InCity AG - MoreIRSource: CBS Research AG, fairesearch, Börsenzeitung, HSH NORDBANK EV/EBITDA 2007E...

Close Brothers Seydler Research AG | 1 www.cbseydlerresearch.ag

InCity AG

InCity AG

Recommendation:

BUY (initiating coverage )

InCity promises high profitability

▪ InCity is a young company, launched at the end of 2005. The focus of

its activities is residential real estate in city-centre locations in Ger-

many offering a “lifestyle choice” for clients with high purchasing

power. The company is therefore a niche player. InCity is a pure project

developer. The capital lock-up seems limited and the profitability much

higher compared with other German real estate companies.

▪ InCity currently reports half-yearly rather than quarterly results, and did it

under German-GAAP (HGB) until the 1H07. It switched to IFRS ac-

counting rules with the release of its FY2007 figures these days. The

sales revenues of the InCity group increased by 119% to €53.4m for

FY2007 compared to FY2006. EBIT (excluding IPO costs) increased

by 152% to €7.3m for FY2007 and exceeded the company target of

€7.0m. InCity intends to start dividend payments by €0.25 per share for

FY2007.

▪ InCity has developed well but this has not been reflected in the share

price performance since the IPO in March 2007. Reasons for the rather

disappointing development are not company specific but instead clearly

lie in the US subprime crisis and its consequences. Investors are likely

to remain concerned for the next few months. But the German real es-

tate market has not deteriorated and it does not look like doing so this

year, especially not in InCity‘s niche. InCity shares therefore seem

rather cheap compared with other real estate companies based on faire-

search‘s evaluation. Our price target is €21.90 per share. The current

share price represents a discount of around 70% on the target.

The strongly growing project pipeline could lead to outstanding

RoE after tax of over 40% in 2007-2010e. We place a BUY recom-

mendation on InCity.

31st March 2008

Please notice the information on the preparation of this document, the disclaimer, the advice regarding possible conflicts of interests, and the mandatory information required by § 34b WpHG (Securities Trading Law) at the end of this document. This financial analysis in accordance with § 34b WpHG is exclusively intended for distribution to individuals that buy or sell financial instruments at their own account or at the account of others in connection with their trading activities, occupation, or employment.

Risk:

MEDIUM(-) Fair Value:

EUR 21.90 (-)

www.cbseydlerresearch.ag

Close Brothers Seydler Research AG

Phone: +49 (0)69 - 977 84 56 0

E-Mail: [email protected]

Close Brothers Seydler AG

Institutional Sales:

Germany: Uwe Gerhardt

Phone: +49 (0)69 920 54 450

France: Bruno de Lencquesaing

Phone: +49 (0)69 920 54 116

Close Brothers Seydler Ltd.

Institutional Sales:

United Kingdom: Ernie Ferriday

Phone: +44 (0)20 765 534 80

Share data: Share Price:

Market capitalisation:

Ø daily trading volume:

Performance data: High 52 weeks:

Low 52 weeks:

Absolute performance (12 months):

Relative performance (TecDax):

1 month

3 months

6 months

12 months

EUR 6.90

EUR 17.3m

2,300

EUR 9.50

EUR 6.90

-21.1%

0.8%

4.2%

4.9%

5.9%

Internet: www.incity.ag Sector: Real Estate

WKN: A0HNF9 ISIN: DE000A0HNF96

Bloomberg: IC8:GR Reuters: IC8Gn.DE

Shareholders:

Free float:

Family Peto:

Klaus Prokop:

Thomas May:

others:

20%

37.5%

33.5%

2.0%

6.9%

Management Board:

André Peto

Klaus Prokop

Supervisory Board:

Stefan Eishold

Nils Erichsen

Wilfried Widmann

InCity AG has contributed to this report, Information sourced from fairesearch – Analyst Dieter Hein

Share price (dark) vs DJEuroStoxx (1 yr)

Source: CBS Research AG, fairesearch, Deutsche Börse

Y/E 31.03., EUR m 2007 2008E 2009E 2010E

Revenues 67.4 90.0 111.0 121.0

EBITDA 7.4 11.2 16.5 20.6

EBIT 7.3 11.1 16.3 20.4

Net profit 3.0 6.2 10.3 13.5

EPS 1.26 2.46 4.12 5.40

EV/EBITDA 5.5 5.0 3.6 2.8

EV/EBIT 5.5 5.1 3.6 2.9

P/E 5.5 2.8 1.7 1.3

Source: CBS Research AG, fairesearch, company data

Key data


InCity AG

Strengths

▪ Business niche with a clear focus on a promising client group

▪ Geographic focus on residential city-centre locations

▪ Project development with standardised handling procedures

▪ The capital lockup in the project development business seems limited, as InCity

starts to sell units after the planned projects are agreed by contract

Weaknesses

▪ Young company that does not yet offer the level of transparency investors like

▪ The success of the company depends on a few people

▪ No quarterly reporting

▪ Small market cap and low free-float of 20% may be too minor for institutional

investors

Opportunities

▪ German real estate market still looks underdeveloped compared with other

European markets

▪ Growing project pipeline in an improving medium-term business environment

for the real estate sector and the German economy

▪ Expansion of business segments offers synergy potential

Threats

▪ Rise in interest rates increases funding costs

▪ Investors‘ interest in the German real estate market could weaken further

▪ As a real estate company, it is exposed to market- and sector-specific risks

▪ InCity may grow too fast

Investment Summary


InCity AG

To assess the fair value of InCity fairesearch carried out a valuation based on mul-

tiple comparisons, an earnings discount model and its WACC model. The company

focuses on residential real estate in Germany. The peer group analysed by faire-

search therefore consists of five real estate companies that also focus on residen-

tial real estate in Germany. However, the business of InCity is somewhat special: it

is a pure project developer. The business mix and focus of the specific peer group

companies includes project development too but also other operations, so the peer

group comparison is therefore somewhat limited in our view.

The peer group comparison shows that the companies‘ multiples differ considera-

bly. This could be due to differences in their business mix, strategy, prospects,

track record and free float and in market confidence in management skills. We

therefore compared InCity‘s figures with the peer group average.

The forecasts for InCity are fairesearch estimates, while the peer group forecasts

are based on consensus and market figures. Our P/E-based multiples valuation

suggests that InCity is undervalued. The target share price ranges from €9.20 for

2007e to €19.80 for 2009e, based on the peer group average. The average target

price for the 2007e-2009e period would be €14.20 per share.

The EV/EBITDA valuation indicates too that InCity is undervalued. The potential

target price ranges from €8.1 per share for 2008e to €9.6 for 2009e. The average

target price for the 2007e-2009e period would be €9.0 per share.

