Vonovia Se Ord

Thank you, Andre, and welcome to our earnings call for the first quarter 2023. Your hosts today are once again CEO Rolf Buch and CFO Philipp Grosse. I assume that you have already downloaded today's presentation. In case you have not, as always, you'll find it on our website under latest publications. Rolf and Philipp will present the results and also give a general business update. And of course, we're looking forward to your questions afterwards, though we have no intention to set yet another record for the longest call. But let's see how it goes. Over to you, Roy.

Thank you, René. So, welcome to our Q1 Earnings Call for 2023. I want to start with what is probably the most relevant update, at least according to the last Roadshow, and this is Disposal. Following the GDW joint venture transaction from last week, we announced another larger transaction together with Deutsche Buhnen earlier today. We are selling five assets with 1,350 apartments to CBRE Investment Management. Three of these assets are from our rental segment, and the other two are still under construction with completion expected in Q2 and Q3 this year, so they are nearly finished. The book value of these assets as of the end of last year, including the estimated cost for the remaining builds of completion, is $600 million. we have agreed on a total purchase price of 560 million. So free cash after tax and all the transaction costs reflect an 89% cash conversion, which is pretty high. On recurring sales, the Q1 volume was low. As I said in the full year earning call six weeks ago, December, January, and February were extremely quiet. but we have seen increasing momentum in March. Still, for Q1, the volume was only 282 units privatized. The other side of the coin is that the fair value step-up exceeded our expectation and came out to 56%, but that is partly driven by the country mids with a disproportional share in Austria. In addition, we also disposed 381 non-core units where the fair value step-up was almost 20%. While we continue to work towards the best outcome, our priority at this point, as we said before, lies on more cash generation and less on margin optimization. And we are fully committed to the cash target we have set ourselves for this year. Second, our rental performance While Q1 was not exactly strong on all the other segments, basically because of an extraordinary strong Q1 last year, the rental business continued to run like a clockwork. This is, of course, relevant because the rental segment is by far our largest segment. We saw 3.4% rental growth year-on-year, 2.2% vacancy, and 99.9% rent collections. So unchanged from our full year numbers as the metrics and the underlying market dynamic continue to improve further. Third, we did evaluation update for our German portfolio in light of the two larger transactions we have signed. The result is a 3.4 billion value decline in the German portfolio, so down 4.4% on a like-for-like basis. This puts our total portfolio at a 26.9-time in-place rent multiple and the value at 2,422 euros per square meter. And last but not least, our LTV is at 45.4% and the net debt to EBITDA at 16 times. Both, of course, adjusted for the SUDEBU and CBIE transactions. Accounting for the free cash from these deals, we now have all unsecured maturity covered for this year as well as two-thirds already for the next year. Coming to page five. The Zudevo joint venture transaction marks a successful outcome of a process that started more than one year ago. As a reminder, we began to initially float the idea of tapping unlisted equity sources earlier last year. Our objective was and still is to achieve something on the equity side that we had on the debt side for a long time, the ability to choose between two options. For a long time, unsecured was the better option for us on the debt side. And in the current environment, secured is considerably less expensive. Going forward, we have now found a way to provide choice also on the equity side. So following the initial thoughts around the minority structure and defining the key goals of such a transaction, we started our work on the feasibility of such a transaction to address the complexity and the granularity especially for residential assets and their tax and legal considerations. And I tell you, we have learned a lot. Our work led us to identify two portfolios we felt are suited best for what we intended to do. One portfolio, SUDEVO, is fully integrated in the German operating platform. So there is somewhat limited control and limited protection rights for the joint venture partner. This is also reflected by the fact that we have preserved the VAT group as a tax-optimized structure. And the other portfolio is Sweden, where we have a separate platform and where a minority partner would generally be able to exercise more influence. This approach allows us to address quite different investors. Following the identification of these two different portfolios, We then started the market approach in Q3 and continued investors' conversations, eventually negotiations in Q4 and Q1. We have now agreed on a common equity participation in Südebro with Apollo on behalf of its affiliated and third-party insurance clients and other long-term investors. And this transaction achieves what we have set out to do. We raised one billion of equity at much more favorable terms than what we observed in the listed space. While our equity has been trading at a solid double-digit FFO yield for a while now, we have secured a 6.95 to 8.3 pre-agreed IRR that is capped via a call option and which, of course, includes all dividends paid. Similar, we achieved another key objective, and this is to continue control operation and consolidation of the underlying assets. And this consolidation is much more than just keeping a minority stake. We even succeeded in maintaining the VAT tax group for Südebro so that we can benefit from an optimized tax structure. In addition, the joint venture transaction is also superior to an asset sale as it does not trigger real estate transfer tax. So taking our time here made all sense of the world. But joint venture should be understood as an alternative access to equity, not a disposal. And this is therefore not the right way to define a normal market prices for our assets. And of course, with the joint venture, we finally gained some valuable knowledge and experience in this transaction This will serve with us in case of potential future minority transactions. The point to define the market price is different in the next deal. We have reached an agreement with CBIE Investment Management on the disposal of five assets with 1,350 apartments located in Berlin, Munich, and Frankfurt. While three of the projects are part of Vonovia's rental segment, The other two projects are still under construction, with completed expected in Q2 and Q3 this year, so nearly finished. Some paint is missing. As you can see in the charts on the right-hand side, these assets are not exactly the Bonovia average in terms of value per square meter and rent per square meter. At around €6,000 per square meter, the average fair value is much more than twice as high as the Vonovia average. And the rent level of close to €20 per square meter compares to €7.50 for Vonovia's portfolio. Plus, for Vonovia, you have about 30% up-to-date potential based on a track record on our optimized apartment investments. So this is from the very upper end of our portfolio, and it is probably fair to say that at this rent level, the future rent costs will be more a point of affordability question. The book value at the end of last year, including this estimated outstanding bills for completion, this is only for a few months, for the not yet finished assets is around 600 million. And we have agreed on a total purchase price of 560 million. we expect a cash inflow after tax and all transactions costs of 535 million, representing a cash conversion of close to 90%. So not only is this a sizable transaction on an attractive price, it is also structured in a way that we can achieve a very high cash conversion, which is in the end, of course, the main objective from our capital allocation point of view. And it shows that large transactions at less than 4% cross-yield are possible in the environment if we structure them right. The fact that we have found such a respected, acknowledgeable partner for this deal makes me and the market optimistic that this transaction can be a positive signal of the market as a whole. If we are Vonovia, and if we would have to choose between these relatively new buildings and the normal portfolio, we would probably have chosen to take the normal portfolio because in the normal portfolio, there is still a significant catch-up potential for rent and there is a possibility of highly accretive investment opportunities, both thanks to our platform. Of course, if somebody is not able to have this platform, these newly constructed buildings are better. So in the end, we have found a win-win situation, which is actually following the best ownership concept. And with this, I hand over to Philipp.

