Earnings call: TAG reports stable outlook and strategic refinancing

TAG Immobilien AG (TEGG) has announced its Full Year 2023 financial results, with a stable outlook for the upcoming year. Despite a 9% decrease in Funds from Operations I (FFO I) to €172 million due to higher financing costs, the company met its guidance and reported a better operational EBITDA compared to the previous year.

Funds from Operations II (FFO II) exceeded expectations, reaching €255.6 million, a 3% rise from the previous year, bolstered by strong sales in Poland. TAG's CEO, Martin Thiel, expressed optimism for market conditions in 2024 and detailed the company's strategic refinancing and asset disposal plans aimed at maintaining a healthy loan-to-value (LTV) ratio and enhancing liquidity.

Key Takeaways

• FFO I reached €172 million, aligning with guidance but showing a 9% year-over-year reduction.
• Operational EBITDA improved, with lower vacancy rates and rental growth in Germany.
• FFO II exceeded expectations at €255.6 million, a 3% increase, driven by robust sales in Poland.
• TAG expects stable FFO I in 2024 and a reduction in FFO II due to lower sales in Poland.
• The company completed a €250 million sales program in Germany and plans further asset sales in 2024.
• Loan-to-value ratio stands at 47%, near the 45% target, with stable or improving credit ratings anticipated.
• Dividend for 2024 is suspended, with a decision on potential dividend later in the year.
• Rental portfolio in Poland shows strong growth and low vacancy rates, with plans for further expansion.
• The company has a strong cash position and is actively refinancing existing projects.

Company Outlook

• TAG forecasts stable FFO I and a decrease in FFO II for 2024.
• The company plans to continue asset sales in Germany to maintain LTV targets.
• Anticipated stronger rental growth in Germany due to favorable market conditions.
• Optimism about market conditions improving in 2024, with active searches for asset disposal opportunities.

Bearish Highlights

• FFO I declined by 9% year-over-year due to increased financing costs.
• Valuation losses in Germany have slowed but remain a factor.
• A proposed suspension of the dividend for 2024 reflects caution in financial planning.

Bullish Highlights

• Strong sales performance in Poland contributed to exceeding FFO II expectations.
• TAG's rental portfolio in Poland showcased low vacancy rates and significant sales growth.
• The company successfully disposed of assets, generating nearly €190 million in net cash proceeds.

Misses

• Despite robust operational performance, the company experienced valuation losses.
• The reduction in FFO I was a miss compared to the previous year's figures.

Q&A Highlights

• TAG clarified a previous statement about valuation declines, confirming a 20% decrease instead of 30%.
• The company expects to generate €100 million in net disposal proceeds in 2024.
• Thiel discussed the importance of increasing the share of women on the supervisory board and the appointment of Gabriela Gryger.
• Rental growth is expected to increase, particularly in the upcoming rental tables.

The company's strategic moves, such as asset disposals and refinancing efforts, demonstrate a proactive approach to maintaining financial stability and growth. With a focus on energy efficiency and alignment with bank requirements, TAG is positioning itself favorably for future lending opportunities.

The company's leadership, represented by Martin Thiel, appears confident in navigating the challenges ahead and capitalizing on market improvements in 2024.

Full transcript - Tag Immobilien AG (TEGG) Q4 2023:

