TAG Immobilien AG ($TEG)

Ladies and gentlemen, welcome to the TAG Immobilien Publication of Interim Statement Q1 2026 Conference Call. I am Hilli, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] At this time, it's my pleasure to hand over to Martin Thiel, CFO and Co-CEO. Please go ahead.

Yes. Many thanks and good morning, all. This is Martin. Welcome to our Q1 2026 earnings call. . Let's start right away with Page #3 of the presentation, and I'm coming to the highlights. We think it's fair to say that the first quarter of 2026 was a very good one. Just looking at the FFO, one that came out in Q1 2026 at EUR 49.3 million after EUR 44.9 million in the comparable quarter in the previous year. So that's a 10% increase. So this is definitely a good start into the year. Looking at some operational figures like-for-like rental growth. In Germany, we came out at 3.3% per annum, which is quite good. And in Poland, like-for-like rental growth also remains quite high at 3.2% per annum. So a strong start into the year from the Rental business. And also the Sales business developed quite well. Looking at the development of the net income from sales in Poland, we achieved in the first quarter of 2026, a net income of EUR 12.7 million. That compares to EUR 5.0 million in Q1 2025, and also the number of units sold in Poland was in the first quarter was 658 units stronger than in the same quarter of the previous year, so in Q1 2025 with 592 units. Talking about the projects that we have ongoing. I think that's, of course, very much of interest. The antitrust approval for the portfolio acquisition in Poland that we signed last year in August is still outstanding, but we really expect now shortly the decision. So therefore, we still assume that the closing will take place in the second quarter of 2026. So the shift now happened really shortly. And what we can tell you is that, firstly, unchanged, we expect a positive decision, so an antitrust approval without any condition. And secondly, this approval is basically the only material outstanding closing condition. So once this approval is there, the closing will take shorter thereafter, 2 weeks after the approval, we will have the closing. So therefore, as previously communicated, we unchanged expected closing to take place in Q2 2026. Second project refers to the sales business. Well, to make it short, we still look into strategic alternatives for. Honestly, the main strategic alternative is a potential public offering and listing of ROBYG shares on the Warsaw Stock Exchange. This has continued to be evaluated. So not really very different news that we can give you. But just to repeat what we have already said with the full year 2025 earnings call. Firstly, we are fully committed to remain the majority shareholder of ROBYG. So this is not a strategic change. So this is not a sell-down of the sales business. You know that we like this business a lot, that it makes for us a lot of sense to continue with both businesses in Poland with the sales business as well as with the rental business. So therefore, in all the considerations that we have, we are committed to remain the majority shareholder of ROBYG. And the second comment, which is also important for us, this could be an opportunity, but it's not a must. So therefore, if everything remains as it is, if we continue to be the sole shareholder of ROBYG, that's definitely not affect outcomes. So let's look where we end up here, the strategic alternatives are still being evaluated. Looking into the balance sheet, EPRA NTA, as not unusual for the first quarter was more or less flat, but a quite nice increase year-on-year with a 7% growth. LTV stable at a quite low 41%. But to be fair, perhaps economically real LTV is more the pro forma LTV after the Polish acquisition. So once we have the closing of the transaction, the LTV will be around 45%, which is still good. So even after the closing of this quite material acquisition, we are more or less exactly at our LTV target of 45%. A little bit of outlook for the next earnings call, which is the earnings call for H1, 2026. As always, we will have also a full portfolio valuation with the H1 figures and what we can give as an outlook is that we expect for the German portfolio operation result, which is more or less in line with the 2 previous semiannual valuations. Just to remember, we had in H2 -- sorry, in H1 2025, a value increase of roughly 1.3%. In the second half of last year, we had a value increase of 1.8%. So somewhere in that range should be also the valuation result for the general portfolio in H1 2026. With today's results, we fully confirm again all of our guidance. So FFO 1, net income from sales in Poland and FFO 2, this is fully confirmed. And as I said, as we still expect the closing for the transaction to happen in Q2 2026. This is, of course, very supportive for the guidance. Dividend payout is for the 2025 financial year, 40% of FFO 1. So therefore, we will have a decision next week in our AGM on a dividend for financial year 2025, which is EUR 0.40. As in the previous year, a scrip dividend option will be provided for our shareholders. And just to remind everyone for this financial year, so for financial year 2026, we will have an increased dividend payout of 50% of FFO 1. This is with the highlights, and then let's move quite quickly to Page #7, a little bit more details on the actual results. Just repeating that FFO 1 had a quite