Tag Immobilien Ag

Yeah, many thanks, and good morning, everyone. This is Martin from GE. Many thanks for dialing in despite the summertime for H1 conference call. Let's start the presentation on page number four, the highlight slide, and perhaps it's worth discussing at this time already perhaps the five most important aspects of today's publication. First of all, look at our asset disposal activity in Germany. In total, in the first half of 2023, we sold more than 1,000 units, If you want to give me a breakdown between the different quarters, we sold 750 units in the second quarter, and 300 units have been sold in the first quarter. This number, so there's more than 1,000 units, excludes the so-called asset swap that we announced with the Q1 figures. So regarding this transaction, which was a disposal of 1,300 units and a parallel acquisition of around 700 units, we stepped back from the contract as the buyer was not able to prepare the financing due time. So this 1,050 units, just to make this clear, is a clean number without this asset swap transaction. And we think that's a quite successful number that allowed us to generate net cash proceeds, which is basically the most important figure we look at when realizing such transactions of 140 million. Looking back in the sales activity in the last 12 months, we came out now with nearly 2,000 units that we have sold, and we received total net cash proceeds of more than 200 million, which is for us, of course, something that helped us a lot regarding repaying debts. And that brings me to the second point. We've done really material repayments of unsecured debt in the last month. So alone in the first half of 2023, we repaid corporate bonds and promissory notes of unsecured of more than $300 million, and including the repayments regarding the bridge loan and all other repayments for unsecured debt in the last 12 months, nearly repaid $900 million of unsecured debt. On the other side, we were able to raise bank loans in quite significant amounts. So in the last three months, $490 million, out of which roughly $150 million in the first half of 2023. And it also helped us to create liquidity of around $380 million in total. So we see we have really broad access to the secured debt market, which is, of course, very helpful in these days. Looking at the financing conditions for the bank loans that we effectively signed in the last weeks and months, the average interest cost was around 4.38% and an average maturity of around six years. That translates this average interest cost of 4.3% and an average margin of exactly 1%. We've also been able to reduce the aerobic bridge financing materially. So at the end of the first quarter, the bridge financing stood at $250 million. When you look at the Q report at the balance sheet date, that bridge financing was already down to $175 million. And we did further repayments after the balance sheet date. So as of today, the bridge loan is down to $75 million. And for us, it's very clear that we will repay the bridge loan in full. towards the end of the third quarter, 2023. So then, finally, this bridge loan is done. Just to remind you, the final maturity would be in January 2024. So I think it's fair to say that we have been quite successful regarding asset disposals, regarding repayment of debt, regarding repayment of the bridge loan, but not to forget that the operation business in Germany and in Poland is running quite well. Clearly, we are fighting against high financing costs, so that's basically the reason why we saw a 7% decline in FFO1 year-on-year, but we could include the sales activities from Poland. The FFO2 showed a growth of 11% year-on-year, and EBITDR was growing in both businesses, so in the sales business and also in the operational rental business in Germany, which is, of course, good to know. In general, we saw rising sales numbers in Poland in the first half of 2023, So 1,817 units have already been sold. So that should be a good sign for a strong year regarding sales activities. Just to remind you, in total in 2022, we sold around 2,400 units. So 1,800 units already in the first half compared to around 2,400 units in the whole year 2022. So this clearly weekly year 2022 in Poland should be behind us. Looking at the portfolio devaluation, we think nothing that should surprise you. A devaluation of the German portfolio by 7.4%, following an already incurred devaluation of 5.5% in the H2 valuation of 2022. That brings valuation levels now down to 1,100 euros per square meter or across initially 5.9%. We'll come back to that a little bit later. Important is that the LTV still stands at 47.5%. So that means we just saw a slight increase in the course of the year despite this quite material devaluation. So the LTV was at 46.7% at the beginning of the year, now 47.5%. And that is clear that the asset disposal in Germany is up. There's a lot in this regard. And looking into the second half, I mean, clearly it's extremely difficult to predict integration results. But we know that on the disposal side, we have still some outstanding closings. We know that especially the fourth quarter in the Polish-based business is a very strong bond, so we expect a lot of handovers that will naturally reduce the LCB. So we're quite pleased that even in an environment with valuations falling in Germany, we're able to keep the LCB at least stable. And looking at other financing metrics, that's also worth pointing out, The interest cover ratio and the net financial debt to EPIC-R ratio