Ladies and gentlemen, welcome to the Vonovia SE H1 2026 results analyst and investor call. I am Matilde, 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 is my pleasure to hand over to Rene.
Thank you, Matilde, and welcome everybody to our H1 2026 earnings call. The speakers today are, once again, Luka, our CEO, and Philip, our CFO. They will briefly present the H1 highlights and main messages for today before we open up for Q&A, where both will be happy to take your questions. By way of a heads up, we will continue with our policy of two questions per analyst to keep things crisp. With that, over to you, Luka.
Thank you, Rene, and hello and welcome, everybody. Let me start with the key messages for the first half of 2026. Overall, H1 was a period of strong operational performance in our core business, progress on disposals, and proactive financial management. Our rental segment once again demonstrated its robustness and reliable growth, and value add expanded significantly. The sales-related segments remain influenced by the current market environment and are expected to be more back-end loaded this year. We also made tangible progress on our financial management. Year to date, we refinanced around EUR 4.4 billion on attractive terms. We essentially completed our 2026 financing activities and substantially trimmed down refinancing volumes for 2027 to just around EUR 3 billion. On valuation, the positive trajectory of asset values continued. We recorded 1.1% value growth excluding investments, and 1.8% including investments.
We realized around EUR 700 million of disposals in H1, including an agreement on the preferred redemption of our Vesteda minority stake of around EUR 200 million. We also see a strong pipeline of further disposals towards our 2028 objectives. With that, let me now take you through the main points for our first half results on page four. In rental, adjusted EBITDA increased by 3.5% to around EUR 1.27 billion, despite around 5,000 fewer units year-over-year. Value add continued its strong momentum, with adjusted EBITDA up 28% to more than EUR 128 million. This was mainly driven, again, like in Q1, by higher contributions from the craftsman organization and the energy business. Recurring sales delivered adjusted EBITDA of EUR 39 million, which was marginally above the prior year, despite substantially lower volumes.
This confirms the continued attractiveness and embedded value of the assets that we sell in this segment. Development was down year-over-year, with adjusted EBITDA of EUR 20 million. The year-over-year comparison should be seen in context, though, as Q1 2025 benefited from a EUR 53 million contribution from a large land sale. Putting that aside, both H1 and Q2 were higher than last year. Adjusted EBITDA total was around EUR 1.46 billion. This is an increase of 2.4% on a reported basis and 6.4% when adjusted for last year's land sale. Adjusted EBT per share was EUR 1.13. This is down 5.4% on a reported basis and basically flat when adjusted for the Q1 2025 land sale. Adjusted shareholder earnings were EUR 0.91 per share.
Excluding the one-off effect from the land sale, the underlying performance here remained resilient, with an adjusted year-over-year performance of -1.2% versus 7.7% on a reported basis. EPRA NTA per share was unchanged at EUR 46.22. This includes the positive valuation result, also the dividend payout in the second quarter. Our fair value stood at EUR 81.8 billion at the end of June. Operating free cash flow was EUR 607.5 million. The year-over-year development mainly reflects around EUR 350 million lower working capital, predominantly reflecting the planned ramp-up of investments and the acquisition of a Manage to Green portfolio. Finally, the debt KPIs. Net debt to EBITDA was 14 times, LTV was 46%, and ICR was 3.6 times. These numbers were obviously impacted by the dividend payment in the second quarter.
When you compare them year-over-year, you can see our continued deleveraging progress with an LTV improvement of 1.3 percentage points over H1 2025, and net debt to EBITDA down 0.3 times. With that, let me hand over to Philip for a closer look at the segment results.
Thank you, Luka, a very warm welcome from my side. Let me start with the largest segment, rental, on page five. As you can see, the rental segment again delivered good EBITDA growth, despite a smaller portfolio. Rental revenue increased by 3.4% to almost EUR 1.8 billion, maintenance expenses were broadly stable while operating expenses increased by 5.8%. That is reflecting the inflationary environment, also the sales tax refunds in H1 2025. If you were to exclude that, we would come to a decline of only 2.9%. Overall, adjusted EBITDA rental increased by 3.5% to almost EUR 1.3 billion. The operating KPIs once again underline the resilience of the business. As you can see, vacancy remained low with an end of period vacancy rate of 2.3%, the collection rate for rental income and ancillary expenses was unchanged at almost 100%.
The organic rent growth of 3.6% in the first half looks a bit soft, this is related to the timing of the Berlin Mietspiegel, which we were implementing in Q3 this year. You also have to recognize that in 2025 in H1, we implemented already the Dresden Mietspiegel, a large holding we have there. The comparison is a bit distorted. Looking at the components, the market-driven rent growth contribution from the Mietspiegel and local comparable rents was 2.1%, modernization contributed 1.2%, new construction contributed 0.3%. Rental overall remains a highly predictable, resilient, and cash generative business for Vonovia. Moving on to value add, that is on page six. As Luka said, the value add segment delivered another very strong performance in the first half. Revenue increased by 9.4% to EUR 800 million.
