Good morning, everybody. Thank you for joining us for Aroundtown's full year 2023 results call. You can view this presentation on Aroundtown's website, either on the Home section or under Financial Reports of the Investor Relations section. Guiding you through the presentation today will be CEO, Barak Bar-Hen; CFO, Eyal Ben David; Chief Capital Markets Officer, Oschrie Massatschi; and Executive Director, Frank Roseen. Investor Relations with Timothy Wright and representatives from Grand City Properties are also present. For the duration of the call, all participants will be on listen-only mode. Following our presentation, you will have the opportunity to ask questions. With that, I would like to pass you over to Barak and the rest of the team, who will guide you through the presentation of our results.
Thank you. Good morning also from my side, and welcome to our 2023 results presentation. Please allow me a few opening remarks before we dive into today's presentation. The macroeconomy has dictated the direction of the sector in the past two years, which requires us to be ahead of the curve and take cautious decisions when navigating through these volatile times. In recent months, inflation decreased to manageable levels in the EU, and thus the market expects that interest rates have peaked. So currently, the main discussion in the market is not if, but when and how fast rates will decrease, which is causing some volatility in capital market. This is different from the uncertainty we saw last year, which was related to when and where rates would peak.
We expect potential interest rates decreases will provide tailwinds for our recovery—for a recovery in the transaction and capital markets, particularly towards year-end. That being said, we believe that it is important not to run ahead of markets at this time, as downside risks remain. We therefore continue to focus on a strong balance sheet with ample liquidity, so we are not dependent on timing of this market developments. Starting on slide 4, we present the operational highlights recorded in 2023. Net rental income was EUR 1.2 billion for the year, decreasing 2% compared to previous year as a result of disposals. The disposals impact was offset by like-for-like rental growth of 3.2%, driven by positive contributions from all of our main asset types. We will provide more detail on this later in the presentation.
Adjusted EBITDA was EUR 1 billion, flat year-over-year, despite the impact of disposals. We recorded FFO I of EUR 332 million, reflecting a decrease of 8% compared to the previous year. With these figures, we reached the upper half of our guidance for this year. The expected decrease was the result of higher interest expenses and reset of some perpetual note coupons. FFO I per share amounted to EUR 0.30. We revalued the full portfolio for the 2023 annual report. We recorded like-for-like property devaluation of 11% for this year, reflecting a revaluation loss of EUR 3.2 billion, and resulted in EPRA NTA per share of EUR 7.4, down 20% compared to December 2022.
We significantly strengthened our liquidity position during 2023, resulting in cash and liquid assets balance of EUR 3 billion, or 21% of total debt, supported by circa EUR 1 billion of new secured financing signed during this year. We will provide more details on this also later in the presentation. On slide five, we present the result of our proactive balance sheet management activities during the year. We were able to reduce net debt by EUR 900 million during 2023, and by EUR 1.5 billion since June 2022, which has allowed us to counterbalance the impact of negative valuations. LTV increased by 3% during 2023, despite declining in values of 11%. As a result, we maintained 35% headroom to our bond covenant, which stand at 37% net debt to net asset as December 2023.
The reduction in net debt was primarily driven by the combined impact of disposals and bond buyback at discount. During 2023, we completed disposals in the amount of over EUR 1.2 billion and repurchased EUR 1.3 billion of bond at a discount. We focused on bond buybacks with near-term maturities, thereby reducing 16% of the debt balance maturing between 2024-2026, and as a result, reducing a near-term refinancing risk. On slide 6, we present you some more details on our disposals. In 2023, we closed EUR 1.2 billion of disposals across all asset types and diverse geographical locations. Closed disposals were signed at an average rent multiple of 18x and 3% below book value. The total signed amount of disposal in 2023 was EUR 900 million, 6% below book value.
Most of the signed disposals were closed in 2023, with EUR 200 million signed, but not closed as of December 2023. Since the beginning of 2020, we have been able to dispose of EUR 9 billion of properties via small and large transactions, which is a testament to the company's ability to sell and generate liquidity, even during difficult market conditions.
On this slide, we also provide some more background on vendor loans, which we have granted and which support the transactions. The loans are secured against the property sold at an initial LTV of 40%-70%, giving us a high security in terms of pricing and execution. As we already know the asset well, we're comfortable providing a vendor loan to buyers to close the deal, and as of December 2023, EUR 650 million of vendor loans are outstanding. Moving to slide 7, where we present a summary of our like-for-like rental growth. Total like-for-like rental growth remained robust at 3.2%, with all sectors contributing positively to the result. The like-for-like growth in the office portfolio is mostly results from indexation, contractual step-ups, and reversion at reletting and prolongation.
While the wide supply-demand gap in the residential portfolio led to record low vacancy, and the hotel portfolio continues to benefit from the steady recovery. Frank, please continue on the next slide.
Thank you, Barak. Please move to slide 8, where we provide a summary of our ESG achievements during 2023. We further increased the share of green-certified office properties in our portfolio, reaching 36% compared to 50% at December 2022. In 2023, we achieved to get 100% of our Dutch office portfolio green certified. We continue with green installations, reaching 6 million kWh max capacity for PVs and CHPs, while reaching 400 EV charging sockets across the portfolio. On the social front, we are proud of our achievements in 2023. We supported over 90 charitable projects of local partners, making a meaningful impact on our communities. We maintained our high standards in relation to tenant service quality and expanded digital solutions, particularly for our residential tenants.
In 2023, we received the Top Company 2024 award by kununu, a leading German career and job review platform. At the same time, GCP was awarded the Most Wanted Start 2024 award for its apprenticeship program. We are proud of these achievements, which underline our commitment to be a top employer in the real estate sector, and thereby allow us to continue to attract and develop top talents. Looking at our index inclusions, we remain a component of Dow Jones Sustainability Index and Bloomberg Gender-Equality Index, and after a short stay in the SDAX, are once again included in the MDAX and the MDAX ESG+ indexes. We are also awarded EPRA BPR and SBPR Gold for the seventh and the sixth consecutive year, respectively, for our 2022 annual report and SBPR report.
