Tag Immobilien Ag

Good day and welcome to the TAG Immobilium Interim Report Q2 2022 conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Martin Thiel. Please go ahead, sir.

Yeah, many thanks and good morning all. Many thanks for dialing in for our H1 2022 conference call. As always, I will try to give you a short overview of our presentation and afterwards we have plenty of time to answer your questions. So let's start with page four of the presentation. That's the highlight slide. Let's have a quick look at the operational development in Germany. Quite good development in the vacancy rate in our residential units. Vacancies stood at 5.2% at the end of the second quarter compared to 5.7% at the beginning or at the end of the first quarter. So 50 basis points reduction and perhaps read this already in the press release that even after the balance sheet date this good development continued, so we are today at around 5.0% vacancy already. In line with a good development of the vacancy rate, like-for-like rental growth, including vacancy reduction, increased to 2.0% after 1.5% in the previous quarter. FFO1 came up at 48.5 million euros, compared to 47.8 million euros in the previous quarter. And if you compare the first half of 2022 with the first half of 2021, that was a roughly 5% increase. And comparing that with our guidance, which still stands in the midpoint at around 190 million, you see that we are on a very good way to achieve the guidance. APRA NTA. before the rights issue, before the effects from the rights issue, we'll come back to that a little bit later, staying at 25.17 euros per share, and LCV also before effects from the rights issue was at 47.0% at the end of the second quarter. Looking at acquisitions and disposals in Germany, there was only one smaller acquisition in the first half of 2022. We acquired 360 units at a purchase price of 11 million euros. Looking at the acquisition multiple, that seems to be quite high with 21.4 times net current rent. But the vacancy rate of this portfolio, which is located in Halle an der Saale, which we know very well, was at 52%. So reducing that vacancy rate quickly brings then the acquisition multiple to a range that you are more used from us. So that's, in the light of this high vacancy rate, nothing unusual. 700 units disposed. and signed already in the first half of 2022, mainly non-core assets. And the good message around this is that we achieved a book profit of nearly 3 million. So we sold these assets in the first half of 2022 above book value. Looking at the results from the portfolio relation by CBRE, which was done on a semi-annual basis as always. And by the way, the full portfolio was valued. We achieved a 4% semi-annual valuation uplift without any capex. So including capex, this valuation uplift or total value uplift would be more around 5%. And the splits between yield compression and operational performance with 85% and 15% was very similar to the valuation results that we had in the previous years. New relation levels stand at 1,270 euros per square meter, or a 5.1% growth rate. Looking on the next slide at our development in Poland, first of all, important to realize when looking at these numbers that we had the first time consolidation of OBIC at the 31st of March 2022. So that means in the P&L for the second quarter 2022, HOBIC was included for the first time, while in all balance sheet items at the end of the first quarter HOBIC was already included. As a result, we had a quite strong increase in units sold and units handed over because HOBIC is now fully concentrated. So we sold in the second quarter 2022 527 units. A very similar number was handed over compared to the first quarter. increased now due to the first canon consolidation of OBIC. The result from operations in Poland increased to 6.4 million after some loss of 1.3 million in the first quarter. On page number six, we summarize some, from our point of view, very important highlights. First of all, some comments on the rights issue. I mean, once again, the data we issued nearly 20% of existing share capital in July 2022 and achieved gross proceeds of €202 million. Including this rights issue into the calculation for the LTV, the LTV was already reduced below our LTV target. So on a performer basis, after the rights issue, based on the numbers as of the first half 2022, the LTV already extended 44.5%. This rights issue was clearly not an easy decision for us. I mean, we know issuing shares at 60 and 90, that was a hard decision, that was dilutive. Clearly, we want to explicitly say thank you to our shareholders for participating in the rights issue, for their support. But looking back, we think it was still the right decision to do it. It was clearly a commitment to our investment grade rating. We achieved a strengthening of our equity base. And it was also an important step of the refinancing of the aerobic bridge facility, which is at least for part still outstanding. As a consequence of the rise issue, we had to adjust our guidance only on a per share basis. So the guidance in absolute amounts is unchanged. So FFO1, FFO2, and the dividend in absolute amounts, there is no change. But as we have now a higher number of shares, you see this on page number six, we had to adjust the guidance on a per share basis. we used for FFO1 and FFO2 the weighted number of shares and for the dividend per share we used the current number of shares outstanding. Yeah, looking at refinancing activities. I already mentioned that the rights issue was an important step to repay the bridge loan for the WOPIC acquisition, so after the balance sheet date with the help of the proceeds from the rights issue with existing cash been able to already reduce the bridge loan from 650 million to 310 million euros we are still working on the disposals we announced that with the rights issue that we want to sell around 2800 units on top of the 700 units that i mentioned before which have already been sold in the second half of 2022 and we want to achieve net proceeds so that means after repayment of any bank loans and after payment of income taxes of around 300 million. There have been disposals already signed with net proceeds of around 40 million, and we expect that for the remaining disposals, we achieve the signing and also the closing in the course of the second half 2022. I mean, clearly the market, just as a general comment, is more difficult than some aspects. We see less buyers out there. but there's still demand for our properties. And we're doing this, as we have also explained during our discussions during the rights issue, we're doing this really on a very granular basis. So we're selling smaller portfolios in sizes of perhaps 200 to 300 units. And I think this is still a product which is very accepted in the market. and