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Operator: Ladies and gentlemen, welcome to the LEG Immobilien Full Year 2025 Conference Call and Live Webcast. I am Valentina, 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 Frank Kopfinger, Head of Investor Relations. Please go ahead.
Frank Kopfinger: Thank you, Valentina, and good morning, everyone, from Dusseldorf. Welcome to our call for our full year 2025 results, and thank you for your participation. We have in the call our entire management team with our CEO, Lars von Lackum; our CFO, Kathrin Kohling; as well as our COO, Volker Wiegel. You'll find the presentation document as well as the annual 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. Good morning, everyone, and thank you for joining our analyst and investor call today. I am very proud to share that 2025 has been an outstanding year for us. We have delivered AFFO of EUR 220.5 million, marking a 10% increase, the highest level in our company's history. This performance is a clear reflection of our disciplined execution, our strong portfolio and our willingness to capture opportunities, like we did with BCP. Building on this success, we are proposing a dividend increase of 8% to EUR 2.92 per share. This reflects the full 100% payout of our AFFO, a strong signal of both cash generation as well as our financial health. We have also made solid progress on the balance sheet. Our loan-to-value ratio has improved to 46.8%, and we remain on track to reach 45% in 2026. This improvement was supported by a 3% positive valuation effect, which is backed by our own disposals and markets building higher confidence, although admittedly, markets remain at lower transaction volumes. On the portfolio side, we have completed or agreed on the sale of 3,100 units in 2025. These disposals further optimize our balance sheet and the efficiency of our portfolio. We are well on track with further disposals in 2026. The planned sale of the Glasmacher development plot in Dusseldorf has made significant progress. Renowned real estate developer, Hines signed a purchase option for the site with LEG just yesterday. We confirm our 2026 guidance with AFFO expected between EUR 220 million and EUR 240 million. We will grow cash generation also this year, while weathering higher interest costs as well as lower subsidies. Looking further ahead, I am equally excited about our midterm growth outlook. From 2028 to 2030, we see strong potential driven by a substantial part of units running off subsidization in 2028 and by the creation of a new operating model based on comprehensive digitalization across our business. These initiatives will not only strengthen our competitive position, but at the same time, create long-term value for all stakeholders. In summary, 2025 has been a year of achievement, strategic progress and measurable results. We have delivered growth, improved resilience and positioned ourselves for an even stronger future. Thank you to our teams for their dedication and to our investors for their trust. The foundation we have built today ensures that the years ahead will be just as successful. Let's now turn to Slide 6 and the 2025 financial highlights, a year that truly embodies our theme of promised and delivered. We entered 2025 with a clear set of targets, and I am proud to say we did not just meet them, we partially exceeded them. Starting with the net cold rent. We closed the year at EUR 919.9 million, representing a 7% increase year-over-year. This growth was supported by a healthy 3.5% like-for-like rent increase, but equally by the successful integration of BCP, which added 9,000 high-quality units to our portfolio. This integration was executed seamlessly and has already begun contributing to earnings as planned. On operating profitability, our adjusted EBITDA margin came in at 78.1%, well above our planned level of 76% and even above our improved guided level of roughly 77%. Those 110 basis points of outperformance reflect both our tight cost discipline and our continued success in driving efficiencies across operations. Moving to our earnings metrics. FFO I reached EUR 481.5 million, a 5.2% increase, lending right above the midpoint of our guidance range of EUR 470 million to EUR 490 million. Even more impressively, AFFO grew by a strong 10% to EUR 220.5 million, lending smoothly within our improved guidance range of EUR 215 million to EUR 225 million. This marks a record high for the company. And speaking of returns, our dividend proposal of EUR 2.92 per share reflect a 100% payout ratio of AFFO. Year-on-year, this is an increase of 8% and ensures that our investors benefit directly from these strong results. Let me now turn to one specific growth driver going forward, our subsidized units coming off restriction from 2028 onwards. Today, we have around 30,000 subsidized units that are still subject to rent regulation under the so-called cost rent regime. These units are currently rented out for about EUR 5.40 per square meter, which is significantly below market levels. By comparison, the relevant market rent for a similar mix of units is roughly EUR 9 per square meter. This means there exists a rent gap of more than 60%. As these units get off restriction, we can start closing that gap in a controlled and sustainable way like we have done with smaller numbers of subsidized units over the past years. In general, we will apply the 15% or 20% rent increase on all units getting off restriction depending on whether they are based in tense or non-tense markets. However, the cost rent adjustments executed in 2026 as well as the new lettings in 2026 and 2027 absorb parts of that maximum rent increase potential. As of today, we assume that this limits the rent increase potential to around 12% in 2028. On the portfolio level, that alone translates into about 1 percentage point to our overall rental growth in 2028. And importantly, the