LEG Immobilien (Xetra:LEG) Q2 2026 Earnings Call

0:00 Good morning, everyone, and welcome to our earnings call. As always, we are KLG's entire management team on the call. Our CEO, Lars von Lachom our CFO, Kathryn Kuhling and our COO, Volker Wiegel. You will find the quarterly report as well as the presentation in the Investor Relations section of our website. Please note there's a legal disclaimer on Page two of the presentation. And with that, I would like to hand you over to Lula. Thank you, Karen. Good morning, everyone, and thank you for joining our

0:31 h one analyst and investor call today. Let me walk you through the six highlights on this slide. LEG is delivering on every dimension which we set out at the beginning of this year. First, rent. Like for like rent growth came in at 3.7% for h one squarely within our full year guidance corridor. I want to highlight one quality element here specifically. 50 basis points of backdrove came from cost rent adjustments. Further rent increases in the second half will push this number into our target range of 3.8 to 4%. Second, EPRA vacancy. At 2.3% on a like for like basis, vacancy declined by a further 20 basis points.

1:17 This is a clear signal of underlying demand strength across our portfolio. It also tells you that supply remains the key issue in the market while meaningful new supply remains absent from the market. Third, adjusted EBITDA. Adjusted EBITDA grew by 2.3% rising to €368,100,000. This reflects the continued operational leverage of our platform. More revenue flowing through to earnings with cost discipline holding firm. With this, we are on track with our our target of an EBITDA margin of around 78%. Fourth, AFFO. AFFO of €110,500,000 for h one puts us fully on track for our full year guidance range of 220 to €240,000,000.

2:12 Guidance is confirmed across all line items. Fifth, valuation. Portfolio valuation came in at plus 0.7%. A result in line with our expectation of up to 1%. The market is moving carefully and constructively in the right direction. Six, LTV. LTV stands at 45.5%, effectively at our target level of approximately 45. Let me select one item for transparency. We expect a temporary technical uptick in q three driven solely by the timing of our dividend payout. This is a known and mechanical effect, not a shift in trajectory.

3:03 The underlying direction of travel and leverage remains unchanged, downwards, disciplined, and cash flow driven. This discipline is paying off, particularly in the current environment. Portfolio transactions in our current market are still at very low levels. Inflation concerns and rising interest rates amplified by geopolitical tensions have weighed heavily on investor sentiment. Overall, times are challenging. Against this background, we are in a comfortable leverage position. Therefore, we remain fully committed to our disciplined disposal strategy, selling only when pricing adequately reflects the intrinsic value of our assets.

3:51 Let me now turn to slide six and our capital allocation logic. The principle is simple. Every euro goes where it earns the most for shareholders. Today, that principle plays out in two phases. First, where we stand in h 01/2026. Our LTV came down to 45.5% from 47.6% a year earlier. That is effectively at our target level of around 45%.

4:22 Three reasons for the set. Firstly, disposals of €42,000,000 all at or above book value. Secondly, evaluation result of plus 0.7% in line with our expectation of up to plus 1% for the half year. Thirdly, the take up of the scrip dividend, which retains €63,000,000 of liquidity in the company. Our ongoing AFFO driven steering avoids any overspending and with that, any need to take on additional debt. So the deleveraging path is on track despite the market volatility we have all had to navigate this year. As soon as we have reached our LTV target, we see four potential options for capital allocation.

5:13 You find these options on the right hand side of the slide, and we will reassess capital allocation priorities on a regular basis against market conditions. The first is organic growth driven by modernization and by our green ventures. That is the leader closest to our core operating business. Next to that, we would look at acquisitions or inorganic add ons, selective opportunistic entry points where the numbers work and that only once our balance sheet has the headroom fit. Then there is distribution to shareholders in addition to our existing dividend policy. And within this lever, our sustainable dividend policy carries priority.

6:00 Share buybacks remain one additional option we keep available. With a substantial discount of the share price versus the NTA, this option forms a natural hurdle rate for alternative uses of capital within the first. Finally, further deleveraging beyond the circa 45% range, their target. Raising headroom and refinancing flexibility have value in their own right, especially in a market that remains volatile. So this option stays on the list for resilience and balance sheet flexibility, and that is exactly the discipline that got us there. The point I want you to take away is this.

6:45 Capital gets deployed where it earns the most, and that assessment stays dynamic rather than fixed. The discipline behind it is comfort. The same FFO based steering that got us got our LTV down to 45% will govern how we use the next euro from here. And that discipline is also exactly what carries into the overview of our h one numbers on the next slide. Let me now turn to the financial overview. The numbers on this slide confirm that we are fully on track for our 2026 guidance across every metric that matters. Starting with rent. Netcode rent stands at €473,400,000, reflecting like for like growth at of 3.7% in h one and three point four percent on a reported basis due to effects from disposals.

