ANNUAL REPORT 2020 /// KEY FINANCIAL FIGURES /// KEY FIGURES In EUR millions Consolidated Statement of Income 2020 2019 Net rental income 239.7 248.7 Earnings from property lettings 211.2 219.3 Earnings from the sale of properties 12.1 0.5 EBIT 353.3 469.0 Consolidated net profit from continuing operations 195.1 275.8 Consolidated net profit -304.4 367.8 FFO I 85.3 84.4 FFO I per share in EUR (fully diluted)1) 1.05 1.06 Consolidated Balance Sheet 31.12.2020 31.12.2019 Investment properties (including inventories) 5,020.1 5,007.3 EPRA NRV (adjusted and fully diluted) 2,324.2 2,206.2 EPRA NRV per share in EUR (adjusted and fully diluted)1) 19.93 27.62 LTV in %2) 51.2 49.4 WACD 1.94 2.05 Cash flow 2020 2019 Net cash flow from operating activities 149.2 94.4 – of which from continuing operations 144.1 94.4 Net cash flow from investing activities -145.0 -146.9 – of which from continuing operations -18.9 107.3 Net cash flow from financing activities -57.4 600.0 – of which from continuing operations -204.5 600.0 Employees 31.12.2020 31.12.2019 Number of employees 843 922 FTEs (Full-time equivalents) 778 852 Portfolio 2020 2019 Portfolio (units) 52,178 58,083 – of which residential 51,389 57,133 – of which commercial 789 950 Average rent (EUR /month/sqm) 6.00 5.60 Vacancy rate (%) 4,3 4,9 Fair value investment properties incl. inventories (EUR m) 5,020 5,007 Net rental income (EUR m) 219.9 224.4 1) Based on the number of shares outstanding as at balance sheet date, previous year plus shares from assumed conversion of mandatory bond which is considered as equity 2) Excluding convertible bonds 2 ADLER REAL ESTATE /// ANNUAL REPORT 2020 /// CONTENT /// CONTENT THE GROUP MANAGEMENT 4 LETTER FROM THE MANAGEMENT BOARD 4 PORTFOLIO 8 THE ADLER SHARE 12 SUPERVISORY BOARD REPORT 14 COMBINED MANAGEMENT REPORT 2020 17 Group Fundamentals of ADLER Real Estate AG 18 Economic Report 21 Result from Operations, Net Assets and Financial Position 23 Events after the Balance Sheet Date 35 Report on Expected Developments 35 Additional Statutory Disclosures 36 Report on Risks and Opportunities 41 Reporting for ADLER Real Estate AG According to German Commercial Law 66 CONSOLIDATED BALANCE SHEET 74 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOM 76 CONSOLIDATED STATEMENT OF CASH FLOWS 78 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 80 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2020 83 General Information 84 Basis of Accounting 84 Basis of Consolidation 87 Scope of Consolidation, Business Combinations and Real Estate Companies 90 Specific Accounting Policies 93 Significant Discretionary Decisions and Estimates 108 Segment Reporting 110 Notes to the Consolidated Balance Sheet 113 Notes to the Statement of Income and Accumulated Earnings 147 Disclosures on revenues from contracts with customers (IFRS 15) 158 Disclosures on Financial Instruments and Fair Value Disclosures 160 Disclosures on Leases in Accordance with IFRS 16 179 Capital Risk Management 182 Other Disclosures 183 AFFIRMATION BY THE LEGAL REPRESENTATIVES 204 LEGAL REMARK 204 AUDITOR‘S REPORT 205 AT A GLANCE 214 ADLER REAL ESTATE /// ANNUAL REPORT 2020 3 /// THE MANAGEMENT BOARD / LETTER FROM THE MANAGEMENT BOARD /// THE MANAGEMENT BOARD MAXIMILIAN RIENECKER Board (CEO) Maximilian Rienecker, born in 1985 in Hamburg and a Master of Science in Management with distinction from the University of Nottingham, was ap- pointed to the Board on 22 December 2017. Initially, he assumed the role of Co-CEO together with Tomas de Vargas Machuca, who stepped down from his position on 15 November 2020. Since then, he has acted as sole CEO. He can draw on more than five years of experience in the real estate industry af- ter roles in sales & marketing at ING Investment Management in Hong Kong and in corporate strategy and M&A at SBM Offshore in Monaco. SVEN-CHRISTIAN FRANK Board (COO) Sven-Christian Frank, born in 1965 in Munich, attorney at law, mediator (DAA) and Real Estate Asset Manager (IREBS), has been a member of the Manage- ment Board since 9 June 2016 with responsibility for operational manage- ment (asset, property and facility management) and transactions. He has been with ADLER since September 2015 and previously held senior posi- tions in well-known real estate companies such as Gestrim Germany AG and German Real Estate AG. /// LETTER FROM THE MANAGEMENT BOARD Dear all, The year 2020 marked a turning point in the history of ADLER Real Estate AG because our company became an integral part of the new Adler Group, to which the former ADO Properties S.A. and Consus Real Estate AG also belong. The Adler Group is one of the leading listed residential real estate companies in Europe and can, thanks to its structure, support the entire lifecycle of a property from planning and construction to rental and management. At the time of reporting, the integration of the individual divisions into a new, common organisation was largely complete. The existing structures and processes have been harmonised to create a common corporate organisation – including a new business address. We played an active role in the restructuring and integration processes, bringing our extensive experience to the table and so significantly shaping the new company. This offers tremendous benefits for us because we, too, will profit from the resulting potential leveraged through financial and operational synergies. 