LEG Immobilien SE

XETRA:LEG

Earnings Call Transcript 2018-Q2

[Operator]

Ladies and gentlemen, thank you for standing by. I'm Constantino, your Chorus Call operator. Welcome, and thank you for joining the LEG conference call. [Operator Instructions]I would now like to turn the conference over to Mr. Burkhard Sawazki, Head of Investor Relations. Please go ahead, sir.

[Burkhard Sawazki]

Thank you. Good morning, everyone. This is Burkhard Sawazki. I'm glad you could join us this morning for our H1 earnings call. Our management board members, Thomas Hegel, Eckhard Schultz and Holger Hentschel, will walk you through our presentation and give you more details on LEG's half-year figures and our business outlook. As usual, this will be followed by a Q&A session. With this, I'll hand over to Thomas Hegel.

[Thomas Hegel, CEO & Member of Management Board]

Thank you, Burkhard. Good morning, and thank you for joining us on our H1 2018 earnings call. We released another set of very solid operating quarterly results, hence, we feel well on track to reach our full year earnings guidance with a further expected growth acceleration in the second half of the year. The tangible yields compression in our market is becoming increasingly visible in our reported NAV growth. We think there is more to come with our next appraisal at year-end. Moreover, we are especially pleased that we now see again positive momentum for our external growth strategy with one mid-sized deal in our pipeline, which is now very close to signing. Let me now give you, as usual, a brief overview of the development of our key operating and financial performance indicators in the first 6 months of 2018. Our like-for-like rents grew by 2.7%, corresponding to a rent growth of our free-financed portfolio, which is the best proceeds for the underlying performance of 3.5%. Supported by our modernization program, we anticipate further positive rent momentum in H2. We stick to our full year guidance to reach a like-for-like rent growth of 3%. Our like-for-like vacancy in H1 amounted to 3.4%, reflecting a slight decrease on a yearly basis. Also, for the full year 2018, we can guide for a further slight improvement of the like-for-like occupancy level. In comparison to last year, we invested significantly more money into the quality of our portfolio with EUR 11.30 per square meter. Our full year targets is some EUR 30, but with a further rising share of value-enhancing modernization CapEx in the course of H2. Coming to the financials, our FFO I grew by 5.1% on a yearly basis, also on a per-share basis, although we have already spent a higher share of our full year maintenance expenses. Just to illustrate the underlying dynamics. Our FFO premaintenance increased by 7.6% over the same period. We expect a positive earnings momentum in the coming quarters. Our reported NAV at end of Q2 climbed to EUR 88.46 per share, corresponding to an increase of 5.5% to the year-end number of EUR 83.81. If you strip out the temporary effect from the dividend payout in Q2 of EUR 3.04, the adjusted growth rate would be 9.2%, a significant increase. We have shown a valuation uplift of our portfolio of 4.1% in the first 6 months, and we believe that there is still headroom for yield compression, and therefore, further NAV growth in the remainder of the year. With that, I would like to hand over to Holger.

[Holger Hentschel, Former COO & Member of Management Board]

