Tag Immobilien Ag

Hello, ladies and gentlemen. Welcome to the TRG Immobilien AG publication of Interim Report Q1 2023. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. Let me now turn to the floor over to your host, Martin Thiel.

Yeah, many thanks and good morning, everyone. This is Martin from TRG. Many thanks for joining our call for the Q1 2023 results. Before we go with more details into the results that we've published this morning, please allow me to make some comments on the ad hoc announcement that we have released yesterday evening. I'm sure you've seen this. Within the ad hoc announcement, it was stated that Rolf Egitti will leave the supervisory board after our AGM on May the 16th, so effectively next Tuesday. This is, of course, something we regret very much, as I've been working with Wolf for a long time, and as Wolf did a really incredibly good job during his time as a CEO and later as a chairman of the supervisory board. But we also have to respect his decision to withdraw from the supervisory board, and please be sure this is purely for personal reasons, so this has nothing to do with us at THC. So that's for us sad news. The good news is that Olaf Borkas is planned to become successor, so to become the new chairman of the Supervisory Board. Of course, Olaf stands as a candidate in the next AGM, so that means he needs to be elected in a first step. But from our point of view, from the Management Board, this would be a very good candidate and a very good solution to replace Borkas. So the supervisory board will of course begin the search for a new supervisory board member because now someone is missing within our six supervisory board immediately and we will keep you of course updated in this regard. But then let's go into the Q1 results for 2023 and I will start with page number four which is the highlight slide. FFO1 in the first quarter 2023 came up At 42.6 million, that's a reduction in comparison to the previous quarter and also a reduction by 11% in comparison to the previous year, 2022. Main reason for that are higher financing costs. I will come back to this a little bit later. On the other side, FFO2 saw a strong increase compared year-on-year by 12%. It is a reduction in comparison to the fourth quarter, but please be aware that the fourth quarter is always a very strong one in terms of FFO2 growth, because within FFO2, we also have the sales results from our business in Poland, and typically the fourth quarter here is the quarter with the highest results. So therefore, not unusual that quarter and quarter, it is a quite strong reduction. More representative is the comparison year-on-year, where we had a 12% increase. Not really any major changes in APRA NTA and LTV, so more or less stable quarter-on-quarter. Good results in the operational performance in the German portfolio from our point of view, so the like-for-like rental growth without vacancy reduction effects was at 1.6%, including vacancy reduction 2.8%. Not unusual for the first quarter of the year, vacancy rates saw a slight uptick by 20 basis points. So it's now 4.7. We know from the past year that always in the first quarter, a lot of people are moving. So then replacing them with new tenants takes some time. So therefore, traditionally, the first quarter is always a little bit weaker, but we are very confident and we see this already after the balance sheet date that a further reduction in vacancy rates will be very safe for the remaining part of the year. Coming to disposals, I think this is an important part for today's announcement. We can report further progress on our disposal program in Germany. So we have disposed and signed in the first quarter of 2023 1,638 units at a total selling price of 163 million euros. There was a slight book loss of around 4 million euros for these disposals and be sold on average at a gross yield of 4.7%. From these sales, after repayment of related bank debt, we expect net cash proceeds of 129 million and we expect the closing of this transaction towards the end of the second quarter and in the course of the third quarter. Included in this sale is a sale of 1,350 apartments with net cash proceeds from 19 million, for which the buyer's financing has not yet been secured. That means the closing is outstanding. So as long as the financing is not secured, there's of course a certain risk that this sale will not happen. Part of this transaction is a purchase of 650 apartments from the same buyer, And of course, this purchase, so effectively a kind of asset swap that we're doing here with the buyer, will only take place if the sale of this 1,350 apartments is completed. So let's look at these transactions on a net basis. So total net cash proceeds. from the scientist proposals and from the acquisition on a net basis are around 84 million euros. And that leads to a net acquisition volume of around 1000 units. Also after the balance sheet state, we've been quite active. So we sold one commercial building and also 200 units. In this case, above book value regarding the commercial building because part of this commercial building was rented at cost. For the 200 residential units, the purchase price was around book value. And we expect here net cash proceeds, so additional net cash proceeds of around 46 million in the closing of these transactions