Good morning, everybody. Thank you for joining us for Aroundtown's Q1 2024 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. I am Katrin Petersen, Aroundtown's Group Head of Communications. With me today will be CEO Barak Bar-Hen, CFO Eyal Ben David, Chief Capital Markets Officer Oschrie Massatschi, and Executive Director Frank Roseen. Investor Relations, Timothy Wright, and representatives from Grand City Properties are also present. In addition, we want to welcome Ms. Limor Bermann, who was recently appointed to the management body of the company as Chief Sustainability Officer. For the duration of the call, all participants will be on a listen-only mode. Following our presentation, you will have the opportunity to ask questions. But feel free to send us your questions via email, also during the presentation. The email address is info@aroundtown.de.
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, Katrin. Good morning also from my side, and welcome to our results presentation for the first quarter of 2024. Before starting with the presentation, allow me a few words. After a few challenging years, we entered 2024 more hopeful based on positive signs ahead. The macroeconomic sentiment seems to be more positive, and it looks that we are avoiding a severe recession in Germany and Europe. It seems that the interest rates have peaked and rate cuts are expected in the very near future. Further, capital markets have started to open up again after a long muted period, when we believe that when the ECB will start lowering rates, the transaction market will pick up pace again, providing more stability and certainty to valuations.
Accordingly, the conditions have enabled us to launch a large exchange on our perpetual notes, which have been accretive on future earnings and supportive to our credit rating metrics, and have placed us back in the market with a very successful result. More on that in detail later in the presentation. The hospitality industry is on track to pre-pandemic levels, with continued positive momentum and with several large events taking place in Europe this summer, from the Olympics, the UEFA Euro Cup, and others, supporting this sector further this year. Nonetheless, we're not fully through these challenging times, and we continue to keep focused on strengthening our balance sheet, maintaining high liquidity level, which at the right time and in the supportive market environment, will also put us in the right spot to grasp growth opportunities.
On slide 4, we present the financial highlights for Q1 2024. Net rental income amounted to EUR 293 million, slightly lower year-over-year due to disposals, but partially offset by like-for-like rental growth of 2.8%. Adjusted EBITDA increased slightly year-over-year and amounted to EUR 247 million, as optimization measures and indexation offset the impact of disposals. FFO-1 was EUR 76 million, down 10% year-over-year, as a result of a higher perpetual note attribution and net finance expenses, was partially offset by recovery of the hotel portfolio and thus position us on track to achieve our 2024 guidance. As we did not revalue the portfolio in Q1, EPRA NTA remains stable at EUR 7.4 per share.
In the first quarter of 2024, we kept a strong liquidity position, which amounted to EUR 2.9 billion or 21% of debt. Our liquidity will be additionally strengthened by EUR 240 million of signed secured financing year to date. LTV stands at 43%, stable compared to 2023, maintaining our wide headroom to bond covenants. We will elaborate on this and other points further in the presentation. Oschrie, please continue.
Thank you, Barak. Please turn to the next slide, where we present some further progress on our disposal activity. We signed circa EUR 200 million of disposals year to date. These disposals have been signed at book value. In the first quarter of 2024, we closed EUR 110 million of disposals across all asset types and expect to complete the rest in the coming periods. We continue to focus on disposing properties at good prices, which will support our leverage and free up cash proceeds. The transaction markets continue to be mostly muted, but we anticipate that if the ECB were to cut interest rates soon, it has the potential to increase the activity in the transaction markets, resulting in higher transaction volumes.
We expect that this will support selling assets in order to further strengthen the balance sheet, delever the company, and support the credit rating. Moving to slide 6, where we provide some more details on our perpetual exchanges. Just after the publication of our year-end results, Aroundtown and Grand City launched a voluntary exchange offer with tender options to all perpetual note series, which passed their first call date, as well as those with first call dates within the upcoming 12 months. The high average acceptance ratio of circa 80% is a testament to the success of the transaction.
The offer included a tender option, which was chosen by only half of those accepting the offer. As a result of the exchange offers, we issued five new perpetual notes with an aggregate nominal amount of EUR 2.5 billion, which makes the Aroundtown Group the largest issuer among European investment grade rated peers year to date. The total balance of outstanding perpetual notes reduced to EUR 4.5 billion from EUR 4.8 billion prior to the offer, primarily through the buyback of perpetuals at an average discount of over 30% via the tender option, utilizing partially S&P's reduction allowance. Benefits of the exchange are long-term accretive to the group. Firstly, the exchange results in a reduction of the annual coupon of EUR 35 million after 2024, while the impact in 2024 itself is neutral on FFO.
Furthermore, the result supports the company's credit metrics under S&P's methodology, as the new securities regain equity content. We note that under IFRS and the company's bond covenants, all perpetual notes, regardless of whether called or not, are considered 100% equity. Lastly, the exchanges have created more certainty on perpetual note coupon rates in the midterm. More details on the exchange can be found in the appendix of this presentation if you follow the link at the bottom of this slide. Let me now hand you over to Limor, our new Chief Sustainability Officer, for the next slide.
