Ladies and gentlemen, welcome to the Q3 2024 conference call and live webcast. I am George, the Chorus Call operator. I would like to remind you that all participants will be listening in listen-only mode and the conference is being recorded. The presentation will be followed by 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. The conference may not be recorded for publication or broadcast at this time. It's my pleasure to hand over to Mr. Frank Kopfinger, head of Investor Relations. Please go ahead. Thank you, George.
Good morning everyone from Düsseldorf.
Welcome to our nine months 2024 results call and thank you for your participation. We have in the call our entire team with our CEO Lars von Lackum.
Our CFO Kathrin Köhling, as well as.
Our COO Volker Wiegel. You find the presentation document as well.
As the quarterly report within the IR section of our homepage.
Please note that there is also a disclaimer which you find on page three of our presentation and without further ado, I hand it over to you, Lars. Thank you, Frank. A very good morning to all of you. Also from my side today we feel very excited as we can share some outstanding positive news with you. Therefore, I will focus on the main highlights on slide 6. We provide more information and details in the presentation and as always, Kathrin and Volker will give you a deeper insight into our strong operational and financial performance. There are just five crisp messages which I want to run to you. Firstly, profitability is all what counts for us. We deliver again on this point operationally as well as financially. Rent growth dynamics are being reflected in a strong 3.2% like-for-like rental growth for our full portfolio.
In line with our 3.2-3.4% rent growth guidance range, 3.2% rent growth for the full portfolio translates into a market-leading 3.8% rent growth for the free finance portfolio. On the back of the strong operational performance, we confirm our 2024 AFFO guidance and expect an AFFO in the range of EUR 190-210 million. This represents an increase of around 10% for the AFFO per share, taking the midpoint of the range into account. Secondly, profitability is all what counts for us. That statement also holds for 2025. We stick to AFFO as our key performance metric. Refinancing rates stay above our current average financing costs, so all eyes need to be on cash generating profitability. AFFO is a clearly defined and market-wide established KPI. Reflecting exactly that, we expect AFFO to grow again into a range of EUR 205-225 million.
That is an increase of 7.5%. Taking the midpoint of the 2024 and 2025 guidance into account, we get there by making best use of further rent growth momentum, increasing investment spending by EUR 1 per sq m, leveraging the successful refinancings this year and our still low average cash financing costs of 1.6%. Thirdly, no surprise to you, by now, profitability is all what counts for us. As most of you might have already seen, we announced the acquisition of the remaining shares in Brack Capital Properties. We will buy 63% of BCP beginning of 2025 and then fully consolidate the company. Up to now it was just accounted for as a share participation without any contribution to our earnings in the year of acquisition. The deal already pays for itself. That is neutral with its impact on AFFO per share mid term.
While bringing BCPs up to LEG's margins, the portfolio will become a nice contributor to our earnings and add to further AFFO per share growth. Fourthly, values for German residential stabilize as indicated in August. For the second half of 2024, we see values stabilizing. We currently expect the valuation of our portfolio to come in at a range of 0% to +0.5%. That translates into a gross yield of around 5% for our portfolio and a further consolidation of our balance sheets. Therefore, we grow our earnings on a strong balance sheet and are well positioned to take advantage from the turn in the cycle. Finally, we continue our value enhancing capital recycling strategy. We made further progress on our disposals at or above book values. We sold off weak as well as newly built assets.
In total, we signed another 500 units since August, bringing the total to 3,400 units for value of EUR 330 million. Streamlining our portfolio will continue as part of our standard portfolio optimization approach and will help to bring down LTV to our mid-term target of 45%. Please follow me to Slide 7 which holds more details on the acquisition of. In 2021 we bought a portfolio of 15,000 units from Adler and additionally acquired a participation of 31% in BCP. In the meantime, we increased our stake to 35.5% as the stabilization of asset values became more and more visible and Adler successfully restructured its capital. We decided to complete this transaction now by buying the remaining stake of around 63%. The transaction is structured in two steps. In the first step we acquire around 52.7% and Adler will hold a minority participation of 10.1%.
This will give us the time to arrange for the squeeze-out and delisting of the shares in a tax efficient manner. We expect closing for the first tranche to take place by the beginning of next year. After the successful restructuring, we will acquire the remaining 10.1% from Adler. For the entire 63% from Adler we will pay around EUR 290 million or EUR 45 per share. The acquisition price reflects a discount of 48% on the last reported NTA. Our overall acquisition price still reflects a discount of 10% on the last reported NTA. Due to the high level of cash at hand. We will pay the full acquisition price out of that liquidity. As a quick reminder on BCP, BCP is a Dutch entity listed in Israel and holding German assets in more than 100 legal entities.
Quite obviously this is not the leanest corporate structure to hold and manage German residential assets. Most of the portfolio consists of around 9,100 residential units of which more than 90% are located within our core markets. At the same time, the substantial asset base in Eastern Germany and strong expertise of BCP gives us the chance to set up a new hub in Leipzig. To put things into perspective, the portfolio makes up for just around 5% of our existing portfolio. It is merely a bolt on acquisition and finally making it an earnings accretive investment. As of today the portfolio offers a gross yield of 5.4%. Considering our acquisition price, the implied yield is rather in the region of 7%. BCP's portfolio also includes two development plots, a smaller one in Grafenberg and a bigger one in Gerresheim.
The latter plot makes up for 193,000 square meters, currently the biggest development plot in the capital of North Rhine-Westphalia, our hometown Düsseldorf. Up to now there is no building permission as we just closed our development platform. We do not consider us to be the best owner for both plots. Having received strong incoming interest from many leading development companies since Monday, we are more than confident that we will be able to set up a mutual beneficial partnership over the course of the coming months and in full alignment with local authorities. On slide 8 we provide you with some more information on financials and our ambition on synergies. On the left hand side of the slide, we compare reported margins between BCP and LEG on a standalone basis.
