Q3 2025 LEG Immobilien SE Earnings Call

Ladies and gentlemen, welcome to the lack immobilien Q3 2025 conference call and life webcast.

I am Matilda, the chorus call operator.

I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded.

The conference must not be recorded for publication or broadcast.

At this time, it's my pleasure to hand over to Mr. Frank Cena, Head of Investor Relations. Please, go ahead.

Thank you, Matilda. And good morning. Everyone from Total Dogs, welcome to our call for our Q3 2025 earnings call, and thank you for your participation.

We have in the call our entire management team with our CEO, Larson; our CFO, Katherine Cooling; as well as our COO, Phora.

You hopefully realize that we changed the format of the presentation slightly. You now have 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 can find on page 2 of our presentation. And without further ado, I hand it over to you last.

Thank you, Frank, and welcome from my side as well. A brief overall comment, just repeating what Frank just said: all the 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 disclosure 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.

For 2026, we guide for an additional growth of 5% in AFO. We stick to AFO as our core KPI. IE cash generation remains our core principle in this environment.

At the same time, we have included FFO 1 as part of our guidance for 2026.

We remain constructive on valuation and expected. Positive valuation result of 1.5 to 2% for the second half of the year.

Disposals remain 1 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 100 million Euros, 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 through non-complex 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-unit portfolio of BCP, as well as organic growth.

Effectively.

Strong topline growth, in combination with 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 ebda margin of 77%.

The same holds for the afo, which we expect to come in between 215 and 225 million euros.

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 vulkar 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 do. 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.

Therefore affo remains our core kpi at the same time. We never stopped prioritizing profitability. Therefore we are including ffo 1. 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 leave her up by increasing Investments, we have to decided to remain in a fully self-financed position.

We continue to spend more than €35 per square meter. This is still one of the highest levels in LG'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.

Fully self finance 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 is the 10% afo growth in 2025 and we guide for another 5% growth in affo in 20206.

And with this, I handed over to phoca for a detailed view on our operations.

Thank you, Laws, 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 nine months of the year.

In place, rent for square meter increased on a like, for like basis by 3.9, 1% to 6.99.

The 3.1% can be broken down into 1.7% from rent table increases, while modernization and re-letting contributed 1.4%.

the like for like rent growth was solely driven by the free finance units with an increase of 3.6% at the end we will have achieved also here our Target of more than 4%

The like-for-like vacancy rate, according to EPA 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 gays and cation goober, and disidore 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 in reaching 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.

Activity and modernization activity.

After the third quarter in 2024, we had implemented 87% of the rent increases realized until year-end. In contrast, the rent increase put through in Q4 2024 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 talk range.

To light 10 gives you more insight into our investments. Here. We are also fully on track for our per square meter. Goal of more than 35

Our total investments into the portfolio, increased by 10% in the first 9 months of the year.

The absolute amount was roughly €20,292 million, which corresponds to €26.66 per square meter.

This per square meter Investments increased by 6%.

The fact the portfolio size increase 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 afo, 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, volumes remain soft in total. We have already sold around 2,200 units for around €190 million. So far, all of them have been transacted at or above book value.

We expect more to come in and coming weeks and expect transaction activity. At our end to ramp up towards the 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 Katherine. Thank you for and good morning from my side as well. Let me walk you through our asfo development on flight 12 in the first 9 months, the afo increased by 19.3% to 181.3 million euros. This was mainly driven by higher net called rents, whereas around 20 million euros that due to organic growth, the acquisition of

PCP contributed, another 37 million euros of setting, the impact from disposals, which was 13 million euros. Furthermore, we saw positive contributions from our value ad business and remained very cost disciplined in both operations and administration which had a positive overall effect of 7.1 million euros here on year.

While the average interest cost in our group remained low at 1.59% net, cash interest in absolute terms Rose by 5.9 million euros. As total debt has increased due to the consolidation of PCP and of course also due to the general rise in interest from new financing.

On the Investments, the right? And 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 20 to 25 million euros.

