ADO Properties S.A. reports resilient H1 2020 financial results and confirms guidance for 2020

- Transaction to gain control over ADLER has been successfully completed

- Significant improvement in financial performance with substantial increase of income from rental activities due to the consolidation of ADLER

- Strong performance of rental portfolio with like-for-like rental growth of +1.9% and a sustained low vacancy rate of 4.0%

- EPRA NRV stood at €4.3bn, €5.5bn post rights issue and Consus equating to pro-forma EPRA NRV per share of €45.96

- Fair value of portfolio increased by +2.3% mainly outside Berlin given the rent freeze. Revaluation amidst Covid-19 shows resilience of residential real estate

- Reconfirmation of full year 2020 guidance

Berlin, 31 August 2020 - In the first half of 2020, ADO Properties S.A. ("ADO") successfully completed the acquisition of ADLER Real Estate Aktiengesellschaft ("ADLER") and made an important first step to acquire control of Consus Real Estate AG ("Consus") by exercising its call option, thereby establishing the Company as one of the largest listed residential players in Europe with a significant footprint in the Top 7 German cities. In the last six months, ADO has achieved a number of major milestones which have positioned it to become a potential MDAX candidate with an integrated German residential platform that includes c.75,000 units and a fair value of its investment properties of €8.8bn. ADO's unique build-to-hold development pipeline permits future growth whilst capitalizing on additional embedded value. With this significant development capability, ADO is well positioned to help reduce the housing shortage in Germany.

The successful closing of the business combination with ADLER in April was followed by ADO acquiring control of Consus through the exercise of its call option at the end of June. In July 2020, ADO enhanced its capital structure and extended its debt maturity profile following the successful completion of a €457m rights issue and the placement of a €400m five-year bond.

As at the end of H1 2020, ADO owns c. 95% of ADLER. As such, ADLER is now fully consolidated with ADO and included in its consolidated financial statements for the first time. ADO now benefits from a well-diversified German residential portfolio with c.75,000 units and a fair value of its investment properties of €8.8bn.

Resilient business underpins solid performance

Income from rental activities more than doubled in H1 2020 to €147.9m from €71.4m in H1 2019. This was primarily attributable to the first time consolidation of ADLER at the beginning of Q2 2020 which was partially offset by the sale of 5,900 units at the end of 2019. Net rental income increased to €114.8m in H1 2020 from €67.4m in H1 2019.

EBITDA from rental activities increased significantly to €77.3m in H1 2020 from €47.9m in H1 2019. FFO 1 (from rental activities) increased to €44.3m in H1 2020 from €33.4m in H1 2019, corresponding to a FFO 1 per share of €0.88 (H1 2019: €0.76 per share).

Despite the Berlin rental freeze legislation ("Mietendeckel") coming into force on 23 February 2020, which partially restricted like-for-like rental growth in H1 2020, the portfolio performed strongly. Following the successful business combination with ADLER, which was completed on 9 April 2020, ADO has significantly reduced its Berlin residential real estate exposure to approximately 35% of total rental income (as of H1 2020) and thus expects the rent cap to have a considerably lower financial impact than on a standalone basis. The average in-place rent of the rental portfolio increased to €6.2 per sqm per month as of H1 2020 (FY 2019: €6.1). The vacancy rate for the top 13 cities for rental portfolio decreased to 4.0% as of H1 2020 compared to 4.2% as of H1 2019.

High quality portfolio

As at 30 June 2020, the fair value of ADO's portfolio amounted to €8.8bn (FY 2019: €8.6bn). Despite the Berlin rent freeze legislation coming into force, valuations remained resilient with the portfolio value increasing by €0.2bn, representing an increase of +2.3% for the rental portfolio (Berlin remained unchanged and the rental portfolio outside Berlin increased by +4.7%). The portfolio comprised 74,682 units (FY 2019: 75,721 units), with 77% of fair value located in the top 13 cities in Germany.

