UBM Buy (Initiating Coverage) Target: Euro 24.00

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1 UBM Buy (Initiating Coverage) Target: Euro April 14 Price (Euro) weeks range / Key Data Country Austria Industry Real Estate Segment Development ISIN AT WKN Reuters UBMV.VI Bloomberg UNBM AV Internet Reporting Standard IFRS Fiscal Year 31/12 Market Cap (EUR million) Number of shares (million) 6.0 Free Float 12.8% Free Float MCap (million) 13.1 CAGR pre tax profits 13-16e 15.6% Multiples e 2015e 2016e MarketCap/sales PE-ratio Dividend yield 3.6% 4.7% 5.9% 5.9% Price-to-Book ratio Key Data per Share (Euro) e 2015e 2016e Earnings per share (EPS) Dividends per share (DPS) Book Value per share (BVpS) Financial Data (Euro '000) e 2015e 2016e Sales Revenues 217, , , ,344 Operating profit (EBIT) 29,400 36,217 40,691 40,818 Pre-tax profit (EBT) 17,844 22,616 26,990 27,591 Net profit (after minorities) 12,857 15,973 18,741 19,388 Shareholders' equity 144, , , ,040 RoE after tax 8.2% 9.5% 10.4% 10.1% Financial Calendar AGM 30 April Q 2014 interim data 7 May H 2014 report 28 August 2014 SRC Forum Financials & Real Estate 10 September 2014 Main Shareholders PORR AG 41.3% CA Immo 25.0% Group Folian/ Jurkowitsch (Amber/ Bocca) 14.8% Ortner group 6.0% Analysts Internet Dipl.-Vw. Denis Kuhn, CCrA Dipl.-Kfm. Stefan Scharff, CREA kuhn@src-research.de scharff@src-research.de Steep growth of profits ahead UBM is an Austrian real estate company with a long 140 year history and an outstanding track record in the development, lease, facility management and sale of residential, office and hotel properties. The group is active in 12 European countries. The total output in 2013 steeply increased by 11% to Euro 287m. Thereof almost 90% came from the most important markets Germany, Poland and Austria. UBM released very good numbers with the new 2013 annual report which was published on 2 April. With tailwind from the completion of many German residential properties by its German subsidiary Münchner Grund and the sale of Munich-based angelo Westpark hotel, UBM more than doubled its operating profit (EBIT) from Euro 12.1m to Euro 29.4m (+143%). Pre-tax profit also steeply hiked by 38% from Euro 12.9m to Euro 17.8m. With regards to a taxation of 24% after a positive tax contribution in 2012 the bottom line remained unchanged at Euro 12.9m net profit after minorities. The UBM management decided to lift the dividend payment which was stable at 55 Cents for the years 2010 to 2012 to now 62 Cents, translating into a current dividend yield of almost 3.6%. The company delivered a strong shift of development and trading activities from Austria, Poland and other Eastern European markets to Germany to exploit the prosperous sentiment here, in particular in the German residential market. Building and selling modern and attractive flats in cities like Berlin, Frankfurt and Munich, where yields were continuously declining, allowed for high development margins. The pipeline of UBM is well filled with more lucrative developments to be finished within the next 24 months, in particular in Frankfurt and Munich with approx. 300 residential units and additional hotel and office development projects. In our DCF-valuation, we computed a fair value of almost Euro 30 per share, based on the group s estimated free cash flows for the next years. In addition to our conservative model assumptions, we applied a discount of about 20% to the fair value derived from the DCF analysis due to the limited liquidity and free float of the share. Taking the current dividend yield of 3.6% in combination with the conservative payout-ratio of only 29% into account, we think the share offers an attractive mix of high cash income and capital appreciation. Therefore, we open our coverage on UBM with a Buy recommendation and a Euro Target Price.