Thanks, Rolf, and very warm welcome also from my side. Let's move to page 10 on the segment overview. Here, as Rolf said, we had a very good quarter in our rental segment, less so in the other segments. And if you look at rental, growth, occupancy and rent collection keep going strong. The first quarter was not as good as last year for the other parts of our business. In development, this has to do with the fact that Q1 2022 was out of the ordinary with a very large global exit. So the quarterly comparison is distorted here. And for recurring sales, the truth is that the first two months this year were very quiet. So it's not surprising that Q1 fell short compared to the prior year as we have been guiding for. At the same time, we have been seeing more interest in signs of life in our expectations for the full year against that backdrop remain that we can deliver on our guidance. In our value-add segment, we had to operate with a higher cost base. and the reduced investment program was not helpful in delivering a growing level of contribution margin. All this combined with the elevated financing expenses led to a 20 percent decline in FFO per share to 58 cents for Q1 this year. Moving to the next page, our largest segment, which is, of course, rental, we saw 2.6 percent revenue growth 5.2% EBITDA growth, which was supported by a much lower cost base. So here you can essentially see that Deutsche Wohnen synergies are coming through. And this is also evident if you look at the EBITDA operations margin, as well as cost per unit in the outlook for the entire year. Moving to page nine on our rental KPIs, year on year organic rent growth in Q1 was at 3.4%, 1.2% coming from market rent growth. Here, as we have been guiding for, we do expect an acceleration for the remainder of the year. I also want to point out that this number still mostly excludes the impact from higher inflation, as we have explained in our March call. Vacancy rate at 2.2%. So unsurprisingly, this remains on a very low level and is expected to stay on a very low level for quite some time, given supply-demand imbalance. The chart on rent collection is a great indicator also for affordability. You get quite a bit of pushback from people who fear that rent collection will come under pressure for affordability reasons. These numbers clearly speak a different language. To be clear, they include not just the net cold rent, but also all ancillary cost and energy cost. And the letter has seen adjustments beginning of this year to account for the sharp increase in energy prices. Moving to page 10 on value add. Here, Q1 fell short of our expectations. While there is some revenue growth, we had to operate with a higher cost base and the reduced investment program. So, clearly, a drag on EBITDA contribution. That having said, if I look at the performance year-to-date, that comes not as a surprise to us and is fully in line with our budget. Page 11 on recurring sales. Here, as Rolf said, sales volume was a little less than half of the prior year period, while the fair value step-up was about 10 percentage points higher. Clearly, overall, this first quarter is not representative of what we want to achieve in this segment in the course of the year. But as we are beginning to see this market coming back, we remain optimistic overall. And as achieving our goals for this year, we will be careful to find the right mix between a decent fair value step up on the one hand and sufficient volume and hence cash generation, which is and remains our priority for this year on the other side. Finally, for this page, I also want to point out that we also sold almost 400 non-core units, roughly 20% above fair value. On page 12, development continues to be an attractive but more volatile business with gross margins still in double-digit territory. Q&Q comparison is not very helpful, as last year included a large and very profitable global exit in Austria. As you can see on the lower left-hand side, we have been shifting more projects under construction towards development to sell in line with our communicated revised capital allocation policy. Moving to page 13 on valuation, here we have originally intended to do a full valuation update only with our H1 figures, and least Q1 values unchanged, but an update was required in light of the two recent transactions we did ourselves. The valuation update is on the German portfolio only and is a model update based on available market price data and mindful, obviously, of the agreed sales prices, which we have achieved. It includes updated portfolio and market data, including rent rule, vacancy operating expenses portfolio volume and also capitalization rates. It also includes 240 million euros of capitalized investments which we undertook in Q1. The result of the valuation update is a P&L impact of minus 3.6 billion or 4.4% on the German portfolio on this basis and as of March this year our portfolio was valued at the 3.7 gross yield or almost 27 times rent multiplier, which is the German way, as you know, to look at this equation. This is, of course, based on in-place rents, and the multiple would be quite different if you were to base it on market trend, which we are able to achieve. The German portfolio is valued at almost 2,500 euros per square meter, And just as a reminder, the median purchase price for condos is significantly higher, 3,500 euros, and the median purchase price for new construction equally, which is even 5,300 euros across Germany. You can, as guided for, expect a full valuation update that is including Sweden and Austria with our half-year numbers. Very brief on page 14, the valuation head of course, an impact on our NTA, which came out at 53 euros and 75 cents per share, and therefore a 6.5% decline vis-a-vis year-end numbers. Page 15 on debt structure, standard page, not much change compared to what we presented six weeks ago. So let me directly move to the next page on the key debt KPIs. Here on page 16, we show the debt KPIs as reported per Q1. If the account on the pro forma basis for the two transactions, we now stand at an LTV of 45.4% and the net debt to ABDR of 16 times if you apply the average debt of 15.5 times on a spot basis. So here, still some way to go to move back into our comfort zone. in particular on EpiDR and LTD. So moving to the next page for free cash flow 17, you know this page from our full year reporting and we are keeping the full year view here as the point is to show you the expected cash generation over 12 months. So the update here is that it includes the Zootivo joint venture and the CBRE transactions. And while we have now achieved about 75% of our asset disposals target for this year, we will of course continue to chase all disposal channels that you see on the upper right-hand side to reach our 2023 target and possibly more. Page 18 is an illustration on our refinancing and deleveraging progress. We now have fully covered all our 2023 refinancing needs and also two thirds of 2024. Assuming the rollover of the bank debt, which continues to be or to see a lot of appetite, we have about three quarters of a billion of unsecured debt left, which we still want to address by further disposals. The 1.3 billion of loans signed include, as we have reported, the new loan of €600 million from the European Investment Bank and the rollover of €550 million from Berlin HIP. And here, there is also included a new unsecured green loan of €150 million, which we have agreed with Caixa Bank at very competitive terms at around 4%. Page 19, you will see our updated, meaning unchanged guidance. As we have discussed, we see lower predictability than normal with regards to volume and profitability for both development and recurring sales, and that is why you see this reflected in the wider ranges we had already included in the guidance update in March. Our expectations for the operating business are entirely unchanged, and to avoid any potential confusion, The ZuDevo joint venture and CBRE transactions are very helpful in terms of liquidity, but they have very little to no impact on the 2023 guidance. And with that, back to you, Rolf.