Business mixture limits

peer comparison

Valuation

Company Price in € Market cap €m EPS`07 EPS`08 EPS`09 P/E`07 P/E`08 P/E`09

ALTA FIDES 13.75 97 1.79 3.01 3.83 7.7 4.7 3.6

Deutsche Wohnen 18.91 499 1.81 2.29 2.80 10.9 8.3 6.8

Franconofurt 6.48 57 1.03 1.38 1.55 6.3 4.7 4.2

PATRIZIA Immobilien 4.61 240 0.65 0.85 0.92 7.1 5.4 5.0

Vivacon 14.50 289 2.79 3.09 3.12 5.2 4.7 4.7

Average 7.3 5.5 4.8

InCity 6.90 17 1.26 2.46 4.12 5.5 2.8 1.7

Based on average 9.2 13.5 19.8

Multiples comparison of major competitors (2007E – 2009E)

Source: CBS Research AG, fairesearch, Börsenzeitung, HSH NORDBANK

EV/EBITDA 2007E 2008E 2009E

ALTA FIDES 6 4.1 3.3

Deutsche Wohnen 15.1 12.4 10.1

Franconofurt 6.1 4.5 3.7

PATRIZIA Immobilien 2.7 2 1.6

Vivacon 6.9 6.6 6.2

average 7.4 5.9 5

InCity 5.5 5 3.6

based on average 9.3 8.1 9.6

EV/EBITDA comparison (2006-2009E)

Source: CBS Research AG, fairesearch, HSH NORDBANK


InCity AG

In addition, fairesearch calculated a per-share net asset value (NAV) for the real

estate portfolio of InCity. The calculated figure is a NNNAV (ie market value minus

deferred taxes on capital gains). We estimate the market value of InCity‘s real es-

tate portfolio to be around 10% above the book value. We deducted a tax rate of

30% for deferred tax liabilities on the forecast capital gains as well as some sales

commissions and other costs. The NAV evaluation is a good tool for pure real es-

tate portfolio investors with a buy-and-hold strategy. The value-added for the pro-

ject development business of InCity seems limited, and also differs considerable

for the specific peer group companies. Based on fairesearch‘s 2008 estimates, the

potential target price for InCity‘s NAV is €6.30 per share.

We also evaluated InCity using our shareholder profit model, which is an earnings

discount model. We decided to opt for this rather than a DCF model because the

cash flow of a real estate company is often strongly influenced by inventory invest-

ments and disposals. Such cash flows are particularly hard to forecast. In faire-

search‘s view, the earnings discount model is a more reliable means of valuing that

business. We calculate a fair value of €35.40 per InCity share.

One of our valuation tools is our WACC model, which is an EVA (economic value-

added) model. This model first checks whether a company generates enough oper-

ating income (including gross interest income but before interest on pension provi-

sions) to cover the costs of both pensions and financial debt. These financing costs

are deducted from the operating result, and the balance divided by the number of

shares. Finally this result is compared with the company‘s current share price. The

table below details fairesearch‘s assumptions and calculations. The WACC model

yields an average target price for 2007e to 2009e of €44.7 per share. But the cal-

culation includes some uncertainties as there is no company-specific ß available.

We took therefore the average of some other German real estate companies. The

average ß of 10 real estate companies of MDAX and SDAX were 1.11. We calcu-

lated a premium for micro-companies and assumed a ß of 1.3 for InCity.

P/NAV

2008E

ALTA FIDES 9.7 12.5 15.4 1.10

Deutsche Wohnen 35.1 36.6 38.4 0.52

Franconofurt 10.8 12.5 14.5 0.52

PATRIZIA Immobilien 4.2 5.0 6.0 0.92

Vivacon 11.4 13.8 16.3 1.05

Average 14.2 16.1 18.1 0.82

InCity 4.8 7.6 11.3 0.91

Based on average 6.3

NAV 2007E 2008E 2009E

NAV comparison (2006-2009E)

Source: CBS Research AG, fairesearch, HSH NORDBANK


InCity AG

InCity looks undervalued according to our peer group comparison based on P/E

ratios, EV/EBITDA and NAV analysis, as well as on our shareholder profit and

WACC models. The different valuation methods we used yielded fair values that

ranged from €6.30 to €67.00 per share for 2007e to 2009e. The average target

price is €21.90 per share and we have adopted this as our fair value.

€m 2007 2008E 2009E

Total Equity 10.3 15.9 24.7

Gross Finan. Debt 36.2 49.3 52.8

Pension Provisions 0.0 0.0 0.0

Capital Employed (C/E) 46.7 65.5 78.0

Cost of Capital:

Risk Free Rate 4.30% 3.94% 3.94%

Risk Free Premium 4.50% 4.50% 4.50%

Beta* 1.3 1.3 1.3

Cost of Equity (at) 10.15% 9.79% 9.79%

Tax Rate 40.00% 27.00% 22.80%

Cost of Equity (bt) 16.92% 13.41% 12.68%

Debt Rate Premium

Cost of Debt 5.38% 4.93% 4.93%

Cost of Pension Prov. 6.00% 6.00% 6.00%

Pre-tax WACC 7.97% 7.03% 7.43%

EBIT 7.3 11.1 16.3

Gross Interest Income 0.1 0.2 0.1

Interest of Pensions 0.0 0.0 0.0

Adjusted EBIT 7.4 11.3 16.4

Market Value of C/E 92.9 160.8 220.7

Gross Debt -36.2 -49.3 -52.8

Minority Interest -0.17 -0.3 -0.5

Pension Provisions 0.0 0.0 0.0

Market Value of Equity 56.5 111.3 167.4

Value per Share 22.6 44.5 67.0

AVERAGE (07E-9E) 44.7

WACC Model

Source: CBS Research AG, fairesearch, * no company specific ß available

P/E valuation 14.2

EV/EBITDA 9.0

NAV (2008E) 6.3

Shareholder profit model 35.4

WACC model 44.7

Average price per share 21.9

InCity price per share by different evaluation methods

Source: CBS Research AG, fairesearch


InCity AG

InCity shares do not look expensive relative to other real estate companies. How-

ever, the whole sector has underperformed in 2007 and 2008 to date after a strong

performance in 2004-2006. The weakness of some real estate markets, such as

the US, UK and Spain, seems to be taking its toll on institutional investors‘ interest

in the real estate market as a whole. The global financial turmoil caused by the so-

called US subprime crisis has been a disaster for real estate companies.

But the German real estate market has not deteriorated and it does not look like it

will do so this year. InCity shares therefore seem rather cheap compared with other

real estate companies.

InCity is growing strongly and expanding in its business niche. It is a very young

company, with no track record of its own; but the two members of the board, who

are the majority shareholders, brought in their former real estate business and their

business track record. Investors in InCity shares must therefore be convinced by

the skills of the management and its business model, which we assess as very

attractive: our forecasts place InCity‘s profitability much higher than that to com-

petitors and other German industrial sectors. We estimate a RoE after tax level of

between 44% to 51% for 2007 to 2010e. This is clearly above the international

threshold rate of 15%. The average target price is €21.90 per InCity share and we

have adopted this as our fair value. This represents upside potential of more than

100% from the current price per share.

Price target of €21.90

per share and RoE

above 40%


InCity AG

InCity AG is a comparatively young company. It was set up in November 2005. The

first capital increase was in July 2006 and mainly consisted of assets in kind from

the two members of the board who brought in their former real estate business and

their business track record. Another capital increase of 500,000 new shares re-

sulted from the IPO at €9.25 per share. The company has been listed at the Entry

Standard on the German stock exchange since March 2007.

