TAG Immobilien AG

XETRA:TEG

Earnings Call Analysis

Strong growth expected from Polish rental portfolio and stable financials in 2025.

In the Q3 2024 earnings call, TAG reported a 40% increase in net income from sales in Poland, reaching EUR 39 million. The company’s rental growth in Germany also improved, with a vacancy rate dropping to 3.9%. For 2025, TAG expects stable FFO I of EUR 172-176 million and FFO II growth of 8%, driven by a planned increase of 400 rental units. A dividend of EUR 0.40 per share is proposed, reflecting a prudent payout ratio while aiming for sustainable growth in Poland’s rental market. By 2028, anticipated EBITDA from the Polish portfolio is projected to be EUR 65-70 million, contributing 25% to total rental EBITDA.

Strong Performance Amidst Market Challenges

The earnings call highlights that the company has demonstrated resilience in its operational business through the third quarter of 2024. Specifically, the FFO I (Funds From Operations) remained stable compared to the previous year, while the net income from sales in Poland saw a significant increase of nearly 40% to EUR 39 million. This performance is supported by a like-for-like rental growth in the German portfolio, now improved to 2.8%, up from 2.2% a year ago, coupled with a notable reduction in vacancy rates, which now sit at 3.9%.

Strategic Focus on Polish Market Growth

The management reaffirmed its commitment to expanding the Polish rental portfolio, aiming to increase unit numbers significantly by year-end 2028. The current strategy is aligned with a strong liquidity position of EUR 670 million, leveraging funds from a recently issued corporate bond. This growth is expected to yield a substantial EBITDA increase, projected to reach between EUR 65 million to EUR 70 million by 2028, which would represent a 25% increase in overall rental EBITDA.

Dividends and Financial Stability

As part of its financial strategy, the company reinstated a dividend of EUR 0.40 per share, reflecting a payout ratio of 40% of FFO I. This move aims to balance returning value to shareholders while also retaining cash for reinvestment into the business, particularly in Poland. The payout ratio allows for a disciplined approach regarding leverage and ensures sufficient cash reserves to capitalize on growth opportunities.

Sales Performance and Future Guidance

In terms of sales, the company experienced a decrease in units sold, expecting to range between 2,000 and 2,200 apartments for fiscal 2024. This is a downward revision from initial estimates of up to 3,000. Despite this, the management remains optimistic, subscribing to a normalization of sales prices, which have seen year-on-year increases of 10% to 15%. For 2025, they are targeting sales of 2,800 units.

Outlook for 2025 and Beyond

Looking ahead, the company maintains forecasts for stable FFO I for 2025, projecting it to remain between EUR 172 million to EUR 176 million, with an anticipated 8% year-on-year increase in FFO II driven primarily by growth in net income from Polish sales, expected to rise by 31%. The rental growth guidance points to a continued upward trend, with predictions of 3% to 3.5% in like-for-like rentals in Poland.

Operational Efficiencies and Maintenance Costs

Management pointed out that maintenance costs in the German portfolio have increased by EUR 2.4 million in Q3 2024 due to higher expenses, although the overall maintenance and CapEx projections for the year remain in line with historical levels. They emphasized looking at operational expenditures over the long term, recognizing some seasonal fluctuations.

Maintaining a Balanced Financial Structure

The current loan-to-value (LTV) ratio stands at 46.1%, approaching the company's target of 45%. The management indicated expectations for stable valuations in the full year with no significant devaluation anticipated, providing a backdrop of stability for future growth.

Commitment to Sustainable Growth Strategies

The focus remains on organically growing the Polish portfolio while being open to opportunistic acquisitions, particularly in Germany, should attractive opportunities arise. The management's disciplined fiscal approach is designed to ensure sustainable growth and prudent risk management.

Earnings Call Transcript 2024-Q3

[Operator]

Ladies and gentlemen, welcome to the TAG publication of interim report Q3 2024 conference call.

[Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast.

At this time, it's my pleasure to hand over to Martin Thiel, CFO. Please go ahead.

[Martin Thiel, executive]

Yes. Many thanks. And good morning, all. Many thanks for dialing in for our conference call for the Q3 2024 results.

Let's start right away with the presentation. And I'm on number -- Slide #4, which shows the highlights of the third quarter 2024. And basically we wanted to discuss on this slide 5 areas with you. Firstly, the operational business for the financial year 2024 is well on track. FFO I was basically unchanged compared to previous year, as expected. And the net income from sales in Poland was even a little bit better than expected, quite strong increase by nearly 40% to EUR 39 million. And that means also that we had a good development in the FFO II.

