LEG Immobilien SE

Investor Presentation • Sep 26, 2017

Capital Markets Day 2017

LEG Immobilien AG

Capital Markets Day 2017 LEG Immobilien AG

Innovation

Innovation at LEG Evolution of the real estate industry

Innovation management integral part of professionalization of the real estate industry

Innovation at LEG Megatrends in the German housing industry

Population changes and societal demands

rural depopulation

Urbanization and Demographic change

Interculturalization

Increased mobilization demand

Climate change and sustainability

Energy transition Environmental

sustainability

Social sustainability

Digitization of the society

Computerization

Virtualization and dematerialization

Always-On Society

Challenges in state finances

National financial problems

Economization of the state

Unemployment of lowskilled workers

Innovation at LEG Innovation Management as core of LEG's housing strategy

Innovation management a comprehensive approach – Striving for entrepreneurial excellence

Internal scope – LEG Innovation Management

Innovation management as cross-section organizational unit

• Control panel directly reporting to the CEO to professionalize and institutionalize all efforts towards innovation and forward-looking projects
• Achieve and continuously ensure…
• Key objective: Securing LEG's status as an innovation leader
• Linking in-house expertise with external experts
• Constant analysis of market and business environments
• A corporate culture supporting constant development and change
• Communication is the key to success
• Innovation management as part of corporate development
• Monthly reporting towards the board
• Coordination: executive roundtable & extended innovation competence network

State of the art IT platform & expertise basis for digitisation projects

Comprehensive approach with close involvement of different stakeholders

• Strategy process "LEG 2025" with support from Future Management Group
• Systematic approach to derive a long-term strategy that complies with expected long term mega trends
• Innovative business culture
• Comprehensive idea management program
• Workshops / Studies
• Across different functions and entities (executives, young professionals etc. )
• Data Management / Process Digitalization
• Process automation with artificial intelligence

External scope

Strategic Partners Large array of partnerships with leading companies from various industries

Universities / Institutes Exchange with different universities / institutes to identify future trends

PropTech / PropTech-Booster Support innovative business ideas / approaches

External scope – Strategic partners

Services Processes Successfully leveraging our customer base Operation phase • Multimedia services (Joint-Venture with Unitymedia) • Energy services (Joint-Venture with Innogy) • Incl. decentralised power generation • Small repairs management (Joint-Venture with B&O) Development phase • Elderly care: First pilot projects completed, change of strategic partner (close to signing) • Insurance service (partnership also close to signing) • Digital launderettes • Living for all generations (initiative with Federal Building Ministry) Key for margin expansion Operation phase • Invoice workflow (Datasec) • Artificial intelligence: Central customer service (Datasec) • Turn cost management (Doozer) • Virtual flat viewing • Digital bulletin board • Digitalisation of tenant data (Datasec) • Tenant portal and tenant app (pilot project) Development phase • Artificial intelligence: Billing process (utility charges) (Nomotekt)

Innovation at LEG

We achieved a lot but there is still much to be done

Further ideas and projects throughout all development phases

Topics are guided through development phase by the professional innovation process

