TAGOF - TAG Immobilien AG (TAGOF) Q4 2022 Earnings Call Transcript
2023-03-16 10:57:06 ET
TAG Immobilien AG (TAGOF)
Q4 2022 Earnings Conference Call
March 16, 2023, 04:00 AM ET
Company Participants
Martin Thiel - CFO
Conference Call Participants
Andres Toome - Green Street
Céline Soo-Huynh - Barclays
Kai Klose - Berenberg
Marios Pastou - Societe Generale
Orlando Gemes - Fairwater Capital
Simon Stippig - Warburg Research
Rob Jones - BNP Paribas Exane
Presentation
Operator
Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the TAG Immobilien AG publication of the Annual Report 2022. [Operator Instructions]
I would now like to turn the conference over to Martin Thiel, CFO. Please go ahead, sir.
Martin Thiel
Yes. Good morning, and many thanks all for joining our conference call for the full year 2022 financial results. Let's start with the presentation, which we have published on our website this morning. And I would like to draw your attention firstly to page number four, where we show some operational highlights.
Firstly, in 2022, we have achieved our FFO I and FFO II guidance. FFO I guidance purely refers at the moment to the German residential rental business. And here, we really achieved a good result in our operational performance, like-for-like rental growth, including vacant reduction stood at 2.7%. Vacancy was reduced by 110 basis points to 4.4%. Both KPIs are above our targets. So we're very pleased how the operational business in our German portfolio ran.
But not only Germany saw a good development also in Poland, we had really good success with our business there. So in 2022, the Polish business, in total, already contributed €59 million of profit to our results and €59 million of profit in Poland then directly through into FFO II and that to the overall FFO II number that we had achieved in this year, which was in the rate of our guidance and stood at €247.3 million.
In real [ph] the Polish business is at a self-funding stage, which would be definitely good news. So that means we are really receiving constantly positive cash inflows from our disposal business. We will analyze this later in more detail. And on the other side, as you know, we have decided to stop new residential for rent projects for the time being, and we're just finishing the projects that are under construction. So that means the CapEx needs in Poland are for 2023 and for 2024, when we finished the last project, very limited. And that should be good news that we are really now in a stage where Poland is self-funding and quite soon also producing positive cash flows.
Outlook pace unchanged, but this announcement, so FFO I and FFO II guidance are confirmed. We know that we have already proposed to suspend the dividend for financial year 2022. And that would normally be paid out in the second quarter of this year. Also this stays unchanged.
Let's look at the next slide. And 2022 was clearly a year where refinancing was on top of the agenda, especially after the acquisition of ROBYG at the beginning of 2022. We've done a lot in 2022, and we know that some of the measures have been hard for our shareholders. But in the end, we think we've made the right decision.
So starting with the rights issue that we did in July 2022 where we raised €202 million. We proposed asset to suspend the dividend for financial year 2022. That saves us €143 million. We are making progress on our asset disposal program in Germany. So in the course of 2022, we have sold 1,600 units, part of which roughly 900 units in the fourth quarter alone, and we achieved from this disposal net cash proceeds. So that means after repayment of bank loans of €86 million.
And we can tell you that also after the balance sheet date. So that means in January and February, we've made further progress. So we will publish the details with the Q1 results, but you should assume that at least the run rate from the fourth quarter also continues in the beginning of 2023.
And how are we doing this? So what's makes it possible that we're really selling assets in a size that are for us really already improvement period. Yes, we're also giving slight discounts to book value when we sell the assets. So we're not talking about massive discounts, but if you compare that with the book value in the course of 2022, I think overall, we sold around book value.
If you look at the asset disposals, what we have signed in the first two weeks of 2023, we have given that on average a discount of 5% to 10% to the last December book value. And we think this is something reasonable to do. So the disposal program will become back to financing needs in some minutes is very limited. So therefore, I think that time, giving a reasonable discount and then stopping the disposal program, which is already limited from our point of view simply makes sense.
As said, we have adjusted the CapEx program in Poland and already preserved a lot of cash. And also on the debt side, we've been quite active. Main financing source, perhaps for every term residential company is more secured bank loans that always was our largest source of financing. And with the refinancing that we did in the course of 2022, we raised additionally €209 billion of liquidity.
In the unsecured market, we've been active in smaller sizes and some promissory notes in Germany, also the extension of corporate bonds in Poland that added up in total in smaller tranches to all in all, €108 million. So in general, we have done a lot regarding refinancing leading to the fact that basically all maturities in financial year 2022 are addressed. And when we talk about outstanding refinancing issues, we are basically only talking about the final repayment of the now reduced bridge loan from the ROBYG acquisition that currently stands at €250 million, and that should be a good position in which we are in the meanwhile.
Yes. Let's leave the highlight slide and go to page number nine. Just a few comments on the income statement that are important from our side. The net actual rent increased year-over-year by €6.8 million due to the good like-for-like development in Germany and the Polish rental business made its first contributions, €2.7 million. This number will increase in the course of 2023. And we can tell you that from 2023 onwards, we will also report FFO I in the sense that we divide here between the German and the Polish business.
The sales results that you've seen in P&L is coming mostly from our newly acquired subsidiary, ROBYG. Please be aware that if you look at the sales results, which is currently – or which has been €35.4 million is after impacts of the purchase price allocation. So with the acquisition of ROBYG, we have done a step-up in all the book reviews regarding also the for sale projects. That means on our level, accounting-wise, profits are lower, but the cash inflow is higher. We come back to that in a second.
I will comment valuation results later because this is, of course, a great interest, significantly the overall number already now. We recorded a slight valuation [ph] loss of 1.5% in financial year 2022, coming from the German portfolio. The Polish portfolio showed a slight valuation gain of €33 million. Other things like personnel expenses, like the net financial result in cash or like the cash taxes as far as the FFO I relevant stayed quite on the level of 2021 in the course of 2022.