Thank you, Philipp. So, there are two changes to the management board of Von Novia. First, Helene von Roegeler, which you probably all know, will resign from her position on the board at the end of June 23, to take a new professional role. The change comes on her own request, by mutual agreement and on the best amicable terms. Helene started her position at Vonovia as CFO in May 2018 and played a vital role in the successful business combination with Deutsche Wohnen. After taking over the responsibility as Chief Transformation Officer at the beginning of 22, She successfully led Vonovia's value-add operation and laid the foundation for this segment's long-term growth potential. I really enjoyed working together with Helene, and I know she will be missed. We wish her all the best for the new role. Second, Vonovia's supervisory board has resolved to appoint Ruth Wehrhahn to the management board as chief human resource officer as of 1 October this year. Prior to joining Vonovia, Ruth has been a member of the management board and labor director at TÜV Rheinland, which operates in more than 50 countries with about 21,000 employees. Ruth began her career at E.ON in 2001, where she was a managing director for E.ON Nordics AB in Malmö in Sweden between 2008 and 2010. From 2010 to 2013, She was responsible for setting up the new business segment, electromobility, and in 2013, she assumed responsibility for human resources at E.ON Germany. We are looking forward to welcoming her to Vonovia, and we have no doubt that she will be a great addition to our team. My wrap-up will be brief. With rent accelerating, vacancy on continuous low levels, and renting payments being fully collected, our core rental business remains the strong foundation. We enjoy extremely healthy operating fundamentals that are increasingly supported by the two key megatrends, supply imbalance in urban areas and the decarbonization of real estate. This is attractive not just for us, but obviously also now for other investors. The two recent transactions demonstrate this and show how disposals are possible even in a challenging transaction environment. We consider this as a positive signal for the market as a whole and are optimistic that more confidence can return to the sector as more and more participants begin to realize that the price correction may well be not really as strong as initially feared. And this is back to relief.

