LEG Immobilien AG: continued strong earnings momentum; first outlook for 2018 confirms strength of growth strategy

• FFO I climbs by 32.9% year-on-year to EUR 210.6 million
• Additional investment programme of around EUR 200 million promises further acceleration of organic growth
• Clear focus on steadily increasing the high operating margin expected to result in continuing strong FFO growth
• FFO I forecast reiterated: FFO I expected to reach a range of EUR 261 million to EUR 265 million in 2016 and a range of EUR 284 million to EUR 289 million in 2017. Initial effects from investment programme not yet included in outlook for 2017
• Further significant rise in FFO I to between EUR 307 million and EUR 313 million planned for 2018
• Portfolio valuation as at the end of the year indicates a valuation gain of around EUR 500 million to EUR 520 million in 2016

LEG Immobilien AG is continuing its excellent business performance and improved all relevant operating and financial performance indicators in the first nine months of the year, in some cases significantly. Besides the dynamic development of rental revenues, the main driver for the strong rise in earnings was a further expansion of the operating margin thanks to synergies from acquisitions and strict cost discipline.

'The business performance in the first nine months once again demonstrates the strength of LEG's focussed growth strategy. We are systematically continuing along this path of value-generating growth. Further acceleration of organic growth by means of higher investments in the portfolio, together with the strong focus on further increasing the leading profitability, underpin the prospects for generating dynamic profit and dividend growth in the years ahead,' commented Thomas Hegel, CEO of LEG Immobilien AG.

Earnings up significantly in first nine months of 2016

Funds from operations (FFO I), a key performance indicator, increased significantly by 32.9% year-on-year to EUR 210.6 million (previous year: EUR 158.5 million). FFO I per share climbed by 21.4%. This development was due to the rise in net in-place rent including the effects of acquisitions, the slower increase in operating costs and the reduced cash interest expenses. Despite higher expenses for maintenance work, the EBITDA margin improved to 72.4% year-on-year (previous year: 69.3%).

EPRA net asset value (not including goodwill) was EUR 58.79 per share as at the end of the quarter. Valuation gains totalling around EUR 500 million to EUR 520 million are expected from the regular remeasurement of the property portfolio scheduled for the end of the year. EPRA NAV is accordingly expected to rise to around EUR 66 to EUR 67 per share.

Rent development remains positive; dynamic growth in free financed portfolio

In the first nine months of 2016, LEG increased its rental income by 17.2% year-on-year to EUR 381.3 million (previous year: EUR 325.3 million). In addition to positive effects from housing acquisitions, organic rent growth was a major factor in this development. Thus, rent per square metre rose by 2.4% as against the previous year on a like-for-like basis. Rents for free financed apartments climbed by 3.3%, thereby demonstrating continued dynamic growth. As at 30 September 2016, monthly in-place rent averaged EUR 5.25 per square metre. Based on the positive development in rents, rental growth of between 2.4% and 2.6% is still forecast on a like-for-like basis for 2016 as a whole.

The like-for-like EPRA vacancy rate remained stable at 3.1% as at 30 September 2016. The vacancy rate is still expected to continue to decline to a level of around 2.6% to 2.8% on a like-for-like basis in the fourth quarter of 2016.

Investment in the property portfolio amounted to EUR 11.30 per square metre as at 30 September 2016. In order to maintain the quality of the property portfolio and take advantage of opportunities for value-adding measures, around EUR 18 per square metre is to be invested in the 2016 financial year. Newly purchased properties will account for an above-average share of this figure.

Based on an in-depth analysis, potential for additional investments totalling around EUR 200 million has already been identified for the next three years. This will lay the foundations for further acceleration of organic rental growth and continued dynamic growth in earnings.

Long-term financing with attractive terms secured

With its long-term and balanced financing, LEG is excellently positioned for sustainably stable earnings and dividend growth. As a result of the refinancing measures carried out in the current and the previous financial years, LEG's average financing costs were further reduced to 2.05% (previous year: 2.27%) with an average term of 10.9 years as at the end of September 2016. This contributes to a high degree of security for stable medium-term earnings and dividend growth, even in a scenario of rising market interest rates.

Net debt in relation to property assets (loan-to-value/LTV) is at a solid level of 48.8%. Based on the anticipated valuation gains, a further reduction in the loan-to-value ratio can be anticipated as at the end of the year.

Sales opportunities in current market environment exploited systematically

In view of the sharp rise in purchase prices, the market environment for value-generating acquisitions has become more challenging in North Rhine-Westphalia, too. In this market environment, LEG has acquired around 2,000 residential units with attractive yields in the current financial year to date. LEG will still adhere to its principle of capital discipline even in the current market situation and will only pursue opportunities that offer potential for a sustainable increase in shareholder value. At the same time, LEG selectively sold properties that are no longer consistent with the company's long-term core portfolio at attractive conditions. Around 4,000 apartments were thus sold at a premium of around 13% on their carrying amount. In addition to the direct positive contribution to earnings, these transactions also underscore the intrinsic value of LEG's portfolio.

Outlook for FFO I for 2016 and 2017 confirmed with further improvement in quality of earnings; further significant rise in profits planned in 2018

Based on its business performance in the first nine months of the 2016 financial year, LEG believes that it is well positioned to achieve its goals for its key financial and operating figures. LEG is therefore confirming its forecast for FFO I in a range of EUR 261 million to EUR 265 million for the 2016 financial year and in a range of EUR 284 million to EUR 289 million for 2017. The loss of earnings contributions from property sales can thus be entirely offset. The profit forecast for 2017 does not yet include the initial positive contribution to be expected from the additional investment programme. For the 2018 financial year, LEG anticipates a further significant increase in FFO I to between EUR 307 million and EUR 313 million. The basis for this is another planned increase in the EBITDA margin to around 73% in 2018. This outlook is based on the assumption of a stable residential property portfolio and does not take account of effects from planned acquisitions.

About LEG

With around 130,000 rental properties and approximately 350,000 residents, LEG is one of Germany's leading listed housing companies. The company has eight branch offices in North Rhine-Westphalia, providing personal local contact. LEG generated rental and lease income of around EUR 645 million in the 2015 financial year.

Investor Relations contact:

Burkhard Sawazki

Tel. +49 211 45 68-204
E-mail: burkhard.sawazki[at]­leg.ag

Press contact:

Britta Maria Schell

Tel. +49 211 45 68-325
E-mail: britta.schell[at]­leg-wohnen.de

The quarterly report for Q3 2016 is available to download at http://www.leg.ag/Q3-2016-en

Disclaimer

This publication constitutes neither a solicitation to buy nor an offer to sell securities.

To the extent that we express forecasts or expectations or make forward-looking statements in this document, these statements can entail known and unknown risks and uncertainties. These statements reflect the intentions, opinions, or current expectations and assumptions of LEG Immobilien AG. The forward-looking statements are based on current planning, estimates and forecasts, which LEG Immobilien AG has made to the best of its knowledge, but that are not a statement on their future accuracy. Actual results and developments can therefore differ materially from the expectations and assumptions expressed.