effects do not stop there. We expect spillover effects into 2029 and beyond as further adjustments and relettings will deliver further rent growth. This will become a recurring and predictable growth driver for our residential portfolio as it will take quite some time until we can close the gap towards market rent level. In short, as soon as these restrictions expire, we are going to not only unlock immediate rental uplift, but also secure a long-term structural growth contributor. That will support our earnings trajectory well beyond 2028 until the gap towards market level is fully closed. Let me now turn to our second midterm growth driver that will become equally important to LEG's value creation going forward, our technology and digitalization agenda. Our industry environment has changed fundamentally. The regulatory framework in the German residential real estate sector is becoming even more restrictive, whether in terms of rent regulation, energy efficiency requirements or tenant protection. The traditional levers for operational optimization are reaching their limits. This makes it even more important to identify new sources of efficiency and value creation. And we are firmly convinced that technology and digitalization represent the most significant untapped lever available to us today. We have made a very deliberate strategic choice in how we approach this. We are dedicated to building a completely new operating model by making the best use of technology and digitalization, not just implementing software, but truly embracing it and redefining the way we serve our tenants. We manage our buildings, we steer our contractors. Rather than diverting resources to building proprietary software, we pursue a disciplined Buy & Partner strategy. And we have chosen 2 world-class partners to execute on this vision. The first one is ServiceNow. With ServiceNow, we are building an end-to-end system architecture that spans our entire operative value chain from customer service to technical operations to administrative processes. This gives us the flexibility to deploy AI at every touch point along that chain rather than in isolated pockets and thus enables us to drive automation to unprecedented levels. We are, to our knowledge, among the first residential real estate platforms globally to adopt ServiceNow as a core platform, and we see this as a genuine competitive advantage. The second is SAP. We have made a consequent commitment to building on the most modern ERP system available in the market. In fact, we have been operating on the latest version of SAP since the end of 2024. This positions us ahead of many peers who are still facing complex migration journeys. Together, SAP and ServiceNow form our central tech backbone, enabling not only system consolidation and process standardization, but critically the systematic scaling of AI across our operations and administration. Our technology investments are designed to drive AFFO and FFO I optimization along 3 core value drivers: efficiency, top line and investment management. The first focus will be on efficiency, streamlining our customer-facing technical and administrative processes with best-in-class AI-powered solutions. Beyond that, we see meaningful opportunities to leverage technology for revenue growth and smarter capital allocation across our portfolio. We are investing meaningfully in this transformation with the bulk of spending concentrated in the near-term implementation phase. This is a conscious front-loading of investment. From 2028, we expect these initiatives to turn cash flow positive, building to a contribution of more than EUR 10 million in AFFO from 2030. In short, in an environment where traditional optimization levers are increasingly constrained, we are building the technological foundation that will make LEG a more efficient, more scalable and ultimately more profitable platform for the years to come. And with this, I hand it over to Volker for some insights into the operations.
Volker Wiegel: Thank you, Lars, and good morning to everyone from the shiny AI future back to 2025 and specifically to our rent development. As we mentioned earlier in the year, rent growth followed a different quarterly trajectory compared to last year. After 9 months, we were at 3.1%, but I'm very pleased to report that, as promised, we delivered fully on our guidance range of 3.4% to 3.6%. We closed the year right at the midpoint of 3.5% like-for-like in-place rent growth. At year-end, the average in-place rent of our residential portfolio stood at EUR 7.04 per square meter on a like-for-like basis. This compares to EUR 6.81 in the previous year. The drivers behind this growth were well balanced. 2% came from rent table increases and another 1.5% from modernization and reletting activities. Looking across our market segments, stable markets showed the highest momentum with 3.8% like-for-like rent growth, while higher-yielding markets grew by 3.1%. Our free financed units specifically saw rent increases of 4%, which reflects the underlying strong momentum in the market. Specifically, we saw rent table publications in Hilden with 11%, Wilhelmshaven with 7% and Leverkusen with 5%. However, the growth momentum seems to have reached its maximum level, while years with higher rent growth are reflected in the published rent tables, lower growth rates will limit this development going forward. As expected, there was no effect yet from the cost rent adjustment for the subsidized portfolio in 2025. Importantly, this growth came with an ultra-low vacancy. Our like-for-like EPRA vacancy rate remained at 2.3%, virtually unchanged versus last year, confirming the strong demand we continue to see across our markets. Looking ahead, for the current fiscal year, our goal is to deliver 3.8% to 4% like-for-like rent growth as already indicated with our Q3 numbers. The cost rent adjustment should contribute around 