Good morning, ladies and gentlemen, and welcome to the Grand City Properties H1 2025 Results Presentation Conference Call. My name is Yusuf, the callers' call operator. I would like to remind you that all participants will be in listen-only mode and that this 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 one on your telephone. For operator assistance, please press star and then zero. The conference will not be recorded for publication or for broadcast. At this time, it's my pleasure to hand over to the company. Please go ahead.
Good morning, and thank you for joining us for Grand City's Results Call for the first half of 2025. 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 mode only. 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.
Good morning and welcome to our H1 2025 Results Presentation. We are pleased to present a strong set of results for the first half of 2025, showing increasing rents and operational results, strong like-for-like performance driving positive valuations. Moreover, in 2025, we acquired EUR 60 million of new properties, mostly in the second quarter, shifting our focus to both asset sales in parallel with opportunistic acquisitions and growth while capitalizing on opportunities in the market and holding healthy headroom to our covenants. Amid the macro volatility we have been experiencing in the past periods, we see the trend of stability returning to the residential market, with increasing transaction volumes and positive value growth. With inflation easing and interest rates stabilizing, the financial climate turned more positive.
We do note that we have not yet seen the market fully overcome the challenges of the last years, and there are significant amounts of real estate that need to be refinanced in the coming periods, which we expect to be a significant challenge on the one hand, but for Grand City, this is exactly the opportunity for growth. Given our strong operational platform, wide deal sourcing network, and on the back of our robust balance sheet, with low leverage and high liquidity, our platform is ready to capture good acquisition opportunities. The operational environment remains strong, and accordingly, we have seen vacancy reduce further to 3.7%, a historic low for Grand City Properties. Germany's residential market continues to be defined by a persistent supply shortage. This imbalance between limited supply and steady increasing demand has supported rental growth, particularly in urban centers where vacancy rates remain low.
Construction activity remains subdued, with building permits at decade lows, and developers cautious amid high costs and regulatory complexity. As a result, the scarcity of new housing is expected to persist, supporting our operations and property values. We valued the full portfolio in the first half of 2025, resulting in positive revaluation of 1.6% on a like-for-like basis. We will provide more details on the valuations later in the presentation. We will now move on to the details in the following slides. Please go to slide three. On slide three, we present a summary of our key financial results for the first half of 2025. We saw a solid performance, with net rental income up by 1% and adjusted EBITDA up by 2% year- over- year. This led to an FFO1 of EUR 95 million, which is slightly higher compared to last year and fully in line with our full-year guidance.
Our balance sheet remains strong. As of June, our LTV stood at 32%, down from 33% in December 2024, and 5% lower than December 2023. Net debt to EBITDA improved to 8.4 times, and our interest cover ratio remains strong at 5.4 times in the first half. These figures reflect our disciplined financial management and the resilience of our capital structure and provide us a strong base from where to restart external growth. Turning to EPRA NTA, which increased to EUR 4.4 billion or EUR 25.2 per share, mainly driven by positive property revaluations and strong operational performance. Operationally, we maintained a low vacancy rate of 3.7% and achieved solid like-for-like rental growth of 3.7% as of June, supported by continued increase in in-place rents. We will discuss all these KPIs in detail later in the presentation. With this, allow me to hand over to Refael.
Thank you, Christian. Welcome also from my side. Slide four outlines how GCP has adapted over time in response to market conditions and is well-positioned to create excess value. We have seen a consistent upward trajectory in the annualized net rent of the portfolio in recent years, from EUR 340 million in 2020 to EUR 422 million by June 2025. Prior to 2020 GCP expanded its rental base through acquisitions, which positions the foundation for the current portfolio. We saw attractive opportunities, and with the support of our strong deal sourcing network, we cherry-picked and built an attractive portfolio over hundreds of transactions that is still driven accretive internal growth. Starting around 2020, the focus shifted to optimizing the portfolio, applying strict acquisition criteria and improving operational performance.
