Hi. Thank you and good morning, everybody. Thanks for joining us for Aroundtown's Q1 2022 Results Call. You should have received our corporate news and can view this presentation on Aroundtown's website, either on the home section or under financial reports of the investor relations section. As said, my name is Catherine Peterson. I am Aroundtown's Group Head of Communications. With me today are CEO Barak Bar-Hen, CFO Eyal Ben David, Chief Capital Markets Officer Oschrie Massatschi, Executive Director Frank Roseen, Investor Relations Timothy Wright, as well as representatives from Grand City Properties. 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. We asked you already before to send your questions to info@aroundtown.de, and please feel free to continue to send your questions via email also during this presentation.
Again, the email address is info@aroundtown.de. I will now pass you over to Oschrie, who will guide you through the presentation of our results. Thank you.
Thank you, Catherine. Good morning, everyone, and welcome to Aroundtown's Q1 2022 earnings call. The Q1 of this year appeared to end with a positive push as the pandemic became less of a concern for market players and to society as a whole, probably due to higher vaccination rates and significantly lower death numbers than previously assumed. It didn't take long, though, until new challenges arose and the war and following supply chain disruptions and inflation overhang added significant volatility. We all wish the war and suffering to be over soon and following to reach a stabilized and more predictable market environment. In the meantime, our teams focus on further strengthening the fundamentals of the business as we expect this year a negative macroeconomic environment before we see calmer waters again.
As nominal debt yields increase across the board, we see that our continuous liability management and disposal activities in the past pay off, resulting in high current liquidity, which supports the company in these challenging times. The operational performance in the office and residential sectors continued to improve following the pickup from tenants' interest we saw in the second half of last year. Hotels, on the other hand, had a difficult start into the Q1 as a new wave of COVID infections hit most European markets and travel subdued again. However, as most travel restrictions were lifted in March, we see a positive turnaround in the number of hotel bookings across our portfolio and reaffirm our collection expectations.
While we are not out of the woods yet, and it is likely things may get worse in the short term before they get better, we so far continue to see a stable momentum in rental activities going forward. On slide four, we provide a summary of our financial performance highlights of Q1 this year as we continue to make every effort to stabilize and improve the fundamentals of our company. Later, we will discuss each of these numbers in more detail. The net rental income increased year-over-year by 32% to EUR 309 million, which is mainly due to consolidation of Grand City Properties rental income this year.
As we continue to navigate carefully through uncertain times, we maintained in Q1 of this year a strong cash and liquid assets position of EUR 2.2 billion, which has decreased over the last quarter as we repaid about EUR 800 million of short-term debt. We maintained a low average cost of debt of 1.2% with nearly six-year average maturity. FFO I Q1 resulted in EUR 90 million after COVID adjustments, reflecting a 3% year-over-year improvement, but 10% on a per share basis due to the share buyback impact. The like-for-like rental change came in at 0.9%, not including Grand City's performance yet. Moving to slide five, you see an updated split of our signed disposals for Q1.
The total balance of signed disposals is EUR 1.1 billion, of which half a billion were signed last year and EUR 600 million signed year to date. Of the signed deals, about EUR 130 million have been closed in the Q1 at a 66% margin over total cost, with 3% margin over book value. The average disposal rent multiple came in at 27x. 60% of closed disposals in Q1 were located in secondary locations of Hamburg, 22% in Stuttgart, 7% in Berlin, and 11% of disposals were located in non-core locations such as airport and secondary cities in North Rhine-Westphalia. The segment split of disposals was made up of 71% of offices and 29% retail and others. We continue to demonstrate strong disposal activities and achievements above our book values.
By means of our successful asset rotations, we capitalize on significant value creations and recycle the funds into our own portfolio at a higher quality. Having kept our last share buyback program of EUR 500 million in January this year, we continue to execute the buyback of up to EUR 1 billion by end of 2022. Of which about 60% has been already executed as of last week. Let's continue to the operational results starting from slide seven. Having increased our position in Grand City over the last few years, we see in these volatile markets that the contribution of its quality residential assets located in strong metropolitan locations has a positive impact on the overall stability and diversification of the group's portfolio.
As a result of our careful asset rotation strategy, by the end of Q1, our portfolio diversification remained stable quarter-over-quarter and we maintained the same split of 44% in offices, 30% in residential, 18% in hotels, and the remaining 8% in logistics and retail. With 92% in value, our portfolio maintained the focus on the European key markets across top tier cities of Germany, Netherlands and London. It's illustrated on slide eight. We present our tenant diversity with around 3,500 commercial tenants from various industries across our properties, with limited exposure to single tenants and additional 65,000 residential units from Grand City. Our tenant dependency remains low as the rental income of our largest 10 tenants remains less than 20% of our group's total rental income.
Aroundtown's group portfolio platform at the end of Q1 2022, including the consolidation of Grand City, amounted to EUR 28.9 billion and about EUR 1.2 billion net rental income run rate. The WALT is stable at 7.6 years for the group. At the end of Q1, the rental yield remained stable at 4.3%, while the vacancy rate of the group was 7.9%. We continue to see further rent increase potential across our asset segments, but anticipate that in the current market conditions it might take longer to realize them. As shown on slide nine, our office assets represent the largest share of our group portfolio value with a steady 44%. We continue to be a significant office landlord among listed real estate companies in Berlin, Frankfurt, and Munich.
These three locations alone make up 56% of our office portfolio value. Additional key locations of Germany and the Netherlands, such as North Rhine-Westphalia, Amsterdam, Rotterdam, Hamburg, Dresden or Stuttgart, remain our focus, as shown on the pie chart. With a balanced average lease term of 4.5 years and no significant dependency on a single tenant or location, we continue to maintain a well diversified and robust tenant structure. We also maintain a strong tenant industry base with over 45% of rents deriving from governmental energy, IT, health, and infrastructure segments. About 30% of tenants originating from the public sector. We expect to see an increased level of conversion activities of office space for alternative users in the market over the next periods, mainly for secondary office space versus prime space, where demand has been resilient after the pandemic.
