Vonovia SE (VNA) Earnings Call Transcript & Summary

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

Thank you, Matilda, and welcome, everybody, to our H1 2026 earnings call. The speakers today are once again Luka, our CEO; and Philip, our CFO. They will briefly present the H1 highlights the main messages for today. Before we open up for Q&A, where both will be happy to take your questions. By way of a heads-up, we will continue with our policy of 2 questions for analysts to keep things crisp. With that, over to you, Luka.

Thank you, Rene, and hello, and welcome, everybody. So let me start with the key messages for the first half of 2026. Overall, H1 was a period of strong operational performance in our core business, progress on disposals and proactive financial management. Our Rental segment once again demonstrated its robustness and reliable growth and Value-add expanded significantly. The sales-related segments remain influenced by the current market environment and are expected to be more back-end loaded this year. We also made tangible progress on our financial management. Year-to-date, we refinanced around EUR 4.4 billion on attractive terms. We essentially completed our 2026 financing activities and substantially trimmed down refinancing volumes for 2027 to just around EUR 3 billion. On valuation, the positive trajectory of asset values continued. We recorded 1.1% value growth, excluding investments and 1.8%, including investments. Realized around EUR 700 million of disposals in H1, including an agreement on the preferred redemption of our Vesteda minority stake of around EUR 200 million. We also see a strong pipeline of further disposals towards our 2028 objectives. With that, let me now take you through the main points for our first half results on Page 4. In Rentals, adjusted EBITDA increased by 3.5% to around EUR 1.27 billion despite around 5,000 fewer units year-on-year. Value-add continued its strong momentum with adjusted EBITDA up 28% to more than EUR 128 million. This was mainly driven, again, like in Q1 by higher contributions from the craftsman organization and the energy business. Recurring sales delivered adjusted EBITDA of EUR 39 million, which was marginally above the prior year despite substantially lower volumes. This confirms the continued attractiveness and embedded value of the assets that we sell in this segment. Development was down year-over-year with adjusted EBITDA of EUR 20 million. The year-over-year comparison should be seen in context though, as Q1 2025 benefited from a EUR 53 million contribution from a large land sales. Putting that aside, both H1 and Q2 were higher than last year. Adjusted EBITDA [ totaled ] then was around EUR 1.46 billion. This is an increase of 2.4% on a reported basis and 6.4% when adjusted for last year's land sale. Adjusted EBITDA per share was EUR 1.13. This is down 5.4% on a reported basis and basically flat when adjusted for the Q1 2025 land sales. Adjusted shareholder earnings were EUR 0.91 per share. Excluding the one-off effect from the land sale, the underlying performance here remained resilient with an adjusted year-over-year performance of minus 1.2% versus 7.7% on a reported basis. EPRA NTA per share was unchanged at EUR 46.22. This includes the positive valuation result, but also the dividend payout in the second quarter. Our fair value stood at EUR 81.8 billion at the end of June. Operating free cash flow was EUR 607.5 million. The year-over-year development mainly reflects around EUR 350 million lower working capital, predominantly reflecting the planned ramp-up of investments and the acquisition of a Manage to Green portfolio. And then finally, the debt KPIs. Net debt-to-EBITDA was 14x LTV was 46% and ICR was 3.6x. These numbers were obviously impacted by the dividend payment in the second quarter. When you compare them year-over-year, you can see our continued deleveraging progress with an LTV improvement of 1.3 percentage points over H1 2025 and net debt-to-EBITDA down 0.3x. And with that, let me hand over to Philip for a closer look at the segment results.

