Earnings Transcript for VNA.DE - Q3 Fiscal Year 2023

Operator: Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the Vonovia SE Interim Results for the Nine Months 2023 Analyst and Investor Call. Throughout today's recorded presentation all participants in listen-only mode. The presentation will be followed by a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to Rene. Please go ahead.

Rene Hoffmann: Thank you, Sandra, and welcome, everybody, to our earnings call for the first nine months of 2023. Your hosts today are once again, CEO, Rolf Buch; and CFO, Philip Grosse. I assume you have all had a chance to download today's presentation. In case you have not, you will find it, as always, on our website under latest publication. Rolf and Philip will now present the results and also give you a general business update. And of course, we're looking forward to your questions afterwards. With that, let me hand you over to Rolf.

Rolf Buch: Thank you, Rene, and welcome also from my side to our earnings call. I want to start with the highlights on Page 4. First, let's talk about disposals. Year-to-date, we have now sold a total of €3.7 billion, of which €1.7 billion were signed since we last reported in early August. About half of the total has already closed this reminder expected at a later stage. We will have more detail on disposal progress on the next slides. Second highlight financing, cash flow and leverage. Since the beginning of the year, we have signed €2 billion of new bank loans and rolled over €0.8 billion of existing bank loans. We also have extended our RCF commercial paper recently by two more years and at unchanged terms. Our total pro forma cash position is €3.8 billion. All of our unsecured maturities are now covered until the end of Q1 2025. Pro forma, our LTV is at 45%. Turn too high for this interest environment, but clearly, we have been able to manage against the headwind in this environment. And it is my understanding that Moody's acknowledged these efforts when they confirmed our rating last month. Make no mistake, our focus remains on the delevering through disposal. Third, our nine months results, rental operations are as strong as ever. Organic rent growth was 3.8%, vacancy was low at 2.1% and rent collection was virtually in full with 99.9%. As Philip will show you a bit later on the other segments are still more difficult, and that is why our positive rental performance was diluted by the other segments. All in, our total EBITDA was down close to 5% and group FFO declined by a bit more than 8%. After portfolio valuations at the end of Q4 last year, as well as Q1 and Q2 this year, there was no triggering event for portfolio valuation as Q3. And as you can see in the transaction we did, they were all around fair value. And last, our guidance. For our final guidance for 2023, we expect a 3.7% to 3.8% organic rent growth, the lower end of our EBITDA range and the midpoint of our FFO range. For our initial guidance for 2024, we expect rental revenue in line with the 2023, even through low there will be a negative volume impact from the massive asset disposals. Adjusted EBITDA totaled in line with 2023 as well. And a moderate decline in group FFO, which is due to higher taxes comp sales and full year effect from increased interest costs. And we guide an additional signing of above €3 billion gross proceeds from additional disposals. On Page 5, I would like to zoom on our disposal progress so far. Before I go through the update, however, let me take a step back and look at the bigger picture. When I joined this sector a little over 10 years ago, one of the most fundamental things I learned in the beginning was that there are two ways to make money in real estate. One is through the net initial yield and the other is through value growth of the assets. That is still how we look at the sector and how we make our portfolio management decisions. In the current environment, however, many players don't accept this fundamental concept. Most investors and potential buyers look at net initial yield only and ignore the growth element, not because they are stupid, but often banks don't provide adequate finance for growth potential. That is why disposal, which are difficult per se these days are currently very difficult for portfolios where this growth still needs to be realized. What works better is new constructions where the rent is already at market level or assets where the net initial yield is high because the assets are unlikely to see much more value growth. Coming back to our view of the world, we believe that the net initial yield should not be the sole criteria for making the sales decision. We must take the longer-term expectation for our assets into consideration. And we are not selling to deliver price discovery to the market to prove or disprove certain price points. We are selling to manage our leverage. In this context, I think it is fair to say that as far as the sector goes, we have been comparatively successful so far. Year-to-date 2023, we have now signed €3.7 billion of disposal. That's not bad compared to our initial disposal target of €2 billion and also compared to transaction market in general. However, it is also clear that we remain committed to pursue further disposals to repay upcoming bond maturities and to ensure that that KPIs moves back into the respective target range. While we show you all the disposals on Page 5, I limit my remarks to the disposals we have agreed since we last reported in early August. Since then, we have signed another €1.7 billion. We sold 361 apartments n Dresden to a family office marginally above fair value. Second, you probably saw last week that we sold 1,200 apartments to the city of Dresden for €88 million and at fair value. The only reason you saw a press release from us for this transaction was that the mayor and I did a press conference in Dresden because it was big news for the mayor. In spite of our press release, there seemed to be some confusion about this transaction. So let me give you the facts. Yes, the deal was smaller than the 3,000 or even 6,000 that has been reported in the press. But the Dresden housing company doubled its size with this deal and this was probably enough for them. What is clear is that this transaction further strengthens the partnership between the city and Vonovia. And this is important because Dresden is our second largest city behind Berlin. The €88 million purchase price reflects the fair value of both the asset and the land what was sold. And by the way, the land does not have building rights. Comparing it to the average interest makes absolutely no sense because the portfolio we sold is of much lower quality with unrefurbished old East German bow in weak micro locations. Our average fair value interest is €1,955 per square meter. The average square meter value for the assets we sold was €1,130, so almost half of the average. At the press conference, the mayor announced the city plans to invest €100 million into this portfolio, which is probably a good indicator to the current quality. More than 50 years ago – 15 years ago, when the city sold its Woba portfolio to Gagfah these assets were actually earmarked for the evolution. Third transaction. We sold another €1 billion common equity to Apollo in our northern portfolio last week, and I will show you the key terms on the next page. €209 million came from selling 958 apartments in individual transactions for our recurring sales channel. And finally, a total of €377 million proceeds in a series of smaller transactions in which we sold development to sell, low-yielding multifamily homes and residential noncore, all around fair value and commercial assets around 7% below fair value. We sold 1,200 new constructions to CBRE for €357 million yesterday and at around 4% discount to fair value and a gross yield of a little over 4%. These are new constructions located in Berlin with a square meter value in excess of €4,000 and rent at the high end of the market with limited growth potential going forward. Given the size of the transaction with Apollo, I want to touch on the main elements of this deal on Page 6. We signed an agreement with Apollo who will invest €1 billion in exchange of 30% minority stake in the asset holding entity of our northern portfolio. So, €1 billion of additional equity for us at terms much more favorable than we observed in our share price. You will probably recognize the key terms of the transaction because they are so similar to the [indiscernible] deal. We will continue to control, operate and consolidate the portfolio, and Apollo will have limited minority investor protection rights. Apollo will receive a higher than their pro rata share of the dividend. Correspondingly, we keep a long-term call option that gives us the right to repurchase the participation and a pre-agreed IRR. The IRR range is purely related to the timing of the call option exercise at our discussion starting at 6.95% and reaching a maximum of 8.3%. The IRR takes into account any dividend paid, so it reduced the call option price over time. We will amount for the value of this call option as our financial asset in our accounts. Because of the call option, our cost of capital is capped at the IRR range. We retained 100% of any additional upside or outperformance on the portfolio compared to the business plan. There is no obligation for us to exercise the call option. Maintenance and operating expenses are paid from the cash flow generated by the portfolio and hence, shared between the parties. And with this, over to Philip.