Which in turn will translate to a positive impact on office like-for-like lettings. Please now move to slide 10. Since the beginning of this year, we are all encountering several additional external challenges such as rising debt yields, inflation, and the ongoing war in the Ukraine. Office rents in our key markets remain stable with a slight increase in prime locations and transaction real yields remain stable too. As you can see from the slide, Q1 2022 has been a continuation of last year's second half positive momentum in many aspects. Nonetheless, we remain cautious for the remainder of the year as the war in the Ukraine, debt yields, rates and inflation create more potential headwind for the recovery of European real estate markets. Our strategic long term investment in the residential sector through Grand City is reflected on slide 11.
Since April, the holding rate in GCP crossed the 50% mark and today stands at an effective holding rate of 54%, excluding shares GCP holds in treasury. We further increased our diversification to strong residential assets in the top German cities plus London that provide a strong addition to our commercial portfolio. Representing now the group's second largest segment with 30% of portfolio value after offices. With 77% value exposure in North Rhine-Westphalia, Berlin, Dresden, Leipzig, London as organic growth drivers, Grand City is complementary to Aroundtown's top tier investment locations and further adds to the asset class diversification and balances the portfolio between asset classes with different fundamental drivers. Additional key cities include Munich, Hamburg, and Frankfurt.
Grand City recorded a like-for-like rental growth of 2.8% this quarter, of which 0.5% derived from occupancy increase and 2.3% from in-place rents. Both achievements are not included in the results of Aroundtown for this quarter, but will be included in the next periods.
The recent increase in debt yield, together with cost inflation and the fact that many residential rental agreements in Germany are not linked to CPI, puts pressure on all German residential equities, which increases their discount to the NTA. On the other hand, the housing shortage and pressure on rent levels remain, and we continue to see strong demand for condominiums, which keeps high capital values for German residential assets. We are using this opportunity to carefully increase our position in GCP at a high discount to its NTA. Frank, please continue.
Thank you, Oschrie. On slide 12, we summarize our hotel portfolio. These hotels are located in top-tier cities across European countries like Germany, the Netherlands, Belgium, the UK, France, and others. Many of these cities enjoy for decades already a high proportion of domestic travel demands. We aim to ensure a strong geographic diversification across multiple operators and hotel types. Our hotel portfolio remains stable with over 50 years of WALT and 85% in value in the four-star category that reflects the sweet spot between the leisure and business traveler segments. Due to the increased share in residential assets and above book value hotel disposals, the share of this asset class reduced to only 80% in Q1 2022 from 24% in 2020. Please move to slide 13.
As indicated in our latest earnings call, the collection rate in the Q1 of this year came in at 45%. As most travel restrictions across Europe were lifted at the end of March, our expectation for the full year collection rate for hotels remains 60%-70% for 2022. Looking at April's collection rate of 65%, we are on track in achieving this full year target. As for the second half of 2022, we expect close to full collection rates. Assuming, of course, that the sector will not be confronted with additional lockdowns and that the impact of the war in Ukraine will remain limited.
Looking at the chart, the steep increase in bookings during the summer period of the last two years shows that people want to travel and validates the investment case for quality hotel in top destinations, which is led by leisure tourism so far. On slide 14, we summarize our remaining logistics and retail portfolios. Both asset types remain non-core for us, and we aim to hold only the best assets as well as to identify development rights for further value uplift while recycling the capital of mature and non-core properties of these two asset classes. Our remaining positions at the end of Q1 2022 stood at 2% in logistics and 6% retail. Their WALTs were stable at 5.2 years and 4.4 years, respectively. It is worth to note that the retail portfolio is over 40% exposed to essential goods operations.
The top investment location for both asset classes remain Berlin, with over 30% of the assets value in each segment. As you can see from the pie charts, we maintain a well geographic diversification across top German cities in both segments. Barak, please continue.
Thank you, Frank. We present on slide 15 the composition of our development and building rights portfolio, which accounted for 5% of the total asset at the end of Q1 this year. Therefore, it remains not material on a group level, but provides an additional value creation driver. Our strategy remains to identify additional value on plots of existing assets we already own by obtaining sellable building permits or conversion rights, as well as selective construction initiatives ourselves, where we see attractive upside at the lowest risk from the high pre-let ratios. One of our latest examples of such building permit disposals, I will highlight on the next slide. It is worth noting that we do not have any big running projects and we're therefore not materially exposed to the increasing material prices and wage inflation. New projects will be checked individually based on the updated pricing levels.
Given the shortage in the new supply across many prime locations and increased asset values, the development portfolio still implies upside potential despite the increasing material and labor cost. Last year and year to date, we signed around EUR 500 million of development rights for disposals above book value and continue to identify more buyers for such deals also this year. The composition of development rights is illustrated on the two pie charts. With nearly 40% of all rights values in Berlin. Grand City also identified most development rights in its Berlin portfolio. We regard the German capital as the most attractive location in Germany for developments due to its growing importance and severe shortage of offices and housing.
In terms of asset type breakdown, 43% of this segment are offices, which matches the under supply of high quality and green office space in several prime locations. 39% of this portfolio was identified for residential and mixed use, and the remaining 18% for hotels. The locations of our largest development rights include Berlin, Paris, Frankfurt, Munich, and Rotterdam. These five hubs together make up over 70% of this segment. In the appendix of this presentation, you can find detailed explanation of some development projects.
You will find two new projects being last-mile logistics properties in attractive logistics locations in Berlin, for which we obtain pre-permits. On slide 16, we highlight again the disposals of development rights from last and this year so far, which includes the latest disposal of 37,000 square meters office development in Berlin Mediaspree that was signed but not closed during Q1 this year. The underutilized land plot in prime location of Berlin achieved 37,000 square meters of office campus development rights and was sold just one year after the building permit was obtained. Realizing the value creation from identifying and obtaining the development rights. Keep in mind that it can take several years to obtain building permits as the cooperation with municipalities continues to be slow. Unfortunately, lockdowns in the past two years worsened this situation.