still stand at a very strong 6.4 times and 10.1 times. And if you exclude the Polish sales business, the numbers are still at 5 times and 13.2 times. So that should be a good proof that our business creates a lot of cash to serve debts. Coming to slide number five, that's just a quick comment on FFO1 and FFO2. So year on year, as I've already said, a 7% reduction in FFO1 and an 11% increase in FFO2. Quarter on quarter, we saw increases in both businesses. In the FFO1, perhaps it's a little bit seasonal, we had lower maintenance costs in the second quarter, 2023, compared to the first quarter. Is this a real trend? No, it's not the case. But, you know, such items have some seasonality in this. In this case, we benefited from them. But we're on the good way to meet our full year guidance for 2023, despite the ongoing support businesses. And as I already said, the FFO2 was at €111.00. In the first half, we expect here, as always, a much stronger second half, as naturally the fourth quarter is always the strongest quarter in the sales business, as we have here. A lot of handovers that then finally lead to the result. Page number six shows you the highlights of the Polish business. First of all, rental revenues are growing, 2.7 million rental revenues in the second quarter, 1.5 million in the first quarter. More and more rental units are finished in Poland. We have now roughly 2,200 units on the market, and we expect that also the FFO1 from Poland will now grow as the renting process moves forward. strong development in the adjusted net income from, say, Poland, $14.4 million after $8.8 million in the first quarter of 2023. The main difference or the main driver for this result was also that the joint venture, the center bridge that we've already announced, was now founded or not founded. It already closed in the second half, and as we sold land bank into the joint venture, we also benefited here from this earnings-wise. We've looked at page number eight, the income statement. It's worth pointing out that net actual rent is still going despite sales activities in Germany. We will naturally see now the rent increases in Germany slowing a little bit down, not because we expect lower rental growth, but we had the closing of transactions at the end of the second quarter. We expect also one transaction to close at the end of the third quarter. So that means we have from disposals a rent reduction, but on the other side, we will have more rents coming from Poland, so that makes us very optimistic that the net actual rent should be at least stable in the next month and then going after that. It already certainly benefited here, seasonal, from some lower maintenance expenses and also some other lower property management costs, so that the net rental income was stronger in the second quarter compared to the first quarter. And finally, just a comment on net financial results. Don't be confused. If this net financial result in the P&L is showing some volatility, we have some interest rate swaps in place that are valued at a fair market value at every balance sheet date. So effectively, you see here a valuation loss of $5 million quarter-on-quarter. If you look at the really relevant cash net financial results quarter-on-quarter, that remained stable. Page 9 shows you in detail the EBITDA, FFO, and AFSO developments. I already commented that the EBITDA, not only in the sales business, also in the rental business, they were very positive, and that led, in fact, to the increase that I mentioned in the FFO1 quarter-on-quarter. Also, the AFSO increased quarter-on-quarter even a little bit more than the FFO1, as we had some lower numbers in our capitalized. Maintenance and monetization capex, also this is something more seasonal. So in general, we are not touching capex in the German portfolio. For the contrary, we are slightly investing more than in the past as we are clearly on the path to decarbonize our portfolio. But the good thing is that in overall terms, in overall numbers, this is still something very moderate. Page 10 shows the year per NTA calculation. We saw a 9% reduction in the first half of 2023, mainly driven by portfolio valuation, so this led to a reduction in the year per NTA per share of around €2.50. Page 11 shows the financing structure. Looking into that in a bit more detail, into the maturity 2023, you see at the balance sheet date, we still had some smaller maturities. But as Mark with his little staff, the 15 million promissory notes to 14 million corporate bonds in Poland have been repaid in July. So after the balance sheet date, we have some ongoing commercial paper that will renew from quarter to quarter. And we have RCFs that are used in Poland for the sales business, which are some balance sheet dates more used and some balance sheet dates less used. So effectively, 2023 is done. And looking into 2024, you see here, if this is a pure view from the balance sheet date perspective, the bridge loan still at $175 million. As I mentioned after the balance sheet, this bridge loan is already reduced to $75 million. So that's then the final repayment that we are doing now towards the end of the third quarter. And after that, what's left are very small unsecured maturities here in Germany, 59 million promissory notes. 