Ladies and gentlemen, welcome to the publication quarterly group statement as of 30 September 2026, Essen, Germany conference call. 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 is my pleasure to hand over to Burkhard Sawazki, Head of IR and Capital Market Communication and Strategy. Please go ahead, sir.
Good morning, everyone. Welcome to our Q3 2026 earnings call. Our CEO, Kruno Crepulja, and our CFO, David Dreyfus, will walk you through our presentation and give you an update on our current business performance and our adjusted outlook. As usual, this will be followed by a Q&A session. With this, I would like to hand over directly to Kruno.
Hello, everyone, and thank you for joining our Q3 earnings call. We already presented the key message last week. The considerable macroeconomic uncertainties, coupled with the sharp rise in interest rates in the third quarter, are having a noticeable impact. We all know that there is huge undersupply in the German housing market, which favors our business model, but in the short term, this is overshadowed by the macro turmoil. As a company, we have responded by tailoring our product offering even more closely to the market conditions, but we are not immune to the current macroeconomic headwinds. We are witnessing strong interest for our subsidized housing product from institutional investors, but here too, decision-making processes are currently taking longer, and there is simply less visibility on the timeline. Let me add some more color to this before we go into the details later during the presentation.
In our retail business, we felt the impact from the surge in rates during the third quarter. Whilst we still recorded significant sales growth in the first six months, following a marked decline in the third quarter, our figures after nine months are now only just above the previous year's level. For the year as a whole, we are currently expecting a decrease in retail sales. In addition to rising interest rates, general uncertainties are also having a negative impact on customers' decision-making processes. In our second customer segment, the institutional business, we are currently observing a more positive underlying development. Our product offering with very high share of subsidized housing appears to be comparatively resilient in the current environment and less affected by the volatility in rates. We have signed our first deal with a volume of EUR 45 million just in November.
There are deals with a volume of some EUR 150 million in final preparation for the signing of the notary contracts. Moreover, there are projects with total volume of some EUR 200 million in advanced negotiations. For the latter, the visibility on the timeline is somewhat lower. One or the other deal might not be signed before Q1 2027. In fact, we have already seen a first-time transaction postponed to Q1. In a very optimistic best-case scenario, it would, however, still be possible to reach our previous sales target of EUR 650 million, but we did not consider it prudent to present this as our base case. Let me also add some remarks to our overall financial profile in the current environment. Given the challenging market conditions, we should not underestimate the fact that we continue to have unrestricted access to finance.
This is far from common in our industry and reflects Instone's strong reputation with its financing partners. Our financing partners have just extended our corporate credit lines until 2029, a term loan of EUR 47.5 million, and a revolving credit facility of EUR 110 million. In today's market, this is anything but a given. Let us now take a brief look at our financial KPIs for the nine months of 2026. Adjusted revenues amounted to EUR 288.1 million. The decrease is attributable to lower sales and especially to the sales contribution from retail projects, which are already in the construction process. With the sales contribution also from forward deals, you can expect a positive seasonality in Q4. Our gross margin remained at a very high level of 29.4%, which clearly represents a benchmark in our industry.
This result is clearly better than we initially expected, despite rising costs for building materials. Among other things, it was supported by our generally prudent cost assumptions and by the release of cost reserves following the handover of projects. Adjusted earnings after tax totaled EUR 12.2 million. The decrease is attributable to the lower top line and the expected smaller earnings contribution from JVs, as well as higher interest expenses. As with revenues, we also expect positive seasonal effects on earnings in the fourth quarter. Sales volume decreased to EUR 173.3 million. The main reason for the decrease is the absence of institutional deals, which are geared towards Q4. However, as already mentioned, we cannot ignore the negative development in our retail business, where we have seen a clear slowdown in the third quarter. As an additional value indicator, book value per share stood at EUR 14.11.
