Vonovia Aktie

Ladies and gentlemen, welcome to the Vonovia SE H1 2026 Results Analyst and Investor Call. I am Mathilde, the Chorus Call operator. [Operator Instructions]And the conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Rene.

Thank you, Matilda, 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 the 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 2 questions for analysts to keep things crisp. With that, over to you, Luka.

Thank you, Rene, and hello, and welcome, everybody. So 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. 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 4. In Rentals, adjusted EBITDA increased by 3.5% to around EUR 1.27 billion despite around 5,000 fewer units year-on-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 sales. Putting that aside, both H1 and Q2 were higher than last year. Adjusted EBITDA [ totaled ] then 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 EBITDA 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 sales. 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 minus 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, but 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.

And then finally, the debt KPIs. Net debt-to-EBITDA was 14x LTV was 46% and ICR was 3.6x. 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 0.3x.

And with that, let me hand over to Philip for a closer look at the segment results.

Thank you, Luka, and also a very warm welcome from my side. Let me start with the largest segment, Rental on Page 5. As you can see, the Rental segment again delivered good EBITDA growth, and that's despite a smaller portfolio. Rental revenue increased by 3.4% to almost EUR 1.8 billion, and maintenance expenses were broadly stable while operating expenses increased by 5.8%, and that is reflecting the inflationary environment, but 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 underlying the resilience of the business. As you can see, vacancy remained low with an end-of-period vacancy rate of 2.3%, hence 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, but this is related to the timing of the Berlin Mietspiegel, which we were implementing in Q3 this year. And you also have to recognize that in 2025 in H1, we implemented already the Mietspiegel in Reston, large holding we have there. So 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% and new construction contributed 0.3%. So Rental overall remains a highly predictable, resilient and cash-generative business for Vonovia.

Moving on to Value-add, that is on Page 6. 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%, and that was mainly driven by the energy business, while internal revenues increased by 9% and that was supported by the higher investment volume that benefited our craftsmen organization.

If you look at the operating expenses, they increased by 6.5% and that is clearly below the revenue growth. And 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 and 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 agreement we signed in Q1 for the serial production of our heat pump cubes and for serial modernization support the continued ramp-up of this segment. So in H1 2026, the Value-add segment represented around 9% of adjusted EBITDA total. For 2028, our objective remains a contribution of 9% to 12%. So 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 7 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. And as we explained after Q1 last year was supported by a larger number of signings made at the end of 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, and the fair value step-up increased materially to 44% compared with 29% in H1 2025. And this very strong margin concerns a bit 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 as an aggregate acquisition multiple of 19x, and this is an important component to selectively acquire unrefurbished 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% to 8%.

On development, that is on Page 8. This segment continued to operate in a challenging market environment, but 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 were 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. And 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 you leave that aside, we would have seen growth in this segment, but 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%.

Now moving to leverage, that is on Page 9. Here, key messages unchanged, our road to lower leverage is built on an actionable plan. The backdrop is clear. The interest rate environment remains elevated. At the same time, we have the ambition to deliver more than mid-single-digit earnings growth in the medium term. And these 2 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. So these are timing effects and do not change the general direction of travel. If you compare year-over-year, all 3 debt KPIs improved and our target for year-end 2028, again, remain unchanged, LTV of around 40%, net debt-to-EBITDA below 12x, and an ICR comfortably above 3x. The path to get their rests on several drivers, obviously, first, rental growth is sufficient to cover increasing financing expenses. Second, the nonrental business drives near-term EBITDA growth; and third, organic deleveraging from rent growth translates into value growth in a stable yield environment. And fourth, the remainder 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 8 years and an average euro [indiscernible] of around 3.2%, and 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 6 outstanding notes maturing in 2027 and 2028 and redeemed the 2026 maturities, and 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.

Now on Page 10, valuation. Here, 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 23x, and the initial gross yield was 4.3%.

For the German portfolio, the value per square meter, including [ rent ] 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, so 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, and that is according to CBRE and Jones Lang LaSalle with higher volumes actually in the second quarter. And 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 to 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.

And with that, let me hand back to Luka for further information on our disposal activities.

Yes. 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 3 main components: first, noncore assets and nonstrategic minority positions. In Germany, we have a remaining noncore 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 noncore.

In H1, we realized around EUR 330 million of noncore 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 20%, 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 disposals from our core portfolio, including Sweden as well as land sales. These disposals will then 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 deliver, 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.

And then 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 to 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 towards 2028, will largely depend on disposal volumes as well as the decision and economics around the Apollo call option.

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.

So 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 nonrental businesses provide additional growth opportunities over the medium term.

And with that, Rene, back to you for Q&A.

Thank you, Luka. Thank you, Philip. Martina, if you can open up the Q&A for us, please.

[Operator Instructions] The first question comes from the line of Bart Gysens from Morgan Stanley.

Bart Gysens from Morgan Stanley. I have 2 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. But we're seeing like you hinted, right, that some of these nonrental EBITDA initiatives are going more slowly. At what point does that -- it takes some time to ramp up some of these, particularly the homebuilding activities, I guess, at what point does this jeopardize the 2028 objective? And to what extent does that matter for leverage? That's my first question.

And then my second question is on the Berlin -- I appreciate it's a hugely sensitive topic. But can you help us understand the initiatives 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 will you -- 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?

Yes. Thanks a lot, Bart. These are obviously 2 very relevant questions. So happy to address them. Let me start perhaps with the Berlin Mietspiegel. So 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 our social affordability but obviously, also a reasonable increase that allows us to show in 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. So it will be implemented at a later stage. But for this round, we found this to be a good equilibrium and a good balance. So I hope that explains on what we're doing there.

In terms of the guidance and the impact of nonrental activities, I mean, let me start with 2026 because there, it's relatively straightforward. So we just came away from in H1 in which, in aggregate, we have actually performed very much in line with our expectations, actually even slightly ahead due to a 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 in 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 like against that. Still in both segments, we have also on the expected volume closed less.

And now in the second half year, we definitely expect 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 reservations have been actually quite good in July, which is normally a quieter period. But obviously, Q4 in recurring sales is always the biggest quarter historically over the course of the last 4 years, it has been hovering just below 40% of the annual volume. So it's an important quarter and that's obviously some uncertainties 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 e-mail inbox and look to the quarters every day, there's something new happening to 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. And that obviously introduces also some uncertainties. 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 2 segments might come in slightly lower than what we currently have in our plan, and 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. And therefore, we would 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. So we are preparing additional condos to make them available, and 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.

And on development, nothing stops. I mean 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, and 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.

The next question comes from the line of Thomas Rothaeusler from Deutsche Bank.

Two questions from my side. First is on rental growth. I mean 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? And basically, do you stick to your optimistic 5% plus rent growth guidance in a long run. And the second one is on disposals, specifically the EUR 330 million German noncore assets. Just wondering if you could provide more color please on the type of assets and pricing and who are the buyers?

Yes. Let me start quickly with the rental growth, honestly speaking, on these smaller packages of noncore 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 1 quarter to another or from 1.5 years to another. As Philip has already alluded in the specific case of our latest 3.6%. It's due to the combination of 2 effects. In 2024, we had the implementation of the last Berlin Mietspiegel. And remember that our like-for-like growth numbers are always rolling 12 months backward looking. So 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 its implemented only with effect from Q3.

And 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. And as a result of that, the compounding effect of having those 2 Mietspiegel 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 we come to the 4% expectation as well for the full year. And the 5% for 2028 remains absolutely unchanged. We know that we have a big wave of catch-up in Germany to the market comparable rents that we still can realize due to the that we have in our regulatory regime that remains completely unchanged.

And 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.

Yes, the EUR 330 million you're referring to, these are really smaller packages mix residential, but also some commercial predominantly office and it's typical institutional buyers, we've seen. So the picture remains in the German transaction market that the vast majority of transactions are really smaller sizes.

We now have a question from the line of Thomas Neuhold from Kepler Cheuvreux.

My 2 questions would be, firstly, on the noncore 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 noncore potential disposal pipeline? That's the first question.

You want to give us your second 1 as well?

Yes, sure. And the second 1 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 and considering that the higher interest rate environment might you change the mix going forward?

I can start with the noncore portfolio and development mix, perhaps, Philip, you can then takeover. The noncore portfolio is mainly relating to portfolios that are outside of the core of our urban centers. So our portfolio, as you know, are quite concentrated in Sweden, across Gothenburg, Stockholm and [ Malmo ] but we also have portfolios outside and those represent pretty comparable actually to what we have in our German noncore portfolio, the Swedish part of the noncore portfolio.

We did this for the first time, but 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.

Yes. On your second question, Development, I mean 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's biased towards also a unit-by-unit sales, but you also have some global exits included to institutional buyers.

The next question comes from the line of Valerie Jacob from Bernstein.

I've got a couple of questions. My first 1 is a follow-up question on Bart's question about Berlin. So I mean I understand you're only going to take 4.8% this time because you want to be balance and appropriate. But what I'm not sure about is, is it a write-off or do you think you can capture the rest at some point? And 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 strong Mietspiegel elsewhere? That's my first question.

And my second question is about the rental business, because you made the comment that it's very strong, it's even stronger than expected. And you don't get the rent had guidance vacancy is up. So I was just wondering if you could follow up on that. Why do you think it's stronger than you thought earlier?

Yes. And 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. And this is by no means the write down. This simply means that our rents increased a little less than it could have increased.

Now this is not forgone. This is just a delayed implementation. So 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.

Now on the second bit overall on our rental business, look, here, again, to confirm, we have, as you know, the big, big discrepancy between in-place rents and market rents and 2.5% to 3% is what we achieved with the implementation of the rent index. The remainder coming from investments and given that the letter is being scaled up, we are very, very comfortable with the 5% mark in 2028. And vacancy, yes, slightly up, but that is really investment driven.

And just let me just come back to the comment here. My comment was referring to what I consider our core business, which includes the Rental segment and the Value-add segment. So 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. But Rental run like clockwork as Philip said, all of the operational metrics are fully in line with what we expect and the small decrease of the rental growth due to the balanced implementation of the bell in Mietspiegel actually resulting only in a relatively minor absolute amount of rental income reduction.

We now have a question from the line of Andrew McCreath from Green Street.

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. And my second is just coming back to development current volumes and notarizations are low, I 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? And then by extension, are you still confident in the developed to sell ramp to '28?

Yes, Andrew, thanks for your questions. On the operating expenses, we actually had a tax refund in Q2 last year of EUR 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%. And that you can see it's actually under proportionate to the growth we've seen in EBITDA. So nothing at all to be concerned about. .

Yes. And 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. So 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 and we have identified really good opportunities in total, adding up between EUR 26 million and EUR 28 million to around EUR 50 million, increasingly driven by digitalization and AI as well. So we have obviously lots of tools in the arts to choose from to further increase our operating efficiency. on debt to sell?

No, I think that was on recurring sales was your second question. Here again, I mean, as I said, there were some spillover effects, EUR 24 million to EUR 25 million. If you adjust for that, a number of units is still down 20%, not 40%. But as Luka said, it's kind of a back-ended business typically where 37% on average over the past years has been actually captured in terms of earnings contribution in the last quarter. Hence, we see small signs of a reversion on trend, if I look at the reservation rates in the past weeks, which make us comfortable that this segment is gaining pace.

And just to complete this because I think you had a question on the numbers of notarizations in development to sell to just make this around. Yes, you're absolutely right. I mean we saw obviously a 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, but the main contribution for the second half, and 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.

The next question comes from the line of Neil Green from JPMorgan.

Two, please. So just following a bit on the recurring sales piece. So 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? And then I'll do 1 question at a time. That's my first one, please.

On recurring sales, it's in Austria, unchanged picture. Here, we are continuously seeing very high gross margins slightly above 70%. So 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. And then perhaps just looking forward to 3Q and 4Q, the mean if you mentioned today about kind of one-offs that are skewed to prior comparable periods, the land sale, the tax refund, the phasing of the Mietspiegel, is there anything we should be aware of over the coming kind of quarters that might make the comparables look a bit different. Just wondering if there's anything coming up you can think about in the third and fourth quarter, please?

Yes, normally only things that will look -- 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.

We now have a question from the line of Veronique Meertens from Van Lanschot Kempen.

First, on disposals. When you announced the larger disposal target before 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. But when I now look at the noncore Swedish part, you look at a gross yield of 7.6%. And obviously, this is gross. And in Sweden, that is a different number. But wouldn't that still have an impact on your '28 guidance if you sell such a significant part of noncore assets? That's my first question.

Can you give us the second 1 so that we can distribute.

Yes. Of course, of course. So 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 EBT target, but you would reach the adjusted shareholder earnings target at the upper end. So that kind of implies a negative correlation. So does that then also imply that these 2 business lines are actually dilutive on just the shareholder earnings? Or how should we interpret this?

Second question, no, they are not obviously. But 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. And the reason that it declined over last year was actually the softer progress on those 2 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.

And therefore, more the mix is skewed towards our core business, the better it is then from a relative tax exposure perspective, and therefore, the impact of a shortfall in the recurring sales or development segment against expectations at a -- 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 adjust the shareholder earnings. That does not mean that this is not a valuable contributor to [ ASE ] on an absolute level.

On the disposals?

If you look on the disposals, keep in mind that we have all along accounted for a disposal of our noncore portfolio previously at EUR 2 billion. So 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. But if you make the math, it's not significantly changing the picture if you assume that this is not sold in 1 go. But over time, so it's not changing the view we take on the outlook we have given for 2028.

Okay. And sorry, a follow-up on that first question because I still don't fully understand because if they were profitable, which means that after taxes, there are still earnings, then the more your recurring sales and development business perform, the higher the adjusted shareholders should be right. If there's actually something left after taxes?

Yes. The other -- the point that I tried 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. And you would add to that a good performance in recurring sales and in development in line with the expectation, unaffected by the macro environment then we would actually have a very good shot at landing in very attractive territory.

So I think the 2 statements don't contradict each other. It's all a matter of the relative positioning and where we see our business is landing. And they are obviously in the past were scenarios where Vonovia has landed outside of its guidance territory and has realized upside, that's not something that we are planning for in light of the performance of the 2 sales segments that perhaps what helps to bridge the conundrum.

Okay. So in other words, if H2 is very strong and you reach more of the upper end of the adjusted EBT guidance, then you would actually beat just the shareholder earnings guidance. Is that what I should interpret it?

I think we're saying the same things. But we said as well that in this year, this is not likely to happen given the macro environment. .

We now have a question from the line of Paul May from Barclays.

Two for me as well. I 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 rate, 20 to 40 basis points on swaps and bonds I'm 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 0.5% to 1% move in valuation and the rental growth was 3.6%. So combined, you're at 4%, 4.5%, and yet you reported a 1.1. What piece am I missing as to the minus 300 basis points versus the metrics that you've shown in terms of the valuation would be great.

And then on the second one, obviously, you're seeing increased CapEx, both maintenance and investment and material had the increased Value-add EBITDA, just confirming that with the spend 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 as the increased investments for the increased Value-add would be great.

Yes. Paul, on your first question on valuation, it's always important to note that this is not some fancy axle modeling we are making, but that we are actually relying on transactional evidence, and the transactional evidence, and you can see that in the publications, which are being put out by CBRE, Jones Lang LaSall, [indiscernible], you name it, are showing stabilized yields despite higher financing costs and stabilizing yields means that what we are saying all along, that rental growth is essentially translating itself into value growth.

So 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, I mean 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 yielding -- higher yielding than our implied gross yield. If you look at our stock price because we are talking about 6%, 7% yield on cost, we are talking about IIR of 10%, and that is going to increase. And that again will benefit our craftsmen organization.

So I expect that trend to continue, which is twofold, once based by volume, but second, also based by more productivity we are seeing.

So just to come back, sorry, if I can, on the first one, you mentioned about the yield being flattish. I think CBRE moved yields up in July '26. I appreciate you could argue that's after the valuation date. And also your yield compressed not stayed stable. And 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 noncore as well, that's all at higher yields in the core portfolio. So flat yields in the transactions would imply a higher yield than your investment portfolio yet your yield compressed. That's a bit I'm struggling to understand in terms of the -- seem to be slightly diverging movements that -- apologies if you want to provide some evidence on it, then that would be great offline.