External revenues were up almost 14%, that was mainly driven by the energy business, while internal revenues increased by 9%, that was supported by the higher investment volume that benefited our craftsman organization. If you look at the operating expenses, they increased by 6.5%, that is clearly below the revenue growth. As a result, adjusted EBITDA for the value add segment increased by 28% to more than EUR 128 million. This demonstrates the operating leverage we can realize in value add when volumes increase and our internal capabilities are utilized efficiently. It also confirms our view that value add is a very important differentiator for Vonovia compared with our broader peer universe. The strategic cooperation agreements we signed in Q1 for the serial production of our Heat Pump Cube and for serial modernization support the continued ramp-up of this segment.
In H1 2026, the value add segment represented around 9% of adjusted EBITDA total. For 2028, our objective remains a contribution of 9%-12%. This segment, as you can see, is already in the corridor we want to reach over the medium term with additional upside from scaling our initiatives. Moving to page seven on recurring sales. Here, adjusted EBITDA was marginally higher year-over-year at around EUR 39 million, even though units sold were only around 60% of the prior year volume. In H1 2026, we sold roughly 690 units compared with 1,134 units in H1 the previous year. As we explained after Q1 last year was supported by a larger number of signings made at the end of 2024, for which actually closing fell into the beginning of 2025. As a result, the volume comparison is influenced by phasing effects.
What is more important is the quality of asset sales. Revenue from recurring sales was EUR 157 million, the fair value step-up increased materially to 44% compared with 29% in H1 2025. This very strong margin confirms that individual apartment sales continue to be a very attractive channel to crystallize the embedded value in our portfolio. In addition, the closing of the second Manage to Green transaction in Q1 brings the total to around 900 units at an aggregate acquisition multiple of 19 times. This is an important component to selectively acquire un-refurbished assets where we can actually create value through modernization, operational improvements, and the capabilities our platform contributes. In H1, recurring sales contributed around 3% of adjusted EBITDA total. For 2026, we expect to deliver a moderate year-over-year growth. For 2028, our objective remains a contribution of 5%-8%.
On development, that is on page eight. This segment continued to operate in a challenging market environment, the margin, as you can see, remained healthy and in line with our expectations. Revenue from the disposal of development to sell properties was EUR 162 million. That is down 23% year-over-year. Gross profit from development to sell was EUR 30 million, resulting in the gross margin of just inside 19%. Adjusted EBITDA development was EUR 20 million, compared with around EUR 57 million in H1 2025. As already mentioned by Luka, the prior year comparison is distorted because H1 2025 included the disposal of a large land plot with an EBITDA contribution of around EUR 53 million. If we leave that aside, we would have seen growth in this segment, as I said, at low volumes.
For the full year 2026, we estimate the EBITDA contribution from development to be at the prior year level. More disposals, including selected land sales, are expected for the second half of the year. Strategically, development remains relevant. At the same time, the current market environment requires a very disciplined approach to capital allocation and project selection. It's all about lowering construction costs to increase the addressable market. While in H1 2026, development contributed only around 1% to adjusted EBITDA total for 2028. We again remain at our objective of a contribution of 4% to 5%. Moving to leverage. That is on page nine. Key message is unchanged. Our road to lower leverage is built on an actionable plan. The backdrop is clear. The interest rate environment remains elevated.
We have the ambition to deliver more than mid-single digit earnings growth in the medium term. These two considerations are the reasons why we have taken a more ambitious stance towards deleveraging. At the end of June, our debt KPIs were affected by the cash dividend payout in Q2. These are timing effects and do not change the general direction of travel. If you compare year-over-year, all three debt KPIs improved and our targets for year-end 2028 again remain unchanged. LTV of around 40%, net debt to EBITDA below 12 times, and an ICR comfortably above three times. The path to get there rests on several drivers, obviously. First, rental growth is sufficient to cover increasing financing expenses. Second, the non-rented business drives near-term EBITDA growth.
Third, organic deleveraging from rent growth translates into value growth in a stable yield environment. Fourth, the reminder is to be covered by disposals. On debt management, we have intentionally took a front-loaded approach. Year-to-date, we refinanced around EUR 4.4 billion with an average duration of around eight years, and an average EUR coupon of around 3.2%. That obviously is including all costs for currency hedges outside Germany and Sweden. We are essentially done with our refinancing for this year. As you can see on page 35 in the appendix, we have also conducted a partial buyback of six outstanding notes maturing in 2027 and 2028 and redeemed the 2026 maturities. We spent a total of EUR 1.5 billion to do so. The bottom line is we are actively managing the balance sheet through various products.
We are reducing refinancing risk, and we remain firmly committed to our leverage targets. On page 10, valuation. As you can see, asset values continued their upward trajectory in H1 2026. Like-for-like value growth excluding investments 1.1%, including investments 1.8%. At the end of June, our fair value was around EUR 82 billion. In-place rent multiplier was around 23 times, and the initial gross yield was 4.3%. For the German portfolio, the value per square meter including land, was EUR 2,400. This compares to a median purchase price of around EUR 3,600 for existing condominiums and around EUR 5,700 for new construction, a discount of 30% or 60% respectively. Looking at the transaction market H1 2026, the German residential institutional transaction volume was around EUR 4 billion.
