ADO Properties full-year figures highlight upside rent potential

Listed residential property group ADO Properties, the pure-play Berlin-based investor, sas its Funds from Operations (FFO I) increase by 123% to €30.2m, after nearly doubling its rental income over the course of last year. The company published its full-year figures recently, which showed a doubling of the size of the group's holdings, to now nearly 16,000 units, valued at €1.5bn.

The company, which celebrates its tenth anniversary this year, boosted its portfolio with the acquisition of the Carlos Portfolio with 5,750 residential units in Spandau and Reinickendorf in April 2015.

ADO Properties said just 4% of the portfolio was vacant at the end of 2015 and added that rents grew by 7.3% over the year on a like-for-like basis. The company’s board is proposing to pay a dividend of €0.35 per share, reflecting 40% payout ratio of FFO before profits from disposals.

According to CEO Rabin Savion, "We plan to expand our portfolio without compromising quality by way of more targeted acquisitions, focusing on buildings with significant reversionary potential in promising micro-locations all over Berlin. We will generate further revenue with a like-for-like rental growth to be approximately 5%, increasing the FFO yields by refinancing our old loans and continue to create added value for our investors, customers and employees. For 2016 we anticipate again a dividend pay-out ratio between 30% to 40% of our FFO1."

The financial structure of the company remains conservative with an LTV of 43.6% on 31st December 2015. The average interest rate is 2.3%, while more than 97% of the loans have fixed interest rates or are hedged. The loan maturity is about 5.5 years. In December 2015, ADO completed the refinancing of €32.5 million of loans, replacing a 4.65% with a 1.63% fixed interest rate, with further potential for improvement, said Savion.

REFIRE: In February of this year we reported in glowing terms our views about how effectively ADO Properties was micro-managing its assets. After visiting the company, we were impressed in particular, by how it was integrating its IT and customer service systems to get the best possible knowledge about market conditions and maximum permissible rents across its holdings in the politically sensitive Berlin housing market.

We said that ADO Properties' level of sophistication was among the highest we have seen among housing management companies, and helped explain why ADO managed to increase its average in-place rent per month to €5.75/sqm, reflecting an average annual rental growth of 6.5% on a like-for-like basis. The vacancy rate dropped 3%, like-for-like, and currently stands at 4%. 

That average in-place rent has now increased to €5.82 per sqm per month, reflecting an average annual rental growth of 7.3% on a like-for like basis by the end of the full year. This is impressive. Even more so when the average in-place rent is compared to the average rent for new lettings of €7.63 per sqm per month, giving a more than 30% reversionary potential to the portfolio. Shareholders seem to like this too, and have provided strong support for the 50% share price increase since the IPO in July last year.