Tag Immobilien Ag

Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining the TAG Immobilien AG publication of the Annual Report 2022. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question and answer session. If you would like to ask a question, you may press star followed by one on your touch-tone telephone. Please press the star key followed by zero for operator assistance. I would now like to turn the conference over to Martin Thiel, CFO. Please go ahead, sir.

Good morning and many thanks all for joining our conference call for the full year 2022 financial results. Let's start with the presentation which we have published on our website this morning and I would like to draw your attention firstly to page number four where we show some operational highlights. Firstly, in 2022, we have achieved our FFO1 and FFO2 guidance. FFO1 guidance purely refers at the moment to the German residential or rental business. Here we really achieved good results in our operational performance, like for like rental growth, including vacancy reduction to that 2.7%. Vacancy was reduced by 110 basis points to 4.4%. Both KPIs are above our targets, so we're very pleased how the operational business in our German portfolio ran. But not only Germany saw a good development, also Poland, we had really good success with our business there. So in 2022, the Polish business in total already contributed 59 million of profit to our results, and the 59 million of profit in Poland then directly flew into the FFO2, and that's to the overall FFO2 number that we have achieved in this year, which was in the range of our guidance and stood at 247.3 million euros. In the meanwhile, the Polish business is at a self-funding stage, which should be definitely good news. So that means we are really receiving constantly positive cash inflows from our disposal business. We will analyze this later in more detail. And on the other side, as you know, we have decided to stop new residential for rent projects for the time being. And we're just finishing the projects that are under construction. So that means the CAPEX needs in Poland are for 2023 and for 2024, when we finish the last projects, very limited. And that should be good news that we are really now in a stage where Poland is self-funding and quite soon also producing positive cash flows. Outlook stays unchanged, but this announcement, so FFO1 and FFO2 guidance are confirmed. You know that we have already proposed to suspend the dividend for financial year 2022, and that would normally be paid out in the second quarter of this year. Also, this stays unchanged. Let's look at the next slide. And 2022 was clearly a year where refinancing was on top of the agenda, especially after the acquisition of Orbic at the beginning of 2022. We've done a lot in 2022, and we know that some of the measures have been hard for our shareholders, but in the end, we think we've made the right decisions. So starting with the rights issue that we did in July 2022, where we raised 202 million euros. We proposed, as said, to suspend the dividend for financial year 2022 that saves us 143 million euros. We are making progress on our asset disposal program in Germany. So in the course of 2022, we have sold 1,600 units, out of which roughly 900 units in the fourth quarter alone And we achieved from this proposal net cash proceeds, so that means after repayment of bank loans of 86 million. And we can tell you that also after the balance sheet date, so that means in January and February, we made further progress, so we will publish the details of the Q1 results, but you should assume that at least the run rate from the fourth quarter also continues in the beginning of 2023. And how are we doing this? So what... what makes it possible that we're really selling assets in a size that are for us really already urban period. Yes, we're also giving slighter discounts to book value when we sell the assets. So we're not talking here about massive discounts, but if you compare that with the book value in the course of 2022, I think overall we sold around book value. If you look at the asset disposals, what we have signed in the first two weeks of 2023, we have given BEPS on average a discount of 5% to 10% to the last December book review. And we think this is something reasonable to do. So the disposal program, we come back to financing needs in some minutes, is very limited. So therefore, getting this done, giving a reasonable discount, and then stopping the disposal program, which is already limited from our point of view, simply makes sense. As I said, we've adjusted the CapEx program in Poland that already preserves a lot of cash. And also on the debt side, we've been quite active. Main financing source, perhaps for every German venture company, is mortgage-secured bank loans. That always was our largest source of financing. And with the refinancing steps we did in the course of 2022, we raised additional $209 billion of liquidity. In the unsecured market, we've been active in smaller sizes, some promissory notes in Germany, also the extension of corporate bonds in Poland that added up in total in smaller tranches to all in all 108 million. So in general, we have done a lot regarding refinancing, leading to the fact that basically all maturities in financial year 2022 are addressed. And when we talk about outstanding refinancing issues, We are basically only talking about the final repayment of the now reduced bridge loan from the Robic Acquisition that currently stands at $250 million, and that should be a good position in which we are in the meanwhile. Let's leave the highlight slide and go to page number nine. Just a few comments on the income statement that are important from our side. The net actual rents increased year-on-year by 6.8 million due to the good like-for-like development in Germany, and the Polish rental business made its first contributions, 2.7 million. This number will increase in the course of 2023, and we can tell you that from 2023 onwards, we will also report FFO1 in the sense that we divide here between the German and the Polish businesses. The sales result that is seen in P&L is coming mostly from our newly acquired subsidiary, Robic. Please be aware that if you look at the sales result, which is currently, which has been $35.4 million, is after impact of the purchase price allocation. So with the acquisition of Robic, we have done a step up in all the book values regarding also the for-sales project. That means on our level, Accounting-wise, profits are lower, but the cash inflow is higher. We come back to that in a second. On the common valuation results later, because this is a cause of great interest, just to give you the overall number already now, we recorded a slight valuation loss of 1.5% in financial year 2022. Coming from the German portfolio, the Polish portfolio shows a slight valuation gain of $33 million. Other things like personal expenses, like the net financial result in cash, or like the cash taxes as far as the FFO one relevant, stayed quite on the level of 2021 in the course of 2022. Coming to page number 10, you see details regarding the EBITDA, FFO, and ASFO calculation. Just to mention that the EBITDA margin for the German business has increased from 68% in 2021 to 69.2%. in financial year 2022. That means basically we've achieved high rental growth with the same cost base, which should be the good news. Looking at the AFFO, I mean, the number is still not bad from my point of view. 102.8 million is the total AFFO that the German business achieved before any refinancing of the CapEx. It is 10 million roughly lower than in the previous year. Why is that? The difference is basically the modernization capex, where we spent $18 million more in 2022 compared to 2021. And the reason for that is that we basically started now to do more regarding ESG capex. That means more modernization to bring our portfolio to climate neutrality. On the right side of page number 10, you see some details on the results in Poland. We want to draw your attention, especially to the EBITDA adjusted that we achieved in Poland, 80.8 million, which is really a cash number. So this 80.8 million is the EBITDA in Poland, leaving out any effects from purchase price allocation, leaving out valuation results. So really cash that we generate in 2022, mainly from the sales business, And if we deduct cash taxes, minorities, and interest costs, we arrive at the 59 million that we already mentioned. So that shows that Poland in 2022, in really not the most easy market environment, already delivered a quite strong cash contribution to our result. Page 11 shows the APRA NTA developments. We are now at 20.74 euros per share. Main impact on the NTA reduction was the Robic Goodwill that we had to exclude per definition from the APRA NTA, the capital increase that we've done in summer, which was below the NTA, clearly, and the portfolio relation in 2022 for the first time since many years delivered a slight reduction to the APRA NTA, whereas in prior years, we always had here clearly a positive impact. Page number 12 shows the refinancing, and again, from our point of view, when we talk about refinancing issues to be tackled in the future, we mainly talk about the $250 million bridge loan from the Robic acquisition. And knowing that we've been active in the acquisition program, that we have also signed disposals after the balance sheet, that we are in parallel working on further bank loans in Germany, also on our income assets. We think it's very visible that we repay this bridge loan, hopefully quite soon. And then looking at the maturity profile, 2024, 2025, what is coming up is then again market-secured bank loans in Germany to the largest part. We have clearly seen over the last months and quarters and basically over the last years that this is a very stable financing source. So that means the first material capital market debt slash unsecured debt is coming in summer 2026 when the 417 million convertible bond is due. And that means we're really close to a situation where we're independent of capital market debt financing, and that should be a very good position for us. TLCV at year-end 2022 stands at 46.7%, so slightly above our OTB target, mainly because of valuation losses we had to record in the fourth quarter of 2022. All the financial debt, just to add this, that is due in 2023, will be, at least for the largest part, repaid now in March. So the 115 million promissory notes, the Polish bonds, also the bank loans that you see here, have already been repaid or are now repaid. 