in the third quarter of 2023. Coming to the next slide, We touched a little bit the highlights for the first quarter from our business in Poland. We're disclosing with this financial results for the first time also in FFO1 for the Polish business. FFO1 came out slightly negative at €300,000 as a loss. But please be aware, and we'll come back to this a little bit later, that a lot of the apartments that we brought to the markets in Poland were rented out within the first quarter. So we expect for the full year, as planned, an FFO1 from Poland from 4 million. And as of today, so meaning in the first quarter, rental income was still very low as we're still renting out this apartment. And on the other side, we clearly have already financing costs on this portfolio, but nothing unusual. So that's a development that we already expected. The net income from sales in Poland was already quite strong, 8.8 million euros, and especially positive was the number of sold units. So we achieved nearly 1,000 units sold in the first quarter. We'll come back to this a little bit later, which was a very strong result compared to previous quarters. Coming to page number seven, where we show the details regarding EBITDA, FFO, and AFFO. As said, here you already find a split between the FFO1 coming from Germany and the FFO1 coming from Polish business. We see also the breakdown for the adjusted net income from sales in Poland, so how we get to this figure. And just as a comment, in the appendix you also find further details from the income statement, not only a split between Germany and Poland, but also a split within the Polish business. when it comes to sales and when it comes to rental business. So therefore, now beginning from 2023, as indicated, we're giving also more details on our Polish business when it comes to the split with rental business and sales business. Just commenting on the EBITDR for the rental business, The EBITDR improved quarter on quarter. So we had 59 million as an EBITDR from the rental business in the first quarter compared to 55.7 million in the fourth quarter. If we compare that with the first quarter of 2022, that was an almost stable EBITDR. So that means when it comes to the FFO1 reduction, that's really more or less purely an impact from higher financing costs. So quarter on quarter, the financing costs increased by roughly 3 million euros. This is nothing unusual. Remember our guidance where we already indicated a stronger increase in financing costs for roughly 10 million for the full year. Clearly, what is bringing on the financing costs is also the interest rate for the bridge loan, which is on a floating rate basis. And as the euro ball has increased quite significantly in the last month, Therefore, we are also paying higher interest costs than that. So therefore, it's also an economic target for us to repay the bridge loan as soon as possible. Page number eight shows the APRA MTA calculation as set, basically unchanged, so a light increase in APRA MTA due to our ongoing results. And we did no portfolio valuation, as always, at the end of the first quarter. So the next full valuation will be carried out at the end of June 2023, again, as in the past years by CBRE. It's really difficult to give a guidance what we expect for this valuation. I can give you perhaps a rather broad range. So a valuation loss between 5% and 10% is something that we would expect. If you take the middle of this range or something between 7% and 8%, this is really already reliable official guidance. No, this is not the case. But as we see in the market, as we sell apartments currently with a certain discount between 5% to 10% and generate some liquidity on this level, we assume that also the valuation will follow such discounts in the course of the year. Is there already a possibility to give an outlook for the second half? That's perhaps even more difficult. What is quite sure is that in the second half, the increasing rents for us and also other market participants will clearly support variations. So therefore, we are quite confident that perhaps this valuation decline is something that perhaps is softening already in the second half of 2023. But again, let's wait for the final valuations, and we will, of course, update you with our half-year numbers. Page number nine shows the financing structure. Let me comment, first of all, on the maturities in financial year 2023. So we see 243 million in total, but effectively, we're talking here, when we look at upcoming maturities, about the 125 million corporate bond that is maturing in the middle of June. We will repay this corporate bond from existing cash, so there's no other additional refinancing needed. Other maturities are rather small, like the 25 million commercial paper that we extend on an ongoing basis. small promissory notes of 15 million in Germany, a small corporate bond in Poland of 13 million. So that will be repaid simply from existing cash and credit lines. And the 65 million, that's the dark blue color that you see, these are RCFs, so revolving credit facilities, we're using in Poland to finance the ongoing construction business. So effectively, this is nothing that will be repaid. So we're always using that if we need to finance construction a little bit more. And then after that, in the course of the