DIC Asset AG — Annual Report 2006

Mar 29, 2007

ANNUAL REPORT 2006

Just under EUR 1.5 billion invested

Investments and co-investments in financial year 2006

VdS Headquarters in Cologne

Two properties with main tenant Deutsche Bahn from Vivico

Ten commercial properties from Hochtief

Ruhr Portfolio with 14 properties

Six office buildings with long-term leases from the Falk Group

54 properties in the Rhine-Neckar and Rhine-Main regions from FAY

Max-Diamand-Straße, Munich Steubenhouse, Frankfurt Große Theaterstraße/Colonnaden, Hamburg VdS Headquarters, Cologne

Regional distribution

Planned branch

DIC Asset AG at a glance
		2004	2005	2006
Rental income	EUR million	11.3	18.1	38.4
Total revenues	EUR million	32.9	43.1	110.9
Funds from operations (FFO)	EUR million	3.5	7.4	21.8
EBITDA	EUR million	11.6	18.7	37.0
EBIT	EUR million	8.9	14.7	28.5
Profit for the period	EUR million	3.3	6.4	15.0
Earnings per share	EUR	0.65	0.87	0.85
FFO per share	EUR	0.74	1.00	1.24
Cash flow from operating activities	EUR million	5.6	7.8	23.9
Total assets	EUR million	272.9	369.8	1.343.7
Equity ratio	%	28.9	31.2	39.7
Investments	EUR million	131.9	91.2	873.3
Market value of investment property	EUR million	231.7	337.5	1,275.3
Net asset value	EUR million	91.3	142.2	608.1
Net asset value per share	EUR	13.47	13.98	21.34

Letter to our Shareholders	2
The Share	22
Management Report	26
Corporate Governance	51
Financial Statements	56
Notes to the Financial Statements	62
Auditors' Report	101
Report of the Supervisory Board	102

Letter to our Shareholders

Dear Shareholders and Business Partners, Employees and Friends of our Company,

DIC Asset AG has continued down the path of growth with convincing results, solidifying its claim to a leading position in the German market. We achieved the goals that we had set ourselves for 2006 and took good advantage of opportunities on the capital and real estate markets. We managed to significantly increase the rate at which the corporate and portfolio structures were built up and to position DIC Asset AG as an active investor and asset manager at the forefront of the German real estate market.

The commercial real estate market did very well during the financial year. The rental situation in Germany is on the upswing again, with demand for German commercial properties higher than ever. The economy picked up during the year, even rising sharply in the last quarter. We took quick and focussed advantage of the favourable market conditions to optimise our portfolio and corporate growth:

• We invested about EUR 1 billion and significantly built up our real estate holdings.
• Our rental income doubled in 2006 to EUR 38 million.
• We implemented an active portfolio strategy, also regularly selling properties from our holdings.
• Consolidated net profit rose by 134% to EUR 15 million.

"Portfolio diversified and expanded with high-income properties in locations with potential"

Structures optimised through active portfolio management

The largest transaction during the year with a total investment volume of EUR 575 million was the takeover of the real estate holdings of the FAY Group. In this transaction we not only acquired 50 properties in attractive locations across Germany, we also strengthened our real estate strategy orientation through the takeover of the associated asset and property management company.

The investment focuses of the nine acquisitions were the economically important regions Rhine-Main, Rhine-Neckar, the Ruhr region and Berlin. In this context we took part in three opportunistic investments as co-investor.

We successfully sold over 40 properties, among them a portfolio consisting of eight C&A stores. With these extensive acquisition and sales activities, we sharpened the focus of our portfolio on high-income properties and locations in Germany while at the same time increasing our regional diversification. We further increased our balanced investments in all three segments of our clearly structured portfolio.

Balanced investments in all three segments

The properties in our Core segment have high yields and longterm leases. The properties in the Value Added segment offer optimisation potential and opportunities for increases in value that can be quickly realised. In the two segments, the market value of the properties had increased by more than EUR 400 million to a total of EUR 1.1 billion.

In addition, we hold minority interests in real estate with a market value of about EUR 650 million. Through our Opportunistic Co-Investments segment, we participate in investments with a higher risk/return profile. Our Hamburg portfolio, with a total investment volume of about EUR 205 million, was added to this segment effective 2007.

The year's transactions increased the net asset value (NAV) per share from EUR 13.98 to EUR 21.34.

Successful year on the market and preparing for more growth

Within a single year, we converted DIC Asset AG from a narrowmarket stock that was traded over the counter to a successful company that is listed on the prime standard and which stands at the focus of institutional investors. The stock price rose by 68% in 2006. We have been listed on the prime standard of the Frankfurt Stock Exchange since May and by June DIC Asset AG was added to the SDAX.

Solid quarterly results and the rapid implementation of our growth strategy allowed us, just six months later, in December 2006, to successfully place newly issued shares on the capital market.

During the year, we received approximately EUR 416 million of equity on the capital markets for the continued expansion of our real estate holdings, thus positioning DIC Asset AG as one of the most attractive real estate companies.

A stronger presence in areas of investment focus

Part of the strategy of DIC Asset AG is to be close to the tenants, properties and markets. In order to have even more direct control over our rapidly growing portfolio and to optimise our properties locally, we expanded our capacity and local presence in asset and property management in the areas in which our investment is focussed. Services such as tenant and leasing management and repositioning are provided locally on the basis of a profound knowledge of customers and markets.

With the majority takeover of a real estate management company, we acquired a well established company which, as DIC ONSITE, now has locations in Mannheim, Frankfurt, Duesseldorf and Hamburg and will soon be adding Berlin.

This strategic positioning and regionally diversified orientation forms the basis for next steps in growth.

Seeking continued growth in a dynamic market for real estate

2007 promises to be another good year for the real estate sector. Boosted by a strong economy and supported by continued strong interest on the part of international investors, we see excellent opportunities that can be taken advantage of through our business model.

We have sufficient funds for continued investment and will continue to exploit our advantages – knowledge of the German market, rapid implementation of decisions and optimal financing structures.

We will rely on our employees to achieve these goals, as it was their commitment and teamwork that made possible our success last year. We are grateful to them for their efforts. We also thank our business partners and shareholders for their trust in us and hope to reward this faith in 2007 with another above-average performance.

Prof. Dr. Gerhard Schmidt Ulrich Höller Chairman of the Supervisory Board Chief Executive Officer

The source of DIC Asset AG's success:

Creating value through active portfolio and asset management.

Growing our portfolio through successful acquisitions.

Lettable area more than tripled.

Participation in opportunistic investments.

Steady deal flow.

Access to outstanding potential.

DIC ONSITE with five locations across Germany.

Capital market standing.

The Share

Pleasing year on the market

The upward trend on the capital markets since 2003 continued in 2006. German shares performed well, supported by growth in the world economy and driven also by the economic upturn in the second half of the year. The DAX index climbed by 22% to finish on 6,597 points on 31 December 2006, and therefore achieved the highest year-end level since 1999. The development in the Mid-Cap (MDAX +29%) and Small-Cap (SDAX +31%) markets was equally positive.

Performance of +68%

Against the background of a generally very positive market climate, shares in DIC Asset AG also performed particularly well. The share price increased by 67.9% on an annual basis. This performance is significantly better than the general market trend, and is well above the indices relevant for the Company, namely the EPRA (+48.8%), the stock index for European real estate companies, and the SDAX (+31.0%).

The price of DIC Asset AG shares increased rapidly at the start of the year. At this time, the liquidity was still low due to a very small free float, and the news relating to the pending IPO therefore had a great effect on the share price. After participation in the general market adjustment in May, the share price enjoyed a very positive development, supported by rapid implementation of the growth strategy and good quarterly results.

We see further share price potential as a result of the increase in the net asset value per share, implementation of the unchanged growth strategy combined with efficient utilisation of the available funds, as well as a continuing policy of active portfolio management. The introduction of REITs in Germany can also have a positive effect on the share price due to the expected general increase in transaction volume.

Successful capital measures

On 3rd February 2006, the extraordinary shareholders meeting approved an increase in share capital from EUR 10.17 million to EUR 20.34 million, and voted in favour of an application to list the entire share capital in the prime standard of the Frankfurt Stock Exchange. The IPO in May 2006 was successful, and the new share offering was oversubscribed more than ten-fold.

A further capital increase already took place in December due to the targeted and rapid investment of the acquired funds. The placement of 8.16 million new shares from the approved capital again demonstrated the high level of interest among international and institutional investors. Overall, proceeds of around EUR 416 million were generated from the two measures.

Increased free float and market capitalisation

The above capital measures and the sale of a share block by two principal shareholders (Deutsche Immobilien Chancen AG & Co. KGaA and Forum Partners) increased the free float to its present level of 55%. This was still at below 5% on 31.12.2005. With a share price of EUR 31.98 on 28th February 2007, the market capitalisation is around EUR 900 million. The growing weight of DIC Asset AG in the SDAX, the higher free float, and the increased liquidity make the share even more interesting for investors.

Investor Relations established and extended

In 2006, we further extended our activities in the area of Investor Relations. We participated in national and international analyst events in order to further publicise the successful business model of DIC Asset AG. In addition, we inform our shareholders promptly about results and changes through conference calls and in individual discussions.

Dividend payment of EUR 0.75 per share

DIC Asset AG allows its shareholders to participate in the positive development of the company. The Board of Directors proposes a dividend payment of EUR 0.75 per share. In spite of the only recent increase in the number of shares, this corresponds to a rise of 34% compared with the previous year. In total, the dividend payment amounts to EUR 21.4 million.

Financial calendar

29 Mar 2007	Publication of Annual Report 2006, Frankfurt
24 Apr 2007	WestLB German Real Estate Day, New York
14 May 2007	Interim Report Q1 2007, Frankfurt
30-31 May 2007	5th European Property Seminar Kempen & Co., Amsterdam
31 May 2007	HVB German Financials Conference, Stockholm
6 Jun 2007	Annual General Meeting, Frankfurt
August 2007	Interim Report Q2 2007, Frankfurt
November 2007	Interim Report Q3 2007, Frankfurt

Basic information on the DIC Asset share

509840 / DE0005098404
DAZ
28.5
28.5
900
55%
Real estate
SDAX, DIMAX, GPR 250 **
Prime Standard, FWB, XETRA
Berlin-Bremen, Duesseldorf,
Hamburg, Munich, Stuttgart
31.98
33.75
17.75
0.75

Management Report and Group Annual Report for Financial Year 2006

■ Economic and General Conditions

General economic environment

As a real estate company that is invested exclusively in German commercial real estate, the biggest influence on DIC Asset AG is the performance of businesses in Germany. Consumer spending and the unemployment rate have a smaller impact on the business of DIC Asset AG. The German economy did well in 2006, with the gross domestic product rising 2.7% and growth exceeding the predictions of leading German economic research institutes to end the year well above the level of past years. Key figures for areas such as the economic climate, unemployment and consumer spending rose from their low levels, with some areas showing significant growth. Concerned about inflation in the European Economic Area, the European Central Bank raised key interest rates in several steps in 2006. The increased cost of borrowing did not slow the economic upturn in 2006.

The economic upturn is expected to continue in 2007. Leading German economic research institutes and the EU Commission expect growth of up to 2.7% in 2007. Investment is expected to increase and the labour market is expected to improve. After falling as a result of the VAT increase at the beginning of the year, consumer spending should pick up again. The incremental increases in key interest rates in 2006 made borrowing more expensive. Lower interest rate increases are generally expected for 2007.

Development of the real estate market in Germany

DIC Asset AG practices active portfolio and asset management of its real estate assets and realises rental income from its real estate holdings. As part of its portfolio management, the Company also has earnings from the sale of properties. Investments are made both in its own holdings and indirectly through minority interests in opportunistic co-investments. The Company's focus is on commercial real estate in Germany. Developments in the German real estate market have a direct effect on the business of DIC Asset AG.

Leasing on the rise in real estate strongholds

Commercial real estate sales in major German cities were strong, registering overall growth of around 20% (source: Cushman & Wakefield, European Cities Monitor 2006). Sales were exceptionally strong in the fourth quarter, boosted by the positive economic outlook at the end of the year. Vacancy rates in Germany's major cities fell significantly again for the first time in a long time. The demand is almost exclusively for modern offices, as vacancy rates in older and less marketable buildings increased (source: Atisreal, Office Market Report 2007). The positive net absorption of office space continued, aided by the continued slow pace of new building activity and building completion. Rental prices, however, are hurt by relatively high vacancy rates in comparison with the rest of Europe.

Investment volume climbs to record level

According to the experts at Atisreal, investment volume in German real estate reached another record high in 2006. Investors acquired a total EUR 49 billion in commercial real estate in 2006, doubling the record set the previous year. Around EUR 10 billion was invested in office space.

Interest in German real estate is international, with the share of foreign investors around 80%, according to JonesLangLasalle. In 2006, about EUR 30 billion in foreign capital was invested in commercial real estate. By international comparison, the relationship between interest rates and the rental yields that can be attained in the German commercial real estate market remains attractive. An additional factor is the strong international belief in the economic upturn of the German economy. Further, a number of opportunistic investment opportunities resulted from the decreasing financial strength of the federal and provincial governments, the transfer of nonperforming loans of banks and the forced sale of open real estate funds.

The high level of investment activity is expected to continue in 2007, with overall conditions remaining positive and the introduction of German real estate investment trusts (REITs) providing an additional boost.

■ Business Development

2006 was a very successful year for DIC Asset AG. Total income rose by 157% to EUR 110.9 million, group profit increased by 134% to EUR 15.0 million. The targets for growth set in connection with the market flotation in May 2006 were quickly met.

A total of about EUR 1 billion was invested in real estate, with the market value of the real estate assets reported on the balance sheet rising by EUR 837 million to EUR 1.146 billion as at 31 December 2006. Additionally, interests in real estate from opportunistic co-investments totalled EUR 653 million (previous year EUR 334 million). The net asset value per share increased by EUR 7.36 to EUR 21.34.

DIC Asset AG is viewed as a high-growth and successful German real estate company. The listing on the SDAX immediately followed the capital increase and the initial public offering in the Prime Standard in May 2006. In December, an additional 8.16 million shares from another capital increase to finance the Company's growth strategy were successfully placed on the capital market.

Real estate assets expanded to maximise earnings

DIC Asset AG invests in first-class, high-yield real estate with long-term leases, as well as in properties that offer opportunities for optimisation that can be rapidly increased in value through measures such as repositioning, raising the occupancy rate or modernisation. The Company concentrates primarily on more complex portfolio transactions and off-market deals.

In 2006, the real estate portfolio was significantly expanded and diversified through targeted purchases in the key economic regions of Germany.

Core Segment

■ Long-term leases, first-class objects and tenants

■ Long-term investment horizon

Investment property

Central Park Offices, Duesseldorf

Overview – Core Segment
EUR million	2006	2005	∆
Rental income	21.2	9.0	+12.2
EBT	7.1	2.3	+4.8
Investments	434.3	44.8	+389.5

Pfleiderer Headquarters, Neumarkt Stadtbadgalerie, Bochum eBay Campus, Berlin

The focus was on the southwest, the Ruhr region, Hamburg and Berlin. In addition to deepening existing areas of focus and building up new regional centres, the retail portion of the portfolio was expanded.

A total of about 200 properties were acquired, including participation in opportunistic acquisitions together with partners, for a total investment amount to EUR 1.5 billion.

Specifically, DIC Asset AG executed the following transactions in 2006:

• The headquarters of VdS Schadenverhütung in Cologne was acquired. VdS has a long-term lease on this property.

• In Hanover and Nuremberg, DIC Asset AG acquired two office buildings directly adjacent to the respective main railway stations of the cities that are leased to Deutsche Bahn AG. The properties are being extensively renovated by the seller.

• At mid-year, 14 commercial properties in the Ruhr region were taken over from a regional project development company. The portfolio includes mainly properties with long-term leases and attractive optimisation opportunities. Among these are a shopping centre in the Bochum city centre and several office and administrative buildings with long-term leases to the government.

• In August 2006, DIC Asset AG acquired the real estate portfolio of 54 properties of the FAY Group. With a total investment of EUR 575 million, this was the largest transaction of the financial year. The properties are primarily in very good locations in the Rhine-Main and southwest regions. Among the properties are the headquarters of Deutsche Börse AG and the Steubenhouse in Frankfurt. The main tenants are Deutsche Börse AG, the Federal State of Baden-Württemberg and the NH hotel chain. The properties have an average occupancy rate of 89%, and with active asset management there is readily realisable value-added potential.
• The purchase of five big-box retail centres in the Rhine-Main region from a project developer was initiated in autumn 2006. The properties are largely in the development phase and upon completion in 2007 will be transferred fully occupied to DIC Asset AG.
• Toward the end of the year, a real estate portfolio of 52 properties in the Berlin metropolitan area was acquired from the Landesbank Berlin. The majority of the buildings which are being used for offices and bank branches are leased to the Landesbank Berlin. The 83% occupancy rate offers considerable potential for DIC Asset AG to add value through its asset management. Morgan Stanley Real Estate Funds (MSREF) is a 50% co-investor in this project.

Acquisitions in 2006	Number of properties	Lettable space sqm	Investment volume EUR million	Occupancy rate
VdS Headquarters	1	7,000	11	100%
Deutsche Bahn property	2	48,000	54	100%
Ruhr Portfolio	14	95,000	124	91%
Portfolio of real estate from FAY Group	54	286,000	575	89%
Retail centres	5	25,000	37	100%
Portfolio of Landesbank Berlin properties *	52	112,000	145	83%
Total	128	573,000	946	90%
* DIC Asset AG interest: 50% (= EUR 72.5 million)

In addition, DIC Asset AG is participating as co-investor with a 20% interest each in opportunistic investments of Deutsche Immobilien Chancen AG & Co. KGaA.

• In the second quarter, a portfolio consisting of ten commercial properties with long-term leases was acquired from Hochtief AG. The properties are in top locations across Germany and will be repositioned through modernisation and restructuring.
• Six commercial properties which the main tenants Siemens, BMW and Deutsche Telekom have long-term leases on were taken over from the Falk Group.
• A portfolio marketed under the name "Primo 3", consisting of 52 properties, was acquired from the City of Hamburg. The properties, which are located across the city, are mostly leased long term to municipal offices and authorities of the City of Hamburg. Several properties offer medium-term development potential through project development and refurbishment. The transfer took place on 1 March 2007.

Successful placement of properties

DIC Asset AG practices active portfolio management and takes advantage of favourable sales opportunities to take profits. In 2006, the Company contractually agreed to the sale of a total of 42 properties with a total floor space of 80,000 sqm. The Company also participated in other sales through its interests in opportunistic investments. A profit of EUR 4.2 million was generated from sales revenue of EUR 64.5 million.

Specifically, the following properties were sold during the financial year:

• The C&A portfolio with eight retail properties in medium-sized cities were sold to a British financial investor as part of a forward deal effective at the end of 2006. The buildings had been acquired by DIC Asset AG in 2002.
• At the end of the year, an agreement was concluded with a French real estate investor for the sale of 48 properties. 32 of these properties were from DIC Asset AG holdings and 16 were from opportunistic investments in which DIC Asset AG had a 20% interest.
• During the year, two additional properties were sold to investors and real estate companies in separate transactions. DIC Asset AG also participated in the sale of two properties from opportunistic investments.

Participation in opportunistic investments *	Number of properties	Lettable space sqm	Investment volume EUR million	Occupancy rate
Portfolio of Hochtief properties	10	104,000	135	95%
Portfolio of Falk Group properties	6	104,000	160	98%
Portfolio of City of Hamburg properties	52	169,000	205	85%
Total	68	377.000	500	91%
* Interest of DIC Asset AG: 20%

Sales	Number of properties	Lettable space sqm	Sales amount EUR mill.
Properties from DIC Asset AG holdings *	42	80.000	95,6
Properties from opportunistic investments **	18	44.000	52,3
Summe	60	124.000	147,9
* In case of 34 properties: 50% interest of DIC Asset AG

** Interest of DIC Asset AG: 20%

Value Added Segment

• Objects with quickly realisable value potential
• Objects with a medium risk/return profile

Telekom property, Hamburg

Overview – Value Added Segment
EUR million	2006	2005	∆
Rental income	17.2	9.1	+8.1
EBT	12.5	5.6	+6.9
Investments	434.8	44.5	390.3

Insterburger Straße, Frankfurt am Main Dammtor 25, Hamburg Centre for East Asian studies (University of Applied Sciences), Ludwigshafen

Strong build-up in portfolio segments

The core segment includes profitable properties with long-term leases to first-class tenants. The value-added segment contains properties with interesting short to medium-term potential for added value. Both segments were significantly expanded through acquisitions by DIC Asset AG. Holdings in opportunistic co-investments also rose.

DIC ONSITE – Direct asset and property management

Market knowledge and a local presence are essential conditions for realising value-added potential of real estate through, for example, repositioning and increasing occupancy rates and for securing existing value.

In August 2006, DIC Asset AG acquired from the FAY Group 74.9% of the shares of the latter's asset and property management company. The sale was effective 1 January 2007. On 1 January, this subsidiary, DIC ONSITE, took over the management and control of the real estate portfolio as part of the DIC Group's asset and property management. DIC Asset AG thus has at its disposal a service company with a market presence and many years of success. The 40-employee company has its headquarters in Mannheim and branch offices in Frankfurt, Duesseldorf and Hamburg. An office in Berlin, which is one of the focuses of our investment, will be added later, in order to realise value-added potential there as well, through local management of our real estate assets.

Value creation through development measures

In order to improve the market positioning and marketability of properties, DIC Asset AG uses the services provided by the Deutsche Immobilien Chancen Group as part of its project development. The planning and management of construction and the use of already available development expertise allow the rapid and significant increase in value of real estate holdings.

Construction work on the redesign of the former headquarters of the Frankfurter Sparkasse began in August 2006. In the middle of the city centre, the future home of the Frankfurt city library is going up. All the leasing and the sale to a leasing company had already been contractually agreed in 2005, directly after end of the planning phase. The interior features modern library floor plans with a sculptural reading tower for visitors and up to 200 seats for reading and working. The exterior design of the building and the redesign of the forecourt also make a contribution to the revitalisation of the entire neighbourhood. The development is expected to be finished by the middle of 2007 and the property transferred to the buyer. During the reporting period, progress continued to be made on the development of the so-called Bienenkorbhaus on the Zeil, the well-known shopping street in the Frankfurt city centre. An anchor tenant was found in Ludwig Görtz GmbH. While maintaining the stylistic elements of 1950's architecture, a repositioning of this traditional high-rise building is planned, through refurbishment as well as by incorporating a modern new building. Construction work is expected to start in 2007.

Strategic finance partners as major shareholders

Our close cooperation with Morgan Stanley Real Estate Funds (MSREF) and Forum Partners was further intensified in 2006. Both partners were involved in the IPO in May and then further increased their interest in December by subscribing for additional shares in the new placement. MSREF holds around 9% of DIC Asset AG and Forum about 5%. In addition, MSREF had a 50% interest in the purchase of the portfolio of Landesbank Berlin.

