alstria office REIT
Annual Report 2019

Plain-text annual report

ANNUAL COMPANY REPORT 2019 Real Estate Portfolio Performance & Financial Development PAGE 22 CONTENTS alstria Annual Company Report 2019 PAGE 24 PAGE 19 03 AT A GLANCE 04 Our strategic cornerstones 06 Management letter 09 Portfolio key information 10 Financial key information 35 DEVELOPMENT 36 Our approach to internal growth 38 Case study: Gustav-Nachtigal-Str. 3 & 5 40 Case study: Geesthof 42 Current development projects 43 Refurbishment Candidates 2019 11 PORTFOLIO 12 Letting 19 Capital expenditure 22 Transactions 24 External valuation 27 Portfolio overview 45 FINANCIALS 46 P&L and FFO 47 Cash flow 48 Balance sheet 50 Financial debt 51 Outlook 2020 52 EPRA KPI’s 56 ALSTRIA’S SHARE 57 Share price performance 58 Shareholder structure 59 IR activities 60 CORPORATE SOCIAL RESPONSIBILITY 61 Integral part of our business 62 Green Dividend 64 APPENDIX 65 Calculation of yields 67 Achieved UIRR 2006 – 2019 71 Valuation certificate 80 Management compensation scheme 81 Glossary 84 Imprint AT A GLANCE Hamburger Str. 1, Hamburg Development project 2012 – 2013 Yield on cost: 7.4 % AT A GLANCE 04 Our strategic cornerstones 06 Management letter 09 Portfolio key information 10 Financial key information 3 alstria Annual Company Report 2019 OUR STRATEGIC CORNERSTONES WHO WE ARE WHAT WE DO WHAT WE OFFER alstria office REIT-AG is Germany’s leading office real estate company. As of December 31, 2019, we own and manage a portfolio of 116 buildings with a lettable area of around 1.5 million m² and a total value of EUR 4.5 bil- lion. Our properties are located in the large and liquid German office markets of Hamburg, Düsseldorf, Frankfurt, Stuttgart, and Berlin, where we are represented by local operating offices. As a fully integrated company, oriented toward the long term, alstria’s 165 employees actively manage our buildings throughout their entire life cycle.  KEY NUMBERS Our corporate strategy is based on three pillars: Letting real estate Leasing our assets enables us to generate income that forms the basis of our ability to pay out attractive divi- dends over the long term.  LETTING Exploiting value creation potential We increase rental income and property values by mak- ing substantial and steady investments in our portfolio.  CAPEX Capital allocation Depending on our perception of the real estate cycle, we buy or sell properties to continuously optimize the risk return profile of the portfolio.  TRANSACTION Through our local presence, we offer our tenants modern and efficient office space, as well as comprehensive local services. Our company’s listing on the German stock exchange gives our shareholders access to a first-class, professionally and sustainably managed portfolio of office properties in the most attractive cities of Europe’s stron- gest economy. To our employees, we offer secure and attractive jobs, on the basis of our sustainable strategy.  SHARE 4 alstria Annual Company Report 2019 €€ OUR LONG-TERM PORTFOLIO STRATEGY OUR LONG-TERM FINANCING STRATEGY %%% OUR LONG-TERM ACHIEVEMENTS alstria pursues a total return business, and as such, our balance sheet will shrink or grow depending on the arbi- trage that exists between pricing of real estate in the direct market and the public market. Our long-term goal is to grow the company across our markets to a portfo- lio value of around EUR 6.0 billion. In 2019, the private market priced real estate much more aggressively than in the public markets. We therefore saw limited oppor- tunity to buy and more opportunity to sell and de-risk the portfolio. We invest the proceeds from our disposals into quality-enhancing measures within our own port- folio, which offers higher yields than any acquisition in the market.  PORTFOLIO OVERVIEW We believe that in the current volatile macro-environ- ment, maintaining a low leverage and a strong balance sheet is of paramount importance. The current net LTV stands at 27.1 % and represents the lowest level in the company’s history. Our intention is to keep the LTV level of the company at or around 35 % across a full real estate cycle.  FINANCIAL PERFORMANCE Our three-pillar strategy has generated an average unlevered cash return of 8.0 % per annum for the EUR 1.5 billion of assets that we have acquired, man- aged, and sold back to the market since the company was founded 13 years ago. We intend to stick to the strict discipline that has enabled us to achieve this strong track record in the past.  UIRR TABLE 5 alstria Annual Company Report 2019 MANAGEMENT LETTER Dear ladies and gentlemen, shareholders, business partners, and tenants In 2010, alstria was the first German real estate company to publish a sustainability report. In 2013, three years prior to the signature of the Paris Agreement, alstria was one of a handful of European real estate companies to sign the RE100 pledge1), in which we committed to procure 100 % of our electrical energy from renewable sources (we ful- filled this pledge in 2019). All in all, alstria has been able to reduce its CO2 footprint2) for scopes 1 to 3 by 42.5 % since 2013 (or by 52,112 tCO2e per year). We have been acutely aware of the ‘embodied carbon’ in real estate construction. In October 2009, we publicly3) stated for the first time our view that the most sustainable building is ‘the building that was not built.’ Our stated policy and approach to real estate is to stay away from green field development and focus on improving the existing stock. More importantly, we have been able to achieve all of the above while still meeting our financial returns. We have reviewed our pro- curement policy, incorporated the need for sustainable building upgrades in our underwriting, and used every other lever at our disposal to reach both our financial and our sustainability goals. This journey is not over and is now deeply rooted in the culture of alstria. As we moved forward, we started asking ourselves if and how we could do more and accelerate the path we were taking to reduce our carbon footprint. Now that we have put tools in place to measure and compare our properties, we can identify the underperformers and the reasons for their underperformance. If we were to decide to invest in improving the footprint of these lagging properties now, we could start doing better even faster. There is, however, a catch. Most of these investments, while yielding positive results from a carbon footprint perspective, would not meet our financial hurdles. In other words, most of these investments would cost the company. We have detailed in our introduction to alstria’s latest sus- tainability report4) why these investments would not yield a positive return to alstria and why it is preferable (from a financial point of view) not to pursue them. In order to reach this conclusion, we have investigated them, applying the same diligent approach that we apply to financial investments. The only difference is that we have substituted CO2 return for financial return. What we have tried to do is identify projects that would yield the best CO2 outcomes for the money spent. Rather than looking at return on investment, we looked at CO2 saved per Euro invested. How much would our marginal cost be for suppressing an additional ton of CO2? We looked at a variety of different projects, but the numbers we were getting out of this approach were underwhelming. The best projects we had would cost between EUR 25,000 and 30,000 per annual tCO2e saved and have an average life cycle of 25 years. Die-hard climate activists argue that the right annual cost for a ton of carbon should be between EUR 200 and 250. We were cruising 4 to 6 times higher and 20 to 30 times higher than current CO2 pricing (around EUR 25 per tCO2e). We paused and started looking around to figure out what we were missing. 1) For more about RE100 please see www.there100.org/ 2) Market based. 3) www.alstria.blogspot.com/2009/10/two-fridge-syndrome.html 4) www.alstria.com/sustainability/ 6 alstria Annual Company Report 2019 We found a valuable source of information in various newly released ‘Green Bond Impact’ reports, which financial insti- tutions with green bonds outstanding started to publish. These reports published the Euro amount invested through green bonds in real estate assets as well as the annual CO2 impact. We could therefore benchmark our own numbers. Green buildings Invested amount (EUR m) 1,096.2 88.4 299.0 630.0 202.0 1,806.0 567.9 4,689.5 Avoided CO2 per year (tCO2e) 23,027 Cost per avoided tCO2e / year (EUR) 47,603 309 286,073 4,893 61,108 12,992 48,491 2,500 80,800 116,000 15,569 3,743 151,715 163,464 28,688 Invested amount (EUR m) 3,816.2 Avoided CO2 per year (tCO2e) 4,126,160 Cost per avoided tCO2e / year (EUR) 925 184.1 201.0 245.0 832.8 362.3 146,291 1,259 40,066 5,017 445,600 550 10,972,870 76 410,401 883 ING SEB KBC Raiffeisen Nordea Berlin hypo Westpac Total Renewable ING SEB KBC Nordea Westpac Commerzbank Total 5,641.4 16,141,388 350 Source: www.green-dividend.com Much to our surprise, these reports confirmed our own expe- rience. The EUR 4.7 billion we identified that were invested in real estate had an average yield of EUR 29,000 per annual tCO2e saved, with the best yield being EUR 15,000 and the worst as high as EUR 290,000 per annual tCO2e saved. While compiling these numbers, we also realized that the same green bond had much stronger CO2 yields when invested elsewhere. The same pool of financial institutions, using the same green bonds, invested EUR 5.7 billion in renewables at an average yield of EUR 350 per annual tCO2e saved. The best yield was EUR 76, and the worst was EUR 5,000 per annual tCO2e saved. As investment professionals, we can draw only one conclu- sion looking at these numbers. If fighting climate change is our primary objective, then real estate is the wrong asset class to invest in. The marginal cost of saving a ton of CO2 seems to be 81 times higher in real estate than in renew- able. Considering that the current CO2 pricing is around EUR 25 per ton, it is likely that we would reach a similar conclusion if comparing real estate with industrial compa- nies or other economic activities. As the saying goes, the road to hell is paved with good intentions. While we took to heart speeding up the com- pany carbon impact above and beyond what we were doing as part of our day-to-day business, we were limiting our thinking to our own realm. We were ignoring other poten- tial investment opportunities simply because we could not access them. In doing so, we were about to make a very bad capital allocation decision. It does not make it better that this misallocation of capital seems to be happening on a much greater scale in the green bond universe, as demonstrated by the numbers above. What is the ‘Green Dividend’?1) The Green Dividend is born out of the above and the fol- lowing observations and / or beliefs: › Any investment that yields positive financial returns and is sustainably beneficial will be undertaken in any case and does not need any additional incentive. As such, we are renovating our assets and improving their environ- mental footprint, industrial companies are implementing projects to reduce costs and save primary goods, and B2C companies are developing and selling environmentally cleaner products for which consumers are ready to pay more. › The current pace of change being generated out of mar- ket-driven investments is not enough to meet the CO2 targets of the Paris Agreement. If the situation was oth- erwise, there would be no need for action. › Any additional investment beyond economically justifia- ble projects should be focused on maximizing the impact of capital in terms of CO2 reduction, to achieve the most efficient results at the lowest capital cost (the ‘Efficiency Test’). › While companies can identify the most efficient projects within their portfolios, they might not have access to investment opportunities that meet the Efficiency Test in the wider economy. › Finally, we believe that in the absence of more decisive government intervention (in a form of more realistic car- bon pricing), there needs to be a sense of coordinated action to entice more cooperative behavior between the different economic agents involved. 1) For more about the Green Dividend concept, please visit www.green-dividend.com 7 alstria Annual Company Report 2019In theory, a dividend payment by a company signals a lack of profitable investment opportunities and therefore a return of capital to shareholders1). The Green Dividend is intended for allowing a company to signal the existence of financially nonviable investment opportunities in the field of climate change and to provide the market with an estimate of the CO2 yield of such investments. It allows the market to understand a company’s marginal cost of saving a ton of CO2. Our intention in proposing a Green Dividend is to fill the information gap that is, in our view, blurring most deci- sion-making that requires more than a financial view. Our intention is to provide more clarity to the market about the potential opportunities that exist in the field of cli- mate change mitigation. It is also to use the market (or, more specifically, our shareholders) as a sounding board on what is an efficient CO2 yield for a company to invest toward achieving. In practice, we have identified a limited number of invest- ments2) that the company would not realize if we were to rely solely on financial analysis. The company has no legal or contractual obligation to execute these investments, and they would not pay for the company’s current cost of capital. As is customary at alstria, when we introduce a new idea, we start small in order to assess its validity and viability. In that spirit, we will propose increasing our dividend by one cent (from EUR 0.52 to EUR 0.53 per share) at our next general meeting. This one-cent increase to the dividend will be proposed as our Green Dividend. Shareholders will have the choice either to vote for get- ting the additional one cent paid off or to vote against the dividend increase. In the latter case, alstria would use the proceeds (around EUR 1.8 million) to implement climate change mitigation projects for an estimated CO2 yield of 1 tCO2e saved per year for every EUR 25,000 invested. The company would report back to the AGM after the success- ful implementation of the projects and present the actual CO2 savings achieved. We believe that climate change is the greatest challenge that we will face in the coming years and are committed to addressing this challenge. It has been pushed to the forefront of every company’s and investor’s agenda. There seems to be a general understanding that it is unlikely that we will be able to reach the target of the Paris Agreement if we keep going on with a ‘business as usual’ approach. As a first step, we are earmarking EUR 1.8 million to accel- erate the pace of action of the company in reducing its carbon footprint. We have identified the projects that we could implement and quantified the impact it could have. We will be asking our AGM to take a majority vote that will decide whether the company will pay the Green Dividend to all the shareholders or keep the funds. If shareholders decide to receive the Green Dividend, they will be able to invest the proceeds in a more efficient climate mitigation project. On the other hand, if shareholders ask the com- pany to keep the Green Dividend, they will provide us with a clear mandate to invest outside of our financial norms. Whatever their decision is, alstria would have contributed around 2 % of its dividend toward climate mitigation issues. Our intention is to fully integrate the Green Dividend in our dividend policy. We are looking forward to our discussions. Kind regards 1) This is putting aside for a minute the specifics of REIT regimes. 2) Please see www.green-dividend.com for a more detailed description of these investments, or pages 62– 63 of this report. Olivier Elamine Chief Executive Officer (CEO) Alexander Dexne Chief Financial Officer (CFO) 8 alstria Annual Company Report 2019 PORTFOLIO KEY INFORMATION Our local offices Graph 1: Tenant split Annual rent EUR 208.3 million HAMBURG BERLIN DÜSSELDORF FRANKFURT STUTTGART Table 1: Investment regions Table 2: Portfolio highlights Number of assets Lettable area (m²) Investment volume (EUR k) Contractual rent (EUR k) Yield (%) Hamburg Düsseldorf Frankfurt Stuttgart Berlin Others Total 37 35 20 10 8 6 385,900 478,500 263,600 214,600 86,200 80,400 1,429,450 1,236,490 832,990 535,630 318,900 122,600 52,382 62,129 44,791 32,180 10,938 5,913 116 1,509,200 4,476,060 208,332 3.7 5.0 5.4 6.0 3.4 4.8 4.7 Number of properties Market value (EUR m) Contractual rent (EUR m) Valuation yield (%) Approx. lettable area (m²) EPRA vacancy rate (%) Lease length (years) Average value per m² (EUR) Average rent per m² (EUR per month) 11.1 % Daimler AG 11.0 % City of Hamburg 4.4 % German Government 3.9 % Deutsche Telekom (GMG) 2.9 % City of Frankfurt 2.0 % HOCHTIEF AG 64.7 % Others Dec. 31, 2019 Dec. 31, 2018 116 4,476 208.3 4.7 118 3,985 197.0 4.9 1,509,200 1,577,000 8.1 6.3 2,966 12.62 9.7 4.8 2,525 12.25 9 alstria Annual Company Report 2019 FINANCIAL KEY INFORMATION Table 3 EUR k Revenues and earnings Revenues Net rental income Consolidated profit for the period FFO (after minorities) Earnings per share (EUR) FFO per share (EUR) 2019 2018 2017 2016 2015 187,467 162,904 581,221 112,571 3.27 0.63 193,193 169,068 527,414 114,730 3.02 0.65 193,680 172,911 296,987 113,834 1.94 0.74 202,663 179,014 176,872 116,410 1.16 0.76 115,337 102,140 –110,970 59,397 –1.15 0.61 Balance sheet Investment property Total assets Equity Liabilities NAV per share (EUR) Net LTV (%) G-REIT key figures G-REIT ratio (%) Revenues plus other income from investment properties (%) EPRA key figures1) EPRA earnings per share (EUR) EPRA cost ratio A (%)2) EPRA cost ratio B (%)3) EPRA NAV per share (EUR) EPRA NNNAV per share (EUR) EPRA net initial yield (%) EPRA ‘topped-up’ initial yield (%) EPRA vacancy rate (%) Dec. 31, 2019 Dec. 31, 2018 Dec. 31, 2017 Dec. 31, 2016 Dec. 31, 2015 3,260,467 3,850,580 1,619,377 2,192,916 10.64 49.3 4,438,597 5,029,328 3,175,555 1,853,773 17.88 27.1 3,938,864 4,181,252 2,684,087 1,497,165 15.13 30.4 3,331,858 3,584,069 1,954,660 1,629,409 12.70 40.0 2,999,099 3,382,633 1,728,438 1,654,195 11.28 40.9 Dec. 31, 2019 Dec. 31, 2018 Dec. 31, 2017 Dec. 31, 2016 Dec. 31, 2015 49.4 70.9 56.7 67.2 57.1 100 2019 0.61 26.1 21.7 100 2018 0.62 23.0 19.0 100 2017 0.68 19.6 16.4 100 2016 0.57 20.6 16.6 100 2015 0.42 26.1 22.1 Dec. 31, 2019 Dec. 31, 2018 Dec. 31, 2017 Dec. 31, 2016 Dec. 31, 2015 10.91 10.66 5.0 5.3 11.2 12.71 12.45 4.6 5.0 9.4 15.14 14.96 4.0 4.4 9.7 11.31 10.81 5.0 5.4 9.2 17.91 17.61 3.3 3.8 8.1 Dividend 0.53 EUR per share EPRA NAV 17.91 EUR per share 0.50 0.52 0.52 Proposal1) 0.52 0.53 17.91 15.14 10.91 11.31 12.71 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 1) Of which EUR 0.01 Green Dividend. Revenues 187.5 million EUR FFO 112.6 million EUR 202.7 193.7 193.2 187.5 116.4 113.8 114.7 112.6 115.3 59.4 1) For further information please refer to EPRA Best Practices Recommendations, www.epra.com. 2) Incl. vacancy costs. 3) Excl. vacancy costs. 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 10 alstria Annual Company Report 2019 PORTFOLIO PORTFOLIO 12 Letting 19 Capital expenditure 22 Transactions 24 External valuation 27 Portfolio overview Am Wehrhahn 33, Düsseldorf Development project 2016 – 2018 Yield on cost: 6.9 % 11 alstria Annual Company Report 2019ALSTRIA’S AVERAGE NEW LEASING CONTRACT Annual rent: EUR 254,000 Size: 1,300 m² WAULT: 11 years Rent per m² / month: EUR 16.20 LETTING Leasing up office space is the core of our business alstria invests in five of the main metropolitan cities in Ger- many. These are cities with a predicted positive demographic trend for the foreseeable future. These cities offer young, qualified people attractive and well-paid jobs, as well as a diverse cultural environment and leisure activities. German corporations are in competition to attract these talents in a time of low unemployment. It has become clear that the office space that a company can offer to its employees is a key competitive advantage in the corporation race for talents. As such demand for attractive, modern office space has remained on a very strong footing in 2019 and alstria has been positioning itself to make the best out of this unique environment. In 2019, we achieved the highest leasing volume in the company's history, with 197,600 m² of new leases and 171,300 m² of lease extensions. This is a unique testimony to the strength of our portfolio and the ability of the company to create spaces that meet modern corporate demands. Understanding client needs is the basis for a successful leasing strategy and this in turn is the basis of our long- term corporate success. 