23 million corporate bonds in Poland, so that's basically from existing cash. And what's left is 197 million of more classical bank loans in Germany. I've considered this as more kind of, you know, bread and butter, ongoing refinancing. So the overall statements regarding maturities, 2023 and 2024, is once this final repayment from the bridge loan is done, and now it's very, very visible, 2023, 2024 are basically years where no really material maturities are left, and that's, of course, very good for us to say. Looking at page number 13, that shows the life-like rental growth, which is not any spectacular or other developments that I was mentioning. So we had 2.1% total life-like rental growth, weaker than in the quarters before, but You know, this depends also on the development of vacancy rates. So if it is stronger, then, of course, the total like-for-like range growth is also stronger. So this number should increase now in the second half as we expect a reduction in vacancy rates to come. But overall, like for the current growth, exuding vacancy increased slightly to 1.6%. And the total investments per square meter, you see this on the top right of the slide, were 22.7 euros on an annualized basis, which is slightly lower than in the year before. Page 14 shows the developments in vacancy rates. Basically, fair to say that the vacancy rates in the first month of the year remain stable. But as in the past year, we expect now that in the second half, as the motivation projects are now finished, we will have renting successes. So that should allow us to reduce vacancy rates quite significantly. So at least the guidance that brings us to an overall vacancy rate at the end of the year between 4.2% and 4.5% should definitely be achievable. Page 16 shows the portfolio valuation in the German portfolio. As I said, we have had a portfolio devaluation of 7.4%. This comes on top of an already incurred loss of 5.5% in the second half of 2022. So that means we're already down 13% compared to the kind of peak at the end of the first half of 2022. An outlook for the second half relation for 2023 is, of course, extremely difficult. Are we already done in Germany or in our portfolio regarding relation losses? That would be too optimistic. So it's fair to say that we also expect for the second half of relation loss to be expected in the same magnitude like in the first half. That would be perhaps surprising, but important for us is, Also, a valuation loss in the same amount, if it would happen, is absolutely manageable for us. As I said, we are selling assets in Germany. We're selling assets in Poland that help us to keep the LTV stable. And that's, for us, the most important part that we know we can really manage valuation losses, even if they're larger than expected. But looking at the overall portfolio metrics now, valuation-wise, 5.9% cross-seed. 1,100 euros per square meter. If you look on the right side, that's basically the valuation level like three years ago, and that makes us optimistic that that's the largest part of valuation losses we've already seen. Clearly, as I said, something more will come in the second half of 2023, but the largest part should already be done, and that, of course, also does a good result. Looking at page number 19, quick look on the Polish rental business. So we have now more than 2,200 units in operation at the end of the first half of 2023. Another 1,000 units are under construction. So that means we will have around the middle of 2024 more than 3,320 units completed in Poland. And just to remind you, it's the best way to rent In Poland, it's more than double the average rent in our German portfolio. So that's the rental equivalent, the rental cash flow equivalent of nearly 7,000 units in Germany. So even with the units that are already finished, even with the units under construction, we will have already a material rental cash flow from Poland. And clearly the plan is, and you notice two scenarios that we already presented with the Q1 figures, clearly the plan is to grow the portfolio further. But we will clearly do this very moderately, step-by-step, and clearly do this to the largest part of financing with cash flow that is created within COVID. So we know that we create continuously surplus from a safe business. We can use this to start the next Swiss Venture for Rent project. So the mid-term target is to grow the portfolio over the next five years to around 10,000 units, and that should be a realistic scenario, and that is absolutely achievable. We also can say this without any external equity. Page 20 shows more details on the rental portfolio. As I said, 2,200 units. units which are under operation for more than one year of around 14%. The vacancy in these units which are for more than one year on the market is around 3.7%. Units which are under operation for less than one year, the vacancy is at 12.7%. And please have in mind that the last part of these units are not only finished within the last year, they're finished within the last month. So we had really strong rental results in the last weeks and months, and we are very optimistic that we can reduce this vacancy rate now in the next few months quite maturely. And then finally, page 22, the guidance for financial year 2023. To make it short, all guidances regarding FFO1, FFO2, and also other elements and other figures remain unchanged, so we are on good to achieve our guidelines, even though, as I said, we have effective problems. So, therefore, we are quite optimistic that 2023 will be a year where we deliver, in the end, quite good results for you. That's it from my side of an overview for the H1 figures. Thank you so much for listening. But, of course, we are now very happy to answer your questions.