Thank you, Luka, and also a very warm welcome from my side. Let me start with the largest segment, Rental on Page 5. As you can see, the Rental segment again delivered good EBITDA growth, and that's despite a smaller portfolio. Rental revenue increased by 3.4% to almost EUR 1.8 billion, and maintenance expenses were broadly stable while operating expenses increased by 5.8%, and that is reflecting the inflationary environment, but also the sales tax refunds in H1 2025 if you were to exclude that, we would come to a decline of only 2.9%. Overall, adjusted EBITDA Rental increased by 3.5% to almost EUR 1.3 billion. The operating KPIs once again underlying the resilience of the business. As you can see, vacancy remained low with an end-of-period vacancy rate of 2.3%, hence the collection rate for rental income and ancillary expenses was unchanged at almost 100%. The organic rent growth of 3.6% in the first half looks a bit soft, but this is related to the timing of the Berlin Mietspiegel, which we were implementing in Q3 this year. And you also have to recognize that in 2025 in H1, we implemented already the Mietspiegel in Reston, large holding we have there. So the comparison is a bit distorted. Looking at the components, the market-driven rent growth contribution from the Mietspiegel and local comparable rents was 2.1%. Modernization contributed 1.2% and new construction contributed 0.3%. So Rental overall remains a highly predictable, resilient and cash-generative business for Vonovia. Moving on to Value-add, that is on Page 6. As Luka said, the Value-add segment delivered another very strong performance in the first half. Revenue increased by 9.4% to EUR 800 million, external revenues were up almost 14%, and that was mainly driven by the energy business, while internal revenues increased by 9% and that was supported by the higher investment volume that benefited our craftsmen organization. If you look at the operating expenses, they increased by 6.5% and that is clearly below the revenue growth. And as a result, adjusted EBITDA for the Value-add segment increased by 28% to more than EUR 128 million. This demonstrates the operating leverage we can realize in Value-add and volumes increase and our internal capabilities are utilized efficiently. It also confirms our view that Value-add is a very important differentiator for Vonovia compared with our broader peer universe. The strategic cooperation agreement we signed in Q1 for the serial production of our heat pump cubes and for serial modernization support the continued ramp-up of this segment. So in H1 2026, the Value-add segment represented around 9% of adjusted EBITDA total. For 2028, our objective remains a contribution of 9% to 12%. So this segment, as you can see, is already in the corridor, we want to reach over the medium term with additional upside from scaling our initiatives. Moving to Page 7 on recurring sales. Here, adjusted EBITDA was marginally higher year-over-year at around EUR 39 million, even though units sold were only around 60% of the prior year volume. In H1 2026, we sold roughly 690 units compared with 1,134 units in H1 the previous year. And as we explained after Q1 last year was supported by a larger number of signings made at the end of for which actually closing fell into the beginning of 2025. As a result, the volume comparison is influenced by phasing effects. What is more important is the quality of asset sales. Revenue from recurring sales was EUR 157 million, and the fair value step-up increased materially to 44% compared with 29% in H1 2025. And this very strong margin concerns a bit individual apartment sales continue to be a very attractive channel to crystallize the embedded value in our portfolio. In addition, the closing of the second Manage to Green transaction in Q1 brings the total to around 900 units as an aggregate acquisition multiple of 19x, and this is an important component to selectively acquire unrefurbished assets where we can actually create value through modernization, operational improvements and the capabilities our platform contributes. In H1, recurring sales contributed around 3% of adjusted EBITDA total for 2026, we expect to deliver a moderate year-over-year growth. For 2028, our objective remains a contribution of 5% to 8%. On development, that is on Page 8. This segment continued to operate in a challenging market environment, but the margin, as you can see, remained healthy and in line