Dear ladies and gentlemen, welcome to the conference call of Deutsche Konsum REIT-AG. At our customer's request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. If any participants have difficulty seeing the conference, please press star key followed by zero on your telephone for operator assistance. May I now hand you over to Rolf Elgeti, CEO, who will lead you through this conference. Please go ahead.
Thank you. Good morning, everyone, and thank you for your time and interest. As per usual, we will just very briefly run through the presentation, which you can also see online, and then there will be time to ask questions. Our Q1 numbers, of course, are the current Q4 numbers. Quick overview of where we stand. Firstly, our rental income was up by 13% year-on-year. Of course, largely helped by the acquisitions. Quite interestingly and nicely, our net rental income is up 20%, so we experienced a margin expansion in the last quarter of quite significant nature.
The main reason for that is effectively kind of service charge issues we sort of got under control post the acquisition and initial management. As a result, of course, the FFO was up. The FFO was up slightly less because of course, the new acquisitions needed new debt. The FFO was up 6% year-on-year. The FFO per share also up 6% to EUR 0.30, of course, because we didn't issue any new shares. Our like-for-like rent growth remained at 1.7%, which is 10 basis points higher than previous year, if you remember. That to a degree is a function, of course, of the inflation link of our rental contracts.
As a way of reminder, that's about 75% of our contracts are inflation-linked, and to a smaller degree, that's also a function of higher rents when we extend the leases, approximately equal weight. When we extend leases, we on average increase rents by 1.6%. We have continued to acquire at reasonably attractive yields. That's important to note. It's always important to note, but in this quarter in particular, it's important to note because in the last quarter we sold some properties and you can see that in the last quarter, we also acquired 10 new properties at an average yield of 8.4%.
The key message here is that our business model of acquiring sort of assets at the usual acquisition yields still very much hold, and our holds and our acquisition pipeline is still very strong. The capital recycling continued also in our fiscal year Q1. We sold more properties for EUR 27 million. We sold those at a yield of 5.5%. We sold at 5.5% and kept acquiring at 8.4%. If you compare those maths then you can see that we managed sort of to acquire for EUR 38 million and sold for EUR 27 million. In spite of the capital recycling, we're still a net growing company. All the same, our balance sheet remains very solid.
Interest cover ratio stands at almost 6x EBITDA. Our LTVs are 52%. Target is 50%, but of course, the next valuation is coming up, so we would like to be in on that target soon. Also important to note that none of our sales have closed yet. Of course, once they've closed, the LTV will be reduced. So, for once we are benefiting from this, the slow speed of closings in Germany because we keep collecting the rents in the meantime. We continue to borrow at low interest rates, as you can see here, and we're confirming our FFO guidance for the year as before. If we're looking at the key figures by charts, here you see the same what I just mentioned earlier.
No surprise there. Just two things I'd like to highlight. First, is the AFFO per share. We said in previous calls that we, in the last 12 months, had some extra intensive sort of CapEx time where we repositioned a few assets, and we indicated that this will be less going forward. You can see the result of that here, that the AFFO, so the FFO post CapEx jumps by more than 50%. The NTA per share growth that you can see on the bottom right, I think also speaks for itself. We'll just do some sort of fund cinema very quickly, going through the acquisitions that we've done. I don't wanna highlight anything in particular.
Just if you flick through or you can see that it's more of the same food anchored, almost 10% yield, and the WALT, the weighted average lease term, remains sort of in the around sort of five-year term. Which leads me to the property portfolio, on page number nine, where, as you know, the key line to watch here is of course the last line, where we're looking at the weighted average lease term. Why is that important? It's important because, as you know, that at the heart of our strategy is to basically buy very high-quality assets with high quality tenants, with lots of care that we take when we select them.
You know that we take one risk, which is the lease extension risk, and for that we get very handsomely rewarded. Therefore, it's very crucial to watch the weighted average lease term, how it develops over time, and you can see here that it keeps sort of keeps remaining constant at the level of around 5.5%. Again, also in the last quarter, as in all the quarters before, we managed to hold the lease term at sensible and almost constant levels, which means we keep managing to extend the contracts all the time and thereby hold the cash flow together. In fact, cash flow growth grows as I mentioned, our like-for-like rental growth is approximately 1.7%.