process, we receive customer prepayments. So this is for us economically, you know, not really a maturity. So in essence, 2023, all the maturities are already covered. There's no refinancing needed for that. Looking into 2024, clear, the main maturity is the bridge loan, which is due at the latest in January 2024. As indicated in the press release, it is our target to repay the bridge loan in the course of the third quarter. How is this or will this be done? We discussed the net cash proceeds that we will achieve from disposals. So if you add this up, What we have sold in the first quarter, what we have sold after the balance sheet date, you're already at around roughly 130 million euros. We can also tell you that as a second component to repay the bridge loan, we're already working and quite intensively working on further mortgage-accused bank loans in Germany. So we have signed already term sheets that would enable us to repay this, if you want, so second half of the bridge loan. So term sheets in the amount of around $130 million, $140 million are already signed. So taking cash from the disposals, taking then this new cash from mortgage secret bank loans would enable us to repay the bridge loan in the third quarter, and that's something that we expect. Does this then mean that we stop our disposal program after that immediately? No, this is not the case. But of course, then we've got a lot more freedom to look at the market to be more opportunistic. to continue perhaps in smaller sizes, but it's definitely then a good achievement once we have repaid the bridge loan. There's no pressure on us to do larger disposals, so then that is more pure something to really look mid-term about the leveraging and also to perhaps continue to increase the liquidity position. Commenting shortly on Slide number 11, that's the slide that shows like-for-like rental growth and the investments. Again, a good development regarding total like-for-like rental growth with 2.8%, commenting the total investments that you see on the top right of this page that stand at 23.4 euros per square meter on an analyzed basis. And this is, as in the prior years, really everything, so that's maintenance and capex. This is basically on the same basis like in the previous year, The increase in comparison to the years before is due to more modernization capex for energetic modernizations, so we are clearly already on the way to decarbonize our portfolio, and we will continue to do so also in the next quarters and years. Page number 12 shows the vacancy reduction in the German portfolio. Again, nothing unusual that we see a slight increase in the first quarter, so this 20 basis point increase is very much comparable to the increase that you've seen in the years before, and we will clearly be able to reduce vacancy in the coming months. Coming to Poland, and I'm now on page number 15, which is a slide that we're presenting here again. We have already discussed this outlook during our capital markets day in Warsaw. What we wanted to do here on this slide is to give you an idea how the Polish personal portfolio can develop in the next years. So where are we now? We have completed, as of today, 2,100 units. Further, 1,236 units are under construction. So that means once the constructions are finished, we will have roughly 3,350 units on the market in the course of 2024. It is very clear for us we will only start new construction activities for build-to-hold portfolios or build-to-hold units in Poland once, first of all, the refinancing on TEG level is done. As discussed, this is now very close to happen. And, of course, only if the financing for such further build-to-hold portfolios is secured. But let us give you two scenarios how we can do this and what is possible. The first scenario is a scenario where we simply only take the cash that we produce from our build-to-sell business, which we expect is between 50 and 60 million surplus annually. So from the results from selling apartments, Also taking into account that at some point in time, we additionally need to buy further land banks to keep the build-to-sell operation going. So if we take this 50 to 60 million euros for annual surplus and take this cash to reinvest this into new builds, the whole project, we would increase the portfolio in the next five years by roughly 3,250 units. That means we would end up with a portfolio in five years of 6,600 units. So that's the first scenario. The second scenario, which is our clear target, is that we have additional growth by an external financing, whether this is coming locally in Poland, whether this is coming from THC side, of roughly 100 million euros per annum. So from our point of view, really a realistic amount over the next five years. So 100 million euros debt financing on top of the surplus from the disposals between 50 and 60 million. And that would bring us within the next five years to a portfolio with a size of more than 10,000 units. And just to compare that with the German business, as you know, the per square meter rent in Poland is more than double the rent in Germany. So 10,000 units in Poland are the rental cash flow equivalent of more than 20,000 apartments in Germany. So that means that would already bring us to a really meaningful portfolio. We've given you also indications how net actual rent