we're also very confident that we can reach our values for these properties, but it simply takes some time. So we have to be patient, but we're in a good way, we're optimistic, so that we definitely do sign this 2,800 units in the next month, and by using this net cash proceeds, the bridge loan will be repaid. Furthermore, we have issued a promissory note in June 2022 of around 65 million, average maturity of around five years, and for five years, the fixed interest rate, the coupon was of 3.9%. Additionally, we are very active regarding our mortgage-secured bank loans in Germany. Originally, nearly all of them are maturing in financial year 2023, so in fact, we are doing an early refinancing of these bank loans that's already underway. We are very close to signing term sheets and we expect from this refinancing additional cash inflow by a new higher loan amount of around 120 to 140 million. So that provides us with additional cash, for example, to repay our upcoming unsecured debt in 2023. The closing of these refinances regarding bank loans is expected to take place in the third or fourth quarter of this year. Some comments on investments in Germany and Poland. As of now, we are not planning any material acquisitions in Germany and Poland. I mean, we can rule out to do some small add-on acquisitions of some millions, but definitely there are no material acquisitions planned in Germany and Poland in the next quarters. The CAPEX program in Germany will continue, but the good thing is that, as you know, our capex amount in Germany is already very limited, already very targeted. We also have started ESG capex activities, but on a very targeted and moderate basis, so you should definitely not expect that in 2022, in 2023, you see a strong increase of capex in Germany. More important, is our decision in Poland that for now we are stopping all new residential for rent projects. The ongoing residential for rent projects which are under construction will of course be finished and we will also start new residential for sale projects in Poland once we have achieved a certain pre-sale ratio so that with the help of customer prepayments these residential for sale projects that start new are more or less self-funded and as a consequence We have materially reduced our funding needs in Poland. So if we look at the remaining part of 2022 and the full financial year 2023, the total net financing needs, that means what we as TEG need to grant for our business in Poland for operational purposes, is between 50 to 75 million euros. And that's before any additional sales activities, for example, regarding the land bank in Poland, which is still sizable. That means, as a consequence, looking at the funding needs for the next 18 months, that there are no material funding needs, as we are not planning to do large acquisitions in Germany and Poland, as we have reduced our capex in Poland, and I think this is an important message we want to send out today. Still, even with this decision, we will increase our rental portfolio in Poland. Currently, we have around 500 units on the market, At year-end 2022, we should expect that we have finished at around 2,000 units in total. And at year-end 2023, the number of rental units will be around 3,000 units. And as we achieve a per square meter rent of 12 euros or even more, we should expect that also in the next year or already in the next year and in 2024, we already have a good and strong rental cash flow from Poland should compensate by the way also the cash flow from rent that we lose via disposals in germany let's go to page number eight quick look on the income statement i mean you see in the income statement is a main change quote-unquote evaluation result of 274 million which is the full portfolio valuation Out of this relation result, roughly 17 million euros are coming from Poland as this portfolio is still much smaller than the German portfolio. Therefore, clearly also the relation result or the share relation result is smaller. Look at the increase in personal expenses as well as some other effect in the P&L. I mean, this increase is due to the first-time consolidation of OBIC. As I said, now in the second quarter of 2022, for the first time, OBIC was fully consolidated. Turn to page number nine, which shows the development in EBITDR, FFO, and AFFO. What are the main developments here? EBITDR adjusted from German business basically remains stable, so the EBITDR adjusted margin is still at around 17%, which is, from our perspective, very good. We achieved an increase quarter on quarter in FFO1, mainly due to roughly 1 million lower cash taxes. The FFO contribution from Poland, which is the result of the operations in Poland, which is today nearly completely a sales result, increased, if we compare the first half of 2022 with the first half of 2021, from 4.5 million last year to 5.1 million. And we will have a significant increase in this result in the third and fourth quarter. As I said, this result is mainly coming from disposals in 2022, and the largest number of apartments will be handed over, and the revenue will be recognized in the third and fourth quarter of 2022. Nearly all of the apartments that are planned to be handed over in 2022 are already sold. Page 10 shows the development in the APRA NTA. We had some material effects. First of all, reducing effects, very clear, from the dividend payment in the second quarter, which was 93 cents per share, with a positive impact from the portfolio relation of 1.86 euro per share. And we had a reducing effect already, this was shown in the first quarter, from the first-time consolidation of OBIC, The aerobic goodwill, by definition, is excluded from the APRA NTA. So we have not done a write-down in the balance sheet, but by definition, this goodwill is excluded from the APRA NTA calculation. So therefore, this effect from €1.67 is there as it already was in the first quarter. So we arrive at an APRA NTA of €25.70 at the end of June. Taking into account the rights issue, where we issued shares at 6,090, this has clearly a dilutive effect. We end up on a performer basis at 22 euros and 11 cents per share. Page number 11 shows the financing structure. These are already set, and it's also stated on the right side of the slide. After the capital increase on a performer basis, the LTV is already below our LTV target and sits at 44.5%, and you should expect further reductions in the LCV by the disposal of nearly 3,000 residential assets in Germany, which would bring the LCV again on a performance basis more towards 42%. Looking into the maturity profile, you still see, as of the balance sheet date, the 30th of June 2022, 340 million of maturity from the bridge loan. And you see this star at the maturity profile and the comment that's already repaid as of now. So this 340 