Ladies and gentlemen, at this time we will begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on the touch-tone telephone. If you wish to remove yourself from the question queue, you may press star followed by 2. If you are using a speaker equipment today, please lift the handset before making your selection. Anyone with a question may press star and 1 at this time. The first question comes from John Wong from Campen. Please go ahead.

On the bridge loan, you highlighted that you expect to repay it by the end of Q3. What hurdles does this still depend on?

Good morning, John. While the plan is quite simple, we expect a closing of a larger disposal in Germany at the end of the third quarter that leads to net cash proceeds of $60 million. So this $60 million is then more or less completely used to repay the bridge loan, which is $75 million. So the remaining difference is then simply paid from existing cash. And despite this, yes, clearly we're also working on further disposals. Clearly we continue to refinance bank loans and create additional liquidity so that the repayment of the bridge loan should be now very visible.

Okay, that's clear. Thank you. And maybe tying into that, because if I remember correctly, you previously mentioned that you were going to be a bit more opportunistic with sales when the bridge loan has been repaid. Do you still stand behind this now that your LPV has ticked up to 47.5% and also given your comments on valuations for H2O?

Yeah, perhaps I'll put it like this. We will continue to sell assets. That's clear. But, you know, this, how should I call it, more or less formal disposal program is then finished when the provisions are paid. So if you remember our announcements around the rights issue last year, we said, well, we want to achieve 250 million of net cash proceeds from disposals in Germany. And putting everything together that we have. So since then, there was already something signed when we did this announcement. We are now at 250 million and we are able to repay the bridge loan. So this was, you know, the must do. but it's not the case that we stop now selling. And opportunistic means that we are not so much under pressure, but clearly in this environment, it makes also sense to continue that because this is basically the way to create liquidity. This is the way to reduce leverage. So therefore, that makes still sense.

Thank you, that's clear. And just on the last one on your dividends, I think your slide still says, depending on market conditions and completions of refinancing, could you perhaps give a bit more color on your thought process behind this?

Yeah. Well, regarding the refinancing, I would say now, let's assume that the final payment of the budget is done, so that's achieved. If you look at the market today, has that really changed? Is it much easier compared to some months ago? No, that's not the case. Please understand that we will not give any concrete guidance for today, but it's clear. If we are more or still in this difficult market environment, management teams should be careful with liquidity. So, therefore, we will really look at that more closely now when we publish the full year guidance for 2024. and you can be sure that we will do nothing that brings us under pressure regarding leverage, regarding liquidity, when you think about the dividends. So we will be here. Let's put it this way, clearly more on the conservative side.

Okay, that's clear. Thank you.

The next question comes from Thomas Rothheusler from Deutsche Bank. Please go ahead.

Good morning, everybody. A few questions. The first one is on disposal. I understand there was a larger commercial deal involved in the volume you showed for the first half here. If you would concentrate on the residential stuff you sold, what was the disposal yield and the discount to the book value?

Good morning, Thomas. Thanks for the question. To give you some some color on the impact of this commercial building, which was, by the way, our headquarters in Hamburg that we sold. So I cannot disclose the purchase price, but what I can disclose that the net cash proceeds from that, so after repayment of bank loans, was around $30 million. So that was the impact of this commercial building. It also led to a book profit because this building This value was partially valued at cost. That's how we have to account for it on the IFS because we used it on our own. If you exclude this commercial transaction in the P&L, then we are again in what we always communicated, that we're selling roughly to 10% below the book value. In this case, 8% to 10% below the book value at December, so more or less slightly, very slightly below the book value that we have now in June 2023. And other than that, on the gross yield, I think that had not really an impact. So I have it not in front of me, but I would say the average gross yield should have changed that much if we exclude the commercial building from the total sales.

The second question is actually on rental growth. Some of your peers have shown accelerated rent table momentum, I would say. Is this a trend you can share as well?

You know, predicting rent table outcomes is extremely difficult. What we think that it's fair to say that we will see now in the environment in Germany where rents are growing and all the reasons for that So that should be very clear. If you really analyze rental growth in detail and look at our like-for-like rental growth without breakage reduction, without modernization, that stands at 1.6%. That's not too far away from what you see in the peer group. So therefore, I mean, as in the past, our rental growth is clearly a little bit lower, but on the other side, you know, at the end, the return is the most important factor and we simply acquire these portfolios at what we think are still reasonable prices so that the cash yield that we achieve should be still very positive. So, yes, there is positive momentum. Do we see this then in the next quarter? Is it more of something for the next two to three years? I recommend that we are here all perhaps a little bit patient regarding rental growth. So this momentum that we have adjourned will come into the rents. but nothing that happens within weeks. That's more something for perhaps a two-year, three-year period. But the trend is very clear.

