DIC Asset AG: Letter to the Shareholders

Letter to the Shareholders

– Letting result of around 240,000 sqm achieved

– Reduction of vacancy rate by 1.5 percentage points – exceeding target

– 2012 FFO forecast confirmed: year-on-year increase by around 10 per cent

– MainTor project progresses much faster than expected due to major marketing successes

– Fund business: expansion drive clears substantial milestones

– Financial structure empowered, debt financing totalling
EUR 640 million agreed

Dear Shareholders, Ladies and Gentlemen,

Just weeks into the new year, we should like to brief you on the main cornerstones of our business performance in 2012, and on essential transactions concluded before the end of last year. At the same time, we shall quote to you our initial, preliminary figures for the operating activities of DIC Asset AG (German securities ID WKN 509840/ ISIN DE0005098404).

2012 proved to be another successful year for DIC Asset AG:

– We broadened the revenue basis of the real estate portfolio and of our other business activities, and further improved the high quality of income.

– This was facilitated, aside from the expansion of the fund business and attractive acquisitions for the Commercial Portfolio, by achieving once again a very high letting result that reduced the vacancy faster than expected by the end of the year, significantly bringing it down by another 1.5 percentage points, down to roughly 11 per cent by now.

– Very large-scale marketing successes have helped us to push the development of the MainTor project in Frankfurt much faster than planned. As a result, more than 60 per cent of the project volume is already in the realisation stage.

– Successful sales, adding up to a transaction volume of more than EUR 150 million in 2012, complete the positive picture.

– All things considered, we will significantly exceed the FFO result of 2011 (EUR 40.6 million). It will be in the range of EUR 43 to 45 million in 2012, just the way we planned it.

– Moreover, we reinforced our financial basis and structure, further reduced our average interest rate, and prematurely negotiated imminent refinancing deals, all of which added up to a realised financing volume of approx. EUR 640 million.

The letting result once again achieved a very high level of around 238,000 sqm (2011: 247,000 sqm). Out of this total, new letting contracts accounted for around 114,000 sqm (2011: 120,000 sqm). Similarly, lease renewals in 2012 matched the previous year's result at around 124,000 sqm (2011: 127,000 sqm). This letting performance has meant another significant reduction of the vacancy rate, which now stands at around 11 per cent (2011: 12.4 per cent). While being a huge improvement in and of itself, the year-end result substantially exceeded our target of 11.5 per cent for 2012, too. It means that we succeeded in pushing down the vacancy rate by more than three percentage points over the past two years, 2011 and 2012. A preliminary estimate suggests that the like-for-like rental income rose by around one per cent in 2012.

The letting volume is based on more than 320 letting contracts signed in all size categories. As far as existing buildings are concerned, the largest new lettings signed in 2012 involved BASF in Mannheim (9,400 sqm), the technology firm sunways in Constance (5,300 sqm) and Mainova in Frankfurt (5,000 sqm). The most important renewals were concluded with SAP in Berlin (13,200 sqm), Siemens in Erlangen (11,000 sqm) and the State of Baden-Württemberg in Mannheim (9,200 sqm). These results are testimony to the successful work of DIC Onsite and its tenant-oriented management. We also continued to enhance the productivity of our real estate management: The organisation structure of DIC Onsite was further optimised, and by investing in a new integrated EDP platform that went live at the start of this year we boosted the efficiency of its asset management and property management processes.

The MainTor project has progressed considerably faster than expected due to major marketing successes we achieved. In August 2012, well ahead of start of construction, we sold the two construction stages 'MainTor Panorama' and 'MainTor Patio' on attractive terms in a forward deal for EUR 150 million. With two large-scale lettings of 17,000 sqm to CMS Hasche Sigle and Union Investment signed at the turn of the year, we already marketed around 35,000 sqm of commercial rental space, thereby achieving a forward commitment rate of nearly 85 per cent for the commercial sub-projects that are currently being marketed. As a result, around 60 per cent of the project volume has already advanced to the implementation stage, and certain key requirements for realising corresponding profits in the coming years are now in place.

The expansion of the institutional fund business achieved the milestones we had set ourselves. We started implementing the institutional retail fund 'DIC HighStreet Balance,' which has a planned investment volume of approx. EUR 250 million. Our first institutional fund, 'DIC Office Balance I,' already has a fund volume of approx. EUR 350 million after the acquisition of EUR 70 million worth of assets in 2012. The FFO contributions from the fund business are growing steadily. Having nearly reached EUR 3 million in 2011, they significantly increased in 2012, up to approx. EUR 4 million. The targeted fund volume for both institutional funds equals approx. EUR 700 million, the idea being to achieve the target within the next two years.

