- FFO I increases 12.6 % to over EUR 334 million
- Key operating indicators on track or better
- Acquisition target achieved – latest portfolio acquisitions in Kiel, Bremen and NRW
- FFO I for 2021 expected to be at the upper end of target range of EUR 410 to 420 million
- Outlook for 2022: FFO I of EUR 450 to EUR 460 million
- LEG doubles new built target for affordable housing to 1,000 units from 2026
- Top ranking in ESG risk rating published by sustainability experts Sustainalytics
The positive business performance of LEG Immobilien SE continued in the third quarter of 2021. The key drivers of its earnings growth were the increase in net cold rent as a result of acquisitions, structural organic rental growth and a significantly improved occupancy rate. The good operating performance and consistently high demand for German residential properties provide a healthy basis for continued earnings growth and an increased portfolio valuation for the remainder of this year as well for financial year 2022. However, financial returns are only one aspect of sustainable success, and LEG is no less determined when it comes to pursuing its sustainability goals. Just a few days ago, the independent sustainability rating published by Sustainalytics assessed the company’s risk with regard to material ESG factors as “negligible” (previously: “low”), meaning that LEG now belongs to the top one percent of all companies analysed worldwide. ESG stands for the three sustainability dimensions: environment, social, and good corporate governance.
“We are delighted to have achieved or exceeded our financial and operational targets in the first nine months of 2021. LEG is optimistic for its business development for the rest of 2021 and the coming year. We are aware of our pronounced social responsibility when it comes to the current challenges in the area of housing. One part of the solution is clear: more construction. Accordingly, we are planning to complete twice as many affordable, energy-efficient apartments from 2026 onwards as previously planned,” said Lars von Lackum, CEO of LEG Immobilien SE.
Substantial growth in FFO I continues
Funds from operations (FFO I), a key performance indicator for the company, amounted to EUR 334 million in the first nine months of 2021, thereby increasing significantly by 12.6 % year-on-year (9M 2020: approx. EUR 297 million). Major positive effects resulted from higher rental income, a large part of which is due to acquisitions.
The net operating income margin (NOI margin) has expanded from 78.7 % in the comparative period 2020 to 79.9 %. The NOI margin is the ratio of net rental and lease income to net cold rent. The expansion of the margin demonstrates the efficiency gains that arise when net rental and lease income increase at a greater rate than net cold rent The NOI margin ratio is the benchmark for evaluating the company’s operating excellence.
The EBITDA margin likewise improved year-on-year from 77.5 % to 78.6 %. For the year, LEG intends to achieve an EBITDA margin of around 75 %. The company is therefore clearly on track to achieve this target even allowing for the fact that expenses in the fourth quarter are typically higher due to seasonal factors.
In-place like-for-like rent rose to an average of EUR 6.11 per square metre in the reporting period, representing a year-on-year increase of 3.3 %. The higher figure for the first nine months compared with the target of 3 % for 2021 is due to the lower starting point (base effect) resulting from the voluntary suspension of rent increases in 2020 in response to the Coronavirus.
In addition, the like-for-like vacancy rate was further reduced to 2.6 % (9M 2020: 3.3 %).
NTA per share EUR 137.40 – further significant increase expected in Q4
EPRA NTA per share amounted to EUR 137.40 as at 30 September 2021. This corresponds to an increase of more than 12 % on 31 December 2020 (EUR 122.43 per share).
Net income from the revaluation of the property portfolio amounted to EUR 1,119.8 million. The average value of the property portfolio (including acquisitions) amounted to EUR 1,655 per square metre as at 30 September 2021. As usual, the difference compared with the portfolio’s value as at 30 June 2021 is only minor, as the full portfolio is revalued semi-annually in the second and fourth quarter.
Given the high level of demand for German residential property and the positive operating performance, an increase in gross asset value of around 4-5 % is anticipated for the second half of 2021.
Acquisition target for 2021 already achieved
In a challenging environment with supply limited overall, LEG recorded portfolio growth of 6,900 units between the start of 2021 and the start of November, meaning that it has already achieved its acquisition target for the year (around 7,000 units). The largest individual acquisitions in 2021 have been two portfolios each comprising of around 2,200 units, one in the Rhine-Neckar region and the Palatinate and the other in Kiel, both of which will be transferred to LEG by year end 2021. Other acquisitions included several small to medium-sized portfolios with regional focuses in high-growth markets in North Rhine-Westphalia, in the greater Hanover region and in Bremen.
