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Operator: Ladies and gentlemen, welcome to the LEG Immobilien Q3 2025 Conference Call and Live Webcast. I am Mathilde, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Frank Kopfinger, Head of Investor Relations. Please go ahead.
Frank Kopfinger: Thank you, Mathilde, and good morning, everyone, from Düsseldorf. Welcome to our call for our 9 months 2025 results call, and thank you for your participation. We have in the call our entire management team with our CEO, Lars von Lackum; our CFO, Kathrin Köhling; as well as our COO, Volker Wiegel. You hopefully realized that we changed the format of the presentation slightly. You have now a more condensed section in the front part of the presentation, and you have all information as in the past in the appendix. You find the presentation document as well as the quarterly report and documents within the IR section of our homepage. Please note that there is also a disclaimer, which you'll find on Page 2 of our presentation. And without further ado, I hand it over to you, Lars.
Lars Von Lackum: Thank you, Frank, and welcome from my side as well. A brief overall comment and just repeating what Frank just said. All adjustments to our financial disclosure were made to present our financial updates in a sharper, more straightforward way and allow for a more focused discussion on the main levers of our business. You can still find all the details included in our financial disclosures so far in the new appendix of today's presentation. With this, I turn to the highlights slide. The key highlights and messages are certainly the following. After the first 9 months, we are fully on track for our 2025 guidance, i.e., we aim for an AFFO growth of 10% this year. For 2026, we guide for an additional growth of 5% in AFFO. We stick to AFFO as our core KPI, i.e., cash generation remains our core principle in this environment. At the same time, we have included FFO I as part of our guidance for 2026. We remain constructive on valuation and expect a positive valuation result of 1.5% to 2% for the second half of the year. Disposals remain one key lever to bring down our LTV to the target line of 45% in 2026. We have already sold more than 2,200 units for around EUR 100 million so far and remain very positive to see signings until year-end based on the current state of our sales pipeline. The last highlight for this quarter is certainly Moody's. Moody's just recently confirmed our Baa2 rating and revised our rating outlook to positive. We regard this as a recognition of our efforts to protect our balance sheet via noncomplex measures and the cash-focused steering of our group. Let me now move to Slide 6 and our financial highlights for the 9 months. We continue to show strong growth, which is driven by the seamless integration of the 9,000 units portfolio of BCP as well as by organic growth. Our net cold rent grew dynamically by 6.8% or EUR 44 million, respectively. Strong top line growth in combination with a tight cost control led to a strong EBITDA margin of 79.2% for the first 9 months. Based on that, we feel comfortable to reach the increased guidance for the EBITDA margin of 77%. The same holds for the AFFO, which we expect to come in between EUR 215 million and EUR 225 million. We are aware that the 3.1% like-for-like rental growth looks a bit lighter than our target range of 3.4% to 3.6%. However, we are very confident that we will reach the target range for the full year in Q4, and Volker will give you some more details on the reasons in a minute. Let's move on to Slide 7. For some of you, it might be a bit of a déjà vu as we have shown the same slide in our H1 call. We are of the opinion that this simple chart reflects our core KPIs and the thinking behind it in the most transparent way. We continue to believe in cash, i.e., cash remains king in the current environment. Therefore, AFFO remains our core KPI. At the same time, we never stop prioritizing profitability. Therefore, we are including FFO I additionally in our guidance. The impact of the drastically rising state budget deficits and rising debt ratios to interest rates is more than uncertain. The response of national banks to these fiscal situations is equally unknown. The few green shoots seen in transaction markets might continue to grow, but substantial risks remain. In this environment, we do not want to organically start to lever up by increasing investments. We have decided to remain in a fully self-financed position. We continue to spend more than EUR 35 per square meter. This is still one of the highest levels in LEG's history, excluding the peak years of 2020 to 2022. Therefore, we invest more than 40% of net rental income into our portfolio via maintenance or CapEx. We consider this to be significant, and those investments will support future rent growth. All of this is fully self-financed, and we do not need to take up additional debt. It is the most rational strategy to maneuver in this environment. We expect to achieve a further growth in cash generation, especially the 10% AFFO growth in 2025, and we guide for another 5% growth in AFFO in 2026. And with this, I hand it over to Volker for a detailed view on our operations.