Thank you, Rolf and Philippe. And I'm going to hand it back to André to kindly open the Q&A. I think we have already a few people in the queue. So let's take them one by one, please.

The first question comes from the line of Charles Boissier with UBS. Please go ahead. Hi.

Thank you very much for taking my questions. Three questions from my side. The first on disposals. You mentioned an attractive price on the disposal to CBRE. but it's hard with the current disclosure to form our own view. Last quarter, Vonovia had taken, I think, €450 million negative evaluation on the Deutsche Wohnen development portfolio to align with Vonovia's cost method. So can we deduce that the project sold to CBRE had also been depreciated at the end? And so related to that, to understand the 560 million paid, what is basically the fully loaded cost to develop these five projects?

Yeah, Charles, on your question first, what you have to consider is that by acquiring Deutsche Wohnen, we accounted for the development projects, the respective projects back at the time at fair value. as part of the PPA. And against that backdrop, I think it comes at no big surprise that in the changed environment we are facing since then, these projects have been somewhat more at risk because there was essentially hardly any development margin. And as for our real estate business in the rental segment, the investment properties predominantly the development of Deutsche Wohnen has seen some value decline, as it's clearly the case also for the broader portfolio. So you should clearly not read, in my view, too much into that. On the second point, as Rose said, these projects are almost completed there are some outstanding payments still to be made which are roughly 40 million euros so you see what we have been accounting for or the spreads vis-a-vis the estimated fair value is a very small one and there is little volatility on on these remaining payments

Okay, so just to confirm, so you're selling at about 7% discount to how much it costs you to build. Is that reasonable?

That is correct. And I mean, also what is important, we have been focusing a lot on reducing cash leakage to a minimum. because cash is king these days. And by a cash leakage only of 11%, I think this is a very good outcome. And in the structuring of the deal, we also tried to build in a structure which allows to reduce the tax burden. It's still a good portion. But with part of the deal being a share deal, it was efficiently structured from a tax perspective, and as a consequence, reduced the cash leakage.

But just to add, this is two projects, two of them, five projects. Two of them are actually not finished and coming from the development. Three of them are coming from the operating business from Vonovia. Yeah, for the action.

also you mentioned the high rent and more limited potential but can I confirm that those projects are CPI linked as is usually the case in Germany for developments it's not all CPI linked it's part CPI linked the point is and I think this I tried to mention if I have

looking from Vonovia's perspective on two assets which have more or less the same yield, I always would choose the one where I have rental uplift potential, which is shown, which is these 30%, which you see in the average and probably in the cities, it would be even better than fully priced rent. This is, I think, the first argument. And the second argument is our platform. It is for us more attractive if the yield are more or less the same to invest in or keep assets where we can invest on attractive yield basis because our investment in energy demonetization is still significantly higher than our cost of capital. So I think for us, this portfolio is probably less attractive because rent uplift potential is limited and there is no possibility to do accretive investments while keeping the rest, is probably something which makes more sense for us because we can generate value. And this is exactly the strategy which we explained to you last summer, that we actually on our disposals list are assets which are actually perfect in shape, which has nothing to be improved, and which are ideal for people who do not have a mobile platform. And that's why I want to own this asset without a lot of work. So I think this is exactly, we're doing here exactly what we announced last summer.

Sure. My second question is on a related topic on valuation. So the minus 4% valuation update, you mentioned valuers were mindful of recent deals. But depending on how we look at the concessions made to Apollo in particular on the rents and the capex, we can come to a larger discount than the headline discount. Of course, you also do have this option and some people are looking at this transaction as a bit of a secure debt deal. So there may be various opinions on this. But are your valuers looking at the headline discount versus the concessions granted?

I mean, from a valuation perspective, the Sunrise or the Apollo transaction is not really relevant because we essentially, as Rolf explained, sold a minority stake of common equity and not a portfolio. And the cost of equity at which we sold is roughly in between 7% to 8%. So the right way to look at that is to compare that to our capital market implied cost of equity. And here, if you look at our FFO yields, if you look at Bloomberg consensus, we are at around 12%. And that essentially means that we have on an equity basis, been able to achieve 35% better terms looking at the cost of equity than what our stock market implies. And that is somewhat interesting because it somewhat also corresponds to the implied discount on our gross asset value our current stock market valuation implies. And all of that having said, I think there are a number of reasons why this transaction standalone is not really the trigger. The trigger is the CBRE transaction where you have some read across on the broader development of asset values. And that is what we have reflected. So point one, we have obviously included the agreed prices with CBRE in our Q1 results. And second, we have also recognized the read-across from the CBRE transaction on our broader portfolio, and all of that was essentially resulting in that 4.5% value decline for our German portfolio.

