TAG Immobilien AG (TEG) Earnings Call Transcript & Summary

Ladies and Gentlemen, welcome to the TAG Immobilien publication of Annual Report 2024 Conference Call. I am Yusef, the Chorus Call operator. [Operator Instructions] And that this conference is being recorded. [Operator Instructions] The conference not be recorded for publication or for broadcast. At this time, it's my pleasure to hand over to Martin Thiel. Please go ahead.

Yes. Many thanks, and good morning all. This is Martin. Welcome to our annual report 2024 conference call. Many thanks for dialing in. Perhaps this year, kind of special situation is we already published our results roughly 1 month ago at the end of February. We can tell you upfront that compared to the preliminary results, the final results did not change. So basically all numbers confirmed after now. The audit is completed. But let's start with the presentation on Page 4, which is the highlights slide and perhaps to summarize the main messages for today as follows. Firstly, FFO I came out even slightly above our guidance at EUR 175 million. Guidance range was EUR 170 million to EUR 174 million. And what was better than expected was the rental result in our German business. And here, the EBITDA for the operational business in Germany was performing quite well. We had a very strong fourth quarter from the energy business, but what was -- but even more important is that we had quite decent like-for-like rental growth in German portfolio of around 3% in 2024 after 2% in the previous year. And the vacancy in our residential units in Germany fell to 3.6%, so a reduction of 40 basis points in the course of 2024, which was, if you remember our history, where vacancy rates stood some years ago, definitely a big success. But not only the rental business in Germany and -- performed very well, also Poland showed a very strong development in 2024. And here, namely, the sales business was strongly expected. So we ended up with the net income from sales in Poland of EUR 66 million, and it was quite significantly above our guidance, which stood between EUR 46 million and EUR 52 million. And this increase in the sales result in Poland was due on the one side to better EBITDA, so better operational development. So we had high margins in the projects that we handed over that we originally expected. We also sold part of our land bank, not too much, but we use here simply opportunities to sell part of the land bank. And on the other side, we had better-than-expected interest income in Poland because during the course of the year, we had a strong cash position. As a consequence, not only the net income from sales in Poland was above the guidance, also FFO II, which comprises the rental result. FFO I, the net income from sales was better than expected. Looking at stage numbers in Poland, we sold around 2,000 residual units compared to 3,600 units in the previous year. So yes, this was less than expected and offset than the previous year. But perhaps 2 comments on this. Firstly, 2023 was clearly an exceptional year with a tremendous sales result. But on the other side, and that's also important, sales [ price ] is important in the course of 2024 increased by another, depending on location, on average of 10%. So that means that the sales volume that we achieved was still on a very good level. And if you look into 2025 to give an outlook already now, we see that we have increasing number of units sold already in the fourth quarter 2024. So therefore, our expected number of units sold for 2025 should be at around 2,800 units. This is in line with the guidance that we already gave you in November last year. Looking at the balance sheet. Firstly, EPRA NTA per share grew in 2024 by 5%, despite greater portfolio or valuation loss in the first half 2024 in the German portfolio. So still a quite decent result. And in the second half of 2024, the trend from valuation losses in Germany, which lasted now for more than 2 years, stopped. So we had an even slightly positive value increase of 0.9%, which is clearly good news. But German valuation levels remain on a, from our perspective, quite moderate level. So we are valued now at a gross yield in Germany of 6.6% compared to 6.3% at the beginning of the year, and a value per square meter of slightly above EUR 1,000. The fourth point to mention is that our strong liquidity position. So the liquidity position was already quite good at year-end, with a little bit more than EUR 600 million of cash in the balance sheet after the issuance of a EUR 500 million corporate bond in August last year. And we increased this cash position by issuing new convertible bonds in March this year of EUR 332 million. So on a pro forma basis, the cash position stands at nearly or more than EUR 930 million. And this is good for 2 things. Firstly, all upcoming unsecured debt maturities in the next 2 years are covered. But secondly, and that's also important, now we really have the basis from the strong liquidity position to grow in Poland. And as you know, in Poland, we've got ambitious investment plans in our rental portfolio. So therefore, the basis for further growth is now clearly there. And as a last point from the highlight slide, all guidances for financial year 2025 are fully confirmed and are unchanged. We are proposing still a dividend for the next AGM, which takes place in May this year of EUR 0.40 per share. So that translates into a payout ratio of EUR 0.40 of FFO I, and it will offer our shareholders also the choice between a cash dividend and new TEG shares, so meaning a scrip dividend. Let's move on to Page #5, you will find the details, perhaps a quick at the disposals in Germany because we haven't touched this yet. So we sold in financial year 2024, 1,400 units at a total selling price of EUR 143 million. The average gross yield at which we sold was 5%, and we even managed to achieve a slight book profit of EUR 6.6 million. Looking forward into 2025, basically, our disposal program in Germany is now -- you shouldn't expect really disposals in Germany in the course of 2025. But clearly, opportunistically, we will also look at the market to dispose something if we can really exit at a price which is then more meaningful above book value or also, but it's really a smaller share perhaps some noncore assets that we will sell. But on the other side, we're also looking at potential acquisitions in Germany. You should not expect here really strategic, very large acquisitions. But if we see opportunities in the market in sizes like we bought in previous years, so portfolios, EUR 13 billion, EUR 14 billion in East Germany, high yielding in markets that we know very well. So just to give an idea, yes, we would also happy to do such acquisitions. Page 6 shows you more details on the Polish portfolio. And perhaps just to remind you that we also disclosed, you see this on the bottom right, the NTA and the net debt for our Polish sales business and perhaps interesting to realize that although this business, the sales business delivers an adjusted net income this year of EUR 66 million; last year, even EUR 80 million, the share of this business in the NTA is very small. So it's just EUR 3.29 because of this business is not reflected in the NTA. For example, the full goodwill is excluded and also most projects are valid as cost. So therefore, the NTA impact of this very profitable business is still small. Moving on to Page #8, where we see more details on the EBITDA, FFO and AFFO calculation. As said, the EBITDA in the German rental business was even stronger than expected and was basically on the same level like last year despite the disposals we did in Germany, not only the 1,400 million -- 1,400 units, sorry, that we sold this year. Also in the year before, we sold around 1,300 units. So that means we've been able to keep the EBITDA in the German business and the German rental business stable. And that means on the other side, as we have now stopped our disposal program or at least the formal disposal program, there should be definitely the expectation from our side that the EBITDA also in the German business is growing. And also the Polish rental business delivered a quite nice EBITDA contribution. It's still quite small with EUR 12.2 million, but we will -- this in a second, this will grow in the future quite strongly. As said, FFO I above expectations, up year-on-year by around 2%. Also AFFO is up by 12% year-on-year because of slightly reduced modernization CapEx, but I don't see this as a trend. So modernization