However, we continue to see values of development lands in top location increasing steadily, although at a more moderate pace. I'll now hand you over to Eyal to present the financial results.
Thank you, Barak Bar-Hen. Please move to slide 18, where we present the profit and loss results for the Q1 . Our recurring net rental income resulted in EUR 305 million. That's a growth of 35% year-over-year, resulting mainly from the consolidation with GCP and partially offset by disposals. As always, this figure, as well as the adjusted EBITDA and FFO, we exclude the impact of the assets that are already marked for sale despite their positive contribution. Our like-for-like net rental income, excluding hotels, amounted to 1.7% for Q1. Including the hotel segment, the like-for-like growth still amounted to 0.9% overall, of which 1.6% comes from index rents and -0.7% from occupancy decrease. Please note that the like-for-like calculation does not include GCP yet.
We will start to include GCP in the next period. We recorded property evaluations and capital gains in the amount of EUR 81 million. The portfolio was just revalued in December 2021. Therefore, we made only an immaterial number of valuations during Q1 this year. We will update values for the remainder of the portfolio during the course of the year. Due to the negative impact of the Omicron variant during most of Q1 this year, the rent collection from hotel operators remained significantly impacted at 45%, and we booked an extraordinary provision in the net amount of EUR 30 million for the Q1 this year. For the remainder of this year, we expect a higher collection rate in the range of 70%-80%. Administrative and other expenses remain stable at about EUR 14 million.
Finance expenses was up 12% year-over-year, mainly due to the consolidation of GCP. Excluding GCP, finance expenses reduced due to the proactive debt management of repaying shorter-term debt with higher interest, utilizing disposal proceeds as well as issuing debt with longer maturities at lower rates. This resulted in a reduced cost of debt of 1.2% compared to 1.4% a year ago. Other financial results were negatively impacted by the expectation for increased interest rates and inflation over our derivatives. Current taxes were up to EUR 30 million, mainly due to the GCP consolidation. The deferred taxes amounted to EUR 12 million in Q1 2022, were comprised mainly of the deferred tax expenses relating to revaluation gains. As a result, the net profit for Q1 2022 amounted to EUR 125 million, generating EUR 0.06 per share.
On slide 19, we show the adjusted EBITDA before the contribution from joint ventures, which increased year-over-year by 30% from EUR 190 million to EUR 247 million in Q1 as a result of the consolidation of GCP. The adjusted EBITDA calculation is already after excluding EUR 3 million net contributions from assets held for sale, and therefore referring only to the recurring long-term portfolio. Positive contributions derived again from our proportional holding in Globalworth for the Q1 of 2022 and other JV investments, which contributed EUR 12 million in total. Looking at our Funds from Operations on slide 20, we recorded in Q1 an FFO I of EUR 89 million or EUR 0.08 per share, therefore meeting our full-year guidance expectation. Year-over-year, this reflects slight increase on an absolute level.
Further positive effects can be seen from our share buyback programs as they increase our FFO I per share by nearly 10% year-over-year. Whereas on an absolute basis, the FFO increased 3% only. The FFO I per share before COVID adjustment increased to EUR 0.106. This gives again a solid indication of the potential we can achieve when rents will recover. As a comparison, the FFO per share in Q1 2020, so prior to the outbreak of the pandemic, was EUR 0.098, and in Q1 2019, it was EUR 0.095. Here you can clearly see that we are continuously creating long-term shareholder value also during the recent challenging times. Let me remind you that the consolidation of GCP has no effect on the FFO result as we continue to apply the relative share in GCP as we did before.
Now we deduct the minority, whereas before adding only our share in GCP's FFO. The total profit over costs from disposals in Q1 amounted to EUR 54 million as a result from the successful completed disposals of EUR 130 million, which was less than in a comparable quarter as we closed a lower amount of disposals. While this year so far, we signed more disposals compared to the same period last time. The FFO II therefore decreased to EUR 143 million from EUR 233 million year-over-year. On slide 21, we provide an overview of the development of the EPRA NTA and NRV metrics.
Year-over-year, the total EPRA NTA decreased slightly by 1% to EUR 11.4 billion due to our share buyback, which in turn led to a growth of 1% on a per share basis to EUR 10.3. Oschrie, please continue to conclude the final part of the presentation.
Thank you, Eyal. We continue our strategy of maintaining a defensive capital structure. Slide 22 highlights the importance we have been placing into our debt maturity profile, as we have no major debt expiries coming up until the beginning of 2025 and strong liquidity. In Q1 2022, the LTV was 40%. We still maintain sufficient headroom to all our covenants and our internal board of directors LTV limit of 45%. Furthermore, as a result from our active liability management efforts, we maintain our lowest level of average cost of debt at 1.2% with an average maturity of 5.7 years, and an enhanced interest cover ratio of 5.3x .
We also increased again the ratio of our unencumbered assets to 85%, representing nearly EUR 24 billion of the portfolio value, which provide additional sources of capital as we see bank financing becoming more attractive again compared to bond debt yields in capital markets. Our strong fundamentals and conservative financial ratios continue to be the basis for our group strategy, and they have proven to be essential during times of the ongoing market volatility. Finally, on slide 24, we reiterate our full year 2022 guidance. We expect the FFO l to be in the range of EUR 350 million-EUR 375 million and FFO I per share to be in the range of EUR 0.31-EUR 0.34, up from EUR 0.30 in 2021, which is also supported by the accretive share buyback programs executed.
Our expected dividends per share for 2022 should be in the range of EUR 0.23-EUR 0.25 based on a 75% dividend payout ratio. With that, I will conclude our Q1 2022 presentation and hand you now over to Catherine, who will lead the Q&A session.
