Input factors for the asset or liability are not observable.

to determine the point in time at which a reclassification between the different hierarchy levels is considered to have occurred, the Company uses the time of the event or of the change in circumstances that caused the reclassification.

the measurement of investment properties at fair value is classified to level 3 of the valuation hierarchy pursuant to IFRS 13.86, due to unobservable inputs. For an explanation of the measurement, please refer to note C. Accounting and valuation parameters for investment properties. Details on the other valuation techniques and input factors used for determining the fair value of the various assets and liabilities can be found under note e and note I.1.

the result is the following fair value hierarchy:

Fair Value hierarchy level 1 level 2 level 3

Investment properties x

Financial receivables and other financial assets x

Financial debt x

Derivatives x

investment properties

Investment properties include real estate that is held to generate rental income and capital appreciation and not for the Company’s own use or for its sale in the ordinary course of business. Investment properties currently consist solely of commercial properties. Advance payments for purchases of real estate are recognised in “advance payments” under property, plant and equipment.

Investment properties are derecognised when they are sold or are no longer permanently used and a disposal is not expected to yield a future economic benefit. Any resulting gains or losses are recognised in the year of disposal or retirement. Investment properties are transferred when a change in utilisation through owner-occupation occurs or when the disposal process is initiated.

the initial recognition of investment properties is carried out at the cost of acquisition or production, including incidental acquisition costs. In subsequent accounting, investment properties are measured at fair value pursuant to IAS 40 in conjunction with IFRS 13.9. their appraisal is carried out in accordance with the International Financial Reporting Standards (IFRS), the International Standards of Valuation of Real estate for Investment purposes (“International Valuation Standards”) and the RICS Valuation - professional Standards (January 2014) of the Royal Institution of Chartered Surveyors.

Gains and losses resulting from the adjustments in fair value are reported as income or expenses under “profit/loss from fair value adjustment in investment properties” in the consolidated statement of income.

the fair values of investment properties were determined by independent external experts using recognised appraisal methods. the commissioned experts possess the relevant professional qualifications and experience necessary to conduct the appraisals. the expert opinions are based on information provided by the Company such as current rents, maintenance costs, remaining useful lives and current vacancies as well as on assumptions of the experts, which are based on market data and which were assessed by the expert based on his professional qualification, such as rental trends, discount rates and capitalisation rates. the best possible use of the respective properties is assumed when calculating the properties’ value.

the determination of the fair value of investment properties is made annually by external and independent experts and is based on appraisals conducted in accordance with international valuation standards. the valuation method used for investment properties of the DeMIRe subgroup is the discounted earnings model pursuant to the property Valuation ordinance and, if available, based on comparative or market prices. Investment properties held by the Fair Value ReIt subgroup are measured using the discounted cash flow method.

Due to the long-term nature of investment properties, the determination of the fair value of investment properties under the discounted earnings method or the discounted cash flow method is subject to uncertainties that could lead to positive as well as negative changes in value in future. Measurement under IAS 40 is based on assumptions and expectations by the Company’s management that may differ from actual developments. Should there be a significant increase in the vacancy rate or in the currently low interest rate, the result would be a decrease in the portfolio’s overall fair value. Had the Company’s management chosen the acquisition cost model as permitted under IAS 40, the carrying amounts of investment properties and the corresponding income and expense items would substantially differ.

Valuation of real estate held by the demire subgroup

Fair values for investment properties held by the DeMIRe subgroup are determined on the basis of discounted earnings models in accordance with the Federal Building Code (Baugesetzbuch), the property Valuation Regulation (Immobilienwertermittlungsverordnung [ImmoWertV]) and the Valuation Guidelines (Wertermittlungsrichtlinie [WertR]). the property’s net present value is determined based on income and expenditures taking a risk-adjusted property yield into account.

