- FFO I increases 14.5 % year-on-year to around EUR 297 million
- Pro forma NAV at EUR 115.21 per share
- Portfolio appreciation of around 9 - 10 % expected for 2020
- Key operating indicators in-line or better than expected
- FFO I of around EUR 380 million expected for 2020
- Outlook for 2021: FFO I of between EUR 410 and EUR 420 million
- Investment campaign and acquisition of project management company Fischbach Service GmbH offer further growth potential
- Focus still on portfolio acquisitions within and outside North Rhine-Westphalia
- EUR 1,111 corona bonus for all c. 1,500 employees
- LEG ranks among the TOP 2 % companies globally in Sustainalytics
- ESG-Rating – Sustainability report awarded EPRA Gold
LEG Immobilien’s positive business performance continued in the third quarter of 2020. The main drivers behind the earnings increase are the ongoing organic rent growth, the contribution to in-place rent from acquisitions and a significantly better occupancy rate. The figures do not yet include around 6,400 units acquired from Deutsche Wohnen SE in June 2020 as their ownership did not transfer until 1 November 2020. The portfolio acquisitions completed in 2020, continued investment in existing properties, the expansion of additional services and consistently high demand for residential properties result in a positive outlook for earnings growth and portfolio valuation for the remainder of 2020 and the financial year 2021.
“LEG Immobilien AG is dealing with the Covid19 crisis very well so far. We have achieved both our financial targets and our operational objectives in the first nine months of 2020. Especially in these difficult times, all our stakeholders should benefit from this. We helped and supported our customers early on by waiving rent increases and implementing other measures, we are honouring our staff’s commitment with a special bonus and our investment campaign is focused on affordable climate protection, stronger customer orientation and moderate new construction. Our shareholders can benefit from our positive outlook for business performance in the current and coming years,” says Lars von Lackum, CEO of LEG Immobilien AG. “We will continue to pay special attention to the topic of sustainability. We feel that LEG’s positioning as a top-rated property company worldwide thanks to our current ESG rating from Sustainalytics and the EPRA Gold award for our sustainability report both honour our work to date and inspire us to achieve more,” Lackum continues.
FFO I rises significantly – moderate rent growth due to voluntary rent waiver
Funds from operations (FFO I), a key performance indicator for the company, rose significantly by 14.5 % to EUR 296.7 million in the first nine months (9M 2019: EUR 259.1 million). The increase is mainly driven by the positive effects of the rise in net rent including the effects of portfolio acquisitions.
The EBITDA margin expanded considerably to 77.5 % (previous year: 75.1 %). LEG therefore ranks among the leading providers in terms of profitability in the German residential sector.
In-place like-for-like rent rose by 2.3 % compared to the previous year to an average of EUR 5.93 per square metre at the end of the reporting period. LEG therefore still provides good quality, affordable housing for large parts of the society. This is very important to us – especially in times of Covid19.
For FY2020, like-for-like rental growth is expected to remain at around 2.3 %. This is below the guidance at the start of the year mainly due to the voluntary waiver of rent increases from March to June 2020 and the delay in our modernisation work given the two lockdowns.
The like-for-like vacancy rate declined significantly by 50 basis points year-on-year to
3.1 %, which means that LEG is approaching its structural vacancy target of around
NAV per share EUR 115.21 – further significant increase expected in Q4
NAV per share amounted to EUR 115.21 as at 30 September 2020. This corresponds to an increase of around 9.3 % on 31 December 2019 (EUR 105.39 per share). Including the dividend of EUR 3.60 per share, total shareholder return is around 13 % in the first nine months.
Net income from the revaluation of the property portfolio amounts to EUR 593.3 million. The average value of the property portfolio (including acquisitions) is EUR 1,440/sqm as at 30 September 2020 (31 December 2019: EUR 1,353/sqm). As usual, the difference compared to the portfolio’s value as at 30 June 2020 is only minor, as we only conduct the next revaluation at year end.
Given the high level of demand for German residential property and the positive operating performance, an increase in gross asset value of around 9 – 10 % is anticipated for the full year 2020.
Investment in maintenance and modernisation at record levels
Investment in maintenance and modernisation climbed by around 35 % to
EUR 262.8 million (9M 2019: EUR 194.9 million) or EUR 29.4/sqm
(9M 2019: EUR 22.3/sqm). A large portion of the company’s spending relates to improved energy efficiency of its buildings.
Another focus is value-add investment inside the apartments that enhances living comfort for our customers- a particular request of many tenants as their homes become more valuable to them in times of Covid19. For example, LEG is running pilot projects to modernise bathrooms or install additional security packages for existing customers. We are also installing modern bathrooms and floorings when renovating apartments for new rentals.
For 2020 we expect total investments of between EUR 365 and EUR 375 million for modernisation, turn costs and maintenance. While realising our investment program, we are taking advantage of the currently lower VAT rate and the higher availability of some craftsmen due to Covid19 in the interests of our customers.