You also see the pro forma, the pro forma being sort of 0.2 years shorter in the weighted average lease term. That's of course because we keep selling the slightly longer leases naturally because they attract a lower yield, and we keep buying at slightly shorter leases because they attract the higher yield and then try to manage this to the five to six- year level. That's all very much the same as before, but I wanted to highlight that sort of in spite of the more challenging environment and in spite of the capital recycling we're doing, and in spite of COVID, and in spite of everything else that you may think of, what may follow in spite of these days, that we are managing to keep the WALT stable. Moving on, skipping a few charts.
I'd just like on page 12 just like to show you here what the current rent collection rate is. The rent collection rate is almost 100%. Maybe not too surprisingly, but I think it's worth mentioning and also just worth mentioning that approximately 3/4 of our leases are inflation-linked, as we highlighted in the quarters before. As we keep growing, you can also see that kind of the number of tenants that we have in the same and sort of across the country with the same tenants, that's been increasing. All in all, the company develops very nicely and in line with previous quarters and in line with our guidance and in line with our strategy.
It's all rather boring, but I think, I guess reassuringly boring probably. Which is also where I wanna stop, and allow you to ask any questions, on the numbers strategy, anything that you're interested in. Thank you.
Ladies and gentlemen, if you have a question for our speaker, please dial zero and one nine your telephone keypad now to enter the queue. Once your name has been announced, you can ask a question. If you find your question is answered before it is your turn to speak, you can dial zero and two to cancel your question. If you're using speaker equipment today, please lift the handset before making your selection. One moment please for the first question. The first question is from Kai Klose of Berenberg. Your line is now open.
Yes. Good morning. Can I ask a question on the letting volumes? You mentioned that letting margin has improved and also that the like-for-like was pretty stable. Could we get some more details how much you rented or extended in Q4? Sorry, in Q1 compared to Q1 last year or Q4?
Yes. Well, basically it's the portfolio is now so granular that this number is almost constant. You can calculate it backwards from the WALT. As the WALT is stable, literally not just year-on-year, but also quarter-on-quarter, it's sort of. I mean, that's the answer. There's. It's a very smooth process, basically.
Do you have a split between extensions and new lettings?
We don't have it at hand, but we can deliver to you after the call. The very, very vast majority of our new lettings is sort of extensions, i.e., not new lettings. I mean, we have hardly any tenant turnover other than for the properties where we do repositioning, which is also very logical because, I mean, in a way, and that's actually a very important point.
I mean, the reason our business model is so safe and so low risk is because we work on the assumption, which is now an empirically proven assumption, that, you know, if we do our analysis right on a given location and a given location works for supermarket A or for discounter A, then it will also work for supermarket B and for discounter B, et cetera. Therefore, if the location works, you know, the existing tenant will want to extend. And if the location doesn't work, then he will not want to extend. I mean, fortunately, that has hardly ever happened. In fact, has not happened at all so far, for the anchor tenants at least.
Therefore, there is, I think other than for repositioning, I'm just thinking, I don't think we've ever had tenant turnover, other than where we actively sort of upgraded something. Where we sort of kicked out some sort of one-pound store a nd put in a new sort of organic food supermarket. That happens of course, but we don't. I think I can say this with that strictness; I think we've never had an actual sort of intra-segment tenant turnover. I don't think we ever will because it would be very odd for Lidl to pay a higher rent where ALDIs just been and ALDI not wanting to extend. I mean, that's just not possible to conceive.
Understood. Many thanks. The second question, if I may, you had a couple of acquisitions and disposals which are still to be closed, if I understood that correctly. Do you have any indications from local authorities that these transactions will be closed or that they might use their preemption rights?
Well, you know, I mean, we have no reason to believe that any of our sales or any of our acquisitions will be blocked by the local authorities. I mean, we have not experienced this ever in this market segment of Deutsche Konsum, and there's currently no indication for it. It just takes time, as we discussed in previous calls, I mean, in both directions. You know, this time we're benefiting from it partly as far as the sales are concerned because we keep collecting the rent. No, we have no indication that something will actually fail.
Understood. The very last question would be on the refinancing or let's say on the new loans which you have taken out. Could you give us maybe an impression if you want to increase the portion of unsecured debt compared to mortgage-based debt, or is it just random or opportunistically?
It's not random, Kai. We are indeed currently in the process of marketing or running a book for more unsecured funding. We're in the market with a new [unsecured bond] that was more one know and it will be used to re-finance different unsecured financing. In terms of balance sheet, the proportion of unsecured funding will likely remain constant. If your question is, if that market is available, then yes, this market is available at seemingly very attractive conditions to us.