40 to 50 basis points to that result. Moving on to our investments in 2025 on Slide 10. Our guidance for the year was to invest more than EUR 35 per square meter, and I'm pleased to confirm that we exceeded that target coming in at EUR 36.11 per square meter. In absolute terms, we invested slightly more than EUR 400 million into our portfolio, an increase of 10% year-on-year. This increase to the prior year was largely driven by the integration of the BCP portfolio where we had to accelerate necessary investment measures. Looking at the composition of investments in more detail. CapEx accounted for EUR 228 million or EUR 0.46 per square meter, while maintenance represented EUR 175 million or EUR 15.65 per square meter. Altogether, this brought the per square meter figure up by 6.2% versus last year. Our capitalization ratio remained broadly unchanged at 57%. With substantially lower new construction activity, recurring CapEx still increased by a moderate 2%, reaching EUR 261 million. Overall, 2025 was another year of disciplined and targeted portfolio investment. We delivered above guidance, managed the BCP integration successfully and continued to invest responsibly in the quality and long-term value of our housing stock. For 2026, we are guiding for investments of more than EUR 35 per square meter, which remains similar to the investment level of 2025. Let me now touch on one of our operational growth drivers, our value-add businesses. These operations are a key pillar of LEG's strategy and a reliable growth driver for the company. They allow us to generate additional earnings beyond pure rent growth, while at the same time, those improve service quality and efficiency for our tenants. I'm very pleased to report that in 2025, we achieved strong FFO I growth of around 20% in this segment, increasing from EUR 50 million in 2024 to around EUR 60 million in 2025. While others in the market are still talking about the value-add additions, we are delivering real results. The foundation of this success lies in our technician and craftsmen services, our project management and electrical service units and of course, our energy and heating business as well as the multimedia business. In particular, we are very optimistic about the continuing growth of our energy services, which benefit from the ongoing focus on energy efficiency and shift towards heat pumps as well as our small repairs and in-house maintenance business. Beyond these established value-add services, we are also building momentum in our Green Ventures. These include new climate-focused services such as RENOWATE for serial refurbishment; termios, with smart thermostats for hydraulic optimization and dekarbo for the installation and maintenance of heat pumps. It is important to note that the Green Ventures are not yet included in the financial numbers shown on this chart, but they will become a meaningful growth contributor over the next few years. Between 2024 and 2028, we strive to generate a cumulative contribution of around EUR 20 million from our Green Ventures. To sum up, our value-add business combines stable cash flows, operational synergies and sustainability, while our Green Ventures offer the chance to participate in one of the fastest-growing segments in our market, decarbonization of real estate. They significantly enhance the resilience and profitability of LEG's business model and will continue to be a strong source of earnings growth forward. Let's now take a look at our disposals in 2025 on Slide 12. In total, we completed or agreed on sales for around 3,100 units and a total of more than EUR 250 million. During the year, we sold 2,252 residential units for total proceeds of around EUR 190 million. After deducting financing redemption fees and taxes, net proceeds amounted to roughly EUR 100 million. The transaction market remained subdued throughout the year. Overall, investment volumes in the German residential sector declined by about 4%. Even more telling, the share of large-scale transactions above EUR 100 million fell sharply from 63% in 2024, down to just 34% in 2025. You find additional information for the transaction activity in the German market on Slide 29 in the appendix. Against this challenging backdrop and while maintaining our strict disposal discipline, we are very satisfied with the year's outcome. All in all, disposals were executed at or above book values, fully in line with our policy of value-preserving capital recycling. The chart on the slide shows the units that have been transferred in 2025, but there's more to come. Year-to-date, we had already signed additional sales contracts for roughly 950 units, representing around EUR 70 million in proceeds. These transactions will transfer in the first half of 2026, and we already issued a press release about the majority of them in early January. Within these transactions, we also made strong progress on the Glasmacher district development plot in Dusseldorf. This would certainly contribute to our deleveraging strategy. As already described by Lars, we were able to agree with Hines on an option to buy the plot. The next step will be an agreement between Hines and the city of Dusseldorf. In case that works well, we expect to sign the deal by end of September, the latest. However, please be aware that the sales proceeds will follow the progress made in the building permission process. Moreover, we continue to advance our broader disposal program of up to 5,000 units, including around 1,400 units in Eastern Germany. Overall, our selective approach, i.e., focusing on sales of smaller portfolios or even single multifamily houses in the current market environment clearly demonstrates our ability to deliver on disposals. We remain focused on execution, disciplined pricing and support to our balance sheet as well as improvement of the overall quality of our portfolio. And with this, I hand it over to Kathrin.