As of H1 2024, we have not adjusted the figures to give you the chance to reconcile all numbers with the respective company's disclosures. Overall, you will immediately note that, although BCP operates its portfolio with a gross yield of 5.4% versus LEG's around 5%, all margins of BCP are lower than those of LEG. Following the P&L down line by line, the margin spread increases from EBITDA to FFO1 margin to around 20 percentage points. However, the spread narrows comparing the AFFO margins to around 10 percentage points. The differences in EBITDA and FFO1 margins reflect BCP's higher personnel costs, higher administrative expenses due to its complex corporate structure and a higher cost load from financing costs. The smaller difference in the AFFO margin is due to BCP's low CapEx level throughout the last two years.
Therefore, we expect a neutral effect on the AFFO for 2025. On the one hand side, we will generate synergies already in year one from operational and admin functions as well as from financing. However, and that is the headwind impacting the AFFO contribution, we will increase the CapEx level towards LEG levels and standards. In 2027 we expect synergies to make up for more than 5 million EUR and making BCP and earnings accretive investment. Looking at the balance sheet impact for a moment, we expect no material effect on the LTV because of our low acquisition price and the low entry point on NTA. We even expect a small positive effect and with this I hand it over to Volker for his part on operations.
Thank you, Lars, and good morning everyone. I'm now on slide 10. Year to date we sold almost 3,400 units for around 330 million EUR. That is already more than a doubling of last year's figures. 1,259 of these units were transferred in the first nine months of this year. For the remaining 2,200 units, closing is expected by either year-end or in Q1 2025 and will translate into gross proceeds of 243 million EUR or net proceeds of 161 million EUR. You can find these numbers in the left diagram under the light blue column on the right. They are broken down further by sales portfolios in the right-hand diagram. Our sales portfolio consists exclusively of assets that we consider non-core, that is either lower quality assets from the standing portfolio or the remaining newly built units.
This enables us to optimize our portfolio on the one hand, while on the other hand we can offer exactly those types of assets in the market that are currently in strong demand. During the entire sales process, which we started as early as Q1 2022, we stayed focused on maximizing shareholder value and never gave up on our price expectations. In total, all sales have been executed above our current book value. The sales pipeline for Q4 2024 still looks good and we see an increasing demand. Therefore, we are confident to realize further disposals to a wide range of buyers until year end. The next slides reflect the changes in the size of our portfolio since the end of 2022. The line divestments only includes the units for which the transfer of ownership has already taken place. The few additions are purely attributable to conversions of assets.
Our small pipeline of new builds will be completed by mid-2025. Those units are not yet included in this graph. The remaining cash outflow for these projects amount to 43 million EUR, of which 18 million EUR are due in Q4 2024. In the appendix on page 37 of the presentation, you can find some more information on our new construction volume. Moving to slide 12 and our rent growth guide. As of 13th September 2024, our like for like rent growth was 3.2%. Our internal steering is firmly geared towards reaching our full year target and we remain very confident of achieving our guidance of 3.2%-3.4%. The 3.2% rent growth in Q3 was equally achieved by rent table adjustments and modernization reletting effects. It was solely driven by our free financed units as there is no cost rent adjustment for our subsidized units this year.
The free-finance units continue to reflect the strong underlying market dynamics. On average, the in-place rent for the part of our portfolio rose by 3.8% on a like-for-like basis in the last 12 months. Looking at our three market segments, we can see the strongest performance in the stable markets with +4.2% the free-finance stock. Rents in the high growth market and higher yielding markets increased by 3.6% and 3.3% respectively, always on average and on a like-for-like basis. For the full year, we expect rent growth in our free-finance portfolio to reach something between 3.8% and 4% in October. There was also news on rent regulation or the rental brake. To be more precise, the rental brake is applicable for new lettings, but only in tense markets.
A draft bill now proposes to extend the rental brake until 2028 as the Federal Traffic Light Coalition ceased to exist just two days ago. We currently do not expect that the draft bill will enter the next phase of the legislative process. Anyhow, only 25,000 units or 18% of our free market portfolio are located in these areas. So even if there is now a prolongation of the existing rental brake regulation, the overall effect on our portfolio is rather small. I am now on slide 13 for some details on our investments. In the first nine months, adjusted investments per square meter amounted to EUR 24.63. This is well in line with our full year investment guidance of EUR 34 per square meter and reflects the even distribution of our spending throughout the year.
Furthermore, with our focus on cash rather than on accounting, maintenance expenses continued to increase disproportionately to CapEx. Hence, the adjusted capitalization ratio was further down 18 basis points on the previous year. One final remark regarding new construction on own land investment activities. For these amounted to EUR 9.6 million in the first nine months. They form part of the adjustments together with own work, capitalized consolidation effects and subsidies, and with this I hand it over to Kathrin for a detailed view on the financials.
Thank you Volker and good morning from my side. As usual, I will start with an overview about the financial highlights. On slide 15 we have an unchanged strong growth momentum in net cold rent, which increased 3.3% in absolute numbers. Net cold rent came in at 643.8 million EUR in the first three quarters of the reporting year. A decline in apartments of 0.9% as of 30th of September was essentially offset by the 3.2% increase in the in place rent. Furthermore, a slight reduction of the vacancy rate contributed positively. The recurring net operating income rose by 2.6% to 530.3 million EUR. While the NOI increased, the adjusted EBITDA declined by 3.1%. This is mainly due to the lower contribution from our green electricity production against the strong 2023 results. I guess meanwhile you are all familiar with this matter.
From 2025 onwards we are back on normal levels. Also on a comparison level, the AFFO decreased by 14.1% year over year to 152 million EUR. Nevertheless, be assured we regard the achieved AFFO level well on track for our full year guidance range. Besides the green electricity effect of 19.9 million EUR, higher investments were the main contributor to the decline. However, this reflects our aim to evenly distribute our spending throughout the year. This means also that in Q4 the AFFO will be much stronger than last year, which should lead us to our guidance range of 190-210 million EUR and an AFFO per share growth of around 10% respectively. I am now on slide 16 and the AFFO bridge illustrates what I just explained. Starting from last year's AFFO of 176.9 million EUR.