7:43 I will not repeat the details from the previous slide, but the key message is this. The rent trajectory is intact, predictable, and structurally supported. On the EBITDA margin, we came in at 77.8, which is fully in line with our full year guidance. AFFO of €110,500,000 reflects the decline of 12.7% year on year for h one. I covered the bridge in q one, CapEx phasing and cash interest step up, and h one confirms that reach. What matters now is the forward picture. With h two expected to be meaningfully stronger, we are fully comfortable reiterating our full year AFFO guidance of 220 to €240,000,000.

8:37 The split between h one and h two is intentional and anticipated. The key leaders will be slightly lower investments as well as subsidies, which we expect to materialize in h two. FFO one came in at €230,500,000, down 4.4%. The same phasing logic applies. Our full year FFO one guidance of 475 to €495,000,000 remains intact, and the h two run rate implied by that range is clearly stronger than h one, which is exactly what we expect. On the key drivers, rent growth at 3.7% like for like and vacancy at 2.3% is the primary driver. The margin headwind from lower subsidies and high investments is a pure phasing issue.

9:35 The key takeaway from this slide is straightforward. H one was solid. Guidance is confirmed, and h two will be stronger. Cash flow trajectory, margin recovery, and rent growth all point in the same direction. We enter the second half with full confidence in the full year numbers. And with this, I hand it over to Olga for the operational highlights. Thank you, Lars, and good morning, everyone. I will start with the rent development on slide eight. On a like for like basis, the average rent per square meter in LEG's portfolio rose by 3.7% year on year to 7.21 This means we are comfortably on track to deliver on our rental guidance for full year 2026.

10:28 Looking at the refinance segment of our portfolio, we see a particularly good performance in the stable and high growth markets with rent growth of 3.83.9% respectively. This clearly underlines the operating strength and resilience of our portfolio. 2026 is a cost rent adjustment year where we can also increase rents of our subsidized units based on the CPI development. As a result, the rents in our subsidized portfolios were up 3.2% compared to the previous year. Regarding the breakdown of drivers, rent tables and modernization re letting each contributed 1.6 percentage points, while cost rent adjustment added further 0.5 percentage points.

11:22 As always, you can find an overview in the appendix, it is on slide 26, of upcoming rent tables for top locations in our portfolio.

11:32 And to give some color on most recent rent tables, the new table for Bila sales in Westphalia implies an uplift of around 8% for typical LEG apartment and the table for Gutterslow also in the SAARIA of more than 7%. Finally, on vacancies. EPRA vacancy rates came further down by another 20 basis points to a low level of 2.3%, reflecting strong demand for our assets and our ability to quickly refurbish and relet vacant apartments.

12:08 Moving to investments on Slide nine. In the first half, adjusted investments amounted to $2.00 €2,000,000 or 18.19 per square meters. This is well in line with our full year target of more than €35 per square meter. It is also more even distribution than last year which was characterized by the gradual integration of BCP.

12:33 Hence the 10% increase in investments in H1 twenty twenty six compared to the previous year. In the first six months, CapEx accounted for €112,300,000 or 10.11 per square meter while we had maintenance expenses of €89,700,000 or 8.8 per square foot. The cap ratio of 56% was unchanged compared to the previous year. Coming to slide 10 and our value add services. For LEG, these operations are both a strategic pillar and a growth driver. In the first half of twenty twenty six, the contribution to FFO-one before consolidation was €28,000,000 Please note that this number only relates to the services shown on the left hand side of the slide which include amongst others the management and steering of refurbishment projects, our technician and craftsman services, and our energy and heating business.

13:39 Our green ventures shown in the middle of the slide are not yet included in the FFO1 number shown here, but they will become a meaningful growth contributor over the next few years. With these ventures we also contribute to decarbonization one of the main and most urgent tasks in our sector.

14:00 One of these ventures is Termius and I'm pleased to say that the Fraunhofer Institute scientifically confirmed the effectiveness of Termius Pro, the AI supported thermostat. So far only the basic functions of Termius Pro have been examined. These are precise temperature controlled and adaptive digital hydraulic balancing. The study confirms an average saving in energy consumption of 40%. This corresponds to an average annual savings of about €170 for the tenant. And this only applies to the basic version of the thermostat with the rollout of additional functions, further savings can be expected. Let's now turn to disposals on Slide 11.

14:48 Year to date, we have completed or signed sales for more than 1,000 units with total proceeds of EUR 78,000,000.

14:57 Of these two thirty seven units were transferred in Q2 for around EUR24 million. The remaining five fifty two units with gross proceeds worth around €36,000,000 are due for closing in the second half of this year.