Okay, so we're taking CBRE but not Apollo, okay. And so the last question from my side. So on leverage, you're making disposals, but LTV is still going up, obviously, from the negative evaluation. And if values were to come down another, let's say, 8%, LTV could cross the 50%, which is a threshold for the credit rating agencies. What's your view on defending the credit rating? Because you're several notches above non-investment grade, so is your view that if you were to be downgraded, ultimately it wouldn't impact significantly your access to financing, or is the current rating very important for you? Thank you.

Charles, first of all, I have very regular dialogue with the rating agencies and you can expect that we have also in context of the Apollo transaction had dialogue with the rating agencies and I have no reason to expect any change in their respective rating. I mean obviously you're right in saying that if we were to see further value decline that this will negatively impact the LTV. And clearly, what we have said, Rolf and myself, separately in the call is that we keep pushing on the disposal side. The target for this year is 2 billion euros. But what we have in the pipeline is more than that. So we will see what the outcome is going to be. So now the target remains of 2 billion euros 2023. But if there were to be seen further value declines, we have to do more on the asset disposal side. For now, I think it's speculation to talk about figures of whatever, 8%, 10% of additional value depreciation. We will see how the transaction market behaves in particular, also with certain signs of life we start to see. Thank you.

The next question comes from the line of Bart Giesentz with Morgan Stanley. Please go ahead.

Yes, hi. Good afternoon. I want to touch on your home building activities. You're selling the CBRE transaction is partly out of this home building business. and you're willing to sell at a loss there, so this is now a loss-making business. Can you help us understand what the kind of working capital requirements are? In theory, this should be a self-funding business, but in practice, it may not be the case in this environment. Are we seeing an increase in working capital requirements there, and how does that fit into your financing and liquidity position? Thank you.

But to be very clear, if you understand and you know our development business, the key and the core of our development business is actually a business where we build buildings and sell individual apartments out of it. And this is, of course, a margin generating business like the disposals of our value-add business, of our recurring sales business. In this specific case, we have sold two blocks in the development to sell out of the Deutsche Wohnen portfolio. So this is not typical for the nature of our development business, which is building blocks and then selling individual apartments and attracting the market of individuals who want to live in the big cities. So I think this is a speciality of the business. And again, we limit the development business to a capital exposure of roughly 3 billion euros. and that's why we don't see any major impact from this business.

Okay, thank you very much.

The next question comes from the line of Mark Muzzi with Bank of America. Please go ahead.

Thank you. Very good afternoon, everyone. I'll start with a question around your transaction, CDO transaction. Can you give us a bit of color of what are the different components of the internal rate return you're guaranteeing to Apollo in the case you will exercise your call option? I mean, sort of breakdown between initial yield, rental growth, capital return, whatever color you can give us to try for us to understand what sort of effective value you're potentially keeping for you in that transaction.

So this is, so Mark, as you know, the complexity in this deal lie in the fact that for the VAT group consolidation, the minority shareholder has no protection rights because we have to access and to execute all the decisions made by the Bonobo board and there is no, even not normal minority protection rights. That's why they have an higher than they normally would get a dividend share, but this is actually more or less irrelevant because we have a cap in the IRR on our call option. There is no other guarantees to Apollo remaining this business because it's an equity participation and that's why we cannot do different guarantees. The deal is actually relatively simple. Apollo likes the yield and we like the lower cost of equity.

But is it fair to understand it very basically that assuming 7% payout ratio on the cash that gives around 5% to 6% net yield to Apollo plus 2% to 3% of rental growth, that gives the internal rate return, or there is any other capital element or capital return we should assume on top?

The capital return is because in the IRR calculation, which we have to pay if we execute the call options, everything is included what is paid to Apollo. So relatively simple. This is the cost of equity.

So you basically look at the dividend stream and the residual price you have to pay to exercise the call option has to result in an IRR in the given range. So in other words, if I look at the value of the call option, that given the disproportionate share of the dividend will increase over time as a consequence of that. Because the price you have to pay will be reduced over time.

Okay, okay. Makes sense. Following up on the question from Bart, because it looks like that effectively your house development business or house building activity is now shrinking in terms of sales. And traditionally, you cannot stop building and constructing buildings wherever the level of sales you're capable to achieve. So that creates a cash drug, if I understand the business correctly. And can you give us a color of what sort of risk of cash burn we should potentially expect from that business, which it's called changing working capital requirements, but let's call it simply cash burn. Because if you're building things on one side and you're not selling anything on the other side, net-net, there is a cash burn.

Mark, you are assuming that we cannot stop building and we just have announced that we are stopping building. So we are not doing new buildings as long as we have not sold the old ones. Very simple.

And to add, I mean, Rolf has given the guidance on the capital we have deployed in the development business. And one thing is very clear also when the market shifts again and we start to have better visibility. The development segment has to earn the cash in order to undertake new investments. Now, for the given years and for the project developments we have started, historically, you've seen the development business delivering gross margins of 25, even 30%. I think it's fair to assume that this will somewhat come under pressure. And you see that in Q1 that we are still comfortably double-digit, but not as high as we used to be in terms of margin. And for us, we certainly have to calibrate cash requirements vis-à-vis profitability at some stage. But given that we are talking about very healthy development margins from the start. And as a reminder, different to Deutsche Wohnen back at the time, BuWok was accounting for the development on an at-cost basis always. There is some buffer to absorb some fluctuation, if you will, on the asset side in terms of values. So, Mark, let me just reconfirm.