The increase in net cold rent had a positive effect of 20.3 million EUR. Lower operating and administrative results had a negative effect of 14.3 million EUR. In detail, personal expenses increased by 5.7 million EUR driven by tariff increases for our employees and operationally, our energy and multimedia subsidiaries suffered from weaker results. Higher net interest payments had a negative impact of 9.9 million EUR. Besides the mentioned missing effect from our forward sale of green electricity, we also had higher investment spending as mentioned. This effect is however dampened by subsidies that amount to 9.1 million EUR as of Q3 2024. I am now coming to slide 17 which provides you with an overview of our portfolio.
As we did not conduct valuation of our real estate portfolio in connection with our nine-month report, the numbers are very much in line with the ones we published for H1 2024. However, I would like to remind you of some key figures. The average gross asset value per square meter is roughly 0. The gross yield stands at 4.9%. The corresponding multiple slightly decreased to 20.3 times. Looking forward, we expect valuation to trough for H2 2024 and expect valuation effects between 0 and 0.5%. Slide 18 shows our financial profile. I am happy to share that you see us in a very strong position when it comes to financial profile. In August we issued EUR 500 million convertible bond with a 1% cash coupon and maturity until 2030.
This issue allows us to keep average interest costs at a very low level of 1.6% and effectively we have a liquidity position of more than EUR 860 million. This does not yet reflect future disposal proceeds. This is why we will pay the BCP transaction out of our cash position. After the BCP transaction our 2025 liabilities are still covered into late 2025. We will continue with our opportunistic refinancing activities now including also maturities past 2025 on our agenda. The LTV as of September was 48.5% and therefore 50 basis points lower than three months ago. As of today we expect based on our valuation forecast and our disposals that the LTV will be below 48% at year end. We will continue to use a major part of the sales proceeds to reduce our debt going forward moving towards our mid term target of 45%.
At the same time we continue to closely monitor our other financing KPIs such as the ICR. Our ICR still stands at a strong 4.1 and like all the other bond covenants is in dark green territory compared to any relevant threshold. Now I hand back to Lars for some closing remarks.
Thank you, Kathrin. Let me just briefly walk you through our 2024 and 2025 guidance. I am now on Slide 20 for 2024. We confirm our guidance range for the AFFO of EUR 190 million-EUR 210 million. With more than EUR 150 million earned so far, we are well on track and all our operational drivers point into the right direction as profitability is all what counts for us. We are happy to hint at the fact that the AFFO per share will grow by around 10% this year, taking the midpoint of the guidance into consideration. Finally, let me walk you through our guidance and drivers for 2025 on page 21. We continue to stick to our game plan. We expect rent dynamics to further gain momentum. We assume rents to grow on a like for like basis by 3.4%-3.6%.
This represents a 20 basis points increase, taking the midpoint of the guidance range into account. This increase will be exclusively driven by our free finance units, where we expect a rent increase of more than 4% in the coming year. The next cost rent adjustments for our subsidized units are only due in 2026. We increased the investment spending and expect to spend at least EUR 35 per square meter. This represents at least EUR 1 additional euro against the current 2024 guidance and EUR 3 additional euros against the original 2024 investment guidance. Overall, we expect the EBITDA margin to remain broadly unchanged. We continue to benefit from low average interest costs which will support AFFO, our core KPI. Also, for the next year, the AFFO is expected to grow to a range of EUR 205 million-EUR 225 million.
This represents a further increase of the AFFO by around 7.5%, taking the midpoint of the 2024 as well as of the 2025 guidance into account. As laid out earlier and in more detail, we do not expect BCP to contribute already meaningfully to the AFFO for 2025, but see positive effects in the mid-term. To quickly summarize, it is all about earnings growth today and in the future. We have and will continue to live up to that promise. That also holds true for our ESG initiatives. It's not a lip service exercise. It needs to contribute to earnings and reduce CO2 most efficiently. Therefore, we will disclose our ESG targets together with our ESG strategy beginning of next year as soon as our decarbonization path has been re-approved by SBTi.
After addressing some of the most important topics currently on our mind, Kathrin Köhling and I are happy to take your questions, and with this I hand it back to Frank.
Thank you, Lars.
With this we begin the Q and A session. I hand it over to you, George.
Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star one on the 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. Questioners on the phone are requested to disable the loudspeaker mode and eventually turn off the volume from the webcast. End of the question. You may press star and one. At this time, our first question comes from Marius Pastor and Bernstein. Please go ahead.
Hi, good morning. Thank you for taking my questions. A couple of questions from my side. Firstly, maybe going back on BCP, could you maybe consider a full exit of the development exposure at the right price and maybe comment on your plans for the new locations you've added outside of your core exposure? And then secondly, do you plan to capitalize on the rising demand to ramp up the pace of disposals or do you consider yourselves less pressure now that asset values are slowly returning to growth? Thank you.
Good morning, Marius, and thanks for your questions, so with regards to BCP, certainly after shutting down our development operations exactly this year, we do not consider ourselves to be the best owners for the two plots in Gerresheim as well as in Grafenberg, Grafenberg especially, it is a high-priced development, so definitely we will now look for partners. Whether this is then a full sale or us staying there, involved as a partner in order to at least help to gain a proper building permission remains to be seen, so I think the incoming calls just from Monday already from very reputable development companies in the German market have shown that there is strong interest in both plots, so please allow for a bit more time to just now get back to them and find out how they envisage a deal.
But we will be open to everything. We will be open to sell it off immediately at a decent price or also stay there as a partner in a joint venture. With regards to the portfolio which we have acquired in the east, that is now a substantial footprint and as we always said, if we are able to on the one hand side gain a substantial footprint with regards to the portfolio size, and that's 800 units in Leipzig and another 500 units nearby in Magdeburg and Halle and at the same time can buy into a platform which is able to really work on those assets with in-depth knowledge there, a strong network, and that is exactly holding true for BCP. Then we are willing to also enter a new market, and that is now the case with regards to Leipzig.