with our expectations. Revenue from the disposal of development to sell properties was EUR 162 million. That is down 23% year-over-year. Gross profit from development to sell were EUR 30 million, resulting in the gross margin of just inside 19%. Adjusted EBITDA development was EUR 20 million compared with around EUR 57 million in H1 2025. And as already mentioned by Luka, the prior year comparison is distorted because H1 2025 included the disposal of a large land plot with an EBITDA contribution of around EUR 53 million. If you leave that aside, we would have seen growth in this segment, but as I said, at low volumes. For the full year 2026, we estimate the EBITDA contribution from development to be at the prior year level, more disposals, including selected land sales are expected for the second half of the year. Strategically, development remains relevant. At the same time, the current market environment requires a very disciplined approach to capital allocation and project selection. It's all about lowering construction costs to increase the addressable market. While in H1 2026, development contributed only around 1% to adjusted EBITDA total for 2028, we again remain at our objective of a contribution of 4% to 5%. Now moving to leverage, that is on Page 9. Here, key messages unchanged, our road to lower leverage is built on an actionable plan. The backdrop is clear. The interest rate environment remains elevated. At the same time, we have the ambition to deliver more than mid-single-digit earnings growth in the medium term. And these 2 considerations are the reasons why we have taken a more ambitious stance towards deleveraging. At the end of June, our debt KPIs were affected by the cash dividend payout in Q2. So these are timing effects and do not change the general direction of travel. If you compare year-over-year, all 3 debt KPIs improved and our target for year-end 2028, again, remain unchanged, LTV of around 40%, net debt-to-EBITDA below 12x, and an ICR comfortably above 3x. The path to get their rests on several drivers, obviously, first, rental growth is sufficient to cover increasing financing expenses. Second, the nonrental business drives near-term EBITDA growth; and third, organic deleveraging from rent growth translates into value growth in a stable yield environment. And fourth, the remainder is to be covered by disposals. On debt management, we have intentionally took a front-loaded approach. Year-to-date, we refinanced around EUR 4.4 billion with an average duration of around 8 years and an average euro [indiscernible] of around 3.2%, and that obviously is including all costs for currency hedges outside Germany and Sweden. We are essentially done with our refinancing for this year, as you can see on Page 35 in the appendix, we have also conducted a partial buyback of 6 outstanding notes maturing in 2027 and 2028 and redeemed the 2026 maturities, and we spent a total of EUR 1.5 billion to do so. The bottom line is we are actively managing the balance sheet through various products. We are reducing refinancing risk and we remain firmly committed to our leverage targets. Now on Page 10, valuation. Here, as you can see, asset values continued their upward trajectory in H1 2026, like-for-like value growth, excluding investments, 1.1%, including investments, 1.8%. At the end of June, our fair value was around EUR 82 billion in-place rent multiplier was around 23x, and the initial gross yield was 4.3%. For the German portfolio, the value per square meter, including [ rent ] was EUR 2,400. This compares to a median purchase price of around EUR 3,600 for existing condominiums and around EUR 5,700 for new construction, so a discount of 30% or 60%, respectively. Looking at the transaction market, H1 2026. The German residential institutional transaction volume was around EUR 4 billion, and that is according to CBRE and Jones Lang LaSalle with higher volumes actually in the second quarter. And while, as you know, the economic environment continues to impact the transaction market, experts consider a full year 2026 transaction volume of EUR 8 billion to EUR 9 billion. Overall, the valuation result confirms our assumption that organic rent growth should largely translate into organic value growth in a stable yield environment. It also supports the organic deleveraging component of our leverage plan. And with that, let me hand back to Luka for further information on our disposal activities.