million is already done. Looking into 2023, the dark blue color are the mortgage secured bank loans to the very largest part in Germany. As I said here, we are regarding the refinancing in a very good way, in a very advanced stage. So this should be done hopefully in the next weeks. So therefore, looking into maturities of 2023, if I try to break it down to the most important numbers, we're talking about the above three numbers, which is 77 million of bonds issued by Robic, which is 116 million of promissory notes at TAG level, and 125 million of corporate bonds issued by TAG. that we expect additional cash inflows from this bank refinancing of, as I said, at least 120 million. Basically, on a net basis, we are left with upcoming refinancing needs regarding unsecured debt of around 200 million in 2023, and that should be doable. So again, looking at investments that we need to do in Poland that have been materially reduced looking at upcoming maturities after the refinancing of the bank loans, that's also not that material. So therefore, for 2022 and 2023, the whole capital needs are, as of today, absolutely manageable. Yeah, page number 13 shows the portfolio at a glance. Just one comment on the GV of which stands at as of today at nearly 8 billion euros, 6.7 billion euros refers to the German portfolio and 1.1 million euros to the Polish portfolio. Page 14 shows the development of rental growth and capex in the German portfolio. As already said, quite good development in the like-for-like rental growth. The total like-for-like rental growth what was at 1.3% in financial year 2021, now that increased to 2.0%. That clearly shows that the operation of business in Germany is in a very good way. So the guidance for the full year 2022 for this total rental growth stands at 1.5% to 2%. We are already at the upper end of the guidance. And still, this rental growth is achieved with moderate investments. That's shown on page number 14 on the top right. If we put really everything together, maintenance and capex, and show this on an annualized basis, we are right around 21 euros per square meter, and this is an unchanged number in comparison to the previous years, which is, from our point of view, a good result, especially having in mind that, of course, we are today facing higher costs for maintenance and capex than in the previous years. H15 shows the vacancy development in the German portfolio, 5.2%. the end of June and already down to 5.0% in August. So, we have basically today already achieved the vacancy reduction guidance for 2022. We communicated that we want to get to a vacancy rate between 4.8% and 5.0%. So, in August, we are already there, but we think this positive trend will continue in the next month as the underlying business issue is strong. So, therefore, again, we are here on a really good way. On page 17, you see summarized the portfolio relation results. I already mentioned the main results. Simply repeating once again, 5.1% growth yield and 1,270 euros per square meter were the final numbers. I mean, looking into the second half of 2022, it's clearly much more difficult than in previous years to predict the development of relations. Perhaps we need to be aware that the time where we and everyone else in the peer group reported very strong valuation gains is to a certain extent over now. But if you ask us, well, what is the realistic estimate for 2022? Is it a stable valuation? Yes, that's perhaps a realistic outcome that we would expect. So a valuation result, which is perhaps a slight increase or a stable valuation from our perspective, should be estimated for the second half of But to make this clear, we have not yet any indications from our valuer. That simply is something that we observe currently from the market. As I said, I mean, with our disposals, that's not a good way, but it takes longer time. So therefore, this kind of validation guidance is about something realistic. Coming to page number 19, you see the main data for our portfolio in Poland. slightly adjusted some numbers, so total investment costs per square meter, I think for both components, for the build-to-hold and the build-to-sell, have been adjusted to current price levels, but, and that's important to mention, the yields and margins that we achieve and expect in Poland are unchanged. So even although construction costs have clearly increased, we have also increased sales prices, we have also increased rents, So we are still, for example, talking about an average cross-ventile yield of around 7%. And one comment on the development of construction costs. We have seen in Poland in the last two years, or basically since we are in Poland, a quite strong construction cost inflation that seems to have reached now really a kind of plateau. So we see already for some material, that's the main reason where the construction price inflation was coming from. a slight reduction, so therefore they're confident that perhaps this strong trend of construction price in Poland is coming to a kind of end. Page 20 shows you the rental units which we have on offer, which is unchanged to the previous quarter, but just once again to point out the very strong demand that we see for these units. So the vacancy rate in this, a little bit more than 500 units, is 0.6%. We've given you also numbers with the actual rent per square meter that we achieved compared with the planned rent per square meter when we started the renting process. So it's more than 10% above the expected level. So therefore, for the rental project, the demand in Poland is still extremely strong. And finally, on page 22, some comments on the FFO and dividend guidance. In absolute amounts, everything is unchanged. So FFO1 still stands in the midpoint at around 190 million. FFO2 still at 250 million. So that means we expect roughly 60 million results from our operations in Poland in 2022. And if you look at the numbers, for example, the run rate for FFO1 for the first half, you'll see that we're here on a good way. As said, we adjusted the per share guidance for the new number of shares. that leads then to the fact that the FFO1 guidance per share is now reduced to €1.20, that as we have a pay ratio of 75% based on the absolute amounts and use the outstanding number of shares that we currently have, the dividend per share is reduced to 81 cents, and FFO2 per share now stands at €1.58. Looking at the FFO2 per share, Even with the new numbers, that's still a 22% increase in comparison to the previous year. Looking at FFO1 per share numbers compared to the previous year, that's a 3% reduction. And the weighted dividend, that's a 13% reduction in comparison to the previous year. Now taking into account, as I said, the new higher number of shares. Yeah, that's it from my side. an overview for the first half of 2022.