12 alstria Annual Company Report 2019LEASES New leases 2019 was a record year in terms of leasing for our company. The signature of our two largest new contracts took place in our development portfolio. It enabled us to increase the pre-leasing rate in this sub-portfolio to 70 % and to increase the annual contractual rent to EUR 26.0 million. At ‘Sol- msstr. 27 – 37’ (Frankfurt) we let 30,900 m² and at ‘Gustav- Nachtigal-Str. 3 & 5’ (Wiesbaden) a total of 26,000 m², both to public tenants and thus securing long-term cash flows. Further substantial leasings were made, particularly in the properties ‘Am Seestern 1’ (Düsseldorf), ‘Heerdter Lohweg 35’ (Düsseldorf) and ‘T-Online-Allee 1’ (Darm- stadt). Larger lease extensions were signed at ‘Alfredstr. 236’ (Essen) and ‘Vaihinger Str. 131’ (Stuttgart). Table 4: Main new leases in 2019 ( > 1,500 m²) Adress Solmsstr. 27 – 37 City Frankfurt Gustav-Nachtigal-Str. 3 & 5 Wiesbaden Am Seestern 1 Heerdter Lohweg 35 T-Online-Allee 1 Georg-Glock-Str. 18 Rotebühlstr. 98 – 100 Düsseldorf Düsseldorf Darmstadt Düsseldorf Stuttgart Gustav-Nachtigal-Str. 5 Wiesbaden Düsseldorf Frankfurt Frankfurt Hamburg Hamburg Berlin Hamburg Cologne Ratingen Stuttgart Hamburg Kanzlerstr. 8 Platz der Einheit 1 Platz der Einheit 1 Amsinckstr. 28 Amsinckstr. 28 Schinkestr. 20 Amsinckstr. 34 Maarweg 165 Pempelfurtstr. 1 Epplestr. 225 Süderstr. 23 New leases > 1,500 m² Others Total Lease start July 01, 2021 Sept. 01, 2022 Oct. 01, 2020 May 01, 2020 May 01, 2020 May 01, 2020 Oct. 01, 2021 June 01, 2019 Mar. 01, 2020 July 01, 2019 July 01, 2019 May 01, 2020 July 01, 2020 Jan. 01, 2020 Sept. 01, 2019 Jan. 01, 2020 Apr. 01, 2019 July 01, 2020 Oct. 01, 2019 Lettable area (m²) 30,900 26,0002) 15,000 13,500 13,300 6,500 6,300 5,400 5,000 4,200 2,900 2,900 2,700 2,400 2,200 2,000 1,700 1,700 1,600 146,100 51,500 197,600 1) Disregarding parking, storage and other suplementary spaces. 2) Lease start for 18,400 m² on Sept. 1, 2021 and for 7,600 m² on Sept. 1, 2022. Net rent p. a. (EUR k) Net rent per m² (EUR)1) Lease length (years) Rent free (in % of lease length) 6,081 8,714 3,338 1,894 2,242 1,613 1,627 1,415 865 1,100 850 524 529 444 424 364 179 370 294 16.50 28.00 16.59 11.70 12.00 21.50 19.95 20.00 13.61 21.00 24.00 14.10 16.50 21.60 14.75 14.55 7.50 16.00 15.30 20.0 15.0 10.0 12.0 5.0 12.0 15.0 1.6 10.0 3.0 10.0 5.0 10.0 5.0 5.0 10.0 10.0 5.0 10.0 1.7 0.0 1.7 7.6 5.0 2.8 1.7 0.0 5.2 8.3 5.8 0.0 0.0 0.0 1.7 3.3 0.0 0.0 2.5 13 alstria Annual Company Report 2019 Leasing outlook Commercial leases are generally signed for a limited period of time. The standard rental agreement in Germany has a term of 5 years (plus a 5-year extension option). In our portfolio, 30.0 % of the leases (measured by the annual- ized contract rent) expire over the next three years. In the past, around 70 % of expiring contracts were extended by the current tenants and 30 % were terminated. The latter is our primary good that we will use to enhance our space offering to tenants and realize higher rents for new leasings. Table 5: Main lease renewals in 2019 ( > 5,000 m²) City Essen Stuttgart Stuttgart Stuttgart Frankfurt Stuttgart Düsseldorf Düsseldorf Frankfurt Adress Alfredstr. 236 Vaihinger Str. 131 Epplestr. 225 Hanns-Klemm-Str. 45 Olof-Palme-Str. 37 Epplestr. 225 Ivo-Beucker-Str. 43 Willstätterstr. 11–15 Insterburger Str. 16 Renewals > 5,000 m² Others Total Lettable area (m²) Net rent p. a. (EUR k) Net rent per m² (EUR)1) Lease length (years) Rent free (in % of lease length) 4,150 3,785 3,412 1,889 1,601 1,574 1,208 757 826 11.41 13.63 14.40 10.13 12.20 14.68 11.50 9.25 11.50 4.0 1.0 2.0 5.0 6.2 1.0 5.0 9.6 3.0 0.0 0.0 0.0 0.0 6.8 0.0 0.0 3.5 8.3 30,300 21,400 19,700 14,900 10,400 8,900 8,000 7,700 5,500 126,800 44,500 171,300 1) Disregarding parking, storage and other suplementary spaces. Graph 2: Lease expiries (in % of annual rent) 6.3 % 12.7 % 11.0 % 2020 2021 2022 14 alstria Annual Company Report 2019 RENTS Like-for-like rental growth of 9.4 % Capital values of real estate in the direct investment market are at an all-time high. We therefore find more attractive investment opportunities in our own portfolio than in the direct market. Investing in our own portfolio, upgrading the quality of our offerings and generating rental growth were the factors driving the contractual rent growth in 2019. Our internal (like-for-like) growth amounted to 9.4 %. This translates into an increase of the contractual rent from EUR 189.9 million as of December 31, 2018 to EUR 208.3 million as of December 31, 2019. Table 6 shows that the rental growth that was generated by the leasing activities in our investment portfolio (EUR 2.4 million) and our devel- opment portfolio (EUR 16.0 million) substantially overcom- pensated the lower rental income from our transactions, as we continued to be a net seller in 2019. In line with EPRA BPR, table 6 also shows the development of contractual rents over the past 24 months, where we have achieved an EPRA like-for-like rental growth of 6.0 %. Average rent grew to EUR 12.62 per m² In 2019, continuing its growth trajectory, the average rent per m² in our total portfolio increased by 3.0 % to EUR 12.62 per m² (see graph 3). Besides the like-for-like rental growth, the development of the average rent per m² is an important indicator and shows the impact of our active asset manage- ment. Over the longer term, we grew our average rent per m² by 2.8 % p. a., which is at the upper end of our target to increase rents by 1 – 2 % beyond inflation. Table 6: Change in rental income1) Contractual rent as of Dec. 31, 2017 Contractual rent as of Dec. 31, 2018 + / – Change in rent investment portfolio o / w New leases / rent increases o / w Lease expiries + / – Change in rent development portfolio o / w New leases o / w Lease terminations + / – Change in rent from transactions o / w Rents from acquired assets o / w Rents from disposed assets Contractual rent as of Dec. 31, 2019 2 year period (Dec. 31, 2017 – Dec 31, 2019) 1 year period (Dec. 31, 2018 – Dec 31, 2019) EUR k 202,002 3,016 14,811 – 11,795 9,014 23,809 – 14,795 – 5,699 8,685 – 14,384 208,332 % 100.0 1.5 7.3 – 5.8 4.5 11.8 – 7.3 – 2.8 4.3 – 7.1 103.1 EUR k 196,967 2,439 13,181 – 10,742 16,002 16,962 – 960 – 7,076 1,932 – 9,008 208,332 % 100.0 1.2 6.7 – 5.5 8.1 8.6 – 0.5 – 3.6 1.0 – 4.6 105.8 1) Based on a total portfolio of EUR 4,476 m (2019), EUR 3,985 m (2018) and EUR 3,409 m (2017). Graph 3: Development of average rent in EUR per m² Increase of CPI: 1.1 % p. a. Rental growth over CPI 2014 – 2019: 1.7 % p. a. 10.99 11.61 11.60 12.05 12.25 12.62 2014 2015 2016 2017 2018 2019 Growth of average rent per m²: 2.8 % p. a. 15 alstria Annual Company Report 2019 COST OF LETTING Effective rent rose to EUR 11.20 per m² A rental contract does not come for free. Before a tenant moves in, the landlord must bear the costs for tenant fit-outs and broker fees. When applicable, concessions like rent-free periods must also be considered. The base rent of a rental contract is what is usually communicated. However, the effective rent is a more useful indicator of the profitability of a rental agreement. We calculate our effective rent by accounting for all the costs incurred in a new lease and deduct them from the base rent as shown in table 7. In 2019, new leases for a leasable office space of 127,900 m² started. The weighted average effective rent for these new leases was EUR 11.20 per m² (+ 5.5 % compared to 2018), with a weighted average lease term of 6.0 years. The new leases thus generate a future rental income of EUR 123.6 million (2018: EUR 69.5 million). Table 7: Weighted average effective rent per m² in EUR Base rent Tenant fit-outs Broker fees Rent concessions Effective rent Weighted average lease term (in years) 2019 13.41 –1.65 – 0.56 – 0.01 11.20 6.0 2018 13.78 – 2.35 – 0.48 – 0.33 10.62 5.7 2017 12.57 – 1.74 – 0.44 – 0.18 10.21 7.6 Am Seestern 1 Düsseldorf 16 alstria Annual Company Report 2019 VACANCY EPRA vacancy rate down to 8.1 % The significant lease-up with a net absorption of 83,900 m² had a positive impact on our occupancy in 2019. Relative to December 31, 2019, our EPRA vacancy rate fell by 160 bps to 8.1 %. A more detailed analysis on vacancy is shown in table 8, as it also includes our development assets, which according to EPRA BPR are not part of the EPRA vacancy rate. As shown in table 8, the total vacancy in our portfolio decreased by 540 bps to 9.7 %. Going forward, we expect a total vacancy rate of between 8 % and 12 %. The exact number depends on how much vacancy we buy, how many fully leased properties we sell and how many buildings we have under development. Vacant space is the primary good we need to be able to create value in our property portfolio. Table 8: Vacancy schedule Vacancy rate (%) m² Total lettable area – Dec. 31, 2018 (A) 1,577,000 Acquired space Disposed space1) Net new built space Remeasurements 17,600 – 77,500 – 100 – 7,800 Total lettable area – Dec. 31, 2019 (C) 1,509,200 Vacancy – Dec. 31, 2018 (B) 237,600 15.1 (B / A) Acquired vacancy Disposed vacancy Expiries and breaks Renewals New leases 900 – 8,500 285,000 – 171,300 – 197,600 Vacancy – Dec. 31, 2019 (D) 146,100 9.7 (D / C) o / w Developments 38,500 EPRA vacancy rate2) 8.1 1) Disposed assets incl. assets held for sale as per Dec. 31, 2018. 2) For detailled calculation see table 24, page 52. Heidenkampsweg 99 Hamburg 17 alstria Annual Company Report 2019Average down period of 20 months For our business model, the average down period of rental space (which provides a dynamic picture of vacancy in the portfolio) is a more meaningful indicator of leasing perfor- mance than the vacancy rate (which, by contrast, provides a static picture of vacancy). As of December 31, 2019, the average down period for our vacant space was 20 months (previous year: 15 months). This means that, on average, we needed 20 months (including developments) to re-let vacant space. The dynamic nature of our vacancy is shown by the fact that year by year there is change in our ‘Top 5’ assets that contribute to the vacancy in our portfolio (see graph 4), whose composition changes every year, thus showing that there are no major structural vacancies in our portfolio. Graph 4: ‘Top 5’ vacant assets 2017 – 2019 Acquired vacancy Development-related vacancy 111,400 m² Regular expiries 29,800 m² Solmstr. 27–37 12,300 m² Heidenkampsweg 99 –101 10,200 m² Gasstr. 18 8,100 m² Amsinckstr. 28 20,300 m² Am Wehrhahn 33 70,800 m² 17,500 m² Carl-Reiss-Platz 1– 5 18,500 m² Gustav-Nachtigal-Str. 3 25,200 m² Heerdter Lohweg 35 19,900 m² Am Seestern 1 20,400 m² Am Seestern 1 66,200 m² 6,900 m² Heidenkampsweg 99 –101 12,000 m² Gasstr. 18 17,500 m² Carl-Reiss-Platz 1– 5 15,500 m² T-Online-Allee 1 14,300 m² Heerdter Lohweg 35 2017 2018 2019 18 alstria Annual Company Report 2019  CAPITAL EXPENDITURE Capex is the key to rental growth In commercial real estate, there is little evidence for the will- ingness of tenants to pay higher rents without an improve- ment of the space quality. The most sustainable way to increase rents is to invest money to improve the quality of the building and the amount of incremental rent usually is a function of the amount of capex that is invested. The main challenge in this respect is to find the most efficient combination of capex and rent increase to optimize the return (i. e. yield on capex). To maximize our yield on capex, we combine the local knowledge of our Real Estate Operations team with the know-how of our Development team. This allows us to unlock the potential of our portfolio. The fact that our portfolio is still leased below market levels gives us the headroom to invest into the space, lift the rents and achieve attractive returns of 6 – 7 % on our capex, which is much more than what the direct investment market currently offers. ALSTRIA’S AVERAGE DEVELOPMENT PROJECT Size: 23,000 m² Capex: EUR 30 million Capex / m²: EUR 1,300 All-in cost yield: 6.3 % 2019 19 alstria Annual Company Report 2019 CAPEX / OPEX OF EUR 129.7 MILLION IN 2019 Capex volume substantially increased To provide transparency on our capex, we split our total capex into different categories in line with the new EPRA BPR (table 9). Our development capex relates to the respec- tive sub-portfolio, which undergoes a substantial refur- bishment (capex > EUR 1,000 per m²). It was substantially up in 2019 as we increased our capital allocation to the refurbishment program because of the lack of viable alter- native investment in the direct market. The investment portfolio capex relates to our investment portfolio and characterizes modernization capex and tenant fit-outs, which usually amount to below EUR 1,000 per m². The total portfolio capex amount of EUR 116.1 million was capitalized in 2019. In addition to capitalized invest- ments, we were constantly carrying out minor upgrades (EUR 8.5 million) and ongoing repairs (EUR 5.1 million) on our buildings, which were recognized in our income statement and therefore also in our operating profit (FFO). Overall, we invested a total of EUR 129.7 million into our properties in 2019. In the context of the total portfolio, this corresponds to an average amount of EUR 86 per m² or around 4.3 % of the portfolio value (excluding land value). Like-for-like growth yield of 5.9 % Over the past 24 months, we leased 572,200 m² and gen- erated an additional rent (like-for-like) of EUR 12.0 mil- lion. The capex we spent over this period of time was EUR 202.6 million, leading to a like-for-like growth yield of 5.9 % (table 10). Table 9: Property related capex / opex EUR k Acquisitions Development Investment portfolio o / w Incremental lettable space o / w No incremental lettable space o / w Tenant incentives o / w Other material non-allocated types of expenditure Capitalized interest Total capital expenditure Maintenance1) Running repairs1) Operating expenditure Total Capex / Opex 1) Incl. in P&L and FFO. 2019 49,300 44,105 72,037 0 29,114 27,989 14,934 0 116,142 8,476 5,095 13,571 129,713 2018 107,300 2017 259,500 36,320 50,100 0 26,508 21,187 2,392 0 86,420 8,532 4,802 13,334 99,754 18,081 40,700 0 19,900 17,900 2,900 0 58,781 9,086 4,275 13,361 72,142 Table 10: Like-for-like growth yield Change rental income 2018 and 20191) o / w Investment portfolio o / w Development portfolio Capex 2018 and 20192) Like-for-like growth yield EUR k 12,029 3,016 9,014 202,562 5.9 % 1) See table 6, page 15. 2) See table 9, page 20 (EUR 116.1 m for 2019 and EUR 86.4 m for 2018). TENANT OUT REFURBISHMENT RE-LETTING TENANT IN TENANT IN 20 alstria Annual Company Report 2019DEVELOPMENT PORTFOLIO Significant progress in the course of 2019 To effectively exploit the potential of our property portfolio, we have around 8 % of portfolio volume under develop- ment. The development buildings are sourced from our investment portfolio and are intended to be returned into the investment portfolio after completion. Our current development pipeline comprises eight projects, with a total lettable area of 184,000 m². In 2019, we took advantage of the strong leasing market to pre-lease a substantial part of our development portfolio, therefore significantly de-risking the process. The two main projects in Gustav-Nachtigal- Str. 3 & 5 (Wiesbaden) and Solmsstr. 27 – 37 (Frankfurt) are fully leased and are in the process of refurbishment. The assets will be handed over to the tenants in 2021 and 2022. Rents on both buildings increased by 52 %, reflecting the new quality of the assets. Planned development capex of EUR 238.4 million For the current development portfolio, we plan a capex volume of EUR 238.4 million, which is EUR 1,300 per m². Taking into account the current book value, the required capex and the rent that we will achieve after completion, the all-in cost yield of our current development portfolio will be around 6.3 %. Table 11: Key data Adress City Lettable area (m²) OMV at start of development (EUR k) Total capex (EUR k) Cost to complete (EUR k) Target rent on completion (EUR k) All-in-cost yield (%) Besenbinderhof 41 Hamburg Carl-Reiß-Platz 1– 5, TG Mannheim Deutsche Telekom Allee 7 Darmstadt Georg-Glock-Str. 18 Düsseldorf Gustav-Nachtigal-Str. 3 & 5 Wiesbaden Rotebühlstr. 98 – 100 Solmsstr. 27 – 37 T-Online-Allee 1 Total Stuttgart Frankfurt Darmstadt 5,000 17,500 24,700 10,800 26,100 8,400 30,900 60,600 184,000 (A) 6,500 16,900 40,100 28,800 28,800 22,000 68,000 140,100 351,200 (B) 11,300 40,600 16,800 14,900 63,700 15,700 43,600 31,800 10,100 38,000 16,800 3,400 53,700 14,000 37,500 29,900 (C) (C/A+B) 1,198 3,400 3,500 2,649 8,710 2,059 6,081 9,500 6.7 5.9 6.2 6.1 9.4 5.5 5.4 5.5 6.3 238,400 203,400 37,097 Table 12: Pre-let status Adress Besenbinderhof 41 City Hamburg Carl-Reiß-Platz 1 – 5, TG Mannheim Deutsche Telekom Allee 7 Darmstadt Georg-Glock-Str. 18 Düsseldorf Gustav-Nachtigal-Str. 3 & 5 Wiesbaden Rotebühlstr. 98 – 100 Solmsstr. 27 – 37 T-Online-Allee 1 Total Stuttgart Frankfurt Darmstadt Lettable area (m²) Pre-letting (% of target rent) Secured rent (EUR k) Target rent on completion (EUR k) Expected completion date Status 5,000 17,500 24,700 10,800 26,100 8,400 30,900 60,600 184,000 0 0 0 100 100 100 100 68 70 0 0 0 2,649 8,710 2,059 6,081 6,461 1,198 Construction Q2 2021 3,400 3,500 2,649 8,710 2,059 6,081 9,500 Construction Q4 2022 Planning n/a Construction Q2 2020 Construction Q3 2022 Construction Q3 2021 Construction Q3 2021 Planning n/a 25,960 37,097 21 alstria Annual Company Report 2019ACQUISITIONS IN THE CORE Number of assets: 5 Avg. size: 3,600 m² Avg. in-place rent: EUR 9.20 per m² Market rent: EUR 13.80 per m² TRANSACTIONS Capital recycling optimizes the structure of our portfolio alstria is not a trading company and we do not bet on the real estate cycle. As a long-term oriented investor and real estate operator, we buy assets in our core regions whenever we see the potential to improve the building quality and to generate higher rents. This is the most sustainable way to create value. When we acquire real estate assets, we strive for internal rates of return (on an unlevered basis) of 6 % to 8 %, depending on the individual risk of the prop- erty. Potential acquisition targets undergo a rigorous due diligence and have to perform on an unlevered basis. Our pricing discipline has remained unchanged, regardless of the current low interest rate environment. We do, however, review our investment on a regular basis and assess the risk return prospect of holding the asset to execute our business plan vs. the opportunity to sell the asset in the market. If and when we believe there is a pricing dislocation in the market, we try to take advantage of it, either to buy more assets or to sell some assets. Our aim is to systematically improve the overall risk return profile of the portfolio. DISPOSALS IN THE PERIPHERY Number of assets: 6 Avg. size: 14,300 m² Avg. in-place rent: EUR 8.30 per m² 22 alstria Annual Company Report 2019ACQUISITIONS & DISPOSALS 2019 Buy the core – sell the periphery In 2019, we saw and took advantage of the strong demand for German office real estate to dispose of the weaker assets in our portfolio (usually located in the periphery of our core markets), with the intention to re-invest the sale proceeds into the core of our markets, either through our refurbishment program or, if available, through selective acquisitions. As such, we were net seller for the year (we sold EUR 139.7 million and acquired EUR 49.3 million of assets). This capital re-allocation process is allowing us to continuously improve the risk return of the portfolio. Considering the current market environment, we expect to remain being a net seller in 2020. Unlevered return of 6.6 % in 2019 We measure the return on our properties over their entire holding period, on the basis of an unlevered internal return (UIRR = unlevered rate of return). Over their holding period, the buildings sold in 2019 generated an unlevered profit of EUR 49.2 million and an estimated UIRR of 6.6 %. This result is in line with our target return and serves as proof of our realistic view on real estate investments throughout the cycle. The properties we disposed in 2019 were sold at a gain of 11.2 % compared to the FY 2018 appraised value. Table 13: Acquisitions Lettable area (m²) Vacancy rate (%) Acquisition price1) (EUR k) Annual rent (EUR k) Transfer of benefits and burden 2,400 5,700 3,800 3,000 2,700 17,600 1.0 5.9 0.0 6.7 0.0 3.2 9,100 7,900 11,000 13,000 8,300 300 Feb. 01, 2019 400 Mar. 01, 2019 448 June 01, 2019 416 Apr. 30, 2019 335 Sept. 11, 2019 49,300 1,899 Adress Lehrter Str. 17, Berlin Handwerkstr. 4, Stuttgart Maxstr. 3a, Berlin Hauptstr. 98 – 99, Berlin Adlerstr. 