Philip Grosse: Thank you, Rolf. And also a warm welcome from my side. Let's move to Page 7 on the segment overview. As Rolf said, our rental EBITDA is as strong as ever and grew by 7%. The drivers were higher rent growth, continuously high occupancy and virtually full rent collection. Further EBITDA support came from a lower cost base for maintenance and operating expenses. And finally, the Deutsche Wohnen synergies are being realized as planned. So for 90% of our business, we had a very good first nine months. Unfortunately, the other segments are still impacted by the low transaction volume, our reduced investment program, as well as overall market environment. Let’s run through the different segments and start with rental on Page 8. While the portfolio was marginally smaller than last year, rental revenue was up 2%. On the expense side, maintenance was well under control with minus 4.7%, and the synergies from the Deutsche Wohnen transaction helped us to cut operating expenses by more than 15%, as the key driver to operational profitability. On to some of the key operating figures on Page 9. Year-on-year organic rent growth was at 3.8%. And you can see how the market-driven rent growth has effectively doubled as we have been guiding for. This underlines our conviction that market rents are picking up, even though this is happening at a moderate pace due to Germany's rules-based system. The fluctuation in nine months annualized was 7.9%, down a percentage point from the end of last year. And vacancy was at 2.1% unchanged compared to last year at this time. And also very unsurprising, I would add, as the imbalance between supply and demand keeps shifting even more in favor of those who have the supply. Rent collection remains extremely high, and we also view this as a very reliable indicator for affordability. To be clear, these numbers include not just the net cold rent, but also all ancillary costs and energy costs. And finally, maintenance, you can see how we have been managing capitalized maintenance downward and that, again, with a view towards optimizing our liquidity. Let's move to Page 10, and let me give you some more color on how the accelerating Mietspiegel growth is reflected in our numbers. For this view, I am focusing on the rent growth we get from adjustments in the Mietspiegel or the OVM, which is the German acronym for local comparable rent. For those who attended our Capital Markets Day in September, you will probably recognize this term. Put it in simple terms, the OVM is the absolute rent level to which you can adjust the rent for sitting tenants without any investments. As we have been reporting, there is clearly an acceleration of Mietspiegel rent growth following the rise in inflation and in the context of supply-demand imbalance. The momentum has reached a point where not all the rent growth can be implemented at once all the time. So the acceleration of Mietspiegel and OVM growth has started creating a bow-wave for part of the rent growth that comes with delayed cash implementation, because the rules-based rental system does not allow for the full implementation right away. Instead, the portion of the allowed rent growth is often delayed. And the main reason for this delay are a local maximum rent increase over three years, that is 11% in Berlin, 15% in markets, which are defined as tight and 20% elsewhere and the 15 months hiatus between two rent increases. So we have additional rent growth that is irrevocably linked to each specific apartment but it can only be implemented with a time lag. We are not talking about maybe or potential opportunities, the maximum level is already marked in our SAP operating system apartment by apartment and the remaining step-up will be automatically implemented immediately after the restriction period have left. You see the impact in the chart on Page 10. Again, this first occurred in 2022 and carried over into 2023. You have two effects. On the one hand, you add the bow wave through the new Mietspiegel. On the other hand, you reduce the bow wave whenever you can raise to the full Mietspiegel or OVM because the restriction period has ended. The bow wave, indicated by the green block, will be much bigger in 2024, a year for which we don't quantify the individual rent growth drivers just yet. The main reasons are Berlin is expected to do a detailed Mietspiegel for the first time in a long time, plus you still have the catch-up in rent levels following the highest court ruling that the rent freeze was unconstitutional. Detailed Mietspiegel are mandatory for all larger cities starting January next year. And across the board, we do see stronger Mietspiegel growth in 2024 compared to 2023. We expect the trend of a larger bow base to last beyond 2024 and until the full step-up in Mietspiegel and OVM can again be implemented cash effective in one go within the boundaries of the local three-year maximum. To avoid misunderstandings in the interpretation of this number, the Mietspiegel or OVM growth still to be implemented of any given year will not all be implemented in that same year. We will have two effects, new Mietspiegel will add to the bow wave hence the apartments have reached the end of the restriction period, the bow wave becomes smaller. After that detailed explanation, let's move to Page 11 and the EBITDA from value-add. The EBITDA reduction in this segment is primarily driven by challenges in our craftsman organization coming mainly from the reduced investment volume. Increased costs for material and energy further impacted profitability. The reorganization process for our craftsmen organization is underway, and we are confident to be able to get this back on track also helped by higher investment volumes at attractive returns we envisage for next year. On the positive side, external revenue was up and mostly driven by energy and photovoltaic installations. Page 12 for recurring sales. As you can see, the fair value step-up in this segment remained high with 43%, so comparable to last year. But the challenge in the first nine months was the volume. We are seeing more interest in this product again, and the level of reservations has been going up lately, which is clearly a positive indicator. In the first nine months, however, we sold half the volume of the prior year generating some €170 million of free cash. Our focus in this segment is currently cash generation, more than price optimization. So we may well have seen the peak of fair value premiums in this segment for the time being. And finally, the Development segment on Page 13. Development continues to be an attractive business. But here too, the volumes were lower than last year. As you can see on the lower left-hand side, we have been shifting more projects towards development to sell in line with our revised capital allocation policy. We only have about 4% of the balance sheet committed to development to sell. One final remark on development. We expect the second CBRE transaction we just signed yesterday to lead to a moderate negative EBITDA impact in Q4. Here again, the focus is on liquidity over profitability. Given and that is moving to the next page, the steep discount of our shares. The NTA is maybe a bit less of a focal point. But of course, a relevant KPI nonetheless. After the first nine months, 2023, the NTA per share was down 12% to €50.51. The main driver were, of course, the valuation results in Q1 and Q2 and the 2022 dividend. Let's talk about our investment program on Page 15. And as a reminder, this includes essentially three buckets

