LEG Immobilien bullish on expansion, growth prospects
We reported in the last issue of REFIRE about the major acquisition by Düsseldorf-based listed residential investor LEG Immobilien AG of a further 9,600 residential units in its heartland of North Rhine-Westphalia from fellow-listed Deutsche Annington. The deal brought to over 19,000 the amount of new units bought by LEG since the beginning of last year, well exceeding its own growth target of 10,000 units by the end of 2014.
A few weeks ago REFIRE went to Düsseldorf to talk with Thomas Hegel, LEG’s CEO, and we came away with the impression of a company sitting very firmly in the saddle of residential housing in Germany’s most populous state, with a clear geographic focus and – since its IPO last year – a renewed belief that it can exceed its own conservative growth targets. The company has shed many of its legacy holdings from its time as a state-owned enterprise, so that it can now achieve genuine economies of scale rather than managing a disparate assortment of housing-related but not always scalable or geographically suitable assets. The company has also phased out its planning and project development divisions.
LEG now has 110,000 rental properties and about 300,000 tenants. It has 10 branches, 17 customer service centres and about 100 tenant offices across its holdings in North Rhine-Westphalia, which generated rental income last year of about €232m. NRW is a classical ‘renters’ market’, said Hegel, a factor which he stresses became ever more appealing to international investors last year when the company went on its road show prior to its stock market listing.
The company’s third quarter results confirm how it is gaining traction with its housing yield as it achieves better benefits of scale. For the first nine months LEG increased its rental income by 6.5% year-on-year to €287m, with like-for-like rent per square metre increasing by 3.4%. The key indicator FFO 1 rose by 19.7% to €123.9m, EPRA-NAV rose 4.2% over the nine months to €48.85 (the share price is currently over €60.00, up 50% since the beginning of the year), while the loan to value (LTV) ratio remained at 48.7%. With the Vitus portfolio of 9,600 units along with a further 2,400 units bought in the third quarter, FFO yields remain at more than the company minimum of 8%.
Hegel confirmed the full-year outlook for 2014 FFO I at €158m to €161m, rising to €188m-€193m in 2015, or €3.29-€3.39 per share. The stated goal for expansion is still “at least 5,000 units per year” over the coming years, with a focus on portfolios not currently owned by other listed companies. The creation of a coherent residential platform, fully-integrated by a powerful IT infrastructure, would enable the group to also include investments in neighbouring states in further building its portfolio, he said.