TAG Immobilien AG raises FFO and dividend forecast for 2017 financial year following strong H1 operating performance, acquires further properties

DGAP-News: TAG Immobilien AG / Key word(s): Half Year Results/Interim Report

10.08.2017 / 06:50
The issuer is solely responsible for the content of this announcement.


TAG Immobilien AG raises FFO and dividend forecast for 2017 financial year following strong H1 operating performance, acquires further properties

- FFO of EUR 30.9m in Q2 and EUR 59.4m in first half of 2017 lead to new full-year forecast of EUR 119-121m (previously EUR 110-112m) or EUR 0.82 per share (previously EUR 0.77)

- Dividend forecast for the 2017 financial year raised to EUR 0.62 per share (previously EUR 0.60)

- Purchase of another approx. 1,400 residential units in Q2 brings total acquisitions in first half of 2017 to around 4,100 residential units

- Vacancy in the Group's residential units falls to 5.5% at June 30, 2017 after 6.1% at the beginning of the year

- Like-for-like rental growth at 3.3% including effects of vacancy reduction

- Full portfolio valuation at 30 June 2017. Valuation gain of EUR 296.2m, or EUR 39.5m after change in valuation to full deduction of transaction costs

- Early refinancing of bank loans with a nominal value totalling EUR 560.7m. Average interest rate on these loans decreases to 1.7% p.a. with new maturity and interest term period of 9.1 years (previously 3.5% p.a. and remaining maturity/interest term period of 0.9 years)

- Investment Grade rating received from Moody's (Baa3 with stable outlook)

Hamburg (10 August 2017) - In the second quarter of 2017, TAG Immobilien AG (TAG) generated FFO of EUR 30.9m, after EUR 28.5m in the previous quarter and EUR 23.3m in Q2 of the previous year. FFO for the entire first half of 2017 thus amounted to EUR 59.4m or EUR 0.41 per share, a significant year-on-year increase of 32% and 17%, respectively (EUR 44.9m or EUR 0.35 per share).

Positive development of key operational indicators

Total rental income increased to EUR 71.8m in Q2 2017, after EUR 71.5m in the previous quarter. Net rental income increased to EUR 61.1m compared to EUR 59.0m in the first quarter of 2017. Total rental income for the full half-year 2017 amounted to EUR 143.3m, after EUR 136.0m in the previous year. Net rental income rose to EUR 120.1m in the first half of 2017, after EUR 108.4m at 30 June 2016.

Group-wide vacancy in the residential units of the TAG regions was reduced from 6.1% at the beginning of the year to 5.5% at the end of Q2 2017, of which a 0.2 percentage-point reduction was attributable to the sale of a portfolio with above-average vacancy. Like-for-like rental growth in the Group's residential units amounted to 2.0% over the last twelve months. Including the effects of the vacancy reduction, this results in an attractive 3.3% growth in rents (31 December 2016: 2.0%; 3.7%). Expenditure on maintenance and modernisation measures was kept at a very moderate level in the first half of 2017, and averaged EUR 7.01 per sqm (EUR 15.41 per sqm for the full 2016 financial year).

At the end of the first half of 2017, consolidated net income was EUR 74.0m, after EUR 40.1m at 30 June 2016. Besides the improvement in operating performance, this increase is also attributable to the positive valuation result of EUR 39.5m as at 30 June 2017 (EUR 4.4m as at 30 June 2016).

After the payment of a dividend of EUR 0.57 per share in May 2017, the EPRA NAV (net asset value) per share was EUR 11.65 (or EUR 9.95 (after full deduction of transaction costs) at the end of Q2 2017, compared with EUR 11.53 at 31 December 2016. The loan-to-value (LTV) ratio rose slightly to 57.5% (31 December 2016: 57.1%) as a result of the dividend payment.

Portfolio valuation at 30 June 2017 reflects price dynamic in the areas where TAG operates as well as the company's active value-creation approach. Valuation changed to full deduction of transaction costs

For the first time, TAG's real estate assets were completely revaluated by the independent assessor CBRE GmbH as at 30 June of the year. Besides the associated increase in transparency, the main reason for reducing the interval between valuations is the price dynamic currently observed in German residential real estate, which is also clearly evident in the areas where TAG operates. For instance, based on the previous valuation practice, as at 30 June 2017 there was a valuation gain of EUR 296.2m (approx. 7% increase in value over a nine-month period) after EUR 163.8m in the last full revaluation of the portfolio as at 30 September 2016. However, beyond this, the valuation result still contains a one-time adjustment of EUR 256.7m from the reassessment of transaction costs as part of the portfolio valuation, resulting in an overall valuation result of EUR 39.5m. This change in valuation was made largely due to growing uncertainty about the future admissibility under tax law of transfer tax-neutral property transfers by structuring them as a share deal. As a result, TAG is anticipating a potential future risk of impairment and is implementing this one-time effect.