63, Düsseldorf Total 1) Incl. 7 % transaction costs. Table 14: Disposals UIRR Lettable area (m²) Vacancy rate1) (%) Transfer of benefits and burden Historical acquisition price (EUR k) Annual rent1) (EUR k) Gain to book value (EUR k) Disposal price (EUR k) Rent collected (EUR k) Total capex (EUR k) Unlevered profit (EUR k) UIRR2) (%) 24,300 0.0 2015 – 2019 36,700 2,802 700 38,900 8,486 3,394 8,309 5.7 12,900 0.0 2015 – 2019 23,100 1,811 11,500 41,500 5,168 911 22,585 19.8 14,900 25.8 2015 – 2019 20,200 1,344 2,800 27,000 3,982 1,133 9,620 10.7 8,900 27.8 2015 – 2019 12,100 895 1,250 12,750 2,805 1,306 2,151 4.4 21,000 18.7 2007 – 2019 27,700 1,411 – 370 16,680 22,208 3,912 6,708 2.4 4,200 14.7 2015 – 2019 3,800 297 – 1,850 2,900 910 118 – 136 – 9.0 Adress Opernplatz 2, Essen Ingersheimer Str. 20, Stuttgart Berner Str. 119, Frankfurt Stiftsplatz 5, Kaiserslautern W.-v.-Siemens Platz 4, Laatzen Balgebrückstr. 13, Bremen Total 86,200 12.7 123,600 8,560 14,030 139,730 43,559 10,774 49,237 6.6 1) At the time of the signing of the SPA. 2) Incl. 6 % transactions costs and 5 % real estate operating expenses. 23 alstria Annual Company Report 2019 EXTERNAL VALUATION Valuation based on RICS standards Our entire real estate portfolio is revalued at least once a year by independent appraisers. Last years’ valuation was conducted by Savills Advisory Services Germany. The val- uation report can be found on pages 71 – 79 in this report. In determining the value of our real estate portfolio, Sav- ills applied the Hardcore and Top Slice (H & T) method in accordance with the recommendations of the RICS (Royal Institution of Chartered Surveyors). The H & T method divides the cashflow of the property into two blocks being calcu- lated individually and being summed up subsequently. To derive the capital value, a yield is used, which is obtained from transactions of comparable buildings. The Hardcore block considers the cashflow as at the valuation date until the expiry of the existing lease, while the Top Slice marks the second phase from the beginning of the releasing based on market rents. The cashflows consider management, main- tenance and unrecoverable costs, as well as an appropriate void period. Finally, the capital value (sum of Hardcore and Top Slice) is corrected by costs for outstanding repairs, future capital costs (refurbishment and releasing) and purchasers’ costs to calculate the net value of the property, which is the amount reflected on our balance sheet. 24 alstria Annual Company Report 2019PORTFOLIO VALUE Increase of EUR 454.8 million For the overall portfolio, the 2019 valuation process resulted in a total increase of EUR 454.8 million (net of capex and acquisitions) over the course of 2019. 104 properties experi- enced an increase in value amounting to EUR 573.0 million, while 8 buildings were devalued by a total of EUR 13.2 mil- lion. The valuation increase not only reflects the change in the underlying real estate market, but also mirrors the capex spent on the portfolio (EUR 116.1 million). Significant valuation gains were generated particularly by the assets in Solmsstr. 27 – 37 (Frankfurt) and Gustav-Nachti- gal-Str. 3 & 5 (Wiesbaden) reflecting the leasing progress and in our long-term leased assets in Hamburg. Portfolio value grew by 37 % since 2016 Over the past four years, our investment portfolio grew by 37 % to EUR 4.5 billion. During this time period, we sold slightly more than we bought and concentrated our portfolio to the core of our markets. We spent EUR 292.8 million of capex to improve the quality of our assets. Finally, the strong price increase in the German office market has led to a valuation increase of EUR 1.1 billion since 2016. The strong investment market was reflected by a yield that came down from 6.2 % in 2016 to 4.7 % in 2019. Graph 5: Portfolio value 2016 – 2019 EUR million 5,000 Valuation yield Acquisitions Standing portfolio Valuation gain Capex Disposals 4,000 3,000 2,000 1,000 0 – 1,000 2016 2017 2018 2019 % 10 9 8 7 6 5 4 3 2 1 0 – 1 – 2 25 alstria Annual Company Report 2019 RANGE OF YIELDS ERV yields between 3.3 % and 8.8 % The valuation yield on our portfolio stands at 4.7 % as per December 31, 2019, whereas the market yield (ERV yield) amounts to 5.6 %. However, there is a wide range of yields reflecting the characteristics of each individual property (see Graph 6). The range of ERV yields (excluding develop- ment portfolio assets) represents the difference between the building with the lowest ERV yield and the building with the highest ERV yield in the respective region. The value within the range is the average ERV yield in the local portfolio. The lower end of the yield usually represents buildings with longer-term leases and the higher end of the range represents properties with shorter leases in the respective region. Graph 6: Range of ERV yields1) in alstria’s portfolio as of December 31, 2019 % 10 9 8 7 6 5 4 3 2 1 0 8.5 7.7 7.6 5.9 5.7 8.8 6.4 4.5 4.4 4.0 4.0 3.3 highest ERV yield average ERV yield lowest ERV yield 6.4 7.1 6.5 5.5 4.6 4.5 alstria’s average ERV yield: 5.6 % Hamburg Düsseldorf Frankfurt Stuttgart Berlin Others 1) The ERV yield is the market value of the asset (OMV) in relation to its market rent (ERV). The valuation yield is 4.7 % as of Dec. 31, 2019. 26 alstria Annual Company Report 2019ALSTRIA’S AVERAGE BUILDING Size: 13,000 m² Value: EUR 38.6 million Value per m²: EUR 2,970 Rent per m²: EUR 12.62 PORTFOLIO OVERVIEW 116 buildings generating sustainable returns We own and manage office buildings located in the large German office markets and offer our investors an efficient gateway into the German commercial real estate market. The concentration on the big and liquid German office markets presents a fair reflection of the underlying strength of the German economy and at the same time allows us to effi- cently manage sizable sub-portfolios from our local offices. We usually prefer to own smaller assets concentrated in a geographical area rather than larger assets. By construction, our portfolio is therefore very granular, which allows us to spread our operational risk over a much larger number of assets. The average building has a leasable area of 13,000 m² and a market value of EUR 38.6 million. We believe that from a risk return perspective a greater number of smaller assets is more beneficial than a smaller number of larger assets, despite a higher management complexity. MANAGE SELL BUY 27 alstria Annual Company Report 2019PORTFOLIO MOVEMENT Total portfolio value of EUR 4.5 billion The value of our total property portfolio has grown by 12.4 % to EUR 4.5 billion in 2019. To improve the transparency of our reporting, we split the change into the impact from transactions, capital expenditure and valuation. Table 15 shows that the portfolio movement has been driven pri- marily by a positive valuation result of EUR 454.8 million in 2019, which was due to the combined effect of the strong operational result and the strong underlying investment market. We used this strong investment market to dis- pose non-core assets, putting us into a net-seller position. To capture the opportunities of the strong office market and to meet the demand for high quality office space, we invested an amount of EUR 116.1 million into our assets. Besides our investment property portfolio, we held assets for sale and the assets in our own use on our balance sheet. The total portfolio value as per December 31, 2019 amounted to EUR 4.5 billion. A detailed asset-by-asset portfolio description can be found on the following pages and downloaded from our website  www.alstria.com/ portfolio/ Table 15: Movements property portfolio Investment properties as of Dec. 31, 2018 + Transactions o / w Acquisitions1) o / w Disposals (book value) + Capital expenditure o / w Development portfolio2) o / w Investment portfolio + Valuation result o / w Development portfolio1) o / w Investment portfolio + Reclassification o / w Assets held for sale (book value) o / w Owner occupied properties + Other adjustments EUR k 3,938,900 – 53,900 49,900 – 103,800 116,100 44,100 72,000 454,800 103,300 351,500 – 20,600 – 20,600 0 3,300 = Investment properties as of Dec. 31, 2019 4,438,600 + Fair value of owner occupied properties as of Dec. 31, 2019 + Assets held for sale – Other adjustment 23,000 19,600 – 5,100 = Total portfolio value as of Dec. 31, 2019 4,476,100 1) Including acquisition costs. 2) Assets classified as development assets as of Dec. 31, 2018 and Dec. 31, 2019. Platz der Einheit 1 Frankfurt 28 alstria Annual Company Report 2019TABLE 16: PORTFOLIO OVERVIEW Lettable area (m²) Office space (m²) Vacancy (m²) Contractual annual net rent (EUR) ERV 1) (EUR) OMV 1) (EUR) Capex (EUR) Wault (years) ∆ Rental income (2018 / 19) (%) ∆ OMV (2018 / 19) (%) Investment portfolio 1,325,300 1,069,900 107,600 178,707,400 212,727,600 3,988,350,000 81,234,000 Current development portfolio Total portfolio2) 183,800 163,100 38,500 29,624,800 35,737,100 487,710,000 34,908,600 1,509,200 1,233,000 146,100 208,332,200 248,464,700 4,476,060,000 116,142,500 5.4 11.8 6.3 5.9 54.2 10.8 14.3 34.8 16.2 1) According to the year-end valuation by Savills Advisory Services. 2) The entire portfolio is held as freehold assets. Investment portfolio Total lettable area (m²) Office space (m²) Vacancy (m²) Contractual annual net rent (EUR) ERV 1) (EUR) OMV 1) (EUR) Capex (EUR) Wault (years) ∆ Rental income (2018 / 19) (%) ∆ OMV (2018 / 19) (%) Asset Hamburg Alte Königstr. 29 – 39 Alter Steinweg 4 Amsinckstr. 28 Amsinckstr. 34 Bäckerbreitergang 73 – 75 Basselweg 73 Borsteler Chaussee 111 – 113 City Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Buxtehuder Str. 9, 9a, 11, 11a Hamburg Drehbahn 36 Ernst-Merck-Str. 9 Essener Bogen 6 a – d Essener Str. 97 Garstedter Weg 13 Gasstr. 18 Grindelberg 62 – 66 Hamburger Str. 1 – 15 (MOT) Hamburger Str. 1 – 15 (MUC) Hammer Steindamm 129 Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg 1) According to the year-end valuation by Savills Advisory Services. 4,300 32,000 8,700 6,600 2,700 2,700 5,400 7,700 25,700 17,500 5,400 1,400 3,600 26,100 18,400 9,500 12,700 7,200 3,600 28,000 8,200 6,500 2,600 1,900 3,600 5,100 20,200 15,200 4,500 900 2,700 21,200 17,400 8,300 0 6,300 0 0 200 3,300 0 0 0 1,500 0 100 0 0 0 12,000 0 400 200 0 637,100 738,200 16,200,000 0 4,502,000 5,403,600 147,000,000 158,000 1,587,400 1,555,300 30,800,000 3,245,800 647,700 562,200 295,600 654,200 622,400 3,688,100 3,093,300 741,900 158,800 390,300 2,130,900 2,362,300 1,934,200 2,467,900 620,000 1,192,400 22,300,000 3,467,500 610,200 328,500 678,100 922,500 16,500,000 – 18,200 6,790,000 13,900,000 12,000,000 0 82,600 8,300 4,394,500 118,400,000 173,900 3,444,800 100,600,000 3,647,600 734,400 173,800 476,900 9,810,000 2,220,000 8,270,000 0 11,500 900 4,353,500 56,000,000 4,233,000 2,761,300 61,400,000 2,152,600 35,400,000 2,743,700 42,200,000 776,700 14,400,000 244,000 – 98,300 28,100 0 6.4 6.4 6.7 5.3 5.2 6.1 3.2 6.4 16.4 10.0 3.5 2.4 1.4 4.3 6.4 3.2 3.5 6.4 0.0 0.0 n/a 193.8 0.5 0.4 3.1 0.0 0.1 11.5 4.3 2.5 0.0 8.8 0.0 3.0 3.8 0.0 8.9 15.3 62.1 39.4 25.0 4.5 7.8 1.7 9.6 25.8 12.2 11.0 3.4 12.7 9.1 18.0 – 3.0 2.9 29 alstria Annual Company Report 2019 Investment portfolio Asset Heidenkampsweg 44 – 46 Heidenkampsweg 51 – 57 Heidenkampsweg 99 – 101 Herthastr. 20 Johanniswall 4 Kaiser-Wilhelm-Str. 79 – 87 Kattunbleiche 19 Ludwig-Rosenberg-Ring 41 Max-Brauer-Allee 89 – 91 Nagelsweg 41 – 45 Öjendorfer Weg 9 – 11 Rahlstedter Str. 151 – 157 Schaartor 1 Sonninstr. 24 – 28 Steinstr. 10 Steinstr. 5 – 72) Süderstr. 24 Total Düsseldorf Adlerstr. 63 Alfredstr. 236 Am Seestern 1 Am Wehrhahn 28 – 30 Am Wehrhahn 33 An den Dominikanern 6 Bamlerstr. 1 – 5 Berliner Str. 91 – 101 Carl-Schurz-Str. 2 City Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Düsseldorf Essen Düsseldorf Düsseldorf Düsseldorf Cologne Essen Ratingen Neuss 1) According to the year-end valuation by Savills Advisory Services. 2) Own used property, partly classified as property, plant and equipment. Total lettable area (m²) Office space (m²) Vacancy (m²) Contractual annual net rent (EUR) ERV 1) (EUR) OMV 1) (EUR) Capex (EUR) Wault (years) ∆ Rental income (2018 / 19) (%) ∆ OMV (2018 / 19) (%) 4,500 10,200 19,400 3,300 14,100 5,600 12,400 4,900 9,800 6,900 6,100 2,900 5,200 22,200 26,800 22,400 6,600 4,000 9,400 18,900 2,700 10,500 4,400 9,800 4,100 7,000 6,300 5,900 2,900 4,400 19,900 22,200 18,700 6,200 400 0 6,900 0 0 0 0 100 0 100 0 0 0 1,100 0 100 300 444,400 1,695,400 1,804,900 335,600 585,900 8,010,000 1,812,500 36,300,000 233,000 139,000 3,263,500 50,400,000 8,621,900 404,400 6,610,000 1,940,400 2,148,800 63,900,000 – 2,300 – 300 1,191,200 1,717,700 534,600 1,022,700 1,000,200 637,100 329,600 962,400 2,633,900 3,689,100 4,360,700 1,254,200 33,900,000 – 45,600 1,583,300 47,300,000 560,400 11,200,000 1,182,500 25,700,000 83,300 85,600 0 1,156,700 23,500,000 1,229,700 727,000 364,100 14,400,000 7,040,000 1,184,200 28,000,000 3,566,500 72,400,000 4,259,100 123,200,000 4,806,500 125,800,000 0 0 – 47,100 130,800 637,000 – 39,900 985,700 1,131,300 23,000,000 2,588,100 380,900 313,500 26,700 52,381,900 63,431,900 1,414,850,000 28,797,900 420,400 7,820,000 – 3,800 11.8 2,700 30,300 35,700 2,600 24,100 27,500 33,100 33,900 12,700 900 27,700 31,800 1,500 18,100 0 28,400 24,100 12,700 0 0 6,200 400 4,600 0 700 6,400 3,700 335,000 4,150,000 5,608,200 368,600 4,520,400 3,396,000 3,837,700 3,871,000 4,587,000 83,700,000 0 5,856,600 93,300,000 4,817,200 441,600 9,050,000 163,400 5,660,400 125,000,000 8,204,700 4,284,100 91,600,000 4,098,700 61,600,000 4,471,900 63,600,000 0 199,300 275,800 426,900 938,700 1,358,900 17,000,000 3.6 3.5 4.8 1.4 15.2 2.7 16.4 6.7 6.4 8.7 6.4 6.4 3.2 5.8 6.4 8.3 4.2 7.3 4.0 8.7 5.3 5.9 5.6 2.3 5.3 2.9 10.1 2.9 22.3 0.0 0.2 4.5 0.0 0.2 0.0 0.3 0.0 0.0 1.5 9.0 0.0 1.4 46.0 7.8 n/a –33.5 131.9 0.9 21.2 0.0 0.0 – 2.1 – 14.1 14.4 6.8 38.8 1.1 12.1 21.1 1.1 1.8 7.1 24.9 2.9 2.8 19.1 32.6 19.9 23.8 27.8 16.7 n/a 13.9 18.6 7.7 25.0 9.0 6.2 4.3 – 1.2 30 alstria Annual Company Report 2019Total lettable area (m²) Office space (m²) Vacancy (m²) Contractual annual net rent (EUR) ERV 1) (EUR) OMV 1) (EUR) Capex (EUR) Wault (years) ∆ Rental income (2018 / 19) (%) ∆ OMV (2018 / 19) (%) City Ratingen Meerbusch Düsseldorf Düsseldorf Trier Essen Düsseldorf Düsseldorf Cologne Düsseldorf Düsseldorf Düsseldorf Düsseldorf Cologne Düsseldorf Düsseldorf Düsseldorf Investment portfolio Asset D2-Park 5 Earl-Bakken-Platz 1 Elisabethstr. 5 – 112) Emanuel-Leutze-Str. 11 Frauenstr. 5 – 9 Friedrich-List-Str. 20 Friedrichstr. 19 Gartenstr. 2 Gereonsdriesch 13 Graf-Adolf-Str. 67 – 69 Hansaallee 247 Hans-Böckler-Str. 36 Heerdter Lohweg 35 Horbeller Str. 11 Immermannstr. 40 Immermannstr. 59 Ivo-Beucker-Str. 43 Josef-Wulff-Str. 75 Kaistr. 16, 16a, 18 Kampstr. 36 Kanzlerstr. 8 Karlstr. 123 – 127 Maarweg 165 Pempelfurtstr. 1 Willstätterstr. 11 – 15 Total 5,700 8,000 10,200 8,300 16,900 9,000 2,200 4,800 2,500 4,900 5,700 7,700 5,100 7,200 9,100 7,500 900 7,900 1,300 4,700 2,100 2,900 4,300 6,500 0 0 300 1,100 100 0 0 400 0 500 0 0 739,100 1,175,200 2,173,100 716,800 9,220,000 1,175,200 20,000,000 2,343,100 52,700,000 443,100 309,400 38,700 936,700 1,183,600 18,700,000 579,200 1,530,300 1,477,600 1,936,700 1,466,700 27,700,000 21,200,000 377,500 909,600 384,800 555,200 776,400 453,300 8,900,000 1,028,800 16,900,000 469,200 620,600 782,600 8,710,000 10,300,000 13,700,000 1,155,900 1,312,800 29,900,000 – 1,100 0 50,300 – 6,500 – 13,900 11,600 197,000 4,000 37,600 33,400 14,300 3,405,600 5,633,600 74,500,000 6,283,600 6,600 8,200 6,500 8,000 Recklinghausen 19,900 Düsseldorf Dortmund Düsseldorf Düsseldorf Cologne Ratingen Düsseldorf 9,300 3,100 9,000 5,700 22,800 18,500 24,000 5,800 7,200 5,100 7,700 0 8,900 1,400 7,500 5,200 20,400 17,000 16,700 0 500 0 0 0 0 700 1,100 0 8,800 5,200 2,500 659,000 1,217,500 1,067,500 1,208,000 2,042,300 2,333,200 505,300 788,700 12,100,000 290,500 1,461,700 27,100,000 1,038,300 20,400,000 1,124,400 16,200,000 1,965,600 27,700,000 2,445,500 53,700,000 99,600 394,600 443,200 295,800 94,100 635,100 9,490,000 512,500 1,273,100 1,304,200 18,400,000 1,969,800 794,000 2,040,100 1,539,500 2,177,600 990,800 16,000,000 0 3,470,800 53,800,000 1,034,500 1,825,000 28,600,000 1,208,800 2,703,800 44,900,000 2,074,000 467,700 341,000 57,500 59,479,700 70,056,500 1,193,490,000 30,396,300 1) According to the year-end valuation by Savills Advisory Services. 2) Own used property, partly classified as property, plant and equipment. 1.0 6.7 6.2 3.2 4.7 1.5 3.7 1.7 3.2 3.4 3.8 9.1 8.0 6.9 2.7 3.9 4.7 1.2 2.8 5.3 7.4 3.5 4.0 5.4 7.2 5.1 0.0 0.0 0.6 2.4 0.3 0.0 0.2 – 4.7 0.3 16.6 – 0.2 8.1 99.1 0.7 – 5.3 8.2 15.8 7.5 5.3 28.2 112.0 1.7 – 31.0 – 8.3 3.9 7.4 12.4 6.4 19.2 16.9 1.5 2.9 14.4 0.6 16.8 9.6 17.1 19.6 10.0 24.7 23.7 4.1 40.9 – 6.1 23.4 31.8 6.4 19.4 7.2 – 13.5 4.2 12.4 31 alstria Annual Company Report 2019Total lettable area (m²) Office space (m²) Vacancy (m²) Contractual annual net rent (EUR) ERV 1) (EUR) OMV 1) (EUR) Capex (EUR) Wault (years) ∆ Rental income (2018 / 19) (%) ∆ OMV (2018 / 19) (%) Investment portfolio Asset Frankfurt Am Hauptbahnhof 6 Goldsteinstr. 114 Gustav-Nachtigal-Str. 4 Hauptstr. 45 Insterburger Str. 16 Mainzer Landstr. 33a Mergenthalerallee 45 – 47 Olof-Palme-Str. 37 Platz der Einheit 12) Siemensstr. 9 Stresemannallee 30 Taunusstr. 45 – 47 Wilhelminenstr. 25 Total Stuttgart Breitwiesenstr. 5 – 7 Eichwiesenring 1 Epplestr. 225 Handwerkstr. 4 Hanns-Klemm-Str. 45 Hauptstätter Str. 65 – 67 Kupferstr. 36 Kurze Str. 40 Vaihinger Str. 131 Total City Frankfurt Frankfurt Wiesbaden Dreieich Frankfurt Frankfurt Eschborn Frankfurt Frankfurt Neu-Isenburg Frankfurt Frankfurt Darmstadt Stuttgart Stuttgart Stuttgart Stuttgart Böblingen Stuttgart Stuttgart Filderstadt Stuttgart 1) According to the year-end valuation by Savills Advisory Services. 2) Own used property, partly classified as property, plant and equipment. 7,700 8,500 800 8,100 13,000 3,300 5,100 10,400 30,100 9,600 9,000 7,300 8,400 5,900 7,900 700 7,000 12,900 2,800 4,800 9,300 600 800 800 0 300 100 1,900 0 28,700 4,300 9,300 7,700 5,500 3,500 900 0 700 1,100 1,582,200 1,066,400 101,100 1,449,700 1,816,700 615,100 308,400 1,608,500 6,628,500 1,112,400 1,357,200 1,076,900 1,169,200 1,712,800 38,300,000 1,195,300 19,500,000 166,800 1,340,000 1,026,100 25,200,000 2,042,600 31,900,000 683,300 477,900 15,000,000 5,650,000 137,600 540,000 800 183,500 452,500 22,700 78,900 1,695,200 27,000,000 524,800 7,963,000 197,400,000 3,979,000 1,251,500 17,200,000 1,438,400 26,400,000 1,235,900 29,500,000 1,303,600 21,700,000 65,000 441,300 66,300 409,000 121,300 106,000 11,500 19,892,300 22,192,400 456,090,000 6,901,400 25,100 12,300 107,200 5,700 14,900 8,600 5,100 5,900 21,400 206,200 20,100 5,100 101,700 2,100 14,100 7,700 4,700 4,200 18,500 178,200 0 800 1,500 600 0 0 0 1,500 3,091,100 1,556,200 3,878,600 60,100,000 506,200 1,910,200 30,300,000 88,500 16,609,400 17,181,600 260,000,000 10,395,700 395,100 1,897,200 1,735,600 584,100 504,300 669,500 7,610,000 1,966,900 30,000,000 1,736,800 43,500,000 752,800 701,700 10,800,000 8,320,000 0 560,700 – 13,300 – 700 118,500 121,800 0 3,785,200 3,633,900 54,300,000 4,400 30,158,200 32,432,000 504,930,000 11,777,400 5.7 5.0 0.4 8.2 3.8 1.9 1.3 6.2 3.6 3.5 4.2 3.4 4.6 4.4 5.5 5.0 2.9 4.4 5.5 7.9 3.3 3.2 2.2 3.6 0.6 21.3 17.1 1.9 – 0.7 3.3 9.9 0.0 – 5.1 0.3 3.7 0.2 3.0 0.0 3.1 – 1.7 – 1.3 n/a 0.0 1.2 2.1 2.8 0.0 1.0 0.0 19.8 5.1 2.4 10.0 13.2 0.9 2.7 3.1 11.7 29.0 17.5 7.4 6.7 8.7 8.2 10.6 n/a 9.5 11.5 6.9 4.0 5.8 11.2 32 alstria Annual Company Report 2019Investment portfolio Asset Berlin Am Borsigturm 13 – 17, 19, 27 – 29, 31 – 33 Am Borsigturm 44 – 46, 52 – 54 Darwinstr. 14 – 18 Hauptstr. 98 – 99 Holzhauser Str. 175 – 177 Lehrter Str. 17 Maxstr. 3a Rankestr. 172) Schinkestr. 20 Tempelhofer Damm 146 Uhlandstr. 85 Total Others Arndtstr. 1 Balgebrückstr. 13 Friedrich-Scholl-Platz 1 City Berlin Berlin Berlin Berlin Berlin Berlin Berlin Berlin Berlin Berlin Berlin Hannover Bremen Karlsruhe Werner-von-Siemens-Platz 1 Laatzen Total 1) According to the year-end valuation by Savills Advisory Services. 2) Own used property, partly classified as property, plant and equipment. Total lettable area (m²) Office space (m²) Vacancy (m²) Contractual annual net rent (EUR) ERV 1) (EUR) OMV 1) (EUR) Capex (EUR) Wault (years) ∆ Rental income (2018 / 19) (%) ∆ OMV (2018 / 19) (%) 15,300 15,100 0 1,713,400 2,407,100 36,800,000 86,700 10,700 22,500 3,000 7,900 2,400 3,800 4,900 2,600 3,600 9,500 8,400 21,400 2,500 7,600 2,300 3,700 4,000 2,400 1,700 6,300 700 0 200 300 0 0 400 200 300 600 105,600 203,100 0 991,200 1,448,100 22,300,000 3,412,100 5,603,800 107,400,000 416,500 841,500 337,300 448,100 705,700 444,400 586,100 671,800 13,200,000 1,125,900 20,000,000 30,200 657,600 539,000 10,900,000 11,800,000 0 20,600 1,354,200 25,300,000 375,300 705,700 730,300 13,800,000 0 11,300,000 202,000 1,041,400 2,275,100 46,100,000 44,300 86,200 75,400 2,700 10,937,700 17,518,600 318,900,000 1,067,800 2.7 3.3 7.1 2.0 2.6 1.3 2.1 3.3 5.0 4.9 4.6 4.5 7.0 13.7 0.7 n/a 11.2 n/a n/a 14.5 64.6 7.8 3.0 20.7 26.9 17.4 19.3 n/a 25.0 n/a n/a 28.9 46.8 8.7 2.3 33.7 10,900 4,200 26,800 21,000 62,900 7,300 3,800 26,800 18,000 55,900 0 600 0 3,900 4,500 1,272,400 1,341,600 29,500,000 – 32,200 12.6 296,600 2,877,700 1,411,000 5,857,700 373,700 3,090,000 2,000 3,246,000 51,000,000 2,349,400 2,134,800 16,500,000 – 26,400 7,096,100 100,090,000 2,292,800 3.6 6.0 0.7 6.0 5.0 – 13.8 10.0 – 21.6 – 1.9 12.5 – 34.9 7.4 – 3.2 4.8 33 alstria Annual Company Report 2019Development assets Asset Besenbinderhof 41 Carl-Reiß-Platz 1 – 5 Carl-Reiß-Platz TG Deutsche Telekom Allee 7 Georg-Glock-Str. 18 Gustav-Nachtigal-Str. 3 Gustav-Nachtigal-Str. 5 Rotebühlstr. 