would look like in this case. So in both scenarios, The second scenario that I mentioned, we expect net actual rent in 2029 of around 85 million euros. That's basically a rent that is based on today's rent levels in the different locations, plus a very moderate rent increase between 1% and 4% per annum. So we can also pencil in more rental growth. As you see, today's strong rental growth in Poland, but to be more on the conservative side, we decided to go for this lower growth rate. So 85 million net actual rent, and we expect in this case that the EBITDA margin is around 80%. In case of the scenario one, the smaller portfolio, that it would be as already indicated in the past at around 75%. Effectively, we are able to grow the rental portfolio step-by-step once financing is secured, with a large part supported from the ongoing cash flow from the bills to sell a portfolio, and also important to point out, without any external equity. And that's our clear target. Once the refinancing is on TG level are complete, and again, we are very close to that, we now to continue starting investments in Poland, but it's up to us when we do the next residential rent project, but it's now very visible that this is not far away. Page 16 shows you even more details on the rental portfolio. So we have now, I said, 2,100 apartments in the market. We divide this here in two sections. One section is the rental units that we have in operations for more than one year. Here, the like-for-like rental growth was at 16% for the last 12 months. And the rental units in operation for less than one year amount to 1,500 units. Please don't be afraid of a still high vacancy rate of around 42% because most of these apartments have really been finished at the end of the last year or within the first weeks of 2023. So you will clearly see strongly dropping vacancy rates from our visiting processes in the next month. And some of you have been attending our Capital Markets Day, also in Wadsworth, have seen the projects. We are really, really convinced that we are offering here a very, very strong product to the market. If you want further information, you will find also a lot of material, videos, some more data in our Capital Markets Day section in the AR section on our homepage. Page 17, I'll make it short, shows you that in general in Poland, rents are growing quite strongly, so we see here really good developments in the locations that we are investing in currently. Page 18 shows the development of sales numbers in 2022, in the first quarter of 2023. We're very happy that the first quarter of 2023 was now the strongest quarter since basically five quarters. So we sold nearly 1,000 units in the first quarter. And let me also say that this is Before, the new program for subsidized loans for first-time buyers of apartments is starting in July 2023. Clearly, already the announcement of this program, which is now in place, already led to higher sales numbers. As a lot of people are expecting increasing sales prices in Poland, so people that, for example, already had their financing in place or buy with equity, they've decided to buy it right now before prices increase. But clearly, this is a program that will be very supportive for the whole market and also for us. So 1,000 units in 2023, a very good result. And so the worst times are clearly behind us. You see the reduced numbers in 2022. As of now, the business develops really strong. On page number 19, we give some details on a new joint venture that we have signed with an international institutional investor. Signing of the joint venture contract was right after our capital market stay on the 28th of April. The joint venture targets investments for land acquisitions of US$100. We have initial contribution of projects from our side in Warsaw and in the Tri-City. The co-investor, the joint venture partner, will contribute cash in the joint venture and that means that we also have the possibility to acquire further land banks from third parties for the joint venture. And this will, of course, accelerate our pace of the growth of our business in Poland in the first step in the build-to-sell business. And as we generate cash from the build-to-sell business, this is, again, cash that we, for example, can use not only for further land bank acquisitions for the build-to-sell business, but also for the build-to-hold business as described. The stake of TG and of the international investor is 50% each. So it's a very simple, real joint venture. So there's no structured financing or whatever behind it. It's really a 50-50 joint venture. And the rationale for us is that this joint venture, as we transfer a land bank, into the joint venture and get the cash releases equity for us. And we get additional fees for services that we do for the joint venture, like the construction business and the sales activities that we do for the joint venture. So that's definitely a good step for us to grow the business in importance. And the final comment, page 21, shows the FFO1 and FFO2 guidance for financial year 2023. This is unchanged in comparison to what we have published last time. So therefore, I think it's necessary to comment on that in more detail. That's it from my side. Already many thanks for listening, but I'm, of course, now very happy to take your questions.