4 ADLER REAL ESTATE /// ANNUAL REPORT 2020 /// LETTER FROM THE MANAGEMENT BOARD It was important to everyone concerned that we successfully completed the process of integrating the organisational struc- tures, personnel and IT infrastructure in a collaborative manner and with a view to achieving a friendly acquisition. We would therefore like to thank all those responsible at ADLER Real Estate AG for their role in driving forward the integration process. We would also like to thank all those employees who were prepared to see these changes as an opportunity for a successful future, to proactively shape the integration process and to become part of the new Adler Group. Our affiliation with the Adler Group, however, also entails a substantial shift in the focus of our activities away from strate- gic development toward operational business only. And this means concentrating on day-to-day apartment management within the new group structures. Following the establishment of the new ownership structure, the new majority sharehold- er – the Adler Group – also announced its intention to conclude a domination agreement with the objective of making the remaining ADLER shareholders an offer for the acquisition of their shares at a later stage. Until then, you, the remaining shareholders of ADLER Real Estate AG, will continue to be entitled to a detailed economic re- port. This annual report therefore continues to offer the high level of transparency to which you have become accustomed over previous years and that provides you with a detailed insight into how your company is performing. Business operations also include a constant review of existing properties’ intrinsic values and portfolio optimisation meas- ures. To improve the quality of the portfolio, we sold 5,064 rental units in the third quarter and a further 1,605 rental units in the fourth quarter. Most of these were scattered stocks in small or medium-sized cities that did not harmonise with Adler Group’s strategy of concentrating on major large cities in Germany in the future. At the time of reporting, rights and obliga- tions had not yet been transferred in full. In the course of the integration into Adler Group, there were also changes in the company’s management. The previous Co-CEO, Tomas de Vargas Machuca, left the Management Board with effect from 15 November 2020 by mutual agreement. The position is not to be filled again. We would like to take this opportunity to thank him very much for his work on the board. He was instrumental in bringing the financing to a competitive level. As you can see, 2020 was an extremely eventful year. We would therefore like to thank you, our shareholders, in particular for continuing to place your trust in ADLER. Yours sincerely Maximilian Rienecker Sven-Christian Frank CEO COO ADLER REAL ESTATE /// ANNUAL REPORT 2020 5 6 ADLER REAL ESTATE /// GESCHÄFTSBERICHT 2020 /// PORTFOLIO /// THE ADLER SHARE /// SUPERVISORY BOARD REPORT ADLER REAL ESTATE /// GESCHÄFTSBERICHT 2020 7 /// PORTFOLIO /// PORTFOLIO THE PROPERTY PORTFOLIO At the end of 2020, ADLER’s portfolio comprised 52,178 rental units totalling 3.2 million square metres with an annualised net rent (including parking spaces and other areas) of EUR 219.9 million. The fair value of the total portfolio (investment properties and inventories) was EUR 5,020.1 million. The regional focus is on Lower Saxony, North Rhine-Westphalia and Saxony. 2020, the number of units declined by a good 10 percent as a result of further optimisation measures. ADLER’s residential portfolio also includes a small number of associated commercial units, mainly shops and offices of a type that is often found in city-centre residential properties. ADLER actively manages its portfolio and, as part of its continuous portfolio optimisation, the underlying features of its assets and market data are assessed to determine the amount and proportion of capital allo- cated to capital expenditure, maintenance and renovation expenses. This is to ensure that the quality of the apartments is consistent with market standards and to optimise the level of occupancy and rental growth. The most significant external factors determining the positioning of the assets and capital allocation are: socio-demographic trends, expected changes in demand, various infrastructure measures and political de- cisions.