CapEx is simply something which has a kind of swing. So therefore, you should not expect a strong increase in CapEx in the future. That's not the case. But on the other side, please don't read too much into that if the AFFO is in some year a little bit higher or a little bit lower than in the previous year because CapEx impact is cyclicity. Page #9 shows you the EPRA NTA development. I also already mentioned the 5% increase despite the valuation loss that we still had in the first half 2024 in Germany. If we eliminate this on a pro forma basis, so if we would had a valuation result of 0, the EPRA NTA growth would have been around 8% year-on-year, and that shows us that our business, the rental business in Germany and in Poland as well as the sales business in Poland, even in a situation with 0 valuation effects leads to quite decent EBITDA per share growth, 8% per year should be here a quite strong number. Page 10 shows you the financing structure. We are now at average cost of debt of 2.6%. The average maturity is 4.4 years. The average maturity will increase a little bit now after the issuance of the new convertible bonds after the balance sheet date. So this convertible bond from March is not included in these figures. LTV is at 46.9%, so that's still above our LTV target. But from our perspective, it's not far away. You perhaps remember that it's been already at an LTV of around more 40%. But what we did in the second half of the year, especially in the fourth quarter is that we did some significant investments in land bank in Poland, especially for the sales business. So for example, in the fourth quarter alone, we had net investments here of around EUR 100 million. And this EUR 100 million investment in land bank in Poland increased the LTV by around 1 percentage point. So that means as we have now really a quite strong land bank. So if we -- in Poland, if we look at both businesses, rental business as well as sales business, this comprises around 27,000 potential residential units compared to around 21,000 residential units at the end of the previous year. Therefore, not really big investments are needed in financial year 2025, and that should very naturally come down -- or bring down the LTV. And additionally, as already discussed, we are proposing, as already announced, quite, let's say, reasonable moderate dividend payout that ensures on one side, further growth, but also keeps the LTV under control. You'll find more details on financing, especially the maturity profile on Page #11. Again, with the pro forma liquidity that we have of around EUR 930 million, everything that is coming up when it comes to unsecured financing is already refinanced, and that should bring us in a good position as of today in a situation where markets are more volatile than some weeks ago. Let's move on to Page #13 that shows you some data from the German portfolio. As I already mentioned, a quite strong development in like-for-like rental growth. So 3% to like-for-like rental growth. You see this on the bottom left, including vacancy reduction. But perhaps interesting and positive is the trend in what we call basis like-for-like rental growth. So that's the light blue color, which came out at 2.5%. And that's a rental growth, which is more or less purely driven by tenant turnover and rent increasing from existing tenants. So from the Mietspiegel, for example. And this increased from 1.5% in 2022, which was the same number the year before to 1.8% now -- sorry, 1.8% in 2023, 2.5% now. So that shows you that also in our regions, we've got very strong underlying dynamics and rental growth is picking up even if we leave out any impact from vacancy reduction. Page 14 shows the development of the vacancy rates once again over the years. So we were happy that we are now at a vacancy rate in the German portfolio of 3.6%, starting from 4% at the beginning of the year. And this is for us really a very good achievement. So we show here the development from 2021 onwards. If we would also show some years before, you would see that the vacancy rates in our portfolio clearly higher as we had acquisitions with higher vacancy rates in the past. So that shows us that the assumption that we had some years ago that also in the secondary cities portfolios will show very strong development was right, and we still think that there's room to improve this. So the 3.6% vacancy rate should not be the rent of the development. So that should clearly go down again in the course of 2025. Page 15 shows the portfolio valuation in Germany as an overview. We still had a yield expansion in the course of 2023, so in the course of 2024 by around 30 basis points. As said, we are now valid at a 6.6% gross yield and 6.6% gross yield in a world with interest rates that we have as of today that clearly increased now in the last weeks is still a very reasonable valuation yield from our point of view. So our portfolio still delivers a quite decent cash yield even if financing rates are on a level as they are today or at a slightly increased level from the last week or last weeks. EUR 1,040 per square meter is the value now on average for the portfolio, this should be a quite moderate level. And outlook for 2025 is, of course, too early. I mean, let's see how the development in interest rates now in the next weeks and months, it clearly needs to be observed. As of now, we do not see values under pressure. So normally, our base case for 2025 is something like a flattish or a stable valuation. At least we have not factored in any valuation gains or losses into our business plan. Let's move on to the Polish portfolio. A quick look at Page #17, which shows the rental business in more detail. So still good like-for-like rental growth in Poland with 3.2% after 2 exceptional strong years, so more than 10% last year and more than 20% the year before. So definitely, the success that rents are still growing in Germany -- in Poland after these 2 strong years. Vacancy in the total portfolio was 4.9% at year-end, but some of the units or some of the projects have been completed towards year-end. So if you look at the portfolio and just look at the apartments that are finished for more than 1 year, the vacancy rate in the portfolio was just 1.5%. Page #18 shows the planned development of the Polish build-to-hold portfolio. We have 3,200 apartments finished at year-end 2024, around 1,500 units are already under construction. So that leads to an average or to a number of units finished at year-end 2026 of around 4,700 units, so 2 years of construction time. And also the further growth is very visible. As I already said, we have now a strong liquidity position. We have a huge land bank that we can use for the rollout of the rental portfolio. And we have an excellent team, a great platform in Poland who can execute this. So although it's a midterm plan over the next around 4 years, we think this growth in the Polish build-to-hold portfolio is very visible, and that will deliver quite strong EBITDA rental growth. We give you some numbers here on the right side. These are numbers that you already know from our last presentation. Just to remind you, this EBITDA growth from the Polish portfolio, from the Polish rental portfolio will lead to growth in EBITDA from the rental business of around 25% in the next 4 years. And on top of this, we will surely see some further growth in the EBITDA of the German portfolio. Pages 19 and 20 give you more details on the Polish sales business, but I think I already mentioned the main messages. So less number of units sold in 2024 than in the very strong year 2023, but based on higher sales prices and also the number of units that we handed over in 2024 was lower than in the previous year, but this was clearly already expected. Again, in the units that were handed over, we had even better margins than we expected. So a typical gross margin in our sales business is still above 30%, more around 32%, and that has not really changed. To the contrary, it has even slightly improved over the last 2 to 3 years as sales prices have increased. And finally, on Page 22, a look at the guidance for financial year 2025. I can make it short. So the guidance is unchanged for FFO I, for net income from sales in Poland and also from FFO II. Looking at the strong results that we presented from 2024, we are very confident that we are on a good way to achieve these numbers. That's it for me. Thank you already for your time and to listen to the presentation, but I'm very happy to answer your questions.

