Nine-months Report focused profitable transparent

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1 Nine-months Report 2014 focused profitable transparent

2 Interim Report for the period from 1 January to 3o September 2014 J Rental income up 8% on prior-year period to EUR 13,803 thousand J FFO increases by 86% on prior-year period to EUR 5,246 thousand J Letting take-up reaches 23,800 sqm Content 01 Key Financial Data 02 Foreword 04 Interim Management Report 11 Consolidated Financial Statements 16 Notes 19 Responsibility Statement 20 Financial Calendar/Imprint

3 Key financial data of POLIS Immobilien AG 9 months 3rd quarter Financial performance in EUR Gross rental income 13,803 12,800 4,591 4,278 Net rental income 10,878 9,830 3,700 3,049 EBIT 11,637 8,755 3,976 3,417 EBT 7,040 6,755 2,639 2,290 Consolidated net profit 5,926 5,542 2,221 1,928 Cash flow from operating activities 7,762 5,694 Funds from operations (FFO) 1 5,246 2,828 Assets and capital structure in EUR Non-current assets 316, , Current assets 16,689 15,609 Equity 162, ,523 Total assets 333, ,884 Equity ratio 49% 48% Loan to value 2 48% 50% Net asset value (EUR 000) 3 165, ,165 Number of shares 11,051,000 11,051,000 Net asset value per share (EUR) Share Security identification code/isin /DE months high (Xetra) EUR months low (Xetra) EUR 9.92 Closing price on 30 September 2014 (Xetra) EUR ¹ Funds from operations = EBIT +/- Income from the revaluation of properties +/- Income from the sale of properties +/- Financial results + Income from minority interests - Paid taxes ² Loan to value: ratio of loan liabilities to the value of the properties ³ Net asset value (NAV): Equity + deferred tax liabilities - deferred tax assets Q1 3/2014 Key financial data

4 Foreword Dear Shareholders, Ladies and Gentlemen, As expected, the key operating ratios continued to improve in the first nine months of Rental income climbed by 8% compared with the same period of the previous year, to EUR 13,803 thousand. Net rental income consequently increased by 11% to EUR 10,878 thousand. The higher rental income is attributable to the good letting take-up of recent years and the acquisition of the property at Ranke strasse 21 in Berlin in There was a reducing effect from the sale of various smaller properties with a view to streamlining the portfolio and the modernization-related vacancy of the property in Frankfurt. The positive development will continue in the current calendar year. The occupancy rate went up one percentage point to 93% compared with the prior-year period. When measured against the figure at 31 December 2013, however, there was a temporary dip of three percentage points because of the depart ure of the sole tenant of the property at Gutleutstrasse 26, Frankfurt am Main, which is being modernized in 2014/15 and converted into a multi-tenant property. The letting of other investment properties has already entirely compensated for the vacancy resulting from this measure. In light of the occupancy rate already achieved, leaving less space available for letting, we registered a letting take-up of approximately 23,800 sqm in the first nine months of 2014, comprising around 4,560 sqm from new contracts and some 19,230 sqm from extensions of existing lease agreements. Taking account of lease agreements already concluded but not yet commenced, along with forthcoming terminations, it is anticipated that the occupancy rate will stabilize at around 93% excluding any new lease agreements concluded later on in the year. The investment property at Immermannstrasse 11 in Düsseldorf, which had been sold in the previous year as part of the measures to optimize our portfolio, was handed over to the buyer in the first quarter of 2014 in accordance with the terms of the contract. We concluded further agreements on the sale of the investment properties at Rheinstrasse and Rheinstrasse in Mainz during the first half of Both properties have since been handed over to the buyers. Because the tenant fit-outs for Rheinstrasse capitalized in the previous quarters could not be realized in the sales proceeds, both properties produced an overall negative sales result of EUR 400 thousand. We invested EUR 2,860 thousand (previous year EUR 5,334 thousand) in the modernization of our investment properties in the first nine months of The valuation of our investment properties at 30 September 2014 confirmed the investments made and in addition led to a positive change in market values of EUR 2,365 thousand (EUR 1,226 thousand in the prior-year period). Thanks to income from warranty payments, other income was much more healthy at EUR 886 thousand compared to the figure for the same period of last year (EUR -327 thousand). Interest expense rose 2% to EUR 4,339 thousand at 30 September 2014 due to the higher volume of loans raised in the first half of the year. An early repayment made at 30 June 2014 has had a positive effect since the repayment date and will reduce interest expense for the financial year. Markedly lower long-term inter est rates resulted in a charge with no liquidity effect of EUR -279 thousand from the valuation of our interest rate hedging instruments, compared with a positive result of EUR 2,176 thousand in the prior-year period. 02 Q1 3/2014 Foreword

