- FFO I rises significantly by 10.7% to EUR 94.0 million in Q1
- Like-for-like rent per square metre up 2.8%
- EPRA NAV rises, further appreciation expected in Q2
- LEG programme to protect and safeguard customers and employees during coronavirus takes effect
- Climate protection investments and new construction initiative remain on track
- FFO I forecast for 2020 confirmed at EUR 370-380 million
LEG Immobilien AG made a good start to the 2020 financial year. The key drivers of its positive earnings performance remain structural organic rental growth and effects from acquisitions. To date, the negative effects of the COVID-19 pandemic are minor and controllable. The company is anticipating positive business development for the year as a whole. As a leading company for affordable living, LEG offers a product that remains in demand and hence has a stable business model.
“We are well on track to achieve our financial targets for 2020. Thanks to the impressive commitment of LEG’s employees and the flexible adjustment of our processes, we are able to offer our customers secure operations and reliable services even in the difficult conditions at present. As a socially responsible company, it is also important for us to be providing targeted, effective and rapid assistance to people particularly hard-hit by the pandemia in our residential neighbourhoods and beyond with our LEG 10-point programme, ‘Together through the coronavirus crisis’,” said 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 94.0 million in the first quarter of 2020, thereby increasing by a substantial 10.7% year-on-year (Q1 2019: EUR 84.9 million). Significant positive effects resulted from increased in-place rent due to acquisitions and rent adjustments, as well as the falling cost of externally purchased services. This was offset by the higher level of staff costs, which was due to the workforce expansion for the intensification of personal customer support as well as a collective wage increase.
The operating EBITDA margin improved to 74.1% (Q1 2019: 73.0%). This ratio of EBITDA to net cold rent is a strong indicator of the company‘s operating performance. All in all, the results for the first quarter confirm the positive development in terms of operating efficiency.
In-place rent like-for-like rose by 2.8 % as against the previous year to an average of EUR 5.88 per square metre in the reporting period. This means that LEG remains a leading provider of good housing at fair prices. The like-for-like vacancy rate fell slightly year-on-year to 3.4% (Q1 2019: 3.6%).
Climate protection investments and new construction initiative continue
Total investment in the housing portfolio including new construction investment increased significantly to EUR 8.25 per square metre (Q1 2019: EUR 5.74 per square metre). The majority of the expenditure relates to modernisation measures to improve energy efficiency and value increasing investments by new rental. The increasing investment despite COVID-19 underlines LEG’s continued commitment to climate protection and pressing ahead with its initiative to create the new housing that is urgently required.
NAV per share increases
EPRA NAV (not including goodwill) amounted to EUR 106.55 per share as at 31 March 2020 (31 December 2019: EUR 105.39 per share). The value of the property portfolio corresponds to a gross rental yield of 5.1% and a value of EUR 1,356 per square metre.
It can be assumed that the general conditions in terms of supply and demand will continue even in the current environment and that demand for German residential property will remain high. Subject to the further impact of the pandemic, the percentage valuation uplift of the portfolio in Q2 2020 is therefore expected to be around the same as in the previous year (Q2 2019: 5.1%).
LEG measures to provide support during the COVID-19 pandemic take effect
A commitment to society as a whole and social responsibility are elements of LEG’s corporate philosophy that are guiding its actions during the COVID-19 crisis in particular. On 21 March 2020, LEG published a 10-point paper, “Together through the coronavirus crisis”, summarising the measures taken by the company to support customers, employees and other sectors of society (https://bit.ly/LEG10Points). Key aspects include a provision on rent deferrals of up to six months – above and beyond the statutory requirements – and the suspension of rent increases in accordance with section 558 of the German Civil Code (BGB), a voluntary waiver of terminations and evictions, and special offers for “key workers” (e.g. doctors, carers/nurses, shop workers, police and firefighters). In addition, the new “Your Home Helps” foundation has made a million euros available this year to assist tenants, households and facilities that have been affected by the coronavirus crisis in particular.
“Our measures have met with a great deal of positive feedback and serve to intensify the relationship of trust we have with our customers. While our customers require considerable consultation at present, they are also taking an extremely cautious approach to the accommodations offered in terms of payments. LEG has recently established a team of experts to provide assistance in terms of accessing the available support within LEG as well as public funding. So far, we have responded to the impact of the coronavirus by agreeing deferrals and/or instalment-based payments for tenants with only half a percent of our 136,000 customers,” explained Dr Volker Wiegel, COO of LEG Immobilien AG.
Strong balance sheet secures low risk profile
As at 31 March 2020, the average remaining term of the company’s liabilities was 8.1 years (31 March 2019: 7.5 years). Average interest costs again declined further compared with the previous year to 1.46% (31 March 2019: 1.62%). LEG does not have any material refinancing obligations between now and 2023. In the short to medium term, this means it is not reliant on developments on the financial markets, which are currently extremely difficult to predict. This contributes to a high degree of security for stable medium-term earnings and dividend growth.
Net debt in relation to property assets (loan-to-value/LTV) amounted to a low level of 38% at the end of the quarter. This serves to underline LEG’s low risk profile and continues to offer scope for financing the company’s future growth.
Earnings forecast for 2020 confirmed
Based on its performance in the first three months of 2020, LEG believes it is well positioned on the whole and is therefore confirming its FFO I forecast of between EUR 370 million and EUR 380 million. However, the voluntary temporary suspension of rent increases in accordance with section 558 BGB (rent increases to the local reference rent) in response to the coronavirus crisis and the two-year payment deferral provided for by law mean that like-for-like rental growth is now expected to be lower than the previous forecast of 2.8%. Subject to the impact of the coronavirus crisis, which cannot be conclusively assessed at present, the forecasts for the vacancy rate and the level of investment remain unchanged compared with the 2019 Annual Report for the time being.
Key figures Result of operations Q1-2020 Q1-2019 +/-
Rental income Mio. € 153,5 146,3 4,9 Net rental and lease income Mio. € 116,5 109,7 6,2 EBITDA Mio. € 109,8 104,1 5,5 EBITDA adjusted Mio. € 113,7 106,8 6,5 EBT Mio. € 85,5 -38,5 - Net profit or loss for the period Mio. € 66,5 -57,0 - FFO I Mio. € 94,0 84,9 10,7 FFO I per share € 1,36 1,34 1,5 FFO II Mio. € 93,5 83,2 12,4 FFO II per share € 1,35 1,32 2,3 AFFO Mio. € 39,3 55,0 -28,5 AFFO per share € 0,57 0,87 -34,5 Portfolio 31.03.2020 31.03.2019 +/-
Residential units 136.217 133.637 1,9 In-place rent €/qm 5,86 5,69 3,1 In-place rent (l-f-l) €/qm 5,88 5,72 2,8 EPRA-vacancy rate % 3,6 3,9 -30 bp EPRA-vacancy rate (l-f-l) % 3,4 3,6 -20 bp Statement of financial position 31.03.2020 31.12.2019 +/-
Investment property Mio. € 12.269,0 12.031,1 2,0 Cash and cash equivalents Mio. € 300,1 451,2 -33,5 Equity Mio. € 6.010,1 5.933,9 1,3 Total financing liabilities Mio. € 5.004,7 5.053,9 -1,0 Current financing liabilities Mio. € 142,7 197,1 -27,6 LTV % 38,0 37,7 +30 bp Equity ratio % 46,4 45,9 +50 bp Adj. EPRA NAV, diluted Mio. € 7.352,9 7.273,0 1,1 Adj. EPRA NAV per share, diluted € 106,55 105,39 1,1
bp = basis points
With around 136,000 rental properties and more than 365,000 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.