Thank you, Oschrie. Moving to slide 7, where we provide a summary on our ESG progress so far in 2024. We've been working on numerous different processes to continuously strengthen the company in order to make Aroundtown more sustainable and future-proof. On the governance side, we have recently successfully conducted a readiness assessment throughout the group to ensure compliance with EU CSRD, and by extension, ESRS requirements, which has entered into force for our financial year 2024 annual report. We also launched our 2024 double materiality assessment processes, a crucial component of our sustainability reporting, in order to generate an updated view of the impact on financial materiality on, of different issues to us and to our stakeholders. These steps positions us well for the new reporting requirements in the coming years.
We also published our Sustainability in Focus report, which provided additional insights into our sustainability initiatives on top of our sustainability report, included in our 2023 annual report. We continue our process on obtaining green building certificates in our portfolio. So far in 2024, we further increased the share of green certified office properties in our portfolio, reaching 37%. Due to capacity constraints in the certifying body in Germany, we have backlog of certification to receive. We are continuously working on certifications of additional properties, aiming at gradual progress in the German office portfolio as well as the hotel portfolio. We also took steps to further improve our climate change adaptation strategy. Firstly, by using an asset-level screening of physical climate-related risks as a selection of assets from the German office portfolio were screened.
This is a crucial element to understand the impact of changing climate patterns and risks on our assets. This is the cornerstone for building a solid physical risk assessment and adaptation strategy throughout the group, allowing efficiency, streaming of resources to mitigate these risks in the future. This improves the resilience of our assets and protects the value of the property. We additionally took steps to better understand the environmental benefits of major renovations on existing buildings, compared to demolition and new construction, by conducting a life cycle analysis. For example, one of the assessed projects generated approximately 44 less CO₂ emissions during the renovation phase, compared to estimated emissions in the case of demolition and the new construction scenarios. We expect the rollout of this process on further projects in the future.
Looking at our social initiatives, we so far this year, supported 40 projects within the local communities, thereby supporting charity projects with local partners, which have meaningful impact. For example, we support youth in their educational development, people with disabilities, or organizations that help people in need. As always, you can find more details on our ESG initiatives in the appendix of this presentation, as well as the sustainability page of our website. With this, please let me hand back to Oschrie .
Thanks, Limor. On to slide 9, where we present an overview of our portfolio breakdown. The portfolio has not changed since December 2023, with offices comprising 40%, residential 33%, and hotels 21%. Together, making 94%, and with the remaining 6%, logistics and retail. The geographical distribution has also remained stable, well distributed among top locations in Germany, the Netherlands, and London, together making up 89% of the portfolio locations. Within our regions, the portfolio continues to be well diversified across top-tier cities and with a focus on central locations. Our largest cities are Berlin at 24%, London at 8%, and Frankfurt and Munich at 7% each. The long-term fundamentals of these markets remain intact, and we continue to see solid upside potential in the mid to long term. As usual, you can find further detailed breakdowns in the appendix.
Continuing on slide 10, where we provide our main portfolio KPIs and details on our tenant base. As of March 2024, the portfolio value is EUR 24.8 billion, generating EUR 1.15 billion in annualized recurring rental income, which reflects a 5% rental yield. WALT remains stable at over 7 years across a well-distributed lease expiry schedule, with no concentration in a single year. Vacancy is set at 8% from 7.9% end of last year, but this uptick was more than offset by higher rent, with in-place rent reaching 10.8 per sq m. Our tenant base continues to be highly diversified, with over 3,000 commercial tenants, and further supported by the highly granular residential segment. Top 10 tenants continue to account for less than 20% of rental income.
On slide 11, we provide some additional details on our office portfolio. Top four cities continue to be Berlin, Frankfurt, Munich, and Amsterdam, which comprise 61% of the office portfolio. The tenant structure continues to be strong and well-diversified, with around 75% of our office tenants in the public sector, multinational or large domestic corporations. As of March 2024, the office like-for-like rental growth was 2.9%, as the combined impact of indexation and rent reversion of 4.9% on a like-for-like basis outpaced the negative occupancy impact. Office vacancy was 0.2% higher in the quarter, as demand remains impacted by the weaker economy. As a result, tenants continue to exercise caution on the major occupancy decisions and delay space prolongations or decrease the space when prolonging until the outlook turns more positive.
We see this particularly in Germany, which is still lagging long-term average levels. We do expect momentum to turn more positive with softer inflation and potentially lower interest rates. In the meantime, our well-structured lease expiry schedule and high reversionary potential softens this impact on our lease situation. On the other hand, we continue to see subdued supply due to the higher construction costs and interest rate environment, which significantly decreases new supply and which provides tailwind on vacancy reduction in the mid to long term. In addition, we continue to review and work on options to convert office spaces into other usages, such as commercial, residential, serviced apartments , flexible office space, and also explore further options. Turning to our residential portfolio on slide 12, which continues to show very strong operational performance.
Like-for-like, rental growth was 3.4% year-over-year as of March, driven mostly by strong in-place rental growth, as vacancy has reached a low level, and thus occupancy increase is expected to contribute less going forward. In-place rent momentum remains strong, particularly driven by the supply and demand gap, which keeps widening, with completions at low and decreasing levels, while demand continues to increase further. The German Real Estate Association, ZIA, estimates the current gap to be around 600,000 units and expect this to increase to 830,000 units by 2027. This supply-demand imbalance will take a long time to close, and we therefore see long-term tailwinds for rental growth.