Looking at the operational business in Germany, I think we performed here very well, quite strong increase in like-for-like rental growth in the German portfolio, now including the impacts of vacancy reduction, at 2.8% at 30 September 2024. If you compare it with the figure 1 year's before, that was 60 basis points lower at 2.2%, so a good development; and also a very good development in the vacancy rate in the German portfolio. We've given you today also the number for the vacancy rate after the balance sheet date in October because this is the first time in the TAG portfolio that we're below 4% now, at exactly 3.9%, coming from 4.6% 1 year ago.

Second topic. We are now really ready to grow the Polish rental portfolio. As you know, we have successfully issued a corporate bond in August this year of EUR 500 million. Therefore, currently we have a quite strong liquidity position of around EUR 670 million. And basically we have now everything we need to grow the portfolio. We have the liquid funds. We have the land bank. We have the team there. And we actually really now start a lot of projects.

I will come back to that later, but just to give you an overview of the impact this Polish rental portfolio growth would have, we point out already here that, once we have completed the 10,000 units at year-end 2028, and it will be around already 8,000 units at year-end 2027, we expect a significant EBITDA growth in Poland. Up to EUR 65 million to EUR 70 million should be the value in that time. And if you'll compare this increase that we expect in the next 4 years with the total rental EBITDA that we achieve currently, so from Germany and from Poland, the growth from the Polish rental portfolio alone will deliver a 25% increase in rental EBITDA. And on top of this, clearly we expect also for the future rental growth and rental EBITDA growth in the German portfolio, so therefore, the basis for strong growth in the rental portfolio is now really there.

Looking at the NTA and LTV development in the first 9 months of 2024, I think we can also here deliver positive messages. First, the NTA is growing despite the portfolio devaluation that we had in the first half of 2024. So a growth to EUR 18.61 per share, that's 2% up. And we were able to reduce, despite the portfolio devaluation in the first half, the LTV to 46.1%. That means we are almost at our target level of around 45% already.

If you ask us what we should expect for the full year valuation and -- which will take place as always in December, 2024. Clearly we have no valuation result yet, but what we expect is a broadly stable valuation. So that should be something around 0. And that means the times, quarters in the last 2 years where we've seen perhaps significant devaluations in the German portfolio up to nearly 20% are now over. And clearly this is good for a further development that should then be positive in NTA and LTV.

Fourth point and, I think, that's an important message for today. And perhaps you have already seen our ad hoc announcement yesterday evening. We are reinstating the dividend. We are proposing for the next AGM that will take place in May 2025 a dividend of EUR 0.40 per share. This is based on a payout ratio of 40% of FFO I. And from our point of view, this 40% payout ratio, that should be also valid for the years thereafter; and shows a good mix between, on the one side, a sustainable basis for future dividends, as the FFO is expected to grow in the future. Secondly, we still have internal cash, by using this payout ratio, to fund the growth of the Polish build-to-hold business. And as a third point, a 40% payout ratio, from our point of view, is a good approach to continue the quite disciplined approach we had in terms of leverage in the past.

And finally, we are also publishing the guidance for financial year 2025. Today, we predict basically a stable FFO I in 2025. We will see, as already discussed, FFO growth in the future once the Polish portfolio is growing, but for now we basically need to invest that we had -- the funds that we have taken on from the bond, which will deliver growth in the future. So FFO I should be stable, but if we look at the net income from sales in Poland, we expect a quite significant increase by 31%. And that should also lead to FFO (sic) [ FFO II ] growth to around EUR 233 million to EUR 243 million, so basically 8% year-on-year.

On Pages 5 and 6, you see more details and numbers. I think I have already discussed most important developments, but let me add, as you see on Page #5, the disposals that we have done in Germany, so far. All in all, we sold 915 units in the first 9 months of 2024. The closing has basically completely occurred as of today. Total selling price was around EUR 81 million. Basically we sold them around book value, so there was a slight loss of EUR 1.8 million, which are not being material. And we achieved a gross yield of these disposals or -- in the portfolios that we sold of 5.2%.