15:18 On slide 35, we have gathered external research figures on the German transaction markets in the first half of twenty twenty six. The market is still characterized by a comparatively low number of large volume gains and scarcity of international capital. Against this background, our ability to offer smaller portfolios or even individual multifamily houses sized to match buyer appetite is a genuine structural advantage. We also stick to our disciplined approach. We sell only non core assets and only add or above book value. Our total program still comprises up to 5,000 units. With this, I hand over to Catherine.

16:03 Thank you, Volker, and good morning to everyone also from my side. Let us now look at Slide 12 and the outcome of our most recent portfolio evaluation. The starting point is the market itself. The fundamentals of the German residential sector remain healthy

16:20 and our own portfolio evidently set with a vacancy rate of 2.3% and like for like rent growth of 3.7%. The valuation result of plus 0.7 or €135,000,000 is the fourth consecutive positive revaluation and confirms that the recovery in German residential values remains intact. The pace is more moderate than in 2025, and that is what we told you to

16:51 expect. At the Q1 call, we guided to a flat to slightly positive result of up to plus 1% for H1. The outcome has come in within that range. The step down versus the plus 1.8% in H2 twenty twenty five is macro driven, not portfolio driven. Geopolitical tensions, higher inflation expectations, and as a consequence, a higher interest rate environment. The operating parameters of the portfolio, such as rent and vacancy, all moved in our favor over the period. Our average gross asset value per square meter now stands at $17.35 euros up from $17.10 euros at year end 2025.

17:42 The average gross yield amounts to 4.9% ranging from 4.1% in our high growth markets to 6.3% in our higher yielding markets.

17:54 Further details about the valuation results and our portfolio values can be found in the appendix on slides twenty three and twenty four. On H2, we are confident in the resilience of our portfolio and in the structural strength of the German residential sector. What we will not do is anchor you to a valuation number six months out in a rate environment that is still moving. We will give you our indication for the H2 valuation with the nine month figures as we always do.

18:29 Let's turn to slide 13 and the AFFO bridge for the first half. AFFO came in at €110,500,000 against €126,600,000 in H1 twenty twenty five. The main positive driver was higher net cord rent, which contributed €15,600,000 Of that, 18,100,000 came from organic rent growth, partially offset by a negative impact of €2,500,000 from disposals. The operating and administrative result was €5,300,000 lower year on year, mainly reflecting higher personnel costs. The EBITDA margin of 77.8% we are reporting today fully absorbs debt.

19:20 Net cash interest increased by €10,300,000 due to increasing refinancing costs in combination with a lower interest income. This is the gradual upward reset of our funding costs that we have been flagging as we refinance into current rates, and it is fully reflected in our full year guidance.

19:42 Other effects amounted to minus 2,800,000 driven almost entirely by our biomass plant. The result of our subsidiary declined mainly due to higher prices for wood needed for the generation of energy. Finally, investments. Higher maintenance and CapEx net of subsidies reduced AFFO by €13,400,000 in the first half. Roughly €3,000,000 of that relates to the phasing of subsidies. By this point last year, we had already recognized €3,300,000 This year, we are only at €500,000 For the full year, we still expect to end up around €10,000,000 in subsidies with the bulk of it falling into the second half.

20:35 Overall, the delta to last year is phasing, not earnings quality. We expect H2 to carry the subsidies and the lower investments in the portfolio, and that is why we confirm our full year AFFO guidance of two twenty million to €240,000,000 without qualification.

20:57 Let's turn to slide 14 and our financing structure, starting with loan to value. We stand at 45.5%, down two ten basis points from 47.6% a year ago. That is very close to our target level of around 45%, a target we set out publicly and are now very close on delivering on, and the composition matters. This came from both sides of the ratio. Property values rose on the back of the positive valuation result in our CapEx, while net debt came down. One word on the scrip dividend. Given the geopolitical and market volatility, take up on the scrip was lower than last year at 28.6%

21:48 of the dividend. It nonetheless allowed us to retain €63,100,000 of liquidity in the company and contributed around 30 basis points to our LTV. And let me flag one mechanical point before you model the third quarter. The dividend was paid after the balance sheet date, so the cash outflow is not yet included in the 45.5%. LTV will therefore move back up temporarily in Q3.

22:18 Our average interest cost now stands at 1.82%. While this represents a modest increase compared to prior periods, it remains at a very competitive level in today's market environment. The average debt maturity is comfortably at five point seven years and our interest coverage ratio stands at a solid 4.0 times, comfortably above the level required by our bond covenants. We also have ample headroom on all other bond covenants. For those interested in more details, we've provided the full overview in the appendix.