2 Industry: Real Estate Development Management Board of UBM Sub segment: Resi, Office, Hotels etc. CEO Mag. Karl Bier Country: Austria CFO Heribert Smolé Headquarter: Vienna Dipl. Ing. Martin Löcker (COO) Foundation: 1873 Employees (2013): 509 Supervisory Board of UBM DI Horst Pöchhacker (Chairman) IR Contact Ing. Karl Heinz Strauss Dr. Bruno Ettenauer CFO Heribert Smolé Bernhard H. Hansen DI Iris Ortner (Mail: MMag. Christian B. Maier Dr. Johannes Pepelnik Phone: +43 (0) Dr. Peter Weber Founded in 1873 as "Union-Baumaterialien-Gesellschaft", the company now has an outstanding history of more than 140 years. Keep in mind, that since 1873, the firm is also listed on the Viennese stock market and thus is the oldest Austrian real estate stock. After the initial focus was on the renting of construction equipment, the firm made a significant step ahead since the early Nineties, where the firm started to initiate many new development projects after a 50% increase of share capital in In 1992 Karl Bier entered the UBM Board of Directors and the firm started to develop numerous lucrative projects in Eastern Europe, in particular in Poland and Czech Republic. Today, UBM is active in 12 European countries, with Germany, Austria, and Poland having the main share of new developments and company's revenues. The focus in Germany is on residential developments in Berlin, Frankfurt and Munich through the 94% subsidiary Münchner Grund. Besides that, there are some more promising developments in the residential and office sector as well as new hotel projects to come in the other core markets of UBM. With regards to hotels, the company has built 26 hotels since 2002 and most of them were sold in the following 3 or 4 years after completion. UBM is a steady dividend payer. Since 2010 the yearly dividend was stable at Euro 0.55 per share and was lifted to Euro 0.62 for FY 2013 (+13%) translating into a decent dividend yield of 3.7%. The dividend payout ratio of profits in all recent years was between 21% and 36% (29% for 2013) and the remaining profits were invested to drive future projects. The total annual output was at Euro 258m in 2012 and strongly increased by 11% to almost Euro 287m in Almost 90% of the total group's output is made in the three core markets Germany, Austria and Poland. In our projection the total output might climb to over Euro 300m in the current year With its prudent and long-term oriented investment policy, UBM delivered sound and rising profits without a capital hike in the last twenty years. With a good pipeline of new development projects in Germany (Holiday Inn Frankfurt, office and hotel space in Munich and several residential projects by Münchner Grund), we expect UBM to continue its success story. Source: Company data, SRC Research 2 2 SRC Equity Research

3 SWOT Analysis Strengths Weaknesses Opportunities Threats UBM is a strong brand in the European real estate development business. The company is very flexible and has a high local knowledge of all its markets to shift the focus of activities to the most promising regional markets and asset classes (from residential to office or retail and also to hotels or complete urban district developments) where it finds the best opportunities to deliver a significant added value and may unlock high development margins. As the German residential market gained a very strong momentum in the last 3 or 4 years, UBM quickly started to boost the business with its German development subsidiary Münchner Grund AG. The total group s output in 2013 steeply increased by 11% to Euro 287m. And more than half of it (57%) came from Germany, after only 17% one year before. The firm has a good pipeline of lucrative developments in stable European economies like Germany, Poland and Netherlands to come the next three years that will help to even further lift the group s output and profit numbers. The firm has some very attractive hotels in its portfolio which might help for more lucrative asset sales to come the next months, namely the Berlin-based andel s Hotel (557 rooms) and the French EuroDisney Hotels Dream Castle and Magic Circus (each approx. 