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

Just a couple of questions from my side. Firstly, you mentioned you've obviously your formal disposal program in Germany. You mentioned you could look at maybe some smaller acquisitions. I'm just thinking, assuming there's enhanced market uncertainty and questions over the trajectory of property values from here, could you foresee see a scenario where you maybe have to continue to sell in Germany? And then just on the Polish portfolio, I see the vacancy in Wroclaw for example, from a new project in the letting process. How are discussions progressing on that one? And how does this compare to your leasing targets?

Marios, to answer your first question, yes, indeed, we have stopped our disposal program in the sense that disposals are no longer needed for upcoming refinancings. I mean this was clearly a target of the disposal programs that we had in 2022, 2023, basically -- or still in the first half of 2024. Now this is completed. So therefore, we're not under pressure to sell. As of now, we don't see a world upcoming where property prices are falling, leverage is going up, and therefore, we need to sell. I mean, I'm optimistic that the increase in interest rates that we saw in the last weeks, which were still only, let's say, only 30, 40 basis points does not lead to a situation that we have experienced 2, 2.5 years ago. So therefore, I'm not seeing the need that we will be in a situation to start significant disposals in the future. So yes, of course, we are flexible in this regard, but we are not expecting this situation. And when we talk about acquisitions, again, we handle this with care. Yes, we are not here under pressure. We've got a very natural growth plan in Poland, which is, as I mentioned, quite visible. So therefore, there is already embedded growth in the company. If we find something on top, if we find opportunities in Germany, yes, we're happy to look at them and also to buy something that makes sense, but without any pressure. And the second question, Marios, I'm not sure if I understood it correctly. It was the one project in Wroclaw that showed higher vacancy rate in rental portfolio, right?

