Prime Office REIT-AG EXCELLENCE IN GERMAN REAL ESTATE Berenberg European Conference November 2011 0
Disclaimer The statements contained herein may include statements of future expectations and other forward-looking statements that are based on management's current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation, general economic conditions, including in particular economic conditions in the core business of Prime Office REIT-AG and core markets, general competitive factors, the impact of acquisitions, including related integration issues, and reorganization measures. Furthermore, the development of financial markets, interest rate levels, currency exchange rates, as well as national and international changes in laws and regulations, in particular regarding tax matters, can have a corresponding impact. Many of these factors may be more likely to occur, or more pronounced, as a result of terrorist activities and their consequences. The company assumes no obligation to update any information contained herein. 1
Management Board Responsibilities Claus Hermuth (CEO) Corporate Strategy Asset and Property Management Acquisitions HR Development and Marketing Alexander von Cramm (CFO) Accounting and Controlling Investor Relations, Marketing / Communication Risk Management / Financial Planning Years in the Industry 25 years of real estate experience 24 years of financing experience Professional Experience Since 2007 CEO of Prime Office AG 2000 - June 2011 CEO of DCM AG with EUR 4.6bn assets under management 1988-1999 co-founder and senior partner of a real estate law firm Law degree, Ludwig- Maximilians-University, Munich Since 2007 CFO of Prime Office AG 2005-2006 responsible for corporate strategy of a listed residential Real Estate company 2001-2004 CFO of Loyalty Partner Prior 13 years of Investment Banking experience with Deutsche Bank and Morgan Stanley 2
Supervisory board offers an excellent network and industry know-how Prof. Dr. h.c. Roland Berger, Chairman Founder of Roland Berger Strategy Consultants, is the largest globally operating strategy consulting company of European origin Prof. Berger ranks among Germany s most renowned strategy consultants Prof. Dr. Kurt Faltlhauser, Deputy Chairman Appointed as parliamentary secretary to the Federal Ministry of Finance from 1995 until 1998 Bavarian State Minister of Finance between 1998 and 2007 Prof. Faltlhauser has a chair in the Economics faculty of the University in Munich, Germany, since 1987 Prof. Dr. Franz-Josef Busse Chairman of the academic department of finance, banking, integrated financial services and insurance at the Munich University of Applied Sciences Prof. Busse has been successfully engaged as a consultant on the financial-services market for many years Dr. Lutz Mellinger Dr. Mellinger was member of the Management Board for Corporate and Real Estate at Deutsche Bank AG between 1996 and 2001 He is a proven financial and real estate expert Stefan Giesler Managing Director with Sal. Oppenheim jr. & Cie. AG & Co. KGaA Managing Director and Head of Structured Real Estate Products at Deutsche Bank AG from 2005 until early 2010 Prof. Dr. Harald Wiedmann Former speaker of the managing board of the auditing and advisory firm KPMG, and Chairman of KPMG Europe Domestic and international expert on accounting law, financial reporting and SEC issues 3
Prime Office An internally managed REIT Internally managed operations Outsourced functions Identification Acquisition + Financing Add Value & Tenancy Disposals Property Management Lean and cost efficient corporate structure with 9 employees including 3 board members Essential operations executed by own experienced management and asset management team Property management outsourced to DCM REM (45 employees servicing > 1mn sqm under management) 4
Prime Office REIT-AG Investment highlights 1 Pure play prime office in major German cities 2 Attractive prime office property portfolio 3 Stable cash flows through long term leases, virtually no vacancies and blue chip tenant base 4 Strong track record in off market acquisitions and properties letting 5 NAV growth potential through yield compression and re-letting. Further property investments in 2012f 6 REIT status and lean corporate structure 7 Highly experienced management and supervisory board with strong off market access 5
