Vonovia SE

Investor Presentation • Oct 18, 2017

Memorandum of Understanding Signed with France's Largest Residential Landlord Société Nationale Immobilière (SNI) Assessing the Potential of European Metropolitan Areas

Executive Summary

• Vonovia has signed a Memorandum of Understanding (MoU) with SNI, the largest landlord in France.
• Both companies have agreed fields of cooperation, knowledge transfer and the exchange of best practices.
• The MoU is part of Vonovia's efforts to analyze the potential for an expansion into European metropolitan areas.
• Preliminary analysis suggests that residential real estate markets in European metropolitan areas function in similar ways and under similar regulatory and operating frameworks; however, a more thorough and comprehensive analysis is required.
• To date, Germany is the only sizeable listed market in Europe that offers liquid access to the residential real estate sector.
• Vonovia is in the early stages of analyzing ways to unlock the potential embedded in European metropolitan areas for its investor base.
• The signing of an MoU with SNI is a first step, following the creation of the leading listed German platform to manage residential real estate in an industrial and scalable format.

Vonovia Today: Residential Market Leader in Germany

• Over the last 10 years, Vonovia has built a true German-wide residential company of scale with more than 350k units and a gross asset value of more than €30bn.
• Since its IPO in 2013, Vonovia has acquired and swiftly integrated 230k residential units in a series of transactions and disposed of more than 50k units.
• Vonovia has developed the leading operational platform to provide in-house the full range of residential real estate services with a focus on standardization, industrialization and digitization.
• Vonovia has been addressing two megatrends early: energy efficiency and demographic change by investing in its portfolio, generating attractive organic growth and significant portfolio quality improvements.
• Vonovia's portfolio has materially changed since the IPO and is now located in 15 regional markets with above-average future growth potential.
• Vonovia is today Germany's only real estate company in the DAX 30 and the second-largest European listed real estate company with a market capitalization of ca. €17.5bn.

This development has put Vonovia on a rock solid basis from which further potential can now be cautiously investigated.

Initial Analysis Completed – More Work to Do

• Question: Is Germany really unique and are all other markets really so different from the German residential market? Answer: No.
• European and other regulation, demographic change, energy efficiency, urbanization, increasing shortage of lowto mid-income housing, profound social changes, etc. that impact how people live are quite similar across European residential markets.
• The home ownership rate of many European metropolitan areas is below the German average.
• The size of the Paris or Randstad rental markets alone is several times as large as the biggest German residential markets.
• Other European countries see a similar urbanization trend but already on a higher level.
• The level of tenant protection in France is broadly similar to Germany. Quite a few European countries have higher degrees of tenant protection.
• Selection criteria for identifying similar markets across Europe:
• Regulatory environment
• Size and accessibility of housing market
• Favorable fundamentals (urbanization, supply/demand imbalance, low home ownership)

France screens positive on all criteria and exhibits many parallels to the German residential market. The MoU with SNI offers the ideal starting point for gaining a better understanding of the French housing market.

Large Metropolitan Areas with Low Home Ownership Ratios

Low home ownership is not a phenomenon unique to Germany but can be seen in metropolitan areas across Europe.

Critical mass of sizeable residential markets in Germany just as in other European metropolitan areas.

Sources: JLL Research, own calculations.

Note: Data partly refers to city boundaries; size of rental market is illustrative and based on JLL Research and Vonovia FY2016 numbers (for German cities) incl. an assumed average flat size of 65sqm and an assumed monthly rent per sqm.

Urbanization and Tenant Protection Across Europe

Clear urbanization trend across Europe.

Tenant protection in France is on a similar level with Germany; several European countries with higher degrees of protection.

Source: European Commission, JLL

Why Do European Metropolitan Areas Matter to Vonovia's Investor Base?

• Initial analysis suggests that Germany is not unique. MoU with SNI to validate this thesis for France.
• Many of Germany's residential attractions are also found elsewhere in Europe.
• There appear to be a number of attractive markets in metropolitan areas throughout Europe.
• What sets Germany apart is that it has a sizeable and liquid market of listed residential companies in which to invest. This is not yet the case in any other European residential market.
• In contrast to business-to-business real estate asset classes (e.g. office or retail), direct investments in residential properties are more challenging, as they require an operating platform because of their granular business-to-consumer nature.
• Investors therefore cannot allocate funds themselves but require a platform to unlock the potential of residential markets outside of Germany.
• Vonovia intends to be the platform of choice for these investors.

