Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the Deutsche Konsum REIT Full Year 2022, 2023 financial results call. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question and answer session. If you would like to ask a question, you may press star, followed by one on your touchtone telephone. Please press the star key followed by zero for operator assistance. I would now like to turn the conference over to Christian Hellmuth, CFO, and Alexander Kroth, CIO. Please go ahead. André Remke
Good morning, everyone. This is Christian and Alex from Deutsche Konsum. Thanks for your time and interest in Deutsche Konsum financial year 2022, 2023 figures. You can follow this webcast here. If you are not able to follow the webcast, please go to our website, where we have uploaded the presentation this morning. So, also by this way, you can follow us. We will refer to page numbers. And as per usual, we will run quickly through the presentation. We will just highlight a few things which we think are important. We will start with a summary, and then we will show a snapshot of the portfolio and also the finance structure. And then I would like to start the Q&A session afterwards, where you can ask your questions.
Now I would like to start on page 4, which summarizes all the topics we had in the past financial year. So the last financial year was a very turbulent one. On the one hand, we have seen a very stable business development again. We have had a rental income, which has increased by more than 7% year-on-year basis, of or up to EUR 80 million at the end, which was mainly due to acquisitions we have done in the previous year, where the transfer of titles became effective in the past financial year, and therefore contributed to the rental income, of course.
Then we also had, again, rent increases on like-for-like basis of up to 4%, which was mainly because of the CPI linkage clauses we have in the various rental contracts, which also shows on the operative side that the business is running pretty well. It's very resilient, very stable, and it shows also that the tenant base is very creditworthy and stable. However, the FFO has decreased by approximately 19% to EUR 33.1 million or per share on an undiluted basis to EUR 0.94 per share. This was mainly due to the changed interest environment we are facing at the moment, like the whole sector.
So the interest result was EUR 6 million below the previous year before, and this was the main driver for the drop of the FFO. Moreover, we also have seen higher running costs, higher non-recurring costs and slightly higher AMPM fees, which also, yeah, led to the fact that the FFO has decreased. The AFFO, which is the FFO after deduction of CapEx investments, has dropped by 50%. This is because we have extensively invested CapEx into various properties. We have announced before, like Stralsund and Burgwedel and so on. We have totally invested around EUR 22 million into that. But of course, at the end, we have received very nice properties now, where we guess that those investments were really accretive and valuable.
Regarding the property portfolio, we haven't done any acquisition this year. We just had a tiny one at the beginning of this financial year, but then we have stopped because there were no opportunities which we thought were reasonable, because there are still a price gap on the acquisition side. And yeah, that's why we were very decent here. We have sold instead three properties, very attractive margins. What we have announced before, I don't want to bore you with that again. But what we also had on the property portfolio was the valuation, the yearly valuation by an external appraiser. And here the outcome was like what you may have seen also in the whole sector.
Because of the completely changed interest environment, also discount rates and the DCF models of the appraisers had to be adjusted. The outcome is that our property portfolio was, or the value was, devaluated by 9% on a like-for-like basis, which at the end lead to a value result of -EUR 140 million. Now the portfolio is valued at around EUR 1 billion, which is 12.6 times the annual rent. What I think from our point of view is representing a very conservative valuation approach, given the high stability and creditworthiness of the tenants, et cetera. The devaluation, but also, have an impact on various other KPIs.
Starting with the LTV, which vice versa, has increased by approximately 12 basis points to 62%, which is above our target of 50%. Here, we have to manage in the future to reduce the LTV level again by various measures. Moreover, the EPRA NTA, which is the intrinsic value of the share on a fully diluted basis, means as if all the two convertible bonds outstanding would have been converted, has dropped to 7.67 EUR, coming from almost 11 EUR in the previous years. Here we had beneath the devaluation of the property portfolio, other effects, which I will talk about in a few seconds. The ICR is at 3x EBITDA, which is, I guess, still comfortable.
In the financial year 2022-2023, we had to refinance old debt of approximately EUR 85 million into new debt by new loans or extension of existing loans. So that's a good sign at one hand, so we were able to refinance it. Banks like the story, like the portfolio and so on. But on the other hand, of course, we also had to agree higher interest rate levels coming from per average, let's say 1.5% now to 4.5%. So debt costs have increased massively. That is the main reason, as I mentioned before, for the drop of the FFO. The average debt costs, that means including secured and unsecured debt, now is 2.8%, which is...