400 rooms). These 3 hotels alone stand for a net operating profit of more than Euro 6m per year. UBM holds 50% on each of these three hotels. Warimpex holds the other 50%. The balance sheet improved after the good FY Equity ratio hiked from 24.2% to 26.0%. Net debt came down from Euro 333.4m to Euro 321.9m (-3.4%). The net debt to equity ratio improved from 217% to 197%. The price-to-book ratio is only little above 0.6 at the moment. Thus, in our view the UBM share price is relatively protected against set-backs. The good and probably rising dividend yield of 3.6% is also an argument. The free float of shares is small at less than 15%, as the firm has four anchor shareholders. This also translates into a small liquidity of the stock. The firm has a low transparency level with regards to all project related data as investment costs, targeted yields and concrete dates of completions and pre-lease data, as well as for some items on its P & L account. As the volatile P & L of a developer is always a challenge in itself, the low transparency makes future P & L items hard to predict. Significant upside for the share could come from a higher free float of UBM shares, even a capital hike where anchor shareholders waive their subscription rights, is thinkable in our view. Germany is at present the biggest market of UBM but the brand awareness of UBM and Münchner Grund is relatively low, despite the favorable operating success. An IPO of German subsidiary Münchner Grund AG would also be an option in our view, to lift awareness and gain more capital to quickly grow. Keep the recent Buwog Spin-Off in mind. The economic situation might remain shaky in many Eastern European countries which have to struggle with only little or even no growth. Even the overall sentiment for the Polish office market, which was stable the last years has become worse and UBM has the Poleczki Business Park on its agenda. 3 3 SRC Equity Research

4 Exploiting the opportunities in the German hotspots Frankfurt, Berlin and Munich pipeline well filled to drive 2014/2015 results The Münchner Grund Immobilien Bauträger AG is the German subsidiary of UBM with a strong focus on residential projects in Berlin, Frankfurt and the Munich area. The German market alone contributed about 57% to the group s total output in A new Holiday Inn coming right to the heart of Frankfurt s CBD district. CONCORPARK is a prominent Munich office development project of UBM with a DGNB silver certification for sustainability. The German 94% subsidiary Münchner Grund is a well-known development company which delivers the lion s share of the Western Europe business unit. The Western Europe business unit normally delivers about half of group s total output, except for 2012 with a higher share coming from Eastern Europe. In 2013, the share of Western Europe including Austria in the total output was over 80%, Germany alone stands for 57.5%, after only 17.1% in With regards to the three biggest markets in 2013, Germany, Poland and the home market Austria, represented about 88% of total group s output. Here is an overview about current residential projects of Münchner Grund: Berlin-Mitte, Inselstrasse 9 and 10: 86 residential flats plus two commercial units and 71 underground parking lots were finished and handed over to the buyers in 4Q Frankfurt-Riedberg, in the new Riedberg urban district of Frankfurt, the Living Affairs project offers three urban mansions with 42 residential flats (Friedrich-Dessauer-Strasse). With the Central Living project, also located in Frankfurt-Riedberg, UBM builds 143 residential flats in two development sections. The first development section is already sold out Central Living has a total 143 flats, 7 commercial units and 155 undergrund parking lots. Thereof the first development section with 72 residential flats is already fully sold out. Unterschleissheim and Neubiberg, both next to Munich: Unterschleissheim is a boomtown with a growing population (approx. 28,000 inhabitants), 17 km north of Munich. Here Münchner Grund develops 39 residential flats to be completed and handed over in 2Q Neubiberg is a small town in the southeast of Munich, where Münchner grund develops six urban mansions with 103 residential flats. This project will be completed in 4Q Both projects are more or less already sold. Furthermore, Münchner Grund has some very lucrative hotel and office developments in its German pipeline, namely in Frankfurt and Munich. Frankfurt, Mainzer Landstrasse 27-31: In the very heart of Frankfurts CBD district, just right between Taunusanlage / Alte Oper and Platz der Republik, UBM will build a new Holiday Inn Hotel with 247 guest rooms, 76 underground parking lots and a modern open lobby concept for reception and gastronomic entities. There was a vacant office bulding which was demolished by UBM in 2013 and now construction works have started to build the new hotel. The new Holiday Inn is scheduled to open in 1H CONCORPARK Munich Dornach: UBM has a big business quarter in the East of Munich, which is divided in three parts. The first part of it is an existing building with five floors, which was fully refurbished and has prominent tenants like Allianz, STM ebase, Yamichi and Mizuno. The second and third part of Concorpark are ready to be built on demand and custom-made with all regulatory permits, within 18 to 24 months. The available space for a tenant is from 5,000 sqm to 60,000 sqm. CONCORPARK has a DGNB Silver certification for its sustainability. 4 4 SRC Equity Research