Hello. Ladies and gentlemen, if you would like to ask a question, please press 9 followed by the star key on your telephone keypad. If you wish to cancel your question, please press 9 followed by the star key again. Okay, we have one question. The first question is from Société Générale Marius Pastou. Mr. Pastou, please ask your question.

Great, thank you very much. I'm just checking you can hear me okay?

Yeah, good morning, Mark. I'm sending you a URL.

Fantastic. Thank you very much. Just a few questions from my side. Maybe we go one by one. First of all, just on the portfolio valuation guidance, I understand this is fairly high level and broadly in line with the messaging I think you gave at the full year. It looks like your disposals you're doing are tighter than this, if I'm looking at this, especially the second quarter ones, the lower volume 200 units, broadly in line with book value. So I just wanted to check what I'm missing here, because I believe you were also mentioning you were offering units at these 5% to 10% discounts. So I'm just trying to square off where the gap is.

Yeah, a very good question. Let me carefully comment like this. This proposal, especially after the balance sheet date, was for us an extremely positive one. It is very representative, perhaps not. So we see, and that's more what I wanted to indicate or we wanted to indicate with our last announcement, if we are in discussions with potential buyers, to sell a book value is extremely difficult. I guess from time to time that happens. But the usual discount is perhaps something between 5% and 10%.

Okay, thank you. Just as a follow-up, the disposals agreed over the first quarter. What was the range of discounts offered on the various different deals or broadly on average as well?

This was really a broad range, I would say, between selling at book value and selling to a 10%. but very slightly above discount. So I would say on average, the guidance that we give that we're selling at a discount of five to 10% still makes sense.

Very useful, thank you. And I suppose just as a secondary follow-up to that and referencing the high-level guidance again, is this purely based on these disposals? Is it discussions you've had with your external valuers? And how do you consider the timing of that? Is it something which is more over the year or is that something which you're expecting really to come through in the first half?

Well, this is basically the outcome of both. So what we see in the market, how we can dispose assets as of really very preliminary discussions with CBRE, also for them it's of course incredibly difficult to find a precise figure. So therefore, this range that we give as an indication for a valuation reduction of 5% to 10% is quite broad. Why are we a little bit confident that this is not more and also that in the second half of the year, we will perhaps not see another 10%? So we don't expect 10% in the first half, 10% in the second half. We clearly own higher yielding assets. And we see this also when we sell our assets, we feel, and perhaps you can argue that's not really representative, as we sell just smaller portfolios, but we see there is demand if you sell an asset at a 5% or 6% gross yield, and the buyer needs to finance that with a 4% bank loan, that still makes sense for him. So I'm not worried about really material variation losses. Again, this range is very broad. It's an outcome of our observation and also our first discussion with CBRE, but we have not really a final data point yet.

Very clear. Thank you. Just finally from my side, I'm just keen to understand this asset swap you've mentioned in more detail. Can you maybe give a bit of rationale here behind it? the pricing that you've sold at versus what you've agreed to buy would be very useful.

Yeah. But first of all, it would be for a good pricing. So when I was commenting about Disposals that were more at a 10% discount or more close to book value, this is clearly a disposal that is more to book value. Would we normally buy in transactions assets? No, this is not the case. So we have effectively stopped our acquisitions in Germany. But this is really a combination. So we agreed on an asset swap. We are selling apartments to the buyer and get one portfolio in East Germany from him that fits very well into our structure. So operationally, it makes sense. So this was more or less the duration behind it.

Thank you. So broadly, what you're selling in line with book, with this transaction buying broadly in line with book, is that the way to take it? Yeah, yeah. Okay, very useful. Thank you very much.

Okay, thank you very much. The next question is from Thomas from Deutsche Bank.

Please ask your question. Hi, morning, everybody. Actually, a question on the bridge loan and the repayment, what you plan on this. I mean, if I listen to you, it seems like more or less done. Do you expect this to have positive impact on your rating, maybe? And also, what are the terms for the secured loans to replace the bridge loan? And on the disposal, which is part of the bridge loan payment, it seems it's conditional on the final financing from the buyer side. So do you see any risk this not to happen?

Yeah, good morning, Thomas. First of all, I wouldn't say that the repayment of the bridge loan is already done, but we're very confident that we will do this in the third quarter. Why is that? I mean, we have signed the disposals. And again, you have to wait for the closing, commenting on this disposal that we specifically mentioning. Yes, if the financing is not yet in place, then clearly there's a certain risk that this disposal could not happen. What would be the consequence of this? We get a certain contractual penalty, of course, and then we would simply put this portfolio or portfolios again on the market where we are convinced that we would find also another buyer for that at a reasonable price. So, therefore, there is then once the closing has not occurred, always a certain risk. Regarding the bank loans, we have signed term sheets. Normally, this is something, I would say, technical that we also sign a contract. So we are very confident that this happens. But, you know, we don't want to comment in the sense of that it's done unless the disposals are really closed and really all bank contracts are signed. But that's further commenting on the bank loans. I mean, we had the last larger financing round last year in November. It was the same process. So term sheets were signed. contracts were signed some weeks or months later on the same basis, so we should not expect this year anything different. Terms for the bank loans, so for 10 years, we expect margins, I would say, between 120, 130 basis points, and the swap rate for 10 years is currently around slightly below 300 basis points, so still the indication that roughly a little bit, about 4% for a 10-year bank loan is valid. And this is not that much different to the financing conditions we achieved last year in November. So that's also good news that not only the willingness of banks is still there to finance residential portfolio and also from our banking partners to finance our portfolios, also the conditions have not really moved very much.

