Ladies and gentlemen, welcome to the Aroundtown SA Q3 2025 results presentation conference call. I am Matilde, the course call operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to the company. Please go ahead.
Good morning, everybody. Thank you for joining us for Aroundtown's 9 months 2025 results call. You can view this presentation on Aroundtown's website, either on the home section or on the financial reports of the investor relations section. Guiding you through the presentation today will be CEO Barak Bar-Hen, CFO Jonas Tintelnot, Executive Director Frank Roseen, Chief Capital Markets Officer Timothy Wright, Chief Sustainability Officer Limor Bermann, Deputy CEO Kamaldeep Manaktala, and representatives from Grand City Properties are also present. For the duration of the call, all participants will be on listen-only mode. Following our presentation, you will have the opportunity to ask questions. With that, I would like to hand over to Barak and the rest of the team who will guide you through the presentation of our results.
Good morning, and thank you for joining us for our nine months 2025 results presentation. Our portfolio continues to perform well, with the majority of the portfolio at 56% of residential and hotels, achieving strong operational results, benefiting from strong market tailwinds paired with our ability to identify and extract upside potential. The office portfolio at 38% remains stable, although the economy continues to lag. Nevertheless, we see the outlook is improving, and we continue extracting positive rent-like-for-like performances. In addition, our conversion potential is increasing as we continue to identify more opportunities with the new regulation in Germany, especially the Bauturbo, further supporting conversion to residential, thus providing us more optionality to extract upside potential. We see the general sentiment continuing to improve, and the economy is expected to move to a more positive territory next year, as expected by the German government, supported by the large stimulus package.
Government stimulus programs are expected to drive investment in critical infrastructure, and renewed private sector activity is beginning to show in the macro data. Meanwhile, a stabilizing interest rate environment is positively impacting capital markets, creating a more supportive financial climate. We see these as encouraging signs. Germany's transaction market is also showing signs of recovery, and we are seeing an uptick in transaction activity, including some larger deals. However, this recovery remains uneven as smaller and less liquid players continue to face refinancing challenges, which may create growth opportunities for us. Here today, we have also executed several capital market transactions, which include senior bond issuances together with tender offers, as well as the recent successful perpetual note transaction executed a few weeks ago.
In the perpetual transaction, we refinanced high coupon perpetuals with a cheaper one and, on top, reduced our perpetual balance, thereby reducing coupon payments and supporting FFO. This deal attracted strong investor demand and positive feedback, reinforcing our strong access to capital market. We continue to focus on extracting our internal growth potential, and together with our recent proactive activities in the capital markets, positioning us strongly for the opportunities ahead. On slide four, we present the key financial highlights for the first nine months of 2025. Net rental income amounted to EUR 886 million, increasing slightly compared to nine months 2024, supported by a solid like-for-like rental growth of 3.1% and more than offsetting the impact of net disposals. Adjusted EBITDA amounted to EUR 715 million, slightly lower by 1% compared to nine months 2024.
FFO1 amounted to EUR 221 million, down from EUR 236 million in the comparable period, mainly due to higher perpetual note attribution and a lower contribution from JVs, which offset operational growth. In H1 2025, the portfolio was externally revalued, showing a positive like-for-like value change of 1.4% compared to December 2024, mainly driven by strong operational performance. The portfolio will be fully revalued again as part of the year-end report. EPRA NTA per share amounted to EUR 7.8, higher by 5% compared to December 2024. We are making ongoing progress towards obtaining green certificates for our assets, with 62% of our commercial portfolio now green certified, including 73% of offices and 60% of hotel assets.
Liquidity remains solid at EUR 2.7 billion, despite significant debt repayments during the period, with gross debt reducing by EUR 1.1 billion during the nine-month period. LTV stands at 41%, well below our internal board of directors' guidance of 45%, and maintaining wide covenant headroom. Jonas, please continue on the next slide.
Slide five highlights our recent perpetual notes issuance and buyback. This transaction involves issuing EUR 700 million in new perpetual notes at a 5.25% coupon, including a EUR 200 million tap, while buying back EUR 1.2 billion of perpetual notes with an average coupon of 7% through the concurrent tender as well as redemption calls following the transaction. The rationale behind this transaction was to reduce coupon payments. We achieved this by replacing higher coupon perpetual notes with new lower coupon notes, thereby reducing our annualized coupon payments. In addition, we were able to reduce the total balance of the outstanding perpetual notes due to this transaction by EUR 510 million. As a result, annualized coupons will decrease by approximately EUR 15 million, supporting FFO while significantly lowering our interest expenses under S&P's methodology.
Overall, this accretive transaction strengthens our credit metrics, improves our financial position, and will assist in keeping our FFO level going forward. On slide six, we present a summary of the outcome of the perpetual note transaction on a line-by-line basis, highlighting here the reduction in the balance by EUR 510 million and the decrease in average coupon of the specific notes from 7% before the exercise to 5.6% after. In the appendix, we provide an updated list of all our outstanding perpetual notes post-transaction. Moving to slide seven, where we give a summary of our bond issuances since July 2024, highlighting the strong progress we've made in reducing the marginal cost of debt over this period. In July 2024, our Series 40 senior bond was issued at a coupon of 4.8%, while GCP issued EUR 500 million Series Y bonds at a coupon of 4.375%.