Which looks very okay until now. But of course, with every new loan we are taking at market conditions now, this number will increase from quarter to quarter. And of course, you may have seen it, we have a challenge ahead in spring 2024. So there are two bonds outstanding and expiring. First one is a EUR 36 million bond, which is secured, which expires in May, and there's another one of EUR 70 million, unsecured one, which expires in April. We are in constructive talks to the bondholder, which is just one address, which simplifies the whole process a little bit. And we can say that the whole process and the negotiations are very supportive from the bondholder side.
That's why we believe that or we are very optimistic that we'll find a solution here, within the coming weeks or months. Then we had in the last financial year this very ridiculous topic about the REIT status. We have announced it before, and we have discussed with many of you. So at the beginning of 2023, we have received tax statements from the Potsdam Tax Office, which showed that they don't recognize us as a REIT anymore from a tax perspective. We from a legal perspective see it differently, of course. We have appealed against these tax statements and are still in the process where we try to find out how to go on with that.
We had to pay taxes because the financial court has decided that the suspension of the tax payments we had requested before, it was denied by the Brandenburg Financial Court. That's why we had to pay taxes already. And until now, we had paid about EUR 9 million. EUR 4 million more are outstanding, which will be paid within the coming months. But overall, the Potsdam Tax Office has announced to us that they don't-- will decide about our appeal in the, in the main process until 2025, which, in bracket, shows the how ridiculous the whole process is.
But of course, until we have gone through all the instances, there will be another time to run by, and nobody can tell us how much time it will take. Could be around five years, maybe six years. We don't know. And this uncertainty is, of course, very toxic for the whole story, and that's why the management has decided to account every tax risks we have at the moment. That means we have accounted provisions for taxes to be paid for the years 2022 and 2023.
And on the other hand, we had to account deferred tax liabilities for the first time, which of course is just a non-cash effect, but shows the potential tax to be paid if you would sell the whole property. And that comes from the valuation gap between IFRS and tax values. So it's a very theoretical value, but according to IFRS, it must be accounted. And then last but not least, we have the topic with the outstanding loan which we have given to the main shareholder, which wasn't repaid timely. We have announced that in October, and meanwhile we have been in very constructive and intensive negotiations with Obotritia.
Ten days before, we have agreed how to handle this in front of the notary. We will give Obotritia another deferral for the loan repayment until June 25 at the latest. But in reverse, we have received very hard collaterals, which are all property-based. Yeah, so that's actually this topic. We have a confidentiality agreement with Obotritia about the details. That's why we are a little bit reserved about the collateral itself. Yeah, that's the topic here. So overall, the period result has dropped to a loss of -181 million EUR, taking into account the devaluation, the devaluation of the property portfolio, also the first-time accounting of taxes, and also a value adjustment of the Obotritia loan.
So it was a three-digit loss we had to face, unfortunately. Therefore, we cannot give any dividend proposal for the last financial year. Then I would quickly jump to page 7, where you can see a snapshot of the property portfolio. When you look at the column of end of September, you can see that the property portfolio has decreased, or is larger than the year before. So it grew by 9 properties. Rental space has increased, and also the total annual annualized rent has increased, as I mentioned before, to almost EUR 80 million. However, the total fair value has decreased because of the devaluation to below EUR 1 billion.
But the most crucial thing here is the last row, where you can see that the board is stable and oscillates around 5-5.5 years. Which shows that actually, quality of the property portfolios is very well, and tenants are prolonging their leases, taking their extension options, or we are able to relet to other tenants. Then let me jump to page 14 very quickly, which shows the financial structure. When you look at the left-hand top side to the table, you see that total financial debt hasn't almost changed. Total debt costs have increased by 80 basis points, as I mentioned before. LTV has increased to 62%.
And what we have received is a downgrade of the last Scope Ratings at the end of November from triple B to double B, because of the whole topics I have highlighted before. Also, another look to the left-hand side, bottom chart, where you can see what we have to refinance in 2024. These are the both big bonds what I have described before. As I mentioned, we are here in very constructive talks to the bondholder, and that's why we are very optimistic that we find a solution here. Actually, that's it from my side here. I would like to stop here and would hand over to ask your questions.
Ladies and gentlemen, at this time, we'll begin the question and answer session. Anyone who wishes to ask a question may press star, followed by one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star, followed by two. If you're using speaker equipment today, please lift the handset before making your selections. Anyone who has a question may press star, followed by one at this time. One moment for the first question, please. And the first question comes from Manuel Martin from ODDO BHF. Please go ahead.