Insourcing of renovation experts for customer orientation and profitability
As at 1 October 2020, LEG acquired Fischbach Service GmbH, one of its major project management partners for the renovation of vacant apartments. The company, based in Essen, has already handled the renovation of around a quarter of LEG’s vacant apartments. The new wholly owned LEG subsidiary, which is rebranded to LWS Plus, adds a fourth pillar to the existing services offering that includes energy services, multimedia and small repairs. All 25 permanent employees, who coordinate a network of around 80 affiliated firms, transferred to LEG.
The key drivers behind the acquisition are economic benefits and improved customer orientation. The business model of LWS Plus is easily scalable and the new subsidiary is expected to generate EBITDA of around EUR 5 million in 2021. The Essen-based company has a strong track record of timely and high quality delivery of its services. Going forward, LWS Plus will ensure that new LEG tenants will always be able to move into their freshly renovated apartments on time, even when workman capacity grows short due to market factors.
Strong financial profile allows room for growth
The average duration of the company’s liabilities was 7.7 years as at 30 September 2020 with average interest costs of 1.35%. Net debt in relation to property assets (loan-to-value, LTV) was at a low 36.3 % as at the end of the quarter. This figure is artificially low due to the fact that ownership of the properties acquired from Deutsche Wohnen was not transferred until the fourth quarter, while the financing was already secured in June through a combined capital increase and convertible bond issue. Adjusted for this effect, the company’s LTV is around 40 %. This highlights LEG’s low risk profile and leaves room to finance future portfolio growth.
Improved earnings forecast for 2020 – first outlook for 2021
Given the consistently positive fundamental environment and the positive earnings trend in the first three quarters of 2020, LEG is assuming an FFO I of around EUR 380 million for the full year 2020.
Depending on how the Covid19 situation develops, the company is expecting an FFO I of between EUR 410 and EUR 420 million for 2021. These figures do not yet take into account the effects of further possible portfolio acquisitions or disposals.
Overall, LEG intends to acquire around 7,000 residential units in the coming year, continuing the external growth momentum of 2020. Expanding the original regional focus beyond North Rhine-Westphalia to include other states in Western Germany has proven a success. It remains important to uphold the strict acquisition criteria and the focus on “affordable housing” as an asset class.
The company also plans to continue its investment campaign for more climate protection and living comfort in LEG’s properties with an investment budget of EUR 40 to EUR 42/sqm. LEG is expecting rent growth of around 3.0 %, highlighting the stable growth momentum of our portfolio. The EBITDA margin is to be around 75 %.
The company will continue its conservative financing strategy. The target range for its LTV remains at 40 % to 43 %.
The company’s dividend policy remains unchanged with an expected pay-out ratio of 70 % of FFO I.
|Results of operations||01.01. - 30.09.2020||01.01. - 30.09.2019||+/-|
|Rental income||Mio. €||464,5||439,8||5,6|
|Net rental and lease income||Mio. €||365,7||340,2||7,5|
|EBITDA adjusted||Mio. €||360,2||330,5||9,0|
|Net profit/loss for the period||Mio. €||656,1||488,9||34,2|
|FFO I||Mio. €||296,7||259,1||14,5|
|FFO I per share||€||4,25||4,09||3,9|
|FFO II||Mio. €||295,5||255,9||15,5|
|FFO II per share||€||4,23||4,03||5,0|
|AFFO per share||€||1,34||1,93||-30,6|
|In-place rent (l-f-l)||€/qm||5,93||5,79||2,3|
|EPRA-vacancy rate||%||3,3||3,9||-60 bp|
|EPRA-vacancy rate (l-f-l)||%||3,1||3,6||-50 bp|
|Statement of financial position||30.09.2020||30.09.2019||+/-|
|Investment properties||Mio. €||13.222,2||12.031,1||9,9|
|Cash and cash equivalents||Mio. €||848,8||451,2||88,1|
|Total financing liabilities||Mio. €||5.728,8||5.053,9||13,4|
|Current financing liabilities||Mio. €||487,3||197,1||147,2|
|Equity ratio||%||45,8||45,9||-10 bp|
|Adj. EPRA NAV, diluted||Mio. €||8.702,6||7.273,0||19,7|
|Adj. EPRA-NAV per share, diluted||€||115,21||105,39||9,3|
bp = basis point
With around 145,000 rental properties and approximately 400,000 residents, LEG is one of Germany’s leading listed housing companies. The company has seven branch offices in its home state of North Rhine-Westphalia, and is represented by personal local contacts at locations in other states in western Germany.
LEG generated income of around EUR 809 million from its core rental and lease business in the 2019 financial year. As part of the new construction campaign it launched in 2018, LEG wishes to make a social contribution towards creating both privately financed and publicly subsidised housing, and to build or acquire at least 500 new apartments per year from 2023 onwards.
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The press release is available to download at: http://leg.ag/PM-en
This publication constitutes neither a solicitation to buy nor an offer to sell securities. To the extent that we express forecasts or expectations or make forward-looking statements in this document, these statements can entail known and unknown risks and uncertainties. These statements reflect the intentions, opinions or current expectations and assumptions of LEG Immobilien AG. The forward-looking statements are based on current planning, estimates and forecasts, which LEG Immobilien AG has made to the best of its knowledge, but that are not a statement on their future accuracy. Actual results and developments can therefore differ materially from the expectations and assumptions expressed.