Due to a strong result in the first half of 2024 and an encouraging outlook for the second half LEG Immobilien SE raises its earnings forecast for the full year. Demand for affordable housing in Germany continues to increase. This was once again reflected in a very good letting result in the first half of 2024. Further rent adjustments will take effect in the second half of the year. Successful sales and the expectation that residential property valuation will stabilise in the coming months round off the positive picture for the first half of the year
Lars von Lackum, CEO of LEG Immobilien SE, says: „We are optimistic about the future. The key financial and operating figures of LEG once again developed favourably in the first half of 2024. After a long time, the overall market is also giving us a tailwind again. The devaluation cycle is coming to an end in the foreseeable future and we are seeing a revival on the transaction market. Based on our own successes and positive market trends we are raising our profit forecast for 2024.”
AFFO at around EUR 110 million
AFFO, the company’s key financial indicator, totalled EUR 109.7 million in the first half of the year (H1-2023: EUR 118.6 million). This is 7.5 per cent less than in the previous year, when the company benefited significantly from a one-off effect from the forward sale of green electricity (EUR 16.0 million). Excluding one-offs, AFFO would have risen by 6.9 per cent and would therefore have been significantly higher than the previous year’s figure.
Operating business reflects high demand for affordable housing
The EPRA vacancy rate (l-f-l) fell again year-on-year by 10 basis points to 2.5 per cent.
The 3.3 per cent increase in net cold rent to EUR 427.9 million (H1-2023: EUR 414.3 million) was only due to rental growth in the free financed part of the portfolio, as the cost rents for subsidised housing remained stable following the regular adjustment in the previous year. The average net cold rent on a like-for-like basis stands now at EUR 6.72 per square metre and has risen by 2.9% compared to the same period of the previous year (H1-2023: EUR 6.53 per square metre). In 2023, rental momentum was particularly pronounced in the second quarter. This year, however, a substantial part of the rent adjustments will only take effect in the second half of the year, so that the company is well on track to achieve the forecast rent growth of 3.2 to 3.4 per cent for the year as a whole.
Despite the high rental price dynamics in the core regions of LEG, the company’s apartments remain affordable for broad sections of the population. For example, the net cold rent for an average LEG flat measuring around 65 square metres is around EUR 435 per month. LEG thus continues to focus clearly on the “affordable housing” segment. The average rental period of almost 12 years is proof of our customers’ loyalty.
Devaluation cycle comes to an end – LEG sells around 2,900 units slightly above book value
As in previous years, LEG revalued its residential portfolio at the end of the second quarter of 2024. The value of the assets fell only moderately by 1.6 per cent. The EPRA NTA per share amounted to EUR 122.59 as at 30 June 2024 (31 December 2023: EUR 126.57 per share).
Cumulatively, the LEG portfolio has lost almost 17 per cent in value since its peak in mid-2022. Overall, there are increasing signs that the valuation of assets has bottomed out. In the middle of this trough, the gross yield of the LEG property portfolio stands at around 5 per cent as at 30 June 2024, offering an attractive premium over the yield on risk-free 10-year German government bonds.
The transaction market is also seeing increased movement, even though the volumes in the first half of 2024 were still far from previous record years at around EUR 3.3 billion. Taking advantage of the incipient recovery, LEG has agreed or completed the sale of around 2,900 flats for around EUR 285 million since the beginning of the year, slightly above book value overall. Some of the assets will not be transferred until later in the year. The planned sale of a large commercial and hotel complex, which the company had announced for the end of 2023, was not closed. However, as the return prospects here have improved significantly, LEG has decided to continue developing the complex itself for the time being. Part of the increased investment budget will be used for this purpose.
No refinancing requirement until September 2025
The average financing costs as at 30 June 2024 were 1.66 per cent with an average term of the liabilities of 6.0 years as at the reporting date (30 June 2023: 1.40 per cent; 6.1 years).
Net debt in relation to assets (loan to value/LTV) as at June 30, 2024, taking into account the sales proceeds from transactions already notarized, was already slightly below the value at the end of 2023 at 48.3% despite the devaluation (December 31, 2023: 48.4%). The medium-term target for the LTV remains unchanged at 45%.
In the current difficult market phase, which has led to the LTV target being temporarily exceeded, LEG is benefiting from its continued good access to all participants in the financial market. The company benefits from the fact that it has always relied on a broad range of financing measures, even in boom phases, and has always managed its business prudently. No more refinancing is due in the current year. Around 60 per cent of the maturities in 2025 are already covered by the company’s high level of cash and cash equivalents and by sales proceeds.
More portfolio investments and more in-house craftsmen
In the light of the strong operating performance in its core business the company is planning to increase portfolio investments in 2024 from originally EUR 32 to EUR 34 per square metre, thereby further improving the quality of the portfolio in the interests of customers, investors and sustainability.
In order to bring the necessary skilled labour on board, ensure a good quality of work and benefit from a high-margin business, LEG is setting up another in-house craftsman’s company. Initially, LEG LEITWerk GmbH will primarily be active in the field of electrical installations and grid connections – a sought-after field of activity that is particularly important for decarbonisation measures in the building sector.
dekarbo GmbH, which was only founded at the end of September 2023, has already gained considerable momentum. The joint venture between LEG and the Düsseldorf-based family business Soeffing Kälte Klima offers the installation and maintenance of highly efficient air-to-air heat pumps as an all-round carefree package for the housing industry. The young company has planned or already completed the installation of almost 500 devices by the end of 2024. The initial focus of decarbo is on setting up its own teams in North Rhine-Westphalia, which will concentrate on replacing decentralised heating systems such as gas-fired floor heating systems and storage heaters. In total, three LEG joint ventures are focussing on efficient climate protection – from smart, AI-supported heating thermostats to digitalized, serial refurbishment: termios, dekarbo and RENOWATE.
Dr. Volker Wiegel, COO of LEG Immobilien SE, explains: „At LEG, we started focusing on digital, innovative processes at an early stage and formed partnerships to make climate protection in the housing industry efficient and affordable – for the benefit of tenants and companies. Our progress is impressive: Not only are we rapidly driving forward our own decarbonisation, but we are also gaining more and more external customers for all of our green solutions.”
Increase in profit forecast for 2024
Based on the development in the first half of 2024, LEG Immobilien SE considers itself to be very well positioned overall and is therefore raising its forecast for AFFO to between EUR 190 and 210 million (previous range of EUR 180 to 200 million). Based on the mean value of the range, this corresponds to earnings growth of around 10 per cent compared to the AFFO per share achieved in the 2023 financial year.