Yes. Thank you, Thomas. Good morning also on my side. Coming to Slide #6. With reported like-for-like rent growth of 2.7% overall and 3.5% for our free-financed units, we saw the expected acceleration over the quarter, which is fully in line with our internal planning. These events in our different market clusters again confirm that we are witnessing a very broad-based upswing in all markets, with interesting catch-up effect in general B-cities. With a growth rate of 3%, our higher-yield markets even showed the strongest growth during last quarter due to the positive development in some of our major locations. We expected this positive momentum to persist. With support from modernization measures, we expect to further slight growth acceleration over the next quarter. Accordingly, regardless of the absence of constant adjustments this year, we stick to our guidance of 3% for the entire fiscal year 2018. Next Slide 7, rent development. As usual, I would like to highlight just a few local markets to illustrate the unchanged sound dynamics in our portfolio. In our high-growth markets, we saw again a strong rent momentum in Düsseldorf with growth rate of 4.4%. In the free-financed units, rent grew by an impressive rate of 5.8%. Top performer was Gütersloh in the Westphalia region, with a growth of 6.3%. In our stable markets, we saw again a very decent growth in our important global market, Mönchengladbach, with growth of [ 3.5% ], and also Wuppertal with 3.1%. In our higher-yielding markets, we achieved the strong like-for-like rental growth of around 3.5% in the city of Duisburg, Gelsenkirchen and Bochum. These are very strong results reflected -- reflect the positive spillover and catch-up effects in many positive markets, while also keeping in mind the positive effects of acquired portfolios after integration into the LEG platform. The positive market development in Duisburg and Bochum have also been reflected in the update of the rent in each figure, with 4.7% in Duisburg and 4% in Bochum, respectively. Our like-for-like vacancy at end of Q2 stands at 3.4%, representing a slight decrease of 10 basis points on a yearly basis. Looking at the different market segments in our portfolio. The occupancy stayed stable at a very high level of more than 98% in our orange markets. And in both our stable and higher-yielding markets, we saw a decrease of around 20 basis points. I think I've said in June that also for the full year 2018, the vacancy should decrease slightly. Although we certainly have some higher tenants run over to the one or our other assets due to modernization efforts, but this is a natural part of our business. On Slide 8, you find our maintenance and CapEx spending. In the first 6 months, we spent significantly more for CapEx and maintenance in comparison to last year. We spent EUR 11.30 per square meter, equating to an increase of more than 56% on a yearly basis. We'll stick to our guidance that we are going to spend around EUR 30 this year. Accordingly, you can expect an overall strong increase in the second half, with incremental parts mainly coming from CapEx. Maybe as a rough guidance to you, the CapEx share for the full year 2018 is expected to amount to around 70% up from 63% in H1. Now our last call reflect the risk factor, that we see some stronger cost inflation for [ craft ] services due to the record-high capacity utilization to the Germany construction industry. But we believe that this is reflected in our full year outlook. So with that, I'd like to hand over to Eckhard for more details on the financials.

[Eckhard Schultz, CFO & Member of Management Board]

Thank you, Holger. Good morning from my side. Let us now have a look at the financial key metrics on Slide 10. The reported H1 number are in line with our internal planning, and therefore, we see ourselves on track with our road map for further margin expansion despite some headwind from cost inflation, which were mentioned by Holger. This is supposed to be more visible in the coming quarters, but the temporary margin dilution in H1 2018 is attributable to the somewhat higher volume of maintenance expenses. Premaintenance costs, the adjusted NOI, climbed by 5.5%. Unlike last year, you should not expect a further increase of maintenance cost in the second half. Therefore, some higher rental income, in combination with stable maintenance cost and some other cost savings, are expected to give some boost to H2 margins and earnings. We stick to our EBITDA margin targets of around 73% for 2018 and around 74% for 2019. On Slide 12, you find the detailed overview of our FFO calculation. On the NOI level, the increase in staff cost is largely attributable to the hiring of additional craftsmen and staff for management of our modernization program in the course of 2017, and also to some wage inflation. Admin costs are, again, nearly flat. As for every other company, the overall regulatory environment is getting more complex. Therefore, we hired some additional employees for legal. A further reduction of interest expenses with further decreasing average interest costs also helped to improve our FFO growth despite a rise in that volume. Coming to the NAV development. On Slide 15, you'll find the calculation of our current reported NAV. Our reported NAV, excluding goodwill at the end of June, stands at EUR 88.46 per share, equating to an increase of 5.5% year-to-date despite the different distribution of EUR 3.04 in May. The reported capital growth was, of course, mainly attributable to our H1 portfolio revaluation with a valuation uplift of 4.1% or EUR 384 million. On Slide 16, we provide a breakdown of the key value drivers. The operating performance and the adjustment of the market rent was the most important growth driver, accounting for some 60% of the reported value appreciation, approximately 40% are related to the adjustment of the discount factor and yield compression in the market persist.Looking at the different market clusters. We saw an overall positive development across all market segments, with the strongest momentum in our high-growth markets. Also, in our higher-yielding markets, we saw strong capital growth in some cities, which are benefiting from positive spillover effects. In Duisburg, for instance, at the border of Düsseldorf, the valuation uplift amounted to 7.7%; or in Bochum, where we saw gain of 4.5% in the first 6 months.We feel comfortable to guide for further valuation gains with our next appraisal in Q4, but it is still too early to be more precise. The lower liquidity in the investment market is not very helpful in this respect. Nevertheless, we believe that there is headroom for further yield compression with the current rental yield of 5.7% overall and 5.9% for the unrestricted part of the portfolio. We still see a gap to transaction markets. If you use the NAV as an indicator for the enterprise value, then it is always important to keep in mind that the LEG business model also contains additional value components, such as the highly value-generating services business, which is not part of the NAV.Coming to Charts 19 and 20, just very briefly. Our LTV at end of Q1 after the portfolio revaluation and dividend payment stands at an unchanged low level of 41.9%. At the current stage of the cycle, we view an LTV of up to 45% as appropriate. This gives us headroom for the financing of those investments, which we also intend to exploit. The following Slide 21 is a well-known overview of our financing structure. No major changes for you to see here. We maintained a long-term secured financing profile despite early refinancing of subsidized loans with an average maturity of nearly 8 years at low average cost of debt of 1.75%. In conjunction with the upcoming growth financing, we intend to further strengthen our long-term maturity profile. With that, I will hand back to Thomas for the business update.