■ Results of Operations

Revenue base expanded

Rental incomes rose in 2006 by EUR 20.3 million (+112%) to EUR 38.4 million, primarily through growth in real estate holdings. The properties acquired during the reporting period accounted for about EUR 16.5 million of the total.

DIC Asset AG realises the largest part of the rental income (62%) from the leasing of office space. Around 12% comes from the leasing of retail space, 4% from residential and 22% from other commercial space and parking lots. As at 31 December 2006, the occupancy rate within DIC Asset AG was 91%. The level of the previous year was 95%. The average remaining time on lease agreements is around 6.6 years.

EUR million	2006	2005	2004
Rental income	38.4	18.1	11.3
Investment property disposal proceeds	64.5	21.7	19.8
Other revenue	8.0	3.3	1.8
Total revenues	110.9	43.1	32.9

The total income in 2006 was EUR 110.9. The EUR 67.8 million increase (+157%) over the previous year was largely attributable to higher sales revenue.

Opportunistic Co-Investments Segment

• Minority interests in opportunistic investments of Deutsche Immobilien Chancen AG & Co. KGaA
• High value potential and higher risk

Overview – Opportunistic Co-Investments Segment

EUR million	2006	2005	∆
EBT	1.6	0.0	+1.6
Investments in associates	4.2	1.8	+3.4

Investment property

	0	33	131
EUR million	2004	2005	2006

Office building, Krefeld X-Act, Duesseldorf Forum am Anger F1, Erfurt

Degussa Areal, Frankfurt

Major expense items increased as scheduled

The expense items personnel, administration and depreciation are considerably higher than the previous year because, as planned, operating activity expanded significantly and real estate assets increased. The average number of employees at DIC Asset AG rose by four to 14. Because of recently concluded agreements, compensation for all members of the Board is included in personnel expenses for the first time.

Successful sales and project developments

DIC Asset AG sold 41 properties in 2006 with a profit of about EUR 4.2 million (previous year: EUR 4.7 million). A small portion of the profits from the sale of 48 properties to a French investor at the end of the reporting period will be recognised in 2007. After the start of renovations, a partial profit of EUR 1.2 million from the project development of the future central library of the City of Frankfurt was recognised using the percentage of completion method.

	2006	2005	2004
FFO in EUR million	21.8	7.4	3.5
EBITDA in EUR million	37.0	18.7	11.6
EBITDA as % of total revenue	33.4%	43.4%	35.3%
EBIT in EUR million	28.5	14.7	8.9
EBIT as % of total revenue	25.7%	34.2%	27.1%
Group profit in EUR million	15.0	6.4	3.3
Group profit in % of total revenue	13.5%	14.8%	10.0%
EPS in EUR	0.85	0.87	0.65

In 2005, compensation for two members of the Board from Deutsche Immobilien Chancen Beteiligungs AG was proportionately charged and reported under administrative expenses. One time costs from the initial public offering and the additional placement in December totalled EUR 17.1 million. Pursuant to IFRS, these costs were deducted from equity in the consolidated financial statements.

Operating earnings significantly improved

Operating earnings tripled. Earnings before depreciation, taxes and profits from sales, development projects and joint ventures (funds from operations, FFO) increased by about EUR 14.4 million (+195%) over the previous year to EUR 21.8 million. The improvement in occupancy rates and the increase in real estate holdings with attractive initial yields contributed to these gains.

Profit for the period more than doubled

Rising rental income, profits from the sale of properties, project development and growing earnings from joint ventures gave a significant boost to the earnings of DIC Asset AG.

EBITDA (earnings before interest, tax, depreciation and amortization) increased by EUR 18.3 million (+98%) to EUR 37.0 million. The financing of investments increased the negative financial results by EUR 4.8 million to EUR -11.4 million. The success of the opportunistic co-investments segment contributed EUR 1.6 million to total earnings from investments of EUR 2.8 million. Consolidated net profit rose by EUR 8.6 million (134%) to EUR 15.0 million.

■ Financial Position of the Group

Centralised financial management

DIC Asset AG organises its financing centrally. This combined management of financing allows capital to be acquired at favourable levels, contributes to improvements in earnings and controls interest and liquidity risks. The incorporation of finance partners as shareholders in DIC Asset AG minimises the financing risk when procuring outside capital.

Expansion of financing structure through equity investment

All interest-bearing obligations of DIC Asset AG are reported under debts. During the financial year, debt was increased by EUR 634.3 million largely because of borrowing and decreased by EUR 59.3 million through payoffs primarily after the sale of properties.

EUR million	2006	2005
Liabilities to banks	748.3	172.1
Other debt	12.5	13.7
Total debt	760.8	185.8
Debt ratio in %	56.6%	50.2%
Equity	534.0	115.3
Equity ratio in %	39.7%	31.2%

In addition to procuring capital through banks, additional financing sources are available to DIC Asset AG through its partnership with investors of Deutsche Immobilien Chancen Group. This is currently primarily being utilised by the outtaking of a loan from Provinzial Rheinland in the amount of EUR 12.5 million (previous year: EUR 13.75 million).

More detailed information on the financing structure of DIC Asset AG, such as loan due dates and derivative financial instruments are described in the notes to the consolidated financial statements.

DIC Asset AG makes use of no off-balance sheet financing. The consolidated financial statements reflect all forms of the Company's financing.

Liquidity expanded

As at 31 December 2006, the net liquidity of DIC Asset AG (liquid assets, less short-term debt) had risen a very significant EUR 146.7 million to EUR 169.2 million. This increase is largely due to cash inflows from the share placement in December 2006. Short-term credits that are available through contractually guaranteed acquisition loans give DIC Asset AG additional financing potential, making EUR 137.8 million available for investment.

Interest rates remain stable

The business plan of each investment is used as a framework for the terms and interest rates of loans. The majority of DIC Asset AG's debt is subject to long-term agreements. The average interest rate for all loans from banks was 4.70 % as at 31 December 2006. A certain number of long-term variable-rate loans are taken out to optimise the interest rate and keep it flexible. DIC Asset AG makes use of derivative financial instruments (primarily interest rate swaps) to hedge its loans.

Investments at a record level

DIC Asset AG had a significantly higher level of investment than in the prior year, primarily in real estate. A total volume of around EUR 1 billion was invested in acquisitions agreed during the year. To this end, DIC Asset AG has sufficient means available to it in the form of equity and guaranteed outside capital available to it. A total of EUR 879.2 million in investments for the year is reported on the balance sheet. Direct investments in the Company's own holdings make up EUR 870.2 million of this amount. The remaining EUR 9.0 is made up of joint ventures with Deutsche Immobilien Chancen AG & Co. KGaA in opportunistic investments.

"Using opportunistic investments to participate in extraordinary opportunities to increase value"

Commercial building, Trier

Cash flow influenced by investments

EUR million	2006	2005
Profit for the period	15.0	6.4
Cash flow generated from operations	40.5	15.5
Cash flow from operating activities	23.8	7.8
Cash flow from investing activities	-875.1	-124.7
Cash flow from financing activities	991.9	137.3
Increase in cash and cash equivalents	140.6	20.4
Cash and cash equivalents as at 1 Jan	39.1	18.7
Cash and cash equivalents as at 31 Dec	179.7	39.1

■ Asset Position of the Group

Balance sheet total increased and equity strengthened

The balance sheet total as at 31 December 2006 rose by EUR 973.9 million to EUR 1,343.7 million. This is primarily due to the increased real estate holdings resulting from DIC Asset AG's acquisition activity. Non-current assets rose by EUR 818.0 million to EUR 1,107.2 million.

Equity rose by EUR 418.7 million to EUR 534.0 million. In spite of the significant expansion of real estate holdings, the equity ratio stands at 39.7%, 8.5% above the previous year. Subscribed capital was increased to EUR 28.5 million in two capital increases in May and December, wherein new shares were very successfully placed on the market.

DIC Asset AG received a total of EUR 415.6 million cash inflows in equity capital.

The sharp increase in DIC Asset AG earnings and the investment income in the year led to significantly higher capital inflows. Cash flow generated from operations rose by EUR 25.0 million to EUR 40.5 million, while cash flow from operating activities increased by EUR 16.0 million to EUR 23.8 million.

Investments made during the year led to a high level of capital outflows. Cash flow from investing activities rose by EUR 750.4 over the previous year to EUR 875.1 million. These investing activities were financed by two capital increases and the placement of shares, with which DIC Asset AG brought in EUR 416 million, as well as through the procurement of outside capital.

This is largely the result of investments in real estate and joint ventures in the amount of EUR 867.4 million and disposals through sales in the amount of EUR 60.3 million. The placement of shares at the end of the year increased cash holdings by EUR 140.6 million, while other items in current assets remained virtually unchanged from the previous year.

EUR million	31 Dec 2006	31 Dec 2005
Total assets	1,343.7	369.8
Non-current assets	1,107.2	289.2
Current assets	236.5	80.6
Equity	534.0	115.4
Non-current liabilities	760.1	177.3
Current liabilities	49.6	77.1

Non-current debt rose by EUR 582.8 million to EUR 760.1 million, largely as a result of the financing of investments. Current debt fell, primarily due to the repayment of current debt as part of sales.

There are no off-balance sheet assets. All activities of DIC Asset AG are recorded in the consolidated financial statements.

Net asset value per share up 53%

Net asset value, the intrinsic value of the Company based on the values on the consolidated financial statements and complemented by the market value of real estate as determined by appraisers, stood at EUR 608.1 million as at 31 December 2006. This increase results from the increase in value of real estate holdings as well as the effects of the capital increases.

EUR million 2006 2005 Carrying amount of investment property 1,086.5 284.9 Difference between carrying amount and fair value 59.7 24.2 Fair value of investments in associates 19.6 1.8 Fair value of real estate in current assets 8.0 5.0 +/- Other assets/other liabilities 197.4 14.3 Net loan commitments at carrying amount -760.8 -185.8 Minority interests -2.3 -2.2 Net asset value (NAV) 608.1 142.2 Deferred taxes -24.1 -11.3 NNAV 584.0 130.9 Difference between carrying amount and fair value of net loan commitments 8.4 -3.7 NNNAV 592.4 127.2 Number of shares in thousand 28,500 10,170 NAV per share in EUR 21.34 13.98 NNAV per share in EUR 20.49 12.87 NNNAV per share in EUR 20.79 12.51

■ Results of Operations, Financial and Asset Position of DIC Asset AG

DIC Asset AG is the management company of the DIC Asset Group. All group real estate activities are organised in the property companies. The earnings situation is thus significantly influenced by the results from investments. DIC Asset AG prepares its separate financial statements in accordance with HGB.

In the financial year under review, profits rose by EUR 3.3 million to EUR 9.3 million. This is largely the result of higher earnings from investments.

The Company's equity stood at EUR 531.9 million as at 31 December 2006, compared to EUR 112.7 the previous year. As at 31 December 2006, the equity ratio of DIC Asset AG had grown, largely on the strength of the capital increases to 94.4% (previous year: 84.3%).

■ Remuneration Report

The remuneration report and individual information on compensation of the Board of Directors and the Supervisory Board, divided by component, are contained in the report on corporate governance.

Transactions initiated in 2006 that will appear on the balance sheet in 2007 led to an additional increase in value.

■ Risk Report

Risk management system

The achievement of operational and strategic objectives is regularly reviewed by a comprehensive risk management system. We make use of various instruments and control systems to achieve the goal of our risk policy, which is to diversify, manage or avoid risk.

Reporting on existing and future potential risks takes place following the bottom-up principle through established reporting methods. In addition, cross-divisional meetings are held at various levels. Board meetings and timely and comprehensive reporting allow the Board of Directors to take countermeasures early in the event of any deviation from budget.

The integration of DIC ONSITE further extends the reporting and control quality and allows direct and early control measures in real estate holdings under administration in the event of any deviation from budget.

The risks that could have negative effects on our asset, financial and earnings situation are described below. These are not necessarily comprehensive. Risks of which we are not currently aware or risks that we consider insignificant could also have an effect on our business operations.

General risks

The German real estate market is influenced by various factors. General economic developments as well as the legal and tax conditions in Germany, the investment activity of companies and the general valuation and price of real estate all play a role. Circumstances such as the creditworthiness of lessees, the interest rate, the buying power of the general population and energy costs may also have an impact on the real estate market. The Company has no influence on these factors. The resulting risks arises primarily in connection with an economic or structural decline in the demand for office or retail space as well as a deterioration of the financial or earnings situation of potential and existing tenants.

Company-specific risks

Risk of non-payment of rent

The Company minimises this risk by only renting and leasing its properties to companies with good credit. The risk associated with new leases is also minimized through the intensive analysis of properties, locations and tenants as well as constant monitoring of the development of relevant real estate markets. The Company also attaches great value to the possibility of third-party use when considering new acquisitions.

Currency risk

As at the balance sheet date, there were no material currency risks. Only two partial loans are on the books in Swiss Francs.

Valuation risk

The market values of all real estate of DIC Asset AG is determined annually at the end of the financial year by neutral, internationally recognised valuation companies. As at 31 December 2006, there were no changes to the current valuation; the book values of the real estate were confirmed.

Financing and interest-rate risk

As a result of the capital increase in the financial year and the incorporation of the DIC real estate group and its financial partners, the financing risk of the Company with regard to the procurement of capital for the continued expansion of its real estate portfolio is limited.

Financing of real properties is long-term or is aligned with the business plan of the underlying transaction. DIC Asset AG counters interest risk with a long-term hedge of the current interest rate primarily through fixed-interest agreements and interest-rate hedge agreements as well as through the use of modern forms of financing.

"DIC ONSITE: Active, local real estate management increases market value"

Badensche Straße, Berlin

Legal risk

The Company has individual legal disputes with former and current shareholders of DIC Asset AG that are connected with actions for rescission and other actions of individual minority shareholders.

Finally, a motion for special court appraisal proceedings was filed against the company by several shareholders, with the petition for a determination of an appropriate additional cash payment for shareholders of the former DIC Beteiligungs- und Immobilien AG. The petitions were rejected by the District Court in January 2005. The petitioners immediately filed an appeal which has not yet been decided.

"We hereby declare that according to the facts known to us at the time in which the legal transactions were conducted, our Company received or paid a commensurate consideration in each transaction. We took no actions at the behest of or on behalf of the controlling company." Information on related parties in accordance with the provisions of IAS 24 can be found in the Notes to the consolidated financial statements.

A lawsuit was filed challenging the resolution passed at the general shareholders' meeting of the Company on 27 August 2003 to exonerate the Board of Directors and the Supervisory Board for the financial year 2002 and the use of balance sheet profit. The request for a trial was granted by the lower court. The Company's appeal was not successful. The Company has asked the Federal Supreme Court of Germany (Bundesgerichtshof) to review the case. There are no significant effects on the Company arising from this situation.

Another lawsuit was filed requesting that the consolidated financial statements from financial years 2002 and 2003 be declared null and void. This suit was deemed inadmissible in 2005.

An appeal in this case was also unsuccessful and a review was not granted. The plaintiff has appealed the admissibility decision to the Federal Supreme Court. The Company assumes that this appeal will also be unsuccessful.

Because of the small number of shares concerned, the outcome of the appraisal proceedings will have no significant effect on the Company.

The Company considers the suits filed to be unjustified and that there are no risks to the continued existence of the Company.

Summary

In the view of the Board of Directors, these risks do not represent a threat to the continued existence of DIC Asset AG.

■ Relationships to Affiliates

The Board of Directors has prepared a separate report on relationships to affiliates in accordance with § 312 AktG. The report ends with the following declaration.

■ Other Information

Disclosures required under § 289 Para. 4 HGB and § 315 Para. 4 HGB (Handelsgetzbuch – German Commercial Code)

The subscribed capital in the amount of EUR 28,500,000.00 consists of 28,500,000 bearer shares in the form of no-par shares.

The shareholders Deutsche Immobilien Chancen AG & Co. KGaA and Forum S.à.r.l. (as well as Forum European Realty Income II, L.P., which is itself not currently a shareholder of DIC Asset AG, but beginning 15 October 2008 can acquire from Deutsche Immobilien Chancen AG & Co. KGaA 2,068,965 no par value shares in DIC Asset AG through a declaration of intent) have agreed to exercise jointly their voting rights at the general shareholders' meeting of DIC Asset AG as regards the contents of certain proposals ("shareholder voting agreement").

The shareholder voting agreement only comes into effect when the general shareholders' meeting of DIC Asset AG is to decide on (i) a capital increase against contributions in kind, or (ii) a merger in which neither Deutsche Immobilien Chancen AG & Co. KGaA nor a participating shareholder with a greater than 25% interest in Deutsche Immobilien Chancen AG & Co. KGaA nor a subsidiary of Deutsche Immobilien Chancen AG & Co. KGaA nor a subsidiary of a participating shareholder with a more than 25% interest in Deutsche Immobilien Chancen AG & Co. KGaA participates as a contributor in kind or as a legal entity participating in the merger.

If agreement cannot be reached between the parties to the shareholder voting agreement as to the exercise of the voting rights in the general shareholders' meeting of DIC Asset AG, Deutsche Immobilien Chancen AG & Co. KGaA has the right to determine the vote of Forum S.à.r.l., its parent company Forum European Realty Income II, L.P. or any of their associates.

With regard to the voting rights from 2,068,966 no par value shares in DIC Asset AG, Deutsche Immobilien Chancen AG & Co. KGaA has obligated itself to Forum to exercise the voting rights in such a way that neither the lien against these shares nor the ownership of these shares may be significantly impaired.

Independently of the shareholder voting agreement, Deutsche Immobilien Chancen AG & Co. KGaA has promised, in the framework of an agreement on the election of the Supervisory Board of DIC Asset AG, the right to Forum European Realty Income II, L.P. to elect one of the six members of the Supervisory Board of DIC Asset AG. If the number of members of the Supervisory Board of the Company is increased to nine, Forum European Realty Income II, L.P. will be entitled to name two members of the Supervisory Board of DIC Asset AG.

Deutsche Immobilien Chancen AG & Co. KGaA has obligated itself to Forum European Realty Income II, L.P. to exercise its voting rights in accordance with the agreement at the general shareholders' meeting of DIC Asset AG during elections to the Supervisory Board.

DIC Capital Partners (Europe) GmbH and GCS Verwaltungs GmbH on the one side and Forum European Realty Income II, L.P. and Forum S.à.r.l. on the other side have agreed to the following "drag-along" and "tag-along" rights in relation to the shares in DIC Asset AG: If DIC Capital Partners (Europe) GmbH intends to sell or transfer shares of DIC Asset AG that it directly or indirectly holds (collectively: "DIC shares") itself or through one or more subsidiaries (including Deutsche Immobilien Chancen AG & Co. KGaA) to third parties that are not affiliated as defined in § 15 AktG with DIC Capital Partners (Europe) GmbH or GCS Verwaltungs GmbH, then DIC Capital Partners (Europe) GmbH has the irrevocable right to demand of Forum European Realty Income II, L.P. and Forum S.à.r.l. that the shares in DIC Asset AG that are held directly by Forum European Realty Income II, L.P. or Forum S.à.r.l. or other subsidiaries of Forum European Realty Income II, L.P., or that Forum European Realty Income II, L.P. will have acquired through a declaration of intent from Deutsche Immobilien Chancen AG & Co. KGaA after 15 October 2008 (collectively: "Forum shares") be sold and transferred to the acquirer under the conditions agreed between the acquirer and DIC Capital Partners (Europe) GmbH and/or GCS Verwaltungs GmbH ("drag-along right").

This drag-along right extends to that portion of the total Forum shares that corresponds to the sold DIC shares in relation to the total DIC shares. A condition of the dragalong right is that the consideration to be paid by the acquirer to Forum European Realty Income II, L.P. and/or Forum S.à.r.l. is due no later than 30 June 2012 and is payable in cash or freely transferable contributions in kind.

If Deutsche Immobilien Chancen AG & Co. KGaA intends to sell or transfer shares in DIC Asset AG it holds directly in an amount of more than 3% of the equity capital to a third party that is not an affiliate as defined in § 15 AktG with Deutsche Immobilien Chancen AG & Co. KGaA, then DIC Capital Partners (Europe) GmbH has the obligation, within the boundaries of the law, to exercise its influence as majority shareholder in such a way that Deutsche Immobilien Chancen AG & Co. KGaA guarantees to Forum S.à.r.l. the right to sell its shares in DIC Asset AG to the acquirer at the same time ("tag-along right").

This tag-along right extends to that portion of the total Forum shares that corresponds to the sold DIC shares in relation to the total DIC shares.

Please see the section "Shareholder structure" in the Notes for information on shareholdings in DIC Asset AG.

The appointment and dismissal of members of the Board of Directors is based on §§ 84, 85 AktG and § 7 of the Articles of Incorporation (version of 27 November 2006). Pursuant to § 7 Para. 1 of the Articles of Incorporation the Board of Directors is composed of at least one person. Amendments to the Articles of Incorporation are made pursuant to §§ 179, 133 AktG and § 9 Para. 6 and § 14 of the Articles of Incorporation (version of 27 November 2006).

The Annual General Meeting of 5 May 2006 empowered the Board of Directors pursuant to § 71 Para. 1 No. 8 AktG to acquire by 4 November 2007 treasury shares up to a total of 10% of the equity of the Company in place at the time the resolution was made for purposes other than trading in treasury shares. The Board of Directors was also empowered to resell treasury shares acquired on the basis of the authorisation, while excluding the subscription rights of the shareholders, in other ways than through the exchange or by offering to resell to all shareholders, namely:

• if the sales price to be paid in cash is not significantly less than the exchange price of the exchange-listed shares with essentially the same features. The number of the shares sold in this way together with the number of new shares that were issued during the life of this authorisation from authorised capital under the exclusion of subscription rights in accordance with § 186 Para. 3 Sentence 4 AktG [Aktiengesetz – German Stock Corporation Act], and the number of shares that can be created through the exercise of option and/or conversion rights or the fulfilment of conversion obligations arising from warrant bonds or convertible bonds and/or participation rights that were issued during the life of this authorisation under the exclusion of subscription rights in accordance with § 186 Para. 3 Sentence 4 AktG, does not exceed 10% of the share capital;
• as consideration to third parties, particularly as part of the acquisition of or merger with companies or the acquisition of interests in companies.

The Board of Directors has not yet made use of this authorisation.

Please see the section "Equity" in the Notes for information on the powers of the Board of Directors to issue shares.

DIC Asset AG has entered into the following significant agreements that contain change-of-control clauses.

A loan agreement with Provinzial Rheinland Lebensversicherung AG provides for a cancellation right for the lender if Deutsche Immobilien Chancen AG & Co. KGaA ceases to hold at least a 30% interest in the equity of the Company.

