,036.7 1,958.1
All instruments for which payments were contractually agreed at the reporting date are included. Forecast figures for future new liabilities are not included. The variable interest payments for financial instruments are calculated using the most recent interest rates prior to the reporting date. Financing liabilities that are repayable at any time are always allocated to the earliest repayment date. Some of the LEG Group’s loan agreements contain financial covenants. In the event of a failure to comply with the agreed covenants, the LEG Group generally has the opportunity to resolve the situation; however, certain cases of non-compliance may result in the bank having the right to terminate the loan agreement with immediate effect. In addition, some agreements provide the bank with the possibility of increasing interest and principal payments or demanding further security for compliance with the covenants in the event of non-compliance. In any case, a long-term failure to comply with the agreed covenants means that the financing bank is entitled to terminate the respective agreement. Compliance with covenants is monitored continuously. There were no violations of the agreed covenants in the fiscal year 2013.
F-232 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
I. OTHER DISCLOSURES (Continued) D) MARKET RISK Due to the nature of its business activities, the LEG Group is subject to significant interest rate risk. Interest rate risk results, in particular, from floating-rate liabilities to banks. In order to limit interest rate risk, the LEG Group generally enters into fixed-income loans or floating-rate loans, sometimes in connection with interest payer swaps. More than 97% of financing liabilities to banks are economically hedged in this way. At the LEG Group, derivative financial instruments are used solely for interest rate hedging. The Treasury guideline prohibits the use of derivatives for speculative purposes. The Group had the following derivative financial instruments as of 31 December 2013:
TABLE 94 Derivatives 2013
thereof € million on 31.12.2013 Fair value <1 year Derivatives – HFT – Assets ...... – – thereof from interest rate swaps ...... – – 0.1מ 2.3מ ...... Derivatives – HFT – Liabilities 0.1מ 2.3מ ...... thereof from interest rate swaps 1.1מ 49.7מ ...... Hedged derivatives The Group had the following derivative financial instruments as of 31 December 2012:
TABLE 95 Derivatives 2012
thereof € million on 31.12.2012 Fair value <1 year Derivatives – HFT – Assets ...... – – thereof from interest rate swaps ...... – – 0.1מ 5.6מ ...... Derivatives – HFT – Liabilities 0.1מ 5.6מ ...... thereof from interest rate swaps 1.2מ 84.1מ ...... Hedged derivatives The derivatives entered into by the LEG Group are used as hedging instruments in accordance with IAS 39 if they meet the conditions for hedge accounting. The cash flows from hedged items in cash flow hedge accounting will be received between 2016 and 2022 and will be recognised in profit or loss at the same time. In 2013, the ineffective portion of a hedge was recognised in profit or loss in the amount of EUR 0.1 million (2012: EUR 0.1 million) as part of hedge accounting. The following table shows the amount recognised directly in other comprehensive income in the period under review. This corresponds to the effective portion of the change in fair value:
TABLE 96 Equity implication
€ million 2013 2012 23.0מ 78.7מ .OPERATING BALANCE AS OF 01.01 70.4מ Recognised in equity in reporting period ...... 10.3 Reserved from equity to statement of comprehensive income ...... 23.2 14.7 78.7מ 45.2מ .CLOSING BALANCE AS OF 31.12
F-233 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
I. OTHER DISCLOSURES (Continued) Sensitivities: In accordance with IFRS 7, interest rate risk is presented using sensitivity analyses to determine the impact that a change in market interest rates would have on the interest income and expense, trading gains and losses and the equity of the LEG Group at the reporting date. As part of the sensitivity analysis, the effects on the LEG Group’s equity and statement of comprehensive income are observed using a +/– 50 bp parallel shift in the euro yield curve. The cash flow effects from the shift in the yield curve relate solely to interest expense and income for the next reporting period. Based on the financial instruments held or issued by the LEG Group at the reporting date, a hypothetical change in the applicable interest rates for the respective instruments as quantified using the sensitivity analysis would have had the following effects (before taxes) at the reporting date:
TABLE 97 Financial instruments 2013
Comprehensive Equity effect income effect € million on 31.12.2013 +50 bp –50 bp +50 bp –50 bp Net position of all interest-sensitive financial instruments 1.6 1.6מ – – ...... Financing liabilities 6.1מ 6.1 30.9מ Interest rate derivatives ...... 30.9 Shareholder loans ...... – – – – bp = basis points
TABLE 98 Financial instruments 2012
Comprehensive Equity effect income effect € million on 31.12.2012 +50 bp –50 bp +50 bp –50 bp Net position of all interest-sensitive financial instruments 1.7 1.7מ – – ...... Financing liabilities 2.0מ 2.0 34.9מ Interest rate derivatives ...... 33.9 0.2 0.2מ – – ...... Shareholder loans bp = basis points
F-234 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
I. OTHER DISCLOSURES (Continued) E) OFFSETTING FINANCIAL ASSETS AND FINANCING LIABILITIES The following financial assets are subject to offsetting:
TABLE 99 Financial assets
Related amounts, which are not netted in the balance sheet Gross amount of the Net amount of the admitted financial admitted financial Gross amount of the liabilities, which have assets, which are admitted financial been netted in the considered in the Financial Received Net € million assets balance sheet balance sheet instruments cash deposits amount 31.12.2013 Inventories in 6.6 – – 6.6 171.0מ progress ...... 161.1 Cash and cash 108.3 – 2.4מ equivalents ...... 110.7 – 110.7 114.9 – 2.4מ 117.3 171.0מ TOTAL ...... 271.8 31.12.2012 Inventories in 4.3 – – 4.3 162.1מ progress ...... 144.7 Cash and cash 131.1 – 2.6מ equivalents ...... 133.7 – 133.7 135.4 – 2.6מ 138.0 162.1מ TOTAL ...... 278.4
The following financing liabilities are subject to offsetting:
TABLE 100 Financing liabilities
Related amounts, which are not netted in the balance sheet Gross amount of the Gross amount of the admitted financial admitted financial Gross amount of the assets, which have liabilities, which are admitted financial been netted in the considered in the Financial Rendered Net € million liabilities balance sheet balance sheet instruments cash deposits amount 31.12.2013 Advanced payments 16.5מ – – 16.5מ 161.1 171.0מ ...... received Financing liabilities from real estate 2,556.5מ – 2.4 2,558.9מ – 2,558.9מ ...... financing 2,573.0מ – 2.4 2,575.4מ 161.1 2,729.9מ ...... TOTAL 31.12.2012 Advanced payments 23.0מ – – 23.0– 144.7 162.1מ ...... received Financing liabilities from real estate 2,471.1מ – 2.6 2,473.7מ – 2,473.7מ ...... financing 2,494.1מ – 2.6 2,496.7מ 144.7 2,635.8מ ...... TOTAL
F-235 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
I. OTHER DISCLOSURES (Continued) The contractually agreed general terms and conditions of the banks relating to liens result in a claim for setting off the loan utilisation against the credit balances of the individual companies.