That is according to CBRE and Jones Lang LaSalle, with higher volumes actually in the second quarter. While, as you know, the economic environment continues to impact the transaction market, experts consider a full year 2026 transaction volume of EUR 8 billion-EUR 9 billion. Overall, the valuation result confirms our assumption that organic rent growth should largely translate into organic value growth in a stable yield environment. It also supports the organic deleveraging component of our leverage plan. With that, let me hand back to Luka for further information on our disposal activities.
Yeah. Thank you very much, Philip. In H1, as I said at the outset, we realized around EUR 700 million of disposals. This is important evidence that our deleveraging plan is progressing. The disposal program has three main components. First, non-core assets and non-strategic minority positions. In Germany, we have a remaining non-core portfolio of around EUR 1.8 billion, including around EUR 300 million each of nursing assets and commercial assets. In addition, we have reclassified a portfolio of around EUR 800 million in Sweden as non-core. In H1, we realized around EUR 330 million of non-core asset disposals, and in addition, as I said at the beginning, an agreement on the preferred redemption of our Vesteda minority stake of around EUR 200 million. Second, recurring sales.
We have a pool of around 42,000 units in Germany and Austria, where individual apartment sales are typically achieved at a premium to book value of more than 30%, as you could observe it also in H1. In H1, we closed around EUR 160 million of recurring sales assets, as mentioned by Philip already. Third, selected disposal from our core portfolio, including Sweden as well as land sales. These disposals will help us to bridge the gap towards our 2028 deleveraging targets, after everything else has been accounted for. We have a strong pipeline of additional disposals that we will continue to pursue on our way towards 2028. The key principle in all of that has not changed. Our decisions will be guided by what is the most sustainable way to de-lever, not solely by what is the fastest solution.
We want to reduce leverage while preserving and enhancing the long-term value creation potential of the business. Finally, as I said at the outset, we confirm our 2026 guidance on all earnings KPIs and all our 2028 objectives. Rental revenue is expected to be between EUR 3.45 billion and EUR 3.55 billion in 2026, and between EUR 3.7 billion and EUR 3.8 billion in 2028. Organic rent growth is expected to be around 4% in 2026 and around 5% in 2028. As you can see, we have lowered our organic rent growth expectation for 2026 by 20 basis points, predominantly due to a balanced approach on the implementation of the Berlin Mietspiegel, considering the current political sensitivities. In this context, I'm sure you have also all seen the very clear and constructive statement made by the government coalition against socialization.
We welcome this decisive commitment and consider it a major step forward. Investments are estimated at around EUR 1.4 billion for 2026, and around EUR 2 billion for 2028. Adjusted EBITDA total is expected to be between EUR 2.95 billion and EUR 3.05 billion in 2026, and between EUR 3.2 billion and EUR 3.5 billion in 2028. For adjusted EBT, we guide to EUR 1.9 billion-EUR 2 billion in 2026, and our 2028 objective remains a mid-single digit CAGR in the period between 2024 and 2028. Adjusted shareholder earnings are expected to be between EUR 1.4 billion and EUR 1.5 billion in 2026. The CAGR in adjusted shareholder earnings toward 2028 will largely depend on disposal volumes, as well as the decision and economics around the Apollo call options.
Let me add that if the current market environment persists and continues to impact the sales-related segments as we have seen it in H1, the EBITDA and adjusted EBT guidance for 2026 in the upper half looks ambitious. Adjusted shareholder earnings, on the other hand, in this scenario, should then land well within the upper half of the guidance range due to lower tax payments than initially anticipated because of lower sales volumes. The broader message in conclusion is we are confirming guidance, we are progressing on disposals, and we are taking the steps needed to reduce leverage while maintaining our earnings growth ambitions. The core rental business remains a rock-solid foundation. Value-add continues to scale, and the non-rental businesses provide additional growth opportunities over the medium term. With that, Rene, back to you for Q&A.
Thank you, Luka. Thank you, Philip. Matilde, if you can open up the Q&A for us, please.
Yes. We will now begin the question and answer session. Anyone who wishes to ask a question may press star one on their touchtone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star two. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star one at this time. The first question comes from the line of Bart Gysens from Morgan Stanley. Please go ahead.
Hi. Bart Gysens from Morgan Stanley. I have two questions. My first question is on the guidance and on the sales segments. You set out a very clear and detailed path to the amount of earnings that you could be generating by 2028, and that's really helpful, and that's really appreciated. We're seeing, like you hinted, that some of these non-rental EBITDA initiatives are going more slowly. It takes some time to ramp up some of these, particularly the home building activities, I guess. At what point does this jeopardize the 2028 objective? To what extent does that matter for leverage? Th at's my first question. My second question is on the Berlin Mietspiegel. I appreciate it's a hugely sensitive topic, can you help us understand the initiative you're taking there on the Berlin Mietspiegel?
Is it just a matter of delaying increasing the rent that you're allowed to push through, or have you decided maybe not to push through the entire rental increase that you would be allowed to do under the new Berlin Mietspiegel given the political backdrop? Thank you.