At that time, these were our first issuances after several years, marking our return to the capital markets. By May 25, we were able to issue Series 41 bond at a much lower coupon of 3.5%, and in September 25, the coupon for the Series 42 decreased further to 3.25%. In November, we also issued new CHF bonds to proactively refinance the upcoming maturity of our Series X CHF bond in Q1 next year. The Series X was issued in 2019, so before the pandemic and period of higher interest rates, and carries a coupon of 1.72%, while the new Series 43 CHF bond was issued at an even lower rate of 1.5%. Tim, please continue the next slide.
Thank you, Jonas. On slide eight, we show our internal growth reflected in continued robust like-for-like rental growth across the portfolio, showcasing the benefits of our diversified portfolio. We continue to see strong growth in the majority of our portfolio, hotels which make up 22% of the portfolio, leading the growth with 4.2%, supported by repositioning projects completed in previous periods, which are now driving internal growth. The residential assets, which make up 34% of the portfolio, continue to deliver strong rental growth with a like-for-like growth of 3.9%, supported by record low vacancy. These two asset classes make up 56% of the portfolio. In offices, which comprise 38%, we continue to capture rental growth despite market headwinds by leveraging our gap to market rents as we can offer competitive rents. We continue to enhance our letting activities through selective conversion opportunities, primarily service apartments.
Here, the Bauturbo regulation provides a strong opportunity to accelerate office to residential conversions, enabling more flexible changes and unlocking further value. Moving to slide nine, you can see here our internal and external growth drivers. We continue to drive growth through internal drivers, including targeted investments and operational efficiency. With a rent reversion potential of around 26%, including potential to increase occupancy, benefits from indexation, and the regulated rent increase in our German residential portfolio, we're well positioned to capture rental upside. Targeted CapEx measures in past periods will deliver contractually agreed rent increases from hotel repositionings. Furthermore, we have rental upside in the upcoming periods from conversions of office to service apartments. Also, here we have the upside contractually agreed with long-term leases signed and further opportunities under review.
Looking at external growth, here capital recycling is a key growth driver b y selling lower-yielding assets and utilizing the proceeds to fund high-quality and higher-yield acquisitions, we're able to drive EBITDA growth while maintaining a conservative balance sheet. Now, let's discuss our operations. Frank, please continue.
Thank you, Tim. Slide 11 illustrates our well-balanced portfolio across asset types. Hotels account for 22%, residential 34%, offices 38%, and logistics and retail 6%. Our properties are concentrated in top locations with Germany, the Netherlands, and London, representing 88% of the total portfolio. Berlin remains our largest city at 24%, followed by London 8%, Munich at 7%, and Frankfurt at 6%. These core markets offer strong long-term fundamentals and continue upside potential. For more details and aerial views of our main cities, please see the appendix. On slide 12, we highlight how our diversified asset base remains the foundation of our resilience and growth potential. With broad exposure across residential, office, and hotel segments, we are able to unlock synergies, manage risk, and adapt confidently to changing market conditions. Our in-house expertise allows us to identify the best use of each asset, whether through repositioning, conversion, or operational improvements.
As market conditions change, the best use of a specific property may shift over time, and with our expertise across asset classes, we are able to unlock further potential and capture new opportunities. For example, we have converted selected office spaces into service apartments, where returns are more attractive. Furthermore, innovation and processes developed in one segment can also be applied across others, enhancing efficiency and supporting stable cash flows. This diversification also offers downsize protection due to lower sensitivity to industry or asset class-specific impacts, such as we saw during the COVID pandemic. Residential assets provide resilience and protection during economic downturns, while office and hotel segments offer greater upside when markets are growing. This balance ensures that our portfolio remains well-positioned throughout different cycles with manageable sensitivity to market headwinds.
Our flexible capital allocation strategy enables us to direct resources to the most promising sectors, helping us to take advantage of market opportunities and pursue higher returns. On slide 13, we provide an update on the main portfolio KPIs along with an overview of our tenure composition. As of September 2025, the total portfolio value stands at EUR 24 billion, generating EUR 1.16 billion of analyzed recurring rental income, reflecting a rental yield of 5%. The growth remains solid at 7.4 years. The maturity schedule is well-balanced, which provides additional downsize protection. Vacancy has improved slightly at 7.4% compared to the end of 2024, and in-place rent has increased to EUR 11.4 per sq m. Our tenant base is well-diversified, including around 3,000 commercial tenants alongside a highly granular residential segment. The top 10 tenants contribute less than 20% of total rental income, limiting exposure to any single tenant.
Slide 14 provides an update on our disposal progress. In the first nine months of 2025, we completed approximately EUR 460 million of disposals around book values at an average rental multiple of 20 times. Most of these transactions involved office and residential properties, with a remaining reminder in hotels, building rights, and retail. The disposals were primarily located in Berlin, North Rhine-Westphalia, Bremen, Frankfurt, and Osnabrück, and other locations. Yet today, 2025, we have signed over EUR 350 million of disposals, which provide us additional capital to support our balance sheet and fund growth opportunity through capital cycle. Approximately EUR 155 million of disposals are signed but not yet closed as of September 2025. Looking ahead, we plan to continue with selected disposals of lower-yielding assets and development properties to support our acquisition strategy. Kamaldeep, please continue on the next slide.