98 – 100 Solmsstr. 27 – 37 T-Online-Allee 1 Total City Hamburg Mannheim Mannheim Darmstadt Düsseldorf Wiesbaden Wiesbaden Stuttgart Frankfurt Darmstadt Total lettable area (m²) Office space (m²) Vacancy (m²) Contractual annual net rent (EUR) ERV 1) (EUR) OMV 1) (EUR) Capex (EUR) Wault (years) ∆ Rental income (2018 / 19) (%) ∆ OMV (2018 / 19) (%) 5,000 17,500 0 24,700 10,800 18,500 7,600 8,400 30,900 60,600 3,500 14,800 0 23,300 10,200 16,500 6,900 6,400 27,400 54,000 184,000 163,000 5,000 17,500 0 0 500 0 0 0 0 0 0 1,198,100 14,600,000 1,177,600 3,130,500 21,000,000 2,561,800 55,200 269,300 1,510,000 0 3,646,700 2,648,800 6,078,300 2,632,000 2,022,300 6,080,900 3,911,300 39,700,000 – 16,500 2,457,600 43,000,000 11,524,800 3,585,400 63,700,000 7,356,600 1,513,200 27,300,000 2,643,300 2,059,000 30,700,000 1,673,300 6,161,700 108,400,000 6,130,100 15,500 38,500 6,460,600 11,451,000 137,800,000 1,857,600 29,624,800 35,737,100 487,710,000 34,908,600 0.0 0.0 2.2 0.2 10.2 16.0 15.0 12.6 20.0 6.0 11.8 n/a n/a 26.8 1.0 > 100 > 100 > 100 24.2 > 100 – 48.9 54.2 128.1 39.3 0.7 – 2.5 34.4 225.0 255.7 39.5 41.1 – 1.6 34.8 1) According to the year-end valuation by Savills Advisory Services.   DOWNLOAD Portfolio overview (Excel) www.alstria.com/portfolio/ 34 alstria Annual Company Report 2019DEVELOPMENT DEVELOPMENT 36 Our approach to internal growth 38 Case study: Gustav-Nachtigal-Str. 3 & 5 40 Case study: Geesthof 42 Current development projects 43 Refurbishment Candidates Poststr. 11, Hamburg Development project 2010 – 2011 Sold 2012 Profit: EUR 59.6 million 35 alstria Annual Company Report 2019 OUR APPROACH TO INTERNAL GROWTH Jesko, you head up the development at alstria. Can you briefly describe how your department is structured? We are specialists in the revitalization and extension of office buildings of all ages. Our experienced team of architects, engineers, urban planners and business economists has a wealth of experience in the field of retrofitting old assets. When we do so, we do not necessarily keep the office use, but always strive to achieve the best for the asset. We have indeed converted office assets into residential assets or hotels, and even into a theatre. The responsibility for success is always clearly defined: Every project manager leads his project from conception to successful completion. Development is an integral part of alstria’s business model. Why do buildings need substantial modernization from time to time? Buildings are depreciating assets and they have a life cycle. While the structure can be used for more than 100 years, the technical lifetimes of windows, facades, heating and plumbing are more likely to be 30 – 40 years and of cool- ing, ventilation, lifts and lighting only 20 – 30 years. The requirements of the users regarding room concepts, func- tionality and equipment are changing even faster. In terms of design, 10 years is already a new generation. The aim of our development projects in existing buildings is to meet the requirements of tomorrow's tenants while con- tinuing to use the building substance in a sustainable and cost-saving manner. Many real estate companies concentrate on transactions and the rental business, but engage external service developers for their refurbishment projects. alstria runs an integrated approach. What is the advantage of doing the development work in-house? First of all, it is always interesting to keep the development margin for yourself, as long as you can manage the risk. As we only develop properties within our own portfolio, we know the buildings inside and out and we are in a posi- tion to design and plan the project while the asset is still yielding, which saves us a lot of time. Furthermore, every sale and subsequent purchase of a property costs alstria time and transactions costs. We save these costs and keep the building if the devel- oped product fits into our core portfolio. If we come to the conclusion that it makes sense to sell the building after the development, we are open to do that. The disposal proceeds and the realized gains usually fund the next devel- opment projects. Service development also has the decisive disadvantage that the service provider bears significantly less risk than the owner. This motivates risky decisions and is therefore not sustainable. Jesko Lohr Head of Development 36 alstria Annual Company Report 2019 Construction capacities are scarce and the prices for construction services are rising. How does alstria ensure that projects are completed on time and on budget? This is indeed an important point. Yields are compressing as property prices are growing faster than rents. To keep returns at an economically viable level, our clear target is to optimize rental growth in relation to capital expenditure, i. e. to realize an efficient yield on cost. This concept usually allows us to be better off than the market, but we cannot escape the price increases entirely. The overall economic forecast must be adequately reflected in the expected rent and cost planning of development projects. Our experience shows that we achieve good results by tailoring the spec- ifications to the respective core competencies of efficient specialist companies with whom we make early contact. For these individual contracts, services critical to deadlines can be prioritized at a very early stage in order to compensate for the longer order or delivery times. How do you manage the risks? Are the projects already pre-leased before construction begins? Long-term vacancies are one of the fundamental risks in project development. That is why we always aim to cre- ate a unique, convincing product. In the long term, this is considerably more valuable than a high pre-leasing rate. Our projects are the best proof of this. In fact, we usu- ally succeed in binding tenants at an early stage with our convincing product. However, these leasings often only take place after the start of construction. Despite our high product quality, we always assume target rents carefully and keep a close eye on the rental space during the plan- ning process. At the same time, our risks are manageable due to the project sizes, as we never have more than 10 % of our space under development at any moment in time. The average investment volume currently is EUR 30 million per project, which limits the risk. Last but not least, the comprehensive experience and interdisciplinary compe- tence of our employees in conjunction with clear project responsibility is also crucial for risk management. alstria’s Development Team 37 alstria Annual Company Report 2019 CASE STUDY: GUSTAV-NACHTIGAL-STR. 3 & 5 WIESBADEN With an expected investment volume of EUR 63 million, the project at Gustav-Nachtigal-Str. 3 & 5 in Wiesbaden is the largest development project in alstria’s corporate history. Verena and Markus, our responsible project managers, give more insight into the project. Markus Wydmuch Developer Verena Intorp Senior Developer Recently, our Frankfurt team signed a lease agreement for 26,000 m² with a term of 15 years for Gustav-Nachtigal-Str. 3 & 5. This is a great success because the campus is now fully leased. Yes, indeed. Now we can start the construction work. The buildings in Gustav-Nachtigal-Str. 3 and 4 have been part of our portfolio since 2008. In combination with the neigh- boring building Gustav-Nachtigal-Str. 5, which we acquired last year, we were able to market a campus with 26,000 m² of leasable space. Our colleagues in Frankfurt have been in contact with the Federal Agency for Real Estate regarding a lease to a major federal institution for the past two years. In the case of such a tenant, negotiations are complex and lengthy due to the involvement of various authorities and the complex development measures. But all these efforts have paid off, because in the end we have more than tripled the annual rent on the buildings and will realize a return of more than 9 % for our shareholders. 38 alstria Annual Company Report 2019 Since you now have planning security, you will face special challenges with the refurbishment of the How difficult is it to consider the tenants’ needs in a building. What makes this project so special? project like this? We bring the buildings optically and technically up to date. Sustainability plays a decisive role here, as the German gov- ernment intends to make the buildings climate-neutral by 2050. Fire protection is also an important issue. In addition, tenants' quality demands have risen sharply in recent years, and in this case the requirements for the building itself and the embedded technology are particularly high. Usually the ratio here is 70 % (building) to 30 % (technology), but in this project it is 50 % to 50 %. For example, we will install four times as many sockets and data connections at each workstation as is normally the case. A high-quality tenant such as the federal agency usually expresses strict requirements in terms of its real estate needs. In a project like this one, we tailor our project to the tenant’s needs, and have a joint definition of the final product with the tenant's teams. The final rent that will be paid by the tenant is not only a function of the location of the asset, but also a function of the quality of the space that we have produced, and the duration of its commit- ment to the space. We have already successfully finalized extensive developments in recent years. What is the approach to this special project? In general, every revitalization should create a unique prop- erty. The tenant should recognize the building through its significance and individual appearance. This is how we stand out from our competitors. The project in Wiesbaden is a little different because the function of the building is the abso- lute focus here. Our flexible development concept allows us to successfully implement even the highest requirements in terms of technology. We are in close coordination with the tenant in order to optimally realize his specifications together with the external service providers. Through close exchange with all parties involved, we have developed a common understanding of the tasks and approaches and are well on the way to completing this demanding project successfully and on time. 39 alstria Annual Company Report 2019 CASE STUDY: GEESTHOF HAMBURG Built in 1927, the ‘Geesthof’ in the heart of Hamburg impresses with its architecture, which is typical of the 1920s. In 2018, we started the refurbishment of the his- toric building and today the project managers Klara and Matthias give us some exclusive insights behind the facade of the Geesthof. Matthias Lehmann Senior Developer Klara Meister Developer Klara and Matthias, could you please give us some The development of the Geesthof is quite complex. more details about the project? How did you prepare for the construction phase? The Geesthof is a listed property, which was occupied by the City of Hamburg until 2018. The last substantial refurbishment took place more than 30 years ago and the Second World War caused considerable damage to the building, so that over the last 100 years the building has lost its original appearance. The move out of the City of Hamburg now gives us the opportunity to reconstruct and comprehensively modernize this historic building in the heart of Hamburg. The Geesthof has been part of Hamburg's history since the 1920s. We started the project with the aim of giving the building back its former look and ensuring a sustainable use over the next decades. In simple terms, we started looking at the options the building offers. For this purpose, we carried out a feasibility study. Within the scope of this study, we examined which types of use the Geesthof provides due to its location and structural characteristics. Taking these aspects and history into account, we then designed a concept for how the Geesthof should look after modernization. 40 alstria Annual Company Report 2019 The appearance of the Geesthof is impressive with its expressionistic front, south-eastern facade in Bauhaus style and art nouveau elements in the interior. Were these elements included in the concept? Yes, of course. Due to the historical appearance, we have developed a concept in the style of the 1920s, which inte- grates influences from the art of that time. The charm of the existing building structure is reinterpreted and combined with modern elements. During the Second World War, the Geesthof was badly damaged, losing almost two floors and its distinctive crown. We will put the crown back on the building and return it to the original form it has lost. At this point, we also see our duty as a responsible citizen, as we have a direct impact on the appearance of the cities in which we invest. In August 2018, the City of Hamburg moved out of the Geesthof. Was this the starting signal for the construction work? Yes, we were in a position to start right away because we had developed a coherent concept, the approval planning and the building application had been submitted and the contractors were ready. This is important because we want to keep vacancies in our buildings as short as possible. As we are planning an open office concept, we started with the demolition of the non-load-bearing walls. Here we found a historical wall painting from the 1920s, created by the artist Otto Fischer-Trachau, whose works during the Nazi era belonged to the so-called degenerate art. We included the painting in our planning concept and it will be professionally restored. As the mural, like many other parts of the Geesthof, is under a preservation order, we coordinate closely with the relevant authorities. The cooperation is excellent, and the monument protection authority supports us in our project to give the Geesthof back its original appearance. Can you already foresee when the development will be completed and the Geesthof will be filled with life again? The complexity of the Geesthof with all its special archi- tectural characteristics is very exciting and challenging to implement. In addition to the buildings’ historical value for the cityscape, we also have clear financial targets. We plan to invest EUR 11 million into the building. The con- siderable improvement in the quality of the space will allow for significantly higher rents, so that we will achieve a return of around 6 %. Our team is working with great commitment at the Geesthof and we are aiming for com- pletion in mid-2021. 41 alstria Annual Company Report 2019 CURRENT DEVELOPMENT PROJECTS Georg-Glock-Str. 18, Düsseldorf Carl-Reiß-Platz 1 – 5, Mannheim T-Online-Allee 1, Darmstadt Lettable area: Post refurbishment rent: EUR 21.40 per m² 10,800 m² Lettable area: 17,500 m² Letting status: vacant Lettable area: 60,600 m² In-place rent: EUR 12.00 per m² Rotebühlstr. 98 – 100, Stuttgart Solmsstr. 27 – 37, Frankfurt Deutsche-Telekom-Allee 7, Darmstadt Lettable area: Post refurbishment rent: EUR 20.10 per m² 8,400 m² Lettable area: Post refurbishment rent: EUR 16.40 per m² 30,900 m² Lettable area: 24,700 m² In-place rent: EUR 12.30 per m² 42 alstria Annual Company Report 2019 REFURBISHMENT CANDIDATES – MID-TERM Immermannstr. 40, Düsseldorf Lettable area: 8,200 m² In-place rent: EUR 13.20 per m² Garstedter Weg. 13, Hamburg Lettable area: 3,600 m² In-place rent: EUR 9.10 per m² Maxstr. 3a, Berlin Lettable area: 3,800 m² In-place rent: EUR 9.80 per m² Taunusstr. 45 – 47, Frankfurt Lehrter Str. 17, Berlin Heidenkampsweg 44 – 46, Hamburg Lettable area: 7,300 m² In-place rent: EUR 13.70 per m² Lettable area: 2,400 m² In-place rent: EUR 11.70 per m² Lettable area: 4,500 m² In-place rent: EUR 8.90 per m² 43 alstria Annual Company Report 2019 REFURBISHMENT CANDIDATES – LONG-TERM Alter Steinweg 4, Hamburg Lettable area: 32,000 m² In-place rent: EUR 11.70 per m² Karlstr. 123 – 127, Düsseldorf Lettable area: 5,700 m² In-place rent: EUR 11.70 per m² Sonninstr. 24 – 28, Hamburg Lettable area: 22,200 m² In-place rent: EUR 9.80 per m² Am Hauptbahnhof 6, Frankfurt Uhlandstr. 85, Berlin Lettable area: 7,700 m² In-place rent: EUR 18.50 per m² Lettable area: 9,500 m² In-place rent: EUR 9.80 per m² An den Dominikanern 6, Cologne Lettable area: 27,500 m² In-place rent: EUR 10.30 per m² 44 alstria Annual Company Report 2019FINANCIALS FINANCIALS 46 P & L and FFO 47 Cash flow 48 Balance sheet 50 Financial debt 51 Outlook 2020 52 EPRA KPI’s 45 Große Bleichen 23 – 27, Hamburg Development project 2014 – 2016 Sold 2017 Profit: EUR 58.3 million alstria Annual Company Report 2019 P&L AND FFO FFO margin up to 60.0 % In 2019, the operating performance of our company was in line with our plans. Due to the disposal of properties and a corresponding reduction of our lettable area, revenues fell slightly by EUR 5.7 million, from EUR 193.2 million to EUR 187.5 million in the course of 2019. The consol- idated net result increased to EUR 581.2 million in 2019 (EUR 527.4 million in 2018) and was substantially impacted by the revaluation result of our property portfolio. The FFO (after minorities) amounted to EUR 112.6 million, which is in line with the forecasted level of EUR 112.0 mil- lion. The decline by EUR 2.1 million compared to the prior year period is directly linked to the lower revenue base but was partly compensated by lower financing costs. However, the FFO margin increased to 60.0 % in 2019 and was up by 60 bps compared to the prior year period. FFO adjustments 2019 Table 17 provides information on the adjustments we made to reconcile our P&L into our FFO. In general, non-cash and non-recurring items do not contribute to the FFO, as the purpose of this number is to give a clear picture of the oper- ating performance of the company. The most meaningful adjustments we made are the revaluation result (non-cash) and the disposal gain (non-recurring), but also the release of accruals (EUR 10.5 million) and other one-off items (EUR 3.2 million), which are included in other operating income. Other operating expenses were adjusted by one- off items amounting to EUR 5.2 million and non-cash items of EUR 8.5 million related to the increase of the minority share in alstria office Prime Portfolio GmbH & Co. KG. Table 17: Consolidated income statement for the period from January 1 to December 31, 2019 2019 2018 EUR k Revenues Service charge income Real estate operating expenses Net rental income Administrative expenses Personnel expenses Other operating income Other operating expenses Net result from fair value adjustments on investment property Gain on disposal of investment property Net operating result Net financial result Share of the result of joint ventures Net result from fair value adjustments on financial derivatives Pre-tax income (EBT) Income tax expense Consolidated profit / loss for the period Minorities Consolidated profit after minorities / Funds from operations (FFO) Maintenance capex Adjusted funds from operations (AFFO) Number of shares outstanding (k) FFO per share (EUR) AFFO per share (EUR) P&L Adjustments 0 0 0 0 1,106 2,544 – 13,644 13,824 187,467 37,038 – 61,601 162,904 – 9,545 – 18,441 16,185 – 15,230 454,767 17,350 607,990 – 27,460 – 170 0 580,360 861 581,221 0 – 454,767 – 17,350 – 468,287 3,331 126 0 – 464,830 – 861 – 465,691 – 2,959 581,221 – 468,650 FFO 187,467 37,038 – 61,601 162,904 – 8,439 – 15,897 2,541 – 1,406 0 0 139,703 – 24,129 – 44 0 115,530 0 115,530 – 2,959 112,571 – 14,276 98,295 177,593 0.63 0.55 P&L Adjustments 0 0 0 0 794 1,304 – 9,728 12,752 193,193 39,160 – 63,285 169,068 – 8,834 – 15,910 10,656 – 13,746 398,954 14,887 555,075 – 29,497 – 70 2,452 527,960 – 546 527,414 – 398,954 – 14,887 – 408,719 1,238 0 – 2,452 – 409,933 546 – 409,387 – 3,297 527,414 – 412,684 FFO 193,193 39,160 – 63,285 169,068 – 8,040 – 14,606 928 – 994 0 0 146,356 – 28,259 – 70 0 118,027 0 118,027 – 3,297 114,730 – 11,924 102,806 177,416 0.65 0.58 46 alstria Annual Company Report 2019 CASH FLOW  FFO in line with operating cash flow The FFO of a real estate company should be comparable to its operating cash flow. In 2019, our operating cash flow was EUR 122.0 million, slightly higher than the FFO gen- erated (EUR 112.6 million), thereby underscoring the conservative character of our FFO calculation. In recent years, both figures have developed to square perfectly with our expectations. Our operating cash flow over the past five years was at 101.4 % of our FFO. Table 18: Consolidated statement of cash flows for the year ended