Yes, we can take that offline. But Again, Paul, it's -- we have the luxury of being in fairly liquid markets because we are in metropolitan areas. And we see a number of transactions happening. And that is not only a higher yielding -- for higher-yielding stuff that is also lower-yielding stuff, which is simply attracting a different investor universe like family offices will take a different stance on how they look at businesses. They are less relying on cash yields they're more relying on stable value outlook. But happy to take that off-line and talk to you a bit more in detail through the mechanics of how that valuation works. .

the next question comes from the line of Neeraj Kumar from Barclays.

Two questions on my side. So first one, can you help us understand your thought process around hybrid instruments, if you see them as attractive instruments, especially in your ambition to exercise call options on Apollo stakes and deleverage? And my second question is with regards to your Vesteda stake. Can you please provide some color on what is the discount to NAV at which you're expecting to take to be redeemed?

Yes. First question, I'm happy to take. I'm not at all a friend of hybrids. For me, a hybrid is a debt product. And if I consider that as a debt product, it comes along with a high coupon. And if at all, a hybrid might be necessary to manage rating. That is absolutely not the case because we are in a very, 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.

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. And that means Vesteda will prioritize our redemption, we have agreed on a modest discount actually of around 8% to accelerate this. And I think that's a very good outcome should allow us at the beginning of next year to already redeem that stake.

The next question comes from the line of Jochen Schmitt from Metzler.

I have 2 quick questions, please, both on Slide 24, the Development business. Firstly, on the development to hold pipeline and the brokers in construction, how many apartments mainly expect to be finished next year? And second question, same topic, the pipeline earmarked as development to hold has decreased over the quarter when I compare the quarterly presentation materials. Could you give any explanation for that.

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 EUR 3,500 to EUR 4,000 per square meter for 65, 70 square meter on average, that gives you roughly the number 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 2.

In the right bottom right bottom corner. Is that what you're referring to?

On the left-hand side, actually.

The 650 units we have disclosed for quite some time now. .

The 21% development to hold, including floor additions, but maybe there has been a switch to the short-term pipeline. We can also follow up on that slide because...

That's normally what you need to take into account. We can take this off-line, but it's obviously a rolling concept. So 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. But let's take it offline and check with you, yes.

We now have a question from the line of Mark Mozzi from Bank of America.

Just 1 question from me, which is just a follow-up on Bart and [ Valaris ] question regarding Berlin rental growth. To what extent is your outlook influenced by the regulatory framework that cap rent increased at 15% over a 3-year period. Because if I do the basic math, the limit with on an annual basis is 4.8% precisely. So I just wanted to know if it's just a consequence of regulation or if there is only a political angle behind that number? And is that the case? How did you come to that 4.8% if you have any rationale behind it?

I mean, first of all, Mark, when we refer to the noninvestment driven market rent growth of 2.5% to 3%, that is precisely because of the rent cap legislation, which, in our markets to only allow us to increase rents by 15% over a 3-year time horizon. And 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 5% per annum divided by 2. So by 2.5% -- 2.5% to 3%, and this is how we come up with that number, and 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. And 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 live in an average apartment of 60 square meters should pay typically around EUR 250 a year max more and that's exactly what we have achieved. And then it happens that this results in the 4.8% on an aggregate basis.

The next question comes from the line of Kai Klose from Berenberg.

I've got 2 quick questions on the adjusted EBT calculation regarding the change in the [indiscernible] depreciation and [indiscernible] profit losses in the depreciation and the 59% increase in interim proposes just to be curious what behind that.

What happens from EBITDA to EBT is that we have some consolidation effects and that almost exclusively relates to our craftsman organization because if we do work for maintenance, this is consolidated out towards the EBT.

And this explains the depreciation of [indiscernible].

The depreciation is on photovoltaic. I mean in essence, let me add, I mean, 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 formally reported group FFO, but with a proper name now, but deducting for the depreciation, which for our [indiscernible] business, we need to earn over time. So I think it's the more honest way to look at things.

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, Matilda, 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 in various -- or at various opportunities. .

Just want to say, Rene, first, I'm on vacation before I'm on the road. I need that vacation.

Which is why said September, October, yes. I 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 so. Bye-bye. Thank you.

Thank you, everyone. Bye-bye.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.

Ladies and gentlemen, welcome to the Vonovia SE Q1 2026 Results Analyst and Investor Call. I'm Moritz, the Chorus Call operator.

[Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast.

At this time, it's my pleasure to hand over to Rene. Please go ahead.

Thank you, Moritz, and welcome, everybody, to our update call. The speakers today are Luka Mucic, our CEO; and Philip Grosse, our CFO. They will briefly present the main messages for today before we open up for Q&A where both will be very happy to take your questions.

With that, over to you, Luka.

Yes. Thank you very much, Rene, and hello, and welcome, everybody, from my side. Let me start with a brief summary of the main takeaways from the first quarter.

We have had a good start with a strong performance in our core operations. Adjusted EBITDA grew 6.3% in our Rental segment to EUR 630 million, even though we had about 4,000 fewer units compared to the same time last year. This very positive development was underpinned by 4% organic rent growth, around 98% occupancy and more than 99% rent collection. Unsurprisingly, our largest segment was once again extremely robust and remains on its predictable long-term growth trajectory.

In our Value-Add segment, we also delivered compelling growth with 30% more than last year for an EBITDA of EUR 50 million. This increase was mainly driven by a higher contribution from our Craftsmen organization as well as the continued growth in the energy business. We view this segment as a key differentiator vis-a-vis the broader peer universe.

Now this clearly demonstrates our momentum, but we won't stop here. You may have seen the press releases where we entered 2 strategic partnerships for the mass production of our innovative heat pump tubes and the rollout of our serial modernization for a faster and more efficient energetic refurbishment of our assets. Both initiatives will further support our growth ambitions in the nonrental business.

Looking at the market fundamentals, they remain supportive, and we are confident not only for the remainder of this year, but also with a view towards our 2028 growth and deleveraging objectives. Our Rental business remains a rock-solid foundation, and our nonrental activities will continue to accelerate their momentum.

And with that, over to you, Philip, for a more detailed look at our results.

Thanks, Luka, and also a very warm welcome from my side. As Luka covered already our Rental and Value-Add segments, let me turn directly to Recurring Sales, and I'm on Page 3.

As you can see, we recorded a very high margin of 42% in first quarter in Recurring Sales. And while disposal volume was lower than the previous year, we still delivered a very comparable EBITDA contribution. What you need to bear in mind when you compare the volumes year-over-year is that last year, we had an unusually high number of transactions because of spillovers of signings, which we made in Q4 2024 that only closed in early 2025.

And if I take the delta for the respective years, it's roughly 250 units and explains most of the differential between those numbers. In any case, Q1, as you will recall, is traditionally lighter in terms of volume, and we clearly anticipate a ramp-up as the year progresses. For 2026 as a whole, we are confident to grow our performance compared to last year. And as you know, we are targeting 000 to 3,500 units in volume overall for the entire year of 2026.

Moving to the fourth segment, Development. Optics are not exactly pretty at a first glance, but you have to remember that of the EUR 75 million EBITDA for the entire year of 2026, EUR 53 million, and that is 70%, came in Q1, and that was because of the closing -- the very profitable closing of a large land sale. So last year was very, very Q1-heavy, whereas for 2026, again, we expect a progression as the year goes on. For the full year 2026, we are confident in our ability to deliver strong growth from the disposals of Development projects, plus also still opportunistic land sales later in the year.

When we roll it all up to adjusted EBITDA total, we see 1.4% growth to EUR 712 million. Adjusted for the phasing effect related to Q1, I've just explained, adjusted EBITDA total grew by almost 10%. And I'm happy to echo what Luka said, we feel very much on track towards our 2026 guidance and our 2028 growth and deleveraging objectives.

Moving on to adjusted EBT and adjusted shareholder earnings. Main driver between EBITDA and EBT, of course, are interest expenses, and they were around EUR 20 million higher in Q1. 2026. The reported adjusted EBT per share number is 7% below the prior year. But again, to allow for better comparability, EBT per share was up almost 4% when adjust for the Q1 2025 land sale.

Adjusted shareholder earnings are different from adjusted EBT because of, as you know, 2 line items, taxes and minorities, on which we now provide full transparency also our outlook. Taxes were EUR 8 million lower in Q1 2026. And here you can see the link between lower sales volume and lower tax expenses. As we have discussed in our last call, minorities increased as expected because of Q1 2026 includes the JV that we set up with Deutsche Wohnen domination agreement, whereas last year did not include that.

Similar to EBITDA and EBT reported numbers for adjusted shareholder earnings are a bit skewed in so far as the lighter EBITDA contribution from our sales-related segment distorts the underlying growth momentum overall. Here again, if you were to do the adjustment, you would come out at 3% growth year-on-year.

Bottom line we are very happy with the start into this year. The growth momentum is clearly there and evident in Rental and Value-Add, as Luka explained. For Recurring Sales, Development, the phasing of last year versus this year might make it a bit harder to see. But here again, we are confident that as the year progresses, the growth in these 2 segments will become more evident as well.

A quick word also on operating free cash flow. When you compare first quarter last year with this quarter, there are 2 key differences. One is lower Recurring Sales volume that made up about EUR 50 million less contribution from that. And the other is around EUR 200 million less working capital, which is related to our investments in future growth by ramping up the portfolio investments and the acquisition of our [ Managed to Green ] portfolio. We said it all along, this very nice piece of business will require an initial capital ramp-up.

EPRA NTA in Q1 is traditionally less eventful in the absence of a portfolio valuation. That is why EPRA NTA per share was up only 60 basis points -- sorry, EUR 0.60 to -- no, 60 basis points, sorry, to EUR 46.57. We will as usual do a full revaluation of our portfolio with H1 numbers. And here, the positive development of fair values that we have observed during the last 18 months should also continue in H1 2026 as well.

Finally, on the debt KPIs, here we saw equally a continued trend in the right direction. Net debt to EBITDA down 0.1 turns to 13.7x and LTV down 30 basis points, standing now at 45.1%. ICR declined by 0.1x, but is and will remain in absolutely safe territory.

Next 4 pages are dedicated to our 4 segments. But since I already mentioned the main points, I will be quite brief and only add a few remarks regarding our Rental segment, and that is on Page 4. All operating KPIs are very much in line with what one would expect, and they highlight the rock-solid robustness of our largest segment.

When you look at the rent growth, I wouldn't put too much emphasis from one year to the next when we talk about the general trajectory towards approximately 5% by 2028. First of all, the challenge with comparing one year to the next is that the Mietspiegel, the rent index are always every 2 years. So you're not comparing the same underlying asset base. Second, 20 or 30 basis points one way or the other is nothing that changes the general direction of travel. And our expectation is for that non-investment-driven rental growth that it sits between 2.5% and 3%, which is the case.

In terms of growth trajectory, you need also to bear in mind that we call -- or what we call irrevocable rent increase claim, where the rent growth is already reliably in the pipeline but we have to wait for 3-year period to lapse before we can implement additional rental increases. This should always be seen in connection with the reported market rent growth. The Berlin rent index will be a good case point as we are still very much within those [ caps ] in Berlin. So whatever the outcome is going to be, we continue to expect some mid to higher single-digit growth. We will see rent growth from the rent index only in the subsequent years. I think I made that point also very clear previously.

And finally, one key driver is investments. And here we are still in the phase of ramping up, so no surprise that this is progressing over time.

And with that, Luka, back to you.

Yes. Thank you, Philip. So let me just spend a few additional words on our deleveraging ambitions then.

In our full year 2025 call and during the roadshow, we obviously had a lot of conversations around these more ambitious leverage targets that we unveiled at the full year and how we intend to get there. On Page 8 of our presentation, we have laid out the different drivers to hopefully create a better understanding.

First, the organic value growth from rent growth will carry us part of the way. And we expect this to get us to around a 43% LTV by 2028. The remainder will then come from disposals that will probably be around the mid-single-digit billion amount and come from 4 sources: noncore, nonstrategic minority positions, opportunistic core disposals and Recurring Sales. As we said in Q4 2025, in this respect, really everything is on the table, and our decision-making will be guided by what is the most sustainable way to delever and not solely by what is the fastest solution.

And since the LTV reduction will also be driven by an absolute debt reduction, so improvements not just in the denominator, but also a smaller numerator, the net debt to EBITDA will probably land quite a bit below the less than 12x that we target.

Then the guidance on Page 9 is our last page actually before we go to Q&A. As you can see there, we are confirming both our guidance 2026 and our objectives 2028, really well on track against both. In some of our investor conversations and also, if I recall it well, on the last earnings call, the question has come up, how we can deliver growth and delever at the same time. But I think it is actually quite straightforward.

When we talk about earnings growth, there are 2 levers to look at. First, EBT, where if we sell core properties, we will lose EBITDA, of course, but we will regain basically the same amount in terms of interest savings. Because when we retire debt with the disposal proceeds, we save around the 2% average cost that we pay today, plus another 2% that it would cost to refinance this debt at today's levels. So selling a 4% yield and paying debt down with it is basically a wash on the EBT level.

And second, when it comes to EBITDA, on an EBITDA level, we see some EUR 200 million EBITDA growth run rate per year. And if you extrapolate that, we're very well underway towards the upper end of our 2028 objectives. So there is clearly some buffer for disposals. Plus I think it is fair to assume that for a good chunk of the assets that we sell, we will actually continue to manage them under our B2B offering, and so some EBITDA remains in our accounts even after the disposals.

On top of that, not to forget that some of the nonrental initiatives are still in ramp-up, so their potential is not adequately reflected in the EUR 200 million EBITDA per year trajectory yet. And finally, the development towards an AI-first organization and the management on behalf of third parties outside of the sale of our own assets, both of which were not part of the original ambition, will bring additional EBITDA. So there is really a lot to play with and a lot to be excited about as we look to the future, and we couldn't be more confident.

And with that, we're happy to take your questions.

[Operator Instructions] And the first question comes from Jonathan Kownator from Goldman Sachs.

Two questions, if I may, please. The first question is on Development and Recurring Sales. What is the impact that you're seeing on Development from the lower construction costs? And for both indicators, do you have advanced indicators that can help us -- give us confidence essentially in the ramp-up of these activities throughout the year? That's the first question.

And the second question, on the Value-Add business. Can you give us a bit more details on the energy business, obviously, in the current environment? Are you seeing improved pricing? Are you seeing improved volumes? How big is going to be that business by 2028?

Yes. Perhaps I can take that. And if you want to add anything, Philip, please, by all means, do so. Development, I think you have to really segregate the results in the quarter and also what we expect for the full year between what we do in the ongoing operational business, which is characterized by the ramp-up of our new development projects, and then the additional impact from opportunistic land sales that Philip has already hinted at as well.

If you think back a year ago where we had the EUR 52 million actually of Development segment results, that was all driven by one big land sale. The rest and the ongoing business did not deliver anything yet. Now we're already at EUR 13.6 million, yes, admittedly not yet enough in a given quarter to make up for the significant one-off effect, but you can clearly see that the work is ramping up again. And this effect will, of course, continue and that growth, as we work to close additional projects, bring units into the sale, will continue to build up.

You have highlighted that we've worked hard on bringing down the construction costs. We are resorting more and more to serial means of construction. We see that already today we can deliver successful projects at a full cost of EUR 3,500 there. There would actually be even opportunities to go significantly below that if the municipalities play along with us and don't bring up exaggerated demands for additional architectural features and if we are able to stick to the standards.

Now of course, going forward, the question is what will the war in Iran do to the evolution of cost inflation due to higher energy prices and so on. I think in the short term, we are kind of shielded from that to a good extent because in the serial construction work that we do, we operate with frame agreements that lock in a significant part of the cost. Whether that would continue, so to say, for the long run, if a stubbornly high cost environment would continue to be around, that, of course, would remain to be seen. But for now, we are operating actually in a relatively controlled environment due to that strategic shift towards serial construction.