125 million corporate bonds is due in June this year. So this financial debt of in total 409 million that you see in the maturity profile is repaid now quite quickly or has been repaid already. Page 14 shows the development of like-for-like rental growth. As I said, good results here in 2022 with a total like-for-like rental growth of 2.7% compared to 1.3%. Looking at the total investments per square meter, you see this on the top right of the slide, we increased our spending to 24.6 euros. If you include everything, some maintenance and capex from 20.9 euros. And the difference, as you can see here on this chart, is that the capex increase, and as said here, the increase is capex for more energetic modernization. But still, the absolute level that we spend on the per square meter level that we spend is around close to 25 euros, should be still a very manageable and a very targeted approach. Pitch 15 shows the vacancy reduction in 2022 down by 110 basis points over the year. So we saw extremely healthy Latin results, and we expect also in 2023 that this trend will continue, perhaps another 110 basis points. It's too much to expect, but we see simply strong demand for our properties in Germany at the moment, and that should be Good news that the operational business in Germany is on a very good way. Coming to slide number 16, let's discuss the portfolio ratio results. In the second half of 2022, we recorded a valuation loss on the German portfolio of 5.5% after a valuation gain of 4% in the first half, so that brings us for the full year to a slight valuation loss of 1.5% compared to 2.9%. As I said, the Polish portfolio saw valuation gains of 33 million. So the reason for the overall valuation loss was due to the German portfolio. And within the German portfolio, due to the expansion that we saw basically across all our regions, so there was not any region very much outstanding, it's still moderate. And we also expect that to be moderate. So the portfolio stands now at a gross yield of 5.4% or at a per square meter value of 1,200 units. And if you ask us, well, what's our outlook for 2023? That's first of all, we're not giving you an official guidance, but for example, as we see when we currently sell in the market at a 5 or 10% discount or book value that we can generate liquidity For us, and I think discussions with other experts bring us also in a similar range, perhaps this could be a valuation trend for the financial year 2023 as well. So 5% to 10% value reduction in the course of 2023. From our point of view, that could be a reasonable outlook, but that's what the actual results really deliver. And what does this mean? So, for example, where does our LTV stand if we, for example, have a 10% valuation decline in the course of financial year 2023? Well, if we exclude in a first step all the sales results or planned sales, the SEV would go up roughly by 200 basis points. But with the saves that we have already signed and that we are hopefully going to sign, there should not really be a big impact on the LCV. This scenario leaves out any dividend payment. It is clear, as we propose, the suspension of the dividend. So you see, even such a value reduction would not really materially hurt our LCV. It is the risk high that there is more valuation decline. I mean, clearly, we have a lot of uncertainty, but we simply see that there's extremely strong demand also for our product. And looking at the current growth rate of 5.4% in a world with high interest rates, our portfolio still delivers a reasonable cash flow yield to a potential acquirer. So therefore, we feel very comfortable positioned with a high yielding portfolio in a high interest rate world. And that gives us a lot of confidence that we are very much protected against any stronger valuation losses, which we are not expecting. Coming to Poland, and I would like to continue on page number 19, which is sales business. which saw from our point of view an extremely positive development. So as you can see in the chart, in the first quarter of 2022 in Poland we sold 706 units, We saw a strong reduction in the course of the second and third quarter, but currently sales numbers are simply picking up. So the fourth quarter was already the strongest quarter in the full year, and we can tell you that also in January and February, sales numbers have been increasing. So this trend in Poland of reduced sales has clearly reverted. Sales numbers are not unstable. They are increasing, and It shows us how much demand in this market is, and the outlook for 2023 should be quite positive when it comes to sales numbers. Also knowing that the Polish government is about to set up a program for first-time homebuyers that should be implemented from July onwards. That brings them basically the possibility for quite strongly subsidized loans where they can take on a mortgage of around 2%. The market mortgage rate currently stands around perhaps 10%. So it's really an attractive program for first-time buyers of apartments that refers to people under the age of 45 years. So from this program, to what extent ever, we clearly expect an additional demand for our sales projects in Poland, which are besides that already in a good way and you see that we had an extremely strong fourth quarter where we handed over more than 2,500 apartments and recognized strong sales revenues. So also this was a very good result from our team in Poland. Page 20 shows you for the first time quite detailed table on our rental portfolio in Poland. We have now 1,153 units in operation in Poland, or to be more specific, that was the number at year-end 2022. The actual number is around 2,200 units, so we have completed also other projects in January, February, and March. Out of this 1,100 at the end of financial year 2022, 360 have been in the market for more than one year, Looking at the like-for-like rental growth that these units achieved, we're here north of 20%. So at the moment, Polish rental apartments see simply very strong demand. Vacancy rate is at a quite low level of 3.8%, which is then basically due to increased turnover that we have very naturally in an unregulated market. And looking at the 773 residential units that are in operations for less than one year, and to be more specific, most of these units are in operations since the end of the first quarter. This is also the reason why we still have a vacancy of 50% because we just basically started the lepping processes. If you look at rents that we achieve here, and you see the numbers, these are roughly 30% higher than planned about one year ago. So, I mean, we're not pointing now for a sustainable, like-for-like rental growth of more than 20% in Poland. So this number, mid to long term, will clearly, yeah, normalize, or however I should name that. But it gives an impression how this product is searched for in the market. This institutional rental business in Poland, we're very much convinced, will have great success in the future. Page 21 shows the development of the rental portfolio in Poland that we expect. As said, we have already completed another roughly 1,100 units in the first week of 2023, so we have currently roughly 2,300 apartments on the market. We will finish other projects in the course of financial year 2024, so that with the current pipeline, we end at 3,350 units. That's roughly 700 units less than what we communicated in the last conference calls. The difference of the 700 units simply lies in the fact that we decided to sell part of the units that were originally dedicated for the regime for rent. So 700 units are now in the process of being sold, and this is also part of the reason why we simply increased our cash surplus in Poland, which was clearly our primary target. So as I said, we have currently stopped new projects, but once we really are in a situation where not only the Polish business will get cash surpluses from the safe business, but where we are in a position to get simply also better access to financing, then we will restart the rental portfolio, or the build-up of the rental portfolio, but we will really do this step-by-step and very carefully, and it's really up to us when we do it so we're not here under pressure time-wise. Twenty-two. This page shows you some statistics about the Polish residential rental market. You see the strong rental growth at all the locations where we are active. On top of that was Warsaw with an increase in rents of around 34% on the right and Łódź with 23%. So quite impressive numbers that we currently see in the Polish market, and we hope that we can give you more insights and an interesting tour on our Capital Markets Day that we're hosting in Warsaw in the end of April. Perhaps you've seen the final invitation that we've sent out yesterday evening, so it would be great if we can see many of you in Warsaw to discuss more interesting developments on Polish residential markets. And finally, guidance, I can make it short, that's shown on page 24, because we leave everything unchanged compared to the numbers that we had published in November last year. That's it from my side. Thank you so far for listening to the presentation, but of course, I'm now very happy to answer your questions.

