WESTGRUND. Equity Research COMPANY REPORT. Buy (Initiation of Coverage) An attractive niche player with potential. 12 June 2014.

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1 Germany Real Estate An attractive niche player with potential We initiate coverage on with a Buy rating and a TP of EUR We regard the company as an attractive niche player in the German residential sector. AG was founded in 1990, IPOed in 1998 and started a strategic reorientation in 2010 with new strategic key investors, which supported and funded the build-up of a residential property holding company. The growth path gained momentum since 2012 and WEG increased the number of own residential units from ~1,600 to currently ~7,000 units. Based on the existing platform, the company plans to increase the portfolio to 20,000-30,000 units over the next years. The acquisition and management track record is already established and provides a promising outlook for further growth. Portfolio size is increasing with attractive yields: The current 7,000 unit portfolio (EUR 320mn market value) was mainly build up over the past two years and the current yield is at 7.8% at a vacancy rate of 7%. In terms of regions, Berlin (30%), Eastern Germany (50%) and Lower Saxony (11%) are the key locations. The acquisition of 5,400 units was done at an attractive initial yield of 9.2% (weighted avg.), despite the fact that portfolios have not a major maintenance backlog and are typically in a good state of repair. Combination of portfolio growth, high yields and low financing costs is driving the profitability strongly. Given the 7.8% rental yield, financing costs of 3.2% and potential scale effects from additional investments, we expect a strong increase in profitability. In terms of FFO yield on NAV, we estimate an increase from 2.9% for FY14E to 6.7% for 2016E. TP of EUR 4.90 with upside potential of above 30% on a 12M horizon. WEG shares are trading at a discount of 14% to our 2014E NAV and 28% to our 2015E NAV. At our TP, the company would be still valued with a discount of 5% on 2015E NAV. Even if we assume a further conservative portfolio growth because a capital injection for financing has to be resolved first (AGM on 13 June with proposal of up to 40mn new shares), the NAVps growth will be strong in our view ( E: +18% p.a.) E 2015E 2016E Gross rental income (EUR mn) EBITDA (EUR mn) Net income (EUR mn) EPS adjusted (EUR) EPS reported (EUR) FFO per share (EUR) DPS (EUR) NAV per share (EUR) NAV prem./discount (%) P/E adjusted (x) Dividend yield (%) FFO yield (%) Implied yield (EBITDA/EV) (%) ROCE (%) Net loan-to-value (%) Source: Company data, Baader Bank AG Equity Research Buy (Initiation of Coverage) Closing price as of 11-Jun-14 EUR 3.70 High/Low (12M) 3.74/2.97 Target price (prev. EUR -) EUR 4.90 Upside to target price (%) 32.4 Expected dividend yield (%) 0.0 Total return potential (%) 32.4 Risk category 1 Reuters/Bloomberg WEG1.DE/WEG1 GY Avg. daily turnover (EUR mn) 0.0 Free float (%) 22.7 Market cap. (EUR mn) 111 No. of shares issued (mn) 30.1 incl. contr. in kind capital increases (1H14E) Events Annual general meeting 13-Jun H/2Q Aug-2014 Shareholders Wecken & Cie 46.5%, Quartenal Invest 20.6%, Lechner 10.2% Price relative to Index Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 DAX Source: Thomson Reuters Performance (%) 1M 3M 6M Absolute rel. DAX rel. EURO STOXX rel. SXXP Real Estate Changes in estimates 2014E EUR mn (prev.) Rental income FFOps (EUR) NAVps (EUR) Delta (%) Analyst: Andre Remke, CFA andre.remke@baaderbank.de 2015E (prev.) Delta (%) Important disclosures: Please read information on the last pages of this report 1