22:56 Our liquidity position remains strong at more than €450,000,000 as of H1 twenty twenty six. In the first six months, we closed €450,000,000 of financing. These refinancings were closed at an average maturity of nine point three years and an average interest rate of 3.9%. This was complemented by our new syndicated revolving credit facility of €715,000,000.

23:27 It replaces our previous facilities in full, and it runs on the five plus one plus one structure, a five year commitment with two one year extension options against three plus one plus one before. That is a two year extension of our committed backup liquidity agreed with our core banks. There are no twenty twenty six maturities left which need to be refinanced. The next upcoming maturities in Q1 twenty twenty seven are already covered by our available liquidity. Overall, the 2027 maturities amount to roughly €1,100,000,000 of which €500,000,000 will mature at the end of November twenty twenty seven.

24:15 We will continue to take an opportunistic and disciplined approach here depending on market conditions. So, in summary, we said we aim to bring LTV to around 45% and at 45.5% we are within reach of that target. Q3 will show a temporary uptick due to the dividend payment, but we are confident of reaching the target level by the end of the year. Our 2020 '6 maturities are closed out. The 2027 profile is well structured and already partially covered. Our backup liquidity now runs up to seven years and we hold more than €450,000,000 in cash. We will continue to refinance not under pressure but on our own terms.

25:02 And with that, I'll hand back to Lars. Thank you, Catherine. Let me close with our 2026 guidance summarized on slide 15, which I am happy to fully reconfirm today. We expect a further improvement in cash generation with AFFO between 220 and €240,000,000, continued growth on top of a strong 2025. FFO one is expected at 475 to €495,000,000 supported by an adjusted EBITDA margin of around 78%. Our operational drivers, rent growth, and investments are likewise reconfirmed. We make good progress when it comes to SEV and feel confident to reach our SEV target level of around 45% by the end of the year. Please note the negative, but purely technical effect of the end of the dividend payment in q three.

26:01 To sum it up, LEG remains on a clear and consistent path, generating reliable cash flows, maintaining financial discipline, and building long term value for shareholders and tenants alike. Cash flow remains king, and AFFO remains the right steering metric for this business. Our 2026 guidance reconfirms the strength and the resilience of our model measured again in numbers rather than narrative. With that, we conclude the presentation and look forward to your questions. We will now begin the question and answer session. Who wishes to ask a question may press star and one on their telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. The The first question comes from the line of Mario Bastog from Bernstein. Please go ahead.

27:09 Hi, very good morning and thank you for the presentation and for taking my questions. I've got two from my side. They are broadly related, so I'll ask them together. Just firstly, on disposals, I think earlier in the year, you mentioned discussions were progressing on a couple of portfolios that held back by achievement of buyer financing. So can I check if any of those discussions have actually fallen away? And if we should therefore anticipate progress through the second half both in terms of portfolios and land sales? And then shifting on to capital allocation, so the options you have available and presented and considering where your shares are trading, is it fair to assume that if any larger disposal materializes from here that they will be considered and allocated towards a share buyback? Thank you. Good morning, Maris, and thanks for your questions.

27:54 So with regards to to disposals and the portfolio transactions, we are working on, unfortunately, the volatility, especially driven by the geopolitical tensions back and forth in The Middle East and and then also their effect on interest rates was something which was really a bit burden for transaction activity in the German market. So therefore, unfortunately, h one twenty twenty six even looks a bit lighter than the transaction volume in 2025, and that unfortunately was also unfolding with regards to our sales activities. We did not see portfolio transactions not happening due to financings, but what we have seen is that willing buyers have not been willing to notarize deals. So therefore, we are still in discussions also on bigger portfolios with interested buyers, but, unfortunately, we have not been able to notarize those.

28:54 We still expect that if the geopolitical tensions are hopefully coming to an end and we see a ceasefire or even better peace agreement being in place, that certainly then the stabilization will also translate into more visibility with regards to interest rates. And that will hopefully then also give rise to those deals really becoming notarized. With regards to capital allocation, as you already pointed at the fact that, unfortunately, the share price is still very low compared to the NPA, it is a natural hurdle to be looked at with regards to capital allocations and buybacks. Please also take note that firstly, and that was what we also try to get through is to you is that we are working on getting our SEB to the target level of 45%.

29:50 So on the other side, that is a natural limit to whatever we think with regards to disposals and the return of capital towards shareholders. And what we also wanted to get across is that highest priority is certainly also living up to our dividend policy. So, yes, you're right. That is quite a hurdle to be made. And therefore, if we have sufficient disposal and disposals being realized and disposal proceeds, that a share buyback will be definitely something which we need to consider. Thank you very much for the comments. The next question comes from the line of Andrew MacRees from Green Street. Please go ahead.

