LEG Immobilien SE

Investor Presentation • Aug 9, 2019

LEG Immobilien AG

9 August 2019 H1 2019 Results

Disclaimer

While the company has taken all reasonable care to ensure that the facts stated in this presentation are accurate and that the opinions contained in it are fair and reasonable, this presentation is selective in nature and is intended to provide an introduction to, and an overview of the Company's business. Any opinions expressed in this presentation are subject to change without notice and neither the Company nor any other person is under any obligation to update or keep current the information contained in this presentation. Where this presentation quotes any information or statistics from any external sources, you should not interpret that the Company has adopted or endorsed such information or statistics as being accurate.

This presentation may contain forward-looking statements that are subject to risks and uncertainties, including those pertaining to the anticipated benefits to be realised from the proposals described herein. Forward-looking statements may include, in particular, statements about future events, future financial performance, plans, strategies, expectations, prospects, competitive environment, regulation, and supply and demand. The Company has based these forward-looking statements on its views and assumptions with respect to future events and financial performance. Actual financial performance could differ materially from that projected in the forward-looking statements due to the inherent uncertainty of estimates, forecasts and projections, and financial performance may be better or worse than anticipated. Given these uncertainties, readers should not put undue reliance on any forward-looking statements. The information contained in this presentation is subject to change without notice and the Company does not undertake any duty to update the information and forward-looking statements, and the estimates and assumptions associated with them, except to the extent required by applicable laws and regulations.

This presentation does not constitute an offer or invitation to purchase or sell any shares in the Company and neither this presentation or anything in it shall form the basis of, or be relied upon in connection with, any contract or commitment whatsoever.

Agenda

HIGHLIGHTS H1-2019 I.

• PORTFOLIO AND OPERATING PERFORMANCE II.
• FINANCIAL PERFORMANCE III.
• BUSINESS UPDATE AND OUTLOOK IV.
• APPENDIX V.

Overall strong company development

 Political discussion:	State government of NRW clearly disapproves "rent freezes" as an instrument
 Disposals:	Sale of around 2,700 non-core units successfully executed
 Acquisitions:	Momentum picking-up; more than 1,000 units signed (pipeline of approx. 2,000 units)

Sound rent momentum persists

 In-place rent, l-f-l	€5.77/sqm (+2.9%; free financed units +3.5%)
	3.6%
EPRA-Vacancy, l-f-l	(+10 bps YOY)
	€13.12/sqm
Maintenance/Capex	(+15.0% YOY)

Financials: Producing compelling total returns

 Net cold rent	€292.5m (+5.4% YOY from €277.4m)
 Adjusted EBITDA	€217.8m (+8.9% YOY from €200.0m)
 FFO I	€171.0m (+9.3% YOY from €156.5m), €2.71 per share (+9.3% YOY from €2.48)
 Mid-year appraisal	Valuation uplift of 5.1% or €550.2m (rental yield 5.2%, value/sqm €1,287 excl. sales)
Pro forma NAV post conversion1 	€99.57 per share (up from €93.40 in FY-2018; +6.6% YTD/ +10.4% incl. €3.53 DPS)

1) NAV after a simulated, executed conversion of the 2014/2021 convertible

Agenda

• HIGHLIGHTS H1-2019 I.
• PORTFOLIO AND OPERATING PERFORMANCE II.
• FINANCIAL PERFORMANCE III.
• BUSINESS UPDATE AND OUTLOOK IV.
• APPENDIX V.

Portfolio Overview

Positive rent development across all submarkets

In-place rent (sqm), l-f-l €5.77 +2.9%

EPRA-Vacancy, l-f-l 3.6% +10 bps

Strong results on the basis of tailor-made management strategies

High-Growth Markets

	30.06.2019	 (YOY)
# of units	41,442*	+0.2%
In-place rent (sqm), l-f-l	€6.45	+3.1%
EPRA-Vacancy, l-f-l	1.8%	-70 bps

Stable Markets

	30.06.2019	 (YOY)
# of units	48,245*	+1.4%
In-place rent (sqm), l-f-l	€5.43	+2.9%
EPRA-Vacancy, l-f-l	3.6%	+40 bps

Higher-Yielding Markets

	30.06.2019	 (YOY)
# of units	39,432*	-0.1%
In-place rent (sqm), l-f-l	€5.36	+2.2%
EPRA-Vacancy, l-f-l	6.2%	+60 bps

Strong market fundamentals persist Rent Development

Capex & Maintenance Lifting internal growth potential

Lifting growth potential while maintaining high capital efficiency

* Development excluded.

