LEG’s FFO Drops as Maintenance Cost Rises at German Landlord

LEG Immobilien AG (LEG), Germany’s second-largest residential landlord by market value, said first-quarter funds from operations fell 4.8 percent after the company spent more on maintaining apartments.

FFO excluding asset sales, a measure of a property company’s ability to generate cash, slid to 33.8 million euros ($44 million) from 35.5 million euros a year earlier, the company said in a statement today.

“This decline is solely due to the temporary effect of higher maintenance expenses,” the Dusseldorf-based company said in the statement. Maintenance costs rose to 12.2 million euros from 7.1 million euros a year earlier.

LEG was taken public by former owner Goldman Sachs Group Inc. in February in the German property industry’s biggest initial public offering. The country’s residential landlords are benefiting from rising rents as household growth in Germany outpaces construction.

Net income from LEG’s main business of renting apartments rose 2.1 percent to 59.5 million euros, the company said. Rent paid by existing tenants climbed 2.1 percent, to 4.91 euros per square meter.

LEG was up 1.1 percent at 44.55 euros at the 5:30 p.m. close in Frankfurt, giving the company a market value of 2.4 billion euros. The IPO price on Feb. 1 was 44 euros a share.

Better Outlook

Group net income fell to 11 million euros from 14.8 million euros a year earlier as costs increased. Net rental income rose 2 percent to 59.5 million euros.

The company repeated its forecast that 2013 FFO will rise to between 137 million euros and 140 million euros, excluding acquisitions. FFO in 2012 was 136.5 million euros. Maintenance spending will fall during 2013, helping boost full-year earnings, it said.

LEG is expected to join Germany’s MDAX index for medium-sized companies following a fast-track review of listings on Wednesday, Manfred Jaisfeld, an analyst at National-Bank AG in Essen, wrote yesterday.

LEG owns 91,000 apartments in North Rhine-Westphalia, Germany’s most populous state. About 18 percent of LEG’s apartments are in the Dusseldorf area, where the number of households is increasing and rents rose 6 percent last year, according to data compiled by research firm BulwienGesa AG.

The company plans to buy 10,000 apartments by the end of 2014. On May 16, LEG said it bought 2,200 apartments from a group of investors led by BGP Investment.

To contact the reporter on this story: Dalia Fahmy in Berlin at dfahmy1@bloomberg.net

To contact the editor responsible for this story: Andrew Blackman at ablackman@bloomberg.net

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