Good morning, and thank you for joining us for Grand City's Q1 2025 results call. You can view this presentation on Grand City's website, either on the home section or under Financial Reports of the Investor Relations section. With me today will be Chairman and Director Christian Windfuhr, CEO Refael Zamir, CFO Idan Hadad, and Head of Investor Relations and Capital Markets, Michael Bar-Yosef. For the duration of the call, all participants will be on a listen-only mode. Following our presentation, you will have the opportunity to ask questions.
Please feel free to send us your questions via email also during the presentation. The email address is gcp-ir@grandcity.lu. With that, I would like to hand you over to Christian to start with the presentation.
Thank you very much, and good morning to all of you. We are pleased to share with you the results for the first quarter of 2025. The macro environment in the last few months was somewhat bumpy, shaped by an increase in macroeconomic and geopolitical uncertainty and volatility. Headlines were dominated by trade tension, the political noise surrounding the German elections, and ongoing debates regarding the potential reform of the national debt brake. Despite this, we have not seen any significant impact on our business, operational performance or the broader residential transaction market in Germany.
Throughout the first quarter, we have continued to observe strong and resilient underlying dynamics in the German residential sector, fueling international growth. The fundamental demand for affordable, well-located housing remains robust, supported by demographic trends, urbanization, and the continuing supply and demand imbalance in key metropolitan areas. Importantly, the downward trajectory in interest rates has persisted into 2025, with additional rate cuts implemented during the quarter and after the reporting period.
As a result, the cost of debt continues to decline, supporting more favorable financing and refinancing conditions for our business. This has helped to sustain the positive momentum, which began in the second half of 2024, and we believe it provides a solid foundation for further recovery in valuations and investor sentiments. While the environment remains constructive, we remain cautious. Should the macroeconomic landscape uncertainty continue, whether through deeper geopolitical tension or domestic fiscal changes, the pace of market recovery could be delayed.
Nevertheless, our portfolio remains well-positioned, and we continue to operate with strong discipline and a long-term focus. Last night, we announced our decision not to distribute dividend for 2024. Our AGM is coming very soon, and we have decided that the dividend distribution now isn't the best capital allocation. We have just successfully come out of a period of over two years where we had strongly focused on strengthening our financial position and have successfully reduced our leverage and don't feel yet that we should reverse the trend just now with a distribution.
As to our results, the first quarter of 2025 was characterized by improved operational performance, reflected by continued strong rental growth momentum and solid financial results with further improvements to our balance sheet and financial profile. Our LTV stands at 32%, down five percentage points from the LTV as of the end of 2023, and is the result of proactive management, discipline, and agility. In April, S&P decided to lower the rating of the company to BBB with a stable outlook as a result of the rating linked to Aroundtown SA.
S&P kept our rating on a stand-alone basis at BBB+. We did not see a significant change in the pricing of our bond yields due to the rating change and believe the change was already priced in. Looking ahead, we remain focused on maintaining a strong balance sheet and a conservative financial profile, creating the financial flexibility needed to extract our operational growth potential and size potential external growth opportunities. Now, let me hand you over to Refael for details in the following slides.
Thank you, Christian, and welcome also from my side. On slide three, we present a summary of our key financial results for Q1 2025. Net rental income amounted to EUR 106 million, reflecting an increase of 1%. Adjusted EBITDA increased by 3% to EUR 85 million. FFO1 reached EUR 48 million, marking a 6% increase compared to Q1 2024. Our liquidity increased to EUR 1.7 billion, marking a 32% LTV. Our EPRA NTA increased to EUR 4.3 billion or EUR 24.6 per share. This was primarily driven by positive property valuations and strong operational performance.
Operationally, the portfolio vacancy rate remained low at 3.8%, with solid like-for-like rental growth of 3.8% as of March, driven by continued increase in in-place rents. On slide five, we highlight the continued growth in our in-place rent, which reached EUR 9.3 per square meter in March 2025. This reflects a compounded annual growth rate of 4.3% since December 2021. Total like-for-like rental growth was 3.8%, with 3.4% in Germany and over 5% in London, where we benefit from greater flexibility to implement rent increase.