[Thomas Hegel, CEO & Member of Management Board]

Thank you, Eckhard. Let me now come to our business update with a summary on Chart 23. In light of a generally strong competition in the investment markets, we are very pleased that we reached an agreement with a seller for the acquisition of around 3,750 residential units. We expect the signing of this deal very soon. This portfolio is spread over several locations in our home markets, NRW, mainly in the Greater Ruhr area. Accordingly, this deal allows for the generation of attractive scale effects and synergies with our existing portfolio. This is, again, an off-market deal; hence, we were again able to avoid bidding competition. Our network and our home market and the strong relationships to the seller were the key competitive advantages in this respect. Also for the seller, it was very important to sell to a reliable partner with a good reputation in the market. Therefore, this is once again a perfect example that we can source attractive deals also in a very tough environment to create additional value for our shareholders. This deal meets our strict investment criteria. We expect the portfolio acquisition to be NAV-neutral and FFO per share accretive. We calculate the FFO share accretion on the consistent assumption that the deal is financed at an LTV of 50%. Actually, due to our low gearing, this deal will be financed without any fresh equity. Hence, our shareholders will benefit from the full earnings contribution. We expect transfer of ownership during Q4 this year. Due to some initial investments, we expect only a smaller profit in 2019, but an FFO contribution of at least EUR 5 million in 2020. We are going to provide a first guidance for full year 2020 in November with the release of our Q3 results, where we also incorporate this deal. We also intend to become more active in the disposal side to further streamline and to enhance the overall efficiency of our portfolio. We identified a number of smaller portfolios with a total amount of 1,000 to up to 2,000 units, which bear a below average profitability. The proceeds are going to be earmarked for future growth investments with superior return potential as part of our capital recycling strategy. The kickoff of our marketing activities is also scheduled for Q4. Let me conclude the H1 presentation summarizing our outlook for 2018 and 2019. We have already pointed out that the risks for reaching the upper end of the range has increased somewhat due to some higher cost inflation. However, the overall very solid performance of our business, we see a very comfortable to reach a result well within the guidance range. Therefore, our FFO guidance range for 2018 and 2019 remain unchanged. For 2018, we expect an FFO in the range of EUR 315 million to EUR 323 million, and for 2019 of EUR 338 million to EUR 344 million. As you know, our guidance does not include any effects from planned future acquisitions, which could provide a potential upside to our guidance. Ladies and gentlemen, thank you for your attention. With that, I'd like to open up the call for your questions.

[Operator]

[Operator Instructions] The first question is from the line of Mr. Thomas Neuhold from Kepler Cheuvreux.

[Thomas Neuhold, Head of Research of Austria]

I basically have 3 questions. First, I would like to start with this cost inflation. You mentioned that you faced certain services rising cost inflation. Can you give us an indication that how much costs are going up? And do you think this is an persisting phenomenon? And if that's the case, does this impact your thinking about the further in-source some services and activities going forward? Then the second question would be on this 1,000 to 2,000 unit sales. Did I understood you correctly, this is mainly related to portfolio streamlining? Are you also privatizing units? Do you think they have reached full value? And the last question would be on investment market environment. Obviously, it's pretty solid at the moment. I was wondering, firstly, if you could give us an update if you have more deals in the pipeline where you could make additional acquisitions during the year? And you also mentioned that there's a gap between your book values and latest market transactions. I was wondering if you can give us an indication how big this gap is and, from your experience, how long it takes until it's -- the higher price level is reflected in your portfolio operation.

