WCM Beteiligungs und Grundbesitz AG Real Estate Commercial. Good transparency, operationally on track. 2 May 2016 BUY EUR 2.84 EUR 3.

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1 Good transparency, operationally on track Good disclosure: We have only had to adjust our estimates marginally following the publication of WCM s results for FY The key operational figures for rental income ( 10.4m), net operating income ( 9.6m) and Funds From Operations I (FFO I) as adjusted net profit ( 7.9m) all came in close to our estimates. We welcome the fact that WCM has a high level of transparency in its financial reporting, including its publication of externally-appraised market values on a single property basis, which only a few German commercial property companies have done so far. Solid base: In 2015, WCM successfully built up its portfolio to a size of c 550m on a pro-forma basis. Its main exposure (62%) is to office property, followed by retail; the average lease maturity is close to 10 years. About two-thirds of rental income is generated by the 10 largest tenants, with Edeka the biggest of these, followed by the federal state of Hesse. We regard tenant quality as high; annual lease expiry is 4% for the current fiscal year followed by 11% in 2017, 17% in 2018 and 22% in 2019, which are comparable figures to other market players. Importantly, with 22 employees, WCM has already established an in-house platform for the key functions of property and asset management, which we think will enable the company to grow the portfolio further, reduce the already-low vacancy rate of 4.8% and extend lease contracts before maturity. Looking ahead, the company also aims to dispose of more property on an opportunistic basis in order to optimise the portfolio s structure. We would expect WCM to continue its growth momentum, as reflected in the recent acquisitions of a DIY market with OBI as sole tenant ( 22.0m purchase price, 14.7 years lease maturity) and two supermarkets rented to Aldi ( 25.8m purchase price, 12.4 years lease maturity). Progressing well: For FY 2016 WCM anticipates 18m-21m in FFO I based on the current portfolio structure. Depending on disposals and acquisitions, FFO I is expected to reach about 20m, which we regard as fairly conservative guidance. The company also confirmed that it will be making dividend payments for the current fiscal year. Our positive view on WCM is also supported by the company s solid balance sheet ratios with 6.4 years as the average debt maturity and 2.1% as the average cost of debt. We therefore confirm our rating and price target. WCM s share price has performed reasonably well ytd (+7%) and has only weakened recently after DIC Asset announced that it now holds a stake of 20% in the company. From a fundamental perspective and bearing in mind current valuation levels with an FFO yield of more 6.0%, we see the current share price level as an attractive entry point. Y/E 31/12., EUR m E 2017E 2018E Total revenues Net rents EBIT (inc revaluation net) EBIT (excl revaluation) Net profit (reported) Funds From Operations (FFO) EPS reported FFO per share DPS NAV per share NNAV per share EV/EBITDA FFO yield - 3.9% 6.4% 7.1% 7.2% P/FFO Dividend yield % 3.9% 4.0% P/NAV per share 27% 24% 26% 18% 11% P/NNAV per share 27% 12% 5% -1% -6% Net gearing -36% 97% 93% 85% 78% Loan-to-value (LTV) 47% 53% 48% 46% 46% Implied yield - 1.7% 4.6% 5.1% 5.2% Source: Company data, Berenberg 2 May 2016 BUY Current price Price target EUR 2.84 EUR /04/2016 XETRA Close Market cap (EUR m) 347 Reuters WCMKk.DE Bloomberg WCMK GY Changes made in this note Rating: Buy (no change) Price target: EUR 3.15 (no change) Estimates changes 2016E 2017E 2018E old % old % old % Rents EBIT FFO Source: Berenberg estimates Share data Shares outstanding (m) 122 Enterprise value (EUR m) 602 Daily trading volume 450,000 Kai Klose, CIIA Analyst kai.klose@berenberg.com Tina Munda, ACA Analyst tina.munda@berenberg.com