Rolf Buch: Thank you, Philip. And my wrap up will be brief, but I would like to have a bigger picture first. There is never a good timing to face more difficult times, but beginning of the crisis in Q1 last year came at a particular unfortunately point of time for us. We have just acquired Deutsche Wohnen and we have stretched the leverage to a higher point than where it should be when you go into a higher interest rate environment. However, it is what it is, and we are now working our way back in a more difficult environment than we had anticipated. The relevant question is how does a company act in such an adverse environment? Our course of action is actively work on disposal to try and stay on the front foot regarding our leverage. Clearly, we have more work to do, but it is equally clear that generating €3.7 billion in cash flow in a market that many people considered as shutdown is not a bad interim result. We remain fully committed to our disposal efforts to further strengthen the balance sheet and bringing the debt KPIs back into the target range. As we have shown in our disposals, transactions are possible in spite of market challenges, but they need time, careful preparation and execution. We now have all unsecured maturities covered until the end of Q1 2025. Our headroom allows us to continue to act from a position of strength, and we are not forced to take drastic measures that would be detrimental to the long-term nature of our business and/or destroy long-term shareholder value. As we move on, we do so on the back of a rocket solid core rental business that continuously delivers a strong performance and sustainable growth. And this is not by chance, but because the long-term fundamentals are extremely positive as we have repeatedly pointed out largely as a result of the megatrends. And with this, thank you very much.

Rene Hoffmann: All right. Thanks, Rolf, and Philip. I’m going to hand it back to Sandra to open up the Q&A for us, please.

Operator: Ladies and gentlemen, at this time, we will begin the question-and-answer session. [Operator Instructions] The first question comes from Charles Veasey from UBS. Please go ahead.

Charles Veasey: Yes. Hi, thank you for the presentation. I have three questions. So first, on guidance, as Philip mentioned, you usually provide quantified guidance, and not this time, but the only place where you did provide quantified element is on the disposal where actually you usually abstain from it, pointing that it can hurt pricing power. So my question is essentially what I’m trying to understand, is this driven by ongoing discussion on which you have very strong clarity and strong confidence of closing, or is this more of a commitment to rating agencies? I think looking at the Moody’s report; they seem to expect at least €4 billion by the end of 2024. Thank you.

Rolf Buch: So to be very clear, our breakdown, I think we have not shown it today in the main deck, but in the backup, we still have a lot of non-core disposals ongoing, which has to be sold anyway. So this is actually a commitment of us that we will continue to get rid of the disposals. And this is, of course still the non-residential part, which we have in our portfolio, which doesn’t belong to Vonovia and which has to be sold anyway. We have a bunch of non-core portfolio, which has to be sold. There is also the intention still of Deutsche Wohnen to sell the healthcare portfolio. So it is just to underline that we are highly committed to get rid of these non-core portfolios to improve the quality of our portfolio.

Philip Grosse: Charles, let me just add on Moody’s, based on their opinion, rating opinion, it was €2 billion disposals for this year still to come, which we have largely overachieved, and €2 billion for next year.

Charles Veasey: Okay. Thank you. Still on disposals, having signed €1.7 billion in a rising environment, as Rolf mentioned, when the market is essentially shutdown and how should we think about the potential for disposal once rates stabilize? And would you do more than to reach your target in leverage metrics?

Rolf Buch: So to be very clear, I think the disposal program is getting easier. It’s not easy, but it’s getting easier. And nobody knows what will happen with interest rates. So I do not give you a guidance for interest rate. But of course, if it will come easier, it will be easier for us to get rid of our non-core and other things, which I just mentioned. And of course, it is in the interest of the company to finish the disposal program as fast as possible, because we all know that disposal for longer term is not the solution. We have to fix our balance sheet, we have to get rid of our non-core and then we have to go on to grow the company back again. So that's why we all have the interest to finish the disposal period, which will be not finished today, but it will be finished one day. And we all have the interest that this period will be finished as soon as possible. So that's my maximum speed on disposal.

Charles Veasey: Okay. And to build on what, Rolf, you mentioned about it getting easier in terms of disposal. Is it also in this context that we should understand that you mentioned Vonovia does not intend to pursue additional joint ventures of this kind? Because – on the face of it, you mentioned to us all the merit of these JV deals relative to your cost of capital. So a question could be why would you not consider them if there was interest for further JVs? And is it – because right now you're saying that it's getting easier and you don't need to do this kind of JVs anymore? Thank you.

Rolf Buch: No, the main reason why we said we will not have this kind of structured JV is, because to make a structured JV like this, you need a very specific combination of different elements is this possible? One of it is that you need a legal structure, which combines asset in one regions. And to be honest, the Northern portfolio was probably the last structure which completely fits into this [indiscernible] So the main reason why we are not doing it anymore is because we don't have enough available products – not enough products available which is easy to structure. But of course, it is still clear that we are ready to do traditional joint ventures with real codetermination and normal dividend distribution, especially in Sweden. And we do not exclude traditional joint venture in other parts of our portfolio. Of course, Sweden in the moment is not the best time, so don't expect us to do joint ventures in the foreseeable near future, because we have to wait until the Swedish market has stabilized, especially two of our competitors which need to solve some issues. But it is not forgotten. It is a way how we can close a company. But these are additional joint ventures.

Charles Veasey: Understood. Thank you.

Operator: The next question comes from Bart Gysens from Morgan Stanley. Please go ahead.

Bart Gysens: Yes, hi. Good afternoon. Bart Gysens from Morgan Stanley. I had a question regarding your FFO guidance for 2024. You're guiding to a moderate decline in group FFO and group FFO per share compared to 2023. Traditionally, the group FFO you quote is before minorities. Can I just clarify that's indeed, again, before minorities? And I wanted to understand that in particular, given the accounting for the Apollo deal, does that have an impact on minorities? Thank you.

Rolf Buch: The answer to both question is, yes. We are guiding a group FFO pre-minorities, and for the two Apollo transactions, you will see higher minorities as of next year, where we essentially account for the dividend payments under the JV agreements.

Bart Gysens: And so can I follow up on that? Would you still say that the decline in FFO – I think we all appreciate that investors buy the shares after the minorities and that a group FFO before minorities is somewhat suboptimal right from a valuation perspective. So would you still say that decline in FFO will be moderate on an FFO that is relevant for shareholders, i.e., after minorities?

Rolf Buch: I mean, just to put something straight, we, as a reminder, have signed fairly significant amount of disposals, €3.7 billion and we are targeting another €3 billion next year. So that these disposals have somewhat a negative effect on EBITDA and FFO should not come as a surprise. And not all of that we are able to compensate for higher rent growth. And second, you also have the situation that the accounted book values for tax purposes are lower than our disposal prices. So you also have increases in tax related disposals. Now, specifically, on the JVs, yes, we've done €2 billion of JVs. This is comparatively cheap equity, but it remains equity with a cost initially of 70% – 7% growing to 8%. And what we do is initially or essentially using this equity to replace financing, which would be otherwise necessary. So, yes, there is a cost embedded in that. And that is essentially the price we have to pay to delever our balance sheet, which I guess we all agree should be our key priority. Is that sufficiently answering your question, Bart?