[Eckhard Schultz, CFO & Member of Management Board]

Yes, Thomas, this is Eckhard speaking. I would take the first, second questions, and Thomas will elaborate on the third question about the investment market. So about cost inflation, I think what we said in the last earnings call is unchanged, our view. So we indicated for a cost inflation of 5% to 6%. And as we said, we have in our business planning anticipated maybe 2% to 3% cost inflation. So the delta of 2% to 3% is a burn to our P&L, and we amounted that to approximately EUR 2 million to EUR 3 million. Is this a persisting phenomenon? Difficult to say. But if you're looking at the wage inflation costs in the sector, we can see that we have, on average, in Germany, 3% wage inflation. Construction industry, we have seen recently 5% increase. And against that backdrop, we have anticipated a further wage inflation also in the sector. And this is also incorporated in our 2018, 2019 guidance, and we will incorporate that also in Q3 and our 2020 -- in our 2020 guidance. The 2,000 units for sale is not related to privatization. Our view on privatization is unchanged here. It's really portfolio streamlining for different reasons. So we have identified some smaller settlements, which is still then in more powerful areas where we have an inferior profitability. And the idea is to sell assets with below-average profitability to earmark the revenues for future acquisition with higher-yielding assets. So it's -- yes, it's portfolio streamlining sometimes. We have also identified assets with a certain structural vacancy or maybe it was a technical issue. So this is portfolio streamlining. And with that, I'll hand over to Thomas about your questions regarding the investment market and M&A.

[Thomas Hegel, CEO & Member of Management Board]

First then, what we see in the market at the moment when we talk about acquisitions and M&A that there is a strong competition on smaller deals. We don't see much of those smaller deals. We are now very pleased that we gained exclusivity for midsized deals, which is very interesting for us. As I said, it goes back to our relationships to the markets, to our networking and to the fact that we are regarded as a very strong and reliable partner who is able to deliver very quickly. The second part of the answer is that we see that the competition is among -- not among -- so much among peers, it is more competition for smaller deals, where other competitors, other buyers, are able to buy at a higher price level. From time to time, we see price levels that are well above 10% to 20% of our internal valuation, regarding a valuation uplift for the coming months. So we are extremely, extremely pleased with the fact that we now saw the -- see one or the other pipeline -- or the one or the other opportunity coming back to the pipeline. I think...

[Eckhard Schultz, CFO & Member of Management Board]

Maybe I can add to the one question. If I understood you correctly, you asked for the delta between property values and transaction prices. Is that right?

[Thomas Neuhold, Head of Research of Austria]

Yes.

[Eckhard Schultz, CFO & Member of Management Board]

Yes. Well, I think, generally speaking, therefore you should reflect the market values. But as we all know, reported values are structurally lagging behind reality. And firmly, I have to say, it's getting more difficult to give you precise guidance and precise answer due to the very low liquidity we see in the market. In our last earnings call, we pointed out that we see an average gap of some 10%, and now we have shown an valuation uplift of 4.1% in H1. But our observation is clearly that the price increase continues. And maybe that's the answer to your question, the average gap is now between a mid- and a higher single-digit percentage number. But that's more rough guidance, I would say, yes. And maybe an additional point there. We get some portfolios on our desk, and it's also in line with what we said last quarter, with price expectations of the sellers which are significantly above our own valuation. But we do not always see whether these deals go through and at which price it's done. So we also see several deals which increased to 10% significantly. But yes, Thomas, not always transparent for us.

[Operator]

The next question comes from the line of Mr. Bernd Janssen with VictoriaPartners.

[Bernd Janssen, Head of Research]

Two questions, one related to Page 12, maintenance; and the other one to Page 23, your indicated acquisition. Question regarding maintenance. As you're highlighting, as it's very clear this maintenance is just from externally procured services. So the question is, the increase in maintenance, if I try to get the full picture on maintenance, meaning including your internally generated services, would then the increase in maintenance be even higher? Because I assume that your internal share of maintenance is probably -- has probably gone up between H1 2017 and H1 2018. And a related question there, would you expect a further increase in the internally generated maintenance services? And the second question related to your acquisition. The 2019 FFO effect, I don't know whether you can elaborate on this already at this stage, but I assume there are some -- well it's tend to be one-off costs because they would be adjusting the FFO. But what is there in 2019 that -- as a cost item that falls away in 2020? Is it maintenance or something? Or what contributes to this gap between '19 and '20?

[Eckhard Schultz, CFO & Member of Management Board]

Well, maybe we'll start with the second question. Yes, it's -- that's maintenance cost and the removal of some CapEx backlog in 2019. I think -- and this is a onetime effect, and so this will not recur in 2020. And the EUR 5 million FFO contribution, this is based on the assumption that this acquisition is fully debt-financed. And with our maintenance expenses, as you said, yes -- well, we have EUR 26.7 million externally procured services. But on Page 8 in our presentation, we provide a full picture of our total maintenance expenses. And so here we have also included the internally provided services. And you can see in H1 that we have spent EUR 35.6 million compared to the EUR 29.7 million in 2017 in the first half.