Coming to page number 10, you see details regarding the EBITDA, FFO and AFFO calculation. Just to mention that the EBITDA margin for the German business has increased from 68% in 2021 to 69.2% in financial year 2022. That means basically we've achieved higher rental growth with the same cost base, which would be a good news.
Looking at the AFFO, I mean, the number is still not bad from my point of view, €102.8 million is total AFFO to determine business achieved before any refinancing of the CapEx and it is €10 million roughly lower than in the previous year. Why is that? The difference is basically the modernization CapEx, where we spent €18 million more in 2022 compared to 2021. And the reason for that is that we basically started now to do more regarding ESG CapEx. That means more modernization to bring our portfolio to climate neutrality.
On the right side of page number 10, you see some details on the results in Poland. If you want to draw your attention, especially to the EBITDA adjusted that we achieved in Poland €80.8 million, which is really a cash number. So this € 80.8 million is the EBITDA in Poland, leaving out any effects from purchase price location being out ratio results. So really cash that we generate in 2022, mainly from the sales business and to be deduct cash taxes, minorities and interest costs, we arrived at the €59 million that we already mentioned. So that shows that Poland in 2022 and really not the most easy market environment already they delivered a quite strong cash contribution to our result.
Page 11 shows the EPRA NTA development. We are now at €20.74 per share. Main impact on the NTA reduction was the ROBYG goodwill that we had to exclude per definition from the EPRA NTA, the capital increase that we have done in summer which was below the NTA clearly. And the portfolio relation in 2022 for the first time since many years delivered a slight reduction to the EPRA NTA, whereas in prior years, we always had here clearly a positive impact.
Page number 12 shows the refinancing. And again, from our point of view, when we talk about refinancing issues to be pickup in the future, we mainly talk about the €250 million bridge loan from the ROBYG acquisition. And knowing that we've been active in the acquisition program that we have also signed disposals after the balance sheet that we are in parallel working on further bank loans in Germany also on our unencumbered assets, we think it's very visible that we repay this bridge loan, hopefully quite soon.
And then looking at the maturity profile in 2024, 2025, what is coming up is then, again, mortgage secured bank loans in Germany to the largest part, where we've clearly seen over the last months and quarters, basically over last year that this is a very stable financing source. So that means the first material Capital Market Day/unsecured debt is coming in summer 2026 when the €470 million convertible bond is due, and that means we're really close to a situation where we're independent of capital market debt financing, and that should be a very good position for us.
The LTV at year-end 2022 stands at 46.7%, so slightly above LTV target, mainly because of valuation losses we had to record in the fourth quarter of 2022. All the financial debt pressure to add this, that is due in 2023 will be at least to the largest part, we paid now in March. So the €115 million promissory notes, the Polish bonds, also the bank loans that you see here have already been repaid or are now repaid. €125 million corporate bond is due in June this year. So this financial debt of - in total €409 million that you see in the maturity profile is repaid now quite quickly or has been repaid already.
Page 14 shows the development of like-for-like rental growth. As I said, good results here in 2022 with a total like-for-like rental growth of 2.7% compared to 1.3%. Looking at the total investments per square meter and you see this on the top right of the slide, we increased our spending to €24.6. If you include everything, some maintenance and CapEx from €20.9 and the difference, as you can see here on this chart is that the CapEx increased, and as I said, here, the increase - CapEx for more energetic modernization. But still the absolute level that we spent on the per square meter level that we spent is around close to €25 should be still a very manageable and a very targeted approach.
Page 15 shows the vacancy reduction in 2022, down by 110 basis points over the year. So we saw extremely and healthy letting results, and we expect also in 2023 that this trend will continue, perhaps another 110 basis points, it's too much to expect that we see simply strong demand for our properties in Germany at the moment, and that should be good news that the operational business in Germany is on a very good way.
Coming to slide number 16, let's discuss the portfolio ratio results. In the second half of 2022, we recorded a valuation loss on the German portfolio of 5.5% after a valuation gain of 4% in the first half. So that brings us for the full year to a slight valuation loss of 1.5% compared to 9% [ph] As said, the Polish portfolio saw valuation gains of €33 million. So the reason for the overall operation loss was due to the German portfolio and within the German portfolio due to yield expansion that we saw basically across all our regions. So there was not any region very much outstanding. It's still moderate, and we also expect that to be moderate.
So the portfolio stands now at a gross yield of 5.4% or per square meter value of 1,200 units. And if you ask us, well, what's our outlook for 2023, that's, first of all, clearly say, we are not giving here an official guidance. But for example, what - as we see when we currently sell in the market at a 5% or 10% discount or book related we can generate liquidity for us, and I think discussions with other experts bring us also in a similar range. Perhaps this could be a valuation trend for the financial year 2023 as well.
So 5% to 10% revenue reduction in the course of 2023. From our point of view, that could be a reasonable outlook, but that's the way what the actual results really deliver. And what does this mean? So for example, where does our LTV stands, if you, for example, have a 10% valuation decline in the course of financial year 2023. Well, if we exclude in a first step, all the sales results or plant sales, the LTV would go up roughly by 200 basis points.
But with the sales that we have already signed and that we are hopefully going to sign, there should not really be a big impact on the LTV. This scenario leaves out in the dividend payment, this deal [ph] as we propose the suspension dividend. So you see even such a value reduction would not really materially hurt our LTV. It is the risk high that there is more valuation decline. I mean, clearly, we have a lot of uncertainty, but we simply see that there's extremely strong demand also for our products and looking at the current gross yield of 5.4% in a world with higher interest rates, our portfolio still delivers a reasonable cash flow year to a potential acquirer. So therefore, we feel very comfortable. We positioned with a high leading portfolio in a higher interest rate world, and that gives us a lot of confidence that we are very much protected against any stronger valuation losses, which we are not expecting.
