LEG Immobilien SE

Good morning, everyone, from Dusseldorf. Welcome to our call for our H1 Results 2025, and thank you for your participation. As our COO, Volker Wiegel, is today in his well-deserved summer holidays, you have today in the call our CEO, Lars von Lackum, as well as our CFO, Katrin Köhling, who will guide you through the presentation. You'll 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 three of our presentation. And without further ado, I hand it over to you, Lars.

Thank you, Frank. A very good morning to all of you. Let's start, as always, with our summary slide on page six. It is, again, all about delivering strong financial IFRS and APRA results. Our H1 numbers provide clear evidence of that. AFFO is up by more than 15%, FFO1 by almost 11%, and EBITDA margin sits at a solid 78.6%. Consequently, we are narrowing our AFFO guidance towards the upper half of the original range. We expect AFFO now between 215 and 225 million euros. This translates into an again strong growth of 10% for the AFFO in 2025. We are also on track to achieve our operational targets, with like-for-like rental growth gaining further momentum at 3.2%. Therefore, we are confident to achieve our target range of 3.4% to 3.6% this year. Both occupancy and valuations have increased. with valuations rising by 1.2%, slightly ahead of our original guidance. Profitability has increased, as shown by a stronger EVTA margin. We integrated BCP faster than expected and realized some opportunities within our value-add business, leading us to raise our EVTA margin by 100 basis points to 77%. For the first time since autumn 2022, we are providing an indication for FFO1. We expect FFO1 to increase to between 470 and 490 million euros. This translates into a solid growth of 5%, taking the midpoint of that range into account. Please note that this is an indication only. FFO remains our core steering KPI for 2025. However, after having passed the valuation turning point and seeing stabilization of values, we follow the demand from many investors and analysts to provide more transparency regarding the development of the FFO1. We consider our LTV of 47.6% still to be work in progress. Rest assured that we will strive strongly to get it down to 45%. The combination of disposals and valuation gains will get us there. As of today, it might be reasonable to assume to get there in 2026. And with this, let me come to slide seven. You find a graph showing the impact on our financial KPIs, AFFO and FFO1 from our cycle management actions over the last years. FFO1, because it was the key steering KPI until end of 2022, And AFFO, it is the key KPI of LEG since 2023. We report both KPIs since our IPO in 2013, and we will do so in the future. Please note that both KPIs are shown on a per share basis and after minorities. We want to be completely transparent regarding the dilutive effects stemming from equity measures. For 2023 and 2024, the sole effect for our company comes from script dividends. To steer the company based on AFFO over the last two and a half years to cope with the biggest value decline of German residential properties after World War II has proven to be right. We expect AFFO per share to reach a new record level in 2025 and FFO1 per share to climb to the pre-crisis record level of 2022. The cash-focused KPI forced us to stick to simple and uncomplex measures to preserve the earnings base. We exclusively sold and sell down weak assets and new developed projects, the latter as we consequently stopped the cash-demanding project development business back in 2022. Disposal proceeds, the hard-to-take and certainly unpopular suspension of our 2022 dividend as well as the script dividends for 2023 and 2022 provided us with around 1 billion euros of cash. Still, all measures taken have neither jeopardized our earnings nor our cash flow base. We even took the brave decision to make use of the disposal proceeds in 2024, reinvesting it into growth. We bought the remaining 63% in BCP, a portfolio of not less than 9,000 units, and added growth to our platform. At the same time, we successfully kept the cash interest costs low. To do so, we sticked to an opportunistic refinancing strategy. Therefore, the average yield still sits at an attractive 1.54%. We are perfectly aware that further refinancings will increase cash interest costs going forward. Based on today's interest rate curve, Topline will outgrow this effect due to increases in rents and growth of the value-add business. Let me now give you some insights on the BCP effects on slide 8. Despite the complexity of the corporate structure, in Israeli enlisting and complex financing instruments, we were able to integrate BCP much quicker than originally expected. Growth of the portfolio by more than 25% since 2019 helped to build an outstanding expertise to integrate even complex portfolios. The swiftness of the integration enabled the realization of financial and operational synergies. Therefore, the BCP portfolio already contributes to the strong development of EBTA, FFO1, as well as AFFO, on a group level in 2025. While