So for the time being we are now planning to set up a new hub in Leipzig and then from there operate our assets which are now owning in the eastern part of Germany. With regards to your second questions and disposals. So certainly we will strictly. And once again that is very important to us, we will live up to our promise that we get the LTV further under control. So that midterm target of an LTV of 45% we take really seriously to get there. That certainly includes further disposals. With regards to disposals, we will do it as we've done it in the past. We will sell off assets at the lower end of our quality spectrum, but also those new build units.
That's also the reason why we are selling at very different multipliers reaching from as low as nine to as high as mid-30s. We will continue on those disposals, but always in the way that we are sticking to our book values. So whatever disposals we are doing, we will try to reaffirm the book values, and that is how we want to get LTV under control also in the coming year.
Thank you very much.
Thank you for your questions, Magus.
The next question comes from Véronique Mertens with Van Lanschot Kempen. Please go ahead.
Hey, good morning team.
Thank you very much for the presentation. My question really concerns the CapEx going forward. So you increase it by EUR 1 per square meter. Is this mainly coming from maybe an acceleration modernization or what is the strategy going forward? You mentioned also additional focus perhaps on energy optimization. Is that something that you want to increase focus on in the coming years?
Sure, I'm happy to take a question. It's a mixture of these things you mentioned. It's following our decarbonization path. We also have some inflation effects there and so we thought that it's wise to increase it slightly. Our guidance.
Okay, that's clear. And do you expect to keep sort.
Of like similar capitalization rate going forward?
We focus on the cash spending and we are not on accounting measures. I think it should not move dramatically. But we don't steer it.
Okay, that's very clear.
And then maybe a bit more looking.
Into the future, you indeed print quite a decent AFFO growth going forward. Is it also towards the future? Mainly going to come from top line from rental growth?
Or do you also see other opportunities?
To accelerate growth in the future?
Yes, Véronique, it's Lars. So thanks a lot for the question. We stick to the core belief that the core will be our core focus, meaning that certainly it will be driven by rental growth on the one hand side, but certainly working on the assets like Volker just pointed out. So certainly we will try to optimize and that certainly then on the one hand side will end up in higher rental growth but also with regards to better energy services being provided, also in margins with regards to the non rental business which are also adding additional value to the company.
Okay, that's clear. Thank you.
Thank you. Véronique.
The next question comes from Thomas Neuhold with Kepler Cheuvreux. Please go ahead.
Good morning. Thank you very much for the presentation. Taking my questions, I have two. The first is a follow up on BCP's portfolios. Apart from the development portfolio, do you consider other parts of BCP's portfolios non core which you might want to sell in the future?
Good morning, Thomas. Yeah, thanks a lot for doing it one by one. With regards to BCP, certainly with regards to portfolio optimization, there are some units which we do not want to stick to, but it is not that there is a bigger portfolio which we want to sell off immediately. It's nothing to mention in this call. Small and multifamily houses as always. It will just become part of the normal portfolio management exercise which we run on a yearly basis.
Okay, understood. And the second question is also regarding BCP. You mentioned that BCP will be neutral to AFFO due to higher CapEx in 2025. For how many years do you expect higher CapEx at BCP? And what do you think could be a normalized AFFO contribution for BCP including synergies once CapEx are back to a normalized level?
Yes, Thomas, we try to give you all the insights currently being able to share with you. So we will become the owner hopefully beginning of next year as a majority owner. Then we do the restructuring, then we do a full integration and certainly we try to always show you what you can really trust to be really then delivered next year. And what we can deliver next year is an AFFO neutral impact on our numbers. And exactly as you were pointing out. Yes, certainly we are striving to already realize some of the synergies on the operational side, on the admin side due to that complex corporate structure, also some financing synergies. But there will be an increase in the CapEx and therefore we try to be very transparent on that. We also are transparent on the synergies which we try to realize then until 2027.
We also said that certainly and with all the portfolios, certainly it will be the case that we are bringing that to the margin level of LEG, which means that the net cold rent of that portfolio amounts to EUR 50 million. That certainly then our ambition that the portfolio will contribute in the same way like all the other portfolios to EBITDA margin, FFO margin and AFFO margin. That will be then the impact which we are going to see hopefully as of 2028.
Understood. And just a clarification, the additional CapEx for the BCP portfolio are included in your investment guidance for 2025. That's correct.
Is it? Yeah, exactly, that's the case. So we try to give you that guidance already. And that therefore you find a new line with regards to acquisitions in our guidance for 2025 where we stated yet the BCP impact is already being included in that guidance, so meaning that there's more investment of EUR also reflects the additional investment being needed for the BCP assets which we are acquiring at beginning of next year.
Perfect.
Thanks a lot.
Thank you. The next question comes from Markus Kulessa and Bank of America. Please go ahead.
Hi, good morning. Thank you very much. My questions will be on the BCP also. So the first question will be on because you said it has a neutral impact on LTV which with acquisition I suppose means it's neutral post slight revaluation. Can you share the spot impact on your LTV of acquisition? My first question, my second question is did you consider raising equity within the options when deciding for this acquisition? And why hasn't it been chosen among the options given your LTV above 50%? And I give you my third question, it just is if there are any one-off costs related to reaching the synergies you're aiming at on the operational side.
Yes, thanks a lot for your question. With regards to BCP, certainly it will be neutral because on the LTV side because exactly as you said, that bakes in whatever we are expecting for H2 and that is also what we disclosed today, is that for H2 we are expecting stabilization of the value. So exactly in line with what we've shared with our numbers for H1 in August, that is exactly what's then stabilizing the LTV for the year end with regards to equity issuance. Let me be very, very clear on that so as long as our share price is so far away from the NTA, we can rule out an equity issue. It is just not something which we have on our mind as a management team. And we think that we can live up to all our targets without raising equity.
