Ladies and gentlemen, welcome to the TAG Immobilien publication of interim statement nine months 2026 conference call. I am Charlie, the conference call operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Martin Thiel, CFO and Co-CEO. Please go ahead.
Yeah, many thanks, and good morning all. Thank you for dialing in for our nine months 2026 conference call. As always, I will start with the highlights, and I am now on page three of the presentation. I think it's fair to say that the first nine months in 2026 were a quite strong period. Please take a look at our FFO I development that increased by 12% year-on-year. Also, the EBITDA from the rental business showed a strong growth by 9%, and these good results helped us to increase already today our guidance for the full year 2026 regarding FFO I. But also, the sales results in Poland were good. Net income from sales Poland in the first nine months of 2026 came out at EUR 29.6 million compared to EUR 34 million in the previous year.
And we expect, as always, in the fourth quarter of this year, a strong increase in the results because of more handovers in the fourth quarter. Especially important is that we sold more units in Poland in the first nine months compared to the previous period, so more than 2,100 units sold in Poland compared to roughly 1,970 units in the previous period. And in Q3, the sales numbers were more than 800 units compared to roughly 700 units in the quarter before. The ROBYG IPO is now completed in the third quarter of 2026, so the transaction closed in July 2026. We received gross proceeds in total for the group of EUR 282 million, EUR 188 million of gross proceeds at TAG level from the sale of the ROBYG shares, and also ROBYG received a significant cash contribution of around EUR 94 million from the IPO.
After the IPO, we own now 67% of ROBYG, so we are still the majority shareholder. The quite strong cash inflow also reduced significantly our LTV. We are now at 42.6% at the end of the third quarter. That is roughly 300 basis points less than in the previous quarter. And there was also an extremely positive impact on our EPRA NTA via the IPO, via the sale of our shares, so we increased the EPRA NTA through this transaction by roughly EUR 62 million. As always, alongside the Q3 figures, we are providing guidance for the first time for the next financial year, so for 2027. Looking at the FFO I guidance for financial year 2027, we are indicating further growth. So for the full year 2026, as said, we increased the guidance, and that shows a roughly 9% year-on-year increase.
But also in 2027, we expect further increase in our FFO I by roughly 4%. The new guidance, or the first time issued guidance for financial year 2027, stands now between EUR 200 million and EUR 210 million. This is also driven by quite strong growth in EBITDA from the rental business, so this is expected to grow even more by roughly 8% between EUR 20 million and EUR 25 million. But perhaps not surprising, higher financing costs are also kicking in, so that has a reduced impact on the guidance for 2027 by roughly EUR 10 million. Looking on the guidance for our net income from sales Poland and also therefore for the guidance for FFO II, it is important to have in mind that we sold via the IPO shares in ROBYG.
So therefore, from next year onwards, we are accounting only for 67% of ROBYG's results in our sales business result. So therefore, we have naturally a reduced result from Poland, from the sales business there. In total, we expect 40% reduction, mainly driven by this reduced stake of our sales results in Poland, and that also leads to a reduction roughly of 9% in FFO II. But perhaps you have also already seen this. We expect that 2027, we will have strong sales numbers in our sales business in Poland, and therefore, from 2028 onwards, our net income from sales in Poland, despite the reduced shareholding, should already be on a level which is very similar to 2026. So we have a very short time dilution impact and, as said, a very positive impact on the NTA by more than EUR 62 million.
Let us go to the next page, and please allow me some more general comments on TAG and our business, and perhaps what makes us different in this environment, because we think it is important to point this out again. Basically, there are four main differentiating factors. Firstly, we are still growing our results. As shown today, we have not only increased the guidance for financial year 2026 in terms of FFO I, where we expect now a 9% year-on-year increase. We are also showing further growth in 2027 by another 4%. We are not a net seller in this market. We are net buyer of residential units, so we are not under pressure to fulfill any disposal programs.
We can look for opportunities in the market if we see them and then realize them, as shown, for example, last year with the acquisition of the residential portfolio, or also with smaller bolt-on acquisitions that we had in the meanwhile in Germany. Secondly, clearly Poland is a differentiating factor. So we are investing here in one of the fastest-growing European economies. If you look at the yields and the margins that we achieve with our business there, that should be definitely strong and fits into this interest rate environment. So the new constructed apartments that we built on our own land bank in Poland still show a gross yield between 7% and 8%. The sales business is working very well, still with high margins of around or even above 30% gross margin, and is mostly self-funded due to the payment or due to the ongoing customer prepayments.