Thank you so far for listening, but of course now I'm very happy to take your questions.

Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question. We will now take our first question from Andrea Rimke from Better Bank. Please go ahead.

Good morning, Mr. Thiel. A couple of questions from my side, please. Starting with the bridge loan, you mentioned to expand the line by six months. What has changed? What are the changes with regard to the terms of the loan, i.e. the cost? Do you face higher costs or agreed on higher costs for that? This is the first question, please.

Yeah, good morning, André. First of all, it's correct, the bridge loan, the maturity has been extended by six months to January 2024. Without going into the details, I think it's fair to say that for the next two, three quarters, the conditions are nearly unchanged, but clearly the bridge loan, as it is not unusual for such a loan, becomes more and more expensive. once we continue to extend this bridge loan. So I would say in the last quarter that we would potentially use the bridge loan. Is it an extremely expensive financing in today's interstate environment? Perhaps not, but we are of course somehow incentivized to repay the bridge loan earlier. I mean, in an extreme case, just to be clear, we could, of course, use this bridge loan until January 2024.

Okay. This brings me directly to another question on your dividend policy. You gave guidance for this year. Yes, you confirmed this was a higher number of shares. Could it be an option to rethink this given the capital needs, especially to maybe to refinance the bridge loan by a certain extent? So especially the current dividend here, it's okay, it's on a very depressed share price level, it's highly attractive, or is this in general a no-go for you?

I mean, as I said, as of today, the guidance of the dividend is unchanged, but we're clearly right now in the planning process for the years 2023 and later, and we know that we are publishing our guidance each year in November, so we will do this with the Q3 numbers that we publish, as I said, in November. It will also give a guidance for the dividend. I can't really say as of today what is the most likely outcome of the planning in general and also for the dividend. So we're right now working on this and we'll come back with any details then every year in November.

but this refers also to the dividend for the fiscal year 2022 and not the new for the 2023 dividend, right?

Yeah, I mean, hopefully in November we have much more clarity about the refinancing process, so disposals, bank loans, about the situation on the capital market per se, about the development in Poland, about development of rental projects for sale projects in Poland, capital needs. I think we have already today quite a good view, but simply as in the previous years, and perhaps this year it's more complex than the previous years, we need to put it together and then to give a concrete outlook for FFO1 and also for the dividend, which refers then to 2023.

So again, both guidance

from today's perspective, are set in stone for the fiscal year 2022, i.e. FFO as well as dividend.

Yeah, that's the status as of today.

But again, it could change in November if you have more clarity on all the external and internal factors moving around.

Yeah, and is this something unusual? I would say no. I mean, basically, we're deciding on the dividend. In fact, when we invite to the AGM next year, but of course, we want to give guidance to our shareholders. We need to update that if something changes. And that's also what we have in mind for this year. What is different this year than in previous years? I mean, we're clearly in a different economic environment. Yeah, I mean, looking one or two years back, the environment regarding capital markets, for example, was clearly different, much more stable, also much more positive. So therefore, any outlook, and I think that's not unusual, that we give today on the next 12 to 24 months is perhaps more uncertain than in previous years.

Okay. Yeah, thank you for that. Another question is you mentioned the 2,800 units for disposal, and you already sold 40 million out of roughly 300 million. How many units are standing for that? And the closing you mentioned is expected until year-end. Is this true for the 40 million or for the total 300 million?

No, that's the plan for a total of 300 million. So if we achieve the signing to the largest part, let's say now in September and October, that should be still doable. I mean, is it the worst case if closing some portfolios is in January, February next year? Perhaps from our perspective, not more important is the price. And we have not really an urgent cash need in December. What is perhaps... More the message we want to send out is that we are able to sell this portfolio at a good price. It's done. And then the closing should be more something technical. But again, that's the target for the full 300 million. And the 40 million that proceeds refer to roughly 300 to 400 units.

And this is the usual portion of a portfolio or number of units for a single disposer. So probably 300 to 400 units.

Yeah, as I said, in this total package, if you want, so that's not one or two large portfolios. It's very granular. So 200, 300 unit size, that's very typical. And that leads them to the fact that This process is perhaps a little bit more complicated, takes a little bit more time, but we think it's worth going to this size because here we expect clearly more demand, and we see, by the way, already more demand than perhaps for a portfolio of 2,000 units.

Okay. And last question referring to that. Surely addressing at book value, I would assume, at 14 billion. Is this at or above book value?

This 14 billion was sold above book value. So I think it was 5% or even more above book value, something between 5% and 10%. For the remaining portfolios, we expect that this is around book value. Perfect.

There's a question on the refinancing of the bank loans for next year. Could you remind us on the current cost of debt for this 120 million portion and what could be an expected level as you told us that you are close for closing? So any indication would be helpful.

