TAG Immobilien : increases its FFO and dividend guidance for the 2018 financial year following strong first-half results

PRESS RELEASE

TAG Immobilien AG increases its FFO and dividend guidance for the 2018 financial year following strong first-half results

- Second-quarter FFO of EUR 36.1 million and EUR 71.2 million for first half of 2018 leads to new full-year FFO guidance of EUR 141-143 million (previously EUR 135-137 million), or EUR 0.97 per share (previously EUR 0.93)

- Dividend guidance for financial year 2018 increased to EUR 0.73 per share (previously EUR 0.70)

- Full revaluation of real estate portfolio as at 30 June 2018 leads to valuation gain of EUR 230.0 million or 5.4% uplift since beginning of the year

- NAV per share increases (adjusted for dividend payments) in the first half of 2018 by nearly 15% to EUR 15.15

- LTV drops to 50.2% as of June 30, 2018, from 52.3% as of 31 December 2017

- Average cost of debt reduced to currently 1.99% p.a. after 2.34% p.a. at the beginning of the year thanks to recent refinancing activities; average maturities of total financial debt further increased to currently 8.8 years, after 8.6 years at the beginning of the year

Hamburg (9 August 2018) - TAG Immobilien AG (TAG) achieved an FFO of EUR 36.1 million in the second quarter of 2018, after EUR 35.1 million in the previous quarter and EUR 30.9 million in the same period of the previous year. FFO for the full first half of 2018 was EUR 71.2 million or EUR 0.49 per share, a significant 20% increase compared to the same period last year (EUR 59.4 million or EUR 0.41 per share).

Positive development of key operating indicators

In the second quarter of 2018 net rent of EUR 75.1 million was almost unchanged compared to the previous quarter (EUR 75.6 million), the slight decline being explained by the sales that took effect in the first half of the year. Compared to Q2 2017, when net rent amounted to EUR 71.8 million, the figure increased by EUR 3.3 million. Net rental income increased to EUR 61.3 million in Q2 2018 compared to EUR 59.8 million in Q1 2018 and 58.9 million in Q2 2017 thanks to further cost reductions and efficiency increases. Net rent for the full first half of 2018 amounted to EUR 150.7 million, after EUR 143.3 million in the same period of the previous year; first-half net rental income for 2018 increased to EUR 121.1 million, after EUR 117.9 million at 30 June 2017.

Vacancy rate in TAG's residential units was 5.5% at the end of the second quarter of 2018, compared with 5.3% at the beginning of the year. This temporary increase in vacancy was primarily due to acquisitions added to the portfolio in recent months, and to modernisation projects which are expected to contribute to reducing vacancy in the further course of the year. Like-for-like rental growth in the residential units amounted to 1.9% in the last twelve months (2017: 2.0%); including the effects of the vacancy reduction, rental growth totalled 2.5% (2017: 3.1%). Expenditure on maintenance and modernisation measures in the residential units in the first half of 2018 was maintained at an average of EUR 9.08 per sqm (EUR 15.12 per sqm in the 2017 financial year), despite the aforementioned measures to reduce vacancy.

In June and July 2018, a total of 197 apartments were acquired in two transactions in Mecklenburg-Western Pomerania and Thuringia, for a total purchase price of EUR 5.5 million. The average purchase multiplier paid was 10.8 times the current annualised net rent, which corresponds to an annualised gross yield of 9.3%.

Apart from these acquisitions, 773 apartments were sold in the first half of 2018. Besides the ongoing disposals of 312 units, the sale of a portfolio of 461 apartments in North Rhine-Westphalia and Lower Saxony is particularly noteworthy. This sale was part of the ongoing portfolio optimization, and included properties that were not part of TAG's core portfolio due to their locations. TAG's real estate portfolio comprised around 82,400 units as of 30 June 2018, vs approximately 83,100 units at the end of 2017.

Consolidated net income at the end of the first half of 2018 was EUR 218.3 million after EUR 74.0 million as of 30 June 2017, an increase that is mainly attributable - besides the improved operating result - to the very positive valuation result.

The EPRA NAV (Net Asset Value) per share was EUR 15.15 at the end of the second quarter 2018, compared to EUR 13.80 on 31 December 2017. Adjusted for the dividend payment of EUR 0.65 per share in May 2018 this leads to a NAV increase in the first half of 2018 of nearly 15%.

The loan-to-value (LTV) debt ratio was further decreased to 50.2% as of 30 June 2018 (31 December 2017: 52.3%). This means that the target LTV - at approx. 50% by no later than year-end 2018 - was already achieved by the half-year mark.

Revaluation of the portfolio as at 30 June 2018 underscores price dynamics in TAG's operating regions

As in financial year 2017, TAG's real estate portfolio was completely revalued by the independent expert CBRE GmbH at the end of the first half. Besides the associated increase in transparency, the main reason for this shortening of the valuation interval was the current price dynamics for German residential markets, which are clearly shown in the regions where TAG has operations.

Overall, the revaluation resulted in a valuation gain of EUR 230.0 million. This increase was caused by the better-than in the last valuation assumed operational development (15% or EUR 35.2 million) and effects from yield compression (85% or EUR 194.8 million), i.e. lower capitalisation rates due to lower return expectations on the part of potential buyers. Given the still moderate valuation of approx. EUR 895 per sqm (31 December 2017: approx. EUR 845 per sqm), which translates to an average valuation gross yield of 6.7% (31 December 2017: 7.1%), there is still potential for further uplift in future.

Further interest savings through issuance of corporate bonds and early repurchase of an existing corporate bond

In June 2018, TAG issued two corporate bonds with a total volume of EUR 250 million and maturities of 5 and 7 years, respectively, by way of a private placement. The annual interest rates are 1.25% and 1.75%, respectively. At the same time, TAG prematurely repurchased a EUR 125 million corporate bond with an interest rate of 3.75% and an original term until June 2020.

In addition, the outstanding volume of EUR 191 million (interest rate 5.125% p.a.) of the Corporate Bond 2013/2018 was repaid as scheduled on 7 August 2018, when it matured.

FFO and dividend guidance raised

The positive operating development is expected to continue in the second half of 2018. The effects of the above-mentioned refinancing through new corporate bonds will also lead to rising earnings and additional cash flows. As a result, the FFO forecast for the 2018 financial year has been raised from EUR 135-137 million to EUR 141-143 million. Per share, this translates to an expected increase in FFO to EUR 0.97 after the originally planned EUR 0.93. The dividend per share for 2018 is to be increased from EUR 0.70 to EUR 0.73. The new forecasts thus include a 12% year-on-year growth vs. the 2017 financials.

"The operating development in the past few quarters has been extremely positive. In addition, we have further optimised our financing structure and strongly reduced our average cost of debt from 3.15% to currently only 1.99% in the past 18 months, while extending the average maturities of our total financial debt during this time from 8.3 years to currently 8.8 years" explains TAG Immobilien AG CFO Martin Thiel. "On this basis, we are pleased to be able to raise our FFO guidance for 2018 today, and to be able to give our shareholders an attractive share in the success of our company by further increasing the dividend."

Further details on the course of business in the first half of 2018 can be found in the interim report for the second quarter of 2018 published today at https://www.tag-ag.com/en/investor-relations/financial-statements/quarterly-reports/.

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TAG Immobilien AG
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Dominique Mann
Phone +49 (0) 40 380 32 300
Fax +49 (0) 40 380 32 390
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