And on Page 8 of the presentation; and perhaps some comments on details regarding the EBITDA, FFO and AFFO development. If you compare the development quarter-on-quarter, the EBITDA from the rental business decreased slightly by EUR 0.3 million, but this is more or less the effect of higher maintenance costs in the German portfolio in the third quarter of EUR 2.4 million, so without that, clearly we have the underlying like-for-like rental growth from Germany plus the growth that is already there in the Polish portfolio. So EUR 2.4 million higher maintenance costs is a kind of slight burden in the third quarter, but as already mentioned in the last calls, please look, when analyzing maintenance and also CapEx expenses, on a longer-term basis. So from quarter to quarter, we have some seasonalities. We will see some pages later that the total maintenance spending for financial year 2024 is very similar, so far, like in the years before.

So therefore, FFO I is reduced also by EUR 1 million. AFFO, if we look at then full 9 months for 2024, is slightly up due to a little bit lower CapEx in the first 9 months, but also here you should see a very comparable development to the previous year when we look then at the full year figures in March next year.

Page #9 gives you more details on the NTA calculation. Again, good to see that, despite the portfolio devaluation, we're still able to grow the NTA. Clearly 2% is not significant, but assuming that we have now the period of devaluations in the German portfolio behind us, there should be definitely a lot of potential for further growth. We expect, by the way, in the Polish portfolio for the full year, as in the previous years, a valuation gain. We can't really give you an exact guidance in terms of percentage, but the Polish market is still on a very good way, so therefore, as in the past, there should be a positive development coming from the Polish portfolio.

Page #9 (sic) [ #10 ] gives an overview of the financing structure. After the issuance of the corporate bond that has a coupon of 4.25%, the average total financial debt -- or interest rate on total financial debt is now at 2.5%. As I've said, we are already quite close to our LTV target. 46.1% is the exact figure at the end of the third quarter. 45% is our LTV target. And if we follow the development over the last quarters, we will see that we have basically a very natural way to delever because we are generating a lot of cash from the rental business in Germany and in Poland and also from the sales business in Poland. And also the new dividend policy, the 40% payout ratio of FFO I, will not hurt this development, so therefore, without any significant disposals that is not needed to further deleverage the balance sheet; and assuming that we have, let's say, 0 valuation result at year-end, we should be very close to the LTV target in December. And this is clearly, from our point of view, a good achievement.

Page #11 shows the maturity profile. Theoretically, all the, I mean, upcoming maturities until year-end 2025 are covered, but clearly our plan is also now to invest the liquid funds that we have, again, in EUR 670 million in cash in the balance sheet, as we want to grow the portfolio, so therefore, you should assume that the upcoming bank loans are refinanced. And any cash surplus is then really used to grow the Polish portfolio.

On Page #13, we show more details on the like-for-like rental growth in the German portfolio. That's on the bottom left of this page. We especially want to draw your attention to the development of we -- what we call basis like-for-like rental growth. So that's the light blue color, which stood at 2.2% in the first 9 months of 2024 compared to 1.8% 1 year ago and compared to 1.5% 2 years ago. So that clearly shows that the rents in our portfolio are growing even without the impact of vacancy reduction which is always coming on top.

And looking into financial year 2025. Perhaps you have seen in our interim report also the guidance that we've given for like-for-like rental growth. We expect that the total like-for-like rental growth next year, so in 2025, should be between 2.5% and 3%. And you can assume that the basis like-for-like rental growth, that means rental growth without vacancy reduction, is something around 2.5%. So this positive trend that we've seen now over the last 2 to 3 years of growing rents without vacancy reduction, without larger CapEx programs will continue in 2025.

And on Page 13 also, on top right of the page, you'll see what I just mentioned, that on an annualized basis, maintenance and CapEx are quite similar; again, CapEx a little bit reduced in the first 9 months of 2024, but this is more due to seasonality, so at year-end, you should expect a very similar level like in the 2 years before.

Page 14 shows the development of the vacancy rate. And again very happy that we are now, for the first time, below 4%. And if we look into the financial year 2025, we expect a further reduction in vacancy rate, so therefore, this 3.9% vacancy rate that we currently have should not be the end of the development. So we expect that we'll get also closer towards the 3.5% in the course of 2025.

Let's talk a little bit about the Polish portfolio. Firstly, let's start with the rental portfolio. That's on Page #16. The rental portfolio, in the meanwhile, comprises more than 3,000 units. So we have also finished some units in the course of the quarter. Vacancy rate is already down to 3.2% despite the fact that we have finished a lot of apartments in the last months. If you look at the apartments, by the way, that are since more than 1 year on the market, the vacancy rate for these apartments is already below 2%.