Rental growth is additionally supported by past inflation, which is gradually reflected in the German regulated rent tables and will continue to be captured over the midterm. In the meantime, the London portfolio, which does not have rent control, and therefore a faster capture of inflation and market rent, continues to perform very well with a like-for-like rental growth of around 5%. Frank, please continue with the next slides.
Thank you, Oschrie . Please move to slide 13 with a brief overview of our hotel portfolio. Our portfolio comprises over 150 hotels. It is well diversified across attractive European tourism and business destinations. The hotels are leased to third-party operators under long-term fixed leases that are linked to inflation or with step-up rents. The portfolio saw a 2.3% like-for-like rental growth as of March 2024. Thanks to a clear path to recovery of the hotel market to pre-pandemic levels, no extraordinary rent collection provisions were recorded in the period. In 2024, we started reopening several large hotels that have undergone major refurbishment in recent periods. Our hotel in Rome was reopened this month, rebranded and newly designed Cardo Roma by Marriott, positioning the hotel for both business and leisure travels.
Our Brussels hotels had its soft opening in March 2024, and the full reopening as Cardo Brussels is expected next month. The hotel is in a prime location in central Brussels and caters to both business and leisure travelers. Furthermore, the opening of our hotel in Paris is expected this summer. These hotels will support rental growth in the coming years as operations ramp up. At the same time, we are continuously extracting the potential in the portfolio by rebranding, repositioning, and upgrading hotels. The hotel market is expected to see a significant boost in demands from several major events during this year, such as the UEFA Euro Cup in Germany, the Olympic Games in Paris, and several major music tours, and events across Europe.
Furthermore, recovering large trade fairs, especially in Germany, as well as business travel, that have been muted for several years now, is providing tailwinds for MICE and conference hotels. On slide 14, we present an overview and track record of our process of extracting building rights within our portfolio and crystallizing the gains through disposals. The property in this example are primary single-story retail properties in high demand residential areas in central Berlin. These retail properties themselves are cash flow generating assets and situated in very strong locations for their use, being mostly the essential goods retailers such as supermarkets.
However, further value can be extracted from the location by redeveloping the site into mixed use, mid-rise and high-rise, which better serve the high-end diverse demand in their respective area, while space on the ground floors remain available for the center retail use of the current property. We continue to use our expertise and knowledge to further optimize underutilized assets throughout the portfolio. After obtaining permits or pre-permits, we aim to sell the property, thereby crystallizing most of the value with only minimal risk. Eyal, please continue with the presentation.
Thank you, Frank. Moving to slide 16, which presents our financial results for this quarter. Recurrent net rental income amounted to EUR 291 million, slightly less to the comparable period, as like-for-like rental growth partially offset disposals. Total revenue decreased slightly year-over-year due to the combined impact of disposals and lower operating and other income related to lower utility costs recoverable by tenants. Like-for-like rental growth was 2.8%, 3.4% in the residential portfolio, 2.9% in the office portfolio, and 2.3% from the hotel portfolio. The result was mainly driven by in-place rent growth, partially offset by slightly lower occupancy. We didn't revalue the portfolio in the first quarter. The portfolio will be revalued as part of the half year financials.
Capital gains were slightly positive as a result of the close disposals over book value in the period. We see the hotel market recovering as expected, and as a result, no extraordinary expenses were booked in Q1 2024, while in Q1 2023, we recorded a EUR 15 million provision. Finance expenses increased to EUR 61 million in Q1 2024, from EUR 49 million in Q1 2023. The higher finance expenses are the results of the new secured debt raised between the two periods to strengthen our liquidity position, and the repayment of relatively low coupon bonds at an attractive discount, which were mostly executed in the second quarter of 2023 and supported the company's financial position. In addition, higher expenses as a result of the higher base rates on the variable and capped debt part, had a negative impact on this figure.
The negative impacts were partially offset by income generated by the company's strong cash balance. Bottom line profit amounted to EUR 102 million, reflecting earnings per share of EUR 0.04, compared to a loss of EUR 22 million or a loss of EUR 0.04 per share in the last year period. Please turn to slide 17. Adjusted EBITDA amounted to EUR 247 million, up 1% year-over-year. As was the case with the recurring net rental income, this is the result of like-for-like rental growth offsetting the impact of disposals, additionally supported by optimization measures. 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 the impact is not recurring. FFO-1 was EUR 76 million, a 10% decrease.
The decline was driven primarily by higher finance expenses and higher perpetual notes attributions from the reset of perpetual notes, partially offset by the recovery in the hotel portfolio. FFO-1 amounted to EUR 0.07 on a per share basis, in line with our guidance for 2024. FFO-2, which includes the disposal gain over total costs, amounted to EUR 90 million, lower year-over-year due to the lower FFO-1 and lower transaction volume. In Q1 2024, we closed EUR 110 million of disposals at a gain of 2% over book value, thereby generating profit over total cost of EUR 14 million, reflecting a margin of 14%. Moving on to slide 19, where we highlight our EPRA NAV metrics. The NAV metrics remain broadly unchanged compared to December 2023.
The EPRA NAV amounted to EUR 10 billion or EUR 9.1 per share as of March 2024, and the EPRA NTA amounted to EUR 8.1 billion, or EUR 7.4 per share as of March 2024. Oschrie, please continue.
