Solid figures from LEG underpinned by real rent increases

Although like many of its listed peers, the share price of Düsseldorf-headquartered LEG Immobilien has been battered since mid-August (off more than 20%), the company itself has been performing well in all its key business areas over the first nine months of the year.

The MDAX-listed LEG says that its 33% year-on-year rise in FFO1 to €210.6m was largely due to expansion of its operating margins from both acquisitions and stricter cost controls. It is forecasting full-year 2016 FFO1 of €265m, while valuation gains of up to €520m are expected on the existing portfolio for the year. EPRA NAV is €58.79, and expected to rise to €67.00 per share for the year – the current share price is about €70, so despite recent falls is still trading at a premium to NAV.

Rental income improved 17.2% to €381.3m. largely based on organic rent growth, with rent per sqm rising 2.4%, and rents for free financed apartments growing by 3.3%. With average rents of €5.25% per sqm, LEG is forecasting overall rental growth in 2016 of up to 2.6%, while the vacancy rate has fallen below 3%.

The company has about 130,000 rental properties with 350,000 residents, managed from eight offices across the group's heartland of North Rhine-Westphalia. After several refinancings in this and the last couple of years, average interest on borrowings is down to 2.05% from last year's 2.27% with an average maturity of 10.9 years. Net LTV is 48.8%, below most of its listed peers, and should be further lowered by the end of the year.

LEG has profited generally from the housing shortage in Germany's larger cities since its public flotation several years ago, with demand for about 400,000 new housing units annually still being unmet by fresh supply. As Germany's third-largest residential property company, based in its most densely-populated state, LEG bought 18,000 further apartments in 2015 and added 13,500 units from Vonovia earlier this year, and has twice this year raised its full-year profit forecast.