LEG Immobilien SE (LEG) Earnings Call Transcript & Summary

Good morning, everyone, from Düsseldorf. Welcome to our call for our full year results 2024, and thank you for your participation. We have in the call our entire management team with our CEO, Lars von Lackum; our CFO, Kathrin Köhling; as well as our COO, Volker Wiegel. You'll find the presentation document as well as the annual report and documents within the IR section of our homepage. Please note that there is also a disclaimer, which you'll find on Page 3 of our presentation. And without further ado, I hand it over to you, Lars.

Thank you, Frank. A very good morning also from my side. It is with great pleasure to present to you our 2024 highlights before Volker and Kathrin provide you with more detail on operations as well as financing. The top-level headline of this year's annual report reads simple, smart, efficient. While the title perfectly matches the picture showing the installation of an air-to-air heat pump as one of our key tools to decarbonize the portfolio, the title also holds true for our entire results. Our results for 2024 are simple because these strictly follow the well-known promised and delivered principle. We promised and delivered in a challenging environment as the real estate industry was still somewhat absorbed in doing its homework, but on the back of a very solid and stable business model. It holds true for all our ambitious operational as well as financial targets. And regarding the only nonachievement, the LTV, we made some further progress towards our midterm target. Our results for 2024 are smart because we strictly executed our cash-oriented steering along our core KPI AFFO. We introduced that steering approach more than 2 years ago. The cash is king focus continues to pay off. We are going to stick to it also in 2025, so cash remains king for LEG. Focusing on cash generation and steering the business accordingly avoids an engagement in complex financing structures, sales of core assets or capital-intensive project developments. We simply or I have to say, smartly steer based on cash, and it allows you to easily benchmark our progress. We were able to deliver a very strong almost 11% growth of the AFFO to EUR 200.4 million. Please keep in mind that we achieved that by offsetting the positive one-off contribution of over EUR 25 million from the green energy sale last year and at the same time, by increasing the investment in our assets by more than EUR 20 million. While AFFO remains our core KPI for 2025, we expect another growth of more than 7%, taking the midpoint of our guidance range into consideration. Our results for 2024 are efficient as well because the proposed dividend is directly linked to the generated AFFO. We earned EUR 2.70 per share of AFFO from our core business and living up to our dividend policy, we will propose to pass exactly that amount forward to our shareholders. Our dividend proposal does not include any net proceeds from disposals as due to the current volatility in the market, we still prefer to strengthen our balance sheet and work on our LTV to bring that closer to our midterm target. The strong financial results come on the back of some strong progress in optimizing our portfolio. In 2024, we transferred 2,500 noncore units. We signed another 1,800 noncore units, and those will be transferred in 2025. Overall, we disposed of around 4,300 noncore units and realized total proceeds of EUR 400 million. Due to the timing difference between signing and transfer of ownership, EUR 255 million of gross proceeds and EUR 180 million of net proceeds are reflected in our 2024 accounts. The remaining volume is expected to reach our accounts in 2025. So we continue to be able to dispose volumes, which are significant to us, in total above book value. Therefore, we will continuously strive to execute our sales program also in 2025, but be as disciplined on price as in the past years. The strong financial results come on the back of likewise strong operational numbers. We increased the net cold rent on a like-for-like basis by 3.4% for the entire portfolio and for the free financed part by 4%. Both numbers come in at the top end of our guidance ranges, reflecting the strong underlying dynamics in the affordable housing market. We expect the market dynamics to remain intact for quite some time as the number of new building permissions is at the lowest level since 2010. Consequently, the number of completions will continue to drop, probably this year even below 200,000 units. The undersupply in the market will grow further. The strong financial results come on the back of some significant progress on the financing side. We were able to bring down again our already low cash financing cost to very competitive 1.49%. We reached that result by issuing low coupon bonds as well as by paying back debt with higher financing costs. Certainly, we will need to refinancing upcoming maturities in the current higher interest rate environment, but our low starting base provides us with a substantial spread. The high cash level of more than EUR 900 million at the end of 2024 covers all 2025 maturities as well as the planned refinancing of BCP's debt. Therefore, we will continue to optimize our financing costs by using opportunistically the different financing tools at hand to address 2026 maturities. Regarding valuation of our real estate assets, we guided towards a revaluation in the range of 0% to 0.5% in November. For H2 2024, we recognized a positive revaluation of 0.4% in our accounts, i.e., at the upper end of the given range. That is the first positive number after the value started to decline from mid-2022 onwards. Despite the current times of high volatility, increasing uncertainty and growing complexity, we are happy to confirm our 2025 guidance. We expect to reach an AFFO between EUR 205 million and EUR 225 million. Taking the 2025 midpoint of the guided range into account, this translates into an increase of more than 7%. After an increase of 11% this year, we continue to deliver improving cash results driven by further rising rents, slightly higher investments in our asset base and a clean balance sheet. I move now to Slide 7 to provide you with an update on BCP. As of today, we are the proud owner of 88.2% of BCP after increasing our shareholding by 52.7% at the beginning of the year. In our integration work, we currently focus on the setup of the tech structures. As soon as that is in place, we will go ahead with the tender offer for the outstanding shares. The operational integration not being dependent on the tender offer, we started the handover of all operational activities from day 1, i.e., early January. By now, the BCP portfolio is fully integrated into our systems. The management follows LEG's market-leading standards and processes. We were able to benefit from our experience of onboarding bigger portfolios to our platform, so we are happy to report a seamless integration into our operating platform. At the same time, we made excellent progress in refinancing BCP's financial liabilities. As you might have seen, we were able to pay back the shekel-denominated bonds, which BCP had issued in the Israelian market. Additionally, we were able to repay expensive secured financings totaling more than EUR 350 million. According to IFRS 3, we were obliged to do a preliminary purchase price allocation. You can find the respective information on Page 265 of our annual report. On that preliminary basis, a badwill of almost EUR 130 million will be recognized in our accounts, confirming the attractiveness of the acquisition. Please take note that the purchase price allocation is based on our standard valuation approach for unbilled land, i.e., the plots of land in Düsseldorf, the one in Gerresheim and the one in Gothenburg are included at land value. As shared with you in November, BCP will not yet be a contributor to our AFFO in 2025. We continue to expect a neutral effect to AFFO as a higher CapEx requirement will offset the underlying FFO I contribution. Let me give you a brief update on LEG's revised ESG strategy on the following slide. In volatile times, focus rightly so is on financials, purely financials. Nevertheless, ESG has been and remains an integral part of our strategy. Still, we considered it to be necessary to revise our ESG strategy in some important points. Firstly, we need to live up to the German legal obligation to reach climate neutrality by 2045, not more, not less. Certainly, all of LEG's ESG activities need to reduce CO2 emissions as efficiently as possible to reach that legal target. Therefore, we consequently do not strive for energy efficiency, but for emission efficiency. Sounds similar, but it could not be more different. While the earlier is all about the improvement of arbitrary EPCs, the latter is about reducing CO2 emissions at the lowest cost possible. The latter is LEG's sole short-term target, which we will measure in the reduction of tons of CO2 emissions. Secondly, our green ventures, i.e., Renowate for serial modernization, dekarbo for air-to-air heat pumps and Termios for AI-driven thermostats need to contribute to our earnings base. As all 3 ventures gained track in the market and were able to win substantial third market contracts, it is now time to set ambitious financial targets for all of them. We strive for an earnings contribution from those activities on a cumulative basis of EUR 20 million until 2028. As always, we will give you full transparency on our progress by adding a new line item in our AFFO calculation. That is the only long-term ESG target, which we will strive for. Thirdly, we have and will live up to the European legal obligation to publish a full-scale CSRD report. This report has been audited by Deloitte and is part of our annual report published today. Rest assured that we will not steer the company according to the information included in this report. Most of the data points provided are completely meaningless. Take the gender pay gap, for example, which shows that women are paid better than men at LEG. The reason for that is easily explained. We employ more male blue-collar workers and more female white collar workers, i.e., a completely meaningless KPI. Over the coming weeks, we will provide you with additional information on our ESG strategy. The documents will include all data necessary for you and your ESG teams in a comprehensive presentation and a detailed compendium called Factbook. And with this, I hand it over to Volker for his presentation on our operational successes.