Thank you, Eyal. On slide 20, we provide an update on our strong liquidity position and debt coverage. In the first quarter of 2024, this remained broadly unchanged.
... Our cash and liquid assets remain strong and amounted to EUR 2.9 billion as of March 2024, and together with expected proceeds from signed disposals and vendor loans, stands at EUR 3.8 billion to cover debt maturities until mid-2026. We continue to work on raising further liquidity, mainly through disposals and bank financing, in order to further extend our debt coverage and debt maturity. Moving to slide 21, where we present our continued high headroom to our bond covenant. As shown here, we can sustain a loss of 35% in total asset value, reflecting nearly EUR 12 billion further of value loss, before we trigger that covenant. As we have more cash than secured debt, the secured debt covenant remains negative. While our large pool of unencumbered assets continues to be well above the covenant limit, providing us with flexibility to access further bank debt.
The ICR covenant is to remain at 1.8 times, and we stand at 4.1 times. With that, we continue to be very well positioned within our bond covenant package. Turning to slide 22, with an update on our capital structure. Looking at our balance sheet, not much has changed compared to December 2023. LTV remains stable at 43%, and we will continue to take proactive measures to reduce leverage in the upcoming period. Unencumbered assets amounted to €18 billion, similar to December 2023. The average cost of debt remains stable at 2.2%, while our average debt maturity is 4.2 years. We note here that we do not take into account our strong cash balance in these metrics. In the current environment, our existing cash balance generates positive income, offsetting part of the interest costs.
Furthermore, cash and liquid assets cover already 21% of debt as of March, and as a result, the effective maturity is longer. Our ICR was 3.9 times in Q1 2024, and net debt to EBITDA was 11.3 times, as net debt decreased, while EBITDA increased slightly year-over-year. Moving to slide 24, where we confirm our guidance for 2024. We guide for an FFO-1 of EUR 280 million-EUR 310 million for the year 2024, reflecting EUR 0.26-EUR 0.28 on a per share basis. We continue to see the negative impact on our FFO from ongoing disposals throughout the year, which increases our liquidity and reduce leverage, but also has an impact on FFO, with the higher finance expenses and higher perpetual note coupons compared to the previous year.
As noted previously in the presentation, the perpetual notes exchange is FFO neutral in 2024, while positively impacting the FFO in future periods. This concludes our presentation, and as always, you can find further material in our appendix. With that, we would like to start the Q&A.
Thank you, Oschrie. So before we invite your direct telephone questions, we would like to answer questions that we have received by email prior to or during 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 for Oschrie: Can you please provide an update on your operational performance of your separate asset classes?
Thank you. The majority of our portfolio with 54% residential and hotels are benefiting from positive operational growth. Fundamentals of the residential market are strengthened from a continuously wide supply and demand gap, and the hotel sector continues to gain from further momentum in the leisure sector, especially during holiday season. Large European events in summer from the UEFA European Cup in Germany, the Olympics in France, as well as others, and a growing demand for conferences and business travel. The demand in the office market remains low, which makes it more difficult to relet all the vacant space, which creates a soft pressure on occupancy in current times. However, rent indexation and step-up rents are more than offsetting lower demand, which results in positive rent like for like.
The occupancy increase in the residential sector has also been offsetting the slightly higher vacancy in our office portfolio.
How is the letting market in the office sector performing, and where do you see your vacancy rate going forward?
Demand for office space remains impacted by the weak economy, which has always been the strongest demand driver. Currently, office tenants are maintaining their current lease and hold off taking decisions until further clarity or even partially reducing their space to manage costs, as rents increased strongly in recent periods due to indexation. As employers feel more comfortable to utilize remote working options, tenants have become more flexible in their office space needs. For this reason, we are also creating flexible office space in many of our offices to offer to our tenants to benefit from variable space. Our reversionary potential and long average leases provide a good level of protection against strong increase in vacancy in the current situation. In-place rent of long leases, which are expiring, are below market rents, as the recent CPI indexation did not catch up to the strong growth in the last decade.
The gap to market rents makes us competitive, as we can offer more affordable options, while also catching part of our reversionary rent potential. In current times, we focus more on occupancy levels than on capturing the reversionary potential. In Q1, we prolonged 85,000 sq m at an average WALT of 5 years, with an average in-place rent of 14 per sq m. New lettings amounted to 20,000 sq m at a WALT of 6.5 years, and an in-place rent of 18 per sq m. These new leases were signed at 18% higher rents compared to the previous leases, underlining the reversionary potential of our portfolio.
Due to our staggered and long average lease schedule, the impact of the low demand is limited, as you can see in our vacancy increasing by only 0.2% in Q1, which was offset by rent indexation and step-ups, reflected in a like-for-like rent performance of 2.9%. As inflation eases further and interest rates might decrease, the economy could pick up again later this year or next year. We 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 dissipated.
Furthermore, we note that development volumes and pipeline have significantly reduced, and there will be little supply in the midterm to meet the pickup in demand.
Could you provide an update on the residential portfolio?