Martin Thiel: Gentlemen, thanks and good morning all. This is Martin from TAG and many thanks for dialing into our Full Year 2023 Conference Call. As always, I will try to give you a short presentation, point out the main messages from our side and then afterwards, of course, we have plenty of time to discuss the results. So let's start with Page 4, which is a comprehensive summary of the, from our point of view, main messages we want to give today. Firstly, we have achieved our FFO I guidance. So FFO I came out basically exactly in the middle of the guidance range at around €172 million. This corresponds to a reduction of 9% year-on-year. But this reduction is purely due to higher financing cost. So analyzing this a little bit more in detail, the EBITDA for the operational results was even better than in the previous year. On the one side in Germany, a little bit lower EBITDA due to disposals that we had not only in 2023, but also in 2022. But the Polish EBITDA from the rental business kicked in now stronger. So therefore, operationally, in terms of EBITDA, we've been better than in the previous year. But also the German portfolio performed quite well. Just to give some highlights, the vacancy rate in the residential units was down to 4.0%, so down by 50 basis points in the course of the year and we achieved a total like-for-like rental growth in Germany of 2.3%. Secondly, we have upbeat our FFO II guidance due to a very strong sales result in Poland. So FFO II came out at €255.6 million. This is even more than last year so 3% increase year-on-year and also quite significantly above the guidance that we have given, which was between €240 million to €246 million. The EBITDA from our sales business in Poland reached more than €100 million and the adjusted net income from this Polish sales business came out at €82.8 million compared to €59.3 million in the previous year. So a quite strong increase in our sales result in Poland and even a little bit better than we expected. So Poland in general performed very well. You see this in the third point of the slide. The rental portfolio in Poland comprises in the meanwhile, at year end 2023, 2,400 finished units, so units under operation. Further 1,400 units are under construction like-for-like rental growth was still at 11%, which is from our point of view very strong. And the vacancy rate for the units, which were in operation for more than one year, was down to a very low 2.2%. Perhaps even more impressive was the sales result from our point of view; we sold in Poland nearly 3,600 units last year. And looking at the total sales volume that increased to nearly €480 million in 2023, compared to €265 million in the financial year 2022. So a very strong increase, not only in sales numbers, but also in sales prices. I will come back to that a little bit later in more detail. Of course, very interesting in this results call is for sure the valuation result. So we recorded another valuation loss of 4.1% in the second half. But this relation loss was already much lower than the loss that we have recorded in the first half, which was 7.4%. So, we clearly see that valuation losses are slowing down, that we are reaching perhaps the bottom of the valuation levels in Germany. We have recorded in the last 18 months already 16% of valuation in absolute amounts that's €1.1 billion. So therefore we've done already a lot and therefore we expect not really material relation losses in the course of 2024. But I will come back to this also a little bit later. Disposals in Germany were quite successful in 2023. So nearly 1,400 units sold. Total sales volume of more than €213 and net cash proceeds, so that means after repayment of respective bank loans of nearly €190. The average gross yield of the units sold in Germany stood at 4.3%. And despite the quite significant relation losses we recorded in the course of 2023, and as point number five and I think this is also a very important point for today. The LTV was stable. So we started in the year with 46.7% at year end 2023 came out at 47.0%. And we think this is definitely a good message. So we were able to keep the leverage stable with the measures that we have taken. So on one side, the good operational business, clearly strong sales results in Poland. But also the successful disposals in Germany helped in this regard. And also the dividend suspension in financial year 2023 was something that helped us in caping the LTV at that level. Looking forward, I think we are not too far away from our LTV target. We will also discuss this on the following slide. Also important to mention, net debt to EBITDA and the ICR stand at strong 9.3 times and 6.0 times. So also the cash numbers, when we look at leverage metrics, are in very good shape. Coming to the next slide, I mean, we have discussed already some of the main numbers. I won't go through it in details, but just pointing at the FFO per share metrics. FFO I came out as guided at €0.98 per share and FFO II, and this is something I want to highlight, came out at €1.46. So if you compare this €1.46 with yesterday's closing price for the shares, which were around €12.30, it's a 12% FFO II yield. And this is something we want to point out again. So please also look at FFO II when analyzing our results, because FFO II also includes a recurring business, recurring earnings, which is coming from our sales business in Poland. So this is in the meanwhile, and has also been last year an important part of our sales result and our overall results. Coming to Slide 6, just want to show you, if you look at the column with the fourth quarter results, that as expected, this was very strong in Poland. You know that this has a seasonality to sales business. So we are recognizing the profit in the P&L on the very last day, meaning when we hand over the apartments to our customers, and this is to the very largest part, always in the fourth quarter of a year. So in the fourth quarter of 2023, we had revenues from sale of properties in Poland of €296. And the adjusted net income from Poland was €54.8 million. So €82.8 million a full year and out of that material, €54.8 million alone in the fourth quarter. We have handed over 2,300 units in Poland. So as expected, this quarter was very strong for the sales result. Going a little bit more into the details, I want to continue on Page 9. It shows the EBITDA, FFO and AFFO calculation. I already mentioned that the EBITDA increased year-on-year by nearly €3 million. So the decline in FFO I of 9% was completely due to higher financing costs. But perhaps you've already seen our guidance for the next year, we expect a stable FFO I in 2024. And why is that? This negative impact from higher interest cost that we had in 2023 will not be that strong in the course of 2024, because we have repaid a lot of debt and we have especially repaid the bridge loan from the ROBYG financing – from the ROBYG acquisition in the course of financial year 2023. So this was of course for us a quite strong relief for our earnings and our financing cost. And therefore FFO I in 2024, which I think in this environment is already a success, will be stable. The AFFO was reduced by €17 million. This is absolutely in line with the FFO I reduction. So that means the total CapEx that we spent in financial year 2023 was nearly unchanged compared to the previous year. Page 10 shows the EPRA NTA calculation. We saw a reduction of the EPRA NTA, by 12%. But this was purely the result of the portfolio devaluation; you see this here in the chart, or on the slide on the right side, that a bit more than €4 per share was the impact from the portfolio valuation, the business itself. So the net profit that we achieved contributed to €1.7 per share to the NTA. Page 11 shows the financing structure, and I want to mention two things. First of all, when we look at financings that are maturing in the course of 2024, 2025, and you see this on the slide, the average interest cost of these maturing financing are still at around 3% in 2024, 2.8% in 2025. Then it means if you're going for refinancing today, and with our banks, we are perhaps at around 4% or even lower in these days for a new bank loan. Yes, we will have higher interest costs afterwards. But the step up that we see is not that material. So we can digest refinancing in these days in a world with high interest rates, because the loans that we are currently refinancing already have a coupon, which is in a range where the difference to the new coupon is not that huge. So therefore, we expect, as already said, for 2024, and also as a small outlook for 2025, not too much pressure coming from the interested side on our results. And one word on our LTV target. As I said, we are quite proud that we managed to keep the LTV stable at 47%, which would be already good results. The LTV target stands at 45% and we're not too far away. And what do I mean by saying this; we know that from our ongoing business. So from the cash that we generate from the German business, as well as from the Polish business, especially from Polish sales business, we've got a natural deleveraging. If we keep it in the balance sheet, and that's what we propose again to our shareholder, not to pay dividend, but to keep the cash in the balance sheet, then we are, as a result, or as an impact from this operational result, already at our LTV target, or perhaps even slightly lower. And then, of course, it depends on the valuation result in 2024, if we see then an adverse impact. But on the other side, we will also continue to sell assets in Germany. It's clear that the official program has ended so that we have completed the €250 [ph] million sales program in the course of 2023. And the purpose of this program was to repay the ROBYG bridge financing. So this is done. But that does not mean that we stop selling assets in Germany. So we can be sure that we're also active on this market. So therefore, I think it's reasonable that we will also have some disposals in Germany in the course of 2024. And this helps us then to keep the LTV, or to move the LTV, perhaps quite soon, towards the LTV target. This is perhaps also something that you should take away for today. Coming to Page 13, I already mentioned that we saw an increase in the like-for-like, rental growth when it comes to what we call basis like-for-like rental growth. So that means the rent increases from existing tenants, from tenant turnover, and from the monetization surcharge. So that was 1.8% compared to 1.5% including the impact from vacancy reduction, we were at 2.3%. That's a little bit lower than the previous year, where the impact from vacancy reduction, because of higher vacancy rates at that time, that we could reduce was a little bit higher. Top right of Slide 13 shows your total investments. So that's maintenance and CapEx together. So we have not reduced our investments in the last two years. So we are at around €25 per square meter, which we are spending currently, which breaks down into roughly €7 per square meter maintenance and €17 per square meter CapEx. So it means we continue to invest in our portfolio. We are especially continuing to invest in monetization projects for more energy efficiency. So this is clear, something that we have on the agenda, and we will continue to do this. Page 14 shows the vacancy rate development as already expected from our side, we saw a very strong fourth quarter. So with a reduction of 60 basis points from September to 4.0%. So overall, that's a 50 basis points reduction year-on-year, even a little bit better than expected. And that shows us that also in our secondary locations; the demand for affordable housing in Germany continues to be very strong. Page 15 shows the portfolio valuation. And this is, of course, an important slide. First of all, I always said we have development [ph] portfolio in the last 18 months by around 16%. I think that should be quite in line with devaluation that other PFS have already done. If you look at valuation metrics, we are now at a gross yield of 6.3% and a price per square meter at €1060, the 6.3% gross yield that's a gross yield, if we look at the chart that we already had some years back. So we are, valuation wise, looking at the gross yield now back at the leverage of 2018, and that gives us really comfort. So 6.3% gross yield in this interest environment where a potential investor is financing an acquisition with a bank loan at 4% or even lower, that clearly creates a positive cash flow. And therefore, we are very optimistic that we are reaching a kind of bottom regarding valuations. Yes, it's true; we expect some further valuation declines in the course of 2024. The honesty, a little bit rounded number of 20% total valuation decline from peak to trough is, from our point of view, still valid. So overall, in the course of 2024, we will see from our expectation, as of today, quite strongly reduced valuation result in a sense of lower valuation losses in 2024. And that's good news because that helps us, of course, to work on our leverage. I already mentioned some ideas or some potential developments on our LTV, so we are clearly now more on the way that leverage is coming down as we see valuation declines bottoming out. Let's look a bit more into Poland. On Page 17, we see the portfolio data for our rental portfolio. As I said, the rental growth was quite strong. So year-on-year a 11%, like-for-like rental growth, and the vacancy rate was down at 2.2%. Looking at the in place yield, so the valuation gross yield that stands at 5.9%, we are convinced that we will here see also further improvements in the coming years. So therefore, the DDI [ph] investment idea of our rental business in Poland is still valid. We're building such portfolios at a 7% to 8% gross yield. We achieve a good like-for-like strong like for like rental growth, and we will also see relation improvements. Now we are already below 6% and we are quite optimistic that this number will go down so that we will see further valuation improvements in Poland in the following years. Page 18 shows the development of the Polish rental business in terms of number of units. And important is to say that we started new investments. So we are growing here again in Poland for quite a time, we stopped new rental projects as first of all, refinancing was more important. But now, as we have a lot of liquidity in the balance sheet, especially in Poland, we are growing again. So the first projects have already started in the fourth quarter of 2023, 430 units. These are two projects, one in Gdansk and one in Wroclaw. Further, potentially 1,000 units or more to be constructed will start in the course of 2024. So we're growing again in Poland. We have the possibility to invest on one side from the cash flow, from the cash surplus that we achieve as a sales business, which is between €50 million and €60 million per year. And secondly, and that's also a message we want to highlight today from refinancing the existing rental portfolio. So we have just signed the first mortgage, secured larger refinancing of our portfolio, of our rental portfolio in Poland with a loan of €90 million. And this is something that, of course then gives us additional liquidity to build new rental projects and further refinancings for the rental portfolio we follow. We have financed these rental portfolio in the first step with TAG shareholder loans. Now we're doing step by step refinancing, releasing cash that we can use for further investments. So therefore, the important use is we are growing the rental portfolio in Poland again, Page 19 gives you more insights into the sales result. As I already mentioned, we have strongly increased the number of units sold in Poland, 3,600 units in 2023 compared to 2,400 in the previous year. But also important to say, it was not only increase in number of units, also sales prices in Poland increased quite significantly. So we saw sales prices increases in the market, in our portfolio between 15% and 20%. And if you look at the slide and compare the fourth quarter of 2023 with the fourth quarter of 2022, you will realize in both quarters, we've sold roughly the same number of units. So 715 at the end of 2022, 709 at the end of 2023. And if you look at the sales volume, that was €110 million in the fourth quarter of 2023, compared to €76 million year ago. So that shows that based on the roughly same number of units, as sales prices have increased quite strongly, the sales volume is increasing really materially. Page 20 shows you the revenue recognition. As I already said at the beginning, not unusual, always the fourth quarter in our business in Poland is the strongest quarter, is here the apartments are handed over. But again, please have in mind this is something, which is purely a P&L impact. The cash flow already starts earlier, because when we sell an apartment, then from that point in time, the customer pays the purchase price via installments. And a final comment on Page 22, which shows the guidance for financial year 2024, we leave all the guidance’s unchanged. So we are guiding for a stable FFO I in 2024 in a range of €170 million to €174 million. We're guiding for a roughly 9% reduction FFO II, which is coming from an expected lower Polish sales result. But please have in mind this is an outcome or reflection as already described in the last earnings call from lower sales numbers in Poland in 2022, which will lead to lower handovers in 2024. So that means the strong sales numbers from 2023 will then contribute to the results two years later when the constructions are finished in 2025. So therefore it’s a one-time reduction in our sales result. Stronger results will follow from 2025 onwards. And one final comment on the dividend here. The proposal to the AGM will be unchanged as already communicated with the Q3 results last year. We are proposing to our shareholders to suspend the dividend once again and on a potential dividend for the financial year 2024. We will decide or make a proposal or give guidance more towards the end of the year. And this is depending on market conditions. And I mean, clearly, we see that now value or the deliberations are buttering. I think there should also be some signs on the horizon that transaction markets could be better in the course of the year. So these are all good signs. But let’s wait for that in a first step and then decide on a dividend more towards the end of the year. For now, we feel comfortable that we keep the cash in the balance sheet. It’s on the one side for leveraging and on the second side, and this is again important. We use this cash to grow the portfolio in Poland, which from our side, gives our shareholders attractive opportunity to grow in a fast growing market. That’s it from my side with the highlights for the fullest 2023. Thank you so far for your listening. And of course, now I’m happy to take your questions.