1 Focussed approach Target Prime Office portfolio Average target portfolio gross yield 1) 6.0% (currently 7%) Maximum portfolio vacancy rate of 10% Maximum percentage of value add properties 10% of total portfolio market value Target cities Focus on 9 most important German office markets 2) (Berlin, Cologne, Dusseldorf, Essen, Frankfurt, Hamburg, Leipzig, Munich, Stuttgart) Selective opportunities in major German cities with strong fundamentals in prime locations in the years to come Focus on prime office buildings (high quality, ideally green buildings) Single asset investment approach within a range of EUR 20-200mn per property Target properties High quality tenant base Focus on core assets Selective investments in value add properties Presently a minimum acquisition gross yield 2) of 5.5% (18x annual rent) 1) Gross rental income of portfolio in % of market value of portfolio 2) According to BNP Paribas "Property Report Investment Market in Germany 2005-2011 6
2 High quality office property portfolio SZ-Tower, Munich T-Online Headquarters, Darmstadt Deutsche Telekom Allee, Darmstadt BMW Design Center Munich Sigmund-Schuckert-Haus, Nuremberg Westend-Ensemble, Frankfurt Hochtief AG, Grugapark / Essen Imtech Headquarters, Hamburg 7
2 High quality office property portfolio 14 properties in 9 cities Vodafone Headquarters, Dusseldorf Medtronic Headquarters, Dusseldorf / Meerbusch 1 property Hamburg 2 properties 2 properties Essen Dusseldorf Breitwiesenstr,Stuttgart. Stuttgart / Fellbach Frankfurt 1 property 2 properties Darmstadt Nuremberg Heilbronn 1 property 2 properties Stuttgart Munich 1 property 2 properties Hochtief AG Headquarters, Essen Neckarturm, Heilbronn 10 properties are located in 6 out of the 9 most important German office markets 8
3 Stable cash flows due to long term contracts Lease maturity profile across cities Stable gross rental income through crisis years until lease expiry 14,0 12,0 10,0 8,0 6,0 4,0 2,0 WALT: 6.8 years as of Sep 30 in EUR mn 70 67 64 61 Rental income 66.1 1.0 60.3 German GDP growth 1) 3.6 67.8 3.5 65.6 6 4 2 0-2 in % 0,0 58-4.7-4 55-6 Presently virtually no vacancies 2008 2009 2010 2011E No shortfalls and / or deferrals in rental payments during the economic downturn WALT: weighted average lease term weighted with gross rental income; 1) Based on annualised rents according to valuation report of CBRE as of 31March 2011; no forecast Munich 1: Hultschiner Str.; Essen 1: Rellinghauser Str.; Stuttgart 1: Fellbach; Darmstadt 1: Deutsche Telekom Allee; Essen 2: Alfredstr.; Darmstadt 2: T-Online Allee; Dusseldorf 1: Meerbusch; Munich 2: Hufelandstr.; Dusseldorf 2: Am Seestern; Stuttgart 2: Möhringen 9
4 Strong off market acquisition & letting track record Off market transactions Strong letting track record Identification and acquisition of properties through strong network of management and supervisory board with corporates, project developers, banking sector and closed end fund industry 50 43 54 Acquisition of entire portfolio through off-market transactions 40 Acquisition volume in 2007 c. EUR 300mn Headquarters of HOCHTIEF AG, Essen Regional Authority for Compensation and Retirement (Land Baden-Württemberg), Stuttgart / Fellbach thousand sqm 30 20 Headquarters of Süddeutscher Verlag, Munich (Green Building) Medtronic Germany Headquarters in Dusseldorf / Meerbusch (Green Building) 10 0 1 3 2008 2009 2010 Q3 2011 10
5 Portfolio with a sizeable upside potential Market value in EUR mn 1) Net asset value in EUR mn 1,200 500 464,6 1,150 1,100 1,152.8 400 1,050 300 249,4 260,8 1,000 969.8 970.0 200 950 900 100 850 2007 2010 Q1 2011 0 2010 Q1 2011 Q3 2011 Presently gross yield of the property portfolio at 7% Property value appreciation targeted through yield compression to levels around 6% 1) According CBRE valuation reports 11
5 Value add: emporia Stuttgart / Moehringen Breitwiesenstrasse 5-7, Stuttgart-Moehringen Key Property Facts Property Year of construction: 2002 1) Rentable area: 24,906 sqm WALT: 4.2 years (0.7 years as of Mach 30) Current rent (per sqm): EUR 11.26 Annual rent (GRI) 2) : EUR 3.4m Gross yield: EUR 8.16% Market value (31/03/2011) : EUR 41.3m (prior to new contracts) CAPEX: EUR 2.6m Stuttgart Take up Stuttgart: 181,000 sqm in 2010 Market rent: 8.00-11.00 EUR / sqm Latest developments Currently about 10,000 sqm let (~40% of lettable space) Long-term leases with Cenit AG and Hochtief Solutions AG with 10.50 Euro/sqm at the upper end of the market rent in the Stuttgart region For approx. 4,200 sqm three potential tenants are in place. Signing until year-end keeps flexibility for an additional anchor tenant Negotiations with larger tenants may be conducted beyond year-end Full occupancy expected for the end of Q1/2012; 60-80% by December 2011 Source: BNP Paribas "Office market in Germany 2011 and Colliers "Büro- und Investmentmarkt in Deutschland 2010 1) The majority of the building was completed in 2001 with the final completion taking place in 2002; 2) GRI: Gross rental income 12