In financial year, 2026 subsidies should come down to around 10 million euros. Also, due to the fact that there will be no more new construction activities for more details, we provide an afo table in the appendix on slide 16.

Coming to slide 13 and legs Financial key figures following the 400 million euro, Redemption of our convertible, which was due on September 1st. All our maturities for 2025, have been addressed and the same applies to all of our debt maturing in 2026, this includes the 500 million euros, straight bond, which represents roughly half of next year's maturity. As of today, we have a performer, cash position of cash, cash, equivalent sign, financing agreements, including prolongations, and Disposal proceeds of well, above 1 billion euros. This brings us well into 2027 when our next Bond matures in November 2027.

On slide 31.

At the reporting date, and after the redemption of the €400 million convertible bond, our liquidity position was €448 million.

Furthermore we had and still have undrawn revolving credit facilities of 750 million euros, as well as an unused commercial paper program of 600 million euros.

Our average interest rate stood at 1.59%, nearly unchanged year on year, with an average maturity of 5.6 years. The LGV stood at 48.3%, given that the dividend payout of around €125 million took place in early July year on year. However, we stand at a minus 20 pips. We are now heading towards our LTV target of 45%, said for next year.

as usual we provide important financing kpis and phone 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 4.5 times. And all the other Bond covenants are also with ample head rooms. Very recently Moody's, confirmed our VA to rating and revise the Outlook from stable to positive. Since now, I'd like to hand over to

To love for the guidance. Thanks a lot, Katherine. Let me now come to our guidance for 2026. We expect the AFO 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 trend adjustment for our subsidized units.

We expect the ebda margin to improve towards Peak levels of 78%. Again, we continue to invest significantly into our portfolios.

Certainly, faster disposals can shift the timeline 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.

Thank you love. And with this, we begin the Q&A session and I hand it over to you Matilda to guide us through the Q&A.

The question-and-answer session. Anyone who wishes to ask a question may press star and 1 on their telephone.

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The first question comes from the line of Mario's past 2 from Benstein. Please go ahead.

Hi, good morning. Thank you for the presentation and for taking my questions. Um, 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 AFO as your key earnings KPI rather than revert back to NFL 1? Um, and then secondly, on a similar topic, if I look at 2026 guidance, I see AFO is up 5%, but FFO is flattered at 1% even though your investment plans are stable year on year. So, what is driving the difference between these three growth trajectories? Thank you.

Yeah. Keep calling Marius and thanks a lot for your questions, so just to start off. So, why have we decided to stick to afo instead of making ffo 1 again, our core kpi. It is really the macro environment, especially the uncertainty around budget deficits, um, from different states, um, including the German 1 and I think we've seen during this year, what the announcement of the new budgets, um, being planned to be spent on infrastructure and defense did to the interest rate is specially long term.

As our cool metric going forward. So that is why we were sticking to afo, although we are expecting substantial additional disposals in Q4.

With regards to the different ffo, 1 to afo, happy to turn over to Katherine.

There there.

are mostly a range that we are giving out for for next year and

It's, uh, and um, the numbers on the faux side are much bigger than on the ASO side. Um, so let's see how the range is play out um, next year. And um also keep, please keep in mind that this year, we were still doing new developments on on land which uh ended up in the afo line and not in the ffo line. And as we are now done with our new developments, this will not take place next year.

Okay, very clear. Thank you. So, there's no specific adjustment being made, uh, between the 2 numbers, um, that it's causing this difference.

No, we didn't change the the kpi definition, or anything else.

Thank you very much.

Thank you.

The next question comes from the line of John Wong. From Funland short camping. Please go ahead.

Hi, good morning, thanks for taking my questions and just just on the lack of 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, um, just to try understanding the underlying trend of like, for like, what? What's the impact of this adjustment to your like, like,

It's about uh, 40 to 50 Pips.

Okay, that's clear. Thank you. And then just correct me if I'm wrong but the 2026 AFL and fog guide and are um excluding any disposal of the LTV guide is is including disposals. Um, what's the rationale for uh, for this

As always done, um, 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 2020 5 also to be transparent. Um, 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,

30. 45% LTV that you aim to achieve in 2026. That's excluding disposals.