Lastly, we received top ratings from both Sustainalytics and S&P Global CSA, rated top six for both. Oschrie, please continue.
Thank you, Frank. On slide 10, we present an overview of our portfolio breakdown, which has not changed materially. Offices comprise 40% of the portfolio, followed by 33% residential and 21% hotels, together making 94%. The remaining 6% are logistics and retail. Looking at the geographic distribution of the portfolio, this remains well distributed across top locations in Germany, the Netherlands, and London, which combined represent 90% of the portfolio locations. Our largest locations remain Berlin at 24%, London at 8%, and Frankfurt and Munich at 7% each. These markets continue to have strong fundamentals, and we see good upside potential in the mid to long term. More detailed breakdowns and information for each asset class can be found in the appendix. On slide 11, we provide further details on our key portfolio metrics and tenant structure.
As of December 2023, the portfolio was valued at EUR 24.6 billion, generating annualized recurring net rental income of EUR 1.1 billion and reflecting a rental yield of 5%. The WALT remained at over 7 years. We saw a slight uptick in vacancy compared to the previous year, which now stands at 7.9%, but the negative impact of slightly higher vacancy was more than offset by solid like-for-like rental growth. On this slide, you can see an overview of some of the high-quality tenants within our portfolio. Our large tenant base continues to have limited dependency on single tenants, with over 3,000 commercial tenants, further supported by the high granular residential segment. Our top 10 tenants continue to account for less than 20% of our rental income.
We also present here the commercial lease expiry schedule, which is well distributed over the coming years, with no material concentration in any given year, providing flexibility in uncertain times. Moving to slide 12, we provide some more details on our office portfolio. Our top four cities continue to be Berlin, Frankfurt, Munich, and Amsterdam, which represent 61% of our office portfolio. In Berlin, Frankfurt, and Munich, we continue to be the largest landlord among listed European real estate peers, and our office portfolio continues to benefit from a strong and well-diversified tenant base. With about 75% of tenants comprising of public sector, multinational, and large domestic corporations.... In 2023, we saw 3.3% like-for-like rental growth in our office portfolio.
This result came on the back of solid indexation and reversion on reletting, thereby capturing the high inflation of recent periods, but was offset by an increase in vacancy of 1.6%. Due to the macroeconomic uncertainty, we have seen tenants focused on cost instead of growth. As a result, we see tenants exercising caution and delay their space extension until the macro risk subside, and even reduce space due to the higher rent. On the other hand, we have seen that the current high interest rate environment has had a significant negative impact on new supply, with many construction projects canceled or postponed due to higher construction costs. This should provide a tailwind in the mid to long term, as supply remains constrained in key locations.
As long as the macroeconomic situation remains subdued, we expect the office segment to face further challenges due to softer demand, as in previous periods. However, we don't expect them to be significant. We have a long lease maturity, and only 9% of leases expire in 2024, while we expect the majority will continue to prolong their contracts. In addition, we work on conversion of office space into commercial, residential, where we see fit. Service d apartments, B&B hotels, flexible office space, and explore further options. On slide 13, we provide some of the reasons for the different perception of our office market compared to the U.S. or U.K. markets, as some market participants make the unjustified comparison between these markets, which are very different.
We highlight that there are major differences between the office market in the U.S. and U.K. compared to Germany and the Netherlands when looking at occupancy rates and office attendance. It is clear that both Germany and the Netherlands had record low vacancy rates before entering into the current macro uncertainties, while the key U.S. and U.K. markets were oversupplied. Looking at the market structure, cities such as London, New York, and San Francisco are heavily dependent on specific industries such as tech and financial services, while main German cities tend to have much more diverse demand structures, with Frankfurt as an exception. As a result, Germany and the Netherlands were in a better starting point to digest lower demands resulting from macro uncertainties.
In addition, Germany and Amsterdam have a healthier market situation, reflected by significantly higher office use than in main markets in the U.S., while at the same time there are less desks per employee. Looking at the Netherlands in particular, we highlight that hybrid and coworking already coexisted with a traditional office model sustainably for many years. Lastly, commute times in main German cities are shorter when comparing to cities such as San Francisco, Paris, London, and many others. As a result, there's no drastic and sudden increase in market vacancies due to a high office attendance rate and limited redundant supply. Slide 14 shows some more details on the residential portfolio, which is showing very robust performance. The residential portfolio recorded 3.4% like-for-like rental growth in 2023, and reached a record low vacancy of 3.6%.
We have seen in-place rental growth accelerated in recent periods, as the wide supply demand gap, as well as the recent inflation, is resulting in higher market rents, as well as higher rent tables, which results in higher reversionary potential compared to previous years. The residential portfolio is showing strong performance across all locations, and particularly London, has shown solid operational growth in 2023. The robust operations are supported by underlying fundamentals, which drive an increasing supply and demand gap, with supply decreasing due to low construction levels as a result of the current macro environment. The German Property Federation, ZIA, currently estimates a gap of 550,000 apartments, which is expected to increase to 750,000 by next year as the new supply is decreasing.
At the same time, demand is increasing due to strong migration, including from elevated influx of refugees, as well as higher demand as a result of the high mortgage costs, which drives more people into rentals. Frank, please continue.
Thank you, Oschrie. Please move to slide 15, where we summarize our hotel portfolio. Our portfolio comprises over 150 hotels with fixed leases. Rental growth was positive in 2023, with a 2.5% like for like. As you can see on the graph, our collection has improved as expected in 2023, reaching 87%, and we expect in 2024 to be back to pre-pandemic collection levels with no extraordinary collection provisions. In 2023, hotel dynamics recovered further in Europe, with decreasing demand driving ADR and RevPAR growth, with RevPAR growing 80% year-over-year, and 60% higher than in 2019. However, as we have mentioned in the previous periods, high inflation has had a significant impact on operational costs for hotels, thereby negatively impacting profitability. But as inflation has softened, we are cautiously optimistic about 2024....