Thirdly, with regards to the one-off costs, certainly there will be one-off cost. So certainly we are expecting integration costs. We expect costs for the consolidation that will be around EUR 3 million for the integration cost. And there will be additional cost to restructure the company, restructure the financings. Those numbers still need to be seen with regards to the interest rate level, et cetera. So no final number I can share as of today.
Okay, thank you very much. Just very quickly on this NTA dilution. Is this coming, this fear of NTA dilution from your investors or is it within your KPIs or your own decision?
Once again, can you repeat that question, Markus? I didn't just get it.
Yeah. So we have seen a lot of companies raising despite the NTA dilution when it's accretive on FFO. So I just wanted to know if this fear of this blockage on the NTA is coming from your investor base or is it coming from management?
So it's management believing that the numbers which we account for are the numbers which we can realize in the market and therefore we are trying to defend shareholder value as strongly as possible and therefore are not willing to share that part of the shareholder value with other new shareholders, which certainly is difficult for potential new shareholders, but will mostly be an interest for the current shareholders.
Okay, thank you very much.
We continue with the question of Rob Jones and BNP Paribas. Let's go ahead.
Morning, Lars. Kathrin. Two quick ones, Kathrin. The first was on subsidies. So in the half year, just looking at the transcript, you talked about an expectation of EUR 20-25 million, I guess, for FY24. I just wonder if you have a figure for FY25. That is the extent to which you accept that level to be recurring.
That was the first question.
Hi, Rob. So with regard to subsidies, as you said, we are expecting for this year something between 20 and 25. And now that we have three months more into the year, I can also clarify a little bit on that one. So it will be rather on the lower end of the 20 to 25, 20- 25 numbers for this year with regards to next year. Let's see where we end up this year. I mean, as I said in the first place the last call. There are so many uncertainties about that one because you don't know how fast you get the approvals and stuff like that. So we'll come up with a better number when you ask me again in our next call.
Sure.
All right, good. And then the second one was probably another one for yourself around debt, not in terms of LTV, because Marios has already asked that, but in terms of the EUR 500 million convertible issued. From an accounting perspective, am I right in thinking that the P&L interest charge, given the lower coupon than a straight debt instrument obviously will be, will have a lower kind of negative impact, if you will, on your FFO versus if you'd issued a non convertible bond? And the reason why I'm asking this, or maybe trying to think about the potential millions of euros differential between say issuing a, I don't know, 3.75 versus the coupon cost of the convertible is to try and work out how much of the AFFO growth in FY25 is driven by top line and other.
Resi real estate related activities versus your personal kind of alpha generation around debt financing activities having a positive impact on AFFO as a result of the type of debt instrument that you've selected. Apologies, that was a long question.
No thanks, Rob. Happy to take your question. So as we are a real estate company, of course we are growing also on our top line rent growth and on all the operational figures. And we are also taking quite a lot of value from that side. But of course it also makes sense to do smart financing things and so we will not refrain from also taking advantage of financing activities that help us with our numbers. So you are absolutely right. So we pay 1% cash coupon and that's obviously less than what we would have paid for a normal bond. And the difference is obviously something where we can take advantage of.
But just to be clear, the increase in AFFO guidance year on year or at least say from the current midpoint of say 200 to the 2025 midpoint. I compare that to if you are say issuing debt at 4% versus the cash coupon of the convertible at 1% and EUR 500 million of issuance. That's 15 million of impact or 15 million of benefit. So that's why I was asking the question around how much of the growth in AFFO is driven by that specific refinancing. Whereas if that was stripped out, we'd have FFO growth year on year much closer to zero, wouldn't we?
Yes, so the result is always a result of our diversified funding mix as we have done in the past, as we will do in the future. So this also shows in our number what we are not giving a split. Sorry.
Okay, no problem. Thank you very much. I appreciate your answers.
Our next question comes from Thomas Rothäusler with Deutsche Bank. Please go ahead.
Hi. Morning, everybody. A couple of questions. The first one is on the current government troubles and just wondering what, what's your idea about potential consequences for your business? And also on this, just a clarification on the Mietpreisbremse impact and if it should, you know, if it should not get extended. You say that I think 80% of your units are located outside of locations where the Mietpreisbremse applies, is correct?
So second part, Volker was already stating it's correct. Thomas, thank you. With regard to the end of the traffic light coalition, I think we are only one of the many industries being happy to see that ended because also with regards to the Mietpreisbremse and that prolongation, that seems to be something which is not being decided until the final, final end of that current government. So therefore current assumption is that we are not going to see anything being decided on any additional rental regulation as long as we are in that limbo until we have the new elections most probably taking place March next year.
Okay. Second question is on the BCP acquisition pricing. I think you said like it's about 7% implied yield. I'm just wondering how you did consider the two land banks?
So not being a project developer, we've been extremely conservative on those. Yeah. As already disclosed during the call, we are now looking for partners to do a joint development or also if there are partners being willing to pay a decent price, also willing to sell that off. That is our current view on those assets. They seem to be of huge interest and that was something which we have already been seen during the bidding process and because there have been quite a lot of developers already being quite close to BCP and convince them of selling those off in beforehand. From our perspective as a company being based in Düsseldorf, we have strong standing relations towards the responsible persons in the Düsseldorf administration.
We think that we can add value and therefore we will just look at the different options on the table to finally decide on whether we are going to sell that plot, stick to it in some way. Everything will be considered now within the next weeks and we come up with a decision quickly.
Any rough idea about the magnitude of the value of these two land banks?
So looking at those land banks I think we were strongly advised to not include more than the current value of the land because for Grafenberg it's different. You have a building permission, but for Gerresheim that 193,000, you just don't have a building permission and therefore we will not account for more than the current existing land value.
