Grand City Properties SA (GRNNF) (H1 2026) Earnings Call Highlights: Solid Rental Growth and ...

Negative Points

• FFO I decreased to EUR91 million in H1 2026 from EUR95 million in the prior year, impacted by higher perpetual notes attribution and finance expenses.

• The LTV ratio increased to 33% from 31% at year-end 2025, primarily due to acquisitions and investments made during the period.

• Finance expenses rose to EUR37 million, reflecting the full period cost of debt raised in previous periods, which negatively impacted profitability.

• The company faces ongoing geopolitical volatility, particularly from the Middle East situation, which creates uncertainty in financial markets.

• The transaction market has slowed down in recent months due to market volatility, potentially impacting the pace of future capital recycling activities.

• The new perpetual notes carry a significantly higher coupon of 5.25% compared to the redeemed notes at 1.5%, leading to higher perpetual notes attribution of EUR53 million in 2026 and EUR60 million from 2027 onwards.

Q & A Highlights

Q: How do you assess the valuation results for the period, and what is your outlook for the coming periods and the transaction market? A: Idan Hadad (CFO) stated that the full external revaluation resulted in a 0.2% positive like-for-like change net of CapEx (0.6% including CapEx), supported by strong operational performance with no large yield movements. The portfolio yield remained stable at 4.9%. The base case is for organic value growth to correlate with operational performance, with yields remaining broadly stable. While the transaction market has slowed due to recent volatility, deals are still closing, and volumes are expected to increase after the summer, potentially supported by positive geopolitical developments.

Q: Like-for-like rental growth stood at 3.3% in the first half. What is driving it, and how do you see performance developing going forward? A: Refael Zamir (CEO) explained that the 3.3% growth is in line with guidance of approximately 3.5%, driven by re-letting (2.1%) and indexation (1.2%). Re-letting is the bigger driver, allowing the company to capture revisionary potential faster, supported by reference rents moving in their favor, such as the 2026 Berlin Mietspiegel set nearly 7% above the prior schedule. London rental growth converged to just over 3%. The company expects to continue unlocking revisionary potential through steady indexation and stronger re-letting, keeping them well positioned to deliver on full-year guidance.

Q: How do you view your leverage position, and do you expect it to move materially? A: Idan Hadad (CFO) noted that leverage remains conservative with an LTV of 33% as of June, up from 31% due to investments and acquisitions, which are seen as long-term supportive. EPRA LTV, which treats perpetual notes as debt, remained stable at 45%. The company maintains best-in-class interest coverage and net debt-to-EBITDA ratios. While metrics provide ample headroom for growth, the company expects to fund growth through capital recycling and current liquidity, anticipating leverage to stay low and below the Board limit.

Q: How do you evaluate your strategy on acquisitions and disposals in the current market environment, and where is the deal pipeline more active? A: Refael Zamir (CEO) reiterated the unchanged approach of disciplined capital recycling and highly selective acquisitions with FFO accretion as the main principle, without fixed volume targets. In H1 2026, the company completed around EUR75 million of acquisitions in Germany and partially took over a EUR100 million London new-build portfolio at attractive factors, while completing around EUR30 million of disposals. The remainder of the London acquisition closed after the reporting period, with the full impact expected from 2027 onwards.

Q: Have you seen changes in your financing conditions in recent months? A: Michael Bar-Yosef (CCMO) stated that access to capital markets remains strong despite volatility, with bond spreads broadly stable at low levels. The company has no near-term refinancing pressure, as liquidity comfortably covers bond maturities until the end of 2027. They expect to come to the market opportunistically, for instance, as part of liability management exercises if conditions support it.

Q: How much are your perpetual coupon expenses this and next year? A: Michael Bar-Yosef (CCMO) confirmed that following the full refinancing of the perpetual note stack in Q2, the perpetual notes attribution will be around EUR53 million for 2026, normalizing to a full-year attribution of EUR60 million from 2027 onwards. The next call date across the stack is only in 2031, providing increased clarity on this part of the capital structure.

Q: Could you indicate the annualized rent of this year's acquisitions, and what is the current exposure to non-residential in Germany? A: Michael Bar-Yosef (CCMO) detailed that the company acquired EUR130 million of assets in H1 and another EUR50 million in Q3, totaling EUR180 million at a blended multiple of 13-14x. Once fully contributing, this will add around EUR12 million in annualized rent. The London acquisitions are turnkey developments that need to be re-let in full, with full operation expected within a few months. Regarding non-residential exposure, the company is not looking to increase it and remains focused on residential assets.

Q: The disposal economics seemed to take a material uptick in Q2. What is that attributed to? A: Michael Bar-Yosef (CCMO) explained that the company sold just over EUR30 million in H1 2026 at a 13% premium to book value, but these were mainly condominiums and non-core assets. He noted this does not reflect the full portfolio, but the company continues to see selling at or above book value, similar to the past two years, indicating the momentum remains consistent.

Q: With regards to the Aroundtown stake in your company, did they buy more shares? And what are your plans to access the bond market given your cash balance? A: Michael Bar-Yosef (CCMO) confirmed that Aroundtown increased its stake from 81.5% to 83%, likely through market purchases. On maturities, the company repaid over EUR400 million of bonds on August 3, with more than EUR100 million coming due in September and around EUR500 million in Q1. After covering these, they still have around EUR300 million for 2028 maturities. However, they are also looking at 2029 and 2030 maturities with higher coupons, and it would make sense to conduct liability management ahead of time if market conditions allow.

Q: Could you provide more background on the higher LTV, and it seems German resi prices and rents are losing momentum. Can you give your view? A: Michael Bar-Yosef (CCMO) attributed the slight LTV increase to investments and acquisitions, noting it remains at a very low level of 33%. On market trends, he disagreed with the notion of deceleration, stating that rent growth remains very strong with good demand and limited supply, which is not expected to change. He believes rental like-for-like growth will more than offset macro headwinds, keeping yields stable, and if geopolitical stability improves, rental growth could drive further valuation growth.

For the complete transcript of the earnings call, please refer to the full earnings call transcript .