Audited, in 5 million
Revenues. . . 57.3 57.3 4.8 62.1 Carrying amount of assets sold . . . (44.4) (25.9) (70.3) (70.3) Other operating income . . . 2.3 (0.8) 1.6 0.3 1.9
Profit from business combination . . . 8.8 8.8 (8.8) 0.0
Result from fair value adjustment of
investment property . . . 0.0 12.9 12.9 12.9
Expenses for trade receivables . . . (27.8) (0.6) (28.4) (0.3) (28.7) Other operating expenses . . . (11.0) (11.0) (0.8) (11.8) Depreciation, amortization and
impairment losses . . . (14.8) 14.6 (0.2) (0.2) Financial income . . . 0.9 0.9 (0.2) 0.7 Financial expenses . . . (12.6) (12.6) (3.8) (16.4)
Income and expenses from derivatives . . . (0.3) (0.3) 0.3 0.0
Income tax . . . 0.7 (9.8) (9.1) (0.4) (9.4) Net result for the period . . . . 29.3 (9.6) 19.7 (8.8) 10.9 Moreover, the DB 14 adjustments result in the following changes to the comparison period from July 1, 2006 to December 31, 2006 in the consolidated cash flow statement included in the consolidated financial statements of Deutsche Wohnen AG as of and for the fiscal year ended December 31, 2007:
July 1 – December 31, 2006 Adjustment DB 14 July 1 – December 31, 2006 Adjusted Audited, in 5 million
Cash flow from operating activities . . . (11.6) 1.9 (9.7) Cash flow from investing activities . . . 15.7 (11.1) 4.6 Cash flow from financing activities. . . (25.0) (1.5) (26.5) Changes in the fiscal year. . . . (20.9) (10.7) (31.6) Cash and cash equivalents at the start of the period . . . . 54.4 10.7 65.1 Cash and cash equivalents at the end of the period . . . . . 33.5 0.0 33.5 No adjustments were made to the consolidated cash flow statement as a result of the fair value change.
Discussion of the financial data for the partial fiscal year from July 1, 2006 to December 31, 2006
Due to the factual circumstances discussed above, especially the varying lengths of the accounting periods, comparing the financial data for all of 2007 (period from January 1, 2007 to December 31, 2007) based on the audited consolidated financial statements of Deutsche Wohnen AG for the 2007 fiscal year with the financial data for the partial fiscal year of July 1, 2006 to December 31, 2006 would be of no informative value. A comparison of the financial data for the second half of 2007 (period from July 1, 2007 to December 31, 2007) with the financial data (as adjusted due to the aforementioned changes) for the partial fiscal year of July 1, 2006 to December 31, 2006, would likewise be of no informative value because of the acquisition of the GEHAG Group as of August 9, 2007. For additional information on the acquisition of the GEHAG Group, see above “—Comparability of the financial data contained in the consolidated financial
statements as of and for the fiscal years ended December 31, 2008 and December 31, 2007—Acquisition of subsidiaries” and below “Material Agreements—Material Agreements Related to the Acquisition of the GEHAG Group.”
Against the background of the previous discussion, no discussion is provided in the section entitled “—Results of Operations—Presentation of results of operations for the 2nd PFY 2006” comparing the financial data of the 2nd PFY 2006 and the 2007 fiscal year; instead, material financial data from the consolidated profit and loss statement and the segment reporting is discussed, and in the section entitled “—Liquidity and Capitalization—Consolidated cash flow statements—Discussion of cash flow for the
2nd PFY 2006,” material financial data from the statement of cash flows as of and for the period from July 1,
2006 to December 31, 2006 is discussed. This discussion is based on the adjusted (for the aforementioned factual circumstances) figures for the 2nd PFY 2006, as found in the audited consolidated financial statements of Deutsche Wohnen AG as of and for the fiscal year ended December 31, 2007. Those consolidated financial statements of Deutsche Wohnen AG are reprinted on page F-62 et seq.
The consolidated financial statements of Deutsche Wohnen AG for the 1st PFY 2006 (the financial data of which are not discussed in this section of the offering circular) are shown in the financial section on pages F-161 et seq.