Okay, the last question is again on BCP and the accretion you've now guided now more specific. It's like this, more than EUR 5 million in 2027, which looks a bit low in my view. Just can you explain maybe a bit more? And what's the impact in 2025? Actually, should we assume it rather to be diluted on AFFO level as you have to up the CAPEX level, basically quite significantly, I think.
Yeah. So let me try to explain it once again, Thomas. So yes, certainly as soon as we will be the owner, as soon as we can integrate, we will do so. And then we will work hard on whatever synergies there are. We will work on the operational and admin synergies as well as on the financing synergies. And those hopefully then will help to bring that part of our portfolio to the same profitability levels as all the rest of our portfolio. Because it will not be treated differently. It will be just one part of our portfolio. It's just 5%. It needs integration because it is currently in a very complex corporate structure. I try to also disclose it's more than 100 legal entities and it might have all made sense while it was being built up for us.
Certainly that is not the leanest and most efficient way of doing a management. And then we will bring up that portfolio which currently then will stand for around EUR 50 million of net income from rents. And to also make it a contributor to our bottom line in year one due to investments being needed, restructuring being needed. We from our perspective do not want to promise already a positive impact on the AFFO as long as we have not fully integrated that. I think you know us, we are conservative, you get what you see and you see that we are promising a 7% AFFO per share increase, but not more. Certainly that will also be driven then in the future also by that part of the portfolio.
Thank you.
Our next question comes from Andres Toome with Green Street. Please go ahead.
Hi, good morning. I had a few questions. I guess, turning back to the BCP deal, just the implied yield is sort of quoted. It seems quite high on the deal. I'm just wondering how this is not going to be a negative read?
Across to your own book values, I.
mean, you quoted a 7% gross yield, your own book value, sort of a 5% average and then higher yielding market sort of 6%. So is there something about the portfolio quality that is really low? Or maybe you can also give a bit more color on that perspective. How does that asset base compare basically to your own clusters?
Yeah, Andres, thanks a lot for the question. So the 7% or 7.5%, 7 point whatever % is always being based on the price of EUR 45 for the full portfolio. As you know, we certainly paid a higher price at the beginning. So the total price we paid is EUR 600 million, which is still a 10% discount on the NTA. But therefore, if you take that into consideration, you are getting closer to what we are currently having on our books. So therefore, as always, it is worthwhile to also have a look back. You know, that we didn't opt to be trapped in that situation. We tried to make the best use of the money which we had already being invested in BCP. We like the assets, they are in good micro locations.
Certainly they need a bit more investments because the company was fully underinvested for two years. You know how difficult it was for Adler companies to get financing in the market, and that is something which is now and has been a burden for the company, especially with regards to financing, and we will now try to make it part of our portfolio, get the financing under control, get it managed in the same way, and then it will certainly add to our portfolio. Therefore, I would be reluctant to say that this 7.1% is an indication for the portfolio or our portfolio with regards to pricing.
Understood. Okay. So I guess, I mean the first.
Part of the deal that was done in 2021, right. So that's way in the rear view mirror.
But I guess as of today, how.
Did the bidding process look like? I'm just maybe also surprised then that.
No one else was willing to pay more maybe for BCP.
As it stands, if truly this 7.
Sort of is quite high against what you've seen in the transaction market when selling your own assets. Basically, yeah.
Andres, it's always difficult for someone being in the bidding process to give you all the transparency. It was being done by Van Lanschot Kempen as the investment adviser to the seller Adler. And we've been invited, we try to live up to the deadline being given. And finally, I think, , we have been able and willing to pay the highest price and finally win that bidding process because we know the assets, we know the persons and the quality of the platform better than anyone else because we are a co-owner now since 2021 and perhaps that might be the driver. But I'm certainly not able to say and speak for all the other bidders, but it was a tough competition process. So there have been other asset holding companies being bidding, there have been private equity being bidding, there have been some wealth funds bidding.
So we are very happy that finally we could agree a deal with BCP and we consider this to be a well managed company which we can bring to our EBITDA margin over the course of the next year.
Understood. And then my final question was just.
On the deal structuring as well. Is the fact that there's some 10% sort of left outstanding for a period of time? Is the intention there to get a RETT blocker in? Or how should we think about the real estate transfer tax here?
Yes, real estate transfer tax we certainly hope to be able to avoid. That is also part of the reasoning of doing it in the way, but certainly also restructuring within the company is something which is of utmost importance before fully integrating it, and those are the reasons for just doing it in a two-step approach. We certainly then will try to do a squeeze-out of the company delisted in Israel and streamline the corporate structure according to what we consider to be a most efficient structure to manage and hold assets in the German market.
That's clear. Thank you.
Thanks for your questions. The next question comes from Paul May and Barclays. Please go ahead.
Hi guys, thanks for the presentation and the continued AFFO progress which does set you apart from your peers. But sorry to labor on the BCP and the pricing. I find it interesting everyone's focusing on non core disposals from BCP. If your valuation is correct and I think you mentioned Lars, that you only value things at the price you can sell them. So assuming you revalue BCP up 92% from the price you're paying or 37% on a gross asset value basis, surely the best thing for shareholder value is just to sell it all. Because you confirmed you could sell at the prices that you value at and that would lock in an instant return for shareholders rather than having all of these questions around what is the right price? Is it valid, is it not? What is the right valuation of these assets?
Just wondering what your thought process is there because that would actually lock in cash, and I understand that your focus is still, I presume, cash is king as you proposed at Q3 2023.
Yeah, thanks a lot, Paul. A very good question as always, so with regards to us and us being hopefully considered to be a very good asset holding company, and we certainly try to generate value out of holding assets and not just retrading them immediately in the market. You've seen that currently they are not earning the same AFFO contribution as ourselves, so we are confident that we can get there and that certainly will help also going forward, so from our perspective it is worthwhile while integrating those assets and bringing them further, and also with regards to non-rental income, by the way, so we think that also tenant services, multimedia services, whatever can be sold also that will be then something which we want to offer and will add additional value for our shareholders.