2 BUY Investment thesis 2 May 2016 Reuters WCMKk.DE The office market in Germany has improved in recent years, as Current price Price target EUR 2.84 EUR 3.15 Bloomberg WCMK GY Market cap (EUR m) /04/2016 XETRA Close EV (EUR m) 602 Non-institutional shareholders DIC Asset 20.2%; Karl-Philipp Ehlerdings: 5.5%; Johen Frederik Eherdings: 5.5%; Stavros Efremidis: 1.9% Business description WCM is internally managed and successfully built up a commercial property portfolio in Germany of more than 550m over Trading volume 450,000 Free float 67.0% Share performance High 52 weeks EUR 3.69 Low 52 weeks EUR 1.88 Performance relative to SXXP SDAX 1mth -13.0% -10.0% 3mth -1.4% -4.4% 12mth 25.6% 6.9% reflected in greater demand for space and also a stabilisation in rental levels. New supply of office space remains limited overall. WCM s management team has long experience of, and a strong track record in, real estate. WCM has a high amount of tax loss carry-forwards. Our valuation is based on return on net asset value and a dividend discount model. Profit and loss summary EURm E 2017E 2018E Net rental income Total revenues Revaluation result Total operating expense EBITDA Adjusted EBITDA Financial result EBT Net profit Funds from operations FFO/share Year-end shares DPS Cash flow summary EURm E 2017E 2018E FFO CF operating activities Payments (acquisitions) Income (asset disposals) Change in debt position Dividend paid Capital measures Growth and margins E 2017E 2018E Rental growth % -5.0% 0.8% Adj. EBITDA growth % 508.4% 8.4% 1.8% FFO growth % 178.8% 11.4% 1.7% Adj. EBITDA margin -67.6% 34.4% 84.8% 85.5% 85.3% Adj. EBIT margin -67.6% 37.3% 86.0% 86.6% 86.4% FFO margin % 78.9% 81.3% 81.3% Key ratios E 2017E 2018E Net debt Net debt/equity LTV 47% 53% 48% 46% 46% Net gearing -36% 97% 93% 85% 78% Interest cover Dividend cover Payout ratio 0% 0% 50% 55% 55% Return on NAV -2.9% 3.0% 8.0% 8.3% 8.0% Valuation metrics E 2017E 2018E P / FFO P / NAV 27% 24% 26% 18% 11% P / NNAV 27% 12% 5% -1% -6% FFO yield - 3.9% 6.4% 7.1% 7.2% Dividend yield % 3.9% 4.0% EV / adj. EBITDA Key risks to our investment thesis The investment markets for commercial property in Germany s seven most relevant cities are very competitive. WCM also intends to sell some newly acquired properties, which are located in small cities with only a limited demand from potential buyers. Kai Klose, CIIA Analyst kai.klose@berenberg.com Tina Munda, ACA Analyst tina.munda@berenberg.com

3 Financials Profit and loss account Year-end December(EUR m) E 2017E 2018E Net rents Direct property expenses Net operating income Earnings from property disposals Earnings from project developments Earnings from other property activities Other operating income Total revenues Revaluation result from investment properties (net) Total income Administrative expenses Personnel expenses Other operating expenses Total operating expenses EBITDA EBITDA excl revaluation result (net) Depreciation EBITA EBITA excl revaluation result (net) Amortisation of goodwill Amortisation of intangible assets Impairment charges EBIT (incl revaluation result net) EBIT excl revaluation result Interest income Interest expenses Depreciation of financial investment Investment income Financial result Earnings before taxes (incl revaluation result) Earnings before taxes (excl revaluation result) Total taxes Net income from continuing operations (incl revaluation result) Net income from continuing operations (excl revaluation result) Income from discontinued operations (net of tax) Extraordinary items (net of tax) Cumulative effect of accounting changes (net of tax) Net income (incl revaluation result net) Net income (excl revaluation result net) Minority interest Net income (net of minority interest, incl revaluation result) Net income (net of minority interest, excl revaluation result) Funds from operations (FFO) Source: Company data, Berenberg estimates 3

4 Balance sheet Year-end December (EUR m) E 2017E 2018E Intangible assets Investment properties Development assets Property, plant and equipment Financial assets Other non-current assets Deferred tax assets FIXED ASSETS Properties held for sale Inventories Accounts receivable Accounts receivable and other assets Liquid assets CURRENT ASSETS TOTAL ASSETS Subscribed capital Surplus capital Additional paid-in capital Net profit/loss SHAREHOLDERS' EQUITY MINORITY INTEREST PROVISIONS AND ACCRUED LIABILITIES short-term liabilities to banks Bonds (long-term) long-term liabilities to banks other interest-bearing liabilities Interest-bearing liabilities Accounts payable Current liabilities Deferred income Deferred taxes LIABILITIES TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY Source: Company data, Berenberg estimates 4

