VONOY (VONOY) Q2 2026 Earnings Report, Transcript and Summary

Ladies and gentlemen, welcome to the Vonovia SE H1 2026 Results Analyst and Investor Call. I am Matilda, 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 and 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 per 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. We 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 Rental, adjusted EBITDA increased by 3.5% to around EUR 1.27 billion despite around 5,000 fewer units year-over-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 sale. Putting that aside, both H1 and Q2 were higher than last year. Adjusted EBITDA total 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 EBT 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 sale. 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 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 a sales tax refund in H1 2025. If you were to exclude that, we would come to a decline of only 2.9%. Overall, adjusted EBITDA of Rental increased by 3.5% to almost EUR 1.3 billion. The operating KPIs once again underline the resilience of the business. As you can see, vacancy remained low with an end-of-period vacancy rate of 2.3% and 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 Dresden, 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 craftsman 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 when 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 agreements 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 2024, 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 confirms that 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 at 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 was EUR 30 million, resulting in a gross margin of just inside 19%. Adjusted EBITDA Development was EUR 20 million compared with around EUR 57 million in H1 2025. Hence, 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 we 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 message is 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 reason 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 there rests on several drivers, obviously. First, rental growth is sufficient to cover increasing financing expenses. Second, the non-rental 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 coupon 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 land 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 30%, 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 delever, 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. Matilda, 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 -- because 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 Mietspiegel. 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 first. 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 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 are 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 an H1 in which in aggregate, we have actually performed very much in line with our expectations, actually even slightly ahead due to the 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 and 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 light against that. Still in both segments, we have also on the expected volumes closed less. And now in the second half year, we definitely expect a 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 at just below 40% of the annual volume. So it's an important quarter. And that's obviously where some uncertainty is 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 portals every day, there is something new happening. So the world is volatile out there. The only thing we are certain of, obviously, is that definitely H2 will see bigger volumes. And 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 uncertainty. 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, we 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 the long run?

Yes, Thomas -- sorry, go ahead.

And the second 1 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 one quarter to another or from one half year 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 it's implemented only with effect from Q3. And second, the -- 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 Mietspiegels 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. That's why 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 full wave of catch-up in Germany to the market comparable rent that we still can realize due to the caps 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, a mix of 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.

We 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?

Yes. I can start with the noncore portfolio. On Development mix, perhaps, Philip, you can then take over. The noncore portfolio is mainly relating to portfolios that are outside of the core of our urban centers. So our portfolios, as you know, are quite concentrated in Sweden across Gothenburg, Stockholm and Malm , 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 one 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 balanced 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 your Rental business. Because you made the comment that it's very strong, it's even stronger than expected. And you downgraded the Rental 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. 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 that is by no means a write-down. This simply means that our rents increase 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 through the implementation of the rent index, the remainder coming from investments. And given that the latter 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.

Yes. 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 runs like a clockwork, as Philip has 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 Berlin Mietspiegel is 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 develop 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 arsenal to choose from to further increase our operating efficiency. On dev 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, '24 to '25. If you adjust for that, 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 have been actually captured in terms of earnings contribution in the last quarter. Hence, we see small signs of a reversionary trend if I look at 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 round. Yes, you're absolutely right. I mean we saw obviously 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 up 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 one question at a time. That's my first one, please.

Yes. 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, there's been a few mentions 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, Neil, 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 won'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 it then also imply that these 2 business lines are actually dilutive on the adjusted 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, the 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 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 adjusted shareholder earnings. That does not mean that this is not a valuable contributor to ASE on an absolute level. On the disposals?

Yes. Look, on the disposals, keep in mind that we have all along accounted for a disposal of our noncore portfolio previously at EUR 2 billion. So that was forming part of our long-term guidance. You are right. We now put on top some EUR 800 million, which come at somewhat higher gross yields. But if you make the math, it's not significantly changing the picture if you assume that this is not sold in one go, but over time, so it's not changing the view we take on the outlook we have given for 2028.

Okay. And sorry, a follow-up on that first question because I still don't fully understand because if they were profitable, which means that after taxes, there are still earnings, then the more your Recurring Sales and Development business perform, the higher the adjusted shareholder earnings should be, right, if there's actually something left after taxes.

Yes. The other -- the point that I try to make is that the way how our core business is performing, if it continues to perform like we expect it will in the second half year, and you would add to that a good performance in Recurring Sales and in Development in line with the expectation unaffected by the macro environment, then we would actually have a very good shot at landing in very attractive territory. So I think the 2 statements don't contradict each other. It's all a matter of the relative positioning and where we see our businesses landing. And there obviously in the past were scenarios where Vonovia has landed outside of its guidance territory and has realized upside. That's not something that we are planning for in light of the performance of the 2 sales segments. That's perhaps what helps to bridge the conundrum.