5 Because the aggregate effect of the improved operating result, the positive valuation result for the investment properties and other income was able to compensate for the markedly poorer valuation result for the interest rate derivatives, profit before taxes is 4% up on the previous year s figure of EUR 6,755 thousand, at EUR 7,040 thousand. Consolidated net income of EUR 5,926 thousand is thus 7% up on the prior-year figure. Funds from operations (FFO), from which all extraordinary results have been eliminated, improved markedly by 86% to EUR 5,246 thousand (previous year EUR 2,828 thousand) in the first nine months. We consequently expect to achieve a year-on-year increase in funds from operations, as planned. POLIS shares ended the third quarter trading at EUR At a net asset value of EUR per POLIS share, the discount on the intrinsic value was therefore approximately 23%. With an equity ratio of 49% and a loan-to-value ratio (LTV) of 48%, POLIS Immobilien AG is on a sound financial footing and has sufficient potential for new acquisitions. At 30 September 2014 there is some EUR 8.4 million in liquid funds available, along with substantial financial flexibility for realizing the target loan-to-value ratio of 60%. The operating cash flow is stable and consistently positive. By virtue of this financial strength, we are in a position to maintain our organic growth and are confident that we will soon be able to report on further attractive new acquisitions. 03 Berlin, November 2014 POLIS Immobilien AG The Board of Management Dr Alan Cadmus Dr Michael Piontek Q1 3/2014 Foreword

6 Interim Management Report of POLIS Immobilien AG for the period from 1 January to 30 September 2014 Business and economic environment Development of overall economic environment and of property markets The ifo Business Climate Index for trade and industry in Germany declined again to points in September and is consequently well below the 2013 year-end level of points, having initially risen slightly during the year. The current business situation is viewed less positively than in previous months and expectations for the coming six months are at their lowest ebb since December The German economy is fearful of a further negative impact from spiralling sanctions against Russia because of the crisis in Ukraine and the persistently weak state of the economy in the remainder of the eurozone, to which the German economy cannot remain immune in the long term. The latter has implications particularly for exports to other eurozone countries. Unemployment fell further in September 2014, to a current total of 2.81 million. The unemployment rate is 6.5%. The economic research institutes forecasts for GDP growth for 2014 have been downgraded in 2014 and are now between approximately 1.4% and 1.9%, but for the most part around 1.5%. Only slightly higher growth rates are expected in subsequent years. Inflation in Germany has come down substantially since the start of the year and is now 0.8%. That is much lower than in 2013 (prior-year figure at September 2013: 1.4%). An annual inflation rate of merely around 1.1% is expected for 2014 as a whole. As previously, inflation s low overall level is attributable to factors such as lower energy and commodity prices. However it is assumed there will be a slight upturn in inflation rates in subsequent years. In the eurozone (including Germany), inflation has fallen to 0.3%. Some eurozone countries are exhibiting deflationary tendencies. Short-term interest rates have come down significantly since the start of the year (three-month EURIBOR 0.08%, compared with 0.29% at 2013 year-end), as have long-term interest rates. Over this period, the 10-year swap rate declined from 2.15% at 31 December 2013 to 1.09% at 30 September For the remainder of the year, the banks are forecasting short-term interest rates to remain stable or move up by no more than 0.2% on average, while long-term rates are expected to increase slightly by up to 0.4% by the end of the year. Sources: Centre for European Economic Research: October 2014 Forecast Survey; ifo Institute: ifo Business Survey results, September 2014; Federal Employment Agency: September 2014 Monthly Report; German Employers Association forecasts, 29/09/2014; Deutsche Bundesbank: Monthly Report for September 2014; de.statista.com: Postbank interest rate forecast, September Q1 3/2014 Interim Management Report