In addition, DIC Asset AG is a partner to several joint ventures with Morgan Stanley Real Estate Funds (MSREF). MSREF will be granted the right in the case of a change of control to acquire the interests of DIC Asset AG in the respective real estate investment at the current market value. In particular, there is change of control if Deutsche Immobilien Chancen AG & Co. KGaA no longer directly or indirectly holds at least 30% of the shares and voting rights in DIC Asset AG.

"Market knowledge, strength in innovation and rapid implementation as major factors in success"

Redevelopment City Library, Frankfurt am Main

■ Material Events after the Balance Sheet Date

As at 1 January 2007, 74.9% of the shares of the asset and property management company acquired from the FAY Group had been transferred to DIC Asset AG. The company was renamed DIC ONSITE and since the beginning of the year has been responsible for operative asset and property management of the entire Deutsche Immobilien Chancen Group. With locations in Frankfurt, Mannheim, Duesseldorf and a recently opened location in Hamburg, DIC ONSITE has a local presence in the areas that are the focus of DIC Asset AG's investment activity.

DIC ONSITE will open its Berlin location in the first half of 2007.

The ownership from the purchase of 52 properties with a volume of about EUR 205 million from the Hanseatic City of Hamburg was transferred on 1 March 2007. DIC Asset AG has a 20% stake in this opportunistic investment.

A property in Bad Homburg from an opportunistic investment was sold effective 28 February for EUR 47.5 million. The property had been acquired in 2006 with nine other properties. DIC Asset AG has a 20% interest.

■ Forecast

Economic and general conditions

Leading German economic research institutes expect economic growth to continue in 2007. Gross national product is forecast to increase by up to 2.7%. The labour market should perk up considerably, with domestic demand rising. German companies have a positive view of the future: the Ifo economic index at the beginning of the year is significantly higher than it was the previous year.

Borrowing at the beginning of financial 2007 was more expensive than in the prior year because of the incremental interest-rate increases during 2006. We expect only moderate interest-rate increases during 2007, which will not weaken investment in attractive real estate products in Germany.

Development of the real estate market in Germany

We expect the German commercial real estate market to continue to improve. The upturn in the rental market will continue because of the positive economic influences. We expect a slightly rising market price level and moderately falling vacancy rates. The high level of investor interest in German real estate will continue in 2007. The combination of the rental yields of German commercial real estate and interest rate levels remain attractive for international investors.

We expect high levels of investment activity on the German commercial real estate market to continue in 2007. This is supported by, for example, the experts at Difa, who expect investment to at least keep pace with the previous year (Source: Difa, Real estate investment in Europe). In spite of presumably slightly increasing interest-rate levels, rental yields on German real estate remain attractive in international comparison. The launch of the German version of Real Estate Investments Trusts (REITs) in mid-2007 will presumably boost the real estate market further and result in an increase in transaction volume. The planned exclusion of residential property basically does not affect DIC Asset AG.

DIC Asset AG remains on the path of growth

Our focus remains on active portfolio management and investments in German commercial real estate. We invest in high-return real estate with long-term leases for our core segment and in properties with rapidly realisable growth potential for the value-added segment. We also have holdings in opportunistic investments of Deutsche Immobilien Chancen AG & Co. KGaA. With the renewed capital increase at the end of 2006, we have sufficient funding available to pursue our growth strategy.

With DIC ONSITE we are expanding our personnel capacity in property and asset management and are active at the local investment focal points of our portfolio. This puts us in a position to more efficiently manage and more rapidly implement the increase in value of our independent marketing and development of our real estate.

We expect overall returns and consolidated net profit to increase in 2007, and for additional profit gains in 2008 on the basis of our planned acquisitions in the next twelve months.

The Board of Directors proposes a dividend of EUR 0.75 per share be paid for the past financial year in order to allow shareholders to participate in the success and the increase in value of DIC Asset AG. Only about one fourth of the amount to be distributed will be subject to capital gains tax.

Corporate Governance

DIC Asset AG is closely aligned with the regulations of the German Corporate Governance Code. The Board of Directors and the Supervisory board have always worked in the interests of the shareholders for responsible and sustainable gains in the value of the company. The implementation of the Code is reviewed regularly. The Company's website contains an explicit statement in this regard from the Board of Directors and the Supervisory Board.

■ Management and Supervision

Board of Directors

In accordance with regulations governing stock corporations, DIC Asset AG is led by the Board of Directors. The Supervisory Board selects the members of the Board of Directors. The most important tasks of the Board are the establishing of corporate strategy, leading the Company, corporate planning, and the development and operation of adequate risk management. The Board of Directors of DIC Asset AG currently consists of three persons.

Supervisory Board

The Supervisory Board advises the Board of Directors and oversees its management of the business. It consists of six members selected from the shareholders' meeting. The Supervisory Board reports on its activities in 2006 on pages 102-103 in the Supervisory Board Report.

The Supervisory Board has created an audit committee that is involved in particular with the annual and consolidated financial statements, the audit and the focus of the audit as well as risk management.

Each member of the Supervisory Board discloses any possible conflicts of interest to the Supervisory Board. When the Supervisory Board makes decisions regarding contracts with Supervisory Board members pursuant to § 114 AktG, the member concerned does not participate in the decision. No other conflicts of interest were reported in the financial year just ended.

■ Remuneration Report

Compensation of members of the Board

System of Board compensation

Compensation for the Board of Directors is established by the Supervisory Board of DIC Asset AG. In addition to fixed remuneration, Board compensation includes a variable, performance-based component and a long-term incentive component. The relationship between total remuneration and the individual compensation components is appropriate to the tasks of the each member of the Board, their personal achievements, the performance of the Board as a whole and the economic situation of DIC Asset AG. There is no express provision in Board contracts for severance in the event service is ended. Severance may only be paid if there is an individually negotiated agreement.

Variable, performance-related compensation

The performance-related variable remuneration of the Board is based on the operating results of the DIC Asset Group and may not be higher than 50% of the fixed compensation. The amount of the variable compensation is determined annually by the Supervisory Board. Payments are normally made in March of the following year.

Stock-based compensation as long-term incentive

In addition, members of the Board of Directors hold options on so-called "virtual shares" of DIC Asset AG. The options are fictitious and do not give any right to purchase shares in DIC Asset AG, but only grant the right to a cash payment. When exercising the options, the members of the Board receive payments in the amount of the share price less a sum of EUR 2.90 per virtual share. The options may not be exercised until a member has served on the Board for three years. The share price is calculated based on the average of the closing prices of the last ten trading days. The total value of these options as at 31 December 2006 under IFRS stood at EUR 895,000. On the pertinent cut-off date, a liability, equivalent to the value of the virtual share options, is formed and recognised as personnel expenditure.

Compensation in financial year 2006

Two members of the Supervisory Board of DIC Asset AG hold the same positions for Deutsche Immobilien Chancen Beteiligungs AG. The total compensation of the members of the Board of Directors granted by DIC Asset AG amounted to EUR 1,537,437 in 2006.

Compensation of members of the Supervisory Board

Supervisory Board compensation is based on § 10 of the articles of incorporation of DIC Asset AG. Each member receives performance-related compensation appropriate to his activity; membership in committees of the Supervisory Board is not taken into account.

Members of the Supervisory Board receive fixed compensation of EUR 15,000 for each full year they are in office. As a variable, performance-dependent fee, each member receives EUR 2,556.46 for each percentage point of dividend over the rate of seven percent, calculated on the amount of equity, that is distributed, but no more than EUR 12,782.30. The Chairman receives double the fixed and variable compensation. Each member of the Supervisory Board receives, in addition to the remuneration, reimbursement of expenses and any value-added tax to be paid on the remuneration.

The total compensation of the members of the Supervisory Board amounted to EUR 196,550 in 2006. This includes back payments from 2005 totalling EUR 2,073.91.

In addition, for financial year 2006 TEUR 682 (previous year: TEUR 297) in fees for services received was paid to the legal office of Weil, Gotshal & Manges LLP, in which Prof. Dr. Gerhard Schmidt is a partner.

Shareholdings of the Board of Directors and Supervisory Board, Directors' Dealings

Pursuant to § 15a of the German Securities Trading Act (Wertpapierhandelsgesetz), individuals who hold management positions at DIC Asset AG must report to DIC Asset AG any transactions involving shares in the Company or related financial instruments, in particular derivatives, if they exceed EUR 5,000 for acquisitions and disposals in the calendar year. No such directors' dealings were reported in 2006.

EUR	Fixed compensation	Profit- sharing	Stock based com- pensation	Other *	Total	Number of options issued	Earliest possible exercise date
Ulrich Höller	142,500	71,250	273,400	19,928	507,078	40,000	30 Aug 2009
Markus Koch	87,500	43,750	239,200	14,467	384,917	35,000	30 Aug 2009
Jürgen Overath	204,000	36,000	382,400	23,042	645,442	33,900	1 Jun 2008
Total	434,000	151,000	895,000	57,437	1,537,437
	* Other compensation includes non-monetary benefits from use of a company car and insurance subsidies

The number of shares in the Company or related financial instruments directly or indirectly held by members of the Board of Directors and the Supervisory Board is less than one percent of the shares in issue of DIC Asset AG.

■ Transparency and Information

In the general shareholders' meeting, shareholders of DIC Asset AG make use of their rights. The general shareholders' meeting elects the members of the Supervisory Board and makes decisions on changes to the Supervisory Board and the Board of Directors as well as on Supervisory Board compensation. It also makes decisions on the use of profits, on amendments to the articles of incorporation and on important structural matters that have an impact on the policies of the Company.

Every shareholder is entitled to take part in the general shareholders' meeting, to vote with his registered shares and to pose questions to the Board of Directors.

DIC Asset AG issues a report each quarter on business developments and the position of its earnings, finances and assets. In addition, the public is kept informed of developments in the Company through the use of a variety of media. Insider information that could have a significant influence on the share price is published immediately in the form of ad-hoc announcements.

DIC Asset AG's website is an important tool for supplying information to shareholders, investors and the general public. On its website, DIC Asset AG provides financial reports as well as ad-hoc and other announcements in both German and English. A newsletter keeps interested investors up to date and the financial calendar provides information on important dates.

■ Financial Reporting and Auditing

DIC Asset AG publishes its consolidated financial statements in accordance with International Financial Reporting Standards (IFRS), while separate financial statements are published in accordance with HGB. These financial statements are prepared by the Board of Directors and reviewed by the Supervisory Board. The Supervisory Board recommends an auditor that is then chosen by the general shareholders' meeting. The auditor makes a statement of independence to the Supervisory Board.

■ Declaration of Conformity

Pursuant to § 161 AktG, on 21 November 2006, the Board of Directors and the Supervisory Board made the following declaration of conformity to the recommendations of the government commission on corporate governance:

The Board of Management and the Supervisory Board state that DIC Asset AG has complied with the recommendations of the Deutsche Corporate Governance Code as published on 2 June 2005 since its previous declarations on 17 May/19 June 2006 until 24 July 2006, and has and will comply with the recommendations as published on 12 June 2006 since 25 July 2006.

EUR	Fixed compensation	Variable compensation	Total
Prof. Dr. Gerhard Schmidt (Chairman)	30,000	25,565	55,565
Klaus-Jürgen Sontowski (Deputy Chairman)	15,000	12,782	27,782
Michael Bock	15,000	12,782	27,782
Hellmar Hedder	15,000	12,782	27,782
Russell C. Platt	15,000	12,782	27,782
Bernd Wegener	15,000	12,782	27,782
Total	105,000	89,475	194,475

"Development activities are the key to repositioning properties"

Refurbishment Bienenkorbhaus, Frankfurt am Main

The following deviations apply respectively:

The members of the Management Board have been granted options on so-called virtual shares as remuneration components with a long-term incentive effect and risk character. When exercising the options, the members of the Management Board receive share price dependent payments, which are in line with the average price over the last ten trading days before exercising the option.

In deviation to Clause 4.2.3 of the Code, these options for virtual shares are additionally not related to "demanding, relevant parameters" in accordance with the Code. A possible restriction (cap) for exceptional, unforeseeable developments is not agreed.

The Supervisory Board formed an audit committee on 19 June 2006. In deviation to Clause 5.4.7 of the Code, membership in committees was and will not be taken into account in the remuneration for members of the Supervisory Board.

With the exception of the interim report dated 30 June 2006, the interim reports according to Clause 7.1.2 of the Code have and will be made available to the public within 45 days of the end of the reporting period.

The declaration of conformity was made available to the Company's shareholders in the Internet at www.dicasset.de.

The deviation from Number 4.2.3 of the Code is based on the fact that the Company had already reached a compensation agreement with one member of the Board of Directors at a time at which the Company could not have known that it would not comply with the standards of the German Corporate Governance Code in the future.

Further, as the Supervisory Board of the Company had not created any committees as at 19 June 2006, there was no reason to take into account committee membership in determining compensation for members of the Supervisory Board.

At the 2007 general shareholders' meeting, the Board of Directors and the Supervisory Board will recommend a change in the articles governing compensation of members of the Supervisory Board that will bring the policy in conformance with Number 5.4.7 of the Code.

For one-time organisational reasons, the Company was unable to publish the interim report of 30 June 2006 within 45 days of the balance sheet date in accordance with Clause 7.1.2 of the Code. Beginning with the interim report of 30 September 2006, the publication deadline recommended by the Code was adhered to and will continue to be adhered to in future.

Consolidated Financial Statements for the Financial Year 2006

Consolidated Profit and Loss Account for the Period from 1 January to 31 December 2006

TEUR	Notes	2006	2005
Total revenues		110,922	43,108
Total expenses		-82,408	-28,376
Gross rental income	1	38,392	18,098
Ground rents paid	2	-15	-15
Service charge income on principal basis	3	5,531	2,590
Service charge expenses on principal basis	3	-5,653	-2,628
Other real estate related operating expenses	4	-1,667	-696
Net rental income		36,588	17,349
Administrative expenses	5	-3,289	-2,665
Personnel expenses	6	-2,757	-1,142
Depreciation and amortisation	7	-8,528	-3,950
Other income	8	1,319	711
Other expenses	9	-222	-232
Net other income		1,097	479
Gain on development properties	10	1,158	0
Investment property disposal proceeds	11	64,521	21,709
Carrying value of investment property disposals	11	-60,276	-17,048
Profit on disposal of investment property		4,245	4,661
Net operating profit before financing activities		28,514	14,732
Share of the profit of associates	12	1,627	-21
Dividend income	13	1,200	0
Net financing costs	14	-11,424	-6,630
Profit before tax		19,917	8,081
Income tax expense	15	-985	-1,038
Deferred income tax expense	15	-3,921	-599
Profit for the period		15,011	6,444
Attributable to equity holders of the parent	16	14,951	6,425
Attributable to minority interest	16	60	19
Basic (=diluted) earnings per share (in EUR)	17	0.85	0.87

ASSETS
TEUR	Notes	31 Dec 2006	31 Dec 2005
Investment property	18	1,086,482	284,917
Office furniture and equipment	19	205	32
Investments in associates	20	8,344	1,803
Other investments	21	241	241
Derivatives	22	5,670	0
Intangibles assets	23	317	394
Deferred tax assets	15	5,932	1,808
Total non-current assets		1,107,191	289,195
Development properties held for sale	24	7,982	5,041
Receivables from the sale of properties	25	5,331	3,200
Trade receivables	26	1,276	1,024
Receivables due from related parties	27	39,927	31,630
Income taxes receivable	28	1,812	180
Other receivables	29	372	403
Other current assets	30	62	7
Cash and cash equivalents	31	179,728	39,078
Total current assets		236,490	80,563
Total assets		1,343,681	369,758

EQUITY AND LIABILITIES
TEUR	Anhang	31.12.2006	31.12.2005
Equity
Issued capital	32	28,500	10,170
Share premium	32	469,732	97,043
Hedging and translation reserve	32	4,128	-6
Reserve for first-time application of IFRS	32	-2,373	-2,373
Other reserves	32	1,136	1,136
Retained earnings	32	30,595	7,132
Total shareholders' equity		531,718	113,102
Minority interest	16	2,296	2,242
Total equity		534,014	115,344
Liabilities
Interest-bearing loans and borrowings	33	750,270	169,199
Deferred tax liabilities	15	8,376	4,946
Derivatives	22	737	1,918
Other non-current liabilities	34	692	1,241
Total non-current liabilities		760,075	177,304
Interest-bearing loans and borrowings	33	10,496	16,589
Trade payables	35	20,537	51,910
Liabilities to related parties	27	7,605	1,990
Provisions	36	84	450
Income taxes payable	37	1,454	1,519
Other liabilities	38	9,416	4,652
Total current liabilities		49,592	77,110
Total liabilities		809,667	254,414
Total equity and liabilities		1,343,681	369,758

TEUR	2006	2005
Operating activities
Net operating profit before interest and taxes paid	31,615	14,111
Unrealised gains on development projects	-1,158	0
Realised gains/losses on disposals	-4,245	-4,661
Depreciation and amortisation	8,528	3,950
Movements in receivables, payables and provisions	3,763	2,037
Other non-cash transactions	1,996	17
Cash generated from operations	40,499	15,454
Interest paid	-17,519	-8,102
Interest received	3,598	720
Income taxes paid	-2,683	-286
Cash flow from operating activities	23,895	7,786
Investing activities
Proceeds from sale of investment property	62,476	26,587
Acquisition and disposal of subsidiaries	-307	-14,135
Acquisition of investment property	-922,764	-122,411
Capital expenditure on investment properties	-1,116	-1,407
Acquisition/disposal of other investments	-4,175	-1,830
Loans/Collection of principal on loans to other entities	-7,283	-11,434
Development expenditure	-1,783	0
Acquisition of other property, plant and equipment	-194	-31
Cash flow from investing activities	-875,146	-124,661
Financing activities
Proceeds from the issue of share capital	415,604	40,680
Proceeds from other non-current borrowings	658,603	114,737
Repayment of borrowings	-59,348	-15,494
Payment of transaction costs	-17,140	-12
Dividends paid	-5,818	-2,618
Cash flows from financing activities	991,901	137,293
Net increase in cash and cash equivalents	140,650	20,418
Cash and cash equivalents at 1 January	39,078	18,660
Cash and cash equivalents at 31 December	179,728	39,078

	Issued capital	Share premium	Reserve for cash flow	Reserve from first-time application	Other reserves	Retained earnings	Minority interest	Total
TEUR			hedges	of IFRS
Status as of 31 December 2004	6,780	67,716	0	-2,373	1,136	3,215	2,371	78,845
Capital increase	3,390	37,290						40,680
Release of share premium		-7,951					-883	-8,834
Dividends 2004						-2,373	-114	-2,487
Profit for the period						6,425	19	6,444
Equity capital transaction costs		-12						-12
Loss from cash flow hedges of associates			-6					-6
Effect from first-time proportional consolidation of previously consolidated entities						-4		-4
Distribution from current period profits						-131		-131
Change of consolidation group							849	849
Status as of 31 December 2005	10,170	97,043	-6	-2,373	1,136	7,132	2,242	115,344
Capital increase Release of share premium	18,330	397,274 -14,325				14,325		415,604 0
Dividends 2005						-5,695	-6	-5,701
Profit for the period						14,951	60	15,011
Equity capital transaction costs net of tax		-10,260						-10,260
Gains from cash flow hedges			3,394					3,394
Gains from cash flow hedges of associates			740					740
Distribution from current period profits						-118		-118
Status as of 31 December 2006	28,500	469,732	4,128	-2,373	1,136	30,595	2,296	534,014

Notes to the Consolidated Financial Statements

■ Information on the Company

DIC Asset AG (the "Company" or "DIC"), with registered office in Frankfurt am Main, Eschersheimer Landstraße 223, its subsidiaries and its proportionately consolidated joint ventures ("DIC Asset"), are active in the area of asset and portfolio management.

Shares in the Company are listed in the Prime Standard segment of the Frankfurt Stock Exchange and the stock exchanges in Munich, Duesseldorf, Berlin-Bremen, Hamburg and Stuttgart.

DIC Asset AG, which is entered in the commercial register of the District Court of Frankfurt am Main (HRB 57679), has its registered office in Frankfurt am Main, Eschersheimer Landstraße 223.

The Supervisory Board is expected to approve the publication of the consolidated financial statements on 26 March 2007.

■ Accounting Policies and Procedures

Application of International Financial Reporting Standards

Under European Parliament and European Council Directive (EC) 1606/2002 on the application of international accounting standards (EU Directive) of 19 July 2002, all capital-market oriented companies with registered offices in the European Union are required to prepare their consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) for financial years beginning on or after 1 January 2005.

DIC Asset AG has prepared its consolidated financial statements in accordance with IFRS and the supplementary regulations under § 315a Para. 1 HGB (Handelsgesetzbuch – German Commercial Code) to be applied in accordance with German commercial law.

The accounting and valuation methods applied in the disclosures and the notes to the consolidated financial statements in financial year 2006 are based on the same accounting and valuation methods applied in the consolidated financial statements in financial year 2005. The annual financial statements for the companies included in the consolidated financial statements are based on uniform accounting and measurement principles. Valuations based on tax regulations are not incorporated into the consolidated financial statements. The separate financial statements of the consolidated companies were prepared as at the reporting date of the consolidated financial statements.

The consolidated accounts were prepared in Euro. Unless noted otherwise, all amounts are expressed in thousands of Euro (TEUR). Figures may be rounded to the nearest EUR 1,000.

The profit and loss account was prepared using the costof-sales method, following the plan suggested by the European Public Real Estate Association (EPRA).

For purposes of clarity, individual items have been summarised in the profit and loss account and on the balance sheet. An explanation is provided in the notes. In accordance with IAS 1 (Presentation of Financial Statements), balance sheet reporting distinguishes between non-current and current liabilities. Liabilities and provisions are considered to be current if they mature within one year.

The consolidated financial statements for financial year 2006 have been prepared in accordance with the IFRS as implemented by the European Community.

Effects of new accounting standards

The International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC) have adopted additional standards and interpretations whose application is not yet required for financial year 2006. Some of these IFRS will not be applicable until they have been recognised by the EU.

In IFRS 7 "Financial Instruments: disclosures", the disclosures required for financial instruments that were previously governed in IAS 32, as well as the disclosure requirements of IAS 30, which previously only applied to banks and similar financial institutions, have been merged and expanded; in future, they will be applicable for all industries. With the publication of IFRS 7, IAS 1 has been expanded to include disclosure requirements on capital management. IFRS 7 and the new regulations in IAS 1 are required for the first time for financial years beginning on or after 1 January 2007. Apart from the expansion of the disclosures in the notes, the initial application of IFRS 7 will not have any material effects on the consolidated financial statements of DIC Asset AG.

IFRS 8 "Operating Segments" includes new regulations for the presentation of segment reporting. In accordance with IFRS 8, segment reporting is to be made in accordance with the "management approach", under which the demarcation of segments and segment disclosures are based on information used by management internally for purposes of resource allocation and performance assessments of the parts of the company. IFRS 8 is initially required for financial years beginning on or after 1 January 2009. No material effects on the consolidated financial statements of DIC Asset AG are expected to arise from the initial application of IFRS 8.

