DGAP-News: ADLER Real Estate AG: 2019 Half Year Results: Solid progress with KPIs driven by ongoing portfolio optimisation and further capital structure improvements

2019 Half Year Results:
Solid progress with KPIs driven by ongoing portfolio optimisation and further capital structure improvements

- Strong earnings growth with FFO I up 18.8% to EUR 41.7m from EUR 35.1m in H1 2018 driven by strong underlying l-f-l rental growth of 3.4% and the positive effects from the BCP acquisition

- Diluted EPRA NAV per share (excl. goodwill) 7% higher at EUR 22.23 (FY 2018: EUR 20.77)

- Good progress to focus ADLER on core activities post M&A with disposals of non-strategic assets to date totalling EUR 500.9m allowing for net debt repayment of c. EUR 260m

- WACD lowered to 2.08% through net debt repayment and the issue of a EUR 400m bond at a 1.5% fixed coupon, resulting in a c. EUR 12m of annualised savings in interest payments and 2019 FFO I guidance raised from EUR 80-85m to EUR 83-86m

- 8.8ppts LTV reduction since the BCP acquisition to 58.7% for H1 2019, on track to achieve around 55% at the year end

 

Berlin, 14 August 2019 - Reporting its H1 2019 results today, ADLER Real Estate has made solid progress on a number of fronts to consolidate its activities as well as continuing to improve its capital structure through lowering its cost of debt via a new bond issue.

Portfolio activity
In the first half ADLER moved significantly closer towards simplifying its business activities and remaining a purely German residential real estate company. To that effect, a number of disposals of non-strategic assets were completed.

Residential sales
At the end of December ADLER announced the disposal of c. 3,700 non-core residential units through two separate transactions. These transactions were completed in Q1 2019. The two transactions had a gross asset value (GAV) of EUR 179.2m and were sold at a c.3% premium to book value.

Retail sales
With two separate transactions 14 different retail properties representing c. 67% (GAV of EUR 321.7m) of the retail portfolio were disposed. These had been acquired in connection with the takeover of BCP concluded in H1 2018.

The first part of the BCP retail portfolio was sold at the end of March 2019 and closed in Q2 2019. It included three retail assets located in Rostock, Celle and Castrop-Rauxel with GAV of EUR 180.6m and was sold at c.7.6% premium to book equity value.

The second cluster was sold at the end of June and included 11 retail assets with a GAV of EUR 141.1m representing an 8.8% discount to book value.

Total retail sales from the BCP portfolio represent a GAV of EUR 321.7m and were disposed at an average discount of c.2.3% to ADLER's current book value. The remaining EUR 158.2m of retail assets, for which we have received interest from a number of different real estate investors, will be sold opportunistically during 2019/2020.

Treasury shares exchanged for assets
As announced in July 2019, ADLER opportunistically used 980,000 of its treasury shares to pay for 72 units in Potsdam and Berlin with a GAV of EUR 37m. Treasury shares were exchanged at a price of EUR 14.5 per share which represents 20.8% premium to the then closing share price of EUR 12.00. Some 1,603,232 treasury shares remain outstanding.

Net rental income increased by 16.6% to EUR 127.2m compared to the same period in previous year
As of H1 2019, ADLER's portfolio comprised of 58,095 units. Net rental income increased by 16.6% YoY to EUR 127.2m as of H1 2019. Significant increase was driven by operational improvements achieved through internalization of property and facility management as well as the acquisition of BCP. Consequently, all the main key performance indicators improved. ADLER achieved like-for-like (l-f-l) rental growth of 3.4%, 130bps YoY decrease in vacancy rate to 6.4%. The average in-place rent increase to EUR 5.54 per sqm/month (H1 2018: EUR 5.40 sqm/month).
Since FY 2018 vacancy rates across the portfolio increased marginally to 6.4% as a result of seasonal fluctuation, capex measures and active portfolio management to reduce delinquencies in specific assets across the portfolio and replacing them with more credit worthy tenants willing to pay market rents. This will provide a good basis for long term growth in net rental income, but may delay our goal to reduce vacancy to 5.0% by the end of 2019. Consequently, we are prudently guiding the market to expect a 6% vacancy rate for 2019.