4. Number of employees The average number of employees at the LEG Group broken down by segment developed as follows compared with the previous year:
TABLE 101 Average number of employees
Average Average number of Employee capacity number of Employee capacity employees 2013 (FTE) 2013 employees 2012 (FTE) 2012 Residential ...... 615 505 608 507 Others ...... 251 231 250 232 TOTAL ...... 866 736 858 739
5. Total auditor’s fees The total fees paid to the auditor of the consolidated financial statements are composed as follows:
TABLE 102 Total auditor’s fees
€ million 2013 2012 Audits of financial statements ...... 1.3 1.9 Other audit services ...... 0.1 3.9 Other services ...... – 2.8 TOTAL FEE ...... 1.4 8.6
6. IFRS 2 programs A) LONG-TERM INCENTIVE PLAN WITH FORMER SHAREHOLD-ERS Since 2011, some members of the Management Board of LEG Immo have concluded bilateral agreements with the former shareholders of Saturea B.V. and Perry Luxco RE S.à r. l. The former shareholders of the LEG Group which granted the incentives intend to achieve a long-term increase in the equity until the time they sell their shares. Mr Hegel and Mr Schultz, the beneficiaries of the programme, made an important contribution to the future development of the LEG Group. The incentive programme is intended to allow the beneficiaries to participate in the success of the LEG Group and future value growth, while also incentivising them to increase the success and value of the LEG Group. The incentive payments would have been due from the shareholders when several conditions were met cumulatively. This included the occurrence of an exit event, which was defined as a reduction in the shares of the LEG Group held by the current shareholder to less than 10%. The LEG Group was also required to achieve a defined internal yield and certain cash multiples by the exit date. The incentive payments are based on a percentage of the net cash flow received by the shareholders. There are various dates on which they were to be granted. The incentive programme provided for direct payment by the shareholders. The LEG Group would be not obliged to make these payments. Accordingly, the incentive programme was treated as a share-based option plan in accordance with IFRS 2. Based on the adjusted assessment of the LEG Group’s management concerning the probability and timing of the shareholders’ exit, as well as the expectations of the cash flows to be received by
F-236 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
I. OTHER DISCLOSURES (Continued) the shareholders as of the grant date (taking into account various business scenarios), the economic scenarios and the two performance criteria, no bonus payment was expected as of 31 December 2013. As a result, no expense was recognised in the fiscal year 2012.
B) NEW LTIP MANAGEMENT BOARD AGREEMENTS WITH FORMER SHAREHOLDERS As part of LEG Immo’s IPO, on 17 January 2013, the previous long-term incentive agreements for members of management were dissolved and replaced by new agreements for the Management Board. Such an agreement was also concluded with a new member of the Management Board, Mr Hentschel, who was not a beneficiary of the old agreements. The new agreements provide for shares in the holding company to be granted by the former shareholders to the members of the Management Board if the IPO results in a certain level of proceeds (less certain costs). The number of shares granted is determined with the aid of an established formula (partly dependent on the IPO price, IPO costs and an individual factor). Under this arrangement, the members of the Management Board are granted a third of their shares 12, 24 and 36 months after a successful IPO. In the event of the early departure of the beneficiary, the outstanding shares lapse by between 20 and 100% depending on the reason for departure. The replacement of the old agreements by the new agreements is accounted for as a modification of existing agreements in accordance with IFRS 2.28 f. This requires that the old commitment is accounted for as before, and any incremental fair value arising from the new commitment is also recognised as an expense from the modification date. The incremental fair value is defined as the difference between the fair value of the original programme and the fair value of the new programme, each calculated as of the date of modification. Owing to the design of the old and new programmes, there was a positive difference as of the date of modification, with the result that the modification of the old agreements resulted in the distribution of an additional expense of EUR 1.1 million in total over the vesting period. For the Management Board members, Mr Hegel and Mr Schutz, the fair value of the commitments was as follows:
TABLE 103 Calculated current value of LTIP-Promise
Fair value Fair value new Incremental € million old contracts contracts Fair value Hegel ...... 4.5 4.2 – Schultz ...... 2.2 3.3 1.1 TOTAL ...... 6.7 7.5 1.1
The benefit granted to Mr Hentschel was determined as of the grant date in line with the regulations of IFRS 2.10 et seq., and amounted to EUR 0.2 million. As of 31 December 2013, the number of shares granted to Hegel totalled 94,922, to Mr Schultz 75,938 and Mr Hentschel 4,654. The exercise price per share granted was EUR 44.00. As a result of the successful IPO of LEG Immo, overall claims arose from the new agreements between the former shareholders and the Management Board as of 31 December 2013, subject to the early departure of members of the Management Board. The costs of these agreements do not reduce liquidity at LEG Immo. Similarly, the regulations of IFRS 2 result in the different recognition of expenses at LEG Immo, in terms of both timing and amount. According to the regulations of IFRS 2, EUR 0.6 million of this was recognised as an expense at LEG as of 31 December 2013.
F-237 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
I. OTHER DISCLOSURES (Continued) C) LTI MANAGEMENT BOARD EMPLOYMENT CONTRACTS The new employment agreements for members of the Management Board also provide for a long-term incentive programme to be offered for each fiscal year. The programme is designed for a four-year period and divided into three performance periods (until the end of the first, second and third fiscal years following the relevant fiscal year). The amount of LTI remuneration is dependent on the achievement of certain performance targets. The performance targets in question are total shareholder return and the development of LEG’s share price compared to the relevant EPRA Germany Index. If a Management Board member’s appointment ends under certain conditions, tranches pending as of the date of the legal end of the appointment (tranches for which the performance period has not yet ended) expire without substitution. The programme is treated as cash-settled share-based remuneration in accordance with IFRS 2. On the basis of an assessment of the Management Board on the attainment of performance hurdles, staff costs of EUR 0.3 million were recognized as of 31 December 2013. A target achievement level of 100% was assumed. Details on Management Board employment contracts can also be found in the remuneration report.
D) SETTLEMENT AGREEMENTS FOR SUPERVISORY BOARD MEMBERS Furthermore, in January 2013, the former shareholders concluded settlement agreements for consulting agreements with selected members of the Supervisory Board and incentive agreements with a company whose majority shareholder is a member of the Supervisory Board. In the event of a successful IPO, these consulting agreements provided for payments by the former shareholders while the incentive agreements provided for shares to be granted by the former shareholders. The agreements were recognised in accordance with the regulations on equity-settled share-based payment (see IFRS 2.43A et seq.). The benefit granted amounted to EUR 3.4 million as of the grant date. In one case, the agreements provide for immediate vesting in the event of an IPO, in another case for graded vesting of claims by 1 December 2013 or 1 December 2014. As of 31 December 2013, the agreements result in total staff costs of EUR 2.7 million at LEG Immo.
7. Related-party disclosures Related parties are defined as companies and persons that have the ability to control the LEG Group or exercise significant influence over its financial and business policy. The existing control relationships were taken into account when determining the significant influence that related parties can exercise over the LEG Group’s financial and business policy.
RELATED PERSONS Until 10 January 2013, related persons included the legal representatives of LEG Immobilien GmbH and Saturea B.V. as shareholder as well as the members of the Supervisory Board and the Management of LEG NRW GmbH.
Following the change in legal form and the renaming of LEG Immobilien GmbH as LEG Immobilien AG on 11 January 2013, related persons include the Management Board and Supervisory Board of LEG Immobilien AG as well as the legal representatives of Saturea B.V. as a shareholder. The LEG Immobilien AG Management Board and LEG NRW GmbH management consist of the same individuals.
RELATED COMPANIES The related companies of LEG Immo were Saturea B.V. as a shareholder and its shareholder, the Whitehall fund. The fellow subsidiary Weiße Rose GmbH and all of the subsidiaries and associates of the LEG Group are also considered to be related companies, as are certain subsidiaries not included in consolidation.
F-238 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
I. OTHER DISCLOSURES (Continued) The following table shows the receivables from, and liabilities to, related companies as at the reporting date and expenses and income involving related companies for the fiscal year:
TABLE 104 Receivables from and liabilities to related companies
€ million 31.12.2013 31.12.2012 Statement of financial positions Receivables from equity investments ...... 0.4 0.6 Receivables from non-consolidated companies ...... 0.1 0.1 Receivables from associates ...... 0.5 1.2 Liabilities to shareholders ...... 0.9 41.7 Liabilities to equity investments ...... 1.1 1.1 Liabilities to non-consolidated companies ...... 0.1 0.2 Liabilities to associates ...... 0.0 0.0
TABLE 105
Income from and expenses for related companies
€ million 2013 2012 Statement of comprehensive income Income from associates ...... 0.3 0.4 Income from equity investments ...... 1.5 1.6 Expenses for shareholders ...... –0.2 –1.4 Expenses for non-consolidated companies ...... – –2.6
A) RELATED-COMPANY DISCLOSURES By way of agreement dated 17 January 2013, the shareholders Restio B.V. and Perry Luxco RE S.à r. l. contributed loan receivables totalling EUR 40.5 million to the capital reserves of LEG Immobilien AG as other contributions. Further details can be found in Section E.10. As of the reporting date, Rote Rose GmbH & Co. KG had loan liabilities to Perry Luxco RE S.à r. l. of EUR 0.9 million. Related companies controlled by LEG Immo, or over which it can exercise a significant influence, are included in the consolidated financial statements. Intra-Group transactions under existing service and management agreements between the companies are eliminated as part of consolidation. For the successful IPO on 1 February 2013, consulting and non-staff operating costs of EUR 12.5 million as well as staff performance bonuses of EUR 4.2 million were passed on to the former shareholder Saturea B.V. There was no significant exchange of goods and services with the other unconsolidated subsidiaries or associates.