So we expect a supportive environment for the continued ramp-up of our activities in the full year. And then as Philip has noted, later in the year, we are also planning for additional land sales from the quite sizable land bank, as you know. And therefore, you should expect that the seasonality patterns this year will be very different from last year where we had essentially a Q1 and then kind of fading to a much lower contribution in the Development segment.

If you want to look at it from the other side, Q1 actually produced already half of -- or more than half of the entire operational contribution from the Development segment that we had in the entire year 2025, and that shows the really underlying growth in the operational business.

When it comes to the Value-Add business, I mean, as we are highlighting, we have strong growth in that segment, 30%. But you can see that actually this quarter, the external revenue contribution is significantly higher in terms of growth compared to the internal revenue contribution. Make no mistake, we also see great continued progress in our Craftsmen organization, and the ramp-up of EBITDA contributions there is quite impressive as well. But what you see in the external revenue growth, that is obviously driven by the energy business.

So wherever we have, in particular, the ability to offer our green energy directly produced from the rooftops with our photovoltaic installations, then increasingly coupled in the future also by the continued rollout of our heat pump cubes, it's a very attractive offer because it provides price stability at an attractive price point. And we have the ability to steer our tenants to this offer at the moments that matter, for example, with tenant -- new tenants moving in.

And what we see, therefore, is that at the moment, it's an offer that attracts a lot of interest for obvious reasons. And it will certainly be, in terms of our revenue contribution outside of the Craftsman organization, by far the biggest contributor to the growth that we expect until 2028. So if you think about the 9% to 12% that we want to have reached by 2028 as a relative contribution, a lot of that will actually come from the energy business.

And the next question comes from Bart Gysens from Morgan Stanley.

Yes, I had a quick question on the revaluation guidance that you gave. So in the past, you've guided on revaluation, but a meaningful part of that revaluation was CapEx. So when you say that you've been given -- or that you believe that the trend for the last 18 months will continue into first half '26, first of all, is that including or excluding the effect of CapEx? And secondly, is that your conviction as a management team or have you already been explicitly guided on this by your external values?

Yes, Bart. First, in our reporting going forward, you will always see both figures, including and excluding CapEx. My guidance was definitely referring to what expect in the net valuation result, so not accounting for the impact of valuation increases [ brought ] by CapEx. And here, as I said, we will see the trend continuing which we have seen over the past 18 months.

And if I were to take a full year perspective, I would not contradict to what our appraisers are saying that they do expect something in between 2% to 4% net valuation gains. That's kind of a short summary on that point.

Great. And then my other question is on Slide 4, the expense and capitalized maintenance. Last year we saw a small increase in the capitalization rate over the year, right? I mean, I think you went -- you spent about EUR 24 a square meter, up from EUR 22, and 40% of that was capitalized, versus EUR 30 the year before. I appreciate numbers over quarter cannot always be extrapolated, right? But we've seen the increase -- I mean, it's small numbers in the first quarter, but should we expect a higher portion of capitalization again '26 on '25? Or how should we think about that?

You will see most likely a slight increase in capitalized maintenance, and that is still the outcome of some backlog, so to speak. Because in the years of the crisis, we have been a bit more rigorous on keeping the cash in-house, but it's only a slight increase.

You know differently, I mean, this is probably you doing the math for the operating free cash flow where that number is embedded. And here, not considering the ramp-up in the net working capital, we kind of expect overall also a flattish development.

And the next question comes from Charles Boissier from UBS.

Two questions from my side. So going back to what you mentioned about Development, it sounds like you are very confident about 1 of the 2 drivers you mentioned, the sales of new build owner-occupied units. While I think understandably on the disposal of undeveloped land, it probably would be slightly less clear in the current environment in terms of the timing of those closings. So my question is, could you help us split these 2 drivers in terms of how much of the growth that you see in the Development EBITDA is from the land sales specifically?

Yes. Just in very rough terms, because I don't think we can give you a precise number here, we would certainly, for this year, not count on an impact on the land sales side that would equal the land sale of last year. So while we expect the contribution, would be smaller and, hence, more impact would come from the ramp-up of our operational activities in terms of growth, not in terms of the absolute contribution.

And Charles, let me just add one point here. When we talk about land sales, it's actually less the profitability we focus on because that obviously goes often to the disadvantage of future profitability. What we are focused on is releasing capital because we feel that the capital deployed in the Development space is still a bit too high.

Right. Very clear. And my second question is, so Luka, since joining, you have added about 200 employees, [ I calculated ]. And I just was wondering if you could talk about where you've been adding resources. I assume it's linked to some of the prior questions around the Development ramp-up and the Value-Add. But if you could just give us some insights into where you've been adding resources across the business.

Yes. So I have certainly not hired incrementally in the CEO area. I can assure you of that. The ivory tower stays nimble. Where we have hired is really in the Value-Add business and in particular, in our Craftsmen and facility management organizations, because this is where every new FTE is straight away from day 1, adding additional EBITDA.

This is where we have the tremendous growth that you have seen from the additional investments that we are bringing in. This is in facility management. We have also external clients to serve, and we're happy to say that these external clients also tend to expand their business with us over time. And that's where the growth is coming from in the central functions. There is actually no growth at all.

And the next question comes from Valerie Jacob from Bernstein.

I've just got a question about the comment you made of seeing no impact from the COVID in the Middle East on your business. One of your competitors this morning said they were seeing an impact on sales. So I just wanted to confirm in terms of your momentum in the Development business and in the Recurring Sales business, how is March compared to January and February in the number? I just wanted to confirm that you didn't see any slowdown there.

And my second question was in terms of the higher step-up in the Recurring Sales business, do you think this is sustainable? Or is it just a one-off in Q1?

Valerie, I go with that. I mean first of all, on the Development space, what we typically do before we start a Development project is that we secure the cost base, which is why for our running projects, we are not really facing any headwinds.

That having said, more broadly, we see increase in construction prices. So for everything, which is starting since the crisis in Middle East, we need to focus more on projects where we can earn the respective yields based on higher rent levels. So it's kind of specific markets in which we are forced into. Our confidence -- yes, Valerie.

I think I was more talking about the purchasing decision of the customer rather than the cost.

The purchasing decision is a function of yield requirements. And here we continue to see 4%, 4.5%, with a very strong bias towards individuals, which take kind of a slightly different approach. The market for global access is a bit more challenging because it's more relying on higher portion of financing.

And to be clear, on the financing side, even long term, we do see some impact on the Middle East crisis. We have seen elevated swap levels, roughly 40 basis points since the outbreak of the crisis. Spread levels remained more or less stable. But here for 10-year tenure, we are facing kind of 4.4% currently, and that is having an impact on that market.

Yes. And perhaps just to add on your question around the step-up, because I think that's -- you have not covered that.

Yes, on the step-up, we have seen very little activity actually in Germany, but that's kind of the seasonal pattern, not untypical, which is why the step-up is also a bit impacted by the higher -- the proportionate higher contribution of Austria, which is, as you know, going along with step-ups more in the region of 70%. So for the entire year of 2026, it remains with the guidance that we are targeting a step-up of 30% plus.

Sorry, just to conclude quickly on your March pattern question. We have not really seen a different pattern in March compared to January and February. I think the key feature in the quarter was just that we had a lower spillover of end-of-year transactions into the new year in '26 compared to '25, and that drove the differential and not kind of a meltdown in March, not at all.

And the next question comes from Thomas Rothaeusler from Deutsche Bank.

Two questions. The first one is on Berlin and the increasing noise on the expropriation topic. Basically, I would say, ahead of the election in September. Just wondering if you could share your thoughts on this. I mean, do you see a risk that this might really become effective law at some point?

Yes. Well, I can give you my thoughts. I actually expressed them already in different forums with the media. What we can absolutely expect is that the noise level will undoubtedly go up in the coming months. As you know, the left party is campaigning on it, underneath it. There is a civil campaign that is also very loudly campaigning for this and advocating for it.

Behind that is a problem that we take very seriously, and that is the shortage of available supply in the Berlin market plus some dysfunctional features in the market such as, for example, illegal subletting and other aspects that make this market very challenging. And we try to be part of the solution there, both with a very cost-conscious offer that we have in place. Actually if you have looked into the details, our Berlin average rent sits in the quarter at EUR 823. Our average across Germany is EUR 826. So we are clearly not part of the problem or part of the solution there. Plus we are also engaged in new development projects that are ongoing in the city of Berlin.

Do we believe that this will ever become effective law? Absolutely not, because we would consider what is currently proposed as evidently unconstitutional. So it would not meet the test of any challenge against that.

Might there be an attempt? Nevertheless, this is too early to call because it depends also a little bit on the political constellation there. But in any event, it's not going to be part of the solution. And of course, in all available forums, we and many others actually, trade associations, industry representatives are making that point. And I'm actually counting on this coming through loud and clear as well.

What this city and what the entire country actually needs is affordable new housing construction. And if you take away the very economic substance for making this viable endeavor, then you're only going to aggravate the issue and not going to improve anything. And that is ultimately also why something like this will not become an effective, valid law because it fails to attack the reason for its existence from the get-go.

My second question is on rental growth. I mean, recent market data suggests somewhat slower momentum recently. But could this put your long-term organic rent growth at risk?

The clear answer is no. What you're referring to, Thomas, is that we see in some markets a slowdown in market rents. And as a reminder, market rents really driven by gray market activity being on average twice as high as our in-place rents in very tight markets like Berlin, even 150% higher than our current in-place rents. So the visibility and outlook we gave on the noninvestment-driven rental growth of 2.5% to 3% remains -- and here, also keep in mind that already as of today, roughly 3% of irrevocable rent increase is sitting on each apartment on average.

So if we were to be allowed to monetize that instantly because there's no rent cap legislation, our guidance would not be 4.2%, but more like 7% plus. So very, very confident long-term visibility on that. And the other element, as you know, is investment driven, and that is a function of our investment program. So also very confident on that end.

If I may, just to complement this, you have also a detailed chart in the back part of the presentation that actually shows very clearly how large our opportunity is because of the significant gap of in-place rent towards reletting rent in particular, after the modernization and refurbishment of apartments.

This ranges actually anywhere from above 50% to more than 30% and shows you how far apart we are between our in-place rent and where the Mietspiegel and then the 10% above Mietspiegel, and then the additional modernization charges are. And that gives us obviously an abundance in terms of room to grow into over the coming many years. And that is totally independent from any short-term fluctuations on rents offered in the market.

And the next question comes from Andrew MacCreath from Green Street.

Two questions from my side, please. Firstly, just coming back to Development, and an extension, I guess, to Charles' question. You've guided to opportunistic land sales weighted to the back end of the year. But as you ramp up to your 2028 Development EBITDA target, how should we think about land sales as a recurring feature of the P&L going forward beyond there? Or will these just start to taper off? That is the first question.

Yes. Look, as Philip has said, we are still looking at the size of our land bank as something that we want to trim down a bit. Less in terms of a means to push short-term EBITDA realization, but more in terms of releasing some of the capital that is currently tied up in the total land bank, which is actually around EUR 3.5 billion, as we will not, in the foreseeable future, put all of that to bear as part of ongoing Development projects. So you should expect also in the future that some land sales may occur.

Having said that, in terms of the buildup of our Development business, you've seen year-over-year now that we went from 0 to the EUR 13.5 million in Q1 in terms of the underlying contribution. That will continue to ramp up, of course. And hence, you should actually think about that trajectory as the main source of growth in EBITDA. And the land bank sales is more something that we do primarily from a capital release perspective. And it may then, depending on where the values fit, result in additional EBITDA contributions. But that's not the starting point of how we look at land bank opportunities.

That's clear. And then my second question was on the Apollo call option. As I understand it, the window opens in May 2028. Can you maybe share your current thinking and give us a sense of where the strike sits today alongside annual cash distribution to Apollo? That would help us understand the trade-off between the impact to adjusted shareholder earnings and then also your deleveraging target.

A lot of questions in one. So first of all, we have 2 relevant Apollo transactions, one in spring, one later this year. We have, for the first time in 2028, as you rightly pointed out, the opportunity to call it. As a reminder, these are transactions which are based on a fixed IRR level, which is essentially capped around 8%, whereby the dividend is disproportionate to the equity share and is obviously counting towards that IRR threshold. And that means that the implied cost of equity financially is increasing over time and our incentive to call it back increases equally.

Now in 2028, it will be a very rational decision we are going to take in that we compare the opportunity cost of refinancing that minority stake. That is a function of our capital structure and how we -- how much progress we have made, whether we can refinance the equity with debt. If that is not the case, it's the cost of equity comparison. And if that should not be favorable, we have the optionality to hold on to the stake and that possibility to call the stakes back we have on a yearly basis thereon.

Now what is the impact? The impact is that, yes, it's kind of depending on how you refinance that. I mean for sure, you reduce complexity because you reduce the share of minorities. That in itself is a value and will be considered when making that decision. And the remainder is really a function of how that is going to be refinanced. At what terms? Is it equity? Is it debt? So it's either the share count, which increases for refinancing that equity or it's more interest expenses. But that really depends on the circumstances in 2028.

Ladies and gentlemen, this was the last question. I would now like to turn the conference back over to Rene for any closing remarks.

Thank you, Moritz, and thanks, everybody, for dialing in and joining this call. As always, if you got any follow-ups, you know where to find me and the team. Please do feel free to ask.

Luka, Philip and I will be on the road quite a bit now, and we're looking forward to connecting with you in the days and weeks ahead. That concludes today's call. As always, stay safe, happy and healthy. Bye-bye.

Ladies and gentlemen, the conference has now concluded, and you may disconnect. Thank you for joining.

Ladies and gentlemen, welcome to the Vonovia SE Full Year Results 2025 Analyst and Investor Conference Call. I am Sandra, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference will not be recorded for publication or broadcast.

At this time, it's my pleasure to hand over to Rene. Please go ahead.

Thank you, Sandra, and welcome, everybody, to our call. The speakers today are Luka Mucic, our new CEO; and Philip Grosse, our CFO. They will briefly present the highlights and the main messages for today. Before we open up for Q&A, where both will be very happy to take your questions. By way of a heads-up, we will continue with our policy of two questions per analyst, please.

With that, over to you, Luka.

Thanks a lot, Rene, and hello and welcome, everybody. This is obviously my first earnings call as Vonovia's CEO and hence, I'm very pleased to connect with you today not only regarding our full year numbers, but also on how we look at the development of our business in the near and medium-term future.

If I may, I will get us started with a high-level view of the key messages and then I hand over to Philip for a short recap of 2025. Quick spoiler alert here. The results were very much in line with expectations, in some cases, even slightly above. And this is actually one of my key initial observations. It's probably not really surprising, but seeing it from the inside, I'm thoroughly impressed with the remarkable robustness and upward trajectory of the operating business and with the platform Vonovia has built to run that business. Combined with the various non-rental activities that are all well underway, we are happy to confirm the guidance for 2026 and the outlook for 2028.

Our ambition is to grow adjusted EBT per share by a mid-single-digit percentage number per year over this period. For the medium-term, though, we are more ambitious. And I see considerable opportunities to propel Vonovia to the next level and generate accelerated growth towards the high single digits as we aim to further accelerate and expand our non-rental growth initiatives and productivity gains.

Much of this will be driven by 3 things: first, an AI-based true end-to-end process redesign for better performance and higher efficiencies; second, by leveraging our existing and largely digital interface to our customers for enhanced partner ecosystems to provide a wider range of services; and third, building a meaningful B2B business with our third-party management activities. A key prerequisite to chart this path for higher growth is a more ambitious stance on leverage. In addition to the organic deleveraging that is already underway, will now accelerate progress towards our new targets through a more proactive positioning towards disposals.

Another area of change is disclosure. We are now showing you bottom line shareholder earnings after taxes and after minorities, and we are providing more color around our non-German exposure and development activities. And speaking of disclosure, we have also simplified our dividend policy into a much more straightforward version where we pursue a progressive dividend policy that aims to pay out between 50% and 60% of adjusted EBITDA. For 2025, we will propose a dividend of EUR 1.25 to this year's AGM.