Thank you. Before we invite you to direct telephone questions live, we will now answer questions that we have received by email prior or during this call. For simplicity reasons, we have taken liberty to group similar questions in order to answer as many questions as possible. We will begin now, and I will start with the first question, which goes to Oschrie, please. To what extent is your business impacted by inflation and the supply chain disruptions? What indexation impact do you expect in 2022? To what extent are you able to pass on the increased costs to your tenants?
The biggest price drivers of the elevated inflation rate are oil, gas, personnel, and raw materials. We expect a certain degree of such increased costs to impact our operation. We do see higher personnel costs across our operations, but the energy costs are mainly part of the ancillary expenses which are passed on to our tenants. The impact of higher prices for raw materials is relatively low due to our low activity of full-scale new developments. Running projects will be impacted by such increase, but not materially, since we primarily have contracts in place with subcontractors and suppliers, and many of them with fixed costs. However, low availability of supplies and manpower are expected to cause a certain delay in ongoing and future CapEx.
For tenant fit out or regular CapEx, we do see an increase of around 10%, which does have a certain impact but not significant to our overall performance. Far, the impact of higher costs are partially offset by higher revenues. On the top line, we have partial CPI protection, mainly in commercial leases, which are partially CPI linked or include a step-up rent clause. German residential rent increases, on the other hand, are regulated at up to 20% within a three-year period and up to 11% in tense markets. Note that for CPI index leases, there is a time lag between the actual increase in CPI until it is translated into increase in rental income. The CPI-linked indexation takes place once a year or once the threshold of CPI increases are reached within a timeframe, and many leases are adjusted in the end of the year.
We expect to see most of the impact on our income statements for 2023. In Q1, we recorded an increase in rents due to inflation in the amount of EUR 8 million, which were the key contributor to our positive like-for-like result.
The next question goes to Eyal, please. Yields have been going up on expectation of increasing interest rates. How does this impact your business and your future liquidity needs? How do you think it will impact your valuations?
We are prepared to withstand higher rates for a few years from our debt side, as we have a conservative and defensive debt profile. We have a long average debt maturity of 5.7 years, with no material debt maturity until 2025, and the majority of our debt is interest hedged, so we don't expect a material impact until then. We have completed our largest single bond issuance in December 2021 of EUR 1.25 billion at a low coupon of 0.4% maturing in 2027. This enabled us to increase our liquidity and to buy back shorter debt and optimize our debt schedule, and thus reducing our dependency on the capital markets in the upcoming periods. We continue to have large amount of liquidity.
As of March, our current cash and liquid assets is EUR 2.2 billion, which is after repaying EUR 0.8 billion of shorter term debt in the Q1 . We further have unused revolving credit lines of close to EUR 1 billion at very attractive prices to bridge any surprising cash need. Also, please note that we have utilized proceeds from our strong disposal activity in the recent years to pay down debt as well. We further have additional EUR 350 million of vendor loans to collect additional proceeds of about EUR 1 billion signed deals, but not closed yet. In addition, we have a high amount of unencumbered assets with EUR 24 billion, which provide an additional source of potential liquidity and new financings through secure debt is currently providing more favorable rates than the bond market.
The fact that we have a very large unencumbered portfolio and that we have maintained strong relationship with dozens of financing institutions in the last two years, and so in the last two decades, provides us with strong financial flexibility. Referring to the impact on valuations. As long as demand for real estate is strong and long-term real interest will not continue to increase, we do not expect a material impact on property valuations, as these are based on long-term 10-year DCFs based on expected real yields. To have an adverse effect, real interest rates need to be elevated long-term, which is not the current situation. Real interest rates are actually negative due to the expected inflation, which is higher than the interest rates. However, due to the strong volatility and fast changes in the market conditions, it is too early to determine the impact.
Regarding the transaction market, we keep selling around at the book values. In terms of supply, current inflation in construction materials combined with higher interest rates will reduce the new supply and thus support values and rents of currently existing stock. Demand, mainly for residential, is increasing due to the incoming refugees from Ukraine as well. As said before, it is hard to estimate the final outcome of the mixed effects, and we can continually evaluate the market trends.
Can you please provide details on your revaluation gains, and what do you expect going forward?
We only had a very minor amount of portfolio revalued, as we just had the entire portfolio revalued for the full year 2021 financials. We thus only recorded revaluation gains in the amount of EUR 81 million. I just explained it is too early to estimate the impact of the recent macroeconomic developments on future valuations. For the next periods, we stay cautious and don't assume to see increase in valuations as our base case.
The next question is for Frank, please. We understand that Q1 hotel performance was still affected by the corona pandemic. However, we see and hear that the hotel sector is recovering and some even reports on numbers close to 2019, sorry. How do you expect your hotels to perform going forward?
We collected around 45% of our hotel rents in Q1 2022, which has been improving after all restrictions have been lifted in March this year. Going forward, we expect leisure hotels to benefit from elevated demand during the summer period, as we have seen in the past two pandemic years. Leisure is expected to perform very well, but is not the case yet with the city hotels that also cater business travel and MICE. In some markets, leisure demand is back to 2019 level, but the profitability is adversely impacted by the higher costs in utilities and employee costs. Furthermore, the operations remain impacted due to the shortage in staff and the supply chain disruptions. Most of the hotels have not been able to translate the higher costs into higher rates yet.
MICE demand has only recently started to pick up again after a long break during the pandemic. While prior to the pandemic crisis, MICE bookings were done long in advance, our tenants now experience short-term bookings for meetings and conferences. Individual business travel, such as day trips on the other hand, is still lagging, as well as international travel from US and Asia. For example, China is partially still under hard lockdowns. For the remaining three quarters of 2022, we expect to see collection rate mostly in the range of 70%-80%, which translates to a collection rate of 60%-70% for the entire 2022. Currently, assuming no further negative surprises, we expect 2023 to show an additional improvement and nearly full recovery in 2024.
We are monitoring the market closely, and we will update you about these forecasts in the next periods. Please note that the overall negative impact compared to previous years is further reduced as we have a small hotel portfolio after several disposals and in relation to our total portfolio after the consolidation of GCP's residential portfolio.