F-239 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
I. OTHER DISCLOSURES (Continued) B) RELATED PERSON DISCLOSURES Total remuneration of the Management Board is shown in the table below:
TABLE 106 Compensation package of the Management Board
€ thousand 2013 20123) Fixed remuneration1) ...... 957 813 Ancillary benefits1) ...... 56 61 Subtotal ...... 1,013 874 Performance bonus ...... 850 0 Short-Term-Incentive-Programme (STI)2) ...... 630 664 Long-Term-Incentive-Programme (LTI) ...... 718 0 Subtotal ...... 2,198 664 Total remuneration4) ...... 3,211 1,538 Pension expenses ...... 25 24 TOTAL ...... 3,236 1,562
1) The fixed remuneration also includes remuneration from the interim contract agreement from 2 January – 1 February 2013. 2) The provision of the variable remuneration, which the Management Board received in 2013 for the fiscal year 2012 result from the executive employment agreements with LEG NRW GmbH and LEG Wohnen NRW GmbH, respectively. 3) In 2012 the benefits which were part of the executive employment agreements with LEG NRW GmbH and LEG Wohnen NRW GmbH, respectively, were paid out. 4) § 314 I Nr. 6a S. 1-3 HGB. The performance bonus shown in the table was agreed for the successful IPO. Staff costs of EUR 0.9 million were recognised for this as of 31 December 2013. The additional staff costs were passed on as part of the cost reimbursement by the former shareholders. There are no reductions in liquidity or earnings at the level of LEG Immo. In addition, in the reporting year, expenses of EUR 0.6 million were recognised from the long-term incentive plans with former shareholders. Details can be found in Section I.6. Remuneration paid to former members of management and their surviving dependants amounted to EUR 0.3 million (2012: EUR 0.3 million). Provisions of EUR 2.8 million are recognised for pension commitments to former members of management and their surviving dependants (2012: EUR 3.0 million). Total remuneration paid to the members of the Supervisory Board of LEG Immobilien AG amounted to EUR 0.6 million in 2013. Total remuneration paid to the members of the Supervisory Board of LEG NRW amounted to EUR 0.1 million in 2012. Provisions for pensions are recognised for active members of the LEG NRW Supervisory Board in the amount of EUR 0.5 million (2012: EUR 0.5 million). In addition, for certain members of the Supervisory Board, expenses of EUR 2.7 million were recognised in the fiscal year in the context of processing consultancy agreements and incentive agreements. The additional staff costs are passed on as part of the cost reimbursement by the former shareholders. There are no reductions in liquidity or earnings at the level of LEG Immo. Details can be found in Section I.6.
F-240 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
I. OTHER DISCLOSURES (Continued) Recognised expenses for the remuneration of members of the Management Board and Supervisory Board in line with IAS 24.17 can be summarised as follows (in €K):
TABLE 107 Benefits to the Management and Supervisory Board
€ thousand 31.12.2013 31.12.2012 Current payable benefits ...... 3,053 1,638 Benefits after termination of the employment ...... 0 0 Other long-term payable benefits ...... 25 24 Benefits in cause of the termination of employment ...... 0 0 Share-based payment ...... 3,547 0 TOTAL ...... 6,625 1,662
Further information can be found in the Remuneration Report, which forms part of the Management Report.
8. Contingent liabilities
The LEG Group has the following contingent liabilities:
TABLE 108 Contingent liabilities
€ million 31.12.2013 31.12.2012 Land charges ...... 2,822.2 2,646.9 Letters of comfort Amount of maximum utilisation (maximum guarantee) ...... 0.5 1.7
The warranty agreements relate solely to letters of comfort for unconsolidated Group companies. Appropriate provisions have been recognised for the rent guarantees issued in conjunction with disposals.
9. Other financial commitments
The Group’s other financial commitments are composed as follows:
TABLE 109 Other financial commitments
€ million 31.12.2013 31.12.2012 Future payments under operating leases ...... 64.8 59.1 Purchase obligations ...... 4.1 10.7
Future payments under operating leases result, in particular, from obligations for land with third-party heritable building rights in the amount of EUR 49.1 million (previous year: EUR 39.8 million) and rental obligations in the amount of EUR 14.7 million (previous year: EUR 15.5 million).
F-241 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
I. OTHER DISCLOSURES (Continued) Future payment obligations under non-cancellable operating leases are broken down as follows:
TABLE 110 Minimum lease payments
€ million 31.12.2013 31.12.2012 Remaining term <1 year ...... 4.2 5.7 Remaining term >1 and 5 years ...... 12.4 11.7 Remaining term >5 years ...... 48.2 41.7 TOTAL ...... 64.8 59.1
In the fiscal year 2013, minimum lease payments were expensed in the amount of EUR 3.2 million (2012: EUR 4.2 million).
10. The Management Board LEG Immobilien AG is represented by the Management Board, which consists of the following members:
Thomas Hegel (Erftstadt)
Holger Hentschel (Erkrath)
Eckhard Schultz (Neuss)
REGISTERED OFFICE OF THE COMPANY:
Hans-Boeckler-Strasse 38 40476 Dusseldorf Germany Commercial register: HRB 69386
AUDITOR:
PricewaterhouseCoopers AG Frankfurt am Main Berlin Office Lise-Meitner Strasse 1 10589 Berlin Germany
11. The Supervisory Board The Supervisory Board of LEG Immobilien ag consists of nine members and four alternate members. The following members were elected by the shareholders’ meeting:
Nathan James Brown, CFO, Perry Capital UK LLP, London, Great Britain
James Garman, Investment Manager, Goldman Sachs International, London, Great Britain
Dr Martin Hintze, Bank Manager, Goldman Sachs International, London, Great Britain
F-242 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
I. OTHER DISCLOSURES (Continued) Stefan Jütte, Deputy Chairman, Merchant, Bonn, Germany
Dr Johannes Ludewig, Business Consultant, Berlin, Germany
Heather Mulahasani, Investment Manager, Goldman Sachs International, London, Great Britain
Dr Jochen Scharpe, Managing Partner, AMCI GmbH, Munich, Germany
Jürgen Schulte-Laggenbeck, CFO, Otto GmbH & Co. KG, Hamburg, Germany
Michael Zimmer, Chairman, Entrepreneur, Pulheim, Germany
Alternate members of the Supervisory Board Michael Furth, London, Great Britain
Chetan Gulati, London, Great Britain
Richard Spencer, Teddington, Great Britain
Patrick Tribolet, Dallas, USA
12. Events after the balance sheet date On 23 January 2014, the shareholder Saturea B.V. sold a package of almost 15.2 million shares in an accelerated book-building procedure, thus reducing its holding from 28.65% to approximately 0.41%. Thus Saturea B.V. and its legal representatives are no longer related parties within the meaning of IAS 24. In connection with this, on 4 March 2014 the Supervisory Board members Heather Mulahasani, James Garman and Dr Martin Hintze, who were allocated to the former major shareholder Saturea B.V., stepped down from their positions with effect from 2 April 2014. In advance of the next Annual General Meeting on 25 June 2014, the Management Board and Supervisory Board of leg Immobilien AG will discuss whether new appointments should be made to replace them or whether a proposal should be made to the Annual General Meeting to reduce the number of members of the Supervisory Board to six. In the final quarter of 2013, the acquisition of a portfolio of 1,922 residential units in North Rhine-Westphalia was notarised subject to approval from the relevant committees. The relevant committees will grant their approval in the first quarter of 2014. The purchase price, including incidental acquisition costs, is EUR 106.5 million. The portfolio currently generates annual rental income of EUR 7.9 million. When the contract was signed, the average rent of the portfolio was EUR 4.96 per square metre with a vacancy rate of 3.0%. The initial FFO I yield of the portfolio was over 8.0%. After the balance sheet date, as of 31 December 2013, further refinancing loan tranches were utilised in the amount of EUR 2.8 million at individual Group companies. The loans will essentially be used to repay existing loans. In addition, after the reporting date the Group received loans of EUR 22.3 million in the context of acquisition financing. There were no other transactions of material importance to the company after the end of the fiscal year.
