LEG Immobilien SE: AFFO increases strongly - better earnings development for 2023 confirmed
· *AFFO of €119 million (+49%) benefits from cash focus and higher one-off effects from self-produced green power *
· *Operating business benefits from further increase in demand: *
· *Vacancy rate (l-f-l) declines by 10 bps to 2.6%*
· *Rent per square meter (l-f-l) rises by 4.3% to €6.52 *
· *Almost 700 units sold in the first half-year*
· *€500 million bond maturing in 2024 already covered*
· *Increased guidance from June 2023 confirmed: AFFO between
€165 million and €180 million expected*
· *Vice-Chancellor visits LEG reallab for serial refurbishment and confirms subsidy bonus *
LEG Immobilien SE reports a pleasing business development in the first half of 2023 and confirms the earnings forecast for the full year, which was raised in June 2023. In addition to positive one-off effects, this is due to the good performance of the operating business, which is benefiting from the continued increase in demand for affordable housing in Germany. Significant progress is also being made in the development of green innovations for the efficient, cost-effective decarbonisation of existing buildings.
Lars von Lackum, CEO of LEG Immobilien SE, says: "The consistent and successful implementation of our cash-focused strategy is paying off. LEG's key financial and operating figures have developed very favourably in the first half of 2023. This does not change the fact that the general conditions for the real estate industry remain very challenging. Right now, we need more private capital and less regulations and bureaucracy in Germany in order to be able to handle the investments in climate protection in the building sector. I am pleased that our LEG is still willing and able to invest in decarbonisation measures due to its financial stability. However, many market participants are reaching their limits. This is bad for property owners, for tenants and for our country."
*AFFO increases significantly *
AFFO, the company's key earnings indicator, rose to €119 million in the first half of the year, which is a strong increase of 49.4% year-on-year (H1-2022: €79.4 million). At €1.60, AFFO per share was 46.8% higher than in the same period last year (H1-2022: €1.09). AFFO reflects the freely available cash flow and thus enables the company to be managed in a way that preserves capital and liquidity in the current phase of high inflation and rising interest rates.
The strong development of AFFO therefore is good evidence of the effectiveness of the business and investment strategy already adjusted in November 2022, in particular the high spending discipline. The company focuses on essential investment projects. As a result, investments declined by 23% year-on-year to €14.08/sqm (H1-2022: €18.31/sqm), notwithstanding countervailing inflation.
*Operating business reflects high demand for affordable housing*
The EPRA vacancy rate (l-f-l) decreased again by 10 basis points to 2.6%.
This includes the portfolio purchased at the end of 2021, which currently still has a significantly higher vacancy rate than the portfolios in our established areas.
The net cold rent improved by 4.6% to €414.3 million (H1-2022:
€396.2 million) resulting both from growth in free financed rent (plus 4.0%), which is gaining momentum due to inflation and demand, and residential rent (plus 5.4%), which benefits from the rent adjustment that takes place every three years. The average cold rent per square meter (sqm) is €6.52 and has risen by 4.3% on a l-f-l bases compared to the same period last year (H1-2022: €6.25/sqm).
The cold rent for an average LEG flat with a size of app. 65 square meters is around
€420. LEG thus continues to focus clearly on the "affordable housing" segment for people with small and medium incomes.
However, the excess demand - especially for affordable housing - continues to widen due to the significant slump in the completion of new buildings. A recent study by the Macroeconomic Policy Institute of the Hans-Böckler-Foundation expects 223,000 completions this year. In 2024, the number of completions is expected to fall to only 177,000 - as low as last in the crisis year 2009. Furthermore, in 2009 there has not been a comparable population growth due to the migration of refugees and skilled workers.
*NTA per share of €136.29 euros *
As in previous years, LEG has revalued its residential portfolio in the 2nd quarter 2023. Based on the changed framework conditions, particularly a significantly more challenging interest rate environment, the asset value declined by around 7.4%. The EPRA NTA per share as of 30 June 2023 was thus €136.29 (31 December 2022: €153.52 per share).
Despite the prevailing buying restraint in the residential property market, LEG succeeded in selling almost 700 units on average at book value in the first half of 2023. In total, LEG's sales program comprises more than 5,000 units.
*Solid liquidity reserve and successful refinancing of maturing liabilities *
The average cost of financing on June 30, 2023, was 1.4% with an average debt term on the reporting date of approximately 6.1 years (12/31/2022: 1.26%, 6.5 years).
Net debt to real estate assets (loan to value/LTV) was 46.6% as of June 30, 2023
(12/31/2022: 43.9%). The medium-term target for LTV remains unchanged at 43%.
In the current difficult market phase, which has led to the LTV target being temporarily exceeded, LEG is benefiting from the unchanged good access to all participants in the financial markets. It is paying off that the company has always relied on a broad range of financing measures and has always planned and managed conservatively, even in the past boom phase of the housing industry. As of today, the refinancing of the €500 million bond maturing in January 2024 is covered.