Yeah, thanks a lot, Bart. These are obviously two very relevant questions, happy to address them. Let me start perhaps with the Berlin Mietspiegel first. The Berlin Mietspiegel came out end of May with a 6.9% increase. What we have decided for now to implement in this round is a 4.8% increase for Berlin. In this regard, we have tried to balance social affordability, obviously also a reasonable increase that allows us to show an aggregate, an appropriate growth level in Berlin for the rental fees as a whole in the entire market. The remaining potential is obviously not lost, it will be implemented at a later stage. For this round, we found this to be a good equilibrium and a good balance. I hope that explains on what we're doing there.
In terms of the guidance of and the impact of non-rental activities, let me start with 2026, because there it's relatively straightforward. We just came away from an H1, in which in aggregate, we have actually performed very much in line with our expectations. Actually, even slightly ahead due to the very strong performance in our core business in rental and in value add, which is really growing very strongly. We had from the outset for the first half, not any big expectations for the recurring sales and the development segment because from a year-over-year comparison perspective, due to the spillover effects of late signings in 2024 that moved into the beginning of 2025 in recurring sales, plus the big land sale. We always knew that the first half would look light against that.
Still, in both segments, we have also on the expected volumes closed less. Now in the second half-year, we definitely expect a pickup because both of these businesses are seasonally skewed towards the later end. In recurring sales, I would say, we see some encouraging signals of a pickup in activity because the reservations have been actually quite good in July, which is normally a quieter period. Obviously Q4 in recurring sales is always the biggest quarter historically over the course of the last four years. It has been hovering at just below 40% of the annual volume. It's an important quarter, and that's obviously where some uncertainty is coming from. Are we going to see a change in trends? What's going to happen on the macro front?
If you open up your email inbox and look to the portals every day, there is something new happening. The world is volatile out there. The only thing we are certain of, obviously, is that definitely H2 will see bigger volumes. Then in development, we have, as Philip has alluded to, land sales plus a bigger global exit plan towards the end of the year. That obviously introduces also some uncertainty. That's why I've mentioned in my introductory remarks, that if we see a continued impact of the macro environment on buyer sentiment, these two segments might come in slightly lower than what we currently have in our plan. That would then create a situation in which we might not be able to reach the upper half of the guidance range.
If that was to happen though, the mix would work favorably from a tax perspective because only 40% of our taxes are related to our core segments and 60% to the sales segments. Therefore, we wou ld then come in with much lower taxes, which would make us comfortably land in the upper half of the guidance range. For the future, honestly speaking, as these are trends that are really introduced by current macro uncertainty, I don't see a change in the underlying assumptions. Actually, what we are doing currently is to make sure that in Germany, we have a bigger pool of condominiums available in order to be able to put them through the recurring sales process. As you have seen, we have around 22,000 in Germany right now and 20,000 in Austria. That's not the right mix.
We're preparing additional condos to make them available, that should help us then as the demand picks up in the market to also move to our higher volumes that we have in our ambition. On development, nothing stops. We have 4,400 units currently under construction. We have a short-term pipeline of another 6,200 units as we are showing it in our investor presentation. Those will obviously hit the market, and along with what we have available right now, depending on the macro environment easing up, will certainly continue to be available to help us propel those results to the numbers that we want to see as part of our 2028 objectives.
Thank you, Luka. Thank you.
The next question comes from the line of Thomas Rothäusler from Deutsche Bank. Please go ahead.
Hi, good afternoon. Two questions from my side. First is on rental growth. I'm just wondering to what extent is the recent dip in organic rent growth a temporary phenomenon, or actually do you see any structural changes here? Basically, do you stick to your optimistic 5% plus rent growth guidance in the long run?
Yeah, Thomas.
The second one.
Sorry, go ahead. No, go ahead with the second one.
The second one is on disposals, specifically the EUR 330 million German non-core assets. Just wondering if you could provide more color please, on the type of assets and pricing and who are the buyers.
Let me start quickly with the rental growth. Honestly speaking, on these smaller packages of non-core portfolios, not sure, Philip, if you can add further color. On the rental growth, it's a simple story. These are really temporary effects that can always happen from one quarter to another or from one half year to another. As Philip has already alluded in the specific case of our latest 3.6%, it's due to the combination of two effects. In 2024, we had the implementation of the last Berlin Mietspiegel. Remember that our like-for-like growth numbers are always rolling 12 months backward looking. The last increase went into the comparison base from 12 months ago. Whereas right now we didn't have the Mietspiegel in the numbers yet, as it's implemented only with effect from Q3.
Second, at the beginning of last year, we also had the implementation of the Dresden Mietspiegel with close to 40,000 units. It's our second largest city market that we have. As a result of that compounding effect of having those two Mietspiegels in the comparison base, but not in the current base, resulted in that transitory dip. If you look at Q3, you can hold us to account. Obviously with Berlin then being implemented, the growth rates will go up again. That's why we come to the 4% expectation as well for the full year. The 5% for 2028 remains absolutely unchanged. We know that we have a big old wave of catch up in Germany to the market comparable rent that we still can realize due to the caps that we have in our regulatory regime.