IFRIC 7 "Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies" clarifies questions related to the application of IAS 29 for cases in which countries whose currency is the functional currency of the reporting entity experiences hyperinflation. IFRIC 7 is initially required for financial years beginning on or after 1 March 2006. No material effects on the consolidated financial statements of DIC Asset AG are expected to arise from the initial application of IFRIC 7. IFRIC 8 "Scope of IFRS 2" clarifies that IFRS 2 "Share-Based Payment" applies to arrangements where the reporting entity makes share-based payments for apparently nil or inadequate consideration. The interpretation is initially required for financial years beginning on or after 1 March 2006. No material effects on the consolidated financial statements of DIC Asset AG are expected to arise from the initial application of IFRIC 8.

IFRIC 9 "Revaluation of embedded derivatives" addresses whether a contract is to be assessed for embedded derivatives in accordance with IAS 39 "Financial Instruments: Recognition and Measurement" only when the contract is entered into or during its entire term. The interpretation is initially required for financial years beginning on or after 1 June 2006. No material effects on the consolidated financial statements will arise from the initial application of IFRIC 9.

IFRIC 10 "Interim Financial Reporting and Impairment" addresses the relationship between the requirements of IAS 34 on Interim Financial Reporting and those in IAS 36 and IAS 39 on reversal of impairment losses of certain financial assets. The interpretation clarifies that an impairment loss recognised in a previous interim period may not be reversed. It is initially required for financial years beginning on or after 1 November 2006. No material effects on the consolidated financial statements are expected to arise from the initial application of IFRIC 10.

IFRIC 11 "IFRS 2 Group and Treasury Share Transactions" provides guidance on applying IFRS 2 to share-based payment involving an entity's own equity instruments or the equity instruments of another company in the same group. The interpretation is initially required for financial years beginning on or after 1 March 2007. No material effects on the consolidated financial statements are expected to arise from the initial application of IFRIC 11.

IFRIC 12 "Service Concession Arrangements" governs how agreements for the provision of public services that the government enters into with private entities are accounted for. In the provision of these services, the private entity uses infrastructure that is controlled by the government. The private entity is responsible for the construction, operation and maintenance of the infrastructure. The interpretation is initially required for financial years beginning on or after 1 January 2008. No material effects on the consolidated financial statements of DIC Asset AG will arise from the initial application of IFRIC 9.

■ Principles underlying the Consolidated Financial Statements

Consolidation principles

Capital is consolidated in accordance with IFRS 3, "Business Combinations", by offsetting the book values of holdings against the proportional revalued equity of subsidiaries on the date of their acquisition. Assets and liabilities are recognised at their fair values. In accordance with IFRS 3, goodwill arising from business combinations is no longer amortised, but is subject to an annual review for impairment.

Negative goodwill resulting from the review is recognised immediately on the profit and loss account. Fair value increments and reductions are carried forward during subsequent consolidation in accordance with the corresponding assets and liabilities.

Intragroup profits and losses, sales, expenses and revenue and intragroup receivables and payables are eliminated. In the DIC Asset AG Group, trade payables and accruals are recorded at customary market conditions. The effects on income tax of consolidation processes affecting income are accounted for and deferred taxes are recognised. Joint ventures are consolidated on a proportional basis using the same principles.

The consolidated financial statements include the transactions of subsidiaries of which DIC Asset AG holds a controlling interest, either directly or indirectly, or if because of its economic control it benefits from the activities of the companies in question, normally through a 50% or greater interest. Subsidiaries are consolidated from the date on which the possibility of control exists, and ends if there is no more possibility of control.

Joint ventures in accordance with IAS 31 "Interests in Joint Ventures" are proportionately consolidated in accordance with the interest held in the joint ventures.

In contrast, participations in which DIC Asset AG exercises significant influence but not joint management (usually through an interest of between 20% and 50%) are valued using the equity method. For holdings valued under the equity method, historical costs are increased or reduced annually in the amount of the corresponding change in shareholder's equity of the equity holding of DIC Asset AG.

During initial consolidation of holdings under the equity method, negative goodwill arising from the initial consolidation is treated in accordance with the principles of full consolidation. Profits and losses resulting from transactions between Group companies and associates are eliminated in accordance with the Group holdings in the associate.

Scope of consolidation

As at 31 December 2006, in addition to DIC Asset AG, a total of 72 (previous year: 32) subsidiaries in which DIC Asset AG holds a controlling interest, either directly or indirectly, or if because of its economic control it benefits from the activities of the companies in question, were incorporated into the consolidated accounts.

23 (previous year: 17) joint ventures were proportionately consolidated in accordance with IAS 31. The joint ventures had the following effect on the assets and liabilities and the income and expenses of the Group:

TEUR	2006	2005	table:
Current assets	19,581	13,838
Non-current assets	130,514	72,469
Current liabilities	15,906	10,084
Long-term liabilities	110,630	58,030
Net assets	23,559	18,193
Income	10,662	10,726
Expenses	7,033	6,634
Annual profit	3,629	4,092

Five (previous year: two) companies were valued using the equity method. The associates reported the following assets and liabilities and income and expenses:

TEUR	2006	2005
Assets	613,395	320,634
Liabilities	575,397	311,590
Net assets	37,998	9,044
Income	40,150	19
Expenses	32,017	125
Annual profit	8,133	-106

The consolidated subsidiaries are listed in the following

Name and registered office of the company	Interest (%)
Deutsche Immobilien Chancen Objekt Herne GmbH & Co. KG, Erlangen	100.0
Deutsche Immobilien Chancen Objekt Elmshorn GmbH & Co. KG, Erlangen	100.0
Deutsche Immobilien Chancen Objekt Euskirchen GmbH & Co. KG, Erlangen	100.0
Deutsche Immobilien Chancen Objekt Moers GmbH & Co. KG, Erlangen	100.0
Deutsche Immobilien Chancen Objekt Neuss GmbH & Co. KG, Erlangen	100.0
Deutsche Immobilien Chancen Objekt Offenbach GmbH & Co. KG, Erlangen	100.0
Deutsche Immobilien Chancen Objekt Ludwigshafen GmbH & Co. KG, Erlangen	100.0
Deutsche Immobilien Chancen Objekt Neunkirchen GmbH & Co. KG, Erlangen	100.0
Deutsche Immobilien Chancen Objekt Schweinfurt GmbH & Co. KG, Erlangen	100.0
Deutsche Immobilien Chancen Objekt Karlsruhe GmbH, Erlangen	100.0
DIC Objekt Neuss GmbH, Frankfurt am Main	100.0
DIC Objekt Neumarkt GmbH, Frankfurt am Main	100.0
DIC RMN-Portfolio GmbH, Frankfurt am Main	100.0
DIC Objekt Stadthaus Offenbach GmbH, Frankfurt am Main	100.0
DIC Objekt Bensheim GmbH, Frankfurt am Main	100.0
DIC Objekt Dreieich GmbH, Frankfurt am Main	100.0
DIC Objekt Darmstadt GmbH, Frankfurt am Main	100.0
DIC Objekt Freiberg GmbH, Frankfurt am Main	100.0
DIC Objekt Wiesbaden GmbH, Frankfurt am Main	100.0
DIC Objekt Velbert GmbH, Frankfurt am Main	100.0
DIC Objekt Alsbach GmbH, Frankfurt am Main	100.0
DIC Objekt Alsbach 2 GmbH, Frankfurt am Main	100.0
DIC Objekt Hemsbach GmbH, Frankfurt am Main	100.0
DIC RMN Objekt 1 GmbH, Frankfurt am Main	100.0
DIC Objekt Köln 1 GmbH, Frankfurt am Main	100.0
DIC Objekt Nürnberg GmbH, Frankfurt am Main	100.0
DIC Objekt Hannover GmbH, Frankfurt am Main	100.0
DIC RP Portfolio GmbH, Frankfurt am Main	100.0
DIC RP Objekt Bochum GmbH, Frankfurt am Main	100.0
DIC RP Objekt Essen GmbH, Frankfurt am Main	100.0
DIC RP Objekt Gelsenkirchen GmbH, Frankfurt am Main	100.0
DIC RP Objekt Ingelheim GmbH, Frankfurt am Main	100.0
DIC RP Objekt Merseburg GmbH, Frankfurt am Main	100.0
DIC RP Objekt Stadtbadgalerie Bochum GmbH, Frankfurt am Main	100.0
DIC RP Objekt 1 GmbH, Frankfurt am Main	100.0
DIC RP Objekt 2 GmbH, Frankfurt am Main	100.0

Name and registered office of the company	Interest (%)
DIC AP Portfolio GmbH, Frankfurt am Main	100.0
DIC AP Objekt Augustaanlage GmbH, Frankfurt am Main	100.0
DIC AP Objekt Coblitzweg GmbH, Frankfurt am Main	100.0
DIC AP Objekt Düsseldorf GmbH, Frankfurt am Main	100.0
DIC AP Objekt Insterburger Str. 5 GmbH, Frankfurt am Main	100.0
DIC AP Objekt Insterburger Str. 7 GmbH, Frankfurt am Main	100.0
DIC AP Objekt Königsberger Str. 1 GmbH, Frankfurt am Main	100.0
DIC AP Objekt Königsberger Str. 29 GmbH, Frankfurt am Main	100.0
DIC AP Objekt Mainz GmbH, Frankfurt am Main	100.0
DIC AP Objekt P6 GmbH, Frankfurt am Main	100.0
DIC AP Objekt Stuttgarter Str. GmbH, Frankfurt am Main	100.0
DIC AP Objekt 1 GmbH, Frankfurt am Main	100.0
DIC AP Objekt 2 GmbH, Frankfurt am Main	100.0
DIC AP Objekt 3 GmbH, Frankfurt am Main	100.0
DIC AP Objekt 4 GmbH, Frankfurt am Main	100.0
DIC AP Objekt 5 GmbH, Frankfurt am Main	100.0
DIC AP Objekt 6 GmbH, Frankfurt am Main	100.0
DIC AP Objekt 7 GmbH, Frankfurt am Main	100.0
DIC AP Objekt 8 GmbH, Frankfurt am Main	100.0
DIC AP Objekt Konstanz GmbH, Frankfurt am Main	100.0
DIC AP Objekt Wiesbaden GmbH, Frankfurt am Main	100.0
DIC AP Objekt Oberursel GmbH, Frankfurt am Main	100.0
DIC AP Objekt Sinzheim GmbH, Frankfurt am Main	100.0
DIC AP Objekt 9 GmbH, Frankfurt am Main	100.0
DIC Asset Portfolio GmbH, Frankfurt am Main	100.0
WACO Projektmanagement AG, Luxemburg	100.0
DIC Objekt Braunschweig GmbH, Frankfurt am Main	94.8
DIC Objektsteuerung GmbH, Frankfurt am Main	94.8
Deutsche Immobilien Chancen Objekt Mozartstr. 33a GmbH, Erlangen	94.0
DIC Objekt Frankfurt 1 GmbH & Co. KG, Frankfurt am Main	94.0
Gewerbepark Langenfeld West 3 GmbH & Co. KG, Bielefeld	93.2
Deutsche Immobilien Chancen Objekt Ulm 1 GmbH & Co. KG, Erlangen	90.0
Deutsche Immobilien Chancen Objekt Ulm 2 GmbH & Co. KG, Erlangen	90.0
Deutsche Immobilien Chancen Objekt Ulm 1 Erweiterung GmbH, Erlangen	90.0
Deutsche Immobilien Chancen Objektbeteiligungs GmbH, Erlangen	90.0
Deutsche Immobilien Chancen Objekt Regensburg GmbH & Co. KG, Erlangen	90.0

The following 23 (previous year: 17) joint ventures are proportionately consolidated:

Name and registered office of the company	Interest (%)
DIC MSREF Berlin GmbH, Frankfurt am Main	50.0
DIC Objekt Berlin 1 GmbH, Frankfurt am Main	50.0
DIC Objekt Berlin 2 GmbH, Frankfurt am Main	50.0
DIC Objekt Berlin 3 GmbH, Frankfurt am Main	50.0
DIC MSREF Objekt Hamburg GmbH, Frankfurt am Main	50.0
DIC MSREF Frankfurt Portfolio GmbH, Frankfurt am Main	50.0
DIC MSREF Frankfurt Objekt Zeil GmbH, Frankfurt am Main	50.0
DIC MSREF Frankfurt Objekt Hasengasse GmbH, Frankfurt am Main	50.0
DIC MSREF Frankfurt Objekt Börsenplatz GmbH, Frankfurt am Main	50.0
DIC MSREF Frankfurt Objekt 3 GmbH, Frankfurt am Main	50.0
DIC MSREF Berlin Portfolio GmbH, Frankfurt am Main	50.0
DIC Berlin Portfolio Objekt Bundesallee, Frankfurt am Main	50.0
DIC Berlin Portfolio Objekt Hardenbergstraße, Frankfurt am Main	50.0
DIC Berlin Portfolio Objekt Berliner Straße, Frankfurt am Main	50.0
DIC Berlin Portfolio Objekt Frankfurt, Frankfurt am Main	50.0
DIC Berlin Portfolio Objekt Arnulfstraße, Frankfurt am Main	50.0
DIC Berlin Portfolio Objekt Badensche Straße, Frankfurt am Main	50.0
DIC Berlin Portfolio Objekt Cottbus, Frankfurt am Main	50.0
DIC Berlin Portfolio Objekt 1, Frankfurt am Main	50.0
DIC Berlin Portfolio Objekt 2, Frankfurt am Main	50.0
DIC Berlin Portfolio Objekt 3, Frankfurt am Main	50.0
DIC Berlin Portfolio Objekt 4, Frankfurt am Main	50.0
DIC Berlin Portfolio Objekt 5, Frankfurt am Main	50.0

DIC MSREF Frankfurt Portfolio GmbH, Frankfurt am Main, was proportionately consolidated with eleven wholly owned subsidiaries in the previous year, and includes properties that were taken over from Frankfurter Sparkasse. DIC MSREF Frankfurt Objekt 1 GmbH, DIC MSREF Frankfurt Objekt 2 GmbH, DIC MSREF Frankfurt Objekt 4 GmbH, DIC MSREF Frankfurt Objekt 5 GmbH, DIC MSREF Frankfurt Objekt 6 GmbH, DIC MSREF Frankfurt Objekt 7 GmbH and DIC MSREF Frankfurt Objekt 8 GmbH were sold at the end of the financial year and only their income and expenses are included in the financial statements.

DIC MSREF Berlin Portfolio GmbH, including its twelve subsidiaries, was established at the end of the financial year, and includes the real estate taken over from the Landesbank Berlin at the end of the year.

In addition, there is a 20.0% interest in each of the following companies: DIC MSREF Weißfrauenstraße GmbH, Frankfurt am Main (including three subsidiaries: the "Degussa Portfolio"); DIC MSREF HMDD Portfolio GmbH (including nine subsidiaries: the properties taken over from MEAG); DIC MSREF HT Portfolio GmbH (including eleven subsidiaries: the properties taken over from Hochtief); DIC MSREF FF Südwest Portfolio GmbH (including six subsidiaries: the properties taken over from Falk); and DIC Hamburg Portfolio GmbH (including 18 subsidiaries: the properties taken over from the Hanseatic City of Hamburg as at 1 March 2007, the "Primo Portfolio"). These companies were accounted for as associates pursuant to IAS 28.13, using the equity method.

Currency conversion

The functional currency of all consolidated subsidiaries and joint ventures is the Euro. Foreign-currency transactions are converted at the exchange rate on the day of the transaction. Profits and losses from the settlement of such transactions and from the conversion of monetary assets and liabilities as at the balance sheet date are included in the profit and loss account.

Balance sheet items expressed in foreign currencies are valued at the exchange rate on the balance sheet date. Foreign-currency gains of EUR 203,000 (previous year: EUR 56,000) are recorded in the results.

■ Accounting and Measurement Principles

Sales and other operating income

Sales and proceeds from the sale of property are recognised at the time of transfer of risk, that is, at the time of the transfer of possession, rights and obligations, rather than at the time of entry into the property register, or when the service is provided, less discounts and rebates. This does not apply to contract revenue resulting from the application of the percentage-of-completion method for development properties held for sale.

Investment property

Investment property is accounted for at cost less depreciation. Debt costs are not recognised as a part of acquistion costs. Land is not depreciated. Buildings are depreciated on a straight-line basis over their useful lives as follows:

	Useful life in years
Residential buildings	60
Office and commercial buildings, hotels	50
Department and retail stores, shopping arcades and centres	40
Parking facilities, underground parking facilities	40

The property of the Company is as a rule treated as investment property, since property trading itself is not considered to be part of regular business activity. The fair value of these properties is indicated in the notes to the balance sheet. It is determined in accordance with internationally recognised valuation methods, e.g. the discounted cash-flow method, or derived from available sales contract offers and/or from the current market price of comparable properties.

Office furniture and equipment

Office furniture and equipment are recorded at cost less depreciation. Debt costs are not recognised as a part of acquisition costs. Office furniture and equipment are depreciated on a straight-line basis. The useful life of office furniture and equipment is normally between three and 13 years.

Investments

Holdings measured under the equity method are recognised at their proportional equity using the amortised cost method.

"Available-for-sale" interests are included, and measured at fair value, provided this value can be determined reliably. If no such value is available, they are recognised at cost.

Intangible assets

Intangible assets are recorded at cost less amortisation. All intangible assets have a specific useful life and are thus amortised. Business software is amortised over three years; the useful life of concessions and other rights is normally ten years.

Development properties held for sale

Development properties held for sale are accounted for according to the percentage-of-completion method. The stage of completion is calculated in accordance with expenses incurred. Income from contracts results from sales contracts and is recognised as income from development properties. Pro-rated borrowing costs are included in the determination of costs in accordance with IAS 23.

Receivables and other assets

Receivables and other assets, except for derivative financial instruments, are measured at cost less depreciation. Any impairment charges required are based on the actual risks of default.

Cash and cash equivalents

Cash and cash equivalents includes cash and cash at banks that is available within three months.

Provisions

Provisions take into account all recognisable obligations as at the balance sheet date that are based on past events and for which the amount or final maturity is uncertain. Provisions are recognised only on the basis of a legal or constructive obligation to a third party, the fulfilment of which makes an outflow of resources probable, to the extent that a reliable estimate can be made of the amount of the obligation.

Provisions are recognised at the amounts required to clear the obligations and are not offset against reimbursement rights.

For claims on future equity-price oriented cash flows, provisions accrue in instalments and are expensed on the basis of fair value, taking into account the pro-rated services provided during the vesting period.

Liabilities

With the exception of derivative financial instruments, liabilities are recognised at their repayment or fulfilment amounts or at cost less depreciation.

Deferred taxes

Deferred taxes arising from temporary differences between IFRS accounts and the tax balance sheets of the separate companies and from consolidation are recognised separately. Deferred tax assets also include tax reduction claims resulting from the anticipated use of existing tax loss carryforwards in subsequent years. They are capitalised if the realisation of these loss carryforwards is reasonably certain.

Deferred taxes are calculated on the basis of the tax rates applicable at the time of realisation. The corporate tax rate of 25.0%, the solidarity surcharge (Solidaritätszuschlag) of 5.5% and the company-specific trade income tax rates are taken into account in calculating domestic deferred taxes.

The trade tax levy rate of the City of Frankfurt am Main will be lowered from 490% to 460% on 1 January 2007. The effect of the change is recognised in the business year with an additional deferred tax expense of TEUR 33 in accordance with IAS 12.60.

Derivative financial instruments

Derivative financial instruments are recognised as assets or liabilities. Irrespective of their purpose, all derivative financial instruments are measured at fair value. Initial recognition occurs on the transaction date. The expenses and income arising from the hedging of future cash flows, provided the conditions of IAS 39.88 are met, are recorded under equity with no effect on income, otherwise they are recorded on the profit and loss account.

The results of accounting for the revenues accrued or deferred under equity are not included in the statement of profit and loss until the underlying transaction affects earnings.

Foreign currency items

In the individual accounts of the group companies, all receivables and liabilities expressed in foreign currencies are valued at the exchange rate in effect as at the balance sheet date.

Assumptions underlying accounting estimates

A limited number of assumptions and estimates must be made in the consolidated financial statements, which may affect the amount and presentation of the reported assets and liabilities, the income and expenses, as well as the contingent liabilities. The principal areas of application for assumptions and estimates are the determination of the useful life of fixed assets, the calculation of discounted cash flows when testing for impairment, determinations of fair value and determinations of present value of minimum lease payments and the establishment of provisions. Actual values may deviate from estimates.

■ Notes to the Profit and Loss Account

1. Rental income

Consolidated rental income rose by TEUR 20,294 (112%) from TEUR 18,098 to TEUR 38,392 in financial year 2006. This increase is primarily due to rental income collected in 2006 from real estate acquired at the end of 2005 and properties acquired during the year, primarily the Augusta Portfolio with TEUR 8,958 (2005: TEUR 0), the Rhine-Main-Neckar Portfolio with TEUR 4,010 (2005: TEUR 0), the Ruhr Portfolio with TEUR 3,546 (2005: TEUR 0), the Telekom property in Braunschweig with TEUR 1,278 (2005: TEUR 159), the Pfleiderer property in Neumarkt with TEUR 1,108 (2005: TEUR 0), the Creditreform headquarters in Neuss with TEUR 1,047 (2005: TEUR 0), the properties leased to the Deutsche Bahn in Hanover with TEUR 589 (2005: TEUR 0) and in Nuremberg with TEUR 516 (2005: TEUR 0) and the VdS headquarters in Cologne with TEUR 506 (2005: TEUR 0). In contrast, rental income was reduced by the sale at the end of 2005 of the properties taken over from the Frankfurter Sparkasse by TEUR 1,670 from TEUR 5,055 to TEUR 3,385.

2. Ground rents

These are ground rents for the property located at Mainzer Landstraße 268, Frankfurt (TEUR 11) as well as for the property located at Wächtersbacher Str. 23-27, Frankfurt am Main (TEUR 4), both of which were taken over from the Frankfurter Sparkasse.

3. Service charge income and expenses on principal basis

Recognised costs include current expenses in connection with the properties or services rendered for the properties and buildings, including property tax. For the most part, these expenses may be assigned to the tenants as ancillary leasing costs (operating expenses, heat, etc.).

Service charge income on principal basis assigned to tenants rose by TEUR 2,941 (114%), and service charge expenses on principal basis rose by TEUR 3,025 (115%). Both of these increases are mainly due to the expansion of the portfolio. The differential between the service charge income and expenses on principal basis corresponds to the costs that are incurred for vacant space or can not be assigned under applicable agreements.