5 Value add: Westend-Ensemble Frankfurt / Main Ludwig-Erhard-Anlage 2-8, Frankfurt / Main Key Property Facts Property Year of construction: 1912 / refurbished in 1992 1) Rentable area: WALT: 35,101 sqm 1.2 years Current rent (per sqm): EUR 25.79 Annual rent (GRI) 2) : EUR 10.9m Gross yield: 6.77% Market value: EUR 160.6m (31/03/2011) CAPEX: Frankfurt EUR 22.3mn Take up Frankfurt: 516,000 sqm in 2010 Market rent Westend: 18.00-36.00 EUR / sqm Westend-Ensemble consisting of Westend Palais and Senckenberg Carré -Neoclassical architecture; unique building in Frankfurt -Contemporary business environment and size of building -Senckenberg Carré is a state-of-the-art office building in a prime location Latest developments Reletting process in line with guidance: 50% take-up until mid 2012 and full takeup until year-end 2012 6 potential tenants with take-ups between 15,000 sqm and 22,000 sqm in different discussion stages Offered rent levels in line with budget (Senckenberg Carré: 22.50 Euro/sqm; Westend-Palais: 25 Euro/sqm) Source: BNP Paribas "Office market in Germany 2011 and Colliers "Büro- und Investmentmarkt in Deutschland 2010" 1) In 1945 five additional floors were added to the main building with last refurbishments in 2003; 2) GRI: Gross rental income 13
5 Value add: Dusseldorf Seestern xcite, Dusseldorf Key Property Facts Property Year of construction: 1992 Rentable area: 35,819 sqm WALT: 1.5 years Current rent (per sqm): EUR 16.63 Annual rent (GRI) 1) : EUR 7.15m Gross yield: 9.26% Market value: EUR 77.2m (31/03/2011) CAPEX: 16.2m Dusseldorf Take up Dusseldorf: 383,000 sqm in 2010 Market rent Seestern: 10.00-15.00 EUR / sqm Latest developments Marketing Kick-off in September 2011 Positive feedback from brokers and the media with positive news coverage Positive market reactions: 5 interested parties (incl. Vodafone subcontractors) with demand between 6,000 sqm and 20,000 sqm in different discussion stages Reletting target: 40% by mid 2012; 70% by end 2012 and 100% by March 2013 Source: BNP Paribas "Office market in Germany 2011 and Colliers "Büro- und Investmentmarkt in Deutschland 2010" 1) GRI: Gross rental income 14
5 Single tenant: Hamburg Imtech Imtech Germany Headquarters, Hamburg Key Property Facts Address: Hammerstrasse 30 / 34, Hamburg Year of construction: 2005 Rentable area: 16,008 sqm Anchor tenant: Imtech Deutschland GmbH & Co.KG Weighted lease term: 11.4 years Current / market rent: EUR 14.88 / EUR 12.77 per sqm Current rent (GRI) 1) : EUR 2.86mn Gross yield: 7.21% Vacancy: 0% Market value (31/03/2011) : EUR 39.7mn (prior to lease extension) Transaction: Seed Portfolio Latest developments Located in the centre of Hamburg-Wandsbek, the city district with the highest population Surrounded by excellent infrastructure like shopping facilities and public transportation Investments by Imtech of approx. EUR 1.5mn 100% indexation High third-party usability Imtech has extended lease contract in September 2011 prior to lease maturity (2015) until February 2023 Unchanged rent level Source. CBRE valuation report as of 31 March 2011 1) GRI: Gross rental income 15
6 Lean corporate structure and tax exempted G-REIT Considerable benefit from the exemption from corporate and trade income taxes as a result of the REIT status Internally managed REIT with 9 employees as of September 30, 2011 REITs are internationally acknowledged liquid and transparent vehicles for indirect real estate investment REITs have to distribute at least 90% of its yearly net income, according to German GAAP, to its shareholders Conservative investment due to minimum REIT equity ratio Cost efficient management of properties through lean internal asset management team 16
Strategy of Prime Office Focus on prime office properties in top German cities Active and value oriented asset management Extend multi-tenant approach short -term Actively manage debt-side Intention to become one of the leading German Office REITs Expansion of property portfolio Single asset investment approach Selective investments in value add properties mid-/ long-term 17
Key financial data 18