That remains completely unchanged. As I said before, also the remaining part of the Berlin Mietspiegel that we have not yet implemented for this year obviously forms part of this potential. Then perhaps on disposals?
The EUR 330 million you are referring to, these are really smaller packages. A mix residential, but also some commercial, predominantly office. It is typical institutional buyers we have seen. The picture re mains in the German transaction market that the vast majority of transaction are really smaller sizes.
Okay. Thank you.
We now have a question from the line of Thomas Neuhold from Kepler Cheuvreux. Please go ahead.
Good afternoon. Thank you for the presentation, and thank you my questions. My two questions would be firstly on the non-core portfolio. You added EUR 0.8 billion in Sweden. Can you elaborate in more detail on the characteristics of this portfolio, and why you added it to the non-core potential disposal pipeline? That's the first question.
You want to give us your second one as well?
Yeah, sure. The second one is on the development segment. I was just wondering if you can give us a breakdown of the current pipeline in terms of, is it more geared to institutional investors or private investors? Considering that the higher interest rate environment, might you change the mix going forward?
Yeah, I can start with the non-core portfolio and development mix. Perhaps Philip, you can then take over. The non-core portfolio is mainly relating to portfolios that are outside of the core of our urban centers. Our portfolios, as you know, are quite concentrated in Sweden across Gothenburg, Stockholm, and Malmo. We also have portfolios outside, and those represent pretty comparable actually to what we have in our German non-core portfolio, the Swedish part of the non-core portfolio. We did this for the first time. It also goes to display that also in Sweden, we are open to opportunistic disposals in the ordinary course of business, and we look to market those portfolios as we progress.
On your second question, development. First, to mention that we will continue with the sale of land plots in order to release some capital. Second, on the pipeline, if I look at Austria, that is predominantly a unit-by-unit sale of condominiums to private individuals. In Germany, it is biased towards also a unit-by-unit sales, but you also have some global exits included to institutional buyers.
Thank you.
The next question comes from the line of Valerie Jacob from Bernstein. Please go ahead.
Hi, good afternoon. I've got a couple of questions. My first one is a follow-up question on Bart's question about Berlin. I understand you're only going to take 4.8% this time because you want to be balanced and appropriate. What I'm not sure about is it a write-off, or do you think you can capture the rest at some point? Also, is it something that you think is specific to Berlin, or is it something that is likely to happen again if we get a very st rong Mietspiegel elsewhere? That's my first question. My second question is about your rental business. You made the comment that it's very strong, it's even stronger than expected, and you don't grade the rental guidance vacancies up.
I was just wondering if you could follow up on that. Why do you think it's stronger than you said earlier? Thank you.
Valerie, once again, to reiterate on the Berlin Mietspiegel, as Luka said, we on purpose took a very moderate approach in light of the election in Berlin and the talks back at the time still on socialization, which is why we have not implemented the full potential of the rent index. That is by no means a write-down. This simply means that our rents increase a little less than it could have increased. This is not foregone. This is just a delayed implementation. What we call the irrevocable rent increase, which is actually sitting on the apartment, have slightly increased by that measure, and we will recoup that probably sometime next year. Is there a spillover risk situation to other regions? Clear answer is no.
We have a very heated up discussion in Berlin, but not in the same magnitude in any other region. On the second bit, overall on our rental business, look here again to confirm, we have, as you know, the big discrepancy between in-place rents and market rents. 2.5%-3% is what we achieve through the implementation of the rent index. The remainder coming from investments, and given that the latter is being scaled up, we are very comfortable with the 5% mark in 2028. Vacancy, yes, slightly up, but that is really investment driven.
Yeah, let me just come back to the comment here. My comment was referri ng to what I consider our core business, which includes the rental segment and the value add segment. The overperformance against our initial expectations at the beginning of the year is driven by the combination and in particular by the very strong performance of the value add segment. I hope that helps to put it into perspective. Rental runs like a clockwork, as Philip has said. All of the operational metrics are fully in line with what we expect. The small decrease of the rental growth due to the balanced implementation of the Berlin Mietspiegel is actually residing only in a relatively minor absolute amount of rental income reduction.
That's very clear. Thank you very much.
We now have a question from the line of Andrew McCreath from Green Street. Please go ahead.
Hi. Thank you for the presentation. Two from me too, please. Firstly, on operating expenses in the rental segment, you say this increased 5.8% in 1H, which implies just north of 9% for 2Q against rental revenue growth of 2.8% also for 2Q. My question is, what is driving this higher OpEx, and should we expect the operations margin to hold at current levels? That is the first question. My second is just coming back to development. Current volumes and notarizations are low. Appreciate the prior year carried a large land sale, but the full-year outlook has softened. Is this more a demand or a pricing problem? Then by extension, are you still confident in the develop-to-sell ramp to 2028? Thank you.
Andrew, thanks for your questions. On the operating expenses, we actually had a tax refund in Q2 last year of €7.5 million. If you were to exclude that, because this is not kind of typical business, we would have seen an increase in operating expenses of slightly below 3%. By that, you can see it's actually under proportionate to the growth we've seen in EBITDA. Nothing at all to be concerned about.