Then it's including disposals, but those transfers of ownership signed in Q4 being transferred in 2026. Certainly contributed to reduce LTV 245%.

Clear, thank you.

Thank you.

We now have a question from the line of part. Shiza from Morgan Stanley, please go ahead.

Yeah. Hi, good morning. Um, thank you for the very clear, um, kind of expiry profiling cost of your, um, of your debt. Can I just ask? What is the, um, cost of debt that you are assuming for 2026 in your guidance, to get to this, uh, level of AFO and FFO?

While I'm happy to take your question. Well I don't know how markets are developing next year, I can for sure tell you um, about the financing that we just did. So the final things that we where we already got the money, you already have in the 1.59%, the um, financing that are still outstanding and will come mostly in queue Q4 this year. And q1, next year around 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 financing to come especially when we regard, what 2027 has in the basket for us. Um, so but this will be totally dependent on Market developments.

But, but I assume I thank you for that. But I assume that, given you provide guidance for Q3.

That implies a certain number that you've assumed what your debt will cost, right? And I appreciate that with a range but can you be explicit on on? What that what you think that number is to get to this range of ffo?

out exact numbers on on specific line, items of our pnl

All right. Thank you.

Thank you, B.

As a reminder, if you wish to register for a question, please press star and 1 on your telephone.

We now have a question from the line of Manuel. Martin from oddo bhf, please go ahead.

Um, thank you, um, for taking my questions. I have two questions for my site.

Um,

Let's do that, maybe one by one. The first one is, um, on the upcoming disposals. Um,

Could you give us maybe some color on what we could expect in terms of how many disposals, where they are located, and what the quality is? This way, we will have a bit of an impression of what could come there. That would be the first question out of two.

Thank you. Good morning manual. Very happy to take that question. So certainly, we are currently in the midst of selling the plot in a Garrison digital doors, which we've bought from BCP. We make progress there, we have now, a preferred bidder with whom we will approach the city of Dusseldorf 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 wait substantial progress, across all 3. Um uh cities so halo lights again, marked a book. We are in exclusivity there with different bidders. And we are hopeful to also sell half of the portfolio, um, within Q4, and then there are other, um, portfolio disposals, um across, uh, the current earmarked 5,000 units portfolio, which we are currently marketing, um, that will also contribute. So. Um, overall expectation, is that we are going to sign around, 100 to 200 million euros of additional disposals in Q4. So, until until until end of this year,

Okay, okay, that's clear. Um, thanks uh, second thing I asked question the the other side of the medal, um, in in terms of uh, of possible Acquisitions, uh, to to see opportunities in the market or what, what's your feeling, what what could come in in regard of Acquisitions and, uh, what would be possible for for energy given given the high LTV. I, I could imagine that. There might be also some constraints when it comes to acquisitions.

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. Um, what we currently plan with regards to acquisitions? If there might be an outgrowth opportunity, and that definitely will then um include also equity without 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.

Okay, thank you very much.

Thanks a lot.

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The next question comes from the line of Ky Closer from Berenberg. Please go ahead.

Yes, good morning, I've got 1 quick, followup question. When you indicate the ATV to be at around 145 by the end of next year, could you indicate where you expect the icr to land?

Hey Kai. Thanks for your for, for your question. We, we are not giving out a guidance for, for the icr for next year but you know, we looking at the 4.5 there where we are currently standing at, it's super strong. Um, it might, uh, decelerate a little bit. But, uh, we are, we are well above, uh, any numbers that we should worry about. So that's definitely will be a strong number next year, as well for us.

Thank you.

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. Please go ahead.

Is it wider than the, um, than the episode guidance? And, and then secondly, Lars, um,

If I think about your assets that you've got marked for sale, I appreciate you're expected to make significant progress, uh, 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 the asset values didn't move, can we get down to 45% LTV? Or if you got either more stuff to add?

It needs to be.

