LEG Immobilien : significantly increases FFO I in the first six months and confirms guidance for full-year result

10.08.2022

LEG Immobilien SE significantly increases FFO I in the first six months and confirms guidance for full-year result

• FFO I rises 10.6% to €241.4 million, FFO I per share by around 9.2%
• Full occupancy: Vacancy rate at record low of 2.2% (l-f-l; -30 bps)
• Rent per square meter at €6.26 (l-f-l; +2.6%)
• Based on a portfolio appreciation of 6.1%, the EPRA-NTA reached €161.30 per share
• Strong balance sheet with loan to value ratio of 42.1%
• Milestone for climate protection: Start of construction for serial modernisations of RENOWATE and LEG-Zukunftshaus
• Gas crisis and rising energy prices: LEG puts together a holistic package of measures to shoulder impact jointly with tenants
• 2022 Outlook confirmed (FFO I: €475 to €490 million)
• Expected net seller after refraining from exercising option in Brack Capital Properties (BCP)

LEG Immobilien SE continued its positive business development in the second quarter of 2022. The main factors behind the good earnings performance were the increase in net rental income due to acquisitions in the previous year, rental growth in the established portfolio, and the record-high occupancy rate. For the entire year, the company anticipates a positive business development and to achieve its target corridor for the full-year result of €475 million to €490 million for FFO I.

"LEG remains a safe haven: the key drivers of our business remain intact. The reinforced migration of people to Germany and the regrettably difficult environment for "homebuilders" are strengthening the already high demand for affordable rental apartments. LEG is structurally fully rented out and financed until 2024. To account for the current trend in interest rates and inflation, we are putting the brakes on new construction, acquisitions, and ongoing costs," says Lars von Lackum, Chairman of the Executive Board of LEG Immobilien SE.

Further significant increase in FFO I
Funds from operations (FFO I), the company's key financial indicator, rose to €241.4 million in the first half of 2022, up considerably by 10.6% year-on-year (H1-2021: €218.2 million). This also applies to FFO I per share, which increased by around 9.2%. The slightly lower increase on a per share basis is ex-plained by the high acceptance of the stock dividend. Significant positive effects resulted from in-creased net rents, a large part of which is attributable to the acquisitions made in 2021.

The EBITDA margin was 74.8%. LEG has set itself the target of achieving an EBITDA margin of around 75% for the full year, meaning that the company is on target here as well.

The actual rent on comparable space increased to an average of 6.26€/sqm in the reporting period (+2.6%). Here, too, the company is well on track to achieve the targeted rental growth of 3.0% for the full year 2022. In addition, the like-for-like vacancy rate was further reduced to just 2.2%
(H1-2021: 2.5%). This is the lowest vacancy rate ever recorded by LEG. Thus, LEG is structurally fully rented out in its established portfolio.

Valuation growth thanks to strong demand
The EPRA NTA (Net Tangible Asset) reached €161.30 per share. With the NTA, the company reports the net asset value of its real estate. The main factor behind the increase was the revaluation of the real estate portfolio at mid-year, which involved an appreciation of around €1.2 billion (H1-2021: €1.1 billion). This translates to a valuation uplift of 6.1% in the first half-year.

The average value of the residential portfolio (incl. acquisitions) as of June 30, 2022, was 1,828€/sqm
(12/31/2021: 1,706€/sqm). The gross rental yield of the portfolio was 4.0%. By way of comparison, due to the enormous increase in construction costs, prices per sqm for standard new apartments are currently expected to exceed €3,500 (excluding land costs). Replacement costs are thus substantially higher, underscoring the value of the LEG portfolio.

Portfolio adjustment in focus
Following strong external growth in previous years, LEG intends to sell up to 5,000 units at attractive prices in the current year. Around one-third of these are units from the Adler Group portfolio acquired in 2021. On the other hand, LEG has identified various other quarters that do not or no longer fit into the company's portfolio. Initial market reactions have been promising.

As already announced last week, the company will also definitively not exercise the option to acquire a majority stake in Brack Capital Properties. As a result, the company is cancelling its acquisition target for the current year from 7,000 units to date, apart from some portfolio rounding off. Accordingly, LEG expects to be a net seller in the market this year.