Just to complete this, the operations margin actually, if you look at H1, was quite strong, right? 82%. That was an increase over last year's H1. We are actually very happy with the trajectory. Plus, we see plenty of opportunities to further increase productivity. For example, through digitalization, we actually went through a complete open checkbook approach, zero-based budgeting now with the entire organization in the last few weeks. We have identified really good opportunities in total, adding up between 26 and 28 to around EUR 50 million, increasingly driven by digitalization and AI as well. We have obviously lots of tools in the arsenal to choose from to further increase our operating efficiency. On dev to sell?
No, I think that was on recurring sales was your second question. Here again, as I said, there were some spillover effects, 2024 to 2025. If you adjust for that, number of units is still down 20%, not 40%. As Luka said, it's kind of a back-ended business. Typically, where 37% on average over the past years have been actually captured in terms of earnings contribution in the last quarter. We see small signs of a reversion of trend. If I look at reservation rates in the past weeks, which make us comfortable that this segment is gaining pace.
Just to complete this, because I think you had a question on the numbers of notarizations in development to sell, to just make this round. Yes, you are absolutely right. We saw obviously soft demand in the first half year in the private investor business as we had highlighted in the second half. This is historically picking up a bit, the main contribution for the second half, that's again, a different seasonality than we had seen last year, is that we expect now a few land sales plus a global exit transaction, which if it comes as expected, would then obviously change the picture for H2 significantly. Obviously, there is some risk in that. That's why we have alluded to that risk in our prepared remarks.
Okay. That's very helpful. Thank you.
The next question comes from the line of Neil Green from JP Morgan. Please go ahead.
Hi there. Thank you for taking my questions too, please. Just following up a bit on the recurring sales piece. The step up remains very strong, and I think Austria was a notable contributor in the first quarter. Just wondering, has that trend continued in 2Q, or have you seen demand kind of broaden out against some of your other markets, please? I'll do one question at a time. That's my first one, please.
Yeah. On recurring sales, it's in Austria, unchanged picture. Here we are continuously seeing very high gross margins, slightly above 70%. By that you can see that Germany still is very profitable, but in relative terms coming along with lower margins. Here we have seen close to 30% in H1.
Okay. Thank you. Perhaps just looking forward to 3Q and 4Q, there's been a few mentions today about kind of one-offs that are skewed the prior comparable periods. The land sale, the tax refund, the phasing of the Mietspiegels. Is there anything we should be aware of over the coming quarters that might make the comparable look a bit different? Just wondering if there's anything coming up you can think about on the third and fourth quarter, please.
Yeah. There's normally only things that will make it look better, because as we have highlighted, the seasonality is different this year. First of all, because of the development segment and the back-end loaded land sales that we expect to do in Q4 there versus Q1. That's actually the biggest optical effect that I can think of.
Okay. Thank you very much.
We now have a question from the line of Véronique Meertens from Van Lanschot Kempen. Please go ahead.
Hey, good afternoon all. Thank you for taking my questions. First on disposals. When you announced the larger disposal target for 2028, I believe you mentioned that you didn't expect a big impact on your '28 targets on the back of selling at yields close to your marginal cost of debt. When I now look at the non-core Swedish part, you look at a gross yield of 7.6% and obviously this is gross, and in Sweden, net is a different number. Won't th at still have an impact on your '28 guidance if you sell such a significant part of non-core assets? That's my first question.
Okay. Can you give us the second one so that we can distribute?
Yeah. Of course. My second question is, you mentioned that the sort of like the relationship between your recurring sales and development, if H2 doesn't perform as well, that you might not reach the upper end of your adjusted EBIT targets, but you would reach the adjusted shareholder earnings target at the upper end. That kind of implies a negative correlation. Does that then also imply that these two business lines are actually dilutive on the adjusted shareholder earnings, or how should we interpret this?
Second question, no, they are not, obviously. In that scenario, the mix would obviously be different than originally anticipated. As I tried to explain, when you take a look at our taxes, we have been guiding as part of our guidance for EUR 280 million to EUR 300 million in taxes. H1 was only EUR 89 million, the reason that it declined over last year was actually the softer progress on those two segments. Of course, they are still profitable, but they generate a higher share of taxes. 60% of our total taxes are related to the sales segment, only 40% to the core business of rental and value add. Therefore, the more the mix is skewed towards our core business, the better it is then from a relative tax exposure perspective.
Therefore the impact of a shortfall in the recurring sales or development segment against expectations at the same time, better performance of our core segments, as I explained in H1, they have actually been doing slightly better than we originally planned for, is then obviously a better contribution to adjusted shareholder earnings. That does not mean that this is not a valuable contributor to ASE on an absolute level. On the disposals?
Look, on the disposals, keep in mind that we have all along accounted for a disposal of our non-core portfolio previously at EUR 2 billion. That was forming part of our long-term guidance. You are right. We now put on top some EUR 800 million, which come at somewhat higher gross yields. If you make the math, it is not significantly changing the picture if you assume that this is not sold in one go but over time. It is not changing the view we take on the outlook we have given for 2028.