As a result, the valuation with an average book value of only approx. EUR 800.00 per sqm and a valuation factor of 13.5 times the current annual net rent (corresponding to a 7.4% gross yield), remains at a conservative level and thus offers clear potential for further value increases.

Until further notice and depending on the market and price dynamics in the regions operated by TAG, the portfolio will be revaluated semi-annually from now on. The next valuation will therefore be performed as at 31 December 2017.

Further purchase of approx. 1,400 residential units and successful capital recycling

In the first half of 2017, more than 4,100 residential units were acquired for a total purchase price of EUR 147.8m. An average purchase multiplier of 12.1 on the current annual net cold rent was paid, which corresponds to an annual gross yield, based on the current net cold rent, of 8.3%. This achievement demonstrates TAG's ability to acquire portfolios that fit with its business model even in the current market environment.

Besides these acquisitions, sales of around 1,200 residential units were also made in the first half of 2017. In addition to the ongoing sales business and the sale of a portfolio of around 530 residential units in Brandenburg an der Havel with an above-average vacancy rate, the sale of a portfolio of c. 460 units in Freiburg is especially noteworthy here, negotiated for a selling price of more than 22 times the annual net cold rent. So on average, i.e. also including properties that are not part of the core portfolio, a multiplier of 17.4 on the current annual net cold rent was achieved overall. At 30 June 2017, TAG's residential portfolio comprised around 83,000 units.

FFO and dividend forecasts raised again

A continuation of the positive operating performance and therefore further FFO increases can be expected in the second half of 2017. The acquisitions of around 4,100 residential units that became effective as of 30 June 2017 will also have an effect on the operating performance of the second half of the year. For this reason, the FFO forecast for the 2017 financial year can now be increased again from EUR 110-112m to EUR 119-121m. An increase in the FFO per share to EUR 0.82 is expected, from the originally planned EUR 0.77. Dividend per share is also to be raised from EUR 0.60 to EUR 0.62, which corresponds to a pay-out ratio of 75% of FFO.

Significant interest cost savings secured by extensive refinancing of bank loans ahead of schedule, and new institutional 'Investment Grade' rating

From June to August 2017, bank loans with a total nominal value of EUR 416.9m, an average interest rate of 3.5% p.a., and a remaining maturity/interest term period averaging 0.9 years were refinanced ahead of schedule, significantly reducing the interest cost on these loans to 1.7% p.a. At the same time, this refinancing was made long term, which means the new average maturity and interest term period of these loans is now 9.1 years. This results in future interest savings of approximately EUR 7.4m per annum on the original nominal amount, which will not, however, be fully reflected in consolidated net income until the 2018 financial year.

In the course of the refinancing, the total nominal value of the renegotiated bank loans was significantly increased, and now amounts to EUR 560.7m. Minus the expected breakage fees of EUR 7.5m, this has generated additional liquidity of around EUR 136.3m, which can be used for further acquisitions or for repaying debt with higher interest rates.

Furthermore, in August 2017 the rating agency Moody's published an issuer rating for TAG with the grade 'Baa3' and a stable outlook. This Investment Grade rating, which is internationally recognised in the capital market, underscores TAG's strong operating performance and stable financing structure. At the same time, it increases TAG's future flexibility in matters of financing, and supports the Group's strategy of continuously optimising the financing structure.

"The operating performance of the last quarters was again distinctly positive and exceeded our expectations," explains Martin Thiel, Chief Financial Officer of TAG Immobilien AG. "Falling vacancy and rising rents led to a rise in net rental income, and external growth was also very gratifying thanks to the acquisition of more than 4,100 residential units with an average gross yield of more than 8% in the first half of 2017. Against this background, we are able to once again significantly increase the FFO and dividend forecast for the 2017 financial year. The Investment Grade rating also attests to our strong operating performance and stable financing structure. By refinancing the bank loans ahead of schedule and enhancing our portfolio with targeted acquisitions, we have secured strong growth in cash flows for the coming quarters and years."

For details, please refer to the quarterly report as at 30 June 2017, which was published today at https://www.tag-ag.com/en/investor-relations/financial-statements/quarterly-reports/.

Press enquiries:
TAG Immobilien AG
Head of Investor & Public Relations
Dominique Mann
Tel. +49 (0) 40 380 32 300
Fax +49 (0) 40 380 32 390

10.08.2017 Dissemination of a Corporate News, transmitted by DGAP - a service of EQS Group AG.
The issuer is solely responsible for the content of this announcement.

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Company:TAG Immobilien AG
Steckelhörn 5
20457 Hamburg
Phone:040 380 32 0
Fax:040 380 32 388
ISIN:DE0008303504, XS0954227210, DE000A12T101
WKN:830350, A1TNFU, A12T10
Listed:Regulated Market in Frankfurt (Prime Standard), Munich; Regulated Unofficial Market in Berlin, Dusseldorf, Hamburg, Hanover, Stuttgart, Tradegate Exchange

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