strong development also quarter-on-quarter, so also comparing Q1 2026 with the previous quarter with a quite nice increase of around EUR 4 million from a higher EBITDA of more than EUR 5 million compared to the previous quarter, partially offset by higher financing costs of roughly EUR 1.3 million, and also on a per share basis, this was an increase quarter-on-quarter by EUR 0.02. So therefore, we should be on a good way to achieve our targets in financial year 2026. Page #8 gives some more details on our Polish sales business and the FFO 2. And don't be confused that between the quarters, between Q1 2026 in Q4 2025, the result changed. So as always or nearly always, the fourth quarter is the strongest of the year. So therefore, as expected, Q1 2026 compared to the previous quarter was weaker, but as said at the beginning compared to the start into the year 2025, we're already better this year. And this year, we will have a similar result development as last year. So over the quarters, you should expect growing results with the strongest results then coming to play in Q4 this year as most apartments are handed over towards the end of the year as nearly in every year. Let's take a look at Page #9. EPRA NTA, as I said, remained more or less unchanged compared between the fourth quarters. As I said, we expect, again, a positive financial result so they should support the EPR NTA development in H1 2026. And if you compare the NTA development year-on-year, so Q1 2026 with Q1 2025, it's quite a nice increase of 7% per annum. Page #10 shows the financial structure. As set LTV, currently at 41.0% and pro forma after the portfolio acquisition, we had 45.3% so right at our LTV targets. Perhaps you've seen that S&P confirmed its rating BBB-, but a positive outlook already in March 2026, Moody's has its rating Ba3 with a positive outlook since June 2025. We are right now in the discussion every year around this time of the year with the agency, and in general, we should have on the ratings, definitely a good development as our financial metrics are quite strong. So not only the LTVs in the meanwhile, a quite low level also, and that's also shown on this slide, the net potential debt-to-EBITDA ratio stands at 8.6x at the ICR level of more than 6x. So this should be very good financial metrics also to support further breaking developments. Page 11 shows the maturity profile. And just to explain, as I think we already did in the last conference call, we have indeed a quite strong current cash position of nearly EUR 1.3 billion at the moment, which is good to have, but a lot of that will be used, firstly, for the portfolio acquisition payment price that's around EUR 565 million, and our main maturity this year convertible bond due in August 2026 of EUR 470 million will be repaid from this existing cash. So therefore, a lot of the cash that we have in the balance sheet is also designated for the purchase price payment of for the end of convertible bonds. But still, we are left with a quite sizable cash position, which is good. as we want, as you know, to invest further in our Polish and also in the portfolio. Let's take a look at Page #13. Development operationally of the German portfolio was good, especially very strong like-for-like rental growth or 3.3% in total that for us, I think, the highest like-for-like rate growth that we had in the last roughly 3 or 4 years. And this was mainly driven by higher rents from rent increases from existing tenants, which are basically each bigger increases, higher tenant turnover. So this basic like-for-like rental growth, which is more or less a rental growth without any big investments was close to 3%. That should be a very strong number, plus the help of some vacant reduction, we ended up active 3.3%. Noted that vacancy in our German portfolio increased by some 30, 40 basis points in Q1, but that's a normal seasonal pattern, so you will see in the following quarters that the vacancy rate in the German portfolio will go down. And we expect on a year-on-year basis, a declining trend in vacancy. So as we started the year with 3.2%, you should expect that the vacancy rate at year-end is lower than at the beginning, that would be also in line with what we have guided. Page #15 gives an overview of Polish rental portfolio development. Vacancy here in all the units that we have finished for at least 12 months ago. So they are now stabilized that are in the market for a longer time is still at a very low 2%. So that should be a good proof that the demand is really strong. And rental growth is continuously there. So we are currently at 3.2% in Q1 2026 at 3.4 and 2.2 in the year 2025 and 2024. On Page #16 and 17, we see some figures regarding the Polisafe business. I think I already mentioned that the sales results in Q1 were quite good. So 658 units sold compared to 592 units in the comparable quarter of the previous year and also a number of apartments and it over. That's on Page 17, with 311 units higher than the 224 units in Q1 2025. And finally, again, summarizing our statement on the guidance, which is presented on Page #19, we are confirming again all guidance for 2026. So FFO 1, the adjusted net income from Sales Poland and FFO 2 should all be as expected and communicated in the partners. That's it from my side. So hopefully, comprehensive and quick summary of Q1 2026. Thank you so far for listening. But of course, now very happy to take your questions.

