ADLER GROUP S.A. NPV (ADJ) Q2 2026 Earnings Call Transcript

Good morning everyone and thank you for joining us for the ARTA Group Q2 2026 results call. Speakers today as usual are our CEO Dr. Karl Reineshuber and our CFO Torsten Arsan. Both will lead through today's presentation and then answer your questions. Also please note that this call is being recorded and will be made available on our website where you can also find today's presentation. And with that, I'll hand it over to Karl.

Good morning, everyone, and thank you, Sven. Before we start with the Q2 numbers, let me give you an overview of our recent asset disposals on page 4. As already communicated in our Q1 figures, we closed Hedemannstraße in early April and returned the proceeds partly to the Lending Bank and partly to the 1L holders. We also closed the sale of Hansastrasse, another non-strategic yielding asset in Berlin, and subsequently further reduced the 1L in May. Just this week, we received the funds from the second closing of Holsten, which we will use to further repay the 1L in the coming days. Furthermore, we signed 18 condominium units in Berlin for a total sales price of 6 million euro. All of these disposals have enabled us to repay debt of 201 million euros since the beginning of the year. Let me elaborate my take on the current market environment for residential development and new building in Germany. My perception is that the uncertainty about inflation and interest rates on the back of the ongoing crisis around Iran continues to impact the real estate market. German developers are cautious about their investment in new projects, and the same is true about their equity partners and banks. We nevertheless see some transactions and ventures going forward. As an example, InStone has teamed up with the equity partner Ginko Fund for the further development of Benrather Garten in Düsseldorf that they had just recently acquired from Adler. We continue to run our sales processes on our remaining developments with some in advanced stages where we had liked to inform you about successful signings, but where the track to finalization is longer than projected. We expect to come up with some good news in your course. At 145 million euro, our disposal holdback basket remains almost fully filled unchanged versus three months ago. Moving on to page six. On the financials, our net rental income came in at 63 million for the first three months. First six rent. compared to the prior year period net rental income decreased as a result of the disposals of the north rheinland failure portfolio the decrease was partly compensated by rent increases realized on the remaining assets we are on track to reach our 26 net rental income guidance in the range of €124 to €129 million. The adjusted EBITDA from rental activities amounted to €37 million, reflecting a stable margin compared to last year. The adjusted EBITDA total amounted to €29 million. As more and more development projects are being sold and the organization is becoming smaller, the negative financial impact from the development business will continue to become smaller. Our group's equity position stands at €0.7 billion. The LTV increased slightly to 79.2% in line with our expectations. Our cash position amounts to €155 million. Please note that the sharp decrease in cash is attributable to inflows from Holsten Quartier and Kornversuchsspeicher at the end of March, while the respective repayments under the firstly new money facility were done in April and subsequently reduced our cash position as compared to end of Q1. We will provide more color on financials later in the presentation. Overall, our Berlin-anchored yearling portfolio continued its solid operational performance. We achieved 3.0 like-for-like rental growth on a year-on-year basis. This was supported by increases on current rental contracts, a reduction in vacancy, and ongoing releting activities. We will have a closer look at all KPIs on the following slides. Let's proceed to portfolio and operational performance on page 8. At the end of June 26, we had 17,465 rental units. It's a marginal decrease of 18 units compared to March driven by the condo sales in Q2, which I mentioned before. As a reminder, our portfolio is fully Berlin anchored with more than 99% Berlin assets. Only 49 units are located outside of Berlin and we expect to sell these units within the coming quarters. In terms of value, the GAV of our yielding portfolio remains stable at 3.5 billion euro. This reflects very little change from the prior period, as there with the revaluation gains partly offset by disposals during the second quarter. The GAB per square meter increased slightly to 2,886 euro up from 2,870 in March. Let's now move on to page 9 to further discuss our operational KPIs. As in previous periods, our semi-annual portfolio valuation was conducted by CBRE. After three consecutive years of like-for-like value declines, now our portfolio recorded the third semi-annual positive like-for-like fair value change of plus 0.5% in H126, following an aggregated like-for-like fair value change of 1% in 2025. Rental growth outpaces the development of valuations, leading to an increase in rental yield from 3.5% to 3.6% on a year-to-year comparison, but also compared to Q4.25. RENT increases continue to outpace re-valuations so that the trend of slightly increasing rental yields continues. Again, it remains to be seen how the interest rates and the real estate markets will move in the coming months with war in the Middle East and Ukraine and a rather fragile world economy. Let's now move on to page 10 to further discuss our operational KPIs. We achieved 3.0% like-for-like rental growth year-on-year. As expected, we continue to achieve like-for-like rental growth in our target zone of above 3% per year, even if the 3.0 are behind our full-year target of not below 3.5%. Let me explain the reasons behind that. Over the last 12 months, we have increased the rents of more than 30% of our residential units. They are of 80% CTI indexed and 20% Mietzpiegel-based leases. This is a relatively low number of increases in Mietzpiegel-based leases. The new biannual Berlin Mietzpiegel was published in June with an uplift of approximately 5% for the AdLab portfolio. To capture this potential, we send out increases for 2,500 units still in June, including the Miet-Spiegel uplift. These increases will only become effective in September. Until year-end, there are 8,700 rent increases more still to come. thereof 45% meet legal based. On the back of this program we are confident to report rental growth number north of 3.5% at year end 2026. Our average rent increased from 8.45 euro per square meter per month recorded a year ago to 8.68 euro in June 26. Turning to vacancy, our operational vacancy rate has reduced further to 0.9% down from 2% a year earlier. This confirms the continuous demand for rental apartments in Berlin driven by continued population growth and a very limited new house supply. Letting shortly deviate from the usual more quantitative information in this section and bring some more qualitative achievements to your attention. In 2026, Adler Group has initiated and executed various measures to improve its services and operational excellence in the Berlin portfolio and the platform. Adler is improving direct communication with tenants via a tenant app and an AI hotline. We are digitizing property management with a new ticketing system, reducing turnaround times for repairs by outsourcing minor repairs, and investing in climate-friendly heating systems by changing to heat pumps. Progress in these areas is based on a previously established, optimized IT infrastructure and strong partnerships. All of this not only increases quality and speed of our services to our tenants, but also saves costs with digitalization and creates value with decarbonization. You can read more about these initiatives in our press release from 31 July. Now I would like to hand it over to Thorsten, who will walk you through the financials starting on page 12.