Thank you. Sorry, follow up on that first question because I still do not fully understand. If they were profitable, which means that after taxes there are still earnings, the more your recurring sales and develop ment business perform, the higher the Adjusted Shareholder Earnings should be, right? If there is actually something left after taxes.
The point that I try to make is that the way how our core business is performing, if it continues to perform like we expect it will in the second half year, you would add to that a good performance in recurring sales and in development in line with the expectation, unaffected by the macro environment, we would actually have a very good shot at landing in very attractive territory. I think the two statements do not contradict each other. It is all a matter of the relative positioning, and where we see our businesses landing. There are obviously in the past were scenarios where Vonovia has landed outside of its guidance territory and has realized upside. That is not something that we are planning for in light of the performance of the two sales segments.
That is perhaps what helps to bridge the conundrum.
In other words, if H2 is very strong and you reach more of the upper end of the Adjusted EBT guidance, you would actually beat the Adjusted Shareholder Earnings guidance. Is that how I should interpret it?
I think we're saying the same things. We said as well that in this year, this is not likely to happen given the macro environment.
Okay. Thank you.
We now have a question from the line of Paul May from Barclays. Please go ahead.
Hi, guys. Thanks for taking questions. Two from me, as with everyone else. Just wondered what makes you confident in reporting an increase in your gross multiple or lower gross yield in both Germany and Austria over the quarter? Just considering obviously the move in rates 20-40 basis points on swaps and bunds. Just trying to reconcile that move in the yield or the multiple with the overall valuation increase. If you take just the move in the multiple, it's about a 0.5% to 1% move in the valuation, and the rental growth was 3.6%. Combined, you're at sort of 4%, 4.5%, and yet you only reported a 1.1%. What piece am I missing as to the -300 basis points versus the metrics that you've shown in terms of the valuation would be great.
On the second one, obviously you're seeing increased CapEx, both maintenance investment and materially ahead of the increased value add EBITDA. Just confirming that with the spen d that you're making, there's effectively a one-off benefit in the value add, and then next year you have to make the same or more spending in order to increase the value add business. Just obviously referencing the guidance as well of the increased investment for the increased value add would be great. Thank you.
Paul, on your first question on valuation. It's always important to note that this is not some fancy Excel modeling we are making, but that we are actually relying on transactional evidence. The transactional evidence, and you can see that in the publications which are being put out by CBRE, Jones Lang LaSalle, Savills, you name it, are showing stabilized yields despite higher financing costs. Stabilizing yields means that what we are saying all along, that rental growth is essentially translating itself into value growth. Your assumption simply is not how the valuation exercise works. We are relying on what we see in the market. We are not relying on modeling exercises. On your second point, CapEx and how it benefits our craftsman organization. Look, you have various ingredients.
You have kind of a flattish development in maintenance charged through the P&L or capitalized. Here we have a fairly high in-sourcing ratio, which allows us to essentially reduce inflationary pressure, and that is something you will continue to see in the coming years. What you have on top is energetic refurbishment. That is something we are ramping up. That is, again, something which is more higher yielding than our implied gross yield, if you look at our stock price, because we are talking about 6%-7% yield on co st. We are talking about an IRR of 10%. That is going to increase, and that again will benefit our craftsman organization. I expect that trend to continue, which is twofold. One, based by volume, but second, also based by more productivity we are seeing.
Just to come back, if I can, on the first one you mentioned about the yields being flattish. I think CBRE moved yields up in July 26th, I appreciate you could argue that's after the valuation date. Also your yield compressed, not stayed stable. If I'm right in understanding, a lot of the transaction volume that's been happening has been happening at higher yields. If you look at your non-core as well, that's all at higher yields than the core portfolio. Flat yields in the transactions would imply a higher yield than your investment portfolio, and yet your yield compressed. That's the bit I'm struggling to understand in terms of the seem to be slightly diverging movements. Apologies. If you want to provide some evidence on it, then that'd be great offline.
Yeah, we can take that offline. Again, Paul, we have the luxury of being in fairly liquid markets because we are in metropolitan areas, and we see a number of transactions happening. That is not only for higher yielding stuff. That is also lower yielding stuff, which is simply attracting a different investor universe, like family offices who take a different stance on how they look at businesses. They are less relying on cash yields. They are more relying on stable value outlook. Happy to take that offline and talk to you a bit more in detail through the mechanics of how that valuation works.
Yeah, that'd be perfect. Thank you.
The next question comes from the line of Neeraj Kumar from Barclays. Please go ahead.
Afternoon, everyone. Two questions on my side. First one, can you help us understand your thought process around hybrid instruments, if you see them as attractive instruments, especially in light of your ambition to exercise call options on Ap ollo stakes and deleverage? My second question is with regards to your Vesteda stake. Can you please provide some color around what is the discount to NAV at which you are expecting your stake to be redeemed?
Yeah. First question I'm happy to take. I'm not at all a friend of hybrids. For me, a hybrid is a debt product. If I consider that as a debt product, it comes along with a high coupon. If at all a hybrid might be necessary to manage rating, that is absolutely not the case because we are in very safe territory for our BBB+ rating. Actually, if we continue with our deleveraging plan, there's actually risk to the upside, if at all. Vesteda.