Thank you, Frank. Good morning. Slide 15 offers a detailed view of our office portfolio's performance and positioning. Most of our office assets continue to be concentrated in Berlin, Frankfurt, Munich, and Amsterdam, which together account for nearly 60% of the total portfolio. In September 2025, the office portfolio achieved like-for-like rental growth of 1.5%, mainly driven by rent indexation and reversion. Our vacancy increased slightly and stands at 12.9%. Our tenant base is well-diversified, with about 75% of rental income coming from public sector entities, multinational corporations, and large domestic firms. Currently, 73% of our office portfolio holds green certifications, and we are making steady progress towards certifying the remainder. Market vacancies have increased slightly over the past years but remain around historical levels as they come from very low levels supported by low and decreasing new supply.
We expect improvements in the office sector once the German government stimulus package flows through the markets. At the same time, we see additional opportunities created by the Bauturbo regulation, which allows for more flexible conversion of office space into residential, which helps address Germany's housing shortage. On slide 16, we highlight the improved economic outlook in Germany, driven by the government stimulus package and recent reforms supporting conversion. For the office market, signs of this positive outlook start to be visible, with office take-up in the Big 7 cities up 5% year-on-year and investment volumes rising by 23% year-on-year. Overall, these developments position our portfolio to benefit from improving market conditions and increased demand.
We believe these structural and cyclical improvements will support a gradual recovery in office demand, particularly in core urban markets where we maintain a strong position, while we believe that the Bauturbo would make additional potential conversion projects economical. The Bauturbo is a significant step in the right direction of German government support to increase housing supply. In recent years, supply did not catch up with the government's targets and actually moved even further away. We believe the Bauturbo will have its biggest impact in conversion projects compared to new builds as construction costs remain high. In addition, currently, EUR 360 million of subsidies are being discussed, which would be allocated from the Infrastructure Fund. These subsidies are targeted specifically for conversion of commercial to residential. The government might also introduce further measures.
Slide 17 provides an overview of our selected office properties that are being converted into centrally located service departments and long-stay accommodations. These projects are designed to meet growing demand in key urban markets and unlock value from underutilized assets. We have secured lease agreements for eight properties in Berlin, Frankfurt, Dortmund, Hanover, and Rotterdam, totaling around 1,200 rooms. Development is progressing well, with conversions underway in Rotterdam and one Dortmund asset and planning and permitting ongoing for the others. We expect incremental rent of approximately EUR 17 million once they are operational, starting gradually from 2026. We note that all these projects are pre-let and have secured long-term leases. We are also reviewing additional projects with strong potential and are in the process of securing more leases. Turning to slide 18, our residential portfolio continues to deliver outstanding operational results, supported by strong market fundamentals in portfolio locations.
Vacancy rates remain at historical lows, standing at 3.3%. We delivered 3.9% like-for-like rental growth as of September 2025, supported by higher in-place rents and a sustained supply-demand imbalance. Market conditions in Germany and London remain robust, supporting increasing market rents and positioning us for continued growth in rental income. Slide 19 highlights the continued strength of our hotel portfolio, which includes over 150 hotels across key European tourist and business hubs. These assets are leased under fixed long-term agreements with inflation-linked or step-up rents. We recorded 4.2% like-for-like rental growth in September 2025, supported by our repositioning efforts, with tailwinds from breadth-bar growth continuing to support operations of our tenants. Across Europe, international travel and overnight stays are continuing to grow steadily. We continue to view our hotel properties as a core growth segment.
In this area, we are comfortable expanding beyond our primary markets as these assets are leased to experienced external tenants who operate the hotels, while our teams provide active asset management and closely monitor tenant performance. The more over to you.
On slide 20, we provide an update on ATEX, our pop-up accelerator. Since launching in late 2024, ATEX continues to build momentum. We opened the application process for the third cohort, and ATEX hosted its first-ever pitch night a few weeks ago. Our second cohort comprised of five companies specializing in the areas of fintech, tenant satisfaction, decarbonization, deep tech, and material science. Some of these startups move into commercial deployment, and we continue to engage with some of them beyond the program. On the right of the slide, we spotlight an example of one of the companies in our second cohort, Temperate.
Temperate produces an innovative cooling device that delivers up to 95% reduction in energy consumption compared to a traditional heating, ventilation, and air conditioning system. It operates without cooling fluids, relies on biodegradable materials, and disperses heat into space, helping avoid heat island effects. This approach offers significant potential for energy and heat cost savings, as well as decarbonization across ATEX's portfolio. Barak, please continue.
Moving to slide 21, we present a breakdown of our development and invest portfolio, which represents approximately 5% of total assets. Our strategy involves value creation at low risk, whereby development potential is identified and permitted for. Such new development rights are sold at gains or developed with pre-let contracts. We have properties comprising around 700,000 sq m in the development invest portfolio currently, and our teams have built a plan that suits the size, location, and type of each property. Unfortunately, receiving permits is a long process, and therefore these properties are not included in the run rate figures. We only actively undertake developments ourselves that are low risk and offer large returns on invested CapEx. Using this strategy, we have created a substantial value and sold developments in the amount of approximately EUR 900 million since 2021.