Yes. On slide 17, the 9.8% vacancy.

Yes, yes. And the pure reason for that is that this project or project stage to be more precise, was finished in the fourth quarter of 2024. So therefore, we've been in the process of [ freezing ] it up. As of today, this vacancy rate is already significantly down. And this is a clear trend that we see with every stage that we complete in Poland, it takes between, let's say, 3 to 6 months to rent out such portfolios or such stages. And then the vacancy rate is around, let's say 2%, which is in light of somewhat higher fluctuation that we have in our Polish portfolio, we think a strong sign for the demand.

Next question comes from Thomas Neuhold, Kepler Cheuvreux.

I have several ones and maybe we take them one by one. Firstly, I was wondering, probably it's still early, but can you tell us what is your opinion on the impact of the huge German fiscal packages on the German economy, the resi sector and DACH? And do you see the risk of elevated wage and material cost inflation due to the huge increase in infrastructure spending, which is planned?

Yes, Thomas, for us, the main topic to observe as a potential consequence of this quite huge investment program is the development of interest rates. That sounds very simple. But when I look at other potential impacts, we are not involved in new construction business in Germany. I have, by the way, my doubts if such investment program will now bring a lot of units to the market and still construction costs are extremely high. This could then also lead to more construction price inflation. Yes, it would have a certain impact on our modernization projects. But looking at the overall absolute levels that we spend here, for example, on CapEx, it's still moderate. So therefore, we can digest this. So cost inflation developments in the new construction space is something that is not that relevant for us. And as discussed before, I mean, one needs to observe the interest rate developments. As of today, I think it's still all okay. So if I look, for example, at our bond yields, currently, if we would issue a new corporate bond today, that would land perhaps exactly on the conditions of the corporate bond that we issued last year in August. Interest rates are a little bit higher than last year. Margins have come a little bit down. So therefore, still, it's a situation that we can handle very well.

Okay. And the second question is also more or less a top-down question. If we hopefully get these in Ukraine, do you expect any significant impact on your Polish operations? And maybe can you remind us which share of the acquisitions were done by Ukrainians last year and the year before, this entire group in the Polish operation.

Yes. Well, the -- first of all, thank you for the questions because we received this question from time to time now in the last week. And just to inform everyone, if you look at the appendix of our presentation on Pages, I think, 36 and 37. We inserted 2 slides that show hopefully the strong fundamental data that the Polish market had and will have in the future. And that's something that is not impacted mid- to longer term from potential positive and negative impacts from the war in the Ukraine. Yes, clearly, 2023 was a year that was exceptionally strong, and this was also driven by a strong inflow of people from the Ukraine. But even without such special impacts, you see that we are delivering already as of today, still strong results from our Polish business. So -- and to give you some numbers, I mean, it's correct. We have a higher share of Ukrainians in our tenant base, which is roughly around 30%, but this is nothing that was caused by the war. So this was also the same percentage before the war. Maybe potentially, it's because a large part of our portfolio is based Wroclaw, so that's the southern part of Poland, where the Ukrainian border is not too far away. And these are, let's say, not the typical refugees in the sense of that they are coming to Poland, live there for some months and then go back. No, these are people that are really working here and that have been in Poland already before the war. So Poland always had a higher share of Ukrainians. So our customer base -- and by the way, it's the same for the sales business, it's not the type of refugee that returns on day 1 if the war is hopefully over at some point in time. So therefore, we are convinced that the Polish residential market still offers very good fundamentals in the future. And who knows if the war in the Ukraine ends, perhaps also some people who were still bound to be in the Ukraine and basically have to fight out in leaving the country, this could also be the case, and that could lead to an inflow in other European countries like Poland or like Germany as well.

And my last question is on refinancing costs. Can you give us an indication of the recent increase in swap rates and interest rates, what typically 7- to 10-year mortgage loan would cost in Germany currently for you?

Yes. Well, the 10-year mid-swap rate is around 270 basis points. So if we put on top of that a margin from the bank to give a round number of around 130 basis points. So that would be for 10 year around 4%. We are honestly going more currently for a 5-year maturity. So that brings us more to 3.6%, 3.7%. And if you look at the unsecured market, as already mentioned, potential -- or the 5-year bond, which has currently a maturity of 5 years is trading at 4.1%, 4.2%. So this would be our current financing cost.