Our residential portfolio continues to perform strongly, reflecting increasing demand and limited supply across our locations. Our residential portfolio amounts to 33%, forming a substantial and integral part of our portfolio, strengthening and growing our cash flows. The net rental, like for like, was 3.4% as of March 2024, and reflects the strong dynamics in the residential portfolio. We are focusing on increasing in-place rents, coming from good reletting performance as well as indexation. We continue to see high revisionary potential further, supported by updated Mietspiegel rents being published this year, which will continue and drive internal growth at low investment.
Can you please give an update on your hotel portfolio? Is the positive momentum progressing as anticipated?
Yes, as expected, the momentum is progressing well, and we see strong upcoming demand drivers due to large events taking place during summer, such as the Olympic Games in Paris and the UEFA Euro Cup in Germany. As a result, the rent collection is back to normalized levels, and no extraordinary provisions are needed. The momentum in our hotel portfolio, which makes up 21% of our total portfolio, is supporting our FFO. In 2024, we are expecting EUR 33 million more FFO compared to 2023, which were deducted from our FFO last year. In addition, we recorded like for like rental growth of 2.3%, which came from occupancy increase and soft step-up rents. Furthermore, we are identifying and continue lifting upside potential, which will support further growth of the rent in the hotel portfolio.
These measures include reopening hotels that we closed for renovation during the pandemic, refurbishment of hotels, which are then placed as new and updated product to the market, as well as rebranding and repositioning hotels to new, fresh concepts. Looking forward, we are confident that our hotels will drive internal growth, with strong and increasing cash flows, and continue to support the company's top and bottom line.
Why did you launch the perpetual exchange this year and not already last year, especially when you could have bought them back at lower prices? What are your next steps after the exchange for these instruments?
We focused since mid-2022 to maintain and increase our liquidity, support our leverage, and keep very high buffers to our bond covenants. Since we saw a high refinancing risk and increase in interest rates, it added us to the decision not to call the perpetuals, for which refinancing was not an option at the high market volatility at the time. In recent periods, we maintain our strong access to bank financing. We saw a more positive market environment, expectation that interest rates peaked and starting to decrease, and capital markets opened for real estate companies. Therefore, we felt more comfortable to allocate capital to equity instruments with a goal to improve the credit metrics and support our rating. We, thus, decided to launch the exchange, the exchanges, while all had a very successful outcome, including the GCPs.
This was a strategic decision and not an opportunistic one, in the sense that we were looking to support the perpetuals in the long term. We see the perpetual notes an integral part of our capital structure, as this equity instrument is very protective for the company and all its stakeholders, especially in volatile and uncertain periods, as we recently experienced. We are pleased with the exchange result and note that we have now offered an exchange to holders of all perpetual notes with the first call dates behind us, as well as those with first call dates in the upcoming 12 months.
Was there any update from S&P post your successful perpetual exchange? How does the exchange impact your rating?
S&P affirmed its rating at BBB+ with a negative outlook last December. Since then, we have completed the perpetual exchange in April and in May. This is clearly supportive for the rating, as we have regained most of the lost equity content and have already extended a very high amount of the hybrid notes, which will have the first call date in the next twelve months. We understand that the exchange itself won't change the rating outlook, but it supports our credit metrics and positions us better going forward in combination with other measures that we take to support our leverage. We believe that in terms of deleveraging, and now also with the perpetual notes exchange, we have the worst behind us, and we expect to improve our credit metrics again.
We will continue with our de-leverage process through disposals and increasing our cash flows, which should further support the metrics improvements.
Question to Barak. What are you expecting for your property valuations in H1 and for the full year? Will the valuation stabilize and reach the bottom this year?
We are only in the beginning of the valuation process for H1, and cannot comment yet to the expected valuation results. However, looking at the current market sentiment and environment, we expect to see devaluations to be significantly lower in 2024 compared to 2023. We note that our upcoming valuations will be highly dependent and impacted by interest rate levels and the transaction market, which currently remain difficult, but are expected to improve in the next periods. We believe that if interest rates do start to decrease in the next month, it will support the opening of the transaction market, and valuation will stabilize as more certainty will be provided to the market. However, there is a risk lingering that the anticipated changes will be delayed, which will negatively impact valuation.
Currently, we estimate that valuations will bottom in 2024, and we are cautiously optimistic that the worst is behind us. We also note that our values have declined already by 14% since peak levels, while rent levels continue to increase period over period. Furthermore, the significant increase in replacement costs, as well as the very low construction levels, decreased the levels of new supply in the market and should support valuations in the midterm.
Can you please provide more color of your rent like-for-like performance? Do you continue to benefit from CPI indexation, and what do you expect going forward?
Our like-for-like as of March, was 2.8% for the total portfolio, mainly supported by residential, with 3.4% and office with 2.9%, whereas hotels achieved 2.3%. We continue to benefit from CPI indexation in the office sector, which is more than offsetting the negative like-for-like in occupancy. Going forward for 2024, we expect this trend to continue as the high inflation rates of last year are not fully incorporated into all leases yet, as some have their annual review coming up along the year, and a share of leases have indexation hurdle rates, which we expect will be crossed in the coming periods. We will also continue to see a strong like-for-like performance in the residential portfolio on the back of the wide supply and demand gap.
The tailwinds in the hospitality sector, especially this summer, provide us the confidence that this sector continues well to gain from momentum, which will enable us to execute indexation clauses. For the full year 2024, we're conservatively assuming 1%-2% like-for-like rental growth for the total portfolio.