The strategic decision to enter the London market was fruitful, using the pricing disruption as the result of the Brexit uncertainty as an opportunity to enter this attractive market and build scale rapidly at a very attractive pricing, while at the same time, transaction opportunities in Germany will not meet our acquisition criteria anymore. We have proven our ability to pursue attractive opportunities successfully, while also being selective and disciplined to follow our strict acquisition criteria. In the last few years, the strategy has emphasized balance sheet strength and risk management. Our low loan-to-value ratio has provided flexibility, and selective disposals have helped maintain stability during market shifts. The company's proactive and agile management strategy has consistently demonstrated its value, acting as a proactive force in a challenging market condition and delivering strong accretive growth when opportunity arises.
This opportunistic approach has enabled the company to navigate periods of volatility while capitalizing on unique, high-quality opportunities at the right moment. Looking ahead, we are now well-positioned to pursue both internal and external growth while keeping our disposal strategy. Internally, there is still room to capture significant value through rent increase and operational improvement, reflected by our reversionary potential of 22%. Externally, the company's deal network supports both sales and acquisition. We acquired EUR 60 million of properties during the first half of 2025 and are looking at an attractive pipeline of potential deals. Overall, the strategy reflects a measured approach to growth, balancing opportunities with discipline. On slide five, we present an update on our external growth strategy. We are now starting to see attractive opportunities coming to the market due to mismanaged financial distress, as well as fund life cycle ends, resulting in price dislocations.
As we have remained disciplined and emphasized balance sheet strength, we see GCP now in a strong position to capitalize on arising opportunities. The acquisition opportunities that we are targeting are located in key metropolitan areas with strong fundamentals. We are looking at properties which have strong cash flow and where we see potential to leverage our operational expertise to drive additional operational growth and extract more value. We target attractive net operating income yields with sufficient spread over our refinancing costs on an unleveraged basis. In line with our long-term strategy, we focus on asset quality and value creation potential. Our growth is supported by Turnaround Capital, or TAC, a platform that enables external growth while preserving GCP's strong balance sheet.
TAC is a real estate investment fund set up together with Aroundtown and institutional investors, designed to support growth in real estate properties by sizing market opportunities and acquiring quality properties in locations with strong fundamentals. TAC has secured EUR 400 million in capital commitment to date, with potential to scale up to EUR 1 billion. The investment structure allows GCP to scale its residential strategy by investing through TAC. Moving to slide seven, this slide highlights the persistent and structural imbalance in the German housing market. For years, completion has consistently fallen short of what's needed, and the gap is widening. Even in periods of higher permitting activity, actual delivery hasn't kept pace. Berlin reflects the same pattern. Despite policy targets and planning approvals, the city continues to miss its goals of 20,000 new units annually.
This structural undersupply, both stationary and walk-only, remains a key driver of rental pressure and reinforces the long-term fundamentals of the portfolio. On slide eight, we show the continued strong momentum in our operational performance, driven by continued rent growth and low vacancy. As of June 2025, our in-place rent has increased to EUR 9.4 per- square- meter, reflecting a compounded annual growth rate of 4.3% in the last 3.5 years. Like-for-like rental growth was 3.7%, with particularly strong performance in Germany at 3.5% and 4.7% in London. Vacancy remains low at just 3.7%, underscoring the fundamentally strong location of our portfolio. As a result, our annualized net rent increased to EUR 422 million. We have seen the market rental value of the portfolio increase further, reaching EUR 516 million as of June 2025, indicating an upside potential of 22%.
We expect to unlock this mostly through revisions upon re-renting, with additional upside expected as market rents continue to trend upwards and we execute additional value enhancing measures. Continuing to slide nine, we present an update on the valuations of our portfolio. In H1 2025, a full portfolio evaluation was conducted by our external valuers. We recorded a like-for-like positive value change of 1.6%. This result was driven by continued solid operational performance, reflected in stable valuation parameters compared to December 2024. As of June 2025, the portfolio's average rent factor stood at 20.5x, reflecting a yield of 4.9%, which is the same as of December 2024. The average value per square meter is EUR 2,258, conservative and well below the replacement cost. Looking at the portfolio on a like-for-like basis and adjusting for transaction impact over the years, our yields are now at the same levels as in 2018.