[Operator Instructions] First question comes from the line of Marios Pastou from Bernstein.

Just got one question from my side on the FFO guidance range. So if we're now assuming the Resi4Rent acquisition completes at the end of the second quarter, which I think is predicated on one of the slides, do you still think you'll be at the lower end of the guidance range? Or is there upside potential here based on the operational performance being quite strong so far this year?

Marios, thank you for the question. Well, first, you're right that when we issued the guidance in November last year, we said rent is closing at the end of that the second quarter 2026, that would mean we are at the low end of the guidance. Looking at the actual development since then, I would say there's a good change that we are perhaps a little bit better or more towards perhaps the midpoint of the guidance. But let's see, let's have the closing first, let's follow the development of the operational business in the next month. But at the moment, it looks as if we are very comfortably positioned within our guidance range.

The next question comes from the line of John Vuong from Kempen.

Just looking at like-for-like rental growth, in Germany, it is now ahead of that in Poland. If I look at the implied like-for-like excluding vacancy reduction in your guidance, it would suggest the normalization over the remainder of the year? So is this rent increases to existing tenants? Is that linked to any specific metric this quarter? Or how should we look into this number?

Yes, John, as you know, we have a portfolio with several locations. So we're not so much dependent on 2, 3 big locations and, therefore, also not so much dependent on 2 or 3 very important big outcome. So it's really across the portfolio. It's simply true that we are -- that we have started the year a little bit better than expected. But I think our total like-for-like growth guidance, the upper range was 3.1%. Now we are 3.3%. So still very close to that. The good that we had this start into the year, but the 10, 20 basis points more is perhaps not a big deviation from what we originally guided. We're confident that we keep a good rate growth in the remaining quarters of the year. .

And then just on 1.6% that you're increasing to existing tenants. To what level could this go in your portfolio? And how sustainable do you consider it?

Firstly, that's definitely a strong number. So perhaps don't read too much into it is, for example, in the next quarter, this small order 1.4 or more 1.5. So there's a certain swing in that. But basically, as we've always said, we own a very, call it, normal German residential portfolio, although we are located in what we call secondary locations. And we know since now several years that also in this location, the is very strong. So it increases step-by-step. We have a portfolio where the rents are only very, very few occasions above each big level because we have not had any big modernization programs in the past, so we can really go along with a increase and increase the rent step-by-step afterwards. So difficult to say where is the limit. But if we look at that again, in total, France are growing including vacancy reduction with 3.3%, there should be room for improvement in the future.

The next question comes from the line from Andrew McCreath from Green Street.

Two questions from my side, please. Firstly, on capital allocation, you're at 41% LTV today. 45.3% pro forma post ForRent. So effectively at targets and your share price trades at a meaningful discount to NTA. So I guess my question is, why does buying back equity rank against incremental Polish rental construction and further German acquisitions and your capital allocation framework today? That is the first question.