Operator: Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] And the first question comes from John Vuong from Kempen. Please go ahead.

John Vuong: Hi, good morning. Thank you for taking my questions. You mentioned that you expect that you get to a targeted 45% LTV through retained earnings. Additionally, you also are looking at disposals in Germany; I suppose at a bit more of an opportunistic pace. Taking this all together, what would you say that is a reasonable LTV to target by year end?

Martin Thiel: Yes. Good morning, John. Well, if I continue my quite simple calculation, as I said, we have the natural deleveraging process from the ongoing results. We keep the cash in the balance sheet because we’re not paying a dividend. So this alone brings us already below the LTV target. So below 45%, then of course, it depends on any valuation results that you pencil in into the model. Let’s stay with the 20% total value decline from peak to trough for a moment. So another 4% value decline in the course of 2024. Please don’t take this as an explicit guidance, but just to give you a range where we would expect the ratio result, then we would need disposal in Germany, which are roughly half the size of 2023. So net cash proceeds of around €100 billion to be at a 45% LTV. That’s something that we have in our head. So I think it’s a good chance that in the course of 2024, we get to the LTV target or very close to that.

John Vuong: That’s very clear. And on those disposals, are there any ongoing negotiations or is this based on your feel that the investment market is opening up?

Martin Thiel: Yes. We are always on the market with portfolios and unchanged with smaller portfolios. And it’s really difficult to predict further developments in investment market. But at the moment, our perception is more people are positive on that for reasons that are understandable. So all the companies have devalued their portfolios. So that means perhaps a new price level is possible for transactions at then the new book value interest rates are really now visible coming down, although this is slightly inflation is coming down. So for quite a while, we are now in an environment where all the factors that you need to put in the model are more and more clear. So that’s a positive. But let’s see how this develops. John [ph], if you ask me, do we see already really material data points in the market? I mean, everyone will give you this answer. No, this is not the case. But let’s be optimistic for 2024. And we are reactive on the disposal market. I already mentioned that yes, we have completed our disposal program, but clearly we will continue to sell, but perhaps a little bit more in opportunistic basis. Yes, it’s not necessary for the purpose of any refinancing to sell at any price. So we can be a little bit more opportunistic/disciplined.

John Vuong: Okay. That’s very clear. Then moving on to Poland, how do you see like-for-like rental growth there? Just looking at Slide 36, the growth on new stock is low single digits or even negative for Wroclaw [ph], where your assets in that specific city under operation for more than a year are already close to market trends.

Martin Thiel: Yes. We would not be surprised if you see in 2024; a slowing down of the like-for-like rental growth should be very natural. We have seen extreme strong rental growth in the last two years. So 20% in 2022, more than 10% in 2023. So I mean, we know that there’s a pre the war in the Ukraine where it’s like-for-like rental growth in this market segment. So new constructed apartments in the larger cities in Poland, which was perhaps 3% to 5% per annum, that should be also a reasonable midterm rate, at least assuming that also inflation is coming down in Poland. So therefore we don’t see this as a negative. After so strong years, the rental growth is perhaps stabilizing. We’re absolutely convinced that mid to long term we will see here in Poland, because the demand is so strong, a really good and attractive rental growth over time.