A more detailed list of selective development and conversion projects representing approximately 70% of total value of the development and invest portfolio is presented in the appendix of this presentation. Moving to slide 22 and the data center opportunity, our portfolio has strong overlap with Germany's main data center markets, mainly Frankfurt, Berlin, North Rhine-Westphalia, and Munich. By entering this rapidly growing asset class, we're aiming to unlock substantial value from our portfolio and participate in one of the fastest-growing asset classes of the real estate market. On slide 23, we outline our strategy and the progress we have made so far. Our approach is twofold. In the short term, our hybrid network strategy focuses on partial conversions of commercial assets' usage into edge or co-location data centers. Such edge and co-locations will benefit from low latency and do not require a high amount of power as hyperscalers.
We expect the first operating data center in this segment to start operation within approximately three years. For the long run, we look to secure the higher energy capacity and full permits for the bigger properties, as it takes several years to obtain full grid approval for large-scale developments, which would unlock development potential for such large-scale developments. We are also exploring partnership, which gives us access to additional know-how and which may provide the opportunity to capture the full upside potential along with value chain, including potential to raise specific capital in a vehicle that funds the development. In recent periods, we continue to work on the data center strategy, and on this slide, I outline the progress we made so far. Our initial analysis resulted in approximately 100 properties that could be suitable for conversion into data centers.
From these, we have selected over 10 assets as initial project sites based on strategic and technical criteria and demand. Permit and initial power applications have been submitted for these sites, and six locations in Berlin have already secured initial power locations, of which four are centrally located. Our next steps are to submit new and additional power applications for existing and future selected projects, secure additional power, and full permitting. Jonas, please continue on the next slide.
Moving to slide 25, we present our financial results for the first nine months of 2025. Net rental income totaled EUR 886 million, slightly higher compared to EUR 883 million in nine months 2024. The growth was a result of like-for-like rental growth, partially offset by the impact on net disposals in the period. Operating and other income, which is mainly composed of recoverable expenses from tenants, decreased by 6% year-over-year, while property operating expenses decreased by 4%. Both items were mainly impacted by disposals carried out between the periods. Finance expenses totaled EUR 173 million in nine months 2025, lower by 3% compared to EUR 179 million in the same period of 2024. The decline was a result of our proactive measures, such as gross debt repayments and hedging activities, further supported by the downward trend in market interest rates between the periods.
This positive impact was partially offset by lower interest earned on our cash position, as well as the refinancing impact from higher average rates on the new bonds issued. We reported deferred tax income of EUR 230 million compared to EUR 52 million in the comparable period in 2024, mainly due to the one-time impact from the change in the German corporate tax rate effective from 2028, whereby the rate gradually changes from the currently 15% to 10% by 2032. Accordingly, we recorded an impairment of goodwill amounting to EUR 157 million in the period, as the goodwill is mainly attributed to Grand City Properties and TLG's deferred taxes, which we used due to positive impact related to changes in the income tax, as mentioned earlier. As EPRA and FKPIs exclude goodwill, any change in the goodwill balance has no impact on these KPIs.
Altogether, profit for the period amounted to EUR 882 million compared to a loss of EUR 154 million in the first nine months of 2024. On a per-share level, net profit amounted to EUR 0.49. On slide 26, we present our adjusted EBITDA and FFO results. Adjusted EBITDA in nine months 2025 amounted to EUR 750 million, slightly lower compared to the same period in 2024. This was mainly due to the impact from net disposals in the period and lower contribution from JVs, partially offset by strong operational growth and improved operational efficiencies. Adjusted EBITDA before JVs increased slightly to EUR 711 million. FFO1 amounted to EUR 221 million, decreasing by 6% compared to EUR 236 million in the comparable period of 2024.
Here, the higher perpetual note attributions, which are mitigated going forward as a result of the perpetual note refinancing and buyback conducted in Q4 2025, and lower JV contributions had a negative impact. Per-share FFO1 amounted to EUR 0.20 compared to EUR 0.22 per share in the same period of 2024. FFO2, which includes the disposal gain over total costs, amounted to EUR 271 million, higher year-on-year due to higher results from disposals, partially offset by the lower FFO1. Slide 28. Turning to slide 28, we highlight our EPRA and NAF metrics. EPRA NRV amounted to EUR 10.4 billion, increasing by 4% compared to December 2024. EPRA NTA amounted to EUR 8.5 billion, or EUR 7.8 per share as of September 2025, increasing by 5% compared to December 2024. These increases in EPRA and NAF metrics were mainly driven by the positive property revaluations recorded in operational profits.
However, for EPRA NRV and EPRA NTA, the positive impact from the one-time deferred tax income was offset by the associated reduction in the deferred tax liabilities adjustment. On slide 29, we present our maturity profile, which was extended as a result of recent issuances and buybacks. Our average debt maturities were 3.6 years as of September, which extends to 4.5 years if we account for our liquidity position and recent capital market activities. We continue to maintain financial flexibility as we have strong access to different sources of financing from capital markets, supported by our strong credit rating of BBB from S&P, our high amount of unencumbered assets with diverse asset types and locations, and strong merged banking relationships, as well as unborne RCFs in the amount of EUR 0.9 billion, which averaged maturity in the second half of 2028.