• HIGHLIGHTS H1-2019 I.
• PORTFOLIO AND OPERATING PERFORMANCE II.

FINANCIAL PERFORMANCE III.

• BUSINESS UPDATE AND OUTLOOK IV.
• APPENDIX V.

Financial Highlights H1-2019

Margin expansion story continues

FFO I (€m)			Capex-Adj. FFO I / AFFO (€m)		Margin (%)
					H1-2018	H1-2019	Comment
	+9.3%			Adj. NRI	76.8	79.2	Ongoing efficiency gains offsetting higher maintenance
			-0.9%	Adj. EBITDA	72.1	74.5	See above + slightly decreasing admin. costs
156.5	171.0	93.5	92.7	FFO I	56.4	58.5	See above +slightly lower interest ratio
				AFFO	33.7	31.7	See above + higher growth investments
H1-2018	H1-2019	H1-2018	H1-2019

FFO Calculation

H1-2019

€ million	H1-2019	H1-2018
Net cold rent	292.5	277.4	 +€15.1m/+5.4%
Profit from operating expenses	-1.8	-4.2
Maintenance (externally-procured services)	-25.4	-26.7
Staff costs	-32.1	-30.3	 Growth in staff costs mainly due to additional FTE's for
Allowances on rent receivables	-4.3	-4.3	crafts services and enhanced
Other	1.3	-2.7	capex program
Non-recurring project costs (rental and lease)	1.6	3.7	 Adj. NRI increased by
Recurring net rental and lease income	231.8	212.9	+€18.9m YOY (+8.9%); rising
Recurring net income from other services	1.9	3.4	maintenance costs/inflation more than offset by efficiency
Staff costs	-15.4	-12.0	gains
Non-staff operating costs	-8.0	-6.7	 Rising staff costs due to one
Non-recurring project costs (admin.)	7.2	1.9	time effects (severance
Recurring administrative expenses	-16.2	-16.8	payments)
Other income and expenses	0.3	0.4	 EBITDA increased by
Adjusted EBITDA	217.8	200.0	+€17.9m YOY (+9.0%); slightly decreasing admin.
Cash interest expenses and income	-39.0	-38.8	costs
Cash income taxes from rental and lease	-6.1	-3.6
FFO I (including non-controlling interests)	172.7	157.6	 Stable interest costs (avg. 1.60% vs. 1.76% in H1-2018)
Non-controlling interests	-1.7	-1.1	despite rising debt volume
FFO I (excluding non-controlling interests)	171.0	156.5
FFO II (including disposal of investment property)	169.4	155.7
Capex-adjusted FFO I (AFFO)	92.7	93.5

FFO Bridge H1-2019

Cash Effective Interest Expense H1-2019

€ million	H1-2019	H1-2018
Reported interest expense	52.1	47.4	 One-time negative effect of
Interest expense related to loan amortisation	-11.2	-5.8	€2.2m in H1-2019 from smaller repayment of subsidised loans (loan
Interest costs related to valuation of assets/liabilities	-0.4	-0.4	amortisation) vs. positive effect of €1.4m in H1-2018
Leasing related interest expense (non-cash)	0.0	-0.5	 Extraordinary expense of €1.6m from registered bond (first time valuation)
Interest expenses related to changes in pension provisions	-1.2	-1.2
Other interest expenses	0.1	-0.4
Cash effective interest expense (gross)	39.4	39.1
Cash effective interest income	0.0	0.3	 Interest coverage improved
Cash effective interest expense (net)	39.4	38.8	further (5.6x up from 5.2x YOY)

EPRA-Net Asset Value

Further capital growth ahead

€ million	30.06.2019	31.12.2018
Equity (excl. minority interests)	4,967.3	4,757.6	 €469.1m net profit  -€30.6m change in OCI
Effect of exercising options, convertibles and other rights	618.0	553.9	 -€223.3m dividend
NAV	5,585.3	5,311.5	 -€5.5m others
Fair value measurement of derivative financial instruments	313.0	222.2
Deferred taxes1)	1,271.8	1,132.7
EPRA-NAV	7,170.1	6,666.4
(m)2) Number of shares fully-diluted incl. convertible	69.010	68.824	Comment on pro forma NAV
EPRA-NAV per share in €	103.90	96.86	post conversion This figure incorporates a
Goodwill resulting from synergies	52.7	52.7	simulated, executed conversion of the 2014/2021
Adjusted EPRA-NAV (excl. goodwill)	7,117.4	6,613.7	convertible with a put and a call option in 2019
Adjusted EPRA-NAV per share in €	103.14	96.10
Effects from a simulated executed conversion	-245.9	-185.7
Pro forma NAV (excl. goodwill) post-conversion	6,871.5	6,428.0
Pro forma NAV post conversion per share in €	99.57	93.40