John Vuong: Okay, that’s clear. Thank you. That’s it from my side.

Operator: And the next question comes from Thomas Neuhold from Kepler Cheuvreux. Please go ahead.

Thomas Neuhold: Good morning. Thank you very much for the presentation and taking my questions. I have three of them, and I suggest you take them one by one. Firstly, most important question for me is your capital allocation policy. I understand that you still have a cautious stance, given the high uncertainties we still have. But on the other hand, you’re talking about a stabilization of prices, potentially this year. Stable financing cost, ongoing rental growth at 12% FFO II yield of your stock. So I was wondering, what are the key criteria for you to at least start to repay dividends, or is also a share buyback something you potentially might consider given your valuation currently?

Martin Thiel: Yes. Good morning, Thomas. Perhaps I try to explain how we think about cash flows in a company. On the one side, we’ve got the Polish cash flow, which is producing a cash surplus from the sales business of €50 million to €60 million. So, as discussed, we use this as equity for new rental projects in Poland. And on top of that is coming some financing, for example, from refinancing of existing portfolios, or perhaps currently also financing for apartments under construction. So that enables us really, step by step, based on cash flows that we create on our own, to grow the rental portfolio in Poland. And we think that makes sense to continue that also in the interest of our shareholders, because this really creates attractive returns. And on the second side, clearly, we have the cash flow from the German business, the FFO of roughly €170 million, I mean in previous years, with a payout ratio of 75% of FFO. That’s the cash that we keep currently in the balance sheet, which is a total amount of €120 million to €130 million. And what’s the situation right now? I mean, we have unsecured debt that is coming due, not in large sizes this year. So it’s – for example, €60 million promissory note. But we think in the current environment, it’s simply better to keep the cash from the German business in the balance sheet. Take this cash, repay such unsecured debt, and continue by doing this. If we are in an environment where transaction markets are more open, where it’s not a big issue to sell a portfolio for €50 million, €60 million, where a private placement of a promissory note of €50 million, €60 million works again, or where we can do a private placement of a bond of perhaps €100 million. So we’re not dreaming of the old world where everything was for free. Yes, that’s already in other environment. So then we can also be more, how should I say, generous, also with our cash flows in Germany, and say, okay, the ongoing refinancing, that’s not ongoing an issue. We don’t need to be conservative here anymore. So then we have the cash and the balance sheet to pay a dividend again. The signs are good for 2024, but as we said in the last call, we will wait with any comments on that until we give the guidance for the next year, which is then in November this year the case.

Thomas Neuhold: Okay. Understood. My second question is on Page 34 in the presentation, you mentioned that you are growing that the Polish portfolio. However, if I compare 2023 figures to the figures you stated in the nine months report, it seems to me that the build-to-hold portfolio declined by almost 10% in terms of sqm, and also in terms of potential units in operation, under construction or possible future units. Did you shift a part of that portfolio to the bill-to-sell portfolio, or were there any other changes compared to nine months figures?

Martin Thiel: Yes. That’s quite regularly happening. So we, of course, overthink about our pipeline. Okay, which land banks or potential future units are should be for sale, which for rent. We are quite flexible in this regard, which is good at the moment and the sales business is running very well. So therefore, it’s absolutely important to have the land bank in place to be ready for the strong demand that we see in the market. So therefore, we shift in between the two segments. But we clearly have earmarked also a land bank for the build-to-hold business. We can also tell you that we will continue to invest in new land bank. So for the build-to-hold business as well as for the build-to-sell business, we have of course enough to sell for the next two or three years. But in this business you already today need to look into potential sales in three years. So you need to acquire something that you can then develop, where you can then get the zoning, get the building permits and so on, and to sell it in two or three years. So that’s a continuous process.

Thomas Neuhold: Thanks. And my last question is if you can give us indication what your spot financing costs for secured and unsecured lending, let’s say for seven to 10 years financing currently would be if you talk to the banks?

Martin Thiel: But for secured financing, we know this very well. So for German secured financing, that’s make the difference. I would say for seven to 10 years we’re perhaps at 120 basis points and 130 basis points, depending on the portfolio. We can also give you now more indications for a Polish portfolio as we are now in the first refinancing processes. And we have also to some extent already completed that year. The margins are in more in the region of around 200 basis points. And when it comes to unsecured financing, it’s extremely difficult for us to predict because we have not really outstanding corporate bonds trading. So there’s just €125 million corporate bond which is listed, but it was a private placement held by one investor, so therefore we have not really exact curve where we can derive from our financing costs.

Thomas Neuhold: Okay, understood. Thank you very much.

Operator: Next question comes from Thomas Rothaeusler from Deutsche Bank AG (NYSE:DB). Please go ahead.

Thomas Rothaeusler: Hi, morning everybody. A few questions. The first is on mortgage lending overall. I mean, considering some of the German mortgage banks currently in trouble, do you sense any limitations with regards to access to mortgage lending or did you see any deterioration of financing terms there? I think you just referred to 200 basis point spreads for mortgage lending.

Martin Thiel: Yes. Good morning, Thomas. Again, this 200 basis points, this is mortgage financing in Poland.

Thomas Rothaeusler: Oh, sorry. Okay. Okay. Maybe you can provide us the terms for Germany. Okay.

Martin Thiel: Sorry, it was a little bit hard and difficult to understand, but just to make this once again clear. So 200 basis points spread, that’s for Poland, so Polish portfolio. In Germany, margins have not really increased over the last two years, perhaps slightly. I gave this indication, 120 basis points and 130 basis points, which is very much comparable to margins that we had two years ago. Clearly mid swap [ph] rates are meanwhile higher. And then your question regarding willingness to finance, this willingness to finance is, from our observation really still there. Even with one of the banks, without mentioning any name that has been in the press, we just completed a refinancing some weeks back. So if it comes to a situation that we have then currently, so a portfolio or a bank loan is maturing, it’s a financing that we had in the books for seven or 10 years, we have amortized the bank loan. The development of the portfolio was good. Then asking the bank if the bank is willing to refinance that portfolio, the answer is a very clear yes. And we are also, of course, always approaching other banks. So the willingness to finance is absolutely there. I think there’s one factor which is perhaps new for some investors. Whereas two years back we discussed with banks when it comes to the loan amount LTVs, today the much more important figure is the debt service coverage ratio, and that’s more limiting the bank loan. But in our portfolio, as you know, we have high yielding properties. So therefore, all in all, we get at least the old loan amounts and perhaps you have seen in the past presentations that we are not only able to renew the existing loan amount, we’ve also been able to increase the bank loan afterwards because we have the high yielding properties, we have a good debt service coverage ratio. This is perhaps for some portfolios in the lower yielding segment different. So therefore, but in this segment, the increase in loan is not that much possible compared to our portfolio.