Sold to that disposal program. Or is it a case that you know if asset manager up a couple of percent next year, like they?

Will this year actually get you to 45% out to you? Anyway, thank you very much.

Thanks a lot for your questions, Rob. Um, I start with the second question, so with regards to the Karen assets, um, it is really that we've 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 and there's probably additional um, units for sale. How much that will be. Let's wait and see how that. Um portfolio revision will look like but um 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.

Hi Brock and uh this your what's your first question on The Wider guidance range. Uh on the SSO. This is of course due to the to the Investments and you know, we are focusing on. The afo afo is also the basis for our dividend. So we really try to to spend as much money as needed, but not as send more and therefore, um, the capitalization ratio can, um, vary a little bit, uh, between, um, uh, between the years and depending on what we are exactly doing. So it's much harder to um to say where we will end up with the with the SFO, when you're focusing on the afo and um, therefore we have the wider guidance.

Right. And uh, yeah. Thank you very much for, um, for all your interactions. Appreciate it.

we now have

We now have a question from the line of Jonathan kov network from Goldman Sachs. Please go ahead.

Uh, good morning. Thank you for taking my questions. Just, uh, following up on some of the nitty-gritty accounting, but just on subsidies, uh, I understand that the amounts you're going to $10 million is going to be lower for 2026. You're also saying that you will have less, um, work for your own, uh, balance sheet that you're doing. So how we expected, uh, the, uh, online capitalized to evolve. And also,

If you can give it perhaps a bit more context on the subsidies, that would be helpful. Thank you.

Yeah, so to start off with the second part, the subsidies and Johnson, with regards to subsidies, certainly here is being impacted by new developments. As you know, we are finalizing new developments, and for those, certainly subsidiaries became due as soon as you finalize that construction. So, that will be lower next year and will certainly be in the hat, which we need to cope with. So, for our role this year, that's something like €20 million, and it will be substantially lower next year. And that's, uh, with regards to 2026, certainly something which we need to cope with. If we look into the subsidized, on the one hand subsidies, on the one hand side, but also interest rates. Yeah. Because, um, you heard it from Kathrin that with regards to the €600 million which we are now drawing, that now kicks in at 3.8% instead of the current average yield of 1.6. And that's certainly something which also is...

A hat wind and that is the reason why in combination with the uncertainty around. The capitalization rate we've been opting for a wide range. For the ffo 1, full 75 to 495.

and so, just following up on that the

New development business? I think you've wound down essentially. So does that mean that the $10 million is for 2026? This is effectively the last year that you're getting these as it is.

Will have a subsidized subsidy impact and that's something which we are expecting for next year to come. And so maybe let me rephrase, so for 2026 to 10 million guidance, you're giving, does that still include new development or then it's just about energetic modernization.

2026. No new developments in 2025. Last year of new developments with subsidies. Next year, no new developments anymore. Jonathan, okay. And so, are we expecting? Also, the owner capitalized to drop then in 2026.

I, I think you're making now reference to to a line item, which is not being impacted by the new developments, but it's stronger impacted by our Craftsmen Services units. So that is something which is not to be put in the same basket. Yeah. Okay, cool. I can follow up later. Thank you.

Thank you a lot.

The next question comes from the line of Nico Hagman from Data Bank. Please go ahead.

Hi, thank you so much for taking my question. In regard to the current sale of the glass mold-off, may I ask you to give us some color on this? Specifically, in terms of the computation of this deal.

Oh, the competition is incredibly high. Um, so it took us two rounds to finally decide on one consortium. And with that, we are now approaching the city of Düsseldorf. Um, so therefore, even if the city would not agree to the current consortium, which we do not have any indication of 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.

Okay, thanks a lot.

Thanks a lot.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Frank for any closing remarks.

Yes, thank you. And thanks for your questions. As always, should you have further questions, please do not hesitate to 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 1 of our upcoming Road shows and conferences.

Thank you and goodbye everybody.

Ladies and gentlemen, the conference is now over.

Thank you for choosing carsko, and thank you for participating in the conference. You may now disconnect your lines, goodbye.