The focus of its activities is residential real estate in city-centre locations in Ger-

many. InCity has stated that it specialises in the planning and construction of high-

quality properties in central urban locations and enriches the residential spectrum

with a ―lifestyle‖ aspect for clients with high purchasing power. The company is

therefore a niche player.

The company has a clear growth strategy. The IPO helped the company to gather

the funds needed to finance the expansion of business volumes and the business

model. InCity is now actively operating in four business areas: own project devel-

opment, joint venture project development, real estate services and inventory opti-

mizer.

In December 2007 InCity announced that the members of the board had acquired

another 3.74% from other shareholders. In addition, the member of the board and

other core shareholders extended the lock-up period until the end of 2008. The

company‘s main owners are the two members of the board, Andre Peto (and his

family) and Klaus Prokop, at 37.5% and 33.5% respectively. The free-float is only

20%. The shareholder structure is detailed in the chart on the next page.

Focus on residential

real estate

Company Profile

36%

31%

33%

Old buildings Listed old buildimgs New buildings

40%

23%

37%

Old buildings Listed old buildimgs New buildings

Types of buildings acquired 2006; total 34,000 sqm Types of buildings acquired 2007; total 94,000 sqm

Source: CBS Research AG, fairesearch, InCity Source: CBS Research AG, fairesearch, InCity


InCity AG

Most young companies face some problems because they lack transparency and a

track record, and in this is also the case for InCity. The company reported under

German GAAP (HGB) until 1H07 and only publishes half-year and full-year reports,

which makes it more difficult to compare it with its peer group, all of which reports

under IFRS accounting rules. International institutional investors in particular are

unlikely to be interested in investing in a company which reports under German

GAAP. InCity therefore switched from HGB to IFRS for the FY2007 report.

In addition, the company wants to switch from a stock listing at the German Entry

Standard (risk capital for young companies) to a listing on the EU-regulated mar-

ket. InCity does not currently intend to change from its six-monthly reporting peri-

ods to quarterly reporting. There may be no need to switch from a business stand-

point, as a property project‘s development period is between 12 to 18 months; but

quarterly reporting is an industry standard.

InCity split up its business into two segments by 2008: Project Development and

Real Estate Investment Services (REIS). Old sub-segment Services was restruc-

tured and belongs now to REIS.

20%

38%

33%

2%7%

Free float Family Peto Klaus Prokop Thomas May Other

Shareholder structure of InCity AG

Source: CBS Research AG, fairesearch, InCity


InCity AG

Project Development InCity‘s business focus is the planning and realisation of high-quality residential

real estate in city-centre locations in big German cities and growth regions. InCity

says it covers the complete value chain of its business: project research, real es-

tate due diligence, management and control of the value-added process, and sales

distribution. InCity is not a real estate investor and therefore does not hold a portfo-

lio of property. The acquisition of the project properties is strictly sales oriented.

InCity does only projects which development process fits into its standardised han-

dling procedures. The cost development of the projects is controlled by a database

-assisted system.

Under InCity‘s investment criteria, a property it acquires must:

▪ be marketable, as confirmed by its sales department;

▪ suit standardised project handling;

▪ have a good to very good city-centre location;

▪ pass due diligence;

▪ have potential for being extended;

Minimum return of 18%

Group structure of InCity



InCity AG

▪ have a ceiling height at least 2.75 metres, even in new buildings;

▪ have good natural light;

▪ have a potential net yield of at least 18%, according to preliminary

calculations; and

▪ gain a unanimous board decision in favour of purchase.

InCity run its business in two sub-segments: own project development and joint

venture project development.

Own Project Development

In this segment, InCity buys commercial real estate or property in underdeveloped

areas. It plans and constructs the project, refurbishing or rebuilding as necessary

to convert them to residential use. It then sells the property either in its entirety or

split into apartments, retaining all revenue and profit. The standardised handling

procedures of InCity help to realise economies of scale.

InCity acquires all properties through its own subsidiaries, whose status as limited

companies mitigates the risk for the parent group.

Joint venture project development

InCity does not buy the real estate project in this sub-segment by its own. A partner

or a common subsidiary, Gesellschaft bürgerlichen Rechts (GbR), acquires the

object. In both cases, InCity carries out one part of the value chain and the partner

the rest. The risks and returns from a specific project are shared under an agreed

ratio between the partners. InCity said it gets usually a share of 40 to 60% of the

earnings out of such a German atypical silent partnership.


InCity AG

Clients

InCity has two client target groups: owner-occupiers (about 65% of units sold in

2006) and investors (about 35%).

InCity regards its owner-occupiers as falling into two main groups, both seeking a

high-quality lifestyle in city centres: ―young seniors‖ in their 50s, both couples and

single people, who want to move back to city centres after their children have left

home; and couples or singles in their 30s who want to live in city centres. InCity

plans and constructs its projects with these core clients in mind (see section

―Central urban lifestyle housing as new trend‖ below).

The offering for investors differentiates regarding their personal annual income:

retail investors with an annual income of up to €100,000 and those with an annual

income of up to €250,000.

The retail investors are party interested in reducing their personal income tax

through real estate acquisitions. The German government subsidises the recon-

struction of listed properties by applying high annual depreciation rates. The pur-

chase of such listed properties, which are of special architectural or historical inter-

est, is therefore a very attractive way for investors and owner-occupiers to reduce

their personal annual income tax burden. However, they must buy the listed prop-

erty before InCity starts to renovate it, as they cannot otherwise enjoy the favour-

able depreciation rules. InCity therefore requires little or no own equity to finance

these projects.

The third investor group is made up of institutional real estate investors, who are

mainly interested in entire real estate projects or in acquiring a real estate portfolio.

65%

35%

Owner-occupiers Investors

Sales by client group



InCity AG

Distribution

InCity has a twin-track sales concept to sell its projects to investors: its own sales

force and third-party sales.

The company uses a wide-spread developed network of local and national brokers

for third-party sales. InCity co-operates with freelance professionals as well as with

local and national capital investment sales organisations.

InCity has set up its own selling activities through ikp21, its own Internet platform

for owner-occupiers (www.ikp21.de). This database-assisted selling activity cur-

rently focuses on the Cologne/Bonn area. More than 1,000 potential clients are

currently registered on InCity‘s database. It allows the company to contact the cli-

ent with offers tailored by size, quality and price. InCity sees its own Internet plat-

form as one of its core assets.

The ikp21 distribution network differentiates itself from the ―classical‖ real estate

sales distribution as it targets the pro-active owner–occupiers. This client group is

looking for suitable investments by the internet. Ikp21 is very successful at the Co-

logne/Bonn area. InCity said it get more as 50% of its clients which invest in

the Cologne/Bonn area by the internet platform. The target is to extend the

internet selling to other regions and to open the internet platform partly to other real

estate companies.

Prospects

Project development is InCity‘s core business. A second segment was set up in

November 2007 with the REIS segment. Project development could be split into

the two sub-segments — own project development and joint venture project devel-

opment — but the company has only released a combined revenue figure for 2006

and 2007. Thus there is a lack of historic earnings data at the level of sub-

segments. Our company earnings forecasts are at the end of this report.