December 31, 2019 EUR k 1. Cash flows from operating activities Consolidated profit for the period Interest income Interest expense Result from income taxes Unrealized valuation movements Other non-cash income (–) / expenses (+) Gain (–) / loss (+) on disposal of investment properties Depreciation and impairment of fixed assets (+) Decrease (+) / Increase (–) in trade receivables and other assets that are not attributed to investing or financing activities Decrease (–) / increase (+) in trade payables and other liabilities that are not attributed to investing or financing activities Cash generated from operations Interest received Interest paid Income taxes paid Net cash generated from operating activities 2019 2018 581,221 – 575 28,035 – 861 527,414 –745 30,241 546 –445,940 –389,465 5,616 –14,887 794 663 –17,350 1,106 867 –1,055 – 1,093 146,073 814 –24,674 – 520 121,693 –369 158,090 745 –26,658 –13,163 119,014 EUR k 2. Cash flows from investing activities Acquisition of investment properties Proceeds from sale of investment properties Payment of transaction cost in relation to the sale of investment properties Acquisition of other property, plant and equipment Proceeds from the equity release of interests in joint ventures Payments for investment in financial assets Proceeds from the repayment of financial assets Net cash used in / generated from investing activities 3. Cash flows from financing activities Cash received from cash equity contributions Payment of transaction costs of issue of shares Payments for the acquisition of minority interests Distributions on limited partnerships of minority shareholders Proceeds from the issuing of bonds and borrowings Payments of transaction costs / redemption of leasing obligations Payments of dividends Payments of the redemption of bonds and borrowings Net cash used in financing activities 4. Cash and cash equivalents at the end of the period Change in cash and cash equivalents (subtotal of 1 to 3) Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period 2019 2018 –164,915 –253,119 139,777 –179 –287 7,350 –238,864 36,567 119,200 –139 –2,145 0 0 0 – 220,551 – 136,203 193,072 0 –2,611 0 –101 –73 –1,941 –1,947 60,000 393,596 –151 – 1,141 –92,257 –92,170 –34,000 –108,088 48,010 264,178 165,320 132,899 298,219 30,821 102,078 132,899 47 alstria Annual Company Report 2019 BALANCE SHEET Value of investment properties up by 12.7 % The balance sheet of our company is as simple and transpar- ent as it can be. All real estate and associated land are 100 % owned by the company. These real estate assets are on the assets side of our balance sheet and currently account for 89 % of our balance sheet total (including owner- occupied space). Cash / cash equivalents and financial assets make up 10 %, and other assets account for just 1 % of the bal- ance sheet total. The increase of the balance sheet total by EUR 848.1 million to EUR 5.0 billion as per December 31, 2019, was mainly driven by the increase of our investment properties, which grew by 12.7 % to 4.4 billion in 2019, reflecting revaluation gains and capital expenditure. Cash and financial assets were up by EUR 365 million following the placement of a capital market bond in September 2019. The proceeds will serve to repay the maturing debt coming up in 2020 and 2021 in the amount of EUR 363.8 million. On the liabilities side, the company’s equity is the largest item, representing 63 % of the balance sheet total. Finan- cial liabilities account for 34 % and other liabilities for 3 % of the balance sheet. Total equity was up by 18.3 % to EUR 3.2 billion as a result of net profit contribution in 2019. Financial debt was temporarily up by EUR 390.0 million due to the bond placement. With the repayment of the maturing debt in 2020 / 2021, the level of debt will substantially decline. Table 19: Consolidated balance sheet as of December 31, 2019 Assets EUR k Non-current assets Investment property Equity-accounted investments Property, plant and equipment Intangible assets Financial assets Total non-current assets Current assets Trade receivables Financial assets Tax receivables Other financial receivables Cash and cash equivalents Assets held for sale Total current assets Dec. 31, 2019 Dec. 31, 2018 4,438,597 1,070 19,055 232 39,108 4,498,062 3,938,864 8,589 18,972 349 36,737 4,003,511 3,877 199,750 1,231 8,601 298,219 19,588 531,226 6,865 0 43 8,314 132,899 29,620 177,741 Total assets 5,029,328 4,181,252 Equity and liabilities EUR k Equity Share capital Capital surplus Retained earnings Revaluation surplus Total equity Non-current liabilities Liabilities minority interest Long-term loans, net of current portion Other provisions Other liabilities Total non-current liabilities Current liabilities Liabilities minority interest Short-term loans Trade payables Profit participation rights Liabilities of current tax Other provisions Other current liabilities Total current liabilities Total liabilities Dec. 31, 2019 Dec. 31, 2018 177,593 1,448,709 1,545,768 3,485 3,175,555 177,416 1,538,632 964,554 3,485 2,684,087 70,504 64,013 1,661,080 1,226 11,532 1,744,342 1,336,090 1,275 5,010 1,406,388 24 50,590 4,611 457 5,793 2,505 45,451 109,431 1,853,773 47 14,171 4,400 530 5,945 5,477 60,207 90,777 1,497,165 Total equity and liabilities 5,029,328 4,181,252 48 alstria Annual Company Report 2019BALANCE SHEET RATIOS Solid balance sheet As of December 31, 2019, our G-REIT equity ratio reached a new record level of 70.9 % and clearly exceeded the legally required figure of 45 %. At the same time, our net LTV fell further to 27.1 %. IFRS NAV per share + 18.3 % Our IFRS net asset value per share rose by EUR 2.77 to EUR 17.88 as of the reporting date. The revaluation of our properties resulted in an increase of EUR 2.56 per share, and the operating profit covered the dividend payment in May 2019. Table 20: Balance sheet ratios EUR k 2019 2018 Table 21: Movement in net asset value (NAV) EUR per share EUR k Investment properties 4,438,597 3,938,864 IFRS NAV as of Dec. 31, 20181) 2,684,087 Carrying amount of owner occupied properties Assets held for sale Equity value of JV (A) 17,217 19,588 1,070 17,585 29,620 8,589 Carrying amount of immovable assets Adjustments to fair value of owner occupied properties (B) 4,476,472 3,994,657 5,240 1,144 Fair value of immovable assets (C) 4,481,712 3,995,801 Cash on balance sheet (D) 497,969 132,899 IFRS equity (E) 3,175,555 2,684,087 Interest bearing debt (F) 1,711,700 1,345,700 Portfolio revaluation Profit on disposals Adjusted profit for the year Dividend payment Other adjustments IFRS NAV as of Dec. 31, 2019 EPRA NRV as of Dec. 31, 20192) EPRA NTA as of Dec. 31, 20192) EPRA NDV as at Dec. 31, 20192) 1) Fully diluted. 2) Calculation see table 27, page 54. 454,767 17,350 109,104 – 92,257 2,504 3,175,555 3,492,621 3,180,892 3,128,097 15.11 2.56 0.10 0.61 – 0.52 0.01 17.88 19.67 17.91 17.61 G-REIT equity ratio (%) Corporate LTV (%) (E) / (B) (F) / (B) Corporate Net LTV (%) (F-D) / (B-A) 70.9 38.2 27.1 67.2 33.8 30.4 49 alstria Annual Company Report 2019    FINANCIAL DEBT Proactive debt management Over the course of 2019, we continued to actively shape the structure of our financial liabilities. The main event on the debt side was the refinancing of the capital market bond we issued in 2015 with a volume of EUR 327 million (coupon: 2.25 %). This bond will be redeemed toward the end of 2020. Given the favorable refinancing conditions, we decided for an early issuance of a new bond, which had a volume of EUR 400 million at a coupon of 0.5 %. The lower cost of debt will substantially reduce our financing expenses going forward. Net debt / EBITDA of 8.5 Besides the LTV, the net debt / EBITDA is a widely accepted KPI with regard to the indebtedness of a real estate company. In the current stage of the cycle after a multi-year upswing in real estate prices, we regard the net debt / EBITDA as an important indicator, because it is not impacted by the volatility of property valuation. Our net debt / EBITDA was roughly stable at 8.5 and therefore meets our target level as per December 31, 2019. A second debt indicator that is not blurred by property valuation and therefore is a sensible indicator for the indebtedness of a real estate company is the net debt per m², which stood at EUR 804 as per December 31, 2019. 1) Assuming repayment of Schuldschein (EUR 37 m) and bond (EUR 327 m) maturing in 2020/21 using available cash. Table 22: Cash cost of debt1) as of December 31, 2019 Nominal amount (EUR k) Cost of debt (%) Bonds Bank debt Schuldschein Total 1,075,000 195,900 77,000 1,347,900 1.3 1.1 2.5 1.3 Average maturity (years) 5.7 6.3 5.0 5.8 Graph 7: Net debt / EBITDA 2017 2018 2019 9.1 8.3 8.5 Graph 8: Sources of financing1) Graph 9: Debt maturity profile1) Debt EUR 1,348 m Schuldschein EUR 77 m Bank debt EUR 196 m Bonds EUR 1,075 m Equity EUR 3,176 m Schuldschein Bank debt Bonds EUR million 400 350 300 250 200 150 100 50 0 2020 2021 2022 2023 2024 2025 2026 2027 2028 50 alstria Annual Company Report 2019  OUTLOOK 2020 Based on the current portfolio, we expect revenues of EUR 179 million and an FFO of EUR 108 million for the 2020 fiscal year. The slight year-on-year decline in revenues is mainly due to the disposal of properties. With regard to our transaction activities, we will continue to take advan- tage of the strong investment market in Germany and most likely remain a net seller in 2020. However, the new leases signed in 2019 are a solid foundation for our top line and bottom line growth in the years to come. Lower revenues will also have an impact on our operating profit (FFO) in 2020. However, declining cost will partially compensate for the loss in rental income. Our FFO margin is expected to exceed previous years level. This report contains forward-looking statements about expected developments. These statements are based on current assessments and naturally subject to risks and uncer- tainties. Actual events may differ from those described herein. Carl-Reiß-Platz 1 – 5 Mannheim 51 alstria Annual Company Report 2019 EPRA KPI’S EPRA earnings Earnings reported in the income statement as required under IFRS do not provide stakeholders with the most relevant information on the operating performance of real estate companies. For real estate investment companies, a key measure of a company’s operational performance and the extent to which its dividend payments to shareholders are underpinned by earnings is the level of income arising from operational activities. Unrealized changes in valua- tion, gains or losses on disposals of properties and other non-operating items are therefore taken out. EPRA vacancy Vacancy disclosures are not consistently defined in the real estate industry. Consistent disclosure of vacancy measures will always be a challenge between companies because property markets around Europe have different charac- teristics and each measure can serve a different purpose. To encourage the provision of comparable and consistent disclosure of vacancy measures, EPRA has identified a single vacancy measure that can be clearly defined and is shown in table 24. Table 23: EPRA earnings & earnings per share EUR k Earnings per IFRS income statement 2019 2018 581,221 527,414 (a) Changes in value of investment properties, development properties held for investment and other interests – 454,767 – 398,954 (b) Profits or losses on disposal of investment properties, devel- opment properties held for investment and other interests – 17,350 – 14,887 (c) Tax on profits or losses on disposals (d) Changes in fair value of financial instruments (e) Acquisition costs on share deals (f) Deferred tax in respect to EPRA adjustments (g) Adjustments (a) to (c) above in respect of joint ventures (h) Non-controlling interest on adjustments EPRA earnings EPRA earnings per share (EUR) 0 2,731 250 0 0 0 – 2,452 0 0 0 – 3,141 – 2,813 108,695 108,308 0.61 0.62 Table 24: EPRA vacancy rate EUR k Estimated rental value (ERV) ERV of vacant space Vacancy rate (%) Dec. 31, 2019 Dec. 31, 2018 212,728 17,263 8.1 220,912 21,435 9.7 52 alstria Annual Company Report 2019 EPRA NAV and EPRA NNNAV The target of the EPRA NAV is to provide stakeholders with the most relevant information on the fair value of the assets and liabilities within a true real estate investment company with a long-term investment strategy. It adjusts the company’s IFRS NAV. Adjustments are made to include properties and other investment interests at fair value and to exclude certain items that are not expected to crystallize in a long-term investment property business model. New EPRA NAV metrics However, the evolution of property companies into actively managed entities, including non-property operating activ- ities, has resulted in more active ownership, higher asset turnover, and the shifting of balance sheet financing from traditional bank lending into capital markets. Therefore, EPRA has set up a new standard on NAV reporting, con- taining three different metrics (see table 26). Table 25: EPRA NAV per share Table 26: EPRA cost ratio EUR k Dec. 31, 2019 Dec. 31, 2018 EUR k NAV (IFRS equity ex. minority interest) 3,175,555 2,684,087 Share ‘A’ (outstanding shares) 177,593 177,416 Administrative / operating expense line per IFRS income statement 2019 2018 –52,904 –48,898 355 5,065 –160 28 5,594 –79 17.88 15.13 Service fees / recharges 0 0 0 0 Management fees Share of joint ventures expenses Exclude: 177,593 177,416 Investment Property Depreciation 0 298 EPRA Costs (including direct vacancy costs) (A) 3,175,555 2,684,087 Direct vacancy costs EPRA Costs (excluding direct vacancy costs) (B) –47,644 –43,057 8,077 7,482 –39,567 –35,575 5,746 1,143 Gross Rental Income less ground rents 187,467 193,193 Dilluted NAV per share (EUR) 17.88 15.13 NAV per share (EUR) Effect of exercise of options, convert- ibles and other equity interests ‘New’ Shares B Share A + B Diluted NAV, after the exercise of options, convertibles and other equity interests Revaluation of investment properties (if IAS 40 cost option is used) Fair value adjustments of financial instruments EPRA NAV EPRA NAV per share (EUR) Fair value of financial instruments Fair value of debt EPRA NNNAV – 177 394 3,181,125 2,685,624 17.91 – 177 15.14 – 394 – 53,204 – 30,619 3,127,744 2,654,611 EPRA NNNAV per share (EUR) 17.61 14.96 Less: service fee and service charge costs components of gross rental income 5,065 –5,594 Gross rental income (C) 182,402 187,599 EPRA cost ratio (%) (including direct vacancy costs) (A / C) EPRA cost ratio (%) (excluding direct vacancy costs) (B / C) 26.1 23.0 21.7 19.0 53 alstria Annual Company Report 2019New EPRA NAV reporting standard The objective of the EPRA Net Reinstatement Value measure is to highlight the value of net assets on a long-term basis. Assets and liabilities that are not expected to crystallize in normal circumstances such as the fair value movements on financial derivatives and deferred taxes on property valua- tion surpluses are therefore excluded. Since the aim of the metric is to also reflect what would be needed to recreate the company through the investment markets based on its current capital and financing structure, related costs such as real estate transfer taxes are included. The underlying assumption of the EPRA Net Tangible Assets measure assumes entities buy and sell assets, thereby crys- tallizing certain levels of deferred tax liability. Shareholders are interested in understanding the full extent of liabilities and resulting shareholder value if company assets are sold and / or if liabilities are not held until maturity. For this purpose, the EPRA Net Disposal Value provides the information with a scenario where deferred tax, financial instruments and certain other adjustments are calculated to the full extent of their liability, including tax exposure not reflected in the balance sheet, net of any resulting tax. This measure should not be viewed as a ‘liquidation NAV’ because, in many cases, fair values do not represent liquidation values. Table 27: New EPRA NAV metrics EUR k EPRA NRV EPRA NTA EPRA NDV IFRS equity attributable to shareholders 3,175,555 3,175,555 3,175,555 Include / exclude I) Hybrid instruments Dilluted NAV Include: 0 0 0 3,175,555 3,175,555 3,175,555 II. a) Revaluation of IP (if IAS 40 cost option is used) 5,746 5,746 5,746 II. b) Revaluation of IPUC (if IAS 40 cost option is used) II. c) Revaluation of other non-current investments III.) Revaluation of tenent leases held as finance leases IV.) Revaluation of trading properties 0 0 0 0 0 0 0 0 0 0 0 0 Dilluted NAV at fair value 3,181,301 3,181,301 3,181,301 Exclude: V) Deferred tax in relation to fair value gains of IP VI) Fair value of financial instruments VII) Goodwill as a result of deferred tax VIII. a) Goodwill as per the IFRS balance sheet VIII. b) Intangibles as per the IFRS balance sheet Include: IX) Fair value of fixed interest rate debt X) Revaluation of intangibles to fair value 0 – 177 0 – – – 0 XI) Real estate transfer tax / acquisition costs 311,497 0 – 177 0 0 – 232 – – 0 0 – – – 0 – 53,204 – – NAV Fully diluted number of shares NAV per share 3,492,621 3,180,892 3,128,097 177,593 177,593 177,593 19.67 17.91 17.61 54 alstria Annual Company Report 2019EPRA Yield There is variation in the nature and extent of yield disclosures and yield measurements used are not consistently defined. Consistent disclosure of yield measurements such as net initial yield, ‘topped-up’ yields and equivalent yields will always be a challenge between companies because each measure serves a different purpose depending on the user and the local property market. To encourage the provision of comparable and consistent disclosure of yield measures across Europe, EPRA has defined two yield measures shown in table 28. EPRA NIY is calculated as the annualized rental income based on the cash rents passing at the balance sheet date minus non-recoverable property operating expenses, divided by the gross market value of the property. The EPRA ‘topped-up’ NIY is calculated by making an adjust- ment to the EPRA NIY in respect of the expiration of rent- free periods (or other unexpired lease incentives such as discounted rent periods and step rents). Table 28: EPRA Yield EUR k Portfolio value Investment properties (on balance sheet) Trading property Development assets Completed portfolio Acquisition cost Dec. 31, 2019 Dec. 31, 2018 4,438,597 3,938,864 19,588 29,620 – 487,710 – 187,830 3,970,475 3,780,654 258,081 245,743 Gross up completed property portfolio valuation (A) 4,228,556 4,026,397 Income Contractual rent 208,332 196,967 Contractual rent developments – 29,625 – 2,175 Contractual rent (excluding developments) Rent-free periods Annualized cash passing rent Property outgoings 178,707 194,792 – 19,391 – 12,524 159,316 182,268 – 17,871 – 19,479 Annualized net cash rents (B) 141,445 162,789 Rent free periods 19,391 12,524 ’Topped-up‘ net annulized rent (C ) 160,836 175,313 EPRA Net initial yield (%) EPRA ’topped-up’ Net initial yield (%) (B/A) (C/A) 3.3 3.8 4.0 4.4 Elisabethstr. 