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

You mentioned potential acquisitions in Germany. Given that you're also focused on growing in Poland, how should we think about the split of investments between the 2 countries? And perhaps as a follow-up, how should we think about funding also taking into consideration that you are also looking to sell noncore assets?

Again, to make it clear, the preferred capital allocation is the Polish rental portfolio. And here, we've got a clear plan. And we are already executing this plan with units under construction. Further construction starts will follow in the course of the year, we will handle that with care. We will do this step by step. But the target is clear to get to this 10,000 units now in the next -- basically a little bit more than 3 years. Whereas Germany, acquisitions are really more opportunistically. As said, we are not forced to buy. So therefore, if we see something coming up, and we're not talking here about very huge portfolios. But as I said, just to give you an idea of the dimensions of a portfolio of EUR 30 million, EUR 40 million in locations that we know very well, good construction quality, yes, we would look at that. So that's more an add-on and more something opportunistically. And looking at the financing, I mean, in Germany, perhaps we are also a little bit back to our capital recycling model in previous years. So executing opportunistically perhaps some of the lower-yielding assets, reinvesting that into new high-yielding properties, putting on top of that a small bank loan. So that's not a big financing issuance. And for the Polish portfolio, if I talk more generally about financing strategy, here, we're using unsecured financing and the corporate bond that we issued last year in August, that really provided now -- or provides now the basis for the investments that we want to do.

Okay. That's clear. And then just to confirm the acquisitions that you're looking at, that's going to be in line with previous investments. So you're going to acquire some vacancy and lower that through monetization?

Yes, yes. So not a new asset class, not a new market. So really something that would fit very well in the TAG portfolio.

The next question comes from Eleanor from Barclays.

One question from me. So I'm looking at the title of your press release that says expect further earnings growth following the completion of refinancing phases. Maybe if you could elaborate on that as obviously your FFO guidance for this year is broadly flat to down. So maybe what time frame is that phase referring to? And any more color on how you see your future earnings progressing with the upcoming refinancings that you have?

Yes, thanks for the question. It's clearly the very visible midterm earnings growth that we see here. And then coming back here now to the investments in our Polish rental portfolio. As you perhaps have seen at the slide, we are predicting here an EBITDA growth from the Polish rental business alone of 25% until year-end 2028. So that's a little bit more than 3 years. Additionally, as mentioned, as we are not looking into large disposals in the German rental business, also the EBITDA from the German rental business will grow. So therefore, EBITDA growth is very visible. And then looking at results growth, I mean, one needs to make an assumption of the interest rate development in the next 2 to 3 years. But if you pencil in interest rates as they are today, you should clearly see that earnings also will grow now really step by step over the next years. And that's for us, I think, a good basis which we can operate it. Again, there is growth in the company as we have this growth opportunity in Poland.

The next question comes from Shital Jamalani from Deutsche Bank.

Can you hear me?

Yes, we can hear you now.

It's Thomas. It's Thomas. Just one question on the Polish build-to-sell business. I mean there was obviously this lower demand recently, and you referred to the high level of '23. Just wondering what would you say to what extent it was due to the uncertainties from the subsidy program? And to what extent maybe from a weaker underlying demand, I mean, given still relatively high mortgage rates. And I think if I got it correctly, you referred to promising sales activity in the first quarter so far, is that correct? And maybe could you share the run rate.

Yes, Thomas. I mean we will publish our Q1 data now in 6 weeks. So -- but it's too early to give a clear indication of the sales in the first quarter. But if you look at the sales numbers of the fourth quarter, that was around EUR 500 million. So that was already stronger than the quarters before. You should assume that this trend continued. So therefore, that is really now guiding towards more units sold in 2025 compared to 2024, and that's exactly what we are guiding for the full year. Looking at the demand in 2024 in the Polish sales business, I would not say that there was low demand. It was clearly lower than 2023, which was again a very strong year, driven by people coming in from the Ukraine that put pressure on the market. Also at that time, a subsidy program that helped mortgage buyers. So perhaps we are now 2024 and 2025 back on a more normal level, which still means that we are earning with this business some EUR 60 million, perhaps even more. And so that should be definitely still have a strong result. Can we resplit this and can say, well, a certain reduction in sales volume was due to the uncertainty about a potential new mortgage program, that's not really possible. But clearly, what we see today, as I stated, as it is clear now that there's not a new subsidy program for new constructed apartment is coming. These uncertainties out of the way, and more people are then simply making their decision. So this was clearly helpful that some would expect decision wasn't clear, and we are now really back into a normal and still quite strongly work base business, I would say.

Okay. Okay. So there's no new subsidy program in the making?

No. And there is a subsidy program in the making, but more purely dedicated to the secondary market or to people with lower income, which is also, to some extent, helpful because every program in the market creates additional demand, but it's not our product. And the better aspect for us was that customers that some months back still waited to buy an apartment because they're waiting for a potential new program now have clarity and now really are buying the apartments that they had already thought about some months ago.

The next question comes from Simon Stippig from Warburg Research.