Yeah. Well, the current cost of debt of these material bank loans is I think slightly about 2.5%. I mean, these are bank loans that we have taken on nearly 10 years ago. I mean, we have amortized these bank loans. The ATV of these portfolios is very low, so that enables us now with refinancing to get additional liquidity. And current bank loans are, I would say, regarding the coupon, around 3%. I mean, you know that mitzvah rates are very volatile at the moment, so we're still talking about margins for the bank loans I would say an average between, yeah, perhaps around 90 basis points. The 10-year mid-swap currently stands slightly above 200 basis points. So in rough numbers, if you replace the 2.5 coupon with a 3% coupon, that should be a good estimate. And you're starting for 10 years again? Yeah. That's in both cases 10 years.

Okay, perfect. Then a very last question. And a more general question regarding your investments in Poland, which is about one billion. So some of your peers evaluated, let's say, some or had at least some ideas for joint venture structures to get in some institutional investors into participation. Would this also be an idea for you with regard to Poland?

Yeah, I would say this is an option and we're clearly looking into this possibility, but perhaps you should not think about, as I said, huge joint venture on level of OBIG or Vantage, but that we identify certain projects where we get equity from joint venture partner to realize this project. And this is currently something we're looking into.

Okay, perfect. Thank you very much. That's what my thought. Yeah, thank you.

We will now take our next question from Clark McPherson from Clearance Capital. Please go ahead.

Good morning. Thanks for hosting the call. Just a further question on the bridge loan facility, specifically in how it relates to the rating. Back in July when Moody's placed your rating on review for downgrade, they indicated that they wanted to see the refinancing of this facility addressed within three months. So I'm wondering your extension of the outstanding bridge and your plans to refinance this by disposals. Have you actually gone back to Moody's and discussed that with them to ensure that that's sort of in line with their expectations?

Yeah, first of all, good morning. I mean, the the the rating comment that you're i think referring to from from moody's was issued shortly before we announced the rights issue and also shortly before we extended the bridge and for the rating agencies that's not really specific i think that's valid for all rating agencies it's always important to look into the next 12 months when it comes to liquidity So that means by extending the maturity into 2024, we have not really, from our perspective, an extreme pressure to refinance the bridge loan now in the next weeks or within this three months. So therefore, we have clearly gained time. And if you look into the disposal plans that we have, that should then match very well that we sell assets get the proceeds from these disposals, repay the bridge loan. Let's assume, for what reason ever, if the disposals are more time consuming than expected, then yes, of course, we could also use proceeds from the bank loans that I mentioned to repay the bridge loan in the next month. So therefore, I think this extension of the bridge loan is, of course, something which is available for the company, which is, of course, very helpful for the rating purpose as well. And just also to add this, I mean, of course, you can assume that we had intensive discussions with both rating agencies about our plans, for example, for the rights issue, but, for example, this Moody's comment was also published before we actually started the rights issue. So, from my perspective, that should also be something positive that we then finally did the rights issue and also completed that rights issue with the gross proceeds of around 200 million euros.

I think in the equity report, sorry, in the rating report, they acknowledged the anticipated equity proceeds, but obviously the extension was not factored in. So I'm wondering now, do you expect Moody's to adjust that outlook from review to downgrade to either a negative or a stable outlook? Have you had conversations along those lines with the agency?

Yeah, I mean, we could clearly have in the next weeks, again, more detailed conversations. And what both rating agencies are expected is that we simply make progress on the refinancing of the maturities in 2023. And from our perspective, We have already achieved a lot. First of all, the rights issue by $200 million. Secondly, the extension of the bridge. Hopefully, we can also present more details on disposals in Germany. We are making progress on the refinancing of bank loans in Germany with additional liquidity. So therefore, I think we have a good way to achieve here a better rating position than we have currently.

Okay, great. Thank you very much.

We will now take our next question from Marios Pastel from First Society General. Please go ahead.

Hi there, good morning. Thank you for taking my question. Just a couple remaining from my side more related to your development program in Poland. So firstly, would it be possible to just confirm how the number of rental units that are currently under I know you mentioned you're aiming to have a portfolio of around 3,000 units by the end of next year, but I wanted to check if there's more scope to come, maybe in 24 from any units that are already in development. And then secondly, just a bit of an idea on the build-to-sell pipeline, how it looks for maybe the next few years in terms of the number of units you expect to hand over to potential customers. Thank you.

Thank you. First, to complete the picture, what's coming after 2023, that's an additional roughly 1,000 rental units in Poland which are under construction. For some of these units, we're thinking if we transfer that to the residential for state business, but I think for now our assumption is still that we have then after 2023, so in 2024, and an additional 1,000 units on the market, so that would give us a total rental portfolio in Poland at year end 2024, so in two and a half years, of around 4,000 units. And to the second question, what is the realistic outlook for state of apartments, and I think this is then perhaps also the outlook for handing over apartments each year in the current environment in Poland, But for 2022, we expect the total sales are at around 2,000 units. So we have already reduced our plans or adjusted our plans to this reduced number, which is still a number where we're making profit and where we can achieve additional cash inflows. And I think for now, we expect that in 2023, we will perhaps achieve a similar number. So looking into the future, that's of course in this environment more difficult, but even in this difficult environment in Poland with higher interest rates, we still have a higher portion of buyers who are paying from cash. So 2,000 units a year sold and handed over should for the time being be a good estimate.