2 Key data Germany Real Estate Reuters: WEG1.DE Buy Bloomberg: : WEG1 GY Price on 11-Jun-14 EUR 3.70 Target price EUR 4.90 High/Low (12M) EUR 3.74/2.97 Market cap. EUR mn 111 Company profile is a residential real estate company with a standing portfolio of currently approx. 7,000 units. Revenue by segment Margin trends Adj. ROCE and sales growth EUR Gearing Saxony/ Saxony- Anhalt/ Thuringia 35% Residential 100% Lower Saxony 11% Brandenburg 10% Rhineland- Palatinate 7% Mecklenburg- W. Pomerania 5% NRW 3% Berlin 29% E 2015E 2016E Direct investment result (EPS adj.) Indirect investment result 100% 80% 60% 40% 20% 0% E 2015E 2016E Net LTV Interest cover (RS) Source: Company data, Thomson Reuters, Datastream, Baader Bank AG Equity Research Analyst: Andre Remke, CFA andre.remke@baaderbank.de FY 31 Dec E 2015E 2016E Share data EPS adjusted (EUR) Indirect investment result (EUR) EPS reported (EUR) FFO (EUR) Cash earnings (EUR) Dividend (EUR) Book value (EUR) NAV adj. (EUR) Number of shares (outstanding; mn) Share price (avg./current; EUR) Market cap. (avg./current; EUR mn) Enterprise value (EUR mn) Valuation P/E adj. (x) FFO yield (%) Cash earnings yield (%) Dividend yield (%) Implied yield (EBITDA/EV) (%) P/NAV (x) P/BV (x) EV/EBIT (x) EV/CE (x) ROCE/WACC adj. (x) (EV/CE)/(ROCE/WACC) (x) Key company data Rental income growth (%) EBITDA growth (%) FFO growth (%) FFO per share growth (%) DPS growth (%) n.a. n.a. n.a. n.a. n.a EBITDA margin adj. (%) NOI margin (%) ROE recurring (%) ROCE adj. (%) Net gearing (x) Net loan-to-value (%) Net debt/ebitda Equity ratio (%) Interest cover (x) Income statement (EUR mn) Total revenues Gross rental income Net rental income Profit on disposal of investment properties Profit on disposal of trading prop./developm EBITDA Valuation result EBIT Net financial result EBT EBT adjusted Taxes Net profit before minorities Minorities Net profit after minorities Direct investment result Indirect investment result Funds from operations (FFO) Balance sheet (EUR mn) Investment property Other fixed assets Intangible assets (incl. Goodwill) Financial assets Other non-current assets Non-current assets Inventories/Assets held for sale Other receivables and assets Cash and equivalents Current assets Total assets Equity Interest bearing debt Other non-current liabilities Other current liabilities Total equity and liabilities Net debt Cash flow (EUR mn) Cash generated from operations Net interest/tax payments Cash flow from operating activities Cash flow from investing activities Free cash flow Proceeds from issue of share capital/bonds Dividend paid Cash flow from financing activities Changes in cash position Cash/cash equivalent at period end

3 Disclaimer GENERAL STATEMENTS Our recommendations are based on information that has been diligently compiled by us and is partially based on publicly available sources of third parties believed to be reliable. We do not warrant the accuracy or completeness of such information of third parties. All estimates and opinions included herein represent the independent judgment of the responsible analysts of Baader Bank AG as of the date of publication of this analysis. We reserve the right to modify the views expressed herein at any time without notice. Moreover, we reserve the right not to update this information or to discontinue it altogether without notice. Neither Baader Bank AG nor any of its authorized representatives or employees nor any other person accepts any liability whatsoever for any loss arising from any use of this document or its contents or otherwise arising in connection therewith. 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The value added tax identification number of Baader Bank AG is DE POTENTIAL CONFLICTS OF INTERESTS Section 34b of the German Securities Trading Act (Wertpapierhandelsgesetz) in conjunction with the German Financial Analysis Regulation ( 5 Section 4 No. 3 Finanzanalyseverordnung) requires Baader Bank AG to disclose potential conflicts of interest with respect to the company that is the subject of the analysis. The following paragraph first indicates which conflicts of interest may be applicable regarding a specific company and subsequently sets forth a list of all possible keys pursuant to the German Financial Analysis Regulation. Please note that the list of possible keys is only for explanatory purposes and that solely the potential conflicts set forth under Applicable Key(s) might be present with respect to the specific company. Applicable Key(s) adidas 4; Adler Modemärkte 4, 5; Ahold 4; AIXTRON 4; Allgeier 4, 5; alstria office REIT 4; AMAG 4; ams 4; ANDRITZ 4; ASML 4; Atrium 4; Aurubis 4; BayWa 4; Beiersdorf 4; BMW 4; CA Immo 4; Carrefour 4; Continental 4; conwert 4, 5; Daimler 4; Dassault Systèmes 4; Deutsche EuroShop 4; Deutsche Wohnen 4; Dialog Semiconductor 4; DIC Asset 4, 5; DMG MORI SEIKI 