The core of our development business is to build blocks and to sell individual apartments. There we are addressing people which are probably more middle-class people, so this is not the rich because we are not building a lot of penthouses. So this is normal people which actually want to have a home which they own for their families. So the block sales, which is also part on the development, but there's only a small part which is actually coming from the original development to hold products, is a part of the development business. The fundamental part of the development business is to build blocks and to sell individual apartments. And this business is healthy.

Okay, so if I understand you correctly, everything you're going to sell from here in that business has been completed.

Yes, and there is some construction ongoing because we have stopped the new construction actually in the middle of last year. This will be now completed very soon. And we are constantly selling out of this portfolio.

If I understand you correctly from the last call, you still had 800 million of cash to spend to complete the ongoing buildings. And this is where I'm struggling to understand if you're not selling 800 million on the other side, then there is a gap.

Yes, it's getting smaller every month we are talking because the stop of the new construction is every month is getting less and we are selling. So the gap will go smaller every month we are talking. Until we start, until we restart new projects. But of course, there's a rule is Daniel has to collect the money first and then he can restart new projects. But then we are willing to support him to restart new projects.

Sure, that's clear. I have a third one and that should be a very easy one. Do you really consider that the cash on the balance sheet and the ongoing corporate RCS are liquidity at your disposal? that you can effectively use those lines to pay down debt?

Yes, I mean, we always have a small portion of what we consider trapped cash. I think that's below 100 million euro currently. So in essence, the answer is yes.

Okay, thank you very much. That's it for me. Thank you very much.

The next question comes from the line of Paul May with Barclays. Please go ahead.

Hi, Ron. A few questions for me. Just on the first one, I appreciate there's been a lot of questions around this already on the house building business. Would it be easier to consider properly separating out the cash in, so gross cash in, gross cash out, on a quarterly or half-yearly basis so we can properly analyze? where the cash is going and where it's coming in? Would that be something you'd consider? You may avoid some of these questions in the future if you were to do that.

I think I will not give an answer in this call. We take it back, discuss it, if you want to provide that additional transparency.

Cool, thank you. Second one is, post the value declines you've seen in Q1, what's the headroom that you have with regard to your LTV covenants? in terms of further value declines?

We have that at the very back end of the presentation. It's above 26%. It's on page 39. Thank you. By the way, it should give you some comfort that I didn't have that on top of my head. Because it's really false. Indeed it does.

Moving forwards from here, obviously disposals and I appreciate we can debate exactly what's relevant, what's not relevant for valuation that appears to be the one that was relevant is still coming at a larger discount than you took in the Q1. Should we take that there's further expected to be further value declines from here? Or do you believe that that's a slightly different portfolio and therefore it's not comparable directly?

I think as usual, we've just freshly printed our Q1 and we have reflected the market intelligence. Some of that's triggered by our own activity in the transaction market. So as usual, no guidance on what to expect for the first half. But I mean, stating the obvious, evaluation is always backward looking for now. In other words, some pressure remains. And it also remains to be seen as to what extent the activity by CBIE, which is a very reputable market participant, will impact the transaction activity in Germany. And here we still have two months to go and we will see how that is translating into our H1 revaluation.

And just on that transaction, the NOI yields or the free cash flow yield from that portfolio, I believe will be higher than your average. I appreciate you've got probably greater growth in your Remaining portfolio, but in terms of the maintenance spend, future sort of modernization investment, your free cash flow is going to be greater in the CBRE portfolio, or am I thinking about that incorrectly?

I think this depends very much, and that's why we are so proud that we were able to structure the CBRE deal in a way that it is very cash efficient. That's why we give you the free cash flow. So this might be, of course, if you have land longer in the ownership and if you have buildings longer in the ownership, of course, the deferred taxes lying with this might be higher, but this depends on how you structure the deals. And there was in the CBIE deal, as we announced, there's also one share deal for obvious reasons.

Last one on valuation, apologies. The Has there been or what has been the change in the discount rates that you used or terminal cap values? Because I don't think you provide that breakdown at Q1, so just wondering what change has been quarter on quarter in those two figures.

Yeah, I mean, here we have not provided that detail, but I mean, stating the obvious, these are a couple of basis points because essentially we applied the transactional evidence by what we have seen based on Empirica data, but also on our own transaction across the entire portfolio. And while there are some regional differences, there are not large regional differences.

Okay, cool. I'm going to follow on the call option with Apollo. what's the duration of that? I mean, or is there any duration or is it indefinite in terms of that call option? And how would you look to fund that? Obviously, part of the issue is the reason you're disposing is because you're capital constrained, wanting to bring down leverage, obviously to call the option would require you to have capital inflow. Just wonder what your thought processes are on duration of that call option and on the ability to buy it back.