Our vacancy rate remained low at 3.8%. Operational performance continued to be very strong and the persistent supply-demand imbalance in key metropolitan area is driven further. Increase in market rents, which in turn is positively impacting our portfolio. The current run rate as of March 2025, stood at EUR 416 million, while the estimated annualized market rental is in about EUR 510 million, representing an upside potential of 23%. We expect to realize this potential primarily through revisionary upon reletting to be captured in the upcoming years. In parallel, we marked rent continuing to rise.
We anticipate that this upside will expand further over time. Turning to slide six, we present an overview of our diversified portfolio. As at the end of March, our portfolio comprised EUR 8.7 billion of investment properties structured as follows: Berlin with 23%, NRW with 21%, London with 20%, and Dresden/Leipzig/Halle with 14%, remain our largest region. Further significant locations are Nuremberg/Fürth/Munich with 4%, Hamburg/Bremen with 4%, and Mannheim/Karlsruhe/Frankfurt and Mainz with 4%.
During the first quarter of 2025, we reevaluate 20% of our portfolio, which resulted in a positive of 0.6% like-for-like value change compared to December 2024 over the total portfolio. The value increase was a result of continued robust rental growth, while rental yield remained stable. Disposals totaling approximately EUR 120 million were completed, comprised mostly properties held for sale, which were signed in 2024. Those were primarily located in Bremen and Frankfurt, non-core asset, and condominium unit in London.
The disposals were executed at a small premium to net book values amounting to 0.2% and at an average rent factor of 18 x. Now I hand over to Idan to present the financial results.
Thanks, Refael. Moving on to our financial results, starting with slide seven. Let's take a closer look at our P&L. Q1 2025, net rental income increased by 1% to EUR 106 million, driven primarily by strong like-for-like rental growth. This increase was partially offset by the impact of net disposals between the periods. Adjusted EBITDA rose by 3% to EUR 85 million, supported by both higher rental income and ongoing improvements in operational efficiency. We recorded a net profit of EUR 88 million in Q1 2025 compared to EUR 44 million in Q1 2024.
This improvement reflects solid operational performance and the positive portfolio revaluation, partially offset by higher deferred tax expenses. Earnings per share for the period came in at EUR 0.35. Turning to slide eight, our FFO performance. FFO 1 amounted to EUR 48 million, a 6% increase, primarily driven by higher adjusted EBITDA. The benefit from lower perpetual notes attribution resulting from the exchange and tender offers executed in 2024, as well as lower current tax, was partially offset by a slight increase in finance expenses.
FFO 1 per share rose to EUR 0.27, representing a 4% increase. FFO 2 came in at EUR 100 million, up from EUR 46 million in Q1 2024. The increase was driven by a higher volume of disposals and stronger disposal margins compared to the same period last year. On slide nine, we provide an update on our maintenance and CapEx activities. Our strategic focus continues to be on enhancing the overall quality of our portfolio.
In the first quarter of 2025, we invested EUR 6.4 per square meter in repositioning CapEx and maintenance, compared to EUR 6 per square meter during the same period in 2024. Of which EUR 4.8 per square meter was allocated to repositioning CapEx and EUR 1.6 per sq uare meter to maintenance. Additionally, we invested EUR 3 million in pre-letting modifications similar to Q1 2024. These projects include the creation of new rental space and other initiatives beyond the scope of repositioning CapEx, aimed at generating additional rental income in the upcoming periods.
We also spent EUR 1 million on modernization projects during the quarter. These targeted investments are designed to improve the quality and the appeal of our portfolio, supporting higher rental rates. Measures include the installation of elevators, the addition of balconies, and upgrades to technical systems to enhance power heating and water supply. Investments that focus on improving energy efficiency and reducing CO2 emissions, such as window replacements and heating system upgrades, are classified based on the nature and the scope of each project.