Thank you, sir. Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their touchstone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. If you are using speaker equipment today, please lift the handset before making your selections. Anyone who has a question may press star followed by one at this time. Our first question is from John Wong of Kempin. Please go ahead.

Yes, good morning. Thank you for taking my questions. I think at the press release you mentioned about the disposal pace for 2023. You mentioned that momentum from Q4 is carried well into the first two months. Could you provide a bit more color on this, Martin?

Yes, good morning, John. Please understand that we cannot publish all the details yet because in some cases we are already in the process of signing As I said, 900 units have been sold in the fourth quarter. The positive that we achieved was even more in the first quarter of 2023, so that we get additional cash proceeds, which are north of what we have achieved in the full year of 2022. So just to give you a dimension, I mean, we always said, The purpose of the disposal program is to repay the bridge loan, so the bridge loan amount of $250 million. If you achieve half of that quite quickly with assets, disposal proceeds, and that takes the remaining 50% or repay the remaining 50% by new bank loans, that's perhaps a very visible outcome. If you ask us, well, what happens with the disposal program once we've repaid the bridge loan, that's not then, and I think this is also good news, there's no pressure on us to continue this disposal program. So we will look, as I said in the press release, more opportunistically on the market, but basically we can stop that. So we think that's an advantage that we have in the current really difficult transaction market that we simply have a disposal program which is from size limited. So we're very close to getting this done. Again, if you look at what we have sold in the fourth quarter, perhaps that's a good estimate and perhaps we achieve even a little bit more in the first quarter and then we come back with details in two months when we publish the Q1 figures.