Thank you. And the third question is actually on Poland and the rental business there and potentially, you know, you might photo-ramp up the business, as I understand. Could you provide any update here? I mean, with the business overall situation, performing quite strong. Would you turn more upbeat here?

Yeah, we're very positive in Poland. I mentioned that the sales numbers have increased strongly compared to last year, by the way, not only in our company or in our operations. If you look at figures that developers in Poland publish, a lot of them also listed, the trend is clearly very positive. So that shows us how strong this market is. I mean, You know how other developers in Europe have problems. Look at the announcement in Germany where some developers are even going bankrupt. So Poland has really a very strong underlying market that translates now into higher sales numbers and into a very strong demand for the rental product. So yes, it could be the case that we start new rental projects in the next month. But let me say one thing very clearly. The liquidity for that needs to be created in Poland. We create a strong surplus of cash between 50 and 60 million euros a year from sales business. We can use that for our next rental project. So, yes, of course, we want to grow the rental portfolio in Poland as well as we seem to see the strong letting results. And just a final comment on that. You've seen in the presentation that we have now in occupancy, in the projects that have been finished in the course of 2023 of already almost 90%. So within three or four months, these projects have been rented out quite strongly. Originally, such a development has been expected from us not within three to four months, more between six and eight months. So it gives us further confidence on how strong the dynamics in the markets are.

I mean, what kind of financing options would you have in order to pick up the rental business, ramp up, you know?

Yeah, we're in, let's say, also concrete discussions with banks and other institutions about mortgage-secured financing in Poland, perhaps also in Europe. And that would lead clearly to higher interest rates compared to what we have for a German portfolio. So you've seen that in Germany we are financing mortgage-secured at, let's say, between 4.0% and 4.5%. In Poland, it would be perhaps higher, but not that material higher. The full portfolio in Poland, the full rent portfolio, is unencumbered. We have financed that in the past completely via TAG shareholder loans. So as of today, regarding the projects that are already finished, the GEV is around $250 million. If you just assume a 50% LCV, that would already give us financing capacity to make an example of around $125 million. So that would be already something material to start further rental projects. So that, in combination with the surplus from the disposal business, is really, I would say, a very visible way how we can create and how we can grow the rents portfolio in Poland in the next quarters.

A last one actually on bank lending, where you have shown quite activity. What is the LTV level on average bank supply?

Well, for a new bank loan, the LTV stands around 60%, but That's not the really relevant metric we discuss with banks. It was the most relevant metric perhaps two years ago or one and a half years ago. Today, the debt service cover ratio, that's basically the number that limits the new loan amount. And this was one and a half or two years ago, absolutely not an issue because interest rates were at 1%. Now interest rates are above 4%. So when we discuss with the bank a new loan amount, the bank requires a certain debt service cover ratio, and then if you translate that into an LCV, we are perhaps at around 60%, which is not that much different compared to financing levels that we achieved in the past. So still, financing levels, also other conditions like governance or margins have not changed that much. Clearly, misappropriates are higher than than one and a half or two years ago.

Okay, thank you.

The next question comes from Manuel Martin from Adobe HFF. Please go ahead.

Yes, good morning. Thank you for taking my question. A question on capex. Do I understand that right that capex is momentarily a bit elevated due to decarbonization and might decrease in H2? However, given decarbonization, is it fair to assume that it will increase in 2024 again? And on that, could that have an impact on rental growth, which is a bit subdued, I have the impression.

Clearly, CapEx has increased over the last two years, three years, and we are now clearly on the path to decarbonize our portfolio, so we're not cutting this in Germany. PEPs for us, it's an easier decision as PEPs for fathers as the absolute amounts are still very manageable. So we've been talking about capex in total, including your maintenance or capitalized maintenance, that's 60 to 70 million. This goes then more PEPs today to 80 to 90 million, but still with good financing access from subsidized loans we get here in Germany from the car fee bank, for example. So yes, we are investing more, but again, you should not expect a very significant increase. So on a per square meter basis, if you really put everything together, so whether this is maintenance, capitalized maintenance, or modernization capex, we've been in the past between 20, 21 euros. Now that's going to 25 euros per square meter. So two main messages. Yes, we're investing more. We're not cutting capex. And that will lead also to more rental growth for modernization in the future. But on the other side, that's not really a very material shift and not something that affects our liquidity very materially.