Volker Wiegel: Thank you, Lars, and good morning to everyone also from my side. On Slide 8, we provide more details on the rent growth per square meter realized in the first 9 months of the year. In-place rents per square meter increased on a like-for-like basis by 3.1% to EUR 6.99. The 3.1% can be broken down into 1.7% from rent payable increases, while modernization and reletting contributed 1.4%. The like-for-like rent growth was solely driven by the free financed units with an increase of 3.6%. At year-end, we will have achieved also here our target of more than 4%. The like-for-like vacancy rate according to EPRA definition, remained at a very low level of 2.5%. In 2026, we will have an adjustment of the cost rent again and accordingly, rent growth will gain momentum. We expect also bigger locations to see rent table updates like Gelsenkirchen, Duisburg and Düsseldorf in Q1 or early Q2. You have the list, as always, in the appendix on Slide 25. Let me now explain why we are so confident to reach our 2025 rental growth target of 3.4% to 3.6% despite having only reported a 3.1% increase as of Q3. Let's move to Slide 9. You can see the rent increases we put through in each quarter in 2024 and 2025. In Q1 2024, we put through strong rent increases. This was also a function of underlying rent table publications, reletting activity and modernization activity. After 3 quarters in 2024, we had implemented 87% of the rent increases realized until year-end. Contrary, in Q4 2024, the rent increase put through was rather low. This year, rent increases are split more evenly throughout the quarters. This is mostly due to the publication date of new rent tables. Given the previous year pattern, we will have a significantly stronger Q4 than last year, which will get us into the target range. Slide 10 gives you more insight into our investments. Here, we are also fully on track for our per square meter goal of more than EUR 35. Our total investments into the portfolio increased by 10% in the first 9 months of the year. The absolute amount was roughly EUR 292 million, which corresponds to EUR 26.16 per square meter. This per square meter investments increased by 6%. The fact that the portfolio size increased with the full takeover of the BCP led to a higher increase in absolute numbers than on a per square meter basis. The cap ratio remained unchanged. The recurring CapEx, which is relevant for the calculation of the AFFO increased by 7%. The decline in new construction investments is decisive for the lower growth rate in comparison to the overall investments and adjusted CapEx, respectively. Let me briefly comment on disposal on the next slide. We are satisfied with the progress if we consider the transaction markets activity, especially for bigger portfolios and volumes remain soft. In total, we did already sell around 2,200 units for around EUR 190 million so far. All of them have been transacted at or above book value. We expect more to come in, in coming weeks and expect transaction activity at our end to ramp up towards year-end. Rest assured that once we sign bigger deals, we would inform you via a press release to keep you up to date. And with that, I hand over to Kathrin.
Kathrin Köhling: Thank you, Volker, and good morning from my side as well. Let me walk you through our AFFO development on Slide 12. In the first 9 months, the AFFO increased by 19.3% to EUR 181.3 million. This was mainly driven by higher net cold rents, whereas around EUR 20 million were due to organic growth. The acquisition of BCP contributed another EUR 37 million, offsetting the impact from disposals, which was EUR 13 million. Furthermore, we saw positive contributions from our value-add business and remained very cost disciplined in both operations and administration, which had a positive overall effect of EUR 7.1 million year-on-year. While the average interest cost in our group remained low at 1.59%, net cash interest in absolute terms rose by EUR 5.9 million as total debt has increased due to the consolidation of BCP and of course, also due to the general rise in interest from new financings. On the investments, the rise in spending is in line with our guidance. In terms of subsidies for the full year, we still expect to come out at the lower end of our original guidance range of EUR 20 million to EUR 25 million. In financial year 2026, subsidies should come down to around EUR 10 million, also due to the fact that there will be no more new construction activities. For more details, we provide an AFFO table in the appendix on Slide 16. Coming to Slide 13 and LEG's financial key figures. Following the EUR 400 million redemption of our convertible, which was due on September 1, all our maturities for 2025 have been addressed. And the same applies to all of our debt maturing in 2026. This includes the EUR 500 million straight bond, which represents roughly half of next year's maturities. As of today, we have a pro forma cash position of cash, cash equivalents, signed financing agreements, including prolongations and disposal proceeds of well above EUR 1 billion. This brings us well into 2027 when our next bond matures in November 2027. As usual, we present a detailed maturity profile for the next 10 years on Slide 31. At the reporting date and after the redemption of the EUR 400 million convertible bond, our liquidity position was EUR 448 million. Furthermore, we had and still have undrawn revolving credit facilities of EUR 750 million as well as an unused commercial paper program of EUR 600 million. Our average interest rate stood at 1.59%, nearly unchanged year-on-year with an average maturity of 5.6 years. The LTV stood at 48.3%, given that the dividend payout of around EUR 125 million took place in early July. Year-on-year, however, we stand at a minus 20 bps. We are now heading towards our LTV target of 45% set for next year. As usual, we provide important financing KPIs and bond covenants in the appendix on Slide 32. Of course, the ICR is next to the LTV, a very important KPI for us. Our bond covenant ICR slightly increased quarter-on-quarter and now stands at a very strong 4.5x. And all the other bond covenants are also with ample headroom. Very recently, Moody's confirmed our Baa2 rating and revised the outlook from stable to positive. And now I'd like to hand over to Lars for the guidance.