30:39 Yes, hi. Good morning. Thank you for the presentation. Two questions from my side, please. Just firstly, following on from Mario's question, why continue with the dividend while you're still deleveraging? I mean, that cash cost is a permanent headwind. If distributions are nonnegotiable, would you not be better served by split between dividends and buybacks or just moving entirely to buybacks? That's the first question. Thanks. Thanks, Andrew. I I waited for the second one, so therefore, apologies for the delay. So with regards to dividend, I think you've seen what happened to our enterprise in 2023, why we were deciding on not paying a dividend.

31:24 We have a very strong investor base relying on a rely on a steady cash steady dividend to be paid. And that is something which we want to live up to. We have a dividend policy in place, and we were not willing to change that because we want to give and ensure the trust that we are living up to that dividend policy by paying that dividend also going forward. So we are not splitting the dividend now between dividend and share buybacks or anything else. We live up to the existing dividend policy, which which says a 100% of the AFFO to be distributed. And if we have disposal proceeds, you just heard us, it might make sense to use those disposal proceeds for share buybacks, but always taking into consideration the LTV, which we are wanting to get to a level of 45%.

32:20 Okay. That's clear. Thank you. And then my second question just on modernizations. Is is the yield and cost that you're achieving, is it accretive to your implied yield rather than your book yield given, you know, the the market pricing of portfolio well below NTA? I'd just be interested to know if this is accretive at the moment. Thank you. Yeah. As you know, Andrew, what we are not doing anymore is that full modernization approach. Yeah? Because that gives you the 8% on the on the cost, and the costs are not the 100% of the cost, but it is mostly between 60% to 80% of the costs which you are incurring in the modernization exercise. So that mostly translates into a static return of around 5%.

33:05 If you compare that at the current cost of capital, I think it's easy cross read that this is something which you shouldn't do. So, therefore, what we have done is to take those financial means and investments and instead of going into full modernization, split them up more intelligently. I think, again, Holka just gave you an example with regards to our green ventures and the term sets, which from our perspective are coming with a higher margin, which are up and above the current cost of capital instead of sticking to the old world of doing full modernizations in our portfolio. Yep. Okay. That's great. Thank you. Thank you, Andrew. The next question comes from the line of Nicolas Bessilien from BNP Paribas. Please go ahead.

33:55 Hi, good morning. Hopefully you can hear me. I just wanted to come back on the LTV. If I adjust for your dividend payment, I get to something close to 46.3%. Now I hear your confidence in reaching the 45% target. You have IFFO phasing in H2 that should accelerate. If I factor that in, I was wondering if reaching the target implies, A, that the buyer you have for the land plot, the development plot in the Dusseldorf region exercises option, I think it has until September. And b, I was wondering what kind of asset revaluations you would be expecting then for H2 to reach that 45%?

34:43 Then my second question is on Green Ventures. In 2025, for the full year, you disclosed minus €4,200,000 negative contribution here. I was just wondering how it has evolved in H1 and how do you see twenty twenty seven and twenty twenty eight unfolding on this item? Yes, thanks a lot for the question, Nicolas. So with regards to the LTV and what we have penciled in for H2, so on the one hand side, certainly, we are expecting that we are collecting some of the disposal proceeds. And has already lined out that with regards to the 552 units with cost proceeds of around €36,000,000, those we are expecting for h two. Certainly, we also expect the lens plots in Garrett's time to be transacted.

35:39 And so still the the option is running, but we do not have any negative indication that Heinz as the owner of that option is not making use of that until, the end of September this year. With regards to revaluation, I think, Catherine has been, loud and clear on that one. So we just came out and, you know, that we try to guide the market as quickly as possible. But we now and today come out with that 0.7% of evaluation uplift for h one. Now giving you a number for h two, while you have all that volatility around the geopolitical and and development interest rates, etcetera, in the market, that's impossible. So therefore, we are just a few weeks into h two. We promise once again to bring and deliver a proper guidance for H two with our Q three numbers in November.

36:38 But unfortunately, and as of today, it is impossible to state a number, which makes sense. And secondly, with regards to Green Ventures, as you know, 2026 is the year of, reaching breakeven. And certainly, POCA is very happy to give you some more details with regards to how we do that. Yeah. That's right. No. We guided for breakeven in 2026 on the green benches. We are very well on track with those bearing smaller investments like the cabo and terminals and I pointed out to the front of our research piece which shows the effectiveness of the thermostat system, and we are very comfortable to reach breakeven for these, for the the run rate, which is more on the more heavy investment leaning side. And as Lars pointed out, the the trend is not really shifting into these kind of modulation. It's more more comfort more difficult to reach the breakeven there, but we are striving hard to reach an overall breakeven result.