Also, number four. I presume you're asking this also in line with the uncertain timing of closings, acquisitions, and disposals and suggesting that it may make sense to have a certain pro forma secured funding to buffer this a very discreet cashflow event and the answer is yes. That is precisely our thinking. If we sell for EUR 50 million-EUR 60 million and we acquire for EUR 30 million a quarter and we can't predict when exactly either will close. Then of course, there is reasonable debt for certain proportion of unsecured funding. We will keep using unsecured funding within reason as a good use as this market is wide open to us.
Thank you so much.
The next question is from Manuel Martin, ODDO BHF. Your line is now open.
Good morning. Thank you. Rolf, two or three questions from my side, please. The first question, it's a follow-up question on the refinancing activities, I think, in 2022. There might be some debt to refinance at Deutsche Konsum. Could you shed some light on that, what could be the impact on your FFO and maybe some details on how you're going to construct that?
Yeah, that's easy. It's just over EUR 100 million. The coupon in place is 2.75, and we will likely refinance at least 100 basis points lower. So the FFO impact of that is just north of EUR 1 million positive.
Okay. Okay, thanks. That's clear. The second question would be on interest rates, that's been a topic for the last couple of weeks or months in the market. Any signals from your prices whether potentially rising interest rates might have an impact on the valuations of your properties?
The direct answer is no. I wouldn't expect there to be any, by the way, because, you know, ultimately, I mean, if I may give a slightly longer answer, I mean, what are we talking about? We're talking about sort of rising interest rates being negative for the valuation of real estate. But equally, we're talking about inflation being very positive for real estate. It boils down to the question, like which of the two effects will be bigger? That ultimately is a question of pricing power. For any real estate investor or real estate company, the question is, like, to which degree are we able to pass on higher inflation to our tenants in terms of higher rents?
For us, it's very easy because our leases are inflation linked. We can pass on the inflation. I mean, we can't pass on more than inflation. I mean, not much more than inflation. I mean, a tiny bit more. But by and large, our rental cash flow is inflation linked. If you look at our P&L and the small proportion of maintenance CapEx sort of cost in there, then where we also would have cost inflation, of course, by the same degree.
Given how small that is relative to the rental proportion and given that the rents are inflation-linked, I think it is a near certainty that our net rental income will be very positively linked to inflation. In fact, it will be positively and levered sort of linked to inflation, obviously because of the cost leverage there. Therefore, I think compared to other parts of the market, think about residential real estate where, you know, the regulation makes sure that it's not so easy and not so obvious to pass on inflation to higher rental cash flow streams.
I think we are in the market segment where our cash flows will mirror, in fact, will more than mirror, rising inflation. That positive very much holds. Against that, yes, there is the higher discount factor. I mean, have our appraisers and has the equity market fully priced in, the effect of, falling interest rates, into our stock price, or our valuations as far as the appraisers are concerned? I think the answer is clearly no. I mean, if you look at, where we stand with our appraisers, they currently value us with a yield of, 7.1%. Is that true? No, that's not true. They value it at 7.2%.
The equity market applies at 7.1%, whilst we're borrowing money at below 2%. That's a very healthy, and actually in historical context, an extremely high positive carry of yield versus cost of debt. I'm very long-winded way of saying I'm extremely relaxed about that.
Okay, I see. Thanks. My last question would be a follow-up question on transfer of ownership. Has there been any change in speed in German authorities because of pandemic slowdown in...
Just for the background of those on the call who don't know what we're talking about, just the background is that in Germany, you notarize a sale and purchase agreement in front of notary. Then there's various conditions precedent, some of which are within sort of the responsibility of the seller and the purchaser to get this done, which typically takes a few days or weeks. There's a handful of conditions precedent that the state, the local authorities, et cetera, need to do. Once the last of this is in place, the transaction will close.
In normal times, this is typically two months, sometimes three months between notarization and actually closing, which is then also the economic change of ownership. Since the pandemic, and since more and more authorities work in home office, and you know, some emphasize home more than work and office in that, and that leads to a point where we've had delayed closings for the last 24 months, basically. I would guess that our average of closing time is not two to three months, but more like six months. Now to answer your question, has this changed? No. I mean, we've notarized the sales in September last year, and none of them have closed yet.