Poland, therefore, is a clear driver of our growth. As a third factor, if you look more specifically into our German portfolio, the German portfolio has already a quite high yield, so 6.6% gross yield currently, and it offers resilience in the current interest rate environment. In other words, with that gross yield, we are still generating a positive cash flow even if we need to finance somewhere between 4.5% and 5% as of today. By the way, looking a little bit into the year-end valuation, we have, of course, not any final results now, but perhaps you have seen it in the press release already. For the German portfolio, we expect for the full year 2026 a broadly stable valuation, or in other words, to be more precise, a slight loss in the second half of 2026.
For the Polish portfolio, the H2 valuation should be more or less unchanged. As a second element in our German portfolio, just to confirm this once again, we have no Berlin exposure, or to be more precise, a very small Berlin exposure with less than 200 apartments. So despite any press releases that you might have seen in the past that were wrong, we are not affected by any ideas regarding socialization, so there is no Berlin regulatory risk for us. As a fourth element, which is also important for us, our leverage is quite moderate now with an LTV of 42.6%, strong cash metrics like the net debt to EBITDA below 10x , and an ICR close to 6x .
Investment-grade ratings have been upgraded in the course of the year, and that puts us into a position where we are able to act, where we can really think about ways to deploy our capital. That brings us to the next page number five. Capital allocation is, of course, a deeply discussed matter in these days. Capital allocation and capital distribution is something that is, of course, in this environment very important to us. We have got four options, if you simplify it, that are on the table: growth in the rental business, buying back shares, paying out dividends, or deleveraging. Let us start with the last one, deleveraging, because this is for us a kind of framework, something that we think is important in an environment where there is uncertainty around interest rates and therefore also some uncertainty about property valuation.
The leverage ratios that we currently have, that means the LTV target of 45%, are not under discussion. So there is not any idea of leveraging up. We think it is important to be here financially strong, and this is a kind of framework where we need to be disciplined. If you look into investments, simplifying it, we have got two options. Firstly, growing in the rental business, or secondly, buying back shares, which is a quasi-investment in our own portfolio. If we think about this, the relevant criteria for us is the net yield that you get out of this investment. That means the purchase price in relation to rental income, less any costs that are associated with the investment or with our own portfolio. That means gross yield, less property management expenses, SG&A, and CapEx need.
If you look at it today, still further growth in the rental business, especially continuing construction rental apartments in Poland on our own land bank, still deliver the higher net yield compared to a share buyback. But we can tell you, as the share price has seen a negative performance in the last month, of course, these net yields are, as of today, closer together. Therefore, we need to monitor the situation, and we can assure you that we're really taking such decisions with care. Share buyback could be an alternative option for an investment if we are really convinced that net yields, and in other words, the mid-to-long-term growth from that investment is superior to any investment opportunities that we see in the rental business. The dividend is set at 50% of FFO I.
This is again confirmed for the dividend that we want to pay out for this financial year at the beginning of next year. As of today, we're not planning any scrip dividend in light of the recent share price development to avoid a more material dilution for our shareholders. Also to mention is, the sales results that we get from Poland, meaning the dividend that ROBYG is paying to us as a majority shareholder, will be kept in the balance sheet and serves as a basis, for example, for further investments. But dividend and share buybacks need to be considered as a kind of holistic context or in a holistic context as instruments to provide capital distributions to shareholders.
Very happy to discuss and to look into the options in the future, perhaps in a time where we think about potentially increasing the dividend to also implement share buyback in the future, more in the midterm, as an instrument of giving back capital to shareholders. To sum that up, we're clearly return-driven in terms of our capital allocations. We've got clear guardrails, meaning we want to keep the leverage on the good level that we currently have. We're, of course, fully committed to our rating and criteria and to keep the investment-grade rating. It's also important in these days with more volatility, with uncertainty around interest rates, to take these decisions very carefully. This is a kind of longer foreword, but let's go more into the details of the nine-month results, and I'm now on page number seven.
I already mentioned that FFO I in the first nine months of 2026 showed a quite strong increase year-on-year. That was 12%, mostly driven by a stronger contribution from the EBITDA. If you look at the development in the third quarter of 2026, EBITDA from the rental business increased by nearly EUR 6 million. But on the other side, we also had higher increases in the financial costs because we paid the purchase price for the Resi4Rent acquisition. We've also repaid convertible bonds in August 2026 of EUR 470 million from existing cash. That means any interest income that we so far have achieved for these transactions or for these amounts is now deployed into the portfolio. Page number eight gives you some more details on our net income from sales in Poland and of our FFO II.