Thomas Rothaeusler: Okay. Actually on that background, just wondering, I mean, how would you assess the need to get back to investment grade credit rating level? How important is it for you and by when to get the better access back there maybe? And how – and maybe how could a path look like for you to get back to investment grade level? That’s fine?

Martin Thiel: Yes. Perhaps two comments on that. First of all, the good thing is if you look at our numbers, we are already on investment grade level. I mean that we are still investment graded S&P, so BBB minus, but with a negative outlook. So that still need a target to get it back to a stable outlook. And at Moody’s we are at Ba1. So non-investment grade with a stable outlook. And here the target is to get back to investment grade. If you look at the numbers again, net debt to EBITDA, ICR, and if you compare that with other real estate companies on the same rating level, I mean, we are better or with higher rated companies, we are at least on that level. So it’s not something where we are now under pressure to reduce the LTV or to improve the net debt to EBITDA that’s already there. I think the difficult situation in these days is also for rating agency. And I think also this is getting better uncertainty around relations around transaction market, I mean, all of this. So a rating agency clearly wants to get more comfort in that. And I hope that we are very close to that. And then a positive rating action should follow. So I mean, of course it’s not up to me to guide to any rating actions, but we are optimistic that we see here good developments in the course of 2024. And then as a second comment on that, our rating – investment grade rating is of course something that we want to keep or to achieve in the sense of Moody’s. But we don’t need it for any refinancing processes in the course of this year or next year. So getting back investment grade rating from both agencies, getting also back the possibility to issue, for example, corporate bond. That would of course enable us in the future possibilities for further growth. But it’s not necessary for refinancing. And I think this is already a good situation in today’s world.

Thomas Rothaeusler: Okay. And the last question is actually on your FFO, you made aware of the higher relevance of FFO II for your business. Just wondering what your thoughts are on reporting a group FFO, maybe as one of your peer stuff?

Martin Thiel: Sorry, Thomas, it was a little bit hard to understand for me. Can you repeat the question?

Thomas Rothaeusler: It's like on your FFO. You highlighted the relevance of FFO II in your business. I mean, just wondering what your thoughts are on reporting a group FFO, including the FFO II?

Martin Thiel: Yes. I know that companies including that in one figure. For now we prefer to clearly show the two different income streams that we have business on the one side and then the safe business on the other side. And the thing that I wanted to point out also in this presentation is, yes, these are two different income streams, but we have two different income streams. From time to time reading some reports where people look at TAG's FFO I yield and only looking at FFO I yields it's also important really to have in mind we have our second income stream which is recurring, which is the Polish sales business, which then feeds into our FFO II. We prefer to have that separate, because then it's more clear but the point is more to make clear, this income stream is there and it is recurring.

Thomas Rothaeusler: Okay, thank you.

Operator: And the next question comes from Kai Klose from Berenberg. Please go ahead.

Kai Klose: Yes, good morning. I've got three quick questions, if I may. The first one is on Page 17. You mentioned that you took up a 90 million loan for the Polish portfolio, if I understood that correctly. Could you indicate which portfolio was given as collateral from your side? Second question would be on the valuation uplift you point out there on 13.7 million for Poland. Just understand is this a like-for-like number or is it or not? So is it comparable to the German portfolio? And the last question would be on Page 9 and regarding the cash taxes, I know it's a small number, but it went up from, I think, 0.5 for 2022 to 2.2 or 2.5 for 2023. So not a strong increase but could you explain what caused the rise? Thank you.

Martin Thiel: Yes. Good morning Kai, I'm [indiscernible] questions on the Polish rental portfolio. First of all the refinancing, we provided the investor with mortgages on projects in Wroclaw in Poland. And these were projects that were already finished and that was the start of the refinancing. As I said, we are also in negotiations with other banks regarding further refinancing. And in these negotiations it's not only about already finished projects or already stabilized project, we've also talking with banks about financing the construction process. And the portfolio, the fair value uplift this 5% increase refers to the full portfolio and if you compare this 5% valuation uplift with indications of numbers that we stated for the total sales market where we said the price increase was 15% to 20%, you can ask a question, why is that lower? By what we observe in our relations in Poland, once we have finished the apartments, it's not on day one that we get the full valuation uplift basically to the market yield. So the values are here, let's say a little bit more conservative that we want to see that the units are rented out for a longer time on the market, that we have really a stabilized and growing rental cash flow, and then valuation uplifts will come. So I think there's a good chance that we see more valuation uplifts in the course of 2024. And the third question regarding the tax increase, I would say the tax income or tax expense for 2023 was perhaps ordinary low. 2023 we are on a more novelized level that we're guiding also another slight increase by another 2 million or 3 million for 2024. So that should be more a normalized level that we had in 2023 and that we expect in 2024, but nothing special behind it.

Kai Klose: Thanks. Just a very quick follow up, if I may, regarding taking up financing in Poland, you mentioned the spread for taking up collaterals – for taking up debt in Poland – for taking our collaterals debt in Poland. Is there a material difference between a collateralized portfolio as a kind of rental portfolio and the debts you took up now, which I met that quickly, also will finally partially partly finance your construction activities?

Martin Thiel: Sorry for certain things. Can you repeat the last part of the question, Kai?

Kai Klose: The question was the 90 million you took up correctly is also partially to be used for construction activities, so it's not only on the rented portfolio.

Martin Thiel: Let me make this more clear, this 90 million was completely for finished units. And we are in discussion with banks also for financing the construction work and I think this is the background of equation. What is the margin there? That could be slightly higher but we're not talking about something completely different. Just to give you a rough estimate, perhaps we go more towards the 230 basis points and 240 basis points margin. So it's not a complete different world. And perhaps we can communicate something here in the course of 2024 already.

Kai Klose: Understood. Thanks so much.

Operator: And the next question comes from Simon Stippig from Warburg Research. Please go ahead.

Simon Stippig: Hi, good morning. Can you hear me well?

Martin Thiel: Yes. Good morning, Simon.

Simon Stippig: Perfect. Thanks. And also my first question is in regard to the mortgage you constructed with banks in Poland. The amount of 90 million in the last conference call, if I recall correctly you mentioned 140 million and now you also said that your constructive talks and negotiations with banks to increase that amount. I just wonder is that amount of 140 million still valid, or is it lower or is it higher? And then also I wonder that you closed it in March only, and we talked about it in November. Is there any reason why it took so long? And also here, the LTV on the 90 million on the portfolio then would be only at 36%. So is that then something you take into consideration as valid LTV for the portfolio? Or is it rather that you are in these discussions and you want to increase your LTV to 140 million?

Martin Thiel: Yes. Good morning, Simon. This 140 million is still valid. I think perhaps we will come out even a little bit higher and this 90 million, that's not on the total rental portfolio so we have not put a mortgage on every single asset. It's a part of the portfolio that we've refinanced. And the LTV was even slightly above 50% that we achieved. So when I remember guiding in the third quarter we had a portfolio of around 280 million and we said well 50% LTV that leads to 140 million of bank loans, so this number is still valid and we're confident that we get even more bank loans on that. So this is unchanged and it even looks a little bit better than we originally assumed by the question, why does it take so long? It's similar to Germany. I mean bank loans or mortgage secured financing takes some time. Banks are asking a lot of questions also regarding energy efficiency collecting a lot of data, in the end and that's important. The outcome is still very positive, so it takes a month to get the financing then finally done, but we finally made it and this is also something that will happen in the course of 2024 again. So yes, we need to be patient in this type of financing, but still the outcome the terms are very attractive.