Coming to Poland, and I would like to continue on page number 19 with the sales business, we saw from our point of view, extremely positive development. So as you can see in this chart, in the first quarter of 2022 in Poland, we sold 706 units. We saw a strong reduction in the course of the second and third quarter, but currently, sales numbers are simply picking up.
So the fourth quarter was already the strongest quarter in the full year. And we can tell you that also in January and February, sales numbers have been increasing. So this trend in Poland of reduced sales has clearly reverted. Sales numbers are not only stable, they are increasing, and that shows us how much demand in this market is. And the outlook for 2023 should be quite positive when it comes to sales numbers.
Also knowing that the Polish government is about to set up a program for first-time homebuyers that should be implemented from July onwards that brings them basically the possibility for quite strongly subsidized loans, but it can take on a mortgage of around 2% so you can he market - market rate for the center perhaps 10%. So it's really an attractive program for first-time buyers of apartment and that refers to people under the age of 45 years.
So from this program, to what extent ever we clearly expect an additional demand for our sales projects in Poland, which are beside that already on a good way. And you see that we had an extremely strong fourth quarter, where we handed over more than 2,500 apartments and recognized strong sales revenues. So also this was a very good result from our team in Poland.
Page 20 shows you for the first time in a quite detailed and table on our rental portfolio in Poland. We have now 1,153 units in operation in Poland or to be more specific, it was the number at year-end 2022. The actual number is around 2,200 units. So we have completed also other projects in January, February and March. Out of this 1,100 at the end of financial year 2022, 360 have been in the market for more than 1 year. Looking at the like-for-like rental growth that these units achieved here north of 20%. So at the moment, Polish rental partners see simply very strong demand.
Vacancy rate is at a quite low level of 3.8%, which is then basically due to increased turnover that we have very naturally in an unregulated market. And looking at the 773 residential units that are in operations for less than 1 year, and to be more specific, most of these units are in operations since the end of the fourth quarter. This is also the reason why we still have a vacancy of 50% because we just basically started the letting processes.
If you look at the rents that we achieved here and you see the numbers, these are roughly 30% higher than planned about 1 year ago. So I mean we're not pointing now for a sustainable like-for-like rental growth of more than 20% in Poland. So this number, mid to long term, we clearly has normalized however, should remain that, but that gives an impression how this product is searched for in the market, this institutional rental business in Poland, we're very much convinced will have great success in the future.
Page 21 shows the development of the rental portfolio in Poland that we expect. As I said, we have already completed another roughly 1,100 units in the first week of 2023. So we have currently roughly 2,300 apartments in the market. We will finish other projects in the course of financial year 2024, so that at the current pipeline, we end at 3,350 units.
That's roughly 700 units less than what we communicated in the last conference call, the difference of the 700 units simply lies in effect that we decided to sell part of the units that were originally dedicated for the resi for rent. So 700 units are now in the process of being sold, and this is also part of the reason why we simply decreased our cash surplus in Poland, which was clearly our primary target.
So as said, we have currently stopped new projects. But once we really are in a situation where not only the Polish business where the cash surplus is from sales business, but where we are in a position to get simply also better access to financing, then we will restart the rental portfolio, but we will really - or the build-up of the rental portfolio, but we will really do this step-by-step and very carefully, and it's really up to us when we do it. So we're not here under pressure time-wise.
22, this page shows you some statistics about the Polish residential rental market. We see the strong rental growth at all the locations where we are active as seen. On top of that was Warsaw an increase in rents of around 34% on the right hand, which was 23%, so quite impressive numbers that you currently see in the Polish market. And we hope that we can give you more insights and an interesting tour in our Capital Markets Day that we are hosting in Warsaw at the end of April, guest have seen the final invitation that we've sent out yesterday evening, so it would be great if we can see many of you in Warsaw to discuss more interesting developments on Polish residential market.
And finally, guidance, I can make it short, so that's shown on page 24 because we leave everything unchanged compared to the numbers that we have published in November last year.
That's it from my side. And thank you so far for listening to the presentation. But of course, I'm now very happy to answer your questions.
Question-and-Answer Session
Operator
Thank you, sir. Ladies and gentlemen, at this time, we will begin the question-and-answer session. [Operator Instructions] Our first question is from John Wong [ph] of Kempen. Please go ahead.
Unidentified Analyst
Hi, guys. Good morning. Thank you for taking my questions. I think in the press release, you mentioned about the disposal base for 2023. You mentioned that momentum from Q4 has carried well into the first two months. Could you provide a bit more color on this, Martin?
Martin Thiel
Yes. Good morning, John. And please understand that we cannot publish all the details yet because in some cases, we are already in the process of signing. And as said, 900 units have been sold in the fourth quarter, we're positive that we achieved even more in the first quarter of 2023. So that we get additional cash proceeds, which are north of that what we have achieved in the full year of 2022.
So just to give you a dimension. I mean, we always said, the purpose of the disposal program is to repay the bridge loan. So the bridge loan amount to €250 million. If we achieve half of that quite quickly with asset disposal proceeds and perhaps take the remaining 50% or we pay the remaining 50% buying bank loans, that's perhaps a very visible outcome.
And if you ask us well, what happens with the disposal program once we repay the bridge loan, that's not then, and I think this is also good news. There's no pressure on us to continue this disposal program. So we will look, as I said in the press release, more opportunistically in the market. But basically, we can stop that.
So we think that's an advantage that we have in the current very difficult [ph] transaction market that we simply have a disposal program, which is from its size limited. So we are very close to getting it done. Again, if you look at what we have sold in the fourth quarter, perhaps that's a good estimate and perhaps we achieved even a little bit more in the first quarter and we will come back with details in two months when we publish the Q1 figures.