Capital Markets Day 2017 LEG Immobilien AG

Digitisation

I. DIGITISATION IN THE HOUSING INDUSTRY

• II. DIGITISATION INITIATIVES AT LEG
• III. OUTLOOK

Digitisation in the Housing Industry

Habemus Papam

Digitisation in the Housing Industry

60 seconds on the Internet

Digitisation in the Housing Industry

Digital Markets

Digitisation is getting increasingly apparent in every field of our lives

Digital life happens in our core product

Digitisation in the Housing Industry Matrix of Innovation

Targets and fields of application

I. DIGITISATION IN THE HOUSING INDUSTRY

II. DIGITISATION INITIATIVES AT LEG

III. OUTLOOK

Digitisation Initiatives at LEG Current projects – overview

LEG is working in every field of application

12 Data Protection and Security

Current projects – process efficiency

Current projects – process efficiency 2

Current projects – process efficiency 3

Digitisation Initiatives at LEG Current projects – building intelligence

Smart home – identifying potential applications for LEG

Current projects – building intelligence 4

	Initial Situation	Results
	- Identified targets of smart building application (energy efficiency, building safety, electric mobility)	- To be evaluated after test phase
Approach	Project –
- Joint pilot project with product- and innovation management of innogy SE - Feasability study adressing technical and commercial issues covering - Smart home (light and heating control) - Keyless building and flat access - Car battery charging station	Smart Home - Dortmund, Meylantstr. 17 - 24 flats 1.358 m2 - floor - 4 storey building - Year of construction1959
Project Scope	Partners	Comment
- Timeline: Jun 16 – Jun 17 (constr.) Jul 17 – Jul 18 (test) - Invest: 35 k€ - Recurring cost 2.6 k€ p.a.		- Costs still prohibitively high for affordable living segment

Digitisation Initiatives at LEG Current projects – building intelligence

Current projects – building intelligence 5

	Initial Situation - Necessity to prepare show apartments - Home staging with physical equipment	Results - Savings ~ 8 k€ per show flat (furniture, cleaning, vacancy etc.) - LEG has 10 staged apartments
Approach	Project –	Virtual Home Staging
- Support prospective customers to imagine a furnished flat - Furniture arrangement - Installed equipment - Floor and wall covering - Based on existing photos and floor plans - Reusable for same floor plan flats - 360 degree virtual flat tour optional - Pilot project in Gelsenkirchen	before	after
Project Scope	Partners
- Timeline: May 17 (Pilot), Rollout in progress - Invest: ~ 100 € per room

	Initial Situation - Existing LEG Data Warehouse - New information objects due to reorganisation - Continous growth of data	Results - Pilot: customer services
Approach	Process –	Big Data Analysis
- Power BI - New ways to connect and visualise data - Interactive features for enterprise analytics - Data-based business decisions - Mobile reporting - Cloud hosted
Project Scope	Partners	Comment
- Timeline: Pilot running Rollout 2018 - Invest: 100 k€

Current projects – data protection and security 12

Digitisation in the Housing Industry Advantages and opportunities

I. DIGITISATION IN THE HOUSING INDUSTRY

• II. DIGITISATION INITIATIVES AT LEG
• III. OUTLOOK

Outlook

Further developments in the housing industry

Observation, relevance for our industry?, technology readiness?, bizcase for LEG?

Capital Markets Day 2017 LEG Immobilien AG

Capex Programme

I. ENHANCED CAPEX PROGRAMME

II. MONHEIM

I. ENHANCED CAPEX PROGRAMME

II. MONHEIM

Enhanced Capex Programme

Financial impact: Lifting the internal growth potential

Total invest (€/sqm) 2017 2018 2019 2020 2021 €24 ~€29 ~€29-30 ~€30 ~€30

L-f-l rent growth

Strict investment criteria maintained

• IRR hurdle of 6%
• Sole focus on Yield on Costs can trigger substantial misallocation of capital (NAV dilution)
• Construction work for enhanced capex programme just started
• Improving market conditions allow for larger investment volumes
• Instrument to capture reversionary potential in one step (especially in locations where rental laws prohibit higher onetime rent increases)

Enhanced Capex Programme Capital allocation - Focus on energetic refurbishment

Investments into buildings ease execution with existing tenants

Enhanced Capex Programme Decision making process

Enhanced Capex Programme Capital Allocation

• Heat map shows delta between in-place rent and upper level (75% percentile) of re-letting rent level
• Black dots indicate locations of planned modernization projects for 2018

Enhanced Capex Programme

Enhanced Capex 2018 (€80m) – Regional distribution

1) Capex split by location in 2018		Capex split by market in 2018
Location	%
Monheim	18%
Cologne	11%	5.7%
Münster	9%	12.5%
Bonn	7%
Dortmund	7%
Koblenz	6%
Düsseldorf	6%	24.3%
Mönchengladbach	5%
Essen	5%
Bochum	4%
Duisburg	3%
Solingen	3%	quality of micro locations
Herne	2%
Iserlohn	2%	 Reversionary potential after acquisitions (e.g. Mönchengladbach, Vitus NRW portfolio)

Comparatively high share of Green and Purple markets due to quality of micro locations