Thank you, Lars, and good morning, everyone. I'm now on Slide 10. The investment market in Germany has regained momentum. We have a slide on the investment market on Page 31 in the presentation. Investment volume increased by 78% to more than EUR 9 billion. This is, however, still significantly below the long-term average volume of the market. The market recovery certainly also benefited our disposal program. In 2024, we disposed of roughly 2,500 noncore units, half of which in Q4 2024, translating into annual gross proceeds of EUR 250 million or net proceeds of EUR 180 million. On top of this, there are roughly 1,800 more noncore units already signed as of today without being transferred until the end of 2024. Most of those units, i.e., around 1,000 will be transferred already in Q1 2025. With this, we will make a strong start into 2025 with EUR 150 million of proceeds to be accounted for. You can find an overview of our yet-to-be transferred disposals on the right-hand side of the diagram. In total, all sales have been executed above our current book value. And there's more to come. Now that important buyer groups like institutional investors and family office are back on the market, we expect to see increasing demand for an attractive asset class like German resi. We will continue our disposal program and currently around 3,000 noncore units are up for disposal. There's no official disposal target from our side. We will continue our portfolio management actions. We simply stay focused on maximizing shareholder value by never compromising on sales price. The next slide reflects the changes in the size of our portfolio since the end of 2022. The line divestments only includes the units for which the transfer of ownership has already taken place. The few additions are solely attributable to conversions of assets. Our small pipeline of new builds will be completed in 2025. Those units are not yet included in this graph. The remaining cash outflow for these projects amounts to as little as EUR 24 million. You can find some more information on this topic in the back on Page 37. Moving on to Slide 12 and our rent growth guidance. As of year 2024, our like-for-like rent growth amounted to 3.4%, thus reaching the upper end of our guidance range. This was equally driven by rent increases from rent table adjustments and modernization reletting. The free financed units were the only segment to contribute to this as there was no cost rent adjustment for the subsidized part in 2024. With an increase of 4% like-for-like rent growth, the free financed part also came out at the upper end of its respective guidance of 3.8% to 4%. This certainly reflects the strong ongoing market dynamics. Looking at our 3 market segments, we can identify the strongest performance in the stable markets with plus 4.6%. The free financed rents in the high-growth markets and higher-yielding markets increased by 3.7% or 3.6%, respectively. For the full year 2025, we expect the rental growth dynamics to persist. We assume a rent growth for the full residential portfolio between 3.4% to 3.6%. As there will be no increase on the 19% of subsidized units in our portfolio in this year, the rent growth is solely driven by a more than 4% rent increase in the free financed part. The increasing market momentum is reflected in the latest rent table publications. Dortmund, our biggest location with more than 13,000 units, we saw a rent table increase by around 6% based on our portfolio. While market dynamics continue, regulation became even more restrictive. From the 1st of March 2025, a new tenant protection regulation in North Rhine-Westphalia took effect. Instead of 18 markets, now 57 municipalities qualify as tight markets. That change increases the number of affected units from around 25,000 to around 39,000 units in our portfolio. Percentage-wise, it applies to roughly 23%, including the BCP portfolio. That means that the rent for sitting tenants can only be increased by 15% within 3 years and new tenants are protected by the rental break regulation. Nevertheless, we confirm our growth guidance for this year of 3.4% to 3.6% for the portfolio on a like-for-like basis. I'm now on the next slide for some details on our investments. In line with our planning, adjusted investments in 2024 slightly declined by 2.9% to EUR 33.99 per square meter. This meets perfectly our full year investment guidance of EUR 34 per square meter. As you might remember, we originally guided for EUR 32 per square meter and increased it to EUR 34. We used the additional money to increase our spending in turn cost investments, which helped to further bring down our vacancy rate to an excellent level of 2.3%. The other part of the increase in investment was driven by a commercial complex, a hotel complex in [indiscernible]. There, an already signed sale of that complex failed in 2024 as the buyer could not secure the financing. Therefore, we decided to do the investments ourselves and secure a new tenant. We are happy that we quickly found a well-known international hotel operator, which will reopen the hotel in the second half of the year. We plan to put the asset back in the market for disposal in the coming months. Furthermore, with our focus on cash rather than on accounting, maintenance expenses continue to increase disproportionately to CapEx. Hence, the adjusted capitalization ratio of 58% was further down 180 basis points on the previous year. New construction on land is not included in the adjusted figures. The investments for these activities shrank to just EUR 14 million in 2024. Finally, on Slide 14, we present a new overview of our service operations. This part of our business has been significantly built up in recent years. On the left-hand side of the slide, you can find the value-add services that we provide as part of our rental business. Like that, the specialized craftsmen organization for electrical work is the latest addition to the sector. Below, we show you our B2B2C platform, connecting service providers to landlords and to tenants. On the left-hand side, we present our green ventures, serial refurbishment, smart thermostats and green heating via air-to-air heat pumps. With the latter ones, we are going to open the next growth chapter for LEG. Given the wide range of services, we consider FFO I to be the far better KPI to measure the economic profit of those services. The decision was mainly driven by the substantial investments done by those service entities so that the value contribution would have not been visible while presenting AFFO. In 2024, we stabilized the FFO I contribution from our service activities on an excellent level of EUR 50 million. We saw stronger contributions from our energy services, ESP as well as our reletting services, LWS, while the multimedia business contributed less as the number of contracts shrunk after a change of the legal framework. And now, I hand it over to Kathrin for a detailed view on the financials.