Yes. Thank you very much, Philip. In H1, as I said at the outset, we realized around EUR 700 million of disposals. This is important evidence that our deleveraging plan is progressing. The disposal program has 3 main components: first, noncore assets and nonstrategic minority positions. In Germany, we have a remaining noncore portfolio of around EUR 1.8 billion, including around EUR 300 million each of nursing assets and commercial assets. In addition, we have reclassified a portfolio of around EUR 800 million in Sweden as noncore. In H1, we realized around EUR 330 million of noncore asset disposals. And in addition, as I said at the beginning, an agreement on the preferred redemption of our Vesteda minority stake of around EUR 200 million. Second, recurring sales. We have a pool of around 42,000 units in Germany and Austria where individual apartment sales are typically achieved at a premium to book value of more than 20%, as you could observe it also in H1. In H1, we closed around EUR 160 million of recurring sales assets, as mentioned by Philip already. Third, selected disposals from our core portfolio, including Sweden as well as land sales. These disposals will then help us to bridge the gap towards our 2028 deleveraging targets after everything else has been accounted for. We have a strong pipeline of additional disposals that we will continue to pursue on our way towards 2028. The key principle in all of that has not changed. Our decisions will be guided by what is the most sustainable way to deliver, not solely by what is the fastest solution. We want to reduce leverage while preserving and enhancing the long-term value creation potential of the business. And then finally, as I said at the outset, we confirm our 2026 guidance on all earnings KPIs and all our 2028 objectives. Rental revenue is expected to be between EUR 3.45 billion and EUR 3.55 billion in 2026 and between EUR 3.7 billion and EUR 3.8 billion in 2028. Organic rent growth is expected to be around 4% in 2026 and around 5% in 2028. As you can see, we have lowered our organic rent growth expectation for 2026 by 20 basis points, predominantly due to a balanced approach on the implementation of the Berlin Mietspiegel considering the current political sensitivities. In this context, I'm sure you have also all seen the very clear and constructive statement made by the government coalition against socialization. We welcome this decisive commitment and consider it a major step forward. Investments are estimated at around EUR 1.4 billion for 2026 and around EUR 2 billion for 2028. Adjusted EBITDA total is expected to be between EUR 2.95 billion and EUR 3.05 billion in 2026. And between EUR 3.2 billion and EUR 3.5 billion in 2028. For adjusted EBT, we guide to EUR 1.9 billion to EUR 2 billion in 2026. And our 2028 objective remains a mid-single-digit CAGR in the period between 2024 and 2028. Adjusted shareholder earnings are expected to be between EUR 1.4 billion and EUR 1.5 billion in 2026. The CAGR in adjusted shareholder earnings towards 2028, will largely depend on disposal volumes as well as the decision and economics around the Apollo call option. Let me add that if the current market environment persists and continues to impact the sales-related segments as we have seen it in H1. The EBITDA and adjusted EBT guidance for 2026 in the upper half looks ambitious. Adjusted shareholder earnings, on the other hand, in this scenario should then land well within the upper half of the guidance range due to lower tax payments than initially anticipated because of lower sales volumes. So the broader message in conclusion is we are confirming guidance. We are progressing on disposals, and we are taking the steps needed to reduce leverage while maintaining our earnings growth ambitions. The core rental business remains a rock-solid foundation. Value-add continues to scale, and the nonrental businesses provide additional growth opportunities over the medium term. And with that, Rene, back to you for Q&A.