Simon Stippig: Great. And I can look it up, but the WIBOR, what was your all in cost combined with the WIBOR, that is 90 million in total, yes?

Martin Thiel: Yes. This is a financing in Europe, so it's not a slotty-based loan; it's a fixed rate five-year loan in Europe.

Simon Stippig: Okay. And you're all in cost?

Martin Thiel: That's slightly below 5%.

Simon Stippig: Okay, great. And then I wonder your shareholder loan into Poland, how high is that now in total?

Martin Thiel: Before the refinance or any potential repayments from this loan we are at around €300 million. So basically we have a €300 million rental portfolio finally constructed or under operation, and that was financed by a TAG shareholder loan. So simplifying a little bit, but this was the reason for the shareholder loan, and we are now refinancing that step by step.

Simon Stippig: Okay. And of the €90 million, will you return something into Germany or will you keep it in Poland to construct? I know you talked about the growth, but maybe there is more. You have a tap on the or an additional mortgage on another portfolio potentially of €50 million to €60 million and then you keep these €50 million to €60 million in Poland, or you bring the 90 million now back to Germany, or the full amount?

Martin Thiel: No, it's very clear we want to grow the portfolio in Poland again, and in Germany we've got a good liquidity position in the meanwhile. So therefore, let's see how this develops over. And when I talk about repayment of shareholder loans, always there's always a tax impact on that, that how we do this. But looking from the cash flow perspective, or when you ask us where should the money be invested it's a clear task now to grow the portfolio in Poland again.

Simon Stippig: Okay, great, thank you. And maybe just one more in regard to refinancing, I know that in 2024 and 2025 step up is lower and I think it's very manageable. But if I look into 2026 then there's this convertible €470 million and the coupon is just 63 basis points. And what's your approach or do you have looked into it a little bit and you have a plan to refinance it? Maybe also reduce the whole potential refinancing amount of €470 million that would be some additional insight into your planning there and would be very helpful?

Martin Thiel: Yes. This 470 million convertible bond is indeed the last major financing we have ahead of us, and it's already good news. So if you look in the maturity profile, everything else is market secured financing. In Germany, where we've just discussed this, really have broad access and get even higher loan amounts afterwards, smaller promissory notes, one privately placed corporate bond, smaller bonds in Poland that's it. So the 470 million is the only material maturity. Second good news is it's still 2.5 years to go and as I said, the coupon is really low, so it's 0.6 and 25%, so it makes sense to use this a little bit more. It's also clear we will not wait until the very last date with refinancing that convertible bond. I mean, the strike price is at €32, €33, so we need to take into account that we need to repay it. But that's perhaps more something for, I would say for the next year. And let's see, we just discussed our potential path back to investment grade rating then we have also more financing opportunities. But even if this not happens, I mean we have just proven in the last 80 months that we have repaid nearly €1 billion of unsecured debt if necessary with the help of disposals and so on. So I'm not concerned about this maturity. It's more a question of how is this most efficiently done.

Simon Stippig: Just maybe one last one in regard to your supervisory Board changes, I know it's a supervisory board but could you also comment on the need for this?

Martin Thiel: Yes. There was one background which was, if you want a little bit more, also, coming from the former side, many institutional investors, as well as proxy advisors require that the share of women in the supervisory board is more than 30%, not only in the total supervisory board, where we fulfill this already, but also for shareholder representatives. And if we look at the shareholder representatives in the current supervisory board, we have a share of women of 25%. So therefore we were very happy that Philipp Wagner, one of our supervisory board members for more than ten years, said, okay, I'm offering my resignation to next AGM that you can replace my seat with a woman. So this was one argument, and then I mean, supervisory board run the process and the outcome was that we identified, or supervisory board identified Gabriela Gryger is a new member of the supervisory board. And she's not only a woman; she's really an expert in the Polish residential market. And she's been, for example, on the ROBYG's Supervisory Board for some years. She's already as an advisor, active in the Polish real estate market. And that's also from our point of view, a helpful competence in the surprise report to get here even more knowledge than today in the surprise report. So this was then basically the second reason for that change.

Simon Stippig: Okay, great. Thank you very much.

Operator: And the next question comes from Manuel Martin from Oddo BHF. Please go ahead.

Manuel Martin: Thank you. Two questions from my side, please. One question would be regarding the devaluations. So we have seen a clear deceleration in the devaluation momentum. Could you give us some color, maybe on a regional split or how these property devaluations evolved? Or was it across the board? Maybe you can give us some words on that, please.

Martin Thiel: Yes. Good morning, Manuel. It's not really fair to say that to see extreme different developments. So it's in general really across the portfolio. What we realize a little bit and that would be good news for us that the more high yielding properties are perhaps more and more or less hit by devolations. I mentioned that during the presentation. I mean, we have already now a growth yield in the portfolio of 6.3%. Take into account perhaps another slight valuation decline in 2024. We are at 6.5% or even higher. That's already a very reasonable growth yield if you finance such potential acquisitions with bank loans up 4%. So therefore slightly more positive development in the higher yielding segment, I would say.

Manuel Martin: Okay. And on the way how the evaluation was done, maybe you can give us a bit of flavor there, because I can imagine that there were not a lot of data points in the market when it comes to transactions. So how was the valuation concluded?

Martin Thiel: Yes. But that was not much different compared to the last two or three evaluations. I mean, the transaction market is quite muted now for quite a while, so this was nothing new. And what also gives us comfort, and if you look in transactions that we've done in the course of 2023, penciling in a further just slight variation decline 2024, then we are really very close or at levels where we've sold assets. So where we see some liquidity and that should also be a good proof that we are really now reaching the bottom already.

Manuel Martin: Okay. My second question would be regarding rental growth. Can you give us some maybe on what you are feeling or what you are seeing or anticipating in terms of rent tables to come? And how could this affect the rental growth in Germany, especially in your portfolio because for the time being, the rental growth in the TAG portfolio seems to be a bit slower than versus peers. Maybe you can give us some light there?

Martin Thiel: Yes. If you look in the guidance that we've given, which is also in the annual report and was already in the Q3 figures, you see that we are already indicating a higher like-for-like rental growth. So an increase by 30 basis points, 40 basis points, which is then to the very largest part coming from rent increases. For example, for existing tenants, so that means we're assuming and we're seeing that, that rents are increasing on back of higher niche peers or simply higher relating rents that we can achieve. So yes, clearly we see this trend also in our markets. And then if you do a comparison within the peer group, again it's always important to analyze that really in detail that we have not this huge modernization programs at least not any size that some peers have. So therefore the rental growth from modernization is very naturally lower, but we are also spending less. And secondly, we are also not including any new construction department in that rental growth figure, so therefore if you look at the pure like-for-like rental growth without any impacts from these two elements, the difference is not that huge.