5 angelo Munich Leuchtenbergring / Hotel and Business area: The angelo Hotel at Munich Leuchtenbergring is a modern superior design hotel with 146 rooms, which was opened in The Leuchtenbergring area is in the East of Munich, very centrally located at public transport with the S-Bahn to reach the inner city and the airport in a short time. There is a second part of construction to follow soon, to lift number of rooms at angelo to almost 300, as the hotel is very successful. Additional space for conferences, meetings and for wellness will be added. The third part of Leuchtenbergring project will be a mixed use of office and shopping areas as well as some residential units. Munich, Landsbergerstrasse 191, Elsenheimer Strasse 1: Near the Munich main station, the plot has an existing building, which will be demolished and a new building with DGNB Gold certification and space for office and commercial use as well as shops will be completed until the first half of Münchner Grund AG owns 90% of this object. More promising projects to come in Amsterdam and Warsaw The Poleczki Business Park is the landmark project of UBM in Poland. It is the biggest office building project developed in this country at the moment. Dividing the project into single stages allows UBM to constantly respond to the tenants needs. The occupancy and success of the completed buildings speaks for the superior quality. After the firm invested more than Euro 100m in 2013, we expect UBM to accelerate its growth by new developments, not only in Germany. There are some more huge landmark projects to be started or even finished in 2014, like the Hyatt hotel in Amsterdam and the third part of Poleczki Business Park in the Polish capital Warsaw. The Hyatt Amsterdam ist the second dutch hotel project of UBM after a Crowne Plaza Amsterdam, which was built and sold in The firm has a plot of land in the university district of Amsterdam. This very central part of the booming tourist and business hotspot Amsterdam has a very good infrastructure and also many bars, restaurants and hotels. UBM builds this new 5 star hotel with over 200 rooms for Hyatt, which will operate it after the completion in 1H UBM likes the Amsterdam hotel market for investments since the demand from business guests and tourists for superior quality is rising, but the Amsterdam hotel market offer just few good hotels that offfer value for money. Many hotels in Amsterdam are old and with an old-fashioned style and the overall quality of the property and of services is often below average. This gives the new Hyatt a very good chance to secure a good market position and a high demand from the beginning. UBM considers to build some more attractive hotels in other European capitals and hotspots like Paris, Madrid or Barcelona. Keep in mind, that a Spanish hotel project will only be started with a fixed investor upfront. In the south of Warsaw, the new Poleczki Business Park with its 140,000 sqm area, is the biggest Business Park in Poland and Central Europe. It has a very good junction to the city center, all surrounding highways and also to the Warsaw airport Okecie. All in all, Poleczki Busines Park contains 15 buildings, mainly offices, but also space for logistics and also gastronomic units and a 3 stars hotel. The first phase of Poleczki with about 45,000 sqm rentable space was finished until March This first phase of Poleczki is already rent out by 95%. One third of the space was taken by public agricultural agency ARIMR. The second phase was started in January 2011 and finished in May Furthermore, the 3 star hotel started in September This phase received the LEED CS Gold certificate (core and shell). The advantage of Poleczki Business Park is that all tenants have the opportunity to rent more space as this Business Park still has enough reserves to be developed. 5 5 SRC Equity Research

6 Sensitivity analysis (per share) No. of shares Tax rate on operating cash profit ,800 5,900 6,000 6,100 6, % -18.0% -18.5% -19.0% -20.0% 0.5% % % % % % % % % % Growth in Terminal Value WACC Growth in Terminal Value WACC % 5.6% 6.1% 6.6% 7.1% 1.0% % % % % SRC Equity Research