Yes. Hello. Thank you. Good morning, gentlemen. Two questions from my side. First question would be, I know it was a tough year, but do you have a kind of outlook or vision for the next coming years? I think I haven't seen any guidance or outlook for the next full year.
Yeah. Thanks, Mr. Martin. No, we have consciously decided not to give an outlook or a guidance here at the moment, because there are too many uncertainties to give a very serious answer on that, because we have to refinance the bonds. Now, we don't know at which prices this will happen, and at the same time, we have a bunch of properties bundled, which do not really fit to the strategy at all, which we would like to sell. Of course, we are in the process here, and that's why I cannot really say how much of that will happen and how it will influence the numbers.
Okay, understandable. In terms of disposals, well, as you said, you are bundling some properties which do not really fit to the portfolio to sell it. Of course, timing is a bit uncertain. But maybe can you give us a flavor on CapEx, for example? CapEx has been a bit elevated in the past year. Is that something which is going to continue on that level? Maybe you have an idea on that.
No, definitely not. We have spent EUR 22 million in the past financial year, but at the moment we have a few CapEx projects outstanding, but we're talking here about maybe it's a total sum of, let's say, EUR 10-12 million.
Mm. Okay, thank you.
As a reminder, anyone who wishes to ask a question may press star, followed by one at this time. We have another question from Andre Remke, from Baader Bank AG. Please go ahead.
Yeah, good morning, Christian. Just one question, what is your strategy to reduce the LTV again, from 60% to your target level of 50%? You mentioned various measures. Could you provide us with any more ideas on that, or is it purely focused on your disposal strategy?
Yeah. At first, I think, it's very obvious that we have to reduce debt, and we will try to get rid of some properties, maybe larger properties, where we can generate a bigger amount of cash. And we would like to take this to repay debt massively. So that's the strategy. And, of course, we have to put some things in order, have to do some cost reductions, maybe on the operating side. And, yeah, so that's the strategy at the moment.
Any kind of capital measures you do not have in mind?
Yeah, that's why, of course, maybe this could be an option, but very, very late on this at this price level, it's not an option. That's why I try to describe that we have to put something in order and have to improve our figures. Maybe at some point, we'll be able to make a capital increase in the future again, but that's very, very far.
Okay. Well, you do not want to provide any further details on the deferred loan payment, but you mentioned you have received collateral. At least some kind of indication would be helpful about the amount or the kind of collateral you received.
Yeah. So, it's basically mortgages. We have received mortgages on various properties from the Obotritia universe. And, yeah, the value of the collaterals is hard to give because, yeah, it depends on how you see it, and which markets you eye on. But it's, I would say it's at least two-thirds of the outstanding loan, but it could also be more. So it depends when you or when and how you evaluate those collaterals. But, I think what is mostly important here is that we have received hard collaterals. Actually, we don't want to have them because we are still expecting Obotritia to repay the full amount of the loan given.
This could also happen next year, but at the latest, it should happen until mid-2025. We are also very optimistic here, and we wanted to give Obotritia time to close their exits they are working on, to enable them to repay the full amount of the loan, of course.
Okay. Then my very last question, at least one question on your operational business. What are your expectations for the like-for-like rental growth, and in particular, also any chance to reduce the vacancy of almost 12%?
... Yeah, so the expectation regarding further rent increases is that this will, of course, slow down because we have increased the rents in the last 8 quarters, I guess. So I think this has, or this will end in a few quarters in that extent, because we have run through the whole portfolio now, and at the same time, inflation levels are decreasing. That means that it will take potentially more time to further CPI linkage linkages or rent increases by CPI linkages in the future. And yeah, that's why we think rent increases will slowly come down a little bit.
In terms of vacancy?
In terms of vacancy, yeah, you must see that a huge portion of the vacancy we have shown here is due to revitalization projects. And of course, we have one big vacant property in Trier, which we have sold. You can see it on the property overview on the right-hand column. This is a situation when this property has left our books. Then alone by that, vacancy levels will drop by 1.0 percentage points. And of course, when we have finished all the other revitalization works, where properties are half vacant now, this number will decrease by reletting revitalized properties.
Okay. Thank you very much. That's on my side.
The next question comes from the line of Andreas Pläsier from Warburg Research. Please go ahead.