Unidentified Analyst
Okay. Thank you. That's clear. And maybe on rent multiples on the Q1 sales. Anything you could provide in terms of color there. Is it similar to what you have done in Q4?
Martin Thiel
Yes, it was a little bit more lower building [ph] assets. And so therefore, I mean, we're not specifically selling one type of assets. So our strategy over was to sell, or should I say, a little bit of everything. And looking at the sales from the last week, these are more than assets with lower multiples, lower yields that we sold compared to what we have given as numbers for the full year 2022.
Unidentified Analyst
That's, okay. All right, thanks. Maybe on Poland, the 22% like-for-like rental growth you posted in Watlass [ph] screen is rather impressive. But it's still a bit lower than the average rental growth at plus 27%. And looking at the average rents per square meter, it's also a bit lower. Could you maybe give a bit more color on that?
Martin Thiel
Yes. The main reason for that is that in Watlass a larger part of the units that we have in the market for more than 1 year is more - it's not in the up curve [ph] but it's more away from the city center. So what we have finished in the course of 2022, this is in more central location of Watlass where we expect a stronger rental growth than compared to other apartments what we have in the market for more than 1 year. So perhaps a little bit due to this reason. But in general, we think the numbers are – is pretty quite well.
Unidentified Analyst
Yes, that's definitely true. Maybe on the overall market rental growth and how does this relate to affordability in Polish resi?
Martin Thiel
Yes. I mean, basically, we are slightly above inflation in Poland. Inflation rates in Poland are 15%, 16%, like-for-like rental growth is 22%. So we are outperforming inflation. Steady growth in Poland is clearly in a double-digit number. And we're benefiting from that because that makes the apartments, whether we talk about rental business, whether we talk about the sales business still affordable.
And if we look in our own cost structure, yes, clearly also, we have to increase quite strongly the salaries for our people that are really doing a great job. But on the other side, looking at the absolute amount on a group level, this is still and very manageable. So therefore, it's good to have this seller [ph] growth in Poland that keeps the apartments affordable. So we've not really seen a weakening of affordability ratios in Poland, not only in 2022, but also over the last years in total.
Unidentified Analyst
Okay. That's clear. Thanks. That's it from side.
Operator
Thank you. The next question is from Andres Toome of Green Street. Please go ahead.
Andres Toome
Hi, good morning. So my first question was around disposals. And just to get a better handle, whether any of these disposals are, I guess, sold through SPVs and the buyer has also assumed the in-place debt?
Martin Thiel
Yeah, good morning. This is the case. I mean, in some cases, we are selling or we've sold it to cash buyers, but also in other cases, the buyer clearly needs to take on debt. And it is clearly in this environment, and how should I say it, former times once you signed portfolio, this total, it was clear, while this you go through, nowadays it still need to wait for the closing so that buyer has taken on all the debt that you need for that, normally natural process.
So therefore, as you see today, we are also a little bit careful in communicating really final numbers. But if you - if your question is from the direction that all disposals that we signed after balance sheet needs are perhaps at risk because the closing is not coming? No, that's not the case.
Andres Toome
So what I meant mostly was whether the buyer was able to benefit from lower in place debt you might have had in the SPV versus taking on sort of new debt to finance it?
Martin Thiel
Yes. No, this is normally not a factor. So if we sell a full SVP, normally you get all the change of control mechanism embedded. So therefore, we added opportunity that the buyer has, but then it's up to the bank, whether it decides to continue with the contract or not. So that's not really a selling argument that we have. And I think this is a normal situation that is the bank loan is due if we sell SVB.
Andres Toome
Understood. And have you had any sort of recent discussions with credit rating agencies as well, given there's been some decent progress on liquidity front?
Martin Thiel
Yes. I mean, basically, a continuous dialogue with Moody's and with S&P, I think they are very well aware of our good development that we really make progress on that. So in terms of further rating, I'm absolute because we're not concerned that something TAG specific leads to a more negative discussion.
But I mean we clearly need to be all aware of that it's also important how in general rating agencies look, for example, at the term residential market. So if they change that to a more negative view, yes, of course, this can then again be for all companies, something that affects the rating. Do I expect is currently? No, that's not the case, but that's not really in our hands. So we do everything that we can. And I think here, we are on a very good way, and this is also seen by the rating agencies.
Andres Toome
And my third question was around the refinancing interest rate. You sort of alluded to 3.2%, which sounds very tight against swap rates. So maybe you can give a bit of color around there, how that all-in financing costs come about?
Martin Thiel
This was in all in the course of financial year 2020 to '22 [ph] And we had here maturities also, and for example, 5 years. So today, the refinancing rates would be higher. So if we look at current bank loans where we are in the process of negotiating that, I would say margins are for 5 to 10 years, perhaps between 100 and 130 basis points. So on top of that comes the 5 or 10-year swap rate. So we hear more slightly north of 4% currently for really new incremental bank loans. But we also had times during the course of 2022, where we were able to simply use some weeks of lower interest rates to get these bank loans done.
Andres Toome
Okay. And my last question is just around the trajectory for vacancy. Obviously, there's been a lot of progress in 2022. And as you said, you won't expect as much for this year. But what's sort of your take for the full year? And how much are you seeing immigration benefiting locations?
Martin Thiel
Well, our guidance, if you remember, that go with these stands at a reduction of further 30 to 50 basis points. And back this was more a conservative one, so that we achieve more. But once we have a vacancy [ph] rate of 4.4%, another 110 basis points reduction would already bring to 3.3%. So once we get simply to a low vacancy rate page, perhaps also reduction speed is a little bit lower. But in generally is still benefiting also from the strong inflow of people from the Ukraine that really puts pressure - put additional demand on the residential market.