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

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

Bart Gysens from Morgan Stanley. I have 2 questions. My first question is on the guidance and on the sales segments. You set out a very clear and detailed path to the amount of earnings that you could be generating by 2028, and that's really helpful, and that's really appreciated. But we're seeing like you hinted, right, that some of these nonrental EBITDA initiatives are going more slowly. At what point does that -- it takes some time to ramp up some of these, particularly the homebuilding activities, I guess, at what point does this jeopardize the 2028 objective? And to what extent does that matter for leverage? That's my first question. And then my second question is on the Berlin -- I appreciate it's a hugely sensitive topic. But can you help us understand the initiatives you're taking there on the Berlin Mietspiegel. Is it just a matter of delaying increasing the rent that you're allowed to push through? Or will you -- or have you decided maybe not to push through the entire rental increase that you would be allowed to do under the new Berlin Mietspiegel given the political backdrop?

Yes. Thanks a lot, Bart. These are obviously 2 very relevant questions. So happy to address them. Let me start perhaps with the Berlin Mietspiegel. So the Berlin Mietspiegel came out end of May with a 6.9% increase. What we have decided for now to implement in this round, is a 4.8% increase for Berlin. In this regard, we have tried to balance our social affordability but obviously, also a reasonable increase that allows us to show in aggregate an appropriate growth level in Berlin for the rental fees as a whole in the entire market. The remaining potential is obviously not lost. So it will be implemented at a later stage. But for this round, we found this to be a good equilibrium and a good balance. So I hope that explains on what we're doing there. In terms of the guidance and the impact of nonrental activities, I mean, let me start with 2026 because there, it's relatively straightforward. So we just came away from in H1 in which, in aggregate, we have actually performed very much in line with our expectations, actually even slightly ahead due to a very strong performance in our core business in rental and in Value-add, which is really growing very strongly. We had from the outset for the first half not any big expectations for the recurring sales in the Development segment because from a year-over-year comparison perspective, due to the spillover effects of late signings in 2024 that moved into the beginning of 2025 in recurring sales, plus the big land sale. We always knew that the first half would look like against that. Still in both segments, we have also on the expected volume closed less. And now in the second half year, we definitely expect pickup because both of these businesses are seasonally skewed towards the later end. In recurring sales, I would say we see some encouraging signals of a pickup in activity because reservations have been actually quite good in July, which is normally a quieter period. But obviously, Q4 in recurring sales is always the biggest quarter historically over the course of the last 4 years, it has been hovering just below 40% of the annual volume. So it's an important quarter and that's obviously some uncertainties coming from are we going to see a change in trends, what's going to happen on the macro front, if you open up your e-mail inbox and look to the quarters every day, there's something new happening to the world is volatile out there. The only thing we are certain of, obviously, is that definitely H2 will see bigger volumes. Then in development, we have, as Philip has alluded to, land sales plus a bigger global exit plan towards the end of the year. And that obviously introduces also some uncertainties. That's why I've mentioned in my introductory remarks that if we see a continued impact of the macro environment, on buyer sentiment. These 2 segments might come in slightly lower than what we currently have in our plan, and that would then create a situation in which we might not be able to reach the upper half of the guidance range. If that was to happen, though, the mix would work favorably from a tax perspective because only 40% of our taxes are related to our core segments and 60% to the sales segments. And therefore, we would then come in with much lower taxes, which would make us comfortably land in the upper half of the guidance range. For the future, honestly speaking, as these are trends that are really introduced by current macro uncertainty, I don't see a change in the underlying assumptions. Actually, what we are doing currently is to make sure that in Germany, we have a bigger pool of condominiums available in order to be able to put them through the recurring sales process. As you have seen, we have around 22,000 in Germany right now and 20,000 in Austria. That's not the right mix. So we are preparing additional condos to make them available, and that should help us then as the demand picks up in the market to also move to our higher volumes that we have in our ambition. And on development, nothing stops. I mean we have 4,400 units currently under construction, we have a short-term pipeline of another 6,200 units as we are showing it in our investor presentation, and those will obviously hit the market. And along with what we have available right now, depending on the macro environment easing up will certainly continue to be available to help us propel those results to the numbers that we want to see as part of our 2028 objectives.

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

Two questions from my side. First is on rental growth. I mean just wondering to what extent is the recent dip in organic rent growth a temporary phenomenon. Or actually, do you see any structural changes here? And basically, do you stick to your optimistic 5% plus rent growth guidance in a long run. And the second one is on disposals, specifically the EUR 330 million German noncore assets. Just wondering if you could provide more color please on the type of assets and pricing and who are the buyers?

Yes. Let me start quickly with the rental growth, honestly speaking, on these smaller packages of noncore portfolios, not sure, Philip, if you can add further color. On the rental growth, it's a simple story. These are really temporary effects that can always happen from 1 quarter to another or from 1.5 years to another. As Philip has already alluded in the specific case of our latest 3.6%. It's due to the combination of 2 effects. In 2024, we had the implementation of the last Berlin Mietspiegel. And remember that our like-for-like growth numbers are always rolling 12 months backward looking. So the last increase went into the comparison base from 12 months ago, whereas right now, we didn't have the Mietspiegel in the numbers yet as its implemented only with effect from Q3. And second, at the beginning of last year, we also had the implementation of the Dresden Mietspiegel with close to 40,000 units. It's our second largest city market that we have. And as a result of that, the compounding effect of having those 2 Mietspiegel in the comparison base, but not in the current base, resulted in that transitory dip. If you look at Q3, you can hold us to account, obviously, with Berlin then being implemented. The growth rates will go up again we come to the 4% expectation as well for the full year. And the 5% for 2028 remains absolutely unchanged. We know that we have a big wave of catch-up in Germany to the market comparable rents that we still can realize due to the that we have in our regulatory regime that remains completely unchanged. And as I said before, also the remaining part of the Berlin Mietspiegel that we have not yet implemented for this year, obviously forms part of this potential. Then perhaps on disposals.

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

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

My 2 questions would be, firstly, on the noncore portfolio. You added EUR 0.8 billion in Sweden. Can you elaborate in more detail on the characteristics of this portfolio and why you added it to the noncore potential disposal pipeline? That's the first question.