In light of the current market conditions and the high level of uncertainty, we have revised our forecast for the current financial year. We expect revenues of around EUR 450 million, a high gross margin of more than 28%, adjusted earnings in the ballpark of EUR 25 million-EUR 30 million, and sales of EUR 500 million-EUR 600 million. Again, in an optimal outcome, there is still a chance to even reach our initial sales target of more than EUR 650 million. We also intend to stick to our dividend target to distribute a minimum dividend of EUR 0.43 pershare to all Shareholders. The upper chart shows our sales ratio, which has been moving sideways at a lower level over recent weeks. We are feeling the impact of the sharp rise in interest rates during the third quarter.
Combined with the generally high level of uncertainty, this led to a noticeable year-on-year decline in our B2C sales of 20% in Q3, after an increase of 26% in the first six months. Demand indicators are still developing solidly, but decision-making processes of our private clients and also the mortgage banks are taking significantly longer. We are also seeing a higher cancellation rate for reservations. Experience shows that the market needs some time to adjust to new realities and interest rate levels. A stabilization of global uncertainties, such as energy prices, would certainly be a key factor for strong recovery in sentiment among private buyers. I think that many sectors linked to consumer spending are currently feeling the effects of weak consumer confidence.
We are currently observing a better momentum in our business with institutional investors, and it seems very likely that we will see growth in this customer segment this year. I think that's certainly good news. We are really seeing a very robust demand for our subsidized housing products. This product is clearly flavor of the month. I would like to emphasize once again that Instone, with its innovative nyoo product, is ideally positioned for this business. Our leading cost position gives us a differentiating factor, enabling us to create such attractive investment products. We have just signed our first institutional deal this year, a project near Stuttgart, with volume of some EUR 45 million, and there's more to come in the coming weeks and months. Negotiations for deals with a volume of around EUR 150 million are effectively completed, and we are close to arranging the notary appointments.
Additionally, we have institutional transactions worth around EUR 200 million at a fairly advanced stage of negotiation. Nevertheless, I do not want to come across as overly enthusiastic here. The uncertainty is clearly noticeable, the processes are taking longer, and there's certainly less clarity regarding the timelines. On slides five and six, we provide an overview of the key market indicators relevant to our business. Despite heightened macro uncertainty and the recent rise in long-term interest rates, prices for new builds in Germany's top seven cities have remained broadly stable, with some variations among the individual major cities, but overall, this underlines the resilience of this asset class. The main driver of the positive underlying market dynamics remains unchanged: the significant housing shortage in metropolitan areas, combined with sustained rental growth.
This applies in particular to high-quality, energy-efficient new builds, and the price premium for energy-efficient buildings continues to widen. The chart on the lower half of the slide shows rental growth in the top cities based on data from bulwiengesa. Growth has moderated from previously elevated levels, but it remains firmly on a long-term upward trend. Given the current inflationary environment, we are already seeing modest first signs of a re-acceleration. Rents rose by 0.9% quarter on quarter in the last quarter. Slide six. Slide six shows the development of construction prices over time. The latest data from the Federal Statistical Office confirm accelerating rise in construction costs since the start of the conflict in the Middle East. This is mainly driven by higher prices for oil-based and other energy-intensive building materials. So far, however, we have not seen any tangible impact on our business.
Our market position gives us considerable negotiation strength with the mid-sized construction companies we typically work with. Year to date, the cost increases we have experienced have been very moderate, and in fact, below the assumptions in our project calculations. This is also reflected in the further improvement of our gross margin. In effect, our contractors have so far absorbed most of the cost pressure in their own margins. We do not expect this to be sustainable in the long run. We should therefore be prepared for a somewhat stronger increase in construction costs going forward. Turning to slide seven. Our gross development value, or GDV, has increased by almost EUR 600 million year to date to EUR 7.7 billion. This figure does not yet include our share in joint venture projects, which has also increased.
Our future proportionate share of GDV in the JVs stands at more than EUR 1 billion. Year to date, we have acquired projects with a GDV of more than EUR 1.1 billion, a part of which is expected to be allocated to our JV business in order to diversify project risk and enhance returns. Negotiations with potential JV partners on the sale of proportionate stakes are still ongoing. Looking at our fully consolidated volume of projects under construction has risen from around EUR 2.7 billion -EUR 3 billion year to date, reflecting more construction starts. At the same time, we have maintained a low operational risk profile, 89% volume under construction are already sold. This pre-sold volume of EUR 2.7 billion gives us high visibility on future revenues and cash flows. Of this amount, around EUR 360 million has not yet been recognized as revenue.