Adjusted FFO for the period was EUR 29 million, slightly higher compared to EUR 27 million in Q1 2024. On slide 10, we show our EPRA NAV metrics. Our EPRA NAV per share metrics as well as our EPRA NAV metrics were as follows. EPRA NRV per share increased by 1% and amounted to EUR 28.1. EPRA NTA increased by 1% and amounted to EUR 4.3 billion. EPRA NTA per share increased by 1% and amounted to EUR 24.6. EPRA NDV and NDV per share were up 2% compared to the end of 2024. The increase in EPRA NAV metrics was primarily driven by the strong operational performance of the company and a slight positive property revaluation in the period.
On slide 11, we can look at our financial profile. Our LTV ratio reduced to 32% from 33% as of December 2024. The EPRA LTV ratio, which considers perpetual notes as debt, stood at 45%, decreasing from 46% as of the end of 2024. Our hedging ratio stood at 95% as of March 2025, unchanged from December 2024, keeping the cost of debt low and protecting the company from adverse developments and volatility. Our ICR stands at 5.5 x. Additionally, EUR 6.3 billion and 71% of our portfolio remain unencumbered, which supports our strong access to bank financing.
In April, S&P lowered our credit rating by one notch to BBB with a stable outlook, in line with the rating action taken on Aroundtown following S&P's group rating methodology. As a result, the credit rating of our senior bonds is now BBB and perpetual notes is BB+. The main driver for the change in rating is heightened macroeconomic uncertainty and the weakening German economy, which S&P expects to slow down Aroundtown's disposal activity. Importantly, our standalone credit rating remains BBB+.
S&P expects continued robust operations of GCP based on solid fundamentals and notes the strong progress made in deleveraging in recent periods as a result of our proactive measures. We wanted to highlight that we continue our commitment to maintain significant headroom against all our financial bond covenants. As of March 2025, our cash and liquid assets position amounted to EUR 1.7 billion. Our cost of debt was kept stable and low at 1.9% with an average debt maturity of nearly 4.6 years.
After the reporting period, we repaid the remaining balance of our Series E bonds from our existing liquidity, thereby extending the average debt maturity to 4.8 years. With this, allow me to hand over to Christian to conclude the presentation.
Thank you, Idan. Allow me to point out that the appendix of our presentation, you will find more details on our portfolio distribution and some more data on the German and London housing market in general, ESG information, financial policy, analyst coverage, et cetera. On slide 13, finally, we can conclude with our guidance for 2025. As we started the year strongly, we are pleased to confirm our guidance for 2025. FFO1 between EUR 185 million-EUR 195 million. FFO1 per share between EUR 1.05-EUR 1.11.
Total net rental like for like growth around 3.5%. Thank you for your attention. Allow me now to move on to our Q&A.
Thank you. 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 your views on the current macroeconomic environment and geopolitical uncertainties and the impacts it may have on GCP?
In recent months, we have seen increased volatility and uncertainty in the economic landscape, mainly coming from the U.S. intention to impose tariffs. Besides the political impact of the tariffs on the European economy, the economic perspective in Germany has been further impacted by the government's ambitious plans to unlock public investment in critical sectors like defense and infrastructure, which has improved further growth perspectives over the long term.
While we have experienced a negative impact from an upward pressure on market interest rates in the short term, the lack of investment in infrastructure has been pointed out as one of the key factors that explain the sluggish economic performance in recent years. Overall, we expect a positive effect stemming from the reform. In the new reform, we didn't see any news regarding the housing sector or plans which could create additional units as a response to the 600,000 apartment shortfall.
We therefore currently don't expect any material change in the demand/supply imbalance. Grand City Properties' operational platform remains robust. Positive fundamentals are strong and structural. Therefore, we don't expect a material impact on the operational side, if any. We might see some impact on the company through the increased volatility in capital markets. However, our cost of debt remains low. Our hedging ratio of 95% protects us against potential negative developments in interest rates. Furthermore, we continue to see capital markets as open.
Bond yields have generally continued to decrease in the last 12 months. While we have significant liquidity for upcoming refinancing, the availability of debt financing in capital markets is a clear positive. We are thus confident that we will also be able to navigate this landscape successfully.
What are the current market and operating trends in your portfolio locations? Could you provide further information on your like-for-like rental growth? How does it differ between Germany and London? What is the perspective going forward?