I can quickly cover this. We actually came away with a very positive agreement with our fellow shareholders at Vesteda. As I explained, we are now in the preferred redemption road, so that means Vesteda will prioritize our redemption. We have agreed on a modest discount actually of around 8% to accelerate this. I think that's a very g ood outcome and should allow us at the beginning of next year to already redeem that stake.
Got it. Thank you.
The next question comes from the line of Jochen Schmitt from Metzler. Please go ahead.
Thank you. Good afternoon. I have two quick questions, please, both on slide 24 on the development business. Firstly, on the development to hold pipeline and the progress in construction. How many apartments may we expect to be finished next year? Second question, same topic. The pipeline you marked as development to hold has decreased over the quarter when I compare the quarterly presentation materials. Could you give any explanation for that? Thank you.
I think we need to check development to hold. Let me put it differently. We have annual CapEx in Germany and Austria of around EUR 200 million-EUR 250 million in development to hold. If you account, including the value of the land plot of three and a half to EUR 4,000 per sq m for 65-70 sq m on average, that gives you roughly the num ber we should complete on an annual basis. On the pipeline, there has been no change to my.
Are you referring to the short-term pipeline?
It is on slide 24.
In the right bottom corner? Is that what you're referring to?
On the left-hand side, actually.
The 65k units we have disclosed for quite some time now. There's no change.
No, the 21% development to hold, including floor additions. Maybe there has been a switch to the short-term pipeline. We can also follow up on that slide if you want to.
That's normally what you need to take into account. We can take this offline, it's obviously a rolling concept, every quarter we push another element from the midterm to the short-term pipeline to the work under construction, and that may be part of the answer. Let's take it offline and check with you, yeah?
Okay. Thank you very much.
We now have a question from the line of Marc Mozzi from Bank of America. Please go ahead.
Thank you very much. Good afternoon, everyone. Just one question from me, which is just a follow-up on Bart and Valerie's question regarding Berlin rental growth. To what extent is your outlook influenced by the regulatory framework that caps rent increase at 15% over a three-year period? If I do the basic math, the limit we find on an annual basis is 4.8% precisely. Just wanted to know if it's just a consequence of regulation or if there is only a political angle behind that number, and if that the case, how did you come to that 4.8%, if you have any rationale behind? Thank you.
First of all, Marc, when we refer to the non-investment driven market rent growth of 2.5%-3%, that is precisely because of the rent cap legislation, which in our markets do only allow us to increase rents by 15% over a three-year time horizon. Given that approximately 50% of our holdings are eligible to increases for the rent index, the other ones, because of fluctuation, because of energetic modernization, are already above what the Mietspiegel suggests. You are by 5%, but per annum divided by 2, so by 2.5%-3%, this is ho w we come up with that number. The headline number for Berlin Mietspiegel, by all means, you cannot apply that to our entire holding in Berlin. You can only apply that to roughly 50% of our holding in Berlin.
Correct. The 4.8% then as a result of the difference to the 6.9% is essentially driven by certain affordability related adjustments. For example, we have simulated that an average tenant of us in Berlin who lives in an average apartment of 60 sq m should pay typically around EUR 250 a year max more. That's exactly what we have achieved. Then it happens that this results in the 4.8% on an aggregate basis.
Thank you very much.
The next question comes from the line of Kai Klose from Berenberg. Please go ahead.
Hi. Good afternoon. I've got two quick questions on the adjusted EBT calculation regarding the change in the software depreciation and internal group profit losses. For the 13% in the depreciation and the 59% increase in internal group losses, just to be curious what's behind that. Thank you.
What happens from EBITDA to EBT is that we have some consolidation effects, and that almost exclusively relates to our craftsm an organization, because if we do work for maintenance, this is consolidated out towards the EBT.
This explains the depreciation of the internal group profits?
These are group profits.
Okay. The depreciation change?
The depreciation is on photovoltaic.
Okay. Thank you.
Yeah. In essence, let me add, we've had a lot of discussions on our earnings KPIs. We have introduced the adjusted shareholder earnings. Just by way of reference, this is nothing else but our formerly reported group FFO, but with a proper name now, but deducting for the depreciation, which for our photovoltaic business, we need to earn over time. I think it's the more honest way to look at things.
Awesome. Many thanks.
Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Rene for any closing remarks.
Thank you, Matilde, and thanks everyone for dialing in and joining this call. As always, if you have any follow-ups, you know where to find me and the team. Do feel free to ask. Luka, Philip, and I will be on the road quite a bit, especially in September and October, and we're looking forward to connecting with you at various opportunities.
I just wanted to say, Rene, first, I'm on vacation before I'm on the road. I need that vacation.
Which is fine, which is why I said September, October, yeah. We wish everybody summer break well deserved. That does conclude today's call. As always, stay safe, happy and healthy, and do have a great summer. Speak soon. Bye-bye.
Thank you.
Thank you everyone. Bye-bye.
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