Thank you, Volker, and good morning to everyone from my side as well. On Slide 16, I will focus on our operating KPIs for the financial year 2024. In 2024, our net cold rent grew by 3.0% to EUR 859.4 million in comparison to a like-for-like increase of our in-place rent of 3.4%. Disposals certainly acted as a small headwind to our top line development. However, as Lars said at the beginning, we believe we have a very reasonable portfolio management approach by selling at the low end of the quality spectrum, which typically should not only be measured by gross yields, but also by the life cycle CapEx and with its cash flow requirements. Our recurring net operating income saw a rise of 5.1%, reaching EUR 718.7 million. The margin improved from 82.0% to 83.6%. It goes without saying that the increase is predominantly driven by the increase in net cold rent, but also due in part to improved results of our energy service subsidiary, ESP. EBITDA stayed roughly the same at EUR 669.5 million. The EBITDA margin declined by 270 basis points to 77.9%, but exceeded our guidance of roughly 77%. The decline was driven on an AFFO basis by EUR 25.8 million of windfall profits last year in connection with the forward sale of green electricity produced by our biomass plant at outstanding prices. AFFO again increased meaningfully by 10.6% to EUR 204 million. Higher cash interest of EUR 6.7 million were more than offset by lower investments of EUR 27.6 million, the latter also driven by higher subsidies. Now please turn to Slide 17, where we effectively visualize the key drivers, which I just described. I would, therefore, move straight on to Slide 18 and the valuation. As we expected, we saw a stabilization of the prices. This is what we saw from the market, but certainly as well as from our own transactions. With this, valuation seems to have bottomed out and moved slightly into positive territory with a result of plus 0.4% for the second half. This turns into a negative minus 1.2% overall result for the full year after a decline of minus 1.6% for the first half of 2024. We saw a stronger development in stable and high-growth markets. And with this, let me now continue on to Page 19. On Slide 19, we provide an overview of our current portfolio valuation. On a portfolio level, the gross yield of our residential portfolio remained unchanged against Q3 2024 with 4.9%, still offering a nice spread compared to bond yields. We saw some slight uptick on multiples to 20.4x. The net initial yield based on the EPRA definition is 3.8%. The average gross asset value per square meter for residential properties is now at EUR 1,629, ranging from EUR 2,232 per square meter in high-growth markets to EUR 1,134 in higher-yielding markets. Let me now come to Slide 20 and our financial profile. I believe we are well positioned in a volatile interest rate environment and the last recent days on the capital markets proved us to be right to lock in low yields and cover upcoming maturities well in advance. This is why we decided last year to issue our convertible bond and also given the strong demand for it post the issue, decided to tap the volume by another EUR 200 million to a total of EUR 700 million. Additionally, we tapped 2 other outstanding bonds and increased the outstanding volumes by another EUR 200 million. The new issuances last year as well as the repayment of around EUR 450 million of more expensive outstanding debt at the end of last year helped to bring down our existing average cash interest cost down to below 1.5% i.e., to 1.49%. While our average maturity remained almost stable against the Q3 2024 level with 5.7 years, thus, we have a strong basis of very solid average interest costs to start this new period of potential volatility in the markets. This provides us with sufficient flexibility to continue on our opportunistic refinancing path also in the future. At the beginning of this year, we additionally issued a EUR 300 million sub-benchmark bond with an attractive coupon of 3.875%. This bond is certainly not yet reflected in our year-end numbers, but you will see it with our Q1 reporting. All in all, over the last around 6 months, we have secured EUR 1.2 billion in new unsecured financing at an average cash coupon of 1.7% and an attractive all-in yield of 2.7%. For this year, we only have outstanding debt of EUR 544 million left. Thereof, our biggest maturity is our EUR 400 million convertible due in September 2025 with a low interest coupon of 0.875%. Our strong cash position of over EUR 900 million at the end of 2024 combined with our sub-benchmark issuance in January 2025, covers not only our remaining outstanding debt in 2025, but also puts us in a position to also pay for the BCP shares as well as help BCP pay back some more expensive debt in a liability management exercise. Until today, BCP has already paid back more than EUR 350 million of their debt, especially the shekel bonds in Israel. LTV declined by 60 basis points compared to our Q3 reporting to 47.9%. The LTV benefited especially from a decline in net debt by 2.2% year-on-year. Our ICR still stands at a strong 4.3x and all our bond covenants continue to be in dark green territory. And with this, I give back to Lars for his final remarks.