Lars Von Lackum: Thanks a lot, Kathrin. Let me now come to our guidance for 2026. We expect the AFFO to grow by 5% on the back of a rent growth of 3.8% to 4%. So rent growth is to increase by around 40 bps over 2025 and reflects the positive contribution from the cost rent adjustment for our subsidized units. We expect the EBITDA margin to improve towards peak levels of 78% again. We continue to invest significantly into our portfolio, i.e., more than EUR 35 per square meter, so quite in line with this year's investment. On LTV, we expect to reach our target of around 45% in 2026. This will be driven by a mix of further valuation effects as well as disposals. Certainly, faster disposals can shift the time line forward by when we achieve the 45%. On this positive note, I come to the end of my presentation. We, as a team, are happy to answer your questions.
Frank Kopfinger: Thank you, Lars. And with this, we begin the Q&A session, and I hand it over to you, Mathilde, to guide us through the Q&A.
Operator: [Operator Instructions] The first question comes from the line of Marios Pastou from Bernstein.
Marios Pastou: So I've got two questions from my side. So firstly, given your renewed confidence in achieving planned disposals and expectations to reach your LTV target next year, what drove your decision to remain focused on AFFO as your key earnings KPI rather than revert back to FFO I? And then secondly, on a similar topic, if I look at 2026 guidance, I see AFFO is up 5%, but FFO is flat to 1%, even though your investment plans are stable year-on-year. So what is driving the difference between these 2 growth trajectories?
Lars Von Lackum: Marios, thanks a lot for your questions. So just to start off, so why have we decided to stick to AFFO instead of making FFO I again our core KPI? It is really the macro environment, especially the uncertainty around budget deficits from different states, including the German one. And I think we've seen during this year what the announcement of the new budgets being planned to be spent on infrastructure and defense did to the interest rate, especially long term. And those uncertainties are mainly the reason why we thought to be well advised to stick to our self-funded strategy. So we remain focused on AFFO and keep cash as our core metric going forward. So that is why we were sticking to AFFO, although we are expecting substantial additional disposals in Q4. With regards to the difference FFO I to AFFO, happy to hand over to Kathrin.
Kathrin Köhling: Yes. So there is obviously a range that we are giving out for next year, and it's -- and the numbers on the FFO side are much bigger than on the AFFO side. So let's see how the ranges play out next year. And also please keep in mind that this year, we were still doing new developments on owned land, which ended up in the AFFO line and not in the FFO line. And as we are now done with our new developments, this will not take place next year.
Marios Pastou: Okay. Very clear. So there's no specific adjustment being made between the 2 numbers that is causing this difference?
Kathrin Köhling: No, we didn't change the KPI definition or anything else.
Operator: The next question comes from the line of John Vuong from Van Lanschot Kempen.
John Vuong: Just on the like-for-like rental growth guidance, it comes in higher next year, which I understand to be coming from the cost rent adjustment on subsidized apartments that happens every 3 years. Just try understanding the underlying trend of like-for-like, what's the impact of this adjustment to your like-for-like?
Volker Wiegel: It's about 40 to 50 bps.
John Vuong: Okay. That's clear. And then just correct me if I'm wrong, but the 2026 AFFO and FFO guidance are excluding any disposals, while the LTV guidance is including disposals. What's the rationale for this?
Lars Von Lackum: As always, John, we will have not included any disposals because as long as we have not signed those, it would be just guessing. So therefore, from our perspective, it's not worthwhile now including disposals which have not been signed. Certainly, for 2025, also to be transparent, there will be no increase in really the transfer of ownership. So 2025 numbers will not be impacted by the additional sales expected for Q4 2025.
John Vuong: So the 45% LTV that you aim to achieve in 2026, that's excluding disposals?
Lars Von Lackum: No, it's including disposals, but those transfers of ownership signed in Q4 being transferred in 2026, certainly contributed to reduce LTV to 45%.