The next question is for Barak, please. Can you provide an update on the office market and your letting activities in Q1?
In Q1, we saw the positive momentum continued with all COVID restrictions and the home office requirement fully lifted. We have signed and prolonged in Q1 100,000 square meters at an in-place rent of 14.4 EUR per square meter and a WALT of 4.9 years. However, there are several external factors looming with the potentially negative impact on the overall economy and the demand for office space and real estate in general. The Ukraine war, following the COVID crisis, has further disrupted supply chains and economic recovery, as well as adding another level of uncertainty to the future. As a result, elevated inflation rates do not seem to be short-term anymore, and together with the expectation for higher interest rates, resulted in increased bond yields.
So far, these factors has not affected the office market adversely, but with the situation intensifying, we're looking cautiously into a volatile future. On the positive side, these countries have the strongest economies in Europe. Both Germany and the Netherlands have a strong workforce with low unemployment rates and low debt to GDP ratios and should, thus, withstand an economic slowdown relatively better. In the past two years, we have significantly improved the portfolio through non-core disposals and are thus more focused on top cities, which we expect to support our office portfolio in a volatile market. This is also reflected in a positive 1.8% like-for-like result in the office sector recorded in Q1.
The next question is for Oschrie. Are you directly or indirectly impacted by the war in Ukraine or Russia?
We do not have any direct exposure to these countries, nor Russian tenants or investments in Russia or Ukraine. Indirectly, we are impacted as the rest of Europe is through supply chain disruptions, increased prices for energy. None of these factors are impacting our business or activity significantly so far, but it is too early to assess how and when we will feel it. It is still too early to assess the overall long-term impact, but such times also create opportunities for strong deal market players with ample liquidity like us.
You recently further increased your stake in GCP to over 50%. What is your strategy here, and do you plan to increase your stake in GCP further? Since residential leases don't provide a contractual inflation protection, how will the increased inflation impact the residential operation?
Yes, we believe in a strong diversification with a focus on top asset types and top locations in order to benefit from various value drivers. We have increased our stake in GCP over the past years as we believe in GCP's portfolio and management, and managed to do it at a steep discount to its NAV. A larger stake for us strengthens a more balanced diversification in relation to offices, which make up 44% of our portfolio, and hotels, which make up 18%. Residential properties now make up the second-largest part of our portfolio with 30%, and thus exposes our business to a strong and stable cash flow generation. Residential rents in Germany are regulated at 11%-20% within the three-year period.
In the short term, elevated inflation might have a higher adverse impact, but in the long run, also residential rents are correlated to inflation rates through the Mietspiegel. Please note that around 20% of GCP's portfolio is located in London, where rents are not regulated with usually shorter term leases, which enables us to capture the inflation impact faster. The residential real estate market in Germany's metropolitans and London is characterized by strong fundamentals, which will drive operations further in the long run, and especially GCP's current discount to its NTA provides a strong incentive for us to continue increasing our stake.
The next question is for Barak. Can you please elaborate on your like-for-like performance as well as your expectations going forward?
Our like-for-like for the last 12 months was 0.9%, of which 1.6% from in-place rent, mainly due to indexation, and -0.7% from occupancy. We expect an additional impact from the CPI increase to be in the next quarter and some in 2023, as some contracts are indexed at the year-end. Please note that the like-for-like does not include GCP yet, which generated 2.8%. The like-for-like was mainly impacted by the office portfolio with 1.8%, driven by in-place rent growth and indexation. Indexation had a positive impact across our portfolio. Therefore, we have seen in-place growth across our portfolio. Going forward, we believe to continue seeing solid performances in the residential market.
For office properties, we expect the indexation to drive in-place rent growth. However, we cannot estimate the impact of the indexation as it depends on the future CPI growth. So far, and until we have clearer view on the full impact of the volatile market, we conservatively continue to assume a neutral like-for-like performance for the 2022 guidance.
The following question goes to Frank, please. What is your strategy for upgrading your properties to greener standards? Would you consider demolishing buildings with high CO₂ consumption instead of refurbishing?
We are evaluating the grants and subsidies provided by the government, and we are building an investment plan which will reduce the emissions in our properties while balancing the economic consideration of these investments. We believe that these investments also entail an opportunity to increase the quality of the portfolio. We are also looking at renewable energy investments that will allow us to offset carbon emissions from our properties and to achieve our 2030 goal of 40% carbon reduction. Apart from the energy investment program, we do not expect to carry out large investments in 2022, but on the other hand, we do expect to see a large amount of investments in the following years. On top of the above, and as part of our ongoing CapEx programs, we improve the environmental footprint through insulation, heating system, et cetera.
We install and continue to develop green energy producing and storage systems such as solar panels, CHP and CCHP, electric vehicle charging stations, replacing inefficient fossil fuel heating systems, as well as switching to energy providers who provide climate neutral energy. We are also engaging with tenants for more conscious energy consumption, water and waste usage, and energy saving methods. We expect the more efficient properties to provide a competitive advantage as lower energy usage reduces ancillary costs for tenants and those overall running expenses. This also attracts tenants that either are required to or focus on reducing their carbon footprint, which in turn will result in higher rents and thus cover the CapEx investments.
Regarding demolitions, we do not consider these options at this stage as new construction is very energy intense and those creates a lot of CO₂ emissions which mainly cannot be provided green yet, such as steel or cement production. Although it is difficult to get exact figures, we understand that it is environmentally beneficial to refurbish existing buildings as 70% of the carbon emissions during the asset lifecycle are at the construction phase.
The following question is for Oschrie. Will you continue with your disposal activities, and do you see any acquisition opportunities in the market? What are you planning to do with the disposal proceeds?