5 – 11 Düsseldorf 55 alstria Annual Company Report 2019SHARE ALSTRIA’S SHARE 57 Share price performance 58 Shareholder structure 59 IR activities 56 Ernst-Merck-Str. 9, Hamburg Development project 2016 – 2018 Yield on cost: 5.8 % alstria Annual Company Report 2019 SHARE PRICE PERFORMANCE 42.5 % total shareholder return in 2019 alstria measures the performance of its shares based on the development of total shareholder return (TSR). The TSR includes the development of the share price plus the dividend reinvested. For 2019, the TSR of alstria's share was 42.5 % and therefore performed much better than most of its peers and also clearly beat the broad market. The strong performance was primarily a reflection of the strong NAV growth. alstria's share clearly outperformed the broad German stock indices in 2019 (DAX30: 25.5 %, MDAX: 31.2 %) and the European sector indices (EPRA Europe: 29.4 %). As the real estate business requires a long- term perspective, multi-year performance is an important indicator of the attractiveness of our share. Over the past five years (2015 – 2019), the average annual TSR has been 14.4 %, once again demonstrating the strength of our busi- ness model in a strong real estate market. Table 29: Key share data ISIN DE000A0LD2U1 Symbol AOX Market segment Financial Services Industry group Real Estate Prime sector Prime Standard, Frankfurt Indices FTSE EPRA / NAREIT Global Real Estate Index Series, FTSE EPRA / NAREIT Europe Real Estate Index Series, MDAX, RX REIT Index, GPR 250 Index Series, GPR 250 REIT Index Series, EURO STOXX 600 Designated Sponsor M. M. Warburg & CO Graph 10: Share price development alstria EPRA Europe Index EPRA Global REITs Index % 160 140 120 100 80 60 January 2019 December 2019 57 alstria Annual Company Report 2019 SHAREHOLDER STRUCTURE 100 % free float alstria’s shares are 100 % free float as defined by Deutsche Börse. More than 95 % of the outstanding shares are held by institutional investors, mainly large pension funds and specialized real estate investors. At the end of 2019, alstria's top 20 investors held approximately 60 % of the outstand- ing shares. Geographically, approximately 24 % of alstria's shareholders are located in the USA / Canada and 21 % in Asia. European investors hold 55 % of the shares, of which 16 % are held by shareholders domiciled in France, 10 % in the UK, 8 % in Germany and 6 % in the Netherlands. Our international shareholder structure is a consequence of our REIT status, as REIT is a globally established brand for listed real estate companies. Coverage by analysts The interest of analysts and financial journalists in the development of alstria office REIT-AG remained high in 2019. A total of 19 investment banks and brokers regularly reported on the development of the company. alstria thus continues to be one of the best-covered companies in the German MDAX. Table 30: Key share data Number of shares thereof outstanding Closing price1) Market capitalization Free float Average daily trading volume (all exchanges) thereof XETRA Share price: high1) Share price: low1) 1) Xetra closing share price. thousand thousand EUR EUR k % EUR k EUR k EUR EUR Dec. 31, 2019 Dec. 31, 2018 177,593 177,593 16.75 177,416 177,416 12.20 2,974,690 2,164,475 100.0 2019 8,797 6,049 17.60 11.91 100.0 2018 9,935 5,042 13.49 11.87 Free-Float 100 % 58 alstria Annual Company Report 2019Helsinki Amsterdam London Brussels Paris Hamburg Frankfurt Munich Zurich roadshow activities and available to investors for discussions on all aspects of corporate governance. As capital market bonds with a volume of EUR 1 billion are the main source of our debt financing, the special information requirements of our investors in the bond market are also an integral part of our investor relations work. In addition to our presence at roadshows and conferences, we conducted several prop- erty tours with analysts and shareholders, particularly in Hamburg, Frankfurt and Düsseldorf. Digital communication with investors has always played an important role for alstria. All interested parties are invited to participate in the presentation of our annual and quar- terly results via live stream on alstria's website. All relevant information is available on our website  ww.alstria.com/ investor/ 59 Toronto Boston Chicago New York IR ACTIVITIES 260 meetings with investors In 2019, alstria's investor relations activities remained focused on informing investors, financial analysts and the business press about the company's performance and the market environment. Management roadshows and par- ticipation in numerous investment conferences in Europe and the USA ensured a continuous dialogue between the company and its shareholders. Over the course of the year, we held more than 260 meetings with investors and ana- lysts in Germany and abroad. In addition to management personnel, our supervisory board was also involved in the alstria Annual Company Report 2019CSR CORPORATE SOCIAL RESPONSIBILITY 61 Integral part of our business 62 Green dividend 60 Kaiser-Wilhelm-Str. 79 – 87, Hamburg Development project 2013 – 2014 Yield on cost: 7.0 % alstria Annual Company Report 2019 INTEGRAL PART OF OUR BUSINESS A TYPICAL ALSTRIA BUILDING measures 13,635 m² emits per year 325 tCO2e Sustainability is at the core of what we do Sustainability is an integral part of our business strategy, governance, and operations. The integration of sustainability into the design, construction, and operation of our proper- ties helps us to ensure that our buildings continue to meet the needs of their tenants and surrounding communities while also minimizing our impact on the environment. We take responsibility for climate change Toward decarbonizing our portfolio, we managed to procure 100% renewable energy for the electricity that we con- trol and achieved our RE100 target in 2018. Our business activities also emitted 42% less carbon emissions com- pared to the base year 2013. Finally, our comprehensive sustainability strategy was recognized with numerous ESG ratings, including MSCI, CDP, and ISS-oekom. For further information, please visit the sustainability sec- tion of our website and our sustainability report 2018 / 19.  www.alstria.com/sustainability/  consumes 123 kWh energy per m²/year Reporting date: Dec. 31, 2018. accommodates 8 tenants offers 150 parking spaces 61 alstria Annual Company Report 2019  GREEN DIVIDEND HOW DOES IT WORK? The Company indentifies projects that would not be financed solely based on financial criteria, as well as expected non financial benefits. A Euro amount needed to finance these projects is proposed to the Annual General Meeting as ‘Green Dividend’. Shareholders are asked to cast their vote for the payout or against the payout (majority rule apply). €€ 1 Cent per share VOTE FOR THE PAYOUT The dividend is paid out and the projects are not implemented. VOTE AGAINST THE PAYOUT The dividend is not paid out and the projects are implemented by the Company, which will report on progress at the next Annual General Meeting. 62 alstria Annual Company Report 2019PROJECTS THAT WOULD BE FINANCED WITH THE GREEN DIVIDEND Öjendorfer Weg 9 – 11, Hamburg Hammer Steindamm 129, Hamburg Heating performance: 107 KW per m² Heating performance: 97 KW per m² Underperformance: 35 % Underperformance: 30 % Lowering demand: Windows, LED Lowering demand: Windows Renewable energy: Solar panels Renewable energy: Solar panels Potential saving: Investment: CO2 yield: 45 tCO2e per year EUR 750,000 EUR 16,500 per tCO2e saved annually Potential saving: Investment: CO2 yield: 50 tCO2e per year EUR 950,000 EUR 19,000 per tCO2e saved annually In-place rent: EUR 8.70 per m² In-place rent: EUR 7.20 per m² There is no technical, legal or contractual reason why these investment would need to be realized. The existing equip- ment is properly maintained and reflects the current con- tractual agreement between alstria and the tenant. The investments described would not offer alstria its expected returns and would only be undertaken with the aim of improving alstria‘s carbon footprint. 63 alstria Annual Company Report 2019APPENDIX APPENDIX 65 Calculation of yields 67 Achieved UIRR 2006 – 2019 71 Valuation certificate 80 Management Compensation Scheme 81 Glossary 84 Imprint 64 Schaartor 1, Hamburg Development project 2013 – 2014 Yield on cost: 6.8 % alstria Annual Company Report 2019 CALCULATION OF YIELDS Different yields – but all are based on the same portfolio value The calculation of portfolio yields is sometimes confusing, as it is always the same portfolio, but a different outcome. In tables 31 – 33, we summarized the calculation schemes of the different yields that we use to indicate the valuation of our portfolio. It is important to note that the calculations are different, but they all start on the same basis, which is the portfolio value, conducted by our external appraisers. Our own portfolio yield of 4.7 % is the contractual rent in relation to the portfolio value on our balance sheet (table 31). The EPRA calculation (table 32) starts at the same basis but corrects the portfolio value for development assets and trading properties. On the income side, the EPRA concept also adjusts for the impact of rent-free periods and property costs (‘property outgoings’). Table 31: alstria’s calculation Table 32: EPRA calculation EUR k Portfolio value Investment properties (on balance sheet) Value of own used property Assets held for sale Other adjustments Dec. 31, 2019 Dec. 31, 2018 EUR k 4,438,597 3,938,864 Portfolio value Investment properties (on balance sheet) 22,964 19,588 – 5,089 18,728 Trading property 29,620 Development assets 0 Completed portfolio Prepayments of properties 0 – 1,944 Acquisition cost Dec. 31, 2019 Dec. 31, 2018 4,438,597 3,938,864 19,588 29,620 – 487,710 – 187,830 3,970,475 3,780,654 258,081 245,743 Total portfolio value (A) 4,476,060 3,985,268 Income Gross up completed property portfolio valuation (A) 4,228,556 4,026,397 Contractual rent (B) 208,332 210,425 Real estate operating expenses (5 %) – 10,417 – 10,521 Income Contractual rent 208,332 196,967 Contractual net rent Yield (%) Net yield (%) (C ) (B / A) (C / A) 197,916 199,903 4.7 4.4 5.3 5.0 Contractual rent developments – 29,625 – 2,175 Contractual rent (excluding developments) Rent-free periods Annualized cash passing rent Property outgoings 178,707 194,792 – 19,391 – 12,524 159,316 182,268 – 17,871 – 19,378 Annualized net cash rents (B) 141,445 162,890 Rent free periods 19,391 12,524 ’Topped-up‘ net annulized rent (C ) 160,836 175,414 EPRA Net initial yield (%) (B/A) EPRA ’topped-up’ Net initial yield (%) (C/A) 3.3 3.8 4.0 4.4 65 alstria Annual Company Report 2019 Our appraiser uses a different methodology (table 33), again starting with the portfolio value he calculated, and which is reflected on our balance sheet. Adjustments are made for the value of our own used properties, estimated acquisition costs and capital costs (required capex), as the appraiser calculates the market yield from the perspective of the buyer. On the income side, adjustments are made for property expenses and an estimated rent reversion. Table 33: Savills’ calculation1) EUR k Portfolio value Dec. 31, 2019 Dec. 31, 2018 Investment properties (on balance sheet) 4,438,597 3,936,920 Value of own used property Assets held for sale Other adjustments Total portfolio Acquisition cost Capital cost Gross value Income Initial passing gross rents Non-recoverable expenses Initial net rents Reversions Estimated net rents (A) (B) (C) (D) (E) (F) (G) Savills Net initial yield Savills Reversionary yield (F/A + B) (G/A + B) 1) Yields 2019 and 2018 not fully comparable. 22,964 19,588 – 5,089 4,476,060 311,497 363,313 5,150,870 182,513 – 22,708 159,806 65,952 230,575 3.3 % 4.8 % 18,728 29,620 0 3,985,268 272,197 271,297 4,528,762 185,619 – 14,788 170,831 48,799 219,630 4.0 % 5.2 % 66 alstria Annual Company Report 2019Region Ownership start Disposal date Total lettable area (m²) Gross purchase price1) (EUR k) Rent Collected2) (EUR k) Capex (EUR k) Disposal proceeds (EUR k) Unlevered profit (EUR k) ACHIEVED UIRR 2006 – 2019 Average UIRR of 8.0 % from 2006 – 2019 The company’s history, over the past 13 years, impressively demonstrates our ability to achieve an unlevered IRR of 7 – 8 % per year over the cycle. This result is based on a port- folio consisting of 80 individual properties with a volume of EUR 1.5 billion, which we bought, managed and sold on the market between 2007 and 2019 (see table 34). We achieved this result, on the one hand, through our asset management skills and, on the other hand, by applying a strict acquisition discipline. Low interest rates have never tempted us to enter into risky transactions and pure spec- ulation on future market-driven rental growth has never motivated us to buy properties. Instead, we always took a realistic view of the rental market and increased rents through quality-enhancing investments. Table 34: Unlevered returns (UIRR) 2006 – 2019 Asset Balgebrückstr. 13 City Bremen Werner-von-Siemens-Platz 1 Laatzen Stiftplatz 5 Opernplatz 2 Berner Str. 119 Brödermannsweg 5 – 9 Ingersheimer Str. 20 Jagenbergstr. 1 Gathe 78 Washingtonstr. 16 Harburger Ring 17 Lötzener Str. 3 Eschersheimer Landstr. 55 Frankfurter Str. 71 – 75 Doktorweg 2 – 4 Carl Benz Str. 15 1) Incl. 6 % transaction costs. 2) Incl. 5 % real estate operating expenses. Kaiserslautern Essen Frankfurt Hamburg Stuttgart Neuss Wuppertal Dresden Hamburg Bremen Frankfurt Eschborn Detmold Others Others Others Düsseldorf Frankfurt Hamburg Stuttgart Düsseldorf Düsseldorf Others Hamburg Others Frankfurt Frankfurt 01.11.2015 29.02.2020 01.04.2007 29.02.2020 01.11.2015 01.11.2015 31.10.2019 30.01.2019 01.11.2015 30.04.2019 01.11.2015 28.02.2019 01.11.2015 31.03.2019 01.10.2007 01.10.2007 01.10.2007 01.10.2007 31.12.2018 01.01.2019 31.12.2018 31.08.2018 01.11.2015 30.06.2018 01.11.2015 01.11.2015 01.04.2018 01.03.2019 Düsseldorf 01.04.2008 31.12.2017 4,153 21,027 8,942 24,271 14,852 1,374 12,895 20,400 8,400 20,500 3,600 5,000 8,700 6,700 9,800 Ludwigsburg Stuttgart 01.11.2015 30.08.2017 32,500 3,798 27,693 12,079 36,743 20,199 2,260 23,142 49,660 11,331 16,801 3,392 3,445 27,300 15,700 8,569 19,300 910 22,208 2,805 8,486 3,982 430 5,168 30,644 10,827 12,715 2,260 803 3,018 2,500 4,889 2,764 118 3,912 1,306 3,394 1,133 48 911 3,804 1,535 3,535 4,352 98 606 206 699 294 2,900 16,675 12,750 40,000 27,000 4,300 41,500 23,400 9,120 28,080 10,000 3,600 44,000 16,200 11,300 19,600 UIRR (%) – 0.9 2.4 4.4 5.7 10.7 21.0 19.8 0.0 5.9 8.7 8.3 7.4 – 136 6,708 2,151 8,309 9,620 2,403 22,585 145 6,883 20,066 4,486 749 19,112 20.1 2,794 6,921 2,770 5.9 7.5 6.3 Disclaimer: The data shown in the table above can differ from the IFRS accounting numbers. 67 alstria Annual Company Report 2019 Table 34: Unlevered returns (UIRR) 2006 – 2019 Asset Vichystr. 7 – 9 City Bruchsal Grosse Bleichen 23 – 27 (JV) Hamburg Zellescher Weg 18 – 25a Dresden Region Ownership start Disposal date Stuttgart Hamburg Others 01.11.2015 30.08.2017 01.01.2010 31.08.2017 01.04.2006 31.01.2017 Feldstr. 16 / Gutenbergstr. Weiterstadt Frankfurt Gutenbergstr. 1 Oskar-Messter-Str. 22a – 24a Nägelsbachstr. 26 / Nürnberger Str. 41 Lina-Ammon-Str. 19 Richard-Wagner-Platz 1 Bahnhofstr. 1 – 5 An den Treptowers 3 Ludwig-Erhard-Str. 49 Taunusstr. 34 – 36 Ismaning Ismaning Erlangen Nürnberg Nürnberg Heilbronn Berlin Leipzig Munich Wandsbeker Chaussee 220 Hamburg Munich Munich Others Others Others Stuttgart Berlin Others Munich Hamburg 01.11.2015 01.11.2015 01.11.2015 01.11.2015 01.11.2015 01.11.2015 01.11.2015 31.12.2016 31.12.2016 31.12.2016 31.12.2016 31.12.2016 31.12.2016 30.11.2016 01.11.2015 30.09.2016 01.04.2006 30.09.2016 01.11.2015 31.08.2016 01.10.2007 30.06.2016 Dortmund Düsseldorf 01.10.2007 31.12.2016 Max-Eyth-Str. 2 Landshuter Allee 174 Hofmannstr. 51 Dieselstr. 18 Emil-von-Behring-Str. 2 Arnulfstr. 150 Munich Munich Ditzingen Frankfurt Munich Halberstädter Str. 17 Magdeburg Siemensstr. 31 – 33 Englische Planke 2 Hamburger Str. 43 – 49 Spitzweidenweg 107 Ernsthaldenstr. 17 Max-Brauer-Allee 41 – 43 Ditzingen Hamburg Hamburg Jena Stuttgart Hamburg Joliot-Curie-Platz 29 – 30 Halle 1) Incl. 6 % transaction costs. 2) Incl. 5 % real estate operating expenses. Munich Munich Stuttgart Frankfurt Munich Others Stuttgart Hamburg Hamburg Others Stuttgart Hamburg Others 05.06.2007 30.06.2016 01.04.2007 30.06.2016 22,151 01.04.2007 25.06.2016 01.04.2007 01.04.2006 01.04.2006 01.04.2007 01.04.2011 28.12.2006 03.03.2008 31.12.2015 31.12.2015 30.11.2015 01.11.2015 31.12.2014 30.11.2014 31.10.2014 03.03.2008 31.05.2014 01.06.2008 31.03.2014 02.05.2008 31.12.2013 9,639 9,308 5,871 7,527 15,051 4,623 21,777 2,880 2,472 3,226 1,080 20,200 18,300 6,539 14,200 12,200 12,400 11,600 11,200 6,800 14,700 85,400 6,290 11,200 3,156 7,042 7,151 Total lettable area (m²) Gross purchase price1) (EUR k) Rent Collected2) (EUR k) Disposal proceeds (EUR k) Unlevered profit (EUR k) 12,600 31,164 8,576 6,700 12,800 16,700 18,500 15,100 14,400 28,400 209,300 10,307 26,400 5,671 7,791 11,342 41,764 3,100 15,370 16,258 10,417 28,620 12,065 36,010 1,993 2,714 4,569 1,325 1,668 11,912 7,977 385 917 1,445 1,526 1,191 1,106 2,224 12,188 7,746 1,404 3,026 434 3,071 21,009 0 9,254 8,074 5,089 12,097 2,804 18,227 1,064 1,663 1,665 475 Capex (EUR k) 347 5,774 183 33 465 8 949 0 221 654 965 267 28 226 73 1,849 782 8,986 3,696 138 304 900 431 401 106 662 852 19 – 6,722 – 36.8 13,400 83,300 10,500 7,350 14,100 18,400 11,200 15,100 17,000 33,650 2,121 58,274 9,718 1,002 1,752 3,137 1,191 3,485 6,820 228,431 30,354 9,450 26,830 5,920 4,625 14,000 44,987 13,395 12,800 16,500 6,200 22,300 15,530 41,662 1,415 3,300 6,150 610 6,622 1,806 3,049 – 2,805 3,881 23,450 1,309 2,988 8,177 568 4,878 5,838 23,478 380 1,587 2,395 – 259 UIRR (%) 8.4 17.3 11.1 15.1 13.9 19.0 8.0 24.5 24.3 14.7 6.9 6.9 6.4 – 5.1 4.3 6.2 34.1 2.9 6.6 0.8 2.5 15.2 9.1 3.7 10.0 7.2 – 5.3 Disclaimer: The data shown in the table above can differ from the IFRS accounting numbers. 68 alstria Annual Company Report 2019Table 34: Unlevered returns (UIRR) 2006 – 2019 Asset City Region Ownership start Disposal date Total lettable area (m²) Gross purchase price1) (EUR k) Rent Collected2) (EUR k) Capex (EUR k) Disposal proceeds (EUR k) Unlevered profit (EUR k) Bornbarch 2 – 12 Norderstedt Hamburg Johannesstr. 164 – 165 / J.-Gagarin-Ring 133 – 135 Am Roten Berg 5 Schweinfurter Str. 4 Helene-Lange-Str. 6 / 7 Kanalstr. 44 Lothar-Streit-Str. 10b Erfurt Erfurt Würzburg Potsdam Hamburg Zwickau Others Others Others Others Hamburg Others 01.05.2012 01.04.2006 31.12.2013 31.10.2013 12,351 5,846 03.03.2008 31.07.2013 01.01.2007 30.06.2013 01.04.2006 30.06.2013 03.03.2008 31.05.2013 01.04.2006 23.05.2013 Benrather Schlossallee 29 – 33 / Ludolfstr. 3 Düsseldorf Düsseldorf 01.04.2008 01.02.2013 Zwinglistr. 11 / 13 Schopenstehl 24 / Kleine Reichenstr. 2 Am Gräslein 12 Poststr. 11 Dresden Hamburg Nürnberg Hamburg Others Hamburg Others Hamburg 03.03.2008 31.12.2012 01.08.2009 30.06.2012 01.04.2006 31.03.2012 01.06.2006 30.03.2012 Bertha-von-Suttner-Platz 17 Bonn Düsseldorf 01.04.2006 30.09.2011 Kümmellstr. 5 – 7 Lenhartzstr. 28 Schloßstr. 60 Steckelhörn 12 Gänsemarkt 36 Gorch-Fock-Wall 15, 17 Eserwallstr. 1 – 3 Rheinstr. 23 Mecumstr. 10 Vahrenwalder Str. 133 Bonner Str. 351 / 351 a Steubenstr. 72 – 74 Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Augsburg Darmstadt Düsseldorf Hannover Cologne Mannheim Regensburger Str. 223 – 231 Nürnberg 1) Incl. 6 % transaction costs. 2) Incl. 5 % real estate operating expenses. Hamburg Hamburg Hamburg Hamburg Hamburg Hamburg Others Frankfurt Düsseldorf Others Düsseldorf Frankfurt Others 01.06.2006 01.06.2006 09.11.2010 09.11.2010 01.06.2006 22.09.2010 01.06.2006 22.09.2010 01.06.2006 31.03.2010 01.06.2006 31.03.2010 01.04.2006 01.04.2006 01.04.2006 01.04.2006 01.04.2006 01.04.2006 01.04.2006 31.12.2009 31.12.2009 31.12.2009 31.12.2009 31.12.2009 31.12.2009 31.12.2009 5,284 5,076 3,292 8,094 1,034 4,941 2,924 2,122 2,708 7,356 1,388 15,666 1,131 11,945 14,720 20,900 7,700 5,564 2,696 8,638 7,142 10,907 4,070 8,938 6,466 8,127 2,756 7,950 6,866 10,854 1,583 8,684 1,982 3,509 3,769 36,302 1,624 26,325 1,788 15,141 36,616 66,341 16,013 10,583 5,060 21,452 16,869 23,192 7,898 15,489 1,357 3,791 791 2,875 2,705 4,624 599 2,614 725 498 1,344 5,211 990 6,094 466 4,009 7,797 12,889 3,368 2,510 1,132 4,377 3,529 5,259 1,896 3,582 660 187 35 161 232 488 30 510 31 999 71 10,320 5,850 1,060 4,530 5,700 15,000 350 7,620 2,640 5,040 4,552 1,328 – 940 – 706 1,307 8,281 – 665 1,040 1,352 1,031 3,400 904 30,100 120,839 59,648 50 305 23 200 390 644 168 126 57 219 176 263 95 179 2,100 25,279 4,221 17,001 35,200 68,700 15,500 10,556 4,197 18,128 18,587 21,736 7,844 14,877 1,416 4,744 2,875 5,669 5,992 14,603 2,686 2,358 212 834 5,071 3,541 1,748 2,791 UIRR (%) 68.8 2.7 – 9.7 – 1.9 3.0 14.3 – 11.6 2.7 15.4 8.0 4.3 17.0 16.7 4.6 28.8 9.1 4.2 5.5 4.3 7.7 1.5 1.4 10.2 5.4 7.6 6.3 Disclaimer: The data shown in the table above can differ from the IFRS accounting numbers. 69 alstria Annual Company Report 2019Table 34: Unlevered returns (UIRR) 2006 – 2019 Asset Poststr. 51 Eppendorfer Landstr. 59 Ottenser Marktplatz 10 / 12 Marburger Str. 10 Gorch-Fock-Wall 11 Nikolaistr. 16 Düsternstr. 10 Osterbekstr. 96 City Hamburg Hamburg Hamburg Berlin Hamburg Leipzig Hamburg Hamburg Richard-Strauß-Allee 10 – 14a Wuppertal Schellenbecker Str. 15 – 21 Wuppertal Total 1) Incl. 6 % transaction costs. 2) Incl. 5 % real estate operating expenses. Region Ownership start Disposal date Hamburg Hamburg Hamburg Berlin Hamburg Others Hamburg Hamburg Düsseldorf Düsseldorf 01.06.2006 07.10.2009 01.06.2006 30.09.2009 01.06.2006 30.09.2009 01.04.2008 29.09.2009 01.06.2006 30.06.2009 01.01.2007 01.06.2006 30.11.2008 31.10.2008 01.06.2006 30.09.2008 01.04.2006 01.04.2006 13.07.2007 13.07.2007 Total lettable area (m²) Gross purchase price1) (EUR k) Rent Collected2) (EUR k) Capex (EUR k) Disposal proceeds (EUR k) Unlevered profit (EUR k) 1,681 3,293 934 6,219 8,693 1,191 2,156 7,393 1,258 1,854 7,347 7,423 2,687 13,155 20,405 2,438 4,463 10,067 1,394 1,944 1,283 1,228 470 747 2,886 363 583 1,126 139 177 64 61 24 37 144 18 29 56 7 9 6,500 6,622 2,375 12,950 19,600 2,000 4,950 11,000 1,545 2,155 372 365 134 504 1,936 – 93 1,040 2,003 284 379 774,204 1,325,927 348,087 92,116 1,524,501 452,640 UIRR (%) 1.8 1.7 1.8 3.9 3.3 – 2.0 11.6 9.9 21.3 20.5 8.0 Disclaimer: The data shown in the table above can differ from the IFRS accounting numbers. 70 alstria Annual Company Report 2019 VALUATION CERTIFICATE Project ‘Portfolio of alstria office REIT-AG’ A. Executive Summary Opinion of Market Value as at 31 December 2019 on behalf of alstria office REIT-AG Steinstraße 7 20095 Hamburg Germany Commercial Portfolio of alstria office REIT-AG Valuation date: 31 December 2019 Client alstria office REIT-AG Steinstraße 7 20095 Hamburg Germany Prepared by Savills Advisory Services Germany GmbH & Co. KG Taunusanlage 19 60325 Frankfurt am Main Germany Portfolio Overview Subject to this report are 116 commercial properties with a total lettable area of approx. 