Operator: We now have a question from the line of Bart Gysens from Morgan Stanley.
Bart Gysens: Thank you for the very clear kind of expiry profile and cost of your debt. Can I just ask what is the cost of debt that you are assuming for 2026 in your guidance to get to this level of AFFO and FFO?
Kathrin Köhling: While -- I'm happy to take your question. While I don't know how markets are developing next year, I can for sure tell you about the financing that we just did. So the financings that we -- where we already got the money, you already have in the 1.59%. The financings that are still outstanding and will come mostly in Q4 this year and Q1 next year are around EUR 600 million, and they are refinanced by 3.8% to give you an idea around that. And for the remainder of the year, of course, we will continue our opportunistic refinancing approach. So there will be more financings to come, especially when we regard what 2027 has in the basket for us. So -- but this will be totally dependent on market developments.
Bart Gysens: But I assume that given you provide a guidance for '26, that implies a certain number that you've assumed what your debt will cost, right? And I appreciate that's a bit a range, but can you be explicit on what you think that number is to get to this range of FFO?
Kathrin Köhling: I already gave you the biggest part of it, the EUR 600 million. And for the remainder, we, of course, have forward curves behind that. But I hope you understand that I'm not giving out exact numbers on specific line items of our P&L.
Operator: [Operator Instructions] We now have a question from the line of Manuel Martin from ODDO BHF.
Manuel Martin: Two questions from my side. Let's do it maybe one by one. The first one is on the upcoming disposals. Could you give us maybe some color on what could we expect in terms of how many disposals, where they are located, which quality so that we have a bit of impression of what could come there? That would be the first question out of two.
Lars Von Lackum: Manuel, very happy to take that question. So certainly, we are currently in the midst of selling the plot in Gerresheim Düsseldorf, which we've bought from BCP. We made progress there. We have now a preferred bidder with whom we will approach the city of Düsseldorf. And that's certainly a substantial part of the disposals to be expected. Secondly, with regards to the BCP portfolio in the Eastern part of Germany, we made substantial progress across all 3 cities. So Halle, Leipzig and Magdeburg, we are in exclusivity there with different bidders, and we are hopeful to also sell half of the portfolio within Q4. And then there are other portfolio disposals across the current earmarked 5,000 units portfolio, which we are currently marketing, that will also contribute. So overall, expectation is that we are going to sign around EUR 100 million to EUR 200 million of additional disposals in Q4 until the end of this year.
Manuel Martin: Okay. Okay. That's clear. Second and last question, the other side of the medal, in terms of possible acquisitions, do you see opportunities in the market? Or what's your feeling what could come in regard of acquisitions? And what would be possible for LEG given the high LTV? I could imagine that there might be also some constraints when it comes to acquisitions.
Lars Von Lackum: Definitely, especially as we strive firstly to get LTV down now to 45%. So that will only be a small portion. Currently, we are only looking into bolt-on acquisitions in different locations, but it is nothing bigger what we currently plan with regards to acquisitions. If there might be an outwhelming opportunity, and that definitely will then include also equity with our depressed share price that might be quite a stretch. So our focus is currently on getting disposals done and perhaps realize the one or the other bolt-on acquisition, but not on bigger acquisitions so far.
Operator: [Operator Instructions] The next question comes from the line of Kai Klose from Berenberg.
Kai Klose: I've got one quick follow-up question. When you indicate the LTV to be at around 45% by the end of next year, could you indicate where you expect the ICR to land?
Kathrin Köhling: Kai, thanks for your question. We are not giving out a guidance for the ICR for next year, but we're looking at the 4.5 where we are currently standing at, it's super strong. It might decelerate a little bit, but we are well above any numbers that we should worry about. So that definitely will be a strong number next year as well for us.
Operator: Ladies and gentlemen, that was the last question. I would -- sorry to interrupt. We have a last minute registration coming from the line of Rob Jones from BNP Paribas.
Robert Jones: Sorry, just two quick ones. Kathrin, just on the guidance, AFFO versus FFO. I appreciate that the FFO guidance range for '26 is wider. But why is it wider than the AFFO guidance? And then secondly, Lars, if I think about your assets that you've got marked for sale, I appreciate you're expected to make significant progress in Q4 this year with regards to some of those disposals. But if I take the 5,000 units and if you were able to sell them at your price expectations and let's imagine that asset values didn't move, can we get down to 45% LTV or if you've got either more stuff to add that needs to be sold to that disposal program? Or is it a case that if asset values are up a couple of percent next year, like they will be this year, then actually you get to 45% LTV anyway?
