DIC Asset AG Annual Report 2015

ANNUAL REPORT 2015 DIC ASSET AG AT A GLANCE Key financial figures in EUR million 2015 2014 ∆ Gross rental income 136.7 147.5 -7% Net rental income 120.4 132.2 -9% Real estate management fees 7.3 5.2 +40% Proceeds from sales of property 201.3 90.5 >100% Total income 372.4 277.6 +34% Profits on property disposals 14.9 6.8 >100% Share of the profit or loss of associates 7.7 6.6 +17% Funds from operations (FFO) 49.0 47.9 +2% EBITDA 126.6 128.3 -1% EBIT 83.9 85.2 -2% EPRA earnings 47.6 47.6 +0% Profit for the period 20.7 14.0 +48% Cash flow from operating activities 53.0 34.9 +52% Balance sheet figures in EUR million 31.12.2015 31.12.2014 Loan-to-value ratio (LTV) in % 62.6 65.9 Investment property 1,700.2 2,143.9 Net asset value 884.1 864.8 Total assets 2,456.1 2,537.0 Key figures per share in EUR 2015 2014 ∆ FFO 0.72 0.70 +3% EPRA earnings 0.69 0.69 +0% Net asset value 12.89 12.61 +2% Key operating figures 2015 2014 Letting result in EUR million 23.7 33.2 Vacancy rate in % 11.3 10.9 TO OUR SHAREHOLDERS 2–3 INVESTOR RELATIONS AND CAPITAL MARKET 4–11 SUMMARISED MANAGEMENT REPORT 25–76 Fundamental Information about the Group 26 Report on Economic Position 34 · Macroeconomic Environment 35 · Course of Business 39 · Financial Information 50 Report on Post-Balance Sheet Date Events 58 Report on Expected Developments, Risks and Opportunities 58 Other Disclosures 71 CONSOLIDATED FINANCIAL STATEMENTS 77–130 Consolidated Income Statement 78 Consolidated Statement of Comprehensive Income 79 Consolidated Balance Sheet 80 Consolidated Statement of Cash Flow 82 Consolidated Statement of Changes in Equity 83 Notes 84 Auditor´s Report 130 CORPORATE GOVERNANCE 131–140 Corporate Governance Report 132 Modus Operandi and Composition of the Management Board and Supervisory Board 134 Remuneration Report 136 Report of the Supervisory Board 140 OVERVIEW 144–156 Overview of Holdings 144 Announcements on Voting Rights 146 Glossary 150 Quarterly Financial Data 152 Multi-Year-Overview 153 Portfolio 154 Management Board 156 | TO OUR SHAREHOLDERs | D ear SHAREHOLDERS AND BUSINESS PARTNERS, Accompanied by persistently low interest rates and steady demand, the continuing econom- EMPLOYEES AND FRIENDS of our COMPANY, ic upturn in Germany provided a strong backdrop for the entire real estate sector in 2015. In this upbeat environment DIC Asset AG achieved three important results for its shareholders. On the basis of the healthy profit generated, the Company proposes a dividend of EUR 0.37 per share. By systematically implementing “Strategy 2016” and achieving our primary goal of substantially reducing our loan-to-value ratio, we were successful in the financial year ended. DIC Asset AG thus took a large step forward in its development 2015 in the interests of its shareholders. This is the result of combined efforts with which we systematically achieved all of our principal business objectives for the year – and exceeded some of them. In doing so, we fundamentally strengthened the Company and created a strategically interesting starting position to tackle the challenges we face in the German commercial real estate market. Going forward, the German real estate market in particular will remain a profitable field of activity, offering considerable potential for professionally structured market participants to do business. The most important key data for the past year: nn FFO – the key indicator of the profitability of our real estate management – reached approximately EUR 49 million in spite of extensive sales. nn We achieved a sales volume of around EUR 220 million for the full year, surpassing our re- vised forecast of at least EUR 180 million by more than 20 percent. Especially noteworthy was the fact that, on average, the sale prices achieved were five percent higher than the most recently determined market value. nn We significantly expanded our fund business. By making acquisitions of EUR 160 million, we exceeded our original acquisition budget for the existing funds of EUR 130–150 million, also by more than 20 percent, and lifted the FFO contribution from the fund business by 48 percent to EUR 8.3 million. Prof. Dr. Gerhard Schmidt, Chairman of the Supervisory Board, Aydin Karaduman, Chief Executive Officer 2 3 | TO OUR SHAREHOLDERs | nnAt the end of 2015, we launched the new real estate fund “DIC Office Balance III” with a The three main steps are as follows: volume of around EUR 270 million, to which we transferred mainly properties from our own portfolio. nnWe are continuing to work on optimising our directly held Commercial Portfolio. This will nnWe again lowered the average interest rate for all bank loans year-on-year to 3.4 percent primarily be achieved through active asset