You want to give us your second 1 as well?

Yes, sure. And the second 1 is on the Development segment. I was just wondering if you can give us a breakdown of the current pipeline in terms of is it more geared to institutional investors or private investors and considering that the higher interest rate environment might you change the mix going forward?

I can start with the noncore portfolio and development mix, perhaps, Philip, you can then takeover. The noncore portfolio is mainly relating to portfolios that are outside of the core of our urban centers. So our portfolio, as you know, are quite concentrated in Sweden, across Gothenburg, Stockholm and [ Malmo ] but we also have portfolios outside and those represent pretty comparable actually to what we have in our German noncore portfolio, the Swedish part of the noncore portfolio. We did this for the first time, but it also goes to display that also in Sweden, we are open to opportunistic disposals in the ordinary course of business, and we look to market those portfolios as we progress.

Yes. On your second question, Development, I mean first to mention that we will continue with the sale of land plots in order to release some capital. Second, on the pipeline. If I look at Austria, that is predominantly a unit-by-unit sale of condominiums to private individuals. In Germany, it's biased towards also a unit-by-unit sales, but you also have some global exits included to institutional buyers.

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

I've got a couple of questions. My first 1 is a follow-up question on Bart's question about Berlin. So I mean I understand you're only going to take 4.8% this time because you want to be balance and appropriate. But what I'm not sure about is, is it a write-off or do you think you can capture the rest at some point? And also, is it something that you think is specific to Berlin? Or is it something that is likely to happen again if we get a very strong Mietspiegel elsewhere? That's my first question. And my second question is about the rental business, because you made the comment that it's very strong, it's even stronger than expected. And you don't get the rent had guidance vacancy is up. So I was just wondering if you could follow up on that. Why do you think it's stronger than you thought earlier?

Yes. And Valerie, once again, to reiterate on the Berlin Mietspiegel, as Luka said, we, on purpose, took a very moderate approach in light of the election in Berlin and the talks back at the time still on socialization, which is why we have not implemented the full potential of the rent index. And this is by no means the write down. This simply means that our rents increased a little less than it could have increased. Now this is not forgone. This is just a delayed implementation. So what we call the irrevocable rent increase, which is actually sitting on the apartment have slightly increased by that measure, and we will recoup that probably sometime next year. Is there a spillover risk situation to other regions? Clear answer is no. We have a very heated up discussion in Berlin, but not in the same magnitude in any other region. Now on the second bit overall on our rental business, look, here, again, to confirm, we have, as you know, the big, big discrepancy between in-place rents and market rents and 2.5% to 3% is what we achieved with the implementation of the rent index. The remainder coming from investments and given that the letter is being scaled up, we are very, very comfortable with the 5% mark in 2028. And vacancy, yes, slightly up, but that is really investment driven.

And just let me just come back to the comment here. My comment was referring to what I consider our core business, which includes the Rental segment and the Value-add segment. So the overperformance against our initial expectations at the beginning of the year is driven by the combination, and in particular, by the very strong performance of the Value-add segment. I hope that helps to put it into perspective. But Rental run like clockwork as Philip said, all of the operational metrics are fully in line with what we expect and the small decrease of the rental growth due to the balanced implementation of the bell in Mietspiegel actually resulting only in a relatively minor absolute amount of rental income reduction.

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

Two from me, too, please. Firstly, on operating expenses in the Rental segment, you say this increased 5.8% in 1H, which implies just north of 9% for 2Q, against rental revenue growth of 2.8% also for 2Q. My question is, what is driving this higher OpEx? And should we expect the operations margin to hold at current levels? That is the first question. And my second is just coming back to development current volumes and notarizations are low, I appreciate the prior year carried a large land sale but the full year outlook has softened. Is this more a demand or a pricing problem? And then by extension, are you still confident in the developed to sell ramp to '28?

Yes, Andrew, thanks for your questions. On the operating expenses, we actually had a tax refund in Q2 last year of EUR 7.5 million. If you were to exclude that because this is not kind of typical business, we would have seen an increase in operating expenses of slightly below 3%. And that you can see it's actually under proportionate to the growth we've seen in EBITDA. So nothing at all to be concerned about. .