Lars Von Lackum: Thanks a lot for your questions, Rob. I'll start with the second question. So with regards to the current assets, it is really that we -- for the time being, we are sticking to those 5,000 units. But as we make transparent, we will do a full portfolio review over the coming 2 months. And then certainly, we will earmark most probably additional units for sale. How much that will be? Let's wait and see how that portfolio revision will look like. But it might be that we are then also being willing to offer additional units. For the time being, we are currently marketing those 5,000 units and expectation is that we make strong progress on those within the next 6 weeks.
Kathrin Köhling: With your first question on the wider guidance range on the FFO, this is, of course, due to the investments. And you know we are focusing on the AFFO. AFFO is also the basis for our dividend. So we really try to spend as much money as needed, but not spend more. And therefore, the capitalization ratio can vary a little bit between the years and depending on what we are exactly doing. So it's much harder to say where we will land up with the FFO when you're focusing on the AFFO. And therefore, we have the wider guidance range.
Operator: We now have a question from the line of Jonathan Kownator from Goldman Sachs.
Jonathan Kownator: Just following up on some of the nitty-gritty accounting. But just on subsidies, I understand that the amount you're guiding to EUR 10 million is going to be lower for 2026. You're also saying that you will have less work for your own balance sheet that you're doing. So how we expect the capitalization to evolve? And also, if you can give perhaps a bit more context on the subsidies, that would be helpful.
Lars Von Lackum: Yes. So to start off with the second part on the subsidies, Jonathan, with regards to subsidies, nothing here is being impacted by new developments. As you know, we are finalizing new developments. And for those, certainly subsidy values become due as soon as you finalize that construction. So that will be lower next year and will certainly be a headwind which we need to cope with. So for overall this year, that's something like EUR 20 million, and it will be substantially lower next year. And that's with regards to 2026, certainly something which we need to cope with if we look into the subsidies on the one hand side, but also interest rates because you heard it from Kathrin that with regards to the EUR 600 million, which we are now drawing, that now kicks in. That's 3.8% instead of the current average yield of 1.6%. And that's certainly something which also is a headwind. And that is the reason why in combination with the uncertainty around the capitalization rate, we've been opting for a wider range for the FFO I EUR 475 million to EUR 495 million.
Jonathan Kownator: And so just following up on that, your new development business, I think you've wind down essentially. So does that mean that the EUR 10 million in 2026, this is effectively the last year that you're getting these subsidies?
Lars Von Lackum: So for new developments, it's the last year that we are getting subsidies for new construction. But certainly, with regards to all the work we are doing on the energetic side with regards to, for example, changing heat systems, heating systems from fossil-based to renewables, that certainly will have a subsidy impact, and that's something which we are expecting for next year to come.
Jonathan Kownator: And so maybe let me rephrase. So for 2026, the EUR 10 million guidance you're giving, does that still include new development or then it's just about energetic modernization?
Lars Von Lackum: 2026, no new developments. 2025 is last year of new developments, new developments with subsidies. Next year, no new developments anymore, Jonathan.
Jonathan Kownator: Okay. And so are we expecting also the own work capitalized to drop then in 2026?
Lars Von Lackum: I think you're making a reference to a line item, which is not being impacted by the new developments, but it's strongly impacted by our craftsman services units. So that is something which is not to be put in the same basket. Yes.
Operator: The next question comes from the line of Nico Hagemann from Deutsche Bank.
Nico Hagemann: In regard of the current selling of the Glasmacherviertel in Düsseldorf, I ask you to give us some color on this in terms of the competition of this deal?
Lars Von Lackum: The competition is incredibly high. It took us 2 rounds to finally decide for one consortium. And with that, we are now approaching the city of Düsseldorf. So therefore, even if the city would not agree to the current consortium, which we do not have any indication as of today, meetings still need to take place, and there would be runners up also with competitive pricing. So therefore, we are confident to find a way to sell that plot over the coming weeks.
Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Frank Kopfinger for any closing remarks.
Frank Kopfinger: Thank you, and thanks for your questions. And as always, should you have further questions, then please do not hesitate and contact us. Otherwise, please note that our next scheduled reporting event is on the 5th of March next year when we report on our full year results. And with this, we close the call, and we wish you all the best and hope to see you soon on one of our upcoming roadshows and conferences. Thank you, and goodbye, everybody.
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