LEG Immobilien SE

Good morning everyone from Düsseldorf. 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 Katrin Kuehling, 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 two of our presentation. And without further ado, I hand it over to you, Lars.

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 220.5 million euros, 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 €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 Heinz signed the purchase option for the site with LEG just yesterday. We confirm our 2026 guidance with AFFO expected between 220 and 240 million euros. 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 mid-term 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 six 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 919.9 million euros, 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 EBTA 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. FFO1 reached 481.5 million euros, a 5.2% increase, landing right above the midpoint of our guidance range of 470 to 490 million euros. Even more impressively, AFFO grew by a strong 10% to 220.5 million euros, landing smoothly within our improved guidance range of 215 to 225 million euros. This marks a record high for the company. And speaking of returns, our dividend proposal of €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 €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 nine euros 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 TENS or non-TENS 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 one 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 relattings 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 mid-term 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-and-partner strategy. And we have chosen two 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 touchpoint 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 FFO1 optimization along three 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 a bulk of spending concentrated in the near-term implementation phase. This is a conscious front-loading of investments, From 2028, we expect these initiatives to turn cash flow positive, building to a contribution of more than 10 million euros 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.

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 nine 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 for 3.5% like-for-like in-place rent growth. At the end, the average in-place rent of our residential portfolio stood at €7.04 per square meter on a like-for-like basis. This compares to €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 relating 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 finance 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 market. 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 35 euros per square meter and I'm pleased to confirm that we exceeded the target coming in at €36.11 per square meter. In absolute terms, we invested slightly more than €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 €228 million or €20.46 per square meter, while maintenance represented €175 million or €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 261 million euros. 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 €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 FFO1 growth of around 20% in this segment, increasing from 50 million euros in 2024 to around 60 million euros in 2025. While others in the market are still talking about their value-add efficiency, we are delivering real results. The foundation of this success lies in our technician and craftsman 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 systems, 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 RenovAID for serial refurbishment, Termeus with smart thermostats for hydraulic optimization, and Decabo 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 20 million euros 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 250 million euros. During the year, We sold 2,252 residential units for total proceeds of around 190 million euros. After deducting financing redemption fees and taxes, net proceeds amounted to roughly 100 million euros. 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 100 million euros 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 and 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 €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 initiative. This would certainly contribute to our deleveraging strategy. As already described by Lars, we were able to agree with Heinz on an option to buy the plot. The next step will be an agreement between Heinz and the city of Düsseldorf. 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 permissions 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 multi-family 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 Katrin.