Reversionary potential after acquisitions (e.g. Mönchengladbach, Vitus NRW portfolio)

Enhanced Capex Programme Financial performance: Strong focus on IRR

Yield compression becomes an important performance driver

Example: New bathroom, invest of €5,000 with a lifetime of 30 years

		Unlevered	yields			Levered	yields
IRR			Yield on Cost (%)		FFO Yield		Yield on Cost
x)		7.0%	6.5%	6.0%	%)
e ( pl	22 x	13.1%	10.1%	7.5%	e ( at
ulti M	20 x	10.4%	8.1%	6.2%	st r e
nt e R	18 x	8.4%	6.6%	5.0%	er nt I
	16 x	6.8%	5.3%	4.0%

Additional positive impact from multiple expansion of entire building (not only on the investment) not yet taken into account

FFO
Yield		Yield on Cost (%)
%)		7.0%	6.5%	6.0%
e ( at	2.0%	12.0%	11.0%	10.0%
st r e er	1.6%	12.4%	11.4%	10.4%
nt I	1.3%	12.7%	11.7%	10.7%

Enhanced Capex Programme

Why don't we invest more?

• Expansion of enhanced capex programme (+€80m p.a. or +50%) to 2021
• Exploitation of rent potential without capex
• Analysis of the real incremental impact of capex
• Drag on future rent growth (§ 558 Civil Code, Mietspiegel adjustments)
• Costs associated with tenant turnover
• Vacancy, marketing, admin. costs
• Others: execution risks, maintaining a lean organisation
• E.g. qualified staff/craftsmen increasingly become a bottleneck

Investment decision requires full picture of future rent potential and cost savings

I. HIGHLIGHTS CAPEX PROGRAMME

II. MONHEIM

Monheim City Profile

1) As of 31.12.2015 Source: Stadt Monheim am Rhein, LEG Housing Market Report, it.NRW

Key facts

• Monheim is located at the river Rhine between Düsseldorf (20 km) and Cologne (25 km); Rhineland area belongs to the most dynamic regions in Germany
• 4 th smallest city in NRW: 42,914 inhabitants1), increase of 2% (2015/2013)
• High population density: (1,862 citizens/km² in Monheim vs 524 citizens/km² in NRW)
• High affordability: purchasing power/household of €3,823 compared to €3,828 in Düsseldorf or €3,692 in Cologne; gross rent ratio with 18.9% well below those cities1)
• Unemployment rate with 7.1% below 7.6% in NRW (03/2017)
• One of Germanys youngest and economically most successful mayors (D. Zimmermann) repositioned Monheim
• Number of employees subject to social-security contributions increased by 22% (2015/2011)
• Lowest trade tax in NRW attracting new businesses from future industries like pharmaceutical, chemical and IT, e.g. Bayer CropScience, Bayer Intellectual Property, BASF Personal Care and Nutrition, EPLAN Software & Service, OXEA, UCB S.A. (former Schwarz Pharma)
• Creative Campus Monheim home of biotech and pharmaceutical companies and start-ups

Monheim City profile

Strategic goals – municipality of Monheim

Strengthen profile as business location between Düsseldorf and Cologne

• Keeping trade tax low and attracting new businesses
• Airports Cologne/Bonn and Dusseldorf within approx. 30-45 minutes drive; motorway A3, A529 and A59 nearby

Improve social structure and residential environment of Berliner Viertel

• Repositioning Berliner Viertel and improving tenant structure
• Improving the settlement by substantial investments (leading to a change in tenant structure and higher rents)

Become a role model for successful integration

• Chance for Berliner Viertel with many different cultural backgrounds

Monheim – Berliner Viertel

• Approx. 25% of Monheims population lives in the borough "Berliner Viertel"
• People from more than 100 nations live in Monheim, most of them in this district (30% non-Germans)
• Majority of buildings built end of 1960's in mass-construction, attracting economically weaker households
• Positive economic development and improving image providing the opportunity to re-develop the neighbourhood
• Strong population growth +3.4% vs +1.8% for Monheim (2015 vs 2011) underpins strong demand
• Positive trend in age structure: 20% are younger than 15 years and 13% are older than 65 years in Berliner Viertel (compared to 14% younger 15 years and 21% older 65 years in Monheim itself)