This consistency highlights the conservative nature of our valuations. Historically, we have seen lower valuation volatility as increases mostly come from rental and operational growth rather than market-driven revaluations. Turning to slide 10, we present an overview of our diversified portfolio. As at the end of June, our portfolio comprised EUR 8.8 billion of investment properties, with no significant changes to the portfolio distribution. Berlin remains our largest location with 23%, followed by NRW with 21%, London with 20%, and Dresden/ Leipzig/ Halle with 14%, with the remainder spread across other strong metropolitan areas. In the first half of 2025, we closed circa EUR 131 million of disposals, including disposals signed in the previous years, at a slight premium of 0.2%. The properties were sold at a rent factor of 18x. Now I hand over to Idan to present the financial results.
Thanks, Refael. Moving on to our financial results, starting with slide 11, let's take a closer look at our P&L for the first half of 2025. Net rental income amounted to EUR 213 million, supported by strong like-for-like rental growth and acquisitions completed during the period. This was partially offset by the impact of disposals between the periods. Adjusted EBITDA increased by 2% to EUR 169 million, reflecting continued improvements in operational efficiency. We recorded a net profit of EUR 210 million in H1 2025, compared to a loss of EUR 74 million in H1 2024. This was primarily due to a positive portfolio revaluation versus devaluation recorded in the prior period. Profit was further supported by improved operational performance, partially offset by higher finance and deferred tax expenses. Earnings per share for the period came in at EUR 0.92. Turning to slide 12, our FFO performance.
FFO1 amounted to EUR 95 million, a 1% increase, primarily driven by higher adjusted EBITDA. Benefits from lower perpetual notes attribution resulting from the exchange and tender offers executed in 2024, as well as lower current tax, were partially offset by higher finance expenses. FFO1 per share was EUR 0.54, remaining stable year- over- year. FFO2 came in at EUR 146 million, up from EUR 91 million in H1 2024. The increase was driven by stronger disposal margins compared to the same period last year. On slide 13, we provide an update on our maintenance and CapEx activities. Our focus remains on continuously improving the asset quality of our portfolio. In the first half of 2025, we spent EUR 13.3 per square meter in repositioning CapEx and maintenance, compared to EUR 12.7 per square meter in H1 2024. Additionally, we invested EUR 9 million in pre-letting modification, compared to EUR 8 million in H1 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 period. We also spent EUR 1 million on modernization projects during the first half of the year. These targeted investments are designed to improve the quality and appeal of our portfolio, supporting higher rental rates. Measures include installing elevators, adding balconies, and upgrading technical systems to enhance power, heating, and water supply. Investments focusing 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 54 million, slightly higher compared to EUR 53 million in H1 2024. On slide 14, we present an update on our EPRA NAV metrics. EPRA NRV per share increased by 3% to EUR 28.7.
EPRA NTA per share increased by 4% to EUR 25.2. EPRA NDV per share was up by 3% compared to the end of 2024. The increase in EPRA NAV metrics was primarily driven by strong operational performance and a positive property revaluation during the period. On slide 15, we turn to our financial profile. Our LTV ratio reduced to 32% from 33% as of December 2024. The EPRA LTV ratio, which treats perpetual notes as debt, stood at 44%, down from 46% at the end of 2024. Our hedging ratio remains stable at 95% as of June 2025, helping us maintain a low cost of debt and protecting the company from market volatility. The interest coverage ratio stands at 5.4 times. Additionally, EUR 6.3 billion, or 70% of our portfolio, remains unencumbered, supporting strong access to bank financing. As of June 2025, our cash and liquid assets position was at EUR 1.5 billion.
Our cost of debt remained low and stable at 1.9%, with an average debt maturity of four and a half years. During the reporting period, we repaid the remaining balance of our Series E bonds using existing liquidity, and after the reporting period, we repaid our Series U bond. Allow me to hand over to Christian to conclude the presentation.