Just to confirm, can you sell the BCP assets at your valuations today?
So certainly if we want to bring assets of BCP to the market, we certainly would be able to sell those. But hopefully it became clear that this is not our intention. Some of them we will earmark as non core. But please do not expect now for example, that we are going to earmark Kiel or any of the other destinations because those are markets where we are active, we can integrate that and we can efficiently manage those assets.
Sorry, confirming, can you sell all of the assets at the valuations that you're going to mark them in your books for?
Exactly. So we need to. Otherwise we are not allowed to account for those if we are not able to or cannot evaluate those at market prices. Because that's IFRS and certainly we will account for like we do for all the other assets.
Okay, and in terms of then generating that return, how do you propose from owning the assets to generate an annualized 92% return off those assets moving forward?
Paul, can you help me? What are you referring to? If you say 90%.
So your immediate return, assuming you value it at NAV or last reported NAV, is 92% from the purchase price that you've made. You said that you'll get as good a return holding the assets and managing them as you would selling them. Because you're the best owners of this. I think you are good owners of these assets. I'm just trying to understand how you propose to into perpetuity deliver this 92% return. And therefore why is it not better to just sell them if, as you say, you could sell them in the market immediately at the current valuations that you're proposing?
Okay, Paul, that is so difficult as a question. Please let me come back to that here at a later stage. Frank will more than happy to answer that.
Okay, just separately then on the equity raise question. I think it was a question on equity raising and you mentioned the NTA discount. I think going back to the Q3 presentation, you consistently mentioned cash is king. I think that's why we like you as a company because you focus on cash flow much more than say some of the other generality companies. But now you're saying that it.
Paul, I think we have lost you. We lost the line. Yeah, just to confirm. Okay, then we just go with the next question. And if Paul is dialing in again, George, then we just continue.
The next question comes from Kai Klose and Berenberg. Please go ahead.
Yes, sir. Good morning.
I've got three quick questions on the results. The first one is on page 16. You mentioned that there were weaker results for multimedia and energy. Could you split how much of the 8 minus 8.4 came from multimedia and energy? Second question is on the AFFO statement on page 23. Could you indicate why in Q3 we saw an increase in allowances on rent receivables compared to Q3 last year? And last question, is the cash income taxes were lower compared to last year. Was it temporary or is it a similar trend? Can we expect a similar trend for the full year? Thank you.
So with regards to the last one, certainly cash income taxes, they are highly dependent on how the business is developing. Kai, you know that. So with regards to disposal results, etc. They play in there. But also with regards to the income being generated on the different entity levels. So therefore that is something which always needs to be taken into account. From our perspective, we expect the cash taxes to be a bit higher than last year but remain in line. With regards to the allowances which you find on page 23, we had a bit of a change with regards to how we are collecting from our tenants. That's a new process and that has been reflected in those allowances.
And with regards to page 16 and the split, honestly that's something which we do not think is worthwhile sharing because certainly we had an impact from the multimedia services because that was ending. With regards to the part of the ancillary cost mid of this year and compared to others we have not decided to sell that coax off, but we stick to it. We think that this is a value-adding business going forward and therefore for the time being we will keep and stick to that part of the value creation for the business.
So is it fair to say that the weaker results came mainly from multifamily to a larger, somewhat larger extent?
No, it was both businesses. On the one hand side we have that ancillary costs privilege which ended mid of this year. But on the other hand side we also had impact from the acquisition of gas and reselling it also with regards to power and that being impacted by the distortions in the markets over the last two years because we do that in front and then certainly if selling prices are coming down quicker than expected with regards to our prices where we acquired those gas as well as power, then certainly the margin is turning around and that is something which will be or has impacted also the energy services for this year.
All right, many thanks.
We have back Mr. May, Barclays.
Hi guys, I think I was cut off there. Just a question. It was on the equity raising I think previously as I say you mentioned, cash is king and just on the math that I've run. But if you fully equity funded BCP acquisition it would be AFFO accretive from what I can see and apologies if that's incorrect. Therefore why is equity not considered a good thing if it's AFFO accretive even if it is NTA diluted? And you can always direct a equity issuance to existing shareholders and so it's not about new shareholders versus existing. You can ensure that existing shareholders get a fair allocation within that. Thank you.
Yes, Paul, and thanks, and I fully agree, by the way, with the second part of your question. So, but look, it was an acquisition of just EUR 200 million, and to then do not an ABB to new shareholders but a bigger one to existing shareholders just for EUR 200 million, that would be quite a costly exercise with regards to all, all the fees being attached to it. So, therefore, yes, as always, and you can trust us. So, Kathrin looked into all the options, and certainly it would have also helped us with regards to LTV. From the current point of view, we thought that is not something which we should do, and therefore we have ruled it out.
Perfect, thank you.
We continue with a question from Piotr Burski and HBK. Please go ahead.
Hey, thanks for taking my questions. The first is on M and A and LTV with now the expectation of valuations going up, but you are still being a bit away from your 45% target. But that being mid-term, how should you think about you acquiring assets? Obviously you've done BCP which I appreciate is a bit of a special deal. You're already minority. I think Adler was pretty motivated to sell, but yes, sort of in the overall scheme of things. Are you looking to participate in the market recovery going forward or do you want to bring LTV back to 45% first and then secondly on developments it sounds like that's not something you want to sort of start again, unlike Vonovia who yesterday said that they want to ramp up the business there.
Again, just wondering, do you think that's not something that's profitable overall or just that's not your area of expertise and that's why you're staying away? And then lastly, sorry as well on BCP, just wondering on the profitability, when you say you want to get it to LEG profitability levels, are the lower margins a function of the cost structure or is that revenue that's going to drive the profitability? And if it's revenue, how can you sort of do that with the rent regulation in place and so on? Are you going to front load the CapEx investments and then do those even with existing tenants, or is this going to be more a function of fluctuation and then reletting and sort of smaller CapEx investments before you re let.