5 Cash flow statement EUR m E 2017E 2018E Funds from operations Other recurrent / non-recurrent items Increase/decrease in working capital Cash flow from operating activities Capex Payments for acquisitions Financial investments Income from asset disposals Cash flow from investing activities Increase/decrease in debt position Dividends paid Purchase of own shares Capital measures Others Cash flow from financing activities Cash flow from operating activities Cash flow after maintenance capex Cash flow before financing Increase/decrease in liquid assets Source: Company data, Berenberg estimates Ratios Ratios E 2017E 2018E Return on equity Net profit / Y/E equity 3.9% 22.1% 9.2% 11.1% 10.1% Recurring net profit / Y/E equity -2.9% 3.0% 8.0% 8.3% 8.0% Net profit / avg. equity 3.9% 22.1% 9.2% 11.1% 10.1% Recurring net profit / avg. equity -2.9% 3.0% 8.0% 8.3% 8.0% Security Net debt Debt / equity 27% 101% 96% 90% 84% Net gearing -36% 97% 93% 85% 78% Interest cover EBITDA / interest paid Dividend payout ratio 0% 0% 43% 41% 43% Dividend cover Loan-to-value (LTV) 47% 53% 48% 46% 46% Return on net asset value -2.9% 3.0% 8.0% 8.3% 8.0% Liquidity Current ratio Acid test ratio Source: Company data, Berenberg estimates 5

6 Please note that the use of this research report is subject to the conditions and restrictions set forth in the General investment stment-related disclosures and the Legal disclaimer at the end of this document. For analyst certification and remarks regarding g foreign investors and country-specific disclosures, please refer to the respective paragraph at the end of this document. Disclosures in respect of section 34b of the German Securities Trading Act (Wertpapierhandelsgesetz WpHG) Company WCM Beteiligungs und Grundbesitz AG 1, 3, 5 Disclosures (1) Joh. Berenberg, Gossler & Co. KG (hereinafter referred to as the Bank ) and/or its affiliate(s) was Lead Manager or Co- Lead Manager over the previous 12 months of a public offering of this company. (2) The Bank acts as Designated Sponsor for this company. (3) Over the previous 12 months, the Bank and/or its affiliate(s) has effected an agreement with this company for investment banking services or received compensation or a promise to pay from this company for investment banking services. (4) The Bank and/or its affiliate(s) holds 5% or more of the share capital of this company. (5) The Bank holds a trading position in shares of this company. Historical price target and rating changes for WCM Beteiligungs und u Grundbesitz AG in the last 12 months Date Price target - EUR Rating Initiation of coverage 06 August Buy 06 August December Buy 10 March Buy Berenberg Equity Research ratings distribution and in proportion to investment banking services, as of 1 January 2016 in respect of section 5 paragraph 4 of the German Financial Analysis Regulation (Finanzanalyseverordnung FinAnV) Buy % % Sell % 0.00 % Hold % % Valuation basis/rating key The recommendations for companies analysed by Berenberg s Equity Research department are made on an absolute basis for which the following three-step rating key is applicable: Buy: Sustainable upside potential of more than 15% to the current share price within 12 months; Sell: Sustainable downside potential of more than 15% to the current share price within 12 months; Hold: Upside/downside potential regarding the current share price limited; no immediate catalyst visible. NB: During periods of high market, sector, or stock volatility, or in special situations, the recommendation system criteria may be breached temporarily. Competent supervisory authority Bundesanstalt für Finanzdienstleistungsaufsicht -BaFin- (Federal Financial Supervisory Authority), Graurheindorfer Straße 108, Bonn and Marie-Curie-Str , Frankfurt am Main, Germany. General investment- related disclosures Joh. Berenberg, Gossler & Co. KG (hereinafter referred to as the Bank ) has made every effort to carefully research all information contained in this financial analysis. The information on which the financial analysis is based has been obtained from sources which we believe to be reliable such as, for example, Thomson Reuters, Bloomberg and the relevant specialised press as well as the company which is the subject of this financial analysis. Only that part of the research note is made available to the issuer (who is the subject of this analysis) which is necessary to properly reconcile with the facts. Should this result in considerable changes a reference is made in the research note. 6