Proven 4+1 Strategy is Evolving into 4+2 Strategy to Include European Metropolitan Areas

Reputation & Customer Satisfaction
al n o Property Management 1 diti	Systematic optimization of operating performance and core business productivity through leveraging scaling effects High degree of standardization and	Mergers & 5 Acquisitions
Tra	industrialization throughout the entire organization	Continuous review of on and off-market
		opportunities to lever economies of scale and
	Ensure well-balanced financing mix and maturity profile with low financing costs, investment	apply strategic pillars 1-4 to a growing portfolio
Financing 2	grade credit rating and adequate liquidity at all times	All acquisitions must meet the stringent acquisition
	Fast and unfettered access to equity and debt capital markets at all times	criteria
Portfolio Management 3	Portfolio optimization by way of tactical acquisitions and non-core/non-strategic disposals to ensure exposure to strong local markets	6 European Activities
	Pro-active development of the portfolio through investments to offer the right products in the right markets and on a long-term basis	Building on existing
		German operations
e	Expansion of core business to extend the value chain by offering additional services and	Measured approach
v ati 4 Value-add Business v o	products that are directly linked to our customers and/or the properties	Excellent partners for cooperation
n n I	Insourcing of services to ensure maximum process management and cost control	Leveraging know how, experience and best practices

About SNI

• Founded in 1961, SNI was directly owned by the French Government until 2004, when it became a 99.9% subsidiary of CDC (Caisse des Dépôts).
• SNI is France's largest residential real estate company with ~345k residential units owned and managed.
• SNI's primary business is the managing and developing of affordable housing.
• The company is governed by a two-tier system with a Board of Directors and a Supervisory Board.

Units (k)	345k
Rental income (€bn)	1.8
Vacancy rate (%)	1.7
EBITDA margin (%) (incl. maintenance)	55
Rating	AA- (Fitch)
LTV (%)	44

Main Points of the MoU and Next Steps

• Based on the MoU, Vonovia and SNI will explore common ground for future cooperation.
• Both will pool their respective expertise, market intelligence and leadership in the affordable housing segment to the mutual benefit of both companies.
• Both seek to cooperate in order to potentially create a European housing model to address the challenges related to increasing urbanization as well as demographic and environmental changes.
• Both intend to discuss opportunities for cross-border investments and explore areas of potential investment partnerships.
• There will be workshops with key experts from both sides on topics such as portfolio management & capex, property management & customer service, space creation & modular designs, information technology, financing, etc.

What to expect	What not to expect
 Careful, systematic and orderly approach as with all other new parts of the business in the past (modernization program, insourcing, value-add business, space creation, etc.).  Open-minded approach to seek potential opportunities.  Taking one step at a time and learning along the way.	x Lack of focus on the German market. x Premature capital allocation. x Key Vonovia personnel dedicating unreasonable amount of time and energy.

The French Housing Market

• Strong similarities between the French and German residential markets.
• Majority of rental units are owned by local or state government entities.
• Almost no listed institutional owner of French residential real estate.

Sources: Société Générale, JLL, Eurostat

Aspects of Vonovia's Comprehensive Strategy Found in other European Residential Markets

Reputation & Customer Satisfaction
al n o diti Tra	Property Management 1	Systematic optimization of operating Economies of scale and performance and core business productivity 5 consolidation only in the through leveraging scaling effects UK High degree of standardization and industrialization throughout the entire organization	Mergers & Acquisitions Continuous review of on and off-market
	Financing 2	Ensure well-balanced financing mix and maturity Utilization of bond profile with low financing costs, investment markets in the grade credit rating and adequate liquidity at all Netherlands and Sweden times Fast and unfettered access to equity and debt capital markets at all times	opportunities to lever Active M&A market in economies of scale and Sweden, the Netherlands apply strategic pillars 1-4 and Spain to a growing portfolio All acquisitions must meet the stringent acquisition criteria
	Portfolio Management 3	Portfolio optimization by way of tactical acquisitions and non-core/non-strategic disposals to ensure exposure to strong local Modernization activities in markets 6 Sweden Pro-active development of the portfolio through investments to offer the right products in the right markets and on a long-term basis	European Activities
e v ati v o n n I	4 Value-add Business	Expansion of core business to extend the value chain by offering additional services and products that are directly linked to our customers and/or the properties Insourcing of services to ensure maximum process management and cost control	Building on existing German operations Measured approach Excellent partners for cooperation Leveraging know how, experience and best practices

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