InCity‘s specialised business model and its first released group figures are promis-

ing. The sales volume of the project pipeline should have tripled in 2007. If InCity

can realise a planned return of at least 18% per project, the RoE outlook for com-

ing years is excellent, especially as projects should yield returns within less than

18 months, giving it an advantage over other real estate companies in terms of

capital lock-up and interest expenses. The resulting turnover is higher than for real

estate investors. The sales department starts to sell units in the project planning

period. In the case of listed buildings, it has to sell the properties before renovation

begins.

On the other hand, InCity runs a short-term business and needs a constant supply

of real estate in attractive city-centre locations. The current local focus of InCity on

the Cologne/Bonn/Dusseldorf and Weimar/Erfurt areas is based on the business

background of the two board members, who are the majority shareholders. In par-

ticular, the Weimar/Erfurt area is not well-known as a growth area in Germany. The


InCity AG

long-term targeted expansion into new geographic markets such as Munich, Ham-

burg or Stuttgart, partly by participation in industry consolidation, therefore makes a

lot of sense in our view.

Real Estate Investment Services

InCity announced at the beginning of November 2007 that it would set up a new

business segment, REIS, alongside its core project development business. The

business model of REIS is to construct and sell real estate portfolios as a service

provider.

Real estate inventory optimizer

InCity wants to use its existing deal flow for the new segment. It can now pick up

city-centre properties for third parties which do not fulfil all the investment criteria of

its core business. The company expects to gain synergies by deploying elements

proven to work well in its core business value chain.

Target is to purchase individual properties and to assemble these into portfolios

which are sold to international institutional investors. These investors are interested

on real estate portfolios in Germany with an investment volume of €30m to €50m.

But such portfolios are mostly not available. InCity want to bundle single properties

to bigger portfolios which have to be restructured and fulfil the needs of interna-

tional institutional investors regarding the right size and real estate structure. InCity

focus on the Cologne, Bonn and Dusseldorf area for these portfolio investments

and is using its market insight there.

The development of the new business segment has been funded with €6m in mez-

zanine capital from an investor and borrowed capital. The first step has been the

acquisition of properties in the Cologne, Bonn and Dusseldorf area and bundling

them in one portfolio with a value of up to €50m. The next step is to sell the portfo-

lio to earmarked investors in the second half of 2008. InCity aims to develop and to

sell one portfolio per year.

The first project has been finished successfully. InCity sold a portfolio of seven pro-

perties in Cologne for €17m to the Danish fund Core Property Management A/S.

Services

The company offers third parties all its real-estate-related services: property re-

search, due diligence, project development and management, and construction site

supervision and control. InCity acts as a service provider in this segment and takes

on no risk or capital. InCity offers the construction supervision by its own resources

or by third party management (Allobjekt). InCity is using its own Internet distribution

platform as well to support the sale of third party properties.

Prospects


InCity AG

InCity sees an opportunity to build up a business segment that will generate addi-

tional cash flow with low risks and low equity capital. It expects projects will take

much less time to complete than in its core business, while profitability will be at a

similar level, as the deal spreads are lower but the total asset/turnover ratio is

higher.

The business model of the new segments looks interesting. But InCity has to prove

that it can set up a consistent medium-term deal flow. One deal is not enough.


InCity AG

The German residential real estate market has developed differently from those of

other European countries. Prices for residential real estate have risen strongly in

most European countries since 1998 but not in Germany, where they have re-

mained more or less unchanged over that time. Meanwhile, we have seen the

property bubble bursting in some markets, such as in Spain, Great Britain, Hungary

or Ireland. The strong expansion in housing output was driven by considerable

price increases and has led to overcapacity, resulting in a downturn in the high

property prices in former boom markets. In Germany there was no real estate pric-

ing bubble and therefore no burst.

There are some reasons for this development in Germany. Firstly, the country‘s

poor economic development has led to weak demand in the past years. Secondly,

the German government has for decades subsidised the building of new residential

properties via tax benefits. Demand for housing was huge in Germany after wide-

spread destruction in World War II. After the war, the trend was supported by

growth in the population and GDP.

In particular, after German reunification in 1990 the government had to encourage

private equity to invest in the ailing East German real estate market by offering tax

benefits. The lack of private investors and private owners had left much of former

East German real estate stock in a disastrous condition and caused a deficit in

supply. Government measures to boost the building of new residential properties

worked well – too well, indeed, as the government cancelled the tax incentives too

late, causing a deficit in demand for Germany.

The industry

Country 1998 1999.0 2000.0 2001.0 2002.0 2003.0 2004.0

Average

change per

year (%)

Hungary 100 106.1 112.3 206.9 242.5 256.5 194.8 27.8

Spain 100 112.4 129.2 148.7 174.4 204.8 241.5 20.2

France 100 109.0 120.0 127.3 142.4 162.8 188.0 12.6

UK 100 110.9 124.6 130.7 147.8 162.5 172.9 10.4

Norway 100 114.3 131.0 141.3 150.8 153.2 172.2 10.3

Ireland 100 100.0 113.9 123.1 133.4 151.2 166.3 9.5

Sweden 100 106.7 114.6 130.0 136.0 149.4 165.2 9.3

Netherlands 100 100.8 115.0 123.3 140.2 142.9 148.3 6.9

Italy 100 101.1 107.4 114.7 127.4 134.7 141.1 5.9

Poland 100 115.0 119.2 129.5 120.7 126.0 137.3 5.3

Denmark 100 107.1 113.1 120.2 123.8 128.1 134.6 4.9

Finland 100 110.6 110.1 111.0 115.4 123.2 129.3 4.2

Switzerland 100 100.1 101.0 103.0 107.0 109.5 111.7 1.7

Germany 100 99.6 101.3 103.0 104.2 103.1 102.1 0.3

European housing market price development (1998 = 100)

Source: Euroconstruct


InCity AG

General trends in the German residential real estate market

However, we see signs of a turnaround in the German residential real estate mar-

ket. On the one hand, new builds more than halved from over 500,000 in 1995 to

211,000 for 2005. The building licences for new dwellings in Germany fell by 31%

yoy to 136,000 for the first nine months of 2007. On the other hand, the German

Federal Office for the Building Trade and Regional Planning expects that the num-

ber of households will continue to increase in Germany as a result of the general

reduction in household size. Experts estimate an annual new housing demand of

340,000 units in Germany. The supply of new buildings has not met the high de-

mand in Germany for several years. This deficit should lead to increasing or at

least stable housing prices in Germany — with strong local differences, of course.

Germany had 39.2 million households in 2005, with approximately 82.7 million

household members. This marked an 11% rise in households and 3% growth in the

number of household members from 1991 levels. The average household size

decreased from 2.27 people in 1991 to only 2.11 in 2005. The German Federal

Statistical Office forecasts that this trend will continue for more than a decade and

will peak at around 41 million households in 2018. This should have a positive ef-

fect on demand for dwellings even if the population stagnates or decreases

InCity‘s strategy of focusing on residential real estate in German metropolitan re-

gions reflects a clear trend that has continued for some years of residents moving

back into the centres of the big cities.

The overall price development for apartments has been flat over the last years in

Germany, but with considerable differences between regions. The average price

for a flat in Düsseldorf increased most, by 7.7% to €290,200 for 2006. Feri Rating

& Research expects the following price development in German urban centres.