Okay. So in other words, if H2 is very strong and you reach more of the upper end of the adjusted EBT guidance, then you would actually beat the adjusted shareholder earnings guidance. Is that how I should interpret it?

I think we're saying the same things. But we said as well that in this year, this is not likely to happen given the macro environment.

We now have a question from the line of Paul May from Barclays.

Two from me as like everyone else. Just wondered what makes you confident in reporting an increase in your gross multiple or lower gross yield in both Germany and Austria over the quarter, just considering obviously the move in rates, 20 to 40 basis points on swaps and bonds. And I'm just trying to reconcile that move in the yield or the multiple with the overall valuation increase. If you take just the move in the multiple, it's about 0.5% to 1% move in the valuation, and the rental growth was 3.6%. So combined, you're at sort of 4%, 4.5% and yet you only reported a 1.1%. What piece am I missing as to the minus 300 basis points versus the metrics that you've shown in terms of the valuation would be great. And then on the second 1, obviously, you're seeing increased CapEx, both maintenance investment and materially ahead of the increased Value-add EBITDA. Just confirming that with the spend that you're making, there's effectively a one-off benefit in the Value-add. And then next year, you have to make the same or more spending in order to increase the Value-add business. Just obviously referencing the guidance as well of the increased investments for the increased Value-add would be great.

Yes, Paul, on your first question on valuation, it's always important to note that this is not some fancy Excel modeling we are making, but that we are actually relying on transactional evidence. And the transactional evidence, and you can see that in the publications, which are being put out by CBRE, Jones Lang LaSalle, Savills, you name it, are showing stabilized yields despite higher financing costs and stabilizing yields means that what we are saying all along that rental growth is essentially translating itself into value growth. So your assumption simply is not how the valuation exercise works. We are relying on what we see in the market. We are not relying on modeling exercises. On your second point, CapEx and how it benefits our craftsman organization. Look, I mean, you have various ingredients. You have kind of a flattish development in maintenance charged through the P&L or capitalized. Here, we have a fairly high in-sourcing ratio, which allows us to essentially reduce inflationary pressure, and that is something you will continue to see in the coming years. What you have on top is energetic refurbishment. That is something we are ramping up. That is, again, something which is more yielding -- higher yielding than our implied gross yield if you look at our stock price because we are talking about 6%, 7% yield on cost, we are talking about an IRR of 10%. And that is going to increase, and that, again, will benefit our craftsman organization. So I expect that trend to continue, which is twofold: one, based by volume, but second, also based by more productivity we are seeing.

So just to come back, sorry, if I can, on the first one, you mentioned about the yields being flattish. I think CBRE moved yields up in July '26, and I appreciate you could argue that's after the valuation date. And also your yield compressed, not stayed stable. And if I'm right in understanding, a lot of the transaction volume that's been happening has been happening at higher yields. If you look at your noncore as well, that's all at higher yields than the core portfolio. So flat yields in the transactions would imply a higher yield than your investment portfolio and yet your yield compressed. That's a bit I'm struggling to understand in terms of the -- seem to be slightly diverging movements. But apologies, if you want to provide some evidence on it, then that would be great offline.

Yes, we can take that offline. But again, Paul, it's -- we have the luxury of being in fairly liquid markets because we are in metropolitan areas, and we see a number of transactions happening. And that is not only at higher yielding for higher-yielding stuff, that is also lower-yielding stuff, which is simply attracting a different investor universe like family offices who take a different stance on how they look at businesses. They are less relying on cash yields. They are more relying on stable value outlook. But happy to take that offline and talk to you a bit more in detail through the mechanics of how that valuation works.

The next question comes from the line of Neeraj Kumar from Barclays.

Two questions on my side. So first one, can you help us understand your thought process around hybrid instruments, if you see them as attractive instruments, especially in light of your ambition to exercise call options on Apollo's stakes and deleverage? And my second question is with regards to your Vesteda stake. Can you please provide some color on what is the discount to NAV at which you're expecting your stake to be redeemed?

Yes. First question, I'm happy to take. I'm not at all a friend of hybrids. For me, a hybrid is a debt product. And if I consider that as a debt product, it comes along with a high coupon. And if at all, a hybrid might be necessary to manage rating, that is absolutely not the case because we are in very, very safe territory for our BBB+ rating. Actually, if we continue with our deleveraging plan, there's actually risk to the upside, if at all. Vesteda...

