LEG Immobilien SE

Management Reports • Oct 31, 2022

LEG Immobilien SE Shift to a more defensive set-up during an uncertain period

Background on new steering KPIs

18 November 2022

Old and new definition of key KPIs Adjusting steering whilst uncertainties remain

New definition No change

Current net rental and lease income / adj. NOI

NEW

NOI

• • Maintenance for externally procured services
• ./. Own work capitalised
• RATIONALE

Focus on topline impact, disregarding of capitalisation rate and internal vs. external commissioning

Adjusted EBITDA

NEW

EBITDA

• • Maintenance for externally procured services
• ./. Own work capitalised

RATIONALE

Based on adjusted NOI

FFO I

No change

Capex

• No change
• Adj. Capex
• • Adj. Maintenance
• • New development1
• • Own work capitalised

AFFO

No change – adjustment in case of subsidised loans

FFO I

./. Capex

./. Subsidised investments, i.e. financed via subsidised loans or grant

RATIONALE

Enablement of investments in CO2 reduction and/ or innovation

• In order to increase focus on cashflow, LEG has switched from the FFO I to the AFFO as key performance indicator
  • AFFO as cashflow proxy and less volatile than operating cashflow
• The steering of the operations team has been amended accordingly
• Adjustment of NOI also for maintenance part to avoid focus on capitalisation rate
• Deduction of own work capitalised to avoid focus on internal vs external commissioning
• Adjusted EBITDA reflects the changes made to NOI, as it is based on the NEW adjusted NOI calculation
• FFO I remains unchanged
• AFFO unchanged in principle but adjusted by future subsidised investments

NOI adjustment triggers new adjusted EBITDA definition

9M-2022 31.12.2021

FFO I unchanged and AFFO adjusted for subsidised investments from FY2023 onwards

Effect on KPI's based on new steering

New Steering

	OLD	NEW	OLD	NEW
Calculation of FFO I, FFO II and AFFO	01.01.-	01.01.-	01.01.-	01.01.-
€m	30.09.2022	30.09.2022	31.12.2021	31.12.2021	Effects
Net cold rent	596.6	596.6	683.9	683.9
Profit from operating expenses	-5.2	-5.2	-2.4	-2.4
Maintenance for externally procured services	-50.9		-65.7
Staff costs	-79.8	-79.8	-87.9	-87.9
Allowances on rent receivables	-12.4	-12.4	-10.3	-10.3
Other	19.6	3.5	16.0	-0.2
Non-recurring project costs (rental and lease)	9.0	9.0	6.4	6.4
CURRENT NET RENTAL AND LEASE INCOME/ adj. NOI	476.9	511.7	540.0	589.5	change
CURRENT NET INCOME FROM OTHER SERVICES	11.4	11.4	8.3	8.3
Staff costs	-20.8	-20.8	-26.7	-26.7
Non-staff operating costs	-20.4	-20.4	-105.6	-105.6
Non-recurring project costs (admin.)	11.6	11.6	96.2	96.2
CURRENT ADMINISTRATIVE EXPENSES	-29.6	-29.6	-36.1	-36.1
Other income and expenses	0.0	0.0	0.0	0.0
ADJUSTED EBITDA	458.7	493.5	512.2	561.7	change
Cash interest expenses and income	-82.4	-82.4	-86.7	-86.7
Cash income taxes from rental and lease	–	–	-0.6	-0.6
Maintenance for externally procured services		-50.9		-65.7
Own work capitalised (prev. within other)		16.1		16.2
FFO I (BEFORE ADJUSTMENT OF NON-CONTROLLING INTERESTS)	376.3	376.3	424.9	424.9
Adjustment of non-controlling interests	-2.0	-2.0	-1.8	-1.8
FFO I (AFTER ADJUSTMENT OF NON-CONTROLLING INTERESTS)	374.3	374.3	423.1	423.1	no change
Weighted average number of shares outstanding	73,309,866	73,309,866	72,482,244	72,482,244
FFO I per share	5.11	5.11	5.84	5.84
Net income from the disposal of investment properties	0.9	0.9	0.7	0.7
Cash income taxes from disposal of investment properties	-2.0	-2.0	-3.9	-3.9
FFO II (INCL. DISPOSAL OF INVESTMENT PROPERTIES)	373.2	373.2	419.9	419.9
CAPEX	-259.7	-259.7	-330.9	-330.9	no change
Subsidised investments	-	-	-	-	new for FY2023
AFFO	114.6	114.6	92.2	92.2
adj. NOI margin	79.9%	85.8%	79.0%	86.2%	change
adj. EBITDA margin	76.9%	82.7%	74.9%	82.1%	change