Thank you, Karl, and also a warm welcome from my side. At the end of June 2026, our yielding portfolio was valued at 3.5 billion Euro and our development portfolio at around 400 million Euro, based on externally appraised values. This brings our total GAV to 3.9 billion Euro unchanged from the figure reported at the end of the first quarter. In yielding assets, there was a slight increase in value resulting from disposals of 18 condominium units in Berlin being more than offset by the revaluation of the portfolio. Let's now move on to the financing section on page 13. Let me briefly walk you through the debt repayments update. We made further past redentions of the firstly new money facility in Q2 2026, amounting to €160 million in total. This included €93 million repaid following the closing of Holsten, €11 million repaid from the closing of Konversuchspeicher, and €4 million repaid from KontoSales, all on 2 April 2026. furthermore we repaid 3 million euro on 7 april 2026 and 5 million euro on 13th of may 2026 after the closing of hedemannstraße and hansarstraße respectively furthermore we have returned 15 million euro to other lenders from the proceeds of hedemannstraße please note that so far we have returned 4 million Euro in Q3 from a second closing link to Hansastrasse and planned to repay funds from the second closing of Holsten in due course. Turning to the 2026 maturities. During the second quarter, we also successfully completed the prolongation of a 6 million Euro secured bank loan, extending the maturity from 2026 to Q4 2028. This is another good example of constructive discussions with our lending banks, especially where assets in Berlin provide strong collateral. For the remaining 12 million euro of 2026 bank maturities, discussions are ongoing. These are standard bilateral talks with the respective lenders and based on the tone so far, we expect to reach prolongation agreements well ahead of maturity. Overall, the picture remains unchanged. With the continuous inflow of disposal proceeds and the supportive dialogue with banks, the 2026 maturity profile is now fully at last and we remain focused on reducing the first lien facility with further disposal proceeds. Let's now move on to page 13 and take a look at our current debt KPIs. To take the further past redemptions of the first lien money facility in Q2, our total nominal interest-bearing debt decreased to 3.5 billion euro, down from 3.6 billion euro in March. Our LTV increased slightly to 79.2% as we had expected. The weighted average cost of debt remains unchanged at 7.1% at the end of June, and our average debt maturity is around 2.9 years with the vast majority of our financing maturing only in 2028 or later. All our ratings including the issuer rating of B minus with a stable outlook remain unchanged. As in the past, our utmost priority is to assess further improvements of our capital structure. Let's turn to debt maturity schedule on page 15. The debt maturity picture looks largely unchanged compared to three months ago, but reflects the repayments of the firstly new money facility in June 2, the repayment of 15 million of secured debt originally due in 2028, and refinancing of 6 million euro of the remaining 2026 maturities. Looking ahead, our next significant maturity is in 2027, where we have a total of 88 million euro due. As you can see on this slide, 97% of our financial debt matures only in 2028 or beyond. Let's go to LTV on the next page, page 16. The LTV increased this quarter by 210 basis points, mainly due to the usual impacts from interest expenses both paid and occurred. This increase has been partially offset by the revaluation of yielding disposals. As always, as a reminder, kindly notice that our bond covenant, LTV, with a threshold of 90% is calculated differently, leading to a lower figure than stated here. Let's continue with cash on the next page, page 17. At the end of the second quarter, our cash position stood at 155 million euro in line with our expectations. As you might know, we invest our cash holdings usually in money market funds and call money in order to generate interest income. You see the development of the cash position in the usual format on this slide. On the cash inflow side, we realize proceeds from yielding disposals as discussed earlier. Yielding assets disposals includes proceeds from the condominium sales and Hedemannstraße as well as Hanserstraße. The proceeds were largely returned to the investors of the first lien loads, along with the proceeds from Holstein and Korn-Versuchspeicher, received in March. The decrease in our cash position is mainly driven by the fact that we have received disposal proceeds in March, but have only made the corresponding repayments in April. And with that, back to you, Karl.