Kathrin Köhling: Thanks, Volker, and good morning also from my side. Let us now look at Slide #13, which covers our most recent portfolio revaluation. The results clearly confirm that market conditions are stabilizing. They also reflect the upward trend seen in leading market indicators such as the VDP Property Index and the German Real Estate Index GREIX. While the VDP Index recorded an increase of around 5.3%, the GREIX showed an increase of 4.8% for 2025. Against this backdrop, our portfolio valuation result in the second half of 2025 posted a 1.8% uplift, which was even stronger than the 1.2% increase we saw in the first half of the year. Altogether, for the full financial year 2025, we saw a valuation result of 3%, demonstrating clear upward momentum. Further details can be found in the appendix on Slide 30, where we show valuation changes by market segment. Our gross yield now stands at 4.8%, which continues to offer a comfortable spread versus bond yields, an important buffer in a still cautious investment environment. On a net initial yield basis, excluding incidental acquisition costs, we stand at 4.3%. The average gross asset value per square meter amounts currently to EUR 1,710, ranging from about EUR 2,320 in high-growth markets to EUR 1,190 in higher-yielding markets. Overall, the valuation result confirms that the correction phase of the past 2 years is behind us. We remain confident that this recovery path will continue into 2026, driven by renewed investor interest, more stable financing conditions and the intrinsic strength of the German residential sector. The trend has turned positive and the positive outlook is being supported by the view of major real estate experts such as CBRE, JLL as well as Moody's. Let's turn to Slide #14 and take a closer look at the development of our AFFO in 2025. We ended the year with an AFFO of EUR 220.5 million, representing a 10% increase year-on-year or about EUR 20 million higher compared to the prior year's EUR 200.4 million. The main driver behind this growth was, as expected, higher net cold rent. Altogether, this contributed roughly EUR 60 million. From that, about EUR 28 million comes from organic rent growth and another EUR 49 million from the acquisition of BCP. These positive effects more than offset the EUR 17 million negative impact from disposals. Net cash interest rose by EUR 12 million, driven by the increase in debt due to BCP and by higher refinancing costs. Still, I would like to highlight that we were able to keep our average interest cost at a very competitive 1.66%, which is an excellent outcome given the current interest rate environment. In addition, our Green Ventures still in their early investment phase, had a temporary negative impact of EUR 4.2 million on AFFO in the reporting period. Maintenance and CapEx spending amounted to about EUR 13 million more after subsidies, reflecting the enlarged asset base. To sum up, 2025 was another solid year of strong growth and recurring cash flows, underlining both the resilience of our operating platform and the profitability contribution from the BCP integration. Finally, let's turn to Slide #15, which highlights LEG's financing structure and key figures, starting with our loan-to-value ratio. We closed 2025 at 46.8%, coming down by 110 basis points year-on-year. That puts us well on track to reach our target of 45% during 2026. This continued deleveraging is driven by our solid cash generation, disposal proceeds as well as valuation effects. In addition to LTV, another key indicator, especially with regard to our bond covenants is the interest coverage ratio or ICR. Our ICR stands at a very strong 4.3x, and also all other bond covenants have ample headroom. For those interested in more detail, we've provided the full overview in the appendix. Our average interest cost increased modestly by just 17 basis points to 1.66%, still a very low level in today's market environment. At the same time, the average debt maturity remains comfortable at 5.5 years. Our liquidity position remains very strong, with more than EUR 800 million available as of year-end 2025 and undrawn revolving credit facilities of EUR 750 million. As already discussed in the last earnings call, all debt maturities for 2026 are covered. At the beginning of this year, we redeemed our EUR 500 million bond, and we are now evaluating refinancing options for the 2027 maturities, including the next bond, which comes due only in November 2027. We'll continue to take an opportunistic and disciplined approach here, depending on market conditions. All in all, our balance sheet is resilient. Our maturity profile is well structured, and we are in a very strong financing position with ample flexibility going forward. And with this, I'll hand it back to Lars.
Lars Von Lackum: Thanks, Kathrin. Let me conclude today's presentation, with a brief summary of our guidance for 2026, as shown on Slide 16. These targets were already introduced with our Q3 2025 results, and I'm happy to reconfirm today that our guidance remains fully in place. For 2026, we expect a further improvement in our cash generation with AFFO between EUR 220 million and EUR 240 million. That represents continued growth on top of the strong performance we delivered in 2025. In line with that, our FFO I is expected to come in between EUR 475 million and EUR 495 million, supported by an adjusted EBITDA margin of around 78%. On the operational side, we target like-for-like rent growth between 3.8% and 4%, driven by our solid rent dynamics, targeted modernizations and the cost rent adjustment for subsidized units. Our investment volume will again exceed EUR 35 per square meter, ensuring that we maintain the quality, energy efficiency and long-term attractiveness of our housing stock. On the balance sheet, we remain fully committed to further deleveraging. With our LTV expected at around 45% by year-end 2026, we are well on track to achieve this. As announced, we plan to distribute 100% of AFFO to our shareholders, reflecting both our strong cash flow generation and our disciplined capital allocation approach. We will propose a dividend of EUR 2.92 either in cash or shares, the latter depending on the market environment. Beyond the financials, we also continue to make measurable progress in sustainability. In 2026, we target a CO2 reduction of about 7,600 tonnes. And by 2029, we aim to lower our relative CO2 emission saving costs per ton by 20%. To sum it up, LEG remains on a clear and consistent path, generating reliable cash flow, maintaining financial discipline and building long-term value for our shareholders and tenants alike. As we've said before, cash flow remains king and the best metric to steer our business. Our 2026 guidance once again underlines the strength and resilience of our business model. And with this, I come to the end of our presentation, and we are now looking forward to answer your questions.
Operator: [Operator Instructions] The first question comes from Marios Pastou from Bernstein.
Marios Pastou: I've got 2 questions from my side. So firstly, on the 5,000 unit disposal pool. Can you provide an update here on the progress you're having with current discussions? I think on the last update call, you mentioned you were in exclusivity in East Germany. So any comments on the progress there would be helpful. And then secondly, on the slide with the 16,000 units coming off restriction in 2028. Based on your prior experience when adjusting the rents, do you foresee any vacancy risk here, the uplift being 15% or 20% depending on the cap level seems like quite a step change in one go. So any comments there will be helpful.