And with that, over to you, Philip, for our full year 2025 results.

Yes. Thank you, Luka, and welcome also from my side. We are very pleased with our performance last year. All our 4 segments showed meaningful growth for a total increase in adjusted EBITDA of 6%. If you look at the rental segment, that was up 2.5%, and that in spite of the around 9,000 fewer units and slightly higher OpEx that was driven by inflation.

Organic rent growth was 4.1%, of which 2.6% were market-driven and 1.5% from investments. Occupancy, as you would expect, remained high, almost 98%, and the same goes for our collection rate with almost 100%. In value-add, we saw an increase of 17% to EUR 198 million, and that was largely attributable to an increase in contribution from our craftsmen organization based on efficiency and volume increases as well as the growing energy business.

If you adjust for the EUR 58 million one-time effect from the coax lease agreement signed in 2024, the growth in this segment would have been even much higher. In recurring sales, we succeeded with our strategy of putting profitability first, while overall sales volumes were a bit below the prior year, we were able to realize much better fair value step-ups of 32%, and that increased the EBITDA contribution by 44% to EUR 83 million.

EBITDA in our Development segment more than doubled to EUR 75 million. And as we have been -- or have been reporting throughout last year, this was partly driven by land sales. Impacted by higher financing expenses and the higher share count triggered by the scrip dividend we paid last year. The adjusted EBT per share grew by 3.1% and to EUR 2.29.

Luka mentioned the new metric adjusted shareholder earnings. So adjusted EBT minus tax expenses and minorities on a per share basis, that number came to EUR 1.85 in 2025, up 3.6% compared to the prior year. And while minorities were 16% higher in 2025, taxes were 6% lower. Our operating free cash flow was 3% below 2024, and the change is the result of higher cash payouts to minorities in context with the minority sale of Deutsche Wohnen for the domination agreement, an increase in capitalized maintenance and a positive but smaller net working capital change as we ramp up our assets in Development to Sell as well as in Manage to Green.

We will get through valuation on the next slide, but the impact on EPRA NTA was that we have seen the first year-on-year per share growth since 2022, slightly above EUR 46 per share. The EPRA NTA was 2.3% higher than at the end of 2024. And finally, for this page, the 3 main debt KPIs, net-debt-to-EBITDA was 13.8x an improvement of 0.7x compared to the pro-forma 2024 numbers. LTV was 45.4%, 40 basis points below the 2024 pro-forma numbers. And ICR was 3.8, 0.1 turn above 2024.

Moving to the next page. The full year valuation resulted in a net value gain of 1.8% in 2025. And that first is on a like-for-like basis. And second, without the rent growth bought by investments. As expected, there was an acceleration in H2 with 1.1% after the 0.7% we have seen in the first half of last year. If you include investments, the full year growth is even 3.1%. The chart on the lower left-hand side nicely captures the turnaround in values and the trajectory of an organic value growth that is largely driven by rental growth.

As of the end of 2025, our standing assets had an aggregate value of EUR 80.7 billion, reflecting an in-place rent multiplier of 23.2x or an initial gross yield of 4.3%. Let's just briefly look at the transaction market and valuation expectations for the running year. First of all, the institutional transaction market. So, the total deal volume of approximately EUR 9 billion last year. In terms of transaction activity and deal sizes, there were more transactions than in 2024, but the average deal size was smaller though with an increased activity also from international investors.

For the running year, 2026, residential is expected to remain the most attractive real estate asset class and both Jones Lang LaSalle as well as CBRE anticipated transaction volume of up to EUR 2 billion, so a notch above what we have seen last year. The average value growth is estimated to be between 2% to 4% by Jones Lang LaSalle and 2% to 3% by CBRE. And that actually confirms our assumption that organic rent growth, net of investments should largely translate into organic value growth.

Page 6 is a reminder of our EBITDA growth ambitions for 2026 and 2028 including the growing contribution from our non-rental activities. After 13% in 2025, we expect at least 15% for this year and then 20% to 25% by 2028. So no change.

And as growth in our rental segment is ultimately kept at some 5% annually because of a tight regulation in our markets, it's crucial for us to be increasingly focused on growing our adjacent businesses. Until 2028, we aim to deliver mid-single-digit adjusted EBT growth on a per share basis. for the medium term then supported by lower leverage and additional growth opportunities. Our ambition is to grow adjusted EBT at a high single-digit rate.

Moving to Page 7. Luka already mentioned that at the beginning, we have revisited our dividend policy and simplified it for a much more straightforward version you pursue a progressive dividend policy and aim for a payout ratio between 50% to 60% of adjusted EBT.

I know that the scrip option has been a topic for quite some debate but it serves specific purposes in the past. In the early years, we issued new shares for the scrip option at or even above NTA and that was accretive form of new equity to finance growth. In recent years, paying part of the dividend in scrip helped us to mitigate the cash outflow at a time when cash management was actually the priority.

Now that neither is the case, we do not intend to offer a scrip option unless our shares trade much closer to NTA and we define closer as a discount of no more than 10%. Specifically for 2025, we will be proposing a cash dividend of EUR 1.25, so 2.5% higher than last year to this year's AGM, which, by the way, will be an in-person event in Bochum.

And with that, Luka, back to you.

Yes. Thank you very much, Philip, and I look forward to hopefully seeing many of our investors in Bochum then for the AGM. As I said in my introductory remarks, in order to chart a path to high single-digit earnings growth in the medium term, we also need to take a more ambitious stance towards leverage. Now make no mistake, our rating outlook across the different rating agencies is stable and our relevant KPIs are improving already today, as Philip has shared. So the current leverage works very well from a rating agency point of view.

But the fact of the matter is that we have to be mindful of the headwind from higher financing expenses. And that is why we have defined tighter targets that we want to achieve by the end of 2028 for more balance sheet flexibility and bottom line shareholder growth. Net debt-to-EBITDA multiple of less than 12x an LTV of around 40% and ICR comfortably above 3x. These more stringent leverage targets will help us to accelerate the organic deleveraging process that is already underway by EBITDA growth and organic value growth from rent growth.

In all of this, one thing is very important to me. All of our efforts to further reduce leverage will be measured against their medium- and long-term impact on our business and our ability to create value for our shareholders. Our deleveraging efforts will include a more active pursuit of disposal opportunities. And in this context, all options are on the table. As we are also reviewing our minority positions in nonstrategic participations both here in Germany as well as abroad.

So the key message here is that our decisions will be guided by what is the most sustainable way to deliver and not solely by what is the fastest solution. Why? Because we act from a position of strength in a much more conducive environment. This is not like the period between 2022 to 2024, where we operated under the adverse circumstances of sharply increasing rates and declining values. And finally, in pursuing our new leverage targets, we are in no way departing from our 2028 EBITDA objectives. We actually aim to deliver on our targets and still deliver faster than initially anticipated.

With that, let me move on to Page 9. Leverage is not the only area where we are changing course. We are committed to adequate, comprehensive and transparent investor communications. With that in mind, we have revisited our disclosure and made a few changes. The first and possibly most relevant one is the introduction of a bottom line shareholder earnings metric. As you can see on the right-hand side of Page 9.

Because of the increased relevance of taxes and minorities, we will now reconcile between adjusted EBT and a new bottom line metric adjusted shareholder earnings. We provide this color for both reported numbers and guidance. Please bear in mind that adjusted EBT will remain the lead KPI to reflect our recurring earnings capacity but there will now be full transparency of how much of that is attributable to shareholders.

Another change you will see is increased disclosure on our non-German exposure as well as on development. Given the relative significance of these parts of our business, we agree with the market sentiment that both areas warrant more information so that investors get a better understanding of the dynamics and the value creation.

And finally, a few words on the guidance and outlook. Philip already covered some of this, but please let me add a bit of color. The guidance on Page 10 is very similar to what we showed you in November. We explicitly confirm the guidance for 2026 and the outlook of 2028. So we will pursue the tighter leverage targets and deliver on our original objectives. One line item is new, though, and this is adjusted shareholder earnings as covered before.

You may recall Philip's verbal guidance from the November call we expect tax expenses of around 10% of adjusted EBITDA total and minorities of around 10% of adjusted EBT. We have now translated this into specific ranges to provide specific guidance for adjusted shareholder earnings. When you look at this metric, though, please bear in mind that this is exactly what it says. It is an earnings number. It is not a cash flow proxy. As most of the cash we generate in our recurring sales and development segments is not included here because we cannot mix up earnings and cash in our accounts. The taxes on these sales, however, are included.

And that is why we also have the operating free cash flow, which was EUR 1.8 billion in 2025. And for 2026, we expect a similar magnitude, net of working capital changes. They are the only moving part here and will mainly depend on the volume of Manage to Green acquisitions in 2026.

Now looking beyond 2026. We clearly expect adjusted shareholder earnings to grow on a per share basis. Also because dividends to minorities will no longer move up. The actual magnitude of the growth will largely depend then on disposals as well as the decision and economics around the Apollo call options. So we do see potential for attractive growth in adjusted shareholder earnings. But it is more challenging to guide for a couple of years out, and we may have a small lag compared to the adjusted EBT growth in the near term.

Medium-term then, the combined effects from our strategic growth initiatives, the reduction in corporate income taxes and our accelerated deleveraging should pave the way for higher growth. We will assess this more precisely when we have progressed on the latter.

And with that, back to you, Rene, for Q&A.

Thank you, Luka. Thank you, Philip. [Operator Instructions] Let's tackle them 1 by 1 that will make it little bit easier to respond. With that, over to Sandra to open up the Q&A.

[Operator Instructions] Our first question comes from Charles Boissier from UBS.

Two questions from my side. So first on the 2026 guidance you mentioned specifically on the new adjusted shareholder earnings that it's earnings metric and not cash flow. So I just wanted to clarify my understanding when you mentioned that income taxes are for the core business. Does that mean that you do include in the adjusted shareholder earnings, the proceeds from sales related to recurring disposal, but you do not include the taxes associated to them.

And if that's the case, what would be the tax impact from those sales? Associated to that as well on that metric, hopefully, that's still only the first question. On the minorities position, that you think that it's an accounting metric there? And what would be, therefore, the cash minorities for 2026?

I think that's one for Philip, but I would say on the first part, it's exactly the other way around. Please go ahead, Philip.

Okay. On the operating free cash flow, what you will see is the cash impact on the minority sale to Deutsche Wohnen, which we have done in August last year, that is around EUR 70 million. So that is an uptick. And anything else will really depend on how many Deutsche Wohnen shareholders will opt for the guaranteed dividend versus exchanging the holding in Deutsche Wohnen shares. But apart from that, those numbers are fairly stable on a cash metric vis-a-vis the respective minorities we've shown in the 2025 accounts.

On the first -- on your first question on taxes, the adjusted shareholder earnings include all taxes from our 2 disposal-related segments, and that is development to sell, and that is recurring sales. And to be very clear, it's only the tax split. It's not the capital we are freeing up as a result of those disposals. That is only what you see in the operating free cash flow. And that's a very good example by you essentially cannot mix up in our more differentiated business model, accounting metrics, with cash metrics.

Okay, clear. And so my second question is on the CEO compensation metrics. Given all the new metric dividend payout change deleveraging objective. Is it possible to ask you what are the short-term and long-term incentive metrics that make your compensation?

They are actually unchanged from what you see in the compensation report for the Executive Board also in 2025. So there has been no model change here. There is a qualifier in that compensation model for the exceedance of certain debt-related KPIs. And we obviously are very certain given our ambitions that we will stay very well below those. Those might be in the future then subject to adjustment, but the core metrics themselves are absolutely unchanged. So please look them up in the compensation report. They will apply to me as well.

The next question comes from Bart Gysens from Morgan Stanley.

Bart Gysens from Morgan Stanley. My first question is on deleveraging. When you say that you're going to take a more active or proactive pursuit of deleveraging, to what extent is that keeping net debt stable and letting the EBITDA and the portfolio valuation grow? Or are you actually pursuing to bring net debt down over the next 3 years? That's the first question.

Yes. So let me perhaps start with LTV and then work my way over to net-debt-to-EBITDA because obviously, we are looking to trim down the absolute debt as well. So on the LTV basis, we are now, as you know, at 45.4%. And we indeed believe, as Philip has shared before as well, that valuation will remain constructive. It has been so now since the second half of 2024 that we have seen improvements, and we don't expect that this trend will stop.

So this will carry us a certain way with a reasonable assumption that rent growth should carry through to valuation growth, you would probably arrive somewhere at an LTV of around 43%, right? So in order to reach the 40%, we need to do something on top, and that is working on the portfolio and actual deleveraging through sales. And in that respect, we have a wide range of options that are all on the table from accelerating our organic sales efforts in our privatization business through the sale of minority positions through our non-core portfolio, which is still quite significant with EUR 2 billion in our books also to additional core sales across the vast portfolio that we have there across 3 countries. That will carry us to the 40%.

And then if you make the math on a net debt-to-EBITDA basis and just apply, let's say, the midpoint of our EBITDA guidance for 2028. This tells you already that with that alone, we would be at the 12x net debt-to-EBITDA corridor. So with the additional color that I've given on the LTV, it obviously also tells you that in actual fact, we will probably be quite a sizable bit below that 12x mark. So the answer is clearly, we are going to work on the absolute debt levels as well because our aim is to make sure that we see the headwind from interest dissipating to make then room for the full growth potential of our underlying operating business.

Okay. And then my other question is on exactly the point you just mentioned, right, the '28 outlook on 20% to 25% of between EUR 3.2 billion and EUR 3.5 billion that will be non-rental EBITDA. If I take the midpoint of that EUR 20 million to EUR 25 million and the midpoint of the EBITDA, then we're looking at about more than EUR 750 million of non-rental EBITDA. Can you break that down?

Because some of these points, additional potential in digitalization and AI-based end-to-end process redesign partner ecosystem and B2B business, I understand all the words separately. But together, I'm not entirely sure what that means. So can you help me understand what the -- what that is and actually how that would break down that EUR 750 million?

Yes, absolutely. So first of all, it is what we have always defined as the opportunity, which means the growth that we expect in our value-add segment, in our recurring sales segment and in our development segment. You have seen that across all of those 3, we have made significant progress in 2025 already. But in particular, in the value-add segment, a number of initiatives that we have only started to pilot in 2025, such as, for example, our push for a higher share of operate energy-related revenues with the additional push towards photovoltaic and heat pump installations, they're just now starting to scale up. So in the next few years, they will have a larger impact.

In the recurring sales segment, we would, in the future, then also see the revenues from our Manage to Green initiatives. Once we have -- we have now made 2 acquisitions in Manage to Green for a total of EUR 110 million, close to 900 units. Once we have modernized them, then we would look to recycle them, obviously, and sell them out. That's what would show up there as well in addition to our normal privatization volumes, but that is all considered already in the share that we have laid out where the value-add segment should be 9% to 12% of that total contribution, the recurring sales, 5% to 8% and then the Development segment, 4% to 5%.

These additional opportunities that I've laid out, I think it's very important to understand where they would contribute.

On AI, the beauty is that in our industry, AI can actually be a booster to both the top line as well as the bottom line through productivity. On the top line, I see great potential to speed up processes, for example, across the end-to-end process life cycle of our investment process that ultimately leads into modernization work, either at an individual apartment level or a building level by scheduling tasks, we can actually accelerate the cycle time there, which would lead to faster revenue.

And at the same time, we have big productivity opportunities. So this would be a combination of top line and OpEx impacts that would actually accrue mainly to the rental segment, one. And then secondly, on the B2B business, which would be the operation of third-party portfolios, that would then also show up in the value-add segment and would obviously boost the growth even further. So if you ask me, value-add will be a very sizable business by 2028, boosted by those additional opportunities because B2B, we're just getting started with now.

The next question comes from Valerie Jacob from Bernstein.