FFO II also was quite strong, so we had a 7% year-on-year increase. Polish build-to-sell business was lower in the first nine months compared to 2025, but as mentioned in previous calls, it is more important to look at the net income from sales in Poland on a full-year basis. For the fourth quarter of 2026, we expect more handovers and a stronger result. Just to remind you, compared to 2025, we expect in 2026 a quite significant increase in our net income from sales in Poland by almost 40%. Page number nine shows the development of the EPRA NTA, which is up 8% year-on-year. On top of the positive portfolio valuation that we had in the first half, the ROBYG IPO contributed to this positive development by an increase of EUR 0.32 per share. Page number 10 shows the financing structure.
Our average cost of debt stands in the middle at 2.9%. The LTV, as discussed, is comfortably below the LTV target of 45%. Why do I mention this average cost of debt so specifically? That is perhaps now good to look at page number 11, if we look into the maturity profile. Of course, financing costs is in these days a burden. We are currently financing between 4.75% and maybe up to 5%, depending on the instrument that we use, and that is higher than the average cost of financing. If we look at the maturity profile, we also give you the average coupon of the maturities ending each year. In 2027, as you can see in the guidance that we have issued today, clearly we will see a more significant step up.
The 2.5% average cost of debt for the maturities in 2027 are assumed to be refinanced by roughly 225 basis points higher. But 2028, the refinancing volume is already quite small with EUR 79 million, and 2029 already stands at an average coupon of 4.1%. That means, yes, 2027 is still a year where higher financing costs are kicking in, but after that, we are not so far away from today's financing level. That means we will not be in a situation where year after year, step by step, higher financing costs are kicking in. We have already digested a lot of the higher interest rate environment as of today. Let us go to page number 13, operational performance in the German portfolio. To be very open, regarding the vacancy development, we expected more at the beginning of the year.
We are now basically at an unchanged vacancy rate of 3.9% compared to the last quarter, where it was 3.8%. We can tell you that we are on a really good way in the fourth quarter. So we are expecting, starting from that 3.9%, a reduction by 30- 50 basis points until year-end. Nevertheless, we will have a slight increase in vacancy rate over the year, but this comes along with better rental growth than originally expected. So we achieved a like-for-like rental growth without any changes in the vacancy rate of 3.1%. If you look at the bottom right, you can see that the rent increases from existing tenants and tenant turnover without any very material investments are already at 2.8%. Including the modernization surcharges, which contributed another 30 basis points, we are at 3.1%, what we call basis like-for-like rental growth.
This is, as far as we can see, the strongest number that we ever had in our company. Looking at the Polish rental business, at page 15, which shows the development in the vacancy rate and the rental growth on a like-for-like basis. Please be aware that this is without the newly acquired portfolio that was acquired in May 2026, and therefore is not included in the like-for-like figures yet. Vacancy rate was basically unchanged compared to the previous period of the year. In September 2025, the vacancy rate in all units that have been on the market or in the group for more than 12 months was also at 2.4%. Like-for-like rental growth showed a slowdown in the third quarter of 2026. We are now at 1.7% for the full year 2026.
We expect now a like-for-like rental growth in Poland between 1.5% and 3%, which is also the assumption for next year. Let me quickly comment this. Of course, we have to work on this, but we are convinced that we really own excellent properties in Poland where we will also see demand in the future. We have to accept that after very strong growth of rents in the past, rents are now normalizing more and more. Therefore, a reduced rental income or rental growth should perhaps not be a big surprise. Secondly, as we already mentioned in the call last time, we are here working more on longer-term contracts for our tenants that perhaps come along with a slightly lower rental growth. But a longer-term contract, so a two or three-year contract compared to a one-year contract, enables us to reduce any tenant churn.
Tenant churn always comes along with a vacancy of the apartment where a tenant changes, or perhaps one month or even more. Bottom line, looking at the total rent over the period, for us, it is better perhaps to reduce a little bit the rent, or to put it perhaps better, to give away some of the rental growth, but to make sure that the apartments are rented out for a longer time. Page number 17, where now shows the development of the Polish sales business. Again, 2,150 units roughly sold in the first nine months of 2026. If you look at the assumptions for the guidance that we have given in the presentation and in the press release today, for financial year 2026, we expect now a total sales volume or total units sold between 2,900 and 3,100 units.