Yes, we expect to continue our disposal activities. Our held-for-sale portfolio amounts to EUR 1.3 billion as of March 2022, of which over 70% has been signed as of the reporting date. We plan to utilize the disposal proceeds for debt repayments, our ongoing share buyback, as well as increase our liquidity as a preparation for acquisition opportunities. In Q1, we repaid EUR 800 million of debt and executed around EUR 140 million of our share buyback program, which remains ongoing until the end of this year. Currently, we do not see significant acquisition opportunities which fit our acquisition criteria as the transaction market remains competitive. We are well prepared to capture attractive opportunities if and when they arise, but currently have a very limited pipeline.
The next question is for Timothy. Is there any update you can share on your development projects? Would you consider reducing your development activity with the recent increased costs of construction?
You can find a detailed overview of our development projects in the appendix of our presentation that we published this morning. We included two additional projects for which we received pre-permits, which are last mile logistics in Berlin Tempelhof, next to the city highway, which is a top location for last mile logistics. We identified underutilized space on the plot of these two existing logistics assets. The demand for last mile logistics in central locations is high, and we will consider to develop ourselves with a high pre-let ratio or potentially sell the rights. We only have a few projects for which we currently execute the conversion or development as our strategy is to identify building or conversion rights for our existing assets, obtain permits, and mainly sell, or on a selective basis, would consider to develop ourselves in top locations with a high demand.
For example, we just sold the 37,000 square meter office project in Mediaspree, for which we received the building permit a year ago, in addition to the two projects in Berlin and one in Dresden, which we sold last year. Since our own development projects are limited, we don't expect to delay those which started and continue to evaluate the one in the pipelines.
Another question for Eyal. In case you continue with the disposal activity, would you consider increasing the buyback volume or alternatively paying out a special dividend?
We have an active and ongoing share buyback program until end of the year, of which year to date 60% has been executed. As long as the program is running, we don't see any reason to increase the volume further, and we'll consider our next steps after the current program ends. We believe share buybacks create longer shareholder value than a special dividend, as well as per share KPIs that improve long term, including the ongoing dividend, which is based on our payout policy of 75% of the FFO per share, whereas a special dividend creates only short-term shareholder return. In case we continue disposing properties, we will utilize the funds for the current running program as well as debt repayments, which further reduces finance expenses and thus creates higher FFO long term and consequently higher shareholder return.
You have first call dates for two perpetuals coming next January, one for GCP, one for Aroundtown. What is your strategy here?
Recently, yields have been increased, which is the market reaction to recent macro developments. The first call date we have is in January 2023 for a EUR 369 million perpetual note in Aroundtown, which is the remainder of a EUR 600 million series we have already partially refinanced, an additional EUR 200 million in Grand City. Our toolbox to exercise our option to call the notes includes refinancing with the new hybrid issuance, which will make sense only if rates are reasonable, cash repayments using our authorized repayment allowance according to S&P methodology, partial replacement with an equity content instrument, or a combination of those alternatives. Part of our conservative financial policy is to proactively manage our financing structure. We remain committed to maintain hybrids in our capital structure and clearly see the benefits of perpetual notes, which is a defensive instrument.
Perpetual notes are fully subordinated equity instruments without any maturity date, no default rights or covenants, and it should become more clear in the current situation that these instruments provide a safety cushion in the same way as equity and not debt.
Which amount of disposals and provisions for uncollected rent are incorporated into your guidance?
The guidance incorporates our expectation of a hotel collection rate of 60%-70% for the full year, which includes the Q1 collection rate of around 45%. Further, we incorporated disposals in the amount of EUR 1.3 billion, which is the held-for-sale portfolio, of which over 70% are already signed. As already mentioned, due to the prevailing uncertainties, we conservatively assume neutral like-for-like performance.
Do you need to permanently lower your rents in hotels if all you can do is 70%-80% of re-rent collection currently? By how much, 20 per-
The collection rate is linked to the contractual amount, and we expect to reach full collection on that base in 2024 or maybe even earlier. It's important to mention that the demand recovery has been asymmetric. Whereas leisure travel has recovered strongly, demand from business and international travel remains subdued, which is weighing on the collection rate. We have diversified hotel portfolio with a focus on the four-star hotels, which cater both leisure as well as business travelers, which we still need more time for the business travel to fully resume.
Is 10% vacancy in office a stable structural level, or do you have a pipeline of deals leading you to think you can reduce this vacancy in the near term?
The structural vacancy in our locations is at a level of 3%, and in some cases even lower. The letting performance in recent periods was impacted by COVID restrictions and home office requirements. However, in Q1, we saw the positive momentum continue with all COVID restrictions and home office requirements fully lifted. We have signed and prolonged in Q1 100,000 square meters and have sizable pipeline, but see the external macro factors, potentially negative impact on the overall economy and the demand for office space and real estate in general, which would postpone our ability to reach the office structural vacancy.
In view of where your bonds are trading, especially the hybrids at a deep discount to par, some in the 70s, wouldn't it make more sense to buy back your bonds rather than your share?
In the recent periods, and also in Q1 2022, we have bought back debt, both bonds and bank debt, and accordingly have a clear maturity schedule in the upcoming years. We would consider to buy back longer debt on the back of further disposals, proactively managing our debt maturity, which could also create equity and increase FFO.
Okay, thank you. Those were the questions we received so far, and we can now start the open session for your questions. We appreciate if you can ask all your questions together at once, and we will answer them accordingly.
Dear ladies and gentlemen, we will now begin our question and answer session. We have a first question. It's from Rob Jones of BNP Paribas Exane. The line is now open for you.
Yes, good morning, everybody. I've got a few questions. There's a pretty monster set of questions ahead of mine, but hopefully don't have any overlap. Firstly, I've got four or five from my side. Apologies. Number one, what's your marginal cost of debt today versus 12 months ago? Have you seen that go up by 100 basis points plus? 2nd question is, last summer, hotel occupancy got close to pre-pandemic levels or at pre-pandemic levels, but obviously rent collection didn't. If we see occupancy recover today, I guess the expectations, you still don't expect rent collection to recover. If that's the case, how do we get to 100% rent collection?