4. Other real estate-related operating expenses

The increase in other real estate-related expenses in financial year 2006 by TEUR 971 (140%) from TEUR 696 to TEUR 1,667 is chiefly the result of the expansion of the portfolio, an increase in the use of external service providers for administration of property and lease agreements from TEUR 129 to TEUR 471 as well as the increase in management fees from TEUR 79 to TEUR 446 payable by the proportionately consolidated companies to affiliated enterprises.

5. Administrative expenses

Administrative expenses compare with the prior year as follows:

TEUR	2006	2005
Legal and consulting fees	1,048	811
Ancillary financing costs	744	455
Auditing costs	505	271
Accounting and administration fee	313	133
Remuneration of Supervisory Board	197	190
Distribution costs, advertising	52	132
Board of Directors	0	355
Other	430	318
Total	3,289	2,665

The increase in legal and consulting fees is chiefly the result of the expansion of the portfolio. The item also includes the costs of legal disputes (see "Notes on risks, contingencies and other financial commitments") in the amount of TEUR 70 in 2006 and TEUR 175 in 2005.

The increase in financing costs is chiefly the result of the recognition of processing fees because of loan repayments at the C&A objects which were offset against financial liabilities on the balance sheet in the amount of TEUR 104 and from financing fees from unrealised acquisition projects in the amount of TEUR 150.

Distribution and advertising costs primarily include costs for the preparation of reports and presentations and the preparation and publication of financial reports.

The increase in auditing costs is a result of the significant increase in the scope of consolidation and the fact that quarterly reports were, for the first time, subject to an accounting review this year.

The legal and consulting costs and the auditing costs include fees paid to the auditor for the audit of the financial statements (TEUR 403), tax consulting (TEUR 98), and for other services in the amount of TEUR 73. In addition, fees were paid to the auditor in the amount of TEUR 496 in connection with the two capital increases carried out in financial year 2006. These were offset against capital reserves with no effect on the profit and loss account.

The costs of the Board activities for Mr. Höller and Mr. Koch (salary, profit-sharing and a proportional share of administrative costs) were charged on a pro-rate basis by the Deutsche Immobilien Chancen Beteiligungs AG in financial year 2005. For the first time in 2006, employment contracts between the Company and the appointed members of the Board of Directors were entered into, which resulted in recognition of Board remuneration under personnel expenses (see below, "Personnel expenses").

The item "Other" primarily includes rental and ancillary costs, automobile and travel costs.

The Company granted remuneration totalling TEUR 196,550.01 to members of the Supervisory Board during the financial year. Additional details, particularly disclosures pursuant to § 314 Para. 1 No. 6 Letter (a), are provided in the management report.

6. Personnel expenses

Personnel expenses are composed of the wages and salaries of DIC Asset AG staff as well as of related social security taxes.

The increase in personnel expenditures by TEUR 1,615 from TEUR 1,142 to TEUR 2,757 is mainly due to the initial recognition of all Board salaries under personnel expenses (TEUR 585), the share-based compensation (stock options) offered to the Board, which resulted in a increase of the associated expense from TEUR 96 to TEUR 895 in financial year 2006, and to the increase in staff levels from an average of ten employees in financial year 2005 to an average of 14 employees in financial year 2006.

In financial year 2006, the Board was granted compensation totalling EUR 1,537,437. The members of the Board of Directors also hold options on 108,900 so-called "virtual shares" of the Company. Additional details, particularly disclosures pursuant to § 314 Para. 1 No. 6 Letter (a) Sentences 5 to 9 HGB, are provided in the management report.

7. Depreciation and amortisation of intangible assets and fixed assets

Depreciation and amortisation primarily affect recognised real estate and, to a lesser extent, office furniture and equipment and intangible fixed assets. Depreciation and amortisation rose by TEUR 4,578 (116%) from TEUR 3,950 to TEUR 8,528 over the prior year. The increase is primarily due to the expansion of the portfolio and inclusion of real estate for the entire year that was acquired or initially consolidated during 2005.

The prior year included depreciation and amortisation in the calculation of net rental income. To ensure a more accurate presentation, depreciation and amortisation are recorded under net rental income on the profit and loss account in the financial year. The corresponding adjustment has been made to the presentation of the prior year.

8. Other income

TEUR	2006	2005
Property and asset management,
leasing and disposition fee	853	320
Foreign currency gains	203	56
Reversal of provisions	93	15
Loan processing fee	0	212
Other	170	108
Total	1,319	711

The increase in property and asset management, leasing and disposition fees is primarily due to the expansion of the portfolio under opportunistic co-investments. The revenues result from the corresponding services DIC Asset AG provides for the Deutsche Immobilien Chancen AG & Co. KGaA Group and particularly the joint-venture companies in opportunistic co-investments.

The foreign currency gains result from the reporting date valuation of two bank loans in Swiss Francs (nominal value as at 31 December 2006 CHF 10,571,365.20), which were taken out in 2003 by the companies Gewerbepark Langenfeld West 3 GmbH & Co. KG and DIC Objekt Frankfurt 1 GmbH & Co. KG.

The Company assigned to DIC MSREF Frankfurt Portfolio GmbH a mezzanine loan in the previous year in the amount of TEUR 12,000 for purposes of financing the acquisition of the FraSpa Portfolio, and collected a processing fee on the provision of this loan. The earnings remaining after the proportionate consolidation in the amount of TEUR 212 were reported as an income item in the consolidated accounts.

Other income consists primarily of ancillary benefits (primarily the use of automobiles) and other costs charged to employees.

This item consists chiefly of expenses for training, publications, courier and translation services and other general organisational expenses.

10. Gain on development projects

This item (TEUR 1,158) includes the pro-rated unrealised gain on the development project at Hasengasse (city library), Frankfurt am Main. Profit is calculated using the percentage-of-completion method in accordance with IAS 11. The total income from the contract totals TEUR 12,350 (pro-rated). Total expenses are estimated at TEUR 10,589. 65.8% of the total expenses had been accrued as at 31 December.

This property was sold under a contract dated 19 December 2005. The purchase agreement calls for the transfer of possession, rights and obligations effective 1 July 2007, following extensive construction yet to be completed by DIC MSREF Frankfurt Portfolio GmbH.

In calculating the percentage of completion under the cost-to-cost method, accrued borrowing costs of TEUR 92 were taken into consideration.

11. Profit on disposal of investment property

The profit from disposal of investment property fell against the previous year by TEUR 416 from TEUR 4,661 to TEUR 4,245.

In 2006, the Company made a profit of TEUR 2,057 on the disposal of a total of 33 properties that were acquired from the Frankfurter Sparkasse. The Company also made a profit of TEUR 2,188 on the disposal of eight C&A properties. In comparison, the Company in the prior year made a profit of TEUR 3,807 on the disposal of 13 properties acquired from the Frankfurter Sparkasse, a profit on the sale of 50% of the shares in the property companies in the eBay Portfolio totalling TEUR 162, and an additional profit of TEUR 696 from the sale completed in 2004 of block B of the Business Center Glacis in Luxembourg.

Selling costs of TEUR 502 (previous year TEUR 205) were offset against the proceeds of sales.

12. Share of the profit of associates

The expenses refer to the interest of DIC Asset AG in the following associates accounted for under the equity method of the profits and losses assumed for the financial year:

TEUR	2006	2005
DIC MSREF Weißfrauenstraße GmbH	473	-12
DIC MSREF HMDD Portfolio GmbH	653	-9
DIC MSREF HT Portfolio GmbH	207	0
DIC MSREF FF Südwest Portfolio GmbH	304	0
DIC Hamburg Portfolio GmbH	-10	0
Profit from associates	1,627	-21

13. Dividend income

Under IAS 31, the balance sheets and income calculations of joint ventures are included on a pro-rata basis in accordance with the equity interest held. Because of contractual agreements with MSREF Sparks B.V., profit distribution agreements foresee a profit distribution that deviates from the pro-rated equity interests of the joint-venture partners. The item "Income from long-term equity investments" includes the adjustment amounts for the accurate presentation of the contractually agreed share of profits of TEUR 1,200.

14. Net financing costs

This item is broken down as follows:

2006	2005
4,080	1,292
-15,504	-7,922
-11,424	-6,630

In total, the negative financial results increased over the prior year by TEUR 4,794 (72.3%) from TEUR -6,630 to TEUR -11,424. The relatively low increase in comparison with the expansion of the real estate portfolio can be explained by the fact that a large part of the real estate acquisitions were not made until the second half of 2006 and by the self-financing of new acquisition through capital increases.

The net financing costs presented include an amount of TEUR 1,181 (previous year TEUR 515) from the valuation of derivative financial instruments (interest-rate swaps) at fair value.

15. Income taxes

2006	2005
985	1,038
3,921	599
4,906	1,637

Current income taxes exclusively affect profits subject to taxation of consolidated subsidiaries. The current tax expense is composed primarily of corporate taxes incl. solidarity surcharge (TEUR 618) and trade taxes on earnings (TEUR 367). On 31 December 2006, DIC Asset AG reports a tax-loss carryforward for corporate tax purposes in the amount of TEUR 7,195, and for purposes of trade taxes of TEUR 14,267. For this reason, none of the current income tax expenses accrued to the Group's parent company.

The expense for current income taxes is essentially unchanged in comparison with the previous year in spite of a substantial increase in rental income, because in financial year 2006 properties with sales values pro rated at TEUR 21,450 from the total sales volume of TEUR 64,521 were sold in the framework of share deals, which receive favourable tax treatment. The deferred taxes result from timing differences between tax balance sheet values and IFRS balance sheet values and from existing trade tax and corporate tax loss carryforwards. Deferred taxes are calculated on the basis of the tax rates applicable at the time of realisation. The corporate tax rate of 25.0%, the solidarity surcharge (Solidaritätszuschlag) of 5.5% and the company-specific trade income tax rates are taken into account in calculating domestic deferred taxes.

Deferred tax expenses compare with the prior year as follows:

TEUR	2006	2005
Deferred taxes on equity transaction costs	-6,880	0
Deferred taxes on tax loss carryforwards	4,602	-6
Deferred taxes on carrying values of investment property	-532	-349
Deferred taxes on derivatives	-488	-219
Deferred taxes from percentage-of-completion valuation	-306	0
Deferred taxes on other adjustments	-317	-25
Total	-3,921	-599

Deferred tax claims and liabilities can be classified into the following balance-sheet items:

TEUR		31 Dec 2006 Assets Liabilities Assets Liabilities		31 Dec 2005
Loss carryforwards	5,575	0	972	0
Investment properties	61	5,455	22	4,895
Derivative financial instruments	296	2,276	813	0
Percentage-of completion valuation	0	306	0	0
Long-term interest bearing debt	0	180	0	48
Other	0	159		3
Total	5,932	8,376	1,807	4,946

The recognition of deferred tax liabilities on temporary differences in the area of investment properties in the amount of TEUR 5,455 (previous year TEUR 4,895) includes deferred tax liabilities arising from business combinations in accordance with IAS 12.19 in the amount of TEUR 3,483 (previous year TEUR 3,617).

The difference between the expected tax expense and the actual tax expense is as follows: The target tax rate to be applied was determined on the

TEUR	2006	2005
Pre-tax Group results	19,917	8,081
Applicable legal tax rate	40.86%	40.86%
Expected tax expense	8,138	3,302
Deviations from tax rate
Effects from differences in levy rates, staggered tariffs, tax-free amounts (trade tax)	-75	-51
Difference in deferred tax rate/income tax rate	-568	-116
Tax effects from deviations in the tax measurement basis
Effects of non-taxable consolidated losses	498	74
Effects of added depreciation on real estate for tax purposes	-329	-211
Effects of expanded reductions in taxable earnings from real estate management	-1,406	-555
Effects of tax results from partnership subsidiaries	-5	462
Effects from tax-free financial investment sales (95% tax free)	-664	-1,133
Consolidation activities without deferred taxes	-542	58
Effects from tax loss carryforwards	-827	-369
Permanent differences	536	-9
Other deviations	27	18
Recognition of deferred taxes	175	165
Aperiodic effects	-52	2
Actual total tax expense	4,096	1,637

basis of the tax rates that applied in Germany in 2006 and 2005.

This is calculated from a corporate tax rate including solidarity surcharge of 21.18%, taking into consideration the tax deductibility of the trade tax (nominal corporate tax 25%; nominal solidarity surcharge 5.5%). The trade tax rate is 19.68% on the basis of the levy rate of the City of Frankfurt of 490%. To the extent the expanded reduction of trade taxes can be claimed, the resulting increased corporate tax rate was taken into account for the effects of the expanded reduction.

16. Profit allocated to other shareholders

From the current results of the financial year, TEUR 118 (previous year TEUR 131) is recorded as an obligation to minority shareholders. Additional profits allocated to minority shareholders of TEUR 60 (previous year TEUR 18) were credited to minority interests in equity from the results of the financial year. The complete performance of the profits/losses allocated to minority interests can be found in the consolidated statement of changes in equity.

17. Earnings per share, Net asset value (NAV) and NAV per share

In accordance with IAS 33.12, earnings per share are calculated from the Group profit after minority interests and the number of the shares in circulation on an annual average.

	2006	2005
Group profits after minority interests (EUR)	14,951,095 6,424,986
Weighted average number of shares in issue	17,630,000 7,345,000
Basic (= diluted) earnings per share (EUR)	0.85	0.87

The dividends paid in 2006 and 2005 for the respective previous financial year totalled TEUR 5,695 (EUR 0.56 per share) and TEUR 2,373 (EUR 0.35 per share).

For 2006, the Board of Directors will propose a dividend in the amount of TEUR 21,375 (EUR 0.75 per share). About EUR 5.7 million of this dividend were not subject to capital gains tax. These dividends were not recorded as a liability in accordance with IAS 10 in these consolidated financial statements.

In accordance with the recommendation of the European Public Real Estate Association (EPRA), the net asset value (NAV) is calculated as at 31 December 2006 and 31 December 2005 as follows:

TEUR	2006	2005
Carrying amount
of investment property	1,086,482	284,917
Difference between carrying amount
and fair value	59,713	24,193
Fair value of investments in associates	19,680	1,803
Fair value real estate in current assets	7,982	5,041
+/- Other assets/liabilities	197,366	14,241
Net loan commitments
at carrying amount	-760,766	-185,787
Minority interests	-2,296	-2,241
Net asset value (NAV)	608,161	142,167
Deferred taxes	-24,133	-11,254
NNAV	584,028	130,913
Difference between carrying amount
and fair value of net loan commitments	8,409	-3,686
NNNAV	592,437	127,227
Number of shares in thousand	28,500	10,170
NAV/share in EUR	21.34	13.98
NNAV/share in EUR	20.49	12.87
NNNAV/share in EUR	20.79	12.51

■ Notes to the Balance Sheet

18. Investment property

TEUR	2006	2005
Costs
as at 1 January	295,197	245,934
Additions resulting from acquisitions	869,161	70,701
Additions resulting from subsequent expenditures	1,064	628
Additions resulting from business combinations	0	18,034
Disposals	63,843	35,050
Transfer to development properties held for sale	0	5,090
As at 31 December	1,101,579	295,157
Depreciation and amortisation
as at 1 January	10,240	6,753
Additions	8,424	3,862
Disposals	3,567	326
Transfer to development properties held for sale	0	49
As at 31 December	15,097	10,240
Carrying amount as at 31 December	1,086,482	284,917
Carrying amount as at 1 January	284,917	239,181
Fair value	1,146,195	309,110

Investment properties are valued at cost when acquired. Transaction costs are included in the initial valuation. The cost model in accordance with IAS 40.56 is used for subsequent valuations.

In particular, the investment properties are valued in accordance with the provisions of IAS 16, that is, at cost less depreciation, write-downs and reversals of impairment losses.

Additionally, the fair values of all investment property were calculated based on the results of the independent evaluator contracted for this purpose, Cushman & Wakefield, which has undertaken an appraisal in accordance with internationally recognised standards, based on the discounted cash flow method (DCF).

To carry out impairment tests on investment properties in accordance with IAS 36, the combined carrying amount for land and buildings are compared to the calculated market values of the properties. The comparison is made on the basis of the gross market values, that is, not including transaction costs which could be incurred were the properties actually to be sold.

19. Office furniture and equipment

TEUR	2006	2005
Costs
as at 1 January	44	13
Additions	194	31
Disposals	0	0
As at 31 December	238	44
Depreciation and amortisation as at 1 January Additions Disposals	12 21 0	3 9 0
As at 31 December	33	12
Carrying amount as at 31 December	205	32
Carrying amount as at 1 January	32	10

20. Investments in associates

TEUR		31 Dec 2006	31 Dec 2005
	Equity interest	Book value	Equity interest	Book value
Investment in:
DIC MSREF Weißfrauenstraße GmbH		20% 2,105	20%	3
DIC MSREF HMDD Portfolio GmbH		20% 2,542		20% 1,800
DIC MSREF HT Portfolio GmbH	20%	1,821	-	0
DIC MSREF FF Südwest Portfolio GmbH		20% 1,792	-	0
DIC Hamburg Portfolio GmbH	20%	84	-	0
		8,344		1,803

21. Other investments

As in the previous year, the recorded amount of TEUR 241 refers to a 5.4% interest in ING LPFE Bodenfeld GmbH & Co. KG.

22. Derivative financial instruments

Swap contracts are entered into only if their future variable-rate cash flows resulting from the obligation to pay variable interest are hedged by means of a swap against fixed interest payable under a hedge agreement.

As at the balance sheet date, the following derivative financial instruments were held:

in TEUR	Nominal volume	31 Dec 2006 Fair value	31 Dec 2005 Nominal volume value	Fair
Assets Interest-rate hedge agreements (swaps)	414,435	5,670	0	0
Liabilities Interest-rate hedge agreements (swaps)	31,001	737	31,001 1,918

The book value of derivatives corresponds to their market value. There are no significant credit risks, as contracts for derivative financial instruments are entered into only with top-rated major banks.

As at 31 December 2006, positive market values of TEUR 3,394 (previous year TEUR 0) after the deduction of deferred taxes were recorded in equity. This item is composed of one interest-rate hedge agreement with DIC Objekt Braunschweig GmbH with a nominal volume of TEUR 12,935 entered into in financial year 2006 that matures in 2011, as well as three current interest-rate hedge agreements with DIC AP Portfolio GmbH with a nominal volume TEUR 401,500 that were entered into in 2006 and mature in 2014.

The derivative financial instruments presented under liabilities are composed of four interest-rate hedge agreements entered into in 2002 and maturing until late 2011. The rules of hedge accounting are not applied to these agreements. Accordingly, the expenses and revenues arising from the changes in the fair value of the interestrate agreements are reported on the profit and loss account (cf. notes under 14. Financial results).

In financial years 2005 and 2006, companies in which DIC Asset AG has a 20% interest entered into interest-rate hedge agreements with a total nominal volume of TEUR 440,400 for purposes of hedging future variable cash flows. The property companies pay fixed-interest rates between 3.175% and 4.018% and receive interest payments at the 3-month Euribor rate.

The expenses and revenues arising from the hedging of future cash flows are recorded by the property companies under equity with no effect on income. DIC Asset AG recorded into consolidated equity its share of the changes recorded directly in the equity of the associates of TEUR 740, after deducting deferred taxes in accordance with IAS 28.39.

23. Intangible assets

TEUR	2006	2005
Costs
as at 1 January	696	696
Additions	0	0
Disposals	0	0
As at 31 December	696	696
Amortisation
as at 1 January	302	225
Additions	77	77
Disposals	0	0
As at 31 December	379	302
Carrying amount as at 31 December	317	394
Carrying amount as at 1 January	394	471

This item refers to the rights of use of a cafeteria in the business park in Ulm as well as software.

24. Development properties held for sale

The item under "Development properties held for sale" refers to the location of the future city library in Hasengasse, Frankfurt am Main. This property was sold under a purchase agreement dated 19 December 2005.

The City of Frankfurt am Main intends to relocate the city library to this property and to this effect has entered into a long-term lease agreement with the purchaser. The purchase agreement calls for the transfer of possession, rights and obligations effective 1 July 2007, following extensive construction yet to be completed by DIC MSREF Frankfurt Portfolio GmbH. The transfer from the item "Investment properties" took place in financial year 2005 in accordance with IAS 40.58.

Costs connected with this project in the amount of TEUR 13,929 (previous year TEUR 0) had been incurred as at the balance sheet date. In financial year 2006 revenues from the development project in the amount of TEUR 1,158 (previous year TEUR 0) were recognised. No payments under the contract have thus far been received from customers.

25. Receivables from the sale of properties

This item includes purchase-price claims arising from the sale at the end of 2006 of 31 FraSpa properties (TEUR 4,958), the sale of eight C&A properties (TEUR 317) and other purchase-price claims (TEUR 56).

The receivables from the sale of real estate reported for the previous year referred to a purchase-price claim from sale at the end of 2005 of the FraSpa property on Goethestraße, Frankfurt (TEUR 3,200), which was paid in 2006.

26. Trade receivables

This item consists primarily of receivables from operating costs and ancillary costs.

27. Receivables due from related parties

Relations with related parties are described in detail under "Notes on related parties". This balance-sheet item refers to:

TEUR Deutsche Immobilien Chancen AG & Co. KGaA a) Deutsche Immobilien Chancen Beteiligungs AG a) DIC Capital Partners (Europe) GmbH (former DIC Beteiligungs GmbH) a) DIC MSREF Frankfurt Portfolio GmbH c) DIC MSREF Berlin GmbH c) DIC MSREF Objekt Hamburg GmbH c) DIC MSREF Berlin Portfolio GmbH c) DIC MSREF Weißfrauenstraße GmbH c) DIC MSREF HMDD Portfolio GmbH b) DIC MSREF HT Portfolio GmbH b)	Receivables 18,596 669 386 5,278 983 552 3,877 1,549 1,677	31 Dec 2006 Liabilities 0 1,021 7 762 0 0 0 332	Receivables 21,714 0 369 4,375 415 555 0	31 Dec 2005 Liabilities 42 0 7 800 100 30 0
			0	0
		0	2,640	0
	2,036	0	0	0
DIC MSREF FF Südwest GmbH b)	2,087	0	0	0
DIC Hamburg Portfolio GmbH b)	324	0	0	0
MSREF Sparks B.V. a)	987	0	800	0
MSREF Quick GmbH & Co. Verwaltungs KG a)	163	3,877	0	0
MSREF V Daffodil Holding B.V. a)	2	983	100	415
MSREF V Lupine B.V. a)	1	513	30	555
DIC Projekt Frankfurt 1 GmbH & Co. KG a)	600	0	600	0
DIC Projektentwicklung GmbH & Co. KG a)	121	107	17	40
Other	39	3	15	1
Total	39,927	7,605	31,630	1,990

79

28. Income taxes receivable

The recorded amount refers to tax credits and tax refunds.

29. Other receivables

TEUR		31 Dec 2006 31 Dec 2005
Value-added tax	252	246
Other	120	157
	372	403

30. Other current assets

This item includes insurance and fees paid in advance.