Bart Gysens: Well, I mean, to be honest, no. Because, I mean, the shares – if we try to determine the value of the shares, we need to understand the direction of the earnings that are relevant to the equity that those shares represent. And so, therefore, when you say there will be a moderate decline in group FFO, it would be more helpful to guide on the FFO after minorities that actually applies to the shares that investors can trade, right. So that's why I asked, is it still only a moderate decline? I think we all appreciate that de-growthing your balance sheet and selling a lot of assets, of course, will have a dilutive impact. But we're trying to determine how dilutive that is and what the impact is and therefore being more explicit on the increase in minorities would be helpful. But if you can't do that…

Rolf Buch: I take that on both. But I think kind of a rough estimate is easy to make, because Deutsche Wohnen currently is accounting for the vast majority of our minorities. And here you have separate disclosure. And the JVs, we published the gross asset value, about the dividend distribution. So you can fairly simply apply that on an assumed net cash flow and that gives you a very good estimate on the additional minorities to come for next year.

Bart Gysens: Okay, thank you.

Operator: The next question comes from Marios Pastou from Societe General. Please go ahead.

Marios Pastou: Good afternoon. Thank you for taking my question. Just a couple of questions from my side. Maybe I'll ask them one by one, if that's easier. Just firstly, on the €2 billion of disposals which you've signed, but not actually yet closed and included in the pro forma LTV. Is there any foreseen risk of non-completion here from your side?

Rolf Buch: No. Just to add, I also expect three quarters of that to close by the end of this year.

Marios Pastou: So of the €2 billion, there is some lag that happened in…

Rolf Buch: The big point was a package with CBA we signed yesterday night, so it is not closed. It's signed. And Apollo we signed a week ago. So that's why it's signed and not closed. But the closing conditions are nothing which are on risk.

Marios Pastou: And no risk potentially of maybe the buyer pulling out at all, maybe across some other deals?

Rolf Buch: No, because it's only closing. So closing is just based on some conditions which are in both cases, actually just technique.

Marios Pastou: Okay, very clear. Thank you. And just secondly, I know you mentioned about stating your organic rent growth guidance with your full year reporting. I'm considering just the visibility here you have over the future rent growth. Is there not a way you can quantify just a high level expectation of the direction for next year? And what is stopping you from being able to give guidance for the organic rent growth coming through in full year 2024?

Rolf Buch: If you look for high level expectation, you go to the page, which is at Page 10, very right hand side, and you see a number beyond 5%. What we are not able to quantify as of now is the split in the various constituencies in terms of Mietspiegel/OVM implemented cash wise in 2024, and which is laying on the contract and the investment driven rental growth. And that detail is to come with full year numbers.

Marios Pastou: Is it safe to say that the green portion of that 2024 estimate from this still to be implemented would be higher within that bar or that column?

Philip Grosse: That is fair to assume, yes.

Rolf Buch: So if you take a ruler, it’s always a good way to look at the figures.

Marios Pastou: Okay. Very clear. Thank you very much.

Operator: The next question comes from Rob Jones from BNP Paribas. Please go ahead.

Rob Jones: Yes. Hi, team. 5.65% was the height when I measured it with the ruler this morning. Two questions from me. One was in terms of the Berlin portfolio disposal, the CBRE disposal €357 million that you announced this morning. Appreciate 4% discount to book value. I think you also said the gross yield a little over 4%. The question was, is that not considered transactional evidence from an appraiser’s perspective? I get the point around some of the transactions have been equity deals, not portfolio deals. But why isn’t that deemed to be a transaction given that obviously your Berlin portfolio is considerably lower yield or higher in place rent multiple to that? That’s my first question.

Philip Grosse: Yes. From an accounting perspective, we are looking at a triggering event, which is typically the case if you do transactions with a discount in excess of 5%. Here what you have to see is, a, that the deal we did with CBRE is only one of many and the other ones we did in residential were all at or even slightly above fair value. And that is now outside recurring sales business, which is significantly above fair value, but obviously a very different product. And second, to be also very clear, in the CBRE transaction, we have also accepted some guarantees and some minor deferrals in the payment of the purchase price and that have been discounted for in the number. So the €357 million is reduced by that number. And all of that is no indication whatsoever for a triggering event or revaluation of our portfolio.

Rob Jones: Okay. Very clear. And then the final one from me was, when I look at the right hand side of that Slide 10 chart and I apply a bit of a haircut to the height of that bar to the top line and think about top line for next year and obviously you’re giving flat guidance. Obviously the negative effect is asset disposals. I think I’m right in saying that the Apollo deals don’t impact top line. Obviously they do impact minorities. But how do we end up in a scenario where the non-Apollo transactions of call it €1.7 billion multiplied by the average yield you’ve sold that is less than – the sum of that is less than the positive benefit of the likely like-for-like growth that we will see next year. So how do we end up with top line still flat rather than up?

Philip Grosse: Yes. Again, Rob, I mean this is very much a function of a, the disposals outside the JVs we did year-to-date plus b, additional disposals we are targeting for next year, which are embedded already in our guidance. So making the reference to the gross proceeds of another €3 billion and that is without JVs we are targeting for next year. And against that backdrop, I must say, I was actually proud that we have been or are guiding to be able to achieve a flattish rental income also considering that the rental growth we are indicating on Page 10, right hand side is not all cash we can expect for next year.

Rob Jones: Okay. Well, then I apologize. I hadn’t appreciated that the guidance for next year was including the effect of planned or guided disposal. So thank you for that clarification.

Operator: The next question comes from Marc Mozzi from Bank of America. Please go ahead.

Marc Mozzi: Yes. Thank you. Very good afternoon, all. I have essentially two questions from my side. The first one is on the dividend. I think it was relatively widely expected by the market that you would have provided a guidance for this year dividend. And my question is, do you think that the risk of a dividend cut has been reduced as a result of today’s announcement on your disposals and the fact that you’re targeting €3 billion next year?