Yeah. Good morning, gentlemen. I have two questions. Firstly, when I compare the prelims with this audited figures, we see some larger difference in terms of FFO, deferred taxes, and also the write-down on the Obotritia loan. Can you explain this? And the second question, in terms of disposals, are you already in negotiations with possible buyers? Yeah, that's it. Thank you.
Maybe I would hand over the second question to Alex, then. And yeah, you're right, we had a few adjustments compared to the preliminary figures. This is so it was the process. So we have announced the preliminary figures when they came on the table, when they looked stable. But of course, after the auditing process and so on, we had to do another few adjustments, especially accounting deferred taxes for the first time. And here we have some more discussions with the auditors, which led to this adjustment we are seeing.
But your assumption in terms of the write-down is now 70%, and when I understand it right, I think you receive more collaterals. So, that's for me, not so clear why you have now a higher assumption for the write-down.
Yeah. So, I would like to stress that it's not a write-down, it's a value adjustment.
Yeah, okay.
Not a write-off. So we expect the full repayment. That's very important to know. And the other thing, you're right. So the process was very dynamic after we have announced the preliminary figures, and then we had to agree with the auditors, how to undermine the value of this Obotritia loan now in the balance sheet. And we have decided to just focus on collaterals, which can easily be sold in short term, because other collaterals are more mid-term based and are not that clear to measure. And yeah, that's why we have still accounted the short-term disposable collaterals, and therefore, we had to do another adjustment.
Okay, that's clear.
Yeah, regarding the second question, this is Alex. Hello, everybody. So regarding the disposals, as Christian mentioned before, we have selected a bundle of assets, where from our point of view, a transaction or a sale could be of interest to us, either because we can optimize our portfolio a little bit, and on the other hand, where we have assets which we have revitalized in the past. So from an asset point of view, a sale would be accretive. So we have selected these assets, and we are in discussions with individual potential buyers. However, the market is currently still yeah, a little difficult, transaction-wise.
... So, also looking at the point of time right now, at the end of the year, where people might believe that sales are under a lot of pressure. We are in discussions, however, as the financial year is still quite young, we will see how we can optimize this process for us, that we will have, yeah, good-- that we will achieve good prices, which we like to achieve in these transactions.
Okay, thanks.
The next question comes from Florian Rainer, from Matejka & Partner. Please go ahead.
Hi, guys. Regarding Obotritia, should we expect the loan to Obotritia to be repaid all at once, or should we also be prepared for several installments over the time?
That depends on the exits on the Obotritia site. So it can be repaid anytime in installments or in full. So, yeah.
Okay, thanks. No more questions.
The next question comes from Marc Echo from Poli-Politéco. Please go ahead.
Yes, hello. Good morning, Christian. Could a joint venture be a solution to come out of this difficult situation?
Well, it's, it's very hard to answer. So in general, we are open to everything, when it makes sense for the shareholders and when it's accretive for the shareholders. So we are very open. So what we are focusing is, the value creation for the, for the shareholders. If there could be a solution, then, we are very open-minded.
Mm-hmm. Because you can say that this situation does not create value for the shareholders, and it will not do it the next several years.
Yeah, I mean, the business is very stable. We just have to solve a few homeworks here, and I think we have addressed everything which has to be solved within the next couple of months. I think we are on a good way here. So as soon as we have found a solution regarding the bonds which are expiring, I guess the normal business can restart a little bit. And also, when we have streamlined the portfolio by several yeah, disposals, I guess, then we will be able to restart to grow a little bit, and so on.
Mm-hmm. And, can you give more color on the yield expansion? The yield expansion last year was important. How do you see it evolving?
Yeah. We had a few cost increases, of course. For the last year was very dynamic, also on the running cost side. We have seen price increases and so on, but I expect things to calm down a little bit and to get a clearer view and maybe also to identify cost savings, which can be implemented then. That would be the topic for the current financial year to realize potentials on the cost side, of course. Yeah, there we have certain ideas, but it's way too early to talk about it too much in detail.
Okay. Thank you. No more questions. Enjoy end of the year. Thank you.
Thank you.
There are no more questions at this time, and I hand back to Christian Hellmuth for closing comments.
Thank you, everyone. Thanks for your interest, and yeah, we are working hard to get things improved and done. Hopefully, it will be a better year next year. Yeah, that's my comment. At the end, I would like to wish you all a merry Christmas and a happy and healthy New Year. If you have questions, please give me a call anytime, we are around. Bye-bye.
Ladies and gentlemen, the conference is now concluded, and you may disconnect. Thank you for joining, and have a pleasant day. Goodbye.