The building of new homes

more than halved

…but the number of house-

holds will continue to increa-

se in Germany

Year In mln Change

2000 38.12 0.33

2001 38.45 0.33

2002 38.72 0.27

2003 38.94 0.22

2004 39.12 0.18

2005 39.2 0.08

2006E 39.43 0.23

2007E 39.7 0.27

2008E 39.94 0.24

2009E 40.15 0.21

2010E 40.41 0.26

2015E 41.02 0.61

2018E 41.09 0.07

2020E 41.01 -0.08

Projection of number of households in Germany

Source: The German Federal Statistical Office, CBS Research AG, fairesearch


InCity AG

In addition to the forecasted population growth in urban areas, there is another

positive trend for InCity‘s business. A study conducted by market research institute

empirica indicates that the average residential space per capita will rise from 46

sqm to 56 sqm in the old German states and from 38 sqm to 55 sqm in the former

East Germany.

0

0.005

0.01

0.015

0.02

0.025

0.03

0.035

Expected annual price increase for flats in German urban centres (200?-2014)

Source: Feri Rating & Research, CBS Research AG, fairesearch

20

25

30

35

40

45

50

55

60

1993 1998 2003 2005 2010 2015 2020 2025 2030

West Germany East Germany

Space per capita in sqm

Source: empirica, CBS Research AG, fairesearch


InCity AG

InCity‘s business focus seems to place it in an ideal position to participate in these

trends. As 60% of all residential buildings in Germany are older than 30 years the

redevelopment of such buildings is a growth market, particularly in good locations,

from which InCity should benefit. We therefore expect increasing demand for resi-

dential real estate in areas where the InCity portfolio is located.

In addition, we have seen the recovery of German economy. GDP increased by

2.8% in 2006 compared with a growth rate of only 0.9% for 2005, according to the

German Federal Statistical Office. GDP growth slowed down somewhat to around

2.5% for 2007. In January 2008 the German government reduced its full-year GDP

growth forecast to 1.7%, partly as a result of turmoil on the financial markets.

The German residential real estate market has become more attractive to foreign

investors. Property prices in other European countries have increased more

strongly than rents, causing rental yield to decrease; by contrast, rental yields are

stable in Germany and offer relatively high returns on invested capital. Further-

more, prices in the German real estate market appear to offer more upside poten-

tial than in the other developed European markets, which have already enjoyed

substantial price increases. Foreign opportunity funds acquired around 700,000

housing units in Germany over the last 10 years – ie more than 70% of the transac-

tions for this period. But their share should fall in coming years, due to the real es-

tate bubble bursting in some markets and subprime-related turmoil in the financial

markets. The real estate business is currently not in favour with international inves-

tors.

Overall we believe the outlook in Germany is less bright than a year ago in terms of

both general economic development and the sector outlook but is still favourable

for the business of InCity. German GDP growth is reducing unemployment and

making the long-term investment environment more reliable. The declining supply

of dwellings and an increasing number of households in Germany should cause

real estate prices and rents to rise. That is good for the residential real estate busi-

ness of InCity.

Central urban lifestyle housing as new trend

After decades of German people leaving city-centre flats to live in the suburbs, the

trend has turned back in favour of city-centre living since the turn of the century.

There are several reasons for this trend: an estimated two-thirds of new jobs cre-

ated in Germany are in metropolitan areas and there has been a rise in the amount

of childless couples, who are less likely to require houses with gardens than fami-

lies with children are.

InCity has investigated the demands of its target clients who are willing to buy a

city-centre flat, with some interesting results. Around 75% of the interviewees

wanted a flat of over 100 sqm and more than 60% preferred a flat with more than

four rooms. The ―ideal‖ flat had an average size of 126.3 sqm and 4.2 rooms. Inter-

esting was that the average household consisted of 1.9 people.

Well positioned to be-

nefit from residential

trends

InCity is a niche player


InCity AG

Flats are more expensive in the city centre than in the suburbs. But 95% of the

interviewees were ready to pay a premium of 20% or more to live in a top city-

centre location. The clients were ready to pay a premium of 33.5% on average. On

the other hand, clients see the purchase of a flat as an investment: around 75% of

the interviewees said that an increase in the value of that investment is important

or very important.

A great majority (92%) of the interviewees who were still living in the city centre

were satisfied or very satisfied with that decision. No interviewee was less than

satisfied.

0.258

0.484

0.161

0.0650.032

0

0.1

0.2

0.3

0.4

0.5

0.6

very high high neutral low no importance

0.76

0.16

0.08

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

very satisfied satisfied neutral

0.26

0.49

0.25

0

0.1

0.2

0.3

0.4

0.5

0.6

50 to 100sqm 101 to 150sqm above 150sqm

0.043

0.435

0.305

0.13

0.087

0

0.1

0.2

0.3

0.4

0.5

10% more 20% more 30% more 50% more 100% more

Source: InCity, CBS Research AG, fairesearch Source: InCity, CBS Research AG, fairesearch

Ideal sqm per flat Readiness to pay a price premium

Importance of increase in property value Satisfaction of living in city centre

Source: InCity, CBS Research AG, fairesearch Source: InCity, CBS Research AG, fairesearch


InCity AG

Commercial real estate

Although InCity‘s business focus is on residential real estate in Germany, it has in

the past taken up some opportunities presented by commercial real estate deals.

Developments in commercial property also have an impact on it because its focus

on good city-centre locations for residential properties places it in competition for

locations with companies looking for city-centre office space.

The German commercial real estate market has been booming for several years.

Investment volume in German commercial real estate reached a record high in

2006, doubling from the previous year‘s level to €49.4bn. Investment volume in-

creased by another 20% to €59.4bn in 2007, according to Atisreal. The investment

volume in German residential real estate increased as well, by around 18% to

€15.2bn in 2007. The general interest in German real estate continued to be fairly

strong last year, despite the subprime crisis in mid-2007.

More than half of total turnover (52%) in German commercial real estate was in-

vested in office space last year. It improved its status due to positive development

in the biggest German office space locations. The share of retail properties de-

creased from 40% in 2006, which included the sale of the Karstadt real estate port-

folio of €4.5bn, to around 22% for 2007. Logistics properties accounted for 5% in

2007 with a transaction volume of around €2.8bn (€2.9bn in 2006).

Around 61% of the turnover or €36.1bn was made up of portfolio deals in 2007

compared with 62% in 2006. Investments in individual properties accounted for

€23.3bn or 39%. Around 76% of the investments in German commercial real estate

were made by foreign investors in 2006, falling to around 69% in 2007, and we

expect their share to fall further in 2008-2009.

First-rate commercial real estate and properties on long-term leases should remain

in demand. The total investments in the top six locations in Germany (Berlin, Co-

logne, Düsseldorf, Frankfurt, Hamburg and Munich) increased by 44% yoy to

€30.7bn for 2007. The best location last year was Frankfurt, where turnover

jumped by 82% to €7.9bn. Next was Berlin, with an increase of 65% to €6.9bn.

Munich was up by 37% to €6.7bn, Hamburg 29% to €5.1bn and Cologne by 25% to

€1.8bn for 2007. Only Düsseldorf saw a decline in turnover, by 7% to €2.3bn.

