Despite very successful FY 2022 LEG Immobilien SE suspends the dividend in order to strengthen its balance sheet
· *Significant increase in key earnings figures in 2022: FFO I at €482.0 million (+13.9%), AFFO reaches €108.8 million (+18.0%) *
· *Best operating performance in the company's history – vacancy rate (l-f-l) at only 2.4%; in long-established LEG markets, just 1.9%*
· *Increase in expected AFFO from 110 - €125 million to 125 - €140 million due to high spending discipline on investment projects*
· *LEG is enabling the housing industry to achieve climate neutrality by developing intelligent affordable technologies *
· *Change in CFO department: Susanne Schröter-Crossan to be followed by Dr Kathrin Köhling*
LEG Immobilien SE's positive business performance continued in 2022. The main drivers of the significant earnings growth were the increase in net cold rent and LEG's excellent rental result. The company has been taking account of the changed interest rate environment since fall 2022 with a liquidity-focused strategy adjustment. At the same time, LEG is intensifying the capital-friendly development of climate protection products and solutions for the entire rental housing industry.
"Successful in core business, conservative in finance, agile in innovation and confident in the outlook for 2023," is how LEG Immobilien SE's CEO Lars von Lackum summarises the results for fiscal year 2022. He goes on to explain, "LEG once again posted a record result in 2022. We achieved or slightly exceeded all of our operating targets. At the same time, stable, solid finances are a trademark of LEG – and we intend to keep it that way. In order to further strengthen LEG’s capital base, we therefore decided in consultation with the Supervisory Board of LEG Immobilien SE to propose to the Annual General Meeting on 17 May 2023 not to pay out a dividend for financial year 2022. With new specific, affordable product innovations for a climate-neutral housing industry, we are also laying the foundation for further growth beyond managing our assets."
*Strong growth in FFO I and AFFO – key operating figures all on or above target*
Funds from operations (FFO I), the key financial earnings figure for fiscal year 2022, increased notably by 13.9% to €482.0 million (FY 2021: €423.1 million). The growth was mainly due to the rise in net cold rent with a steady EBITDA margin of 74.9%. This was achieved despite the integration of the initially lower-margin acquisitions from the previous year.
Both key figures are thus in line with the targets (FFO I: 475 - €485 million; EBITDA margin: around 75%). AFFO even increased by 18% to €108.8 million – significantly more than still expected in November 2022. In addition to the increased FFO I, AFFO also benefited from the reduction in capital expenditures. At just under 41€/sqm, investments were considerably lower than the originally planned 46 - 48€/sqm and slightly below the previous year's figure of 42.50€/sqm. AFFO is a proxy for free cash flow and will replace FFO I as the key measure of the company's success from 2023 onwards.
The actual rent on a like-for-like basis increased by 3.1% year-on-year in the reporting period. The company was thus able to slightly exceed its rental growth target of 3.0% in times of increased inflation. The rent per square metre for an LEG apartment averages €6.32 (l-f-l). LEG thus continues to focus clearly on the "affordable housing" segment for people with lower and medium income.
Vacancies fell by a further 20 basis points year-on-year to 2.4% and are therefore within the range of structurally induced vacancies due to tenant turnover. The development in LEG's established markets is particularly strong: Excluding the portfolios acquired at the end of 2021, the vacancy rate in 2022 would be just 1.9%.
*Further increase of NTA based on strong first half-year
*With the NTA (Net Tangible Assets Value), the company reports the net asset value of its properties. NTA rose by 4% to €153.52 per share as of the balance sheet date (FY 2021: €147.58 per share).
This is the result of a slight value increase of the residential portfolio of 1.9% in the fiscal year 2022. This was still the outcome of the strong first half of fiscal year 2022, where it amounted to 6.1%, while the valuation declined by 4.0% in the second half of fiscal year 2022, which was in line with the company's expectations.
The average value of the residential portfolio (including purchases) as of 31 December 2022, was 1,789 €/sqm (31 December 2021: 1,706€/sqm). The gross rental yield of the portfolio was therefore 4.2%.