Thirdly, in terms of ongoing discussions with your tenants, can you give us a bit of background in terms of how those discussions are going? Are you getting longer lease duration as a result of writing off debts in relation to time during the pandemic where they didn't pay their rents? What's the kind of general message? Another one was on the kind of core rent collections for hotels. I think the commentary was, you see close to full collection for H2. Now, when I do the numbers, if I assume 65% for Q2, that implies only 75% for H2 to get a blended average of 65 for the full year, which is what you've guided to 60, 70. You know, is that 75% for Q3, Q4, your view in terms of close to full collection?
If not, then implicitly, what you're saying is Q2 is gonna be basically worse than Q1 to get to, say, 90% for Q3, Q4. A bit of color around that would be good. Then final two questions, one on disposals. Profit during the period was EUR 54 million, obviously completed deals EUR 130 million. I don't understand, is the 54 the profit on the 130, i.e. the cost of 130 was 76, or is the EUR 54 million the profit on deals that are signed but not yet completed, i.e. either the 1.1 or the 0.6 billion? Then finally, obviously, your discount NTA is now very wide, 55% plus. Do you need to change the strategy to close this discount, or is it just a matter of time?
The reason why I ask that question is because, you know, we expect to see, and I'm sure you do too, an improvement in rent collection over the next 12-18 months. Of course, the market already prices in a rate of rent collection improvement. You either need to beat that to see share price rerating or some other elements of your strategy needs to persuade the market that you deserve to trade at a discount to book value. Maybe a bit of kind of open discussion around that would be helpful. Thank you very much.
Rob, I hope I got all your questions because you really shoot many of them fast. I will try to answer all of them. 1st question was about if we feel increase in the marginal cost of debt, versus last month. Our costs are predominantly fixed, so we didn't see a specific increase in our cost of debt compared to last month. We didn't issue any new debt or raise any new debt. At the moment, we see it is stable. Nevertheless, clearly, if we now go to the market and issue additional debt, it will impact the overall cost of debt. Your second question refers to hotel occupancy and hotel recovery versus the pre-pandemic level. As we answered before, leisure hotels already reached to the level of pre-pandemic levels.
Not all of them reached to the same profitability, but due to inflation in costs in terms of employment and in terms of materials, but we see a strong recovery in the leisure. In the city hotels, in MICE, we see that it's a bit in a lag behind. We see the recovery started in April. That's what we saw. Also, the collection rate improved. We also see bookings. Now, MICE started to book even in a shorter notice than before. Before it was a year ahead, now it's a few months ahead. Also this business is picking up. It's partially already included in our estimation of the whole collection of 60%-70%.
If we see a stronger recovery than we estimated, we will for sure update the collections in the next period. At the moment, we estimate 60%-70%. Referring to the long lease duration of the hotels. Some of them already, we agreed on a smaller reductions in leases in return for extension of additional periods. That's why specifically in the hotels, we saw a small negative like-for-like in the rent. Your second question was about the hotel collections and about additional recovery. What we see as a collection rate for average of Q2- Q4 is 70%-80%.
If you calculate 70%-80% and put in together the 45% of Q1, you get to a range of 60%-70%, that we guide for the full year of 2022. We really hope it will get better and the recovery will be stronger, will be much more than happy to announce on a stronger collection. It's already a bit stronger than what we thought, but still in the range that we guide. Q2 until Q4, the average we see 70%-80%. Q2 looks better than Q1, so not the opposite as you thought. We will guide in the next reports how the development is. Your 5th question refers to disposals.
The EUR 54 million disposal profit referred only to the EUR 130 million closed deal, not to the 1.1 overall total signed disposal. From the EUR 1.1 billion, 130 was closed. EUR 1 billion will be closed after Q1, and we will guide about the disposal profit there, when the closing will take place. Referring to your last question in relating to the discount to the NTA. The business itself is stable. We work a lot on the offices. We see a positive like-for-like in the offices, as we mentioned. Also, the residential business is good. Also, the logistics and the retail is good. The hotel, we see a recovery and we see that we are in our guidance.
In terms of the discount to NTA, I assume it's many, many parameters that are influencing our equities. I cannot, let's say, mention all of them. I assume some I know or some I think that can matter, but I assume it's the whole macroeconomic environment that is negative and pushes equities down. Thank you for your questions.
The next question is by Ellis Acklin of First Berlin. The line is now open for you.
Yes, good morning, Ernst. Thanks for the detailed presentation. Just one quick follow-up on your 1.7 like for like, excluding hotels. If you could kindly break that down in terms of in-place rent and occupancy, please. That's it.
Yeah. Thanks, Ellis. The in-place rent was +2.8%, and the occupancy like for like was -0.9%. Thank you.
The next question is by Manuel Martin of ODDO BHF. The line is now open for you.
Hello. Thank you for taking my questions, gentlemen. I have three questions. One question is regarding the LTV, which has apparently increased to around 40% as far as I could see. Maybe you could elaborate a bit on that. What are your plans on the LTV? Are you going to increase the LTV further? Or, well, maybe you could give some color on that, please. The 2nd question would be on the valuation gains in the Q1 . Maybe you could give us a split in terms of asset classes in euro, where the valuation gains come from. Third question, it's a bit about the hotel portfolio.
Maybe you could give us a flavor on how much rent usually comes from leisure and how much rent usually comes from the business hotel when it's running on full capacities. Thank you.
All right. Thank you, Manuel. Referring to the LTV, which now stands at 40%. Look, we have a board limit that we see of below 45%. As part of our financial policy, we see it as the headroom that management can work. The LTV was increased mainly at the beginning from the consolidation with GCP. We really evaluate where we are in our actions based on keeping our LTVs in this range. Referring to valuation gains, it was mainly from offices. We really did selective valuations only in portfolio or properties that had some CapEx investments during the quarter. It was really a small portion.
The majority was in the small part or actually half was about in the office and half came from the residential portfolio from the revaluations of GCP. That also there, the valuation volume was lower in Q1. Referring to the hotels, about 50%, slightly below 50% coming from leisure, and the rest is coming from city hotels that are also attracting leisure, but are also depending on the weekdays on business travelers and corporates that this sector didn't recover and influence in our overall collection rate in the hotels. Thank you.