Thank you, Kathrin. As you can see on Slide 22 of today's deck, we achieved each and every of our ambitious 2024 targets. Just let it sink in for a second. It's just simple, smart, efficient. It is not less than an increase of 11% in AFFO per share. We are very proud of our LEG team as it has achieved all this in a very demanding environment. Still, there is one open issue, the LTV, where we made some progress, but which still sits above our midterm target of 45%. We will continuously work on this target and therefore, propose to pay a dividend of 100% of the AFFO, but to use the net proceeds from our disposal program to stabilize our balance sheet further. This leads me to my last slide on Page 23, our outlook 2025. Despite the current times of high volatility, increasing uncertainty and growing complexity, we are convinced that we can deliver an AFFO in the range of EUR 205 million to EUR 225 million in 2025 and therefore, reiterate that guidance today. That translates into an increase of more than 7%, taking the midpoint of that range into account. With our focus on affordable living in Germany, the main driver for the further improved results will be the growth of net cold rents, which we expect in the range of 3.4% to 3.6%. At the same time, we will increase the investments into our asset base to more than EUR 35 per square meter, always following our simple, smart, efficient approach. Broadening the perspective. Quite obviously, the world has changed dramatically since our last call on November 8 last year. We have seen changes in geopolitics assumed to be impossible, especially in such a short time frame. For Germany, that culminated in an agreement of CDU, CSU and SPD to increase deficit spending on a federal as well as state level amounting to up to EUR 1.4 billion over the next 10 years according to some analysts. Investments are planned to be twofold, military and infrastructure. Currently, not much more detail is known. Although the planned investment in military and infrastructure is the biggest since the reunification of Germany, it would, ceteris paribus, leave Germany still with the lowest debt ratio amongst the G7 countries. However, to pass the law, a 2/3 majority of the parliament, which requires consent by the greens and the majority in the Federal Council, the Bundesrat needs to be found. So it is not a done deal yet. Still, the announcement was driving the 10-year bond by nearly 30 basis points on a single day, one of the biggest single day increases on record. Contrary, the ECB rate cut of 25 bps on the following day stayed without any impact on the rates. Therefore, a higher for longer interest rate scenario might gain a higher profitability. While we can neither influence nor change any of these developments, our response stays unchanged. Cash is king. We will stick to our AFFO steering and our conservative setup. It proves right to make use of different financing means to keep costs as low as possible. It proves right to stay away from capital-intensive expansion and investment plans. It proves right to work as hard as possible on rent increases and make use of the underlying rent dynamic in the market. This made us successful over the last 2.5 years and will do so for the current tumultuous times. And with this, I close our presentation. Kathrin, Volker and I are happy to take your questions, and I hand it over to Frank.

Thanks, Lars. And with this, we begin the Q&A session, and I hand it over to you, Moritz.

[Operator Instructions] And the first question comes from Marios Pastou from Bernstein.

I've got a couple of questions from my side. You mentioned about the increase in the number of locations across NRW, which are classified as tenants for the purposes of the rent controls. I think you mentioned you don't foresee any major changes this year. Do you foresee anything in the trajectory of your growth beyond 2025? And then secondly, on your green ventures, I wanted to check the rationale for now considering a potential exit from one or more of these ventures rather than building up the potential earnings momentum here? And then just finally on that one as well, how much of the EUR 20 million will drop down into your AFFO?

Marios, thanks for the question on the rent regulation. Yes, for this year, we are pretty confident that it doesn't have an effect. For the next year, we need to see how it evolves. We have different factors in the market, and we managed to go and to live very good with the existing rent regulation. So I wouldn't expect a major effect. Of course, it's not a boost for rent growth.

And with regards to the second question, Green Ventures. So, for this year, Marios, we are expecting a single digit EUR 1 million of value and AFFO contribution. But you will find that now as a separate line item without our AFFO calculation. So you will be very transparently seeing how that evolves going forward.

Okay. Just on the -- also on the question regarding why some of this earnings is now considered to be a potential exit or disposal of a stake in one of these ventures?

Yes. So with regards to those ventures, certainly, we will need to scale them quite quickly. And it might make sense to also sell part of it to private equities or other joint owners. And therefore, we will also show you the results which we can realize by perhaps partially selling off parts in those joint ventures. That might also hold true if we are entering markets where we do not consider ourselves to be the experts, for example, for those AI-driven thermostats, it might make sense to have in other jurisdictions where we normally do not operate to have partners helping us to scale up.

The next question comes from Bart Gysens from Morgan Stanley.

Just want to follow up on the leverage, right? I mean your balance sheet remains very levered, 52% EPRA LTV backed by a 3.8% yield on the portfolio on an EPRA net initial basis, that's low. The events from the last week have focused a little bit more attention on issues like that again. You say, look, we're being very smart. You used that word many times today. But what are you actually going to do to bring that LTV down, right? Can you kind of be a little bit more explicit on -- and it's not just the LTV, the net debt to EBITDA is 14x. What are you actually going to do over the next couple of years? And by when do you think you're going to be at a level that is more palatable to the market?