Lars Von Lackum: Marios, thanks a lot for your questions. So with regards to the 5,000 units disposal portfolio we have on the market, around 1,400 units are in Eastern Germany. So for parts of it, we are in exclusivity. And unfortunately, still the transaction times are much longer than initially expected. This is partially due to the financing and the more stricter view of banks with regards to real estate. Those processes still take much longer than we had forecasted. So therefore, yes, there are still portfolios in exclusivity. And certainly, we hope that we can close those over the course of Q1 and Q2. With regards to the remaining 5,000 units, we are selling those in smaller portfolios as well as single multifamily houses exactly as Volker has laid out during his presentation. So it is unfortunately not the case that we see bigger investors or transaction liquidity to have increased since the beginning of the year. So let's wait how the discussions at MIPIM next year -- next week will look like. It might certainly be that this brings additional liquidity to the market. With regards to the subsidized units, which run off, you might have seen that most of those which are getting off restriction are those in the high-growth markets. So the non-tense markets account for around 2/3 of those units getting off restriction. So therefore, I have full confidence in Volker and his team that they will relet those very quickly and easily because the undersupply in those markets is quite strong.
Volker Wiegel: And even to add up, we don't see the risk of higher -- significantly higher fluctuation. Of course, there will be some fluctuation, but not in a way that we will not be able to cover it. And on Slide 27 in the appendix, you see the spread to the market rent, and you see that it's hard to find a substitute which is at the previous cost.
Operator: The next question comes from Veronique Meertens from Van Lanschot Kempen.
Veronique Meertens: A few from my side. So first, on the Dusseldorf land plot, could you please elaborate what you exactly meant with the time line you see for the sales proceeds of this disposal because I didn't fully understand it.
Lars Von Lackum: Veronique, thanks a lot for the question. So unfortunately, first of all, let me say that certainly, we have a U.S. investor on the other side. So confidentiality requirements are quite strict. I try to give you as much of an insight as possible as of today's stage. So we have signed a purchase option with Hines yesterday, and they can make use of that call option until the end of September. If they are agreeing to that call option, we have a fully laid out contract with regards to the acquisition of the plots. So that contract will then be signed immediately and all those terms and conditions are pre-agreed, certainly including the price and the payment pattern. The payment pattern then foresees that a certain part of the sales proceeds will be paid by year-end, and the remaining payments will depend on the progress of the building permission process. And that is what I can disclose as of today.
Veronique Meertens: Okay. That's clear. And then maybe that also rolls into my next question. So your LTV target is still 45%. It sounds that you're not probably get all the proceeds of this disposal in '26. So how strict is that target? How do you expect to get there as in what have you assumed in terms of disposals and value gains? And also, are you willing to sell at a discount if that means that that's what's necessary to meet that target?
Lars Von Lackum: Yes. So Veronique, as you know, we have currently 5,000 units in the market. We will strictly stick to the levels which we were sticking to for all the previous years, which means we are not willing to sell below book value. So that is what we have executed over the last -- much more difficult years, and we will also stick to that guidance for this year. In order to arrive at those 45%, certainly a contribution comes from the sales proceeds, and we are also seeing a positive development in the market. Let's wait whether that is consistent over the year. Certainly, we now have a big war in the Middle East. If that tends to be longer than initially assumed, that certainly might have an impact. As of today, and looking into whatever we heard at least, it might be not that, that war is extending for weeks. So therefore, if that's not going to happen, we are quite confident that we can reach our 45% target. And this is, as of today, what we are now striving for, and we are quite confident to reach that within 2026.
Operator: The next question comes from Andres Toome from Green Street.
Andres Toome: You have a pretty clear focus on disposals for the next 12 months or so, it seems. But I was just wondering on the other side of it, if large disposals in the market today require "portfolio discounts", then is there a case where you can see actually accretive acquisition opportunities yourself to be a buyer, which would be financed through an equity raise? And I guess I'm particularly thinking about some of these news flows around open-ended funds for German residential that need to fulfill their redemption needs.
Lars Von Lackum: Yes, Andres. And thanks for your question. So with regards to our own acquisition activity, I think we have just acquired a big portfolio, BCP, 9,000 units, integrated that fully. Certainly, we are being offered bigger portfolios on a regular basis. I can tell you that we have not seen any of those willing sellers to give in on price. So therefore, there was nothing comparable with regards to any acquisition opportunity with regards to the quality and also the pricing of the BCP portfolio. Looking at our share price, I think it would be very, very difficult to identify anything which in the current market would then really end up with an accretive value for our shareholders, making the next acquisition. So therefore, our focus currently is strictly on deleveraging, reaching that 45% target, getting sales executed.
Andres Toome: That's clear. And then maybe related to this, maybe not in terms of pure straight equity raise, but are you perhaps seeing any options where the seller would accept LEG shares as a buying consideration? I think we've seen some of these examples in other geographies in Europe, but I wonder if there's any discussions around that in Germany.