Okay. And the second question is, I don't know if you can give some details, but the asset swap that didn't take place, is it possible for you to give us a bit more details why the financing did not happen?

That's unfortunately not really possible for me because this is something that the buyer or the contractual party should answer. In the end, we step back from the contract I think we said in the half-year report that we still want to sell at least part of this portfolio, perhaps in smaller transfers. It's also not excluded that we have with the contractual party, with our contractual party here in this SHO deal, perhaps a further agreement, if not any more plans to buy the roughly 700 units in East Germany. We have received a contractual penalty from that. Let me say that this was not our goal to go for the contractual penalty in such a transaction, but in this environment, you also need to try transactions that are perhaps not plain vanilla. So the good thing is that we are also able to sell, despite this asset swap, we have sold more than 750 units in the second quarter. But, yeah, this environment also requires things that you simply try and from time to time it doesn't work out. Is this a big problem? No, not really. And because we did not really, you know, put this very hard in our business plan that we knew that there's a certain financing risk in this or has been a certain financing risk in this transaction. And that was also communicated from us when we reported on this sale in the Q1 figures.

Okay.

Thank you very much. As a reminder, if you wish to register for a question, please press star followed by one. The next question comes from Simon Stipping from Barbrook Research. Please go ahead.

Good morning. Thank you very much for taking my questions. I have a couple in regard to Germany. You showed on the FFO ad back of revaluation results 467 million. That's higher than in the P&L. I know there are a lot of moving parts, but could you explain the figure?

Good morning, Simon. Sorry, that was a bit difficult to understand because the line was not good. Can you repeat what figure you're hearing?

Sure. It's the figure. I think it's slightly 9 on the presentation the FFO calculation you add back the valuation result of 467 million in Q2 and that differs from the number you're showing in the and then also in the valuation result maybe you can reconcile that that would be great I know there are moving parts in that but just to give a bit of a better understanding there

I assume that this difference, let me check this after the quarter and I will come back to relate to Poland. So because this is roughly the valuation difference that we have between Germany and Poland. So this valuation loss that we have in the P&L in total, $455 million, is in fact $470 million roughly valuation loss in Germany and around $15 million but it is a game that we see important currently.

Okay. And then one more question in regard to the commercial building you sold, your headquarters in Hamburg. Can you disclose the buyer? Or if you cannot disclose the name, then can you disclose what kind of buyer it was, if it was a pension fund, a family office, etc.?

Yeah, the buyer was a European... institutional funds, not, not a German fund. I cannot disclose the name, but you know, quite, quite, quite well known who knows more in this business than, than, than we. I mean, they're, you know, they're the commercial building. It's an office building. In fact, that this is not really our core business. We always own this property because to a smaller part, not as part of sending it out to a smaller part, it's our, our headquarter. So, Perhaps there are some upsides, and I have no doubt that this was a very professional buyer. But for us, this was something where it simply made sense in this environment, a way to create liquidity and also not part of our core business.

Okay. And I assume you assigned a 10-year lease?

Yeah. We will stay here. That's correct.

Okay. And then another question in regard to the German portfolio. First one would be, you revalued the whole portfolio, I assume, 100%. And then a second one to that, the latest units you disposed of, are those, can you indicate the book value or book loss? And then in comparison, of course, to the June balance sheet values?

So the latest transactions that we've been done have been slightly below the new book value, but it was not anymore, you know, the 10% discount. It was tighter. So that's 5%, if I have that correctly in mind, below the latest book value. So on average, we sold in the first half of 2023, I would say around 10%, but slightly above that compared to the December book value. If you compare that with the June book value, so the new book value, the whole disposal activities have been simplifying a little bit, not too far away from the latest valuation. That gives us also some comfort. As I said, we are not done with deliberations in Germany or in German residential, but we Looking at the transactions that we did, looking at the portfolio metrics that we have, 5.9% gross yield already, and 1,100 euros per square meter, that makes us optimistic that further devaluations should hopefully be not that material. But no one has the exact crystal ball, so let's see what happens in the next month regarding the valuation we have. Also to say this very clearly, No indication so far from our venue.

Okay. And maybe one in regard to the Poland regulation. The government introduced this new regulation in regard to help to buy schemes and Did you see any impact on the demand side for your assets, not on the development to hold segment, but on the development to sell segment?