Although Germany's recovery has been lagging compared to some other European destinations, we expect further tailwinds that will support the hotel sector in 2024, such as large European events like the UEFA Euro Cup 2024 in Germany and the 2024 Olympic Games in Paris. Furthermore, we are seeing a recovery in business and group travel as large trade fairs, conferences, MICE, and travel from the U.S. and Asia are showing good positive momentum. Additionally, our hotel portfolio will further benefit from the opening of several hotels, which have been under major refurbishment in recent periods. Our Brussels hotel has partially opened already, with full opening by summer. Rome hotel is opening the next weeks, and the Paris hotel will open shortly before the Olympic start. Please turn to slide 16.
Here we provide an update on our development rights and investments, which comprise 6% of our total assets. Here, our strategy remains the same, meaning we focus on identifying the potential within the portfolio, crystallizing gains through sales, and in selected projects where we see significant potential at lower risk, we execute the developments ourselves. These projects are mostly major refurbishment and conversions, as well as densification of existing properties or new build against pre-let status. As you can see in the pie, the development rights are split among similar lines as our portfolio itself, with 42% office, 26% hotel, and 32% residential and mixed use. The majority of the potential is in key cities such as Berlin, Paris, Frankfurt, and Munich, among others.
During 2023, we completed the disposals of EUR 0.2 billion of development rights, which brings the total value crystallized to EUR 0.7 billion since 2021. Moving to slide 17, we provide an update of the CapEx in the year. In 2023, we invested EUR 335 million on CapEx, which represents a 1.2 ratio over the average investment property. This compares to EUR 408 million in the previous year and 1.4% ratio. Expansion CapEx comprises 6% of the total CapEx in 2023. These projects are aimed at generating conditional income and value, and comprise mostly major refurbishment projects and selective conversions and new build.
As these projects are more discretionary and done on a target basis, and due to our cash preservation strategy for this year, we reduced the amount invested compared to the previous year, resulting in a decrease from 48% of the total CapEx in 2022. Then improvements were 29% compared to 24% in 2022, and relate mostly to CapEx, which improves the property quality and is negotiated as part of signed leases, prolongations, and new lettings. Lastly, our other CapEx was 35% of the total CapEx, compared to 28% in 2022.
This comprises mostly of the repositioning CapEx of the residential portfolio, as well as a mix of projects aimed at maintaining the high quality standard of these assets, as well as selective improvements and CO2 emissions reduction, such as roof and facade insulation, LED lighting, energy-efficient heating, and green installations. With that, let me hand it over to Eyal, who will guide you through the financial results.
Thank you, Frank. We continue on slide 19 with a detailed overview of our revaluation results. As you can see on the slide, we recorded a like-for-like devaluation of 11% in 2023, of which about 5% in H2, as we expected. This was mainly the result of yield expansion, driven by the higher interest rate, as well as by economic uncertainty, which impacted the discount and cap rates. This was partially offset by rent increases, such as inflation indexation, strong demand for the residential portfolio, and a further recovery in the hotel market. The devaluation per asset type was 13% in offices, 8% in residential, 6% in hotels, mainly due to already higher yields as a result of devaluation in previous years, and 21% in development rights and investments.
Development rights and investments were impacted firstly by a lower exit value due to increase in yields, and additionally by higher estimated construction costs. The value like-for-like was slightly offset by operational growth. Excluding positive impact of operational growth, the like-for-like value would have decreased 13%. We saw an increase of 50 basis points in discount rates and 40 basis points in cap rates year-over-year, and the portfolio yield increased from 4.5% to 5%.
While we continue to see some downside risk to real estate values, there are several positive catalysts supporting values, such as a stable economy and labor market, which have so far not been as negative as expected, a potential revival of transaction markets as rates are expected to decrease, and lastly, high construction costs limiting new supply, which have resulted in replacement costs, excluding land, 65% above our portfolio values. On slide 20, revenue was flat compared to 2022, while recurring net rental income was 2% lower due to the strong disposal activity, which was partially offset by the like-for-like rental growth. Like-for-like rental growth was positive across all asset classes, as we explained before. The hotel market recovery was progressed well, resulting in higher collection rates.
As a result, the amount of extraordinary expenses booked was lower at EUR 33 million in 2023, compared to EUR 75 million in 2022. For 2024, we are more optimistic regarding the hotel portfolio's recovery and do not expect any material extraordinary provisions. We impaired EUR 137 million of goodwill in 2023, mainly related to the reduction in GCP's and TLG's deferred tax balances as a result of revaluation losses and disposals in both companies. Finance expenses increased to EUR 230 million in 2023, from EUR 185 million in 2022, as we raised new secured debt to strengthen our liquidity position and repaid medium-term debt at attractive discounts, which had lower coupon rates.
In addition, the cost of debt increased within the cap levels, and for several hedge instruments, the fixed rate expired, and as a result, the share of variable debt increased. At the end of 2023, our hedging ratio is 83%, and there are no further material hedging expirations. The higher share of variable debt, as well as debt hedged through caps, also saw an increase in their interest expenses, negatively impacting the finance expenses. This increase was partially offset by positive income from the company's strong liquidity balance. At the bottom line, the year ended in a loss of EUR 2.4 billion, reflecting a loss of EUR 1.82 per share, mostly due to the negative evaluation result. Moving to slide 21.
In 2023, we recorded adjusted EBITDA amounted to EUR 1 billion, flat year-over-year, in line with the recurring net rental income and the results of like-for-like rental growth offset by disposals. As a reminder, we exclude the held-for-sale portfolio impact from the adjusted EBITDA, as we intend to sell them in the next period, and thus their impact is not recurring, as well as the impact of the provision from uncollected rents in the hotel sector. FFO 1 decreased by 8%. The decline was mostly the results of the higher finance expenses and higher perpetual notes distribution from the reset of 4 perpetual notes, which had a partial impact in the current period. On the other hand, the decline was partially offset by a lower provision for uncollected hotel rents.