7 Industry-specific development in the first nine months of 2014 Office space turnover in the first nine months of 2014 in the eight main locations was around 6% down on the prior-year period, at 2.01 million sqm. The highest rates of turnover were again in Munich, at 407,000 sqm (-7%) and Berlin, at 392,000 sqm (+20%). Hamburg, too, saw turnover increase year on year to 372,000 sqm (+17%). For 2014 as a whole, office space turnover is expected to be slightly down on the previous year s figure because economic development has slowed down somewhat and the outlook is currently slightly more pessimistic. New construction activity in the locations Berlin, Düsseldorf, Frankfurt, Hamburg, Cologne, Munich and Stuttgart in the first nine months came to 586,000 sqm overall, an increase of 11% on the prior-year level. This trend is likely to be reversed in the fourth quarter, producing a new construction volume of up to 1.1 million sqm for 2014 as a whole (+19%). Interestingly, around 70% of new space due for completion in 2014 has already been let. Vacancies for office space in all cities have fallen by 4% to 6.96 million sqm. The highest falls in the vacancy rate were again in Essen, Leipzig, Berlin and Munich. The proportion of office space that is fitted out to modern standards remained unchanged at around 32%. Prime rents edged up in the first nine months of 2014, particularly in Munich (+1.5%), Berlin (+2%), Hamburg (+4%) and Leipzig (+4%). The first three quarters of 2014 brought a strong rise in the transaction volume to EUR 25.4 billion (+33% compared with prior-year period). International investors accounted for 47% of transactions. Packaged sales covering highly diversified locations accounted for around 33% of transactions. The transaction volume share of the top six cities Berlin, Düsseldorf, Frankfurt, Hamburg, Cologne and Munich came to 51% (EUR million). Office properties were again the dominant type of use with a 51% share of the total volume. The prime yield in the office segment in the top six cities remained broadly stable. If the growth trend continues, the transaction volume for 2014 as a whole will exceed EUR 35 billion. Sources: BNP Paribas: Office Market and Investment Market in Germany, Q3 2014; CBRE: Germany Investment Quarterly Q3 2014; JLL: Office Market Overview Q Business development JJ Consistently high occupancy rate JJ Positive valuation result for investment properties JJ Last year s sale now optimizes portfolio JJ Sale of properties in Mainz Consistently high occupancy rate The occupancy rate for the portfolio at 30 September 2014 is 93%. The occupancy rate is up one percentage point compared with 30 September We have now compensated fully for the departure of the sole tenant Commerzbank from Gutleutstrasse 26, Frankfurt am Main, with effect from 1 January 2014 (3,538 sqm) and the subsequent dip in the occupancy rate at the start of the year, and have maintained the occupancy rate achieved since. We continue to focus on letting the remaining office space and on actively managing lease agreements (tenant portfolio management). Taking into account the lease agreements concluded at 30 September 2014 but not yet effective as well as terminations in the same period, and assuming other factors remain unchanged, occupancy is again 93%. In the first nine months of 2014 we achieved a letting take-up of around 23,800 sqm, comprising approximately 4,560 sqm from new contracts and around 19,230 sqm from extensions of existing lease agreements. The contractually secured rental income for the lease agreements concluded by 30 September 2014 is approximately EUR 11,790 thousand, with an average weighted term of 4.3 years. The effective rent from these contracts, including incentives agreed (e.g. rent-free periods), amounts to EUR per sqm. The average term of lease agreements is 3.9 years. The average rent, taking account of all space let and all types of use (apart from parking bays and miscellaneous space), is currently around EUR per sqm. Q1 3/2014 Interim Management Report

8 The main successes in the letting area were in Cologne, Dresden and Stuttgart, where a total of around 19,400 sqm was let, comprising around 11,380 sqm in Cologne, around 4,570 sqm in Dresden and around 3,450 sqm in Stuttgart. The biggest lease agreement concluded (extension in the third quarter) was for approximately 7,650 sqm at Weyerstrasse 79 83, Cologne (of which 6,990 sqm office space). Positive valuation result for investment properties The valuation of our investment properties at 30 September 2014 confirms the investments made and has in addition led to a positive change in market values of EUR 2,365 thousand. Disposals to optimize portfolio Transfer of possession of Immermannstrasse, Düsseldorf Following the sale of the property at Immermannstrasse 11 in Düsseldorf at the end of December 2013, the property was transferred to the buyer in February The properties at Rheinstrasse and Rheinstrasse in Mainz were sold in May and June 2014 respectively, as a result of which our portfolio no longer includes the location Mainz. The sales proceeds have been received and the transfer of benefits and encumbrances for the properties has now been completed. Both disposals were close to the most recent valuation at 31 December 2013, so a negative sales result amounting to EUR -400 thousand was realized. Tenant fit-outs carried out at Rheinstrasse in 2014 at a cost of EUR 327 thousand could not be realized through the purchase price. Both were sold with a view to optimizing the portfolio since, based on our current planning, we did not expect the value of the investment properties to rise and we wish to scale back the number of smaller locations. 06 Q1 3/2014 Interim Management Report