Let me now conclude this presentation with some final remarks. We confirm our guidance of a net rental income between $124 to $129 million for the full year 2026. The outlook for the full year 26 like-for-like rental growth is above 3.5%, partly driven by the new Berlin Meatspiegel released in June. As pointed out earlier, we still see concerns with German residential developers about interest rates and crisis in the Middle East. The rental growth in all residential segments continues to be solid. Recent disposals have translated into debt repayments of €201 million since the beginning of the year. Even though we cannot report further signings of development sales today, we are confident for the time to come as we are pursuing a number of sales processes in advanced stages. We continue and progress the evaluation of options for our Berlin residential portfolio and the related financing structures together with our advisor, Evercore. As the German federal government has announced on July 2nd that they will prevent expropriation on state level by federal law, more interest from investors and financing institutions in Berlin residential assets can be expected. This might open more opportunities for our portfolio and its financing. Nevertheless, the federal government will still have to deliver the envisaged federal law. Also, the outcome of the Berlin elections on September 20th will be closely observed by all stakeholders in Berlin real estate. Therefore, the coming month will be very relevant for the shaping of the political and legal environment for the Adler business. We do not face any maturities of capital market indebtedness before the end of 2028. As just said, 97% of our financial debt matures only in 2028 or beyond. It goes without saying that we remain focused on our comprehensive cost-cutting programs and budget discipline to ultimately preserve our liquidity position. And with that, I would like to thank you for dialing in. We are now looking forward to your questions. Sven, back to you for the Q&A.

Thank you, Karl. And I'll hand it over to our operator, Moritz, to open up for the Q&A.

Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to disable the loudspeaker mode and eventually turn off the volume from the webcast while asking a question. Anyone who has a question may press star and one at this time. One moment for the first question, please. And the first question comes from Noor Sehuw from Morgan Stanley. Please go ahead.

Hi. Could you give some color on what's going on currently in the disposal market? And if you could give us some guidance on, like, the amount of disposals you guys are targeting and the timeline for those and how much of the repayment under the first lien should we expect by year-end would be helpful because I think post what you reported, Q1, there's been minimum repayment. So just some color on, like, disposal market, what's happening, and the timelines you guys are targeting would be helpful.

Well, thanks, Noor. As I pointed out earlier, the, let's say, market environment for German residential developers is currently challenging on the back of the rises of interest rates with the ongoing difficulties around Iran and the uncertainties around inflation. Nevertheless, as I pointed out earlier, we are running good processes and are in advanced discussions with residential developers about the sale of a number of our developments. We expect that, let's say, one or the other of our developments will still come to signing of the sale before year-end. But we will report about that when it really happens. But as I said, we are, let's say, fairly positive that we can report progress on development sales in the coming months.

Could you give us some color on the magnitude of the sale you're expecting by year end? Just so I have an idea of how the first lien repayments may look like in terms of timing.

Sorry, the question was about the volume we expect for this year. Well, as I said, we will report that once it happens, yeah, and I would, let's say, not give a premature outlook at this point in time.

Okay, and just last follow-up on this. So at least for this year, Is the plan to still just target the development portfolio sales, which size-wise seems to be small? Or is the plan that you're going to look to sell the rental book as well so material repayments could be done on the debt?

Yes. Well, as we have pointed out already in previous meetings, we are working and considering the options also for the Berlin portfolio with our advisor, Evercore. But also there, we would report something, let's say, when there are real tangible results and decisions. And let's say, we are progressing this, but there is nothing to report at this point in time.

Okay. Thank you. Understood. I'll get back in with you.

As a reminder, if you would like to ask a question, you may press star and one at this time. It looks like there are no further questions at this time, so I would like to turn the conference back over to Dr. Karl Reinezuber for any closing remarks.

Thanks, everyone, for joining today. Today, we will publish our Q3 26 figures on November 26, and the respective results presentation will take place on the same day. Thorsten and I look forward to speaking to you then. All the best for everyone. We close the call.