Okay, thank you. That's clear. And maybe on rent multiples on the Q1 sales, anything you could provide in terms of color there? Is it a bit similar to what you have done in Q4?

Yeah, it was a little bit more lower-yielding assets. So therefore, I mean, we're not specifically selling one type of asset, so our strategy always was to sell, or should I say, a little bit of everything. Looking at the sales from the last weeks, these are more than assets with lower multiples, lower years that we sold compared to what we have given as numbers for the full year 2022.

Thanks. Maybe on Poland, the 22% lack-for-lack rental growth you posted in Wroclaw, it seems rather impressive, but it's still a bit lower than the average rental growth at plus 27%. And looking at the average rent per square meter, it's also a bit lower. Could you maybe give a bit more color on that?

The main reason for that is that in what's left, a larger part of the units that we have in the market for more than one year, it's not in the outskirts, but it's more away from the city center. So what we have finished in the course of 2022, this is a more central location of WhatsApp, where we expect a stronger rental growth than compared to other apartments, what we have in the market for more than one year. So perhaps a little bit due to this reason, but in general, we think the numbers screen quite well.

Yeah, that's definitely true. Maybe on the over-market rental growth then, how does this relate to affordability in Polish, Razi?

Yeah, I mean, basically, we are slightly above inflation in Poland. The inflation rates in Poland are 15%, 16%. Like for like 20 girls, it's 22%. So we are outperforming inflation. Seller growth in Poland is clearly in a double-digit number. And we're benefiting from that because that makes the apartments, whether we talk about rental business, whether we talk about the safe business, still affordable. And if we look in our own cost structure, yes, clearly also we have to increase quite strongly the salaries for our people that are really doing a great job. But on the other side, looking at the absolute amount on a group level, this is still very manageable. So therefore... good to have this settled growth in Poland that keeps the apartments affordable. So we've not really seen a weakening of affordability ratios in Poland, not only in 2022, but also over the last years in total.

Okay, that's clear. Many thanks. That's it from my side.

Thank you. The next question is from Andres Tum of Green Street. Please go ahead.

Hi, good morning. So my first question was around disposals and just to get a better handle, whether any of these disposals are, I guess, sold through SPVs and the buyer has also assumed the in-place debt.

Yeah, good morning. This is the case. I mean, in some cases, we're selling or we've sold to cash buyers, but also in other cases, the buyer clearly needs to take on debt. And it is clearly in this environment, how should I say it, In former times, once you signed a portfolio, this total, it was clear, well, this year goes through. Nowadays, you still need to wait for the closing so that the buyer has taken on all the debt that he needs for that normally natural process. So, therefore, as you see today, we're also a little bit careful in communicating, redefining numbers, but And if your question is from the direction that all disposals that we signed after balance sheet deed are perhaps at risk because the closing is not coming, no, that's not the case.

So what I meant mostly was whether the buyer was able to benefit from a lower in-place debt you might have had in the SPVs versus taking on sort of new debt.

Yeah, no, this is normally not another factor. So if we sell a full SPV, normally there's always a change of control mechanism embedded. So therefore you had an opportunity that the buyer has, but then it's up to the bank whether it decides to continue with the contract or not. So that's not really a selling argument. that we have and I think this is a normal situation and that is the bank loan is due if you sell an SPV.

Understood. And have you had any sort of recent discussions with credit rating agencies as well given there's been some decent progress on liquidity front?

Yeah, I mean basically a continuous dialogue with Moody's and with S&P. I think they are very well aware of our good development and we really make progress on that. So in terms of further rating, I'm absolutely personally not concerned that something TEG specific leads to a more negative discussion. But, I mean, we clearly need to be all aware of that it's also important how, in general, rating agencies look, for example, at the German residential market. So if they change their view to a more negative view, yes, of course, this can then, again, be for all companies something that affects the rating. Do I expect this currently? No, that's not the case, but... You know, that's not really in our hands. So we do everything that we can. And I think here we're on a very good way. And this is also seen by the rating agencies.

And my third question was around the refinancing interest rate. You sort of alluded to 3.2%, which sounds very tight against swap rates. So maybe you can give a bit of color around there. How did that all-in financing cost come about?

This was all in the course of financial year 2022. And we had here maturities also at, for example, five years. So today the refinancing rates would be higher. So if we look at current bank loans where we're in the process of negotiating that, I would say margins are for five to 10 years, perhaps between 100 and 130 basis points. So on top of that comes the five or 10 year swap rate. So we hear more slightly north of 4% currently for really new incremental bank loans, but We also, at times during the course of 2022, we were able to simply use some weeks of lower interest rate to get these bank loans done.

Okay, and my last question is just around the trajectory for vacancy. Obviously, there's been a lot of progress in 2022, and as you said, you won't expect as much for this year, but What's sort of your take for the full year and how much are you seeing immigration benefiting TAG locations?