The next question is by Paul May of Barclays. The line is now open for you.
Hi, everyone. Thanks for taking the call and thanks for the presentation. Hopefully be quick. I would have had a number of questions, but I think there's basically the main one that most people are asking is around capital allocation and your thought processes there. I appreciate you've got limited debt and hybrids over the next couple of years, but it's quite a material maturity profile over the next five years when you bring everything together. Around about EUR 8.5 billion, I think, just, Aroundtown, excluding Grand City, which is more if we include Grand City as well.
Costs have increased there quite materially year to date. Inflation looks to be cost driven, so likely to be here for some time. Likely financing costs remain elevated for a period of time. Just wondering what your thought process is. You know, real estate is not a let's plan for the next 12 months. It's a let's plan for the long term. Over the next five years, what are your thoughts around capital allocation and kind of where do you see the business? And I think also linking in earlier comments around cautious outlook for the future of offices. I think that was mentioned on one of the questions you answered yourselves. Just wondered where you kind of see Aroundtown over the next five years. What do you want it to be?
Where do you see that capital being allocated? Thank you.
Thanks, Paul. It's a very general question. Let's say the market is changing fast, and as you know, we learn every day about new things or new macroeconomic impacts or events that are influencing our decision making. I think that we are for decades stick to our financing and strategy criteria. We see the debt repayments going forward. We see the increase of the bond yields going up. We don't have any material maturity in the next three years. We have the hybrids that we mentioned how we are considering to assess them. We continue to dispose properties above book values. That shows that the sector itself is still there. There is demand.
Our offices behave nicely with a positive like-for-like. Inflation is contributing to the like-for-like and going into our revenues. We suffer only immaterially from cost inflation in our cost structure. Overall, we continue to do what we do. In terms of the business, we work on the recovery of the hotels. As we see, we do see improvement in the collections coming in more in 2023. Well, that will also improve our ratios, and we'll continue to analyze our, let's say capital structure going forward as we evaluate the events and see the results. Thank you.
The next question is by Neeraj Kumar, also of Barclays. The line is now open for you.
Thanks for taking my question. As I understand, there is around EUR 1 billion hybrids for Aroundtown and EUR 0.5 billion for Grand City coming up for first call in 2023. If repaid via cash or disposals, generally speaking, rating agencies normally give 50% equity treatment to all the remaining hybrids. Is it fair to assume that part of these hybrids can be extended if the current market situation persists? How do you think this will impact your S&P rating? Because they don't give equity treatment to any of the hybrid which is extended. The 2nd question is, can we expect the reporting of a EPRA NAV from Aroundtown going forward? Thank you.
Thanks, Kumar, for your question. I must admit, I understood the majority. I would say about the hybrids, we are looking very closely on the 2023 hybrids of both. As we already answered, the toolbox that we have for is one, if market improves, partially or fully refinance, partially can be done in a simple cash repayments. We have the for the 2023s, we have sufficient, the way we see it, sufficient allowance for the majority of them. We also have the ability to replace part of them with another equity content instrument that also bring the ability to deal with the 2023. We are still ahead.
The first one, or we have only about EUR 500 million in January. The remaining is in July, which is more than a year ahead. We saw what happened in the last five months in the market, so many things can change for each direction, and we'll continue to monitor and update you about our decisions along the way. About the April LTV, so the first time to announce it or to report it is in the end of the year, and we will for sure take it into consideration. We can just say that what we see as the most important LTV is actually the IFRS ones, plus the LTVs in our bonds, which are where we have a material headroom.
The LTV in the bonds is about 60%, where according to that definition, we are at below 40%, so in the level of 35%. There is a significant headroom on our LTVs of the bond. Thank you very much.
The next question is by Clarke Macpherson. The line is now open for you.
Hi. Good morning. Thanks for hosting the call. Just to follow up on the previous question, you know, regarding extension risk on the hybrids. Is extension beyond the next call a possibility that you would consider? If you were to choose to repay the bonds without another hybrid or equity-like instrument, have you actually engaged with S&P already to see how this would potentially impact the equity content on the outstanding hybrids that would remain? A couple of other questions on the funding strategy for,
Grand City, could we expect any changes in that going forward? Would you continue to fund out of that entity? One last question. In terms of the current market situation and say developments at Adler Group, for example, do you see any potential large acquisition opportunities that you could potentially consider over the next 12 months?
Thanks, Mark. Before we talked, we almost didn't tell you about hybrids. Extension is part of the key, or it's part of the key. Basically, the duration of the perpetuals is unlimited, and we have the call or the option to call at the first call date. For sure, a decision if to extend or not is subject to the yields and the market situation and our liquidity and our capital allocations. It's not something that I can guide now. Overall, the full EUR 1 billion that we have next year, we still didn't decide. We still have time to think about it and to evaluate.
We are in discussion with S&P and in general continuously, not only specifically about that, even if we will continue. If we decide not to repay or to call a hybrid, the remaining hybrids we have will continue to enjoy the 50% equity content credit. I didn't really understand your questions about GCP, but if it was about our stake in GCP, so as long as we see GCP in a steep discount, we really believe in the residential market. We want to have additional diversification into the residential. There is a strong demand that we don't see stopping for residential over across GCP portfolio. We will continue slowly increasing our positions there.
Referring to acquisitions opportunities, we are always there with sufficient funding in order to make acquisition if the prices fits to our acquisition criteria. In the last two years, we didn't see it happening in a massive way, so that's why we didn't took that chance and actually sold. If we will see acquisition opportunities coming, we for sure will take them.
All right. There are no more questions here. Thank you everyone for giving us your questions and for participating, for your time participating in this call, the questions you have submitted, and we look forward to meeting many of you in person again over the coming months, and remain available for more detailed questions and discussions with each of you in the meantime. Thank you very much and have a good day.