So my first question is on your new metrics of adjusted shareholder earnings. I was just wondering, if I look at what your peers are doing with this type of metric, usually depreciation is excluded and you've decided to include it in this metric. So I just wanted to understand what is the rationale and why you did that? And also on these metrics, I was curious why not base the dividend distribution on this metric and why keep it on the EBT?

Yes, Valerie, I think it's kind of a similar answer to the first question on adjusted EBT. It's an accounting metric for a more differentiated business model we have. And part of our business model is also in the energy business, here predominantly in photovoltaic business, and that is causing the depreciation. You don't have depreciation if you are real estate only. And that's kind of the trigger why we have decided to deduct depreciation because over time, in essence, that is something we need to earn because then replacement investments are necessary.

Okay. That's clear. And on the distribution?

Yes. On the distribution, that, again, you have accounting-wise, the minority share on the accounted profit, which is included in the minorities. Cash-wise, and that is true for, in particular, the Apollo joint ventures we did in 2023, that distribution may differ, and that is what you see in the operating free cash flow. But again, cash flow is different to accounting metrics which is why it is important to look at both.

And also, if I may add, a matter of simplicity at the end of the day. We had a dividend policy before, which was based on adjusted EBT too, but then added a quite complex cash-based consideration to it. We think that a combination of the clear statement that dividend will be increasing progressively given that we have also a mid-single-digit growth ambition for adjusted EBT and that we provide a range, is giving much more clarity. And in that respect, we are essentially not really departing from what we have done in the past, just simplifying it.

And my second question is on your B2B business. We've been talking about developing this business for quite a while, and you still haven't made any announcement. So I was just wondering if you could share why it's taking some time and when you think we can expect some announcement on this business?

Yes. Thanks for the question. So first of all, we are in the B2B business already. We have actually a business of more than 70,000 units that we are already providing property management services to. We also have a range of customers, both in the real estate industry and beyond for our facility management services, so it's not that we are starting from a clean sheet of paper here.

There are 2 different models under the B2B notion. One is what I would call a la carte, which is kind of more operational services like property management, like facility management that we provide to individual customers. And that is a business where we have a vast market out there, where we have actually incremental discussions all the time, and we are actually quite close to signing up additional customers. So on that one. But as it is more operational in nature, I'm not sure whether we would make a big announcement about adding more customers in this space.

The other one is really what I would call the full menu option where we would work with institutional investors to partner up and team up to service their acquired portfolios holistically across investment management, asset management, property management and then additional value-added services. These are very strategic transactions by definition. Therefore, they are complex and will take more time. But obviously, the contribution from them can be much more meaningful.

So in this respect, we are also in active conversations. But as always, I would prefer to talk about them once we have concluded them. And I'm confident that we will have more to talk about in this respect as we progress through the year. By the way, this B2B business is also very helpful for us in the context of our plans to potentially dispose of additional portfolios.

Because in all of those areas where we were already the operator for those portfolios, it's quite an obvious consideration then for any acquirer to continue to benefit from the scale that we can offer in our platform and continue to operate those units, which obviously would provide us then despite the fact that we would go for a disposal with continued EBITDA contributions through the B2B notion.

The next question comes from Thomas Rothaeusler from Deutsche Bank.

Welcome on board, Luka. I've got two questions. The first one is on earnings growth outlook. You target accelerated earnings growth from '28 onwards despite actually -- despite more disposals for deleveraging. Just wondering what are the key drivers here you assume?

Yes. Thanks a lot for the question. I mean we are talking about the medium-term post our 2028 ambition, obviously. And there are a couple of levers in this respect. First of all, the ones that we have already talked about. So all of the continued strong contributions from our non-rental areas will certainly continue, and we will add to this growing stream of B2B revenues plus the additional opportunities that we see from a productivity perspective through new technologies. That's obviously goes without saying.

Second, we obviously expect that through the deleveraging that we provide, we will see the headwind from the interest costs coming down. Plus as we refinance our debt, we bring down the gap between historic interest levels that define our current debt stack and the one that we will see a couple of years from now. So this will not be a big headwind anymore.

And therefore, the way to think about the overarching growth profile is, we will have a rock-solid core rental business with extreme stickiness and 5% growth on the top line as we have guided for. You add to that a much stronger growth across the non-rental initiatives. You add the additional boost from technology and B2B, and you see the headwind dissipating and that in aggregate, obviously will make room for that higher growth.

Okay. And one follow-up on disposals. I mean, what will be the focus of disposals? And what terms are you willing to dispose assets?

Yes. Well, as I said before, really everything is on the table. So what is on display? One, we see scope to accelerate our organic privatization business. Last year, we have sold 2,333 units. We see no reason why this should not move up quite a bit. I think 3,000 to 3,500 should be readily possible, perhaps even not more than that. We have been mentioning nonstrategic equity participations, minority positions that we hold domestically and abroad.

These sum up to roughly EUR 0.5 billion. To give you one example, we are a small minority stakeholder in Vesteda, the Dutch entity that is currently going through its redemption process, and we are participating in that. That alone is a value of around EUR 200 million. In addition to that, we have our non-core portfolio with EUR [ 2.300 ] billion each in commercial as well as in nursing assets and the rest in non-core residential assets. We will certainly look at accelerating the sale of those. And as these are, for the most part, higher-yielding ones, it should be actually quite plausible to assume that we can sell them off quite well.

And then we have our large core portfolio across 3 countries, Sweden, Austria, Germany, where we really want to leave all of our options on the table and see how demand is shaping up and what is of main interest in all of this. You have asked about our positioning towards those. I think it's a combination. We will be disciplined for sure. We will be guided by how we drive for most sustainable value creation.

And that means, of course, that we want to realize proper values for any transactions, but we will also be pragmatic where we can, like, for example, in the non-core area where already in the past, we have been, I would say, properly positioned between being stringent and flexible where necessary.

So with all of that, plus the fact that the transaction market, as Philip has said, is in a more constructive shape, I would say, than a couple of years ago and the fact that in aggregate, we are probably talking about maximum mid-single-digit billion amount of transactions, we should really be able to do this the right way and with the right value creation. Don't forget that in the last few years under much less conducive conditions, the company was quite successful with selling an even higher amount of assets. So we are confident that we can repeat it and drive for appropriate values to be realized.

The next question comes from Veronique Meertens from Van Lanschot Kempen.

My first question is a bit of a follow-up on also the deleveraging and the disposals. I was just curious, obviously, a lot is happening in the market in the world over the last 2 weeks, especially since yesterday, we are now looking at potential rate hikes. I'm just curious how this is changing your view because I also just heard you mention that you still expect a similar trend in terms of value gains. So I'm just wondering if this has changed anything in the last few weeks with your stance towards staying still pretty disciplined in terms of disposals?

Veronique, I think things have not really changed. The real estate market is not functioning on a daily basis. Due diligence terms take some time. And if I purely look at the refinancing environment, yes, we've seen an impact of roughly 30 basis points increase in financing terms as a result of the crisis in the Middle East. I think we have to wait and see how that develops. For now, no change. For now, no change in discussions we are having on the investor side, but stating the obvious, we are developing or we are looking at the developments in the Middle East. And I think as a principal matter, are well advised to drive our capital structure a bit more to the conservative side as explained.

Okay. And then secondly, on the new metric, the adjusted shareholder earnings. I was wondering if you could elaborate -- have you thought about actually going to FFO 1 and FFO 2 to make it a bit more comparable to peers where you still can show in FFO 2, obviously, the other 2 business lines? And what was the reason to actually come up with the adjusted shareholder earnings?

Again, we have to differentiate between accounting and cash returns. And when you have a business which is not only about the rental business, but which has, in particular, also a development business and a privatization business. The FFO metric is simply not the right metric to look at. We have been discussing before in the privatization context that one element is the profit you make post-tax. The other element is what capital you free up. The same applies to the Development segment. And that's why we have to differentiate between the 2. And if you look at our operating free cash flow, all ingredients are there that you can actually see what cash flow our business is producing.

Okay. I appreciate that. But there are also peers of you that also have a Development segment or Recurring Sales segment, right? That should then encounter the same problem.

Might be the case, if at all, it's one and at a very, very, very slow or low bits as I understand the numbers. But again, you have to account for the cash flow the business is producing. And the FFO concept is simply not doing the trick. So operating free cash flow, if you go through the various metrics, you see that one by one. On top, we are guiding on the operating free cash flow. So you actually know what to expect for the running year, net of changes in working capital, as Luka explained. So that's kind of what I can say about it.

The next question comes from Pierre-Emmanuel Clouard from Jefferies.

So my first one is actually on your disposal plan strategy. So you want to review your nonstrategic participation in Germany and abroad. But would you contemplate a full or partial exit from Sweden to accelerate deleveraging? And maybe also if you can remind us your main minority positions in nonstrategic participation in outside Germany, would be helpful.

Yes. On that last one, very quickly, it's really mainly the Vesteda participation. The rest are German participations for the most part for all practical purposes. So that's this piece.

And on Sweden, when I said everything is on the table, that includes Sweden, absolutely. But a few statements on Sweden perhaps. First of all, it's really a fine business. So I would not be surprised if it was attracting attention and interest. Per Ekelund, our CEO, there is doing a terrific job. You have seen now from the additional disclosure that also the operating metrics are actually in quite a good health. But it's not a small business. It's a large business with EUR 7 billion value attached to it. So it would be a large chunk for anyone to acquire completely. That may be different if only a partial transaction might be at stake.

Again, we will consider all options. But I want to make it also very clear that there are alternatives for Sweden that I find very interesting too. In particular, Sweden could be similarly to our German platform, a very good platform on which we can expand third-party B2B services for other players in the market. And this is certainly an ambition that we would also look into either with the scope of a disposal or without because, as I explained before, you could very well in the context of also partial disposals, think about continuing to provide B2B services.

Okay. Interesting. And maybe a quick follow-up on that. Would you contemplate a potential spin-off of Sweden? -- to maybe let the shareholders enter and grow the platform outside Vonovia?

Well, look, this is all highly speculative. As we said, we are extremely open, and we will look at all possible options. But let me come back to the trade-off discussion here. A couple of years ago, we were all going after speed and transaction certainty. But as a result of that, there were also some transactions closed that were highly complex. And at the same time, in the long-run, also are costing a bit more over time.

And so as we have now the time and as we can really look at the full scale of opportunities and options we want to make sure to also give due consideration to simplicity in going after the deleveraging and sustainability of value creation. So we will always properly weigh this against the different options that we have. But nothing is off the table in this respect, and it would not be wise to do so at the beginning of the journey.

Okay. Understood. And my second question is on your capital allocation actually as you are trading at a material discount to your NAV. So would you contemplate any share buyback, maybe? Or is the 40% is target first and then you could consider a share buyback?

Yes. Deleveraging comes first, and that is our target and that finance share buyback is currently not on the cards.

Yes. And also from my perspective, I mean, I'm certainly not having a religious stance either for or against share buybacks. In my last 2 roles at other companies, I've done sizable share buybacks, but they are a useful instrument in the toolbox if you have excess cash available, and that is clearly not the case at the moment. So let us first progress on what drives the most value for our stakeholders, which I would argue is the deleveraging.

The next question comes from Marc Mozzi from Bank of America.

My question is around trying to square a circle around the fact that previously, you had mid-single earnings growth, no disposals. And now you have the same growth target and about EUR 4 billion to EUR 6 billion of disposals implicitly guided. Can you help me to bridge that gap and telling me which area of the business is going to grow faster now than was previously targeted?

Yes. Let me give it a try. And then if I'm not succeeding, Philip can add to it. But it's at the EBT level, where we have guided for mid-single-digit growth, it's actually, first of all, a straightforward statement. If we dispose of core property units, let's carve out the minority stakes for the time being, then yes, of course, we would lose rental income and hence some EBITDA, but we would gain almost the same amount in terms of interest gains under reasonable assumptions for the interest rate development. And so at the EBT level, it would be fairly a wash, right? That's the first one.

On the EBITDA side, as I tried to explain, as we are losing EBITDA when we sell off properties, we might not lose all of it because a good portion might come back through us continuing to operate these premises under our B2B notion.

Second, I think you are seeing already today on our trajectory that we are on a very good path. Our guidance for EBITDA in 2026 is at the midpoint at EUR 3 billion, so EUR 200 million up from last year. If you just simply extrapolate this, it obviously gets you into a very, very comfortable zone on the 2028 ambition. And hence, the subtraction of some EBITDA from disposals is still manageable within that context.

And third, within the ramp-up of our non-rental businesses, as I said at the beginning, too, there are ones that today are not really contributing yet to the trajectory because they have just been piloted or in POC mode in 2025, but they are ramping up now such as, for example, our additional energy installations, and they will contribute more in the years to come. So all of that in combination will make sure that we arrive at the targets.

Okay. I would love to say I understand, but actually, I'm not sure I get that clear. And it looks like your share price is in the same position [ than I am. ] My second question is around what sort of debt product would you like to issue to face your upcoming refinancing, which is around EUR 4 billion to EUR 5 billion every year?

I mean, first of all, this year, it's EUR 2.7 billion still remaining because we have retired some with the refinancing we did in November last year. The mix, Marc, is as usual, we will predominantly look at the corporate bond market and that across currency to diversify our risk profile. And I think I've made also clear that I see potential for some additional convertible product, which is a pure debt product to be, again, very clear on that point and also accounted 100% as debt in our statements. And here, I do see market capacity in between 10%, 15% of market cap in that product.

The next question comes from Paul May from Barclays.

Two separate questions from me. Now that you're kind of showing the shareholder earnings, which obviously show the impact of the dilutive impact of actions that previous management had taken in terms of selling assets and they're 20% below your management KPIs and even lower on a cash basis, and we can debate that as to what should or shouldn't be concluded.

On the cash side, I just wonder, Luka, coming in as an outsider, why do you feel that the significant misalignment between management KPIs and shareholder income or earnings is appropriate? And earlier, you mentioned that Vonovia successfully sold disposal or sold assets in the past. But as you've shown today, those were quite detrimental to shareholder earnings.

Just wonder, does that mean moving forward that because the KPIs are different, you're willing to do things that are good for management KPIs, but not good for shareholder KPIs. I just wondered how you are sort of thinking about that in the disposals moving forward and how you think about that misalignment.

Well, first of all, sorry to say, but I think the majority of the disposals that the company did in the past few years were not detrimental to shareholder earnings. They were straightforward in that sense. You probably refer to the structured transactions that were different in nature. But at the time, to be fair, I think they were the best path forward for the company to raise equity where otherwise a straight raise would have been far more expensive and far more dilutive to shareholders.

Now we are in a different situation, and we have different tools and a wider range of opportunities at our disposal. And hence, we will obviously prioritize also for simplicity, but just wanted to make clear that this is the case. And look, on the metrics, to be quite honest, I've been having discussions even before my onboarding here with Vonovia with some of the key shareholders of the company as well as some analysts to get a sense of what are the topics that are burning and clearly, deleveraging came out as the #1 topic, and we're addressing it today. There was the notion for sure that disclosure metrics and the change a couple of years ago was not necessarily liked by everyone.

But then there was also the notion that completely changing upside down, again, the set of metrics would also not be the right path forward. So what I believe is important is that we provide transparency on the items that really matter, and that is the true bottom line contribution that we have laid out today, reconciling back from EBT to the impact of taxes and minorities. You have that transparency now. And over the next few years, we will work hard to make sure that this metric is growing, as we have discussed before and is moving into the right direction.

Okay. Sorry, just following on from that a bit. The EBT is going up and the shareholder earnings are going down year-on-year. Just wondering why that misalignment isn't an issue for you and why you think that the previous actions have been good for shareholders versus management KPIs, sorry. Just following up on I'm struggling to understand.

Yes. Again, just very briefly, and then we can take it perhaps offline in a separate conversation. We believe that the metric will grow in the future for a variety of reasons, as we discussed before. And hence, that alignment in the future should certainly be given.

Okay. Perfect. And then just a second question. Just wondered when were your budgets last updated in terms of the guidance? Obviously, there's been a significant move in underlying rates and in margins post the Middle East conflict flaring up. I appreciate that may not continue, but expectations are now for some rate increases and changes there.