7 DCF model shows severe undervaluation Free cash flow potential of Euro 20m to 25m for the coming years. Fair value of Euro per share in our DCF. Conservative assumptions leave room for further upside in stock valuation. 20% discount applied to the DCF-fair value due to relatively little liquidity in the share. High cash income (3.6% dividend yield) despite moderate payout-ratio In our Discounted Cash Flow (DCF) valuation of the UBM share, we estimated the long-term operating cash flow strength of the company by adjusting our forecasted EBIT-figures for non-cash effects like amortisation and deducted both taxes as well as the net financing costs. We came up with a sustainable cash flow potential of between Euro 20m to Euro 25m for the coming years. Discounted and adjusted by cash and outstanding liabilities, we computed a fair equity value of Euro 179.4m, implying a fair value of Euro per share. Our model assumptions were rather conservative: with a risk free interest rate of 1.0%, a 1.1 Beta factor and average cost of liabilites of 5.5% we calculated a weigthed average cost of capital (WACC) of 6.1%. As the UBM share has relatively little liquidity at the moment, we applied a discount of about 20% to our computed DCF value, resulting in a conservative target price of Euro per share. This target would still imply a large upside of more than 40% at current prices of about Euro per UBM share. Taking into account that book value per share is at present at about Euro 27.00, this target price does not seem to be too ambitious. Moreover, the current market valuation of UBM does not reflect its earnings power in our view. At an EPS of Euro 2.14, the share is only trading at 7.9 times its net profit. In addition, a current dividend yield of 3.6% at a moderate payout-ratio of about 29% provides an attractive mix of capital appreciation and cash income for investors. We start coverage for the UBM share with a Buy recommendation and a Euro target price. 7 7 SRC Equity Research

8 Movers and shakers Chief Executive Officer: Mag. Karl Bier Karl Bier was born in March After earning a degree in law and an additional education in law of taxation he became a Managing Director at several project development companies. Finally, in 1992 he entered the UBM Board of Directors and became the driving force behind the company s expansion and internalization in the last twenty years. In 1990 the iron curtain fell in the middle of Europe and many Austrian companies, in particular UBM, realized the new opportunities by bringing project business to the emerging countries of Eastern Europe in the Nineties and early 2000 years. In 1992, UBM opened the first branch office abroad, in the Czech capital Prague, and planed and built the andel City urban development project with about 25,000 sqm in the years 1994 to 2007 in several phases (20 houses, 2 hotels and 1 boarding house and office space). Poland and Hungary followed soon in Eastern Europe, in the years 1993 and In Western Europe, Germany, is the first step of UBM in 1999, followed soon by France in Later on, there were several more market entries in Western Europe (Switzerland, Netherlands) as well as in Eastern Europe and South-Eastern Europe (e.g. Romania, Bulgaria, Russia). As Chairman of the Board, Karl Bier is responsible for the setup, strategy and expansion of the business in the home market Austria and in the most important foreign markets Germany, Poland, Czech Republic and Hungary. In his responsibility for the core markets, Mr. Bier is also the Chairman of the Supervisory board of the important German subsidiary (94% stake) Münchner Grund Bauträger AG, which is located in the Bavarian capital Munich. Chief Financial Officer: Heribert Smolé Heribert Smolé was born in February In 1973, he joined the PORR group and became department manager of the commercial shareholding management in Since 1990, he has been active as an authorised joint signatory of the UBM and gradually took over the position of the commercial manager or of the commercial chairman in different societies of the PORR group. Since 1997, he has been a member of the board of the UBM and is especially responsible for financing and accounting, project financing, risk management, controlling, investor relations and for several property companies in Austria. Chief Technical Officer: Dipl.-Ing. Martin Löcker Martin Löcker was born in March He studied industrial engineering and construction at Austrian Technical University in Graz. Afterwards, he studied real estate economics at the Munich-based European Business School. In 2001, he entered the PORR group or rather the UBM where he was responsible for projects in Austria, France and Germany. In 2007, he became commissioner of the UBM AG and of the Münchner Grund Immobilien Bauträger AG. He is also the manager of different project companies in Austria and abroad. In March 2009, he became a member of the Board of Directors and is now responsible for project calculation, technical reporting and controlling as well as the technical quality management. He is also responsible as for UBM Netherlands, UBM Bulgaria, UBM Romania, UBM Switzerland, UBM France, UBM Hungary and for several project companies in Austria and abroad. 8 8 SRC Equity Research

