LEG Immobilien SE: Strong increase in profit and value growth in first half of year – FFO I for full year expected to be at the upper end of the target range – support for flood-hit regions
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· *Deeply moved by people’s misfortune after catastrophic flooding – LEG foundations’ emergency flood fund offers support – low financial impact on company *
· *FFO I climbs around 12 % to EUR 218.2 million*
· *Vacancy rate is now only 2.5 % (l-f-l) *
· *Operating targets all on track*
· *EPRA-NTA reaches EUR 135.85 per share – greatest value growth in a half-year period since IPO*
· *FFO I for 2021 expected to reach upper end of target range of EUR 410 to 420 million*
LEG Immobilien SE continued its positive performance in the second quarter of 2021. The key driver of its strong earnings performance was the increase in net cold rent because of acquisitions, structural organic rental growth and the much-improved occupancy rate. For the full year 2021, the company anticipates further positive business performance and an FFO I towards the upper end of its target earnings range of EUR 410 to 420 million. However, recent weeks have been influenced by the severe floods in parts of North Rhine-Westphalia and Rhineland-Palatinate and the concern for affected tenants and employees.
“LEG continues to grow. In the first six months, we have significantly increased our earnings once again. We expect to achieve all the targets we have set ourselves for 2021. However, in light of the suffering caused by the catastrophic floods in Western Germany, which have shocked us all, we are currently focused on supporting affected customers and employees,” says Lars von Lackum, CEO of LEG Immobilien SE.
In addition to the current half-year results, this press release therefore also describes the company’s response to the floods.
*Substantial growth in FFO I continues
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Funds from operations (FFO I), a key performance indicator for the company, amounted to EUR 218.2 million in the first half of 2021, thereby increasing by a substantial 12.1 % year-on-year (H1 2020: EUR 194.6 million). Significant positive effects resulted from increased net cold rent, which is largely due to acquisitions. This was partially offset by the increase in staff costs, driven by among other things a collective wage increase and a greater headcount.
The net operating income margin (NOI margin) improved from 80.0 % in the comparative period to 81.3 %. The NOI margin is the ratio of net rental and lease income to rent development. The widening of the margin demonstrates the efficiency gains that arise when net rental and lease income increases at a greater rate than rent development. The NOI margin is the benchmark for evaluating the company's operating excellence.
The EBITDA margin likewise improved year-on-year from 76.4 % to 77.2 %. For the full year 2021, LEG continues to expect an EBITDA margin of around 75 %. The company is clearly on track to achieve this target.
The in-place rent increased to an average of EUR 6.09 per square metre on a like-for-like basis during the reporting period. The company therefore expects to achieve the targeted 3 % rent increase for the full year 2021. The rent increase is partially due to the base effect resulting from the company’s voluntary rent waiver during the first lockdown in the previous year. In addition, the like-for-like vacancy rate was further reduced to 2.5 %
(Q2 2020: 3.3 %).
*Greatest value growth in a half-year – optimistic for the year as a whole*
The company reports the net asset value of its properties in terms of NTA (net tangible asset value). The EPRA NTA amounted to EUR 135.85 per share. The major driver for the increase was the revaluation of the property portfolio at mid- year, which resulted in an appreciation of more than EUR 1.1 billion (comparative period of 2020: EUR 0.6 billion). This equates to a 7.5 % valuation uplift in the first half of the year alone and thus constitutes the greatest appreciation within a half-year period since LEG’s IPO in 2013. Despite this strong value growth in the first half of 2021, LEG expects further valuation potential in the second half given the positive operating performance and ongoing high demand for German residential property.
The average value of the property portfolio (including acquisitions) as at 30 June 2021 was EUR 1,641/sqm (31 December 2020: EUR 1,503/sqm). The portfolio’s gross rental yield amounted to 4.4 %.
*Portfolio acquisitions on track *
In a challenging market environment with limited supply overall, LEG has secured around 4,000 units to transfer into its ownership in 2021 as of the beginning of August. The company is therefore on track to achieve its acquisition target of 7,000 units. The largest individual acquisition was a portfolio of 2,200 units from Deutsche Wohnen at eleven locations in the Rhine-Neckar region and the Palatinate, which further expand LEG’s market presence in South-Western Germany. Ownership will transfer on 31 December 2021. Other acquisitions in the first half of the year included small to medium-sized portfolios with regional focuses in high-growth markets in North Rhine-Westphalia, such as Düsseldorf and Cologne, as well as neighbourhoods in the greater Hanover region.