31. Cash and cash equivalents

Cash is available for use by the Company and is subject to no restrictions.

32. Equity

Issued capital

The issued capital of the Company was TEUR 28,500 as at the balance sheet date. It is divided into 28,500 bearer shares in the form of no-par shares, each of which represents an interest in the capital stock of EUR 1.00.

On 3 February 2006, the extraordinary shareholders' meeting of DIC Asset AG approved an increase in issued capital from TEUR 10,170 by TEUR 10,170 to TEUR 20,340 through the issue of 10,170,000 bearer shares against cash consideration. The new shares were considered participating beginning on 1 January 2006. The resolution was entered into the commercial register of the District Court of Frankfurt am Main in February 2006.

Under partial application of the powers under § 5 Para. 1 (authorised capital) of the Articles of Incorporation, with the resolutions by the Supervisory Board and the Board of Directors of DIC Asset AG, each made on 27 November 2006, a capital increase from TEUR 20,340 by TEUR 8,160 to TEUR 28,500 through the issue of 8,160,000 new bearer shares against cash contribution was undertaken. The nominal value of each share was EUR 1.00. § 4 Para. 1 of the Articles of Incorporation of the Company was rewritten as follows: "The issued capital of the Company is TEUR 28,500.00 and is divided into 28,500,000 ordinary shares". Entry in the commercial register of the District Court of Frankfurt am Main took place on 8 December 2006.

Authorised capital

With the resolution of the general shareholders' meeting of 5 May 2006, the Board of Directors was authorised to increase the share capital of the Company by a maximum of EUR 10,170,000 with the approval of the Supervisory Board by 4 May 2011 through one or more issues of new bearer shares against cash consideration and/or contribution in kind. Shareholders must be granted subscription rights. The new shares may also be assumed by one or more banks appointed by the Board of Directors to offer the shares (indirect subscription rights). The Board of Directors is, however, authorised to exclude shareholders' subscription rights with the approval of the Supervisory Board

– to compensate for fractional amounts;

• if it is necessary to grant holders or creditors of the convertible and/or option bonds and/or participation rights issued by the Company or its direct or indirect majority-interest companies subscription rights to new shares in the amount that they would be entitled to after exercise of their conversion or option rights or after fulfilment of the conversion obligation;
• if shares are issued against contributions in kind, particularly as part of the acquisition of or merger with companies or the acquisition of interests in companies;

– if the shares of the Company are issued against cash contributions and the issue price per share is not significantly lower than the stock exchange price of shares with the same terms as previously issued shares at the time of the issue of the shares.

In these cases, however, the exclusion of subscription rights can only take place if the number of the shares issued in this way together with the number of own shares that were sold during the life of this authorisation under the exclusion of subscription rights in accordance with § 186 Para. 3 Sentence 4 AktG (Aktiengesetz – German Stock Corporation Act), and the number of shares that can be created through the exercise of option or conversion bonds and/or participation rights that were issued during the life of this authorisation under the exclusion of subscription rights in accordance with § 186 Para. 3 Sentence 4 AktG, does not exceed 10% of the share capital at the time the authorisation becomes effective or at the time of the issue of the new shares.

The Board of Directors is authorised, with the approval of the Supervisory Board, to determine the content of the share rights, the details of the capital increase as well as the conditions of the share issue, in particular the amount of the issue. The Supervisory Board is authorised to amend the articles of incorporation in accordance with the use of the authorised capital or upon the expiration of the authorisation.

Entry in the commercial register of the District Court of Frankfurt am Main took place on 16 May 2006.

Through the resolution of the Supervisory Board and the Board of Directors of 27 November 2006, the authorised capital stood at EUR 2,010,000 as at 31 December 2006, after partial drawdown.

Entry in the commercial register of the District Court of Frankfurt am Main took place on 8 December 2006.

Contingent Capital

In accordance with the resolution adopted by the general shareholders' meeting of 19 July 2005, the share capital was conditionally increased (contingent capital) by up to TEUR 3,390, divided into up to 3,390,000 no-par bearer shares. The contingent capital increase will only be carried out if

– the holders or creditors of convertible and/or option bonds and/or of participation rights with conversion or subscription rights that were issued or guaranteed by the Company or one of its direct or indirect majorityinterest companies on the basis of the authorisation resolution until 30 June 2010 in the shareholders' meeting of 19 July 2005 under agenda item 7, exercise their conversion or subscription rights or

• the holders or creditors of convertible and/or option bonds and/or of participation rights with conversion or subscription rights that were issued or guaranteed by the Company or one of its direct or indirect majorityinterest companies on the basis of the authorisation resolution until 30 June 2010 in the shareholders' meeting of 19 July 2005 under agenda item 7, who are required to exercise their conversion rights fulfil their conversion obligation
• and the contingent capital is necessary by the standards of the bond conditions.

The new shares participate in the profit from the beginning of the financial year on, because they are created through the exercise of conversion or option rights or through the fulfilment of conversion or option obligations. With the approval of the Supervisory Board, the Board of Directors is authorised to determine additional details on the carrying out of the contingent capital increase.

Share premium

EUR 397,274 was paid in during the reporting year; these funds were obtained through the issue of new bearer shares with a nominal value of TEUR 18,330. Equity transaction costs of TEUR 10,260 after deduction of deferred taxes were offset against capital reserves.

The capital reserve pursuant to § 272 Para. 2 No. 4 in the amount of TEUR 14,325 was completely closed during the reporting year.

Hedging reserve

This reserve includes profits in the amount of TEUR 3,394 from the cash flow hedge agreements of subsidiaries after deducting deferred taxes of TEUR 2,276, as well as profits in the amount of TEUR 740 from cash flow hedges of associates after the deduction of pro-rated deferred taxes TEUR 15 (cf. 22. Derivatives).

The previous year saw the first losses amounting to TEUR 6, pro-rated, from cash flow hedges of associates which were recognised directly in equity in the associate companies, in group equity in accordance with IAS 28.39. This item contained deferred taxes in the amount of EUR 125.

TEUR 31 Dec 2006 Book Fair value value Long-term (> 1 year) interest-bearing debt Variable-rate debt 215,125 215,125 Fixed-rate debt 535,145 527,856 750,270 742,981 169,199 172,194 Short-term (> 1 year) interest-bearing debt Variable-rate debt 2,161 2,161 Fixed-rate debt 8,335 7,215 10,496 9,376 16,589 17,279
					31 Dec 2005
				Book	Fair
				value	value
				82,452	82,452
				86,747	89,742
				10,829	10,829
				5,760	6,450

760,766 752,357 185,788 189,473

33. Long-term interest-bearing debt The fair value of fixed-rate debt is based on discounted cash flows calculated on the basis of interest rates from the yield curve of 31 December 2006. The book values of variable-rate debt approximate fair value.

The maturities of variable-rate and fixed-rate debt are shown in the table below.

Interest rates on the variable-rate debt were adjusted regularly. Interest rate adjustment dates are based on the 1-month or 3-month Euribor plus an average margin of 0.88% (previous year: 1.0%). Fixed-rate debt carries an average interest rate of about 4.81% (previous year: 5.04%).

TEUR		31 Dec 2006	Weighted		31 Dec 2005	Weighted
	Total variable- rate debt	Total fixed- rate debt	interest rate in % (fixed- rate debt)	Total variable- rate debt	Total fixed- rate debt	interest rate in % (fixed rate debt)
< 1 year	2,161	8,335	4.70%	10,829	5,760	4.58%
1 - 5 years	125,536	50,492	5.39%	79,466	13,093	6.21%
> 5 years	89,589	484,653	4.77%	2,986	73,653	5.14%
	217,286	543,480		93,281	92,506

As in the previous year, with the exception of a liability vis-à-vis Provinzial Rheinland Lebensversicherung AG of TEUR 12,500 (previous year TEUR 13,750), the interestbearing debt was secured entirely through mortgages in the year under review. The Provinzial Rheinland loan was primarily secured through rights and claims from holdings in the share capital and common stock of the property companies of the FraSpa portfolio.

34. Other non-current liabilities

In 2003 the property companies Gewerbepark Langenfeld West 3 GmbH & Co. KG and DIC Objekt Frankfurt 1 GmbH & Co. KG assumed loans to Hessische Landesbank from Deutsche Immobilien Chancen AG & Co. KGaA in the amount of TEUR 14,500 and TEUR 17,500, respectively. The loans bear an interest rate of 4.5% and have a remaining term through 30 December 2009. At the time the loans were assumed, the market interest rate for a similar loan with a similar term was 2.5%. As consideration for the assumption of the residual loan, Deutsche Immobilien Chancen AG & Co. KGaA made one-time interest-equalisation payments of TEUR 1,190 each to Gewerbepark Langenfeld West 3 GmbH & Co. KG and DIC Objekt Frankfurt 1 GmbH & Co. KG. These payments are reported on the profit and loss account over the remaining term. The items recognised as at the balance sheet date:

TEUR		31 Dec 2006 31 Dec 2005
Other non-current liabilities	692	1,241
Current share of other non-current liabilities *	339	165
* see 38, "Other liabilities"	1,031	1,406

35. Trade payables

These liabilities include:

TEUR		31 Dec 2006 31 Dec 2005
Purchase price liability AP Portfolio	16,631	0
Purchase price liability RMN Portfolio	0	50,780
Other trade payables	3,906	1,130
	20,537	51,910

36. Provisions

These provisions include:

TEUR	1 Jan 06	Use	lease	tion	Re- Alloca- 31 Dec 06
Project develop ment costs	317	165	93	0	59
Operating and ancillary costs	83	83	0	0	0
Litigation costs	50	50	0	25	25
	450	298	93	25	84

The item "Project development costs" refers to payments for project development for the WACO Projektmanagement AG property such as broker commissions, possible charges for the correction of defects and other services to be rendered for the benefit of the tenants.

The Company has individual legal disputes with former and current shareholders of DIC Asset AG that are connected with actions for rescission and other actions of individual minority shareholders. A provision in the amount of TEUR 25 has been made for costs of legal disputes.

37. Income taxes payable

TEUR	31 Dec 2006	31 Dec 2005
Trade tax	618	670
Corporate tax	836	849
	1,454	1,519

38. Other liabilities

TEUR	31 Dec 2006	31 Dec 2005
Property transfer tax	2,814	2,140
Share-based payment	991	96
Value-added tax	906	179
Outstanding invoices	877	217
Equity transaction costs	728	0
Advance rent payments received	438	0
Auditing costs	364	278
Interest adjustment *	339	165
Property tax	226	247
Supervisory Board compensation	222	203
Costs of disposals	174	617
Profit-sharing – Board of Directors	151	50
Profit-sharing – employees	142	60
Other	1,044	400
	9,416	4,652
* see 34. Other non-current liabilities

Liabilities arising from Supervisory Board compensation are liabilities to members of the Supervisory Board and are consequently liabilities to related parties within the meaning of IAS 24.9d. For information on the individual members, see "Related party disclosures" and the details on Supervisory Board compensation in the management report.

The performance-related compensation agreement with the members of the Board of Directors is treated by the Company as a share-price oriented compensation model. The members of the Board of Directors hold options on 108,900 so-called "virtual shares" of the Company. These options may not be exercised by members of the Board of Directors until they have been on the board of DIC Asset AG for three years. As at 31 December 2006 the Company estimates the fair value per option at EUR 25.06 for Mr. Höller and Mr. Koch and EUR 26.72 for Mr. Overath. This estimate is based on the Black-Scholes option pricing model.

The critical parameters for this valuation model are the share price on the balance sheet date of EUR 30.90, the exercise price of EUR 2.90, the standard deviation of the expected share price return of 89.0% and the annual riskfree interest rate of 2.5%. Volatility as measured by the standard deviation of the expected share price return is based on statistical analyses of the daily share price over the last two years. During the financial year, no stock appreciation rights lapsed, expired or were exercised.

The share-based compensation recognised as an expense of TEUR 895 in the reporting year should be considered a transaction with a related party within the meaning of IAS 24.9d. Additional details, particularly disclosures pursuant to § 314 Para. 1 No. 6 Letter (a) Sentences 5 to 9 HGB, are provided in the management report.

■ Notes to the Cash Flow Statement

The cash flow statement shows the origin and use of cash flows for financial years 2006 and 2005. Pursuant to IAS 7 "Cash Flow Statements", cash flows are separated into those derived from operations and those derived from investment and financing activities.

The funds in the cash flow statement include all liquid funds shown on the balance sheet, i.e. cash on hand and credit balances with banks that can be made available within three months. As at 31 December 2006, the use of these funds was not subject to any restrictions.

Cash flows from investment and financing activities are calculated on the basis of payments, while the cash flow from operations is indirectly derived from the profit for the period before interest and income tax. Paid and collected interest and income tax paid are presented separately in "Cash flows from operations".

In addition to cash flows from inflows and outflows related to investment properties, investing activities include cash flows from inflows and outflows from office furniture and equipment, interests in associates, other investments as well as intangible assets. Also reported here are cash flows from the granting and repayment of shortterm loans.

Investing and financing activities that did not result in changes in cash or cash equivalents are not included in the cash flow statement. These activities primarily include the purchase of real estate at the end of the year for which payment was not due until the following year.

In financial year 2006, group companies sold the following partially consolidated companies:

DIC MSREF Frankfurt Objekt 1 GmbH DIC MSREF Frankfurt Objekt 2 GmbH DIC MSREF Frankfurt Objekt 4 GmbH DIC MSREF Frankfurt Objekt 5 GmbH DIC MSREF Frankfurt Objekt 6 GmbH DIC MSREF Frankfurt Objekt 7 GmbH DIC MSREF Frankfurt Objekt 8 GmbH

The transactions entailed the assumption of:

TEUR	2006
Investment property	19,722
Liquid funds	615
Other current assets	216
Non-current liabilities	-16,590
Current liabilities	-721
Book profits	1,728
Total purchase price	4,970
Less: outstanding purchase price claims	-4,662
Less: disposed of cash	-615
Cash flows from the sale of companies	-307

For more information on the impact of the acquisition and sale of subsidiaries, please see details under "Scope of consolidation".

Segment reporting 2006

■ Segment Reporting

The real estate portfolio of DIC Asset AG is composed of the segments "Core Portfolio" (Core), "Value Added Portfolio" (VAD) and "Opportunistic Co-Investments" (OPP). The "Other" segment primarily includes the group's parent company. For more details, see the description in the management report. Because the Company is active in a single geographic segment (Germany), the Company does not report on its business activities by geographic location.

TEUR	Core	VAD	OPP	Other	Elimination	Group
Rental income	21,158	17,234	0	0	0	38,392
Proceeds from sales	0	64,521	0	0	0	64,521
Profits from sales	0	4,245	0	0	0	4,245
EBITDA	20,488	20,950	0	-4,396	0	37,042
EBIT	15,455	17,481	0	-4,422	0	28,514
Profit from associates	0	0	1,627	0	0	1,627
EBT	7,146	12,456	1,627	-1,312	0	19,917
Taxes						-4,906
Profit for the period						15,011
Segment assets	592,177	530,547	7,673	197,196	0	1,327,593
Investments in associates	0	0	8,344	0	0	8,344
Income tax claims						7,744
Consolidated assets						1,343,681
Segment liabilities	385,583	406,363	332	7,559	0	799,837
Tax liabilities						9,830
Consolidated liabilities						809,667
Segment investments	434,328	434,833	4,175	0	0	873,336
Depreciation and amortisation	5,032	3,469	0	27	0	8,528

Segment reporting 2005 ■ Leasing

TEUR	Core	VAD	OPP	Other	Elimination	Group
Rental income	8,956	9,142	0	0	0	18,098
Proceeds from sales	0	21,709	0	0	0	21,709
Profits from sales	0	4,661	0	0	0	4,661
EBITDA	8,088	11,745	0	-1,151	0	18,682
EBIT	5,791	10,103	0	-1,162	0	14,732
Profit from associates	0	0	-21	0	0	-21
EBT	2,273	5,625	-21	204	0	8,081
Taxes						-1,637
Profit for the period						6,444

Segment assets	161,274	157,734	2,640	48,063	-3,744	365,967
Investments in associates	0	0	1,803	0	0	1,803
Income tax claims					1,988
Consolidated assets						369,758
Segment liabilities	118,957	140,864	0	1,031	-12,903	247,949
Tax liabilities						6,465
Consolidated liabilities						254,414
Segment investments	44,846	44,515	1,830	0	0	91,191
Depreciation and amortisation	2,297	1,643	0	10	0	3,950

The Group has no financial leasing arrangements. All lease agreements that DIC has concluded with its tenants are classified as operating leases in accordance with IFRS. Accordingly, the Group is the lessor in a number of operating leasing arrangements (rental agreements) of various types through the investment properties from which it derives the majority of its income and earnings.

Investment properties with a book value as at the balance sheet date of TEUR 1,086,482 (previous year: TEUR 284,917) were leased as part of operating leases. DIC Asset AG will receive the following minimum lease payments from existing leases:

TEUR	2007	2008-2011	from 2012
Future minimum lease payments	70,892	227,381	231,447

The minimum lease payments include net rental income to be collected up to the agreed lease expiration date or by the earliest possible date of termination on the part of the lessee, regardless of whether notice of termination or non-renewal of a lease is actually expected.

The total expenses for operating leases in which the Company is the lessee were TEUR 49 (previous year: TEUR 37). The operating lease arrangements primarily involve leased vehicles. DIC Asset AG will make minimum lease payments of TEUR 55 in 2007 and TEUR 73 in 2008-2011 for existing operating leases not subject to termination.

■ Reporting on Risk Management and Financial Instruments

Risk management system

The achievement of operational and strategic objectives is regularly reviewed by a comprehensive risk management system. We make use of various instruments and control systems to achieve the goal of our risk policy, which is to diversify, manage or avoid risk.

Reporting on existing and future potential risks takes place following the bottom-up principle through established reporting methods. In addition, cross-divisional meetings are held at various levels. Board meetings and timely and comprehensive reporting allow the Board of Directors to take countermeasures early in the event of any deviation from budget. The integration of DIC ONSITE further extends the reporting and control quality and allows direct and early control measures in real estate holdings under administration in the event of any deviation from budget.

The risks that could have negative effects on our asset, financial and earnings situation are described below. These are not necessarily comprehensive. Risks of which we are not currently aware or risks that we consider insignificant could also have an effect on our business operations.

General risks

The German real estate market is influenced by various factors. General economic developments as well as the legal and tax conditions in Germany, the investment activity of companies and the general valuation and price of real estate all play a role. Circumstances such as the creditworthiness of lessees, the interest rate, the buying power of the general population and energy costs may also have an impact on the real estate market. The Company has no influence on these factors. The resulting risks arise primarily in connection with an economic or structural decline in the demand for office or retail space as well as a deterioration of the financial or earnings situation of potential and existing tenants.

Company-specific risks

Risk of non-payment of rent

The Company minimises this risk by only renting and leasing its properties to companies with good credit. The risk associated with new leases is also minimised through the intensive analysis of properties, locations and tenants as well as constant monitoring of the development of relevant real estate markets. The Company also attaches great value to the possibility of third-party use when considering new acquisitions.

Currency risk arises from financial instruments held in foreign currencies. The Company holds two loan commitments in Swiss Francs. Since the performance of the Swiss Franc approximates that of the Euro, management does not hedge these foreign currency positions.

Valuation risk

An independent evaluator determined the fair values of all real estate held by DIC ASSET AG as at 31 December 2006. No adjustments to the previous valuation were required. The practice of having independent appraisals providing regular fair value estimates for real estate will continue in the future.

Financing and interest rate risk

As a result of the capital increase in the financial year and the incorporation of the DIC real estate Group and its financial partners, the financing risk of the Company with regard to the procurement of capital for the continued expansion of its real estate portfolio is limited. Financing of real properties is long-term or is aligned with the business plan of the underlying transaction. DIC Asset AG counters interest rate risk with a long-term hedge of the current interest rate primarily through fixed-interest agreements and interest rate hedge agreements as well as through the use of modern forms of financing.

Legal risk

The Company has individual legal disputes with former and current shareholders of DIC Asset AG that are connected with actions for rescission and other actions of individual minority shareholders.

A lawsuit was filed challenging the resolution passed at the general shareholders' meeting of the Company on 27 August 2003 to exonerate the Board of Directors and the Supervisory Board for the financial year 2002 and the use of balance sheet profit. The request for a trial was granted by the lower court. The Company's appeal was not successful. The Company has asked the Federal Supreme Court of Germany (Bundesgerichtshof) to review the case. There are no significant effects on the Company arising from this situation.

Another lawsuit was filed requesting that the consolidated financial statements from financial years 2002 and 2003 be declared null and void. This suit was deemed inadmissible in 2005. An appeal in this case was also unsuccessful and a review was not granted. The plaintiff has appealed the admissibility decision to the Federal Supreme Court. The Company assumes that this appeal will also be unsuccessful.

Finally, a motion for special court appraisal proceedings was filed against the company by several shareholders, with the petition for a determination of an appropriate additional cash payment for shareholders of the former DIC Beteiligungs- und Immobilien AG. The petitions were rejected by the District Court in January 2005. The petitioners immediately filed an appeal which has not yet been decided. Because of the small number of shares concerned, the outcome of the appraisal proceedings will have no significant effect on the Company.

Summary

In the view of the Board of Directors, these risks do not represent a threat to the continued existence of DIC Asset AG.

■ Contingencies and other financial commitments

As at the balance sheet date, a joint venture proportionately consolidated at 50%, DIC MSREF Objekt Hamburg GmbH, is subject to a DIC Asset AG guarantee issued to Sparkasse Bremen, which rules out all objections and defences and is payable upon first call in an amount of up to TEUR 4,000 if and to the extent that certain repayment obligations are not met in the third year after loan disbursement. The interest of the other shareholder is proportionately exempted.

In addition, a letter of comfort was issued for the subsidiaries of the associate incorporated "at equity", DIC MSREF HMDD Portfolio GmbH, regarding the 20% holdings of outstanding liabilities on the borrowers' part.

As at the balance sheet date, a guarantee existed on the part of DIC Asset AG for the surety granted by Hypo Real Estate Bank to the City of Hamburg for the time between certification by the notary and the payment of the purchase price for 52 properties acquired from the City of Hamburg. After the purchase price was paid on 28 February 2007, the surety and guarantee were returned on 1 March 2007.

There are contingent liabilities with respect to possible increases in the purchase price of the RMN Portfolio of TEUR 150, which may be triggered by changes in the tenant structure.

A sublease agreement is in effect between DIC Asset AG and Deutsche Immobilien Chancen AG & Co. KGaA, which has provided for a payment obligation of TEUR 13 monthly since 1 November 2005. The agreement remains in effect until 31 October 2014. If the lease agreement is not terminated in writing at least twelve months prior to expiration, it is automatically extended by an additional 12 months.

Additional financial obligations arise from operating lease agreements for vehicles in which the Company is the lessee; see "Leasing".