We retained a high hedging ratio of 97% and kept the cost of debt low at 2.2%, albeit increasing slightly as a result of recent refinancing impacts. In Q3 2025, we tapped our Series 41 bond for EUR 150 million. Additionally, after the period, we issued approximately EUR 1.2 billion of bonds across three different instruments, of which the majority constituted the new Series 42 bond with a low coupon rate of 3.25%. This low coupon marks a material improvement from 4.8% in the issuance a year earlier. Additionally, we issued a new CHF 150 million bond at a coupon of 1.5%, improving from the 1.72% coupon CHF bond issued in 2019. The significant reduction in the margin cost of debt is a combined result of our improved financing position, acknowledged by our strong investor base, as well as improved base rates.
On slide 30, we present an overview of our strong financial profile and debt metrics, all of which have improved since December 2024. LTV decreased to 41%, mainly as a result of both net disposals and positive property revaluations in the period. LTV increased slightly compared to June, mainly due to the FX impacts related to our U.K. portfolio and investments during the period. In addition, we continue to maintain a large balance of unencumbered investment property, which amounted to EUR 17.1 billion, or 70% of rental income. Our ICR was 4.1 times, improving from 4 times in nine months 2024, and net debt to EBITDA 10.7 times in nine months 2025, improving from 11 times in nine months 2024. Lastly, on slide 32, we reiterate our full-year guidance for 2025.
We continue to guide for FFO1 in the range of EUR 280 million-EUR 310 million, which translates to EUR 0.26-EUR 0.28 per share. We expect positive impacts for continued rental growth, hotel repositionings, and improved operational efficiencies. On the other hand, we expect some offsetting effects from the full-year impact from disposals closed in 2024 and 2025, higher coupons on perpetual notes compared to 2024, as well as reduced interest income on our cash balances, and refinancing above current cost of debt.
It should be noted that as a result of the recent perpetual notes transaction, perpetual note coupon payments are expected to reduce only slightly quarter on quarter in Q4 2025 and reduce materially by approximately EUR 50 million on an annualized basis going forward. This impact is partially offset by slightly higher finance expense as a result of senior bond issuances in Q4 2025. As usual, we will provide an update on our 2026 guidance as part of our full-year 2025 results in March.
This concludes our presentation. As always, you can find further material in our appendix. With that, we would like to start the Q&A. Before we invite your direct telephone questions, we would like to answer questions that we have received by email prior to this call. For simplicity reasons, the team has taken liberty to group similar questions in order to answer as many questions as possible. Allow me now to read out these questions. Could you provide an update on your views regarding external growth? What do you expect the impact to be on your leverage?
Thanks. We continue to view our position in the current market as positive to capitalize on accretive growth opportunities. Currently, we see capital recycling as a very accretive source to fund growth. Therefore, we expect to continue disposing properties. We are looking to acquire below market value with high upside potential in order to capture the accretive spread between the disposal and acquisition price. We see an asymmetric market recovery with smaller players facing financial difficulties, while large players are recovering and are benefiting from increasing and strong access to capital. In this context, we view ourselves as well positioned to capture attractive opportunities due to our established deal sourcing network, our solid reputation as preferred market buyer, and our liquidity.
We have EUR 600 million of asset held for sale, of which a quarter is already signed, and we are currently reviewing an acquisition pipeline of several hundred million euros, comprising primarily of residential and hotel properties. Looking at the impact on leverage, as we mainly look to acquire through capital recycling, it should not have a significant impact on leverage. That being said, timing of transaction could impact the leverage metrics between periods. On the other hand, the uplift in EBITDA from buying properties at high yields would be supportive for FFO and ICR.
Thank you, Barak. Could you provide more details on your rent like-for-like performance?
Sure. We achieved like-for-like rental growth of 3.1% across the portfolio, with the strongest performance in Berlin, Stuttgart, Hamburg, London, and Leipzig. The majority of our portfolio, with around 60% of residential and hotel properties, are performing very well. Our residential portfolio continued to benefit from the expanding supply-demand imbalance in key metropolitan areas, delivering solid growth of 3.9%. The hotel portfolio recorded a strong growth of 4.2%, supported by the repositioning measures completed in the recent periods, which are supporting rental growth as well as in the next periods. Offices recorded 1.5% growth, primarily driven by the indexation. Looking ahead, we expect this positive trend to continue, particularly in the hotel and residential segments, underpinned by favorable market fundamentals. Office rental growth should remain slightly positive in the near term, driven by indexation impacted by slight headwinds on vacancy.
However, we do see further upside as economic conditions improve on the back of the German fiscal stimulus. Overall, for the portfolio, we will continue to unlock value through repositioning and selective conversions and anticipate overall like-for-like rental growth of 2%-3% in 2025.
Thank you, Timothy. Could you provide an update on the recent performance of your hotel portfolio? What is your outlook for this asset class over the upcoming period?