I think Philip mentioned that all-in financing cost is only up 30 basis points since the start of the conflict. I just wonder how you can reconcile that with the roughly 50 basis points move in swaps and margins that have also moved out by 10 to 20 basis points, if not potentially more. Just -- I'm just struggling to understand how that relates back to 30 and when the budgets were updated because I think, LEG, you last updated in October when swap rates were 2.25% and they're now 2.8%. So just wondering if timing is also an issue that we should be considering?

Look, I mean, we do budgeting certainly in acknowledgment of spot rates, but we also run some sensitivities, and we have some safety buffer in terms of the interest rates we assume. The 4.3% we are currently talking about for 10 years or the 4% we are talking about for 8 years is very much in line with what we have been budgeting.

Okay. Perfect. So you had some wiggle room, as you say, within the guidance already.

Yes.

The next question comes from Thomas Neuhold from Kepler Cheuvreux.

I have a couple of questions on the development business. Firstly, I was wondering where you currently stand at reaching the EUR 3,600 construction cost target for some of your new projects? And secondly, I was wondering the current projects you have in the pipeline for the build-to-sale business. Is this mainly geared to retail or institutional investors? And then I was also wondering, you still have quite a large land bank. And in the past, you were mentioning that you are considering some disposals here. Can you please provide us an update where you stand here?

Yes. Let me quickly start on the development cost. And then for the rest, I'll hand over to Philip. On the development cost, we're actually making very good progress on the new projects that we are starting, the EUR 3,600 is actually a standard that we can reach. We could actually go even below that, but that then depends really on the acceptance also of municipalities of all of the new possibilities and our ability to really go ahead with our base buildings that we have constructed.

But it helps, obviously, that we have a growing share of serial building partners, not only Gropyus, but also others. And the more we can bring them to bear, the more solid this gets. Obviously, we're still working down a legacy list of projects where this is not the case. But on the new stuff, this is actually working quite well.

And disposals are geared to retail. It's the market which works much better and where we can get better gross margins. And yes, we are still looking to free up capital in the development space that is part of our deleveraging exercise, if you will.

The next question comes from Aaron Guy from Citi.

I just want to revisit the guidance for 2026 adjusted shareholder earnings. You're including the tax increases presumably from higher recurring sort of sales. But from what you said earlier, you're not including the cash flow or the profits offsetting that. So is that 2026 guidance, therefore, not somewhat overly conservative?

Again, it's not a cash flow metric. Accounting-wise, I cannot account for the freeing up of capital in an earnings metric because it's not an earning. It's a cash flow. And yes, you're right, the higher tax is a result of higher disposals. So it's kind of the success we are projecting, the freeing up of capital is what you see in the operating free cash flow.

Okay. Understood. And just secondly, on sort of longer-term sort of capital allocation. You mentioned earlier that the combination of asset sales, probably support from the market as well might see your leverage metrics drop below the guidance level. Luka, how do you see the business? Your predecessor sort of saw it more as a pan-European residential sort of company. Do you see it that way?

When you think about sort of 5-year capital allocation decisions, shareholder value has been destroyed in the past, not on asset sales, but actually on asset and business acquisitions. So would you look to then take that leverage and give it back to shareholders? What sort of return criteria would you look to do if you got into a situation where leverage was below those metrics and you had capacity to invest?

Look, first of all, I mean, M&A and/or planting the flag of Vonovia into additional countries is not a self-serving purpose, right? It has to create value for our shareholders. The appetite for doing so at the current cost of capital, where our shares are trading and our priorities and the great opportunities that we see within our perimeters to grow through additional non-rental services through the rock solid rental business that we have there through additional opportunities in productivity increases, our B2B business are absolutely significant, and we will stay focused on that. So M&A or geographic expansion through M&A is not in our cards.

What might be different is the opportunity to serve investors in their properties with our B2B platform, which may also extend above and beyond the 3 countries in which we do business today. That's a credible scenario, and we have some opportunities that we are working on where this might be the case. But that's what we are focused on. And hence, once we reach our leverage levels, then we would look at staying there and not creeping up again through adventures on the M&A front.

Ladies and gentlemen, this concludes today's question-and-answer session. I would now like to turn the conference back over to Rene for any closing remarks.

Thank you, Sandra, and thanks, everybody, for dialing in and joining this call. As always, if you have any questions or follow-ups, you know where to find me and you know where to find the team. So feel free to ask. Luka, Philip and I will be on the road quite a bit now, and we're looking forward to connecting with you in the days and weeks ahead. That concludes today's call. As always, stay safe, happy and healthy. Bye for now.

Thank you. Bye-bye.

Thank you.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.

Ladies and gentlemen, welcome to the Vonovia SE Interim Results for the 9 Months 2025 Analyst and Investor Call. I'm [ Moritz ], the Chorus Call operator [Operator Instructions] The conference is being recorded [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Rene. Please go ahead.

Thank you, [ Moritz ], and welcome, everybody, to our 9 months 2025 earnings call. Speakers today are once again, CEO, Rolf Buch; and CFO, Philip Grosse. They will be happy to lead through today's presentation and then answer your questions. With that, over to you, Rolf.

Thank you, Rene, and welcome to everybody also from my side. Today, it's earning call #50, so 5-0 for me, but also for the company. And as you are well aware, it is my last one. I want to take this opportunity to remind everybody of what drives Vonovia and what makes this company different. That is why before Philip dives into the 9 months results, I will share a few slides that are more fundamental and general, but very instrumental for understanding how Vonovia approaches the business.

But let me start with a brief summary on Page 3 to get us started. 9 months into the year, we are fully on track towards achieving the upper end of the guidance. Total EBITDA is up 6.4%. EBT is up even slightly higher with 6.8% and post minorities EBITDA, the most important figure for you, as I know, is up like EBITDA by 6.4%.

As you will see on the guidance page, our growth momentum carries over into next year and will gain full momentum towards '28. We are well on track for our ambitious EBITDA targets. And most importantly, organic rent growth will increase to around 5% by '28. Personally, I think with higher investments and the strong underlying market rental growth, Vonovia may well see rent growth above 5% by then. The market in which we operate continues to normalize and move in the right direction.

Organic value growth is happening, and we will probably see a bit more in H2 than what we have seen in H1. The transaction market remains somewhat below the levels we have seen in the ultra-low interest rate period, but it is back to the normal level that we have seen before that period. On Page 4, let me summarize our fundamental beliefs, what our fundamental beliefs are and why I think Vonovia is different.

First, a mantra that I keep repeating because it is so fundamental. Our business is built on and followed certain megatrends that provide stability and safeguard Vonovia's long-term earnings and value growth. Imbalance of supply and demand in urban areas, the focus on CO2 reduction and the positive impact of demographic change on our business will not go away for the next 20 to 30 years. Against this backdrop, there are 3 guiding principles that we believe in. First, it is a low-risk business and a low-margin business because the underlying business is regulated and very low risk, the incremental yields are comparatively low.

The consequences for us is that cost leadership is crucial, and we achieved this by building scale and rigorously pursuing standardization and industrialization. Second, -- our business is a B2C business. The long-term nature of rental contracts and the relation with our customers makes us a subscription-based business based on real estate. The consequences for us is that we pursue deep vertical and horizontal integration, maximum control over our value chain through in-sourcing and rolling out ancillary services to increase our share of wallets of our tenants.

And third, location and portfolio quality matters. Even though it's a subscription-based business, it is still real estate. And there, location matters. There is not the one initial yield for German resi. Supply/demand imbalance is very different in different locations and housing market in urban areas simply have different fundamentals compared to the countryside. And when you are in the right location, you can unlock additional earnings and value growth through investments in the long run.

The consequence for us is that we have worked hard through acquisition and disposal to focus our portfolio in the right locations. And second, we have developed the know-how and the capacity to run a large-scale and industrialized investment program. I mentioned the low risk in the underlying business in the markets in which we operate. The beautiful thing about that is obviously that our operating performance does not produce negative surprises.

Rents keep going up, tenants pay their rent in full and vacancy only exists in cases where we do modernization work in the apartment. What may be a surprise to some people, even though it should build into -- it is built in the system and actually should not be a surprise is the acceleration of rent growth.

We have spent a lot of time and effort in trying to explain the catch-up effect in rent from higher inflation of the past years. It is becoming more and more evident now. As you see on the guidance page later, we are continuing to move upwards to around 5% organic rent growth and above, which will, of course, have very positive implications for both earnings and value growth.

Go to Page 6. One of the consequences of running a B2C end consumer business is the need for scale. The size we have reached is impossible to replicate and clearly gives us an advantage on the cost side that cannot be copied by other players who are smaller and in most cases, are a lot smaller. The chart on the bottom shows for Germany how the increase in the portfolio volume led to an expansion of the margins and the reduction of the cost per unit. What is also noteworthy here is that our customer satisfaction increased sustainable from an index 100 at the IPO to 125 today.

The cost per unit number is maybe a bit complex and more difficult to compare. So let me make my point about the scale and efficiency very simple and transparent. Let's have a look on Page 7 for gross yields and adjusted net yields. Gross yields are rental income divided by fair value. Gross yields differ within the peer group, which is, of course, no surprise given the very different portfolio locations and quality. If you then look at the adjusted net yields, so EBITDA operations adjusted for maintenance because maintenance spending is clearly not a sign of efficiency, but capitalization policy, we see that the cost leakage with German resi is very different.

Vonovia loses 0.4 percentage points between gross and net. And if you look only at the German portfolio, it is just 0.2% versus almost a full percentage point of the peer group. This is the result of our superior scale and efficiency that we have reached since the IPO when our spread was as high as 1.5 percentage points. Of course, at this time, we had a much smaller portfolio. In a business with low initial yield, this gap is huge. It means that we are uniquely positioned to succeed in low-yielding markets, which, of course, have higher growth potential.

And it means that we generate more than EUR 400 million additional EBITDA with our platform and our way to do business, then we would have the average peer group leakage. And it means that we are extremely well positioned for a successful second Vonovia strategy. I have mentioned our platform a couple of times, so let me give you a better understanding of what I mean by that.

This is Page 8. We have developed a fully integrated one-stop shop that covers the entire value chain in our business from the acquisition and development of new units to the asset and property management to the value-add and facility management to the disposal expertise. We cover the full range of the asset life cycle. And we do it an operating system that is SAP head to toe, which clearly defined interfaces between operating entities and central support functions and the seamless integration between local and central responsibilities.

Today, this platform services most of our own portfolio. Owning and operating European's largest residential asset base, including being one of the largest homebuilders, safeguards unparalleled experience and a unique data pool that forms a strong backbone of the platform. Page 9. We are all aware of our activities to increase non-rental EBITDA. The general effort to do that so is not new. We have been ramping up for nonrental EBITDA since the IPO to as much as 20% of total EBITDA by '21.

The sudden change in interest rate environment and our focus on liquidity generation over profitability resulted in lower non-rental EBITDAs for good reasons. Going forward, however, there is absolutely no reason why we should not be able to grow outside the rental segment. Of course, the absolute amounts are bigger than in '21, thanks to the successful integration of Deutsche Wohnen. But the underlying strategy of doing more than just collecting rent has been in Vonovia's DNA since the IPO, and there is no reason why this should not be a key element of Vonovia's strategy going forward because it makes all sense of the world.

The objective for '28 to reach a level of non-rental EBITDA that we have achieved before Deutsche Wohnen is really not a stretch. Let's go to Page 10 to talk about more about locations. Again, this seems to be misunderstood by the market sometimes. Germany is not the same all across the country. Fundamentals and yields are very different in different locations. The general distinction I would make is that there are urban markets, which tend to come with lower initial yields and there are rural markets, which tend to come with higher initial yield. In both cases, this is obviously a function of the different long-term growth potential of these markets.

The strong convictions about the different quality of local markets within Germany prompted a laser focus to make sure that we are in the right location. The large acquisition to grow our portfolios are well known. But what is sometimes forgotten is that we sold more than 100,000 units in what we consider rural and therefore, weaker market. Between the IPO and today, we cut the number of locations in half, and that led to not just better portfolio quality, but also to higher efficiency.

And why it is so important to be in the right locations, let's go to Page 11. Most of you will have seen this analysis in previous earnings calls. The appeal of our business, as we see it, is that the annual rent growth may not always be as high as in other sectors, but it is as robust as it can get and allows us to predict our rental growth for many years to come. The gap between the market reality rent levels and our rent level ensures many years of attractive risk-adjusted rent growth.

Of course, this does not apply to all markets, but only to the ones where you have a structural supply and demand imbalance. And that's why vacancy is not a concern for us. Doing modernization and charging a higher rent for a better product is not a concern for us and reletting an apartment in line with the regulation at a higher rent is not a concern for us. Affordability to make it short, is not our problem and not the problem for our tenants.

As I said earlier, not only the right location matters when it comes to asset management, investments are key to unlocking further earnings and value growth. As consequences, comprehensive investment programs have been a cornerstone of Vonovia's strategy since the IPO. And the peer group comparison clearly shows that we have invested more. I know that the return of these investments cannot be easily extrapolated from the financial results because there is no immediate link between the investment amount of 1 year and the return in the next year as many of these investments take more than 1 year to be completed.

That is why we looked at all investments that we have made and fully completed between 2014 and 2024. The aggregate investment amount was EUR 7.4 billion, and the average operating yield we have achieved was 7.1%. So to us, it makes all the sense in the world to continue with these investments and to increase them to EUR 2 billion per year as planned by '28. They make economic sense, and they also make sense from a sustainability point of view. So it's a win-win situation. We talked about locations. We talked about buying and selling to be in the right markets, and we talked about investments to deliver additional growth.

Let me put this into context on Page 13. Because of the dynamic in our local markets and because of the comprehensive investment we have been making, we have been able to deliver best-in-class rental growth. As I said earlier, I'm personally convinced that this gap will widen in the future from superior market rent growth and superior investment driven rent growth. And this rent growth, combined with the investment and the portfolio focus has delivered a higher CAGR for value growth based on the development of fair value per square meter since the IPO. The market focus seems to be very much on earning these days, and that is fine.

But let's not forget that you have 2 types of returns, earnings and value. I learned this by you 13 years ago where I joined the industry. This is a good segue into the last page of this chapter before I hand over to Philip. When you invest in Vonovia, you do not buy into an initial yield portfolio. That is why I refuse to accept the argument that we are a bond proxy and that it is all about the spread between bond yields and the net initial yield of our portfolio.

Rather one should look at the total shareholder return, so earnings and organic value growth and compare that to other equity investments on a risk-adjusted basis, of course. And while it is entirely up to the investors and the market in general, what they make out of it, I consider 13% total return based on the current share price and an attractive from a risk return point of view, and that is why I look forward to remaining a Vonovia shareholder long beyond my tenure here at Vonovia. And with this, over to Philip.

Thank you, Rolf, and welcome also from my side. I will start with Page 16. I think it actually speaks for itself. So no need to go into too much detail here. But let me allow to make one important point. Our Rental segment is still impacted by the smaller portfolio. Year-on-year, we have 9,000 fewer units, and that, of course, weighs on the top line.

Nonetheless, nominal growth in our Rental segment alone, so excluding the non-rental EBITDA contributions overcompensated the increase in the net financial result in the first 9 months, and that is exactly the logic we have been talking about and the consequence of our long-term and very balanced maturity profile. Yes, our interest expenses are going up as expected, but rents are going up more. And combined with the non-rental growth, we will continue to be able to deliver attractive risk-adjusted earnings growth.

Let's go through the 4 segments one by one and start with the Rental segment on Page 17. Rental revenue, as you can see, was almost up 3%, only held back by losing some of our top line as explained. Maintenance was a touch higher as expected and operating expenses were very much in line with last year. All in all, we basically managed to preserve the top line growth on the EBITDA level for a year-on-year increase of 2.5%. Organic rent growth remained very robust with 4.2% overall and 2.8% from market rent growth.