Lars Von Lackum: So currently, we haven't had that discussion with any of the willing sellers.
Andres Toome: Understood. And then my final question was just on the points you made around AI. And I think one of the points you highlighted was gaining also some revenue upside. I just wanted to understand how does that work in a regulated residential market? What are the levers you can pull beyond the regulatory constraints you already have in putting through in place rent increases?
Lars Von Lackum: Yes. As you know, Andres, the number of criteria with regards to the rent tables can be up to 100 for a single rent table. So the qualitative criteria, which you need to take into consideration is quite a long list. Certainly, being more precise on those different criteria can certainly give you additional upside to just mention one of the examples with -- which certainly gives you an additional rental potential to be realized if you are using more AI.
Operator: The next question comes from Thomas Neuhold from Kepler Cheuvreux.
Thomas Neuhold: I have 2. The first one is a follow-up on the Gerresheimer project. I understand you're bound by NDA. But I was wondering, would you be able to sell the land plot at or above book value? Can you comment on that?
Lars Von Lackum: Yes, so the book value is at around EUR 71 million, and we've been able to realize a substantial uplift on that if we get the sales contract signed end of September.
Thomas Neuhold: Good. The second question is on the regulatory environment. I was wondering, if there have been any recent important news on the planned change to the rent regulation. Did you hear anything important?
Lars Von Lackum: Yes. So if you look at the current discussion in Berlin, I think on a federal level, you might be aware that there are still discussions on how the regulation for refurbished apartments will look like, how index rents will be limited and also how those pure payments are being regulated. So those are the 3 big issues the Social Democrats are currently forcing through. And from our perspective, that is already a given and that's going to be agreed. With regard to the city of Berlin, there's certainly a lot of discussion and let's wait of what's going to happen now. As you know, we do not own a single unit in Berlin. So we will be not affected by whatever is being decided or at least being discussed in the upcoming election in Berlin.
Operator: The next question comes from Kai Klose from Berenberg.
Kai Klose: I've got 3 quick questions, if I may. The first one is on the -- actually, the first 2 are on the AFFO statement. Could you indicate or give more details on the increase for the nonrecurring special items from EUR 16 million to EUR 33.9 million and if there will be a similar level or similar increase in '26? Second question is on the green investments, which -- investment income from Green Ventures, where you mentioned that this will leave the investment phase in '26. So can you read that there will be a positive contribution to the AFFO in 2026? And the third question would be on maintenance. You mentioned there was an increase in '26 -- '25 because of the BCP portfolio. Has this been -- this increase only in '25? Or can we expect slightly higher levels because of ongoing work for BCP -- ex BCP assets in '26?
Kathrin Köhling: Thanks, Kai, for your questions. With regard to the first one on the nonrecurring special items, this was a special case this year because of BCP. Obviously, we had some integration costs that took place this year, and that's why this number was higher than in the previous year. As long as we don't buy another BCP this year, this should be lower next year.
Volker Wiegel: On the second question on Green Ventures, yes, we expect a positive result will not be record high. And of course, there's more risk in these ventures as it's new, but we expect a positive result and yes, expect breakeven.
Lars Von Lackum: And to conclude the round here, so with regards to the maintenance expenditures we had in 2025, we do not expect an additional expenditure on the BCP portfolio within 2026.
Operator: The next question comes from Paul May from Barclays.
Paul May: Three, if I may, probably doing one at a time might be easier. Just following on from the question earlier around acquisitions out of the open-ended funds. I appreciate you said they're not willing to move on price, but there comes a point where they don't have a choice. They do need to meet those redemptions. So I assume that opportunity may still come. You mentioned it wouldn't be accretive for investors if you fund it with equity. Just wondering how you're viewing that, whether you're viewing that on a cash flow basis or whether you're viewing that on a kind of balance sheet made up value basis. That would be great. And then we live it next to separately.
Lars Von Lackum: Yes, Paul, thanks for your question. So with regards to the acquisition opportunities out in the market, I think you rightly assume that certainly some of those open-ended funds will sell portfolios. What we still see in those discussions is that liquidity there does not seem to be so stretched that they are under pressure to do really fire sales. So therefore, currently, no indication for them really giving in on price. Certainly, and you might have seen that, we had 2 funds which have also stopped accepting redemptions. You can close down on the fund for 3 years. So that once again also might be a prolonged period where you are not seeing those funds to really do for selling. So therefore, that is what we've currently seen in the market with regards to those funds currently offering portfolios in the market. Secondly, with regards to how we view those acquisition opportunities, we certainly look at it from a cash flow basis, but also from an NTA perspective. And currently, we were not willing to really offer our shareholders any exposure towards those acquisitions. From our perspective, we are well advised to be strict on sales and do our deleveraging path in 2026, in order to arrive at that 45% LTV target.