■ Related Party Disclosures

Based on the existing control structure, related parties are:

• 72 fully consolidated affiliated companies (see "Scope of consolidation")

The consolidated group also includes 23 proportionately consolidated companies as well as the 52 associated companies incorporated at equity (see "Scope of consolidation").

Due to their significant influence, the following companies and persons are related parties:

• Deutsche Immobilien Chancen AG & Co. KGaA
• Consolidated companies of Deutsche Immobilien Chancen AG & Co. KGaA
• Deutsche Immobilien Chancen Beteiligungs AG
• DIC Grund- und Beteiligungs GmbH
• DIC Capital Partners (Europe) GmbH
• GCS Verwaltungs GmbH
• MSREF Funding Inc. together with the companies of the MSREF Group
• Forum European Realty Income II, L.P. (hereinafter "Forum")
• Prof. Dr. Gerhard Schmidt

Additional related parties are the Supervisory Board, the Board of Directors, executives and close relatives of these individuals.

The Company has filed a dependent company report on its relationships to these related parties. This report lists all legal transactions conducted by the Company or its subsidiaries with, at the behest or in the interest of affiliated enterprises over the past financial year, as well as all other measures taken or omitted by the Company at the behest or in the interest of these companies over the past financial year. The report concludes with the following statement:

"We hereby declare that according to the facts known to us at the time in which the legal transactions were conducted, our Company received or paid a commensurate consideration in each transaction. We took no actions at the behest of or on behalf of the controlling company."

An overview of legal transactions and relations with related parties is below.

■ Legal Transactions with Companies with significant Influence:

Deutsche Immobilien Chancen AG & Co. KGaA

There are connections between the personnel ("double mandate") of Deutsche Immobilien Chancen AG & Co. KGaA and its sole general partner, Deutsche Immobilien Chancen Beteiligungs AG, at the level of the Board of Directors and Supervisory Board. Two of the three members of the Board of Directors of the Company, Mr. Ulrich Höller and Mr. Markus Koch, are also members of the Board of Directors of Deutsche Immobilien Chancen Beteiligungs AG, whose board also consists of an additional member. Since March 2006, the members of the Board of Directors Ulrich Höller and Markus Koch have had employment contracts with both Deutsche Immobilien Chancen Beteiligungs AG and the Company. Each of these companies pays 50% of their fixed compensation. In addition, there is variable compensation related to the performance of the Deutsche Immobilien Chancen AG & Co. KGaA Group and the DIC Asset Group, as well as options for shares of Deutsche Immobilien Chancen AG & Co. KGaA and compensation based on the share price of DIC Asset AG of the companies. There is also overlap of personnel in the Supervisory Board of DIC Asset AG, Deutsche Immobilien Chancen AG & Co. KGaA and Deutsche Immobilien Chancen Beteiligungs AG in the person of Prof. Dr. Gerhard Schmidt and Klaus-Jürgen Sontowski who are also indirectly significant limited shareholders in Deutsche Immobilien Chancen AG & Co. KGaA. In addition, Prof. Dr. Gerhard Schmidt is also the indirect majority shareholder of its sole general partner, Deutsche Immobilien Chancen Beteiligungs AG.

This company currently provides general property and building management services (including re-leasing services) as well as services related to technical building management for a total of 125 properties, including some in which Deutsche Immobilien Chancen AG & Co. KGaA has a controlling interest. In 2006, the total amount of compensation collected by the company for these services was TEUR 993 (excluding VAT). Of this, a total of TEUR 46 (excluding VAT) was compensation received by the companies of Deutsche Immobilien Chancen AG & Co. KGaA Group.

The Company, in turn, receives services from DIC Projektentwicklung GmbH & Co. KG, a wholly-owned subsidiary of Deutsche Immobilien Chancen AG & Co. KGaA. Included here are all services related to technical building management (e.g., defect removal, rebuilding management, maintenance) to be provided by the Company itself or on the basis of active service agreements with the Company to various property companies. In addition, DIC Projektentwicklung GmbH & Co. KG has assumed all accounting and other administrative functions, including IT services, of the Company and its subsidiaries. By contract, the annual compensation for services related to building management is the flat sum of TEUR 50 plus sales tax and expenses incurred, while services related to accounting and administration were calculated on the basis of expenditures and compensated in the amount of TEUR 313 plus sales tax in 2006 for services rendered for benefit of the companies of the DIC Asset Group.

The Company has placed itself at the disposal of Deutsche Immobilien Chancen AG & Co. KGaA with an overdraft facility, the interest on which has been set at 6% p.a., to be payable in arrears. As security for any part of the loan used, Deutsche Immobilien Chancen AG & Co. KGaA has pledged to the Company its 10% interests in Deutsche Immobilien Chancen Objekt Ulm 1 GmbH & Co. KG, Deutsche Immobilien Chancen Objekt Ulm 2 GmbH & Co. KG, Deutsche Immobilien Chancen Objekt Ulm 1 Erweiterung GmbH & Co. KG and Deutsche Immobilien Chancen Objekt Regensburg GmbH & Co. KG as well as 0.6% interest in the capital stock of ING LPFE Bodenfeld GmbH & Co. KG. As at 31 December 2006 and 31 December 2005, the portion of this overdraft facility that had been used equalled TEUR 18,596 and TEUR 17,431, respectively.

Under an agreement of 15 November 2005, the Company acquired 94.8% of the shares in DIC Objekt Braunschweig GmbH from DIC Starwood Telekomportfolio Eins GmbH and DIC Starwood Telekomportfolio Zwei GmbH (in which Deutsche Immobilien Chancen AG & Co. KGaA holds a 15% stake each via DIC Opportunity Fund GmbH) at a purchase price of TEUR 15,446.

DIC Opportunity Fund GmbH

On the basis of an agreement dated 22 October 2004, for itself and its associated companies the Company enlists the services of DIC Opportunity Fund GmbH, a whollyowned subsidiary of Deutsche Immobilien Chancen AG & Co. KGaA for its ongoing activity in the development of joint projects, for consulting services in the initiation of real estate transactions and for making its expertise available in the area of property development. If notice of termination is not given at least two months before the end of the year the agreement is extended for an additional calendar year. The agreement may also be terminated at the end of the month with four weeks' notice if the shareholder structure of DIC Asset AG undergoes fundamental changes. The amount of the fee is based on the personnel and material expenses incurred in the carrying out of project-related work on the basis of the financial and personnel accounting records of the contractual parties. The resulting compensation claims, plus VAT, are paid quarterly. In addition, DIC Opportunity Fund GmbH is to be compensated for expenses arising in connection with its activities for the Company. No payments were made in financial years 2005 and 2006.

In contrast stand services provided to DIC Opportunity Fund GmbH for the administration of properties held directly or indirectly through holdings by DIC Opportunity Fund GmbH on the basis of an agreement dated 29 May 2004 or 22 October 2004, revised on 6 January 2005. Beginning after 31 December 2005, the agreement is extended for an additional year if notice of termination is not given at least two months before the end of the year. The agreement may also be terminated at the end of the month with four weeks' notice if the shareholder structure of DIC Opportunity Fund GmbH undergoes fundamental changes. The amount of the fee is 1% of the annual net rent of the properties involved. The fee totalled EUR 23,972 (before VAT) in 2006 and EUR 23,927 (before VAT) in 2005.

Deutsche Immobilien Chancen Beteiligungs AG

For the years 2003, 2004 and 2005, the Company pledged to reimburse Deutsche Immobilien Chancen Beteiligungs AG, the sole general partner of Deutsche Immobilien Chancen AG & Co. KGaA 50% of the costs that are incurred by Deutsche Immobilien Chancen Beteiligungs AG in connection with the employment of members of the Board of Directors who work for the Company, exclusively or not. In 2005, the amounts paid by the Company for board activities amounted to EUR 354,600. Since the beginning of 2006, all members of the Board of Directors of the Company have been compensated for their activities exclusively through this. The fringe benefits that continue to be granted to Mr. Ulrich Höller and Mr. Markus Koch by Deutsche Immobilien Chancen Beteiligungs AG are one exception to this. Beginning in 2006, 50% of the fringe benefits granted to Mr. Ulrich Höller and Mr. Markus Koch by Deutsche Immobilien Chancen Beteiligungs AG have been paid by the Company. The amount of this reimbursement was EUR 25,927 in 2006. For additional details, please see the management report.

Under the "German Investment Program Agreement" dated 29 July 2004 and 7 June 2005, certain joint ventures of DIC Asset AG (namely, DIC MSREF Frankfurt Portfolio GmbH, DIC MSREF Objekt Hamburg GmbH, DIC MSREF Berlin GmbH, DIC MSREF Weißfrauenstraße GmbH, DIC MSREF HMDD Portfolio GmbH, DIC MSREF HT Portfolio GmbH and DIC MSREF FF Südwest Portfolio GmbH) and their respective wholly owned property companies receive various services from Deutsche Immobilien Chancen Beteiligungs AG. Accordingly, the abovenamed companies and Deutsche Immobilien Chancen Beteiligungs AG have entered into agreements for the provision of asset management services as well as commissions on the leasing and divestiture of real property, in each case at the time of establishment of these MSREF joint ventures. Moreover, special compensation arrangements have been established with DIC MSREF Frankfurt Portfolio GmbH, DIC MSREF HMDD Portfolio GmbH, DIC MSREF HT Portfolio GmbH and DIC MSREF FF Südwest Portfolio GmbH for re-leasing services. In addition, an agreement regarding development fees for DIC MSREF Weißfrauenstraße GmbH, DIC MSREF HMDD Portfolio GmbH, DIC MSREF HT Portfolio GmbH and DIC MSREF FF Südwest Portfolio GmbH was also concluded.

Under these agreements, MSREF joint ventures are to provide the following compensation to Deutsche Immobilien Chancen Beteiligungs AG:

• Asset management fee: 0.5% to 3.0% of annual net rent;
• Leasing commission: 2.5 net monthly rent or one net monthly rent, if an outside broker is involved;
• Sales commission: 1.0% to 3.0% of the sales price after transaction costs if no outside broker is involved, and 0.4% to 0.5% of the sales price after transaction costs if an outside broker is involved;
• Fee for re-leasing services: 3.5% to 5.0% of the internal and external costs that arise from renovation for a new tenant (particularly for planning and renovation) or negotiable on the basis of this expense;
• Development fee: for project development services through initial leasing: dependent on expenses or market-rate compensation.

For the financial year 2006 (figures for the financial year 2005 are in parentheses), the following compensation was paid to Deutsche Immobilien Chancen Beteiligungs AG, in which MSREF holds 25.1% of the share capital:

EUR	Asset management fee 2006 (2005)	Leasing commission 2006 (2005)	Rent/ Renovation/ Releasing/ Development fee 2006 (2005)	Sales commission 2006 (2005)	Total 2006 (2005)
MSREF joint ventures
DIC MSREF Frankfurt Portfolio GmbH	70,282	670,201	818,000	290,434	1,848,917
	(101,049)	(33,216)	(11,000)	(200,920)	(346,185)
DIC MSREF Berlin GmbH	77,898	–	–	–	77,898
	(20,590)	(–)	(–)	(–)	(20,590)
DIC MSREF Objekt Hamburg GmbH	50,030	–	–	–	53,030
	(20,836)	(–)	(–)	(–)	(20,836)
DIC MSREF Weißfrauenstraße GmbH	166,607	141,255	350,000	77,500	735,362
	(–)	(–)	(–)	(–)	(–)
DIC MSREF HMDD Portfolio GmbH 1)	273,257	283,586	–	116,250	673,093
	(-)	(–)	(–)	(–)	(–)
DIC MSREF HT Portfolio GmbH 2)	49,449	34,963	–	–	84,412
	(–)	(–)	(–)	(–)	(–)
DIC MSREF FF Südwest Portfolio GmbH 3)	–	–	–	–	–
	(–)	(–)	(–)	(–)	(–)
Total	690,523	1,130,005	1,168,000	484,184	3,472,712
	(142,475)	(33,216)	(11,000)	(200,920)	(387,611)

1) Economic ownership of property was transferred on 1 January 2006.

2) Economic ownership of property was transferred on 1 July 2006.

3) Economic ownership of property took place in December 2006 and was retroactive to 1 September 2006.

This compensation has an effect on DIC Asset AG in proportion to its ownership interest in the MSREF joint ventures concerned. Because of the real estate, which was acquired in the course of 2006 the compensation due to Deutsche Immobilien Chancen Beteiligungs AG in comparable accounting periods will rise.

Aside from its Board of Directors, Deutsche Immobilien Chancen Beteiligungs AG has no employees of its own. For the purpose of providing the services assigned to it hereunder, the Company, for its part, makes use of services rendered by DIC Asset AG. Under an agreement of 16 November 2005 (including an addendum dated 20 December 2005), the Company charges fees to Deutsche Immobilien Chancen Beteiligungs AG, the amount of which depends on whether, with the approval of the Company, the MSREF joint venture has contracted thirdparty service providers.

In particular, the agreement provides for compensation for services related to portfolio and asset management in the amount of 2% of the net annual rent – or 0.5% of the net annual rent if an external management company is involved. Assistance with leasing is compensated in the amount of 1.5 times the agreed net monthly rent – or 0.75 times the agreed net monthly rent if an external broker was involved. The compensation paid for sales assistance equals 1% of the realised proceeds – or 0.25% of the realised proceeds if an external broker was involved. Individual properties and project developments may be subject to case-by-case arrangements. All compensation is subject to an additional sales tax as required by law. On the basis of this agreement, the Company charged Deutsche Immobilien Chancen Beteiligungs AG the following amounts in asset management fees for services related to MSREF joint ventures (amounts for 2005 are in parentheses), in each case excluding sales tax:

EUR	Asset management fee 2006 (2005)	Leasing commission 2006 (2005)	Sales commission 2006 (2005)
Recipient of service
DIC MSREF Frankfurt Portfolio GmbH	34,024	401,254	128,648
	(50,524)	(22,449)	(100,460)
DIC MSREF Berlin GmbH	13,138	–	–
	(3,432)	(–)	(–)
DIC MSREF Objekt Hamburg GmbH	33,354	–	–
	(13,891)	(–)	(–)
DIC MSREF HMDD Portfolio GmbH	59,761	105,941	19,375
	(–)	(–)	(–)
DIC MSREF Weißfrauenstraße GmbH	49,000	–	–
	(–)	(–)	(–)
DIC MSREF HT Portfolio GmbH	24,725	21,045	–
	(–)	(–)	(–)
DIC MSREF FF Südwest Portfolio GmbH	–	–	–
	(–)	(–)	(–)
Total	214,002	528,240	148,023
	(67,847)	(22,449)	(100,460)

The amount charged under this agreement by the Company to Deutsche Immobilien Chancen Beteiligungs AG totalled EUR 890,265 in 2006 (previous year EUR 190,756).

DIC Capital Partners (Europe) GmbH

The Company has granted to DIC Capital Partners (Europe) GmbH (formerly DIC Beteiligungs GmbH), which indirectly controls Deutsche Immobilien Chancen Beteiligungs AG as the general partner of Deutsche Immobilien Chancen AG & Co. KGaA, a loan in the amount of TEUR 700 at an interest rate of 4.5% p.a. (payable annually in arrears). The loan is unlimited in duration and was valued at TEUR 386 as at by 31 December 2006. To secure the Company's loan repayment and interest claims against DIC Beteiligungs GmbH, DIC Beteiligungs GmbH has assigned to the Company its claims against Deutsche Immobilien Chancen Objekt Mozartstraße 33a GmbH for dividends and the repayment of a loan.

DIC Hamburg Portfolio GmbH, including its eighteen wholly owned subsidiaries, was established at the end of the financial year 2006. DIC Hamburg Portfolio GmbH is an opportunistic investment in which DIC Asset AG holds a 20% interest. Other investors are Deutsche Immobilien Chancen AG & Co. KGaA with a 30% interest and DIC Capital Partners (Germany) GmbH & Co. KGaA with a 50% interest.

Morgan Stanley Real Estate Funds (MSREF)

Together with companies of the MSREF Group, DIC Asset AG has acquired interests in investment properties, including:

• a portfolio acquired from the Frankfurter Sparkasse, which is held via DIC MSREF Frankfurt Portfolio GmbH and its twelve wholly owned subsidiary property companies, under agreements dated 22 December 2004;
• the so-called eBay Campus, which is held by DIC MSREF Berlin GmbH and its three wholly owned subsidiary property companies, under agreements dated 23 August 2005;
• a Deutsche Telekom administrative building in Hamburg, which is held by DIC MSREF Objekt Hamburg GmbH, under agreements dated 23 August 2005;
• the Degussa property in Frankfurt am Main, which is held by DIC MSREF Weißfrauenstraße GmbH and its three wholly owned subsidiary property companies, under agreements dated 14 October 2005;
• properties transferred from MEAG, which are held by DIC MSREF HMDD Portfolio GmbH and its nine wholly owned subsidiary property companies, under agreements dated 14 December 2005;

• properties acquired from Hochtief, which are held by DIC MSREF HT Portfolio GmbH and its eleven wholly owned subsidiary property companies, under agreements dated 24 May 2006;

• properties transferred from the Falk Group, which are held by DIC MSREF FF Südwest Portfolio GmbH and its six wholly owned subsidiary property companies, under agreements dated 16 August 2006; and

• a portfolio acquired from the Landesbank Berlin, which is held via DIC MSREF Berlin Portfolio GmbH and its twelve wholly owned subsidiary property companies, under agreements dated 16 December 2006;

(hereinafter referred to collectively as "Joint Ventures").

The Company holds an interest in the property companies for the Degussa property and the properties transferred from MEAG at 20% each. In addition, aside from the 50% stake in each of the divisions of the MSREF Group, DIC Opportunity Fund GmbH holds a 30% interest. In the remaining property companies, the Company and the respective MSREF companies are invested at 50% each.

With respect to the distribution of profits, the DIC companies are entitled to equity return-based profits paid in advance that, in the case of an equity return in the amount of 17.5%, equal to 10% of profits and reach their maximum amount of 30% of profits at equity returns of over 27.5%.

The Company continues to be bound by credit agreements with the Joint Ventures, under which the Company acts both as lender and borrower. The underlying credit comes in the form of overdraft facilities with an agreed interest rate of 6% p.a. in each case. Interest is payable in arrears at the end of the year or quarter or is added to the principal. The agreements call for neither fixed terms nor collateral security. With regard to the balances existing as of the balance sheet dates, see "Receivables from related parties".

Forum European Realty Income II, L.P. (Forum)

On 18 September 2005, Deutsche Immobilien Chancen AG & Co. KGaA and Forum European Realty Income II, L.P. (hereinafter referred to as "Forum") entered into an agreement on the issue of a convertible bond, under which Forum has made available to Deutsche Immobilien Chancen AG & Co. KGaA a loan in the form of a convertible bond in the amount of EUR 30,000,000. The conversion rights provided for in the agreement entitle Forum at the earliest on 15 October 2008 and at the latest 13 October 2025 to convert the loan into 2,068,965 shares in the Company (corresponding to a conversion price of EUR 14.50 per share) currently held by Deutsche Immobilien Chancen AG & Co. KGaA. As a result of its accession to this agreement, the Company is entitled and obligated vis-à-vis Deutsche Immobilien Chancen AG & Co. KGaA, to acquire up to a 40% share in the so-called "opportunistic investments" of Deutsche Immobilien Chancen AG & Co. KGaA.

If Deutsche Immobilien Chancen AG & Co. KGaA makes an investment in real estate by implementing the "German Investment Program Agreement" of 29 July 2004 and 7 June 2005 through its subsidiary DIC Opportunity Fund GmbH together with companies of the MSREF Group, the resulting equity share of the Company in "opportunistic investments" will be only 20% as a result of the 50% interest held by MSREF. This applies to investments in properties acquired by MEAG, Hochtief and Falk, as well as the Degussa property.

Through another agreement, dated 16 August 2006, DIC Beteiligungs GmbH (now DIC Capital Partners (Europe) GmbH) and its majority shareholder with Forum and Forum S.à.r.l., have concluded agreements related to an interest in DIC Beteiligungs GmbH and a reorganisation of the business relationship with Deutsche Immobilien Chancen AG & Co. KGaA. These agreements also contain extensive provisions for rights to tag-along sales in connection with shares in the company held directly or indirectly by the parties.

Transactions with executives

Legal transactions with executives and their close relatives were entered into only to an insignificant extent.

Shareholder structure

Deutsche Immobilien Chancen AG & Co. KGaA, Frankfurt am Main, directly and indirectly, holds a minority stake of 37.58% (previous year: 89.83%) in DIC Asset AG. The corresponding announcement pursuant to § 20 AktG has been submitted the Company.

Publications

Announcement of 15 December 2006 pursuant to § 25 Para 1 WpHG ("Wertpapierhandelsgesetz" – German Securities Trading Act)

1. Pursuant to § 21 Para 1 WpHG, Deutsche Immobilien Chancen AG & Co. KGaA, Frankfurt am Main has informed us that its share of the voting rights of DIC Asset AG fell below the 50% level on 8 December 2006. The share of voting rights of Deutsche Immobilien Chancen AG & Co. KGaA now totals 35.90% (corresponding to 10,230,022 votes). Of these, 1.53% are classified as voting rights (corresponding to 436.509 votes) pursuant to § 22 Para. 1 Sentence 1 No.1 WpHG and 5.33% are classified as voting rights (corresponding to 1,520,000 votes) pursuant to § 22 Para. 2 Sentence 1 WpHG.

2. 1. Pursuant to § 21 Para 1 WpHG, Deutsche Immobilien Chancen Beteiligungs AG, Frankfurt am Main has informed us that its share of the voting rights of DIC Asset AG fell below the 50% level on 8 December 2006. The share of voting rights of Deutsche Immobilien Chancen Beteiligungs AG now totals 35.90% (corresponding to 10,230,022 votes). Of these, 30.56% are classified as voting rights (corresponding to 8,710,022 votes) pursuant to § 22 Para. 1 Sentence 1 No.1 WpHG and 5.33% are classified as voting rights (corresponding to 1,520,000 votes) pursuant to § 22 Para. 2 Sentence 1 WpHG.
3. 1. Pursuant to § 21 Para 1 WpHG, DIC Grund- und Beteiligungs GmbH, Erlangen has informed us that its share of the voting rights of DIC Asset AG fell below the 50% level on 8 December 2006. The share of voting rights of DIC Grund- und Beteiligungs GmbH now totals 35.90% (corresponding to 10,230,022 votes). Of these, 30.56% are classified as voting rights (corresponding to 8,710,022 votes) pursuant to § 22 Para. 1 Sentence 1 No.1 WpHG and 5.33% are classified as voting rights (corresponding to 1,520,000 votes) pursuant to § 22 Para. 2 Sentence 1 WpHG.
4. 1. Pursuant to § 21 Para 1 WpHG, DIC Capital Partners (Europe) GmbH (formerly DIC Beteiligungs GmbH), Munich, has informed us that its share of the voting rights of DIC Asset AG fell below the 50% level on 8 December 2006. The share of voting rights of DIC Capital Partners (Europe) GmbH now totals 35.90%

(corresponding to 10,230,022 votes). Of these, 30.56% are classified as voting rights (corresponding to 8,710,022 votes) pursuant to § 22 Para. 1 Sentence 1 No.1 WpHG and 5.33% are classified as voting rights (corresponding to 1,520,000 votes) pursuant to § 22 Para. 2 Sentence 1 WpHG.

