- FFO I climbs 13.8 % year-on-year to EUR 194.6 million
- Like-for-like rent per square metre up 2.6 % at EUR 5.90 – still representing good housing at a fair price
- NAV increases further to EUR 117.23 per share, or EUR 113.63 after adjustment for proposed cash dividend
- Full-year forecast for 2020 confirmed: FFO I expected to be in upper half of target range – acquisition targets already achieved with 7,500 units acquired – high investments in modernization and climate protection planned
- Continued support for our customers during coronavirus
LEG Immobilien’s positive business performance continued in the second quarter of 2020. The main drivers behind the earnings increase are the continued structural growth in rents, the rise in rental income due to acquisitions, and a significant improvement in operating efficiency. The figures do not yet include the acquisition of two portfolios with a total of 7,500 residential units in June 2020. The acquisition in the Flensburg region was transferred as at 1 August 2020, while the transfer of the Deutsche Wohnen portfolio is expected to take place as at 1 November 2020. Many of the acquired properties are located outside LEG’s home market of North Rhine-Westphalia. LEG is thus continuing its successful Germany-wide expansion strategy and, halfway through the year, has already surpassed its goal of acquiring approximately 7,000 residential units in 2020.
“Despite the restrictions resulting from the coronavirus pandemic, we achieved very good results in the first half of the year. We are well on track to achieve the targets set for 2020 and have already surpassed our acquisition targets. I am particularly pleased at the successful continuation of our expansion strategy. This firstly reflects our good connections on the market, and secondly the fact that we are regarded by many sellers as the best owner for the asset class of affordable housing. As a result, we can now offer good housing at fair prices for medium and low income customers in more German states and considerably increase our regional coverage,” says Lars von Lackum, CEO of LEG Immobilien AG.
Substantial growth in FFO I continues
Funds from operations (FFO I), a key performance indicator for the company, amounted to EUR 194.6 million in the first half of 2020, thereby increasing by a substantial 13.8 % year-on-year (H1 2019: EUR 171.0 million). FFO I per share was up 4.1 % year-on-year at EUR 2.82 (H1 2019: EUR 2.71).
The operating EBITDA margin improved significantly to 76.4 % (H1 2019: 74.5 %). As such, LEG remains in a leading position in terms of profitability in the German housing sector.
The increase in rental income of EUR 15.5 million or 5.3 % is primarily due to acquisitions (+ EUR 13.3 million). On top of this, there are the effects of structural organic rental growth throughout the entire housing portfolio (+ EUR 8.6 million). This was offset by the rental income lost as a result of disposals in the first half of 2019 (- EUR 6.3 million).
The in-place rent of the overall portfolio amounts to EUR 5.88 per square metre, representing a 2.7 % increase as compared to H1 2019 (EUR 5.73 per square metre). Adjusted for acquisitions, in-place rent rose by 2.6 % to EUR 5.90 per square metre. For free financed properties there was a 2.9 % increase to EUR 6.27 per square meter, while in the rent-controlled sector there was a 1.6 % increase to EUR 4.87 per square metre.
The EPRA vacancy rate decreased year-on-year from 3.9 % to 3.4 %. Adjusted for acquisitions, the EPRA vacancy rate decreased from 3.6 % to 3.3 %.
Further significant growth in value
NAV amounted to EUR 117.23 per share as at 30 June 2020 (31 December 2019: EUR 105.39 per share). The major driver for the increase was the revaluation of the property portfolio midway through the year, which identified appreciation of EUR 592.7 million. The value of the property portfolio corresponds to a gross rental yield of 4.8 % and a value of EUR 1,427 per square metre. Adjusted for the proposed dividend of EUR 3.60, which will not be paid out until the third quarter this year as a result of the Annual General Meeting being postponed (until 19 August 2020) due to the coronavirus, NAV per share comes to EUR 113.63.
The property portfolio is also set to enjoy further positive value development in the second half of the year. LEG’s portfolio is also benefiting from the catch-up effects that are being observed in many B cities, particularly those that are categorised by LEG as stable markets. The LEG market clusters are based on a number of demographic and economic factors. In stable markets, LEG anticipates ongoing excess demand and sustainable, moderate structural rental growth in the medium term.
In a challenging market environment with supply still limited overall, LEG acquired around 7,500 residential units in total in the first half of 2020. The purchases mark another step in the strategy launched by LEG over the last year to provide good housing at fair prices in more German states outside North Rhine-Westphalia. The acquired portfolios are partly located in attractive market locations in northern Germany (Hanover, Braunschweig and Flensburg) and south-western Germany (Rhine-Neckar region, Koblenz and Cologne). In many cases, they are thus adjacent to regions where LEG had already acquired initial portfolios in the previous year or has a long-established presence. By way of acquisitions, LEG aims to keep growing in its established core business of “good housing at fair prices” in the future, too.
Long-term financing with attractive terms secured
As at 30 June 2020, the average remaining term of the company’s liabilities was 8.0 years. Average interest costs are at a low 1.35 %. This contributes to a high degree of security for stable medium-term earnings and dividend growth.
In the second quarter, LEG successfully raised EUR 823 million on the capital markets with a capital increase (EUR 273 million) and a convertible bond (EUR 550 million). These funds were mainly used to finance the 7,500 acquired units.
Net debt in relation to property assets (loan-to-value/LTV) amounted to 34.4 % as at the mid-year point (31 December 2019: 37.7 %). The very low level is mainly due to the fact that the acquired properties are to be transferred only in the second half of the year, whereas the financing and thus the liquid funds had already been secured. Following the transfer of the properties and the payment of the proposed cash dividend in the third quarter, the LTV should come to around 40 % – which would put it at the lower end of the target range of between 40 % and 43 %.