Bart, Thanks for your question. So certainly, you're making reference to EPRA. Well, we are making reference to our calculation with regards to LTV. Obviously, there are differences how you calculate it, especially where you are including the short-term deposits, whether you are deducting it from the debt or whether you are adding it to the value part. So therefore, that is, I think, a part of the explanation. EPRA net initially, it certainly stands at 3.8%. You're right. With regards to LTV, hopefully, we got it across today that we definitely want to live up to our 45% midterm target. You know that we try to strive for that by living up to our sales program. Currently, we are in the market with around 3,000 units. We are marketing those. We will do so, especially during MIPIM, which is going -- which has started today, which we are going to join tomorrow. And we are quite confident that we will bring about additional sales, and that certainly will help to bring down leverage. How quickly we will be able to do that part certainly depends also on the valuation of our assets. You've seen that as we've indicated, we've seen the turning point in valuations last year. So valuation now increased by 0.4%. And if we are looking into what we are currently doing as transactions, so since November, we've sold another more than 800 units. All of that overall came in above book value. That's, from our perspective, a good indication. Let's wait and see how the current interest rate movement will impact market, but that's certainly something which we can gather after our meetings at MIPIM going to take place as of tomorrow.

And then as a follow-up on that, on the dividend, you've reiterated your intention to pay 100% of the adjusted FFO. Maybe I missed it, but are you offering a scrip alternative to the dividend? Or are you planning to pay this out in cash?

Of course, we will offer again a scrip dividend most likely and also a cash dividend for those who would like to prefer that.

And how are you going to -- because when you offer a scrip alternative, you can, of course, influence the level of take-up depending on what kind of where you set the pricing of that scrip dividend, right? Are you going to try to push for quite a high take-up on the scrip? Or how should we think about that?

So there's no final decision on that one yet, but we plan to do something in the normal ranges as we have done in all the previous years.

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

Two questions. The first one is on the new potential CDU, SPD, government and expectations regarding your business. We, for example, hear that -- I mean, there's a fear in the market that the CDU might leave the housing topic again to the SPD, I mean, would you agree on that? And maybe some more color on what you expect from the new potential government?

Thomas, I try to address it, but you might have nearly the same knowledge as I do have. So looking at the preliminary negotiations and what came out of it, the paper being published, it has 11 pages. And if you look closely at what has been disclosed with regards to the housing market, it is definitely not much. So the first one is the prolongation of the rental break. I think we gave you the indication that was bang in line with our expectation. So there will be an extension of the rental break. It will be less than our expectation. So our expectation was as much as '28, '29, but now decision is a prolongation for 2 years. How that prolongation exactly will look like, whether it will be in line with the latest Bundesrat proposal, which says a municipality can only make use of it if they can prove that they have taken enough action to otherwise influence the market positively, i.e., by enabling more new developments, let's wait and see. However, if that is not been included, I think it's also quite obvious and there have been some of the associations of landlords being transparent on that it will be legally challenged. Secondly, if you look at what's been included with regards to new builds. With regards to new builds, I think it's just more of the same, which you are already aware of. So it's about more talk about digitalization, it's more talk about that new building type E, which stands for IFA or simple in German, which should, from our perspective, definitely not be a big game changer because you will not be able to decrease costs by more than 10% per square meter. And finally, it also reads that they want to strengthen, and that's no surprise if you have this SPD in a government and the subsidized units, new builds. How they want to do that? Certainly, they want to do that by subsidized loans via KfW. So let's wait and see of how attractive those interest rates will be because those programs are already in place and how much money will definitely then finally be earmarked to have those programs being funded. Finally, it's all about the infrastructure question. And certainly, how do we reach climate neutrality by 2045. I think that was something which took us a bit by surprise because our expectation, what we heard in Berlin was that the agreement was and they wanted to prolong the climate neutrality target from 2045 to 2050, but that was unfortunately being now held back because certainly, the greens need to be convinced to agree to that new infrastructure and military fund, and they certainly will not agree if you just do a prolongation of those targets. So therefore, let's wait and see of how much money really finally ends up in the housing industry to enable that climate neutrality target. From our perspective, it's just too early to give any indication because we hear very different things, especially currently now in the discussion with the green party.

Okay. Another question is on your non-rental business. I'm not sure I missed the number, but what has been the momentum most recently? And what could we expect for this year? And to what portion of total revenues can we expect it to increase if you add the planned contributions from the green ventures? And maybe it would be helpful also if you could provide a bit more color on these ventures.

Sure, Thomas. I can guide you to Slide 14, where we disclosed and showed the contributions from the additional services over the last years. You can see that we are now for 3 years, almost flat there at EUR 50 million contribution on an FFO I basis. For this year, we expect to increase it slightly, so in line -- or not slightly so decently in line with the AFFO increase we guided for, for the 2025 fiscal year. The contribution from the several pillars of our additional services changes sometimes. So we see -- saw the multimedia part to decrease, and it's offset by the contribution from the energy service company and also from the project management services, which we provide therefore, the churn and the renovation of empty flats. On the 3 green ventures, we provide there, some more information. So it's one on the serial refurbishment, one on the smart thermostats and one on the heat pumps. They are all set up together with partners who are active in this industry because we are the opinion that we don't have the knowledge only in our house. So we need to partner up there with renowned partners and to build new businesses. In total, we expect a contribution of EUR 20 million by 2028. When it comes and in which business provides or contributes what part of the FFO contribution, that's needs to be seen. So we have, of course, business plans. They are -- as it's scale-up business, it's a bit flexible there when it comes and how it comes. That's why we gave this more broad guidance until 2028.

Then the next question comes from Clouard Pierre from Jefferies.