Like in previous quarters, no need to deep dive on occupancy and collection rates as they both remain exceptionally high and are expected to remain at that superior level for the foreseeable future. On value add, that is Page 18. As you can see, the internal revenues grew by more than 15%, and that is largely a result of our increased investment and our higher in-sourcing ratio. The year-on-year comparison is skewed in so far as that the prior year includes EUR 58 million nonrecurring adjusted EBITDA from the coax network lease agreement we have made with Vodafone.

Adjusting for this onetime benefit last year, value-add EBITDA were actually up 11% equally as expected. In spite of this onetime effect, we expect the value-add EBITDA for the full year to be considerably higher than last year, and that's mainly driven by higher investments and value creation in our craftsman organization as well as rising contributions from our energy business. So here, we are well on track towards further expanding the EBITDA contribution from our value-add segment as we have been guiding for.

Recurring sales on Page 19, we sold 1,553 units to be precise, in the first 9 months, up 2.4% compared to last year, revenue growth of almost 12% and the higher fair value step-up far exceeded the growth in units and resulted in EUR 300 million for the 9 months 2025. And it's the combination of higher revenue and higher gross profit plus stable selling costs that drove the EBITDA contribution to almost EUR 57 million, which is 45% above the prior year. For recurring sales, we remain, again, very much on track towards further expanding EBITDA contribution.

Finally, development on Page 20. We have explained in previous calls the development EBITDA was positively impacted by a larger land sale that closed early this year, hence, the extraordinary and not sustainable gross margin. If we adjust for this land sale, however, the gross margin comes down to 19%, which I consider a very normalized developer margin we are targeting that is yes, as we have been expecting for.

Either way, our development business is a valuable contributor to the overall EBITDA. And here too, the increasing EBITDA contribution is very much on track. That much about the segments. On EPRA NTA, that is Page 21. The main point for the NTA really is that to a new law that will bring a reduction in corporate income tax, we saw a shift of roughly EUR 2.3 billion from deferred tax liabilities to IFRS equity. So on a net basis, more or less flat, but the composition somewhat changed.

Page 22 for the debt KPIs. There isn't much change from one quarter to the other. And the bottom line on the leverage side remains that we consider it well under control. The yardstick for that is mainly with what the rating agencies expect from us to be safe on our BBB+ rating with a stable outlook.

As I said last time, different points in the cycle require a stronger focus on some debt KPIs more than on others, and we are at a point where our main attention is on the ICR. There are 2 ways to look at the ICR. The numerator is the same in both cases, adjusted EBITDA total of the last 12 months, but the denominator is different. One definition, and that is the one used in bond covenants uses net cash interest and the denominator. This can be a bit volatile from time to time, depending on the interest payment dates.

The bond covenant threshold is 1.8x. So I hope we can all agree that this is somewhat irrelevant from a risk point of view. To allow for a more normalized measurement of ICR, we are using the net financial result that we also use in getting from adjusted EBITDA to adjusted EBT. The ICR threshold we have set to ourselves internally is, as you know, 3.5x. Let me reiterate. Our focus is to make sure our debt KPIs are in line with the BBB+ rating criteria and a stable outlook. This is now essentially an organic development as we expect values and EBITDA to grow and therefore, to further move the debt KPIs in the right territory or even further.

On the guidance, this is on Page 23. We have fine-tuned 2025 guidance and moved to the upper end of the range for both rental income and adjusted EBITDA total. As we usually do in the third quarter, we are also giving an initial guidance for the next year. No need to read all individual line items now, but do allow me to zoom in on the organic rent growth. You may recall the concept of the additional irrevocable rent increase claim that we introduced a few quarters back.

We are showing it here again to demonstrate that the rent growth is coming. It is actually already there, apartment by apartment. But because of the Kappungsgrenze, it cannot be implemented just yet. Kappungsgrenze, as a reminder, is the cap that allows you not to increase rents by more than 15% for selling tenants over a 3-year time horizon in tight markets. We explained the underlying concept on Page 30 of the presentation in more detail.

Let me say this, for 2026, we have a net increase of another 0.4 percentage points to a total of 3% that is already booked onto the underlying apartments, but can only be implemented once the rental cap has lapsed in subsequent years. I can put it differently, if the 0.4 percentage points net buildup would be harvested already next year, 2026 organic rent growth would be around 4.6%. So you can actually see that the acceleration is coming through as promised.

Without any rental cap, by the way, 2026 organic rent growth would be north of 7%. We did the math on how much net buildup and net use of this additional irrevocable rent increase claim we will have on our way to 2028. And based on our probably rather conservative assumptions for future rent indices, we will see a net use that will take the actual organic rent growth to around 5%, also supported by higher investments.

So what we are moving towards is a step change in rental growth that surpasses historic rent growth numbers, which should not come as a surprise actually because at the end of the day, this is higher inflation finding its way over time into organic rent growth like we have always said. And referring back to the commentary Rolf made, this higher level of rent growth will have a positive impact on both types of shareholder return, and that is earnings growth and value growth.

Final comment on the guidance page. Some of you are asking for more clarity on minorities and taxes. EBT minorities are expected to be around 10% of adjusted EBT. And cash taxes, and that obviously includes taxes for our disposal segments are expected to be inside 10% of the adjusted EBITDA total for 2025 and same applies for 2026. The CEO handover process is underway, and Luka will be joining at the end of this month before he will officially assume his new role as CEO starting in January. We will miss Rolf, but we are equally excited about Luka joining and with that commentary, for the last time, Rolf, back to you.

And for the last time -- thank you, Philip. Before we go to the Q&A, allow me briefly summarize the relevant point of today's presentation. As we laid out, the way Vonovia approaches the business is different, and it has led to operational outperformance that we expect to continue. This puts the company in an excellent position for the future earnings and value growth.

Our market environment and operating business remains rock solid, and we are well on track towards achieving our ambitious targets, both for rental and non-rental growth. We have put the company into a tremendous stable footing, and we have -- and we leave it well positioned for further earnings and value growth. We have built a platform that is second to none and will prove to be the cornerstone in the company's effort to build a second Vonovia.

All this will be in great hands with Luka. I wish him and the entire Vonovia team all the best and have no doubt that together, they will write a new and very successful chapter in the history of Vonovia. But more important, I would like to thank you all for your support in the last 12 years. Without the support and the willingness to invest, it would not have been possible to build this Vonovia, this great platform. With this, thank you very much. And back to Rene for the Q&A.

Thank you, Rolf. Thank you, Philip. I hand it back to [ Moritz ] for the Q&A. And just as a reminder, everybody, let's keep it to 2 questions per person, please. [ Moritz ], can you start the Q&A part?

[Operator Instructions] And the first question comes from Charles Bossier from UBS.

I have 2 questions. The first one is on the change in the organic rent growth guidance for 2028 from 4% plus to now 5%. What exactly has changed, I would say, versus the initial guidance that you had set up, whether in the market or in terms of your ability to capture that rental growth?

Charles, answer is very, very simple. We've been telling you before above 4%. I think now we have become more precise. If we look at the underlying data, and we have done a very comprehensive analysis, we can see that historic inflation is coming through over time to the extent allowed by the Kappungsgrenze, the rental caps, and you will see also going forward numbers in between 2.5% to 3%, non-investment driven and the other bit is investment driven.

That is currently 1.4%, but with us more or less doubling the investments vis-a-vis what we have seen last year, we will see also an acceleration in rental growth, in the investment-driven bit. And here, as a reminder, cash-on-cash is 6% to 7% with the vast majority ending up in the rental EBITDA and a portion of that ending up because of the value creation of our craftsman organization in the value-add EBITDA.

Okay. Very clear. And on the transaction market, you present quite a positive story of normalization and you're also pointing to H2 valuation accelerating versus H1. Still in Q3, it seems rather slow in terms of transaction activity. Of course, there were some small deals here and there, 850 apartments at long transaction. But what are you seeing in the transaction market that makes you confident that it has normalized and you would be able to sell assets at book values?

So first of all, even in the bad times where the transaction market was much worse, we sold assets for book value. So it's probably quality of assets, which is relevant. But to be very clear, what you see and what is seen in the public is the big transactions. In reality, there is an underlying transaction market of smaller players.

And this I mentioned in my speech is actually back to the level where it has been before the ultra-low investment rate environment. So -- what we see here in the listed sector is just a small part of the big transactions. But the market really is consisting out of a lot of smaller transactions. And there, we see a very stable thing, and we see the demand and we see supply coming to the market. So I can confirm that the market is pretty stable and going in the right direction. And as Philip said, we will expect a higher valuation in H2 than what uplift than we have seen in H1.

Then the next question comes from Valerie Jacob from Bernstein.

I've just got a follow-up question, a clarification on the comment that you made that you expect organic growth in asset values to be higher in H2. I think part of it is mechanically driven by you spending more CapEx. So I was wondering, is this comment is also valid if we exclude the CapEx from your asset value growth? That's my first question. I've got a second question.

You have that acceleration on both sides on a gross as well as on a net basis. And in H1, you have seen net value growth of 70 basis points, and that number will be exceeded in H2.

Okay. That's clear. My second question is on your ICR. I mean I'm not sure this is helpful that you're changing a definition again. So I was just wondering, going forward, are you still going to publish the definition on the bond definition? Or are you only going to publish your own definition?

Valerie, I think what we just wanted to make clear is that we internally manage our business in a different way and not by bond covenants. That, by the way, is no different if you look at LTV metrics. Because if you look at the covenants that the LTV is not a concept in the bond covenants. But here, you more look at capital -- more broader capital ratios. The flip side, if you will, on the bond definition is, as I said, there's a bit more volatility. It very much depends point in time where you actually pay interest. Over time, if you don't make the quarter-by-quarter comparison, the 2 are very, very similar to each other. So typically, a difference of 10 basis points. And more specifically, we will disclose both.

And the next question comes from Bart Gysens from Morgan Stanley.

My first question is also on the ICR actually. You talk about moving that into better territory. But I just wanted to understand how you can do that for the ICR. I mean the average cost of debt is running at 1.9%. You managed to keep that flat. You have to refi about EUR 4 billion to EUR 5 billion a year medium term.

Now even if reported EBITDA grows by 7% per annum as you're guiding, that suggests that actually if you finance at the current marginal cost of debt, interest cover will not improve on the contrary. So how do you look at that? And are you considering more alternative solutions like convertible bonds or preferred equity?

No, Bart, to be very precise, where we are moving in the right direction is in terms of LTV and is in terms of net debt to EBITDA. LTV because I have conviction as we have seen this in the running here that the rental increase, net of the investment required to achieve that rental increase will translate itself into value growth. And if I look at net debt to EBITDA, we have, as you know, a number of initiatives which are running very well to, in particular, increase also the nonrental EBITDA and that will move that metric further down.

The ICR is really our intention to keep that somewhat stable at current level. And that is going to be the major focus. And here, yes, we probably need some positive backdrop in market in terms of refinancing costs. Our assumption is that this somewhat remains at current level of 4%. And it's also no secret that I think that convertible product as part of the capital structure is a good addition. You should not overplay it.

So it should be a moderate portion of your capital structure in terms of liquidity and the underlying stock, plus in terms of the overall debt burden. But with that having said, I think there is capacity for more. And to be crystal clear, convertible is for us, no ambiguity, 100% debt.

And the assumption always is that it will never come to the dilution, but that if the convertible is in the money and at maturity is going to be refinanced by a new convertible [indiscernible] was at a higher stock price and that is essentially, if you do the math, reducing contingent dilution. But again, the focus, and that is what is driving the capital structure going forward is going to be the ICR.

Great. And then my other question is on recurring sales on Slide 19. So you've sold more or less the same amount of units as a year ago, but at a different price point, right, around 10% higher per unit. Have you started selling a different type or quality or location? Should we read anything into this?

No, I think the biggest -- there might be a small different mixture, but I think what you should read is that what we have announced, we have sold also this product in the period where liquidity was for us important actually with less focus on price. As we announced in October or November last year, we said now we will come back to normal. And what you see is that the margin is actually coming back what we have expected. So this, of course, comes together with the recovery of the market.

So you see here that the market obviously is ready to pay the well-known premium, which was paid before the crisis for individual apartments versus blocks. So the retail and wholesale margin is back to normal, which is also, I think, an additional answer to the question about what -- why the market is coming back. You can see it in this figure.

.

And the next question comes from Thomas Neuhold from Kepler Cheuvreux.

My first question would be on the non-rental business. Can you please provide us an update on the new expanded business areas such as stranded assets, occupancy rights and third-party business? Did you manage to strike already some interesting deals there?

Yes. I think to what we call managed to green assets, which is a former called undeveloped assets, but I think managed to green is a much better and more precise definition. As you know, we have signed the first deal. We are in a round to -- in the final round and actually exclusive negotiation with others with more potential.

It took us a little bit longer to get this started than originally we expected. But now I think we are on the full run. So I don't see anything else. This is the same for the occupancy rights. And actually, to be very clear, we manage all these additional activities in total, the 10 where we see -- we are in line with our expectation.

We are in line with the guidance which we have given you to '28. So there is no reason to do any -- to be nervous actually or the opposite. Some of them are getting better and especially for the second Vonovia, as you know, we will not talk about potential deals there. But I can tell you that in the last 2 months, which are remaining for me here, there is still a lot of opportunity where we are in discussions.

And my second question is for Philip. Can you please give us an indication what impact the lowered corporate tax rate in Germany will have on your cash tax rate going forward once it's going to be implemented?

I mean, still some time out. It's starting 2028. So this is now asking for a very long-term guidance. This is, as I said, for now, predominantly impacting deferred tax liabilities, which because of the embedded reduction in corporate tax rate is resulting in that one-off gain of EUR 2.3 billion. In terms of more broader picture, I think let me tell you that much.

I mean, by us significantly increasing our investments, our rental and value-add business is not hugely impacted by tax payments because most of the investments we undertake according to German GAAP are actually reducing our taxable income, and that you will see in lower tax rates actually for our rental and value-add business going forward.

That, however, is somewhat compensated by higher tax rates because we do more disposal business, and that is for development to sell equally as for our recurring sales business. And yes, here, you may have some small benefits in the long run on the lowering of the tax rate. I think what is, however, even more important, and that is in particular for development to sell in global assets is about structuring and the way how you sell it essentially, which allows you to optimize the tax line.

The next question comes from Andrew McCreath from Green Street.

I also have 2. Firstly, on development. Looking at your numbers, 3Q doesn't suggest much acceleration in activity. Could you please just provide some color on the dynamics there? Are you seeing any improvement in sales pace? That would be the first question. And the second would be on construction. For the initial projects in Berlin and Dresden, you've guided to an all-in cost of EUR 3,600 per square meter. What sort of yield on costs are you underwriting for these developments?

On your first question, Andrew, on the development, as I said, if you look at the profitability, that was really much driven by the sale of a land plot we closed in Q1. And that is essentially also the somewhat overriding story for this year because we have sold essentially all project developments we had in our pipeline in the last 2 years in order to generate cash.

And because of the crisis did not start new projects, we first need to have building up a platform on the basis of which we can earn the targeted gross margins of 15% to 20%. You will see a kind of more steady development already next year but only partially because also next year is going to be a mix between first completions and selling of those completions or started projects, which we sell based on POC method. But you will also see the disposal of land plots in the coming year. And I think the kind of ramp-up as we have been budgeting for is really to come through as of 2027 and beyond.

And for the new construction, I think this is one topic which is not only important for Vonovia, but for the whole German market. I think with the about turbo and with [indiscernible] the most recent new legislation, it will provide us with the possibility to reduce the construction cost by 30%. So this famous EUR 3,500, all including, which is actually comparable to the lateral letting. And we are targeting a initial yield of roughly 5%.

And then, of course, these buildings come with in the first years, no maintenance and an increase of rent, which is often very indexed. So that's why the initial yield is low, but then the yield will go up over time. And that's why it's a good investment. And this is either for us on our own balance sheet or if it's for sale, it's for others who are ready to invest 5% yield.