So I'm very sure when we report in the course of 2023, we will see again a good development in vacancy rates. But as always, the first quarter will be a little bit weaker. But thereafter, we simply see that this is on a very good way.
Andres Toome
Thank you. That's it from me.
Operator
Thank you. The next question is from Céline Soo-Huynh of Barclays. Please go ahead.
Céline Soo-Huynh
Hi, Martin. Can you hear me?
Martin Thiel
Yes. Good morning, Céline.
Céline Soo-Huynh
Hi, Martin. I have two questions on Poland, please. First one being, can you confirm whether presale is for Poland currently and specifically for the units completing this year? Second part would be for the unit - all the units under construction? That will be my first question.
And the second question, you reiterated the FFO II guidance that was published last year, and it was before all the announcements around the Polish government support for first-time buyers. Is there any room for improvement this year or next? I guess, not on the volumes, but what about pricing and margins? Thank you.
Martin Thiel
We'll start with the last question. So yes, perhaps we can sell more in 2023 than what we originally expected. So I think the guidance for sales numbers in Poland for the full year 2023 is around 2,500, 2,600 units. So yes, perhaps we can do more, not only because as of now, we see better sales numbers, especially when this government program kicks in from the 1st of July onwards, that could be a driver.
But if you – you need to be aware that there's a difference between the point of time we sell an apartment and the point in time that we realized the related revenue, which is always done when we hand over the apartment. So normally, an apartment that we sell in 2023 is handed over in 2024. So this is perhaps been more a driver for our earnings for 2024.
And the presale ratio for everything that is handed over and - or plan to be handed over in 2023 stood at year-end already at 75%. In the meanwhile, I don't want to see the actual numbers from February or from March ahead, but I expect that this is more close to 80%. So this is compared also with previous years already a very good presale ratio.
And for the assets, all assets under construction, and clearly, the number is lower, but normally, we always have good visibility on at least 1 year in advance regarding the presale ratio. So if I look at that numbers compared to all the years before, and you know that we now for some years already active on the Polish market, we don't see here a decline in this presale ratio. So that gives us quite a lot of visibility towards our cash flows and towards our earnings in 2023, and that as already clear.
Céline Soo-Huynh
Thank you.
Operator
Thank you very much. The next question is from Kai Klose of Berenberg. Please go ahead.
Kai Klose
Yes, good morning. I've got three quick questions. The first one is on page 39 of the presentation where you now refer more on the ICR, including sales results. And on page 40, you show the ICR covenant. I just want to check the ICR covenant includes the results from sales. So it's the 7.4 times compared to 1.8% and not just the ICR from the rental business?
Martin Thiel
No. For the covenant, and thanks for the question. Kai, it's the rental covenant, so the 5.6, that's relevant for the covenant. But still, I would say, a lot of headroom under this covenant.
Kai Klose
Okay, thanks. And the second question, you mentioned it was about 5% to 10% on the sales - portfolio sales, 5% to 10% discount. I just want to check, was this the latest unaffected value as of June '22 or December '21? Or was this restated where you would reduce revenue as of December '22?
Martin Thiel
So this refers to the reduced revenue or to renew as of December 2022.
Kai Klose
Okay. Thank you. And two last questions. Third one would be, could you indicate what was - or if there was any specific reasons for the quite strong reduction in vacancy rates in the Gera portfolio. I think it's on page in 31 which decreased a little bit more than in other locations?
Martin Thiel
Yes. I mean, Gera has simply seen a good development, and there was not any specific impact, for example, from messages from the Ukraine or at least not more in other regions. But Gera saw development has also some larger companies like Amazon have opened new factories or warehouses. And we simply provide for potential tenants and Gera a good product.
So we are also the largest landlord in Gera. And compared to the competition that we have into the market, I would say that we simply provide the best products here in the market and also the team is doing a very good job.
So I would say there's more overall market trend and we're very pleased that as we know that this is not the easiest location that we could show such a good progress here in 2022. And by the way, that still continues as of today.
Kai Klose
Perfect. And last question would be regarding the total amount of maintenance CapEx spend, which was 22 - in '22, a little bit more than in the two previous years. And is it reasonable to assume that in '23, we will be back to the 2021 units per square meter? Or is it the increase also driven by the higher construction costs...
Martin Thiel
I think it's reasonable to expect a similar level like 2022, so more towards the €25. And clearly, construction costs are higher and that has a certain impact. But I think the more material impact is that we're simply doing more now when it comes to modernization because of the need to bring the portfolio to climate neutrality. I mean this is, of course, a long-term project that you've seen our applicable vision [ph] strategy and the specific amount that we've given 1 year ago.
So we are on the way. We simply need to start. This is not a plan now to reduce CapEx dramatically. That's our advantage is that looking at the overall amount this is still something that's manageable. And comparing that with CapEx in Poland, herein Poland, it's really kind of material cash savings if we stop or reduce CapEx. But in Germany, we simply continue with our programs.
And as to date, we simply do more because we do more for energetic monetization than in the prior year. So I would expect - I mean, CapEx is always something a little bit cyclical, but that is in 2023, more towards the 2022 number than towards the 2021 number.
Kai Klose
Understood.
Operator
Thank you. The next question is from Marios Pastou of Societe Generale. Please go ahead.
Marios Pastou
Hi, good morning. Thanks for taking my questions. Just to bring it back to the disposals you confirmed in Germany. So firstly, can you just confirm how many of the 900 units you're concerned for the fourth quarter related to the same €40 million of disposals, which was due to close during the last quarter and how many of those were actually new disposals? Thank you.
Martin Thiel
Well, these were all complete new disposals and the €40 million that we have communicated before, this has closed in the fourth quarter.