For the next year, so in 2027, we expect that the number of units sold are increasing quite significantly to 3,700- 3,900 units. That should show that we are very confident that this business in Poland is still seeing exceptional demand. Page number 18 shows the units handed over, 1,300 units approximately handed over in the first nine months. But as already mentioned, you will see a strong increase in Q4, as nearly always, because at year-end, most handovers are taking place. Let us take a quick look, as we are finishing on the guidance again. Page 20 shows an overview about the increased guidance in terms of FFO I for financial year 2026. The new guidance stands at EUR 195 million-EUR 200 million, which should be an increase of roughly 9%, and on a per-share basis of 4%.
But please be aware, this reduced increase on a per-share basis is resulting from the fact that the closing of the Resi4Rent transaction happened later than we expected. So we already increased the capital, our equity last year, so therefore we had for some months a higher share count and not the full contribution from the portfolio, which is now kicking in. For 2027, again, we expect a further increase by roughly 4% in absolute amounts and also on a per-share basis. As already mentioned, the net income from sales in Poland will be lower in 2027. Main reason for that is our reduced shareholding in ROBYG, where we are now only owning 67% instead of 100% before.
But as already discussed, if we look especially at the expected number of sales for this year and for next year, 2028 should already be a year where our sales results in Poland, even based on a 67% shareholding, should be very similar to the result that we expect for 2026. Finally, page 21 shows the FFO I bridge between 2026 and 2027. If you want to keep it short, the operational performance is quite strong, so the EBITDA is increasing between EUR 20 million and EUR 25 million, but this is to some extent affected by higher financing costs of around EUR 10 million.
Page 22 gives you more assumptions and more details on the guidance, perhaps not worth going through in detail, but as an overall comment, our EBITDA, as already mentioned on the previous slide, is expected to grow quite strongly by 12% in 2026 and by 6% in 2027. That's it from my side as an overview of today's results and on the guidance for 2026 and 2027. Many thanks for listening, but of course, I'm now very happy to take your questions.
We will now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handset while asking a question. Anyone who has a question may press star and one at this time. The first question is from Marios Pastou, Bernstein. Please go ahead.
Hi, good morning, and thank you for the presentation and for taking my questions. I have a couple. Both are related really to 2027 guidance, so maybe we just kick off with the FFO I guidance. Of course, you went into a bit of detail around capital allocation, mentioning around rental investment still kind of marginally more accretive on your numbers. What is factored into your FFO I guidance for 2027? Are you putting any acquisitions in there, or would this be pure upside if you were going to pull the trigger on any potential deals here?
Yeah, good morning, Marios, and thank you for asking this question because I am very happy to clarify this. There are no acquisitions included, neither in Germany nor in Poland. If you look at the number of units that are finished in 2027, this is in fact not a significant contribution. It is more a really like-for-like growth, if you want to call it like this.
Okay, that is very clear. Then maybe just a bit of a follow-up. What level of opportunity are you seeing, like timelines post the ROBYG re-IPO, and any commentary there would be quite useful?
Yeah, very happy to comment on this. Yes, we are seeing opportunities in the market, but we are really handling that with care. We need to do, as always, proper due diligence work. You should not expect acquisitions in the size, like for example, the Resi4Rent portfolio. We are talking about acquisitions, perhaps in Poland, perhaps also in Germany, in sizes, call it between EUR 50 million and EUR 100 million. We cannot promise anything, but yeah, we feel that we are in a good position, so we are able to act. We have the leverage to acquire. We have the cash position to acquire. Perhaps we are one of the few buyers, whether this is in Germany or whether this is in Poland. Yeah, in such discussions, perhaps the longer it takes, the stronger your position gets .
But yeah, let's see if we can make something out of that. Again, for purpose of the guidance, nothing is included.
Very clear. Thank you very much. Then, just on your FFO II guidance for 2027, maybe just walk us through, because obviously, it's a 15% like-for-like reduction if you take away the minority impact. Given your level of handovers are set to increase versus 2026, what is the other assumptions that is driving this? Is this a slight reduction in margins, for example? Just any comments around that would be very helpful.
Yeah. In fact, if we do a more detailed analysis of the FFO II or the sales result in Poland, the EBITDA contribution, which is, by the way, fully flowing in by 100% into our account, as it's still fully consolidating ROBYG, it's not that much changed. I think also the guidance range that we gave is more or less exactly the same. It's not a weakening of margins. It's also a different product mix. Not completely different, but you've got different products in your offer. If you're selling higher-priced apartments, naturally the margins are higher. If you're selling more affordable apartments, naturally the margins, and this has always been the case, are a little bit lower. Therefore, even on a higher number of units handed over, the EBITDA is more or less unchanged.