After your successful perpetual transaction, we see that your senior spreads have improved. Will you use the opportunity to issue new senior bonds this year?
The opening of the capital markets is encouraging and provides the sector with access to an important liquidity source. We have seen in the past months, numerous European real estate companies issuing bonds after a prolonged muted period with no transactions. These transactions have been well received, demonstrating robust investor interest, which is clearly a positive indicator. Additionally, our success in perpetual exchange, resulting in an issuance of EUR 2.5 billion of new hybrid notes, is an important milestone for us in the capital market. At present, we are in no need for additional cash, as in last periods we focused on increasing our cash levels through disposals and bank debt. Secured debt rates also remain to be competitive to new [audio distortion] issuances.
Can you please update on your disposals progress? It seems your disposals progress is slower this year than in previous periods. Will you continue selling assets?
We completed in Q1 EUR 110 million, and have signed year-to-date disposals of approximately EUR 200 million. This year's disposals progress is slower than last year's, which is mostly due to the more selective disposal approach from our side. We believe that once the ECB starts to cut rates, we will start to see more transaction volumes as a market recovery. We will continue selling assets for the right price in order to further de-lever the company and to support the credit rating and reduce refinancing at higher rates.
What is your progress on secured lending? Will you continue drawing new bank debt or focus on raising unsecured debt instead?
After EUR 1 billion last year, this year to date, we have signed another EUR 240 million of new bank financing. Due to our large cash balance and no immediate debt maturities, we are in no rush to raise new funds, but as always, we are conservative and plan several years ahead. Our large amount of unencumbered assets enables us to access bank funding successfully at rate, which remain competitive to unsecured debt. If we were to access the capital markets again, we will continue to raise bank debt in parallel to keep several liquidity options available, but at a slower pace. We have in the pipeline potential loans for several hundred million EUR.
We've managed the refinancing risk well through disposals and bank debt, supported by our large volume of unencumbered assets, which is proof of our financial stability and resilience in the most difficult market and major circumstances.
Please provide an update on your development project. Are there still projects under development after you finalized the hotel refurbishment? Did you continue selling any development rights?
The two hotels in Rome and Brussels are open now. Brussels reopened in March, partially, and full opening will be next month. Rome just reopened a few weeks ago, and this month, and Paris we expect to be finalized by the summer. The construction for the new and pre-let 11,000 square meters logistics halls in Kassel is finalized, and the tenants are moving in next month. The site includes further densification potential, and we're currently checking options for building or converting additional logistic halls, as few of our tenants are looking to expand further, allowing us to provide a tailored solution at low risk. We also continued selling development rights as well as obtaining new rights.
As we explained in the presentation, we continue to obtain new building rights for low-rise buildings in top central locations, where usually an essential retailer is the current tenant. We successfully sold this type of rights in the past and crystallized significant value increase from this successful value creation strategy. We further sold the Berlin project as we have become more selective on our CapEx spending, as well as land and conversion projects in Hamburg and Berlin.
You decided not to pay a dividend in 2023, following also no dividend in 2022. What can be the trigger for resuming paying dividends again?
Over the past two years, we focused on cash retention and deleveraging of our balance sheet. Accordingly, we have disposed properties, being very selective on investments and CapEx, bought back bonds at discount, and also suspended two dividend payments, which all supported our net debt reduction. As long as property valuations are decreasing, we will focus on offsetting these negative impacts and to support our leverage. We do, we do see early signs for optimism, with the rates expected to decline in the course of the next months and with the transaction and capital markets gradually reopening. We have one more year until we have to decide on the next dividend. Less uncertainty and less market volatility, combined with an open and normalized transaction and capital market, will give us the comfort to resume the distribute and distribute dividends.
Of course, subject of the dividend distribution is balanced with our leverage and our credit rating.
Thank you. Those were the questions that we received prior to or during this call, and 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. One moment, please, while we are taking our first question. Our first question comes from Ellis Acklin with First Berlin. Please go ahead.
Yeah, good morning, everyone. Thanks for the detailed presentation. Just two questions from my side this morning. You talked a bit about the closed hotels coming back online. I was wondering if you could share with us if there are any other hotels that may be closing for refurbishment in the coming months. Second, if assuming the ECB does actually cuts rates later this year, maybe you can talk a little bit about the prospects for disposing further office assets, given the ongoing workspace demand headwinds. That's it. Thank you very much.
Hi, Ellis, thank you for the questions. We have few more. The majority of the properties of the hotels that were closed are now going to be opened. There are still several, few, but nothing material. The idea is really, that we mentioned before, is really to upgrade also existing hotels and improving rents from existing properties. So basically, we are talking about more soft refurbishment that will come with not significant CapEx inside, but will improve our rent income going forward. Referring to the ECB, we do expect that if the ECB will cut rates, we will see additional, let's say, volume of transaction coming in.
For us, we so far managed to sell non-core and mature properties more or less in the same balance as the proportion of the portfolio. It's not necessarily that we are selling only offices or only other asset classes.
... It's really on an opportunistic basis, and we need to see that the price we are getting is a fit to where we see. So we will see additional disposals in the next period, and especially if the ECB will then cut, we'll see—we expect to see even it more in enhanced level. Thank you very much.