Our hotel portfolio continues to demonstrate strong performance, driven by a favorable market environment and targeted repositioning of selected assets. This is reflected in the 4.2% like-for-like rental growth as of September 2025. The European hospitality sector entered 2025 with solid momentum, with robust and fundamentally stable demand. Looking ahead, we expect demand to remain robust, supporting the operations of our tenants. Our strategy of repositioning, combined with contractual rent step-ups and indexation, positions us well for continuing tenant growth. Given the resilience and attractiveness of this segment, hotels remain a core strategic focus for us, and we aim to further expand this asset class internally and externally.
Thank you, Fred. How do you view the current listing activity and occupancy levels within your office portfolio? Are you considering further conversions of office properties?
Leasing activity during the first nine months of 2025 was in line with recent years' average. Demand continues to be soft, primarily due to Germany's economy, which is the key driver of office demand. However, we are seeing encouraging signs, with economic sentiment improving and government stimulus measures supporting a potential recovery. The significant stimulus package announced by the German government will support economic growth in the coming years. As the economy strengthens, we expect office demand to follow suit. Meanwhile, new office supplies remain constrained due to low construction activity and conversions to alternative users, creating a favorable long-term supply-demand dynamic. On a like-for-like basis, in-place rent increases, driven mainly by indexation, have supported positive rental growth of 1.5%.
In the first nine months of 2025, we extended 110,000 sq m of leases with an average warrant of 4.5 years and an in-place rent of EUR 15 per sq m, representing 2% above previous rents. We also signed new leases for 100,000 sq m with a warrant of eight years and an in-place rent of EUR 14.2 per sq m, 3% above the previous levels. As to conversions, we continue to identify office assets suitable for conversion to commercial residential. We are also analyzing conversion potential supported by the new Bauturbo regulation, which is simplifying change-of-use processes. Our diverse operational expertise enables us to optimize portfolio use and reevaluate the best and most value-creative use. Several office-to-service apartment conversions have been signed and are expected to generate rent starting in 2026. Additional properties are under review and analysis. Additionally, we actively evaluate data center opportunities and select locations to unlock additional value.
Thank you, Timothy. How do you assess your current liquidity position? How do you intend to deploy your cash?
We have a strong liquidity position, which has been further supported by recent capital market transactions. In past periods, our strong cash position was an important factor in navigating market volatility successfully. However, the ongoing improvement in market conditions points to lower needed levels of excess cash. The repayment of debt through scheduled maturity or as part of liability management exercises continues to be our main focus, and we may also deploy cash to pursue accretive acquisitions if we see the opportunity. This is reflected in the first nine months where we deployed cash to reduce gross debt by EUR 1.1 billion. The strong investor demand, both in our bonds and perpetual notes issuances, further underscores the company's ability to obtain funds at competitive rates, also reflected in decreasing spreads for our instruments in the market.
As always, we will seek to maintain our conservative financial position by capitalizing on external growth as part of capital recycling. Our low leverage metrics and headroom to credit and covenant ratios provide us the ability to execute our disciplined acquisition strategy from a strong position.
Thank you, Jonas. Could you provide an update on your disposal progress? What is your disposal strategy going forward?
Across the first nine months of 2025, we signed approximately EUR 350 million of disposals. During the same period, we closed approximately EUR 460 million of disposals, consisting of 44% offices, 32% residential, 10% hotels, and 14% across development and remaining asset class types. Disposal locations, including Berlin, Frankfurt, Bremen, as well as non-core and other locations. Closed disposals were conducted at book values and multiple of 20 times. Going forward, our strategy is to continue pushing targeted disposals that enable capital recycling, whereby lower-yielding disposals are used to fund acquisitions of attractive higher-yielding opportunities while maintaining a conservative balance sheet. Specifically, we plan on focusing on disposing the remaining held for sale portfolio and select non-core properties and development rights. Consistent with our approach in previous years, external growth will remain opportunistic. We will engage in transactions that meet our strict acquisition criteria and create accretive growth.
Thank you, Barak. Could you provide some more details on your current valuations and expectations for valuation results for the upcoming periods?
We conducted a full external valuation of our portfolio as part of our H1 report, and we will carry out another revaluation as part of our annual report. The positive revaluation results in H1 2025 were primarily driven by strong operational growth supported by recovering transaction market and lower financing costs. Looking ahead, we expect organic value growth to continue, reflecting the underlying operational performance of the portfolio. While we do not anticipate significant yield compression in the near term, this could become an additional value driver alongside operational growth over the medium term, potentially towards 2027. This would come on the back of increasing transaction volumes, low supply in the market, and improved financing conditions.
Thank you, Jonas. For your data center plans, will you convert existing commercial space or acquire new assets? What progress have you made so far? How do permitting and conversion challenges compare to office-to-residential projects?
We are currently reviewing the potential of conversion into data centers within our existing portfolio, which could create significant upside. The fact that we have strong overlapping portfolio with data center markets gives us an advantage and higher upside compared to other players. The main challenge is securing sufficient energy capacity, particularly in markets where grid availability is limited. To address this, we are following a dual-track approach, obtaining partial capacity for edge or co-location data centers in the near term, while working towards full permitting and higher energy allocations over the medium to long term, a process expected to take three to seven years. To date, we have selected over 10 assets as initial project sites and have made progress with permit applications and initial power requests. Our next step focuses on securing additional capacity and completing the permitting process while continuing to review the pipeline.