Then, yes, also some higher financing costs are kicking in here as well. Therefore, I think on a like-for-like basis, it's also a reduction, but not significantly. Please do not forget that 2026 will be an extremely strong year. Compared to the previous year, there was, I think, an increase or should be an increase of up to 40%. Again, we are optimistic regarding the future development of our business. If you look in today's sales numbers, they really look good. For 2027, we've got quite ambitious targets for the sales numbers that we expected and we provided today. Therefore, the overall rationale of the ROBYG IPO was, on the one side, yes, clearly to reduce our stake and to get some cash on TAG level for further investments, but also that ROBYG is getting capital from the IPO, which has finally worked.
EUR 94 million is quite significant amount for ROBYG that can be used for further investments. We also expect that this business is growing and that even on our reduced shareholding, we are achieving in the future perhaps better results than we did before on the 100% shareholding.
That is very clear. Thank you very much.
The next question is from Andrew McCreath, Green Street. Please go ahead.
Yeah. Hi. Good morning, Martin. Thank you for taking my questions. I have two also. Just firstly on capital allocation, back at 1H, I believe that you mentioned a buyback was not yet on the table, but the discount now has quite clearly widened, and now you list it as an option per slide five. I appreciate the comments that you said earlier in the call, but I just want to be clear on this. What would make you pull the trigger here, and how does it rank against acquisitions in Polish construction, I guess, given your leverage and credit rating commitments?
Good morning, Andrew. If I need to answer the question directly, when the share price development between H1 and today leads to the consequences that we now have, that more share buyback is also a real option. I don't know exactly where we've been in August, but share price was clearly higher than as of today, so that means an investment in our own portfolio via share buyback is more an option than back in July or August. To be also very clear, we will not hurt our leverage targets or our rating criteria with a share buyback. Anything that we do in that regards is, of course, something we will discuss with the rating agencies and where we can assure also to our shareholders that we're not hurting our financial structure.
Therefore, it's really comparing the investment alternatives, acquiring a portfolio or continuing with building apartments on your own land bank. This will be also significant investments over the next years. Or if a buyback of our own shares is the better investment, and the metric we are looking at that, or we're taking into account, is the net yield. That means what yield are we achieving after any costs associated with these investments, whether this is property management costs, whether this is personnel costs, whether this is a kind of ongoing CapEx that you need for such portfolios.
And if you look into these numbers today, for example, a Polish investment delivers a gross yield of, let's call it 7.5%, and the net yield is then perhaps, because it's brand new, it doesn't require any maintenance, it doesn't require, or very small maintenance, it doesn't require any CapEx, the net yield is perhaps around 6%. Whereas if we calculate the net yield from our TAG portfolio and also pencil in some kind of minimum CapEx that you need to keep the portfolio in good shape, we are still below that. The gap is narrowing. We will observe this. But as of today, and therefore, it's still marked as, if you want, a kind of preferred option, and further growth in the rental business is, as of today, the more preferred option.
Okay. That's very clear. Thank you. And then maybe just a follow-up on Polish sales as well. So, 4Q needs quite a heavy handover to hit guidance, right? But how much of it is already locked in, and what underpins your confidence in the step-up in sales into 2027?
Well, when it comes to the question, are the apartments already sold that are planned to be handed over in the fourth quarter, I don't know if the ratio is exactly 100%, but that should be very, very close to that. It's more as every year, and that's a little bit unfortunate in this kind of accounting, a technical issue. Managing all the apartments to be handed over in December is essential for the results. That's not new. That has been the case for more or less forever. It's not a, how should I say, economic risk. It's more the question, do we get everything completed? We are confident in that. The last years, that had also worked. More important when we talk about the economic development of the business are the sales numbers.
The sales numbers are always a reflection of two elements. Firstly, the overall demand in the market that we see is still strong. Secondly, also the question, what kind of products can we offer? Are we getting, to make it concrete, a lot of building permits that we can start selling apartments? We can tell you, whenever we received in the past three, four, five years since we own ROBYG, building permits, the sales are really going well. For this year and for 2027, we expect a much higher of building permits than in the past, so we should have a lot of offer. We have invested in the past more in the land bank.
We will continue to invest more in land bank with the proceeds from the ROBYG IPO, and this overall leads to the optimistic view that we have on the Polish sales business.
Okay. That's all very clear and helpful. Thank you.
The next question is from Jonathan Kownator, Goldman Sachs. Please go ahead.