F-243 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
I. OTHER DISCLOSURES (Continued) 13. Declaration of compliance in accordance with Section 161 of the German Stock Corporation Act The Management Board and the Supervisory Board comply with the recommendations of the German Corporate Governance Code as presented in the management report. The declaration of compliance has been made permanently available to shareholders on the company’s website at www.leg-nrw.de/en/enterprise/investor- relations/corporate-governance/
Dusseldorf, 24 March 2014
LEG Immobilien AG
Legal representatives of the company
Thomas Hegel, Erftstadt (CEO)
Holger Hentschel, Erkrath (COO)
Eckhard Schultz, Neuss (CFO)
F-244 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
J. LIST OF SHAREHOLDINGS The following list provides an overview of the basis of consolidation of the LEG Group:
TABLE 111 Consolidated companies
Share of Equity* Result* capital % € thousand € thousand LEG Immobilien AG, Dusseldorf ...... Parent company 15מ Rote Rose GmbH & Co. KG, Dusseldorf ...... 94.90 108,096 43,852מ LEG NRW GmbH, Dusseldorf ...... 99.98 722,731 LEG Wohnen GmbH, Dusseldorf ...... 100.00 584,868 0 LEG Wohnungsbau Rheinland GmbH, Dusseldorf ...... 100.00 112,639 0 LEG Rheinland Köln GmbH, Dusseldorf ...... 100.00 33,969 0 LEG Wohnen Bocholt GmbH, Dusseldorf ...... 100.00 25 0 LEG Bauträger GmbH, Dusseldorf ...... 100.00 5,412 0 LEG Bauen und Wohnen GmbH, Cologne ...... 100.00 2,165 0 LCS Consulting und Service GmbH, Dusseldorf ...... 100.00 2,556 0 LEG Consult GmbH, Dusseldorf (previously: LEG Vertrieb und Consulting GmbH, Dusseldorf) ...... 100.00 302 0 GWN Gemeinnützige Wohnungsgesellschaft Nordwestdeutschland GmbH, Muenster ...... 94.86 74,581 0 GWN Gemeinnützige Wohnungsgesellschaft GmbH, Muenster ...... 100.00 217,321 842 GeWo Gesellschaft für Wohnungs- und Städtebau mbH, Castrop-Rauxel . . 94.00 22,542 0 Hiltrup Grundbesitzverwertungsgesellschaft mbH, Muenster ...... 100.00 75 3 Wohnpark Hiltrup Grundbesitzverwertungsgesellschaft mbH & Co. KG, Muenster ...... 100.00 10 165 LEG Rheinrefugium Köln GmbH, Cologne ...... 94.00 34 0 Calor Caree GmbH, Dusseldorf ...... 94.00 25 0 LEG Beteiligungsverwaltungsgesellschaft mbH, Dusseldorf ...... 100.00 13,745 0 46מ 21מ LEG Grundstücksverwaltung GmbH, Dusseldorf ...... 100.00 LEG Management GmbH, Dusseldorf ...... 100.00 1,124 0 LEG Wohnen NRW GmbH, Dusseldorf ...... 100.00 345 0 LEG Standort- und Projektentwicklung GmbH, Dusseldorf ...... 100.00 555 0 LEG Standort- und Projektentwicklung Köln GmbH, Cologne ...... 100.00 13,753 0 LEG Standort- und Projektentwicklung Essen GmbH, Essen ...... 100.00 54,314 0 LEG Standort- und Projektentwicklung Bielefeld GmbH, Bielefeld ...... 100.00 6,438 0 153מ 822מ Biomasse Heizkraftwerk Siegerland GmbH & Co. KG, Cologne ...... 51.00 0 57מ LEG Grundstücksentwicklung Münsterland GmbH, Muenster ...... 94.90 Grundstücksentwicklungsgesellschaft Ennigerloh Süd-Ost mbH, 336מ 6,863מ Ennigerloh ...... 100.00 141 3,944מ LEG Objekt Krefeld-Bockum GmbH & Co. KG, Dusseldorf ...... 100.00 Ravensberger Heimstättengesellschaft mbH, Bielefeld ...... 100.00 89,970 0 Gemeinnützige Bau- und Siedlingsgesellschaft Höxter-Paderborn GmbH, Hoexter ...... 100.00 11,561 79 Ruhr-Lippe Wohnungsgesellschaft mbH, Dortmund ...... 100.00 326,197 7,631 Ruhr-Lippe Immobilien-Dienstleistungsgesellschaft mbH, Dortmund ..... 100.00 7,452 0 Wohnungsgesellschaft Münsterland mbH, Muenster ...... 100.00 164,978 0 Münsterland Immobilien-Dienstleistungsgesellschaft mbH, Muenster ..... 100.00 114 0 LEG Erste Grundstücksverwaltungs GmbH, Dusseldorf ...... 100.00 25 0 LEG Zweite Grundstücksverwaltungs GmbH, Dusseldorf ...... 100.00 25 0 LEG Dritte Grundstücksverwaltungs GmbH, Dusseldorf ...... 100.00 25 0 LEG Vierte Grundstücksverwaltungs GmbH, Dusseldorf ...... 100.00 25 0
F-245 CONSOLIDATED FINANCIAL STATEMENT NOTES (Continued)
J. LIST OF SHAREHOLDINGS (Continued) Share of Equity* Result* capital % € thousand € thousand LEG Fünfte Grundstücksverwaltungs GmbH, Dusseldorf ...... 100.00 25 0 20מ Erste WohnServicePlus GmbH, Dusseldorf ...... 100.00 5 WohnServicePlus GmbH, Dusseldorf ...... 100.00 25 0
* Unless indicated otherwise, these figures are the HGB (GAAP) single-entity equity and the results as of 31 December 2013. A zero is shown in the event of there being a profit transfer agreement in place.
TABLE 112 Non-consolidated companies
Share of Equity* Result* capital % € thousand € thousand Entwicklungsgesellschaft Rhein-Pfalz GmbH, Mainz ...... 100.00 25 0 Entwicklungsgesellschaft Rhein-Pfalz GmbH & Co. KG, Mainz ...... 100.00 1,760 2,143 Biomasse Heizkraftwerk Siegerland Verwaltungs GmbH, Cologne ...... 51.00 32 1 3מ LEG Krefeld-Bockum Verwaltungs GmbH, Dusseldorf ...... 100.00 107 Grundstücksentwicklungsgesellschaft Essen-Kettwig-Ruhrufer GmbH, Essen ...... 100.00 0 0 Multi Veste-LEG Domhof Galerie Minden Verwaltungsgesellschaft mbH, Minden ...... 100.00 27 0
* These figures are the HGB (GAAP) single-entity equity and the results as of 31 December 2012. The financial statements as of 31 December 2011 were only used for Grundstücksentwicklungsgesellschaft Essen-Kettwig-Ruhrufer GmbH, Essen.
TABLE 113 Associates accounted for using the equity method
Share of Equity* Result* capital % € thousand € thousand Projektgesellschaft Hauptbahnhof Remscheid mbH, Remscheid ...... 50.00 20 36 11מ Area of Sports GmbH & Co. KG, Moenchengladbach ...... 50.00 1,298 Kommunale Haus und Wohnen GmbH, Rheda-Wiedenbrueck ...... 40.62 18,240 657 Beckumer Wohnungsgesellschaft mbH, Beckum ...... 33.37 3,411 66
* These figures are the HGB (GAAP) single-entity equity and the results as of 31 December 2013.
