Deutsche Wohnen figures boosted by Berlin back-rents

Listed German housing company Deutsche Wohnen AG has been downplaying the bump to its rental income that it is entitled to reclaim from its many tenants in Berlin following the recent overthrowing of the city's rent freeze by Germany's Constitutional Court. The emphasis at the moment is on the company's responsible approach to its tenants, rather than rubbing salt in its tenant's wounds - although the company has made it clear that it will be pursuing outstanding back rent.

The company has about 115,000 of its 155,000 apartments in the German capital, and as Berlin's largest private landlord, is the most visible target of protesters and demonstrators seeking to impose rent freezes and to expropriate the largest landlords, returning their properties to municipal ownership.

Deutsche Wohnen would have an average of €430 per lease contract in Berlin outstanding on rents, which it says it will claw back on a phased, humanitarian basis. It will also desist from imposing any rent increases this year, as a result of the hardship caused by the pandemic, it said.

In its latest quarterly figures, the company was able to raise its FFO1 by 13%, from €0.40 to €0.45, boosted by extra rental income from about 60,000 of its tenants. Overall, rental income was up 3.6% to €193.1m, while rents payable on new lettings were up 1.3% year-on-year, to an average of €7.02 per sqm/month.

Occupancy of its apartments is nearly full. Financing costs on its debt, which has an average remaining term of 6.7 years, is 1.2% and thus well below its rental yield. Its average LTV is a conservative 37%. The current share price of about €45.00 is still trading at a good discount to its €52.50 NAV.

The company has ambitious plans for building new apartments through its property platform, Quarterback, in which it holds a 40% stake. Part of the reasoning is the heavy expense of improving energy efficiency in existing, older properties. The company is also investing in photovoltaics and combined heating and power plants on its own sites, along with energy-efficient insulation and new heating technology in the buildings themselves, for which it has budgeted €2bn of capital expenditure by 2040.