*Financing secured at attractive terms with long tenors*
As at 30 June 2021, the average remaining term of LEG’s liabilities was 7.66 years. Average interest costs are at a low 1.24 %. This contributes to a high degree of security for stable earnings and dividend growth.
The successful issue of LEG’s first sustainable corporate bond on 23 June 2021 with a volume of EUR 600 million contributed to the company’s long-dated and balanced financing structure. The funds will be used to (re)finance social and environmental investments and projects. The 10-year bond with a coupon of 0.750 % p.a. met with strong investor interest. The previously established sustainable financing framework paves the way for further sustainable financing activities in the future.
Net debt in relation to property assets (loan-to-value/LTV) amounted to 36.4 % as at 30 June 2021
(31 December 2020: 37.6 %), well below the target limit of 43 %. After payment of the purchase prices for the notarised acquisitions in the second half of the year, the pro forma LTV will rise to c. 39%.
*Sustainable business and action is an ongoing topic*
Compliance with ESG (environment, social, governance) criteria is an ongoing focus for LEG Immobilien SE’s activities. In its sustainability and decarbonisation strategy published on 11 June 2021, the company described in detail its commitment to achieving climate neutrality by 2045 (Detail | LEG (leg-se.com)).
Modernisation to improve the energy efficiency of the portfolio is one of the key requirements for achieving LEG’s environmental targets. At EUR 180.5 million or EUR 19.14 per square metre in the first half of 2021, the company has again spent significantly more on the maintenance and modernisation of its properties than in the same period of the previous year (EUR 17.65 per square metre). These figures do not include investments in new construction activity. When planning its investment budget, LEG will in future consider the “climate return” to be equally important as the return on capital. For 2021, LEG intends to complete energetic modernisation in at least 3 % of its portfolio. The company is confident of achieving this target.
*Support for tenants and employees affected by flooding *
In response to the catastrophic floods in Western Germany, the two LEG foundations have stepped up their crisis work. In addition to ongoing coronavirus measures, they established an emergency flood fund of initially
EUR 250,000 for tenants who have lost their belongings in the floods.
The company is also supporting its customers directly by providing emergency aid, accommodation in temporary housing, clear-outs of tenants’ flooded basements and homes, and catering via food trucks. Affected employees are likewise receiving financial support of up to EUR 2,000 and are released from work for up to two weeks to clean up their homes.
*Flooding affects about 200 LEG units*
In total, about 200 LEG residential units and therefore the homes of around 500 tenants have been damaged by the flood with a local hotspot in Bad Neuenahr/Ahrweiler. Most of the measures to repair flood damage have been taken care of already. This mostly relates to drying out basements and lift shafts and restoring outdoor facilities and parking spaces. Around 30 flooded heating systems are currently also being inspected and replaced if necessary, so that they can be used safely again in fall and winter. 35 residential units are uninhabitable after flooding, also mainly in Bad Neuenahr/Ahrweiler. The public electricity and gas supply is still down here – it is currently difficult to predict how long it will take to restore these homes. The costs incurred by the company for repairs, alternative accommodation and lost rental income will be covered almost entirely by LEG’s natural hazards insurance. There are also financial costs for clear-out work, for which the company is making around
EUR 1 million available, including providing targeted support for customers without household contents insurance. Overall, the impact of the flooding on LEG properties is manageable both financially and operationally.
LEG CEO Lars von Lackum concludes: “The financial strain on LEG is low, as we are comprehensively insured against natural hazards. At the same time, the clear-up and repair work are making unprecedented demands of our employees at the affected locations. We are standing firmly alongside our customers and are therefore providing direct and unbureaucratic assistance via our two foundations. We are currently doing everything we can to offer tenants at these affected locations a good and liveable home as soon as possible.”
*2021 outlook confirmed: FFO I expected at upper end of range*
Based on its performance in the first six months of 2021, LEG believes it is well on track to achieve its targets. The company therefore expects to reach the upper end of the range of EUR 410 million to EUR 420 million forecast for FFO I. These figures do not yet take into account the effects of further possible portfolio acquisitions or disposals.
*About LEG*
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 heartland in North Rhine-Westphalia and is represented by local personal contacts at selected locations in other western German states.
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.
*Investor Relations contact:*
Frank Kopfinger
Tel. +49 211 45 68-550
E-Mail: frank.kopfinger@leg-se.com
*Press contact:*
Sabine Jeschke
Tel. +49 211 45 68-325
E-Mail: sabine.jeschke@leg-wohnen.de
Disclaimer
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 SE. The forward-looking statements are based on current planning, estimates and forecasts, which LEG Immobilien SE 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.