Attractive rental yield of 5.2% (thereof free financed portfolio: 5.4%) and low value per sqm (€1,287) still reflect an average gap to current transaction prices

Value of services business as attractive hidden gem not included in NAV

Scenario: additional value approx. €4.60-€6.90 per share (discount rate of 4.0%-6.0%)3)

2) Actual number of shares outstanding 63.1m 1) And goodwill resulting from deferred taxes on EPRA-adjustments 3) Assumption: expected 2019 FFO, growth rate of 0%

EPRA-Net Asset Value

Portfolio Valuation H1-2019

Valuation uplifts driven by letting performance and yield compression

Yield compression and broad-based strong letting performance drive portfolio values

• Visible catch-up effects with respect to multiple B-cities and commuter towns
• Adjustment of discount rate from 5.2% in FY-2018 to 4.9% (cap rate adjusted from 6.1% to 6.2%)

1) Change in Gross Asset Value, l-f-l

Portfolio Valuation H1-2019

Growth markets with respective commuter belts drive valuation

	Valuation uplift H1-19	Gross yield H1-19
High-Growth Markets	5.9% (7.5% in FY-18)	4.3% (4.5% in FY-18)
Münster (6,126 units)	5.5%	3.8%
Düsseldorf (5,311 units)	6.6%	4.0%
Bielefeld (3,267 units)	8.2%	5.0%
Stable markets	5.2% (10.7% in FY-18)	5.6% (6.0% in FY-18)
Dortmund (13,581 units)	7.5%	4.8%
Essen (3,373 units)	4.0%	5.5%
Mönchengladbach (6,445 units)	4.1%	5.9%
Higher-yielding markets	3.7% (6.9% in FY-18)	6.5% (6.9% in FY-18)
Duisburg (6,904 units)	3.5%	6.1%
Bochum (1,618 units)	4.4%	5.2%
Gelsenkirchen (7,287 units)	2.6%	6.7%
Total portfolio	5.1% (8.2% in FY-18)	5.2% (5.5% in FY-18)

Especially smaller towns in the catchment areas are continuously showing uplifts (Siegburg (9.0%; 612 units), Erkrath (6.7%; 604 units), Leverkusen (6.1%; 1,061 units))

Portfolio

Sound property fundamentals basis for value growth

As of		30.06.2019; IAS 40 only, IFRS5 excluded				Market
Market	Residential Units	GAV Residential Assets (€m)	% of Total Residential GAV	GAV/ sqm (€)	In-Place Rent Multiple	Multiples, Estimated Rental Values1)	GAV Commercial/ Other Assets (€m)	Total GAV
High Growth Markets	41,442	4,919	46%	1,790	23.5x	20.0x	232	5,151
Stable Markets	48,245	3,454	32%	1,118	17.8x	16.1x	125	3,579
Higher Yielding Markets	39,432	2,216	21%	924	15.3x	14.3x	65	2,282
Subtotal NRW	129,119	10,590	98%	1,286	19.3x	17.2x	422	11,012
Portfolio outside NRW	1,849	169	2%	1,360	18.9x	17.6x	2	171
Total Portfolio	130,968	10,759	100%	1,287	19.3x	17.2x	424	11,183
Other Assets								228
Total								11,411

1) As of June 30, 2019.

Balance Sheet

Strong balance sheet

€ million	30.06.2019	31.12.2018	 Revaluation €550.2m
Investment property	11,224.8	10,709.0	 Capex €74.1m  Reclassifications (Disposal)
Other non-current assets	204.5	175.9	-€154.9m
Non-current assets	11,429.3	10,884.9	 Acquisitions €10.8m
Receivables and other assets	92.5	55.5	 Cash flow from operating
Cash and cash equivalents	187.6	233.6	activities €156.4m
Current assets	280.1	289.0	 Investing activities - €72.4m
Assets held for sale	152.2	20.3	 Financing activities
Total Assets	11,861.6	11,194.2	-€130.0m
Equity	4,989.3	4,783.8
Non-current financing liabilities	4,301.5	4,113.3
Other non-current liabilities	1,581.8	1,382.3	Financing liabilities  Loan proceeds €271.5m
Non-current liabilities	5,883.2	5,495.6	 Repayment of loans
Current financing liabilities	468.1	484.8	-€167.7m
Other current liabilities	521.0	429.9
Current liabilities	989.1	914.8
Total Equity and Liabilities	11,861.6	11,194.2