On a per share basis, the FFO one amounted to 0.30 EUR, reaching the upper half of our guidance for the year. FFO two, which includes the disposal gains over total cost, amounted to EUR 449 million, as we closed EUR 1.2 billion of disposals this year. Since we sold more properties in 2022, in 2023, FFO two was lower compared to last year. Moving to slide 23, where we highlight our EPRA NAV metrics. The EPRA NAV amounted to EUR 9.9 billion, or 9.1 EUR per share as of year-end 2023, both 19% lower compared to year-end 2022. The EPRA NTA amounted to EUR 8.1 billion, or 7.4 EUR per share as of December 2023, both 20% lower compared to year-end 2022.
The decrease in EPRA NAV metrics is mainly the results of the negative revaluations, partially offset by positive operational results. As these KPIs do not include goodwill, any change in goodwill is neutral. Oschrie, please continue with the rest of the presentation.
Thanks, Eyal. Moving on, slide 24 provides a short overview of the bank financing rates during 2023. Despite a more difficult environment, we were able to access further bank loans, which is a result of Aroundtown's strong relationships with many leading banks across Europe, and a large portfolio of unencumbered assets amounting to EUR 17.9 billion. In 2023, we signed around EUR 1 billion of new bank loans, of which EUR 900 million were drawn. The average maturity was over 7 years, at an average margin of 1.4% plus Euribor. The loans are mostly hedged through caps, as a result of which we will benefit from any future decrease in base rates. On slide 25, we show you the coverage of our upcoming debt maturities by our strong liquidity position.
Our main focus in 2023 was to increase the liquidity and to reduce the refinancing risk by creating full coverage on the debt repayments in the next two and a half years. With our current cash and liquid assets, plus additional liquidity from expected disposal proceeds and vendor loans combined, totaling EUR 3.9 billion, we comfortably cover all debt maturities until the middle of 2026. Furthermore, as part of the bond buybacks we executed in 2023, we already reduced 14% of the debt maturing in 2026, and 10% for 2027, well ahead of time. We are continuously working on raising further liquidity, mainly through disposals and bank financing, in order to further extend our debt coverage. Let's move to slide 26, where we reiterate our significantly large headroom to our EMTN bond covenant.
Here you can see that we can sustain a total asset value loss of 35%, which is over EUR 11.8 billion on an absolute basis, before we reach our leverage covenant of 60%. Our secured debt covenant remains negative, as we have more cash than secured debt, and in combination with the unencumbered covenant, you see that we continue to have a very large pool of assets providing access to further bank debt. Technically, we could fully replace all our unsecured debt with secured debt, but we expect the recent trend in capital markets to continue and rates to level down sometime in the future, which would enable us to access capital markets again at reasonable prices. The ICR covenant is to remain at 1.68 times, and we stand at 4.4 times.
Continuing on slide 27, where you can see an overview of our capital structure. Loan-to-value increased to 43% from the end of 2022, as a result of property devaluation during the period. Through the company's proactive measures, we were able to keep leverage below the 45% board of directors guidance, which guarantees significant headroom to our covenants. We will continue to take proactive measures to reduce leverage in the coming periods, such as our decision to suspend the dividend payment. Our financing sources mix had a slight shift to more loans and borrowings due to the volume of secured debt raised in 2023. Looking at the unencumbered assets, these amounted to EUR 17.9 billion as of December 2023, reflecting 74% of rent, which continues to provide us with a large pool of assets, which we can use to raise additional bank financing.
Average cost of debt was 2.2% as of December 2023, and average debt maturity was 4.4 years. Note that the average debt maturity is not adjusted for the debt already covered by our liquidity position. As mentioned previously, our hedge ratio stands at 83%. In 2023, our ICR was 4.2 times, and net debt to EBITDA improved to 11.1 times due to our net debt reduction measures and keeping EBITDA flat year-over-year. On slide 28, we give you an update on our Perpetual Notes. So far, including this year, we have not called 5 of our Perpetual Notes series, including 2 notes from Grand City Properties, as rates for new issuances were significantly above the reset rates.
These decisions came after carefully considering all options and the impact of each option on the company and all its stakeholders. The non-call does not impact the classification as equity under IFRS and our bond covenants, allowing us to maintain high headroom to covenant limits. We can call the notes that were not called on each annual interest payment date. On slide 30, we present our guidance for 2024. We guide for an FFO of EUR 280 million-EUR 310 million for the year 2024, reflecting 26-28 cents on a per share basis. This is lower compared to last year, as we continue to see the negative drivers outweigh the positive drivers. FFO is negatively impacted by the effect of disposals, which reduce our leverage and increase our liquidity.
Full period impact of higher finance expenses and the reset of the perpetual coupons, which we did not call. Positively impacting our guidance is conservative like-for-like rent increase, the reopening of several hotels which have been under renovation, and the expected recovery of our hotel portfolio. This concludes our presentation. As always, you can find further material in our appendix, and with that, we would like to start the Q&A session.
Thank you. Before we invite your direct telephone questions, we would like to answer questions that we have received by email prior to this call. For simplicity reasons, the team has taken liberty to group similar questions in order to answer as many questions as possible. Allow me now to read out these questions. First question goes to Oschrie: Could you share some updates regarding the office market? How are your letting activities progressing? Any key trends?
We continue to see macroeconomic uncertainties weighing on the office sector. While it currently seems that there will not be a deep recession, downside risks do remain. Existing and potential tenants continue to be hesitant when it comes to expanding their office footprint or even reduce space, keeping their focus on managing costs and preparing for potential deterioration of macro conditions. This trend was enhanced also due to the higher rents they pay on their existing spaces. Due to our gap to market rent, we remain competitive, as we can offer more affordable options while also catching up part of our reversionary rent potential. During 2023, in offices, we prolonged 200,000 square meters at an average WALT of 5 years, with an average in-place rent of around EUR 13.5 per square meter.