Andrew, so firstly, to be clear, we have communicated that we want to grow further in Poland, especially in the rental business. So we want to start and have already started construction of new rental units this year. So it should be a construction start in total of roughly 2,000 apartments, and this will continue in the future. For this investments. There's no external equity needed. And we have a quite moderate payout ratio regarding the dividend. So it will be for this year, yes, a little bit more than last year, so 50% FFO 1, but we keep the full cash -- the full net profit from the sales business and the balance sheet. And that very naturally allows us to grow the portfolio without hurting the LTV, and if we analyze the LTV development of last year, there was a quite natural deleveraging impact only from the results that we create. When it comes to German acquisitions, the most likely outcome is that we are buying here step-by-step portfolios of 200, 300, 400 units as we did in Q4 last year. By the way, we are still looking at the market. So we're also happy to buy in Germany as we know the market very well as we can keep the integrators in the portfolio but this is a more opportunistic approach. So we have clearly in Poland as a kind of benchmark. So why should we buy in Germany at lower yields compared to opportunities that we potentially have in Poland. I mean this would also not be excluded to buy a larger portfolio in Germany. It's purely numbers driven, but I think it's more likely that you will see that the small acquisitions. And then finally, if it really comes to a larger acquisition, whether this is Germany or whether this is Poland, again, like there is a foreign transaction. Yes, this would be the only case where we look into potential new equity as we have done last year, quite targeted moderate equity contribution that kept then the LTV on a reasonable level. But that's the only change that we have in mind so let's say, a very strong growth driven by a large acquisition that and only that could require equity.

Okay. That makes sense. So to be clear, you would not consider a share buyback at the stage using some of your cash that would be net of the proceeds are for Resi4Rent, and then your convertible payback, you would consider a buyback with the residual there?

No, not at this point of time. We think we have good growth opportunities ahead of us especially in the Polish rental market. .

Okay. That's clear. And then my second question is on Polish vacancy. So specifically on the stabilized portfolio. It ticked up to 2% from 1.3% last quarter, I believe. Just curious, what is driving the 70 bps drift in the stabilized market? Is it just general market softness, tenant turnover? Or is it something else?

This is purely tenant turnover. And if we follow that with our internal reporting on a monthly basis, any swing between, call it, 1.5% and perhaps 2.2%, 2.3%, something like that is very normal. Perhaps you remember that most rent contracts in Poland have a maturity of 1 year. So for example, when we started the project some time ago, rented it out perhaps a lot of contracts are ending to the same time after 1 year, so that in 1 month, a little bit more renewals and in the next month, a little bit lower. So everything that is, let's say, around the 2% is a very normal vacancy rate number, which is, again, a quite strong one. So vacancy rate stabilized performance around 2% is from our point of view, a good confirmation for the strong demand in the Polish market.

[Operator Instructions] The next question comes from the line of Thomas Rothaeusler from Deutsche Bank.

A couple of questions. First one is on the Polish PRS market. I mean just wondering if you see for the players keen to divest wondering if you see further acquisition opportunities basically and also what magnitude would you be willing to execute.

Yes. Thomas, in the Polish residential market, I mean firstly, most landlords are private purses, not that different to Germany, but of course, we have also other institutional players in the market, I think, in total, institutional landlords own currently around 30,000 apartments. This number is growing. And a lot of these institutional owners are backed by private equity. So their investment horizon is perhaps naturally some 5, 6, 7 years, and perhaps not everything this year, but in the next 1, 2, 3 years. So there will be opportunities on the market. And of course, we will look at that. So also to make clear, an acquisition like last year's transaction with 5,300 units is unusually in size. So we will look at such portfolios. That's very clear. We are a natural buyer. And these acquisitions normally should be perhaps a little bit smaller size, but could be a very nice add-on to the growth we are ahead of us anyway because we're building on the own and back. And that's perhaps also important to repeat. It's not a must. So we have a quite natural growth plan by building every year, let's say, 1,500 to 2,000 apartments on our existing land bank with the existing platform. And if acquisitions are coming on top at good terms, then yes, of course, we will look at it.

