LEG Immobilien : is off to a good start in the new fiscal year and confirms outlook for 2023

• Sustained high demand drives core business:
• Vacancy rate (l-f-l) declines by 20 bps to 2.6%
• Rent per square meter (l-f-l) rises by 3.8% to €43
• AFFO climbs to around €55 million (+7.6%) - cash-driven strategy pays off
• Robust balance sheet: 42.7% equity ratio, 43.5% loan-to-value/LTV
• Outlook confirmed: AFFO of 125 to €140 million expected
• Green innovations: LEG air-to-air heat pump initiative convinces politicians

In an environment of high volatility, LEG Immobilien SE remained on track in the first quarter of 2023 and can confirm its earnings forecast for the full year. Demand for affordable housing in Germany continues to rise. This is reflected in a significant increase in net cold rent and a very good rental result. The inclusion of - not initially planned - decentralized heat pumps in the scope of the German Building Energy Act has laid the foundations for the particularly efficient and cost-saving decarbonization of many existing buildings.

Lars von Lackum, Chairman of the Executive Board of LEG Immobilien SE, says: "I am very pleased that despite the volatile market situation we are off to a good start in the new fiscal year. We can confirm our outlook for the full year 2023. Thanks to our healthy core business, a solid balance sheet, the high capital discipline of the LEG team and our green innovations, we look to the future with confidence."

Key figures on target

The vacancy rate on a like-for-like (l-f-l) basis decreased by 20 basis points to 2.6%. This includes the Adler portfolios purchased at the end of 2021, which currently still have a significantly higher vacancy rate than the portfolios in our established areas.

The actual rent on a l-f-l basis increased by 3.8% in the same period. The target for the year is 3.3 to 3.7% (l-f-l). The average cold rent per square meter (sqm) is €6.43. Consequently, LEG continues to focus clearly on the "affordable housing" segment for people with small and medium incomes.

AFFO improvedby 7.6% to €54.9 million (Q1-2022: €51.0 million). It reflects the freely available cash flow and thus enables the company to be managed in a way that preserves capital and liquidity in the current phase of high inflation and rising interest rates. The pleasing development of AFFO is therefore also evidence of the effectiveness of the business strategy already adjusted in November 2022, although - due to seasonal effects - the figure for the first quarter cannot be extrapolated on a one-to-one basis to the full year.

Another hallmark of high spending discipline is the focus on key investment projects. As a result, investments declined - despite countervailing inflation - by 16.5% year-on-year to €6.59/sqm (Q1-2022: €7.89/sqm).

Net Tangible Asset (NTA) per share amounts to €155.50

The EPRA NTA per share was €155.50 as of March 31, 2023, showing little change compared with the balance sheet date of December 31, 2023 (€153.52 per share). As usual, LEG's residential portfolio is revalued in the 2nd and 4th quarters. Based on the changed framework conditions, in particular a significantly more challenging interest rate environment, we expect the asset value to decline by a mid-single-digit percentage range in the first half of 2023. It is not yet possible to narrow the range due to the unchanged low level of transaction activity.

Despite the prevailing buying restraint in the residential property market, LEG succeeded in selling 434 units on average at book value in the first quarter of 2023, ranging from a medium-sized portfolio of 219 units to sales of small lots in our non-core areas in eastern Germany. In total, LEG's sales program comprises more than 5,000 units. However, the company is not under any time pressure.

Solid liquidity reserve, robust balance sheet and high equity ratio

The average cost of financing on March 31, 2023, was 1.35%, with an average debt term on the reporting date of approximately 6.4 years. (12/31/2022: 1.26%, 6.5 years).

Net debt to real estate assets (loan-to-value/LTV) was 43.5% as of March 31, 2023 (03/31/2022: 43.1%). The medium-term target for LTV remains unchanged at 43%.

In the presently difficult market phase, LEG is benefiting from good access to all participants in the financial markets. The outstanding maturities for the current fiscal year amounting to only €53 million have already been addressed. The €500 million bond in 2024 will be repaid partly with cash and partially through new financing. For this, the financing terms for secured loans have already been agreed upon in the amount of €150 million.

LEG also has a solid liquidity reserve thanks to existing cash funds, a commercial paper program and syndicated revolving credit facility. Overall, the financing plans extend to 2026, with LEG being able to operate mostly independent of the bond market.

The suspension of the 2022 dividend also contributes to LEG's good financial position.

At 42.7%, the company also has a very high equity ratio compared to many other industries.

Implementation of air-to-air heat pump offensive launched

As already published in March, LEG intends to equip a large part of its stock with decentralized heating systems, such as gas floor heating systems, in a resource-saving and cost-efficient way using climate-friendly air-to-air heat pumps. LEG also intends to offer its know how gained in this process to the entire industry.

For this, an essential prerequisite is that this technology be given the same legal treatment as central heat pumps in the much-discussed Building Energy Act (GEG). LEG has succeeded in achieving this through intensive dialog with the relevant ministries, and now assumes that all technologies allowed under the GEG will also receive non-discriminatory subsidies.

Following a successful pilot phase, the company has begun to roll-out the Installations and it started holding talks with potential Joint Venture partners.

Lars von Lackum is certain: "The experience gained from LEG's pilot quarters provided key arguments for including decentralized air-to-air heat pumps in the scope of the current draft of the Building Energy Act. When operated with green electricity, the systems operate completely CO₂-free. In addition, a resource-saving one-to-one replacement of individual damaged gas floor heating systems is possible. Our "test tenants" have confirmed the problem-free installation and the pleasant room climate. Last but not least, the use of these units, which can heat and cool at the same time, has long been part of everyday life in many other countries."

Confirmation of 2023 earnings forecast

Based on the development in the first three months of 2023, LEG believes it is well positioned overall and has therefore confirmed the forecast for AFFO in the range of 125 to €140 million.

About LEG

With around 167,000 rental apartments accommodating some 500,000 residents, LEG SE is a leading listed housing company in Germany. The company maintains eight branches and is also represented at select locations with personal local contacts. From its core business of renting and leasing, LEG SE generated revenue of around €1.15 billion in fiscal year 2022, with an average rent of 6.32€/sqm. With a share of around one-fifth social housing and its ongoing commitment towards efficient climate protection - including serial refurbishment with the RENOWATE subsidiary founded at the beginning of 2022 - LEG underscores its dedication to sustainability in various areas.

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Disclaimer

This publication constitutes neither an invitation to buy nor an offer to sell securities. Insofar as we express forecasts or expectations or make statements relating to the future in this document, these statements may involve known and unknown risks and uncertainties. These statements express the intentions, beliefs, or current expectations and assumptions of LEG Immobilien SE. Forward-looking statements are based on current plans, estimates and projections made by LEG Immobilien SE to the best of its knowledge but are not guarantees of future performance. Actual results and developments may therefore differ materially from the expressed expectations and assumptions.