37:54 And what was the contribution for Green Ventures in H1? We are not giving that number. So the equity consolidated companies, so this line will you will see that at the end of the year with the final numbers. Okay, makes sense. Thank you very much. Next question comes from the line of Veronika Martins from Van Lanschott Company. Please go ahead. Hey, good morning all. Thank you for taking my questions. First, on the FFO guidance. Yes, you rightly pointed out that H2 is going to be better half. However, could you give some more color on those different drivers?

38:40 I appreciate €10,000,000 of subsidies and lower investments, but on your FFO, obviously, lower investment has less of an impact. So is it fair to say that you're going to reach more the lower end of the guidance for FFO or are we missing specific drivers for an acceleration in H2? Yes, thanks a lot for the question Veronique. And so with regards to the FFO one guidance, the same holds true as for the AFFO guidance. So if we would have assumed to reach only the low end, we would have narrowed down that guidance range to the low end, but we haven't done so. So therefore, we are fully, in line with our expectation to reach something between 475 to €495,000,000.

39:25 And this is also holding true for the FFO one. You are rightly assuming that the lower investment with regards to FFO one has a lower impact compared to the AFFO because AFFO also includes the full CapEx. Yeah? But as Kathleen has already stated, the subsidies of 10,000,000 alone, I think, show you of how much stronger h two will be, and that is the main driver for the change that we also with regards to h two. Okay. But H1 is two thirty. So if I would add 10,000,000 to that $2.40, I get to $4.70. So that's still quite a big gap towards the midpoint of $4.85, right? It is and therefore you can once again be confident that due to other developments with regards to cost and others, we are confident to reach the $4.75 to €495,000,000 Okay, thank you. And then my second question comes back to probably a well rated topic for a long time, your discipline around not selling low book values because you yourself highlight that there at current levels there's not really an investment market. There are inflation concerns, rising interest rates. So how comfortable are you with your own portfolio valuation and also the positive revaluation of it that you just saw?

40:49 And so what drives that discipline and what does it bring you because you are currently trading at a 30 discount to GAV so selling at a moderate discount would still be very accretive if you would redeploy it as a share buyback so and create shareholder value. Yeah, curious to hear your view on that discipline. Yeah. Thanks a lot also for that question. This is very fair one, Yeah? So from our perspective, the values which we carry on our book are those values which are the right ones for the assets. Therefore, not selling at those book values would be just giving away shareholder value easily. So, therefore, as we are not under pressure and we do not want to throw money out of the window, we want to stick to the disposal policy we have in place for the last years, which brought us now close to the LTV target level.

41:51 And, we do not see value into now selling below book value. If we would do so, please do not underestimate that certainly whatever you are disposing below the current book value would also have an effect on the full balance sheet. And therefore, that is something which you should take into consideration. We do not think that this is worthwhile doing and therefore we are not considering doing so going forward. Okay. That's clear. And I appreciate the last point. But the question is, since that disciplined approach, there has been also an underperformance in LEG share price also versus your closest peers. So isn't then at some point the question if this is indeed the right track to create or to maintain shareholder value?

42:39 Yes. So unfortunately, I'm not responsible for the share price. What I can do is the best and making the best use of the capital which shareholders are providing. We do not think to be well advised to, once again, repeat that, sell below book value. And we are confident that at a certain point in time, market will get that message and it will also be reflected in the share price. Okay. Thank you. Next question comes from the line of Thomas Frohteisler from Deutsche Bank. Please go ahead. Hi, morning. Couple of questions. The first one is on subsidies.

43:25 I mean, you expect roughly $10,000,000 in the second half. I'm just wondering about the visibility here. Is it is this a given? Yes. Yes. So I'm happy to take your question, Thomas. So on subsidies, we expect this is these are mostly things we have already applied for. Most of the times, we have already handed in the application. So we are in the midst of the process of being awarded the subsidies. It just takes time now. Sometimes we still have to finish stuff in order to get the application process starting, but we have a very good visibility overall on this number.

44:16 The second question is on rental growth. I mean, your run rate was 3.7% in the first half, which is close to the lower end of your guidance range. Just wondering if your upper end guidance range of 4% is still possible from current levels and what would be the requirements actually? Well, the upper end would require probably some uptick in the churn, which we also do not really see. So it's more unlikely to to to reach it. Yeah? But we haven't narrowed it down because it's steering and curing the rent growth.

45:06 Is quite complicated as it also depends on the rent table, on the the dates of publications, and on the churn, which also is very volatile sometimes and more comes down than go goes up. So it's it's fair to say that it's it's it's not our basic assumption to reach the upper end. So, basically, you expect rather the lower end of the guidance range than the upper end? Well, we are within this range, and I think we'd be we'd narrow it for good reasons. My last question is on regulation and specifically the planned ban of expropriations, etcetera, at state level.