1,521,084 sqm. The prop- erties are located mainly in the north, west and southwest of Germany. Tenure All properties are held on the German equivalents of free- hold title Location Analysis Approx. 57 % of the total gross rental income are gener- ated by the top three locations Hamburg, Stuttgart and Düsseldorf. Top 10 municipalities by current rental income # Municipality 1 Hamburg 2 Stuttgart 3 Düsseldorf 4 Frankfurt am Main 5 Essen 6 Berlin 7 Darmstadt 8 Ratingen 9 Köln 10 Karlsruhe > 10 Remaining Lettable area sqm Lettable units number Current rental income EUR p. a. Average remaining lease term years Current rental income with lease expiry 385,956 193,903 227,578 120,315 72,386 86,253 104,946 58,118 59,423 26,762 – – – – – – – – – – 50,553,738 28,863,930 25,105,341 15,363,234 11,567,625 10,519,177 8,979,115 6,197,259 6,026,918 2,877,705 185,442 21,803 16,162,061 7.59 4.27 5.46 4.41 3.22 4.40 3.94 4.87 5.35 6.01 6.22 95.9 99.6 98.3 97.3 99.7 95.4 99.0 99.5 98.3 100.0 97.3 71 alstria Annual Company Report 2019B. Valuation Results C. Instructions and Sources of Information I. Total Rental Income (‘Current Rent’) According to the provided tenancy schedule, the current rental income as at 31 December 2019 amounts to: We are of the opinion that the Market Value of the free- hold interests in the subject properties as at 31 December 2017 is: I. Scope of Instruction EUR 182,512,997 p. a. (ONE HUNDRED EIGHTY TWO MILLION FIVE HUNDRED TWELVE THOUSAND NINE HUNDRED AND NINETY SEVEN EURO) Report Date 13 January 2010 II. Opinion of Net Estimated Rental Value (ERV) The estimated rental value as at 31 December 2019 amounts to: EUR 248,464,720 p. a. (TWO HUNDRED FORTY EIGHT MILLION FOUR HUNDRED SIXTY FOUR THOUSAND SEVEN HUNDRED AND TWENTY EURO) III. Opinion of Market Value We are of the opinion that the Market Value of the free- hold interests in the subject properties as at 31 December 2019 is: 4,476,060,000 EUR (FOUR BILLION FOUR HUNDRED SEVENTY SIX MILLION AND SIXTY THOUSAND EURO) Market Value in EUR per sqm Gross Multiplier on Current Rent Gross Multiplier on Market Rent Net Initial Yield (NIY) on Current Rent in % Net Yield (NY) on Market Rent in % 2,943 24.52 18.01 3.34 4.80 Instruction In accordance with the Instruction Letter dated 01 August 2017, the 1. Amendment dated 06 December 2017 and 2. Amendment dated 19 March 2019, we carried out a valuation of all 116 commercial properties of the respec- tive portfolio. Please note that since the last valuation (30 June 2019) the following properties were acquired respectively sold: › VU2197 – Adlerstraße 63, 40211 Düsseldorf (purchased) › VU2154 – Stiftsplatz 5, 67655 Kaiserslautern (sold) Therefore, the valuation portfolio comprises 116 commer- cial properties at the valuation date of 31 December 2019. Instructing Party This valuation statement is addressed to and may be relied upon by: alstria office REIT-AG Steinstraße 7 20095 Hamburg Germany Hereinafter referred to as ‘Client’ Conflict of Interest We hereby confirm that we have no existing potential conflict of interest in providing the valuation report, either with the Principal or with the properties. Furthermore, we confirm that we will not benefit (other than from receipt of the valuation fee) from this valuation instruction. Currency The relevant currency for this valuation is EUR. Portfolio Assumption Each property will be valued individually, and no discount or addition is made in the aggregate value to reflect the fact that it may form part of a portfolio. Tenure All properties are held on the German equivalent of free- hold title. Purpose of Valuation The Instructing Party requires this valuation for accounting purposes. Disclosure of Excerpts of Savills’ Reports in the Com- pany Reports Savills agrees to the disclosure of an excerpt of Savills’ reports (which include the Valuation Certificate and Annex 1 thereto but exclude any other Annexes or information) in the Company Reports of the Instructing Party (‘Com- pany Report’) with the proviso, and under the condition, that Savills is liable to the Instructing Party only, and no third party (in particular no recipients of the Company Reports) may raise any claims against Savills in connection with Savills’ report or the disclosure of parts thereof in the Company Report. The Instructing Party shall procure that 72 alstria Annual Company Report 2019 the Company Reports contain (i) a statement that the dis- closure in the Company Reports is made on a non-reliance basis, and no third party (other than the Instructing Party) will be entitled to raise claims against Savills, and (ii) the information that the knowledge of the excerpts of Savills’ report disclosed in the Company Reports do not constitute a sufficient basis for business decisions of the recipients of the Company Reports. Reliance Our valuation is for the use of the party to whom it is addressed only and for the specific purpose referred to above. No responsibility is accepted to any other party than the instructing party. Liability The liability of Savills is limited to a maximum amount of EUR 3 million under Sec. 6 of the General Terms. Savills is prepared to increase this maximum amount for this instruc- tion up to EUR 50m (fifty million EUR). This increased maximum amount is valid for this instruction only and does not apply for any other present or future instructions, agreements or legal relationships between the Instructing Party and Savills. Where there is more than one Addressee to this Report, the aforementioned maximum amount of our liability is a total limit to be allocated between the Addressees, such allocation being entirely a matter for the Addressees. Savills does not accept any duty, liability or responsibility to any party other than the Instructing Party with respect to the report unless and to the extent otherwise agreed with such party in writing. Basis of Valuation Our valuation has been carried out in accordance with the RICS Valuation – Global Standards 2017 (the ‘Red Book’) published by the Royal Institution of Chartered Surveyors (RICS), London, which was effective from 1 July 2017. We have been instructed to value the properties on the basis of Market Value in accordance with Valuation Practice State- ments VPS 4 of the RICS Valuation – Professional Standards (the ‘Red Book’) which is defined as follows: ‘The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction after proper marketing and where the parties had each acted knowledg- ably, prudently and without compulsion.’ Furthermore, we confirm that the determined Market Value corresponds with the German ‘Verkehrswert’ (§194 BauGB) and is also conform to the International Valuation Standards (IVS). Date of Valuation 31 December 2019 Savills’ Team The responsible project managers for this valuation were Klaus Trautner MRICS, CIS HypZert (F) and Christian Quandt CIS HypZert (F) who are well experienced in the valuation of office properties. Besides the project manager the following Savills team was involved in the valuation of the subject properties: Nature and Source of Information relied on The valuation has been substantially and mainly based upon the information supplied to us by the Instructing Party and / or entitled advisors. For details please refer to the chapter ‘Sources of Information and Inspection’. › Drazenko Grahovac MRICS › Sebastian Arndt › Erik Matthes MRICS › Magda Podniece MRICS › Tanja Künne › Desiree von Holt › Oliver Risopp › Konstantinos Yfantidis Verification, Liability This report contains many assumptions, some of a general and some of a specific nature. Our valuations are based upon certain information supplied to us by others. Some information we consider material may not have been pro- vided to us. We recommend that the addressee of this report satisfies itself on all these points, either by verification of individual points or by judgement of the relevance of each particular point in the context of the purpose of our valuations. Our valuations should not be relied upon pending this verifi- cation process. Should any of the information or assumption on which Savills’ valuation is based be subsequently found incorrect or incomplete our value conclusion may be incorrect so that our valuation may need to be amended. Savills there- fore cannot accept any liability for the correctness of this assessment or for any loss or damage resulting there from. General Terms and Conditions The ‘General Terms and Conditions’ (Appendix V) of Savills Advisory Services Germany GmbH & Co. KG apply to this agreement. We specifically draw your attention to these. 73 alstria Annual Company Report 2019II. Sources of Information and Inspection Information Sources For the purpose of this update valuation we have relied on our initial valuation certificates as at 29 January 2018, 14 January 2019, 30 July 2019 and the following new information, provided to us by the client: › Rent roll for the properties including future leases infor- mation received by email on 06 January 2020 › Information regarding penalty payments for potential break options received by email on 05 November 2019 › Information regarding development properties received by email on 14 November 2019 › Final capex list as at 31 December 2019 received by email on 26 November 2019 › Additional specific documents in course of the Q & A process Furthermore we relied (which means we assumed that the respective information provided by alstria is complete, correct, up to date and not misleading) on the following information for the one new subject property: › Land register copies of › Land register excerpts, › Cadastral maps, › Excerpts regarding public easements, › Building permissions, › Information regarding planning law (land utilization plan, development plan, information from planning authorities) Unless otherwise stated in the Report, Savills based its valuations on the aforementioned documents and infor- mation received in the course of the initial and update valuations as at 31 December 2017, 31 December 2018 and 30 June 2019. We have also included the following sources into our val- uation report: › Savills Research › Local Land Valuation Boards and other local authorities › Geoport › Empirica › RIWIS online database Extent of Inspections For the purpose of this valuation (as at 31 December 2019) 4 subject properties were fully inspected by Savills in Octo- ber 2019. 112 subjected properties were not inspected for this valua- tion (as at 31 December 2019). Nevertheless, we have been carried out inspections for 75 subject properties between April and May 2019 and for 37 subject properties between August 2017 and September 2017. We have assumed that there were no material changes on the properties that could have an impact on the valuation during the time of the inspection and the valuation date. All conclusions made by Savills with regard to the condition and the actual characteristics of the land and buildings have been based on our inspection of the subject properties and on the documents and information provided (please see above). In the event that only partial internal inspections were pos- sible, it will be assumed that the parts that were inspected are typical of the remainder. For the avoidance of doubt, Savills did not carry out any building or structural surveys of the subject properties nor tested any of the electrical, heating or other services. The properties were not measured as part of Savills’ inspec- tion, nor were the services or other installations tested. All Savills’ conclusions resulting from the inspections are based purely on visual investigations without any assertion as to their completeness. Furthermore, investigations that might cause damage to the subject properties have not been carried out. Statements about parts of the structure or materials that are covered or otherwise inaccessible are based on the information or documents provided (or on assumptions, respectively). D. Valuation Methods I. H&T (Hardcore & Top Slice) In determining the market value for commercial proper- ties we therefore have applied the Hardcore and Top Slice Method (H&T). Using the H&T method, the cash flows from the property are divided into two blocks with the cash flow of each block being calculated individually and being summed up subsequently. The H&T method is a static calculation approach which makes no explicit refection of rental growth: the effects of rental growth and potential changes in other market and financial factors are implicit in the yield, which is normally obtained from the analysis of comparable transactions. Hardcore considers the cash flow as at the date of valuation until the expiry of the existing lease and therefore consid- ers the contractual rents. Management and maintenance costs as well as other unrecoverable costs of the owner are deducted from the current achievable gross annual yield (Gross Income). The remaining Net Income is capitalized by the annuity factor. 74 alstria Annual Company Report 2019Top slice marks the second phase from the beginning of reletting, if required under consideration of an appropriate vacancy period. The calculation of cash flows is based on the estimated market rent. The costs of any outstanding repairs (‘deferred maintenance’) or other capital costs that would be immediately incurred are deducted from the total capital value. Future capital costs (e. g. renovation or refurbishment before renewed letting) are estimated and discounted for an appropriate period before being deducted. After the deduction of the purchaser’s costs (real prop- erty transfer tax, notary and agent costs) and immediately required capital expenditure, the result is the Net Value. E. Valuation Considerations In case of any discrepancies with our General Assumptions and Conditions, our individual valuation assumptions as described in the following do prevail. If any of the afore- mentioned assumptions (General or individual valuation assumptions or other) are subsequently found to be incorrect or invalid, our opinion of value may need to be reconsidered. I. Portfolio Considerations › Public encumbrances › Planning law, zoning specification › Historical listings › Soil and building contamination According to this information, we are of the opinion that the further legal aspects do not affect the use of the subject properties, therefore we have assumed no impact of value. 1. Legal Aspects 2. Technical Aspects Land Register According to the provided land register excerpts, all prop- erties are held on freehold title In this chapter we comment on our individual considerations in order to arrive with our opinion of value. There are several encumbrances regarding the subject prop- erties like pipeline way leaves, cable rights, right of ways and restricted personal easement. Please note that our opinion of value is carried out on the basis of a number of assumptions. In the absence of any information to the contrary in the Report, our indication of value is based on our General Assumptions and Conditions enclosed in Appendix V to this Report. For the subject property VU2107 – Hamburg, there is a superstructure payment in an amount of EUR 6,383.71 p. m. (Überbaurente) in favour of the respective owner of land register Uhlenhorst folio 3403. We have considered these costs in our valuation approach. Our General Assumptions and Conditions will be amended by our individual considerations, including underlying indi- vidual valuation assumptions, as described in the following sections. Our individual considerations are based on these additional assumptions which were adopted specifically with respect to our opinion of value of the assets which are subject to this Report. Except for the subject property VU2107 – Hamburg, we are of the opinion that the encumbrances and restrictions registered under Section II do not affect the use of the subject properties. They are therefore assumed to have no impact on value. Further legal Aspects We were provided with some information regarding legal issues. This legal information partially include information regarding: Maintenance Backlog and Capital Expenditure Based upon the inspection as well as the documents and information provided by the client we have assumed that the continuing repair and maintenance of the properties have been carried out accordingly. We were provided with a Capital expenditures overview with estimations for ‘Major Refurbishment costs’ and for ‘Re-letting costs’ for vacant units. The total Capital expenditures for major refurbish- ments amount to ca. EUR 261.22m and for re-letting to EUR 102.09m. This leads to total Capital expenditures of ca. EUR 363.31m for the 77 subject properties (ca. 8.0 % of the portfolio value). We have considered the costs for Capital expenditures in our valuation approach. Please refer to Appendix II (‘Detailed Valuation Overview’) for more details of individual aspects. 75 alstria Annual Company Report 20193. Tenancy Aspects Applied ERVs range as follows in the subject portfolio: Our valuation is based on the rent roll for the subject prop- erties received from the client via email on 06 January 2020. We assume that the document reflect the status quo of all tenancies as at valuation date 31 December 2019 to a true and comprehensive extent. Please note that we cannot accept any reliance on the correctness nor the complete- ness of the provided information of tenancies. For details of all tenancies, please refer to pp. 7 of the ‘Detailed Valuation Overview’ in Appendix II. II. Basic Cash Flow Considerations In the following section, we like to comment on all input parameters in our valuation model. Besides a general description of each parameter, the applied ranges of those parameters will be stated, too. For more detailed informa- tion on a property level please refer to Appendix II ‘Detailed Valuation Overview’. The Estimated Rental Value (ERV) Estimated rental values (‘market rents’) indicated in this report are those which have been adopted by us as appro- priate in assessing the capital value or the letting potential of the property, being subject to market conditions that are either current or are expected in the short term. They are based on our experience of the markets and our knowledge of actual comparable market activity. For the purpose of comparison, we considered market evidence by assessment of actual lettings of units with the same or the closest comparable use, where applicable and available. In few cases we also considered asking rents. Market rent Office Storage Nursing home Retail Other Area Hotel Surgery Residential Restaurant Fitness Theatre Cinema External Parking Internal Parking Antenna Advertisement Other Unit * weighted by sqm / units Minimum EUR per sqm p. m. Maximum EUR per sqm p. m. Average* EUR per sqm p. m. – 0.50 8.25 – – 11.25 8.50 5.00 1.49 5.50 3.25 9.25 – – – – – 28.00 10.00 13.00 75.00 50.00 12.00 22.50 14.50 25.00 9.50 3.25 9.25 180.00 180.00 2,350.00 1,200.00 1,869.16 13.56 5.00 10.51 17.82 6.85 11.56 12.55 12.63 9.28 6.82 3.25 9.25 46.03 72.84 613.07 239.82 171.18 Our individually-applied rental values are included for each unit in the ‘Detailed Valuation Overview’ enclosed in Appendix II to this report. Non-Recoverable Costs Ancillary costs of a property are generally costs of › ongoing maintenance, › management and › other non-recoverable costs. These costs can generally be allocated to the responsibility of tenants in commercial leases – at least to a very high degree of total costs – whereas there are much stricter regulations for residential leases. Residential tenants may only be obliged to bear services charges as defined in the Ordinance of Services Charges (Betriebskostenverordnung) but must never – by law – be made responsible for costs of maintenance or management. For the purpose of valuing the subject properties, we did not receive details of the amount of non-recoverable costs which remains to be borne by the owner. Therefore, we applied common appropriate assumptions in our valuation. For costs of ongoing maintenance we have assumed the following for the respective types of use: Maintenance Office Storage Nursing home Retail Other Area Hotel Surgery Residential Restaurant Fitness Theatre Cinema External Parking Internal Parking * weighted by sqm / units Minimum EUR per sqm p. a. Maximum EUR per sqm p. a. Average* EUR per sqm p. a. 7.00 7.00 4.00 7.50 – 7.50 7.50 7.50 7.50 7.50 8.50 9.00 – – 10.00 10.00 4.00 10.00 10.00 7.50 9.00 11.00 10.00 9.00 8.50 9.00 80.00 80.00 8.04 8.08 4.00 8.02 7.27 7.50 7.61 8.10 8.13 7.99 8.50 9.00 29.93 76.60 76 alstria Annual Company Report 2019Our approach considers both, that commercial tenants bear a considerable portion of maintenance costs, i.e. in their units and of all fixtures and fittings, but that it is also likely that the owner shall bear costs of maintaining the roof and structure (‘Dach und Fach’). We assume the applied cost estimation to be sufficient to at least maintain the respec- tive property in the current condition. The portfolio contains three elderly homes (#2133, #2139 and #2155) which are leased on a triple-net-basis. For these properties we applied only maintenance costs of EUR 4.00 per sqm and partially 0.5 % for other non-recoverable costs. For the subject properties we have allowed management costs as a percentage of the annual market rent: Management costs Minimum % of Market Rent Maximum % of Market Rent Average % of Market Rent Office Storage Nursing home Retail Other Area Hotel Surgery Residential Restaurant Fitness Theatre Cinema External Parking Internal Parking Antenna Advertisement Other Unit 1.00 1.00 1.00 1.00 1.00 1.00 2.00 1.01 1.00 2.00 2.50 3.00 1.00 1.00 1.00 1.00 1.00 4.00 3.00 2.00 4.00 3.00 3.00 3.00 8.59 3.00 3.00 2.50 3.00 3.00 3.00 3.00 3.00 3.00 1.93 1.84 1.21 2.61 1.95 2.15 2.67 1.84 2.82 2.46 2.50 3.00 1.88 1.96 2.46 2.90 1.59 Our approach is to reflect a common level of management costs under consideration of the type and complexity of the asset and relevant utilisation(s). We generally assumed the subject asset to require a normal management effort. We considered other non-recoverable costs between of 0.50 % and 15.00 % of the market rent for the subject properties, VU2122, VU2133, VU2139, VU2155, VU2156, VU2107 and VU2186. The other non-recoverable costs such as: › leasing commissions (for rental agents) are taken into account by the applied yields as in our ini- tial valuation. Reletting Costs (tenant improvement costs for unit fit-out) These costs were taken into account in accordance with the provided Reletting Capital expenditures by the client which amount to ca. EUR 102.09m. Please see section I. 2. Technical Aspects for detailed numbers. Non-Recoverable Costs on Vacancy These are generally non-recoverable service charges, for example any operational costs, which may need to be borne by the landlord should a tenant become unable to pay for any reason (e.g. insolvency) or in the general case of vacancy. These costs are incurred in addition to the reg- ular non-recoverable ancillary costs as explained above. Vacancy costs Office Storage Nursing home Retail Other Area Hotel Surgery Residential Restaurant Fitness Theatre Cinema * weighted by sqm / units Minimum EUR per sqm p. a. Maximum EUR per sqm p. a. Average* EUR per sqm p. a. – – 1.00 0.25 – 1.50 1.50 0.25 1.00 1.00 1.00 0.