Like-for-like rental growth is still on a very good level, from our point of view, 3.7% year-on-year. As mentioned in the calls before, clearly we had in the past 2 years even higher like-for-like rental growth, that it was more than 10% last year, more than 20% the year's before, but please keep in mind that 2022 and 2023 were really exceptional strong years in terms of rental demand, as a lot of people from the Ukraine came into Poland and so on. So therefore, we are still happy that we're able to achieve a good number in terms of like-for-like rental growth for Poland. By the way, the guidance for financial year 2025 in terms of rental growth in Poland stands between 3.0% and 3.5%.

Page 17 shows you in more details the expected development of the Polish built-to-hold portfolio. So we are currently at 3,000 units that are already completed and on the market. We expect [ another ] 200 to 300 to come to the market at year-end. And as we right now started new projects and the construction time for such projects takes around 2 years, we will see that the main buildup of the portfolio is happening then or is finished in year-end 2027. And then the final target is that, in year-end 2028, to get at that point in time to the target of 10,000 units.

By the way, these 8,000 units that we mark here to be finished at year-end 2027, these are really concrete identified projects where we actually really starts construction, where we actually are in the plan phase. So that's not, how should I say it, something only in an Excel spreadsheet. This is something that we really now turn into reality.

On the table on the right side. We've given that in the past, quite similar. Now we wanted to give that a little bit more detailed. We give an outlook long term for the net actual rent that we expect from the Polish portfolio and from the EBITDA. And this is what I already mentioned at the beginning of the presentation, that we expect a quite strong increase in the EBITDA from rental. Again, if we end up at the EUR 65 million to EUR 70 million EBITDA from the rental portfolio, then after financial year 2028, this alone would mean an increase in the rental EBITDA for the total portfolio of 25%. And again, for sure, something on top will come from further good development in the German portfolio.

Let's move to the sales business. That's on Pages 18 and 19; first of all, looking at sales numbers. And to be very open, and that is something that we have already indicated in the previous calls: We have lower sales numbers than in the year before. And honestly, 2023 was also a very strong and exceptional year, so therefore, new for 2024, we expect in numbers or in terms of units sales between 2,000 and 2,200 apartments. Before, we've been more optimistic, up to 3,000 apartments, but if we look in the current development -- and that's perhaps important to mention. If we look, for example, what we have sold in October this year, we've sold around 200 units. So on a monthly basis -- so that would lead to a run rate of already around 600 units per quarter if this development continues. And we're really optimistic, so therefore, we're giving in terms of units a guidance also for 2025. And we want to sell in Poland next year 2,800 units, but units is one thing. On the other side, it's perhaps even more important to look at the sales volume, as prices in Poland have increased quite significantly.

So still, year-on-year, we had a sales price increase between 10% and 15%. And therefore, for us, more deciding is not the number of units [ sold ]. It's the sales volume. And the sales volume is indicated: So basically the cumulative sales prices, in this dark blue color on -- that you see on the bottom of the page -- and that compensates a lot from the reduced number of units.

Page 19 is more something -- I should say it's technical, important for the profit realization in the balance sheet. As you know, we are realizing the profit in the balance sheet or in the P&L once we hand over the apartment. And this is mostly then due in the fourth quarter of every year, so therefore also, for the fourth quarter of 2024, we expect an increasing result from handovers and therefore increased revenues. And therefore, we feel very comfortable with reaching our guidance in the sales business for financial year 2024, as we're already a little bit better than expected.

Yes, I already mentioned guidance. Page 21 shows the confirmed guidance for financial year 2024. So we confirm the FFO guidance, the FFO I, FFO II; and also the adjusted net income from sales Poland guidance. And we even indicate that we should achieve these 3 numbers at the upper end of the range, so the business on -- is on a good way for 2024.

As already mentioned, new is the dividend guidance for financial year 2024, based on a payout ratio of 40% of FFO I. And this would translate into a rounded number of EUR 0.40 per share that we want to propose to the AGM next year.

And finally, on Page #22, the new guidance for financial year 2025. I already mentioned that briefly: again, FFO I slightly up by 1% at EUR 172 million to EUR 176 million; strong increase expected in the net income from sales in Poland, leading also to 8% year-on-year increase in FFO II. And looking on the left side of the guidance slide, at the guidance for EBITDA: Also in the German business, we are able to grow the EBITDA from the rental business, despite the disposals that we have realized and that are now fully effective in 2025, in the past 2 years. And clearly the Polish rental portfolio is growing as we are now increasing the portfolio size.