45:54 Just wondering, are you confident on on the government to push that through? I mean or did you hear anything on on the initiative recently? Oh, that's an incredibly difficult question, Thomas. I think the reasons I opted not to be in politics, because to foresee what politics really does, it's quite difficult. So, I think to hear loud and clearly from federal government that they are willing to take action with regards to article 15 and prevent single states of making use of that article six 15 and expropriation in Germany without paying the full market value, I think that is a very good progress.

46:42 So from our perspective, as of today, we do not have any indication that this is not going to happen. I think federal politicians have understood how difficult it would be, for them as well as the federal and single states to then secure refinancing, of its debt, at the same, levels like, as of today. So therefore, we are quite confident to see that law to be passed within the coming months. So how quickly that goes, there we are getting different messages. So therefore, very difficult to tell you at what when that happens. But that is going to happen.

47:28 We are quite confident as of today. Thank you. Next question comes from the line of Paul May from Barclays. Please go ahead. Hi, guys. A couple of questions from me. Just on the first one, apologies to belabor the point on the valuations and Bernie's question, could you not simply write down your assets and then sell in line with book value in order to get the transaction volume and to manage your leverage that way? Maybe that's not a possibility from what you're saying. And then secondly, just wondered, what level could you theoretically cut CapEx and maintenance to without either impacting portfolio quality, incurring a backlog of future CapEx requirements or negatively impacting your total like for like rental growth, which includes obviously the return on that investment?

48:25 Thanks. Yeah. So thanks a lot for the question, Paul. And unfortunately, certainly, the answer with regards to Veronique's question is not different when you are asking it. So from our perspective, there is, from our perspective, no need to start disposing assets at lower prices compared to the current valuation. So we believe in the current valuation. We consider that to be the fair market value of those assets. Yes. It takes us more time to dispose at those levels. But if we look into the current setup of the company from our perspective, no pressure due to to dispose at lower prices. With regards to hypothetical discussions on where to cut CapEx investments or something, apologies that I do not think that this is what we should do in that call. From our perspective, the current investment level is exactly the sweet spot currently to manage the portfolio.

49:29 You can trust us that certainly we always strive and we struggle with focus on a regular basis to keep that investment level under control. And so you can't see, but Catherine is nodding. So, therefore, this is what we currently discuss intensely, and we have reshifted investment levels over the last years quite dramatically. So if you look back into 2019 to 2021, where we were and of the belief that installation of facades and full modernization is a valuable approach towards now replacing it with bright new ideas like the thermostats, doing more on the heat pumps, etcetera.

50:17 I think that already shows you that we are not aware of that every year is which we are investing in the portfolio needs to come up with a decent return. And that is how we keep investments in the portfolio under control and ensure that we are realizing the returns on those investments which are being needed. Okay. So just just to be clear, there wouldn't be any reduction in the CapEx in future years to try and bolster the the AFFO. We we should assume a similar ish level moving forward. Is that fair? So from from today's perspective, what we need is more and smarter ideas to get CapEx down.

51:03 That there are being able that that we are able to contribute to those smart ideas. I think and the team has proved it. And that thermostat is incredibly cheap and delivers a 14% reduction in CO two. I think that's a huge, huge part of getting costs under control. And therefore, going forward, certainly, what we wish to strive for is get CapEx down. So just lie lying back and saying, okay. There are no smart ideas out there that I think is not the approach of LEG. So we will definitely try to identify the smartest ideas to get CapEx down going forward. Perfect. Thank you. Thank you.

51:49 The next question comes from the line of Pierre Emmanuel Brouillard from Jefferies. Please go ahead. Yes. Good morning. Thank you for taking my question. Actually, Lars, you could admit that you have at least an influence in the share price, even though you're on a fully responsible of it. Then I have a quick follow-up on disposals. You mentioned on the discussions with potential buyers, but are these discussions needed to the 5,000 units currently included in the disposal program? Are you also seeing interest for additional portfolios beyond the assets already marked for sale? Yeah, so on the 5,000 units, those are the ones we have identified currently, and those are the ones we have currently in the market.

52:41 What we will do afterwards once we have sold those, I mean, that will be up for discussion once we reach that point and when we see how market conditions are looking at that point in time. Okay. And for you, is it likely to execute on those 5,000 units by the end of this year or at least have an agreement with potential buyers? Or is it out of reach? Yeah. Same yeah. I think h two transaction volumes show of how difficult the market is. So it's not that we are not striving to sell single multifamily houses, do privatizations, slice and dice portfolios in the way of getting those into the market and be and get them sold.