Vesteda, I can quickly cover this. We actually came away with a very positive agreement with our fellow shareholders at Vesteda. As I explained, we are now in the preferred redemption route. And that means Vesteda will prioritize our redemption. We have agreed on a modest discount actually of around 8% to accelerate this. And I think that's a very good outcome should allow us at the beginning of next year to already redeem that stake.

The next question comes from the line of Jochen Schmitt from Metzler.

I have 2 quick questions, please, both on Slide 24 on the Development business. Firstly, on the Development to hold pipeline and the progress in construction, how many apartments may we expect to be finished next year? And second question, same topic, the pipeline earmarked as Development to hold has decreased over the quarter when I compare the quarterly presentation materials. Could you give any explanation for that?

I think we need to check. Development to hold, let me put it differently. We have annual CapEx in Germany and Austria of around EUR 200 million, EUR 250 million in Development to hold. If you account including the value of the land plot of EUR 3,500 to EUR 4,000 per square meter for 65, 70 square meter on average, that gives you roughly the number we should complete on an annual basis. On the pipeline, there has been no change to my...

Are you referring to the short-term pipeline?

It is on Slide 24.

24, in the right bottom corner. Is that what you're referring to?

On the left-hand side, actually.

The 65,000 units we have disclosed for quite some time now.

The 21% Development to hold, including floor additions, but maybe there has been a switch to the short-term pipeline. We can also follow up on that slide if you want to...

Yes we can.

Because that's normally what you need to take into account. We can take this offline, but it's obviously a rolling concept. So every quarter, we push another element from the midterm to the short-term pipeline to the work under construction, and that may be part of the answer. But let's take it offline and check with you, yes.

We now have a question from the line of Marc Mozzi from Bank of America.

Just one question for me, which is just a follow-up on Bart and Valerie's question regarding Berlin rental growth. To what extent is your outlook influenced by the regulatory framework that caps rent increase at 15% over a 3-year period? Because if I do the basic math, the limit we find on an annual basis is 4.8% precisely. So I just wanted to know if it's just a consequence of regulation or if there is only a political angle behind that number? And if that the case, how did you come to that 4.8% if you have any rationale behind?

I mean, first of all, Marc, when we -- when you refer to the noninvestment-driven market rent growth of 2.5% to 3% that is precisely because of the rent cap legislation, which in our markets do only allow us to increase rents by 15% over a 3-year time horizon. And given that approximately 50% of our holdings are eligible to increases for the rent index, the other ones because of fluctuation, because of energetic modernization are already above what the Mietspiegel suggests, you are by 5% per annum divided by 2, so by 2.5%, 2.5% to 3%, and this is how we come up with that number. And the headline number for Berlin Mietspiegel, by all means, you cannot apply that to our entire holding in Berlin. You can only apply that to roughly 50% of our holding in Berlin.

Correct. And the 4.8% then as a result of the difference to the 6.9% is essentially driven by certain affordability-related adjustments. For example, we have simulated that an average tenant of us in Berlin, who lives in an average apartment of 60 square meters should pay typically around EUR 250 a year max more, and that's exactly what we have achieved. And then it happens that this results in the 4.8% on an aggregate basis.

The next question comes from the line of Kai Klose from Berenberg.

I've got 2 quick questions on the adjusted EBT calculation regarding the change in the straight-line depreciation and intragroup profit/losses, 13% in the depreciation and a 59% increase in intragroup losses. Just to be curious what's behind that.

What happens from EBITDA to EBT is that we have some consolidation effects, and that almost exclusively relates to our craftsman organization because if we do work for maintenance, this is consolidated out towards the EBT.

And this explains the depreciation or the intragroup losses?

The intragroup profits.

Okay. And for your [indiscernible].

The depreciation is on photovoltaic. Yes, I mean, in essence, let me add, I mean, we've had a lot of discussions on our earnings KPIs. We have introduced the adjusted shareholder earnings. Just by way of reference, this is nothing else, but our formerly reported group FFO with a proper name now, but deducting for the depreciation, which for our photovoltaic business, we need to earn over time. So I think it's the more honest way to look at things.

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

Thank you, Matilda, and thanks, everyone, for dialing in and joining this call. As always, if you have any follow-ups, you know where to find me and the team. Do feel free to ask. Luka, Philip and I will be on the road quite a bit, especially in September and October. And we're looking forward to connecting with you in various -- or at various opportunities.

I just wanted to say, Rene, first, I'm on vacation before I'm on the road, because I need that vacation.

Which is fine, which is what I said September, October, yes. We wish everybody a summer break, well deserved. That does conclude today's call. As always, stay safe, happy and healthy and do have a great summer. Speak soon. Bye-bye.

Thank you.

Thank you, everyone. Bye-bye.

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.