This impact is very clearly observable. I mean, this new revelation now was effective from the 1st of July. It did already affect sales numbers in the 1st and 2nd quarter. As it was clear that a lot of buyers would come to the market now after this new law is implemented. So perhaps some people that were cash buyers that were observing the market then already knew some months back, well, that's now the important time to buy because prices will not come down. For the contrary, prices will go up. That's also, by the way, something that we are doing and also other developers are doing in Poland. So we're increasing prices, not dramatically, but prices are going up. So we will see definitely good sales numbers in the second half, perhaps good on strong sales volume. I mean, you know that this is also something, the pure number of units sales, of course, depends on the prices that you ask for. So you always need to find the right mix. So to make it short, yes, clearly this program helps. Clearly this is something that will lead to good sales results. And just to remind you, good sales results in 2023 does not necessarily mean that we have it already in the P&L. So we sell the assets, then we construct them, then we hand them over. So this is more something when we sell an asset today for the results in the P&L in one and a half years.

Sure. Okay, great. Thank you.

The next question comes from Kai Klose from Bernberg. Please go ahead.

Yes, good morning. I was a little bit late to the call, so maybe the question has been answered. Apologies. The first one would be on page six. Could you indicate a little bit on the letting portfolio in Poland? What number of units you need to have on an annualized basis in the letting would be FFO1 positive? Is it fair to assume to get that already for the fiscal year 23 or more in 24? And the second question would be on page 27 on the German portfolio. Could you indicate or could you elaborate if there was either some seasonality or capex-related reasons that we saw a bit of a shift in vacancy rates for units like Leipzig or locations like Leipzig or why vacancy rates in Chemnitz despite a high amount of capex only come down quite significantly? Slowly.

Thanks. Yeah, good morning, Kai. First of all, regarding your question for the rent, but for Poland, the portfolio is now at 2,200 units. As I said, a lot of these units have been finished during the course of the first and second quarter. So now we are really in the process where we start to collect the full rent. The occupancy rate is around already 90%. It has of course a positive impact on the FFO1 component and we expect that this number is already positive for the full year 2023 and will then grow thereafter as there are still projects under construction. So again, we expect an additional 1,000 units to be completed in the next 12 months. So the FFO1 component will be quite soon positive. And, yes, there is also seasonality in vacancy rates, or not seasonality, that depends also on finishing modernization programs, and especially in Chemnitz region, which includes Durban as a large location. We have invested quite significantly. You can see, if you look at page 27 on the very right, the very right column, the gap is per square meter was the highest. in Berlin was the anti-chemnitz region now we have finished modernization projects so that should then of course be a driver for further vacancy reduction in the next month so to understand in chemnitz including Durban most of the work is to be expected you expect to be completed towards the end of the year what has been completed in edge one Clearly. You should not expect that this is the one to finish the amortization program leading to a reduction the next day, but clearly then over the next weeks and months we should see an improvement in the vacancy rate.

Any new regions where you intend to spend more in the future, or 2024, 2025, or let's say 2024?

I would say there's not one specific region that we have chosen as a, shall I say, hotspot for our CapEx programs. I mean, looking back in the last two to three years, if I look at the numbers, we've clearly invested a lot, for example, in our Berlin portfolio, which is a portfolio consisting of locations in the Güterbelt, for example, Brandenburg and Havel was really a focus of our investment. We see the success already. As I said, the chemist's reason was that In general, the capping strategy is unchanged, meaning in regions with higher vacancy rates, people invest more. What is now new is that, as I said before, this decarbonization element is coming more and more into our capping strategy, and that could also then lead or will lead to the fact that in a portfolio where the vacancy rates are already very low, We're still investing, or we are investing, because we need to get that portfolio to climate neutrality, and that's also in such regions there is investment needed to do this.

No, sir. Many thanks.

The next question comes from Marius Pastu from Societe Generale. Please go ahead.

Hi, good morning. Thank you for taking my question. Just two remaining questions from my side. Just firstly, a bit of a follow-up on the Poland residential for rent business. You mentioned your expectation is for a positive FFO1 contribution in the second half of the year. As lettings have been ahead of your expectations, what are your expectations for that FFO1 contribution in for year 23?

Yes, we are expecting a better SFO1 contribution from Poland in the second half, and now the portfolio to the very largest part, the finished units to the very largest part are rented out, and this clearly leads to higher rents and a better earnings contribution.