• 1. Pursuant to § 21 Para 1 WpHG, GCS Verwaltungs GmbH, Glattbach has informed us that its share of the voting rights of DIC Asset AG fell below the 50% level on 8 December 2006. The share of voting rights of GCS Verwaltungs GmbH now totals 35.56% (corresponding to 10,230,022 votes). Of these, 30.56% are classified as voting rights (corresponding to 8,710,022 votes) pursuant to § 22 Para. 1 Sentence 1 No.1 WpHG and 5.33% are classified as voting rights (corresponding to 1,520,000 votes) pursuant to § 22 Para. 2 Sentence 1 WpHG.
• 1. Pursuant to § 21 Para 1 WpHG, Dr. Schmidt, Germany, has informed us that his share of the voting rights of DIC Asset AG fell below the 50% level on 8 December 2006. The share of voting rights of Dr. Schmidt now totals 35.90% (corresponding to 10,230,022 votes). Of these, 30.56% are classified as voting rights (corresponding to 8,710,022 votes) pursuant to § 22 Para. 1 Sentence 1 No.1 WpHG and 5.33% are classified as voting rights (corresponding to 1,520,000 votes) pursuant to § 22 Para. 2 Sentence 1 WpHG.
• 1. Pursuant to § 21 Para 1 WpHG, Forum European Realty Income S.à.r.l., Luxembourg, Grand Duchy of Luxembourg, has informed us that its share of the voting rights of DIC Asset AG fell below the 50% level on 8 December 2006 and now stands at 35.90% (corresponding to 10,230,022 votes). 30.56% of these voting rights (corresponding to 8,710,022 votes) have been assigned to Forum European Realty Income S.à.r.l. pursuant to § 22 Para. 2 WpHG.
• 1. Pursuant to § 21 Para 1 WpHG, Forum European Realty Income II, L.P., George Town, Cayman Islands, has informed us that its share of the voting rights of DIC Asset AG fell below the 50% level on 8 December 2006 and now stands at 35.90% (corresponding to 10,230,022 votes). 35.90% of these voting rights (corresponding to 10,230,022 votes) have been assigned to Forum European Realty Income II, L.P., pursuant to § 22 Para. 2 WpHG. Of these, 5.33% are classified as voting rights (corresponding to 1,520,000 votes) pursuant to § 22 Para. 1 Sentence 1 No.1 WpHG and 7.26% are classified as voting rights (corresponding to 2,068,965 votes) pursuant to § 22 Para. 1 Sentence 1 WpHG.
• 1. Pursuant to § 21 Para 1 WpHG, Forum European Realty Income II, L.P., George Town, Cayman Islands, has informed us that its share of the voting rights of DIC Asset AG fell below the 50% level on 8 December 2006 and now stands at 35.90% (corresponding to 10,230,022 votes). 35.90% of these voting rights (corresponding to 10,230,022 votes) have been assigned to Forum European Realty Income II, L.P., pursuant to § 22 Para. 2 WpHG. Of these, 5.33% are classified as voting rights (corresponding to 1,520,000 votes) pursuant to § 22 Para. 1 Sentence 1 No.1 WpHG and 7.26% are classified as voting rights (corresponding to 2,068,965 votes) pursuant to § 22 Para. 1 Sentence 1 WpHG.
• 1. Pursuant to § 21 Para 1 WpHG, Forum Partners Investment Management, LLC, Santa Fe, USA, has informed us that its share of the voting rights of DIC Asset AG fell below the 50% level on 8 December 2006 and now stand at 35.90% (corresponding to 10,230,022 votes). 35.90% of these voting rights (corresponding to 10,230,022 votes) have been assigned to Forum Partners Investment Management, LLC, pursuant to § 22 Para. 2 WpHG. Of these, 5.33% are classified as voting rights (corresponding to 1,520,000 votes) pursuant to § 22 Para. 1 Sentence 1 No.1 WpHG and 7.26% are classified as voting rights (corresponding to 2,068,965 votes) pursuant to § 22 Para. 1 Sentence 1 and Sentence 5 WpHG.

• Pursuant to § 21 Para 1 WpHG, DIC ML GmbH, Frankfurt am Main, has informed us that its share of the voting rights of DIC Asset AG exceeded the 5% level on 14 December 2006. The share of voting rights of DIC ML GmbH totals 7.02 % (corresponding to 2,000,000 votes).

Announcement of 21 December 2006 pursuant to § 25 WpHG ("Wertpapierhandelsgesetz" – German Securities Trading Act)

• 1. Pursuant to § 21 Para 1 WpHG, MSREF V Marble B.V., Amsterdam, the Netherlands, has informed us that its share of the voting rights of DIC Asset AG fell below the 10% level on 8 December 2006 and now stands at 7.49%. All voting rights are held directly by MSREF V Marble B.V.
• 1. Pursuant to § 21 Para 1 WpHG, MSREF V Marble B.V., Amsterdam, the Netherlands, has informed us that its share of the voting rights of DIC Asset AG fell below the 10% level on 8 December 2006 and now stands at 7.49%. Pursuant to § 22 Para. 1 Sentence 1 No. 1, all voting rights are assigned to MSREF V Cosmos B.V.
• 1. Pursuant to § 21 Para 1 WpHG, MSREF V International Holdings Coöperativ, U.A., Amsterdam, the Netherlands, has informed us that its share of the voting rights of DIC Asset AG fell below the 10% level on 8 December 2006 and now stands at 7.49%.

Pursuant to § 22 Para. 1 Sentence 1 No. 1, all voting rights are assigned to MSREF V International Holdings Coöperativ, U.A.

• 1. Pursuant to § 21 Para 1 WpHG, Morgan Stanley Real Estate Fund V International-TE, L.P., New York, USA, has informed us that its share of the voting rights of DIC Asset AG fell below the 10% level on 8 December 2006 and now stands at 7.49%. Pursuant to § 22 Para. 1 Sentence 1 No. 1, all voting rights are assigned to Morgan Stanley Real Estate Fund V International-TE, L.P.
• 1. Pursuant to § 21 Para 1 WpHG, Morgan Stanley Real Estate Fund V International-T, L.P., New York, USA, has informed us that its share of the voting rights of DIC Asset AG fell below the 10% level on 8 December 2006 and now stands at 7.49%. Pursuant to § 22 Para. 1 Sentence 1 No. 1, all voting rights are assigned to Morgan Stanley Real Estate Fund V International-T, L.P.
• 1. Pursuant to § 21 Para 1 WpHG, Morgan Stanley Real Estate Fund V International, L.P., New York, USA, has informed us that its share of the voting rights of DIC Asset AG fell below the 10% level on 8 December 2006 and now stands at 7.49%. Pursuant to § 22 Para. 1 Sentence 1 No. 1, all voting rights are assigned to Morgan Stanley Real Estate Fund V International, L.P.
• 1. Pursuant to § 21 Para 1 WpHG, Morgan Stanley Real Estate Fund V Special International, L.P., New York, USA, has informed us that its share of the voting rights of DIC Asset AG fell below the 10% level on 8 December 2006 and now stands at 7.49%. Pursuant to § 22 Para. 1 Sentence 1 No. 1, all voting rights are assigned to Morgan Stanley Real Estate Fund V Special International, L.P.
• 1. Pursuant to § 21 Para 1 WpHG, MSREF V International-GP, L.L.C., New York, USA, has informed us that its share of the voting rights of DIC Asset AG fell below the 10% level on 8 December 2006 and now stands at 7.49%. Pursuant to § 22 Para. 1 Sentence 1 No. 1, all voting rights are assigned to MSREF V International-GP, L.L.C.
• 1. Pursuant to § 21 Para 1 WpHG, MSREF V, L.L.C., New York, USA, has informed us that its share of the voting rights of DIC Asset AG fell below the 10% level on 8 December 2006 and now stands at 7.49%. Pursuant to § 22 Para. 1 Sentence 1 No. 1, all voting rights are assigned to MSREF V, L.L.C.
• 1. Pursuant to § 21 Para 1 WpHG, MSREF V, Inc., New York, USA, has informed us that its share of the voting rights of DIC Asset AG fell below the 10% level on 8 December 2006 and now stands at 7.49%. Pursuant to § 22 Para. 1 Sentence 1 No. 1, all voting rights are assigned to MSREF V, Inc.
• 1. Pursuant to § 21 Para 1 WpHG, Morgan Stanley Inc., New York, USA, has informed us that its share of the voting rights of DIC Asset AG fell below the 10% level on 8 December 2006 and now stands at 7.72%. Pursuant to § 22 Para. 1 Sentence 1 No. 1, all voting rights are assigned to Morgan Stanley, Inc.

Announcement of 7 February, 2007 pursuant to § 26 WpHG (2007)

Pursuant to § 21 Para 1 WpHG, FMR Corp., Boston, Massachusetts, USA, has informed us that its share of the voting rights of DIC Asset AG fell below the 3% level on 1 February 2007 and now stands at 1.71%.

Pursuant to § 22 Para 1 Sentence 2 WpHG in connection with § 22 Para. 1 Sentence 1 No. 6 WpHG, the voting rights have been assigned to FMR Corp.

■ Events after the Balance Sheet Date

As at 1 January 2007, 74.9% of the shares of the former FAY Property Management GmbH had been transferred to DIC Asset AG. The company was renamed DIC ONSITE and since the beginning of the year has been responsible for operative asset and property management of the entire Deutsche Immobilien Chancen Group. With locations in Frankfurt, Mannheim, Duesseldorf and a recently opened location in Hamburg, DIC ONSITE has a local presence in the areas that are the focus of DIC Asset AG's investment activity. DIC ONSITE will open its Berlin location in the first half of 2007.

The ownership from the purchase of 52 properties from the City of Hamburg was transferred on 1 March 2007. DIC Asset AG has a 20% stake in this opportunistic investment. The total investment volume is EUR 205 million.

A property in Bad Homburg from an opportunistic investment was sold effective 28 February for EUR 47.5 million. The property had been acquired in 2006 with nine other properties. DIC Asset AG has a 20% interest.

■ Employees

In the financial year under review, the Company had an average of 14 employees (previous year: 10). In addition, the Company made use of the services of the Deutsche Immobilien Chancen Group during the year.

■ Corporate Governance

The declaration regarding the German Corporate Governance Codex pursuant to § 161 AktG has been submitted and is available to shareholders at any time.

■ Supervisory Board

The members of the Supervisory Board are:

Prof. Dr. Gerhard Schmidt (Chairman), Attorney, Glattbach

Mr. Klaus-Jürgen Sontowski (Deputy Chairman), Businessman, Nuremberg

Mr. Michael Bock, Master of Business Administration, Duesseldorf

Mr. Hellmar Hedder, Master of Sociology and Business, Munster

Mr. Russell C. Platt, Managing Director (Chief Executive Officer), Santa Fé/USA

Mr. Bernd Wegener, Real Estate economist (ebs), MRICS, Munich At the same time, the members of the Supervisory Board served on the following additional supervisory boards and supervisory bodies:

Prof. Dr. Gerhard Schmidt

• Grohe AG, Hemer: Chairman of the Supervisory Board;
• Grohe Beteiligungs GmbH, Hemer: Chairman of the Supervisory Board;
• freenet AG, Büdelsdorf: Chairman of the Supervisory Board;
• TTL Information Technology AG, Munich: Member of the Supervisory Board;
• Deutsche Immobilien Chancen Beteiligungs AG, Frankfurt am Main: Chairman of the Supervisory Board *;
• Deutsche Immobilien Chancen AG & Co. KGaA, Frankfurt am Main: Chairman of the Supervisory Board *;
• DIC Capital Partners (Germany) GmbH & Co. Kommanditgesellschaft auf Aktien, Munich: Chairman of the Supervisory Board *;
• DIC Capital Partners Beteiligungs GmbH, Munich: Chairman of the Supervisory Board **;
• DIC Capital Partners (Germany) Verwaltungs GmbH, Munich: Chairman of the Supervisory Board **

Klaus-Jürgen Sontowski

• German Retail REIT AG, Erlangen: Chairman of the Supervisory Board;
• Deutsche Immobilien Chancen AG & Co. KGaA, Frankfurt am Main: Deputy Chairman of the Supervisory Board;
• Deutsche Immobilien Chancen Beteiligungs AG, Frankfurt am Main: Deputy Chairman of the Supervisory Board

* Membership as defined in § 100 Para. 2 Sentence 2 AktG

** Supervisory Board not formed on the basis of legal requirements

Michael Bock

• KDV Kapitalbeteiligungsgesellschaft der Deutschen Versicherungswirtschaft AG, Duesseldorf: Member of the Supervisory Board;
• MediClin AG, Frankfurt am Main: Member of the Supervisory Board;
• OIK-Fonds MediClin, Cologne: Chairman of the Investment Committee
• DIC Capital Partners Beteiligungs GmbH, Munich: Member of the Supervisory Board **;
• DIC Capital Partners (Germany) Verwaltungs GmbH, Munich: Member of the Supervisory Board **;
• MUK Kapitalbeteiligungsgesellschaft mbH, Cologne: Member of the Supervisory Board **

Russell C. Platt

• DIC Capital Partners Beteiligungs GmbH, Munich: Member of the Supervisory Board **;
• DIC Capital Partners (Germany) Verwaltungs GmbH, Munich: Member of the Supervisory Board **;
• South Asian Real Estate Ltd, India: non-executive Chairman of the Management Board

The Chairman of the Supervisory Board of the Company, Prof. Dr. Gerhard Schmidt, is a partner in the legal firm Weil, Gotshal & Manges LLP. This firm received compensation for legal advisory services, which was reported under expenses, in the amount of TEUR 682 in 2006 and TEUR 297 in 2005.

■ Board of Directors

The members of the Board of Directors are:

Mr. Ulrich Höller (Chairman), Master of Economics, Real Estate economist (ebs), Chartered Surveyor FRICS, Dreieich-Buchschlag

Mr. Markus Koch, Master of Business Administration, Elz

Mr. Jürgen Overath, Master of Economics, Hennef

Frankfurt am Main, 1 March 2007

The Board of Directors

Ulrich Höller Markus Koch Jürgen Overath

Auditors' report

We have audited the consolidated financial statements – consisting of the consolidated balance sheet, the consolidated profit and loss statement, the consolidated statement of changesin equity, the consolidated statement of cash flow and the notes to the consolidated financial statements – prepared by DIC Asset AG, Frankfurt am Main, as well asthe Management Report prepared for the Company and the Group for the financial year from 1 January 2006 to 31 December 2006. The preparation of the consolidated financial statements and the Group management report in accordance with IFRS, as required in the EU, the requirements of German commercial law under § 315a Para. 1 HGB, as well as the requirements of the articles of incorporation are the responsibility of the legal representatives of the Company.

Our responsibility is to express an opinion on the consolidated financial statements and the group management report based on our audit. We conducted our audit of the group financial statements in accordance with § 317 HGB, taking into account the German auditing guidelines established by the Institut der Wirtschaftsprüfer (IDW, Institute of Independent Auditors).

Those standards require that we plan and perform our audit so as to obtain all the information and explanations necessary in order to provide us with sufficient evidence to give reasonable assurance that misstatements and irregularities materially affecting the presentation of the net assets, financial position and the results of operations presented in the consolidated financial statements in accordance with generally accepted accounting principles and in the Group management report are identified.

Knowledge of the business activities and the economic and legal environment of the Group and expectations of possible errors are taken into account in the determination of audit procedures. The effectiveness of the internal control system and the evidence supporting the disclosuresin the books and records, the consolidated financial statements and the Company and Group management report are examined primarily on a test basis within the framework of the audit. The audit includes an assessment of the annual financial statements of the companies included in the consolidated financial statements, the scope of consolidation, the accounting and consolidation policies and the significant estimates and judgements made by the legal representatives, as well as approval of the overall presentation of the consolidated financial statements and the Group management report. In our opinion, our audit provides a sufficiently sound basis for our assessment.

Our audit led to no objections.

Our assessment, based on the findings of the audit, is that the consolidated financial statements have been prepared in accordance with IFRS as required in the EU, and with the supplementary requirements of German commercial law under § 315a Para. 1 HGB, and that they accurately reflect the net assets, financial position and the results of operations of the Group. The Company and Group management report is in agreement with the consolidated financial statements, and overall provides an accurate view of the position of the Group and of the opportunities and risks of future development.

Nuremberg, 1 March 2007

Rödl & Partner GmbH

Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft

signed	signed
Hübschmann	Garve
Auditor	Auditor

Report of the Supervisory Board

Through the year, the Board of Directors provided the Supervisory Board with regular, timely and comprehensive reports on the Company's position and progress as well as significant business events through written and oral reports. The Supervisory Board, through discussions with the Board of Directors, has provided insight into the economic position of the Company and continuously monitored management in accordance with the duties provided for by the law, the Articles of Incorporation and rules of procedure. The Supervisory Board has made decisions on questions that require its approval after undertaking its own review. The Supervisory Board met for four regular meeting in the past financial year. There were also eight extraordinary meetings. The Supervisory Board was informed of particularly important business events between meetings. If necessary, decisions were made using the written resolution procedure, which does not require the physical presence of the members.

The focal points of the meetings of the Supervisory Board were, in addition to the current business development of the Company and the capital increases in April/May 2006 and November/December 2006, important transactions such as the Augusta portfolio and the majority interest in FAY Property Management GmbH from the FAY Group. Company planning and strategic organisation was addressed by the Supervisory Board at its meeting of 21 November 2006, and it approved the planning of the Board of Directors.

The Supervisory Board issued the current declaration of conformity to the recommendations of the government commission on the German Corporate Governance Codex in November 2006. The Supervisory Board issued its by-laws at its meeting of 9 March 2006. Each member of the Supervisory Board discloses any possible conflicts of interest to the Supervisory Board. When the Supervisory Board makes decisions regarding contracts with Supervisory Board members pursuant to § 114 AktG, the member concerned does not participate in the decision. No other conflicts of interest were reported in the financial year just ended.

On 19 June 2006, the Supervisory Board created an audit committee that is involved in particular with the financial statements, risk management and the preparation of the issuance of the mandate to the auditors and the setting of priorities for the audit. At the committee's constitutive meeting on 7 March 2007, Mr Michael Bock was elected chairman of the audit committee. Additional members of the audit committee are the chairman of the Supervisory Board, Prof. Dr. Gerhard Schmidt, and Hellmar Hedder. The chairman of the audit committee informs the plenary meetings about the work of the audit committee.

The annual and consolidated financial statements prepared by the Board of Directors as at 31 December 2006, including the Group management report have been audited by Rödl & Partner GmbH Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft, Nuremberg, the auditors selected by the shareholders' meeting of 5 May 2006, and have been provided with unqualified audit opinion. The corresponding financial statements and the reports of the auditors were presented to the members of the Supervisory Board in a timely manner. The audit committee undertook a preliminary audit of the financial statements and prepared the discussion of the Supervisory Board asregardsthese documents. The auditors participated in the discussion of the audit committee at its meeting of 7 March 2007 on the financial statements and reported on the significant results of its audit.

The Supervisory Board also reviewed the annual financial statements and consolidated financial statements, the management report summarised with the consolidated financial statements and the dividend proposal of the Board of Directors, and isin agreement with the results of the auditor's audit. The result of the Supervisory Board's audit showed no cause for objections. The Supervisory Board approves the annual and consolidated financial statements prepared by the Board of Directors. The annual financial statements of DIC Asset AG are hereby approved.

The Supervisory Board supports the proposal on the distribution of profits submitted in a timely manner by the Board of Directors.

The Board of Directors report on relations with affiliates was also audited. The auditor issued the following unqualified certification on that report:

"After conducting a conscientious audit, we hereby confirm that

• 1. the factual information in the report is accurate,
• 1. in the legal transactions mentioned in the report, the consideration paid by the Company was not disproportionately high."

The Board of Directors report and the auditor's report were also presented to the individual members of the Supervisory Board in a timely manner. The auditor participated in the audit committee's discussion of the Board of Directors report and reported on the most significant results of the audit.

The Supervisory Board audited and approved the Board of Directors report on relations with affiliates. It also approved the results of the audit of the auditor's report.

The result of its own audit gave the Supervisory Board no reason to object to the declaration made by the Board of Directors on the relations with affiliated companies, presented at the end of the report.

The Board of Directors has made disclosures in accordance with §§ 289 Para 4 and 315 Para 4 HGB in the management report and the Group management report audited by the Supervisory Board. In accordance with § 171 Para 2 sentence 2 AktG, the Supervisory Board explains these disclosures as follows: The disclosures are related to the composition of the subscribed capital, voting rights and transfer restrictions resulting from the agreements between shareholders, the interest in DIC Asset AG, the regulations on the appointment and dismissal of the members of the Board of Directors and on amendments to the Articles of Incorporation, the powers of the Board of Directors to issue shares and to repurchase shares, as well as significant agreements of the Company that include change-of-control clauses. The Supervisory Board considers the disclosures in accordance with §§ 289 Para 4 and 315 Para 4 HGB to be accurate. In particular, the regulations presented on the appointment and dismissal of the members of the Board of Directors and on amendments to the Articles of Incorporation, the powers of the Board of Directors to issue shares and to repurchase shares are regulations that are customary for exchange-listed companies comparable to DIC Asset AG and are not intended to thwart any takeover attempts.

At its meeting of 9 March 2006, the Supervisory Board extended the appointments of Board of Directors chairman Ulrich Höller and Board of Directors member Markus Koch to 15 August 2009 (Ulrich Höller) and 31 July 2008 (Markus Koch).

The Supervisory Board would like to thank the Board of Directors and the employees for their dedication and hard work during the past financial year.

Frankfurt am Main, 28 March 2007

The Supervisory Board

Prof. Dr. Gerhard Schmidt - Chairman -

from right to left:

Ulrich Höller FRICS, 41 Chairman of the Board, CEO

Markus Koch, 44 Board Member, CFO

Jürgen Overath, 43 Board Member, COO

Addresses and Imprint

DIC Asset AG

Grünhof · Eschersheimer Landstraße 223 D-60320 Frankfurt am Main

Tel. +49 69 9 45 48 58-0 Fax +49 69 9 45 48 58-99

ir@dic-asset.de www.dic-asset.de

© March 2007

Publisher: DIC Asset AG Grünhof · Eschersheimer Landstraße 223 D-60320 Frankfurt am Main

This report is also available in German.

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