Successful in the present – fit for the future: LEG Immobilien SE specifies 2022 earnings forecast within expected range and aligns strategy to changed market environment

  • FFO I increases by 12% to €374 million in the first three quarters of 2022
  • Vacancy rate at new record low of 2.1% (l-f-l; -40 bps)
  • Rent per square meter at €6.32 euros (l-f-l; +3.2%)
  • Loan-to-Value of 42.3% below maximum target
  • Earnings forecast for 2022 specified at €475 to €485 million – 2023 outlook based on adjusted business strategy
  • Rising satisfaction levels among tenants and employees
  • Serial climate protection: RENOWATE successfully completes serial refurbishment in two LEG neighborhoods and wins first external contract well ahead of schedule


In an environment of high volatility, LEG Immobilien SE remained successfully on track in the third quarter of 2022 and can specify its earnings forecast for 2022 within the expected range. The very good operating performance and the continued rise in demand for affordable housing reflect a durable, crisis-resistant business model. Tenants and employees reward LEG's reliability in difficult times with rising satisfaction ratings. At the same time, LEG is preparing for rougher times ahead by adapting its business strategy with increased focus on flexibility and capital efficiency.

"We are very pleased to have achieved our targets in the first nine months of 2022 despite the volatile economic situation and are specifying our earnings guidance for the full year within the expected range. However, the Ukraine and energy crises, rising interest rates and increased construction costs are not leaving us unscathed – we are responding by adjusting our business strategy and exercising a high degree of cost discipline. We only want to spend what we earn. In 2023, we will reduce investments per square meter to roughly the same nominal level as in 2019 – this is a scale that will enable us to continue offering good, contemporary, and affordable housing," explains Lars von Lackum, CEO of LEG Immobilien SE. To further strengthen liquidity, the company has decided not to make any further purchases and to discontinue the project development business, which was already not part of the core business.

FFO I continues to increase substantially – strong operating performance

Funds from operations (FFO I), currently the company's key financial indicator, rose to €374.3 million in the first nine months of 2022, up a significant 12% year-on-year (9M-2021: €334.2 million). Considerable positive effects resulted from higher rental income and the acquisitions successfully implemented in the previous year.

The actual rent on comparable space rose to an average of 6.32€/sqm in the period under review, representing an increase of 3.2% within twelve months.

In addition, the vacancy rate on a like-for-like basis was further reduced to 2.1% (9M-2021: 2.5%) – thus once again reaching a new low.

Net Tangible Asset (NTA) equals 163.21 per share 

The EPRA NTA per share was €163.21 as of September 30, 2022. This corresponds to an increase of

11.7% compared with the balance sheet date of December 31, 2021 (€146.10 per share), which is attributable to a significant increase in the value of the real estate portfolio in the first half of 2022. As usual, LEG's residential portfolio is revalued in the 2nd and 4th quarters. Based on the changed underlying conditions – especially a significantly more challenging interest rate environment – we expect the asset value to decline by between three and five percent in the second half of the year.

Conservative financial strategy remains hallmark of LEG even in challenging times

As of the reporting date of September 30, 2022, LEG's liabilities had an average remaining term of 6.8 years. The average interest cost was a low 1.26% (September 30, 2021: 1.23%). LEG has no significant refinancing obligations until 2024. Net debt to real estate assets (loan to value/LTV), was 42.3% (December 31, 2021: 42.1%) as of the September 30, 2022, reporting date.

To provide further liquidity in the current volatile market environment, LEG recently signed a €600 million syndicated working capital line and increased the existing commercial paper program to a total volume of €600 million (previously €500 million).

As proof of high spending discipline, investments in the portfolio per square meter decreased to €28.82 compared with the same period last year (9M-2021: 29.62€/sqm; l-f-l) despite significantly increased costs, a trend that will continue during the rest of this and next year. In the remaining modernisation measures, the company is also paying even more conscious attention than before to the financial strength of its customers.            

Outlook for 2022 confirmed

Against the backdrop of the successful business performance in the first three quarters of this year, LEG expects to achieve FFO I for the full year within the range of €475 million to €485 million. This is thus within the forecast range of 475 to 490 million euros.

As in recent years, the dividend proposal for the financial year 2022 will be based on FFO I. However, the payout ratio of 70% is subject to further market developments, particularly in view of the uncertainty surrounding property valuations.

A full overview of the 2022 outlook can be found here.

Plans for 2023 focus on capital efficiency and resilience

Under the current economic conditions, the motto for 2023 is: "Cash is king." With the approval of the Supervisory Board, the Management Board has therefore decided to adjust the business strategy for the duration of the current crisis and focus even more clearly on capital efficiency and future resilience.

First: Improving cost structures and strengthening the operating business

A key driver of the adjusted strategy is the reduction in portfolio investments per square meter. For 2023, the company is forecasting investments of 35€/sqm. Compared with the original 2022 planning for 2022 of 46–48€/sqm, this represents a real reduction of more than 40% in 2023. This figure is based on an assumed increase in construction costs of around 15%. At the same time, the company expects robust rental growth of 3.3–3.7%(l-f-l) in 2023. In addition, the implementation of a cost reduction program with a volume of more than €10 million has been initiated.