Okay, very clear. And any absolute number you can provide on that business for four years, 73?

Yeah, we're not guiding absolute numbers as of today, but we will publish the fully guided for 2024 with the next earnings call. And here we also will give more details on the development in Poland for the sales business and also clearly for the rental business.

Okay, very clear. Thank you. And then just secondly on bank financing, I think you mentioned you did 150 million over the first half. Yes. Can you give us any guidance over additional secured financing you have under discussion and also any discussions you're already having to cover next year's bank refinancing or extensions of those banks' facilities?

That's indeed the main focus that we have today in our financing department, so doing the refinancing that are due in 2024 already in, let's say, next month. With doing that, as in the past quarters, we clearly expect also an additional cash inflow because the clear target is not only to obtain further extension of the bank loan, so another five, seven, or ten years. These bank loans that are due today or are due next year have been amortized over the past seven or ten years old. Value has grown definitely compared to seven to ten years ago. If we then leveled it up to the LTV that I mentioned of around 60%, that really then creates additional cash inflow. I cannot comment today on how much that is, but that's the key focus now, that we tackle already the maturities or the largest part of maturities from 2024 now in the next weeks and months.

Okay, very clear. And then just finally from my side, can you give us a bit more details of this transaction penalty that was applied to the failed transaction or this asset swap deal that in terms of the magnitude and has that already been received in the half year numbers or is that a post period end amount? Thank you.

Well first of all it's not in the numbers. I mean we stepped back from the contract in July so the contractual penalty is now due in August. I cannot comment on the magnitude of this contractual penalty. please be aware it's more than just something symbolic. So it is material, but again, as I said, our target was clearly not to go for a contractual penalty. The target was to close the deal. That did not happen, but it's not, how should I say, a drama for us. I mean, we've been able to sell other assets.

Very clear. Thank you very much.

The next question comes from Sili Sohung from Barclays. Please go ahead.

Hi, Martin. I've got two questions here for you. I think the first one would be related to modernization capex. So you're spending money on modernization. There was $36 million going into your AFFO, and yet there was no contribution of modernization in your 1.6%, like for like rental growth. So how do you explain that? I understand part of it is linked to decarbonization. So can you still confirm that you're getting a return out of that modernization capex? And my second question follows up to what Marius asked. The penalty, can you confirm that it's not going into your FFO number for this year?

Yeah, good morning, Cindy. First of all, not all of our capex is going to existing or apartments where we have existing tenants, because only such then apartments or such transactions qualify for the monetization surcharge, but that doesn't mean that it's a capex without return. To the contrary, when we put capex into apartments or apartment blocks where we have vacant apartments, so this is then clearly something that leads to the possibility of letting this apartment out, which provides normally much stronger returns and then you see the success in vacancy reduction. But it's not something that happens the next day. So you are doing the modernization, you invest, you have increased capex, and then afterwards, on one side, and this is the smaller part, you have the possibility to raise rent from existing tenants, and that translates into modernization surcharge and rental growth that is then shown as rental growth from modernization. And on the other side, modernization of vacant apartments is then shown in rental growth from vacancy reduction. So if you want the rental growth from vacancy reduction has also a modernization element as long as it refers to modernization of vacant apartments.

Can I push back on that? Because you're still spending, you have spent money on modernization capex in the past, so you should see some kind of contribution in your life as of now.

Yeah, but as I said, vacancy reductions are also seasonal from quarter to quarter. I mean, if you look at the full year 2022, we had a strong vacancy reduction and this was also then an outcome of modernization projects in the past. So I'm not, how should I say it, concerned that now we are investing and the vacancy reduction is not happening anymore. Please be a little bit patient. Let's see how the next months develop in the overall financial year 2023. And I think that's how one should look at it, not so much from quarter to quarter, more on a longer period. So year on year, you will see that we are spending capex and we achieve vacancy reduction.

Thank you so much. Can you address that penalty on the asset swap?

Yeah, so again, I cannot disclose the amount of the penalty. It will not flow into FFO1, but the penalty will flow into FFO2 as this is part of the SAFE business.

So it will go into your FFO2?

Yeah, because it's part of the SAFE activities.

Thank you. There are no further questions at this time. I hand back to Mr. Thiel for closing comments.

Yeah, many thanks from my side for listening to our call. As always, if you have questions left, please feel free to contact us. We're available, and we're looking forward to seeing you next week or month on the road. Many thanks again, and have a good day.