TABLE 114 Associates not accounted for using the equity method
Share of Equity* Result* capital % € thousand € thousand Mönchengladbach Nordpark Area of Sports GmbH, Moenchengladbach . . . 50.00 25 0 44 431מ Grundstücksgesellschaft Sendenhorst mbH, Sendenhorst ...... 49.00
* These figures are the HGB (GAAP) single-entity equity and the results as of 31 December 2013. The financial statements as of 31 December 2012 were only used for Grundstücksgesellschaft Sendenhorst mbH, Sendenhorst.
F-246 CONSOLIDATED FINANCIAL STATEMENT CONSOLIDATED STATEMENT OF CHANGES IN ASSETS/ANNEX I
TABLE 115 Consolidated statement of changes in assets 2013
Cumulative depreciation, amortisation and Costs write-downs/fair values Carrying amounts Additions from Disposal to As of investment investment Disposal to assets As of As of As of As of As of € million 01.01.2013 Additions Disposals properties properties held for sale 31.12.2013 01.01.2013 Additions Disposals 31.12.2013 31.12.2013 31.12.2012 72.3 66.7 40.0מ 1.4 7.0מ 34.4מ 106.7 1.2מ 1.1מ 0.3 2.3מ Property, plant and equipment ...... 106.7 4.3 28.7 25.7 2.5מ – 0.8מ 1.7מ 28.2 1.2מ 1.1מ 0.3 0.2מ – Land, land rights and buildings ...... 30.4 18.5 17.9 18.0מ 0.2 2.3מ 15.9מ 35.9 – – – 0.9מ Technical equipment and machinery ...... 34.4 2.4 1.7 1.4 7.8מ 0.5 0.5מ 7.8מ 9.2 – – – 0.5מ Other equipment, operating and office equipment . . 9.5 0.2 23.4 21.7 11.7מ 0.7 3.4מ 9.0מ 33.4 – – – 0.7מ Finance leases ...... 32.4 1.7 5.9 4.3 8.3מ – 1.7מ 6.6מ Intangible assets ...... 12.5 0.1 – – – – 12.6 F-247 78.2 71.0 48.3מ 1.4 8.7מ 41.0מ 119.3 1.2מ 1.1מ 0.3 2.3מ TOTAL ...... 119.2 4.4
TABLE 116 Consolidated statement of changes in assets 2012
Cumulative depreciation, amortisation and Costs write-downs/fair values Carrying amounts Additions from Disposal to As of investment investment Disposal to assets As of As of As of As of As of € million 01.01.2012 Additions Disposals properties properties held for sale 31.12.2012 01.01.2012 Additions Disposals 31.12.2012 31.12.2012 31.12.2011 75.7 72.3 34.4מ 8.8 6.8מ 36.4מ 106.7 – 0.1מ 0.3 9.7 מ Property, plant and equipment ...... 112.1 4.1 29.6 28.7 1.7מ 0.6 0.7מ 1.6מ 30.4 – 0.1מ 0.3 1.1מ Land, land rights and buildings ...... 31.2 0.1 20.4 18.5 15.9מ 0.7 2.3מ 14.3מ 34.4 – – – 0.7 מ Technical equipment and machinery ...... 34.7 0.4 1.7 1.7 7.8מ 3.9 0.6מ 11.1מ 9.5 – – – 3.9מ Other equipment, operating and office equipment . . . 12.8 0.6 24.0 23.4 9.0מ 3.6 3.2מ 9.4מ 32.4 – – – 4.0מ Finance leases ...... 33.4 3.0 6.3 5.9 6.6 מ 3.0 1.8מ 7.8מ 12.5 – – – 3.0מ Intangible assets ...... 14.1 1.4 82.0 78.2 41.0מ 11.8 8.6מ 44.2מ 119.2 – 0.1מ 0.3 12.7מ TOTAL ...... 126.2 5.5 CONSOLIDATED FINANCIAL STATEMENT CONSOLIDATED STATEMENT OF CHANGES IN PROVISIONS/ANNEX II
TABLE 117 Consolidated statement of changes in provisions 2013
thereof As of Reclassification to asset As of € million 01.01.2013 Utilisation Release held for sale Addition Interest Discounting 31.12.2013 Non-current Current Staff provisions 0.8 0.9 1.7 – – 0.6 – – 0.9מ Staff provisions ...... 2.0 17.2 11.7 28.9 0.3מ 0.3 11.5 – 4.0מ 8.8מ Other provisions ...... 30.3 1.0 1.0 2.0 0.1מ – – – – 0.3מ Provisions of lease properties ...... 2.4 3.7 1.7 5.4 – 0.2 1.3 – 2.5מ 4.6מ Construction book provisions ...... 11.0 3.6 0.3 3.9 – – 1.1 – 1.3מ 1.2מ Litigations risks ...... 5.3 8.9 8.7 17.6 0.2מ 0.1 9.1 – 0.2מ 2.7מ Other provisions ...... 11.5 F-248 18.0 12.6 30.6 0.3מ 0.3 12.1 – 4.0מ 9.7מ TOTAL ...... 32.3
TABLE 118 Consolidated statement of changes in provisions 2012
thereof As of Reclassification to asset As of € million 01.01.2012 Utilisation Release held for sale Addition Interest Discounting 31.12.2012 Non-current Current Staff provisions 0.9 1.1 2.0 – – 0.8 – 0.6מ 2.7מ Staff provisions ...... 4.5 19.2 11.0 30.3 – 2.2 9.7 – 4.2מ 10.3מ Other provisions ...... 32.9 0.5 1.9 2.4 – 0.1 – – 0.1מ 0.5מ Provisions of lease properties ...... 2.9 8.2 2.8 11.0 – 0.3 3.2 – 0.2מ 5.9מ Construction book provisions ...... 13.6 5.1 0.2 5.3 – – 0.7 1.3 1.4מ 0.5מ Litigations risks ...... 5.2 5.4 6.1 11.5 – 1.7 5.8 1.3מ 2.5מ 3.4מ Other provisions ...... 11.2 20.1 12.1 32.3 – 2.2 10.5 – 4.8מ 13.0מ TOTAL ...... 37.4 CONSOLIDATED FINANCIAL STATEMENT OVERVIEW OF VOTING RIGHT NOTIFICATIONS/ANNEX III
TABLE 119 Overview of voting rights pursuant to Section 21 para. 1 WpHG
Attribution pursuant to Section 22 WpHG Name of shareholder(s) holding directly 3% voting rights Date Threshold Attribution Attribution or more threshold crossed or Total Name(s) of controlled pursuant Amount of pursuant Amount of which are Person/Company subject Date Reason for crossed or reached Total voting rights undertaking(s) holding 3% or to para. 1 Amount of voting rights to para. 1 Amount of voting rights attributed to notification City Country received notification reached in % voting rights in % more sent. 1 voting rights in % sent. 1 voting rights in % to the notifier
Morgan Stanley ...... Wilmington, USA 03.12.13 Falling 29.11.13 3 1,568,190 2.96 – No. 1 508,492 0.96 No. 6, in 1,059,698 2.00 – Delaware below connection with threshold Section 22 para. 1 sentence 2
F-249 CBRE Clarion Securities, Exceeding LLC...... Radnor USA 23.01.14 threshold 23.01.14 5 2,835,200 5.35 – No. 6 2,835,200 5.35 – – – – Ruffer LLP ...... London United 27.01.14 Exceeding 27.01.14 3 2,277,859 4.30 – No. 6 2,277,859 4.30 – – – – Kingdom threshold Sun Life Financial Inc. . . . Toronto Canada 29.01.14 Exceeding 27.01.14 5 2,852,903 5.39 – – – – No. 6, in 2,852,903 5.39 – threshold connection with Section 22 para. 1 sentence 2 Sun Life Global Investments Inc...... Toronto Canada 29.01.14 Exceeding 27.01.14 5 2,852,903 5.39 – – – – No. 6, in 2,852,903 5.39 – threshold connection with Section 22 para. 1 sentence 2 Sun Life Assurance No. 6, in Company of Canada – connection with U.S. Operations Wellesley Exceeding Section 22 para. 1 Holdings, Inc...... Hills USA 29.01.14 threshold 27.01.14 5 2,852,903 5.39 – – – – sentence 2 2,852,903 5.39 – Sun Life Financial (U.S.) Holdings, Inc...... Wellesley USA 29.01.14 Exceeding 27.01.14 5 2,852,903 5.39 – – – – No. 6, in 2,852,903 5.39 – Hills threshold connection with Section 22 para. 1 sentence 2 Sun Life Financial (U.S.) Investments LLC ..... Wellesley USA 29.01.14 Exceeding 27.01.14 5 2,852,903 5.39 – – – – No. 6, in 2,852,903 5.39 – Hills threshold connection with Section 22 para. 1 sentence 2 No. 6, in Sun Life of Canada (U.S.) connection with Financial Services Exceeding Section 22 para. 1 Holdings, Inc...... Boston USA 29.01.14 threshold 27.01.14 5 2,852,903 5.39 – – – – sentence 2 2,852,903 5.39 – CONSOLIDATED FINANCIAL STATEMENT OVERVIEW OF VOTING RIGHT NOTIFICATIONS/ANNEX III (Continued)