The residential real estate market continues to be characterised by buying restraint and great uncertainty regarding future inflation and interest rate developments. In this challenging environment, LEG was able to sell around 600 apartments in 2022. Across all transactions, proceeds totaled more than the book value. Overall, LEG plans to be a net seller in the market in 2023.
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*Suspension of dividend*
Despite the good results for FY 2022, the market environment continues to be uncertain. Therefore, the Management Board and the Supervisory Board of LEG Immobilien SE intend to propose to the Annual General Meeting on 17 May 2023 not to pay out a dividend for financial year 2022. In light of increased financing costs and low transaction volumes the financial resources are intended to be used to strengthen LEG’s capital base.
*Financial stability as a trademark
*The average financing costs as of 31 December 2022 amounted to 1.26%. The average term of the liabilities was around 6.5 years as of the reporting date. The company's financing costs are thus at a low level despite the recent rise in interest rates. Net debt to real estate assets (LTV) stood at 43.9% as of
31 December 2022. The medium-term target for LTV remains unchanged at a maximum of 43%. The company has a solid liquidity reserve thanks to existing cash funds, its commercial paper program and syndicated working capital lines. Furthermore, there are no significant refinancing obligations until the beginning of 2024. The company has already successfully refinanced or repaid most of the financial liabilities due in 2023, which in total amount to only €116 million.
*Change in the CFO department*
At its meeting on 8 March 2023, the Supervisory Board of LEG Immobilien SE and Susanne Schröter-Crossan, CFO of LEG Immobilien SE, agreed by best mutual agreement that Susanne Schröter-Crossan would leave the Management Board on 31 March 2023. Susanne Schröter-Crossan has decided to return to London for family reasons and is therefore leaving the company.
On 1 April 2023, Dr Kathrin Köhling will take on the mandate of Chief Financial Officer. She holds a PhD in business administration and came to LEG in 2019 from the consulting firm McKinsey & Co., where she most recently worked as an associate partner with a focus on financial institutions. At LEG, she initially took over the Strategy & Organisation department in the CEO department. After that, she became managing director in the operating business, being responsible for the management of all LEG branches, among other things.
"The Supervisory Board of LEG Immobilien SE would like to thank Ms Schröter-Crossan for her excellent work in the past. Since joining LEG, Susanne Schröter-Crossan developed the company very successfully together with CEO Lars von Lackum and COO Dr Volker Wiegel as a leading German residential real estate company. She enjoys well-deserved an excellent reputation in the industry and on the capital market,” said Michael Zimmer, Chairman of the Supervisory Board. "On behalf of the entire Supervisory Board and the Management Board, I would like to express my heartfelt thanks to Susanne Schröter-Crossan. Our very best wishes go out to her for her further journey.”
The Chairman of the Supervisory Board continues: "At the same time, we are very pleased that with Dr Kathrin Köhling, we were able to gain an outstanding leader from LEG's own ranks as successor for the position as CFO. Kathrin Köhling did her doctorate at the interface between real estate valuation and accounting and brings with her a deep understanding of the real estate industry in general and for LEG in particular. She prevailed against an excellent field of candidates in a structured, externally supported selection process. The Supervisory Board and the Management Board look forward to working with her in what is likely to be a challenging time.”
The contract of Dr Volker Wiegel, COO of LEG Immobilien SE, was extended by three more years until 31 December 2026.
*Growth through green innovation – positioning itself as a solution provider for the industry*
The facts and figures prove it: LEG is making good progress in implementing its cash-focused strategy adjustment. In times of rising financing costs, the company is keeping close eye on preserving cash, but is still actively exploring new attractive growth potential.
A particular focus is on intelligent, digital innovations for efficient CO[2] avoidance for the entire European rental housing industry. LEG sees the green transformation of the economy as an opportunity to make progress on its own climate path while at the same time developing new value-creating business models and partnerships beyond the management of its own assets. The successful establishment of the joint venture RENOWATE as a specialist for serial refurbishments in the DACH region was just the beginning. In 2022, the company had not only successfully completed its first project in a LEG neighborhood within a few months, but also already won its first external customer from the housing industry – a year earlier than expected.