I have 3 quick follow-up questions. So the first one, coming back on your EPRA LTV. I know it's not just a target, but I just wanted to understand the discrepancy between your LTV and the EPRA LTV. Actually, your LTV calculation is down 50 bps year-on-year, but the EPRA LTV is up 130 bps year-on-year again. So this difference, is it due to BCP entirely? Or is it something else explaining this difference? And also, if you can give us the pro forma figure post the BCP integration would be useful as well. Then also, if you can give us the like-for-like fair value change for the BCP portfolio in H2, if you have it on top of your mind? And the final one, where do you see the average cost of debt landing in 2025?

Yes. So happy to take your questions as far as I can, Clouard. So let's start maybe with BCP just so that we are -- everybody is on the same page. BCP is not included in our year-end numbers at the moment because it's only been consolidated since we bought it. So it's the beginning of the year, and we will first see it in our numbers in Q1. You only see some notes -- you see some information in our notes because according to IFRS 3 B66, we have to give those information. And that's why we have a starting basis to discuss that. So then next on your EPRA LTV question, the difference, and Lars already mentioned it, the biggest difference is that short-term deposits go under receivables in the EPRA LTV definition. So if we want to be smart and get some interest income on our cash at hand, which you know we have a lot currently. In this case, it's more than EUR 600 million we are talking about, then it goes under receivables and not under cash within the EPRA LTV definition. Of course, that's also one of the reasons why we prefer our LTV definition because we do believe that short-term deposits is, a, it is cash because we have it; and b, to generate interest income, we find it weird that you actually put in a worse position if you get interest income on it and it goes in the denominator. So that's why -- that's the biggest thing. And if you just calculate that number, you will come up with a much better LTV than you see in the EPRA LTV currently. With regards to the BCP numbers, I would like to postpone you to the official results meeting of BCP, I think it's March 20. So there, they will have all their results for the last year, which we only have the balance sheet information in our PPA. And I think you had a last question on our net debt. At the end of the year, we are not -- in our cost of debt, we are not guiding on that one towards the end of the year. But you can be assured that we will try to be as smart as we have in the past and try to end up with the best result possible. So that's why we are also happy that we are starting with quite a low basis, yes.

Then the next question comes from Rob Jones from BNP Paribas.

Just 3 questions. Hopefully, they're simple, smart and efficient. Just firstly, on disposals, Lars obviously touched on this at the start of the Q&A. Based on the 3,000 units that you're obviously looking to sell at the moment, let's say, we end up with high 200s, maybe EUR 300 million of disposals. And if that was a run rate going forward, am I right in thinking that it roughly equates to about 3 years to get back to a 45% LTV, assuming capital value is flat? The second one was just around biomass. Obviously, a couple of years ago, it was a big contributor to AFFO. I think it was about EUR 25 million plus this year. I think it was kind of closer to 0 for my model going forward. Should I assume a kind of low single-digit earnings contribution? And then there's actually 4 questions, not 3. Third question was around scrip take-up last year, what percentage that was? And the fourth one was you've got the BCP balance sheet information, as you said. What's the BCP LTV?

Thanks a lot, Rob. So, happily, we have 4 questions, and we will certainly share that. I will try to do the first one with regards to disposals. And you're right. So if you're doing ceteris paribus calculation and you keep the value stable, then you would need most probably something in the range of more than EUR 700 million. So it will take you 2.5 years to bring it down the LTV to our 45% target. And therefore, it's midterm, yes. So it's definitely not something which we will be able to reach this year if we are really disposing those 3,000 units. Once again, to reiterate that the 3,000 units, it's not the disposal target, but this is what we are currently marketing, and we will definitely be price disciplined as in the past, we will definitely not sell below our book value.

Then I take the one on the biomass plant. To make it simple, smart, efficient, I answer it with a yes. So the single digit -- low single-digit...

And on your last 2 questions, Rob, the scrip take-up for this year was 15.6%. And on your BCP LTV question, I again refer you to March 20 because you know what we have in our PPA, those are not exactly the BCP numbers because obviously, we have under our purchase price allocation, we have to come up with the fair values of liabilities and assets and stuff like that. And as you know, that is never exactly the same as the company itself has. So that would be [ assumption ] for me.

And the next question comes from Marc Mozzi from Bank of America.

Just starting with your differences between the EPRA LTV and the reported LTV. Just wondering why your accountants are allocating the cash you have in hand to receivables and not cash that would have made the 2 numbers consistent?

Sorry, Marc, but I think I said everything around that. So we obviously have cash at hand. And then if we have a lot of cash like we have at the end of the year, we also put cash in short-term deposits. And depending on the LTV definition, it is either being reported as receivables or it is being reported as cash equivalents like we do because obviously, it was our decision to put it in short-term deposits for, let's say, a couple of months or something. And it's our decision and we could have made the decision differently to optimize the EPRA LTV, obviously. But we are acting in the best interest of our shareholder and maximizing interest income.

Okay. So I was wrong. It was the other way around. Okay. On your LTV target, I'm fully aware that -- and I agree with you that you need EUR 700 million to lower your LTV to a 45% target. But if we do basic math, you have a disposal program, let's say, as Rob said, EUR 300 million. You have a cash saving from your scrip dividend of 3 years, EUR 150 million. So we're still short of something like EUR 350 million, EUR 400 million to get back to that LTV target. And I was wondering, number one, have you already identified any assets to be disposed from BCP portfolio? And then where the rest will come from, if you have any idea already from how you're going to bridge your numbers?

Yes. Thanks a lot for the question, Marc. And yes, so certainly, we are now in the midst of doing a portfolio review with regards to the portfolio of BCP. Certainly, it might be worthwhile looking into some of those assets, some are being in North Rhine-Westphalia, where we are and of the opinion that it might be better to resell them. But also we would be willing to look into portfolios, which we have newly won like the ones in the Eastern part of Germany. Certainly, a footprint of 1,000 is the near minimum for us. Certainly, if we are not able to make additional acquisitions in order to size that to something which is a bit more -- a bit bigger than the current footprint, then it might be also worthwhile reconsidering whether a new footprint in Eastern Germany makes sense going forward.

