Ladies and gentlemen, good morning, everybody, welcome to our results presentation for the first three months of 2023. Thank you for dialing in. I trust you're all well. With me here is the DEMIRE CFO,, Tim Brückner, you know him, Ralf Bongers, our new CIO, who start in April. You will see now our head of investor relations. I'm sure you have had the chance to look at our results already, which I would like to summarize as solid and in line with our expectations. I presented our annual report just about two months ago. At the end of our first quarter in 2023, until plan, we have achieved two important milestones of our deleveraging strategy. First, the signing of the disposal of the telecom assets in Ulm. Second, a bond, the bond buyback of the nominal amount of EUR 51 million.
Now, after the most important points are made, please follow me on the next slide. Let me shortly summarize the development of our key metrics in Q1. All four pillars of our realized potential strategy have again contributed to a solid start into 2023. Highlight clearly our strong growth on top line and our progress in disposing assets. The asset management contributed with a like-for-like annual rental growth of 8.8%, which was largely driven by the strong letting performance in the past and further indexations. Total annualized contractual rent decreased somewhat to EUR 84. million after one lot of tenants left our building this loft. Meanwhile, the EPRA vacancy rate and the WALT remained relatively stable. As announced last year, our transaction activities have increased significantly over the last month.
We signed the sales contract for the telecom assets in Ulm in April. We received the proceeds two days ago. Meanwhile, we have progressed on the closing agenda for the LogPark in Leipzig as planned and expect to collect the receivables over the upcoming months. Furthermore, we collected the proceeds from the property disposal in Ludwigsburg in February. Of course, we will continue to focus on further disposals in the coming months to decrease leverage and create liquidity for refinancing purposes. The financials show an increase in profit from our rental activities, clearly driven by rent indexations. The FFO declined moderately to EUR 9.2 million. This is mainly caused by a negative effect from rent receivables due to the insolvency of Galeria Karstadt Kaufhof and higher tax expenditures. The net LTV is almost stable.
After closing of disposals in Ulm and Leipzig, the pro forma LTV will be at around 47%. Our average cost of debt remains stable at a very, still very attractive level. Tim will provide some more details on the financials in a minute. On processes, we have onboard my new colleague and Chief Investment Officer, Ralf Bongers, in April. He's focusing on transactions and asset management. We have also progressed with our second sustainability report, which will be for the first time externally audited this year. On top of that, our internal processes at DEMIRE were audited without any material findings. Results in Q1 are in line with our expectations, I'm very happy to confirm our 2023 guidance on rental income and FFO. Let's now have a more detailed look at our KPIs on page six.
Our record level letting performance over the last couple of years, together with indexation adjustments, led to a strong like-for-like rental growth of 8.8% compared to the end of Q1 2022. This positive development of rents is spread across almost all of our properties. The decrease of EUR 1 million of annualized contractual rent to a total of EUR 84.1 million is primarily due to higher vacancy in our property in Düsseldorf. Our asset management team is already in talks with several new tenants to fill the vacancy as soon as possible. Let's have a look on the vacancy in the world. The EPRA vacancy rate keeps trending downward to now 9.2%. For the rest of 2023, we expect a rather stable vacancy rate because only a few rental contracts will expire over the year.
Including our equity properties yellow, our vacancy rate would be around 8%. The weighted average lease term decreases slightly to 4.6 years, which we still see as a very solid level for our portfolio with an office overweight. Tim, please now go along with details about the financial performance.
Welcome, everybody. Good morning. As Alexander already mentioned, we are benefiting from the solid performance, operating performance in Q1 2023. Let's have a look at the P&L. Despite the smaller portfolio, rental income improved as a consequence of indexation adjustments. Slightly improved NOI margin down as expected, given the rising energy cost in our portfolio and investment. When we go down further to the P&L to profit and loss from fair value adjustments in real estate, you see the beforementioned effect of the reclassification from investment properties to assets held for sale. Here we are reflecting the current negotiation of assets in our assets held for sale, as we will later see on our balance sheet. The annotations three and four are mainly driven by the impact of the cash that Kaufhof invested. We are now fully reflecting the negative effects of this in our P&L.