Investment volume rea-

ched new peak in 2007

2005 2006 % 2007 %

Commercial real estate 23.7 49.4 108% 59.4 20%

Residential real estate 15.8 12.9 -18% 15.2 18%

Total real estate 39.5 62.3 58% 74.6 20%

German real estate investments in €bn

Source: Atisreal, CBS Research AG, fairesearch

Strong demand in top

six cities


InCity AG

In 2008 the changed environment due to the subprime turmoil is likely to result in

real estate turnover falling short of the records reached in 2007. But turnover could

still be at a good level, as Germany enjoys a relatively favourable pricing level.

Rental yields could remain at the current level, with adjustments in different market

segments. Take-up volume fell last year in some European urban areas, like Lon-

don and Paris, compared with 2006; but rose by 14.5% in the nine biggest German

office property locations in the same period. The average vacancy rate decreased

by 3.5pp in 2007 for this group. The average prime rent was up by 4.7% in 2007 for

the top nine German cities.

Munich

Take-up volume jumped by 24% yoy to 834,000 sqm in Munich for 2007, the high-

est growth rate of Germany‘s nine biggest cities in terms of office properties, ac-

cording to Atisreal. The vacancy rate increased from 8.8% to 9.6% for 2007. The

prime rent was up by 5% to €31 per sqm for 2007.

Frankfurt

Take-up volume was up by 1% yoy to 629,000 sqm in Frankfurt for 2007. The va-

cancy rate came down from 14.5% for 2006 to 13.3% for 2007. The prime rent

increased by 7% to €37.5 per sqm for 2007.

Berlin

Take-up volume declined by 15% to 500,000 sqm in Berlin for 2007 compared with

the year before. That was the weakest figure of the nine biggest cities in Germany

in 2007. The vacancy rate was flat at around 8.2% for 2007. The prime rent was up

by 7% to €22 per sqm for 2007.

Hamburg

Hamburg reached a new take-up record in 2007 with 564,000 sqm, up by 23% and

the second-best growth rate of the nine top cities in 2007. The vacancy rate de-

creased slightly to 6.3% in 2007 and was again the lowest figure of the German

peer group. The prime rent was up by 6% to €25 per sqm for 2007.

2005 2006 % 2007 %

Berlin 1.75 4.2 140% 6.9 64%

Düsseldorf 0.9 2.45 172% 2.3 -6%

Frankfurt 3.2 4.3 34% 7.9 84%

Hamburg 1.7 3.9 129% 5.1 31%

Cologne 0.7 1.45 107% 1.8 24%

Munich 1.5 4.9 227% 6.7 37%

Investments in top German commercial real estate cities in €bn

Source: Atisreal, CBS Research AG, fairesearch


InCity AG

Business operations started in 2006

InCity was set up at the end of 2005. The two members of the board took part in

the first capital increase in July 2006, transferring real estate project developments

on which the two board members had worked before. InCity started its core busi-

ness, the planning and construction of high-quality residential space in urban cen-

tres, in the second half of 2006. The first reports were released under German

GAAP (HGB) accounting rules, which differentiate from the figures under IFRS

accounting rules.

The InCity group‘s sales revenues were €19.2m in its first business year regarding

German GAAP (HGB). The own project development segment contributed €7.14m

in revenue, joint venture project development €4.45m and services €7.55m.

Change in inventories was €3.35m. InCity had booked interest expenses on bank

loans as cost of materials rather than interest regarding HGB accounting, which

reduced transparency. Pre-tax profit reached €1.4m for 2006, including the costs of

the planned IPO. Pre-tax profit excluding IPO costs was €1.7m. The net profit of

the group was €0.86m for 2006. InCity had 33 employees on average in 2006.

FY2007 figures

InCity currently reports half-yearly rather than quarterly results, and did it under

German-GAAP (HGB) until the 1H07. It switched to IFRS accounting rules with the

release of its FY2007 figures these days.

Shareholder funds increased from €3.3m at the end of 2006 reagrding IFRS

accounting to €10.5m at the end of Dezember 2007, of which around €4.6m were

collected by the IPO in March 2007. InCity started an acquisition phase in 2Q07

after the IPO and bought real estate with a sales volume of €69m for its own

project development operation and a share of around €18m sales volume from joint

Fundamentals

58%

18%

19%

5%

Cologne/Bonn Weimar/Erfurt Berlin Rhine-Main/Others

44%

20%

25%

11%

Cologne/Bonn Weimar/Erfurt Berlin Rhine-Main/Others

Source: CBS Research AG, fairesearch, InCity Source: CBS Research AG, fairesearch, InCity

Floor area handled by region (2007); total 94,000 sqm Floor area handled by region (2006); total 34,000 sqm


InCity AG

venture project development. InCity reported sales volume (overall sellable vol-

ume) at €174.5m on 15 November 2007, which it intends to sell in a period of

12 to 18 months. See the chart below for the development of InCity‘s sales pipe-

line.

The company started operating in 2H06. It switched accounting to IFRS at FY2007

annual report. The only comparable figures are therefore FY2006 and FY2007

results.

The sales revenues of the InCity group increased by 119% to €53.4m for FY2007

compared to FY2006. Change in inventories were up by 39% to €14.0m. Total

revenues rose by 95% to €67.4m for 2007. Cost of materials went up by 92% to

€57.5m. Personal expenses increased by 36% to €1.9m. Other operating ex-

penses were up by 50% to €3.0m. Other operating income rose by 33% to €2.4m.

EBIT increased by 152% to €7.3m for FY2007 and exceeded the company target

of €7.0m.

Net interest expenses were up from €0.55 for 2006 to €2.3m for 2007. Pre-tax

profit (excluding IPO costs) increased by 118% to €5.0m for 2007. Costs of the IPO

in March 2007 of €0.54 were adjusted by InCity. Income tax ratio was at 40% for

2007 compared to 39% for 2006. Net profit rose by 114% to €3.05m. Net profit

after minority interests was up by 133% to €2.96m for 2007. EPS rose only from

€1.19 for FY2006 to €1.26 for FY2007 as InCity more than doubled its average

number of shares by the capital increases in 2006 and 2007. InCity intends to start

dividend payments by €0.25 per share for FY2007. RoE after tax was 43.7% for

FY2007.

RoE after tax was

43.7% for FY2007

31-Dec-06 30-Jun-07 15-Nov-07

Sales agreed by contract 6.5 23.9 53.6

Reservation volume 1.2 6.4 16.5

Volume of services agreed by contract

and outstanding 19.6 3.6 3.7

Orders in hand 27.3 33.9 73.8

Properties at the selling stage purchased

or agreed by contract 27.5 70.2 43.2

Properties at the development stage

purchased or agreed by contract 10.6 29.2 57.5

Total sales volume 65.4 133.3 174.5

Development of sales volume (project pipeline) in €m



InCity AG

Segment reporting

InCity has so far not released any segment reporting, apart from splitting up at

2006 annual report (HGB) sales revenues between project development, joint ven-

ture project development, and services. InCity announced at the beginning of No-

vember 2007 that it would set up a new business segment, REIS, alongside its

core project development business. The business model of REIS is to construct

and sell real estate portfolios as a service provider. No figures have been released

so far.

