- FFO I rises significantly by 7.0% in the first nine months of the year to EUR 259.1 million
- Pro-forma NAV at EUR 100.52 per share
- Portfolio appreciation of around 3% envisaged for Q4
- Like-for-like rent per square metre develops well, up +2.9% as forecast
- Around 5,700 residential units acquired already in 2019 – potential for further external growth thanks to strong balance sheet
- FFO I forecast for 2019 confirmed: (EUR 338 to EUR 344 million)
- FFO I forecast for 2020 raised thanks to positive effects from acquisitions and early refinancing (EUR 370 to 380 million up from EUR 356 to 364 million)
- LEG strengthens social involvement and establishes foundation for social projects with a volume of EUR 16 million
The positive business performance of LEG Immobilien continued in the third quarter of 2019 as well. Key drivers of the upturn in profitability remain structural organic rental growth, a further increase in operating efficiency and effects from acquisitions. Prospects for profit growth and portfolio appreciation in the year as a whole also remain positive. The equity resulting from the early conversion of the 2014/2021 convertible bond creates financial scope for further growth.
“Our systematic growth strategy is paying off. Despite many regulatory challenges, the performance of our management platform and the quick succession of valuable acquisitions makes us optimistic about the future. We are also stepping up our focus on investment in new housing as a way of helping ease housing markets. We are taking corporate responsibility to establish a new foundation that centres on diverse social projects related to people’s living situations”, said Lars von Lackum, CEO of LEG Immobilien AG.
Growth in FFO I continues
Funds from operations (FFO I), a key performance indicator for the company, rose to EUR 259.1 million in the first nine months of 2019, representing a 7.0% year-on-year increase (9M-2019: EUR 242.2 million). Based on the weighted number of shares, the FFO per share was up 6.7% on the previous year’s figure at EUR 4.09 (previous year: EUR 3.83).
The operating EBITDA margin improved substantially to 75.1% (previous year: 73.4%), meaning that LEG remained one of the most profitable companies in the German housing sector. As a result, the target of an increase in the EBITDA margin in 2019 (around 73%) can be confirmed despite cost inflation and the higher expenses typically associated with the closing quarter.
In the reporting period, in-place rent rose by 2.9% year-on-year on a like-for-like basis to an average of EUR 5.82 per square metre. This means LEG continues to provide good, affordable housing for broad sections of society. Like-for-like rental growth is expected to amount to around 3.0% for 2019 as a whole. In particular, LEG has guaranteed its tenants that it will review the affordability of modernisation investments more closely as part of the existing hardship clause and that it will not take opportunities to increase rents where the need for this has been proven. Despite slightly higher fluctuation due to modernisation, the like-for-like vacancy rate remained largely stable year-on-year at 3.6%. The vacancy rate is also expected to remain stable across the year as a whole.
Further significant NAV growth anticipated in Q4
Pro-forma NAV (not including goodwill) amounted to EUR 100.52 per share as at 30 September 2019. This corresponds to an increase of 7.6% on the end of the previous year (31 December 2018: EUR 93.40 per share). Including the distributed dividend of EUR 3.53 per share, the total return for shareholders in the first nine months of the year was 11.4%. The major driver for the increase was the revaluation of the property portfolio at the mid of the year, which identified average appreciation of 5.1% or EUR 550.2 million. The value of the property portfolio (excluding the sales portfolio) corresponds to a gross rental yield of 5.3% and a value of EUR 1,295 per square metre.
Based on the high level of demand for German residential property and the good operating performance, further positive value development is forecast for the second half of the year. LEG’s portfolio is also benefiting from the catch-up effects in many B cities.
Accelerating external growth
Against the backdrop of a challenging market environment, with overall liquidity remaining low, LEG has already acquired portfolios with a total of around 5,700 residential units in the current financial year, most of which will be recognised in profit or loss in 2020. A few smaller deals are still in the pipeline. Despite a substantial sale of non-core assets with 2,700 residential units, this means that LEG is set to remain a net buyer in 2019 while also enjoying better portfolio quality.
Strong financial position provides flexibility for acquisitions; planned early refinancing strengthens the FFO profile
As at 30 September 2019, the average remaining term of the company’s liabilities was 7.3 years. Average interest costs are 1.64%. The early refinancing of loans totalling around EUR 340 million should result in an additional reduction of average interest expenses, while simultaneously extending loan maturities.
Net debt in relation to property assets (loan-to-value/LTV) amounted to a low level of 36.3% at the end of the quarter. This serves to underline LEG’s low risk profile and continues to offer scope for financing the future portfolio growth.
Dividend proposal anticipates rising dividends despite significantly higher number of shares
The Management Board and Supervisory Board propose a rising dividend of EUR 3.60 per share for the current 2019 financial year. The substantial rise in the number of shares as a result of the early conversion of the 2014/2021 convertible bond means that the planned dividend is 11.4% higher than in the previous year.
Holistic approach to social responsibility
LEG has made a clear commitment to social responsibility. The company is establishing a new EUR 16 million foundation to represent a key building block of its future social involvement. Under this project, LEG places particular value on looking at things from its customers’ point of view and offering help where it is really needed. Problems will be addressed by means of sustainable, long-term social work, in particular through cooperation with professional, charitable partners. Projects will focus on helping children living in challenging circumstances, advising on financial issues (in particular debt counselling), supporting the elderly in their daily lives, care for families and providing advisory services and support for illnesses such as addiction.
Just as previously, LEG tenants can apply at the LEG Tenant Foundation for integrative tenant parties and timely, short-term financial assistance, for example in the case of unexpected loss or damage that occur through no fault of their own.
Other elements of the holistic approach include setting up a Group-wide customer advisory board, which aims to further strengthen tenant integration and their interests.
Earnings forecast for 2019 confirmed and raised for 2020
In light of the good fundamental conditions it continues to enjoy, LEG is confirming its forecast for FFO I of between EUR 338 million and EUR 344 million in 2019, although it currently expects to be on the lower end of this range on account of the substantial number of sales made. For 2020, the company anticipates FFO I of between EUR 370 million and EUR 380 million (previously EUR 356 to EUR 364 million), including the planned positive effects from the guaranteed acquisitions and refinancing.
With around 131,000 rental properties and more than 350,000 residents, LEG is one of Germany’s leading listed housing companies. In North Rhine-Westphalia, the company is represented with eight branch offices and with personal contacts on site. In the 2018 financial year, LEG generated income of around EUR 767 million from its core rental and lease business. As part of the new construction campaign it initiated in 2018, LEG intends to make a social contribution to the creation of both privately financed and publicly subsidised housing and to construct or acquire at least 500 new apartments every year from 2023 onwards.
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The press release is available to download at http://leg.ag/Q3-2019-e
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.