Attribution pursuant to Section 22 WpHG Name of shareholder(s) holding directly 3% voting rights Date Threshold Attribution Attribution or more threshold crossed or Total Name(s) of controlled pursuant Amount of pursuant Amount of which are Person/Company subject Date Reason for crossed or reached Total voting rights undertaking(s) holding 3% or to para. 1 Amount of voting rights to para. 1 Amount of voting rights attributed to notification City Country received notification reached in % voting rights in % more sent. 1 voting rights in % sent. 1 voting rights in % to the notifier No. 6, in Massachusetts Financial connection with Services Company Exceeding Section 22 para. 1 (MFS) ...... Boston USA 29.01.14 threshold 27.01.14 5 2,852,903 5.39 – No. 6 2,475,231 4.67 sentence 2 377,672 0.71 – Perry Luxco S.a` r.l...... Luxembourg Luxembourg 29.01.14 Falling 27.01.14 10, 15, 20, 25, 30 4,090,837 7.724 Perry Luxco re S.a` r.l. No. 1 4,090,837 7.724 – – – – below threshold Perry Global Holdings, Wilmington, USA 29.01.14 Falling 27.01.14 10, 15, 20, 25, 30 4,090,837 7.724 Perry Luxco S.à r. l.; Perry Luxco No. 1 4,090,837 7.724 – – – – LLC...... Delaware below RE S.a` r.l.
F-250 threshold Perry Luxco RE S.a` r.l. . . . Luxembourg Luxembourg 29.01.14 Falling 27.01.14 10, 15, 20, 25, 30 4,090,837 7.724 – – – – – – – – below threshold Mr Richard C. Perry ..... USA 29.01.14 Falling 27.01.14 10, 15, 20, 25, 30 4,090,837 7.724 Perry Corp.; Perry Partners, L.P.; No. 1 – – – – – – below Perry Global Holdings, L.L.C.; threshold Perry Luxco S.a` r. l.; Perry Luxco RE S.a` r.l. Perry Corp.; Perry Partners International, Inc.; Perry Partners International Master Inc.; Perry Global Holdings, L.L.C.; Perry Luxco S.a` r. l.; Perry Luxco RE S.a` r.l. Perry Corp.; Perry Private Opportunitities Fund GP, L.L.C.; Perry Private Opportunities Fund, L.P.; Perry Global Holdings, L.L.C.; Perry Luxco S.a` r. l.; Perry Luxco RE S.a` r.l. Perry Corp.; Perry Private Opportunities Offshore Fund (Cayman) GP, L.L.C.; Perry Private Opportunities Offshore Fund, L.P.; Perry Global Holdings, L.L.C.; Perry Luxco S.a` r. l.; Perry Luxco RE S.a` r.l. Perry Corp...... NewYork, USA 29.01.14 Falling 27.01.14 10, 15, 20, 25, 30 4,090,837 7.724 Perry Partners, L.P.; Perry Global No. 1 4,090,837 7.724 – – – – New York below Holdings, L.L.C.; Perry Luxco threshold S.a` r. l.; Perry Luxco RE S.a` r.l. CONSOLIDATED FINANCIAL STATEMENT OVERVIEW OF VOTING RIGHT NOTIFICATIONS/ANNEX III (Continued)
Attribution pursuant to Section 22 WpHG Name of shareholder(s) holding directly 3% voting rights Date Threshold Attribution Attribution or more threshold crossed or Total Name(s) of controlled pursuant Amount of pursuant Amount of which are Person/Company subject Date Reason for crossed or reached Total voting rights undertaking(s) holding 3% or to para. 1 Amount of voting rights to para. 1 Amount of voting rights attributed to notification City Country received notification reached in % voting rights in % more sent. 1 voting rights in % sent. 1 voting rights in % to the notifier
Perry Partners International, Inc.; Perry Partners International Master Inc.; Perry Global Holdings, L.L.C.; Perry Luxco S.a` r.l.; Perry Luxco RE S.a` r.l. Perry Private Opportunities Fund GP, L.L.C.; Perry Private Opportunities Fund, L.P.; Perry
F-251 Global Holdings, L.L.C.; Perry Luxco S.a` r.l.; Perry Luxco RE S.a` r.l. Perry Private Opportunities Offshore Fund (Cayman) GP, L.L.C.; Perry Private Opportunities Offshore Fund, L.P.; Perry Global Holdings, L.L.C.; Perry Luxco S.a` r.l.; Perry Luxco RE S.a` r.l. Perry Private Opportunities Perry Private Opportunities Offshore Fund (Cayman) Falling Offshore Fund, L.P.; Perry Global GP, L.L.C...... Wilmington, below Holdings, L.L.C.; Perry Luxco Delaware USA 29.01.14 threshold 27.01.14 10, 15, 20, 25, 30 4,090,837 7.724 S.à r.l.; Perry Luxco RE S.a` r.l. No. 1 4,090,837 7.724 – – – – Perry Private Opportunities Perry Private Opportunities Fund, Fund GP, L.L.C...... Falling L.P.; Perry Global Holdings, Wilmington, below L.L.C.; Perry Luxco S.à r.l.; Perry Delaware USA 29.01.14 threshold 27.01.14 10, 15, 20, 25, 30 4,090,837 7.724 Luxco RE S.a` r.l. No. 1 4,090,837 7.724 – – – – Perry Private Opportunities George Town, Falling Perry Global Holdings, L.L.C.; Offshore Fund, L.P. . . . Grand Cayman below Perry Luxco S.à r.l.; Perry Luxco Cayman Islands 29.01.14 threshold 27.01.14 10, 15, 20, 25, 30 4,090,837 7.724 RE S.a` r.l. No. 1 4,090,837 7.724 – – – – Perry Private Opportunities Falling Perry Global Holdings, L.L.C.; Fund, L.P...... Wilmington, below Perry Luxco S.à r.l.; Perry Luxco Delaware USA 29.01.14 threshold 27.01.14 10, 15, 20, 25, 30 4,090,837 7.724 RE S.a` r.l. No. 1 4,090,837 7.724 – – – – Perry Partners L.P...... Falling Perry Global Holdings, L.L.C.; Wilmington, below Perry Luxco S.à r.l.; Perry Luxco Delaware USA 29.01.14 threshold 27.01.14 10, 15, 20, 25, 30 4,090,837 7.724 RE S.a` r.l. No. 1 4,090,837 7.724 – – – – Perry Partners International British Falling Perry Global Holdings, L.L.C.; Master Inc...... Road Town, Virgin below Perry Luxco S.à r.l.; Perry Luxco Tortola Islands 29.01.14 threshold 27.01.14 10, 15, 20, 25, 30 4,090,837 7.724 RE S.a` r.l. No. 1 4,090,837 7.724 – – – – CONSOLIDATED FINANCIAL STATEMENT OVERVIEW OF VOTING RIGHT NOTIFICATIONS/ANNEX III (Continued)
Attribution pursuant to Section 22 WpHG Name of shareholder(s) holding directly 3% voting rights Date Threshold Attribution Attribution or more threshold crossed or Total Name(s) of controlled pursuant Amount of pursuant Amount of which are Person/Company subject Date Reason for crossed or reached Total voting rights undertaking(s) holding 3% or to para. 1 Amount of voting rights to para. 1 Amount of voting rights attributed to notification City Country received notification reached in % voting rights in % more sent. 1 voting rights in % sent. 1 voting rights in % to the notifier