Thank you, Idan. Allow me to point out that in the appendix of our presentation, you will find more detail on our strategy, our portfolio distribution, and some more data on the German and London housing market in general, ESG information, financial policy, analyst coverage, and more. On slide 17, finally, I would like to conclude our presentation by giving you our guidance for 2025, which is confirmed. Our guidance for 2025 is FFO1 between EUR 185 million - EUR 195 million, FFO1 per share between EUR 1.05 - EUR 1.11, and total net rental like-for-like growth around 3.5%. Thank you for your attention, and allow me now to move on to our 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 the liberty to group similar questions in order to answer as many questions as possible. Allow me now to read out these questions. Could you share your updated views on the current macroeconomic environment? How is this impacting transaction volumes for German residential?
We continue to see the positive trends backed by sustainable, strong long-term fundamentals. Demand for affordable housing remains very high, and supply is kept low. The number of new building permits in Germany continues to decrease despite measures taken by the authorities to support the process. As actual completions lag the trend of permits, the trend is clearly negative over the next few years. Demand remains robust, and we expect this will continue to support our operations and continue to drive strong internal growth. With the strong increases in rents over the last periods and an expectation for further rent increases, current rental yield and market rent yields provide a good spread over the cost of debt, which has reduced significantly.
Interest rates have been cut by half since the peak just over a year ago, and debt spreads have tightened across the sector, positively impacting the total cost of debt. As a result, transactions continue to pick up period over period, with an increased demand from buyers while supply is being retrieved from the market. Accordingly, we have seen values moderately increase and expect to see similar trends going forward.
Thank you, Christian. Can you please provide more details on the like-for-like rental growth? How does rental growth differ between regions? How do you see the performance going forward?
We have continued to observe strong operational performance across both our London and German portfolio. For the last 12 months ending June 2025, we recorded 3.7% total like-for-like rental growth. As vacancy remained at a historic low rate, reaching 3.7%, the like-for-like rental growth was unlocked through in-price growth, of which 1.6% was from indexation and 2.1% from re-renting. We reiterate that this growth is obtained at low CapEx and high accretion to cash flow, and it is not the result of significant modernization projects or new construction. Rental growth was supported by strong long-term positive fundamentals in our operating markets. We recorded like-for-like rental growth of 3.5% in Germany, with rising income across all our regions. Growth was strongest in Berlin, Nuremberg, and Fürth. In London, we recorded strong rental growth, totaling 4.7% like-for-like, with lighter rent restriction allowing us to unlock the reversionary potential faster.
In our portfolio, vacancy remained at a low rate. We expect a positive environment and strong operations to continue going forward as we gradually capture the reversionary potential through re-renting. We view the fundamental forces driving our operation as positive, positioning us well to continue growing, with like-for-like rental growth of around 3.5% for the foreseen future. As for the London portfolio, now that vacancy is down and well below 3%, and that we have captured significant rent growth over the last period, going forward, we expect to have a similar rental growth as in Germany at a rate of 3% - 4%.
Thank you, Refael. Could you provide some more details on your external growth strategies?
We have seen an overall improved transaction market and sentiment and expect to see further improvement going forward. We believe that the improved sentiment doesn't impact all market participants equally. Smaller players, which do not have access to capital as the largest player, may still struggle. Borrowers who financed at the period of negative interest rates may get into financial distress, and we believe that we could be entering a window of opportunity to capture such deals. In this context, we have been active on disposal and acquisitions, executing on accretive deals and recycling capital successfully. During H1 2025, we have closed disposals of EUR 130 million at around book values. We have started to focus our efforts on capital recycling, and we have completed EUR 60 million of acquisitions with a focus in London, closing mostly towards the end of Q2 at entry prices which provide high upside potential.
The acquisitions comprise high-quality properties, including new builds which were executed at an attractive rent factor of around 13x, while we disposed of properties at a factor of 18x. Our deal sourcing network enabled us to buy the properties at good discounts to market value and comparable transactions within the same micro-locations. Notably, we completed an acquisition in London through the TAC funds, sharing ownership with TAC but maintaining control. We retained the operational control over the assets in order to execute our proven value upside strategy. We view the deal structure as an attractive option to continue unlocking external growth while reducing cash flow and balance sheet dependency, keeping our balance sheet strong. The deal amounted to EUR 40 million where GCP invested its shares of just over a half of the cost. The deal included a purchase of 120 units along with the freehold.
