LEG Immobilien SE starts the new year successfully and confirms outlook for 2022

by   CIJ News iDesk III
2022-05-11   10:04

· FFO I rises by around 17% year-on-year to approx. €121 million
· Vacancy rate falls significantly, from 2.8 to 2.4% (l-f-l; -40 bps)
· Rent per square meter (sqm) rises to €6.20 (l-f-l; +2.7%)
· Further increase in value of real estate portfolio expected in H1
· Portfolio management and capital allocation flexibly adjusted to market environment
· Outlook 2022 confirmed (FFO I: €475 to €490 million)
· Climate protection: CO2 footprint notably drops to 32.3kg CO2e/sqm in 2021
· Ukraine aid: Over 300 apartments for refugee families at around 40 locations

"In the first three months, we have again significantly increased our earnings. We expect to fully achieve our targets for 2022. Our business model is crisis-resilient. Our clear focus on one market and one market segment – namely good housing at fair prices in Germany – is paying off. In view of the changing market conditions, we are in the comfortable position of being able to adapt quickly and flexibly to a changing environment," explains Lars von Lackum, Chairman of the Executive Board of LEG Immobilien SE.

It goes without saying that the company is committed to helping refugees from Ukraine. In addition, informing customers about rising energy costs, energy-saving behavior, and the possibility of adjusting prepayments currently plays a major role in day-to-day business.

"We want to avoid our tenants being surprised by high extra payments in the coming year. In addition to information, advice and education, the federal government's energy allowance is an important initial aid for our customers," says Dr. Volker Wiegel, COO of LEG Immobilien SE.

FFO I increases significantly again:
Funds from operations (FFO I), the key earnings indicator in the sector, rose by 16.6% to €121.4 million in the first quarter of 2022 (Q1-2021: €104.1 million). Significant positive effects resulted from increased net rental income, a large part of which is attributable to the successful integration of the acquisitions made in 2021.

Furthermore, actual rents for comparable space rose by 2.7% year-on-year to an average of 6.20 €/per sqm in the period under review. LEG thus remains a leading provider of good housing at fair prices. The vacancy rate on a like-for-like basis fell significantly to 2.4% (Q1-2021: 2.8%).

NTA per share increased slightly:
With the NTA (Net Tangible Assets Value), the company shows the net asset value of its properties. It increased to €150.49 per share in the 1st quarter of 2022 (12/31/ 2021: €146.10 per share).

The average value of the residential portfolio (including acquisitions) was 1,713 €/sqm as of 31 March 2022 (12/31/2021: 1,706 €/sqm). Accordingly, the gross rental yield of the portfolio was 4.3%. Due to the positive operating performance and the continued high demand for German residential real estate, the net asset value NTA is also expected to increase in 2022. Against this background, a percentage appreciation of the portfolio of 6 to 7% is expected in H1 2022.

Interest costs at lowest level since IPO despite inflation:
As of the quarterly reporting date 31 March 2022, liabilities have an average remaining term of 7.3 years (3/31/2021: 7.5 years). Thanks to forward-looking financing measures, the average interest rate of 1.16% was once again below the low prior-year figure (03/31/2021: 1.29%). LEG has no significant refinancing obligations until 2024 and is therefore unaffected in the short and medium-term by the developments in the financial markets, which are currently difficult to predict. This contributes to a high degree of security for stable earnings growth.

Net debt in relation to property assets (loan to value/LTV) was 43.1% as of the quarterly reporting date and thus in line with the strategic target of 43%.

Susanne Schröter-Crossan, CFO of LEG Immobilien SE, says: " Financial stability remains a key characteristic of LEG. This is also demonstrated by our recently confirmed Baa1 rating with a stable outlook from Moody's."

Changing market environment in view for portfolio measures and capital allocation. Following the strong external growth of the previous year, LEG's portfolio measures focus on three aspects:

First, the implementation of the planned divestment programme of up to 5,000 apartments for which there is strong market interest. Essentially, this involves around 1,300 units from the Adler Group portfolio purchased in 2021, which are primarily spread across various locations in Thuringia and Saxony. On the other hand, LEG has identified various other neighborhoods in a structured process that do not or no longer fit into the company's portfolio.