We would prefer to see a segmental split in future, identifying the profit contribution

of project development, joint venture project development and REIS.

Targets and forecasts The fresh shareholder funds from the IPO enables InCity group a growth strategy.

Management published a company target for EBIT of €7m for FY2007 which it

could exceed. InCity released some forecasts regarding its future earnings devel-

opment until the year 2010. It targets a group EBIT of €10.9m for 2008e, €16.5m

for 2009e and €20.5m for 2010e. We appreciate the detailed prognoses of the

company. We believe that InCity could fulfil its targets in light of the real estate

business cycle and its project pipeline. InCity intends a dividend pay-out ratio of

20% to 30%.

We expect an excellent earnings development from InCity into next years. Condi-

tion for it is that InCity can realise its planned sales prices. The project pipe-

€m 2007 2006 YoY

Sales revenues 53.4 24.4 >100%

Change in inventories 14 10.1 39%

Total revenues 67.4 34.5 96%

Other operating income 2.4 1.8 33%

Costs of materials 57.5 29.9 92%

Employment costs 1.9 1.4 36%

Depreciations 0.1 0.1 0%

Other operating expenses 3.0 2.0 50%

Total administrative expenses 5.0 3.5 43%

EBIT* 7.3 2.9 >100%

Financial result -2.3 -0.6 >100%

Pre-tax profit* 5.0 2.3 >100%

Tax expenses 2.0 0.9 >100%

Net profit* 3.0 1.4 >100%

Minority interests -0.1 -0.1 0%

Net profit after minorities* 3.0 1.3 >100%

Average number of shares 2.348 1.073

EPS 1.26 1.19

Income statement; IFRS

Source: fairesearch based on company data, * excluding IPO costs


InCity AG

line has increased very strongly, from a sales volume of €57.7m at the end of 2006

to €174.5m on 15 November 2007. The planned period to sell the ―sales volume‖ is

12 to 18 months.

We forecast therefore a pre-tax profit of over €10m for 2009 and 2010. Sharehold-

ers could benefit from two tax effects from 2008 onwards. Firstly, German corpo-

rate tax reform should decrease InCity‘s income tax rate from around 39% for 2007

to around 35% from 2008 onward. Secondly, InCity holds most of its development

properties in specific limited companies as subsidiaries, which allows it to realise

disposal gains from stakes almost tax-free under current German law. InCity‘s

overall tax ratio could therefore drop to even below 20% if it is able to sell parts of

its properties as a limited company.

InCity‘s new business strategy and its focus as a niche player should deliver

enough future profit potential. The capital lock-up and interest expenses in the pro-

ject development business should be limited as InCity starts to sell the units after

the planned projects are agreed by contract. An outstanding ROE after tax of up

to 50% for InCity into next years seems therefore possible. It also depends on

the dividend payout ratio.

However, investors are quite concerned about the future development of capital

markets and especially the international real estate markets, and are likely to re-

main so for the next few months. But the German real estate market has not dete-

riorated yet and it does not look like doing so this year. Our detailed InCity group

earnings forecasts are on the next page.


InCity AG

Profit and loss account 2006 – 2010e

in €m 2006 2007 yoy% 2008e yoy% 2009e yoy% 2010e yoy%

Sales revenues 24.4 53.4 119% 77.0 44% 96.0 25% 108.0 13%

Change in inventories 10.1 14.0 39% 13.0 -7% 15.0 15% 13.0 -13%

Total revenues 34.5 67.4 95% 90.0 34% 111.0 23% 121.0 9%

Other operating income 1.8 2.4 33% 3.0 25% 4.0 33% 5.0 25%

Cost of materials -29.9 -57.5 92% -74.0 29% -90.0 22% -94.0 4%

Employment costs -1.4 -1.9 36% -2.3 21% -2.6 13% -2.8 8%

Depreciations -0.1 -0.1 0% -0.1 0% -0.2 100% -0.2 0%

Other operating expenses -2.0 -3.0 50% -5.5 83% -5.9 7% -8.6 46%

Total expenses -3.5 -5.0 43% -7.9 58% -8.7 10% -11.6 33%

EBITDA 3.0 7.4 147% 11.2 51% 16.5 47% 20.6 25%

EBIT 2.9 7.3 152% 11.1 52% 16.3 47% 20.4 25%

Financial result -0.6 -2.3 283% -2.4 4% -2.7 13% -3.1 15%

Pre-tax profit 2.3 5 117% 8.7 74% 13.6 56% 17.3 27%

Taxes -0.9 -2 122% -2.3 17% -3.1 32% -3.6 16%

Tax ratio -39.1% -40.0% -27.0% -22.8% -20.8%

Net profit 1.4 3 114% 6.4 112% 10.5 65% 13.7 30%

Minority interests -0.1 -0.1 -21% -0.2 100% -0.2 0% -0.2 0%

Net profit after minorities 1.3 3.0 132% 6.2 108% 10.3 67% 13.5 31%

Average number of shares in mio 1.07 2.35 2.50 2.50 2.50

EPS 1.19 1.26 2.46 4.12 5.40

Dividend per share 0.00 0.25 0.60 0.90 1.20

RoE pre-tax 71.9% 73.9% 66.3% 67.0% 57.1%

RoE 39.8% 43.7% 46.9% 50.7% 44.6%

Profit and loss account (2006 – 2010e); IFRS



InCity AG

Balance sheet 2006 – 2010e

Assets in €m 2006 2007 yoy% 2008e yoy% 2009e yoy% 2010e yoy%

Intangible assets 0.06 0.04 -33% 0.05 25% 0.06 20% 0.08 33%

Property, plant and equipment 0.68 0.72 6% 0.80 11% 1.00 25% 1.10 10%

Financial assets 0.00 0.04 0.10 150% 0.15 50% 0.20 33%

Longterm assets 0.74 0.80 8% 0.95 19% 1.21 27% 1.38 14%

Inventories (real estate) 16.64 26.48 59% 50.00 89% 60.00 20% 70.00 17%

Accounts receivible 2.97 9.02 204% 15.00 66% 17.00 13% 18.00 6%

Receivibles from work order 2.17 1.31 -40% 1.40 7% 1.50 7% 1.60 7%

Other short-term assets 3.69 3.14 -15% 2.60 -17% 3.50 35% 4.40 26%

Receivibles from related people 0.00 1.72 0.00 -100% 0.00 0.00

Cash 2.91 15.11 419% 10.00 -34% 11.00 10% 12.00 9%

Current assets 28.38 56.78 100% 79.00 39% 93.00 18% 106.00 14%

Accrued items 0.72 0.57 -21% 0.50 -12% 0.50 0% 0.40 -20%

total 29.84 58.15 95% 80.45 38% 94.71 18% 107.78 14%

Equity and Liabilities in €m 2006 2007 2008e 2009e 2010e

Shareholders equity 3.20 10.33 223% 15.90 54% 24.70 55% 35.90 45%

Minority interests 0.10 0.17 70% 0.30 76% 0.50 67% 0.70 40%

Tax provisions 2.14 2.91 36% 4.50 55% 5.00 11% 5.50 10%

Other provisions 0.76 2.16 184% 2.50 16% 3.00 20% 3.30 10%

Provisions 2.90 5.07 75% 7.00 38% 8.00 14% 8.80 10%

Liabilities to banks 16.42 36.24 121% 49.25 36% 52.81 7% 53.08 1%

Accounts payable for goods and services 4.16 3.51 -16% 5.00 42% 5.50 10% 6.00 9%

Other liabilities 3.06 2.83 -8% 3.00 6% 3.20 7% 3.30 3%

Liabilities 23.64 42.58 80% 57.25 34% 61.51 7% 62.38 1%

total 29.84 58.15 95% 80.45 38% 94.71 18% 107.78 14%

Profit and loss account (2006 – 2010e); IFRS



InCity AG

Disclaimer and statement according to § 34b German Securities Trading Act

(“Wertpapierhandelsgesetz”) in combination with the provisions on financial analysis