A couple from my side, if I may. First one would be in regard to the services business. So here, the growth came mainly out of the Energy Services. Could you comment on a certain driver for the increase? And also if you expect that the growth rate to continue in 2025?

Yes, it's correct. In the service business, the energy business in Germany was quite strong. So it was even a little bit better than what we had expected. But we're expecting nearly the same result for this year, perhaps a little bit weaker, so weaker means it's EUR 1 million, EUR 2 million less. So this business is simply working quite well. We have expanded this business, so more units are now connected to our energy business. And the energy business means we are more or less selling heating to our -- we're also doing some metering services. So the business has expanded quite well over the last years. And secondly, if you look at the total plan in the group, and you see a strong increase year-on-year, where it's also included in the service business but is part of the sales segment, is the services that we do for our joint venture is important. So you know that we have some joint ventures in Poland where we have a 50% partner. And here, we are responsible for the construction business, for the sales business, and we get quite decent fees for that. So that's also if you look at the total P&L, a reason for an increased service results. .

And your penetration in the energy business for the German portfolio, can you comment on that? How many units you're already penetrating?

I think it will be by around 60,000 units. So that increased now over the years.

Okay. Second question would be in regard to your German disposals. You had quite a few disposals out of your German portfolio in the last year. Could you comment on how many of those have been closed until year-end 2024?

Yes, most of them is closed. There was just one portfolio, a little bit more than 200 units that now will close at the end of the first quarter. And that's an impact, I can give you the net cash impact that's around EUR 25 million. So with the help of that closing after the balance sheet date will have a slightly positive impact on the LTV additionally.

Okay, great. And could you also comment on the impact of the closed portfolio on your net cold rent in 2024 because there are always some phasing effects. So great to get that number.

Sorry, can you repeat this once again?

Yes, the impact of your closed portfolio until year-end 2024 on net cold rent, because usually, there are phasing effects over the year, so just would be great to get that number.

On this specific portfolio, you mean this, that's not a huge impact. We gave in the Q3.

No, sorry. The total 1,200 units you closed in the last year, the amount of that.

Yes, that's what I just want to refer to. It's around EUR 4 million Yes, it's around EUR 4 million rent that we saw here. If you look at the Q3 presentation, I think we gave there a bridge between FFO 2024 and 2025 and there you will find this EUR 4 million impact from sold units.

Okay. Perfect. And then one more in regard to what you mentioned in the presentation, an overview on Page 4, Item 2, Poland. You mentioned during the presentation, you had a strong cash position in Poland and you earned better interest there, but you also said that you sold part of your land bank. And again, later in your presentation, on the financing structure on Page 10, you mentioned that you bought some land bank in Poland. Here, I would be keen to know what you meant by the selling and buying of land bank as well as in connection to the high cash position in Poland?

Yes, yes. Sorry, if this was a little bit confusing. So to be more precise here, the cash position was very strong in Poland, especially in the first half of the year. So we had more cash in the balance sheet than originally planned. So that created interest income, which was above the plan. So therefore, this was mainly the reason why also for the full year, we had better interest income than expected. So first year, strong cash position. And then we started again also to look at opportunities for buying land bank in Poland, and therefore, we invested. So therefore, at year-end, I would say the cash position in Poland is back on a normal base. We increased, as mentioned, our land bank in Poland quite strongly. And we are typically buying here really large lots of land. So land plot for, let's say, potentially 1,000 units. And what we do then from time to time is after such an acquisition of a land bank, perhaps we sell a smaller part of this land to another investor or other developer, yes? And by doing this and offering a smaller land plot where perhaps the competition around such smaller land plots is higher, from time to time, we realize here a nice profit and the team is here really doing a great job. So therefore, I mean, we're not trading with the land bank, but opportunistically, we use demand for smaller land banks to sell at least part of the land bank to realize some extra profits.

Okay. And that would be mainly the same land bank or a larger land bank, not different locations you're selling and buying?

No, this is then really from a large land bank selling a smaller proportion to realize opportunistic profit.

Okay. And maybe one last one. I saw in your portfolio overview in Salzgitter, you had a very strong vacancy reduction last year by some 70 basis points. And I was wondering if that's explained by some modernization projects you conducted maybe the year earlier? Or if there are other factors that explain that? And also here, what structural vacancy would you see in the portfolio region of Salzgitter? And maybe also the same would apply -- the question -- the same question would apply for your Berlin portfolio region because here you also decreased vacancy quite strongly.