Further details on the development, and it's perhaps also interesting, can be found on Page #23, where we show in an FFO bridge the difference between the expected FFO (sic) [ FFO I ] for 2024 and the expected FFO I for 2025. So clearly we are benefiting from the like-for-like rental growth in Germany and from additional rental growth from the growing rental portfolio. On the other side, we are losing rents from the disposals in Germany, which is an amount of around EUR 4 million. We have some [ project ] management cost inflation also in, for example, property management costs; and then on the other side, perhaps not surprising, obviously some higher financing costs.

Yes, that's it from my side, a quick overview on the results for third quarter of 2024. Thank you, so far, for listening, but I'm now of course very happy to take your questions.

[Operator]

[Operator Instructions] The first question is from John Vuong with Van Lanschot Kempen.

[John Vuong, analyst]

On the 40% payout ratio, I understand that it should be a bit lower than previously, [ as you're not a REIT ], and that you want to retain more earnings as you focus on growth. At the same time, [ it screens ] that you intend to distribute less than AFFO. Could you talk about your thoughts here; and how it has been decided to be 40%, for example, based on AFFO?

[Martin Thiel, executive]

Yes. So the second part of the question was a bit hard to understand, but I'll try to answer as good as I have -- understand the question. So indeed it's a 40% payout ratio of FFO I. That means we are not paying out the full cash available from the rental business. So even if you look at the AFFO, it's not the full AFFO that we pay out, so there is something left in the company in terms of rental business. It's not a super huge amount, but we think also to keep here something as a part in the balance sheet makes sense because, if we put this on top to the cash surplus that we have from the sales business, which is really a free cash between EUR 50 million and EUR 60 million a year, then we have really enough equity to grow the Polish rental portfolio in the future. So therefore, we tried to find a mix between, on the one side, paying out a, let's say, reasonable and, hopefully, still attractive dividend to shareholder with a 40% payout ratio; and on the other side, ensure that we have not only enough cash but also a solid equity position to fund the further growth in the Polish rental portfolio.

[John Vuong, analyst]

Okay. And so if I understand it correctly, the cash that you retain on the balance sheet will be fully focused on Poland and not on any opportunities that may arise in Germany.

[Martin Thiel, executive]

Yes, we're not that strict, so you should not expect a strategic and huge acquisition in Germany. I mean you should never say no, but that's not really on the agenda. But of course, as we have now a strong cash position, why should we not look at some opportunities? But this would be more something, just to give you an idea, perhaps EUR 20 million, EUR 30 million portfolio, something around that, in a location that we know very well that comes along with an attractive price. So we're not excluding acquisitions in Germany but perhaps more opportunistic, perhaps smaller size. When it comes really to the focus of capital allocation, that's clear: That's the rental portfolio in Poland.

[John Vuong, analyst]

Okay, that's clear. And then maybe moving on to the build-to-sell business in Poland. The sales price has remained strong, but obviously it's fallen off the peak of plus 20% year-on-year. How do you see this trend of normalization going forward? And I think you mentioned you expect a -- 2,800 units that you want to sell for 2025. Does that include any one-off impacts, for example, from subsidies?

[Martin Thiel, executive]

Yes. No, this is without any impact. So we are not assuming that a new subsidy program -- which is, by the way, still under discussion. And we are not really betting on that -- that this will come -- needs to come. So that's really the current regime, so therefore, we are optimistic for Poland. Again, we have seen really strong price increases here in a not-easy environment, yes. Also in Poland, interest rates increased, so therefore, seeing such strong sales numbers in 2023 was very good to see, seeing such strong price increases. Not long ago, we talked about 20% increase -- was good to see sort of keeping that on that level, so coming to a normalization that is more or less, perhaps, slightly growing prices is already good to have. So we don't expect any downswing. We don't expect reduced prices. And as I also mentioned, number of units is one target. And clearly that's always an easy target, but for us, price optimization is also important, so therefore -- the cash situation also in the Polish sales business is very strong, so therefore, we're not under pressure to sell as much as we can very quickly. So we're really looking also on optimizing pricing. And again, yes, we are open. The sales numbers are lower than the year before and also lower than what we expected at the beginning of the year but still, let's say, on a very reasonable and, if we look into 2025, optimistic -- or a level that makes us optimistic.