So the duration is actually between 5 and 10 years, and then there's the next one, 15 years. So it's a long-term way to go. And it's our own choice if we call. And I think this is for the next 15 years. And we will see where the market is in the next 15 years. But it is our right to call after year 5 whenever we want.

And to be precise, after year 15, there is a step up to the 8.3%. the call option has no end date. So it's permanent equity. And your question is the same as to how we would fund a share buyback, essentially, which we undertake in some time in the future.

Cool. Thank you very much.

The next question comes from the line of Andres Tome with Green Street. Please go ahead.

Hi, good afternoon. I have a few questions. I'll just go one by one as usual. Firstly, about just Meatspiegel prints. And when do you think or when is the majority of those kicking into your actual in-place rents? There's some tick up in the first quarter, but presumably it's more backloaded to the year.

Yeah, and there's actually two effects. So the Meatspiegel are not coming out at one specific month. they are coming out, every month is coming out a Mietspiegel. And then, of course, it depends on the size of the portfolio, which is just impacted by this Mietspiegel. And then there is some additional rules in the German rental regulation, which actually does not immediately allow us in all cases to imply the new Mietspiegel. So the kicking in, if you are asking about the impact on EBITDA and FFO. It's always a little bit of delay, but we cannot say it's just three months. So this depends on the buildings. This depends on the size of the Mietzschpiegel relevant to our portfolio. But the second effect on the Mietzschpiegel, as we have said, is that the discounted cash flow actually is increased. And this is, of course, an immediate effect if the Mietzschpiegel is approved. That will be in your evaluation. Yes, so in the valuation, the impact is immediately, in the moment as the new meat spiegel is in place. In the cash flow, there might be a different delay. So what is actually technically happening, we are sending out, in the new meat spiegel comes, we are sending out for the tenants, which are existing tenants, we are sending out the new rent bills, but with this Kappungsgrenzenverordnung, so there is a maximum increase in 15 months. So if, for example, we have sent out a letter 12 months ago, then we have to wait three months, so this is a little bit longer. This is one effect, and the next one is if we have done modernization, we have to wait longer. In the end, you see the impact that last year we have seen a 1% rental growth from this effect, and now we are seeing 2% on the whole portfolio. So the speed will double.

Okay, and then my second question was around politics and just to get an idea if you see anything positive from the new Berlin state government and the CDU mayor.

It's definitely very positive because the left-wing party which wanted to nationalize us is now out of the government. So this is of course a much more rational government. which acknowledge that they cannot handle the challenges in the city without actually you. It's not without Vonovia, but it's actually your money. And I think this is good news. And on top of it, they have actually changed the nationalization by an objective to buy back portfolios, which is the market-driven approach if you want to own more assets. So I think we are coming now back to a rational housing policy also in the state of Berlin.

And my last question was just around currency exposure to foreign currency and Swedish krona in particular, which has moved quite a lot in the last year. How do you hedge that exposure both to your P&L and then also on the value side? How much of that is sort of naturally hedged versus financially?

We have no currency hedges. We have some natural hedges, if you will, on the financing side, as we do have not all, but the majority of the financing of our Swedish business, the Swedish banks, and also some smaller Swedish bonds.

So the LTV ratio there would be something in line with Bonova's average or something higher?

I need to come back on that. I don't have I mean it's significantly lower but that's for sure if I look at this Swedish financing standalone, because part of the financing of our Swedish portfolio is done on the group level, but we don't have, uh, we are not allocating, uh, our financing, uh, sources to our German, Swedish slash Austrian business. It's no, not how we, how we manage our, our financing. Okay. Understood.

Thank you very much. That's it for mine. The next question comes from the line of Thomas Rothausler from Deutsche Bank. Please go ahead.

Good afternoon. A few questions. The first is actually on transaction markets and disposals. I mean, you view the CBRE deal as a sign of recovery of investment markets, as I understand. So if this is the case, could you provide any color on the chance to sign further disposals and And do you see any chance for straight asset deals, let's say selling average product, let's say at book value or around book value in the current environment? And also, would you be willing to exceed the 2 billion disposal target at these pricing levels?

So to be very clear to your last question, I think we should deliver the 2 billion first, and then we should talk about new targets. As Philip has said, we are aware that having a lower leverage is better. So we definitely, I think, even if we are fixing new targets, we will definitely not stop at the 2 billion. But before we are coming out now with an official target of about more than 2 billion, let's deliver the 2 billion first. And then we talk again. But we are willing to deliver above the 2 billion target, to be very clear about that. we do not come up with a new target. The second is, you know, we have a portfolio sorting. We have portfolios which are for sale and others which are to hold. So the traditional, what you call traditional, I would interpret this as assets where we have significant rental uplift potential and where we have significant potential to do energetic modernization. This is, of course, our lower priority to be sold. There's only one exception where we are ready to sell also this type of assets. This is for municipalities for obvious reasons. So we are trying to sell according to our portfolio strategy and there's still enough to sell. And I think I've explained it. in detail on the six weeks ago in the year end call. So there is a health care, there is a nursing home, there is a nursing home business, there is some commercial assets, there is municipalities. So all of this is still in place and we are going on on this route and normal traditional assets we are in general willing to sell to municipalities.