7 Opinions expressed in this financial analysis are our current opinions as of the issuing date indicated on this document. The companies covered by Berenberg are continuously followed by the analyst. Based on developments with the relevant company, the sector or the market which may have a material impact on the research views, research reports will be updated as it deems appropriate. The functional job title of the person/s responsible for the recommendations contained in this report is Equity Research Analyst unless otherwise stated on the cover. The following internet link provides further remarks on our financial analyses: Legal disclaimer This document has been prepared by Joh. Berenberg, Gossler & Co. KG (hereinafter referred to as the Bank ). This document does not claim completeness regarding all the information on the stocks, stock markets or developments referred to in it. On no account should the document be regarded as a substitute for the recipient procuring information for himself/herself or exercising his/her own judgements. The document has been produced for information purposes for institutional clients or market professionals. Private customers, into whose possession this document comes, should discuss possible investment decisions with their customer service officer as differing views and opinions may exist with regard to the stocks referred to in this document. This document is not a solicitation or an offer to buy or sell the mentioned stock. The document may include certain descriptions, statements, estimates, and conclusions underlining potential market and company development. These reflect assumptions, which may turn out to be incorrect. The Bank and/or its employees accept no liability whatsoever for any direct or consequential loss or damages of any kind arising out of the use of this document or any part of its content. The Bank and/or its employees may hold, buy or sell positions in any securities mentioned in this document, derivatives thereon or related financial products. The Bank and/or its employees may underwrite issues for any securities mentioned in this document, derivatives thereon or related financial products or seek to perform capital market or underwriting services. Analyst certification I, Kai Klose, hereby certify that all of the views expressed in this report accurately reflect my personal views about any and all of the subject securities or issuers discussed herein. In addition, I hereby certify that no part of my compensation was, is, or will be, directly or indirectly related to the specific recommendations or views expressed in this research report, nor is it tied to any specific investment banking transaction performed by the Bank or its affiliates. I, Tina Munda, hereby certify that all of the views expressed in this report accurately reflect my personal views about any and all of the subject securities or issuers discussed herein. In addition, I hereby certify that no part of my compensation was, is, or will be, directly or indirectly related to the specific recommendations or views expressed in this research report, nor is it tied to any specific investment banking transaction performed by the Bank or its affiliates. Remarks regarding foreign investors The preparation of this document is subject to regulation by German law. The distribution of this document in other jurisdictions may be restricted by law, and persons into whose possession this document comes should inform themselves about, and observe, any such restrictions. United Kingdom This document is meant exclusively for institutional investors and market professionals, but not for private customers. It is not for distribution to or the use of private investors or private customers. United States of America This document has been prepared exclusively by the Bank. Although Berenberg Capital Markets LLC, an affiliate of the Bank and registered US broker-dealer, distributes this document to certain customers, Berenberg Capital Markets LLC does not provide input into its contents, nor does this document constitute research of Berenberg Capital Markets LLC. In addition, this document is meant exclusively for institutional investors and market professionals, but not for private customers. It is not for distribution to or the use of private investors or private customers. This document is classified as objective for the purposes of FINRA rules. Please contact Berenberg Capital Markets LLC ( ) if you require additional information. 7

8 Third-party research disclosures Company WCM Beteiligungs und Grundbesitz AG Disclosures no disclosures (1) Berenberg Capital Markets LLC owned 1% or more of the outstanding shares of any class of the subject company by the end of the prior month.* (2) Over the previous 12 months, Berenberg Capital Markets LLC has managed or co-managed any public offering for the subject company.* (3) Berenberg Capital Markets LLC is making a market in the subject securities at the time of the report. (4) Berenberg Capital Markets LLC received compensation for investment banking services in the past 12 months, or expects to receive such compensation in the next 3 months.* (5) There is another potential conflict of interest of the analyst or Berenberg Capital Markets LLC, of which the analyst knows or has reason to know at the time of publication of this research report. * For disclosures regarding affiliates of Berenberg Capital Markets LLC please refer to the Disclosures in respect of section 34b of the German Securities Trading Act (Wertpapierhandelsgesetz WpHG) section above. Copyright The Bank reserves all the rights in this document. No part of the document or its content may be rewritten, copied, photocopied or duplicated in any form by any means or redistributed without the Bank s prior written consent. September 2015 Joh. Berenberg, Gossler & Co. KG 8