Steering based on AFFO requires separation of operating cash generation from investment spending:

• Maintenance for externally procured services
• Own work capitalised (part of Other)

are adjusted within new EBITDA set-up

Effects:

• FFO I (no longer core KPI) remains unchanged and will be still reported
• Capex unchanged
• AFFO adjusted for future subsidised investments

New Steering

Additional information regarding capitalisation ratio

• IAS 40 which regulates the accounting of investment property does not specify requirements in respect to the treatment of maintenance costs and/or capitalisation of modernisation costs
• IAS 16 is applied and allows the capitalisation of costs if the measures
  • Prolong the life time of the building
  • Improve the quality of the building/ unit
  • Reduce operating costs
  • Allow for rent increases
• Regular small repair jobs like painting walls, fixing leaking water taps etc. which are not seen as value enhancing are treated as maintenance and fully expensed
• IFRS does not provide specific € amounts to be used to distinguish between expensed vs capitalised investments as different real estate sub sectors (e.g. residential vs. office vs. logistic) require different levels of maintenance and modernisation in respect to scale and scope of investment, technical requirements and time frame of the measure
• Detailed catalogue of measures agreed with auditor based on IFRS criteria, catalogue has NOT been amended as a result of the new steering
• Differentiation between turn cost measures and modernisation measures on an individual basis
• Example: Turn cost investments above a specific investment level to be fully capitalised
  • In an FFO I world this sets the incentive for larger investments
  • In an AFFO world this sets the incentive to reduce cash outflows

LEG has NOT changed its accounting policy

– the reduced capitalisation rate is the consequence of the new cashflow focus

Components of the AFFO relevant Capex…

New Steering

LWS Plus margin and not capex relevant)

Public Safety measures Own work capitalised

1 Excl. new construction activities on own land, backlog measures, own work capitalised and LWS Plus margin.

New Steering

…have always been disclosed

Reconciliation from investments to adjusted investments

€m	9M-2022	FY-2021	Comment
Total maintenance	84.8	110.9
Adjusted maintenance	81.9	108.0	Basis for sqm guidance
Total capex	269.6	341.2
Thereof LWS Plus margin	9.9	10.2	Elimination of internal margin
AFFO relevant capex	259.7	330.9	AFFO relevant capex
Thereof public safety measures in connection with acquisitions	2.4	2.2	Includes  Public safety measures Capitalisation of own work  New construction on own land
Thereof own work capitalised1	16.1	16.2
Thereof new construction1	11.7	13.9
Adjusted capex	229.6	298.7	Basis for sqm guidance
Total investments	354.4	452.1
Adjusted total investments	311.4	406.8	Basis for sqm guidance
Area of investment properties (million sqm)	10.81	9.57
Adjusted investment per sqm (€)	28.82	42.50	Basis for sqm guidance

1 Adjusted for own work capitalised within new construction, therefore deviation from slide 39 of 9M 2022 presentation, in order to better align the p&l and capex perspective

Bridge FFO I 2022e to AFFO 2023e

475 – 485 425 – 440 FFO I 2022e Net cold rent Operating costs & maintenance Personnel expenses Net cash interests Excess profit tax bio mass plant Net cash taxes, other & services FFO I 2023e 425 – 440 –315 to –325 110 – 125 FFO I 2023e Capex AFFO 2023e FFO I 2022e to FFO I 2023e FFO I 2023e to AFFO 2023e

Timeline

FY 2022 reporting Based on "old" methodology, but bridges for "new" set-up

Q1 2023 reporting onwards 2022 and 2023 figures based on new KPIs

AGM 2023 AGM to vote on adaption of remuneration system, i.e. new financial STI targets in line with new set of KPIs

IR Contact

Frank Kopfinger, CFA Head of Investor Relations & Strategy

Tel: +49 (0) 211 4568 – 550 E-Mail: frank.kopfinger@leg-se.com

Investor Relations Team For questions please use ir@leg-se.com

Elke Franzmeier Corporate Access & Events

Tel: +49 (0) 211 4568 – 159 E-Mail: elke.franzmeier@leg-se.com

Karin Widenmann

Senior Manager Investor Relations

Tel: +49 (0) 211 4568 – 458 E-Mail: karin.widenmann@leg-se.com Gordon Schönell, CIIA Senior Manager Investor Relations

Tel: +49 (0) 211 4568 – 286 E-Mail: gordon.schoenell@leg-se.com

LEG Immobilien SE ǀ Flughafenstraße 99 ǀ 40474 Düsseldorf, Germany E-Mail: ir@leg-se.com ǀ Internet: www.leg-se.com