Our business model continues to create value by securing building rights for our land bank over time. Over the past 12 months, we have made further progress on approvals. Together with acquisitions, our zoned land bank has increased from EUR 1.9 billion to around EUR 2.6 billion. This gives us additional flexibility and allows us to bring further projects to market as soon as demand recovers. As mentioned, we remained active on the acquisition side. Since the beginning of 2025, we have acquired projects with a total GDV of around EUR 2.3 billion. We have therefore acquisition target of more than EUR 2 billion. We are now at a fairly advanced stage of our investment cycle, and we will not compromise on our solid balance sheet. Our investments have focused on projects with shorter durations and on subsidized housing, currently the product with highest demand among institutional investors.
We believe this positions us well to emerge much stronger from the ongoing market consolidation. With that, I would now like to hand over to David for the financial section of the presentation.
Thank you, Kruno. Let me now walk you through our nine-month results in a bit more detail, starting with our adjusted results of operations on slide nine. In the first nine months, our adjusted revenues decreased due to lower sales volumes, mainly of B2C projects under construction. The absence of forward deals, which are geared towards Q4 this year, also had an impact. In Q4, we expect the signing of several institutional deals and also positive seasonal effects in our retail business. We therefore expect a higher revenue generation in the fourth quarter. Our gross margin improved further to a very strong 29.4%, once again underpinning our industry-leading profitability. Despite rising costs for building materials, this is clearly better than we initially expected. Four factors contributed to this.
First, our generally prudent cost assumption paid off, in particular with the handover of certain projects, which allowed us to release cost reserves. Scale, we clearly view this as a non-recurring effect. Second, as Kruno mentioned, our strong market position gives us considerable negotiation power with the construction companies we work with. This allowed us to realize savings when awarding construction contracts. Year to date, cost increases have remained below the assumptions in our project calculations. Third, in the third quarter, we successfully secured KfW funding for projects made possible by faster-than-expected completion of construction work within the extension period granted by KfW. Fourth, the expansion of in-house planning for our nyoo products, which also helps us to reduce our project costs. Based on this, we now expect an adjusted gross margin of more than 28% for the full year. Let me briefly comment on a technical point.
To allocate costs more precisely, we have reclassified certain other operating expenses from platform costs to project costs. Thus, platform costs are slightly lower and project costs are higher by the same amount, but this has no impact on our bottom line. We have adjusted the prior year figures accordingly by approximately EUR 2 million. Our platform costs increased moderately. Besides general cost inflation, this mainly reflects, as just mentioned, additional in-house planning hires at our subsidiary, [nyoo]. This moderate increase is more than offset by lower project costs, as we no longer need to commission external planners for these projects. Generally, we have insourced a higher share of project-related services in the past years. Further down in the P&L, net interest expense rose more strongly, but fully in line with our expectations.
The main driver was the scheduled release of capitalized interest as a result of the higher number of construction starts. A smaller effect came from slightly higher net debt. The tax rate was slightly higher, broadly in line with our full-year budget. This reflects lower expected profit contributions from joint ventures. Supported by the expected revenue uplift in the fourth quarter, we also anticipate a significantly stronger earnings contribution in Q4. Moving on to slide 10. Our balance sheet remains very strong despite significant investments in future growth. Please note that not all acquisitions are reflected in the balance sheet yet, as some purchase price payments fall due at a later date, as contractually agreed. Our loan-to-cost ratio remains at a low level of 19.4%, underlining our solid financial position. Net debt to EBITDA stands at 4.7 x.