Our portfolio continued to maintain strong operating condition across Germany and London. This is supported by strong and growing long-term fundamentals, which are reflected in our letting performance. We expect to continue to drive sustainable rent growth and maintain low vacancy. For the last 12 months, ending in March 2025, the total like-for-like rental growth was 3.8%, maintaining the high level we have seen in 2024. This is the result of the very strong dynamic we have seen in the past years.
As vacancy remain low, the like-for-like is driven by rental growth, of which we observed a contribution from indexation of 1.6% and 2.2% from reletting. We continue to note that this metric is obtained at a relative low CapEx and high increase to cash flow, and it is not as a result of a new construction of large modernization projects. Rental growth in Germany was strong, reaching 3.4% growth, was recorded across all of our German regions, with the strongest increase in Berlin, Munich, and Nuremberg.
Rental growth was even stronger in London, recording over 5% like-for-like, as the lack of rent restriction allows a faster unlocking of the revisionary potential of the portfolio. Meanwhile, the vacancy in London remained low at 2.7%. This was achieved throughout a short void period and bearing efficient operational management. Going forward, we expect to continue to unlock the revisionary potential through reletting, capturing the upside of the strong supply/demand imbalance, as well as incorporating the effect of inflation throughout indexation.
At the same time, we expect the revisionary potential to keep expanding, driven by strong fundamentals.
How do you see the investment market evolving? Are you expecting to sell more assets? Do you see attractive buying opportunities? Would you consider an M&A, and what would need to happen for you to become a net buyer again?
We generally see a strong investment market compared to the recent volatility in the market continued to delay the recovery. If the uncertainty in the market remains, we expect that the period to achieve a full recovery of transaction market to be extended. We do highlight that the high residential market is considered as a safe haven for investors due to its sustainable and strong operations, but future volatility in base rates and the cost of debt could hamper the good recovery we have seen in the past 12 months.
During Q1 2025, we also continued with our disposal activities, closing EUR 120 million in the reporting period at book values. Going forward, we plan to be more selective on disposals and expect to mainly execute further disposals as part of the capital recycling. Regarding acquisitions and external growth, we are continuing monitoring attractive opportunities, and we are prepared in terms of liquidity and headroom to pursue acquisition if good opportunities will arise.
As always, we remain opportunistic when it come to external growth. We would also consider potential M&A if we see attractive opportunities from this source.
Could you provide more details on the property revaluations conducted in the period? What is your outlook going forward? Can we expect to see yield compression in the upcoming periods?
We are going back to our former schedule to evaluate properties at least once a year and part of the portfolio each quarter. In Q1 2025, around 20% of our portfolio was evaluated, and we have seen positive development in valuation in the first quarter of this year, confirming the positive tendency observed in the second half of 2024. The positive evaluation results in Q1 2025 were driven by operational improvement, reflect in continuous strong like-for-like rental growth, and as a result, like-for-like value increase amounted to 0.6%.
In line with this, the yield remains stable compared to December 2024 at 4.9%. While we have recently observed increased volatility and uncertainty in the financial market, the operation remains robust and strong, and we have also seen positive developments in the transaction market and the recent confirmation of the ECB's decision to decrease interest rates. As such, while we acknowledge some potential headway, we expect the positive revaluation trend to continue going forward as operations remain very strong and we expect will more than offset any negative impacts.
We currently expect yields to remain stable and rent like-for-like to drive valuation growth. We currently do not expect yield compression yet. However, very strong demand, low supply, high replacement cost, high revisionary rent, and declining cost of debt all can contribute to potential yield compression. We believe we need to see the transaction market opening further before those factors play in.
What are your views on your current leverage position? Do you expect further deleveraging?
Q1 2025, we continued our deleveraging efforts as reflected in our LTV ratio, which declined to 32% as of March 2025, down from 33% at the year-end 2024. This reduction in LTV is the result of a proactive management action, including strong operational performance, asset disposals, the collection of vendor loans, and positive property revaluation. Looking ahead, we remain committed to maintaining a conservative financial profile, which we view as a key strength.
While we are well-positioned to pursue attractive acquisition opportunities and have the financial capacity to support external growth, we do not anticipate a significant increase in leverage.