originally expecting BCP to have no relevant effect on the AFFO metric, we now project a more significant earnings impact. EBITDA margin of the BCP portfolio should make it to the overall group level already in 2025. Higher investments will have an impact on FFO1 and AFFO. We expect AFFO from BCP to contribute more than €5 million in 2025 compared to our initial plan. The successful integration of BCP is therefore one of the key reasons for our improved guidance for 2025. Going forward, we will no longer provide you with specific information on BCP as the acquired assets make up for just 5% of our portfolio and are now fully integrated into our platform. There is one exception. We will continue to report on our disposal efforts for the eastern part of the portfolio. To maximize price, we have decided to market regional sub-portfolios instead of continuing to offer the full portfolio. That will take a bit more time, but will bring better prices for our shareholders. Let me dive a bit deeper into the current state of disposals on slide 10. With transfer of ownership for around 1,500 residential units in Q1, we had a strong start into 2025. However, second quarter sales were strongly impacted by negative macro and geopolitical volatility and ended up somewhat muted. So, transfer was limited to 300 apartments. Overall, we transferred 1,800 units with gross proceeds of 143 million euros and net proceeds of 74 million euros in H1. Additionally, we notarized the sale of another 300 units for around 37 million euros. Those units are expected to be transferred by the end of the year and increase the total disposal volume to 180 million euros, a good result in a still demanding market. We currently market around 5,000 apartments, including BCP's Eastern German portfolio of around 1,350 units. Taking into consideration the progress of different portfolios in our sales funnel, we remain optimistic to achieve further disposals in Q3 and Q4. In all transactions, we continue to be rigorous on the price to maximize shareholder value. we will not transact if our price expectation is not being met. Exactly this is the reason for splitting VCP's Eastern German portfolio. The first round of non-binding offers for the complete Eastern Germany portfolio showed that the market is currently not open for portfolios of that size. The marketing of smaller portfolios will take more time, but will bring more liquidity and better prices. You might have noticed on slide 30 in the appendix an addition of 175 units in Q2 to our portfolio. These units are mainly completed new builds. We have slightly more than 200 units still under construction with completion in the year. And with this, I hand it over to Catherine for more details on the operations as well as the financials.

Thank you, Lars, and good morning to everyone also from my side. On slide 11, you find more details on the rent growth per square meter realized in the first six months of the year. Like-for-like rent growth increased to 3.2%, and with that, it was 20 bps higher than in Q1. Therefore, we are still very confident to reach our target of 3.4% to 3.6%. This will translate into a like-for-like rent increase for the free finance part of more than 4%, and underpinning the underlying market dynamics. Rentable increases contributed 1.8%, while modernization and re-letting contributed 1.4% to rent growth, bringing current in-place rent for the portfolio to €6.93 at the end of the quarter. Like-for-like rent growth was solely driven by the free finance units with an increase of 3.7%. Rent growth in the first six months of the year was the highest in our stable markets, followed by the high growth markets and the higher yielding markets. There will be no adjustments of the cost rent for the subsidized units in 2025. The next adjustment will take place at the beginning of 2026. As a reminder, in 2028, roughly half of all our rent-restricted units will come off restriction and will provide us with a meaningful rent increase potential. Current difference between in-place and market rent for the units to come off restriction amounts to 55%. More details on that topic can be found on page 35 of the presentation. On page 12, we provide the usual details on our investments. In the first half of the business year, the adjusted investments per square meter increased by 7.1% to €16.51. €16.51 corresponds to roughly 45% of our full year guidance of at least €35 per square meter. So we are on the right track to reach our investment target as investments will further accelerate over H2. The total adjusted investments increased by roughly 11% to 184.4 million euros. The growth rate is higher than the per square meter growth rate as our portfolio is slightly bigger than in the first six months of 2024, mainly driven by the BCP acquisition. Let me briefly provide you with an update on our Value Aid business on slide 13. In the first six months, These services contributed $26 million to our overall FFO1, worth $19 million in the first six months of 2024. The growth is driven mainly by our subsidiary ESP, i.e., the subsidiary