53:30 It is really the unworthiness of buyers even after they've invested into technical due diligence, commercial due diligence that really sit down with us and do not raise their. So therefore, as of today, I would be surprised to see the 4,005 being transacted until year end, but it is not the case that there are not future facilities currently in the pipeline and in under negotiation. So just keep your fingers crossed for us. We are working hard and whatever can be sold, we will be happy to then disclose over the next month to the market. Okay. Thank you. And my second question is on the the land land option. Can you remind us the book value and the expected setting setting price of the the land parcel on which I answer all the an option?

54:24 Yeah. So, unfortunately, Pierre, the NDA, which we have signed with Heinz is very strict on the price. So therefore, we are not able to give you the price for the land plot, which we have agreed. And a bit of indication you can get from the recertification we've done with regards to the values with regards to the LEND plot, which we have just included in our accounts. But unfortunately, we are not able to give you more details on those values. And this value included in the, asset for sale line on your balance sheet or not? Exactly. They they are.

55:12 Thank you very much. Thank you. The next question comes from the line of Laurent Lourage Hubert from ODDO BHF. Please go ahead. Hi. Good morning. So thank you to take my questions. So actually, we have two follow-up questions on the LTV. So my first question, so we understand that you gave a guidance for the LTV ratio at the end of the year. But if I understand correctly, so you are not able to give any indication on the valuation of the asset at the end of the year. Maybe just to understand, so how comfortable are you with this guidance of 45% with the range of valuations that you can expect for the end of the year? So that would be my first question.

56:03 And my second question, which is also linked to LTV. So beyond 2026, and assuming that you would wish your target of 45%, so how would it be important for you to target then or at least slightly lower 45% to make sure that you will not come back after that to a level higher of 45%? Thank you. Thanks a lot, Florent. And with regards to the LTV target level of 45, with 45.5%, we consider ourselves to be quite low. And as already stated in the call by Catherine, by myself, please be aware of that uptick in q three.

56:48 So still not being willing to give you an indication with regards to the valuation for h two, we are still thinking that if we take into consideration disposal pipeline, etcetera, that we can reach the LTV target of 45% at year end. From our perspective, that is very good news. And what we do not want to do is now strive for a new LTV target level and some something below that. We consider 45 to be a good level for our company and to steer that. Interest costs, which we can achieve with that from our perspective, are at a good level. We are in sound territories with regards to our rating level. So therefore, while reaching that, this will give us then the room to also think about the different options which we laid out with regards to the capital allocation policy.

57:47 And therefore, from our perspective, no need to steer the business at a lower LTV level. Okay. Thank you very much. Thank you. The next question comes from the line of Mark Motzey from Bank of America. Please go ahead. Thank you very much. Good morning, everyone. I just wanted to know what are the reasons why you do not really even report your NBV in your reporting? You are asking if we are not reporting the Why why what what are the reason or maybe I haven't been able to find it, but what are the reason why we don't have the full disclosure in terms of net asset value?

58:47 And as a consequence, NBV is not reported, which is far more important for you guys with such a big amount of deferred tax liabilities than the NPA, which is creating a confusion around the discount to book value and around the implied discount to cost asset value, implied yield and so on? We are reporting the EPI MCA, which is, from our perspective, the most important figure every quarter. And you will find the NBV in the full year figures. Okay. But I was just wondering why you do not report that number on a quarterly basis, which is an important plan number while everyone else should pass, but maybe there is some specific reason I'm not able to catch from our time.

59:36 Yes. Account for Renovia, but we are offering you this number once a year. Okay. Thank you. On the guidance for the FFO for the year, sorry to come back on that one, but what has been the reason why you haven't been able to narrow that range at this stage of the year where you have visibility on the subsidized amount, million you said. You know the tables for your rental growth, which should accelerate in H2. What has been the moving part which hasn't been helping you to narrow the range?

1:00:28 Yes. So from our perspective, Mark, there is no need to narrow down the current range. From our perspective, there is the development in place which we expected according to our plan. The forecasts are showing that we are on our path in the right direction. And from our perspective, therefore, we are happy reiterating that we will be able to deliver an FFO one in the range between $4.75 to €495,000,000. Unfortunately, also with regards our business, there are moving pieces. And those moving pieces, one of them you mentioned already is the subsidized part, but there are also other pieces, and that includes certainly the contribution of our value add businesses, but also others, which are contributing to some uncertainty with regards to the final numbers of the FSO one. And therefore, as of today, we are not able to narrow down that range, but we are confident to reach something within that range of $475,000,000 to €495,000,000 It's interesting that you mentioned narrowing down because I was thinking more about narrowing up, but that's interesting. Okay, thank you very much. That's very clear.

1:01:52 Thanks a lot for your questions. Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Karim Diedemann for any closing remarks. Thank you, Mora, and thank you all for your participation. And should you have further questions, the IR team is available. Please don't hesitate to contact us. And with that, we close the call. We wish you a pleasant day ahead and say goodbye for now.