Let me be very clear and add one thing. What you see in the development EBITDA is only development to sell. And development to sell, as I said, we are targeting gross margins of 15% to 20%, and we are essentially targeting IRRs north of 10%. And that is what you will see in that profitability line. So it's not yield on cost driven how we manage that business. It's IRR driven.

The next question comes from Paul May from Barclays.

Just a couple of questions from my side. Thanks for the analysis on the return on investment, I think 7.1% you highlight over multiple years. I think as you know, we calculate close to 5% based on reported numbers. I think you said that's not possible to make that calculation. So thank you for providing that color. Just wondered why is that below the 8% to 10% return on investment that you've previously and multiple times guided to? That is the first question.

And the second question, I think you highlighted through the presentation how you're better than other listed peers based on your NOI yields. But I think on our numbers, where a lot of your cost comes is through your admin cost line versus others. And if you look at it more on an EBIT yield or EBIT margin basis, you're either lower or similar to peers, and therefore, you obviously your yield much lower. And also, are you penalizing certain peers by including land in their gross asset value and not including, say, housing profits or housing sale profits in the EBITDA or in the NOI? Just wondering if you're sort of overly penalizing certain peers.

No, I think the last one we are not doing. This is all public information, and I think Rene can guide you through. To be very clear, we are operating a little bit different in a different platform. That's why I added the site of the platform that our way to do central and noncentral is a little different. That's why this is the reason for efficiency. So I think the only way how you can really compare it is to do the net yield and the gross yield, and we can guide you through this, but this is based on public information. The other question was about...

One was on the yield of the investment program. Paul, we've been, I think, explaining for quite some time that the mix of our various investment programs, and that is the energetic modernization of the building that are the reletting investments when we have tenant churn, that is also our develop to hold business are averaging out with cash-on-cash yields of 6% to 7% and that we, at least historically, are more at the upper end of the range that calculation is demonstrating.

What we are benefiting here and that is probably a bit different for Vonovia than for the broader sector is that we are able to compensate for some of the maintenance spend, which, by definition, is a part of broader investments by putting our own craftsman organization into play because here, again, we can earn some extra money. So that yield is actually vast majority ending up in the rental EBITDA, but part also in the value-add EBITDA. And it's only for that very reason that we can achieve these high numbers.

The next question comes from Thomas Rothaeusler from Deutsche Bank.

Two questions. The first one is on the value-add business. Operating profit was only flat despite the pickup of investments. Actually, we see the same pattern for rental growth, which even came down if you look at modernization-driven rent adjustments. You basically say that investment returns come with a time lag of more than 1 year. Just wondering by when we should see a meaningful -- more meaningful pickup here.

I think what you're doing is now you're comparing quarter-by-quarter, right?

Actually, year-on-year, if I look at the investments year-on-year and look at the performance of the value-add business and look at the performance from rental growth out of monetization measures.

What is -- if you look, Thomas, at the profitability line of value-add, what is distorting a year-by-year comparison is a very big onetime benefit we have seen last year by the conclusion of a finance lease agreement with Vodafone, and that resulted in an EBITDA, which is not repeating itself this year of more than EUR 50 million. Now if I look at the composition of the various profitability streams, which are adding up to the value add is really very much the craftsman organization where we have seen a very nice turnaround story.

Craftsman organization, a, benefiting from higher investment volumes; b, benefiting from higher in-sourcing ratio that, by the way, is also why you see that change in terms of revenues in favor of internal versus external. And what you can equally see is that we are seeing a nice ramp-up in our energy business, and that is thanks to the investments we undertaken photovoltaic. All the other businesses really flattish with the exception of multimedia, where we have year-on-year a decline, I think, of 60%, and that is because of that onetime impact, which is not repeating itself. Is that sufficiently answering your question?

Perfect. On the second point is actually on disposals. I mean you referred to improved investment markets. Should we expect this to allow you to speed up noncore disposals maybe?

Yes. I think we are now back on the normal level. So we are doing noncore disposals as it is accretive and attractive for the pricing. So we are not pushing so much for volume, but we are pushing a little bit also related to the price. Yes, but it is becoming easier also for the noncore disposal.

The next question comes from Marc Mozzi from Bank of America.

My first question is around your number of shares. How should we assume the number of shares you're going to use for the calculation of your dividend and EPS for this year at the end of the year because there are some changes here. And I'm just wondering if you can help us having some clarity on that number. I'm talking about the weighted average, not the total.

I think there is no change whatsoever. It's always the same if we look at profitability numbers, we take the weighted average of the past 4 quarters. By way of reference, little change. I mean, what you have seen in terms of increase in share count is, a, the scrip dividend, which has seen a take-up of slightly above 30%; and b, I think in total, 12 million shares as a result of the domination and profit loss transfer agreement with Deutsche Wohnen, so people accepting the exchange offer, but that is really marginal. When we look at balance sheet numbers, and that is EPRA NTA, we look at the year-end number in terms of share count, but also no change. And the dividend is always end of period.

Fair enough. And the other question is around the dividend. And I would like to understand how we should think about the dividend per share for the year because we know that it's 50% of the EBT. So that's roughly EUR 950 million plus surplus liquidity, which I understand is very subjective. I guess you would like to show some dividend growth, what sort of growth on which basis, how are you going to assess your dividend proposal to the shareholder and to the Board?

Look, Mark, no change here. I mean, for now, I think our dividend policy is what our dividend policy is. It's 50% of EBT plus liquidity, and that is based on the operating free cash flow. And as usual, we will discuss that at the appropriate time and make a proposal to the shareholder meeting, which I think is in May next year.

Are you comfortable with the current market forecast of your dividend for this year?

[indiscernible] what that is actually.

Fair enough. That's exactly what I thought. It's EUR 126 million, EUR 125 million...

So we should not come even not indirect to dividend guidance. This is not the time we will come with a dividend proposal and not we, but the new management team will come with a dividend proposal if it's appropriate and this is next year.

Fair enough. I totally understand. Well, Rolf, I would like to congratulate you for running Vonovia for the past 12 years and all the best for what's next for you.

The next question comes from Simon Stippig from Warburg Research.

First one is on Page 7, you showed your gross to net yield translation. And you mentioned that here in Germany, it's only 20 basis points. So in Sweden and Austria, I think you're holding only 11% based on units of your portfolio. So could you explain me the reasoning of why holding on to the portfolios in Austria and Sweden?

And second one would be -- in regard to your operating free cash flow, Q3 was the lowest compared to previous quarters. I know it's mainly due to net working capital movements that comes obviously from your development to sell pipeline. But could you explain or indicate what we can expect here for the last quarter?

And then also more importantly, what you see here for the next year. And by that, I mean items that are not so well explained, not like the minorities, for example, I think you were very clear in previous conference calls. But maybe the capitalization rate, does it stay the same and also your capital commitment to development to sell? And lastly, I, Rolf, stay in good health and best of luck for the next challenge.

Okay. For example, the first time -- the first question I take, I think Austria in this respect is probably less relevant. It's all about Sweden. And you know in Sweden, this is a warm rent, so it includes the energy. So that's why the gap, which is actually energy is counted here as cost to operate. That's why technically it is higher, and that's why we are coming to 0.4% in total.

But this -- then you have to compare the Swedish business with other Swedish players, which, of course, we have done, and we could provide you the same, for example, comparison with Heimstaden and we are more efficient with Heimstaden. That's why I mentioned the 0.2% because in the end, this slide is more relevant if you compare it to the German peers, you would compare it more with 0.2% and not the 0.4%, which is in the -- in the notes.

But because you cannot directly extract from our reported figures, the 0.4%, you can report from the figures that we -- I think we showed the 0.4%. But the difference between 0.4% and 0.2% is because of the different nature in the Swedish market where everybody has to cover the cost as a part of cost and not of a pass-through item.

Then, Simon, on your second question, a bit more specific on the operating free cash flow. I mean, you know that we are not guiding on that. What we have been guiding for is excluding changes in the net working capital, why is it that we have done that? Because there's, by definition, some volatility, in particular, if you look on a quarter-by-quarter comparison because it largely depends on the point in time when we have the cash in, for instance, for bigger global exits in the development to sell business.

So please don't get nervous on the quarter-by-quarter comparison, but that's not really the picture to draw. More long term, how I would look at it without guiding, if I were you, is that if you start with the depreciation line, that is impacted by, in particular, our investments in photovoltaic, which I think is around EUR 100 million per annum, depreciation 20 years. And given that we do invest in photovoltaic quite significantly, you will see that line gradually going up, which is positive for the cash flow.

I think as in the past, net working capital is very difficult. And as a reminder, there are 2 elements in it. It's development to sell, where my intention is to manage the business in a way that it's at least more or less flattish in terms of the net working capital movements, not on a quarter-by-quarter comparison, but on a rolling 12-month basis. What, however, is also in there is the managed to green business, Rolf was mentioning, and that will require an initial capital buildup.

So that kind of portion will be negative and how negative depends on how much we are actually able to acquire. But we will give details on that, and we will also give details on the split of those 2 elements going forward, how it affects the net working capital. And the rest, I think, is straightforward. Capitalized maintenance, I would kind of monitor vis-a-vis inflation because this is what's driving that line item.

Dividends and minorities, I think we talked about in length. So you should have all the details, including the additional disclosure we put on our web page. And income taxes, I think the guidance somewhat remains also longer term, and I was making that point previously that I expect that to be slightly inside 10% of total EBITDA.

Great. Second question was very clear. Maybe I can ask a follow-up on the first one. Is that possible?

Yes.

Great. I think it's more profound because you made the case that you want to get to scale and scale brings your cost ratio down. So I just wonder in Austria, you're not building up the portfolio. And then Sweden also, I'm sure things have changed since you acquired BUWOG and also since you expanded into geographies in the North. But is it really that you want to build that up? Or is it more a hold case? Or is it really also the potential that you could sell it and then reallocate the cash towards your own business in Germany or even buying back shares?

So first of all, and really Austria and Sweden is actually 2 types of story. First of all, the Austrian platform is partly because of language, because of very similar rental systems is partly integrated into or has a higher overlap between the German platform. So -- and then, of course, Austria is also linked to the development business because in Austria, they are running a development to sell business. So you're building a part, you're taking it on your platform for 10 years and then you are selling it with a high margin.

So that's why the Austrian part is probably more linked to the development business than to the rental business. For the Swedish business, actually, the same applies. We have bought -- the only 2 listed companies. So we have consolidated the listed market there. We have superior cost in comparison to the other listed -- other Swedish operators are nonlisted by definition because they're not listed left, but we know this data. So it's the same. It's the same opportunity then in Germany, we have in Sweden for the second Vonovia.

So I see actually in both in Germany and in Sweden, the chance for playing this platform and making money out of doing just services based on the better cost structure in comparison to people who own assets and want to get rid of the expensive platform where they operate or buy new assets with a very attractive platform. So I see the possibility in both and also you cannot compare Sweden to Germany. You have to compare Sweden to Swedish and you have to compare Germany to Germany. So that's why I think it's 2 different markets. And in those markets, the presentation we have shown you on Page 7 is applicable also -- is applicable.

The next question comes from Pierre-Emmanuel Clouard from Jefferies.

Actually, I have a quick follow-up question on Simon's question about Sweden. Is this something that has been discussed with Board members about potential sale of the Swedish portfolio? Or is it up to the new CEO, especially in light of a rebound of the investment market? Is it an open question? Or is it not a case today and Sweden will be there among Vonovia's portfolio for many, many years.

So to be very clear, it was discussed in the period of '22 where we talked about disposal. And this was a question where we ended up with alternative structures, which are more attractive at this time. In the moment, it is not part of the discussion which the Management Board is doing with the Supervisory Board, and it's not a discussion inside the Management Board, but also to be clear.

So I personally think -- and I think this is not coming to a surprise for you. I personally think that if you are talking about second Vonovia, it is better if you cover more jurisdictions than less. So I think this is important for the second Vonovia strategy, but I'm also here only 2 months left. So I think the new management team under the lead of Luka has also to think about it. But at the moment, there's no indication that there is a thinking, but I should not predict what happens in the future.

Okay. That's clear. And my second question is on the value-add business and Vonovia in general. With the expected increase in minimum wage in Germany, is there any impact to expect on the -- on margins on your value-add business segment from 2027?

No. Very simple question, no.

Right. Why that?

Because the business where we operate, so the craftsmen are much above the minimum salary anyway because this is a different general agreement with the unions. So there is no impact. And the people in some parts of the gardeners are close to the minimum salary, but these are pass-through items to the tenants.

The next question comes from Manuel Martin from ODDO BHF.

The first question, it's a bit kind of accounting question. We saw the effect of the change in legislation on deferred taxes in the P&L and also in the EPRA NTA calculation. When it comes to the EPRA NTA calculation, the EPRA NTA seems to have nevertheless decreased marginally in 3Q versus H1. Is there a special reason behind that? Or is this also kind of effects in the deferred tax? Maybe you can give us a hint there, please?

This is predominantly driven by the liabilities we had to account for, for the guaranteed dividend in the context of the exchange offer we made to Deutsche Wohnen minority shareholders. Roughly EUR 400 million.

EUR 400 million. All right. Second question is a bit more broader question on the market. I mean the rental increases in the market and which Vonovia is showing and will show in the future, is this something which is also monitored by government and politicians? And what do you hear from politicians? Might that be an issue in the future?

No, I think you have to distinguish between sitting tenants and new letting. So for the sitting tenants, it's very simple. I just showed it in the political debate here in Germany. Our increase in sitting tenant between '22 and '24 was 4.8% for sitting tenants without investment. So just having the apartment with no increase. And the increase in salary was more than 10%. So the affordability is going up and not down. So we have no affordability gap.

For the new letting, of course, there is an issue because especially if you refer to the gray market. So the market which is outside the mid-price from the partly illegal, of course, where the situation is extreme, where we really have an affordability issue for gray market rents, EUR 20 for Berlin. This is beyond the affordability of normal people. And that's why you have to distinguish this. I think it's getting more and more understood by the politicians, that this is 2 things. But the gray market, even with the mid-price premise, you cannot stop it.

So there is only one solution to work on the imbalance of supply and demand to do more products. That's why we have the [indiscernible] where I think this will help. But as you see me in the press, we also now have to work on the rental regulation because the existing rental regulation with mid-price premise with Kappungsgrenze and with the EUR 2 and EUR 3 will not make it happen that there will be more investment in housing. And this means that the situation of high gray rents will be coming worse and not better. And I am positive that one day the politicians will get it.

Okay. I see. And Rolf, all the best for you in your future positions or plans.

The next question comes from Neil Green from JPMorgan.

Just one, please, and it goes back to kind of one of the earlier comments about marginal debt costs. I think you said around 4% was in the guidance. I think your long-term unsecured bonds are trading within that 4% at the moment. And I think it's fair to say then that the secured debt would also probably be within 4% as well. So I'm just wondering whether that 4% assumption you have is kind of conservative or if there's something that I'm perhaps missing, please?

I think we will see later today the actual proof point where our cost of debt are currently because we are in the market with a bigger bond issuance, 7, 11 and 15 years. Look, I mean, if you do a midterm planning, I think it is overly aggressive if you were to assume a decrease in rates.

And the 4% I've been mentioning actually in our internal planning, I'm even putting kind of a safety margin on top of it because you never know whether there is a slight shift up or down vis-a-vis spot rates. I feel comfortable with the assumption of kind of a stable financing environment. As I said before, that obviously is very paramount for us on how aggressively we need to manage the ICR. But again, my baseline is that 4%.

Ladies and gentlemen, this was the last question. I would now like to turn the conference back over to Rene for any closing remarks.

Thank you, [ Moritz ], and especially thanks, everybody, for dialing in and joining this call. As always, if you have any follow-ups, you know where to find me and also my colleagues, feel free to ask. We're looking forward to connecting with you in the days and weeks ahead. And that concludes today's call. As always, stay safe, happy and healthy. Bye now.

Bye-bye.

Ladies and gentlemen, the conference has now concluded, and you may disconnect. Thank you for joining, and have a pleasant day. Goodbye.