Okay, thank you. Maybe a second question, actually, on Poland. I mean, you basically rely on 50, 60 million free cash produced from the build-to-sell product in order to build up the build-to-hold product. I mean, how would you assess the risk if not to materialize? And also, what would be the financing terms for actually for the business, so in order to get you to the second scenario, including some elements of financing on top.

I mean, we have in Poland, and perhaps you've also got a certain impression from the capital market today, a really good platform. This team that we have in place in Poland has been successfully working on the market now for many, many years. What's the state of the market at the moment? It's clearly on a positive way. So this year, 2022, was not easy for everyone. And still, we achieved with our team a very good result in the last year. Now, sales numbers are increasing significantly. And we expect or we have the assumption to produce this 50 to 60 million cash surplus that we need to sell between 3,500 and 4,000 units in a year. This is basically the run rate that we already have today. So we sold, as I said, roughly 1,000 units in the first quarter. it's not an assumption or necessary to get to this cash surplus that we sell even more than today. So even today's sales number would be enough to produce this 50 to 60 million cash flow. So therefore, I'm very confident that we get this cash. And coming to the financing part, 100 million euros a year, that could be also achieved by mortgage-secured financing on the assets that we have in Poland. So already the portfolio, even though it's under construction, has a GAV, the rental portfolio, of more than 200 million euros. And this will grow further as we finish more apartments, as we will clearly see also some positive relation impact on that. So, for example, if we just finance the portfolio as it is today on a 50% LCV, we would already get this 100 million euros. And what are the terms for that? I mean, if we do this on a slotty basis, it's still quite high. So that's something at around 8%, 8.5%. If we do this on a Euro basis, our discussions show there's perhaps more. It's a little more than German financing, where we are currently at around 4%. It's perhaps more 5.5% to 6% to give an indication. And yes, clearly this is a higher financing rate, but don't forget that we have in Poland also high gross use of 7% where we started, that we have a quite strong rental growth, lastly 16% year on year. So even on these terms, we could produce significant cash inflows. And clearly, who knows, perhaps in one or two years, we have even more interest cost reduction than the cash flow surplus would look even stronger.

Okay. Just a quick follow-up actually on my first question and the potential rating impact if you could manage to pay back the bridge loan in Q3.

This is definitely a rating positive. If you asked us if this is a trigger for an upgrade, I would assume that this is, from Moody's, I would assume that this is still too early as they look, but they're not so much specifically at TDG, but Clearly, they are more careful with the German residential market. I would assume that they want also more clarity where values go. But also, for both ratings, this would be clearly something positive.

Okay, thank you.

Thank you very much. The next question is from Thomas Neuholt, Kepler Chevrolet. Mr. Neuholt, the floor is yours.

Good morning, everybody. Thanks for the presentation. I have three questions. Firstly, I was wondering on the GV in Poland, can you provide more details who the partner is and what exactly the GV conditions are in terms of how much new capital each partner needs to inject in the GV? And if there are also any cash requirements for the GV are concerned for DG or you are just injecting land plots in the GV or do you also need to put cash in there? And maybe you can also talk a little bit about annual sales target in the GV and how it's going to be consolidated in the future.

Good morning, Thomas. We will be able to disclose the JV partner quite soon. I think the JV partner himself will do a press release, perhaps not in the next days, but you should expect this in the course of May. So then we can also disclose the name, which is a very good international name. It's a typical JV, so it's really 50-50, so there are not any core push options in between, nothing structures. The purpose of this JV is, if I try to describe it quite simply, that we put land banks into the JV, the co-investor puts cash into the JV, so there are not any additional cash requirements from our side. then we develop the projects together, which are ready for sale projects. It takes them perhaps three to four years. So these projects are right now about to start with the sales activities and with the construction. And at the end of the project, so after three or four years for each project, we share the profits. And additionally, We get then, of course, as we do the whole construction work, as we do all the sales process, as we do all the administrative work, certain fees for this work. So, therefore, our total share in the profit is then higher than the joint venture partner, but also for the joint venture partner. I assume that this is a good deal. As we have discussed, the market in Poland is now clearly getting stronger, so also these returns will be very, very attractive.