Thanks a lot, Paul, for your question. So I try to address them one by one. So first of all the M and A and LTV question. So to be very precise, BCP was finally coming to an end. It was an acquisition process of now nearly three years. It was never intended to be that way and certainly we've been badly surprised by how the valuation turned out in 2022 so it is especially anomalous. Exactly. As you pointed out in your question, we want to live up to our promise to get LTV further under control. That definitely will include further disposals. On the other hand side, certainly while we see the markets now turning but not dramatically so 0% to +0.5% that's not a strong uplift. So we see stabilization of the values.
Certainly there might be M&A opportunities but whenever we are looking into M&A it needs to make sense. So I think BCP being slightly NTA accretive, being neutral as of day one with regards to us, that made sense. Are we going to see further of such M&A opportunities in the market? I'm not too sure. So therefore please expect us to first live up to our LTV target and therefore please also be aware that the net proceeds which we have now being generated out of the disposals will certainly not be used to increase the dividend but we will stick to the 100% of AFFO but use the net proceeds to keep LTV under control. Secondly, with regards to developments we are just not a development company. We had our try.
We've seen how capital intensive, how risk intensive and how different the management structure of such a company needs to be. We just do not see any benefit of operating a developer and at the same time try to be a leading asset holding and managing company. It is just from the type of people, from the decision processes, et cetera, a very diverse business model. Therefore we do not plan to re-enter. But certainly as one of the biggest asset holding companies being just based in the city where those two plots are being based, it might make sense to hold part in a joint venture and try to generate and crystallize the value which is still being trapped in that Gerresheim plot. But we are not becoming a developer. Thirdly, with regards to BCP and profitability, I really try to once again reassure you.
What you can trust is we disclose what we know as of today. As of today we are confident that as of next year it will be AFFO neutral, but we do not want to over promise and that is something which we also do not want to do with that BCP acquisition, so therefore, yes, the profitability levels are going to increase and they will deliver their fair share of earnings also with regards to AFFO over the next years.
Okay, that's all very clear. Thank you, Lars. And just on that profitability increase, just the question whether is that going to be cost or revenue driven or both?
Yes, so it will be both. Yeah, as always, it will be both. Certainly, cost comes first, and top line is going to follow the corporate structure. I already hinted you at that it's more than 100 units. Also, with regards to administrative and operational costs, I think there are synergies which can be realized, and that is certainly what we are doing first. But we will also offer certainly our additional value adding services also for those assets.
Okay, very good to know. Thank you very much.
The next question comes from Manuel Martin. Please go ahead.
Hello. Thank you for taking my questions. Two questions from my side. The first one is on the two project developments you have acquired within BCP. Maybe a bit of paranoia, but are you somehow shielded from potential claims from municipalities or other parties involved in these two project developments which could appear because sometimes you have nasty surprises with claims and project developments. So that would be the first question.
At least. Our due diligence manual and thanks for the question has not shown any claims which municipality could have with regards to those two plots.
Okay, clear second question on your disposals. Maybe you can refresh my memory. I think your disposal program encompassed 5,000 units. Maybe you can update me how many units so far have been signed and closed? So how much are still to go and which time frame please?
Yes, so far for this year we have seen that signed and transferred, we have seen 3,400 units so far. So that keeps us in your calculation with around about 2,000 units left. And that's pretty much what we have in the market currently and where we are currently in discussion.
Okay, thanks a lot.
Thank you, Manuel. Our last question comes from Neeraj Kumar with Barclays. Please go ahead.
Morning everyone.
So I have two questions here just to continue on the BCP as well.
So, may I know who is the valuer?
On BCP assets and if you plan to continue with the same or change it to the renowned value of PwC?
The current value of BCP is CBRE, and as this is not yet our company, we have not yet decided on the value for next year.
Got it. And my second question is, are you looking to deal further with Adler in terms of transactions?
Looks like they're in the market trying.
To sell additional EUR 400 million assets. And given your excellent track record of dealing with them and making huge money on the back of this basic transaction, wonder if you want to capitalize on additional opportunities from them?
Neeraj, as I tried to point out, so LTV, getting that under control is first at our mind. So we just did a transaction which was a three-year transaction which certainly was never intended to be. So that is very different. So we are now not the gorilla in the market trying to onboard as many assets as possible within a very short time frame. 45% LTV first and then certainly if there are very interesting acquisition opportunities, rest assured, certainly we will make use of them in the best interest of our shareholders. I mean I didn't plan to ask.
The question on the equity raise this time around, but I wonder like you could get the LTV lower to 45% if you were to do with the equity raise, right? Like you can fund them.
Is that the concerning factor for you?
To consider profitable opportunities in the market right now?
Yeah, so as I tried to point out, Neeraj, for the time being BCP doesn't seem to be something which we do want to do as a management. We just struggle to find deals which are then really NTA accretive with regards to bigger acquisitions. Getting back to existing shareholders certainly is something which might be evaluated in really, really, really, really big deals. But all of them need to be accretive, so please trust us, we will behave financially rational. As you've seen, we are delivering an AFFO per share growth this year of around 10%. If you take the midpoint of the guidance into account, we are generating another AFFO per share increase next year by 7.5%, so we are living up to promises and that you can trust us. We will do also next year and the years to come.
Thank you very much and good luck.
Thank you. Ladies and gentlemen, this concludes our Q and A session. I hand back to Mr. Kopfinger for any closing remarks. Thank you everybody and thanks for your.
Questions, and as always, should you have further questions, then please do not hesitate and contact us.
Otherwise, please note that our next scheduled.
Reporting event is on the 10th of.
March when we report our full year.
2024 results, and with this we close the call. We wish you all the best and hope to see you soon on one.
Of our upcoming roadshows and conference. Thank you and goodbye everybody.
Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference. You may now disconnect your lines. Goodbye.