Our next question comes from Kai Klose with Berenberg. Please go ahead.
Yes, good morning. I've got two questions, if I may. The first one is on page 21 and 22 of the presentation. On page 21, you say the ICR, according to the covenant, is 4.1 times, and page 22, it's 3.9 as of March. What's the difference? And the second question is, there were some articles that the Deutsche Bundesbank in Frankfurt is reviewing their space needs for the future. Could you indicate what this might mean for the FBC, where the Bundesbank is a tower, is a tenant? Thanks.
Hi, Kai. Thank you for the question. Referring to the ICR, the first calculation is, is based on the IFRS, based on the results that we published, and the second ICR is based on the, covenant calculation according, in accordance with the EMTN program. As for your second question about, our property, office property in Frankfurt, we still have the contract, in place until 2028. I, we, we read this message as a more or less positive message because, for us, we saw a, a potential that they might move and, and consolidate their, space elsewhere. With this message, we see a good alternative that they might stay, and even prolong. So we see that message as, more, as, as a positive one. Thank you very much.
Our next question comes from Manuel Martin with Oddo. Please go ahead.
Thank you for taking my questions. Two questions from my side, please. The first question is on your like-for-like rental growth. Maybe I've misunderstood that, but did I hear that correctly that you might expect a 1%-2% like-for-like rental growth for total portfolio? If yes, what could be the difficulties arising when you have in the first quarter, a growth of 2.8%? Maybe you can give us some details on that. The second question would be on your disposals. You were talking about that disposals become rather selective. Maybe you can give us some color on that. Which kind of features do the buyers want to see? Or what are the buyers looking for when it is becoming more selective, when you say?
That's it. Thanks.
Hi, Manuel, thank you for your questions. I think about the first question and the like-for-like, I think the biggest gap between the two periods, 2024 and 2023, is the lower indexation that linked to the inflation rate. So inflation rate in 2024 are expected to be lower than in 2023, and this has impact on the like-for-like and how much we can actually increase the rates. That's the main gap or main driver that caused this to the like-for-like in 2024 to be 1%-2%. Referring to the disposals, it's we, as a company, that became a bit more selective.
We saw interest rates with anticipation to be decreased, so our access to capital improves, so we start to be selective on what are we selling, what are the prices. Clearly, when you have interest rate, let's say, a change in interest rate, in this case, a positive one, which is decreasing, it's again opening some gaps between expectations of buyers and sellers. And again, certain uncertainty is popping up. In this case, from our side, that we have become a bit more selective. We want to see where the rates are going to go in order for us to, let's say, decide about the pricing. So far we say we sold at book values or a bit above book values, and we like that approach.
Clearly, we want to see where the interest will go to enable us to decide about our further disposals. Thank you.
Our next question comes from Ben Richford with Bernstein. Please go ahead.
Hi there, it's Ben Richford from Bernstein. So, three questions, please. Firstly, on the hotels, can you just tell me the additional space or the, the refurbished space coming online, is that gonna mean an increase in rent for that space, or is it just rent collected that was previously provisioned for? So the first question on hotels. Secondly, on vendor loans, it looks like the balance is fairly unchanged since the full year. And I wondered, is that because you made new vendor loans and some were repaid, so it's a sort of a net flat, or, or have you just not collected some of the existing vendor loans? And then the third question, just around the energy performance of the office portfolio. What are your plans for improving that?
Are there regulatory requirements to make improvements in the portfolio, and what is the CapEx to achieve that, please?
Thanks, Ben, for your questions. Referring to the hotels, the opening of the new hotels will increase the rent and not part of the collection. Part of the rent is already in the portfolio, an additional part as part of the ramp-up period, will increase the next period. So this is an additional rent that will be contractually increase our run rates in the next period. Referring to the vendor loan, in Q1 we collected a very small part, that's why you didn't see the reduction, but year to date , we collected over EUR 50 million, and it's in line with the scheduled payment of the vendor loans. That's for the second question. About the energy performance, we are under our evaluation process.
We have our internal team doing a retrofit programs for each property, and once we have our plan, and we understand more of the regulation, which is also changing, from time, from period to period, we'll be able to share more, let's say, detailed insight about what's the plan, what are we going to do. But in the meantime, our part of our CapEx, we always improve our properties, investing as part of, even part of the TI, but also part of the other CapEx, we invest in our energy system, installing a panel, solar panels, and additional improvements that working properly and good on the energy consumption. Thank you.
We continue with the question of Paul May with Barclays. Please go ahead.
Hi, team. I've got three questions. You mentioned about the transaction market creating sort of great resonance-
Paul, Paul, if you may talk a bit louder so... we don't hear you.
Okay. Can you hear me now?
Now it's better.
Okay, apologies. Just on the transaction market, noting the sale this morning by S IMMO, that implied a valuation of German offices around 1,760 sq m, and that compares to your 2,794 sq m for your offices. I appreciate there's differences in quality, but seeing that this is quite a large deal that they've done, do you expect this to come through as transactional evidence, and therefore imply further valuation declines on offices? The second one on offices, noting now your vacancy rates up to 13%, which I think is quite materially higher than the market. Just wondering at what point is this a risk and, and do the valuers reflect this?