FFO I grew by 18.8% to EUR 41.7m
As of H1 2019 FFO I stood at EUR 41.7m, representing 18.8% YoY increase (H1 2018: EUR 35.1m). Fully diluted FFO I per share amounted to EUR 0.53 (H1 2018: EUR 0.44). Strong growth in FFO is reflecting positive operational performance and acquisition of BCP in April 2018.

EPRA NAV increased further to EUR 1,754.2m
As of H1 2019 EPRA NAV (excl. goodwill and fully diluted) amounted to EUR 1,754.2m, 7.0% increase compared to EUR 1,639.0 as of FY 2018. Diluted EPRA NAV per share (excl. goodwill) stood at EUR 22.23 (FY 2018: EUR 20.77).

WACD was further reduced to 2.08%
As part of the ongoing management of cost of debt, in April, ADLER successfully placed a EUR 400m bond with a 3-year maturity and a 1.5% fixed coupon. This was used to refinance more expensive existing debt. It should be noted that the bond was issued at a

historically tight spread for BB+ rated bond, representing the significantly improved capital structure and general metrics of the Company. Proceeds were used to refinance the outstanding 4.75% 2020 notes, called back in June 2019, as well as the refinancing of other debt. Annual FFO contribution from savings of the refinancing amounted to c. EUR 12m, triggering an upgrade in FFO I guidance from EUR 80-85m to EUR 83-86m.

Commenting on the results Co- CEO Tomas de Vargas Machuca said "we continue to extract value from the transformative effects of the BCP acquisition and its related disposals, which together with good rental growth and the restructuring of our management activities has significantly improved ADLER's profile. The first half of 2019 demonstrates the ongoing progress we are making across a number of fronts to consolidate our position as a value creator in the affordable residential real estate sector in Germany."

Maximilian Rienecker, Co-CEO of ADLER Real Estate AG, added "bringing down our cost of debt has been a core focus of our recent activities and our efforts in the first half have reduced our WACD from 2.23% to 2.08%, the resultant cost savings will flow directly through to earnings."

The complete financial report of ADLER Real Estate AG for the first half 2019 is available on the company's website (www.adler-ag.com).

Your contact for enquiries:

Tina Kladnik
Head of Investor Relations
ADLER Real Estate AG
Tel: +49 162 424 68 33
[email protected]

Key financials H1 2019

In EUR millions
Consolidated Statement of Income		H1 2019		H1 2018
Net rental income		127.2		109.1
Earnings from property lettings		112.5		96.5
Earnings from the sale of properties		-8.9		3.1
EBIT		214.0		201.5
Consolidated net profit from continuing operations		113.6		65.3
Consolidated net profit		113.8		65.6
FFO I		41.7		35.1
FFO I per share in EUR (fully diluted) 1)		0.53		0.44
Consolidated Balance Sheet		30.06.2019		31.12.2018
Investment Properties		5,008.2		5,077.2
EPRA NAV (excl. Goodwill and fully diluted)		1,754.2		1,639.0
EPRA NAV (excl. Goodwill and fully diluted)/share in EUR 1)		22.23		20.77
LTV in % 2)		58.7		61.4
Cashflow		H1 2019		H1 2018
Net cash flow from operating activities		44.1		66.0
of which from continuing operations		43.9		65.7
Net cash flow from investing activities		24.9		-492.2
of which from continuing operations		24.9		-492.2
Net cash flow from financing activities		29.5		189.2
of which from continuing operations		29.5		189.2
Portfolio		30.06.2019		30.06.2018
Rental units		58,095		62,059
of which residential		57,197		60,900
Average rent (EUR/sqm/month)		5.54		5.40
Vacancy rate (%)		6.4		7.7
Employees		30.06.2019		30.06.2018
Number of employees		883		766
1) 2018 based on the number of shares outstanding as at balance sheet date plus shares from assumed conversion of mandatory bond which was considered as equity 2) excluding convertible bonds