Yeah. Good morning, Martin. Thanks for taking my question. Just a slight follow-up again on the same topic of Poland. If I read you correctly, effectively, you have slightly lower handovers for 2026. Essentially, your FFO I guidance has increased for 2026, but not your FFO II guidance. Do we just need to understand that you are now expecting 100- 200 handovers to slip into early 2027, and that is also why you are increasing, or why you have handovers of 3,200- 3,400 in 2027? Is it how we should read this?
Yeah. Good morning, Jonathan. Basically, your analysis is correct. We are talking about a shift in handovers in roughly the size that you mentioned. Then again, that is not a lost result. Clearly, you know this, but just to make that clear for everyone, we are talking here about basically economically not a really difference if you hand over the apartment some weeks later. But of course, accounting-wise, it is always a difference if you hand over in the fourth quarter or in the first quarter of the following year.
Understood. Just to drill down a bit further, obviously, we have seen higher interest rates, generally speaking, in Europe, a bunch of home builders profit warning. In many countries, it does not seem to be so much the case in the picture that you are describing in Poland. Can you help us understand a bit how things are shaping there, how people are reacting, and how you are seeing demand, and whether there is also, as you pointed out, you do not have so much increase in your EBITDA sales business for 2027, though. Are we to understand that effectively sales are still okay, but of a lower-end product? Is that the read?
Let's talk perhaps a little bit about the interest rate environment that is still relevant for us. In Poland, when we sell apartments, firstly, we have a quite significant part of what we call cash buyers or investors. That means people who are buying perhaps in full or to a very large part with equity. These buyers really have a long-term view on real estate in Poland. They have been also buying in 2022, 2023, when mortgage rates in Poland were at 11% or 12%. That's very important to know, and very important also to have that even in a very high interest rate environment, which we not have today, but which we had in 2022 and 2023, this buyer group is still there.
Secondly, there's the mortgage buyer, and the split, by the way, is different between the different projects, but as an assumption, the mortgage buyer is perhaps 50%, 60% of our sales. Most of the people in Poland are financing their apartment purchases with floating rate notes, so that means the WIBOR for them is relevant, which has come down quite significantly. In this sense, it's more a kind of tailwind. Clearly, also Poland is seeing now somewhat higher inflation that could lead to increase in the WIBOR, but we are still on a level that is quite materially below what we have seen, call it, one or two years ago. Therefore, we do not see really a strong headwind coming up from interest rates like it is, for example, the case in Germany.
Also, if you ask us what do we have seen in terms of construction price inflation, and perhaps this is true for the whole sector, if you look at the publishing of other peers in Poland, that's still okay. Yeah, clearly we've seen increase in construction costs, but still on a level that, together with increasing sales prices, keeps the margins on a stable level.
Okay. Thank you.
The next question is from John Vuong, Van Lanschot Kempen. Please go ahead.
Hi. Good morning, Martin. Thanks for taking my questions. You've mentioned multiple times that you want to keep leverage at a good level, and by the sounds of it, you're likely going to be a net investor. I suppose you're looking to move towards the 45% target. If I'm not mistaken, the target has been there since 2020, and rates are now structurally higher since then. Is this still a fair target, or shouldn't you be more flexible about it?
Yeah. Good morning, John. Perhaps to comment on this, it's not that the target to get to 45% as quickly as possible. This target gives us simply room, for example, to acquire. Therefore, if we see an acquisition in the market, we'll be convinced it is, in terms of the numbers, something that fits, something that provides our shareholders with good returns, then we're able to buy it. Let's assume this would not be the case, and there's nothing on the market, we would basically continue to operate on that leverage, right? My comments or our comment on that such decisions, investment decisions, whether this is a portfolio acquisition or whether this is a share buyback, needs to be handled with care. This is, of course, a reflection of the environment that we see.
We are now predicting for the second half of this year a slight decrease in property values, not massively, but it is a slight decrease. Interest rate environment has more uncertainties. That means being in that position, having a lower leverage with the possibility to acquire is a good position, but we are not, how should I say it, forcing that in the sense of acquire everything that we see. That's not the case.
Okay, that is clear. Did I hear correctly that you are saying you are expecting a slight valuation increase for H2? How is that split between Germany and Poland?
A slight decrease in the second half of 2026 for Germany. For the full year, the result should be broadly stable. That means we had, as you perhaps remember, in H1, an increase in values in the German portfolio of roughly 1.5%. You should assume that this is reversed in the second half, so that we have a broadly stable valuation at the full year. For Poland, for H2, it should be an unchanged valuation.