Well, our guidance is to remember that COVID-19 stands for the reduction of further 30 to 50 basis points. Perhaps this was more a conservative one, so perhaps we achieved more. But, you know, once you have a vacancy rate of 4.4%, another one with 10 basis points reduction would already bring to 3.3%. So once you get simply to a low vacancy rate, perhaps also reduction speed is a little bit lower. But in general, we're still benefiting also from this strong inflow of people from the Ukraine that really puts pressure, puts additional demand on the residential market. So I'm very sure... When we report in the course of 2023, we will see again good development in making trades. But as always, the first quarter will be a little bit weaker. But thereafter, we simply see that this is on a very good way. Thank you.

That's it from me.

Thank you. The next question is from Celine Suhoyin of Barclays. Please go ahead.

Hi, Martin. Can you hear me?

Yeah, good morning to you.

Hi, Martin. I have two questions on Poland, please. First one being... Can you confirm whether pre-sale is for Poland currently, and specifically for the units completing this year? Second part would be for all the units under construction. That would be my first question. And the second question, you reiterated the FFO2 guidance that was published last year, and that was before all the announcements around the Polish government's Support for first-time buyers. Is there any room for improvement this year or next? I guess not on the volumes, but what about pricing and margins?

Thank you. If you start with the last question. So, yes, perhaps we can sell more in 2023 than what we originally expected. So I think the guidance for sales numbers in Poland for the full year 2023 is around 2,500, 2,600 units. So, yeah, perhaps we can do more, not only because as of now we see better sales numbers, especially when this government program kicks in from the 1st of July onwards. That could be a driver, but... And you need to be aware that there's a difference between the point in time we sell an apartment and the point in time that we realize the related revenue, which is always done when we hand over the apartment. So normally an apartment that we sell in 2023 is handed over in 2024. So this is perhaps then more a driver for our earnings for 2024. And the pre-sale ratio for everything that is handed over or planned to be handed over in 2023 stood at year-end already at 75%. In the meanwhile, I don't have, honestly, the actual numbers from February or from March in my head, but I expect that this is more close to 80%. So this is, compared also with previous years, already a very good pre-sale ratio for And for the assets, all assets under construction, clearly the number is lower, but normally we always have good visibility on at least one year in advance regarding the pre-sale ratio. So if I look at that number compared to all the years before, and you know that we're now for some years already active on the Polish market, we don't see here a decline in this pre-sale ratio. So that gives us quite a lot of visibility towards our cash flows and towards our earnings in 2023, that's already clear.

Thank you.

Thank you very much. The next question is from Kai Close of Berenberg. Please go ahead.

Yes, very good morning. I've got three quick questions. The first one is on page 39 of the presentation, where you now refer more on the ICR, including sales results. And on page 40, you show the ICR covenant. I just want to check. The ICR covenant includes the results from sales, so it's the 7.4 times compared to 1.8, and not just the ICR from the rental business?

No. For the covenant, thanks for the question, Kai, it's the rental covenant, so the 5.6. That's relevant for the covenant. But still, I would say a lot of headroom under this covenant.

Thanks. And the second question, you mentioned it was about 5% to 10% on the sales, portfolio sales, 5% to 10% discount. I just want to check, was this the latest unaffected value as of June 22 or December 21? Or was this the restated value or the reduced value as of December 22?

No, this refers to the reduced value or to the new value as of December 2022. Okay. Thank you.

And two last questions. The third one would be, could you indicate what was, or if there was any specific reasons for the quite strong reduction in vacancy rates in the GERA portfolio? I think it's on page 31, which decreased a little bit more than in other locations.

Yeah, I mean, GERA has simply seen a good development, and there was not any specific impact, for example, from refugees from the Ukraine, or at least not more than in other regions. But Gera saw good development as also some larger companies like Amazon have opened new factories or warehouses. And we simply provide for potential tenants in Gera good products. So we think they're also the largest landlord in Gera. And compared to the competition that we have in the market, I would say that we simply provide the best products the best products here on the market, and also the team is doing a very good job. So I would say that's more of a market trend, and we're very pleased that, as we know, that this is not the easiest location that we could show such a good progress here in 2022. And by the way, that still continues as of today.

Perfect. And the last question would be regarding the total amount of maintenance and tech expense, which was in 2022 a little bit more than in the two previous years. Is it reasonable to assume that in 2023 we will be back to the 20, 21 euros per square meter, or is it the increase also driven by the higher construction costs?

I think it's reasonable to expect a similar level like 2022, so more towards the 25 euros. Yeah, clearly construction costs are higher, and that has a certain impact, but I think the more material impact is that we simply do more now when it comes to modernization because of the need to bring the portfolio to climate neutrality. I mean, this is, of course, a long-term project. We've seen our decarbonization strategy and the specific amounts that we've given one year ago So we're on the way. We simply need to start. There's not a plan now to reduce capex dramatically. That's our advantage is that looking at the overall amount, this is still something that's manageable. And comparing that with capex in Poland, yes, in Poland it's really kind of material cash saving if we stop or reduce capex. But in Germany, we simply continue with our programs. And As of today, we simply do more because we do more for energetic modernization than in the prior years. So I would expect, I mean, capex is always something, you know, a little bit cyclical, but that is in 2023, more towards the 2022 number than towards the 2021 number.

Understood. Thank you. Thank you. The next question is from Marios Bastl of Societe Generale. Please go ahead.