LEG has existing cash funds of more than €400 million as of June 30, 2023, which, together with syndicated revolving credit facilities of €600 million, form a solid liquidity base for the company.
At 40.2%, the company also has a very high equity ratio compared to its direct competitors as well as to many other industries.
*LEG’s green innovations meet with great interest in the industry and politics*
With its triad of green innovations for climate neutrality in the building sector, LEG continues to set new standards:
· *Modernization turbo through serial refurbishment*: The LEG reallab in Mönchengladbach is becoming a place of pilgrimage for the serial alternative to the conventional energetic renovation of existing buildings. LEG is testing various concepts here with several construction partners and its own joint venture RENOWATE. Most recently, a delegation with Federal Economics Minister Robert Habeck visited the construction sites in the pilot quarter in July. The Vice Chancellor was impressed by the progress made in terms of digitization, process acceleration and resident-friendliness and confirmed the 15% funding bonus for serial modernizations.
· *Becoming an energy-saving hero with seero:* Saving up to 30% heating energy - that is the product promise of seero.pro, the AI-controlled smart thermostat that digitally, adaptively, and permanently ensures optimally distributed heating power throughout the building - hydraulic balancing included. The first product of the young joint venture seero, in which LEG, system expert Oventrop and business developer mantro are involved, will go into pre-series production as planned in September - just six months after its market launch. This haste is also necessary because of a growing number of other housing companies who have already expressed their interest in the product.
· *Cost-efficient transition to green heating systems with air-to-air heat pumps:* As part of its decarbonization strategy, LEG started looking at alternatives to traditional gas heating at an early stage and plans to install up to 9,000 highly efficient, climate-friendly air-to-air heat pumps per year in its own properties from 2027 onwards. This will reduce the company's required climate protection investments by around half a billion euros by 2030. As reported in May, LEG began rolling out the systems in spring after a successful pilot phase and it started to hold talks with potential joint venture partners. In the meantime, the systems, which are suitable for the use in unrenovated buildings, among others, are also being installed in a listed building for the first time. In addition, negotiations with a renowned installation partner to establish a JV as a holistic provider for the conversion to air-to-air heat pumps in rental flats are nearing completion.
*Confirmation of 2023 earnings forecast*
Based on its performance in the first half of 2023, LEG believes it is well positioned overall and has therefore confirmed the forecast for AFFO, which was raised in June, in the range of €165 million to €180 million. At the same time, the company points out that the significantly improved outlook is primarily based on two bigger one-off-items and one smaller operational effect, though also a very important one.
*First:* Absorption of excess margin profits from forward sale of green electricity (AFFO effect of €19 million to €22 million). Due to the exceptional situation caused by the Ukraine war, the German Federal Government has decided to implement an excess margin tax on the electricity market. This affects all electricity produced by an electricity generation plant, i.e., also LEG’s green power production. However, according to a recent external expert judgement, the additional taxation will be lower than originally planned.
*Second:* Acceleration of the run-off of the new construction business already decided in November 2022 (AFFO effect of €17 million to €20 million). In recent months, the general conditions for profitable new residential construction have deteriorated further. New construction investments are collapsing throughout Germany. LEG has also been able to significantly reduce its project pipeline once again in agreement with the municipalities and other partners concerned. All these projects have been at an early stage and still would have been profitable under last year’s conditions. The company has thus further advanced its complete exit from the non-core business of project development.
*Third:* Adjustment of the guidance for expected rental growth in the current financial year from the original 3.3 to 3.7% to 3.8 to 4.0% (AFFO effect of ca. €3 million). This is due to increasing momentum in rents, which was already slightly apparent in the first quarter of 2023 and continued in the second quarter of 2023.
Lars von Lackum: "The share price development and the suspension of the dividend have demanded a lot from our shareholders in recent months. The significant adjustment of the expected AFFO shows that we are on the right track to position LEG successfully even in the current challenging environment. In doing so, we want to continue to pursue innovative approaches in order to achieve climate neutrality of our portfolio as efficiently as possible by 2045."
*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.
*Contact Investor Relations:*
Frank Kopfinger
Phone +49 211 45 68-550
E-mail: frank.kopfinger@leg-se.com
*Contact Press:*
Sabine Jeschke
Tel. +49 211 45 68-325
E-mail: sabine.jeschke@leg-wohnen.de
Disclaimer
This publication constitutes neither an invitation to buy nor an offer to sell securities. Insofar as we express forecasts or expectations or make statements relating to the future in this document, these statements may involve known and unknown risks and uncertainties. These statements express the intentions, beliefs, or current expectations and assumptions of LEG Immobilien SE. Forward-looking statements are based on current plans, estimates and projections made by LEG Immobilien SE to the best of its knowledge but are not guarantees of future performance. Actual results and developments may therefore differ materially from the expressed expectations and assumptions.