Rolf Buch: Marc, let me answer this in a more comprehensive way. We have a well-established dividend policy, and this is in general that we pay out 70% of the group FFO after minorities. But you also know that last time we deviated from this policy. So, obviously, the dividend decision is not a foregone conclusion, we are not a REIT. So we are free to decide the dividend and we will take this freedom. What we always have to take into consideration all relevant factors for a well informed decision. And therefore, we ask for your understanding that, as is last year, because of lack of sufficient visibility, we cannot determine yet whether or not we will pay a dividend for 2023 at this point of time. And we don’t want to come in the set that people expect from us in November already a dividend guidance, so point for you, right, point for dividend guidance is the beginning of next year. But we will, of course, keep analyzing the situation. And as every year, we intend to make the decision on the proposal. And we want to stay at this in March before the Annual General Meeting. At that time, at last, we expect to have the necessary visibility on the parameters to make a well informed decision. And as you know, it’s particularly all about leverage, property valuations and successful in disposals. So it is just too early to give a guidance.

Marc Mozzi: Okay. And did I hear you well when you said if we were to pay a dividend this year or if we will pay a dividend this year? That’s what you said.

Rolf Buch: Guidance, I haven’t given you a guidance if we or if we not will pay a dividend.

Marc Mozzi: Okay. My second question is effectively on those GVs and the impact on your financial statement. Let’s say the consolidation of those GVs. So, as Bob said, the impact on group FFO post minority is going to be relatively huge. If we do basic math, 7% times €2 billion, that’s going to be equivalent to 8% of your group of FFO this year. So is there any other mitigating effect we should take on board before 8% on top of your moderate decline, which would mechanically lead to kind of a double digit decline.

Philip Grosse: Marc, as I said, accounting wise, we are consolidating the JV. So there’s little change except that we account for the financial asset of the call option with respective reflection on the equity side. But in terms of group FFO post minorities, it’s essentially the dividend stream, which will be deducted if you move from group FFO to group FFO post-minorities. And again, I mean, it remains equity. Equity is comparatively expensive if you compare it to debt. The equity we have chosen is comparatively cheap if you compare it to a more common equity raising through issuing shares.

Marc Mozzi: Clear. And then the other impact is on your LTV calculation. How should we look at it? Are you going to keep 100% of the asset on the left hand side and remove €2 billion of net debt on the right hand side of the balance sheet? Is that’s the way we should look at it? Or you’re going to have something relatively more proportional?

Philip Grosse: We are not doing proportional accounting. So that’s how we did the pro forma calculation. Yes.

Marc Mozzi: And that is the way you would assume being your targeted 40%, 45% range.

Philip Grosse: Yes.

Marc Mozzi: Okay. And I have a final one. Can you give us a bit of basic trend, which are effectively, which have helped you to create your guidance on FFO, meaning on tax rate, because it's a very volatile number according to sales. I think on a recurring tax rate, you were at 7% last year, 7% over H1. What sort of magnitude should we expect in terms of increase here? And are you expecting improvement, stabilization, further deterioration in the non-rental businesses, i.e., privatization developments to sales and value add?

Philip Grosse: I mean first, if – if I specify the moderate decline in FFO for next year, in rough terms, half of that is driven by increases for higher interest expenses and that predominantly, and Rolf was pointing towards that is driven by the annualized impact of refinancings we did year-to-date is roughly €60 million. And the other bit is on taxes for our FFO calculation, that portion of taxes, which is attributable to recurring sales plus development to sell is being recognized for. And yes, we assume a step-up in these assets and as such, also a higher share in profitability compared to this year. And that goes back to also a stabilization and we've been providing some narrative around that in our value-add business and here, in particular, the craftsman organization where we are currently undertaking some restructuring to move that back to a higher profitability again.

Marc Mozzi: Great. Thank you very much. That’s for me.

Operator: The next question comes from Paul May from Barclays. Please go ahead.

Paul May: Hi guys, thanks very much for the presentation. Just got two or three questions actually from my side. You mentioned – and I think you mentioned at the half year as well that the transaction market is stabilizing, but I think evidence would suggest otherwise, excluding the structured deals, which you say you're not going to do any more of and excluding the sale of brand-new buildings or yet to be completed buildings, which, again, I think you're coming to the end of the ability to sell those. So excluding those transactions, the transaction market is pretty dead or terrible according to most other data points. Just wondering what evidence you're looking at when you say the transaction market is stabilizing?

Rolf Buch: So first of all, I understand that we are not doing structured joint ventures. And you are right; we still have a lot of brand-new buildings available. So we have no lack of brand new buildings. Because they are still under construction or they are just supposed to be finished. So, I don't agree on this point. And keep in mind, yes, we sold €1 billion of the €1.7 billion we signed in the last quarter only we signed 350 CBA, €1 billion, but the rest is traditional stuff, which is – actually was criticized also on the lower end of the portfolio, which is, for example, for the Dresden portfolio. So there is – as I said, there is a lot of potential on the brand new buildings and on the noncore, where the yields are relatively high because there's no value cost. So on both sides; we have enough sufficient products to be sold. And that's why we are able to give you guidance that we will sell another €3 billion. Next sign another €3 billion of sales next year. So I disagree with your analysis. What is difficult in the moment is to sell the assets where we are the best owners, these are assets where you can invest with a 10% yield, where you can increase rent. So these assets, we are the best owner. So that's – it's also in our interest and the interest of our shareholders to keep these assets. So we are not worried if we cannot sell them, because we would not sell them anyway. We are selling the left hand side and the right-hand side of our portfolio because these are not the best, what we should own. So – and for this, we have enough material, and that's why we will clean up our portfolio and have a better portfolio, and then we can start going against the company.

Paul May: And just on that, you mentioned the lower end of the scale in terms of disposals. I'm assuming those are at higher yields than the average yield on the portfolio. Is that fair to say?

Rolf Buch: Yes, because the initial yield is higher, the total IRR is lower. This is all the effect because I learned – actually, you teach me 10 years ago or someone on the call teached me. Don't forget the initial yield only keep in mind the value uplift, which you are generating because rent is growing because you can do investments. Yes, and there are some assets where you cannot increase and you cannot do investments or at least not investment is a return which for us, for example, is the case in Dresden. And of course, they are initially a little bit higher. So overall, IRR is probably lower.

Paul May: And did you mention in terms of the ability to grow the business thereafter you sold €3.7 billion of assets this year or pro forma and pro forma LTV actually hasn't improved at all. So you don't think it frees up capital to invest and proportion of LTV, given the Apollo structuring, I imagine proportion LTV has actually gone up quite a bit year-to-date. Just wondered where do you plan to get the capital from to grow business moving forward?

Rolf Buch: So I think Philip has shown you last time in the half year presentation that we are generating roughly €2 billion. So at the moment, is the deleveraging is done and our balance sheet is back into the shape where we want to have it, it is a €2 billion investment potential, which we have. And if you do this €2 billion theoretically with our 10% yield, it's a great investment. And we can deliver 10% yield at the moment on the optimizer partner and upgrade building and heat pumps. So I'm not worried about the – bigger boy I have is that we have enough construction capacity because the construction industry is dying at the moment, and it is difficult for us. And we have to bring our value-add organization, especially the Carpenters [ph] organization back on track because we have insured this organization by the decision to cut the investment so far. So in the moment, we are coming back. So if you look on probably two years' perspective, €2 billion of investment were decent yield will bring the company back to on cost track.