Financing secured at attractive long-term conditions
As of the half-year reporting date on June 30, 2022, LEG's liabilities have an average remaining term of 7.06 years (6/30/2021: 7.66 years). Year-on-year, a further reduction in average interest costs to 1.15% as of June 30, 2022, was achieved (6/30/2021: 1.24%). LEG has no significant refinancing obligations until 2024. Net debt to real estate assets (Loan-to-value/LTV) was 42.1% at the half-year reporting date (12/31/2021: 42.1%). The target of 43% was therefore met.

Susanne Schröter, CFO of LEG Immobilien SE, emphasizes: "Our strong balance sheet, our diversified financing strategy and our resilient business model with its continuous income streams allow us to succeed even in a volatile market environment."

Investment in maintenance and modernisation with a focus on climate protection -
LEG-Zukunftshaus and first RENOWATE project under construction
LEG invested a total of €223.3 million in its portfolios in the first half of 2022 (H1-2021: €198.2 million). This is around 13% more than in the same period last year. However, due to the significant increase in the number of residential units owned by LEG and the focus on key projects, investments per sqm declined to €18.31 (H1-2021: 19.14€/sqm). These figures do not include investments in new construction activities, which are not part of LEG's core business. A large part of the expenditure relates to modernisation measures to improve energy efficiency which - against the backdrop of rising energy costs - are becoming increasingly important for tenants.
The company is also increasingly using digital, serial processes to minimise construction and modernisa-tion costs. The first two projects of this kind are currently entering the construction phase: just a few months after LEG and the Austrian construction company Rhomberg founded their joint venture for serial modernisation, RENOWATE, the first components are currently being delivered and assembled in Mönchengladbach. In line with the EnergieSpring principles, RENOWATE uses prefabricated facade modules that are attachable to an existing facade. After the refurbishment, the property will meet the KfW55 efficiency standard and will be independent of gas supplies, as a heat pump of the latest generation will have been installed. The first of four construction phases of the LEG-Zukunftshaus, a Net Zero modernisation based on the Dutch EnergieSprong method, is also entering the realisation phase.

Energy crisis: Challenges are shouldered together
LEG is dealing actively with the gas crisis and rising energy costs. Despite long-term, comparatively cheaper supply contracts, tenants are facing high payments for heating costs. LEG is therefore taking various steps to minimise the impact on its customers:

In personal letters, the company offers to increase the advance payments on a voluntary basis to cushion the spike in costs over several months. To date, around one third of the tenants contacted have accepted this offer. Information measures on energy saving - always an integral part of our client communications - were further intensified. As usual, heating systems are adjusted in time before the heating season to optimize consumption. One degree less means an energy saving of around six per-cent and can thus make an important contribution both to relieving the financial burden on customers and the physical security of inventory in Germany overall in the event of supply bottlenecks. As was the case during the Corona crisis, the company will provide information on support options, such as the offer of installment payments, as well as information on Federal government's housing assistance. In this context, LEG welcomes the German government's planned Housing Benefit Plus and other re-lief measures for people with low or medium income. The LEG foundations support the company's activities with their social work in the neighborhoods.

"The experience of the Corona crisis shows that people feel comfortable in their homes and go to great lengths to pay their rent and utilities on time. Together with our customers, we will continue to develop solutions in the energy crisis so that no one needs to fear losing their home due to the explosion in energy costs," explains Volker Wiegel, COO of LEG Immobilien SE.

Outlook 2022 confirmed
Based on the development in the first six months of 2022, LEG considers itself to be well positioned overall and confirms the full year guidance for FFO I in the range of €475 million to €490 million. In the middle of the range, this would correspond to FFO I growth per share of more than 12%. This does not yet factor in the effects from possible portfolio acquisitions and disposals.

LEG's business model thus remains resilient and predictable for investors and customers alike. Like in previous years, the company - despite the current uncertainties - will provide an outlook for the coming financial year in November, when it publishes its third-quarter report.

About LEG
With around 166,000 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. LEG SE generated revenue of around €960 million from its core rental and leasing business in fiscal year 2021, with an average rent of 6.13 per sqm. With a share of around one-fifth social housing and its ongoing commitment to efficient climate protection, includ-ing serial refurbishment with the Renowate subsidiary founded at the beginning of 2022, LEG under-scores its sustainable commitment in various areas. As part of its new-build offensive, it also aims to make a social contribution to the creation of both privately financed and publicly subsidized housing.

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