(“Finanzanalyseverordnung” FinAnV)

This report has been prepared independently of the company analysed by Close Brothers Seydler Research AG and/ or its cooperation partners and the analyst mentioned on the front page (hereafter all are jointly and/or indi-vidually called the ‗author‘). None of Close Brothers Seydler Research AG, Close Brothers Seydler AG or its cooperation partners, the Company or its shareholders has independently verified any of the information given in this document. Section 34b of the German Securities Trading Act in combination with the FinAnV requires an enterprise prepar-ing a security analysis to point out possible conflicts of interest with respect to the company that is the subject of the analysis. Close Brothers Seydler Research AG is a majority owned subsidiary of Close Brothers Seydler AG (hereafter ´CBS´). However, Close Brothers Seydler Research AG provides its research work independent from CBS. CBS is offering a wide range of Services not only including investment banking services and liquidity provid-ing services (designated sponsoring). CBS may possess relations to the covered companies as follows (additional information and disclosures will be made available upon request):

▪ CBS holds more than 5% interest in the capital stock of the company that is subject of the analysis.

▪ CBS was a participant in the management of a (co)consortium in a selling agent function for the issu-ance of financial instruments, which themselves or their issuer is the subject of this financial analysis within the last twelve month.

▪ CBS has been providing investment banking and/or consulting services during the last 12 months for the company analyzed for which compensation has been or will be paid for.

▪ CBS acts as designated sponsor for the company's securities on the basis of an existing designated sponsorship contract. The services include the provision of bid and ask offers.

▪ Due to the designated sponsoring service agreement CBS regularly possess shares of the company and

receives a compensation and/ or provision for its services.

▪ The designated sponsor service agreement includes a contractually agreed provision of research ser-vices.

▪ The company that is subject of the analyses has agreed on a research service agreement with CBS.

▪ CBS has significant financial interests in relation to the company that is subject of this analysis.

CBS and/or its employees or clients may take positions in, and may make purchases and/ or sales as princi-pal or agent in the securities or related financial instruments discussed in this analysis. CBS may provide investment banking, consulting, and/ or other services to and/ or serve as directors of the companies referred to in this analysis. No part of the authors compensation was, is or will be directly or indirectly related to the rec-ommendations or views expressed. Recommendation System: Close Brothers Seydler Research AG uses a 3-level absolute share rating system. The ratings pertain to a time horizon of up to 6 months: BUY: the expected performance of the share price is above +10%. NEUTRAL: The expected performance of the share price trend is between +5% and +10%. SELL: The expected performance of the share price is below 5%. Recommendation History for the company analyzed in this report:

The following valuation methods are used when valuing companies: Multiplier models (price/earnings, price/cash flow, price/book value, EV/revenues, EV/EBIT, EV/EBITA, EV/EBITDA), peer group comparisons, histori-cal valuation approaches, discounting models (DCF, DDM), break-up value approaches or asset valuation ap-proaches. The valuation models are dependent upon macroeconomic measures such as interest, currencies, raw materials and assumptions concerning the economy. In addition, market moods influence the valuation of companies. The figures taken from the statement of income, the cash flow statement and the balance sheet upon which the evaluation of companies is based are estimates referring to given dates and therefore subject to risks. These may change at any time with prior notice.

Date Recommendation Price at change date Target Price

31st March 2008 BUY (initiating coverage) EUR 6.90 EUR 21.90


InCity AG

The opinions and forecasts contained in this report are those of author alone. Material sources of information for prepar-ing this report are publications in domestic and foreign media such as information services (including but not limited to Reuters, VWD, Bloomberg, DPA-AFX), business press (including but not limited to Börsenzeitung, Handelsblatt, Frank-furter Allgemeine Zeitung, Financial Times), professional publications, published statistics, rating agencies as well as publications of the analysed issuers. Furthermore, discussions were held with the Management for the purpose of prepar-ing the company study. The analysis was provided to the issuer prior to going to press; no changes were made afterwards, however. Any information in this report is based on data considered to be reliable, but no represen-tations or guarantees are made by author with regard to the accuracy or completeness of the data. The opinions and estimates contained herein constitute our best judgment at this date and time, and are subject to change without notice. Possible errors or incompleteness of the Information do not constitute grounds for liability, neither with regard to indirect nor to direct or consequential damages. The views presented on the covered company accurately reflect the personal views of the author. All Employees of the author´s company who are involved with the preparation and/or the offering of financial analyzes are subject to internal compliance regulations. The report is for information purposes, it is not intended to be and should not be construed as a recommenda-tion, offer or solicitation to acquire, or dispose of, any of the securities mentioned in this report. Any reference to past performance should not be taken as indication of future performance. The author does not accept any liabil-ity whatsoever for any direct or consequential loss arising from any use of material contained in this report. The report is confidential and it is submitted to selected recipients only. The report is prepared for professional inves-tors only and it is not intended for private investors. Consequently, it should not be distributed to any such per-sons. Also, the report may be communicated electronically before physical copies were available. It may not be reproduced (in whole or in part) to any other investment firm or any other individual person without the prior writ-ten approval from the author. The author is not registered in the United Kingdom nor with any U.S. regulatory body. It has not been determined in advance whether and in what intervals this report will be updated. Unless other-wise stated current prices refer to the closing price of the previous trading day. Any reference to past perform-ance should not be taken as indication of future performance. The author maintains the right to change his opin-ions without notice, i.e. the opinions given reflect the author‘s judgement on the date of this report. This analysis is intended to provide information to assist institutional investors in making their own investment decisions, not to provide investment advice to any specific investor. By accepting this report the recipient accepts that the above restrictions are binding. German law shall be appli-cable and court of jurisdiction for all disputes shall be Frankfurt am Main (Germany). Responsible Supervisory Authority: Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin, Federal Financial Supervisory Authority) Graurheindorferstraße 108 53117 Bonn

and

Lurgiallee 12 60439 Frankfurt Hamburger Allee 26 -28 60486 Frankfurt am Main www.cbseydlerresearch.ag Tel.: 0049 - (0)69 - 97 78 45 60

InCity AG - MoreIRSource: CBS Research AG, fairesearch, Börsenzeitung, HSH NORDBANK EV/EBITDA 2007E...

Documents

Transcript of InCity AG - MoreIRSource: CBS Research AG, fairesearch, Börsenzeitung, HSH NORDBANK EV/EBITDA 2007E...