The property is a new build, fully rent, and located very near to the tube. We see a good pipeline of deals in London and in parallel exploring investment in other major international cities in Europe, as well as GCC countries and North America, where we may see attractive opportunities for quality and accretive growth. In total, our German footprint will continue to be over two-thirds of the portfolio long term, while the remaining will be in London and others. We note that we do not have a volume target, but based on our acquisition guidance on asset quality and value creation potential, while keeping in mind our balance sheet strength. The fact that we have a strong balance sheet and leverage is below our internal limit provides us firepower to grow the company.
Thank you, Refael. Could you provide more details on the revaluation conducted in the period? What were the drivers behind the changes in values? Do you expect to see yield compression in the following periods?
As part of our H1 report, we have conducted a full portfolio evaluation, which has confirmed the positive trend observed in the last period, recording 1.6% like-for-like value growth. The positive revaluation was driven by operational growth, reflected by the strong 3.7% like-for-like rental growth in the period. The yield stood at 4.9%, stable compared to December 2024. The like-for-like value increase was driven mostly by positive revaluation in Germany, and the same trend was evident across the portfolio. Looking ahead, we see more evidence that the period of the yield expansion is behind us. As a result, we expect organic value growth to continue in line with the operational growth of the portfolio. We believe that there is a possibility of yield completion as well as in the coming periods, but see it more as a longer-term trend.
Thank you, Refael. Do you expect to resume the dividend payments next year? Are you considering a share payback?
We see improvement in the market as well as in our balance sheet, and if current market conditions continue, we are positive about resuming dividend payments next year. We view share buyback as similar to dividends, however, it will reduce our balance sheet and our ability to pursue external growth. Share buyback can be a relevant option in the event that we will continue to dispose of properties successfully and not find attractive acquisition opportunities for capital recycling.
Thank you, Christian. How do you view your current leverage position? Do you expect significant changes?
We have lowered our leverage further in 2025, with a conservative LTV ratio of 32% as of June 2025, putting us in a strong position. EPRA LTV has been reduced to 44% as of June, down from 46% in December. As always, we remain committed to maintaining a conservative financial profile, which we view as the key pillar explaining the success of the company, giving us flexibility in the execution of our strategy. While we are looking to use our strong position to support external growth, we are acquiring mostly through TAC and through capital recycling, keeping leverage stable.
Thank you, Idan. Have you seen changes in your financing conditions from your last report? Could you provide more details on the strategy regarding the perpetual notes?
We continue to view our current financing landscape as generally positive, with a strong access to capital markets. Our bonds performed well, improving our potential refinancing conditions. The spread on our bonds has tightened and now is even slightly lowered to the margin we get on secured bank financing. We have also continued to strengthen our relationships with local and regional banks, which has proven to be important at volatile times. Accordingly, we have raised approximately EUR 65 million in bank loans in H1 2025, at a competitive margin of around 120 basis points. Our strategy regarding the perpetual notes remains unchanged, and we note that there are no upcoming calls until mid-2026. We still have time until we need to deal with the 2026 first call, but we aim to address them before the actual call date.
Thank you, Idan. Could you provide your latest guidance for 2025? Do you expect any changes?
We confirmed the guidance published in March this year, and we guide for an FFO1 to be in the range of EUR 185 million - EUR 195 million, with FFO1 per share to be of EUR 1.05 - EUR 1.11, reflecting around a 10% yield on the current share price. The solid performance presented in our H1 reports is once again in line with expectations and with our guidance. We continue to expect strong operational momentum, like-for-like rental growth of around 3.5%. We expect to continue unlocking the high reversionary potential, driving internal growth, as well as pursuing acquisitions if accretive and fit our acquisition criteria. The acquisitions we have carried out were mostly closed toward the end of the first half of 2025 and will have a full-year impact only next year and therefore won't have a big impact on our 2025 results.
We expect that the improved EBITDA margin will continue to be maintained in the coming periods, with an increase in rents and reduced inflationary pressures. Our expectations for finance expenses remain unchanged, and we expect them to be slightly higher than in 2024 due to the impact of the bond issued last July, net repayments of debt, and lower income earned on our cash balance.