Hi there, good morning. Thanks for taking my questions. Just to bring it back to the disposals you confirmed in Germany. So firstly, can you just confirm how many of the 900 units you confirmed for the fourth quarter related to the, say, 40 million of disposals which were due to close during the last quarter, and how many of those were actually new disposals? Thank you.

Well, these were all complete new disposals. And the 40 million that we have communicated before, this has closed in the fourth quarter.

Okay, so the 900 units are in addition to those additionally agreed units? Yeah, yeah. Okay, very useful. And then just to confirm, how many of the 2,500 units you've targeted for disposal this year still remain, and is there still a target to do this full amount?

As I said, just to give you a rough, rough, rough number, I mean, if we say, well, we've continued in the first weeks of 2023 with a similar speed, like in the fourth quarter, again, we give you details with the Q1 numbers, that would mean that we roughly have sold another 1,000 units. So that means... the remaining disposal programs then perhaps at one and a half thousand units, which is already a manageable number. And again, if you see that, you know, the transaction markets perhaps becoming more difficult, also an alternative for the last steps in our refinancing, which is the breakdown is there, which is then German bank loans that we're working on So, but you should assume that the remaining disposal program is more in an amount of perhaps 1,500 units, just to give you a rough indication.

Very helpful. Thank you very much.

Thank you. The next question is from Orlando Gomez of Fairwater Capital. Please go ahead.

Thank you very much. probably four questions. Firstly, I'd like to address the debt. Could you clarify whether the promissory notes are pari passu with the convertible bonds and also with the Polish Slotty corporate bonds, if they're also pari passu?

Yeah, this is all pari passu. Sorry, Orlando, good morning. The question was a bit hard to understand. So the Slotty bonds that we've issued Basically it was an extension of an already issued study bond in the past. And also the promissory note that we've issued in Germany were absolutely in line with what we have done in the past.

So to clarify, they're all pari-pursuit?

I'm not sure if I get your question right. So they're absolutely pari-pursuit with all other unsecured debt So there's not anything preferred or something like that. Or secured, that's not the case.

Okay. And for the promissory notes, there is a step up of 50 basis points if you're downgraded below investment graded S&P?

That's correct. And that's only true for the promissory notes. So looking in all our other financial debt, whether this is bank loans or convertible bonds or corporate bonds, there's no step up. Only in this promissory notes in Germany of in total, I think it's not the full 85, it's only 75 million. That would see a step up of 50 basis points if you're not investment rated by S&P as well.

Okay. And it is now your assessment and your bank's assessment that it is cheaper to access debt through these markets rather than the corporate bond market?

Sorry, can you repeat this question?

It is your assessment and the assessment of your banks that it is now cheaper to access debt funding from promissory notes and from bank financing than from the corporate bond markets?

Yeah, that's still our assessment. I mean the corporate bond market is at the moment extremely difficult. So that's not our plan to go to this market at the moment. I mean difficult to give here really a pricing because we have, as you know, simply no outstanding larger benchmark corporate bonds. I mean the two corporate bonds that we have outstanding were basically private placements, each of them 125 million euros. To give you an exact pricing, that's extremely difficult, but comparing that to financing conditions that we achieve with these smaller promissory notes or very clearly with bank loans, that's for sure more expensive.

Okay, thank you. Now, I'd like to address in Poland, in terms of the total investment cost of the build to hold and the build to sell portfolio, there's a meaningful difference of... of 2,200 versus 1,800 euros. Could you address why that is?

Yeah, clear. First of all, just also to make this clear, the total investment costs also include the land bank. So that's not only construction costs, that's really everything, land bank plus construction. And when it comes then to an apartment that we sell in Poland, in Poland it's always sold without what we call fit-out. So that means there's no flow in there. There are no doors in there. There's no bathroom. There's no kitchen. I mean, you have clearly eating system and windows, but you sell basically a kind of shelf that's absolutely market standard in Poland. And if you rent an apartment, clearly we need to bring all this in. So this 400 euro per square meter difference is what we need to invest as a landlord and simply to, again, put in a floor, bring in a kitchen, build a bathroom and things like that. That's the difference. Quality-wise, it's not really a difference between an apartment that we sell or an apartment that we rent.

Okay, that's helpful. Then I'd just like to ask a question about your ABBA strategy, the AMB Cities strategy. I was looking through the different regions and when looking at a city like Dresden with an in-place yield of 4.6% and comparing that to Berlin at 4.5%, I'm wondering why that relationship is attractive to you. Why is Dresden attractive compared to Berlin when the yields are basically the same?

You know that our Berlin portfolio is a portfolio that completely consists of units that are in the Berlin commuter beds. So that's not the city of Berlin. These are locations like Brandenburg and Havel or like Strausberg or like Nauen. These are all then smaller cities that have a good, for example, public train connection to Berlin. So that's a good example of our ABBA strategy. Yeah, the Berlin area for one, so that's an A city, but our location within this area is then more to the B location, which is then not Berlin city center, but something which is then more in the community. So therefore, I think that's very much in line with our strategy. And I mean, if you ask us, well, it's 100 of the portfolio located in really key B location areas. I would say, well, there's a lot of units in this and more in a location, but also good to have a good mixture in this regard, but the overall strategy is absolutely unchanged and follows this ABBA approach.