Okay, thank you very much. The next question comes from Rob Jones, BNB Paribas. The floor is yours.

Yeah, great. Thanks so much. A couple of my questions have already been answered, but I just wanted to follow up on the point you were making around, you made a commentary around H2 valuations. And I read into your comments, maybe rightly or wrongly, that H2 perhaps H2 value decline from your expectation might be less than H1. Now, I appreciate you're seeing a bit of an acceleration in rental growth, but I wonder from an asset acquirer perspective to what extent that actually makes a difference and kind of what gives you the confidence to say that potentially the H2 value decline could be less than H1. That was my first question.

Yeah, good morning, Rob. And again, please understand that I'm very careful with giving you concrete guidance. But what we clearly see is increasing rents in Germany. So if you look at the rents that you can observe if apartments are on the market, are rented out, I'm also sure that we see higher rents increases from the Niederspiegel market. So, and then the valuers will also take this into account and also potential buyers of apartments will take this into account. So, once perhaps this is more and more visible, and I mean, you know, at the moment, everyone's a little bit looking into the crystal ball, thinking about exact outcome of rent increases and niche pieces this year. So once this is more clear, this will have an increasing impact. And on the other side, it's very clear. I mean, the higher interest rates have a value reduction impact. But I assume that perhaps a little bit more of this value reduction impact is already there, whereas this more positive impact from the rental increase has a certain time lag. But again, that's that we think is reasonable. Do we have really specific evidence for that? No, that's not the case.

Okay, understood. And then slightly linked to that, again, around asset values, you were talking about the fact that your higher-yielding portfolio, certainly relative to the other companies that I cover, you believe to be more resilient. But when I think about last reported value declines and indeed looking forward over, say, H1, it looks to me like you could potentially end up delivering the weakest H1 light movement in asset values, despite the fact that your portfolio is high yielding. And I guess, am I wrong in that thought process? Or why should I kind of have more confidence in the resilience of your asset values, I guess, relative to maybe other listed real estate companies of the general sector?

Yeah. Rob, sorry, that was a bit difficult to understand. Can you once repeat why you think that we have perhaps the weakest valuation results?

Well, if we... Why? Because you're implicitly guiding to values down maybe 7% to 8% in H1, and the rest of the sector is probably going to be down 4% to 5%, despite the fact they've got lower yielding portfolios.

Yeah, okay, now I understand the question. And there could be also, you know, as I said, other types of guiding. So more optimistic, more conservative. So it's, of course, not possible for me to comment on other companies. But we feel more comfortable to have this variation outlook guidance, if you want to call it so, a little bit more on the conservative side.

And then the final one is on a different topic, which is with Roel Felghetti leaving, which I saw yesterday, do you expect any changes to the management board, or do you not have a view at this stage?

No, this is not planned, so I can definitely state this for me or for my colleagues, but Clearly, this is then something, or this is always a decision of the supervisory board. So do we expect anything in this regard? That's not the case, but please understand that now this is really then a process where we have after the AGM then not completely new supervisory board, but new supervisory board members, and clearly they will also discuss mid to long term how will the management board look like. But this is nothing that was discussed in the last days, as I can clearly tell you.

Very clear. Thank you very much.

So the next question comes from Paul May, Barclays. Mr. May, the floor is yours.

Hi, Ron. I'm just standing in for Celine, giving out multiple results today. A few questions from me. On the disposals that you've done and then the acquisitions, I appreciate there was a question earlier, but I don't think it was fully answered. Can you give any guide to the yield or the multiples on those disposals and the acquisition or the asset swap? And then secondly on that, I appreciate disposals in line with book values, but as we know, book values can change over time and they can change to differing degrees what would be the sales prices relative to peak values of those assets if you are able to give that? That would be great, but I've got a few other questions as well afterwards.