Paul May: Sorry, a few follow-ups. Apologies a few more questions. A couple of things in that. You mentioned the 10% return on investment. I think regulatory speaking, you're not allowed to achieve that amount, but maybe I'm wrong. And historically, you've achieved a lower return on investment than that, I think. And when you were spending a lot in 2021, it might be 2022, is that 4 or 5 [ph]? Just wondered with construction cost inflation and labor cost inflation and still the rent regulation in place that limits the ability to capture rent. How are you planning on achieving 10%?

Rolf Buch: So first of all, we have achieved in the last nine months. So it's not about if we can achieve, we achieve it. And the second is, you now have seen that the regulations have changed in our favor. So all the heat pumps is now 10% and not 8% anymore. So it is clear that we will do 10%. And there, of course, also this investment gives us opportunity in combination with heat pumps and solar that we can generate an additional revenue, which we can count on this by selling energy to the tenants. So all this combination actually allows us to go above the 8% for traditional investment and to keep the 10% for the heat-pump investment. So the regulation has changed in our favor. And the market has changed.

Paul May: Okay. And just on the €2 billion is that fair to be saying you won't pay a dividend because that would be all of your free cash flow? Or actually more than your free cash flow given capitalize...

Rolf Buch: No, I think Philip – probably you can go back to the slides presentation, Philip showed you exactly how we broke it down and...

Philip Grosse: The logic essentially is that you use FFO as a cash proxy. And if you deduct assuming our usual dividend that is 70% of group FFO post minorities. Half of that as a scrip component is in rough terms, 35% cash out, so 65% remaining, and that 65% remaining opens up investment opportunities and then bearing in mind that these are investments in yielding assets, if you will. So part of that by keeping the capital structure neutral because you capitalize those investments, you can also free up some debt capacity without jeopardizing your capital structure. And this is the math and the outcome of that is that we have an investment capacity, which is far exceeding our investment needs in our standing stock.

Paul May: Okay. And just, sorry, one final point on clarification. Just separate question. You’ve mentioned a number of times that the Apollo transaction is an attractive form of equity injection, which I think we work out is around about a 7% to 8% NOI yield somewhere around there. Given, your shares are trading at implied NOI yield of 4.5%, why is 7% to 8% disposal better than raising capital at 4.5%? On a like-for-like basis, your equity is a much tighter cost of equity on an NOI basis than the Apollo deal. I just wondered how you view that.

Philip Grosse: I’m comparing the cost of equity with the cost of equity and the cost of equity of Apollo is 7% to 8%. The cost of equity of our stock if you look at Bloomberg is around 12%. And in my math 7% to 8% is cheaper than 12%.

Paul May: But on a like-for-like basis NOI yield basis, so NOI over EV versus NOI that you’ve sold, which is a fully like-for-like theoretical finance on the cost of equity.

Rolf Buch: But our stock is not trading at NTA.

Paul May: It’s not trading at NTA, but it’s trading at an implied NOI yield of 4.5%. So your NOI over your EV, which is an ungeared measure. And the JV is an ungeared JV, so you can’t compare a geared cost of equity is 4.5% versus selling at 7% to 8%. I just wonder what makes you think that’s better?

Philip Grosse: We can take it once again offline.

Paul May: Okay.

Philip Grosse: But again, we are comparing cost of equity with cost of equity and yes, the JVs are essentially debt free. But I’m looking at debt from a consolidated basis. So it’s freeing up capacity perspective on a group level. It’s a very academical discussion we are having.

Paul May: No, I appreciate. It’s actually quite important because it comes to a lot of the metrics that you put forward are not at the kind of underlying equity level. So it’s group FFO, excluding – including minorities, obviously excluding would be better. It’s LTV, not on a proportional basis. So I’m just wondering how you are kind of thinking about it from an equity investor point of view because you’re reporting metrics are from an equity investor point of view?

Philip Grosse: The JVs make up a fairly small portion of our balance sheet. We are following here in terms of how we look at the debt KPIs, the accept principles, also the rating agencies apply. And yes, it’s fair to say that if you look at dividend streams, expected dividend streams this is going to be impacted as we have discussed before by the higher minorities and therefore reduced basis – the basis of which dividends are being paid. And yes, again, that is the cost we have to be in order to do our homework to delever the balance sheet. It’s not for free – it’s not a free launch.

Operator: The next question comes from Andres Toome from Green Street. Please go ahead.

Andres Toome: Hi, good afternoon. I had a couple questions on the CBRE portfolio. So first of all, just to understand the pricing, I mean, you talked about concessions here as well. And just to clarify, the pricing, you sort of quoted around €4,000 per square meter. Does that sort of equate then the development cost of these assets more or less? And I guess when you talk about a 4% discount is that effectively a discount to the cost of developing these assets?

Rolf Buch: Yes. So to be very clear. There is a portion, this is a mix. There is some buildings which are already finished. And there are some buildings which are under construction. So what we are mentioning actually as fair value is the costs which are in the books plus the construction costs, the estimated construction costs in the original calculation where there is always a buffer. So in the end, that’s why I mentioned if you end up the calculation at the end of 2024, everything is finished, probably the picture will look a little bit better. But this is a figure which we have in the moment, and that’s why we as the auditor will not allow us to change it. So this is the way how we look on it. And this is actually partly also relevant because keep in mind that these buildings is mainly free rent, but there is also always like always some limited rent as well in this portfolio.

Andres Toome: And then I guess the amount of concessions, are you able to comment on that as well? So the 357 million as I understand, that’s after you’ve accounted for concessions. So maybe you can quantify that amount of concessions here as well and how do you derive that?

Philip Grosse: Yes, the concession in total is €6 million. So headline price, and I think there is ought to be also a press release by CBRE is going to be 663, sorry, 363. The 357 I was quoting is less 6 million deduction. And roughly one third guarantees, two thirds delayed payments. And the delayed payments are at the latest by the end of the year. It’s a staggered payment schedule. We have agreed and we have discounted with our current cost of financing of 4.5%.

Andres Toome: Okay. So the concession, the guarantees maybe just on that, is that sort of a fixed yield agreement then that you’ve agreed with CBRE [indiscernible]?

Rolf Buch: No, it’s empty buildings and the letting is still done with our people, and that’s why of course we give a guarantee. So if it comes, is this okay, and this is my expectations was on the last time. We will not need this buffer. It’s a buffer. But for accounting wise, this is the best guess and that’s why we put it. So if we do good in letting, then the buffer will be smaller.