Segment Reporting
We divide our business operations into three business segments: Residential Property Management, Sales, and Assisted Living and Elderly Care. The “Assisted Living and Elderly Care” business segment is referred to as the “Services” segment in our segment reporting, but corresponds to the “Assisted Living and Elderly Care” business segment. In the segment reporting for the period ended June 30, 2009, we renamed one segment from “Property Privatization” to “Sales.” In addition, with the first-time application of the provisions of IFRS 8 “Operating Segments,” we have adapted the definition of our segment profit or loss to the internal reporting of our Group. The segment profit or loss as of and for the six months ended June 30, 2009 (and for the comparable six-month period ended June 30, 2008) comprise the EBIT adjusted for restructuring and reorganization expenses. As such, income tax expense is no longer reflected in the segment profit or loss (EBIT). We have also adjusted the segment revenue for our Sales segment. This segment revenue now shows the revenue from the sale of units without deduction of the carrying amount of the properties sold. No changes have been made to the way the segments we report are divided. The “Services” segment also included the telecommunications services provided by the AKF Group. The AKF Group was sold and deconsolidated as of July 3, 2008. Consequently, the revenue and expenses relating to the services provided by the AKF Group were treated as from discontinued operations under IFRS 5 and not included in the segment reporting for the 2008 fiscal year. We intend to rename our “Services” segment to “Assisted Living and Elderly Care” in the future. We also include the “Other and Group Function” column and “Reconcilia- tion” column in our segment reporting. Our segments as well as the Other and Group Function column and Reconciliation column are described in more detail below.
Presented or discussed in the sections “—Results of Operations—Comparison of the six-month periods
ended June 30, 2009, and June 30, 2008—Segment discussion,” ‘‘—Results of Operations—Comparison of the years ended December 31, 2008, and December 31, 2007—Segment discussion” and “—Results of Operations—Discussion of results of operations for the 2nd PFY 2006—Segment discussion” are the
economic developments in the individual segments for the respective periods, in each case on the basis of external revenues/segment revenue, segment expenses and the segment profit or loss. Segment revenue comprises all of our revenue in the respective segment, with the exception of financial income. As such, the items shown include revenues (external revenues/revenue from third parties), the revenue from privatization, other operating income (other revenue), revenue from transactions with other segments, result from fair value adjustment of investment property and, for 2007, the line item “profit from business combination” resulting from the negative consolidation difference arising out of the first-time consolidation of the GEHAG Group. The last two items mentioned are reported under “other revenue.” For additional information on the profit from business combination, see “—Results of Operations—Comparison of the years ended Decem-
ber 31, 2008, and December 31, 2007—Profit from business combination.”
Segment expenses in each instance comprise expenses related to goods and services received, personnel expenses, other operating expenses, depreciation, profit from affiliated companies, the adjustment of market value (fair value) of investment property (expense), the adjustment of market value of derivative financial instruments and, up to December 31, 2008, income tax. Financial income and financial expenses are predominantly reported under “Other and Group Function” and not apportioned among the segments. The segment profit or loss is the difference between the segment revenue and segment expenses. As mentioned previously, the segment profit or loss as of and for the six months ended June 30, 2009 and June 30, 2008 reflect the EBIT adjusted for restructuring and reorganization expenses.
Residential Property Management segment
The Residential Property Management segment records the income from the management of our residential properties (in particular, the net cold rent). Expenses are primarily incurred in connection with modern- ization measures and maintenance on our real estate portfolio, operating costs, and the marketing of properties. Also attributed to this segment is the result from fair value adjustment of investment property. 69
The Residential Property Management segment constitutes our core segment. In the 2008 fiscal year, it generated revenues ofS277.3 million.
Sales segment
The Sales segment records the income generated by way of single unit privatizations, namely sales of individual properties (for example, to tenants) and block sales. Expenses in this segment are primarily incurred through sales commissions and promotional measures. The name of this segment was changed as of June 30, 2009 from “Property Privatization” to “Sales.”