Manuel Martin: Okay. And for the rental tables, any view on that? What do you think about that?

Martin Thiel: Yes. As I said we expect a higher rental growth. So that is increasing and that also means that rent tables that come out and that we have not two or three very important rent tables that determine the whole rental growth of the group as the portfolio is quite diversified. But from the upcoming rent tables we clearly expect a stronger increase compared to previous years.

Manuel Martin: Okay, thank you very much.

Operator: And the next question comes from Markus Schmitt from Oddo BHF. Please go ahead.

Markus Schmitt: Yes, good morning. Thanks for taking the questions. I have a couple. First of all on valuation, you said some weeks ago, I think in an interview with Reuters that valuation could decline up to 30% from peak. So from today's perspective, you'd rather see again the 20% decline when I understood that right, maybe you could clarify this again? And then I have a couple of others.

Martin Thiel: Yes, Marcus, good morning and thanks for asking this question. I did not change my view, but the 30% decline, that was just, which was honestly very misleading, because that’s not what I said. So also in this interview, if you look then in the interview or in other quotes, I already indicated towards the 20%, and that’s basically unchanged. And please take away the message that we’ve seen by far the highest part of devaluations already. And what I said in this interview is that of course a balance sheet. And in this context I referred to financial covenants also need to be ready for anything that goes towards 30%. So I – simply wanted to say that our covenants are really so comfortable that we could digest even higher devaluations. But we are not expecting that again. So therefore, this headline in Reuters [ph] interview was unfortunately very misleading. There’s no change in our view.

Markus Schmitt: Yes, I think everybody focused on the headline there more than maybe the text itself. And I think you had a slide in your deck where you said, we have material headroom in terms of covenants. So this is good to know now. Then again, on the disposal proceeds in 2024, I was a bit late to the call. I understood you aim for €100 million net proceeds this year. Is that right or is that wrong?

Martin Thiel: Yes, that’s correct. And again, we have not an seen this – official disposal program like before where we exactly promised that was the formal program. But if you ask us what is a reasonable amount that we expect in the course of 2024 and also something that could then fit into our target to bring the LTV back towards our LTV target of 45%, then €100 million of net cash is the right number.

Markus Schmitt: Okay. In the meantime, maybe a bit more positive question, maybe from me. I mean, in terms of rental growth in Germany, and given the scarcity of supply, how would you see the structural rental growth evolving here as part of your valuation model? Is this in your appraisals now a component which is more positive for the valuation, at least I did not see any changes to the market rent parameters as part of your valuation in the annual report. Maybe a word how you see long-term rental growth changing here? This would be also helpful.

Martin Thiel: Yes, this will definitely help. And also with this number, it’s not the case that rental changes from one day to another has his long term assumptions, but I mean it’s very clear that we see stronger rental growth in Germany in 2024, 2025 than in the past, all this headlines are about new constructed apartment numbers going down again, Germany seeing still immigration and so on and so on. And then also this will kick into the valuation. So this will be a positive for valuations. So once we are in a stable interest rate environment where we perhaps already are and it’s not necessary, interest rates are going down to get further valuation results also. Then the operational performance will help us to grow the value. So, I mean, I’m not guiding for that in 2024, but perhaps quite quickly thereafter, we can see value increases simply on the back of better operational performance.

Markus Schmitt: So medium term, I think is maybe the right phrase here. Okay. And then two questions left. One is on funding. I think you said that certain troubled lenders provide funding to TAG. So could you just explain again how our refinancing discussions are ongoing, generally with bank debt providers now, and if you see more anxiety and if extension discussions have become more difficult? And secondly, how are your discussions with the promissory note lenders for the smaller refinancing in 2024 and the larger refi in 2025 with that one investor? And any concerns on your side that this could become a challenge? Or are you relaxed for the time being?

Martin Thiel: No, we have no concerns because, for example, for the promissory notes, and also, if necessary for next year for the corporate bonds, we will repay this – so at a certain price. You can of course do everything, but we don’t think that given our current rating situation, this is really an attractive source of financing for us. So whether this is with help from disposals or also, as in the past, with new bank financings, I mean we will simply repaid it. That’s our base assumption, and that’s definitely not a concern. And when it comes to bank lending, the willingness of giving us new bank loans is, I would say, absolutely unchanged. So, I commented a little bit earlier in the call, yes, the processes take longer; banks are collecting more data, especially when it comes to energy efficiency of the portfolio. That’s in the meanwhile, an important part of their financing process. But I cannot remember any situation in the last two years. So since we had this changed interest rate environment where we had problems in getting financing for a portfolio. And as I also said before, really helpful for us is that we have a portfolio that is a higher yielding portfolio. So that means that cash metrics, especially the debt service cover ratio, always looks good, and that enables us to get really still significant bank loan amounts. And this is of course for us a good situation.

Markus Schmitt: Just in this respect, could you say what the unencumbered asset position is right now? I could not find it in the documents.

Martin Thiel: We have unencumbered assets in total of around €1.3 billion to €1.4 billion, and the largest part of that is our Polish portfolio. But as in German, we have encumbered assets left.

Markus Schmitt: Okay, good. And finally, on the rating, I mean, you said or spoke of a pass back to IG. So have the rating agency signaled to you that you would likely receive an IG rating again? I mean, you have one at S&P with a negative outlook and one with Moody’s. If you achieve the company defined LTV below 45%, would this be enough for both agencies, or would there be more required to get to the stable, clear IG rating for both agencies?

Martin Thiel: First of all, a rating agency would never say, well, it’s very likely that you get back to a certain rating stage. So they’re more talking between the lines and between the lines. The signs that we or the signals that we receive are daily positive. And that’s what I already said some minutes back. Important is the LTV is already where it should be for investment grade rating. The net debt to EBITDA is already on that level. The ICR is already be there. So number wise, we’re already there. Liquidity is not an issue. Refinancings are done. I mean, we’ve proven that the Polish business is running well. It’s more debate about the overall environment in Germany. But I think also now with the release of the full year figures of all German residential companies, there should be more positive sentiment in the market that we now, have now really reached, valuation wise, a kind of bottom. And this is of course something, which is positive from a few of our rating agency.

Markus Schmitt: So both agencies have an issue a little bit with that the Polish business is a development business. I think that is what I read in the past. Still that, this the reason why they don’t want to provide higher ratings. Because you said number wise, you are there with both agencies, basically, but something is keeping them away, obviously. I mean, the sentiment is obviously not the best that is understood and they will be cautious on this side. But you said, okay, if that sentiment. I want to rephrase if that sentiment will improve a little in 2024. So nothing could stop you from receiving higher ratings. Is this a base case for you then?