In 2023, we had in the office new lettings of 130,000 square meters at a WALT of 6.5 years. These leases were signed at 15% higher rents compared to the previous leases, underlining the reversionary potential of our portfolio and compensating on a slower pace of letting.
In 2023, our like-for-like office rent increase was 3.3%, with robust like-for-like in-place rental growth offsetting the negative impact of the vacancy increase. The office portfolio vacancy stands at 12.8% as of December 2023, up by 1.6% from December 2022. We expect that the current situation will continue going forward. While we are more optimistic, as we have not seen the pessimistic scenarios materialize, it remains hard to predict whether and in which pace the economic situation will improve in the coming periods, and the timing of such a change is also difficult. We have an occupancy ratio of 87%, a staggered and long average lease schedule, and a strong tenant structure with a high share of governmental tenants and large corporates.
We thus believe that we will be able to weather the current situation with a slight impact on total office rent on a like-for-like basis. If we would see markets improve, pent-up demand might support a fast recovery, as we have seen after the initial uncertainty at the outbreak of the Corona pandemic.
Please give us an update on the residential portfolio. What are your expectations going forward, and will you continue to increase your stake in Grand City?
We continue to see strong performance in the residential portfolio, which has shown in 2023 a like-for-like performance of 3.4%, an accelerated level from the previous periods. The increase is driven primarily from higher in-place rent growth, driven by higher reletting levels and rent increase. Our residential portfolio continues to produce strong and increasing cash flows and makes up 33% of our total portfolio. The robustness of the residential sector can be attributed to the widening gap between demand and supply, a trend that has been accentuated in recent years. This imbalance stems from a dual dynamic, an uptick in demand alongside a decline in supply. These shifts appear very sustainable and are anticipated to persist. In terms of valuation, the residential portfolio has declined by 8% in 2023 on a like-for-like basis.
In combinations of strong rental growth, the residential rental yield is at 4.8% as of December 2023, nearly at the levels of 2018. Within this landscape, Aroundtown maintains a steadfast belief in the strength of the residential real estate market. We have constantly held a substantial stake, currently standing at 63%, and over time, incrementally increased our investment with favorable pricing conditions.
Could you provide an update on your hotel portfolio? Do you see a recovery progressing as expected?
We see the recovery of the hotel market continue to progress. In 2023, we have booked an extraordinary provision for the hotel collection in the amount of EUR 33 million, compared to EUR 75 million in the previous year. However, we continue to see an improved occupancy levels, which translate to higher RevPARs. We therefore don't expect to have an extraordinary provision for rents.
Can you please comment on the 2023 valuation result? Where do you see values moving in 2024?
As part of our annual report, we have brought our portfolio up to the most updated value. We have seen a like-for-like value decline of 11% in 2023, and including the 3% value decline in H2 2022, this results in a nominal value decline of 14% since peak levels. The value decline was driven primarily by the increased interest rate levels, which have impacted our discount and cap rates. In 2023, our average discount rate increased by 50 basis points to 6.1%, and our cap rates increased by 40 basis points to 5.1%. As of December 2023, with the additional impact of rental growth, the average rental yield of our portfolio is 5%, up from 4.5% in December 2022, and from 4.3% in June 2022.
We have seen like-for-like valuation declines across all asset types, with 13% decline in the office, 8% decline in the residential, and 5% decline in the hotel. Our development and invest portfolio has declined at a higher rate of -21%, as this portfolio is more sensitive to the increase in yields and was impacted by all sides: pressure on income, higher construction costs, and higher discount and cap rates. Across our primary portfolio locations, we have observed generally comparable devaluation trends, primarily influenced by microeconomic factors. Nonetheless, local variations have emerged due to unique market structures. For instance, in the Netherlands and London, where yields were already higher compared to Germany, we've seen slightly lower devaluation. Although the high interest rate environment still weighs on our portfolio valuation, interest rates have peaked, and we thus expect for 2024 devaluation to lose momentum.
We cannot predict when the bottom will be reached, but we do expect lower devaluation this year.
Could you provide some comment on the drivers of your like-for-like, and what are your expectations going forward?
In 2023, we recorded a strong like-for-like rental growth at 3.2%, with positive contributions from all asset classes. Office like-for-like rental growth amounted to 3.3%, which is mostly the result from indexation, contractual step-ups, and reversion at reletting and prolongations, offset by the slight increase in vacancy. For the coming year, we expect continued headwinds in the office sector in terms of occupancy, but believe it will be offset by indexation and reversion on reletting.
... Residential continued to perform well, with 3.4% like-for-like rental growth, reaching a historic low vacancy of 3.6%, a reduction of 40 basis points year over year. The residential sector is boosted by strong demand and low supply. The London portfolio, which is less regulated, allowed for faster capture of recent inflation and performed very strongly with like-for-like increase of over 5%. We expect these trends to continue also in the coming year, and therefore expect a like-for-like of around 3%. Lastly, looking at the hotel sector, we saw positive like-for-like rental growth of 2.5%, of which about half was a result of vacancy decrease due to the re-opening of hotel.
The recovery of the sector is progressing, and we expect the collection rates of 2024 to be back to pre-pandemic times, and therefore, do not see a material further increase in 2024 rents, and expect a slight like-for-like increase for this sector. Overall, for 2024, we're expecting 1%-2% like-for-like rental growth.
Your leverage is getting close to your board of directors' guidance. What happens if you cross the limit? Will the limit be adjusted?