Okay, very helpful. Thank you. And in terms of pushing the burden on additional development, how quickly can you make these changes or flexibility in the pipeline? So maybe bring more units to the market, say, in 24. What is the average time from pushing the button to actually handing these units over on average?

In general, we're very flexible. First of all, the locations between residential for rent and residential for safe is this are in many cases not that different. Ideally, you decide on the purpose of the building. So is it for rent or is it for sale before construction starts? And the construction time is around 18 months for a residential for sale project, around 21 months for a residential for rent project because you need to do the fit-out interior as well. But in fact, I mean, even if you decide during the construction phase, it's necessary. that you rent out some apartments afterwards. That's already possible. And I think this is really an advantage that the Polish market has. The apartments are very similar. The market is not regulated. So making changes for the purpose of an apartment between residential for sale and residential for rent is much more easy than, for example, in Germany.

Very helpful. Thank you very much.

We will now take our next question from Tom Carstairs from Stifel. Please go ahead.

Good morning, Martin. I've just got one follow-up on the Poland side of things. Where you spoke about the cap requirements in Poland of $15 to $75 million by the end of 2023, could you tell us what that was previously before you sort of reprioritized the development cell business?

Yeah, clear. I mean, previously, and previously in this sense means perhaps from the point of last year or some months back, we expected that we are spending between or around 250 million, that's 300 million euros in Poland, as we clearly wanted to ramp up much quicker the residential foreign business. So therefore, we can see that we have really reduced for now the investment in the residential foreign business. We have also shifted first projects from the residential foreign business to the residential for state business. So that clearly then gave us or led us to a much more moderate investment need that we now have. And this is perhaps really important to understand and perhaps we've been not that good in explaining that in previous calls or I have not been very good at explaining this. The land bank that we have in Poland the platform that we have in Poland that's really an option and we are in command really to manage that when we start project we're really able to adjust capital needs so therefore it should not be a concern that we are running in Poland now into a direction where we are forced to spend hundreds of millions each year so that's not necessary and we can only say that our team in Poland is really doing an excellent job even in this difficult environment So therefore, we are able, with the help of our colleagues in Poland, to adjust this to this amount, which we think is something very manageable.

Thank you very much.

We will now take our next question from Sandra Book from Berkeley. Please go ahead.

Hi. Good morning. Just a few questions left on my side. just again on Poland and kind of trying to understand what has changed compared to the previous estimates. Can you just give a rough estimate from, has the change mainly been in the reduced number of bill to hold versus bill to sell? Is it just a, has the mix changed or is it the total volume has changed on both bill to hold and bill to sell? And if you can give some numbers around that.

Yeah. Yeah, good morning, Sander. In fact, the total volume has changed. So, for example, at the end of 2023, for now, we are planning to have, as I said, roughly 3,000 presidential units on the market. Originally, so some months back, perhaps end of 2021, the plan was to have more than 5,000 units on the market. So, and this 2,000 units in very rough numbers difference basically means that we have not started new residential for rent projects in the last weeks and months, and that's where the difference is coming from. It's not so much in the residential for sale area, so therefore it's more a total volume change. Okay, that's great.

And the fact that the number of built-to-sell hasn't really changed, is there actually a possibility to scale that up, the bill-to-sell pipeline, maybe to even reduce the net cash outflow even further, or is demand in the market, has it reduced somewhat given the higher interest rates, and therefore this is kind of the max that you can currently do?

Yeah, the demand is still reduced. I mean, we're very open to this. Selling 2,000 units is already a reduction from previous years. So, for example, obviously, But OBI alone has sold in 2021 more than 4,000 units. And still, this 2,000 units, as I said, enables us to generate profits in Poland. So that's the case. Yeah, once the demand is stronger, yes, of course, we could increase that. What we additionally could do to get cash inflows is to start at least effectively, say, part of the land bank. I mean, we have really a huge land bank in Poland right now. And so therefore, if we see we need to reduce our capital needs in Poland further, for what reason ever, or in 2023 or 2024, we need more and more liquidity from Poland. Yeah, we could also do more disposals. That's clearly possible.

Okay. What is the potential for selling land in Poland? Like what a rough If you were to decide to do that, what is the maximum that you could potentially do in terms of land disposals?

I mean, if we would really need to do that very drastically, we could perhaps bring this net investment that we currently have of 50 to 75 million, perhaps bring it down close to zero. in the course of 2023. So as I said, I mean, that's not the plan. You should rely on this 50 to 75 million number, but if necessary, that's what we also want to point out with this common representation is that there's more possible.

Sure. Okay. And then the very last one I had was on the margins. I mean, you pointed out Indeed, that construction prices have increased, yet the margins have remained broadly flat. That feels maybe a bit counterintuitive, given that demand has reduced quite a bit on the back of higher market rates, et cetera. So can you just give some color on how margins can remain flat despite a weaker demand overall? Is it basically that you – yeah, just some more color on that.

That would be helpful. Yeah, actually, perhaps I need to be more precise. I mean, OB-CAT 2021, a really exceptional gross margin of 30%. What we expect for 2022, and perhaps it's also a good estimate for 2023, is more gross margin of around 26% to 27%, which is then in line with perhaps the previous years. What I want to make clear is that we have not really any erosion of cross margins right now in Poland. And as far as I can see this, we're looking into numbers from other developers. It's also the case for the whole market. So there's not really a pressure on prices and comparing today's prices. So in summer 2022 with prices in summer 2021, they are still quite strongly up, to be clear. this increase in prices year over year is mainly coming from the second half of 2021.