Not least due to intense sales activities near the end of the year, we sold 16 properties in a total volume of approx. EUR 155 million (2011: EUR 72 million), thereby doubling the sales volume year on year. Sales included 6 existing properties from the Commercial Portfolio worth approx. EUR 115 million and 10 properties representing co-investments (approx. EUR 40 million). The disposal of the Bienenkorbhaus property represented the single largest transaction and will contribute a sales profit of approx. EUR 3 million. In the wake of the Bienenkorbhaus sales, we successfully sold another four properties from the Commercial Portfolio at a profit during the concluding quarter, which added up to a transaction volume of approx. EUR 40 million that will probably contribute to earnings and liquidity as early as Q1 2013.
The increased demand certainly confirms the marketability of DIC's properties. The sales prices exceeded the market values most recently identified by external portfolio valuers by an average of around five per cent. The disposals enabled us at the same time to make significant debt repayments equal to more than EUR 110 million, and to use the remaining funds for attractive capital expenditures and for the expansion of our business activities.

Property acquisitions: Despite a limited supply in attractive real estate for the Commercial Portfolio, our acquisitions achieved a volume of EUR 135 million (2011: EUR 300 million). Out of the acquisition total, nearly EUR 100 million worth of real estate is earmarked for the two institutional funds of DIC. The properties acquired in 2012 will make an additional FFO contribution of approx. EUR 3 million, and largely compensate the portfolio impairment from disposals. The pro-rata portfolio volume as of the start of 2013 has remained stable year on year, totalling EUR 2.2 billion, while the real estate assets under management stood at EUR 3.4 billion.

Financing: On the whole, we financed approx. EUR 640 million in 15 transactions through 14 different German banks (including half a dozen new financing partners), in the form of either new arrangements or rollovers. This clearly demonstrates our well-established access to the debt market, and our qualified relationships with long-term financings partners. The sum total of approx. EUR 640 million breaks down into approx. EUR 250 million in financings involving the Commercial Portfolio, EUR 50 million in acquisition for our funds, as well as approx. EUR 340 million in financings for other co-investments (MainTor project refinancing, construction finance for the 'MainTor Porta' project as well as the refinancing of the Primo portfolio). A major share of the refinancing volume coming up for the proprietary portfolio (Commercial Portfolio) in 2013 has already been concluded or is covered by binding loan commitments (EUR 95 million of EUR 140 million).

By signing long-term financings we are significantly improving the debt maturity structure. The average maturity of the debt financings arranged for the Commercial Portfolio in 2012 is around 7 years. This has caused the average maturity across all debt of DIC Asset AG to improve considerably, specifically from 2.7 years (as at 30 September 2012) to around 3.5 years. The total costs of the agreed inventory financings equal around 3.25 per cent, which is substantially below the previous average cost of debt of 4.10 per cent. By the end of last year, we present cash and cash equivalents of approx. EUR 60 million. We expect to see an additional cash inflow of approx. EUR 10 million through the disposal of four properties from the proprietary portfolio at year-end whose transfer of ownership is expected in Q1 2013. This means we are starting off into the 2013 financial year with a stable financial structure and a comfortable liquidity position.

The swift progress made in our operative business, as outlined above, has arguably laid the main foundation for continued success in the financial year of 2013. With this year’s lease expiration rate of only around 4 per cent of the rental income – which marks a significant lower level compared to previous years – we feel that we have a sound basis for pushing the vacancy rate down even further. The ongoing expansion of the fund business in 2013 will be on a significant increase in fund volume for the institutional retail fund 'DIC HighStreet Balance' and additional acquisitions for our first fund, 'DIC Office Balance I.' The focus of the MainTor project will be on the actual construction as well as on the continued marketing of the sub-projects started. These were initiated with great success and will make a significant contribution to earnings in the coming years.

Publication of our financial report 2012, including a detailed outlook for the ongoing year, is scheduled for 5 March 2013. The full-length 2012 Annual Report will be available to you by 14 March 2013.

Kind regards,

Ulrich Höller (CEO) Markus Koch (CFO)

P.S.: For more details on DIC Asset AG, please visit us on the Internet at www.dic-asset.de.

Contact:
Contact:
Immo von Homeyer
Head of Investor Relations & Corporate Communications
Tel +49 (0) 69 27 40 33 86
Fax +49 (0) 69 27 40 33 69
Mailto:I.vonHomeyer@dic-asset.de