9 Financial performance, financial position and net assets Financial performance POLIS Immobilien AG has seen its financial performance improve further. Rental income rose by EUR 1,003 thousand on the prior-year period to EUR 13,803 thousand in the first nine months of 2014 thanks to the good level of take-up and the acquisition of the property at Rankestrasse 21 in Berlin with effect from 30 September 2013, despite the sale of several smaller office properties in 2014 and the vacancy of the property at Gutleutstrasse 26 in Frankfurt am Main for its scheduled modernization. After deduction of renovation and maintenance expenses as well as property management expenses, net rental income rose 11% year on year to EUR 10,878 thousand. The result before financing activity and taxes was up approximately 33% compared with the prior-year period, at EUR 11,637 thousand. The positive factors at work here included in particular the substantial year-on-year improvement in the valuation result for the investment properties, extraordinary income from a warranty payment received, and lower administrative expenses. Interest expenses rose slightly to EUR 4,339 thousand; this 2% increase compared with the first nine months of 2013 was driven by the higher volume of loans raised. The positive effects of the early repayment made at 30 June 2014 will become apparent in the coming months. The valuation result from interest rate derivatives with no liquidity effect, which came to EUR -279 thousand overall, was much lower than in the previous year (EUR +2,176 thousand) because of the markedly lower long-term interest rates compared with the start of the year. Consolidated net income of EUR 5,926 thousand consequently rose by only EUR 384 thousand (7%) compared with the prior-year period. Funds from operations, from which all extraordinary results have been eliminated, climbed by 86% to EUR 5,246 thousand. Cash flow from operating activities was up year on year by EUR 2,068 thousand, at EUR 7,762 thousand. 07 Financial position POLIS is on a sound financial footing with an equity ratio of 49% (loan to value of 48%) at 30 September Cash in banks rose by EUR 2,062 thousand to EUR 8,432 thousand at 30 September 2014 compared with the 2013 year-end position (EUR 6,370 thousand), despite an early repayment at 30 June The early repayment means that several unencumbered investment properties are now available for use at any time, as and when required, to finance further growth. Net assets The total assets of POLIS showed a slight decline at 30 September 2014 compared with the end of 2013 to EUR 333,057 thousand (31 December 2013: EUR 333,884 thousand). The fall of EUR 827 thousand is substantially attributable to the reduced investment property values following the sale of properties, along with the use of cash in banks to repay loans. Investment properties, with a total volume of EUR 311,270 thousand, represent 93.5% of the current total assets. The Development of investment properties table in the notes section shows how the individual properties performed in detail. Our valuations are transparent and straightforward. For detailed information on the valuation method of FERI EuroRating Services AG, please refer to the notes to the consolidated financial statements in the POLIS 2013 Annual Report, page 63 on. For up-to-date information on the portfolio, visit our homepage at Q1 3/2014 Interim Management Report

10 Risk report POLIS is exposed to various operating and economic risks through its business activities. These primarily include the letting risk, the default risk, the interest rate risk and the liquidity risk. The principles of the management system for risks and opportunities have not changed since the start of the year. We refer in this connection to the detailed information provided in the POLIS 2013 Annual Report (see group management report, pages and 82 85). Business-related risks The risk assessment for the occupancy rate and development in value of the Company s portfolio has not changed since 31 December We refer in this connection to the detailed information provided in the 2013 Annual Report. There are valuation risks for properties in respect of the property at Gutleutstrasse 26 in Frankfurt am Main. This property fell vacant on 31 December 2013 upon the expiry of the lease agreement with the sole tenant, is now being converted into a multi-tenant property and is available for reletting. Financial risks The loan-to-value ratio (LTV) fell by two percentage points to 48% at 30 September 2014 compared with the position at 31 December The strategic 60% mark could be reached by raising new financing, but there are no plans to exceed it in future. Overall, sufficient funds are available to finance the growth of POLIS over and above the modernization investment already planned. The loans are subject to the typical covenants: debt service coverage ratios of 110% and 120%, interest service coverage ratios of 140% and 149%, and loan-to-value ratios of 65% to 80%, in each case at portfolio level. Regular checks of the covenants by the banks reveal that all credit terms are met. As matters stand, all financial ratios required by the banks will be achieved in At 30 September 2014 the weighted average remaining term of the bank loans was 5.4 years. Please refer to the notes section for details of the maturities structure of the liabilities to banks and interest rate hedges. Thanks to the flat yield curve and the high proportion (88%) of loan liabilities with interest rate hedging, interest rate risks are not a concern. The weighted average remaining term of interest rate hedges is 4.93 years. Against a backdrop of very low inflation with deflationary risks and continuing financial problems in the eurozone, the ECB could have recourse to further monetary policy instruments as the year progresses, with a moderate impact on short-term interest rates. Variable-rate recapitalization would thus remain available on attractive terms. In the course of the year medium to long-range interest rates, having fallen significantly since the start of the year, are likely to edge up again; we therefore stand by our expectation that the negative market values of interest rate swaps will show a slight improvement over the remainder of 2014 compared with the position at 30 September At present, no other general external market risks as well as business and financial risks are identified. The further growth planned by POLIS is dependent on suitable properties being available on the market, but these are currently in limited supply. If further growth is to be achieved, it will be necessary to release additional equity by increasing the LTV at portfolio level to up to 60%. That will require the participation of third parties (including banks). 08 Q1 3/2014 Interim Management Report