Okay. Um, the second question is actually on your earnings guidance. I mean, you have a lot of wide range as I understand to consider more volatile, recurring sales and development business. Um, would you say you need a recovery of both segments in order to be safe on the full year guidance?

Very broadly speaking, Thomas, um, The higher end certainly requires some improvement in our disposal-driven contributions to EBITDA and group FFO, so development to sell and privatization business. The lower end is essentially the case for a more or less debt market in Germany. on the disposal side.

The last question is actually on rental growth. I mean, you term more upbeat on market rental growth recently. Have you seen any recent data points confirming the upside? Any color here would be helpful. Any new meat speaker examples maybe?

So it's only six weeks ago that we have been our yet and we have discussed and in the last six weeks I think there is no meaningful Mitspiegel coming out and to be very precise if the Bernie Mitspiegel will come out very soon if this Mitspiegel will not come out until end of May legally we are allowed to apply the comparable apartment rule so this would be of course still very much to reflect on how we would react on this question, but the Mitspiegel has to come out very soon. Otherwise, there is no Mitspiegel in Berlin.

Just to follow up on that, you would be allowed to apply the comparable apartment rule if the Mitspiegel is not published by the end of the month?

Yes.

Okay. Thanks.

The next question comes to the line of Jochen Schmidt with Metzler. Please go ahead.

Thank you. Good afternoon. I have two questions, please. Firstly, on the Sudebo transaction, you said that the acquiring parties would receive above pro rata dividend rights. Would you mind giving any percentage figure here, for example, in terms of Sudebo's payout ratio, which the minority shareholders are eligible to? That's my first question.

It's somewhat inverted to the ownership quota of 30%.

Thank you. Second question on the disposal which you announced today. Could you be a bit more precise on transaction costs and taxes involved in the sale? Are these brokerage and advisory costs and which type of taxes you refer to? Thank you.

I think it's all different types. The majority of the tax is actually the tax because we are not... The tax... A balance sheet is not the same like our AFRS balance sheet, and there's a difference in between. So even if we are selling for AFRS book value, part of it is taxable, especially if you own land for a longer time.

Thank you.

The next question comes from the line of Kai Close with Berenberg. Please go ahead.

Yes, good afternoon. I've got two quick questions on the results. The first one is on the adjusted EBITDA in the care segment. We saw quite a strong fall in the profitability and EBITDA decrease. Could you give a bit more color on that? And if the increase in the operating costs compared to Q1 last year is to be expected, will continue for the remaining of the year? And the last question is on the cash tax rate or the applied cash tax rate in the group FFO calculation. growth was higher compared to Q1 last year. Is this a trend or is the level of Q1 a good proxy for the full year?

Thanks. On the nursing bit, again, there is some distortion because in Q1 last year, we have seen some compensation as a result of corona, point one. Point two is that we are struggling in the nursing business to get the respective personnel. And that is a drag on occupancy levels because legally we are required to have a certain number of employees corresponding to a certain number of elderly people. So occupancy rates have come down by five percentage points approximately from 95 to 90%. And the last point is that we see some cost inflation. That, however, is only a phasing effect because that will be compensated, however, with a time delay by long-term care insurance, and that cost increases is because of, A, higher wages, and, B, higher energy costs predominantly. Those are the three drivers. Thanks. Sorry.

And the second question, Kai? What's on the applied? tax rate, cash tax rate in the FO calculation, which was, I think, 100 basis points higher compared to Q1 last year. Is this a number of Q1 is a good proxy for the full year?

Look, I mean, this is always very, very much depending in particular on the disposal business. If I look at the tax rate of all rental business, I think we are at around 6% measured by respective revenues. In the disposal business, it really depends on the product we are selling, for how long, and what depreciated textbook values that has been accounted for. So this is very, very difficult to give you a firmed-up guidance on that.

All right. Thanks. Ladies and gentlemen, if you would like to ask a question, please press star followed by one on your telephone. The next question comes from the line of Niraj Kumar with Barclays. Please go ahead. No, sorry. She withdrew the question. We have now Paul Brugge from R&Co. Please go ahead.

Hi guys, just a question on my side. On the Sudevo transaction, is there a debt on the portfolio? And if yes, is the level comparable to Vonovia LTV? Sudevo is debt-free, essentially debt-free. Okay, thank you.

Ladies and gentlemen, there are no further questions. And I hand back to Rene for closing comments.

Thank you, André, and thanks, everyone, for joining. As always, this obviously was just the start of our engagement after the results. We'll be on the road quite a bit over the next days and weeks with quite some roadshow days and conferences that we will be attending. We hope to see many of you live or at least on screen, and you will find the list of events on page 52 of this presentation and, of course, always online on our website. As always, in case of questions, please do reach out to me or my colleagues. That's it from us for today. Stay safe, happy, and healthy, and see you soon.