LEG Immobilien buys further 3,750 units on strong earnings
German listed residential landlord LEG Immobilien AG has justified its investors’ expectation by posting solid first-half figures, underpinned by strong rental growth in its North Rhine-Westphalian heartland, and strong upward revaluation gains in its holdings. It also announced a pending acquisition of a further 3,750 residential units across North Rhine- Westphalia.
The Düsseldorf-headquartered company owns 130,000 rental properties housing about 350,000 residents, making it one of the biggest landlords in Germany. With eight branch offices across its home state of NRW, it generated rental income of €796m in 2017.
In its recent half-year figures, the company said it had boosted its key performance indicator FFO I by 5.1% year-on-year to €156.4m, up from last year’s corresponding €148.8m, despite higher maintenance expenditure. In-place rent rose by 2.7% year-on-year to an average of €5.54 per sqm, with rent in the free-financed portfolio rising by 3.5% like-for-like. Rental growth of 3.0% is expected for the year as a whole, with the vacancy rate of 3.4% expected to slightly improve.
Against a background of soaring demand for accommodation in its larger urban centres, in common with the rest of Germany, LEG recently announced that it planned a big increase in its maintenance and modernization budget for 2018, to about €250m, the highest level in twenty years.
The rental improvements and rising valuation multipliers led to an increase in value of the property portfolio of €389m, or 4.1% by mid-year, with further upward valuations expected by the end of the year. The gross rental yield was 5.7% at the end of the latest quarter. The EPRA Net Asset Value was €88.46 per share (the current share price has just topped €100.00), up 5.5% in the half-year period.
LEG’s long-term debt remains at 7.8 years duration, with average interest payable of 1.75%. Net property debt (LTV) was at 41.9%. The company is about to buy a portfolio of 3,750 residential units in its core market, but it says it can be financed without raising new equity.
The seller is VIVAWEST, and the locations are in core markets for LEG, such as Duisburg, Essen, Gelsenkirchen and Hagen. In the last financial year, the portfolio generated rental income of €13.5m. VIVAWEST manages more than 120,000 apartments in about 100 municipalities in the Rhine and Ruhr region, providing a home to about 300,000 people
“It was important for us to leave the properties in good hands with roots in the region, in order to guarantee tenants uninterrupted service,” says VIVAWEST Managing Director Claudia Goldenbeld. “We are therefore delighted that LEG, with its decades of housing industry experience, will continue the expert management of these locations. The sale is part of our portfolio strategy, which besides selected divestments envisages increased investment in acquisitions, modernisations and the construction of more than 5,000 new flats by 2022.”
According to LEG’s CEO Thomas Hegel, “We remain on track to achieve our ambitious targets and anticipate stronger profit growth in the second half of the year. Prospects for the further appreciation of our portfolio remain very positive. In addition, we will tap into additional growth potential with the upcoming acquisition.” Hegel confirmed LEG’s forecast for FFO I of between €315 million and €323 million in 2018 and between €338 million and €344 million in 2019.