Paul May: Just sort of following on that, I guess, you mentioned the trend in the market, I think it was in Kathrin's commentary has turned positive. I mean, to some extent, the only thing that's positive is valuation prints. Transaction market is lower. Swap rates and bonds have moved higher now versus the average through 2025. So one might argue that the activity levels are lower and worse versus the valuation prints that have got better. Just wondering how you're reconciling those 2 things, which seem to be moving in opposite directions.
Kathrin Köhling: Yes. So happy to take your question. When you just look at what is happening in the market with the undersupply that we continue to see, we still expect that rent growth will be a key driver for property values also this year. And yes, it is -- it has been a low year in terms of transaction volumes last year. But when we look at what the big valuators are expecting for this year, they are expecting at least transaction volumes, which are a little bit higher than last year. So we've seen around EUR 9 billion last year. We'll probably see around EUR 10 billion this year. So there are some positive signs. I mean, given currently the Iranian conflict, things look quite different these days, but we have to see what will happen ultimately over the next weeks. If we were to come back to a rather normal environment, which we've had like a week ago, then I'm quite positive that we will see what I just said.
Paul May: I think the brokers were quite positive on improving last year as well and ended up being slightly worse, but just be interested to see how that comes out. And then I think again for you, Kathrin, just another one. So over the next 6 years, I think it is roughly, you've got about EUR 1 billion of debt maturing. I think it's just over EUR 1 billion of debt per annum with an average cost of about 1.3% at the moment. Obviously, the cost of that will likely go up by somewhere around 220, 230 basis points, which I think implies a financial headwind to FFO of about 28% versus 2025 FFO and about 63% headwind to AFFO based on FY '25 AFFO. I appreciate that we offset to some extent by rental growth. But just wondering your thoughts there, how you're going to manage that? And obviously, you mentioned disposals, but those in theory come at a higher EBIT yield than your financing costs. Otherwise, you're better off refinancing and holding on to those assets. So I just wonder how you're going to manage that sort of headwind to FFO and AFFO moving forwards over the next 6 years.
Lars Von Lackum: Yes. Thanks a lot for your question, Paul. With regards to our midterm planning, our assumption currently is that we can realize, on average, a 5% growth of our key KPI, AFFO over the coming years despite the headwind from interest rates, which you have just mentioned. Certainly, exactly as you mentioned, we are expecting the core business to deliver strongly due to the undersupply in the market and the additional element, which we have disclosed hopefully, in a bit more detail as of today, the substantial number of subsidized units running out of those subsidization schemes and then being treated as free financed units. Secondly, you've seen what happened to the value-added businesses. We are quite confident that we can grow those value-added businesses going forward. That was certainly a very strong year, EUR 50 million to EUR 60 million. So please do not extrapolate that going forward. But that's certainly a contribution we are going to see. Green Ventures, you heard that. That was the last investment year. Last year, they are supposed to contribute substantially. Cumulatively, we strive for a profit of around EUR 20 million until 2028. That's an ambitious target. Certainly, as always, it's under risk if you are talking about start-ups, but the market certainly on the decarbonization side is huge. And finally, we will strive for a new digital operating model, and that certainly will give rise for efficiency gains, lower investments and certainly and most importantly, also additional top line. So with those elements, we feel comfortable to say over the next years, despite the headwind from interest rates, we can increase AFFO per year at around 5%.
Paul May: Cool. Perfect. And just to check, the marginal financing costs you're assuming in that 5%, just so you got a sense.
Lars Von Lackum: The marginal financing cost for a 10-year financing in the -- in the...
Paul May: In your planning, you mentioned 5% per annum AFFO growth. So I just wondered, what is the assumed marginal financing cost?
Lars Von Lackum: Yes. So what we do is that we certainly use the interest rate curve as of the time where we are preparing and finally deciding the midterm planning, which was October last year. So certainly, if that is going to change, that will have an impact. But believe me, everyone here in the management team and the full team is fully dedicated to deliver those returns going forward.
Paul May: Okay. So we're about sort of 15-ish basis points higher on that versus October last year.
Operator: The next question comes from Thomas Rothaeusler from Deutsche Bank.
Thomas Rothaeusler: A couple of questions, I think 2 or 3. The first one is on subsidized rents and the adjustment potential, more looking at the long-term upside. I mean, should we expect a structurally higher rental growth rate from '28 considering the higher reversion potential? I mean, you can almost double the rents over time, as you've shown. Maybe you could provide a rough idea about the long-term impact on rental growth.
Volker Wiegel: You will have significant impact on the next 3 years starting 2028.
Thomas Rothaeusler: But I mean from there, like more the very long term, I mean, you can basically adjust by 12%, as I understand, in '28. But then from there, actually, there is much more adjustment potential, I think, given the low level where subsidized rents come from.
Volker Wiegel: Yes, it's -- well, you see the spread to the market rent, and it will take time to adjust it until it's there. And market rent also develops. So this will -- there will be a significant gap that we need to close. And of course, we have the German rent regulation where we can adjust all 3 years then the rents. And we haven't simulated for the next 20 years, but it will have a structural impact over the next decade, I would say.
Thomas Rothaeusler: Okay. And then on value-add services, I mean, which contributed a record EUR 60 million in '25. Just wondering what to expect in the coming years?