So should we see the planned IPO or the potential IPO as a way to reallocate capacity or capital from build to sale to build to rent, correct?

Which would not be really a new strategy, right? So it is currently. We produce a lot of cash in the sales business, which is then more or less flowing into the rental business. And whether this is then from proceeds of a potential disposal of shares. So part of that or whether this is year-by-year via dividends that the sales business producing is basically the same. So of course, with a different timing, but the overall strategy, the overall thinking would be unchanged.

Okay. Second question is on the Resi4Rent approval by the Polish authorities. I mean, assuming it would not get approved in total, how could potential conditions look like? Do you have any idea?

Well, firstly, this year, we do not expect this -- so therefore, speculating about potential conditions because we think our arguments that the position is very strong. So yes, after this acquisition, we are Poland's largest landlord with them in total, a little bit more than 9,000 units out of 1.2 million rental partners in Poland. So we are far away from a situation where we can dictate rental prices. So therefore, we are unchanged from the very beginning, very positive on this. . We can understand and believe me, for us, it's also very hard that the time is now -- has been extremely long. So we are waiting now for the decision since 8 or 9 months. But hopefully, it's really coming shortly. And of course, we will inform the market once the decision is there.

Okay. My last one is on Poland rental markets overall. I mean do you see any initiatives for rent controls?

I noticed that's not the case. And perhaps this is not the case because the rental market in Poland is definitely much smaller, for example, compared to Germany. As you know, in Germany, roughly 50% of the people that are living in rented apartment. In Poland, it's around 15%. So therefore, when we follow discussions about rent, about the residential market, let's call it like this, it's more about perhaps the potential support for buyers of apartment but not so much about rent controls. So we don't really see here discussion important currently. .

We now have a question from the line of Kai Klose from Berenberg.

I've got 3 quick questions, if I may. The first 1 is on the DTS, the develop-to-sell portfolio in Poland. If I saw it quickly, you have estimated now -- or estimate now with a total investment cost of EUR 2,300, that was about EUR 2,200. Is this because of higher land costs and/or of higher construction costs. We have already . And the second question is -- sorry, please go ahead. .

Sorry, Kai, to interrupt you. But if I answer it quickly. Yes, we have always inflation in construction cost and land prices. Currently, this is still moderate. But the number that we are presenting here is really the actual construction cost for all the apartments under construction and in the sales process. And that could also be a difference depending on which location is under construction on sale in which land price, the underlying location has. So therefore, there's quite overswing from the product mix that leads to the EUR 100 per square meter difference.

Got it. And second question is on the Service segment. Could you indicate if we might see a bit of a swing or there's a strong increase from higher energy costs that you then use or could use also for higher income in your solar segment in Germany, or is it more coming in 2027?

This system perhaps more something for 2027. But you're right. So if this development -- that would be something positive with higher energy prices, I mean, we don't like to see it because that drives inflation and then increase it costs. But as for the energy business, as in the past years, that could be indeed helpful, but that's more for 2027.

All right. And the last question would be on Page 22. You mentioned that the cash effective income tax in Q4 were at 9.6% and 4.9% in Q1 2026 this quarter. Could you just explain, is it reduction because of your tax initiatives you had at the end of the last year?

This reduction is because in Q4 last year, we had more handovers in the sales business. therefore, high tax burden from that. So it's purely coming from higher tax expense in the sales business in Q4 last year. .

The next question comes from the line of Stephanie Dossmann from Jefferies.

Can you hear me?

Yes, .