Okay, fine. So prices have stabilized now or basically?

Yeah, that's best right to say. I mean, 2021 was a year with strong price increases, also strong construction price increases. Now both components have more or less stabilized.

Okay, great. That's very useful. Thanks very much for that.

As a reminder, to ask a telephone question, please signal by pressing star 1. We will now take our next question from Manuel Martin from Odo. Please go ahead.

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It appears the caller may have stepped away. We will now take our next question from Simon Stippen from Fairburg Research. Please go ahead.

Hi, good morning. Thank you very much for taking the question. My first question would be in regard to Poland and in regard to your on the demand side. Here, on your developments to sell, do you see more cash or more wage buyers? Or if you don't know that, then, I mean, do you have any information on your margin of bias for Q2? Was that cash or mortgage? And then second part, is it the buyers, do they buy it to own or do they buy it to rent?

Hi, good morning, Simon. I mean, we know that currently, and that's basically true for the full second quarter, I would say between or above 70%, so 70% are cash buyers. It's a better number, which is today more close to 80%. So that has clearly changed. And basically, this is the missing volume, right? The people who normally have both departments and has taken on a significant mortgage like in the past years. So these are the buyers that are missing. But once again, these cash buyers are still there. And if you ask as well, what's the purpose of these buyers? And we, of course, kind of say exactly when you buy the apartment, what you want to do with it. I think the share of investors, so people that buy the apartment, who rent it out, is perhaps unchanged to previous years, which was around 30% to 30%. But that's more and more a rough assumption from our side.

OK, thank you very much. And second part, maybe in regard to Poland, If I look into the market, then you see the market holiday they implemented. You see a decrease of about 5% in economic growth. Can you see any slowdown? I mean, surely there's a volume slowdown, which you can see in Robic, but probably in Vantage as well. But do you see any slowdown there, or do you have any concerns? And yeah, that's one question to Poland.

Well, I mean, we're still very confident when it comes to development of the economy in Poland and especially to the development of the residential market. I mean, clearly, inflation rates, interest rates have increased stronger in Poland than in Germany, but perhaps not in the next weeks, but we're sure this will at some point in time normalize. And then we are in a market where we perhaps have then a more sound inflation and interest rate environment. And then the strong demand for a residential apartment that is now even more increased as so many people from the Ukraine have come into Poland will be clearly a very strong driver for our business in Poland. So perhaps to simplify it at the moment, we clearly need to be more patient, but we are long-term investors in Poland. We need to look at our capital needs at the moment. We need to do our business. And as I said, we have really an excellent team there who is managing this very well. And then we're very sure this market will pick up again because the fundamentals are very much intact, not only from the inflow from people from Ukraine that I mentioned. Also, there's definitely demand exactly for the product that we're building, which is new apartments in Polish cities. As the cities are growing and people simply want to move out of their old cities, prefabricated beddings that are not in good shape. So the strategy for Poland in general is still very much intact.

Okay, and what you said, coming back to the mortgage moratorium, they implemented in Poland, and since your share of cash buyers probably also don't expect any slowdown in demand in regards to your product because the rate of cash buyers is that high.

Yeah, that's the case.

Okay, and then second question to Poland. In regard to house price inflation, I had the impression that the value increases were more diverse in Poland. Are there any, from city to city, is there any particular reason for that or some idiosyncratic reason to the city or is it just... A similar picture, as you see, maybe in weaker economic regions, Eastern Germany compared to, or Northern Germany compared to maybe Munich or Frankfurt.

Sorry, Simon, the line was a little bit bad. You asked for any valuation differences between Polish cities?

Exactly. Within Poland, there were quite large differences in house price inflation, and I just wonder if you know the reason for that.

Well, I mean, looking into development of house prices in the last years, I think we have seen exceptional strong increases in the very larger cities like Wroclaw, sorry, like Warsaw, like Gdansk, like Kharkov, slightly increases in smaller of the larger cities, so to say, which is perhaps Łódź or which is Poznań, Wroclaw perhaps in the middle. But in general, it's not really a big, big difference. So it's not the case that development of prices in Warsaw are perhaps completely different to what we see, for example, in Wroclaw. So these top five, six cities in Poland are quite homogeneous. But at the moment, we see the best margins, if you ask for that, the best yields that we can achieve in fact, in our two largest locations, which is today Warsaw and which is Gdansk.

Okay, thank you. And then one question in regard, a short one in regard to the revaluation. Have you revalued 100% of the portfolio?

Yes, that is the case.

Okay, and then in regard to dividend, maybe just one clarification. So for the dividend paid next year, you gave the guidance, and as I see it in November when you will give an update, this dividend amount will be the same.

Yeah, the dividend, just to make this clear, so the dividend guidance as well as the FFO guidance in absolute amounts is absolutely unchanged, so that's 142 million euros. What I just wanted to make clear is that we, of course, are doing now the planning for the next years, and we published the guidance in 2023, and that also, of course, as every year, a final decision on the dividend that is paid out next year is then done basically when we invite to the AGM. And additionally, what is different in today's environment compared to the environment in the last years is that we have simply, from the economic environment, a much more volatile and difficult situation. So, therefore, that's more uncertainty basically around everyone here in the sector, around every kind of guidance, and that's nothing else, nothing different at TAG.