Services segment
The Services segment records the income from Assisted Living and Elderly Care. We plan to rename this segment from “Services” to “Assisted Living and Elderly Care” in the future. This segment was first added to our segment reporting following the first consolidation of the GEHAG Group in August 2007. Accordingly, the GEHAG Group’s respective financial data in 2007 was recorded in this segment only for a total of five months (starting with first-time consolidation on August 9, 2007 up to the balance sheet date of December 31, 2007). Starting in 2008, the financial data of the GEHAG Group was recorded for the entire year of January 1 through December 31. For additional information on the acquisition of the GEHAG Group, see above “—Comparability
of the Financial Data Contained in the Financial Statements—Comparability of the financial data contained in the consolidated financial statements as of and for the fiscal years ended December 31, 2008 and December 31, 2007—Acquisition of subsidiaries” and below “Material Agreements—Material Agreements Related to the Acquisition of the GEHAG Group.” The Services segment also included the telecommunication services
provided by the AKF Group. The AKF Group was sold and deconsolidated as of July 3, 2008. Consequently, as described above, the income and expenses from the services provided by the AKF Group are not included as discontinued operations pursuant to IFRS 5 in the segment reporting for the 2008 fiscal year. For additional information, see above ‘‘—Comparability of the Financial Data Contained in the Financial Statements—
Comparability of the financial data contained in the consolidated financial statements as of and for the fiscal years ended December 31, 2008 and December 31, 2007—Divestiture of subsidiaries.”
Other and Group Function column
The Other and Group Function column comprises the provision of internal services and all of the Group’s personnel, administrative, and financing activities. Financial liabilities and, until December 31, 2008, financial expenses are reported in particular. Administration and control is carried out through Deutsche Wohnen AG’s finance department.
Reconciliation column
Under the reconciliation column, intra-Group segment revenue is eliminated in connection with the reconciliation to the consolidated financial statements.
Miscellaneous Performance Indicators and Ratios of Deutsche Wohnen Overview
In our view, the ratios and performance indicators described below constitute the most important measures for the discussion and analysis of developments in our business and our results. The ratios and performance indicators presented below are grouped into financial ratios, performance indicators, operating ratios and performance indicators. Each ratio and performance indicator is explained in terms of what it expresses for business purposes and how it is calculated. The calculations of the ratios and performance indicators as discussed below for the six months ended June 30, 2009, and June 30, 2008, the 2008 and 2007 fiscal years, and the 2nd PFY 2006 are primarily based on the unaudited condensed consolidated interim financial statements as of and for the six months ended June 30, 2009, the consolidated financial statements as of and for the fiscal years ended December 31, 2008 and December 31, 2007, and the Company’s accounting records. Potential investors should note that the ratios and performance indicators we report do not constitute measures defined in accordance with IFRS or HGB. For this reason, it is possible that other companies apply a different method in calculating these ratios and performance indicators. This means that these ratios and performance indicators cannot be directly compared with similar ratios and performance indicators of other companies.
Financial ratios and performance indicators
k Loan-to-Value Ratio (LTV Ratio)
The loan-to-value ratio (LTV Ratio) is the ratio of net financial liabilities to the value of investment property plus noncurrent assets held for sale and certain land and buildings held for sale. We are striving to achieve an LTV Ratio of 60-65% in the medium term. The following table shows how the LTV Ratio was calculated as of June 30, 2009, December 31, 2008, December 31, 2007 and December 31, 2006. We calculated the LTV Ratio for the 2007 fiscal year and the 2nd PFY 2006 using a different method than applied for the 2008 fiscal year. In order to ensure comparability of the figures for these periods, the LTV Ratio for the 2007 fiscal year and the 2nd PFY 2006 was calculated using the same method applied for the 2008 fiscal year:
As of June 30, 2009 As of December 31, 2008 As of December 31, 2007 As of December 31, 2006 (adjusted)2)
unaudited audited audited audited
In 5 million (unless otherwise indicated)
Financial liabilities . . . 2,039.9 2,089.2 2,179.6 573.7
Convertible bonds . . . 26.0 25.4 24.3 0.0
—Cash and cash
equivalents . . . (19.5) (42.0) (47.9) (33.5)
Net financial liabilities . . . . . 2,046.4 2,072.6 2,156.0 540.2
Investment property. . . 2,888.9 2,900.7 3,271.2 1,341.6
Noncurrent assets held for
sale . . . 18.1 17.7 4.6 3.3
Land and buildings held for
sale . . . 19.2 19.4 21.9 8.4
Total real estate holdings . . . 2,926.2 2,937.7 3,297.7 1,353.3
Loan-to-value ratio (in %) . . 69.9% 70.6% 65.4% 39.9%1)
1) Unaudited.