Do you expect an impact from the current macro conditions on your financing? What are the latest funding conditions you see, and do you expect to change your strategy regarding perpetual notes?
Despite a recent increase in market volatility, we continue to view the current financing landscape as broadly positive. At the beginning of the year, market consensus pointed to a downward trajectory in interest rates. Developments such as the reform of debt break in Germany and fiscal measures taken by the U.S. government introduced some volatility. The ECB has recently confirmed the interest rate cut, and while the precise path of interest rates remain uncertain, expectations are for a continued decline over the course of the year. Looking at our bonds, we have seen relative stability in the yields.
In terms of bank financing, we continue to strengthen our relationships with local and regional banks. During Q1, we secured approximately EUR 45 million in bank loans at an average margin of 120 basis points. Regarding our perpetual notes, we highlight that the majority of the uncalled notes have been replaced with new notes featuring a first call date in 2030. There are no upcoming first call dates until mid-2026. Our base case remains that we will be able to refinance the 2026 perpetual notes through a new issuance when the time comes.
We also retain the option to execute an exchange if market conditions become more volatile.
Could you provide your views on the new government's plan in Germany? What are the main points, and how do you see the impacts on Grand City Properties?
The new government announced to focus more on driving economic growth compared to the previous government. Regarding rent regulations, our base case scenario was confirmed as the Mietpreisbremse will be extended by four years with minimal changes. There were also other points discussed in the agreement, such as regulatory changes to furnished apartments and indexed rents. We do not expect that these measures will have a significant impact on our operations. We are mostly impacted by the Mietspiegel itself, which doesn't change materially.
However, it must be noted that the coalition agreement is only an agreement so far, and no specific laws or amendments have been made. Until then, there remains some slight uncertainty in the exact impact, which we expect to be manageable. On the agenda, there are also points aimed at improving supply of housing, seeking to accelerate planning and approval processes, and simplifying regulations, as well as seeking to establish a specialized investment fund for housing construction.
We welcome such measures to improve the demand and supply situation. It remains to be seen if the government will be able to have a significant impact on supply. We note that the previous government also had ambitious goals and didn't materialize in the end. Lastly, we see the suspension of the debt break as clearly positive. While it caused some short-term pressure on bond yields, it is clear that under-investment in infrastructure has hampered economic growth. At the same time, Germany has sufficient fiscal capacity to fund more investment into public infrastructure.
The additional investment is expected to contribute significantly to GDP growth in the coming years and could be helpful in mitigating headwinds as a result of the current geopolitical environment.
Can you please give more color on the decision not to distribute dividends this year? Will you resume paying out next year?
The company will continue to maintain a conservative and prudent fiscal approach, keeping financial flexibility and headroom. As for next year, we do expect to return to distribute dividends.
Could you provide some more detail on the rating downgrade? What were the drivers? How do you see your position within the rating? Do you foresee any material impact on your financing, and do you expect to change your financial strategy?
S&P downgraded our credit rating by one notch to BBB with a stable outlook. This decision was the result of the rating action taken on Aroundtown and follows S&P's group rating methodology. The main driver for the change in rating is the heightened macroeconomic uncertainty and a weakening German economy, which S&P expects will slow down Aroundtown's disposal activity. However, it is important to note that our standalone credit rating profile remains at BBB+.
S&P expects GCP to continue to have robust operations and fundamentals, and highlights the strong progress made in recent periods as a result of our proactive measures to reduce leverage. We are therefore well-positioned within our standalone credit profile. As a result of the downgrade, the credit rating of our senior bonds is now BBB, and perpetual notes is BB+. As the rating was on negative outlook for nearly two years prior to the downgrade, it is our view that the market was mostly anticipating the rating change, which we also see reflected in the insignificant impact on our bond yields.
Therefore, the impact of the downgrade has been minimal. The fact that now our outlook is stable is increasing certainty and stability and reduces speculation. Going forward, we continue our commitment to our conservative financial profile. We expect to continue to dispose as part of our capital recycling, as we have mentioned previously, and we will continue to maintain solid credit metrics and wide headroom to bond covenants.