And then finally, just on the point around ECB rate cuts, you mentioned quite a few times through the call, obviously, swap rates are quite materially lower than that today, and my understanding is real estate's typically priced off swap rates, not off base rates. So I just wondered, in Germany, is that different? Do you see most buyers of assets using three-month Euribor, or do you or do most buyers look at the five-year swap when pricing their real estate transactions? Thank you.
Thank you, Paul, for the questions. We—I think, you know, every property, as you mentioned, you know, the transaction that did today, we really need to understand exactly where the location. Clearly, there is a difference between the locations and the quality of what they sold to what we have. We sold, in the last three years, so many offices and in the prices that are even sometimes higher than our book value. So we feel very comfortable with our book values, and we proved that with all the transactions that we did until today. I don't think such a transaction that they did will have an impact, a specific impact on the valuations of the offices.
Referring to our vacancy in the offices, I think that we reached 13%, but I think it's important to mention from where we started, and to analyze the change, so we started from a high vacancy. We bought properties with a vacancy and mismanaged in order to create value. In the last year, we had an increase in vacancy of about 1.5-1.6%. We expect this year to be lower than that. I think the change is not a material, considering the weaker market that we feel, and we do believe that once the market will turn, we'll be able to capture that and rent the spaces.
We have very good, let's say, pipeline also of, letting activity. We continue to let. We let this year, in Q1, even more than we did in, Q1 last year. So, we don't see the, the slight increase in our vacancy as a concern at all. Referring to the, transaction market and the swap rate, it differs. In general, we do look also in Germany, on the transaction market at the mid-swaps, but still there is always the uncertainty whether, you know, the rate cuts will actually happen. And eventually, what we also learn is that when things are actually happening, it gives more certainty to buyers, when they look, forward.
Clearly, when people are taking real estate financing, they can have it variable with a Euribor, three months or six months Euribor plus spread. They can lock it based on the mid-swap, depends on the period, but this is depend on each buyer. Thank you very much.
... Our next question comes from Stephanie Dossmann with Jefferies. Please go ahead.
Hi, everyone. Thank you. I have a couple of questions as well. Maybe a follow-up on your disposals and the valuation changes, et cetera. What kind of buyers do you see? What were the buyers for your EUR 200 million signed year to date? I know also that it is difficult to say about, you know, by how much capital value will move going forward. But rather maybe by segment, you touched upon a bit on offices, but still some of your peers last year reported -17% valuation change versus -13% for Aroundtown. Do you see more valuation decline on offices on your portfolio going forward? And maybe other questions on your perpetual.
Could you give us how much of the equity content you have in total post you know exchange and repurchase offers? So the total amount, which is accounting by S&P as equity content, and maybe the follow-up on this, how much of you know the perpetual coupons in total would be next year, please?
Thank you for the questions. Referring to the buyers, the buyers are relatively similar to what we saw also last year. I'm not talking about the specific deals we did this year, I'm talking overall what we see, who is interested and who is actually doing the deals. We see family offices, we see local developers, we see municipalities, and we don't see the big funds coming yet into the market and buying at large deals. So that's why we see the volumes relatively small. Also, the deals themselves are small deals, not the big packages we saw a few years back. Referring to the valuation of the offices, our full portfolio was valued end of last year.
We expect, as we mentioned in the call, additional revaluation this year, but is significantly lower to what we saw last year. I think some uncertainties are starting to fade out. It will be reflected, but still we see the negative momentum of the increase of the interest rates, which will impact further the yields expansion that valuators are taking. Referring to the equity content, we gained about EUR 600 million equity content from this transaction. It's easy to calculate.
I mean, we have the, those, perpetuals that lost completely equity content last year, and we have, the ones that are still didn't close that, but still we approach them and tender them, from the, in December 2024 and January 2025. Overall, we have. If we look on the long term, we have EUR 2.5 billion of hybrids that, we issued new. That means that from 2025 on, it's EUR 1.2 billion of equity credit that will be attached to, to this, going forward. Thank you for the question.
The next question comes from Pranava Boyidapu with Barclays. Please go ahead.
Can you hear me? I had a couple of questions on your, financing strategy. For the, for the EUR 240 million that you've raised in secured financing, what are the levels that you're seeing? I, I know you said unchanged, so is that still around 150 or so? And is that where you would need your unsecured debt spreads to go to before you consider, a new bond issue? Because you've mentioned a few times that secured financing is relatively, competitive. And would you be looking at the Z-spreads , or would you look at the all-in yield, looking at the swap rates as well? Thank you.
I thank you for the question. When we look at the unsecured versus the secured, we will not, let's say, expect to wait until the spreads. Maybe we start from the second question. We look at the spread, that's the key element, based on the over the mid-swap that which is the base. That's how we analyze it, and when we go to the unsecured versus secured, we are not expecting the unsecured to go to the secured or below in order for us to go to the market. We clearly understand the advantages of having the unsecured debt over the secured, but we do expect the gap between the two to further shrink before we go into the unsecured market.
But we are happy to see that we, by the way, we do get demand more and more and calls from, unsecured investors that are invested in our bonds, asking about us, when are we coming to the market, showing interest. This is, for us, a, a very nice, let's say, feedback that we get, following our, perpetual-