11 Report on expected developments Development of the overall economy and the office property markets The office markets have remained stable at a high level since the start of Vacancies in the office market have again fallen slightly despite increased new construction activity. For 2014 as a whole, we expect economic growth to reach around 1.5%. Only slightly higher growth rates are expected in subsequent years. However we do not expect this to have any short-term impact on the office market, and in particular on our business area featuring relatively small multi-tenant office space. Major opportunities for POLIS Group Thanks to its good letting take-up over the past three years, POLIS has established the basis for stabilizing and improving its key earnings ratios in With our quality-focused business model and our homogeneous portfolio, the letting take-up should remain good this year. Our properties and rental spaces offer good value for money and meet the requirements for modern office space. Moreover, our excellent capitalization enables us to take advantage of acquisition opportunities and to refinance investments at very low interest rates. Overall, our concept focusing on office buildings in attractive locations in the most important German business locations allows us to take advantage of opportunities as they arise. We consider ourselves active portfolio managers and specialists in the modernization of office buildings, and can address all key areas of the property management value chain with our in-house expertise. Through our experienced asset management team, we can identify attractive purchase opportunities ourselves and tap the potential for added value through optimization and/or letting. This enables us to take advantage of opportunities from within our own property portfolio, especially in challenging times. 09 Business outlook The key operating ratios will continue to improve in the financial year 2014 as a result of the high occupancy rate. The conversion of the property at Gutleutstrasse 26 in Frankfurt am Main will diminish earnings while work is in progress due to the loss of rental revenues and the construction costs incurred. By the end of 2014, we would like to achieve a slight increase in the occupancy rate of all rental space. We aim to achieve a further increase in net rental income in 2014 and generate fresh growth by potentially acquiring new investment properties. As matters stand, thanks to the higher net rental income we expect funds from operations to continue to rise slightly in 2014, notwithstanding the initial conversion costs for the property at Gutleutstrasse 26 in Frankfurt am Main and increased maintenance expenses for individual prop erties. Assuming other factors remain unchanged, earnings before taxes (EBT) are expected to be roughly EUR 2 million down on the 2013 level because much lower valuation results from the financial derivatives are to be expected. We have used organic growth to increase the assets under management to more than EUR 350 million, and intend to adhere to that course of business expansion. We will maintain a conservative financing structure and a maximum loan-to-value ratio of 60%. The valuation trends for the investment properties and interest rate derivatives involve considerable uncertainty and therefore cannot be determined with any degree of reliability. We consequently decline to issue any forecasts regarding future valuation results. Because the valuation results have a major impact on the IFRS net profit, nor are we in a position to provide a forecast in that regard. By establishing hedging relationships between loans and interest rate hedges, we will largely be able to avoid any impact on earnings by using interest rate hedging instruments from Independently of these uncertainties, actual results may deviate substantially from our expectations of the probable development if any of the uncertainties mentioned in the risk report or additional uncertainties materialize or if the assumptions underlying the statements turn out to be incorrect. Q1 3/2014 Interim Management Report

12 Related party disclosures Related individuals are the Supervisory Board, the Board of Management and their close relatives. Related companies also include the majority shareholder Mann Unternehmensbeteiligungen Holding GmbH & Co. KG, Karlsruhe, together with its affiliated companies, as well as the major shareholder Bouwfonds Asset Management Deutschland GmbH, Berlin, and its affiliated companies. Services billed at market rates were performed for the Bouwfonds Asset Management Group in the period under review as part of a lease agreement. The lease agreement was terminated with effect from 31 March For related party disclosures concerning Board of Management and Supervisory Board members, please refer to page 80 onward of the POLIS 2013 Annual Report. No transactions were conducted with the Supervisory Board, Board of Management or close family members of the Supervisory Board in the first nine months. 10 Q1 3/2014 Interim Management Report