Yes. Yes, in both regions, we had quite -- for our sizes, significant investments in the past 2 years. So especially in the Berlin region and here in [ Boerhal ], where we own around 3,000 units, we did for us quite significant investments, and we have seen the success in the course of 2024. Similar in Salzgitter, also vacancy is a kind of volatility. If you complete the modernization program and then you rent it out, perhaps not from day 1, but over the next weeks and months, you simply see that vacancy rates are going down without any super huge modernizations. But yes, clearly, that helped a lot. If you ask us for the structural vacancy rate, low capacity overall portfolio. The 3.6% is already a great achievement, but there's definitely room for improvement. So we published our guidance in November. We've been even better in the vacancy development than expected. But still, if we look at the guidance, I think that assumed a further 20, 30 basis points vacancy reduction in the course of 2025. That is absolutely still something that should be achievable. So the demand for the product for affordable housing also in our regions, is simply there.

Okay. So there were no other factors at play, for example, in Salzgitter? It was really...

No. If you have in mind something like 200 units rented out to a special group of people, whatever, that's not the case.

The next question comes from Kai Klose, Berenberg.

I've got just 2 quick questions. The first one is how has rent receivable been developing in 2024 in the German portfolio? And the second question -- in the German rental portfolio. And the second question, I just wanted to check, you mentioned that you have spent around EUR 100 million for land purchase in Poland in Q4. I just want to check. And the second question on that, on how much of the land you already have is already zoning or the permitting in place?

Yes. Perhaps I'll start with the second question. Yes, the EUR 100 million is correct. So that was the investment volume in the fourth quarter in land bank. And again, that led to the LTV increase by roughly 1 percentage point. But on the other side, we have now a land bank that really helps us to create value in the future. Most of that has -- or the larger part of that has no residential zoning, but that's a typical case. So that's nothing special, nothing new in our business and also nothing that is in Poland a concern. So that's simply the business model that we and the companies that we acquired is following for many years, and that's where we create value. So by doing the rezoning from, for example, commercial to residential zoning. So that was the question regarding land bank. And the first question, rent receivables have not really increased in the course of 2024. And also if I look at the impairments on rent receivables that we have, we are still at around, I would say, slightly above 1%. That is also unchanged compared to 2023 and perhaps even more important, that's unchanged compared to the previous year. So that means when we look at increased heating costs that our tenants clearly had to pay in the last 2, 3 years that had not an impact on their ability to pay their total rent.

And a very quick one on the land you bought in Poland. Probably a bit too early to give a split about develop-to-hold and develop-to-sell. But based on your current planning, is it only some thoughts in mind? Or is it way too early?

Yes. Clearly, every time when we buy a land bank, we have a plan. But I think with what are we designated to build-to-hold projects and what are we using for the build-to-sell projects, the larger part of the land bank will be used for the sales business. So if you look at our growth ambitions to get to the 10,000 units, a little bit more than 3,000 units are already finished. So that means out of the total land bank, 7,000 units, but a little bit more are as of now earmarked for the rental business and the remaining up to 20,000 units are earmarked for the sales business, and that makes it clear for us. We've really now a big land bank, which is clearly an asset in this market that we can use now in the next years to sell. So large investments are not necessary. So we have also used this situation where we had simply the financial power to buy something to invest into the future.

The next question comes from Manuel Martin, ODDO BHF.

Just 2 questions from my side. Martin, as you said that the interest rate development is one of the major topics to be followed. Have you heard anything from appraisers or from the recent meeting in France or any impression how people are feeling about the potential development of interest rates. Maybe you have a kind of feeling or got a feeling from these people.

Yes. I don't see that there is currently a concern in the market that we will now again enter a phase where values are coming down. I mean still the development, honestly, is quite young, right? So it's just 3 or 4 weeks back since interest rates now increased. But again, if they are on the level where they are, that's for us is still absolutely okay. So our business in Poland as well as in Germany is based on high-yielding assets. So therefore, we are still earning money even on today's interest level. I mean, of course, we listen to the market. If you ask us, do you already see people that now have a different opinion on potential acquisitions or disposals in Germany. No, that's not the case. So I'm not worried that we are entering now another difficult phase. Operationally, the market is super strong in Germany as well as in Poland. And just -- I think it's just important to observe the situation, right? And for us, the good situation is that we can observe this situation from a strong liquidity position, and that should be a good basis.

Okay. Understood. Second and last question, a short one on the convertible due in 2026. Any thoughts on this? Are you going to pay that back or launch something new. I mean you already launched recently a convertible bond we saw.

Yes. And we will pay that convertible bond next year back. So the EUR 470 million from the cash position that we have. So if you want so out of the nearly EUR 1 billion, EUR 470 million, half of that, is more or less blocked for the convertible bond repayment. We didn't make a repurchase offer already with the issuance of the new convertible bonds because the yield on the outstanding convertible bond was already quite tight. So for us, economically, that makes more sense simply to put it into a cash account and earn some interest income. And also from a tax perspective, this was the better way for us not to repurchase the outstanding bond, but simply to repay it when it is due.

The next question comes from Stéphanie Dossmann from Jefferies.

Just a question on the dividend. Do you contemplate an increase in the dividend payout going forward? Do you have any target? And maybe on the scrip div, so the rationale behind offering a scrip dividend maybe, is it due to cash retain requirement from rating agencies, for instance? Or how can we see that, please?