Lars Von Lackum: Yes. So please do not expect that value-added services are now increasing on a regular basis by 20%. That would be highly unrealistic. So that we had -- that lower growth over the last 3 years was certainly very much driven by the energy crisis and the Ukraine war. So that was a strong impact on the Energy Services business. So from our perspective, for this year, assumes something in the growth range for the AFFO. So that will be growing pretty in line with AFFO for this year.
Thomas Rothaeusler: Okay. Last one, yes, on property values. I'm just wondering if you could -- if you already got any indication from your appraisers for the first half?
Kathrin Köhling: Yes, we just finished our last valuation. So as always, we will start with our new valuation with our cutoff date end of March. And then we'll have more insights once we meet again in May, and then we will give you an indication on H1 as we've always done.
Operator: The next question comes from Neeraj Kumar from Barclays.
Neeraj Kumar: I've seen a couple of questions on equity raise, so I'll probably not ask that. But on the other side, I would say that it's assuring that you see your values are strong and you don't look to sell below book values. But given your current share price, which seems to be pricing more than 50% discount to your NTA, do you see a potential in saying disposal of EUR 500 million assets of your least profitable assets at 10% discount to your book value and then using those proceeds to buy back shares? If yes, why you're not considering it? And if not, then how do you think about your share price here? Do you think it's fairly representing your property values? I'm just trying to understand if we should be believing your reported property values or your share price implied property values here.
Lars Von Lackum: Yes. Thanks a lot, Neeraj, for the question. So it's always difficult with hypothetical questions. So we have not thought about doing that, and we will not do that. So from our perspective and looking at the value increases, especially with those with the lowest yields, those have grown substantially in value over the last 2 years. So therefore, from our perspective, that's nothing which we would -- we would look at.
Neeraj Kumar: Okay. So if I understand correctly, like selling assets at 10% discount to book value is not accretive, if you were to use that to buy your shares at more than 50% discount to book value?
Lars Von Lackum: This is not what I said, Neeraj. I said that we are not thinking about doing so because from our perspective, the highest value creation on those assets is still to come due to the strong undersupply in the especially high-growth markets.
Neeraj Kumar: Got it. And last question. You seem to have been able to refinance your debt with good success with Baa2 rating. I was just trying to understand how critical the LTV target of 45% or a potential rating of Baa1 for you is? Or you think that is better in terms of running with high leverage and doing more share accretive stuff here?
Kathrin Köhling: Yes. So of course, as I've always said, the 45% LTV is definitely something that would help to get an upgrade from Moody's on our rating. Although, as you know, it's not the only thing -- the only KPI and the only qualitative factor they look at. So obviously, we would love to have a better rating, but is it essential? Like do we need it to refinance? No. We have refinanced also in the past years. We have refinanced at very attractive levels. So it is not an absolute need that we get this rating upgrade. But however, it's still something nice to have.
Operator: [Operator Instructions] The next question comes from Manuel Martin from ODDO BHF.
Manuel Martin: Two questions from my side, please. One follow-up question on the units getting off restriction in 2028. Having looked from a political perspective, have you heard anything from the political players in the locations where the units will come off restrictions, i.e., could there be some headwinds to be expected? Maybe you can elaborate a bit on that and thereafter, will be my second question.
Lars Von Lackum: Yes, Manuel, thanks a lot for the question. So we have not heard from any political resistance. If you look at the prices of those subsidized units, EUR 5.40 versus the market level EUR 9, that is the difference you're currently seeing in the market. We paid back the subsidized loans already in 2018. So there was a waiting period for another 10 years. So therefore, from our perspective, nothing to be expected on the political side, no political pushback also with regards to those units, which were getting off restriction over the past years. So also no political pushback to be expected from that bigger portfolio.
Volker Wiegel: And maybe to add, we are in close contact with almost every mayor and every bigger location, and they understand what's going on and accept it.
Manuel Martin: Okay. Perfect. Second question about project development, you're not actively doing that. Do you think this could become an option again for LEG to restart project development? It might be a bit too early, but maybe you can say a word on that, please.
Lars Von Lackum: Yes. So very happy to do so, Manuel. We are still struggling to come up with a return worthwhile taking the additional risk on our balance sheet. It is still something which certainly we have explored with that big plot in Dusseldorf of 19 hectares. Finally, we were not making or coming up with a business plan, which will have at least brought about the return worthwhile spending additional money on that plot. So therefore, from our perspective, no, the current regulation is still very strict. The Bau-Turbo, so that's speeding up of building permission processes, we have not seen that really kicking in. We still wait for that building type E, which is assumed to reduce some of the requirements with regards to the building type and the building qualities. Also, those reductions are still not being decided or not in a way currently being discussed politically, which would come then finally to lower construction costs. So therefore, from our perspective, no, we currently do not see any real benefit of that for us to reenter the development market. So that is the current status there.
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: Yes. Thank you, Valentina, and thanks for all 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 13th of May when we report our Q1 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.
Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.