Yes. And just to complete this, the operations margin. Actually, if you look at H1 was quite strong, right? 82%, that was an increase over last year's H1. So we are actually very happy with the trajectory. Plus we see plenty of opportunities to further increase productivity, for example, through digitalization we actually went through a complete open checkbook approach, zero-based budgeting now with the entire organization in the last few weeks and we have identified really good opportunities in total, adding up between EUR 26 million and EUR 28 million to around EUR 50 million, increasingly driven by digitalization and AI as well. So we have obviously lots of tools in the arts to choose from to further increase our operating efficiency. on debt to sell?

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

And just to complete this because I think you had a question on the numbers of notarizations in development to sell to just make this around. Yes, you're absolutely right. I mean we saw obviously a soft demand in the first half year in the private investor business, as we had highlighted in the second half. This is historically picking up a bit, but the main contribution for the second half, and that's, again, a different seasonality than we had seen last year is that we expect now a few land sales plus a global exit transaction, which if it comes as expected, would then obviously change the picture for H2 significantly, obviously, there is some risk in that. That's why we have alluded to that risk in our prepared remarks.

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

Two, please. So just following a bit on the recurring sales piece. So the step up remains very strong. And I think Austria was a notable contributor in the first quarter. Just wondering, has that trend continued in 2Q? Or have you seen demand kind of broaden out against some of your other markets, please? And then I'll do 1 question at a time. That's my first one, please.

On recurring sales, it's in Austria, unchanged picture. Here, we are continuously seeing very high gross margins slightly above 70%. So by that, you can see that Germany still is very profitable but in relative terms coming along with lower margins. Here, we have seen close to 30% in H1.

Okay. And then perhaps just looking forward to 3Q and 4Q, the mean if you mentioned today about kind of one-offs that are skewed to prior comparable periods, the land sale, the tax refund, the phasing of the Mietspiegel, is there anything we should be aware of over the coming kind of quarters that might make the comparables look a bit different. Just wondering if there's anything coming up you can think about in the third and fourth quarter, please?

Yes, normally only things that will look -- make it look better because as we have highlighted, the seasonality is different this year. First of all, because of the development segment and the back-end loaded land sales that we expect to do in Q4 there versus Q1. That's actually the biggest optical effect that I can think of.

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

First, on disposals. When you announced the larger disposal target before for 2028, I believe you mentioned that you didn't expect a big impact on your '28 targets on the back of selling at yields close to your marginal cost of debt. But when I now look at the noncore Swedish part, you look at a gross yield of 7.6%. And obviously, this is gross. And in Sweden, that is a different number. But wouldn't that still have an impact on your '28 guidance if you sell such a significant part of noncore assets? That's my first question.

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

Yes. Of course, of course. So my second question is, you mentioned that the sort of like the relationship between your recurring sales and development if H2 doesn't perform as well that you might not reach the upper end of your adjusted EBT target, but you would reach the adjusted shareholder earnings target at the upper end. So that kind of implies a negative correlation. So does that then also imply that these 2 business lines are actually dilutive on just the shareholder earnings? Or how should we interpret this?

Second question, no, they are not obviously. But in that scenario, the mix would obviously be different than originally anticipated. As I tried to explain, when you take a look at our taxes we have been guiding as part of our guidance for EUR 280 million to EUR 300 million in taxes. H1 was only EUR 89 million. And the reason that it declined over last year was actually the softer progress on those 2 segments. Of course, they are still profitable, but they generate a higher share of taxes, 60% of our total taxes are related to the sales segment, only 40% to the core business of Rental and Value-add. And therefore, more the mix is skewed towards our core business, the better it is then from a relative tax exposure perspective, and therefore, the impact of a shortfall in the recurring sales or development segment against expectations at a -- at the same time, better performance of our core segments, as I explained in H1, they have actually been doing slightly better than we originally planned for is then obviously a better contribution to adjust the shareholder earnings. That does not mean that this is not a valuable contributor to [ ASE ] on an absolute level. On the disposals?