The EPRA Net Reinstatement Value (EPRA NRV) of the portfolio amounted to €4.3bn which represents €75.32 per share as of H1 2020 compared to €70.98 as of FY 2019. Following balance sheet date ADO investors had the opportunity to acquire shares in a value neutral rights issue which resulted in a pro-forma EPRA NRV per share of €54.17 per share. Adjusted for rights issue and acquisition of Consus (assuming 100% ownership of Consus post VTO), pro-forma EPRA NRV stood at €5.5bn equating to EPRA NRV per share of €45.96.

Disciplined financial structure

ADO has an LTV of 53.5% at the end of H1 2020. Management remains committed to further decrease the LTV to achieve its mid-term target of 50% and is focused on achieving an investment grade rating.

Guidance reiterated

ADO reconfirms its guidance for net rental income, FFO 1 and dividend for the financial year 2020 as per table below.

Business combination with ADLER and acquisition of Consus successfully completed; integration progressing as planned
On 9 April 2020, ADO successfully closed its business combination with ADLER (current ownership of c. 95%), creating one of the largest listed real estate companies in Europe. Significant progress has been made in the integration of both companies. On 28 April 2020, ADO announced it has initiated the process to implement a domination agreement with ADLER in order to further accelerate the integration. A dedicated Steering Committee has been established to oversee the integration, and considerable effort has been undertaken to sharpen the joint mission, vision and high-level strategy of the combined entity. The combined group is ahead of schedule in realizing its operational synergies of €9m run rate expected by year-end 2020. Additionally, ADO will replace its intercompany loan to subsidiary ADLER and the value of the ADO shares that were transferred from ADLER to ADO by equity receiving shares in ADLER.

Additionally, ADO has taken action to streamline the structure of the combined group through a voluntary tender offer made on 25 March 2020 for all remaining outstanding shares of WESTGRUND AG. ADO will pursue the announced voluntary public tender offer for all remaining shares in Consus.

ADO is well placed to manage headwinds of Covid-19 and Berlin rent freeze
Through the business combination with ADLER, ADO has significantly enhanced in scale, diversified its portfolio and reduced its exposure to Berlin. The benefits of the combination are already beginning to materialize, and the group is well positioned to deliver attractive returns to shareholders in the future. The acquisition of Consus meanwhile provides the combined group with access to a market-leading development platform that will support ADO's efforts to address the current housing shortage in Germany.
As a result of the greater scale and portfolio diversification facilitated by ADO's combination with ADLER, the group is well placed to manage any potential impact from Covid-19 and the Berlin rent freeze legislation. The defensive nature of ADO's portfolio, and indeed the broader German real estate market, should prove resilient during these times of exogeneous pressure as ADO continues to benefit from a reliable rental income stream and a strong liquidity position.

Following the combination with ADLER, only 35% of ADO's residential rental income is subject to the Berlin rent freeze legislation. ADO expects a reduction of FFO for 2020 by €1m and a negative impact on FFO in 2021 of €9m due to the Berlin rent freeze legislation. ADO continues to believe that the rent cap is unconstitutional and unlikely to address the housing shortage in Germany and notes that, in a positive development, the Berlin rent cap has been referred to the German Federal Constitutional Court for a definitive ruling following a lawsuit by members of the German parliament. ADO supports these efforts and will monitor the outcome of the legal challenge closely.

Annual General Meeting
The Annual General Meeting is scheduled for 29 September 2020 and will be held virtually.

Maximilian Rienecker, Co-CEO of ADO said: "It is a testament to the strength and resilience of ADO's business model that we are able to deliver a strong set of results for the first six months of 2020 and confirm our guidance for the full year despite the turbulence caused by Covid-19. In light of current market conditions, the decision to proceed with the business combination with ADLER has clearly strengthened the group's position."

Thierry Beaudemoulin, Co-CEO of ADO added: "Through the transformational business combination we completed with ADLER and the exercise of the call option in Consus, we significantly enhanced the quality and diversity of our portfolio, meaning we are well placed to deliver consistent value to shareholders going forward. The transaction has facilitated our growth into one of the largest real estate companies in Germany and provides us with the capability to take meaningful action to address the German housing shortage. Our efforts towards the integration of both companies have proceeded with pace and as planned, with only limited interruption caused by Covid-19. We look forward to reporting as a single entity with Consus included in the accounts for the first time in Q3 2020 and to sharing our combined mission and values with the market in the near-future."

Earnings call

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