Thank you, Michael. 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.
Ladies and gentlemen, we will now begin the live question and answer session. Anyone who wishes to ask a question may press star 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 two. Participants are requested to only use handsets while asking a question. Anyone who has a question may press star one at this time. One moment for the first question, please. Our first question comes from Marios Pastou, Bernstein. Please go ahead.
Good morning. Thank you for the presentation and for taking my questions. I've got three questions from my side. Firstly, based on your comments, should we expect 2025 to be another year of net disposals? Are you moving towards a net acquisition stance from next year, for example? Secondly, can you give us an idea of the size of the pipeline of acquisition opportunities you have under review currently? Finally, you mentioned various locations are under review when it comes to acquisitions, both within and outside of your current exposures. Are these all via TAC? How would this work when it comes to gaining enough scale in new locations for operational efficiencies? Thank you.
Thank you, Marios, for your questions. First, on disposals, yeah, currently we have more disposals than acquisitions. We disposed of EUR 130 million and acquired EUR 60 million. As of H1, we're quite a net seller. We have a good pipeline, but we also seek to dispose. We have EUR 100 million of assets held for sale we seek to dispose. If we could recycle capital from opportunistic disposals, we'll do that as well. It's a bit hard to tell now what will be more of the impact. Yeah, we're clearly looking at acquisitions as well. If we see a big opportunity, it could change the equation. We wait and see in that regard. Next, on the pipeline side, we see a good pipeline. We see a good pipeline in London, and we're seeking to expand our pipeline as well.
We have a lot of relatively sizable early-stage pipelines, but we still need to cherry-pick it and scan it, and most likely we'll have more visibility in the upcoming periods. We aim to acquire through TAC. Answering your third question, TAC should be our main vehicle of acquisition, which we expect going forward. Thank you.
The next question comes from Manuel Martin, ODDO BHF. Please go ahead.
Thank you, gentlemen. A couple of questions. First question would be a follow-up question on TAC. Do you have any targets for TAC in terms of earnings contributions or acquisition volume? Who manages TAC actually? Is it Aroundtown or is it you? How does that work? Maybe you can give a bit of flavor on that. That would be on TAC. Second question would be on your acquisition plans. Did I understand correctly that you might consider to acquire also in North America? If yes, how would you do it to be efficient than having a critical size? I mean, it's a bit far away from Europe. These would be the questions. Thank you.
Hi, Manuel. Thank you for your questions. First on TAC. Yeah, so the current capacity of TAC is EUR 400 million. It could increase to EUR 1 billion. There's a sizable amount we could do under TAC. The contributions of the FFO will go to the minorities, and we consolidate the assets. We manage the residential of the assets. We have full control and manage assets and benefit also from managing the properties themselves. As to the additional locations we mentioned, yeah, we're looking at large international cities. As we mentioned, we look in Germany. We continue to look in Germany. We see currently a little amount of opportunities there. Pricing is holding up well, and it doesn't necessarily fit our acquisition criteria at this stage. In London, we did some acquisitions as well, as you see, and we have a good pipeline there as well, but it's also limited.
As we've always done, we're focusing also on other areas outside of our, let's say, core traditional areas. We've done that before as well, but now that we are prepared for acquisitions, we're also looking outside of Germany and London. We're looking in other European cities, Western and Central Europe. We're looking also in North America and in other locations. We're just exploring at this stage, and we will evaluate how we will do these acquisitions. Just to remind you, in London, it was similar. We found a new location which we liked, which had good fundamentals, had good demand, limited supply, good demographics, and gradually we built a very good platform there. Now we have a very efficient platform managed in-house, which is very accretive to our portfolio. Thank you.
The next question comes from Aakanksha Anand from Citi. Please go ahead.
Hi, good morning everyone. Can you hear me all right?
Yes, thank you.