Yeah, okay. So, just again, sorry, to clarify, but your four-year 2022 dividend paid next year, surely you need the approval on the AGM, but that's your guidance, and then when you renew the dividend guidance for year 2023, you will update that, but you will not update the for year 2022 guidance.

No, that's not, today we have confirmed the 2022 guidance also for the dividend.

Okay, exactly. Thank you very much. Then maybe one last one in regard to increased energy costs. Have you done any undertaking, for example, you're charging the tenants more for the upfront payment in regard to ancillary costs of energy? And do you see any issues arising for the company from it?

Yeah, of course, we have increased the prepayments to an amount that is basically possible from the legal side. And also, to be honest, we expect issues from payment that tenants need to do in 2023 for ancillary costs and basically for heating. That's what we're talking about. And yes, clearly, this is the case. Do we expect that this is a material impact on our receivables, on impairment of rents, on our profitability? This is not the case. But of course, I mean, tenants will receive a quite significant increase in service charges, mainly coming from heating, as I said. So everyone's aware of that. That's, by the way, not only the case for tenants, it's also for owners in each apartment in all of Germany. But we think as affordability ratios in our portfolio are still in good shape, as also during the pandemic, we have not really seen or not seen any increase in debt, that it should not really be something that reduces our profitability materially. But clearly this is something that will be an issue for once or for the whole industry in the next year.

Okay, maybe to follow up to that, what is your current affordability ratio for the portfolio? Can you indicate that?

Yeah, of course, we don't know really the exact figure, but we have done a quite detailed survey, I think three years back, in connection with a housing market report for East Germany, the area affordability ratios, that mean what people pay from their net income, so after tax, for the total rent, including service charges, was in East Germany, including cities like Griesen and Leipzig at that time, between 20% and 25%. We know that in Salzgitter, it always stood around 20%. And this is quite a good share if you compare it with other cities in Germany where perhaps the average is more towards 30%.

Okay, great. Understood. And then one more. Did you undertake any provisions for potential impairment or bad debt in Q2?

No, just on a usual basis. And if you ask us, do we see already in today's business any problems with bad debts, that's not the case.

Okay, good. Thank you very much, and sorry for my long question.

No, thank you.

We will now take a follow-up question from Manuel Martin from ODU. Please go ahead.

Yes, thank you, gentlemen, ladies and gentlemen. You can hear me now. There were some technical problems, apparently. Well, many questions on Poland. Unfortunately, I have a short follow-up question on that again. When it comes to reduced demand in Poland, have you observed or experienced also cancellations from Poland? people willing to buy, saying, okay, we have to step back because of financial reasons or whatever. Is there something to be seen in Poland or in your portfolio?

Yeah, this is the case, but it's already included in this final number of around 2,000 units that we need to sell. So clearly, I mean, people are interested in an apartment, want to take on a mortgage, and need to cancel that. So that's also happening now. Additionally, there are people who refrain from buying an apartment even before they approach the bank because they say, well, simply if I calculate that, that's not manageable. But for sure, this time will change again. In Poland, an own apartment or buying an apartment to own, that's really an important step for nearly everyone. Ranking apartments are becoming more and more popular, but for every really owning an apartment is something that you do in your life. So that's a little bit different to what we have in Germany and therefore, I mean, the demand in the market is still there. And we need to get used to a situation that's not only in the next weeks, but presumably be more next month and quarter, where it's simply not really possible for people to buy an apartment as they need to take on a mortgage that they can't pay. But again, there's still buyers out there who are buying from cash.

Okay, I see. My second and last question is just a clarification on the portfolio evaluation gains. Just to make sure that I understood, for the second half of the year, without giving any guidance, it might be probable that TAG will book also evaluation gains so that you come up at the end of the year with a That's a valuation gain which is maybe not totally similar to last year, but somewhat below. Is that reasonable?

I mean, we had a 4% valuation uplift in the first half. As I said, we have not really any information from our valuers. Just purely as a personal estimate from myself or from our side, if we end up with a valuation that is more or less unchanged compared to the first half level, so basically a 0% valuation uplift or a slight valuation uplift, that that would be nothing that surprises us. But that we achieve again a 4% valuation uplift or that the whole sector achieves again the second half of valuation uplift comparable to the first half, that should be not realistic. And I mean, looking back into our discussions that we have had in the last I remember the calls, and we already pointed a little bit to that, that this trend of strong yield compression, of strong valuation gains into residential will come at some point in time to a certain slowdown. Perhaps now it's quicker than originally expected with this on the back of this strong increased interest rates in the last months.

Okay, I see.

Okay, thank you very much.

There appears to be no further questions. I'd like to turn the conference back to the host for any additional or closing remarks.

Yeah, and many thanks from our side for listening to the call. As always, if there are any questions left, please feel free to contact Dominique from our department or myself. Thanks again for listening to the call.

Have a good day and see you soon.

This concludes today's call. Thank you for your participation. You may now disconnect.