4; Dufry 4; Dürr 4; Fielmann 4; GAGFAH 4; GEA Group 4; GERRY WEBER 4; GRAMMER 4, 5; Heidelberger Druck 4; Henkel 4; HUGO BOSS 4; IMMOFINANZ 4, 5; Infineon 4; Jenoptik 4; Jungheinrich Pref. 4; KION Group 4; Klöckner & Co 4; Krones 4; KUKA 4; LEONI 4; METRO 4; Micronas 4; Nabaltec 4, 5; Nemetschek 4; NORMA Group 4; OSRAM 4; PATRIZIA Immobilien 4; Prime Office 4, 5; PSP Swiss Property 4; PUMA 4; Rational 4; REALTECH 4; RHI 4; Salzgitter 4; SAP 4; Schoeller-Bleckmann Oilfield Equipment (SBO) 4; Semperit 4; SGL CARBON SE 4; Siemens 4; Sixt 4; SKW Metallurgie 4; Software AG 4; STMicroelectronics 4; Süss MicroTec 4; Swiss Prime Site 4; TAG Immobilien 4; Temenos 4; ThyssenKrupp 4; TOM TAILOR 4; Valora 4; VIB Vermögen 3, 4, 5; voestalpine 4; Volkswagen Pref. 4; VTG 4; 3, 4, 5; Wienerberger 4; Wirecard 4; Zumtobel 4 Key 1: Baader Bank AG and/or a company affiliated with it own at least 1% of the capital stock of the company that is the subject of the analysis. 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4 RECOMMENDATIONS, RATINGS AND EVALUATION METHODOLOGY Financial analyses with recommendation changes (rating or target price) published in the twelve months prior to the publication of this financial analysis covering the same financial instruments or issuers. price chart Percentage of companies within this rating category Buy: 52.4% Hold: 41.6% Sell: 6.0% Baader Bank AG and/or a company affiliated with and/or employees or clients may take positions in, and may purchase and/or sale the securities or related financial instruments as principal or agent. Rating categories: The following is an explanation of the ratings, if any, included in this document. Interpretation matrix per risk category for each rating: Expected total return based on forecast dividend and 12-month price targets. Risk category Rating 1 2 Buy >10% >15% Hold 0% to 10% 0% to 15% Sell <0% <0% Research ratings key: There are three possible ratings: Buy, Hold or Sell. For each rating there is a different forecast total return, expressed as a percentage, according to the classification of the company in one of the two investment categories into which the universe of companies covered by Baader Bank AG is divided. Stocks are allocated to the category 2 if, in the opinion of the responsible analyst, investors would require a higher return from that share. Reasons for such an allocation include, but are not limited to low liquidity of the shares, high risk or volatile cash flows, unproven business model or start-up company, corporate governance, high risk balance sheet structure. Examples of certain ratings: Buy / category 2: a company that the analyst deems higher risk with a forecast dividend yield of 5% and price appreciation potential of 15% generating a forecast total return of 20% over 12 months. Hold / category 1: a company with a forecast dividend yield of 7% and price appreciation potential of -5% generating a forecast total return of +2% over 12 months. We employ three further categorizations for stocks in our coverage: Restricted: A rating and/or financial forecast and/or target price is not disclosed due to compliance or other regulatory considerations such as blackout period or conflict of interest. Coverage in transition: Due to changes in the research team, the disclosure of a stock's rating and/or target price and/or financial information are temporarily suspended. The stock remains in the research universe and disclosures of relevant information will be resumed in due course. Not rated: Suspension of coverage. Valuation methodology Company valuations are based on the following valuation methods: Multiple-based models (P/E, P/cash flow, EV/sales, EV/EBIT, EV/EBITA, EV/EBITDA), peer-group comparisons, historical valuation approaches, discount models (DCF, DVMA, DDM), break-up value approaches or assetbased evaluation methods. Furthermore, recommendations are also based on the economic profit approach. Valuation models are dependent on macroeconomic factors, such as interest rates, exchange rates, raw materials, and on assumptions about the economy. Furthermore, market sentiment affects the valuation of companies. The valuation is also based on expectations that might change rapidly and without notice, depending on developments