Great, thank you for the presentation. I have three questions from my side. First is on the acquisitions, another follow-up actually. What type of assets are you looking for when you consider acquisitions at the moment? Are you still looking at high vacancy assets and then just working on the operations and deriving results from that, or can we see you acquiring more stabilized assets now? What are the threshold returns or yields that kind of form the basis of your acquisition criteria? That's question number one. Question number two is on debt. Given the upcoming refinancings, where do you see the average cost of debt progressing, say, over the next three to four years? Also, what are the incremental costs from perpetual notes reset that we can expect in 2026 and 2028, given the visibility on rates that you have right now?
The third question would be on the reversionary potential, so the 22% that you state in the presentation, can we expect that to be realized over the next two to three years? That will be all of my questions.
Thank you for your questions. First on acquisitions, yeah, we're looking mainly at stabilized residential properties. If we see opportunities on properties which still need work, we will look into that as well. We have a good platform, so yeah, if we could also benefit from occupancy growth, that would be great. Most of the pipeline we're looking at now is mostly let, fully let, let's say. We're looking at a higher yield than what we have now. Currently, our rental yield is around 5%, so we're looking to have north of that. Clearly, it depends on where LTVs will be in a few years and on the quality, but yeah, we're looking to get excess NOI yield than what we currently have. As to your questions on debt, cost of debt will naturally go up. We're at 1.9%.
It will go up with the maturities we have in the upcoming years. The optics on the cost of debt perhaps will go up slightly, but we're going to have less debt repayment, so the cost of debt itself will go down. We're covered for the next three years, so we don't expect to see a big change of that. Our marginal cost of debt is around 3.5%, so if we decide to issue debt and extend our debt maturity, that will also have an impact. It's around 3.5% versus around 2% currently. As to the perpetual notes, a bit early to say. We have to see the pricing. We have to see where things are going, but yeah, we currently have June in June 2025. The next call day, we have time to evaluate it. 2026, of course.
We have time to evaluate this, and we will see exactly what will be the impact and give guidance in March, most likely, on how we will look in 2026. As to your last question on the reversionary potential of 22%, yes, it will take more than two to three years. Most of the potential is captured through re-letting. We also have indexation, but re-letting is most of the impact. The average churn is 10 years, so it takes time to recapture everything. As we capture potential, the potential itself has also increased, right, because the market is very strong and very dynamic. That's the case where we're around 22% or 25%, between 20% and 25% in the last years. We expect to always capture good like-for-like. We got up to 3.5% this year.
We expect similar trends going forward, and we also expect to maintain a very good, healthy reversionary potential and upside potential as well. Thank you.
Our next question comes from Othman El Iraki from Fidelity International. Please go ahead.
Yes, hi. Thanks for taking my questions. I have two questions. The first one is, given how tight your spreads are today, would you consider coming to market, to the bond market, say, by the end of this year? Is it something that you consider? The second one is more a follow-up on your hybrid comment. Just double-checking your current thinking at the moment. I know you still have time, but would you, do you still favor a kind of an exchange at this stage, or refi, or do you think extending remains an option? Thank you.
Hi, thank you very much. First one, regarding the bonds, we're encouraged by seeing our spreads getting tighter. However, we have no need at this stage for refinancing. If we see opportunity for pursuing debt in combination with buying back debt, improving our maturity, we might do a liability management, and we wait to see, but we don't have anything immediately in plan. As to the hybrid, our thinking here hasn't changed since we talked last time, so we have both main options. Our main wish would be to refinance ahead of time, and we're encouraged by where we see the hybrids going as well, so this is supportive. If things are getting more negative and it doesn't fit our business model, we also have the exchange possibility to do.
We've seen it as very successful and embraced also by the holders, so we have to see where things are going, but we are pretty encouraged, and our goal is to refinance ahead of time. Thank you.
Our next question comes from Paul May, Barclays. Please go ahead.
Hi, guys. Just a few questions. I'm a bit surprised to hear the slightly offhanded comment that you're going to be acquiring completely new markets. I think most investors were sort of comfortable that you'd gone into London, but moving into the U.S. and GCC, you mentioned, is quite new. I just wonder what advantages you have going into those markets. You mentioned acquiring at discounts to market values, but is it not simply the case you're just acquiring at the market value, just a new market value, and that yield is wider than you would consider the valuation? On TAC, I think it mentions that it's leverage neutral. Is this simply an accounting policy whereby you'll be equity accounting your interest rather than proportionally accounting the debt that's going into that vehicle?