[Operator]

The next question is from Simon Stippig with Warburg Research.

[Simon Stippig, analyst]

First one would be on Page 23, your FFO bridge. I see you have reduced rents from disposals in Germany. Just is that actually an phasing effect from this year, or do you assume additional disposals?

[Martin Thiel, executive]

Simon, this is without any additional disposals. So this is really something also from disposals that occurred in 2023, so -- and perhaps we lost then the rent in the course of 2024. So for example, if the closing was in the course of 2024, we have still some rents in the P&L. Now in 2025, it's completely gone, but this is without any disposals that -- for 2025. And perhaps just to add this: If you ask us, "Are there any major disposal plans in the German portfolio?" no. That's not the case.

[Simon Stippig, analyst]

Sure. That's all clear then. And second one would be in regard to your portfolio. I see you have a very strong rental growth guidance for the next year which is higher than in the past years, so given the current gross yields of your portfolio, what would be your expectation here? Is it flat yields? Or could you give any indication in that regard?

[Martin Thiel, executive]

Honestly, we cannot really give a very concrete guidance for valuations in 2025. It's, I mean, 2 trends are clear. Rental growth is on a very good way, so stronger than in the past, so that should support valuations. If you look at the interest rate environment, hopefully, that's now stable/slightly going down. So this all points towards valuation growth, towards NAV growth. What quantum of that we already see in 2025 -- or as you know it from the past, it takes another year until this comes into the valuations. Let's see. So I'm -- as you see, I'm hesitating to give a concrete guidance for 2025, but the trend should definitely be positive.

[Simon Stippig, analyst]

Okay. And then in regard to your dividend payout, just to follow up on the previous question. So now you're paying out 40% of FFO. You're keeping something because it translates to 70% of AFFO. You're keeping some cash on the balance sheet, I understand. And you -- or on the same time, you'll probably delever just by revaluing the portfolio automatically with high rental growth, but a part of that, as I understood, in the past, you always mentioned that the Polish business is a self-financing business. So you finance that with your EUR 50 million to EUR 60 million additional cash. And while you keep the guidance 2028 stable, you still say you invest in Poland, so if I add that together, either you have higher costs in your Polish business, cost inflation and development. Or do you just -- is your guidance 2028 probably a bit on the low end? And you expect to grow even stronger there.

[Martin Thiel, executive]

I think it's important to keep something in the balance sheet also for opportunities and things that perhaps are not today on the agenda, in a positive sense. So whether we talk about, as discussed, acquisitions in Germany or more growth that is possible in Poland. And we are now reinstating the dividend at a 40% payout ratio. And I understand it was 75% until financial year 2021, but reinstating the dividend should be, from our point of view, something sustainable, so it would be a mistake, as we see it now, to go back to a very high payout ratio, which perhaps potentially works, looking at the current cash position. And we know that capital markets are very open, but better do something on a sustainable basis. Keep something in the balance sheet for opportunities that may come in the future, and operate on this basis. That's the way we would prefer. It's not that we expect now higher costs or any other developments, especially in the Polish rental business, than before.

[Simon Stippig, analyst]

Okay, that's clear. And maybe one small follow-up in that regard, in regard to your prioritization of capital allocation. So is it #1 that you invest in Poland? #2, you would acquire units in Germany. And then #3 is potentially also a share buyback or a special dividend in that regard, so -- or how can I understand that conceptually from your side?

[Martin Thiel, executive]

Put it in a simple way like this -- I will that's -- it's not wrong. So I mean the life in a company, [ in a day-to-day ] business, never works that strict, but yes, again, we've got a now really good chance to grow the Polish rental portfolio in the future. By the way, we also want to continue the Polish sales business, so we are also investing in new land bank. So perhaps you've seen that, if we look at the total number of potential units in the future, this number has increased, as we have acquired new land bank in Poland also in the first 9 months. So this is not a business we should forget, but this is really self-funding. So Poland, yes, a preference; and again, Germany is not excluded. If you want -- so it's #2, but it's good to have these 2 markets, yes. It's good really to look in both markets and the opportunities. That's also an advantage of the diversification that we now have when looking into 2 countries.

[Simon Stippig, analyst]

Okay, great. And one quick last one -- or a quick follow-up. So capital -- in regard to capital allocation, a share buyback is actually not what you would actually consider.