Second: Run-off of capital-intensive project development business 

The development of new construction projects is capital-intensive and – against a backdrop of rising construction costs and interest rates, uncertain subsidy conditions and increasing environmental requirements – is no longer viable, especially in the "affordable housing" segment. Given this background, people with low and medium incomes – i.e., LEG's customers – simply can no longer afford new-build rents. For LEG, project development is not part of its core business, so the run-off can be quickly implemented. Accordingly, the company will discontinue its new construction activities once projects already underway have been completed.

Third: Positioning as a net seller

In the current environment, LEG is no longer making any purchases. In addition, the marketing of more than 5,000 apartments that no longer fit LEG's portfolio is underway. However, due to the wait-and-see attitude of most investors, the company has only sold around 470 apartments to date (as of November 10, 2022). The demand is primarily for small lots or even individual buildings, which makes the sales process very time-consuming. It is encouraging to note that overall prices have been achieved at book value levels.

Fourth: Maintaining and strengthening innovative spirit and sustainability

It is important for LEG to think beyond the day and to push ahead with smart future projects while acting sustainably – especially in economically challenging times.

RENOWATE, the LEG joint venture for serial refurbishment and climate protection, is developing very encouragingly. The young joint venture has already successfully completed façade work on two of a total of 14 planned refurbishment buildings for LEG. The energy requirements of the modernised old buildings from the 1950s are being reduced by at least 90%. More than a year ahead of schedule, RENOWATE has also won its first external contract from another housing company and is thus embarking on its foreseen path as a provider of serial refurbishment throughout the DACH region.

Youtilly, LEG's digital platform for transparent service management and nationwide contracting in the fields of green care, cleaning, and winter services, is also increasingly establishing itself as an industry solution. Founded with minimal capital investment, the limited liability company (GmbH) already placed 1,400 orders within and outside LEG in the third quarter.        

LEG plans to achieve its climate protection targets despite declining investment in the modernisation of existing buildings. The very good success of LEG's energy-saving campaign, which was launched in the first neighborhoods last year, gives cause for optimism. According to the motto "costs nothing – saves a lot" the measure is easy on tenants' wallets and makes a significant contribution to reducing CO2 emissions.

Customer and employee satisfaction remain key success factors for the existing business. LEG has recently been able to significantly improve both: The Customer Satisfaction Index (CSI), for example, increased by more than six percentage points in the third quarter of 2022 compared with the zero measurement in 2020. Employee satisfaction even rose from 66 to 73% when using the Trust Index based on the renown “Great Place to Work” method. This shows that LEG is one of the best-rated employers in Germany.

LEG will continue its path as a responsible, agile, and smart company under the adjusted business strategy.

Outlook for 2023 with adjusted key figures

The adjustment of the business strategy also has an impact on the key performance indicators that LEG will guide in the future. For example, the previously most important key figure, FFO I, depends on the amount of capitalisation of investments made in the portfolio. Due to the sharp rise in financing costs, for 2023 LEG is therefore linking the company's performance to AFFO, which is independent of the level of capitalisation and thus much better reflects the earned and freely available cash flow. AFFO corresponds to FFO I adjusted for activated CapEx measures. For 2023, the company expects AFFO in the range of 110 to €125 million (expectation for 2022: 70 to €80 million).

In particular, the increased focus of the business strategy on maximising potential capital efficiency is expected to lead to a development of FFO I –now no longer relevant – below the current market expectation in 2023. Based on the economic planning, the calculated FFO I of LEG Immobilien SE for 2023 is in a range of 425 to €440 million.

In addition, the dividend distribution for fiscal year 2023 will also be based on the new cash-oriented key performance indicator system. The plan is to measure the dividend payout based on two components: Depending on the market environment, 100% of AFFO is to be distributed on the one hand and a part of the net proceeds generated from real estate sales on the other.

CEO Lars von Lackum summarises LEG's future direction as follows: "Our product – good housing at fair prices – enjoys more demand than ever and stands for stability even in difficult times. Our clear focus enables us to adapt our business strategy quickly and precisely to the volatile economic environment. This is how we are steering LEG safely into the future."

About LEG

With around 166,000 rental apartments accommodating some 500,000 residents, LEG SE is a leading listed housing company in Germany. The company maintains eight branches and is also represented at select locations with personal local contacts. From its core business of renting and leasing, LEG SE generated revenue of around €960 million in fiscal year 2021, with an average rent of 6.13€/sqm. With a share of around one-fifth social housing and its ongoing commitment towards efficient climate protection – including serial refurbishment with the RENOWATE subsidiary founded at the beginning of 2022 – LEG underscores its dedication to sustainability in various areas.



Contact Investor Relations:

Frank Kopfinger

Tel. +49 211 45 68-550

E-Mail: frank.kopfinger@leg-se.com


Contact Media Relations:

Sabine Jeschke

Tel. +49 211 45 68-325

E-Mail: sabine.jeschke@leg-wohnen.de

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