We are discussing also partnering up with leading market players with proven track record in developing data centers to support the potential execution. This could save us time, reduce CapEx requirements, and enable us to build scale. By comparison, office-to-service apartment conversions are significantly less complex. These projects typically fall under the same zoning category and require only a standard building permit, which can usually be obtained within 6 to 12 months. The recently introduced Bauturbo regulation further simplifies change-of-use processes and shortens timelines, enabling more time-efficient transformation and potentially allowing for more conversion opportunities, including full change-of-use to regular residential. We review the potential of each asset on a case-by-case basis, selecting the most fitting and value-supportive use. This is the advantage of having a diversified portfolio and keeping knowledge of all major asset types.
Thank you, Barak. Do you expect to distribute dividends in 2026? Will you change your payout ratio, and would you consider a share buyback instead of cash dividends?
In 2025 and over past periods, we have undertaken a comprehensive range of measures to strengthen our financial position. At the same time, we have continued to see market recovery, stabilization in valuations, increased transaction volumes, and better economic outlook. In light of these developments, we feel confident about resuming paying dividends next year. Prior to the AGM next year, we will assess payment, payout ratio, which is 75% of FFO1 per share, and the method of distribution, whether in the form of cash, a buyback, or a combination of both.
Thank you, Frank. Could you comment on your latest guidance for 2025? Do you expect any changes after your perpetual notes transaction? What are your expectations for 2026?
We reaffirm our guidance issued in March, projecting FFO1 in the range of EUR 280 million-EUR 310 million, equivalent to EUR 0.26-EUR 0.28 per share. Our strong results for the nine-month-2025 period were fully aligned with expectations and guidance. FFO1 is expected to benefit from solid operational results, including like-for-like rental growth of 2%-3%, supported by continued strength in the residential portfolio and gains from hotel reopenings and repositionings. These positives will be partly offset by the full-year impact of 24 disposals and additional disposals conducted and planned in 2025. Our current guidance does not assume any material acquisitions. Interest expenses are expected to increase slightly in Q4 due to the liability management exercise we executed, but perpetual notes coupons will reduce slightly in Q4 2025 as a result of perpetual notes buybacks. We will publish guidance for 2026 in March next year, together with our full-year 2025 results.
The main drivers of the 2026 guidance will be continued EBITDA growth, mainly driven by further internal growth. We expect finance expenses to increase as a result of refinancing of upcoming debt maturities, which will be partially mitigated by additional revenue from like-for-like and the hotel step rents and conversion projects. Regarding perpetual notes, our recent transaction is highly supportive, and we expect the positive impact of the lower coupons from this transaction to offset the impact from higher coupons related to the notes with the first call dates in 2026. We expect to get more clarity on these moving pieces over the next months and will give a detailed update with the full-year results.
Thank you, Jonas. Could you please confirm the lower contribution from JVs in the EBITDA is related to a timing difference?
The contribution from JVs declined as the payouts for certain investments are not linear. Some of our positions reduced the dividends compared to last year, which were higher than usual. This year's level is in the same range as in the 2023 period, and we conservatively expect this amount to remain around this level going forward.
Thank you, Tim. Those were the questions that we received prior to this call. We can now start the open session for your questions. We would appreciate it if you can ask all your questions at once, and we will answer them one by one.
We will now begin the live question-and-answer session. Anyone who wishes to ask a question may press star and one on the touchstone telephone. You'll hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and one at this time. The first question comes from the line of Nehrae Kumar from Barclays. Please go ahead.
Good morning, everyone. I have three questions with regards to hybrids. I'll go one by one. Firstly, is it fair to say that on a standalone basis, the hybrid LME exercise leads to higher apparent LTV as the bonds are redeemed at premium on average, whereas the new hybrid was issued at discount? My second question is, can you help us understand your intentions for the refinancing of non-core 2026 hybrids? Given the improvement in capital markets, do you still see exchange as a potential, or do you think the clean call and replacement of the hybrid is a base case scenario if the current market environment prevails in 2026? Lastly, you are currently at around 15% limit from S&P after the reduction from the recent LME. Do you intend to reduce the hybrid cap stack even further under the 10% S&P limit as the recent transaction was excluded from those rules? Thank you.
Hi. First of all, thank you very much for your questions. Great to have you on the call. In terms of your question, we expected an immaterial negative impact on EPRA NTA from this transaction on a standalone basis. In terms of your second question, the strategy of this transaction, I think, as we also explained, is really to manage the coupons related to our perpetual notes. That is why we targeted certain instruments. The 26s, as you know, have the resets, I think, Q2 next year. Still some time to go. Predominantly, the focus here was on the recouponing, on managing the coupon expenses, and that is why we, first of all, targeted the other notes. In terms of your last questions on the 15%, I think this reduction of about €500 million is a very good reduction of the hybrid stack.
It really helps us to manage our hybrid expenses going forward. Overall, we're looking here from a standalone impact of about a reduction of about EUR 50 million, which would offset potentially the additional expenses related to 2026s. From that point of view, I think we're happy with the reduction we've made so far.