Could you provide some more details on your guidance for 2025? Do you expect any changes?
We confirm the guidance we published in March. Accordingly, we expect our FFO1 to be in the range of EUR 185 million-EUR 195 million, with an FFO1 per share of EUR 1.05-EUR 1.11, reflecting around 10% yield on the current share price. Our Q1 2025 results were in line with expectations and with the guidance. For the remainder of the year, we continue to expect strong operational momentum with a like-for-like rental growth of around 3.5%. Regarding acquisitions and disposals, the guided situation remains as we expect a lower volume of disposals compared to 2024.
No significant acquisitions this year. We continue to expect a slight increase in rental income. As seen in our numbers presented, we recorded a slight improvement in EBITDA margin, which we expect to maintain as inflationary pressures have reduced. Our expectation regarding finance expenses remain unchanged as well. We expect them to be slightly higher than in 2024. This is the result of the combined effect of the full-year impact of the bond issue last July and lower income earned on our cash balance.
We also expect the perpetual notes contribution to be slightly lower than 2024 as a result of the exchange and tender offers conducted in previous periods.
Those were the questions that we received prior to this call. We can now start the open session for your questions. We would appreciate if you can ask all your questions at once, we will answer them one by one.
Ladies and gentlemen, we will now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. You will 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. One moment for the first question, please. The first question comes from Manuel Martin from ODDO BHF. Please go ahead.
Hello, ladies and gentlemen. Thank you for taking my questions. Two questions from my side. First question would be on the valuation gain reported in the first quarter. You said you decided to show a valuation gain or to do a valuation of 20% of the portfolio. Maybe you could give us some more flavor on which part of the portfolio you evaluated to reach to that valuation gain, and what was the rationale behind changing your methodology, so not to report only in Q2 and Q4 valuation results, but also in Q1?
That would be the first question. Second question would be on the like-for-like rental growth, which was strong with 3.8%. Would you consider to think about your like-for-like rental guidance for the full year, which is approximately 3.5%? Or do you expect a deceleration of like-for-like rental growth for the rest of the year? These are the two questions. Thank you.
Manuel, thank you for your questions. First on valuations. Look, we value 20% of our portfolio. We value what we saw properties where had good performance, and we saw a need to update in their location. It was across our whole portfolio, so basically we tested what we saw, bigger change, and that's what we valuated was across the portfolio. That's what we did in the past, and we expect to continue. We didn't change the way we value. We value at least once a year, gradually throughout the year.
The main driver clearly was operational growth, which translated to value like-for-like. So you see very similar trends also in the end of value, in the rent like-for-like translated to the value like-for-like. As to the like-for-like of the rent, yeah, we continue to see strong performance across the entire portfolio. We see very strong dynamics. We feel comfortable with the guidance for being around 3.5%. We're not far from that with 3.8%, this could change up or down slightly, we still see a good momentum and 3.5% coming from reletting. Indexation is clearly a very good result. Thank you. Next question please.
Next question comes from Marios Pastou from Bernstein. Please go ahead.
Thank you. Good morning, and thank you for taking my questions. Also two from my side. Firstly, on the dividend, I see this remains subject to market conditions for 2025. When you restart the dividend, do you envisage returning to your old payout ratio of around 75%? Could you consider a lower payout ratio, which some of your peers have opted for? Secondly, on disposals, can you quantify what volume of disposals you are currently under discussion with or are in the pipeline? Thank you.
Thank you, Marios. First, regarding the dividend policy. The dividend policy remains unchanged at 75% of the FFO1 per share. We may evaluate this going forward when we get closer to the payment of next year. As to disposals, the current, we expect to sell the held-for-sale portfolio, which is around EUR 100 million. That's what we expect for the next 12 months. That's also what we have in the guidance. If we see opportunity to sell a higher amount, we would consider and recycle that capital for other creative use. Thank you.
Okay, there being no further questions, let me say thank you very much for attending our call, for putting in your questions ahead of time and the questions that came now. We look forward to meeting with you in future conferences or road shows, whatever the case may be. Thank you very much, and bye-bye.