Over recent periods, we have focused on increasing liquidity and reduce leverage, and thereby reduce refinancing risks. As a result of the measures we discussed in the presentation, such as disposals, buying back bonds at a discount, and suspending the dividends, we were able to offset a large share, but not all of the devaluations in 2023. As a result, the LTV increased to 43% as of December 2023, which is close to our board of directors' guidance of 45%. The board of directors set the limit at a time when we were growing our portfolio through acquisitions, and the limit was set to ensure that we fund these acquisitions with a healthy mix of debt and equity. This limit is conservative guidance, which puts the company focus on a low leverage and eventually maintains sufficient headroom to the bonds and rating thresholds.
The Board of Directors' LTV guidance is a level where the board wishes to keep the leverage on a long-term and sustainable basis. As announced, we have already proactively suspended the 2023 dividend as part of the measures to preserve liquidity. We expect that further disposals, as well as collection of vendor loans in the coming periods, will further support the deleveraging. As we mentioned before, we do not know how valuations will develop, and although we believe the largest impact is behind us, further devaluation may follow. Therefore, we will also continue to take measures to offset such an impact with a long-term view.
You announced that you will not pay a dividend for 2023. Could you provide some more details on this decision? What needs to happen for Aroundtown to resume and distribute dividends?
We announced our decision not to pay a dividend for 2023. The decision is the outcome of the current market outlook, as well as the company's current leverage. Firstly, while we see positive signals in the market, we continue to see potential downside risk. While interest rates are expected to reduce sometime this year, it is possible the rates will remain higher for longer than expected. Furthermore, macroeconomic uncertainties remain, which could negatively impact the economy. This risk can have negative impact on our portfolio, our business, as well as transaction markets and the cost of financing. We feel that it's not the right time to make decision ahead of the actual market developments. Our dividend policy remains the same going forward. Our baseline, which guides our dividend proposal, is to pay out 75% of FFO 1 per share, but subject to market conditions.
We are currently not planning to change this. We will resume the distribution and distribute dividends in the future if we see the volatility in the market reduce, which will give us better visibility on access and cost of financing and disposals, and once we will manage to reduce our leverage to a more comfortable zone with headroom to rating agency covenants. We hope that 2024 will bring more clarity and visibility on these matters.
Would you consider a share buyback instead of a dividend, given your large liquidity position?
While a share buyback at the current share price looks attractive, we believe that our focus on balancing strength and liquidity is more prudent in the current market uncertainty. This is also the reason why we suspended dividends for 2023 and 2022. We could consider to buy back our shares back again if we will continue to successfully dispose properties at large amounts, access to capital improves, and the market environment does not materially deteriorate further. As we are not a REIT, we have full flexibility regarding the dividend, and could prioritize a share buyback over dividend if we believe that this is a more appropriate measure, similar to what we did in 2020 and in the 2019 dividends.
Could you share some more details on your disposal pipeline and outlook? What are the triggers, in your view, for transaction markets to open up?
We signed this year EUR 900 million euros disposals, of which EUR 200 million have not been closed as of year-end and are expected to close in the coming periods. As a result, close to half of our EUR 410 million euros of assets held for sale is currently signed, and we expect to dispose the remaining properties in the next 12 months. In addition to this, we are continuously in ongoing discussion regarding a large number of potential transactions across many different sizes and a wide range of potential buyers. We expect that at least some of these discussions will result in additional disposals. We see the transaction markets overall remain difficult, although the outlook has improved, and the market is expecting rates to decline sometime in 2024. This uncertainty of timing of rate cut make the gap between potential buyers and sellers higher.
However, we do see a few key elements which we believe could be supportive or be supportive overall. Following the yield expansion, the spread of the real estate yield is now more attractive. The macroeconomic outlook has improved compared to last year, and we see the main uncertainty currently in the timing of the base rate cuts, which we view as one of the main hurdles of transaction markets to recover, and which we believe is one of the main reasons transactions remain muted so far in 2024. Assuming markets are correct on the interest rates and that the economy doesn't deteriorate significantly, we expect transaction markets will improve. However, we will conservatively continue to execute our strategy and business under the assumption that the recovery could be delayed and markets remain muted.
What are your expectations regarding bank financing, and what are your views on the current environment? How much do you plan to draw each year going forward? Is there a limit to the amount you can or want to draw?
In 2023, we have put a lot of effort to successfully raise EUR 1 billion bank financing for many banks, utilizing our banking relationships on top of close to EUR 500 million we did last year. We see this as a very good result, which was achieved in a challenging market environment. In 2024 year to date, we have signed another EUR 100 million of bank loans and are working on a pipeline of potential loans in a volume of several hundred million EUR. Obtaining bank financing is taking longer than in previous years. In our view, this is related to a more restrictive stance from banks and a reduction of their allocation to the real estate sector, following pressure on valuations and cover ratios.
If the situation deteriorates further, we believe that banks will further reduce their loan capacity, and as a result, access to this funding source would be even tougher. Which is why, in the last periods, we already focused to obtain a good volume of bank financing and build up a strong liquidity balance, which covers debt maturity for several years, which is crucial to weather the current prevailing situation. We effectively do not have a limitation on how much secured debt we can raise, as we have sufficient headroom under our secured-unsecured debt covenants and would use the funds to repay unsecured loans.
Can you please provide more information on your guidance? What are the reasons behind the decline in FFO, and what do you anticipate being the primary drivers going forward?
Guide for an FFO of EUR 280 million-EUR 310 million, or EUR 0.26-EUR 0.28 per share in 2024, which is around 10% lower than in 2023. On the top line, slightly lower due to the disposals. We expect conservative rental growth on a like-for-like basis of around 1%-2%, coming mainly from the positive growth we see in the residential and hotel properties. Furthermore, we see a full year impact of the 2023 growth in 2024, which will drive rent even further. On the other hand, we expect to see further disposals in 2024, which, together with the full year impact of 2023 disposals, will offset the rental growth. As a result, we expect to see 2024 adjusted EBITDA in similar levels of 2023.