Okay. Sorry for that. So yes, most of my questions have been already answered, but maybe a follow-up on the vacancy rate in Germany. I was wondering about the assets you bought last year. Have you been able to reduce this vacancy? Or I mean the increase in vacancy is driven by this portfolio or the other locations and so on? And how much is the vacancy on the assets acquired? And may be second one, a follow-up on the price developments in Poland and so on. What would be your expectations going forward? And what kind of gross margin can we expect on the sales business going forward, please?

Well, regarding the first question, it's -- first, it's correct, all the acquisitions that we have signed in Germany in Q4 last year have closed in Q1, already at the end of Q4 or the first of January this year. So there's also a slight impact from that, that could be out of the 40 basis points, perhaps 10 basis points. So therefore, it's a little bit higher than it is increasing makes rate than previous years. As far as I remember, the last 3 to 4 years, we always had an increase of let's say, 20, 30 basis points in the first quarter, which is a quite kind of seasonal development, also perhaps some of the monetization programs or most of the monetization programs that we have for vacancy reduction is then more finished in the third or fourth quarter of the year. In the acquired properties between or some weeks after we have just closed the acquisitions, we don't see any movement in we can see. That's very natural. So therefore, the reduction of that will come, perhaps even not in the next weeks, but more towards end of this year or in the course of 2027, but yes, good to have this opportunity, good to have portfolios acquired where we can reduce the vacancy rate in the future. And regarding the Polish sales business, at the moment, it looks quite strong. So the demand is there. Sales prices are even slightly increasing. And that's good to see. Of course, a little bit unknown is the construction cost. Mostly perhaps a question also for 2027, 2088, and the unknown is, of course, the development of energy prices if you ask us to see already something like stronger construction price inflation now that's not the case. Yes, clearly, this could happen. But yes, at the moment, we are optimistic that we can keep our margins. Let's see how this develops in the next weeks and months. And clearly this question now more often very naturally -- and one answer that we also give is, if we are also -- if we see more construction price inflation in the future, we still have a buffer for that. So we're operating to gross margins that are, in many cases, close to 35%. So if these margins are weaker in the future, that would be still be a very profitable and good business.

[Operator Instructions] We now have a question from the line of Kanad Mitra from Barclays.

I have a couple of questions. Is there a potential for a valuation uplift for the portfolio acquisition, given that there have been 5 rate cuts in Poland, and you signed it back in August? That's my first question. And the second question is what is the potential EBITDA margin for that business? And what kind of margins can you help manage it in the future once it's integrated in the portfolio?

Yes, happy to answer this is Chris question. As you know, we acquired the portfolio based on a gross yield for the rent that we expect for this year of around 7.5%. And it should be, for us, a very good at reasonable price. And now it will come then after the closing, which is hopefully taking place soon. The first time for valuation of the portfolio. In general, we are convinced there should be room for vision uplift. The question is are we really realizing this or part of this already on day 1 because the natural discussion that we will have with the value is that we more or less acquired the portfolio. . Just recently, now if you want to, this is one of the advantages that we have, that we have a longer period between signing and hopefully soon come and closing, so it's between August and today, indeed, there have been interest rates cost. So yes, there's potential, but almost, I just can't speculate about this. So we have obviously no valuation results yet. But in general, if that's taken a more midterm view over the next 1, 2, 3 years, you should have a good relation development, especially in this portfolio. And the EBITDA margin should be quite high or there's been more specific to incremental EBITDA margin. So we guided already for 80% EBITDA margin because we're taking here over the portfolio, plus also some people that would help us with the day-to-day business, but we're not taking over management. We're not taking over back office or administrative functions. We are fully integrating this into our quite strong team and platform. So therefore, this acquisition, all projects that are finished in the future or potential acquisitions in next year will contribute quite strongly to the EBITDA margin from the rental business.

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

Yes, many thanks from our side for dialing in for listening to the call and for the questions. As always, if there's anything left, please feel free to contact us any time. That's it from our side. Have a good day and talk soon.

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