[Bernd Janssen, Head of Research]

I might have a follow-up question. If you could first come back to the second component of my question. Are you expecting to increase the internal share of maintenance going forward?

[Eckhard Schultz, CFO & Member of Management Board]

No.

[Bernd Janssen, Head of Research]

Okay. So you think you have reached a kind of stable level of what you produce internally, what is procured externally?

[Eckhard Schultz, CFO & Member of Management Board]

Well, yes. So basically, yes. But as we indicated, if you're looking at the HR costs, you have seen that we have some rise in the HR costs on the NOI level, and that was due to the increasing FTEs, particularly in all TSP, and all [ craftman ] companies, we have increased slightly. But for the time being, I think we are happy with the level of in-sourcing.

[Bernd Janssen, Head of Research]

Okay, okay. Well, I'll do my own calculations on the percentage increase and maintenance externally versus what you reported in total.

[Operator]

[Operator Instructions] There are no further questions -- excuse me, the next question comes from the line of Mr. Robert Woerdeman with Kempen.

[Robert Woerdeman, Research Analyst]

Actually, 2 questions. First of all, do you see a change in buyers? So you mentioned that the transaction market continues to be very strong and you see that for a couple of years now. But who is driving the prices at this point in time? Is it domestic money? Is it foreign buyers? Is it private equity? Could you give a little bit of more guidance there? And also, how deep of their pockets are, as in do they wish to build a very large portfolio? Or anything -- any insights that you can give.

[Thomas Hegel, CEO & Member of Management Board]

Okay. Robert, this is Thomas speaking. Yes, the first part, we see increasing prices because the competition of very small buyers at the end. We see private wealth who are bidding for portfolios at the level of, let me say, 100 to 250 units that is still interesting for private wealth, and they just want to look for opportunities where their money can change from being on some things and now being invested in a portfolio. That is the price level that is not reflected in our calculation, can't be reflected in our calculation. And as I've said before, we see, in such competition, price levels between 10% and 20% above our internal calculation. Then we see some competitors from fund structures who have different requests for their returns, so they can -- and they are willing to pay a higher price level. And above all, what is still true, there is a little amount of opportunity to the market. And that is why, again, we have to be aware of every deal. So we see -- we think we see every deal, and we have a chance to talk to sellers who are not only gaining a certain price level, instead of having a strong partner with a reliability on the market and with the secure finance -- with a secure finance structure so that we will be able to deliver very quickly in time. And that is a competitive advantage for us, and it is the sort of risky for us in North Rhine-Westphalia.

[Robert Woerdeman, Research Analyst]

Okay. That's clear. And perhaps zooming into the acquisition that you announced this morning of 3,750 units. Your value per square meter is EUR 1,144. Now I might have missed something in the conference call, but you have not indicated as of yet what the price is. Could you give us some indications here?

[Thomas Hegel, CEO & Member of Management Board]

So you have missed this information because we are not able to deliver this information at the moment. As I said, we are very close to signing this deal, but we are only able -- we will be able to deliver the details within a short period of time. Please understand that I'm not able and willing to talk about the details just now. But as you know, our -- you know us for a long period of time, and you know when we are communicating a deal, as we do it now, you may be sure that we are delivering on the communication in a very short period of time.

[Robert Woerdeman, Research Analyst]

Okay. That's clear. Are there any more discussions to add regions next to North Rhine-Westphalia?

[Thomas Hegel, CEO & Member of Management Board]

Sorry?

[Robert Woerdeman, Research Analyst]

Is there any discussions in the board to add more regions to the North Rhine-Westphalia region?

[Thomas Hegel, CEO & Member of Management Board]

Ah, okay. I understand.

[Robert Woerdeman, Research Analyst]

Too expensive?

[Thomas Hegel, CEO & Member of Management Board]

Yes -- so as we've always said, we are focused on North Rhine-Westphalia, but we are not limited on the fringes of North Rhine-Westphalia. As long as you can find an opportunity on a price level that is interesting for us, we will gauge it. But we have the eyes wide open for any opportunity that might lie outside the fringes of North Rhine-Westphalia and outlying the border of North Rhine-Westphalia, as long as we can use our platform to gain significant upside for the shareholder at the end. So that is all I can say. We are open for more in the near of North -- in the near regions of North Rhine-Westphalia, but there is nothing that could be delivered at the moment.