2) As described at the beginning of the “Selected Consolidated Financial Information,” the consolidated financial information for the 2nd PFY 2006 is based on the adjusted year-on-year comparative figures for the 2nd PFY 2006 that are contained in the audited consolidated financial statements of Deutsche Wohnen AG as of and for the fiscal year ended December 31, 2007.
k Net asset value (NAV)
The net asset value (NAV) shows the intrinsic value of a real estate company. It is the sum of all assets less liabilities (which equals equity) and is adjusted for any real-estate related deferred taxes. The real-estate related deferred taxes relate to deferred tax assets and liabilities from investment property (June 30, 2009: negative S2.2 million; December 31, 2008:S3.2 million; December 31, 2007: negative S59.7 million; December 31, 2006: negative S54.7 million), deferred tax assets from loss carryforwards, to the extent of available real-estate related deferred tax liabilities (June 30, 2009:S15.0 million; December 31, 2008: S15.0 million; December 31, 2007: S29.9 million; December 31, 2006:S28.6 million), deferred tax liabilities from real-estate related loans (June 30, 2009: negative S18.5 million; December 31, 2008: negative S18.5 million; December 31, 2007: negative S19.0million; December 31, 2006: negativeS15.6 million), as well as deferred tax assets from real-estate related provisions and deferred tax liabilities from investment subsidies received (June 30, 2009: S2.9 million; December 31, 2008: S3.0 million; December 31, 2007:S3.5 million; December 31, 2006: S0.0 million). In international usage, our NAV would be considered to be the “net net asset value” since our equity is already adjusted for real-estate related deferred taxes. The NAV per share is a benchmark for the share price. Prospective investors should note, however, that the NAV per share is not an indication of the future performance of the stock of Deutsche Wohnen AG. The following table shows how our NAV was calculated as of June 30, 2009, December 31, 2008, December 31, 2007 and December 31, 2006:
As of June 30, 2009 As of December 31, 2008 As of December 31, 2007 As of December 31, 2006 (adjusted)1)
Unaudited, in 5 million (unless otherwise indicated) Total equity . . . 635.5 649.3 936.1 736.4 Real-estate related deferred taxes . . . 2.8 (2.7) 45.3 41.6 NAV . . . . 638.3 646.6 981.4 778.0 NAV per share inU. . . 24.18 24.49 37.17 38.90 1) As described at the beginning of the “Selected Consolidated Financial Information,” the consolidated financial information for the 2nd PFY 2006 is based on the adjusted year-on-year comparative figures for the 2nd PFY 2006 that are contained in the audited consolidated financial statements of Deutsche Wohnen AG as of and for the year ended December 31, 2007.
k Funds from operations (FFO)
We believe that FFO, which is derived from the consolidated profit and loss statement, is an important liquidity indicator for real estate companies. It is calculated by taking the result for the period and adjusting it for non-cash effects and non-recurring expenses and is a measure of our ability to make loan payments and investments (for example, acquire new properties). The following table shows how we calculated our FFO using the results of our Group for the six months ended June 30, 2009 and June 30, 2008, for the 2008 and 2007 fiscal years and for the 2nd PFY 2006. The Company calculated the FFO for 2007 and for the 2nd PFY 2006 using a different method to that used for 2008. In order to ensure the comparability of these figures for these periods, the calculation of the FFO for the 2007 fiscal year and the 2nd PFY 2006 was analogous to the current calculation for the 2008 fiscal year:
January 1 – June 30, 2009 January 1 – June 30, 2008 January 1 – December 31, 2008 January 1 – December 31, 2007 July 1 – December 31, 2006 (adjusted)1) Unaudited, in 5 million (unless otherwise indicated)
Result for the period. . . . (2.4) 0.5 (255.9) 29.8 10.9
Depreciation . . . 1.4 0.8 1.8 1.7 0.2
Result from fair value adjustment of investment
property . . . 0.0 (0.5) 276.5 (30.9) (12.9)
Result from discontinued
operations . . . 0.0 0.3 (16.4) 0 0.0
Profit from business
combination . . . — — 0 (64.1) 0.0
Result from the fair value measurement of derivative
financial instruments . . . 0.5 (25.9) 32.2 7.8 0.1
Accrued interest on liabilities
and pensions . . . 7.5 7.5 14.3 10.2 2.2
Special DB 14 payout . . . — — 5.7 — —
Deferred taxes and EK02 tax
expense . . . 5.4 11.3 (56.2) 37.8 6.8
Restructuring and
reorganization expenses . . . . 5.4 16.8 24.1 10.0 0.0
Expenses relating to the listing
prospectus . . . 0.0 0.0 0.0 1.8 0.0
FFO . . . . 17.8 10.9 26.1 4.1 7.2
FFO per share inU . . . . 0.67 0.41 0.99 0.16 0.36
1) As described at the beginning of the “Selected Consolidated Financial Information,” the consolidated financial information for the 2nd PFY 2006 is based on the adjusted year-on-year comparative figures for the 2nd PFY 2006 that are contained in the audited consolidated financial statements of Deutsche Wohnen AG as of and for the fiscal year ended December 31, 2007.