Philip Grosse: And the discount.

Rolf Buch: And the discount.

Andres Toome: Okay. Understood. And then maybe in terms of rent level, you sort of mentioned it the higher end, but now you…

Rolf Buch: Again, one remark here. You are selling and the buyer wants to show also discounts and successes. So we are here a little bit and giving a good deal for both.

Andres Toome: Understood. And then the rental level, you sort of mentioned in the higher end of billing, but that you also said there’s some restricted units here, I guess. So what’s the average rental tone in this portfolio? Maybe you could give some color around that?

Rolf Buch: I don’t know. But you in general, that you get a construction permission in a big city, like in Berlin only if you have one sort of restricted, one sort of normal and one sort of disposals which you can sell. So in every portfolio it’s different. I don’t know exact figure. I just wanted to make sure that you do not compare the 4,000 to the completely free rent market.

Andres Toome: Yes, fair enough. So free market is, I mean, a higher in sort of €25, €30 I guess per square meter per month. And then here, is it then below 20 the average perhaps?

Rolf Buch: No, we are not – we are actually, I don’t have the figure I can deliver it, but I think it also has to be agreed with CBRE because this is now if we cannot publish it just on our side.

Andres Toome: Understood. And then final question on that is just the capital value, as you said, sort of around €4,000 per square meter, how does that compare with the previous CBRE deal? Obviously that one included assets also Munich and Frankfurt and Capital Valley was on a blended basis 6,000, but…

Rolf Buch: But this was Munich. And it was a different quality. If you look on the building in Munich, this was the highest end you can get.

Andres Toome: Sure. But there were some Berlin assets in there as well, right? So maybe life-for-like Berlin versus Berlin…

Rolf Buch: But we have not disclose the detail again, and I think it’s all the same value method. So next time you’re in Germany, then we visit with you to Munich building, and you will understand what is the difference.

Andres Toome: Fair enough. I'll take that invitation. But then also just the valuations you have today then, I mean I guess even you can't say the rental level, but let's assume it's around maybe 20%. I mean it seems like the multiple that comes out of this is quite low. And definitely lower than your average sort of valuation that you carry in Berlin. So how does that ultimately tie then with the portfolio valuations going into the fourth quarter?

Philip Grosse: But look, yes, this is slightly above 4% in terms of gross yield, respectively a multiplier of 27, 28. But again, I mean, for us currently the focus is on liquidity vis-a-vis profitability. And yes, if I look at the properties, in hindsight it will probably the case that it would have been good to wait for a better moment to sell but we want to delever the balance sheet, and we do not want to currently optimize our profitability. And that is why we have on purpose accepted a small hit on profitability and that we have accepted for a large portion, which is still under construction, but is going to be finished next year. A small hit vis-a-vis our all-in construction cost we expect. Is it the best deal for us? No. Is it good in terms of liquidity, a clear yes. Yes, it's about prioritizing these days. And what we focus on is the product which works best in a still better, but still challenging market environment.

Rolf Buch: And to be very clear in the end it translates in the new buildings, we are not doing a margin. So we are selling for the costs we are building. The development margin in the moment in this case as was put down to zero.

Andres Toome: Understood, okay.

Rolf Buch: On the covered all the cost, but giving up the development margin, which you normally should realize, but we have decided not to do it.

Andres Toome: Understood. Thank you. I guess I don't really understand how the 4% gross yield comes together, but maybe we'll take it off-line. That's it.

Operator: The next question comes from Thomas Rothaeusler from Deutsche Bank. Please go ahead.

Thomas Rothaeusler: Hi. Good afternoon. A couple of questions; first, on rental growth outlook for next year, which I understand you indicated above 5%. And I mean, a key driver will be the Berlin rent table. Just wondering how did you consider this or what is your assumption here?

Rolf Buch: It is – first of all it is not wise for me to discuss now the burden rentable or the public phone. This will generate probably some political tension to be very clear. And second, nobody knows exactly. We are just saying this will be for a long time a qualified Mietspiegel. The last time we have seen a city, and I don't give you a guidance with this but not a city where we also had a long time, first time qualified while Mietspiegel was Munich, which we have seen last year. So qualified Mietspiegel can come to very high results, but I don't give you a guidance, I don't want to press you on this but it can be meaningful, but we have to wait.

Thomas Rothaeusler: Okay. The second question is actually on the new Apollo deal. Is it correct to assume that the terms are more or less the same as for the first one? And just wondering, if you haven't been in a better position nowadays compared to March?

Rolf Buch: To be very clear, this was of course a long debate. And in the end, the only outcome for both sides was to agree on the same terms. There was an argument on the other side saying that the cost of debt and the cost of equity in North America has raised dramatically in comparison to what it is now what it was six months ago. So we were confronted with the argument saying the conditions has to become better. And our argument was to say we cannot sign something which is worse. There was more arguments to increase the figures then to decrease, and we have talked about this actually day by day.

Thomas Rothaeusler: Okay. The last one is actually on the Dresden deal. Just wondering if you could provide more color here, specifically can you provide the multiple and also what value was for the land plot?

Rolf Buch: So the value for the land plot is marginal because it's land without – and if you see the land, it is land which they want to – they are doing a [indiscernible] in this region. So they want to plant flowers and all these things on this land probably. So it has no value. It's just because we got the Woba and in this part, there was pieces of land included. So for the Mayor it was important, for us it's actually without value. But there was a small value there, but, of course, we got some value there. Again, as I mentioned, these are buildings which were ready for demolition 15 years ago. So in the last 15 years, there was not a lot of invested in it. If you see it's specifically its [indiscernible] and I visited this building because we sold it. It is in our interest because we have a lot of other buildings around it that the City of Dresden invest in these buildings and upgrade the whole [indiscernible]. So there is a side effect that we sell it. It is not the sales price, which is for us important alone, but it is a fact that the municipality will invest an enormous amount of money where we never would realize the return necessary. And this will upgrade our whole [indiscernible] because we have better building in the same [indiscernible], which is actually upgraded by this investment. And on top of it, the City of Dresden, which was also down in the press conference by the Mayor has opened a new subsidy program for refurbishing apartments which are still in the price cap of social rent model. So this might be attractive for us as well because we still have some buildings in the same category. So overall, the benefit of this is not only to set up a book value, but the benefit for this is to increase the value of the remaining buildings as well. So this is what is a partnership of this.

Thomas Rothaeusler: Got it. Thank you.

Operator: The next question comes from Manuel Martin from ODDO BHF. Please go ahead.