Okay, that is clear. Thank you.
The next question is from Nicolas Vaysselier, BNP Paribas. Please go ahead.
Hello, good morning. I have two questions on my side. The first one would be a follow-up on the share buyback. I am trying to understand more about your reflection on that topic, but do you consider this tool to be more a one-off? Or when you are thinking of it, are you trying to set up a framework in which you could do something more recurring until the share price reads a certain level of implied yield you would judge satisfactory, while at the same time keeping leverage in check? If you could give us a bit more color on how you think about it in your mind.
Yeah, good morning, Nicolas. Well, basically both is possible, right? You could look at a share buyback as an investment and say, "Okay, we are deploying a certain amount into our basically own portfolio," because we would do this if we are convinced that this is superior to any investment alternatives that we see. Or secondly, you can also think about this as a tool for giving back capital to shareholders.
This is nothing that affects this year's dividend, but if we, at some point in time, think about, and perhaps that is not the time today, but if you think about, for example, increasing payout ratios, that could also be something that we take into account, where we say, "Well, giving back capital to shareholders via the dividend plus via a share buyback that is not only a one-time impact, but a certain contribution or a certain element if the share price is on a level where we think it makes sense to add this to our distribution policy," is also something that could happen. Perhaps not for the short term, but clearly something that could make sense if we continue to be on share price levels like we have today.
Okay, thank you very much. I hear your comments on Poland and the developments there, and particularly for rental growth to remain at or slightly below 2% in the next few years. In that context, would you be thinking about changing your priorities in terms of capital allocation, like in terms of geographies and the sort of assets you have been looking for? You did a few acquisitions in Germany this year at yields that are something quite attractive and with a rental growth profile, which I suppose is superior to this 2% you are currently seeing in Poland.
The Polish investments are still attractive. We are now suffering from the extremely high rental growth that we had in the past in terms of communication. But if you look at that in total, we are constructing apartments, and we have acquired last year apartments of, let's say, around 7.5% gross yield. The apartments are new, so the margin is high because there's nearly no maintenance. There's no CapEx need for that. We will have a positive valuation impact if we build apartments on our own, because the 7.5% is the yield on cost, because we are constructing this with our own team. The valuation after that is perhaps, let's call it around 6%. So, it's not only a good cash return, it's also a strong contribution to the NAV, because we are realizing the developer gain ourself in the balance sheet.
Therefore, the picture does not change in terms of the overall positive assessment of the Polish rental business between a rental growth, call it 1.5% and 3% or 4%. So, in this range, it's overall still, from our point of view, a very attractive business.
Okay, very clear. Thank you very much.
The next question is from Paul May, Barclays. Please go ahead.
Hi, guys. Couple questions from me. Just on the acquisitions, the housekeeping's first one, just on slide 24, it mentions a 7.1% yield, and on slide 35, it mentions an 8.3% yield on acquisitions. One, what is the difference between those two? And two, how much lower quality are those assets or locations relative to the rest of your portfolio? Obviously, on a much tighter yield than those acquisitions. If you can give some color on that, would be great.
Yeah. Good morning, Paul. The difference between these two numbers is that on one slide, we are showing all the acquisitions or the average gross yield that have been signed in the first nine months. On the second slide that you mentioned, we are showing the average gross yield for all acquisitions that have closed in that period. So, for example, some of the acquisitions that we signed last year closed in the first nine months this year. And I think there was a smaller portfolio that closed after the balance sheet date in the fourth quarter of 2026. So that's the difference between these numbers. Commenting on the quality of the portfolio, so we have not acquired here something, call it distress, or that has not been the case in all the past years.
Clearly, we are buying portfolios where we can hopefully develop them, where we see the potential to increase rents or to reduce vacancy. But just to give you an idea, the average gross yield of our portfolio, that's clear, stands at 6.6%. But on page 35 of the presentation, you see the gross yields broken down by region. And there you see the lowest gross yield, for example, is around 5.7%, and the highest gross yield is 8.6%. So what we are acquiring is really within the range of gross yields that are already there in our portfolio. So nothing of a, how should I say it, extremely low or extremely high gross yield that we have not seen in our existing valuation.
Okay, so similar locations to the high yields you already have at the moment.
Yeah.