Perry Partners International Master British Falling Inc.; Perry Global Holdings, Perry Partners International, Road Town, Virgin below L.L.C.; Perry Luxco S.à r.l.; Perry Inc...... Tortola Islands 29.01.14 threshold 27.01.14 10, 15, 20, 25, 30 4,090,837 7.724 Luxco RE S.à r.l. No. 1 4,090,837 7.724 – – – – Falling The Goldman Sachs Group, Wilmington, below 3, 5, 10, 15, 20, Inc...... Delaware USA 30.01.14 threshold 27.01.14 25, 30 214,826 0.41 – No. 1 214,826 0.41 – – – – Falling New York, below 3, 5, 10, 15, 20, F-252 Goldman, Sachs & Co. . . . New York USA 30.01.14 threshold 27.01.14 25, 30 214,826 0.41 – No. 1 214,826 0.41 – – – – George Town, Falling GS LEG Investors (Euro) Grand Cayman below 3, 5, 10, 15, 20, Company ...... Cayman Islands 30.01.14 threshold 27.01.14 25, 30 214,826 0.41 – No. 1 214,826 0.41 – – – – Falling below 3, 5, 10, 15, 20, Restio B.V...... Amsterdam Netherlands 30.01.14 threshold 27.01.14 25, 30 214,826 0.41 – No. 1 214,826 0.41 – – – – Falling below 3, 5, 10, 15, 20, Saturea B.V...... Amsterdam Netherlands 30.01.14 threshold 27.01.14 25, 30 214,826 0.41 – – – – – – – – No. 6, in connection with BlackRock New York, Exceeding Section 22 para. 1 Global BlackRock, Inc...... NY USA 31.01.14 threshold 27.01.14 5, 10 6,532,515 12.33 – – – – sentence 2 6,532,515 12.33 Funds No. 6, in connection with BlackRock BlackRock Holdco 2, Wilmington, Exceeding Section 22 para. 1 Global Inc...... Delaware USA 31.01.14 threshold 27.01.14 5, 10 6,496,287 12.27 – – – – sentence 2 6,496,287 12.27 Funds No. 6, in connection with BlackRock BlackRock Financial New York, Exceeding Section 22 para. 1 Global Management, Inc...... NY USA 31.01.14 threshold 27.01.14 5, 10 6,496,287 12.27 – – – – sentence 2 6,496,287 12.27 Funds No. 6, in connection with BlackRock BlackRock Advisors New York, Exceeding Section 22 para. 1 Global Holdings, Inc...... NY USA 31.01.14 threshold 27.01.14 5, 10 5,953,684 11.24 – – – – sentence 2 5,953,684 11.24 Funds No. 6, in connection with BlackRock BlackRock International New York, Exceeding Section 22 para. 1 Global Holdings, Inc...... NY USA 31.01.14 threshold 27.01.14 3, 5, 10 5,787,103 10.93 – – – – sentence 2 5,787,103 10.93 Funds CONSOLIDATED FINANCIAL STATEMENT OVERVIEW OF VOTING RIGHT NOTIFICATIONS/ANNEX III (Continued)
Attribution pursuant to Section 22 WpHG Name of shareholder(s) holding directly 3% voting rights Date Threshold Attribution Attribution or more threshold crossed or Total Name(s) of controlled pursuant Amount of pursuant Amount of which are Person/Company subject Date Reason for crossed or reached Total voting rights undertaking(s) holding 3% or to para. 1 Amount of voting rights to para. 1 Amount of voting rights attributed to notification City Country received notification reached in % voting rights in % more sent. 1 voting rights in % sent. 1 voting rights in % to the notifier
No. 6, in connection with BlackRock BR Jersey International St. Helier, Channel Exceeding Section 22 para. 1 Global Holdings L.P...... Jersey Islands 31.01.14 threshold 27.01.14 3, 5, 10 5,787,103 10.93 – – – – sentence 2 5,787,103 10.93 Funds No. 6, in connection with BlackRock BlackRock Group Exceeding Section 22 para. 1 Global Limited ...... London UK 31.01.14 threshold 27.01.14 3, 5, 10 5,756,234 10.87 – – – – sentence 2 5,756,234 10.87 Funds No. 6, in F-253 connection with BlackRock BlackRock Luxembourg Exceeding Section 22 para. 1 Global Holdco S.à r. l...... Senningerberg Luxembourg 31.01.14 threshold 27.01.14 3, 5 4,449,273 8.40 – – – – sentence 2 4,449,273 8.40 Funds BlackRock BlackRock (Luxembourg) Exceeding Global S.A...... Senningerberg Luxembourg 31.01.14 threshold 27.01.14 3, 5 3,881,677 7.33 – No. 6 3,881,677 7.33 – – – Funds BlackRock Global Exceeding Funds ...... Luxembourg Luxembourg 31.01.14 threshold 27.01.14 3, 5 3,476,864 6.56 – – – – – – – – The following auditor’s report (Besta¨tigungsvermerk) has been issued in accordance with Section 322 of the German Commercial Code (Handelsgesetzbuch) on the consolidated financial statements and group management report (Konzernlagebericht) of LEG Immobilien AG, Dusseldorf, as of and for the fiscal year ended December 31, 2013. The group management report is neither included nor incorporated by reference in this Offering Memorandum.
AUDITOR’S REPORT We have audited the consolidated financial statements prepared by LEG Immobilien AG, Dusseldorf, comprising the statement of financial position, the statement of comprehensive income, the statement of changes in equity, the cash flow statement and the notes to the consolidated financial statements, together with the Group management report for the fiscal year from 1 January to 31 December 2013. The preparation of the consolidated financial statements and the Group management report in accordance with the IFRSS as adopted by the EU and the supplementary requirements set out in Section 315a(1) of the German Commercial Code (HGB) is the responsibility of the Management Board of the company. Our responsibility is to express an opinion on the consolidated financial statements and on the Group management report based on our audit. We conducted our audit of the consolidated financial statements in accordance with Section 317 HGB and the German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer (Institute of Public Auditors in Germany) (IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the consolidated financial statements in accordance with the applicable financial reporting framework and in the Group management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Group and expectations as to possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the consolidated financial statements and the Group management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the annual financial statements of those entities included in consolidation, the determination of the entities to be included in consolidation, the accounting and consolidation principles used and significant estimates made by the Management Board of the company, as well as evaluating the overall presentation of the consolidated financial statements and the Group management report. We believe that our audit provides a reasonable basis for our opinion. Our audit has not led to any reservations. In our opinion, based on the findings of our audit, the consolidated financial statements comply with the IFRS as adopted by the EU and the supplementary requirements set out in Section 315a(1) HGB and give a true and fair view of the net assets, financial position and results of operations of the Group in accordance with these requirements. The Group management report is consistent with the consolidated financial statements and, as a whole, provides a suitable view of the Group’s position and suitably presents the opportunities and risks of future development.
Berlin, 24 March 2014
PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft
Gregory Hartman Martin Flür Wirtschaftsprüfer Wirtschaftsprüfer (German Public Auditor) (German Public Auditor)
F-254
GLOSSARY
Articles of Association .... The articles of association of the Company.
BNP Paribas ...... BNP Paribas, 10 Harewood Avenue, London NW1 6AA, United Kingdom.