The next question comes from the line of Manuel Martin from Odo BHS. Please go ahead.
Thank you. Three questions from my side, please. The first question is on the property valuations. Could you give us a bit more detailed outlook on what you might expect in the second half of the year? Would it be something maybe similar to the first half of the year in terms of valuation result? Maybe you could have given us some hints there. This would be the first question. Second question, it's on the FFO guidance for 2025. Given that Q3 seems to be a bit slow in terms of FFO1, also due to joint venture contributions, do you have an idea where you will come out in the range of your guidance, rather at the lower end or midpoint? Do you expect JVs to contribute more significantly in the fourth quarter? Maybe you could elaborate a bit on that, please.
My third question is on the office portfolio. The vacancy rate went slightly up to 12.9%. Maybe you can give us some color on which part of the portfolio, which kind of assets were the cause of this, and do you expect this trend to continue because the office market seems not to be very easy for the time being? These are my three questions, please.
Hey, Manuel, thanks for your questions. Your first question on the valuation. We are in the process. We do not have the numbers clearly yet. We already get some indication that valuations are, as we see in H1, moving along the operational performance. Some of that operational performance is translated into valuation growth. We will see clearly when we publish our full-year financials more details on that. On the FFO guidance, yeah. I mean, if you look at the projection, how it is going, you see that we are around the mid-level of the guidance, around the mid-level. We see that as a realistic level that we can land in for the full year. The office vacancy, there was a slight uptake, correct? Looked at the normal process. We have the maturity schedule of the leases. You see that. Some part of the leases are maturing every year.
The majority were able to prolong for the tenants who are leaving. We're also able to find new tenants, but not always necessarily. This was not any specific location or property. This is just generally across the board. Next question, please.
Briefly, before I move on to the next question, I mean, Nehrae, just following up on what you asked me before about our plan for the 26s, I think our base case is a new hybrid and replacement. Thank you.
We now have a question from the line of Jonathan Kovnator from Goldman Sachs. Please go ahead.
Good morning. Thank you for taking my questions. A few, if I may, just to come back to this JV point. The contribution in 2023 was about EUR 43.2 million, was EUR 49.9 million in 2024. Is the EUR 43.2 million the good basis to think about going forward? That is the first question, please. Second question, on the vacancy that you are showing or the occupancy, as you prefer, just trying to understand if your reconversion project and your development projects are excluded from the vacancy or are included in the vacancy at this stage. That will be it. Thank you.
Hey, Jonathan. Thanks for your questions. Yes, your projection for the JV is, look, again, it's not linear, but the EUR 40 million is realistic to see. Yes, last year was a little bit of an outlay, but the 2023 numbers that you're referring to here are more going forward, we see more realistic. The vacancy, yes. Some of the vacancy are in the development, and other assets which are vacant, which we also plan to develop, are in the portfolio line clearly. Next question, please.
The next question comes from the line of Paul May from Barclays. Please go ahead.
Hi guys. Just a quick one. Are you able to provide the multiple or yield on leased offices that you sold? If you sold any vacant ones, if you could remove those just to get a sense of where the office yields are. I have got one question, second question as well.
Sorry, Paul. Can you please repeat them? I was unfortunately quite difficult to understand. If you appreciate it, please speak slightly higher voice. Thank you.
Sure. The first one is, if you're able to provide the multiple or yield on leased offices that you sold, excluding any vacant offices, just to get a sense of where offices are being disposed at on either a multiple or yield basis. I have a follow-up question depending on the answer. Thanks.
Paul, first of all, thanks for being on the call. Good to have you here. I think in terms of the disposals of offices, yes, a big part of the disposal that we did in the first nine months was in relation to offices. However, into that portfolio, clearly there's a big utilization factor where these offices are located, big impacts on the yield. Difficult to give you an average number here.
Okay. I'm sorry. You give an average for all disposals, so I just wondered why, sorry, why it's not possible to do it for the offices in isolation. That's fine. In terms of then the valuation of your offices, I think you're up to 5.2% gross rental yield, which on an NOI basis is in the fours, low fours actually. I just wondered, what gives you the confidence that that is the right valuation of those offices given vacancy rates continue to increase? The best assets, or theoretically the best assets in Germany, are valued at higher yields than your yields according to CBRE. I just wondered, what gives you confidence that your portfolio with a high vacancy rate is worth more on a yield basis than the market, the best assets in the market? If you give us a sense of that, that'd be great. Thank you.
Thanks, Paul. Coming back to your first question. Again, I think it's difficult to give an average value because, again, it's a very diverse amount of disposals. To give you a number, we're looking here at a multiplier of around 21 times.
About our valuations, again, we reiterate this message. All our assets are externally valuated by professional third-party valuators. They see this clearly because our assets are in strong locations with the right fundamentals, where market rents are higher, where vacancy rates are lower. Clearly, right now, the sluggish economy has an impact on our letting activities, but these assets should be performing according to the local market. That is why they are also valued in similar ranges like the local markets where our assets are located. Just know also when we sell the assets, also as our book value. That is, again, I think a validation of the values of our assets.
Good point. With that, I would like to thank all of you that participated in this call and the questions you raised before and during the call. All the best and goodbye.