This reflects slightly higher net debt and temporarily lower profitability, but it remains at a comfortable level. As flagged in our previous calls, higher investment activity will lead to a temporary increase in leverage ratios until cash conversion picks up again. However, rest assured that the strong balance sheet will remain a cornerstone of our business. Turning to the next slide. Over the past years, we have repeatedly demonstrated the strong cash generation of our business model. Even though we are now at a fairly advanced stage of our investment cycle, we generated a substantial operating cash flow pre-land investments of more than EUR 50 million in the first nine months of 2026. Since the beginning of 2025, we have acquired land for projects with a gross development value of around EUR 2.3 billion.
We have therefore delivered on our acquisition target of more than EUR 2 billion across 2025 and 2026. This corresponds to land investments, not all paid yet for, of more than EUR 300 million. These investments will be financed partly on our own balance sheet and partly together with project partners and JVs. In addition to land investments, cash requirements will temporarily increase for projects that have entered the construction phase. This reflects the typical cash flow profile of our retail projects. Working capital is required early on, and cash flows turn positive as construction and sales progress. Thanks to the stronger cash generation of recent years and our access to debt, our cash position at the end of the quarter still stood at nearly EUR 240 million. On top of that, we have undrawn credit facilities of EUR 110 million, giving us additional financial flexibility.
Our growth investments are therefore fully financed. Chart 12 provides you with an updated overview of our current financing structure of our corporate debt, which shows a balanced maturity profile. In tough markets, we have recently extended our RCF line with a volume of EUR 110 million and a term loan of EUR 47.5 million until 2029. Furthermore, we secured an additional EUR 15 million term loan and an acquisition financing for a large project with a volume of EUR 70 million and an LTC of 70%. This once again confirms the confidence of our financing partners and ensures the stable financing of our growth plan going forward. Turning to our outlook. As you all know, we lowered our guidance for 2026 last week. Let me add some more color to this. Even at this late stage of the year, it is still very difficult to provide a reliable forecast, particularly from sales.
For a number of substantial institutional transactions, uncertainty remains elevated, especially with regard to timing. The good news is, of course, that we are seeing positive signals from institutional investors. I believe that subsidized and affordable housing will remain a very promising product for us in 2027 as well, and should open up attractive opportunities. As pointed out, we strongly believe that we are ideally positioned for this business. Our guidance reflects, in our view, a realistic case, which still includes both upside potential and risks. In the very best-case scenario, our sales could still reach the targeted EUR 650 million. Let me briefly summarize our revised targets for the key KPIs.
We expect adjusted revenues of around EUR 450 million, a further improved gross margin of more than 28%, and adjusted earnings after tax of EUR 25 million-EUR 30 million, which is still a solid result in the current market environment. We are targeting sales in the range of EUR 500 million-EUR 600 million. Let me emphasize once again that we are sticking to our planned minimum dividend of EUR 0.43 per share. It is still too early to talk about 2027 in detail, and this year has shown us once again that we all need to be prepared for negative macroeconomic surprises. Our objective will clearly be to grow our business and our earnings, even under more difficult market conditions. At present, we see these opportunities primarily in subsidized and affordable housing. We have the right product and the right projects for this.
You can clearly expect us to present a comprehensive business outlook, including our key planned operational initiatives in early March next year. With this, I would like to conclude the presentation and hand over to the Q&A session.
We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their 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. Questioners on the phone are requested to disable the loudspeaker mode while asking a question. Anyone who has a question may press star and one at this time. Our first question comes from Thomas Rothäusler with Deutsche Bank. Please go ahead.
Hi. Couple of questions. The first one is on the retail business. I mean, given the muted demand, how did you adjust your schedule for project starts? Also on this, what would you say is the risk level for those projects you have just reached basically the 30% pre-sale threshold, and now you are basically challenged with lower sales activity? The last one is on the land bank expansion. Is it correct that you have basically reached your target there?
Hi, Thomas. Generally, regards to the retail business, I think it's fair to say that for the guidance for this year, we, of course, looked at the dynamic we've seen in the last quarter last year and the first quarter this year, which was really excellent. We thought that for the buy-to-let investor space, we can go on as we have seen it in the first very successful quarters. Currently, we are selling the sales speed, which is for us acceptable, which leads us in the, let's say, in the sales speed to selling it out until completion of the project, which is for us fine. But again, I think we thought that we'll see a higher dynamic, which is some kind of muted by the rise of interest rates, but nothing to really worry about.