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.00 0.50 1.93 1.84 1.21 2.61 1.95 2.15 2.67 1.84 2.82 2.46 1.00 0.50 Please note that these costs will only be applied to vacant space and only for the assumed duration of vacancy. Void Periods for Currently Vacant Space & Future Void Periods on Renewed Letting Voids generally represent the time period between the expiry of a lease and the start date of a new lease. Depending on the quality of situation and the respective property, the current rental situation and the local vacancy rate we have assumed an initial void period for current vacancy and future void periods until re-letting after the expiry of leases of rental units. In the absence of more detailed information of actual non-recoverable costs in the case of vacancy, we consid- ered non-recoverable ancillary costs per sqm p.m. for vacant area as follows: There is currently some initial vacancy in the subject prop- erties. For these units, we have estimated ‘Void Periods of Current Vacancy’ which are starting at the beginning of 77 alstria Annual Company Report 2019Void Period after expiry of leases Minimum month Maximum month Average * month Leased rental units by alstria office REIT-AG Alstria office REIT-AG currently occupies rental areas and in the following properties: the next full month following the reference date of this valuation (the ‘projection date’). We have assumed the following void periods for current vacancy: Void period of current vacancy Minimum month Maximum month Average * month Office Storage Retail Other Area Surgery Residential External Parking Internal Parking Antenna Advertisement Other Unit * weighted by market rent 3.00 2.00 9.00 6.00 18.00 12.00 3.00 2.00 9.00 6.00 9.00 30.00 30.00 24.00 24.00 18.00 24.00 26.00 30.00 18.00 6.00 12.00 15.57 12.99 15.31 11.80 18.00 23.53 17.11 13.96 15.71 6.00 10.85 Office Storage Nursing home Retail Other Area Hotel Surgery Residential Restaurant Fitness Theatre Cinema External Parking Internal Parking Antenna Advertisement Other Unit * weighted by market rent 3.00 3.00 12.00 6.00 – 12.00 12.00 1.00 6.00 12.00 10.00 12.00 3.00 3.00 2.00 2.00 – 4.00 3.00 2.00 4.00 3.00 3.00 3.00 8.59 3.00 3.00 2.50 3.00 3.00 3.00 3.00 3.00 3.00 12.08 11.14 13.49 11.96 11.26 15.45 15.25 4.73 15.05 12.00 10.00 12.00 12.76 12.35 10.38 5.70 6.32 We have set a void period of current vacancies of 0 months for hotel, nursing home, restaurant, fitness, theatre and cinema because these types of use are currently fully let. The above discussed considerations are shown as the num- ber of months for each existing unit within the rent roll in the ‘Detailed Valuation Overview’ enclosed in Appendix II to this report. Those units which are currently let and which become vacant in the future will be subject to the ‘Void Periods after Expiry of Leases’. For all units where leases expire in the future and during the upcoming DCF term of 10 years, we considered the following void periods: Remaining lease time until lease expiry For current lease contracts without fixed lease expiry date we applied half of the previous rental period as remaining lease term (e. g. a lease contract is running for 6 years as at valuation date, than we applied 3 years as remaining lease term). › VU2053: Steinstraße 5 – 7, Hamburg › VU2054: Friedrichstraße 19, Düsseldorf › VU2118: Elisabethstraße 5 –11, Düsseldorf › VU2150: Platz der Einheit 1, Frankfurt am Main › VU2176: Rankestraße 17, Berlin For each of these properties we have agreed to make a Special Assumption that alstria office REIT-AG occupies the accommodation on a typical commercial Dach und Fach lease term for a duration of 5 years commencing on the valuation date, and is paying the applied Market rent. This Special Assumption is made on the basis that alstria office REIT-AG undertakes to enter into such a lease either of these properties be sold. Permanent Void Allowance / Structural Vacancy At the date of valuation the portfolio of alstria office REIT-AG has a total vacancy area of 285,661 sqm. We have appointed 3,375 sqm of this area as structurally vacant. The Portfolio thus has a cumulative vacancy rate of approximately 18.8 %. 78 alstria Annual Company Report 2019Lettable Area Structurally Vacant Area sqm 17,566 14,113 4,895 9,473 10,169 10,192 33,905 18,543 5,061 sqm % 41 0.23 38 0.27 88 171 1.79 1.80 301 2.96 58 0.57 889 2.62 925 4.99 534 10.55 45 104 161 0.15 1.16 6.17 19 0.72 Structural Vacancy Subject Property Property Adress VU2032 Ernst-Merck-Straße 9 VU2039 Johanniswall 4 VU2044 Ludwig-Rosenberg-Ring 41 Municipality Hamburg Hamburg Hamburg VU2106 Hamburger Straße 1 – 15 (MOT) Hamburg VU2118 Elisabethstraße 5 – 11 VU2125 Heidenkampsweg 51 – 57 VU2137 Berliner Straße 91 – 101/ Brandenburger Straße 2 – 6 VU2138 Pempelfurtstraße 1 VU2145 Mergenthalerallee 45 – 47 Düsseldorf Hamburg Ratingen Ratingen Eschborn VU2150 Platz der Einheit 1 Frankfurt am Main 30,158 VU2179 Kanzlerstraße 8 VU2180 Am Wehrhahn 28 – 30 VU2197 Adlerstraße 63 Düsseldorf Düsseldorf Düsseldorf 8,993 2,610 2,686 Applied calculations Yields We applied the following range of yields for the subject portfolio considering the individual cash-flows, locations, as well as use types and building qualities. Internal yields and rates Office 2.80 12.00 % 15.57 % Minimum Maximum Average * * Equivalent Yield weighted by Gross Present Value Costs of Transaction For our opinion of value, we applied costs of transaction as follows: › Real Estate Transfer Tax: 4.50 % – 6.50 % (depending on federal state relevant to an asset) 0.25 % – 0,50 % 0,50 % – 1.00 % › Notary fees: › Agency fees: These costs are chosen as they are common in ordinary course of business, i. e. in an asset deal, and for the sub- ject type of properties. Costs of transaction may, however, differ in the actual individual case – depending on the type of transaction. Closure Finally, in accordance with the recommendations of the RICS, we would state that this report is provided solely for the purpose stated above. It is confidential to and for the use only of the party to whom it is addressed, and no responsibility is accepted to any third party for the whole or any part of its contents. Any such parties rely upon this report at their own risk. Neither the whole nor any part of this report or any reference to it may be included now, or at any time in the future, in any published document, circular or statement, nor published, referred to or used in any way without our written approval of the form and context in which it may appear. For and on behalf of Savills Advisory Services Germany GmbH & Co. KG Draženko Grahovac MRICS RICS Registered Valuer Klaus Trautner MRICS RICS Registered Valuer, CIS HypZert(F) 79 alstria Annual Company Report 2019  MANAGEMENT COMPENSATION SCHEME Transparent and in-line with shareholders interest › More detailed information on management compensation can be found in the Annual Report 2019 – IFRS Financial Report. N TIVE (LTI) ENSATIO P M O C K C O T S D E R R E F E D N E C N I M R E T - G N O L % 0 4 F I X E D C A 4 0 % F I X S H C O M P E N S A T IO N COMPONENTS OF TARGET REMUNERATION E D R E M U N E R A T I O N 2 V A 0 % SHORT-TERM IN C E N T I V E ( S RIABLE CASH COM P E N S A T T I) N I O 40 % FIXED REMUNERATION › All cash BASIC SALARY 20 % SHORT-TERM INCENTIVE (STI) VARIABLE REMUNERATION › All cash PERFORMANCE MEASURE FFO PER SHARE Like-for-like budgeted FFO per share, adjusted by impact of material acquisitions and disposals / changes in share capital 40 % LONG-TERM INCENTIVE (LTI) VARIABLE REMUNERATION Stock awards (holding period of 4 years) 75 % Relative total shareholder return (TSR) PERFORMANCE MEASURE Total shareholder return relative to FTSE EPRA / NAREIT Developed Europe Index 25 % Absolute total shareholder return (TSR) Absolute total shareholder return Share ownership guidelines: Investment of three times annual fixed remuneration in company shares. 80 alstria Annual Company Report 2019  GLOSSARY A C D AFFO The adjusted funds from operations (AFFO) is equal to the FFO (funds from oper ations) with adjustments made for capital expenditures used to maintain the quality of the underlying investment portfolio. Annual financial statements The annual financial statements include the balance sheet and the profit and loss account of a company. In respect of a joint stock company, these are prepared by the Man- agement Board, audited by a chartered accountant for compliance and checked by the Supervisory Board. Cash flow The cash flow statement shows how the cash and cash equivalents of the Group changed in the course of the financial year as a result of cash received and paid. In accor- dance with IAS 7, a distinction is made between cash flows from operating activities and cash flows from investing and financing activities. Development capex Investments related to the substantial modernization / ren- ovation of a building. Development portfolio Part of the real estate portfolio on which modernization / ren- ovation work took place during the reporting period. CO2 Carbon dioxide, a gas produced primarily through the com- bustion of fossil fuels, is believed to be the main cause of climate change. Dividend The share of the distributed net profit of a company to which a shareholder is entitled in line with the number of shares he holds. Asset management Value-driven management and / or optimization of real estate investments through letting management, refurbish- ment, repositioning and tenant management. Completed developments Completed developments consist of those properties pre- viously included in the development programme, which have been transferred to the investment portfolio from the development programme during the reporting period. Average cost of debt The cost of finance expressed as a percentage of the weighted average of borrowings during the period. B Contractual rent At a given date, the contractual rent reflects the total annual- ised rent taking into consideration all signed rental contracts. Broker fees Fees paid to an intermediary in connection with the bro- kerage of rental space or a real estate transaction. Coverage Information provided on a listed public company by banks and financial analysts in the form of studies and research reports. E EPRA The European Public Real Estate Association is an organi- zation that represents the interests of the major European property management companies and supports the devel- opment and market presence of European public property companies. ERV The estimated market rental value of the total lettable space in a property, after deducting head and equity rents, calculated by the Group’s external valuers. CSR Corporate social responsibility is a management concept whereby companies integrate social and environmental concerns in their business operations and interactions with their stakeholders. 81 alstria Annual Company Report 2019 F Fair value (or open market value [OMV]) The estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing, wherein the parties had each acted knowledge- ably, prudently and without compulsion. The fair value for alstria’s investment properties is reviewed regularly by external appraisers. FFO alstria calculates Funds From Operations as EBT, decreased / increased by the net gain / loss from fair value adjustment on investment property, decreased / increased by the net gain / loss from fair value adjustment on financial derivatives, increased / reduced by the profit / loss on disposal of invest- ment property, decreased / increased by the net gain / loss from fair value adjustments on investment property of joint ventures, decreased / increased by non-recurring items, plus non-cash-expenses and less cash taxes paid. G G-REIT Real Estate Investment Trusts are public listed companies, fully tax-transparent, which solely invest in properties. I IFRS The international financial reporting standards (IFRS) are adopted by the International Accounting Standards Board (IASB). The objective is to achieve uniformity and transpar- ency in the accounting principles that are used by companies and other organisations worldwide for financial reporting. IFRS have applied to listed companies since January 1, 2005. Investment property Property, land and buildings, which are held as financial investments to earn rents or for growth and not used for the Company’s own purpose. The value of the investment property is determined according to IAS 40. Net debt / EBITDA The Net debt / EBITDA ratio gives an indication as to how long a company would need to operate at its current level to pay off all its debt. L LTV and Net LTV alstria calculates loan to value (LTV) by dividing the total loans outstanding to finance investment properties by the value of all mortgaged investment properties. The calculation of alstria’s Net LTV also deducts the available non-restricted cash on the respective balance sheet date, which is deducted from the gross debt amount. M MDAX Mid Cap Index; it contains, with variable weighting, the prices of the 50 most important, in terms of market cap- italization and turnover, German joint stock companies which are not included in DAX30. In addition to dividend payments, subscription right proceeds are also included when calculating the index. N NAV (net asset value) Reflects the economic equity of the Company. It is calcu- lated from the value of assets less debt. Net absorption Reduction of vacant space in a real estate portfolio, which remains unchanged over two reporting periods. NNNAV (triple net asset value) The Company computes NNNAV as total equity as reported in the IFRS consolidated statement of financial position, which accounts for the carrying amount and the fair value of financial instruments and financial liabilities, adjusted for hidden reserves and hidden losses in immovable assets and financial liabilities. O Office building Property where at least 75 % of the lettable area is destined for office use (disregarding potential ground-floor retail). Opex (Operating expenditure) Maintenance costs of buildings that are not capitalized but are immediately recognized in the income statement. P Passing rent Annual gross rental income as per a certain date, excluding the net effects of straight-lining for lease incentives. Performance The term performance describes the percentage appre- ciation of an investment or a securites portfolio during a given period. Pre-let A lease signed with a tenant prior to completion of a development. 82 alstria Annual Company Report 2019 Property management Property management is the management of real estate assets including the processes, systems and manpower required to manage the life cycle of a building. Sustainability Alignment of an organisation’s products and services with stakeholder expectations, thereby adding economic, envi- ronmental and social value. R T Rent concession Granting of rent-free periods in connection with a lease. Tenant fit outs Costs related to the fit out of rental space due to special tenant requirements. Roadshows Corporate presentations to institutional investors. S Share The term ‘share’ describes both the membership rights (holding in the joint stock company) and the security that embodies these rights. The holder of a share (shareholder) is a ‘sharer’ in the assets of the joint stock company. Their rights are protected by the regulations contained in the Companies Act. Share capital The capital stipulated in a corporation’s articles of associ- ation. The articles also specify the number of shares into which the share capital is divided. The Company issues shares in the amount of its share capital. Supervisory Board The Supervisory Board is one of the three executive bod- ies of a joint stock company: Annual General Meeting, Management Board and Supervisory Board. The Supervi- sory Board appoints the Management Board and provides supervision and advice regarding management of the com- pany’s business. Tenant incentives Any incentive offered to occupiers to enter into a lease. Typically the incentive will be an initial rent-free period, or a cash contribution to fit-out or similar costs. TSR (Total shareholder return) Dividends and capital growth in the share price, expressed as a percentage of the share price at the beginning of the year. Transparency A principle that allows those affected by administrative decisions, business transactions or charitable work to know not only the basic facts and figures but also the mechanisms and processes. It is the duty of civil servants, managers and trustees to act visibly, predictably and understandably. U UIRR The Unlevered internal rate of return (UIRR) is a key indi- cator to assess the attractiveness of an investment. It is the rate needed to discount the unlevered sum of the future cash flow to equal the initial investment. V Vacant space Vacant space refers to the sum of all lettable space that at the end of a calendar year is unoccupied or offered for lease. W WAULT Weighted average unexpired lease term. Remaining lease length of a rent contract. X XETRA An electronic stock exchange trading system that uses the open order book and thus increases transparency. Y Yield Key performance indicator, which is determined at a given date by the contractual rent in relation to the fair value of the property. 83 alstria Annual Company Report 2019 BUILDING YOUR FUTURE alstria office REIT-AG is a member of DIRK (Deutscher Investor Relations Verband, the German Investor Relations Association). Other reports issued by alstria office REIT-AG are posted on the Company’s website. Contact Investor Relations Ralf Dibbern +49 (0) 40 / 22 63 41-329 rdibbern@alstria.de www.alstria.com/en/investors Design & Layout Teresa Henkel Forward-looking statements This annual report contains forward-looking statements. These statements represent assessments which we have made on the basis of the information available to us at the time. Should the assumptions on which the statements are based not occur, or if risks should arise the actual results could differ materially from the results currently expected. alstria office REIT-AG Steinstr. 7 20095 Hamburg, Germany www.alstria.com www.beehive.work Social media 

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