Okay. And how are you going to bridge the remaining -- are you going to make everything consistent with EUR 700 million because we are still short of something like EUR 300 million. How do you see that?

Yes. So with regards to those missing parts, it's not that we will now want to rush into the market with thousands of units, especially after we've seen the turning point. From our perspective, it still makes sense to sell noncore units to do a portfolio management exercise on a yearly basis, but still take advantage of a situation where we are not going to see more units newly produced and then certainly from our perspective, see a stabilization of values also going forward.

The next question comes from John Vuong from Van Lanschot Kempen.

Just a follow-up on the disposal program. Just to confirm the 3,000 units, that's on top of the 1,800 units that you signed year-to-date to be still transferred? And also in line with your comments on the yearly portfolio management, I suppose that these 3,000 units, you expect them to be sold over the next 12 months or to be signed over the next 12 months?

Yes. So I try to do it like Volker did it. So the first one is a straight yes. So yes, we are trying to sell 3,000 units on top of what's going to or has been sold already. With regards to the next 3,000 units and the target of that, it's a clear no. So it's not a disposal target. We will maximize the price, and that certainly sometimes takes a bit longer. So if we are not going to do that within 12 months, then it just takes 12 or 18 or 24 months. But we will not put ourselves under pressure now as the market has turned to now sell 3,000 units, whatever it brings because certainly, we want to at least reach book value.

Okay. That's clear. And how are these 3,000 units split of the different market segments that you have?

That's a good point, John. With regards to that disposal target, normally, you market 3,000 units according to the split, which we have on our books, including high-growth, stable and higher-yielding markets, but it is fairly even distributed over those 3 markets.

And the next question comes from Jonathan Kownator from Goldman Sachs.

So one on development and then a couple of others on subsidies and maintenance CapEx. But the first one on development. Obviously, the new government seems to be focused on encouraging new development of units. Obviously, that's a business that you'd rather more or less shut down essentially. Is the new agreement pushing you to think about the development exposure again? Or is that not something that you're going to reopen again? So that's the first question. If I look at the second question, so on subsidies, obviously, at the end of the day, EUR 21 million contribution, perhaps higher than you expected lately. How should we think about that knowing obviously all the previous caveats you've given, but how should we think about that for 2025? And then last question, perhaps a bit more on the technical side. You're increasing a bit your CapEx to over EUR 35 CapEx and maintenance. So how should we think about the evolution of the capitalization ratio given latest evolution and also the portion of externally procured maintenance?

Jonathan, thanks for your questions. So we will once again split that amongst the 3 of us. First one with regards to development. So we haven't found too much which makes us believe that development really will be able to pick up quickly. So I tried to share it while I was answering Thomas' questions. And if you are looking into what's being disclosed in new builds, it's more of the same like always being disclosed. So more digitalization and enabling better and more easy building permission processes. I think we heard that sentence a million times over the last 20 years, nothing has really changed. Secondly, I think they want to once again revisit that building type E, IFA, simple. And from our perspective, that certainly will help a bit, but it will not dramatically change the mathematics because if you look at it, it will most probably will not bring about more than a decrease of the per square meter construction cost of 10%. And finally, making reference to KfW programs with subsidized interest rates, honestly, that's already been in place. So let's wait and see of how much funding really will be earmarked to enable more buildings -- new builds. And then certainly, if that is so attractive that you can really make a decent risk adequate return on new developments, I think we would be fools to not revisit our decisions. But as of today and looking at the preliminary negotiations and its results, I think it is just premature to talk about whether it's really sensible to ramp up new development once again.

Just one quick one on that, if I may. Just -- I mean, obviously, as you've been highlighting, we've had these comments for quite a while now and KfW and all that. But presumably, the new government should know about that. So they have to make a difference if they really mean it? I mean have you heard anything on that specifically?

Unfortunately, Jonathan, I haven't heard anything. So I think everyone on that negotiation board, and you've seen it's 12 people, they've been very silent. So there was nothing really being disclosed to media while they were negotiating. They are very disciplined at the moment. What you can hear is that they are mostly into getting quick approval on the infrastructure and military part of that negotiation results. And that certainly takes into consideration that you need to convince the green party of that. The green party's focus was never on new builds. So their focus is always on climate neutrality, which mostly is being bound to get the modernization of buildings and green heating right, but not to enable more new builds. So let's wait and see that's our current status of knowledge with regards to the negotiation results.

And with regards to your second question on subsidies, yes, we had subsidies of EUR 21 million last year for 2024. And for this year, we feel comfortable to say that we expect something between EUR 20 million and EUR 25 million.

And your third question on the cap ratio for outlook for 2025. As you know, we focus on the spending and on the best -- making best use of the euro we spend. So we don't really focus on the cap ratio, but we -- you can assume that it's more or less in line with what we saw in 2024. And on the externally sourcing of maintenance work, internally make or buy decisions, we will not dramatically change this approach. We did in the past. We're very happy not to have armies of workers on our balance sheet and being flexible to make use of developments in the market, and that's the approach we are taking for the future. You saw also when we are convinced that there are opportunities that we go and in-source across, for example, in the light work business where we have put up a small unit of dedicated...

So essentially, the ratio of FX procured should be in line? Or do you intend on increasing it actually, but I'm not...

No, not increasing. It should be in line.

And the next question comes from Paul May from Barclays.

Just first question, I suppose bringing rent regulation and the recent move in bond yields and rates together. I just wondered if rent regulation is getting more strict or is the new regulation being put in and the move in bond yields. Just wondering if you see any impact on valuations? And if not, why not? Secondly, also on valuation, again, reiterating on the BCP value uplift. Can you just explain the thought process there with regards to valuing that at a negative AFFO given you said that there's no FFO at the price you paid. So obviously, if you increase the value, there's a negative AFFO on that negative AFFO yield. And then finally, is the plan to just repay the 2025 convertible?