9 P&L UBM AG 31/12 IFRS (Euro '000 except for per share-data) 2011* e 2015e 2016e 2017e 2018e CAGR '13 - '16e Sales revenues 196, , , , , , , , % Activated work for own account Result from associated companies -1,005 4,557 12,764 14,521 15,451 11,455 11,879 12,100 Other operating income 7,631 7,792 2,269 4,541 3,485 2,879 2,998 3,087 Material expenses and other services -133,914-83, , , , , , ,545 Personnel expenses -16,031-17,875-20,385-22,581-24,115-23,874-24,008-24,455 Amortisation and depreciation on intangible assets and property, plant and equipment -1,726-2,366-2,453-2,841-3,121-3,204-3,250-3,310 Other operating expenses -29,198-30,113-34,792-35,780-37,110-34,997-35,652-35,150 Operating profit (EBIT) 22,128 12,143 29,400 36,217 40,691 40,818 41,831 41, % Financial income 10,073 18,581 6,395 4,877 5,087 5,453 5,674 5,977 Financial expenditure -17,643-17,853-17,952-18,478-18,788-18,680-18,580-18,450 Financial result -7, ,556-13,601-13,701-13,227-12,906-12,473 Earnings before tax (EBT) 14,557 12,872 17,844 22,616 26,990 27,591 28,925 29, % Taxes on income -5, ,316-5,619-7,004-7,215-7,785-7,938 Tax rate 38.8% -6.3% 24.2% 24.8% 26.0% 26.1% 26.9% 26.9% Net profit before monorities 8,906 13,684 13,528 16,997 19,986 20,376 21,140 21,570 Minorities ,024-1, ,087-1,132 Net profit after minorities 9,901 12,888 12,857 15,973 18,741 19,388 20,053 20, % Earnings per share (EPS) Dividends per share (DPS) Payout ratio 33.3% 25.6% 28.9% 30.1% 32.0% 30.9% 32.9% 32.3% Number of shares ('000) 6,000 6,000 6,000 6,000 6,000 6,000 6,000 6,000 Adjusted shareholders' equity without minorities 144, , , , , , , ,461 Book value per share (BVpS) RoE after tax 7.0% 8.7% 8.2% 9.5% 10.4% 10.1% 9.7% 9.3% Key ratios & figures e 2015e 2016e 2017e 2018e Growth rates in % Sales revenues 71.4% -31.8% 62.1% 14.2% 2.1% -4.4% 2.4% 2.9% EBIT -10.5% -45.1% 142.1% 23.2% 12.4% 0.3% 2.5% 0.4% EBT 1.4% -11.6% 38.6% 26.7% 19.3% 2.2% 4.8% 2.0% Net profit after minorities 7.6% 30.2% -0.2% 24.2% 17.3% 3.5% 3.4% 1.9% Margins in % Operating profit (EBIT) 11.3% 9.1% 13.5% 14.6% 16.1% 16.8% 16.9% 16.4% Pre-tax profit (EBT) 7.4% 9.6% 8.2% 9.1% 10.6% 11.4% 11.7% 11.6% Net Profit (after minorities) 5.0% 9.6% 5.9% 6.4% 7.4% 8.0% 8.1% 8.0% Expense ratios in % Personnel costs to sales 8.2% 13.3% 9.4% 9.1% 9.5% 9.9% 9.7% 9.6% Cost of material to sales 68.2% 62.6% 67.0% 68.4% 66.0% 63.5% 63.8% 64.9% Depreciation to sales 0.9% 1.8% 1.1% 1.1% 1.2% 1.3% 1.3% 1.3% * 2011 earnings per share, dividends per share and book value per share adjusted for the split 2:1 in 2012 (number of shares doubled from 3.0m to 6.0m) 9 SRC Equity Research 9

10 SRC Research - The Specialist for Financial and Real Estate Stocks - SRC - Scharff Research und Consulting GmbH Klingerstr. 23 D Frankfurt Germany Fon: +49 (0)69/ Mail: kuhn@src-research.de Internet: Rating chronicle: Since this is an initiating coverage, there is no rating chronicle available. Please note: The UBM share price mentioned in this report is from 28 April UBM AG mandated SRC Research for covering the UBM share. Disclaimer 2014: This equity research report is published by: SRC-Scharff Research und Consulting GmbH, Klingerstr. 23, D Frankfurt, Germany (short name: SRC Research). All rights reserved. Although we feel sure that all information in this SRC report originates from carefully selected sources with high credibility, we cannot give any guarantee for accuracy, trueness and completeness. All opinions quoted in this report give the current judgement of the author which is not necessarily the same opinion as SRC- Scharff Research und Consulting GmbH or another staff member. All the opinions and assessment made in this report may be changed without prior notice. Within the scope of German regulative framework the author and SRC-Scharff Research und Consulting GmbH do not assume any liability for this document or its content being used. This report is solely for information purposes and does not constitute a request or an invitation or a recommendation to buy or sell any stock that is mentioned here. Private clients should obtain personal advice at their bank or investment house and should keep in mind that prices and dividends of equities can rise and fall and that nobody can give a guarantee of the future development of equities. The author of this report and the SRC-Scharff Research und Consulting GmbH commit themselves on a unsolicited basis to having no long or short-positions in equities or derivatives related to equities mentioned in this report. Reproduction, distribution or publishing this report and its content as a whole or in parts is only allowed with approval of SRC management written form. With acceptance of this document you agree with all regulations mentioned here and all general terms and conditions you will find at anytime at our website SRC Equity Research