Cool. Then just earlier in the call, you mentioned about the high gross yield on the portfolio offers a cash flow spread to marginal financing costs. However, if you deduct your OpEx, admin costs, maintenance CapEx, your gross yield lowers from 6.5%- 3.8% on a pre-finance expenses basis. That's obviously a negative spread to marginal financing costs today. I appreciate high-yielding acquisitions would still give a marginally positive spread. But I just wondered, do you think about acquisitions from a gross yield perspective, or do you think about them from a free cash flow or pre-financing cost, pre-cash flow yield, accounting for all the expenses that you'd incur on them?
Yeah, we think on that, if I use your terms, from a free cash flow basis, or a pre-financing. But of course, now it's up to the definition of free cash flow, right? So we agree that we need to deduct some CapEx. So, there is an element that you can call, for example, maintenance CapEx or whatever, that you continuously need to invest into your portfolio. You can stop this for perhaps two or three years, but over time, otherwise, your portfolio would lose quality. So there is a certain element of CapEx that is recurring, and we take that into account. What we are not taking into account is really the, call it, perhaps structural CapEx. So CapEx that we invest and where we can afterwards increase the rents or reduce significantly the vacancy, so where we increase the value of the portfolio.
If we do that, and also for our full portfolio, I would say that this so-defined free cash flow, or you can call it net yield as well, is still on a level or above today's financing cost.
Okay, so just to be clear, in the FFO and AFFO table, the maintenance CapEx that you separate, which is what I was deducting there, is not maintenance CapEx, that's investment CapEx?
No.
I wasn't affecting any of the modernization, but just to be clear, what's in that maintenance CapEx line in the FFO to AFFO table?
Yeah, maintenance CapEx is basically a kind of lower-yielding CapEx that means modernization of apartments that you simply need to do, and also something smaller that you do, but nothing structural. So not any energetic modernization, not any change in floor plans, not any putting balconies on the apartments. That's what we qualify as maintenance CapEx.
Okay, cool. I'd say that's what I was including. Cool. Great stuff. Thanks so much.
Thank you.
The next question is from Thomas Neuhold, Kepler Cheuvreux. Please go ahead.
Good morning. Thanks a lot for the presentation and taking my questions. I have also two questions. One is a follow-up on the share buyback topic. I was just wondering if you, or why you are not looking also at potential NTA per share accretion. Because if you invest, for instance, EUR 100 million new developments in Poland, you probably get the valuation uplift on the NTA of EUR 25 million, EUR 30 million. If you spend EUR 100 million on your own shares, probably your NTA per share goes up 4%, 4.5%. So I was wondering why this is something you are not looking at. That is the first question.
Good morning, Thomas. Let us just put it like this. This is, of course, something we need to look at. And we need to especially look at if the metrics, the cash metrics that are perhaps the leading one, are getting closer together, right? And in theory, the model is always simple, but it is not a decision between 1 or 2 basis points difference. So if we are closer together, then, of course, a positive NTA impact is something that we need to take into account.
Yeah. Thanks a lot. And the next question is on the investment market outlook. I mean, you mentioned already that in the second half, you expect valuations to decrease in Germany. I was wondering if you can share your thoughts, what might happen next year if interest rates stay where they are? Will we see falling asset price in absolute terms, or do you think just that rental yields will continue to expand and asset prices will not come under significant pressure?
Firstly, if we talk about, let's say, moderate valuation loss in H2, that means we will see in H2 this year a yield expansion, right? Because without any doubt, rental development is good, and it is also seen by the value. But contrary to the first half, this is not leading anymore to a valuation uplift. This is now not enough to compensate for the yield expansion, although it will not be massive. But let's say perhaps we are talking about here some, I don't know, 15 basis points, perhaps 20 basis points. So that means we are already on a level where we have really high yields in our own portfolio, where we perhaps then see also in the market attractive opportunities. This is also something why we say in these days, such decisions about deploying capital need to be handled with care.
To be very clear, we are not expecting strongly falling property values in 2027, so therefore the demand is simply too strong. And of course, a lot depends on the development of interest rates in the future. Let's assume that they stay where they are, they stay on the current level. We should see in 2027, yeah, so perhaps probably stable, perhaps slightly reduced property valuation, and perhaps, and that is then a positive element of that, the one or the other acquisition opportunity for us in the market, which we would be happy to take if they fall into the criteria that we just discussed.
Okay. Thanks a lot.
As a reminder, for questions, please press star and one. Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Martin Thiel for any closing remarks.
Yeah, also from our side, many thanks for all your questions, for listening to the call. As always, if there is anything left, please feel free to contact me directly or the IR team. Otherwise, happy to see you in the next weeks on the road and to talk again at the latest next year in March when we publish our full-year results. Many thanks.
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