We're now in the fifth month since, and I'm looking at my colleague with various degrees of optimism on this or pessimism. Well, depending on how you see it, whether we, of course, the later we close, the more rent we collect and still get the same price. I think our forecast is that none of this would close in February. Maybe it will. We're talking about six months again, in this case benefiting from it. In the case of acquisitions, I think most of the acquisitions we reported have also not closed, although one has actually closed. It's still very much the same. I mean, in the grand scheme of things, I deem this completely irrelevant. It makes our lives slightly more complicated. It makes forecasting numbers more complicated.
In terms of actual value creation, it's probably not very relevant. It hasn't changed.
All right. Thank you. Very clear. Thanks.
The next question is from Stefan [audio distortion] . Your line is now open. You can ask your question. You are the very last in the line.
Hi, can you hear me?
Yes.
Okay, great. Hi from my side and two, three questions. The first one is on the current inflationary environment. Do you see that this current inflationary environment is putting the business model of certain of your tenants at risk? Or do you see any effects on your rents respectively rent negotiations? The second question would be on the current market environment for acquisitions. It seems like you are increasingly buying assets for a rental yield of 7%-8%. Do you think this is the new normal with regard to acquisitions, so you need to take lower rental yields? The last question would be on financing costs.
Do you see here a certain upswing with regard to the financing cost when considering the inflationary and changing interest rate environment?
Okay. Firstly on inflation, the short answer is we're not receiving any headwinds here at all when negotiating with our tenants on this. As I said, about three quarters of the leases are inflation linked. We don't get any pushback or attempts to renegotiate that. That is because I think, well, two main reasons. I think first, the supply and demand for functioning basic retail space is very much in our favor. I mean, there's lots of stuff around, but there's a very finite number of good stuff around. Therefore we are in a very reasonable position here.
I mean, we can't, of course, overplay our hand, but, you know, there's no way we will not pass on the inflation as contractually agreed. The tenants are fine with that because, I mean, most of them have had a record year last year after a record year the year before. In spite of or due to COVID, you could argue because, you know, as you would have noticed when you go shopping that the non-food part of the products for all the supermarkets has increased significantly because they've been open all along. They've had a good time. I mean, you know, can they pass on inflation? I mean, the answer is yes. I mean, that's why we have inflation, because those prices are rising.
I mean, it's called consumer price inflation for a reason. They are in the perfect situation, our tenants, and we are sort of partly benefiting from that too. I think the whole inflation side of things is a very big green tick mark for our business and also the business of our tenants. Your second question, when it comes to acquisitions, I think you're right, but you're being a bit harsh when you say 7%-8%. I mean, the weighted average yield when we acquired was 8.4% in the last quarter. Yes, it has been 9.x% in the year before.
Yes, we are prepared to accept slightly lower yields when we acquire, although I think most property companies in the world would be very happy if they could acquire with sort of yields north of 8%. Yes, we are accepting a slightly lower yield. That's because you know, we see stronger rental growth than before. We see our situation as even stronger than before. We now have a track record of reducing vacancy. I think we can live with 100 basis points less. I mean, to be clear, we could live with 200 basis points less given our cost of debt.
We have decided that, you know, for good properties with decent potential, we're happy to accept sort of 8.x% as an initial yield. Which leads me to your last question on the financing side. The simple answer is no, we haven't. We haven't experienced any trouble here. Neither in terms of getting financing at all, nor in terms of rising interest rates. I mean, the yield curve is what it is, and the banks pass it on.
This for us is slightly overcompensated by the fact that, of course, in this environment, and then now with our track record with sort of the company risk premium that our banks perceive as is going down, and therefore the total all-in cost of debt is actually falling slightly for us and will almost certainly keep falling because as I mentioed earlier, the loans that are expiring in the next 12 months, they have an average coupon of 2.75%. We are borrowing at, you know, secured at least 100 basis points lower than that. That's not a concern for us.
Okay, great. Thanks.
At the moment, there are no further questions. As a short reminder, if you would like to ask a question, please press zero and one on your telephone keypad. We receive no further questions. I hand back to you.
Great. Thank you, and thanks everyone for your time and interest. If there are any further questions, please let us know, we're around and very happy to answer them as best as we can. Thank you again, and have a great day. Thank you.
Ladies and gentlemen, thank you for your attendance. This conference has been concluded. You may disconnect.