Optically, it's leverage neutral, but there is leverage off balance sheet that is going into that vehicle. Finally, on the valuations, I think you mentioned a few times that rates have come down. I mean, rates are higher, whether that's the German 10-year, whether that's the Euro five-year swap year to date. It's just surprising to see that values moving positive on the basis of rates have come down when actually rates have generally moved against you over the first six months. Just wondered your thoughts on that. Thanks.
Thank you, Paul. I think there were a bit more than three questions. I hope I capture everything. First, you mentioned that we have plans to expand, so currently we are exploring it. It's a very initial pipeline we are thinking of and exploring and sharing our thoughts with you. Once we progress, we will see how we do it and we create scale and we make it accretive. Our idea here is to create excess value. Currently, transaction markets are very strong in Germany as well as in London, so we don't see many opportunities. We're exploring a bit outside of our area and thinking how we could create excess value here. However, we're talking about a limited level. I think, yeah, I mean, our main focus was and will continue to be Germany. We're talking about at least two-thirds.
I think that's also what we guided five years ago when we were in the growth mode. We're happy to potentially also be again in the growth mode, and we keep the same strategy and guidance we gave at the time. As with disposals and acquisitions, look, we are disposing as part of the regular business. We're no pressure to dispose. We're disposing responsibly, and accordingly, we have achieved a book value. We've been doing that since 2025 and also previously. We dispose large amounts. We dispose an average multiple of 18, and we're confident that we could continue disposing at book value and potentially also higher. This is also the feedback we're getting in the market itself. We see a transaction recovery. It's not linear, but we see a recovery, and we expect to see this recovering also going forward. As for acquisitions, it's very different.
We do mention that we don't see much opportunities, but when we do, we see it coming from this financially distressed owner. Having off-market deals with a good acquisition network is enabling us to get to these opportunities. We hope to see more of them, but as you see, it's a currently limited level scale. We are hoping to find this situation where we continue to see good access to capital, good transaction, but smaller players, which don't have this access to capital, will struggle, and we could get to these deals through off-market transactions. I think that also is connected to value. Values, we see the trend very positively going together with the like-for-like. Like-for-like is translated to value like-for-like. Yields remain still higher compared to where we were in 2021, but yeah, we do see base rates going down.
We also see mid-swaps going down in the last 12 months since we reached trough. We are not expecting yield compression. We're expecting to see the market be at the same level. We expect to see the like-for-like just steaming into value like-for-like. Our valuations are done externally, and it's also validated by that transaction market. As to TAC, just to clarify, we consolidate TAC, so it's not going to be an off-balance sheet line, like you mentioned. We're going to consolidate it, and then we're going to have minorities. Effectively, we are acquiring with a minority, and that's how it's going to be presented in our high management.
Our next question comes from Sheetal Jaimalani, Deutsche Bank. Please go ahead.
Thank you. Just one question is, was your like-for-like value growth this time 1.6%, and which was 2.5% in 2H 2024. Just wondering about the factors behind that.
The factors, as I mentioned, are strong operational growth. You've seen our yield stay at 4.9% compared to December, and we expect to see similar trends going forward. Thank you.
Our next question comes from John Vuong, Van Lanschot Kempen. Please go ahead.
Hi, good morning. Thanks for taking my questions. Just on your acquisition pipeline of TAC, could you confirm that these would remain focused on residential assets, or could it also include other living assets? Could you provide a bit more color on what management fee you're getting out of these assets? Lastly, what's the lifetime of the fund?
Hi, John. Thank you for your questions. Good question on TAC rates. Just to clarify, we're talking about residential properties. That's acquisitions of residential will be carried by Grand City and managed by Grand City. As to management fees, we're talking about market levels. We're not looking to make here any gain. It's current market levels of management fees. Thank you.
Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to the company for closing remarks.
With that, I'd 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 from all of us.