Marios Pastou
Okay. So the 900 units are in addition to those additionally agreed units...
Martin Thiel
Yes.
Marios Pastou
Okay. And then just to confirm how many of the 2,500 units you've targeted for disposal this year still remain? And is there sort of a target due to solomian [ph]
Martin Thiel
As I said, just to give a rough, rough number, I mean, if we say we've continued in the first weeks of 2023 with a similar speed like in the fourth quarter, again, we will give the details at the Q1 numbers, that would mean that we roughly have sold another 1,000 units. And so that means the remaining disposal programs than perhaps at 1,500 units, which is already a manageable - manageable number.
And again, if you see that the transaction market that becoming more delicate, also an alternative for the last steps in our refinancing, which is the breakdown is there, which is the German bank [ph] in terms on what we're working on. So - but you should assume that the remaining disposal program is more in an amount of perhaps 1,500 units, just to give you a rough indication.
Marios Pastou
Very helpful. Thank you very much.
Operator
Thank you. The next question is from Orlando Gemes of Fairwater Capital. Please go ahead.
Orlando Gemes
Hi. Thank you very much. I have probably four questions. Firstly, I'd like to address the debt. Could you clarify whether the promissory notes pari-passu with the convertible bonds and also with the Polish lot [ph] corporate bonds, if they are also pari-passu?
Martin Thiel
Yes. This is our pari-passu. So Orlando, good morning. Questions a little bit hard to understand. So this Stroti [ph] bonds that we've issued basically, it was an extension of an already issued pari-passu bond in the past. And also the promissory note that we issued in Germany were absolutely in line with what we have done in the past.
Orlando Gemes
Sorry. So to clarify, they're all pari-passu?
Martin Thiel
I'm not sure if I get your question right. So they absolutely pari-passu with all other unsecured debt. So there's not anything preferred or secured. That's not the case.
Orlando Gemes
Okay. And for the promissory notes, there is a step-up of 50 basis points if you're downgraded below investment grade at S&P?
Martin Thiel
That's correct. And that's only true for the promissory notes. So looking in all our other financial debt, whether this is bank loans or convertible bonds or corporate bonds, there's no step up only in this promissory notes in Germany in total, I think it's not the full €85, it's only €75 million. That would see a step-up of 50 basis points if we are not investment rated by S&P as well.
Orlando Gemes
Okay. And it is now your assessment and your bank's assessment that it is cheaper to access debt through these markets rather than the corporate bond market?
Martin Thiel
Sorry, can you repeat this question?
Orlando Gemes
It is your assessment and the assessment of your banks that is now cheaper to access debt funding from promissory notes and from bank financing than from the corporate bond market/
Martin Thiel
Yes. That's clearly our assessment. I mean the corporate bond market is at the moment extremely difficult. So that's not our plan to go to this market at the moment. I mean, difficult to give you really a pricing because we have, as you know, simply no outstanding larger benchmark corporate bonds. I mean the two corporate bonds that we have outstanding were basically private placements in each of them €125 million.
So to give you an exact pricing is extremely difficult, but comparing debt to financing conditions that we achieved with these smaller promissory notes or very clearly with the bank count that for sure, more expensive.
Orlando Gemes
Okay. Thank you. Now I'd like to address in Poland in terms of the total investment cost that we build to hold and the build to sell portfolio is a meaningful difference of €2,200 versus €1,800. Could you address why that is?
Martin Thiel
Yes. It's clear. First of all, just also to make this clear, the total investment costs also include the land bank. So that's not only construction costs. It's really everything land bank, plus construction. And when it comes then to an apartment that we sell in Poland, and Poland has always sold without what we call fit out. So that means there's no flow in there. There are no doors in there. There is no bathroom. There is no kitchen. I mean you have, of course, clearly ecosystem and windows, but you sell basically a kind of shelf that's absolutely market standard in Poland.
And if we went on apartment, clearly we need to bring all this in. So this €400 per square meter difference is what we need to invest as a landlord simply to, again, put in the floor, bringing a kitchen, do the bathroom and things like that, that's the difference. Quality wise, it's not really a difference between apartment that we sell or an apartment that we rent.
Orlando Gemes
Okay. That's helpful. Then I'd just like to ask a question about your ABO strategy, the AMB [ph] cities. I was looking through the different regions. And when looking at a city like Dresden with an in-place yield of 4.6%, or comparing that to Berlin at 4.5%. I'm wondering why that relationship is attractive to you. Why is Dresden attractive compared to Berlin when the yields are basically the same?
Martin Thiel
You know that our Berlin portfolio is a portfolio that completely consists of units that are in the Berlin commuter belts. So that's not the city of Berlin. These are locations like [indiscernible] these are all the smaller cities that have a good, for example, public train connection to Berlin. So that's a good example of our ABO strategy. The Berlin airway Toronto, and ACTV [ph] that our location within this area, the area is then more the B location, which is they're not Berlin City Center, but something which is then more we need to think about.
So therefore, we think it's very much in line with our strategy and we trust as well. Its 100 of the portfolio located in really key location, I would say, well, there's a lot of units in region – and its A location, but also have - good to have a good mixture in this regard. But the overall strategy is absolutely unchanged and follows this ABO approach.
Orlando Gemes
Okay. But when looking at the portfolio in detail, if the region of Berlin is satellite cities, then when we look at something like Leipzig, Gera is a satellite city to Leipzig. So that actually means that in the Leipzig area you have almost 22,000 apartments. So there's somewhat of an inconsistency in the way the portfolio is broken down in that portfolio - in that distribution.
Finally, I'd like to come back to corporate governance, and this is something we've discussed in the past. But I just want to kind of get a clarification as to why TAG is a total stand-alone in not appointing a CEO? And I suppose I'd also like to note - to have clarifications who is the final decision maker when it comes to strategy for this company?