13 Consolidated Statement of Comprehensive Income for the period from 1 January to 30 September 2014 according to International Financial Reporting Standards (IFRS) POLIS Immobilien AG, Berlin 9 months rd quarter EUR Rental income 13,803 12,800 4,591 4,278 Renovation and maintenance expenses -2,114-2, Property management expenses Net rental income 10,878 9,830 3,700 3,049 Unrealized gains from the revaluation of investment properties 3,349 4,116 1,300 2,104 Unrealized losses from the revaluation of investment properties , Income from the revaluation of investment properties 2,365 1,226 1,129 1,242 Income from the sale of investment properties 9,650 12,180 4,200 10,500 Carrying amount of the investment properties sold -10,050-11,803-4,551-10,123 Result from the sale of investment properties Other income 1, Other expenses Administrative expenses -2,092-2, Result before financing activity and taxes 11,637 8,755 3,976 3,417 Investment income Financial income Result from the valuation of derivative financial instruments , Interest expenses -4,339-4,247-1,370-1,356 Profit before taxes 7,040 6,755 2,639 2,290 Deferred taxes -1,006-1, Current income taxes Consolidated net income 5,926 5,542 2,221 1,928 Of which: allocable to the equity holders of the parent 5,926 5,542 2,221 1,928 Market value of cash flow hedges -3, Attributable deferred tax assets Other income -2, Consolidated comprehensive income 3,156 6,250 1,546 1,778 Earnings per share (EUR '000) Basic Diluted Q1 3/2014 Consolidated financial statements

14 Consolidated Statement of Financial Position at 30 September 2014 according to International Financial Reporting Standards (IFRS) POLIS Immobilien AG, Berlin ASSETS EUR Non-current assets Investment properties 311, ,210 Intangible assets Property, plant and equipment Financial assets 3,772 3,772 Deferred tax assets Other assets Total non-current assets 316, ,275 Current assets 12 Receivables and other financial assets 7,367 5,565 Current tax receivables Cash in banks 8,432 6,370 Other assets Non-current assets held for sale 0 2,850 Total current assets 16,689 15,609 Total assets 333, ,884 Q1 3/2014 Consolidated financial statements

15 Equity and Liabilities EUR Equity Subscribed capital 110, ,510 Capital reserves 18,185 18,185 Cash flow hedge reserve -4,113-1,343 Retained earnings 32,171 24,032 Consolidated net income 5,926 8,139 Share in equity allocable to the equity holders of the parent 162, ,523 Total equity 162, ,523 Liabilities 13 Non-current liabilities Liabilities to banks 146, ,054 Deferred tax liabilities 3,270 2,828 Other financial liabilities 9,067 6,534 Total non-current liabilities 158, ,416 Current liabilities Liabilities to banks 2,089 6,398 Advance payments received 5,476 3,661 Trade payables 1,823 2,639 Income tax liabilities Other financial liabilities 2,174 2,159 Total current liabilities 11,770 14,945 Total equity and liabilities 333, ,884 Q1 3/2014 Consolidated financial statements

16 Consolidated Cash Flow Statement for the period from 1 January to 30 September 2014 according to International Financial Reporting Standards (IFRS) POLIS Immobilien AG, Berlin 9 months EUR Profit before taxes 7,040 6,755 Adjusted for: Financial and investment result 4,597 2,000 Result from the revaluation of investment properties -2,365-1,226 Income from the sale of investment properties Depreciation/amortization on intangible assets and property, plant and equipment Increase in trade receivables and other assets which are not allocable to investing or financing activities -1,965-2,387 Increase in trade payables and other liabilities which are not allocable to investing or financing activities -6 1,030 Income tax paid Income tax received Cash flow from operating activities 7,762 5,694 Payments for the acquisition of software, fixtures and equipment Proceeds received in connection with assets held for sale 2,850 5,700 Proceeds from the sale of investment properties 6,800 7,180 Payments for investments in modernization -3,002-32,616 Cash flow from investing activities 6,560-19,793 Payments for the redemption of loans -14,892-7,978 Proceeds from the raising of loans 6,800 23,580 Interest received Interest paid -4,188-4,024 Dividends received 0 52 Cash flow from financing activities -12,259 11,649 Net change in cash and cash equivalents 2,062-2,449 Cash in banks at the beginning of the period 6,370 8,312 Cash in banks at the end of the period 8,432 5,863 Q1 3/2014 Consolidated financial statements

17 Consolidated Statement of Changes in Equity for the period from 1 January to 30 September 2014 according to International Financial Reporting Standards (IFRS) POLIS Immobilien AG, Berlin EUR 000 Subscribed capital Capital reserves Retained earnings Consolidated net income Cash flow hedge reserve Share in equity allocable to the equity holders of the parent Total equity Balance at ,510 18,185 21,861 2,171-2, , ,653 Offsetting against prior-year result 0 0 2,171-2, Consolidated comprehensive income , ,250 6,250 Balance at ,510 18,185 24,032 5,542-1, , ,903 Balance at ,510 18,185 24,032 8,139-1, , ,523 Offsetting against prior-year result 0 0 8,139-8, Consolidated comprehensive income ,926-2,770 3,156 3, Balance at ,510 18,185 32,171 5,926-4, , ,679 Q1 3/2014 Consolidated financial statements