9 Contacts Investment Banking EQUITY RESEARCH Internet RESEARCH AEROSPACE & DEFENCE CHEMICALS GENERAL RETAIL REAL ESTATE Andrew Gollan Sebastian Bray Conrad Bartos Kai Klose Charlotte Keyworth Andrew Heap Michelle Wilson Tina Munda Ross Law John Klein HEALTHCARE TECHNOLOGY AUTOMOTIVES CONSTRUCTION Scott Bardo Jean Beaubois Adam Hull Lush Mahendrarajah Jakob Berry Georgios Kertsos Paul Kratz Robert Muir Alistair Campbell Gal Munda Olivia Peters Graham Doyle Tammy Qiu BANKS Michael Watts Klara Fernandes Adam Barrass Tom Jones TELECOMMUNICATIONS James Burbridge FOOD MANUFACTURING AND H&PC Louise Pearson Ondrej Cabejsek (EM) James Chappell Yordana Mavrodieva Laura Sutcliffe Usman Ghazi Andrew Lowe Fintan Ryan Siyi He Eoin Mullany James Targett INSURANCE Laura Janssens Peter Richardson Trevor Moss Paul Marsch Jonathan Sharpe FOOD RETAIL Iain Pearce Michael Summerville Batuhan Karabekir (EM) Sami Taipalus BEVERAGES THEMATIC RESEARCH Javier Gonzalez Lastra GENERAL MID CAP - EU LUXURY GOODS Nick Anderson Batuhan Karabekir (EM) Gunnar Cohrs Zuzanna Pusz Chris Armstrong Adam Mizrahi Martin Comtesse Asad Farid Anna Patrice MEDIA BUSINESS SERVICES, LEISURE & TRANSPORT Simona Sarli Robert Berg TOBACCO Roberta Ciaccia Julia Scheufler Laura Janssens Jonathan Leinster Najet El Kassir Alastair Reid Stuart Gordon GENERAL MID CAP - UK Sarah Simon UTILITIES Simon Mezzanotte Robert Chantry Robin Abrams Josh Puddle Sam England METALS & MINING Andrew Fisher Ned Hammond Alessandro Abate Lawson Steele CAPITAL GOODS Benjamin May Fawzi Hanano Sebastian Kuenne Owen Shirley Yuriy Vlasov Philippe Lorrain ECONOMICS Rizk Maidi Carsten Hesse (EM) Horace Tam Kallum Pickering Simon Toennessen Holger Schmieding EQUITY SALES firstname.lastname@berenberg.com SPECIALIST SALES UK SWITZERLAND, AUSTRIA & ITALY PARIS AEROSPACE & DEFENCE Alexandra Clément Andrea Ferrari Vincent Klein Bruna Zugliani Fabian De Smet Carsten Kinder Antonio Scuotto AUTOMOTIVE & THEMATICS Toby Flaux Gianni Lavigna Chris Armstrong Karl Hancock Jamie Nettleton TRADING BANKS & DIVERSIFIED FINANCIALS Sean Heath Benjamin Stillfried LONDON Iro Papadopoulou David Hogg Edward Burlison-Rush CHEMICALS, CONSTRUCTION & CAP GOODS Peter Kaineder SALES TRADING Richard Kenny Jina Zachrisson James Matthews HAMBURG CONSUMER STAPLES David Mortlock David Hohn ELECTRONIC TRADING Rupert Trotter Eleni Papoula Gregor Labahn Daniel Eichhorn CONSUMER DISCRETIONARY Bhavin Patel Lennart Pleus Matthias Führer Victoria Maigrot Richard Payman Marvin Schweden HEALTHCARE George Smibert Tim Storm CRM Frazer Hall Anita Surana Linus Weidner Jessica Jarmyn MEDIA & TELECOMMUNICATIONS Paul Walker Philipp Wiechmann Edwina Lucas Julia Thannheiser Christoffer Winter Greg Swallow FRANCE SALES Thibault Bourgeat LONDON CORPORATE ACCESS BENELUX Alexandre Chevassus Mike Berry Lindsay Arnold Miel Bakker Dalila Farigoule Stewart Cook Jennie Jiricny Martin de Laet Clémence Peyraud Mark Edwards Stella Siggins Alexander Wace Benjamin Voisin Tristan Hedley Peter King EVENTS GERMANY SCANDINAVIA Christoph Kleinasser Laura Hawes Michael Brauburger Frederik Angel Chris McKeand Suzy Khan Nina Buechs Marco Weiss Simon Messman Charlotte Kilby André Grosskurth AJ Pulleyn Natalie Meech Florian Peter Paul Somers Ellen Parker Joerg Wenzel Sarah Weyman US SALES SALES firstname.lastname@berenberg-us.com BERENBERG CAPITAL MARKETS LLC Kelleigh Faldi SALES TRADING CRM Member FINRA & SIPC Isabella Fantini Scott Duxbury Laura Cooper Shawna Giust Christopher Kanian Zubin Hubner Lars Schwartau CORPORATE ACCESS Jessica London Bob Spillane Olivia Lee Ryan McDonnell Emily Mouret ECONOMICS Peter Nichols Mickey Levy Kieran O'Sullivan Jonathan Saxon