which provides energy and related services. The results of ESP benefit from a more stable underlying energy price, but also from a higher volume where we provide heat and energy contracting towards our tenants. Our green ventures will only be reflected once per year, i.e. at the end of the year via the annual account, given that these are all accounted for at equities. Given the startup character of those ventures, we do not expect a meaningful contribution on an FFO1 basis for 2025 yet. Until 2028, we target a contribution of an accumulated basis of around 20 million euros. And with this, I come to some financial highlights on slide 15. Net cold rent grew by 7% or 29.9 million euros to 457.8 million euros. The acquired BCP units contributed 24.7 million euros, whereas 13.9 million were due to the organic growth. Disposals had an opposite effect of 8.7 million euros. Recurring net operating income grew even stronger than net cold rent. A positive driver was the contribution from the value-add services, as I said. The recurring NOI increased by 9.6%, reaching €383.8 million. This improved the NOI margin, which rose by 200 bps to 83.8%. The adjusted added DA of €360 million translates into a margin of 78.6%. up 290 bps on the previous year and a solid base to increase our 2025 guidance for this key metric. FFO1 increased by 10.7% to 241.2 million euros. Please turn to the next slide where we will have a closer look at the AFSO. In the first half of the financial year, the AFFO increased by 15.4% to 126.6 million euros. The strong impact from rent growth was only slightly offset by a moderate increase in net cash interest of 6 million euros. I will give more insight into our financing profile in a few minutes. The column Others with a positive amount of 5.5 million euros mainly includes our biomass heating plant. On the investments, the rise in spending is in line with our guidance. We are gradually catching up with investments into the BCP portfolio after a short ramp-up phase following its integration and, as usual, expect slightly higher investments towards the end of the year. In terms of subsidies, we expect for the full year a total amount on the lower end of our original guidance of 20 to 25 million euros. All in all, we feel very comfortable in narrowing our ASFO guidance to the range of 215 to 225 million euros for the 2025 financial year. Let us now look at slide number 17 and the outcome of our most recent portfolio revaluation. By now, we feel very confident that the devaluation cycle has come to an end. Following the slight uplift at year end 2024, we saw a valuation result of plus 1.2% as of June, which was slightly above our initial expectations. In the stable and high growth markets coming from higher devaluations, the recovery was even slightly stronger with 1.3%. All in all, we expect this trend to continue with a trend line that is likely to rise in a U-shaped way and not in a sharp way. The cross-yield of our residential portfolio still stands at 4.9% and is still offering a decent spread to bond yields. The net initial yield, based on the APRA definition, is 3.8%. The average gross asset value per square meter for our residential property stands at 1,656 euros, ranging from an average 2,261 euros per square meter in high-growth markets to 1,144 euros in higher yielding markets. Finally, coming to slide 18 and LEG's current financial profile. All our remaining 2025 majorities have already been addressed for quite some time. The remaining debt mainly relates to our 400 million euros convertible due on September 1st, which we intend to repay and where we can rely on our very strong liquidity positions. At the end of June, we had 764 million euros of cash and cash equivalents, including short-term deposits. Furthermore, there are the undrawn revolving credit facilities, adding up to 750 million euros, plus an unused commercial paper program of 600 million euros. We are now focusing particularly on refinancing the 2026 maturities, continuing our opportunistic approach. Technically, 60% of the 2026 maturities are already covered by liquidity or end-signed loans. Our average interest rate stands at 1.54% at the end of June and is therefore below the previous year's figure of 1.66%. The corresponding average maturity is 5.5 years. The LTV stands at 47.6% at the reporting date, minus 30 bps compared to year end 2024, and minus 80 bps compared to Q1 2025. As the payment of the cash dividend took place on July 3rd, it will be included in the LTV in Q3. Investors representing 38% of the share capital chose to opt for the script dividend. Due to this high acceptance rate, we could keep €76.4 million in the company to strengthen our cash profile. We also continue to stand by our mid-term LTV target of 45% and our ongoing disposal program will support this. As usual, we provide important financing KPIs and bond covenants in the appendix on slide 41. Let me emphasize that our ICR still stands at a very solid 4.4 and that all the other bond covenants are also with ample headroom. And with this, I hand over to Lars for the guidance.