18 Notes Basis of reporting The interim report of POLIS Immobilien AG at 30 September 2014 has been prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted in the EU, as well as their interpretations by the International Financial Reporting Interpretations Committee (IFRIC). The interim consolidated financial statements ( interim finan cial statements ) at 30 September 2014, which have been prepared on the basis of International Accounting Standard (IAS) 34 Interim Financial Reporting, again apply the same accounting policies as the consolidated financial statements for the previous full year A detailed description of the methods applied was published in the Annual Report for the financial year 2013 ( In accordance with Section 48 of the regulations of the Frankfurt Stock Exchange (Prime Standard), the Company is obliged to issue interim reports. It expressly and unreservedly declares that the interim report is in conformity with IFRS and provides a true and fair view of the net assets, financial position and financial performance of the Group. The interim financial statements have been neither audited nor subjected to any review by the auditor of the consolidated financial statements. Disclosures relating to the income statement Rental income Thanks to the acquisition of the investment property at Rankestrasse 21 and the good letting result in 2013, rental income for the first nine months of 2014 was up 8% on the prior-year level at EUR 13,803 thousand (previous year EUR 12,800 thousand). Renovation and maintenance expenses Expenses for renovation and maintenance came to EUR 2,114 thousand, slightly down on the prior-year figure of EUR 2,186 thousand. Property management expenses Expenses for property management in the first nine months of 2014 amounted to EUR 811 thousand, and thus remained flat compared with the corresponding period of the previous year (EUR 784 thousand). This was mainly attributable to the high occupancy rate. Result from the revaluation of investment properties The result from the revaluation of investment properties in the first nine months was EUR 2,365 thousand, compared with EUR -1,226 thousand in the same period one year earlier. We refer to the explanatory notes on page 17 for further details. Income from the sale of properties Transfer of possession of the investment property at Immermannstrasse, Düsseldorf, classified under non-current assets held for sale at the end of 2013, was completed according to plan in the first quarter at the final valuation. Consequently no additional income was realized from the sale. The second quarter saw the disposal of the investment property at Rheinstrasse in Mainz for a price of EUR 2,600 thousand and the third quarter the disposal of the investment property at Rheinstrasse in Mainz for a price of EUR 4,200 thousand, crystallizing losses of EUR 48 thousand and EUR 352 thousand respectively. Q1 3/2014 Notes Other income Other income mainly comprises compensation payments and revenues from asset management activities, as well as compensation paid by tenants. Other expenses Other expenses are largely made up of input tax adjustments from previous years. Administrative expenses Administrative expenses for the first nine months of 2014 were down to EUR 2,092 thousand compared with the prior-year period (EUR 2,351 thousand). Financial result The financial result (including investment income) in the first nine months was EUR -4,597 thousand, compared with EUR -2,000 thousand in the same period one year earlier. The financial result includes valuation losses not affecting liquidity from derivative financial instruments (EUR -279 thousand; previous year EUR +2,176 thousand) prompted by the fall in long-term interest rates since the start of the year. Earnings per share Earnings per share are calculated as follows: Group net profit/loss for the year after income allocable to minority interests (in EUR 000) 5,926 5,542 Average number of ordinary shares in circulation 11,051,000 11,051,000 Earnings per share (diluted and undiluted) (in EUR)

19 Disclosures relating to the statement of financial position Development of investment properties The following overview highlights the development of the investment properties in the first nine months of 2014: EUR Property Location Fair value Modernization investments Disposals Changes in market value Fair value Luisenstrasse 46 Berlin 11, ,240 Potsdamer Strasse 58 Berlin 15, ,990 Rankestrasse 21/ Lietzenburger Strasse 44, 46 Berlin 29, ,140 Altmarkt 10/Kramergasse 2 Dresden 36, ,180 Könneritzstrasse Dresden 10, ,070 Palaisplatz Dresden 5, ,570 Berliner Allee 42 Düsseldorf 6, ,950 Berliner Allee 44 Düsseldorf 8, ,580 Berliner Allee 48 Düsseldorf 5, ,280 Steinstrasse 27 Düsseldorf 9, ,900 Gutleutstrasse 26 Frankfurt a. M. 8, ,240 Landschaftstrasse 2 Hanover 4, ,560 Landschaftstrasse 8 Hanover 3, ,050 Ebertplatz 1 Cologne 9, ,340 Gustav-Heinemann-Ufer 54 Cologne 17, ,060 Hansaring 20 Cologne 4, ,760 Konrad-Adenauer-Ufer Cologne 22, ,680 Neumarkt 49 Cologne 8, ,940 Weyerstrasse Cologne 16, ,510 Rheinstrasse Mainz 2, , Rheinstrasse Mainz 4, , Lessingstrasse 14 Munich 9, ,960 Böblinger Strasse 8/ Arminstrasse 15 Stuttgart 4, ,860 Quartier Büchsenstrasse Stuttgart 45, ,450 Tübinger Strasse 31, 33 Stuttgart 10, , Total 313,210 2,860 7,165 2, ,270 Q1 3/2014 Notes