Okay. But when looking at the portfolio in detail, if the region of Berlin is satellite cities, when we look at something like Leipzig, Gera is a satellite city to Leipzig. So that actually means that in the Leipzig area, you have almost 2,000 apartments. So there's somewhat of an inconsistency in the way that the portfolio is broken down in that portfolio, in that distribution. Finally, I'd like to come back to corporate governance, and this is something we've discussed in the past, but I just want to kind of get a clarification as to why TAG is a total standalone in not appointing a CEO. And I suppose I'd also like to know, to have clarifications, who is the final decision maker when it comes to strategy for this company?

First of all, Orlando, I'm a little bit smiling about the comment you've done about what a community of Leipzig. So if you ask the people in Gera, they would strongly disagree with that. They would always say they're a city on their own, which is the case, by the way. No, but come back to your question.

Nice 5,000 people. So, you know, we're not talking about a big city here. So, but okay. That's fine.

That's 100,000 people living in Gera. 100,000. Good. Coming back to your question about corporate governance, this management structure is in place now since nine years, since November 2014, if I remember that correctly. Basically, as of today. So basically, as of today, it's a very simple structure with Claudia Hoyer, my colleague, as a COO, responsible for all the operational areas, and me as a CFO, responsible for the typical CFO functions. And if you ask us who's doing the strategic decisions, well, in a two-man or two-people management board, that's quite easy. It's up to us to do this. When I remember strategic decisions like this investment in Poland, clearly this is something that we discussed intensively between us. And of course, I mean, for such strategic decisions, we always need the consent of our supervisor board. It is an always for our company. I know that it's unusual to have no CEO, but if you ask, for example, our own people here at TAG, I think for no one this is really a point. And we think that works quite well for many years. So therefore, no more is behind it.

Yeah, well, I suppose I would argue and I think we've seen that the world has changed a lot and what may have worked in an environment of low interest rates and increasing prices may require a different structure. And I think having two people is already a very small number. But particularly in a world that is as complicated as this, as we've seen from the capital raise plus, you know, the impressive growth in your business in Poland, you know, I think there's a real question of why this is a standalone structure and whether it continues to be fit for purpose in this environment. So I think it's really worthy of consideration of whether you have enough senior people there. Yeah. So, thank you very much.

Good, thank you.

Thank you. The next question is from Simon Stibbeck of Warburg Research. Please go ahead.

Hi, good morning. Thank you very much for giving the opportunity asking questions. I have a couple of questions. First one would be in regard to the portfolio valuation. Could you give some more insight into the characteristics of the valuation? For example, the regional variations, let's say, but you just mentioned commuter bells, but then also what you see within the cities. That would be helpful.

Yeah, good morning, Simon. I can make this quite short. So we did not really see here significant differences between regions, also between type of assets. You know, the discussion that potentially assets with a better energy efficiency rating perform better in these days than with a lower energy efficiency rating. I think clearly mid to long term this must be the case. Have we seen this innovation result 2022 already? No, that's not the case. I would personally also expect that in a world with high interest rates, if we have a good building producing higher yields in a reasonable or good location, that should perform better than a building that has very low valuation yields. Did we already observe this in the 2022 valuation results? No, that's not the case. It's a little bit surprising me that it was really throughout the portfolio a very, very similar development that we've seen. So as always, of course, there are differences, but not really something material where I can today see, well, this is a clear trend in the relations.

Okay, great. But you also have the comparison between, let's say, suburbs or commutables and also use salt or the valuation within your cities, just to make sure that you have actually this comparison not only in energy efficiency, et cetera, but also from cities to, let's say, maybe yield expansion to suburbs.

Also, there wasn't really a big difference, and just to give you an idea how we look at such evaluation results. So if, for example, a certain location sees a variation reduction of 3% and another location sees a variation reduction of 4% or 5%, we don't start because it's one percentage point or two percentage points different to say, well, that's extremely different variation development. So knowing that, of course, every relation is an estimate of a certain range, this is more or less for us a similar development. So one should not put too much effort into interpreting the last percentage point in relation results. Again, this was very similar throughout the portfolio.

Okay, and then have you had anything seen in that regard in your disposal?

Yeah, there are different types of disposals that are doable. I'll give you just some examples. What has worked is selling really a kind of non-core asset portfolio to a local investor at high yield. That is something that works. What is also working is selling lower-yielding assets in a location like, I don't know, to your equity buyer. What is also working is selling assets to companies that are doing the privatization business because for them, if they take on that more expensive debt, that's not a problem because they say, well, anyway, we want to sell down the portfolio in the next two to three years. So that's the type of buyer, not at 100%, but to the larger part where we're currently selling to.

Okay, and that will answer my next question. Who is the buyer of the portfolio? So as I understood correctly, it's a local buyer and then a specialist buyer who would privatize apartments. But on top of that, any other buyers?

Yeah, then let's take my Dresden example. That's been a good product. If, I don't know, 200 unit portfolio in Dresden with a very low rate already at a low yield is then bought by a buyer with more equity like a family office. That's also something that we see. But again, I'm going to be careful with saying this is very representative in the whole market because still our numbers in total are not really representative in talking about the market, but at least we can give you this observation.

Okay, great. And then what you mentioned in regard to valuations. You said that if there is a 5% to 10% decline in valuation in the German portfolio over 2023, then your LTV would raise by 200 basis points. What's your best guess in regard to your credit rating, how that would actually change, and then the consequences out of it for your debt and for your refinancing costs?

Well, that would be still in line with the limits that we've been given by the rating agencies, and this increase would be without any disposal proceeds, just to make this clear. As we continue to sell and have signed something, that should then have an LTV reducing impact. So just to give you a rough number, if we complete the full disposal program and if we would see a 10% inflation decline, the LTV would largely remain unchanged.