Yes. Thank you for the questions. Stéphanie. First of all, commenting here on the dividend for financial year 2025, we are again guiding for a 40% payout ratio of FFO I. So that would translate roughly in the same dividend as a guidance that we pay out now for this year. It's too early to give already an outlook for the dividend thereafter, but -- and we've discussed some minutes back earnings growth that is very visible from the growth of the Polish rental portfolio and so on. And in line with that, it would be very natural that also the dividend grows again. And at some point in time, and again, it's not too far away, I mean, we can also rethink about the payout ratio. So once we are more and more completing our investments in Poland, so there's not -- there will not only be higher earnings, but there could be also -- there will be room for a higher payout ratio. But it's too early to give already a concrete guidance as of to date, but that should be very clear that shareholders can expect a growing dividend in the near future. And commenting on the scrip dividend, no, it was not a request from rating agencies. I think they're happy to see this. Simply, we had in the past weeks and months, discussions with our shareholders. So after we announced the dividend, the first dividend payment after 3 years of suspension, in November last year, we took the opportunity in meetings to discuss with shareholders this idea, and we saw a broad acceptance for that. For us as a company, clearly, it's not a material amount, but over the time, over the next 3, 4 years, putting in a smaller portion of equity into our growth in Poland is something that is not only digestible, but also makes sense from an LTV perspective. So that was the reason why we're now offering the scrip dividend, and we will do this in a very standardized way. So you shouldn't expect a wide discount. So this should be absolutely market standard. I think market and is a 2% to 4% discount. So we're not forcing shareholders into shares if they want to take or prefer a cash dividend. So that should be very, very standardized.

But do you mean that we should expect scrip dividend going forward each year?

I mean, we will decide on this year-on-year. But as of now, this is the plan, but we will clearly decide on this then formally again 1 year from now.

[Operator Instructions] The next and last question comes from Andre Remke from Baader Bank.

Coming back to Thomas' question on the potential, hopefully, end of the war in the Ukraine, the implication on your business. Do you see particularly any implication on the development business in terms of, let's say, higher construction costs or lack of blue collar workers as they have to rebuild Ukraine? So do you see any risk for grants or more delayed construction process on your side of that? That's the first question, please.

Yes, Andrew, I mean, of course, always difficult to give answers on questions what happens if. But also when we discussed this with the team, we realize that, that's not a big concern. And I mean, we can speculate a lot on how intensive the rebuilding of Ukraine will be, how the Ukraine will look like after a peace that is hopefully coming soon. Poland and Ukraine have been quite, let's say, close for many, many years. So Ukrainians in Poland have always been part of the society. I think more than 1 million Ukrainians applied for a so-called PESEL number, which is a kind of social security number. That means they're settling down. They're working in Poland. They have jobs in a country that is doing well. So this will not be a changer, definitely not. So let's see how the situation then plays out in the Ukraine, but it's nothing where we think business-wise, this will affect us materially. And again, the Polish residential market has really strong fundamentals, especially our business. And our business, again, is new constructed apartments in large cities in Poland over all the last years and in the future have seen and will see good development. So this is perhaps for us the most important thing that the underlying data for Poland is still very, very much convincing.

Okay. And the last question, do you expect to reach the 45% LTV target already this year, assuming a stable portfolio valuation?

Yes, we could be very close to that. You're right. I mean, the base case should be a 0 valuation impact. So the dividend payout with 40% of FFO I is quite moderate in the business, reducing quite significant amount of cash. So therefore, we should be definitely closer to the LTV target at year-end 2025.

We have a follow-up question from Simon Stippig, Warburg Research.

One follow-up from my side, if I may. You just mentioned once the investments in Poland are completed, is it fair to assume that your investments are completed in the year or during the year 2028?

Yes. In 2028, we have reached our midterm target of 10,000 units. So let's decide in 2, 3 years, what's the plan from there on. But I mean, this is then really, at this point in time, a meaningful rental portfolio that produces then significant cash flows. So then we have definitely also more freedom regarding higher dividend. Please don't take this as an exact guidance that exactly in this year, the dividend will increase. But I just wanted to describe the trend, right? So are seeing higher EBITDA contribution from the Polish rental portfolio. Clearly, this will lead then also into FFO I growth. This will then naturally lead into higher dividend. So the way is clear, but still too early to say exactly this is the point in time when we then switch to a higher payout ratio.

Ladies and gentlemen, this concludes our Q&A session. I would now like to turn the conference back over to Martin Thiel, CEO, for any closing remarks.

Yes. Many thanks all for dialing in, for listening to the conference. Just one reminder, we already sent out a Save the Date for our Capital Markets Day on 12th of June, which is taking place in Gdansk in Poland. We will send out the detailed program in due course. Hopefully, see a lot of you attending the Capital Markets Day, that will be a pleasure for us. Many thanks again. See you soon, and have a nice day.

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