[Martin Thiel, executive]

Not as of today. We think we've got good growth opportunities. And we should use the liquidity and financial funds that we have for that, in the first place, but I mean we've done -- that's already some years ago. That's the [ larger share back ]. So the thinking of capital allocation that also potentially a share buyback can make sense is in our heads, but that's not really on the agenda as of today.

[Simon Stippig, analyst]

Okay. And a very, very quick last one, in regard to the Polish rental growth -- rental business. In the BTH segment, you said that you have a guidance for 2025. And you have -- you show in the bridge EUR 6 million gap in rental growth, so -- for the next year. And is it -- what's the underlying figure of units you're assuming here for the next year in regard to the BTH business? And then also, I saw negative rental growth in Lódz. Can you give some additional details to the underlying reasons for that?

[Martin Thiel, executive]

Yes. Regarding your first question. On Page #17, we indicate, as said, the development of the rental units in Poland. So you will see that the portfolio will increase by roughly 400 units next year. So that's then also clearly included in the guidance. So basically the total increase in rents is coming from this 400 units more, plus the "a little bit more than 3%" rental growth. And regarding the rent development in Lódz, yes, it's indeed slightly negative, but we don't see this as a trend. So therefore also -- which should contribute to a positive rental growth in 2025. We're, in Poland, in an unregulated market, so that's something we need to get used to, that -- perhaps in some projects, and in Lódz it's basically one project that we have finished now for a longer time, that we have then also, perhaps in 1 quarter, slightly reduced rents, as the contracts are short term, but we are very sure that also in Lódz we'll see a good rental development from 2025 onwards again.

[Simon Stippig, analyst]

Okay. And the units, the additional units, you would expect in H2, or H1, in the residential portfolio in Poland...

[Martin Thiel, executive]

There's one project coming to the market at the very beginning of 2025, if I remember well. And the second part is more in the second half, so if you model that, if you put that in the middle of the year as an average, that would be a good estimate.

[Operator]

The next question is from Manuel Martin with ODDO.

[Manuel Martin, analyst]

2 questions from my side. I hope it's not a repetition. I -- because I had some technical problems with my Internet telephone. First question would be on the potential valuation result for 2024. You said that, of course, you don't have any exact figures right now, but the potentially balanced valuation result, do you refer to the H2 valuation, or the full year valuation? Because I think, for the first half year, you had a devaluation of something like a bit more than 2% in the portfolio. So to have a 0 valuation by the end of the year would imply some valuation gains in the second half of the year.

[Martin Thiel, executive]

Thank you for the question. So I'm happy to confirm this broadly unchanged portfolio value refers to the second half valuation, so you are right. In the first half of 2024, we had a devaluation of a little bit more than 2.5%. For the second half, we expect something at around 0.

[Manuel Martin, analyst]

Okay, understood. And my second question would be on Poland; may be a bit too distant, the question, right now, but would you consider also additional M&A in Poland? That means to enlarge your platform that you have there. Could there be potential targets?

[Martin Thiel, executive]

It's also an option that we have, but as you know, in Poland we are one of the first institutional landlords. So therefore, the number of potential acquisitions should be not that huge, but that's not necessary to grow the portfolio, as we have this base case, the [ planned ], how we can grow the portfolio from our own projects. But I mean clearly we would look at that. And let's see how this develops in the next 1 to 3 years because some of the investors that started some years ago with us in Poland potentially are also seeking exit options in the future. And yes, clearly we would look at that. We would be a natural buyer for that, so clearly we would be involved in such initiatives. And when it comes to the sales business, it's not a strategic goal to buy now the next development company because we have a very good platform. We have a good team there. If there is an opportunity to buy a company to get access to attractive land bank, yes, we would look at that. So therefore, M&A is definitely an option in Poland but with this background, right? And it's again good to have the potential to grow also from internal sources.

[Operator]

[Operator Instructions] There are no more question at this time. I would now like to turn the conference back over to Martin Thiel for any closing remarks.

[Martin Thiel, executive]

Yes. Thank you very much all for dialing in to our call and for your questions. As always, if there's anything else, please feel free to contact the IR department or myself. Thank you again for listening and hope to see you soon on the road or at our next conference call. Many thanks.

[Operator]

Ladies and gentlemen, the conference is now over. Thank you for your participation. You may now disconnect your lines. Goodbye.