Martin Thiel: Yes, basically, yes. And let me just make that clearer. As of today, there’s not really a concern about our Polish business. That was different in the course of 2022. I mean, remember this time when interest rate picked up, where we saw, for example, amongst German developers, all the sales numbers going more close to zero? And of course was also then something where rating agencies looked at and asked us, well, is this happening in Poland as well? It did not happen. So the Polish market really turned out to be very resilient also in 2022, even on a lower number, clearly, but people bought apartments, so the market was always there. We saw the strong increase in 2023. So in the meanwhile, I think both rating agencies see this as something positive.

Markus Schmitt: In the meantime, now I mean, I read that wording sometimes still partly developing business TAG. And I think that is what they take on the negative side. But obviously the performance there is quite strong. So maybe they can be convinced at one point that it’s not a headwind really, and then you will get your higher ratings. That is how I think about it maybe, but let’s see. That was very helpful for me. So thank you very much.

Operator: And the next question comes from Stephanie Dossmann from Jefferies. Please go ahead.

Stephanie Dossmann: Hello everyone. Thank you for taking my questions. Actually, most of them have been answered earlier, but coming back on disposals in Germany; could you give us a bit more color on what kind of discount appraisal values or what kind of gross yield you achieve those and how confident are you going forward? Who are the buyers? I remember that half of the transaction market in recent years was driven by listed players. So I was wondering about the profile of the buyers and maybe a second question on your housing development business in Poland, what kind of – because you said prices were up 15% to 20% currently. But what is your expectation going forward on prices, development and margins, please.

Martin Thiel: Yes, good morning, Stephanie. Perhaps I start with the second question about expectation for price increases of disposals or apartment sales in Poland. I think in our business plan we have a price increase between 3% and 4%. As of today this looks rather conservative because what happens in the market in Poland, more apartments are sold in each quarter than new apartments are coming to the market. So that clearly leads then to increasing prices. Many developers, and also we are not so much concentrating on the numbers of unit sale; we are concentrating more on optimizing prices. If the number of units sold is a bit lower, that’s not an issue. As long as we can increase the prices, perhaps the sales volume is higher. So therefore our business plan assumption of 3% to 4% should be definitely achieved, perhaps we see even more. And then commenting on the German transaction market as in the past, we don’t see one specific buyer group that we want to point out. And when I remember or look at into our disposals in the last 18 months. So in this first disposal program, it was really a group of buyers, really different kind of buyers, from a municipal housing company to a family office to a private equity company to companies who are doing privatization business. And I would say each of these buyers has then identified for him a certain price level where I said, okay, that makes already sense. And according to my business plan, I can achieve a reasonable return. And again, when I look in our portfolio valuation, I simply can confirm this 6.3% gross yield, that is already a very reasonable valuation level. The assets that we sold were at a lower gross yield, so we had a gross yield on average, which was around 4.3%. I think that’s also a success. Selling in this interest environment at such levels is not easy. But again, the transaction market is not completely dry, so you can do transactions. I mean, the last deal is actually missing. But for us, in our size, if we sell here, €20 million, €30 million, a quarter or whatever, that really nicely adds up to amount. That really helps us, for example, in our target of reducing the LTV further.

Stephanie Dossmann: So maybe just to follow up on the 4.3%, could you give us some color on the breakdown by cities or what was the bulk of it?

Martin Thiel: I mean, there was one transaction also public, because the buyer had a press release that was in the, let’s say, wider Berlin commuter belt portfolio. So that should be, I should say, typical transaction that we did, but also, I mean in fact, that’s also a mix. We also sold some noncore assets to a more local buyer. So again, it was not one special asset type, not one special buyer group. You really need to look into every potential pocket in these days. And then again, it’s not completely dry. We are still doing transactions, we are still doing transaction sizes that are enough for us, so we can continue in this environment. But of course, it would be great if the transaction markets open small, so that we can do even more than in the last month.

Stephanie Dossmann: Thank you. And I know 30% is not your base case for valuation decline, peak to trough. And I understand that it was rather a question of prepare your balance sheet, just in case. But what could be the worst case? I mean, what could be the drivers to see more devaluation going forward? And I mean, more than 20% peak to trough.

Martin Thiel: First of all, again, we don’t expect this, and we talk about what potential worst cause scenarios we don’t expect. It will definitely not come from the operational side and not from the fact that we have too many apartments in Germany. This will be definitely supportive. And again, I mean we had just this discussion some minutes back. This will then lead this growing mismatch between supply and demand on one side, to growing values. So and then it’s very simple, okay, a massive increase in interest rates. I mean, clearly this isn’t something which is not helpful for valuations, but is this a realistic scenario? We don’t have this as a base case.

Stephanie Dossmann: Sure. Thank you.

Operator: And the next question comes from Daniela Lungu from First Sentier Investors. Please go ahead.

Daniela Lungu: Yes, thank you. I have a follow-up on what you mentioned about bank lending and what the banks are doing in terms of collecting more data, especially energy related, I thought that was quite an interesting comment, and I wonder whether you would be able to give us a little bit more color on that. In particular, as to what I would be interested in, do they have a specific threshold, for example, in terms of energy rating, where they wouldn’t even consider providing lending? Do they make some adjustments in terms of CapEx required to bring some portfolios to an energy rating that would be sufficient for them to provide lending? Are they considering different interest rates depending on the energy? Again, efficiency of portfolio, I mean, any color that you could provide in terms of that due diligence, call it, related to the energy rating that the banks are presumably doing, would be great.

Martin Thiel: Yes. Good morning, Daniela. And of course, happy to do so. First of all, I can’t really comment on any situations where one needs to refinance a portfolio with very low energy efficiency classes, because we simply, in fact, do not really have them in the portfolio. Perhaps we maybe remember that less than 3%, or perhaps even less than 2% of our portfolio is located in the two lowest energy efficiency classes and nearly two-third is located. So in the three highest energy efficiency classes A2C. So I cannot really comment whether there are financing issues in these situations, but what I can comment on is that basically banks are requiring more and more strategy also for their portfolio financing, how energy efficiency is improved. You cannot see this in a sense of that they give us hard covenants, but they clearly expect a plan from us and we say, okay, in the next 10 years. So for the next duration of the loan, we want to invest certain amounts because this is also in line with our general decarbonization plan. And that’s, of course, something the banks are very interested in. This is the development that started, I would say, two or three years ago, and now it’s more and more in place, because also they need to demonstrate towards the regulator and towards their shareholders that they are improving their credit loan book, and they want to have simply a path and a confirmed path from our side. But this is not really a burden for us, because we are anyway investing in a portfolio to reduce CO2 emissions. And this is completely in line with the bank expectations, but this is something which is newer in these days compared to two or three years ago.

Daniela Lungu: Okay, thank you.

Operator: So it seems there are no further questions at this. So I would hand back to Martin Thiel for any closing remarks.

Martin Thiel: Yes, many thanks all for this call, and many thanks all for the questions if there’s anything left. So please feel free to contact Dominique from our IR department or myself. Many thanks for listening to the call. Hope to see you soon, perhaps on our roadshows or upcoming conferences, or then at the latest in our next conference call. Have a good day and bye-bye.

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