Thank you. Yeah, good morning, Paul. When we comment on selling at discounts or at book value, we always refer to the book value at the last book value, which is December. So that means if you compare it with the peak of the beginning of 2022, This is 5% to 10% lower already. So there has been already in our books a certain valuation decline from the valuation result. So I would say that if we talk about selling at a discount to 5% to 10% to current book value, there's already a discount of 10% to 15%. in some cases already slightly more to the all-time high, which was at the beginning of 2022 or perhaps more at the end of 2021. So just to give you an indication where we stand right now. And we disclosed that the average gross yield for the portfolios that we have sold in the first quarter was 4.7%. We have not yet disclosed the gross yield for the 650 apartments that we potentially buy, but you should expect here nothing which is very different to our portfolio yield, which stands at a little bit above 5% currently.

Great stuff. Just then on the valuation changes, and following slightly on from Rob's question, you mentioned different approaches to guiding, I think, was the response. The sense we've had is you've always been a little bit more on the realistic or conservative side, should we say, with regard to valuations, I think wanting to get the transaction market open and working again. Is there a risk that you could be potentially too cautious, or do you think that maybe the 15 to 20% from peak declines feels about the right sort of level to get transactions moving again in a sort of sustainable way.

Thank you. Yeah, again, just to make clear, I'm not commenting on how, if the guidance from other companies are correct or not. I just would like to express that a guidance between 5 and 10% for a relation loss in the first half is something where we feel quite safe. So that's the way we like to guide the markets. You can also argue that this is a little bit more conservative. And yes, I mean, we see in the market, once we give these discounts as discussed, and the discounts are already more compared to the old-time high in 2021, we create at least some liquidity. So therefore, we feel comfortable with this guidance. Again, the range is broad, so 5% and 10%, that's clearly a difference, but difficult to be more specific. If the market clears up more early, if we've been too cautious, I don't see this yet, but if we are too cautious, clearly we would be happy about this.

Thank you. Sorry, just one follow-up on the asset swap. It's down to financing being secured. Do you have any, shall we say, guarantees or are there any penalties paid by the opposing party if they aren't able to secure financing or is it just that the transaction gets cancelled?

No, there is a penalty. I cannot disclose the amount, but there is a penalty agreed.

Thank you. And then, sorry, very last one. There's a small increase in vacancy, and I appreciate it's small, quarter on quarter, and things can move around, but it seems slightly counter to what we've seen over the last 12 months in terms of vacancy reduction across the board and the operating environment where we understand there's far more demand than there is supply of housing. I just wondered, is that anything to read into, or is it just simply a rounding error and a small change in the first quarter? Thank you.

Yeah, I would clearly say, Paul, there's nothing to read into. And also, you know, we're not, how should I say, doing this very granularly that we sort out, for example, one or the other modernization projects where we have them for a certain time, naturally more vacancy because we are modernizing the full apartment block. So also this has some impact. So we're not reading something into that. So we should not see here a change in any fundamental trends. As discussed, this is something that we observed always in the first quarter in the last years. So we will be on track in the second quarter and as in the past years, even more on the third and the fourth quarter.

Cool, thank you. So that was very nice on coming from a client. Appreciate the JV on the bill sell in Poland. Hopefully should start to accelerate that part of the market. The bill to hold or the bill to rent, how do you plan this? I'm investing in there because I think from the capital markets, the returns on that seem very, very attractive as well. But capital is a constraint. And I just wondered what your thoughts are around where you get that capital from. Thank you.

Yeah, I mean, we've given today with the presentation these two scenarios. One scenario is really, as I said, a scenario without any external financing. So this is really a bear case. So nothing is available. We only have the cash flow from our bid-to-sell business, which is quite strong. So then we would end up at the 6,600 units that we have mentioned in five years. We think a realistic amount for taking on additional debt It's this 100 million euros that can then be also debt that we raise on our projects in Poland. So we're not talking here about a situation where we need to issue bonds or any larger unsecured instruments, which is effectively not possible today, and that's also not possible in the next quarters. So more the idea behind this is to finance already finished projects more to get secured, and they have also an indication where the interest rates may be, and this seems for us a realistic target. So, therefore, these 10,000 units in the next five years is nothing, how should I say it, unrealistic, but something that we can really achieve and that we want to achieve. Perfect.

Thank you very much. Mr. Thiel, there are no further questions in the queue.

Good. Then many thanks from our side for dialing in and listening to the call. As always, if there are further questions, please feel free to contact our team or myself. Many thanks for listening and looking forward to seeing and speaking to you soon again.