Martin Thiel
First of all, Orlando I'm also a little bit smiling about the comment to [indiscernible] So if you ask the people Gera they would strongly disagree with that. We would always say they're city on their own, which is the case, by the way. No, but – and back to your question...
Orlando Gemes
Not smart sales and people. So we're not talking about a big city here, so. Okay. That's fine...
Martin Thiel
That's 100,000 people 100,000. Good. But coming back to your question about corporate governance. Well, this management structure is in place now since 9 years. So since November 2014, if I remember that correctly, basically as of today. So as of today, so there is infrastructure with Claudia Hoyer, my colleague as a CEO, responsible for all the operational areas and me as a CFO responsible for the typical CFO functions. And if you ask, who is doing the strategic decisions, well, in a two men or two people mentioned Board that's quite easy that it's up to us to do this.
Where strategic decisions like this investments in Poland, clearly, this is something that we discuss intensively between us. And of course, I mean, for such strategic decisions, we always need the consent of our Supervisory Board. It is always for our company. I know that it's unusual personal CEO, but if you ask, for example, our own people here at TAG, I think for no one, this is really a point. And we think that works quite well for many years. So therefore, no more if behind...
Orlando Gemes
Yes. I suppose I would argue, and I think we've seen that the world has changed a lot and what may have worked in an environment of low interest rates and increasing prices may require a different structure. And I think having two people is already a very small number, but particularly in a world that is as complicated as this as we've seen from the capital raise, plus the impressive growth in your business in Poland. I think there's a real question of why this is a standalone structure and whether it is - continues to be fit for purpose in this environment. So I think it's really worthy of consideration of whether you have enough senior people there. It's – so thank you very much.
Martin Thiel
Good. Thank you.
Operator
Thank you. The next question is from Simon Stippig of Warburg Research. Please go ahead.
Simon Stippig
Hi, good morning. Thank you very much for giving the opportunity to asking questions. I have a couple of questions. First one would be in regard to the portfolio valuation. And could you give some more insight into the characteristics of the valuation, for example, the regional valuations, let's say, but you just mentioned commuter belts, but then also what you see in the cities, that would be helpful?
Martin Thiel
Yes. Good morning, Simon, I can make this cut short. So we did not really see here significant differences between regions, also between type of assets. You know the discussion that potentially assets, but a better energy efficiency rating perform better in these days and with a lower energy efficiency rating. I think clearly, mid to long term, this must be the case.
Have you seen this integration results, 2022 already? No, that's not the case. I would personally also expect that in a role of high interest rates, rate if we have good building, producing higher yields in a reasonable or good location that should perform better than a building that has a very low valuation yield.
Did we already observed this in the 2022 valuation result? No, that's not the case. Obviously a little bit surprisingly that it was really throughout the portfolio, a very, very similar development that we've seen. So as always, of course, there are differences, but not really something material where I can today see well this is a clear trend in the operation.
Simon Stippig
Okay. Great. But you also had the comparison between, let's say, suburbs or commuter belts and also you sold - or the valuation within your cities? Just to make sure that you have actually this comparison not only in energy efficiency, et cetera, but also from cities to, let's say, maybe a year expansion to suburbs?
Martin Thiel
For that, it was not really a big difference. And I'm just to give you an idea how we look at such valuation result. So if, for example, a certain location sees a valuation reduction of 3% in another location sees a valuation reduction of 4% or 5%. We don't start because it's 1 percentage point or 2 percentage point difference say, well, that's extremely different regulation development.
So knowing that, of course, every valuation is an estimate offers a certain range, this is more or less for us a similar development. So that one should not put too much effort into pushing the last percentage point in valuation result. Again, this was very similar throughout the portfolio.
Simon Stippig
Okay. And then have you anything seen in that regard in your disposals?
Martin Thiel
Yes. Different types of disposals that are doable. They give you just some examples, what has worked, what has worked is selling really as kind of noncore asset portfolio to a local investor at high yield, that is something that works. What is also selling - working is selling lower-yielding assets in a location like testing to poor equity buyer.
What is also working is selling assets to companies that doing the privatization business because for them, if they take on that more expensive debt, it's not that a problem because they say, well, anyway you want to sell down the portfolio in the next 2 to 3 years. So that's perhaps the type of buyer not a new at 100%, but to the larger part where we're currently selling to.
Simon Stippig
Okay. And that will answer my next question. Who is the buyer of the portfolio? So as I understood correctly, it's a local buyer and then a specialist buyer who would privatize apartments. But on top of that, any other buyer?
Martin Thiel
Yes, then take my written example. That's been a good product, if I don't know, 200 unit portfolio increased in a very low vacancy rate already at a low yield is then bought buyer – buyer with more equity like a family office. And that's also something that we see.
But again, I'm a little bit careful with saying this is very representative in the whole market because still our numbers in total are not really representative in talking about the market, but at least we can give you this observation.
Simon Stippig
Okay. Great. And then what you mentioned in regard to valuation, you said that if there is a 5% to 10% decline in valuation in the German portfolio and do over 2023, then your LTV would raise by 200 basis points. Have you had - or what's your best guess in regard to credit rating? How would that would actually change? And then the consequences out of it for your debt and for your refinancing costs?
Martin Thiel
Well, that would be still in line with the limits that we've been given by the rating agencies, and this increase would be without any disposal proceeds, just to make this clear. As we continue to sell and have signed something that should be then have an LTV reducing impact. So just to give you a rough number, if we complete the full disposal program and if we would see a 10% inflation decline, the LTV would largely remain unchanged.
Simon Stippig
Okay. Great. And just to confirm again, the pull or the remaining disposal program, not including your sales up until now during Q1 2023, it's 1.5k units. Is that right?