the net present value consists of the sum of the property’s earnings value and the land value based on rentable space, taking attainable local rents (excluding utilities) into account and assuming sustainable occupancy/vacancy rates, which are predominantly influenced by local market supply and demand. Attainable rental income is compared to the operating costs necessary to maintain the properties in a rentable condition. the necessary investment is dependent upon the property’s current condition and is based on the expert appraisal with regard to future investment while taking into account the actual investments required in the past, the customary maintenance costs recommended in specialist literature and expert estimates. A multiple which is based on property yields and remaining useful lives is applied to the net present value. property yields are determined by local/regional expert committees of the municipalities and are positively or negatively impacted by the property’s vacancy rate relative to the location. the land value (area * land value/m²) is added to the net present value. the sum of net present value and land value totals the fair value. All expert opinions are based on an on-site visit to the property.

the fair values of investment properties determined using the discounted earnings model equal the net values making it unnecessary to eliminate transaction costs.

the determination of the net present values depends on underlying key, unobservable input factors used in the valuation (level 3):

oFFice real estate 31/12/2015 31/12/2014

Ratio of maintenance costs to gross profit (in %) 7.26 7.78

Average maintenance costs (in euR per m2) 6.38 6.25

Range of maintenance costs (in euR per m2) 2.36 10.00 4.00 9.17

Average property yield (in %)1) _{6.09 5.82}

Range of property yields (in %)2) _{5.00 9.75 5.00 8.75}

Average residual useful life (in years) 37 40

Range of residual useful life (in years) 25 45 30 45

Ratio of management costs to gross profit (in %) 3.09 3.42

Range of ratio of management costs to gross profit (in %) 0.99 7.53 2.53 6.32

Average market rent (in euR per m2, per year)3) _{96.22 96.87}

Range of average market rents (in euR per m2, per year) 30.47 161.17 30.47 150.01 Rentable space as at balance sheet date (in m²) 470,143 269,885

Vacant space as at balance sheet date (in m²) 39,025 41,242

Value-based vacancy rate according to epRA (in %) 8.32 14.30

Average vacancy rate based on the rentable space (in %) 8.30 15.28 Range of average vacancy rate based on the rentable space (in %) 0.00 67.27 0.00 82.00

Weighted Average lease term – WAlt (in years) 6.04 6.28

1 _{the calculation of property-specific property yields is based on the average market property yield and takes into account the respective macro and} micro conditions, competing properties, tenant creditworthiness, vacancy risk and the remaining terms of the lease contracts.

2 _{property yields derived vary based on the quality, location and structure of the property.} 3 _{the determination of average market rent was based on rentable space as at December 31, 2015.}

retail real estate 31/12/2015 31/12/2014

Ratio of maintenance costs to gross profit (in %) 11.64 3.72

Average maintenance costs (in euR per m2) 6.83 5.00

Range of maintenance costs (in euR per m2) 5.00 7.50 5.00 5.00

Average property yield (in %)1) _{6.62 5.50}

Range of property yields (in %)2) _{6.00 7.25 5.50 5.50}

Average residual useful life (in years) 39 35

Range of residual useful life (in years) 35 45 35 35

Ratio of management costs to gross profit (in %) 4.08 2.96

Range of ratio of management costs to gross profit (in %) 2.86 7.40 2.96 2.96

Average market rent (in euR per m2, per year)3) _{70.63 134.41}

Range of average market rents (in euR per m2, per year) 47.07 134.53 134.41 134.41

Rentable space as at balance sheet date (in m²) 21,616 3,973

Vacant space as at balance sheet date (in m²) 3,410 0,00

Value-based vacancy rate according to epRA (in %) 12.18 0.00

Average vacancy rate based on the rentable space (in %) 15.77 0.00 Range of average vacancy rate based on the rentable space (in %) 0.00 46.70 0.00 0.00

Weighted Average lease term – WAlt (in years) 8.10 5

1 _{the calculation of property-specific property yields is based on the average market property yield and takes into account the respective macro and} micro conditions, competing properties, tenant creditworthiness, vacancy risk and the remaining terms of the lease contracts.

2 _{property yields derived vary based on the quality, location and structure of the property.} 3 _{the determination of average market rent was based on rentable space as at December 31, 2015.}