“The long-term, balanced financing serves to underscore LEG’s low risk profile and continues to offer scope for external growth. It also ensures that we can adhere to our strict acquisition criteria,” says Susanne Schröter-Crossan, CFO of LEG Immobilien AG.
Continued support for customers and employees due to coronavirus
As a company that operates sustainably, LEG pays special attention to its social responsibility, to environmental and climate protection, and to good corporate governance. During coronavirus, there is a particular focus on the issue of social welfare.
For example, even after the expiry of the legal regulation as at 30 June 2020, LEG is continuing to provide the option of rent deferral or instalment-based payment until 30 September 2020 for customers who are suffering financial losses as a result of the pandemic. Thanks to the company’s extensive advisory services and expanded government benefits such as housing benefit, less than one percent of customers have needed to make use of this tangible assistance. While complying with the coronavirus regulations, LEG provided a children’s programme with a play circus and food trucks in around 50 neighbourhoods during the summer holidays. It is particularly important to the company to pay tribute to certain types of key workers. These “LEG coronavirus heroes” are therefore granted a 20 % discount on their rent for more than two years when they sign a rental agreement. The offer, which is still available until the end of September 2020, has already been used more than 220 times to date. In addition, support during coronavirus is provided through LEG’s “Your Home Helps” foundation. Several hundreds of thousands of euros have already been donated, for example to the emergency fund for local food banks and to provide learning support for disadvantaged children and young people together with the NRW branch of the German Child Protection Association.
Modernisation and climate protection stepped up
LEG currently expects to invest EUR 38 to EUR 40 per square metre in its properties in 2020 as a whole – which is considerably more than in the previous years (around EUR 30) and more than was estimated at the start of the year (EUR 31 to EUR 33). A large part of this will be spent on modernisation and energy refurbishment of the buildings, thereby providing more tenant comfort and climate protection. In addition to its ongoing climate protection programme, which provides for energy refurbishment of an average of 3 % per year, LEG is also committed to the use and further development of modern, cost-effective alternatives to traditional insulation. For example, in the medium term the company plans to modernise several thousand apartments in an environmentally friendly and socially responsible way using the modular “Energiesprong” approach as part of the German Energy Agency dena’s “Volume Deal”.
LEG has also set itself the goal of implementing as many tenant electricity projects as possible. Due to a wide range of regulatory obstacles, the electricity produced by photovoltaic systems in apartment buildings in Germany is usually fed into the public electricity grid at present. LEG is advocating for these barriers to be removed.
Earnings forecast for 2020 confirmed
In light of the good fundamental conditions it continues to enjoy, LEG is confirming its forecast for FFO I of between EUR 370 million and EUR 380 million in 2020 and expects to achieve a figure in the upper half of this target range. LEG is also confident that it will be able to further reduce the vacancy rate slightly to a level of below 3.3 %. As mentioned above, LEG will – subject to the further development of the pandemic – exceed its forecast for portfolio investment and spend between EUR 38 and EUR 40 per square metre by the end of the year. With approximately 7,500 acquired units, LEG has already surpassed its annual target of 7,000 units halfway through the year. The acquisition volume may increase further depending on whether further projects materialise over the course of the year.
Performance indicators Results of operations Q2-2020 Q2-2019 +/-
Rental income Mio. € 154,5 146,2 5,7 Net rental and lease income Mio. € 122,9 116,3 5,7 EBITDA Mio. € 707,1 653,4 8,2 EBITDA adjusted Mio. € 121,5 111,2 9,3 EBT Mio. € 669,0 670,9 -0,3 Net profit/loss for the period Mio. € 546,8 525,9 4,0 FFO I Mio. € 100,6 86,4 16,6 FFO I per share € 1,45 1,36 6,6 FFO II Mio. € 99,9 86,4 15,6 FFO II per share € 1,44 1,36 5,9 AFFO Mio. € 32,9 37,9 -13,2 AFFO per share € 0,48 0,60 -20,0 Portfolio 30.06.2020 30.06.2019 +/-
Residential units 137.525 133.694 2,9 In-place rent €/qm 5,88 5,73 2,7 In-place rent (l-f-l) €/qm 5,90 5,75 2,6 EPRA vacancy rate % 3,4 3,9 -50 bp EPRA-vacancy rate (l-f-l) % 3,3 3,6 -30 bp Statement of financial position 30.06.2020 31.12.2019 +/-
Investment properties Mio. € 13.042,9 12.031,1 8,4 Cash and cash equivalents Mio. € 1.177,6 451,2 161,0 Equity Mio. € 6.812,6 5.933,3 14,8 Total financing liabilities Mio. € 5.724,3 5.053,8 13,3 Current financing liabilities Mio. € 420,5 474,9 -11,5 LTV % 34,4 37,7 -330 bp Equity ratio % 46,4 45,9 +50 bp Adj. EPRA-NAV, diluted Mio. € 8.367,9 7.273,0 15,1 Adj. EPRA-NAV per share, diluted € 117,23 105,39 11,2 Pro forma NAV per share, diluted
(adjusted by EUR 3.60 for Q3 dividend)
€ 113,63 105,39 7,8
bp = basis points
With around 137,000 rental properties and more than 370,000 residents, LEG is one of Germany’s leading listed housing companies. The company has seven branch offices in North Rhine-Westphalia, providing personal local contact. 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 free financed and subsidised housing, and to build or acquire at least 500 new apartments per year from 2023 onwards.
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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.