Source: Stadt Monheim am Rhein

Monheim Berliner Viertel – LEG units

Key facts

• Residential complex with large playing areas and open spaces
• LEG owns around 3,500 units in Monheim and a market share of ~25% with approx. 11,000 tenants, of which 2,768 units are located in Berliner Viertel (~188,000 sqm lettable area)
• Buildings predominantly built end of 1960's, pre-fabricated construction (mainly 3-4 storeys)
• 68 sqm average apartment size, mainly spread over 2-3 rooms
• More than 90% of all units are free financed (224 units are subsidised)
• In-place rent currently at €6.12/sqm, already increased by 20% since January 2013 (vs. €6.24/sqm in Berliner Viertel)
• Vacancy around 1%
• Tenant turnover well below 10%

Supported by municipality in repositioning the Berliner Viertel

Monheim Berliner Viertel – LEG units

District with significant upside potential

Key fields of activity

• Heating costs with €1.56 /sqm per month well above LEG average; potential for energetic refurbishment
• Heat insulation (facades, roofs, basement ceiling)
• Replacement of windows (incl. ventilation system)
• Modernisation of bathrooms
• Adding or refurbishing balconies
• Barrier-free entrances and bathrooms
• Residential surroundings
• Redesigning outdoor facilities, avoiding fear causing spaces and optimizing exterior lighting
• New waste storage locations
• Repair of parking spaces / letting to tenants

Targets

• Value appreciation (yield + capital growth)
• Product upgrade attracting new tenant groups
• Image improvement

Invest

• Since 2013, 200 units have been modernised (€4.1m)
• H2 2017 until 2020, further investments of ~€25m affecting one third of all units

Monheim Berliner Viertel – LEG units

Case Study Monheim Berliner Viertel

Construction phase	# house entrances	# units	Total invest	In-place rent before modernisation	In-place rent after modernisation	Rental yield on total costs Year 1	FFO I yield on investment Year 1	NAV effect (estimate)	IRR
I.	4	48	€1.4m	€5.46	€7.93	6.7%	12.2%	€0.6m	12.5%
II.	20	163	€4.4m	€5.42	€7.83	7.3%	13.0%	€1.8m	13.8%
III.	22	265	€7.0m	€5.41	€7.30	5.4%	9.6%	€2.2m	9.6%
IV.	24	268	€7.2m	€5.41	€7.30	5.6%	10.7%	€2.9m	10.1%
V.	29	322	€2.7m	€5.99	€6.70	7.0%	17.2%	€1.5m	14.7%
VI.	25	220	€1.7m	€5.94	€6.70	7.7%	18.5%	€0.7m	15.9%
	124	1,286	€24.5m	€5.65	€7.15	6.6%	13.5%	€9.8m	12.8%

Overview
Section	III. BA
Year planned	2018
ID	6578
Address	Tegeler Str. 12-20 Grünauer Str. 15 Steglitzer Platz 2-22 Steglitzer Platz 7-13 Lichtenberger Str.19
# stairway	22
# units	265
Lettable area (sqm)	17,467

Measures
Part	Costs	Costs per sqm
Roof incl. Insulation	1,009,750	58
Insulation facade	2,149,902	123
Windows	1,305,000	75
Entrance area	37,800	2
Balcony refurbishment	779,700	45
Insulation cellar ceiling	226,700	13
Electrical installation	316,410	18
Internal Costs & Fees	343,193	20
Exterior & Interior	413,469	24
Total construction	6,581,924	377

Assumptions
	Pre Mod	5.96
IPR	Post Mod	8.00	+2.04
	Pre Mod	2.1%
Vacancy	Year 1	2.0%	-0.1%
	Stabilized	2.0%	-0.1%
	Pre Mod	10.6%
Fluctuation	Year 1	15.0%	4.4%
	Stabilized	10.0%	-0.6%
Turn Cost /	Pre Mod	3,500
unit	Post Mod	2,000	-1,500