k EBITDA (adjusted)
The adjusted EBITDA is a performance indicator derived from the consolidated profit and loss statement. We ascertain this performance indicator by taking EBIT, which is then adjusted for the result of the fair value adjustment of investment property, depreciation, the result from affiliated companies, restructuring and reorganization expenses, the profit from business combination and expenses related to the listing prospectus in 2007. EBT (adjusted) is calculated from EBITDA (adjusted) by deducting depreciation and net financial expenses (financial expenses less financial income). The corresponding EBT (adjusted) amounted to S10.0 million for the six months ended June 30, 2009, S2.7 million for the six months ended June 30, 2008 andS4.0 million for the fiscal year ended December 31, 2008. For additional information on the restructuring and reorganization expenses, see below “—Results of Operations—Comparison of the fiscal
years ended December 31, 2008 and December 31, 2007—Restructuring and reorganization expenses.” The
The following shows the calculation of the adjusted EBITDA for the six months ended June 30, 2009 and June 30, 2008, for the 2008 and 2007 fiscal years and for the 2nd PFY 2006:
January 1 – June 30, 2009 January 1 – June 30, 2008 January 1 – December 31, 2008 January 1 – December 31, 2007 July 1 – December 31, 2006 (adjusted)1) Unaudited, in 5 million Earnings before interest and
taxes (EBIT) . . . . 60.5 47.9 (171.9) 141.6 35.9 Result from fair value
adjustment of investment
property . . . 0.0 (0.5) 276.5 (30.9) (12.9)
Depreciation. . . 1.4 0.8 1.8 1.7 0.2
Result from affiliated
companies. . . — — (0.1) 0.0 0.0
Subtotal . . . . 61.9 48.2 106.4 112.3 23.2 Profit from business
combination . . . — — — (64.1) —
Restructuring and reorganization
expenses . . . 5.4 16.8 24.1 10.0 0.0
Expenses relating to the listing
prospectus. . . — — 0.0 1.8 0.0
EBITDA (adjusted) . . . . 67.3 65.0 130.5 60.0 23.2
1) As described at the beginning of the “Selected Consolidated Financial Information,” the consolidated financial information for the 2nd PFY 2006 is based on the adjusted year-on-year comparative figures for the 2nd PFY 2006 that are contained in the audited consolidated financial statements of Deutsche Wohnen AG as of and for the fiscal year ended December 31, 2007.
Operating ratios and performance indicators
k Estimated rent
The estimated rent income is the total of the net cold rent and vacancy income shortfall. Vacancy income shortfall corresponds to the last contractual net cold rent payments for the area not rented, but rentable during the relevant period or as of the relevant date, in relation to the relevant property. The estimated rent income per m2corresponds to the estimated rent income calculated for the relevant effective date, divided by the rented area in relation to the relevant property. Our business activities are focused on increasing the net cold rent while, at the same time, minimizing vacancies. This increase in net cold rent is to be generated through the use of adjustments to the rent index, through targeted modernization measures that can be allocated to tenants, and through vacancy reduction. In contrast to the estimated rent income, net cold rent states the actual income from rent we have received as cash. The following table shows the estimated rent income per m2in the core portfolio and the entire portfolio: