Letter to shareholders

Michael Zahn, Chief Executive Officer (Picture)

Dear shareholders,

2009 was a very special year for Deutsche Wohnen in many ways. We were able to successfully finalise the restructuring initiated after the acquisition of the GEHAG Group by realising considerable synergy and earnings potentials. With the funds from the capital increase, we have significantly reduced the debt position (Loan to value ratio) to 61.5 %, while re-negotiating bank loans amounting to EUR 900 million. The business model of Deutsche Wohnen has recently proved to be strong in a very tense market situation.

I will address the individual points in more detail later on. To begin with, however, I would like to present to you the most important figures of the past fiscal year and show you that your company has accomplished something special.

Excellent operative results

In the fiscal year 2009, Deutsche Wohnen was able to improve all essential key figures in comparison with the previous year, even against the backdrop of an unusually severe economic crisis.

The rental business was able to overcompensate for the reduction of assets resulting from disposals. With a rent increase of 3.1 % and a vacancy rate reduction by 34 % compared with the previous year, we are clearly ahead of the competition. These achievements are especially impressive against the backdrop of intense cost savings realised in the asset management of EUR 25.0 million compared to the previous year. In the sales business, we are far ahead of our own targets with gross proceeds of just under EUR 86.0 million and a gross margin of 22.8 % (previous year: 17 %). The debt redemption of the Group initiated in 2008 resulted in a discharge on the interest side of EUR 9.0 million. Altogether, the turn-around has been successfully completed, i. e. taking into account one-off expenses, the negative net result for the period in the amount of EUR 13.3 million is almost in balance.

The key indicator "Funds from Operations“ (FFO), which is important for the evaluation of the earning power of a property company and reflects the recurring, sustainable business results, could be clearly increased by almost one-third from EUR 0.99 per share in 2008 to EUR 1.32 per share in 2009 (or EUR 0.43 per share based on the outstanding number of new shares of 81.8 million after the increase in capital).

The increase in capital carried out in October of 2009, which generated gross issue proceeds of just under EUR 250.0 million, played a decisive role for the improvements. We are proud that in an environment of turbulent stock markets, the share issue was clearly oversubscribed with 132 % – a clear confirmation of our efforts from you, our shareholders.

Strategy of sustainability

The strategic corporate governance of the Deutsche Wohnen Group is based on competence, transparency, and sustainability. This shows in many of our activities. In the area Investor Relations, for example, we count on continuous investor care and high transparency in communication. Our operative activities are characterised by continuity and sustainability. The development and promotion of the next generation plays an important role in our personnel policy - quite a number of our former trainees work in leading positions for Deutsche Wohnen today.

We hope to have taken another step towards improving the transparency and readability with this financial report, which we present as a two-part report this year – the financial part on the one hand, and a magazine part on the other hand.

Taking advantage of growth opportunities

Ladies and gentlemen, as you can see, we have mastered a demanding year. We are confident that we will successfully meet the challenges lying before us and make optimal use of the opportunities.

The housing sector is facing great demographic and ecological challenges. The necessary investments in the energetic building rehabilitation and in barrier-free living require immense investments, which our industry cannot provide by its own means. Increased equity requirements combined with more restrictive bank lending will reinforce the competition for equity resources.

The financial basis of the company was significantly improved through the successful procurement of gross funds of EUR 249.5 million. The repayment of loans in the amount of almost EUR 300 million and the restructuring of another EUR 900 million created a very sound financing structure. We have reached our operative goals in the last two years; strategically, we were able to considerably stabilise the dependence of the profit development on disposals in favour of a business model focused more strongly on the management of the holdings.

We have created an integrated, efficient, and highly innovative group and thus proved our competitiveness. In summary, we see ourselves well positioned on the market in order to continue to generate sustainable growth. In this process, we will act very selectively: Growth is to be realised especially in our current core markets, but also in new prospering markets, as far as a minimum volume is attainable.

The property features must guarantee sustainable and economic generation of rent. An acquisition must improve the profitability and the cash flow profile of the company. In this process, we want to stabilise the debt ratio on the current level.

The capital market increasingly recognises our efforts. In the past year, the price of your share increased by 29 % and thus more strongly than comparable indices (SDAX, EPRA Germany, EPRA Europe).

I would like to thank you, our shareholders, for your confidence.
Please accompany us further on our exciting growth path – it is worth it!

Sincerely,

Michael Zahn, Chief Executive Officer (Signature)

Michael Zahn
Chief Executive Officer

My Annual Report

Rent increase by 3.1 % compared with the previous year

Reduction of the debt position to 61.5 %

EUR 249.5 million gross issue proceeds through capital increase

Increase of the share price by 29 %