[Robert Woerdeman, Research Analyst]

Okay. And unfortunately, I can't join the board meetings obviously, but is there a change in sentiment around it? As in I know that you have said that before, but is there now a greater wish to actually perhaps look over the boarders of North Rhine-Westphalia compared to, let's say, a year ago?

[Thomas Hegel, CEO & Member of Management Board]

No, we can add no news so far. It's the same view on that. You know, as we talked about this several times, we have a close look on opportunities outside North Rhine-Westphalia. But as long as there is not, say, a bigger size which we could gain, it would not make sense at the moment.

[Operator]

Next question comes from Dr. Georg Kanders with Bankhaus Lampe.

[Georg Kanders, Investment Analyst]

A question regarding the potential acquisition. Is it right to assume that this portfolio is diversified on various locations in the Greater Ruhr area and even beyond that's why you have a good chance to get it?

[Thomas Hegel, CEO & Member of Management Board]

The -- again, I don't want to deliver much of those details. But I think it's fair to say that this portfolio is very interesting for us because most -- nearly all of the assets are aligned very, very close in the neighborhood to our current assets, and that is why it's very interesting for us.

[Operator]

Next question comes from the line of Andre Remke with Baader Bank.

[Andre Remke, Co]

Also question on your acquisition. Is there any remaining risk that the deal will not happen? Or are you 100% sure? And related question probably, also, on the acquisition, you mentioned the backlog. Is it a quality issue of the portfolio? Or does it refer to higher vacancy? Probably one word here before we have to wait until, let's say, closing or until November. That's the first question on the acquisition.

[Thomas Hegel, CEO & Member of Management Board]

So let me take the first part, the first -- even the second part. First part is about the risk in the deal. For sure, we -- if we could say we already had signed the communication would be in another way. We are very close to signing. And as always, a deal is always -- it's not only always -- you have to wait for the notary, and that's what we are doing at the moment. And the quality of the portfolio fits perfectly to our aim. The quality is in a way that we can have some sort of investment before we gain the returns. But it's a quality standard, which fits perfectly to our platform.

[Andre Remke, Co]

Okay. And with regard to vacancies? Is this an issue in this portfolio? So...

[Thomas Hegel, CEO & Member of Management Board]

No.

[Eckhard Schultz, CFO & Member of Management Board]

No.

[Thomas Hegel, CEO & Member of Management Board]

No, it's not an issue [ worth mentioning ].

[Andre Remke, Co]

Yes. Okay, perfect. Then my question to your capital recyclings, 1,000 to 2,000 units. When you start this marketing by the end of this year, this means the overall size will be delivered in -- next year. So it's a not a multiyear program. Is that right?

[Eckhard Schultz, CFO & Member of Management Board]

Yes. That's the intention, yes.

[Andre Remke, Co]

And in general, what should we calculate in terms of, let's say, prices, i.e., whether it's be at book value or even higher? What is a rough guess here?

[Eckhard Schultz, CFO & Member of Management Board]

We have not definitely defined the portfolio, so that's difficult to say. But as an indication, as we said, we are looking for assets which bear an inferior FFO profitability. And therefore, you can assume that the prices are above the average price we have now shown with our H1 valuation.

[Andre Remke, Co]

Okay. Perfect. And also on this disposal program, you mentioned there's mainly -- these assets are mainly located in your purple markets. Is it right to assume that you will then reinvest money into the other 2 submarkets?

[Eckhard Schultz, CFO & Member of Management Board]

Well, if you're looking at our current LTV, which stands at 41.9%, it is not the intention to further deleverage our balance sheet with the portfolio PR. And it's clearly the intention to earmark the proceeds for future growth initiatives. And while we cannot foresee the future, but it's not necessarily the idea to invest into stable high-growth or higher-yielding markets. It depends on the micro markets, as you know, and the idea is to invest these proceeds into assets with a high-end, above-average FFO yield. And that might be in the stable, that might be in higher-yielding markets, but if there is an interesting opportunity in the stable market, we are clearly also looking at that, yes.

[Operator]

[Operator Instructions] There are no further questions at this time. I hand back to Burkhard Sawazki for closing comments.

[Burkhard Sawazki]

Thank you for your participation. And as you know, the IR team and I are also available after the call to answer your questions. Please feel free to give us a call or send us an email. Thank you. Goodbye.

[Operator]

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining and have a pleasant day. Goodbye.