Rent Yield on total costs	Year 1	6.5%
FFO I Yield on investment	Year 1	11.9%

Overview
Section Year planned ID	IV. BA 2018 6578
Address	Tempelhofer Str. 1-9; Tegeler Str. 1-19; Tegeler Str. 2-4; Tempelhofer Str. 2-6; Tegeler Str. 22; Steglitzer Platz 1-5
# stairway	24
# units	268
Lettable area (sqm)	18,606

Measures
Part	Costs	Costs per sqm
Roof incl. Insulation	1,154,400	62
Insulation facade	2,361,500	127
Windows	1,455,000	78
Entrance area	86,400	5
Balcony refurbishment	1,169,850	63
Insulation cellar ceiling	255,700	14
Electrical installation	329,992	18
Internal Costs & Fees	397,135	21
Exterior & Interior	394,947	21
Total construction	7,604,923	409

Assumptions
	Pre Mod	5.99
IPR	Post Mod	8.00	+2.01
	Pre Mod	2.0%
Vacancy	Year 1	2.0%	0.0%
	Stabilized	2.0%	0.0%
	Pre Mod	10.6%
Fluctuation	Year 1	15.0%	4.4%
	Stabilized	10.0%	-0.6%
Turn Cost /	Pre Mod	3,500
unit	Post Mod	2,000	-1,500

Yields
Rent Yield on total costs	Year 1	6.0%
FFO I Yield on investment	Year 1	11.4%

Appendix

Monheim City Profile

	MONHEIM (2015)
Strong demographic fundamentals
Population	42,914		+2% population	growth
Person/household	2.15	(2015/2013)
Households	18,620
Population density (Inhabitants/km²)	1,862			4TH	smallest city in NRW
Strong economic fundamentals		Gross rent ratio with
Purchasing power/household	€3,823	18.9% well below
Purchasing power index (NRW=100)	104.1	Düsseldorf and Cologne
Employees paying social security contribution	13,220
Unemployment rate	7.1%1)		subject to social-security		+22% increase of employees
Housing market data			contributions (2015/2011)
Number of apartments	19,780
Share of multi-family buildings	87%	Unemployment rate below		NRW
Asking rent/sqm (median)	€7.31	with 7.6%	(03/2017)

Dusseldorf and Cologne City Profile

	DUSSELDORF	COLOGNE
Strong demographic fundamentals
Population	612,178	1,060,582
Person/household	1.85	1.90
Population density (Inhabitants/sqm)	2,816	2,619
GNP per capita	€78,504	€40,246
Strong economic fundamentals
Income per household / month	€3,257	€3,060
Purchasing power index (NRW=100)	107.4	101.3
Employees paying social security contribution	63.5%	49.2%
Unemployment rate	7.2%1)	8.5%1)
Housing market data
Number of apartments	326,861	534,957
Share of multi-family buildings	86%	81%
Vacancy	1.5%	1.1%
Asking rent/sqm (median)	€9.861)	€10.381)
Important business sectors	#1 in Germany in consultancy, mobile	automotive, insurance, media,
	communication, advertising;	logistics/distribution, trade
	other top sectors: finance, fashion &
	beauty, trade
Top companies (selection)	Metro, Henkel, BBDO, Grey, McKinsey,	Ford (since 1930), Toyota, Volvo, Citroën,
(incl. German HQs of int. companies)	Vodafone, Ericsson, L'Oréal, Toshiba	Axa, Barilla/Wasa, Pernod, Toys "R" Us,
		German Aerospace Center (DLR)
Statistical data as of 2015 unless otherwise stated

Source: LEG Housing Market Report, it.NRW

1) As of June 2017

Capex – Watch the value traps

Measure	Life cycle	Investment / apartment (in €)	IRR at 7% yield on costs	Required yield on costs (6% IRR)	Rent increase in %
Floor covering	15 years	1,100	0.1%	10.3%	2.6%
Bathroom	30 years	5,000	5.7%	7.3%	8.5%
Kitchen	10 years	3,000	negative	13.6%	9.5%

Conclusion for LEG:

• Bottom-up investment approach with strict IRR targets
• Capital displine is key – not overpaying for growth

Conclusion

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.