Higher level of disposals might have a negative impact on our guidance, but will support our liquidity in deleveraging, which we see as a very favorable. On FFO level, the main impact is from the hotel provision, interest expenses, and perpetual coupons. We don't expect further extraordinary provisions for the hotels, which will positively support the 2024 FFO. As to the cost of financing, in 2024, we expect to see the full year impact of the new debt raised, as well as the increased interest on the debt hedged with the caps and from the floating debt, which will be partially offset by interest income. We also assume a certain level of new bank debt to come in 2024 to support our liquidity base. As a result, we expect to see a net increase in interest cost of around EUR 30 million in the mid-guidance.
Further, we expect to see around EUR 50 million increase in coupon for the Perpetual Notes. This is taking into consideration the full-year impact of the notes reset in 2023, as well as the reset of the January 2024 notes, and the assumption that the Sterling notes in June will be reset at current levels.
S&P maintains a negative outlook. Would you consider that a downgrade is likely? How do you plan to protect your rating?
S&P's negative outlook is a combined result of the technical impact as a result of not calling the Perpetual Notes, which results in losing the equity content on the notes that are not being called, as well as due to the impacts of the current high interest environment on the entire real estate industry. While not calling Perpetual Notes has a negative impact on S&P's financial ratios, it does allow us to keep a high level of liquidity and flexibility, which is viewed positively by S&P. Furthermore, not calling in volatile times demonstrate the equity characteristics of this instrument, and thus S&P adds a qualitative benefit of this impact to their financial ratios. If we were to continue not calling our Perpetual Notes, our KPIs of S&P's ratios would deteriorate further.
The rating will also depend on our delivering process, progress, and the development of interest rates. While S&P provides time to amend the situation, we cannot assess whether measures taken to mitigate these impacts will show their results in time, and therefore, it's difficult for us to determine whether S&P will maintain or downgrade the rating. In the current environment, we will continue with our ongoing leverage strategy, including the suspension of dividend, bond buyback at discount, and further disposals. This should support our financial metrics and enable us to improve our position on a sustainable basis.
Can you please comment on your strategy with the perpetual notes going forward? Do you still see it part of your capital structure?
Our strategic focus in 2023 was to maintain and increase our liquidity, keep leverage stable, and keep very high buffers to our bond covenants. In 2023 and in January 2024, we had the first call dates for five of perpetual notes series, and decided not to call them. It was under the clear rationale to utilize the equity elements of these instruments to retain our strong liquidity and not to put the company in a weaker position by refinancing with new issuances at significantly higher coupons than the recent rates. We see the perpetual notes as an integral part of our capital structure going forward, and we see this equity instrument as very protective for the company, especially in volatile and uncertain periods, as we recently experienced.
Looking forward, we are slightly encouraged by the warming up of the capital markets and that real estate companies have gradually started to tap the market. We are in the continuous process of taking possible ideas into consideration and analyzing the potential impact on, on the company and all its stakeholders.
Could you provide an update on your development projects? You mentioned previously several hotels will reopen soon. Do you also have other projects in pipeline, and when do you expect them to finalize?
Our strategy regarding development and investment remains the same, as we mostly look to identify development or conversion rights within our portfolio and sell these, which is a relatively low-risk strategy, generating high-value upside. In addition, when we see good upside at low risk, we will do the project ourselves, which mostly includes major refurbishments, conversion, and selected new build at high pre-let ratios and densification. In 2023, we continued to sell further development rights, most notably two land plots in Berlin, as well as several properties where we obtained expansion and conversion rights. As part of the major refurbishment, we're currently finishing the final works on several hotel properties, which have been closed during their renovation. These hotels are currently partially open, and after a full ramp-up, are expected to add over EUR 35 million of rental income. The rent will increase in steps until full ramp-up.
Additionally, we're currently in the construction phase of new build logistics and storage building in Kassel, which is fully pre-let and expected to be finalized this year. The site includes further densification potential. We're currently checking options for building or converting additional logistics halls, as few of our tenants are looking to expand further, allowing us to provide a tailored solution at low risk. This project will positively contribute to our rent and FFO going forward. We note that in 2023, we reduced the expansion CapEx, which was 36% of total CapEx, compared to 48% in 2022, as we have become more selective on executing new projects and focus only on executing those that have the highest returns. You can find further details, as usual, in our presentation.
Those were the questions that we received prior to this call. We can now start the open session for your questions. We would appreciate if you can ask all your questions at once, and we will answer them one by one.
We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and one at this time. The first question is from Manuel Martin of ODDO BHF. Please go ahead.
Good morning, gentlemen. Thank you for taking my questions. Two questions from my side. It's on the office portfolio. The first question would be of how much risk do you see in terms of potential stranded assets in your office portfolio? That would be the first question. Maybe you can elaborate on that. The second question is, forgive me, my bad ears, but maybe you can remind me on the like-for-like rental growth outlook for your office portfolio for 2024, please. Thank you.
Hi, Manuel, thank you for the questions. On the side, stranded asset side, since in Germany, it's not yet apply, we are still evaluating, and we will give more info in our next reports. On the like-for-like of the office, we see it slightly positive. We see a good like-for-like from indexation, but we also see some headwind on occupancy, and that's why we estimate it to be a positive result in the range of, I would say 1%. Thank you.
The next question is from Kai Klose of Berenberg. Please go ahead.
Yeah, good morning, gentlemen. Two questions from my side. The first one, in the opening statement, you mentioned that you sold assets at 6% below book value. In the presentation, I see it was about -3%. I think Grand City sold at around -3% residential properties in 2023. So my question is: what was the average discount you sold commercial, primarily office properties at? And the second question is: what was the amount of the RCF, which was EUR 1.022 billion, what was the amount by the end of 2023? Thanks.
Hi, Kai, thanks for the question. On the 3% below book value refers to the full EUR 1.2 billion deals that we have closed during the year, and the 6% was referring to the EUR 900 million signed deals we actually signed in 2023. So that's the gap between the two numbers. On the RCF, we still have RCF in the level of nearly EUR 1 billion that is undrawn. Thank you for the question.