20 Three properties were valued externally by FERI EuroRating Services AG at 30 September The remaining properties were valued internally. Revaluation produced an overall increase in market value of EUR 2,365 thousand. There were positive valuation results for the properties at Potsdamer Strasse 58 in Berlin, Quartier Büchsenstrasse in Stuttgart, Luisenstrasse 46 in Berlin and Altmarkt/ Kramergasse 2 in Dresden thanks to the positive development in occupancy rates. The main negative valuation results concerned the investment property at Gutleutstrasse 26 in Frankfurt am Main because of the expected conversion and restructuring costs following the departure of the tenant with effect from 31 December 2013, as well as the investment property at Böblinger Strasse 8/Arminstrasse 15 in the light of forthcoming investments in the underground car park and the property-specific market valuation. We refer to the disclosures under Income from the sale of properties with regard to the disposals, see page 16. For the principles applied in the external and internal property valuation process, we refer to the information provided on pages of the 2013 Annual Report. Liabilities to banks Loans with an overall volume of around EUR 15 million and with a remaining term of less than two years were repaid in the first nine months. At the same time around EUR 7 million was disbursed under existing lines of credit for long-term loans. Overall, liabilities to banks were reduced by around EUR 8 million. The other liabilities include derivative financial instruments with a negative market value. These are the interest rate swaps listed below, with the purpose of limiting the interest rate risk from variable-rate loans. Hedging instruments Volume EUR 000 Original maturity Rate % Market value EUR 000 Changes recognized in income Redeemed by payments Changes in market value CF Hedges (recorded in other income) Market value EUR 000 Financial instruments not designated in the context of cash flow hedges: Swap 8, % Swap 3, % Swap 5, % Financial instruments designated in the context of cash flow hedges: Swap 6, % ,011 Swap 6, % Swap 8, % Swap 2, % Swap 4, % Swap 9, % -1, ,309 Swap 1, % Swap 9, % ,018 Swap 8, % Swap 5, % Swap 10, % -1, ,933 Swap 5, % Swap 2, % , ,291-10, Total -8, ,291-11,173 The weighted average interest rate of the bank loans at 30 September 2014, including derivative financial instruments, was 3.6%. The proportion of variable-rate, unsecured liabilities to banks at 30 September 2014 was 12%. The weighted remaining term of interest rate hedges was 4.93 years. The valuation of the derivative financial instruments at 30 September 2014 revealed a negative effect on earnings of EUR 279 thousand for the first nine months of Q1 3/2014 Notes

21 The weighted remaining term of the bank loans at 30 September 2014 was 5.4 years, made up as follows: Maturity structure of bank loans in EUR 000, share in % 25,467 17% 4,320 20,790 53,401 37,474 6,701 3% 14% 36% 25% 5% Responsibility statement 19 To the best of our knowledge, and in accordance with the applicable financial reporting framework for interim financial reporting, the interim consolidated financial statements give a true and fair view of the net assets, financial position and financial performance of the Group, and the interim group management report gives a true and fair view of the development and performance of the business and the position of the Group, together with a description of the principal opportunities and risks relating to the expected future development of the Group over the remainder of the financial year. Berlin, November 2014 POLIS Immobilien AG The Board of Management Dr Alan Cadmus Dr Michael Piontek Q1 3/2014 Responsibility statement

22 Financial calendar 2015 Annual Report March 2015 Interim Report for the 1 st Quarter May 2015 General Meeting 19 June 2015 Semi-annual report August 2015 Initiative Immobilienaktie, Frankfurt am Main (Analyst conference) October 2015 Report on first nine months of November Imprint Publisher POLIS Immobilien AG Rankestrasse Berlin Telefon +49 (30) Telefax +49 (30) info@polis.de Q1 3/2014