specific to individual industries. Our recommendations and target prices derived from the models might therefore change accordingly. The investment ratings generally relate to a 12-month horizon. They are, however, also subject to market conditions and can only represent a snapshot. The ratings may in fact be achieved more quickly or slowly than expected, or need to be revised upward or downward. Frequency of reports and updates It is intended that each of these companies be covered at least once a year, in the event of key operations and/or changes in the recommendation. DECLARATION OF RESPONSIBLE ANALYSTS The remuneration of the responsible analysts has not been, and will not be, dependent on the recommendations or views expressed in this analysis, neither directly nor indirectly. ORGANIZATIONAL ARRANGEMENTS TO AVOID AND PREVENT CONFLICTS OF INTEREST In order to proactively prevent conflicts of interest, Baader Bank AG has established a compliance program. Such compliance program includes, among other things, confidentiality measures through separation, or so called Chinese walls. These could be virtual or physical barriers to limit the flow of information between different departments, groups or individuals within the bank. The compliance program is monitored by Baader Bank AG's compliance department. 50

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Qualified Institutional Buyer means any of the following entities that in the aggregate owns and invests on a discretionary basis at least USD 100mn in securities of issuers that are not affiliated with the entity; (a) an insurance company as defined in Section 2(13) of the Securities Act; (b) an investment company registered under the Investment Company Act; (c) any small business investment company licensed by the U.S. Small Business Administration under the Small Business Investment Act; (d) any plan established and maintained for the benefit of its employees; (e) any employee benefit plan within the meaning of the Employee Retirement Income Security Act; (f) any trust fund whose trustee is a bank or trust company and whose participants are exclusively plans of the types identified in paragraph (d) or (e) herein; (g) any business development company as defined in Section 202(a)(22) of the Investment Advisers Act; (h) any organization described in Section 501(c)(3) of the Internal Revenue Code; and (i) any investment adviser registered under the Investment Advisers Act. The securities referred to in this report are not registered under the Securities Act, as amended, and the issuer of such securities may not be subject to U.S. reporting and/or other requirements. Available information regarding the issuer of such securities may be limited and such issuer may not be subject to the same auditing and reporting standards as U.S. issuers. 52

7 Contacts Volker Bosse, CEFA Tim Dawson Andre Remke, CFA Gerhard Schwarz, CEFA Co-Head Equity Research Co-Head Equity Research Co-Head Equity Research Head of Equity Strategy EQUITY RESEARCH Automobile & Parts Klaus Breitenbach Business Services & Logistics Chris Burger, CFA Construction Patrick Appenzeller Consumer Retail & Consumer Volker Bosse, CEFA Food & Beverage, Luxury Goods Andreas von Arx Home & Personal Care Christian Weiz Financials Banks & Financial Services Tim Dawson Insurance Daniel Bischof, CFA Health Care Biotechnology, Pharmaceuticals Olav Zilian, MD Ph.D Pharmaceuticals Odile Rundquist, Ph.D Industrials Industrials (Switzerland) Reto Amstalden Stefan Gächter, CFA Industrials (Austria) Christine Reitsamer, CFA Machinery (Germany) Peter Rothenaicher Real Estate Andre Remke, CFA Christine Reitsamer, CFA Small & Mid Caps Christian Weiz Steel & Metals Christian Obst, CEFA Technology Software & IT Services Knut Woller, CEFA Technology Hardware Guenther Hollfelder, CFA EQUITY STRATEGY Gerhard Schwarz, CEFA Heinz Imbacher EQUITY SALES DERIVATIVES SALES EQUITY SALES TRADING Frankfurt Munich Frankfurt Geneva Geneva /9191 London London Munich Munich Zurich New York For North American clients: New York Montreal PUBLICATION ADDRESSES Baader Bank AG Helvea SA Equity Research Equity Research Weihenstephaner Strasse 4 Rue de l Arquebuse Unterschleissheim, Germany P.O. Box Geneva 11, Switzerland T T