Manuel Martin: Thank you for taking my question. I have three questions, maybe one by one. The first question would be on the disposals. Looking back to the €3.7 billion disposals signed so far. On average, I think you said it was more or less close to book value. Could you give us an indication of maybe the range of yields which you had in – within your disposals?

Rolf Buch: I don't know it, but the most expensive we sold was a multiple of 50. So this will be a yield of 2% in the low-yielding multifamily homes and that defers – so this is really difficult to answer. So this depends really much our business. So this is not unique buildings. It's a very different location, very different state of the buildings. What we said is actually – and this, of course is underlying our strategy. We are a little bit more flexible in the commercial buildings and that's why we accept their deviation to book value. While in the normal apartments, we are trying to sell only assets which are on book value.

Manuel Martin: Okay.

Rolf Buch: To be very clear, the negotiation, it's not a market like a stock market. It's all about negotiation. It is all about being tough and giving up some part pieces. And it is not somebody says as I would like to have this price exactly and $0.02 more or less, is changing. This is a negotiation. And in the end, we can decide if we want to be tough or if we want to put preference on liquidity and we are doing it case by case.

Manuel Martin: Okay. Second question would be on your debt management. So you have a shift to cover your or to address your uncovered debt until, I think, end of Q1, 2025. Could you give us maybe an idea about the amount of uncovered debt left in 2025? Is that possible at this stage?

Philip Grosse: It is. And you basically see that on Page 16. In total, we have just in between €4.5 billion to €5 billion coming due in 2025 and the portion of Q1, which we have covered is €0.5 billion. So there is still fairly significant amount to come.

Manuel Martin: Okay. Last question would be on property valuations. We are entering November; do you have maybe some words for us when it comes to potential valuation results at Vonovia or still a bit too difficult?

Philip Grosse: Yes. Look, I mean, we just published Q3, and we have done no revaluation in the absence of a triggering event. Triggered by our own behavior disposals, but also by the market. And that is another word in saying or another way in saying that we have not seen any meaningful moves. And I or we actually don't consider our job to predict the next valuation move though this is really to come with the end numbers.

Manuel Martin: All right. Okay. Thank you very much.

Operator: The next question comes from Kumar Neeraj from Barclays. Please go ahead.

Neeraj Kumar: Good afternoon everyone. My question is regards to your loan from Deutsche Wohnen and I understand that the balance has reduced to €370 million. But how should we think about Deutsche Wohnen and entity going forward in terms of its capability to provide pernicial [ph] liquidity if it was to dispose nursing home business or et cetera. Is it likely to win form of loans or asset transfer between two entities? Or do you think dividend can be a cleaner way of transferring the required cash in future?

Philip Grosse: We are probably the wrong people being addressed by this question because this is ultimately for Deutsche Wohnen and management to decide, what I'm hearing from them is that this loan, which has triggered a lot of discussion and pressure on Deutsche Wohnen and management team is unlikely to be repeated.

Neeraj Kumar: Got it. I mean I was just trying to understand from Vonovia's perspective, given that entity is quite low levered as compared to your leverage if you were to find financing, et cetera, that goes in the Deutsche Wohnen bucket, right? Like if you want to have access to that liquidity what would your idea way of accessing that.

Philip Grosse: Then liquidity is really a function of distributions.

Neeraj Kumar: Are you mean dividend or?

Philip Grosse: Actually yes. But again, I mean, we are probably the wrong audience for that. But that’s at least if there's no loan any longer, this is probably how you would assess any potential excess liquidity. But however, also have to bear in mind is that Deutsche Wohnen probably has a different stance as to their ability to finance their investment program through capital markets. So by nature, it's probably fair to assume that they run at a lower leverage than what is true for the entire group.

Neeraj Kumar: Got it. That’s helpful. Thank you very much.

Operator: The last question for today's call comes from Simon Stippig from Warburg Research. Please go ahead.

Simon Stippig: Hi, good afternoon. Thanks for taking my question. Just two from my side already late and lots of questions already asked. First one would be in regard to regulatory risk seems that lots of risks have faded so far, given your share price reactions. But in regard to regulation, rental regulation in Germany, I would be interested in the [indiscernible] grants and if you see that cap actually lowered by the current government as it was defined by the coalition treaty.

Rolf Buch: No. I think you know that the coalition agreement says that there has to be some changes Actually, we are applying those changes already in Berlin was 11%. And it is not clear what happens if you read the German newspaper and discuss the social democrats are pushing to get the realization of this coalition agreement but the Minister of Justice is refusing it. So no, nothing happens. So the realization of what is already agreed between the coalition that it will come law. I'm not sure. But of course, we assume that it will come law, but there is a chance that it will not come law, at least in the last two years, it didn't became law. And as anything which is above, this should be understood that the demands on the social democrats should be understood that at least they want to have the realization but is increased in the condition agreement. But up to now, they fail. And I think a good argument because they fail the situation has completely changed. And that's why any more regulation, if it is a greetings coalition agreement or not is probably not helping the sector. As you can see, we Vonovia we are fighting hard, and we are managing the challenges. There are others in the sector for them. It's much more difficult to manage the challenges. And that's why the politicians are well advised to do the right things at the right time. Less worried about regulatory risk at the moment, to be very clear. And you can see, for example, the heat pump, that they are now going the other way because they know they need investment. They know that without investment, they will never solve the big issues related to the housing crisis. So you see that they are slowly moving in the right direction, by for example, increasing the percentage from 8% to 10%.

Simon Stippig: Understood. Thank you. And the second question would be in regard to the nursing portfolio. Is that actually included in your expected disposals for 2024?

Rolf Buch: The nursing portfolio is actually not a topic which we can answer. We understand that the Deutsche Wohnen management is pushing hard to sell it.

Simon Stippig: Okay. Are you – do you actually know if there's any transaction process or any negotiations ongoing when you talks with Deutsche Wohnen management?

Rolf Buch: This would be like if you would ask another shareholder to talk about what the management has told you, we should abstain from giving you comments on this.

Simon Stippig: Okay, great. Thank you.

Operator: Ladies and gentlemen, there are no further questions. I'll hand back to it to Rene for closing comments. Please go ahead.

Rene Hoffmann: All right. Another quarter, another long call. Thanks, everyone, for joining. We hope to connect with you over the coming weeks and months as we're on the road and attend conferences. A list of events, as always, can be found online or on Page 54 this time of the presentation. As always, questions left unanswered, please reach out to me or the team, and we will be happy to come back to you. That's it from us for today, as always, stay safe, happy and healthy, and have a great day, everyone. Bye-bye.

Operator: Ladies and gentlemen, this concludes today's call, and you may disconnect. Thank you for joining, and have a pleasant day. Goodbye.