management and selective sales with which we as at the 31 December reporting date. will leverage the current market conditions to achieve our operating targets. nnWe are significantly expanding our successfully positioned full-service offering in the fund These achievements are related to two important results that considerably reinforce our start- business and also in the third-party business. To this end, we are planning to substantially ing position at the beginning of 2016: build up our assets under management in 2016 and the years to come, especially in the fund business. This will enable us to generate economies of scale and increase the share of recur- nnThe fund transaction we executed in December 2015 enabled us to reduce our loan-to- ring income. value ratio (LTV) to below 60 percent, which means that we achieved the main objective nnAt the beginning of February, we reported that we had acquired over 20 percent of WCM in “Strategy 2016” in January 2016 – almost a year earlier than projected. Beteiligungs- und Grundbesitz-AG. This gives us a share of an attractive commercial real nnDespite receiving less rental income as a consequence of real estate sales, our Company is estate portfolio and allows us to participate in the growth of a real estate company. What generating a healthy operating profit, of which current income from the fund business ac- we need to do now is make use of the possible opportunities that may arise as a result. In counts for an increasing, dynamically growing share. Including the most recent fund taking this step, we are planning to further strengthen and expand our positioning in Ger- transaction, assets under management in the fund business exceeded the EUR 1 billion many’s commercial real estate sector in the long term. mark for the first time, reaching approximately EUR 1.1 billion. This compares with EUR 650 million at the end of 2014. We thank you, our shareholders, for your trust in DIC Asset AG and intend to continue to earn your valuable support. This annual report gives you detailed information on both our perfor- Once again, DIC Asset AG is demonstrating that it has a strong, reliable investment and income mance in 2015 and our expectations concerning the Company’s further development in 2016. structure as well as an attractive, high-performance real estate management platform. We will continue to build on these strengths in the interests of our shareholders and partners in the market. The Management Board together with the Supervisory Board set the course for this at the beginning of 2016. Here, we will put the combined expertise of our real estate experts who are active throughout Germany to even greater use so that we can give a further boost to DIC Asset AG’s income base and diversify it at the same time. Prof. Dr. Gerhard Schmidt Aydin Karaduman Chairman of the Supervisory Board Chief Executive Officer 2 3 | INVESTOR RELATIONS | I NVESTOR RELATIONS AND CAPITAL MARKETS D AX sees tactical responses to short-term expectations DIC Asset AG’s shares more robust than the DAX Buoyed by the ECB‘s expansionary monetary policy, the capital markets rallied at the begin- DIC Asset AG’s shares made a dynamic start to the year before continuing to develop almost ning of the year, repeatedly sending the DAX to new record highs. The German benchmark in step with the overall market of German bellwether stocks. While unable to maintain this index broke through the 12,000 mark several times in the period up to May, reaching an all- high level with a temporary gain of nearly 35% in parallel with the general upheaval on the time high of 12,374 points on 10 April. However, the weak performance of the global economy markets, the share has significantly outperformed Germany’s benchmark index almost con- and expectations that the Federal Reserve would raise its Funds Rate put pressure on share stantly since the end of August. DIC Asset AG’s shares closed 2015 at EUR 9.32, an increase of prices during the rest of the year. The Volkswagen emissions scandal plunged the DAX into a 25.9% over the previous year. crisis of confidence, and Germany‘s leading index for blue-chip shares declined sharply again in the third quarter, falling to 9,428 points. In August, China‘s central bank changed its ex- change rate policy for the yuan, initially instigating a devaluation of the Chinese currency. This SHARE PERFORMANCE sparked recessionary fears among investors, rattling stock markets around the world. DIC Asset AG DAX SDAX 140% By the end of the year, the DAX had recovered, though it failed to reach the highs recorded in EPRA Developed Europe EPRA Germany the first half, closing up 9.6% at 10,734 points on 30 December 2015.

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