Second: LEG is still examining the acquisition of a majority stake in BCP from the Adler Group. The option has a term until 30 September 2022. The company, which is based in the Netherlands, has a portfolio of around 12,000 apartments in Germany. LEG currently holds a stake of around 35% in BCP. How the option is dealt with depends on the results of the due diligence and the situation in the capital markets. From today's perspective, the outcome is therefore completely open and explicitly includes not exercising the option.

Third, LEG has adjusted its new-build plans in response to changing market conditions. Project development is not part of the company's core business. Expected investment in the existing pipeline totals around €1 billion - just 5% of LEG's current gross real estate asset value. Of this, more than 80% is either price-hedged through fixed-price agreements with general contractors or contracts with the selling project developers, or projects are in such an early conception and planning phase that there are no implementation obligations. New construction activities are part of LEG's overall social commitment to help create additional living space where it is urgently needed. In view of higher construction and financing costs and the lack of reliability of federal subsidy programs, the company is scaling back its ambition to double the number of completed apartments by 2026. Based on the current pipeline, it is sticking to creating around 500 new apartments for 2023 for the time being.

Investments in housing quality and climate protection despite supply bottlenecks – CO2 footprint significantly reduced in 2021 – Climate neutrality by 2045.

Due to the sharp increase in the number of residential units at LEG, investments per square meter fell by around 16% to €7.89. Overall, the company spent €98.2 million on maintenance, modernization, and new construction – around 4% more than in the same quarter last year – despite a shortage of craftsmen and supply bottlenecks.
A large part of the investments relates to modernization measures towards improving energy efficiency, which are becoming increasingly important for tenants facing rising energy costs. The company also reaffirmed its goal of achieving climate neutrality by 2045 in line with the German government. In 2021, LEG succeeded in significantly reducing its CO2 footprint by 5% to 32.3 kg CO2e/m² (climate-adjusted/market-based). Location-based CO2 values and numerous other key figures relating to the company's sustainability commitment can be found in LEG Immobilien SE's Sustainability Report 2021, which was published today, link below.

With the establishment of RENOWATE, a joint venture between LEG and the Austrian company Rhomberg Bau, the company will further accelerate modernization measures and steadily reduce construction costs. In total, at least ten major LEG neighborhoods are to be upgraded in terms of energy efficiency over the next two years – construction work on the first project will begin in early summer. From the end of 2023, the joint venture will also offer its experience and services to other industry participants.

A good home for refugee families:
In recent weeks, LEG has provided more than 300 apartments at over 40 different locations for refugees from Ukraine. Since 1 March 2022, LEG's Ukraine Coordination Office has been working closely with local authorities to place refugees in apartments. At the same time, LEG's foundation "-Dein Zuhause hilft" (Your Home Helps) set up a special fund of initially €500,000. The money is used to completely furnish a large number of apartments with the support of partners from the furniture industry. In ten local projects to date, the foundation also supports non-profit organizations that provide German language courses, cultural education programs for children and teenagers, and much more.

"We cannot replace people's homes, but we can at least offer them a safe roof over their heads. In addition to the institutionalized help provided by our company and our foundation, many colleagues get involved in their free time. They translate, paint apartments, fill refrigerators, make beds, and donate household goods, toys, and electrical appliances. That makes me very proud of our team. This is corporate culture in action," says Lars von Lackum, CEO of LEG Immobilien SE.

Confirmation of earnings forecast for 2022:
Based on the development in the first three months of 2022, LEG believes it is well positioned overall – depending on the housing, financial and geopolitical situation - and has therefore confirmed the forecast for FFO I in the range of €475 million to €490 million. This does not yet take into account effects from possible portfolio disposals and acquisitions. Based on the lower value of the range, this corresponds to an increase of at least 12% compared with the FFO I achieved in fiscal year 2021.