Low LTV leaves headroom for growth

€ million	30.06.2019	31.12.2018
Financial liabilities	4,769.7	4,598.1	 Strong balance sheet (LTV target: max. 43%) leaves
Leasing liabilities (IFRS 16)	32.9	0.0	headroom for growth
Cash & cash equivalents	187.6	233.6	investments  Potential for further de
Net Debt	4,549.2	4,364.5	gearing via capital growth
Investment properties	11,224.8	10,709.0
Properties held for sale	152.2	20.3
Prepayments for investment properties	0.7	-
Property values	11,377.7	10,729.3
Loan to Value (LTV) in %	40.0	40.7	 Potential impact on LTV from conversion of 2014/2021 convertible (€300m nominal, currently -250bps)
Pro forma LTV post conversion in %	37.5	38.0

Financing Structure – 30 June 2019

LT financing provides high visibility for future earnings growth

1) Commercial paper

2) €300 m convertible bond with investor put option 2019

3) Corporate bond (€500 m)

4) €400 m convertible bond

Key Facts		Maturities
Average debt maturity	7.3 years (7.4 years)*	0-2 years	2.6% (1.6%)*
Interest costs	Ø 1.60% (1.60%)*	3-5 years	18.9% (19.2%)*
Hedging ratio	90.8% (90.7%)*	6-8 years	49.2% (49.7%)
Rating	Baa1 (Moody's)	≥ 9 years	29.3% (29.5%)*
* Without Commercial paper

• HIGHLIGHTS H1-2019 I.
• PORTFOLIO AND OPERATING PERFORMANCE II.
• FINANCIAL PERFORMANCE III.
• BUSINESS UPDATE AND OUTLOOK IV.

APPENDIX V.

Business Update

Portfolio growth continues

Rising visibility for acquisition of > 3,000 units

• Acquisition of more than 1,000 units signed YTD; pipeline of > 2,000 units (in advanced stages)
• Net portfolio growth likely to continue; slightly negative short term FFO effect expected (mainly due to timing difference)

Disposal program: Sale of non-core portfolio successfully executed

• Approx. 2,700 units sold at around book value (selling price approx. €148m)
• Portfolio consists of non-core assets
  • Peripheral areas in Dorsten, Wuppertal, Dortmund, Duisburg, Remscheid
  • Below average quality (micro locations & technical condition)
  • Vacancy 12%, rent €4.82/sqm
• Annualised FFO contribution approx. €6.0-6.5m
  • Negative outlook for future earnings due to substantial expected capex & maintenance spending

Higher-yielding Markets

Outlook

Guidance for 2019 & 2020

KPI	2019	2020
FFO I*	€338m - €344m	€356m - €364m
L-F-L rent growth	3.0-3.2%	3.2-3.4%
L-F-L vacancy	slightly decreasing
EBITDA margin	~73%	~74%
Investments	~30-32€/sqm	~31-33€/sqm
Dividend	70 % of FFO I	70 % of FFO I

*excl. disposals or future acquisitions

• HIGHLIGHTS H1-2019 I.
• PORTFOLIO AND OPERATING PERFORMANCE II.
• FINANCIAL PERFORMANCE III.
• BUSINESS UPDATE AND OUTLOOK IV.

APPENDIX V.

Generating Appealing Shareholder Returns

¹⁾ For 2017, 2018, Q2-2019 pro forma NAV per share is shown and applied.

Income Statement H1-2019

€ million	H1-2019	H1-2018
Net rental and lease income	225.9	206.3	 Higher net cold rents (+€15.1m YOY/+5.4%)
Net income from the disposal of investment property	-0.4	-0.5
Net income from the valuation of investment property	550.2	383.9	 Revaluation gains of 5.1%
Net income from the disposal of real estate inventory	-1.2	-1.2
Net income from other services	0.6	2.2	 Admin. costs contain one-off
Administrative and other expenses	-25.3	-19.3	effects e.g. severance payments, higher write-offs due to the adoption of IFRS
Other income	0.2	0.4	16
Operating earnings	750.0	571.8	 Net income from fair value measurement of derivatives
Net finance costs	-117.5	-27.4	-€68.1m; thereof -€67.6m from convertibles
Earnings before income taxes	632.5	544.4	(H1-2018: €17.1m)  Stable cash interests (€39m; +€0.2m YOY) despite rising
Income tax expenses	-163.4	-121.4	debt volume
Consolidated net profit	469.1	423.0	 Cash taxes (-€6.1m)