At the interface between the heating market and real estate management, the company has now launched two further capital-saving projects:
LEG's air-to-air heat pump (Air2AirHP) offensive starts with the type of heating: LEG has entered into a strategic partnership with the well-known manufacturer Mitsubishi Electric to equip the bulk of its stock with a decentralised heat supply (in particular gas floor heating systems) with air-to-air heat pumps. Furthermore, this technology is also suitable for use in poorly insulated buildings, unlike other kinds of heat pumps. After a ramp-up phase, LEG aims to install around 7,000 to 9,000 Air2AirHP per year in its housing stock as of 2027. The cost and efficiency benefits for the company compared to other decarbonisation technologies are significant. LEG estimates that by 2030 it can reduce the investment volume required to meet its climate path by €500 million through installing Air2AirHP. This will simultaneously ensure compliance with regulatory requirements to reduce greenhouse gas emissions in the building sector up to 65% by 2030. In most cases, the installation is also rent-neutral for the tenant compared to fossil type heating, while at the same time increasing the quality of living through a perfect indoor climate on cold days and using the Air2AirHP as an air conditioner on hot ones. As with RENOWATE, LEG will make the know-how it has gained available to the entire industry and thus further expand its third-party market business.
Together with one of the leading companies for hydraulic control technology and a Munich-based digital firm, LEG has founded a joint venture and developed a first product that offers a digital solution for the hydraulic balancing in larger residential buildings, which is mandatory for the upcoming heating season and optimises heating performance. This is made possible by installing thermostats in conjunction with a cloud-based, self-learning algorithm that, in addition to the effect of hydraulic balancing, also enables efficient control of the secondary heating circuit, and is estimated to reduce energy consumption by up to 30%. The system is quickly scalable and unbeatably efficient in terms of CO[2] avoidance costs. Here, moreover, the success for the third-party market business is already emerging through order inquiries from Germany and other European countries.
Further details on the projects will be published together with the partners in the coming days.
LEG subsidiary Youtilly, the first Germany-wide tender platform to focus exclusively on services in the real estate sector and offer a digital solution for awarding and subsequently managing contracts, has also advanced extremely successfully. The digital B2B2C platform offers benefits for all parties involved – for service providers in the field of winter services, green space maintenance and cleaning of outdoor facilities, for housing companies, and for tenants. A few days ago, the millionth service was arranged via the platform.
CEO Lars von Lackum states: "Technology partnerships and detailed business plans are one thing. Successful innovations also require the right corporate culture and a modern, efficient organisation that is constantly evolving. The ability to change, which is so important for this, is something we have demanded and encouraged in the company over the past few years. This is now benefiting us in these times of upheaval in the real estate market, enabling us to stay ahead of the game in numerous innovative developments."
*2023 AFFO guidance rised*
In November 2022, LEG announced that, in view of the volatile market environment, it would give priority to considering the impact on the Group's liquidity when managing its business in the future. As a result, the focus for the fiscal year 2023 will be on AFFO as the most significant financial performance indicator. LEG expects AFFO in the range of 125 to €140 million for fiscal year 2023. This represents a significant increase on the original expectation of 110 to €125 million, resulting from even stricter spending discipline on major investment projects. LEG expects its operating business to develop as planned.
*Note: As usual, you will find our Annual Report 2022 and other additional documents from tomorrow morning, 7:00 a.m. CET, on our website at: *Annual press conference | LEG (leg-se.com)
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*About LEG*
With around 167,000 rental apartments accommodating some 500,000 residents, LEG SE is a leading listed housing company in Germany. The company maintains eight branches and is also represented at select locations with personal local contacts. From its core business of renting and leasing, LEG SE generated revenue of around €1.15 billion in fiscal year 2022, with an average rent of 6.32€/sqm. With a share of around one-fifth social housing and its ongoing commitment towards efficient climate protection – including serial refurbishment with the RENOWATE subsidiary founded at the beginning of 2022 – LEG underscores its dedication to sustainability in various areas.
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