Yes. So I will start once again with the first question, Paul, and thanks for that. So with regards to rent regulation, I think we already said that we've been positively surprised by a rent regulation, which does not seem to be as far reaching as you could have assumed with social democrats forming most probably of the new coalition on a federal level. So yes, it will be prolonged by 2 years. Yes, certainly, that will have an impact on our rent growth ambitions going forward, but it could have been much worse. And with regards to the rental break, please don't underestimate the requirement that the municipalities need to show that they have taken enough other actions to enable new builds over the last years in order to enable them to use it really in '26, '27. So let's wait and see how many tens markets we finally end up with where municipalities can really prove that they have taken all that. With regards to interest rates, so as that movement has taken place quite recently, and certainly, we are currently in the market with some portfolios, we have not seen in those negotiations, any change with regards to the prices which we were discussing. Certainly, we cannot rule out that this is going to happen. But, as of today, we haven't seen that. So let's wait and see. And certainly, we will try to give you a better indication for that in May. As always, we will come up with once again our valuation indication for H1 2025, but it is still quite early now, and we just came out with our full year numbers as of today.

So with regards to your third question, Paul, around the purchase price allocation of BCP, I mean, we all know that this has to be done exactly like IFRS 3 says we have to do it, yes. So what we are doing here, and please keep in mind that this is preliminary because we have one year to finalize the purchase price allocation as usual. So all that we did was we said, okay, what did we pay for the company, and that's the cash amount going out as well as the value of the shares that we already hold at the end of the year. And then we took on the other side, okay, what did we get for it, the fair values of the liabilities and assets of the company. And then that's an easy calculation. And then you end up in this case with a lucky buy, which we prefer to the badwill for naming. And that's how we ended up like that. So it's just following IFRS. On your last question around the 2025 convertible bond, yes, currently, I mean, we plan to pay it back. That's why we also got the money in the past. But as you have seen in the past from us and you will continue to see from us in the future, we will continue to opportunistically refinance with whatever measure we would like to do at whatever time that makes sense just to optimize our financing and to stay on all our legs that are quite conservative, but also helpful for us in the future.

Sorry, just on the IFRS accounting treatment you mentioned on the BCP, does that mean you've not undertaken a valuation? You just use the existing valuation of the assets? Because obviously, it depends on what the valuation is that you apply. And I suppose the question was more how can one justify that valuation having just paid a much lower price for those assets?

So on the valuation part, you have the existing assets and there you have a CBRE valuation of those assets. And we are well -- we are very familiar with CBRE. So we took their valuation. Of course, we will do our own valuation over the year. That's why it's a preliminary valuation, but that's on the existing stuff. And on the new -- on the undeveloped land, Lars already said that here, we took the land values as we always do on undeveloped land within our LEG valuation.

And one last one. I think you mentioned that you've refinanced some of the bonds on BCP. Just wondered if there was a cost of that given I think you had about 2 years remaining on those bonds?

Yes. Obviously, we paid a little bit for that, but this also helps us a lot because with that, we can make the structures much easier, not being in the end, dependable on the Israelian market. And obviously, they had quite a huge yield on that. So that's also helping us not having to pay that in the future.

Okay. Sorry, can you let us know the cost of that, that would be helpful.

Sorry, but I can't give you numbers from BCP on that before they haven't published any on that.

Next question comes from Manuel Martin from ODDO BHF.

Just one little follow-up question on Slide 14 of your presentation on the services. If I understood you correctly, so you don't want to have an army of craftsman on your balance sheet. But can you give us an idea or a flavor of how much or what's the proportion of the craftsmen that you have on your balance sheet? Is it 1/4 of the total craftsman you employ? Is that internally what you have?

1/4 of the craftsmen we employ of the total employees.

Sorry, I mean the total craftsman number that you use.

Total craftsman number is about 1/4 of the total employees.

Okay. But that includes external and internal craftsmen that quarter? Or is it internal?

That's internal. So that's internal. The TSP, so the technician craftsmen services, they have roughly about 500 employees. There are 400 working as craftsmen and 100 in the back office.

Okay. Okay. And overall, no ambitions to increase that number or to increase the number of craftsmen overall on these services activities. Is that correct?

Well, we always strive therefore, what is -- what makes most sense to us, yes. So the ambition is not to increase the number of people we employ, but the ambition is to maximize shareholder value. And we, for example, just launched the electricians light work company where we in-source their electrician services we perform because for decarbonization, we need more electricity in the buildings and thus, there will be more work for electricians to do. But we always think where we -- where it makes sense to have own craftsmen on board and with all the problems of less flexibility, but of course, on the cost side with advantages, and that's how we steer the company.

And the next question comes from Neeraj Kumar from Barclays.

Just a quick one from my side. So I just wanted to check if you're interested in hybrids to drive your headline LTV to below 45% because it's been a couple of years since it's above the 45% limit. And as far as I remember correctly, raising equities to deleverage the company is not an option on the table.

So the last one is a nice one, and a way to put that, Neeraj. Thanks a lot for asking that. So we can take that off the table. So there will be no equity issuance at the current share price level and happy for the hybrid to give that over to -- hand that over to Kathrin.

Yes. So there are also no plans for hybrids on the table currently. But as you well know, we look at all the financing instruments out there at all the times and keep our options open. But as for now, no plans on the table.

So there are no further questions at this time. So I would like to turn the conference back over to Frank Kopfinger for any closing remarks.

Thank you, Moritz, and thanks for all your questions. And as always, should there are further questions, then please do not hesitate and contact us. Otherwise, please note that our next scheduled reporting event is on the 13th of May when we report our Q1 results. And with this, we close the call, and we wish you all the best and hope to see you soon on one of the upcoming roadshows and conferences. Thank you, and goodbye, everybody.