It's more like projects which take longer in the sales activities, but we currently see still an acceptable speed for our projects. Regards to your question of land bank, I think for the next 12 months, we will be very selective here. We have reached our targets we made, and I think we will further acquire, but I don't see the volume for the coming year, which we have seen last year, which is not necessary, because we are well-equipped here.
Okay, thank you.
Welcome.
The next question comes from Jochen Schmitt with Metzler. Please go ahead.
Thank you very much. Good afternoon. I have two questions, please. Firstly, the institutional clients who have delayed their decisions in the first nine months, have they approached you regarding a potential negotiation or renegotiation of the transaction prices of the development projects under discussion? Or have the delays rather been caused by a longer decision process due to the market environment? Second question, could you briefly remind me, will there be the final closure of the last tranche of the Westville project in Q4? Thank you.
I think in the current market environment, of course, every investor tries to negotiate the pricing, but that is, I think, a usual process. This is not the key reason. It is more like investment committees being more cautious. We have also seen the whole social housing subsidy program is complex, so there is a lot of explanation necessary for the investment committees. Germany is complicated. Every state, every city has different rules here. This needed more time, and we have been cautious because it is not in our hands if the deals will come end of this year, or we have to postpone them into the first quarter next year. This is, for us, difficult to forecast, and therefore, we have been here more cautious. Regarding Westville, David?
I think, yes, the answer is short-term. Yes, this will be completed in Q4.
Thank you very much. Just a follow-up question, if I may. Regarding the transaction prices, how should we think about the potential discounts which you are giving in these projects under discussions with institutional investors? Should we factor in any major discounts, or would you say, well, maybe a little bit here and there, but no major discounts compared to your assumptions at the beginning of the year regarding the transaction prices?
I would say the yield requirements of investors, when you look at the cash-on-cash yield, has not really changed. What has changed is, of course, that the interest rates went up. This is not related to social housing, because here, you have, let's say, only the equity stake, and the financing is coming from the state. Therefore, we do not see here a real price pressure. When you look at the free finance market, again, I think cash-on-cash yield requirements have stayed the same. For the free finance part, the multipliers are a bit down, so maybe one to two multipliers. Overall, what helps us here is that with our affordable housing segment and our nyoo business, we are able to stick to our gross margin expectation. On one hand, on the other, also reach the price levels in negotiation with investors which are necessary for that.
They are, from cash-on-cash perspective, 4% to 4.5%. This is the current market environment. Has this answered your question?
Yeah, sorry. I lost the line in the last 10 seconds, but I think, yeah, that has been the answer. Thank you very much.
You are welcome.
As a reminder, if you wish to register for a question, you may press star and one. Our next question comes from Manuel Martin with ODDO BHF. Please go ahead.
Thank you, gentlemen. Just one question from my side. Maybe you have seen that the company Gropyus seems to have entered troubled waters by sending some of its daughter companies into insolvency, and Vonovia is slowing down its project development. I am curious to hear what is your view on these happenings, and how could this affect Instone, or how might Instone maneuver in this environment?
I am not, of course, familiar in detail with what has happened at Gropyus and what are the reasons why we have seen Vonovia's explanation in regards to slowing down the development business. What I can say from our side is, again, I think what makes us optimistic for the future, we are able to produce really cheaply affordable housing in Germany. Our construction costs are significantly below EUR 2,000 per square meter, including VAT. I am talking about net space. This is enabling us to get to, on one hand, the return requirements of investors, on the other hand, to get to our target margins. In a market which is under pressure, I think it is a good answer to this kind of pressure to be cheap, to be very efficient.
We are working on this to transfer also this whole process of standardization, cost efficiency, not only at the affordable housing segment, but we plan also to transfer this way to develop and to build to our core business, which will help us going forward to increase sales volume and to grow the business. Despite all the turmoil in the market, I think that will be the target going forward.
Okay. Thank you very much.
You are welcome.
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