New built programme expanded
LEG intends to significantly expand its new built programme. Since 2019, the subsidiary, LEG Solution, has commenced LEG’s new built effort through redensification and purchases of development projects. In the meantime, its workforce has increased from twelve to 22 employees. In future, the company also intends to develop land with or without leasehold. The target of 500 newly completed apartments annually will be doubled to 1,000 units annually from 2026 onwards. The new apartments will combine modern living comfort with high energy standards while remaining affordable. To achieve its new target, LEG will cooperate with the renowned family-owned company Goldbeck, one of the European market leaders for serial and modular construction. With this initiative contributes towards creating both privately financed and publicly subsidised housing where it is needed the most.
Financing secured at attractive long-term conditions
As at 30 September 2021, the average duration of LEG’s liabilities was 7.4 years. Average interest costs were low at 1.23 % (30 September 2020: 1.35 %). This provides a stable basis for earnings and dividend growth.
Net debt relative to property assets (loan-to-value/LTV) amounted to 38.0 % as at 30 September 2021 (31 December 2020: 37.6 %), and thus remained well below the target limit of 43 %.
Sustainable business and action: ESG targets for 2022 already defined
Applying ESG criteria is rooted in LEG Immobilien SE’s DNA.
For the second time, LEG has defined ambitious and individually measurable short-term and long-term targets for the coming financial year that will be reflected in the remuneration paid to the Management Board and members of senior management.
One important environmental target is modernisation to reduce CO2 emission. With the projects that are scheduled for completion in the coming year, the company intends to save at least 4,000 metric tons of CO2 based on modernisation projects. In the long term – for the period from 2022 to 2025 – LEG has set itself the target of reducing its climate-adjusted CO2 emissions in kilograms per square metre by 10 %.
To this end, the company has earmarked an annual investment volume of around EUR 110 million for energetic refurbishment projects alone. In addition to financial returns and customer preferences, the company’s investments will take into account the “CO2 return” to ensure that the planned use of funds always achieves the optimal outcome in terms of climate protection.
In light of the considerable demand for skilled professionals in Germany, a high level of employee satisfaction is exceptionally important to LEG to help it attract the most talented employees. In terms of social targets, the company is therefore aiming to achieve a Trust Index of at least 66 % in the employee survey that is scheduled for 2022 – this represents a top score within the real estate industry. Calculated using the renowned Great Place To Work method, the Trust Index is a recognised measure of employee satisfaction.
The company is proud to have been recognised for the third time in the 2021 edition of the “Germany’s best training organisations” study conducted by the business magazine Capital in conjunction with the talent platform Ausbildung.de.
LEG has adopted a long-term social target of a customer satisfaction rate of more than 70 %. The customer satisfaction index (CSI) is measured using a representative anonymous customer satisfaction survey. A CSI of 70 would be the highest among peers in the German real estate industry.
LEG’s independent foundations, the “Your Home Helps” foundation and the LEG NRW Tenants’ Foundation, are inseparable elements of the company’s social commitment. In the current financial year, they have already initiated 17 new projects with 24 partners at charities and municipalities and held 25 neighbourhood events for tenants of all age groups. In a combined effort, the two foundations also supported tenants who were hit especially hard by the catastrophic floods in Western Germany in summer 2021.
The afore mentioned new built initiative also contributes to LEG’s continued positive development from an ecological and social perspective. As such, LEG is expressly supporting the efforts of state and federal politicians to encourage more new construction.
As an indicator of good corporate governance, LEG is again seeking to stabilise its ESG risk rating with the sustainability agency Sustainalytics and maintain a rating within the negligible risk range, which has been achieved recently for the first time thanks to the significant improvements made in the current year.
You can find further details on these ESG-related topics here.
Positive earnings forecast for 2021 and 2022
Given the continued positive fundamental data and the positive earnings trend in the first three quarters of 2021, LEG expects to reach an FFO I for the year as a whole at the upper end of the guidance range of EUR 410 to 420 million.
In 2022, the company expects to generate FFO I of EUR 450 to EUR 460 million not yet taking into account the effects of further potential portfolio acquisitions or disposals.
Overall, LEG intends to acquire another c. 7,000 residential units in the coming year, continuing the external growth momentum of the previous years.
The company is also set to continue its investment initiative for more climate protection and improved living comfort in LEG’s properties with an investment budget of EUR 44 to EUR 46 per square metre. In its operating activities, LEG is assuming rent growth of around 3.0 %, highlighting the stable growth momentum of its portfolio.
The company also remains committed to its conservative financing strategy, keeping its LTV target unchanged at a maximum of 43 %.
The company is also retaining its dividend policy and intends to distribute 70 % of FFO I to its shareholders.
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 861 million from its core rental and lease business in the 2020 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. From 2026 onwards the number of newly build or acquired apartments will be increased to 1.000 units per year.
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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.