Highlights Sizeable net income of 10.6 m Euro over the reporting period in spite of IPO-related costs, compared to a loss of - 10.9 m Euro in the prior year period Funds from operations (FFO) affected by one-off charges (IPO costs): 15.3 m Euro in Q1-Q3/2011 (excl. one-off charges 19.7 m Euro) after 19.6 m Euro in prior year period Net leverage declines substantially from 770.8 m Euro on 31/12/2010 to 569.0 m Euro on 30/09/2011: leverage decreases from 79.5% to 58.8% as at the cut-off date Foreign currency risk in Swiss francs (CHF) eliminated REIT equity ratio on 30/09/2011 dips temporarily below the 45% threshold due to external factors (Swap market values) REIT law provides for a two-year remedy period without sanctions However, the board expects to comply again with the REIT criterion by year end 2011 REIT equity ratio of 43.5% on 30/09/2011 does not account for the anticipated valuation gains from new leases and re-lettings Two-year prolongation at improved conditions of the remaining 100 m Euro in current liabilities that were up for refinancing: no financings due in the next two years 19
Key financial data in Q1-Q3/2011 (I) Gross rental income Operating earnings (EBIT) In m Euro 57,0 56,8 56.8 In m Euro 43,2 42,8 43.0 56,6 56,4 56.4 42,4 42.3 56,2 42,0 56,0 Jan-Sep 2010 Jan-Sep 2011 41,6 Jan-Sep 2010 Jan-Sep 2011 Rental and lease income Comments In m Euro 49,2 49,0 48,8 49.0 49.1 Jan-Sep 2010 Jan-Sep 2011 Slight increase of gross rental income from index adjustments of several leases Stable economics: Rental and lease income increase in spite of slightly higher rental and lease expenses EBIT slightly decreased from expenses in connection with the preparation and execution of the IPO 20
Key financial data in Q1-Q3/2011 (II) Financial result Comments In m Euro 0,0-10,0-20,0-30,0-40,0-50,0-60,0-31.8-53.3 Jan-Sep 2010 Jan-Sep 2011 Significant improvement of financial result compared to the prior year period Sizeable income for the reporting period in spite of IPO charges One-off/special charges push funds from operation down year on year Income for the reporting period Funds from operations In m Euro 15,0 10,0 5,0 0,0-5,0-10,0-15,0-10.9 10.6 Jan-Sep 2010 Jan-Sep 2011 In m Euro 25,0 20,0 15,0 10,0 5,0 0,0 19.6 15.3 Jan-Sep 2010 Jan-Sep 2011 21
Key financial data in Q1-Q3/2011 (III) FFO-bridge In m Euro 22,0 20,0 0.7 0.2 0.2 3.8 18,0 16,0 14,0 12,0 0.6 0.2 10,0 19.6 8,0 15.3 6,0 4,0 2,0 0,0 FFO Q3/2010 Net rental income Other income from rent and lease Other income IPO costs Other costs for legal advice and consulting Expenses in rents and leases FFO Q3/2011 22
Key financial data in Q1-Q3/2011 (IV) Total liabilities 1) Net leverage 2) In m Euro In m Euro 800,0 780.9 800,0 770.8 750,0 700,0 700,0 701.5 600,0 569.0 650,0 Leverage 3) 500,0 31.12.2010 30.09.2011 31.12.2010 30.09.2011 Comments In % 90,0 80,0 70,0 60,0 50,0 79.5 58.8 31.12.2010 30.09.2011 Net leverage and leverage down substantially due to fresh capital raised in the context of the IPO Total liabilities fall by 79.4 m Euro or 10.2% to 701.5 m Euro Repayments in Q1-Q3/2011 amount to 96.2 m Euro FX risk from a CHF-denominated property financing eliminated REIT equity ratio burdened by external factors: negative swap market values increased by 18.4 m Euro to -63 m Euro due to current development of interest rates 1) Current + non-current liabilities 2) Liabilities current assets 3) Net leverage : property market value 23
Outlook 24
Outlook The board confirms its dividend forecast for the full year 2011 which, at 12 m Euro, is at the upper end of its original guidance range In addition, the board increases guidance for the funds from operations in fiscal year 2011 from 19 to 20 m Euro (previously 18 to 19 m Euro) Revenue guidance (approx. 76 m Euro) confirmed for 2011 25
Prime Office AG Investment highlights 1 Pure play prime office in major German cities 2 Attractive prime office property portfolio 3 Stable cash flows through long term leases, virtually no vacancies and blue chip tenant base 4 Strong track record in off market acquisitions and properties letting 5 NAV growth potential through yield compression, re-letting. Further property investments in 2012f 6 REIT status and lean corporate structure 7 Highly experienced management and supervisory board with strong off market access 26
Prime Office REIT-AG Hopfenstrasse 4 80332 Munich, Germany www.prime-office.de Richard Berg Director Investor Relations Tel. +49 89 710 40 90 40 richard.berg@prime-office.de 27