Okay, great. And just to confirm again, the full or the remaining disposal program, not including your sales up until now during Q1 2023 is 1.5K units. Is that right? Yeah. Okay, great. And then just one more thing in regard to the bonds. So you mentioned that you are in the process of paying back the bond, especially the corporate bond, 125 million in volume. Could you provide a bit more of insights in that regard, please?

Sorry, Simon. I'm not sure if I get your question right. The bond is due in the middle of June, I think, in 2020. There's currently not any plan to refinance that. So in a sense of that we then go to the bond market and issue a new corporate bond. So we simply pay the back from cash at hand or also from basically refinancing from bank loans.

Okay, great. And then last question. On your presentation slide 21, you're showing the buildup of the rental portfolio in Poland. So I wonder, at the age of 23, you have no additional units. And is that a function of your stopped investments into Poland?

No, I think it's more a function of the fact that we decided to sell the 700 units that originally have been in the process of being a rental product. So therefore, there's a small gap of some months in between where we do not finish rental projects as we have decided to sell this roughly 700 units. That's the main one.

Okay, great. Thank you.

Thank you very much. The next question is from Rob Jones of BNP Paribas Exxon. Please go ahead.

Good morning. Can you hear me okay?

Yeah, good morning.

great perfect um so three questions uh one is on the um potential for kind of polish first-time buyer initiatives i wonder if you've got any info in terms of the upper limit in terms of property value that that um policy or potential policy for first-time buyers might relate to you know x hundred thousand euros etc and then comparing that to your average selling price, because I'm trying to take a view in terms of the percentage of your potential Polish assets that have been constructed and sold, how many of them might be eligible for a potential first time buyer scheme. So that's question one of three. The second one is around portfolio evaluation. So on slide 33, you give a breakdown in terms of the valuation details by location. On initial glance, it looks to me as if the regions with the lower in-place multiples, i.e. higher yielding, have seen a larger magnitude of capital value decline, i.e. the kind of thesis that high yielding assets from a convexity perspective might not see as much in the way of value decline potentially is not the case so far. i.e. the kind of low-yielding primer product maybe is a relative outperformer on a capital value perspective. So just kind of a yes or no on that. And then the final one from my side is around a statement that you made during the call, which I think word for word you said, corporate bond market extremely difficult. And I wonder if you could be very specific from your individual circumstances to say why you believe that it's difficult not kind of wider market commentary but from your perspective is it you've gone to the banks and they've said guys you've got no chance of of raising any unsecured or some sort of kind of company specific um uh color or disclosure that would really help me those are my three questions thanks so much

Yeah, thanks for the question. So I'll start with the first one. This program that the Polish government has now decided to implement, I mean, there are final steps in the sense of that this passes the parliament need to be done, but that should be more technical. See that if subsidies are granted to buyers who buy for the first time an apartment, who are below 45 years old, and the maximum mortgage that is subsidized is $600,000. 600,000 zloty, that's roughly 130,000 euros, and that is, I would say, enough for 95% of our apartments. And we are selling in Poland the product which is for the You know, for the typical project, it's a smaller apartment of around 45, 50 square meters. So this very much fits to what we sell in the market. So that means we could really benefit from that. And let's see how this develops. But that should clearly be, hopefully, a strong contribution to our sales numbers. And again, yeah, you're right. You can analyze the evaluation results in very detail and say, well, this is perhaps one percentage point more, one percentage point less. I would not really start reading a trend from this result. So again, knowing that evaluation is always an estimate, always offers a range. If there's a percentage point more or percentage point less, I would not really start reading a trend. If you ask us for our personal opinion, again, I would expect personally that in the future buildings perform better with a higher energy efficiency ratio, which is good for us because we know that we have a high share of buildings already in the higher energy efficiency classes. And that also, as we are in a world with high interest rates, higher yielding assets should also be something that's less vulnerable against valuation losses. So that's a general statement. Again, that's not too much to put into, to read from these very specific numbers. And when I talk about difficult corporate bond markets, I mean, and I do this very simply, If we look at where bonds are trading from companies that are better rated, like Bonobia or look at Grand City or around town, I mean, what would be a coupon that we currently need to pay that's more towards 7%, 8%? So that basically stops then the discussion or any plans of, going to the corporate bond market. So that's more the conclusion that we draw from this. But it's not necessary for us. And that's also, that's again worth pointing out. When we finish the disposal program, which is not really needed in our size, what is coming up is mortgage-secured bank financing in Germany also next year. That should always be a reliable financing service. And we have a strong cash flow from our own business. So not only for Germany, this is also true for Poland. So therefore, we are really very close to the situation. Basically, we've already achieved it. We're not dependent on the corporate bond market. And yeah, who knows how the development is. That's not in 2023, but in the next one or two years. perhaps margins are coming down, that interest rates are also coming a little bit down, and then that is, of course, a market that we would start looking again.

Does that answer all your questions, Rob? Then so it would appear we have no further questions in the queue, and I would like to hand the conference back to Martin Tielfors in closing comments.

Yeah, many thanks all for taking part in this call. As always, if you have any questions left, please feel free to contact us directly. And finally, again, hopefully we see a lot of you at our Capital Markets Day in Warsaw in the end of April. It will be a good opportunity to present our team and our operations there. So looking forward to that. Have a nice day and talk soon.

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