The next question is from Paul May of Barclays. Please go ahead.
Hi, guys. Apologies if this was answered. I noticed you've not given a dividend guidance. I think this is the first time you've not given an explicit guidance on the dividend. Should we read anything into that? Is it kind of guiding to potential hybrid coupon defaults? This is the first question. Second question, just something to remind me, in your valuations table, is the rent that you use for your rental yield, is that a gross rent or is it a net rent, net of operating and property operating expenses? And then the third one, I see there was no further bank debt signed in Q4. Just wondering if there are any reasons behind that, and can you remind me the expected increase in 2024 hybrid and finance expenses year on year? Thank you.
Thanks, Paul, for the questions. About the dividend, we excluded from the presentation, from the only reason that we decided not to distribute dividend in 2023, in 2024 for 2023, not with any hint referring to any kind of coupon deferral. About your second questions on the net rent, we are using the contractual net rent. And for your third questions about the hybrid expectations, so we do expect in 2024, additional nearly 60, about EUR 55 million more hybrid notes attribution, and another EUR 30 million more in net interest expenses. Thank you for the questions.
The next question is from Neeraj Kumar of Barclays. Please go ahead.
Morning, everyone. I have three slightly detailed questions. So the first one is on your liquidity. So when you say your liquidity covers debt maturities until H1 2026, you're including the cash and debt at Grand City level? Given the Grand City liquidity is EUR 1.2 billion compared to that of only EUR 600 million till H1 2026, I understand you're assuming that the Grand City excess cash is available to you. Given the entity is not paying the dividend, may I know how do you plan to tap onto that cash, if needed? My second question is on hybrids. Are you in any conversation with bondholders, for any potential exchange on those instruments to gain equity content?
And given the higher interest rate, is there any merit in doing any exchange at this point of time, given you are already benefiting from qualitative aspects from S&P? And third question is on S&P rating. I see that S&P was assuming a valuation decline of 7%-8% for this year and 2% for next year. Given the valuation decline you reported today, are you concerned about the triple B plus rating? And if any potential downgrade, do you think it will have any negative impact on your access to bond or bank market? That's all for me.
Hi, thank you. You asked fast. I hope I caught everything. About the cash and the liquidity. So Aroundtown and Grand City both have liquidity that is sufficient from mid until mid-2026. Grand City even have until the end in around the level when we combine, it's already biting from part of Q3 2026, but we reported until the mid-2026. So Aroundtown alone, even without access to the Grand City liquidity, has sufficient liquidity until mid-2026.
On the hybrid questions and discussions, so we are constantly in discussions with bondholders and hybrid holders, always trying to find the right formula balancing between both sides in order to find a potential transaction that could fit for both and to gain a qualitative and to gain basically the equity credit on those instruments. About the rating, which is also impacted by decisions on hybrid. The potential for a downgrade is there, as long as we get qualitative benefit from S&P on the hybrid side.
I think it's the danger is always there, and I think that now the debt to capital increased due to no further non-calls, let's say the covenants are under more stress. And the risk of downgrade is existing, and we are working together and in constant discussions with S&P and trying to find a solution, and also discussing about how long they see the qualitative benefit given to us. Thank you for the question.
The next question is from Olivier Monnoyeur of BNP Paribas. Please go ahead.
Hi, good morning. Yes, I have a follow-up on the hybrid payment and, you know, the, I guess, the place in the capital structure. Because, I mean, looking at the numbers, it does look like the interest payment that you'll be making on the hybrid will sort of equal the non-hybrid interest payment. You know, that is taking you to, like, what feels like on the cash flow profile and non-sustainable situation. So at what point do you think that the, I guess, the equity contribution and all the benefits of having this hybrid is really more than offset by the constant cash flow pressure they are bringing to your company? And I guess eventually, you know, not sufficient to, you know, offset the downgrade by S&P.
And then, I guess further on, you said you are open to solutions and in discussion with the hybrid holders. Can you give us a little bit more color on what the solutions could look like?
Hi, thanks for the question. Referring to the first one, currently the reset rates in average of the hybrids is not much far from the cost of debt that we are paying on secured financing. So, therefore, just the element of higher cost of debt on the hybrids is not that material when you're taking into consideration the fact that you don't have to repay the... It's a perpetual note. So I think that that by itself, it's clearly, if interest rates will go down, will be more harmful and will be more relevant. But currently, the way we see the rates, it's not that more expensive than current cost of debt on bank financing.
On the discussions that there is no new solution. Always the ideas that are popping up are several combinations of exchange or partial payment, part exchange. We also heard several ideas of also giving a partial equity. I mean, the list is very long, but so far we didn't, let's say, find the right formula that is balancing between all the parties. Thank you.
The next question is a follow-up from Manuel Martin of ODDO BHF. Please go ahead.
Thank you. A follow-up question on the like-for-like rental growth of the office portfolio. Maybe I didn't understand it well acoustically. So you might guide for 1% like-for-like rental growth in 2024, after having achieved 3.3% in full year 2023. Might that be correct?
Yes, that's correct. And this is again, because we see some headwinds on occupancy level that might offset the positive increase in indexation.
Mm-hmm.
Okay.
Thank you very much.
The next one, next question is a follow-up from Kai Klose of Berenberg. Please go ahead.
Yes. Hi, I think one of my questions got lost. My question also was, what was the average discount you sold commercial properties, in particular offices, in 2023, after Grand City mentioned that they sold residential properties at about -3%? So my question is, what was the average discount you sold commercial properties during 2023?
Hi, Kai. Sorry, I missed that. On the closed deals, we sold commercial properties at a discount of 3% to book value, and on the signed, it was 5% to book value. I'm talking now about the commercial. Thanks.
With that, I'd like to thank all of you that participated in this call and the questions you raised before and during the call. Thank you all very much, and goodbye.