Scalability of platform + cost discipline support value accretive growth Acquisitions: Leading Management Skills Paying Off

Strong volume growth at overhead cost below FY-2013 level…

…leads to a significant drop of the administrative costs ratio

LEG – Adj. EBITDA Margin

Leading profitability despite short term distortion from restricted units

Adj. EBITDA margin	FY-2018		FY-2017
	€m	margin %	€m	margin %
As reported	405.2	72.3	385.7	72.1
Gap restricted vs. unrestricted rents1)	33.5	73.7	30.1	73.6

1) €/sqm: €4.77 vs. €6.00 in 2018, €/sqm: €4.74 vs. €5.81 in 2017

	EBITDA as reported distorted by restricted units (compensation for lower rents included in interest result below the EBITDA line)
	Scenario analysis: closing gap between restricted vs. unrestricted rents; adjusted EBITDA margin approx. 150 bps higher

Rent revisionary potential

Refinancing of subsidised loans lifting value

Rent Potential Subsidised Units

• In the following 10 years more than 24,000 units will come off rent restriction
• Units show significant upside to market rents
• Subject to general legal and other restrictions, the economic upside can theoretically be realised the year after restrictions expire

697 827 ^{164 36 242} 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 et seq. # Units Number of Units Coming Off Restriction and Rent Upside 1,734 2,166 1,589 c. 8,600 c. 17,000

Spread to Market Rent (in €/sqm/month)

	≤ 5 years2)	10 years2) 6 –	≥ 10 years2)
In-place rent	€4.70	€4.87	€4.85
Market rent1)	€6.55	€6.71	€5.95
Upside potential3)	39%	38%	23%
Upside potential p.a.3)	€9.94m	€22.47m	€11.70m

Source: LEG as of Q2-2019

1) Employed by CBRE as indicator of an average rent value that could theoretically be achieved, not implying that an adjustment of the in-place rent to the market rent is feasible, as stringent legal and contractual restrictions regarding rent increases exist.

2) ≤5 years = 2019-2023; 6-10 years = 2024-2028; ≥10 years = 2029ff.

3) Rent upside is defined as the difference between LEG in-place rent as of Q2-2019 and market rent (defined in footnote 1) as of Q2-2019.

LEG Share Information

Strong outperformance vs. benchmarks including dividends

Basic data Well-balanced shareholder structure

• Prime Standard, Frankfurt Stock Exchange
• Total no. of shares: 63,188,185
• Ticker symbol: LEG
• ISIN: DE000LEG1110
• Indices: MDAX, FTSE EPRA/NAREIT, GPR 250, Stoxx Europe 600
• Weighting (30.06.2019): MDAX 2.87%; EPRA 2.78%
• Rating: Baa1 (stable) by Moody's

Source: LEG; shareholdings according to voting rights notifications

Date	Report/Event
11.03.2019	Annual Report 2018
09.05.2019	Quarterly Statement Q1 as of 31 March 2019
29.05.2019	Annual General Meeting, Düsseldorf
09.08.2019	Quarterly Report Q2 as of 30 June 2019
29.08.2019	Commerzbank Sector Conference, Frankfurt
04.09.2019	Roadshow London, UBS
11.09.2019	Bank of America Merrill Lynch Global Real Estate Conference, New York
12.09.2019	Roadshow Boston, Jefferies
23.09.2019	Goldman Sachs & Berenberg German Corporate Conference, Munich
24.09.2019	Baader Investment Conference, Munich
15.11.2019	Quarterly Statement Q3 as of 30 September 2019

Contact

Investor Relations

Burkhard Sawazki

Head of Investor Relations & Strategic Business Analysis Tel: +49 (0) 211 4568-204 burkhard.sawazki@leg.ag

Karin Widenmann

Senior Manager Investor Relations & Strategic Business Analysis Tel: +49 (0) 211 4568-458 karin.widenmann@leg.ag

Benedikt Kupka

Manager Investor Relations & Strategic Business Analysis Tel: +49 (0) 211 4568-286 benedikt.kupka@leg.ag

40476 Düsseldorf, Germany E-Mail: ir@leg.ag

LEG Immobilien AG Phone: +49 (0) 211 4568-400 Hans-Boeckler-Str. 38 Fax: +49 (0) 211 4568-22 204

Thank you for your interest.