CBL ...... Clearstream Banking, société anonyme, Luxembourg.
Clearing System ...... CBL together with Euroclear.
Company ...... Company refers to LEG Immobilien AG, a stock corporation organized under the laws of the Federal Republic of Germany.
Cooperation Directive ..... The EU Council directive 2014/107/EU dated December 9, 2014 amending Directive 2011/16/EU as regards the mandatory automatic exchange of information in the field of taxation.
CRA Regulation ...... Regulation (EC) no. 1060/2009 of the European Parliament and of the Council of September 16, 2009 on credit rating agencies, amended by Regulation (EC) no. 513/2011 of the European Parliament and of the Council of March 11, 2011.
D&O ...... Directors & officers.
DSCR ...... DSCR refers to debt service coverage ratio. The debt service coverage ratio is a commonly used ratio in a loan agreement as part of the debtor’s contractual assurances (covenants) for the duration of the loan and which is also used to assess debt service capacity. It indicates to which proportion the interest payments and contractual (periodic) debt repayments have to be/are covered by the earnings of the Company or the respective portfolio (sometimes after allowance for operating and/or maintenance expenses).
LEG, LEG Group ...... LEG Immobilien AG together with its fully consolidated subsidiaries.
Disbursing Agent ...... A German branch of a German or non-German credit institution, financial services institution, a German securities trading company or a German securities trading bank (inländische auszahlende Stelle).
EBIT ...... Earnings before interest and taxes. The EBIT is not a performance indicator defined under IFRS. The EBIT that is reported in this Prospectus is not necessarily comparable to the performance figures published by other companies as EBIT or under a similar designation.
EBITDA (adjusted) ...... Adjusted Earnings Before Interest, Tax, Depreciation and Amortization – Adjusted EBITDA is calculated by adjusting EBITDA for net income or expense from the measurement of investment property, LTIP (long-term incentive program), non-recurring project costs, net income from the disposal of investment properties and net income from the disposal of G-1
inventory properties. Project costs that are non-recurring refer to major projects of LEG.
EEA ...... European Economic Area.
EPRA ...... European Public Real Estate Association. EPRA is a nonprofit organization that represents the interests of European-listed real estate companies.
EPRA NAV ...... Net asset value as defined by the European Public Real Estate Association. It is calculated based on NAV, excluding the fair value of financial instruments (net) and deferred taxes on loans by Wohnungsbauförderungsanstalt of the state North Rhine-Westphalia and derivatives, deferred taxes on investment property and goodwill resulting from deferred taxes on investment property, WFA Loans and derivatives (Firmenwert, welcher aus latenten Steuern auf EPRA-Anpassungen resultiert)
EU ...... EU refers to the European Union.
EU Member State ...... Member state of the EU.
Euroclear ...... Euroclear Bank SA/NV.
EURIBOR ...... Euro Interbank Offered Rate, a daily reference rate based on the averaged interest rates at which banks offer to lend unsecured funds to other banks in the euro wholesale money market.
FFO ...... Funds from operations.
FFO I ...... The proceeds from operating activities (not including net income/expense from the sale or remeasurement of investment property and sale of inventory property), in which Adjusted EBITDA for the respective periods is adjusted to generally reflect interest income and expenses impacting cash (zahlungswirksamen Zinsaufwendungen und erträge) and income taxes impacting cash (zahlungswirksamen Steuern).
FFO II ...... Proceeds from operating activities as defined for FFO I, but including the sale of investment property, in which FFO I is adjusted for the proceeds generated on disposal of investment property.
FSMA ...... The Financial Services and Markets Act of 2000, as amended.
FTT ...... The European Commission’s published proposal for a directive for a common financial transactions tax.
Germany ...... The Federal Republic of Germany.
Group ...... The Issuer together with its subsidiaries.
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HGB ...... German Commercial Code (Handelsgesetzbuch).
Holder ...... Any holder of a proportionate co-ownership or other beneficial interest or right in the Notes
Holders’ Representative ...... A joint representative appointed for the Holders.
HSBC ...... HSBC Bank plc, 8 Canada Square, London E14 5HQ, United Kingdom.
IFRS/IAS ...... International Financial Reporting Standards/International Accounting Standards.
Investor’s Currency ...... A currency or currency unit other than Euro in which a Holder’s financial activities are principally denominated.
Issue Date ...... January 23, 2017.
Issuer ...... LEG Immobilien AG, a German stock corporation (Aktiengesellschaft) incorporated in Germany and governed by German law.
Joint Bookrunners ...... HSBC, J.P. Morgan, BNP Paribas, Morgan Stanley and Société Générale.
J.P. Morgan ...... J.P. Morgan Securities plc, 25 Bank Street, Canary Wharf, London, E14 5JP, United Kingdom.
Luxembourg ...... Grand Duchy of Luxembourg.
Management Board ...... The management board of the Issuer.
Moody’s ...... Moody’s Investors Service Ltd.
Morgan Stanley ...... Morgan Stanley & Co. International plc, 25 Cabot Square Canary Wharf, London E14 4QA, United Kingdom.
Participating Member States ...... Member states participating in the FTT: Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal, Slovenia and Slovakia.
Paying Agent...... HSBC Bank plc, London, United Kingdom.
Prospectus Directive ...... The European Union’s Directive 2003/71/EC, as amended.
Qualified Majority ...... Any resolutions which materially alter the Terms and Conditions or adopt other measures, in particular in the cases as listed in Section 5 para. 3 sent. 1 no. 1-9 SchVG, require a majority of at least 75% of the votes participating in the vote.
Regulation S ...... Regulation S under the Securities Act.
G-3
Relevant Member State .. Each member state of the EEA that has implemented the Prospectus Directive.
Relevant Person ...... All such persons (i) who are investment professionals falling within Article 19(5) of the FSMA, as amended or (ii) falling within Article 49(2)(a) to (d) of the FSMA, as amended (high net worth companies, unincorporated associations, etc.) or (iii) other persons to whom it may be lawfully communicated in accordance with the FSMA, as amended.
Relibi Law ...... Luxembourg general tax laws currently in force and subject to the law of December 23, 2005, as amended.
Rote Rose ...... Rote Rose GmbH & Co. KG.
SchVG ...... The German Act on Issues of Debt Securities (Gesetz über Schuldverschreibungen aus Gesamtemissionen).
Securities Act ...... U.S. Securities Act of 1933, as amended.
Société Générale ...... Société Générale 29, boulevard Haussmann, 75009 Paris, France.
Subscription Agreement ...... The subscription agreement entered into between the Issuer and the Joint Bookrunners on January 18, 2017.
Supervisory Board ...... The supervisory board of the Company.
Terms and Conditions .... The terms and conditions of the Notes.
Territories ...... Dependent and associated territories of EU Member States.
United States ...... The United States of America (including the States thereof and the District of Columbia) and its possessions (including Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island and Northern Mariana Islands).
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NAMES AND ADDRESSES
ISSUER LEG Immobilien AG Hans-Böckler-Straße 38 40476 Düsseldorf Germany PAYING AGENT HSBC Bank plc 8 Canada Square London E14 5HQ United Kingdom
JOINT BOOKRUNNERS
J.P. Morgan Securities plc HSBC Bank plc 25 Bank Street 8 Canada Square Canary Wharf London E14 5HQ London E14 5JP United Kingdom United Kingdom
BNP Paribas Morgan Stanley Société Générale 10 Harewood Avenue 25 Cabot Square 29, boulevard Haussmann London NW1 6AA Canary Wharf 75009 Paris United Kingdom London E14 4QA France United Kingdom
INDEPENDENT AUDITOR TO THE ISSUER
PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft Niederlassung Berlin Kapelle-Ufer 4 10117 Berlin Germany
LEGAL ADVISORS TO THE ISSUER
as to German and United States law Sullivan & Cromwell LLP Neue Mainzer Straße 52 60311 Frankfurt am Main Germany
LEGAL ADVISOR TO THE JOINT BOOKRUNNERS
Linklaters LLP Taunusanlage 8 60329 Frankfurt am Main Germany
SIG-1