Martin Thiel
Yes.
Simon Stippig
Okay, great. And then just one more thing in regard to the bonds. So you mentioned that you're in the process of paying back the bond especially corporate bond, €125 million in volume. Could you give - could you provide a bit more of insights in that regard, please?
Martin Thiel
Sorry, I'm not sure if I get your question right, the bond is due in the middle of June, I think, in 2024...
Simon Stippig
Yes...
Martin Thiel
That's currently not in a plan to refinance that. So in the sense of that we then go to the bond market and issue a new corporate bond. So we simply put - pay it back from cash at hand or also from basically refinancing from debt counts.
Simon Stippig
Okay. Great. And then last question on your presentation slide 21, you're showing the buildup of the rental portfolio in Poland. And so I wonder, at the H2 '23 you have no additional units. And is that a function out of your stopped investments into Poland?
Martin Thiel
No. I think it's more a function of the fact that we decided to sell the - I mentioned the 700 units that originally have been in the process of being a rental product. So therefore, there's a small gap of some month in between where we do not finish rental projects as we have decided to sell this roughly 700 units. That's the main...
Simon Stippig
Okay, great. Thank you.
Operator
Thank you very much. The next question is from Rob Jones of BNP Paribas Exane. Please go ahead.
Rob Jones
Good morning. Can you hear me, okay?
Martin Thiel
Yes. Good morning.
Rob Jones
Great. Perfect. So three questions. One is on the potential for kind of Polish first-time buyer initiatives. I wonder if you've got any info in terms of the upper limit in terms of property value that, that policy or potential policy for first-time buyers might relate to x €100,000 [ph] et cetera. And then comparing that to your average selling price because I'm trying to take a view in terms of the percentage of your potential Polish assets that have been constructed and sold, how many of them might be eligible for a potential first-time buyer scheme. So that's question one of three.
The second one is around portfolio valuation. So on slide 33, you give a breakdown in terms of the valuation details by location. On initial glance, it looks to me as if the regions with the lower in-place multiples, i.e. higher yielding have seen a larger magnitude of capital value decline, i.e., the kind of thesis that high-yielding assets from a convexity perspective might not see as much in the way of value decline potentially is not the case so far, i.e., the kind of low-yielding prime product maybe as a relative outperformer on a capital value perspective. So just kind of a yes or no on that.
And then the final one from my side is around a statement that you made during the call, which I think word for word, you said corporate bond market extremely difficult. And I wonder if you could be very specific from your individual circumstances to say why you believe it's difficult, not kind of wider market commentary, but from your perspective, is it you've gone to the banks, and they've said, guys, you've got no chance of raising any unsecured or some sort of kind of company-specific halo disclosure that would really help me. Those are my three questions. Thanks so much.
Martin Thiel
Yes. Thanks for the questions, Rob. So start with the first one. This program that the government - Polish government has now decided to implement, I mean, there are final steps in the sense of that it passes the parliament need to be done, but that should be more technical see [ph] that these subsidies are granted to buyers who buy for the first time an apartment who are below 45 years old, and the maximum mortgage that is subsidized is PLN 600,000. PLN 600,000. That's roughly €130,000. And that is, I would say, enough for 95% of our partners.
And I mean we are selling in Poland the product, which is for the - for the typical project. It's a smaller apartment of around 45, 50 square meters. So this very much fits to what we sell in the market. So that means we could really benefit from that. And let's see how this develops, but that should clearly be - hopefully, but strong contribution to our sales numbers.
And again, yes, you're right, you can analyze the valuation results in very detail and say, well, this is perhaps 1 percentage per more or 1 percentage point less and would not really start reading a trend from these results. So again, knowing that evaluation is always an estimate over through the range, if there's a percentage point more or percentage but less, I would not really start reading a trend. And if you ask us for our personal opinion, again, I would expect personally, that in the future billings perform better with a higher energy efficiency ratio, which is good for us because we know that we have a high share of billings already in the higher energy efficiency classes. And that also, as we are in about with higher interest rates, higher yielding getting assets – asset should also vertically be something that's less vulnerable against valuation losses. So the general statement, again, that's not too much to put into - also to read from their specific numbers.
And when I talk about difficult corporate bond markets, I mean - and they do this very simple, if we look at where trading - where bonds are trading from companies that are better rated, like Vonovia or look at Quinity [ph] or around town, I mean what would be a coupon that we currently need to pay that's more towards 7%, 8%. So that basically stops the discussion or any plans of going to the corporate bond market. So that's more the conclusion that we draw from this, but it's not necessary for us.
And that's also - that's again worth pointing out when we finished the disposal program, which is not really needed in large size, what is coming up is mortgage secured bank financing in Germany also next year, that should always be reliable finance sales. And we have a strong cash flow from our own business. So not only for Germany, this is also true for Poland.
So therefore, we are really very close to the situation or have basically - we've already achieved it, where we're not dependent on the corporate bond market. And yes, I mean, who knows how the development is. That's not in 2023, but in the next 1 or 2 years, perhaps margins are coming down, but interest rates are also coming a little bit down. And then that is, of course, a market that we would look or start looking again.
Operator
Does that answer your questions, Rob? In turn, it would appear we have no further questions in the queue. And I would like to hand the conference back to Martin Thiel for some closing comments.
Martin Thiel
Yes. Many thanks for taking part in this call. As always, if you have any questions left, please be free to contact us directly. And finally, again, hopefully, we see a lot of you at our Capital Markets Day in also in the end of April will be a good opportunity to present our team and our operations there. So looking forward to that. Have a nice day and talk soon.
Operator
Thank you very much, sir. Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.
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TAG Immobilien AG (TAGOF) Q4 2022 Earnings Call Transcript