Annotation five is regarding the lower interest as the bond volume reduced, has been reduced by roughly 10% in 2022. As Alex already mentioned, given that we've repurchased another EUR 51 million of our paper in the second quarter of this year, you will see finance expenses going down further in the next quarter. On the negative side, we have slightly higher taxes among other factors due to partially used up losses carried forward in some of our property SPVs. On the bottom line, FFO is aligned with our expectations and according to plan. On the next slide, a quick look to our balance sheet. I think the main impact is really the reclassification of investment properties to non-current assets held for sale.
It reflects either signed SPAs, especially of the properties in Leipzig and Ulm, or latest offers as received in negotiations regarding further assets that have been deemed for disposal. In annotation two, you see the positive impact of our operating cash flow and the disposal proceeds from the Ludwigsburg property that has been closed in February. Let's have a quick look on page 11 to the net LTV evolution and the average cost of debt. I think our, and maybe also your main focus is refinancing of the company together with the deleveraging, and I think we are making very good progress in terms of deleveraging. As Alex already mentioned, the pro forma net LTV is down to 47%, already reflecting the impact of this slide, write-off in our assets held for sale, but not yet reflecting the positive impact of the bond repurchases.
We are fully on track to deliver on our guidance that we want to reach below 45% LTV this year. The average cost of debt remains stable given that we have no final maturities of debt instruments until mid-2024. We are also progressing in raising additional mortgage financing despite the difficult lending markets. With that, back to Alexander for an update on our guidance.
Thank you, Tim, very much. After all and to conclude, you may see that we delivered solid results in Q1 2023 and are looking now forward to and be prepared for the further development in 2023. With a sound start up to the year, we are confident to achieve our rental income guidance of EUR 71 million-EUR 73 million and to generate FFO of EUR 30 million-EUR 32 million. Thank you very much for listening. We are now happy to answer your questions.
The first question comes from Matthias Reiner, Acuita. Please go ahead with your question.
Hi. Thanks for the presentation. Thank you for taking my question. Just wanted to get a feeling on the assets held for sale and the write-off you made of EUR 25.5 million. Would you be able to disclose here how much of that 25.5 relates to the Ulm properties that you have already disposed of, and how much relates to the rest? That's the first question. The second question is, the other properties that you now have as assets held for sale, how advanced are you in order for you to be able to classify these as assets held for sale? Which assets do they actually relate to?
First to Ulm. Unfortunately, we cannot disclose here the purchase price because the buyers, the Family Office of Merckle, for those of you who have heard about this, asked us during negotiations, and this is included in the sale purchase agreement, not to disclose the purchase price here. As regards the assets of sale, we at present do not want to disclose in detail the assets what we want to sell. You will understand this that we do not want here to comment on specific properties.
Yeah. No. That's fair enough. Yeah. Just, like, if you are able to classify them as assets held for sale, is that because, you know, you have, you know, from an accounting perspective, can you do that because you know, you have notarized the sales, or is it because you are very close to notarizing the sales or?
Yeah. Well, I already tried to hint into the right direction. The assets held for sale, according to IFRS standards, include obviously assets that have already been notarized, but where deals have been signed but not closed. It also can include properties where we are of a relevant certainty that we are going to sell those properties in the following 12-month period. What we have done here, we have used the offer prices that we have received from third-party potential buyers, and we have used those prices and put them into the asset sale.
Great. Thank you. That was very clear. Thank you.
At the moment, there seem to be no further questions. If you would like to ask a question, please press 9 and star on your telephone keypad. We have another question coming up from Philipp Zieschang, Neue Zurcher Zeitung. Please go ahead with your question.
Thanks, guys, for the presentation. You just mentioned that you're currently in discussions with banks, lenders, for bank financing. Can you quickly elaborate what kind of conditions are we currently talking about there? Is it 4%, 5%? What kind of volumes of bank lending you wanna raise throughout the year to prepare for refinancing?
Well, we cannot give any precise number of the potential mortgage volume that we are going to raise over the coming nine months. To be clear, as we all know, swap rates have increased significantly. We are talking about more than 300 basis points, and that is probably what you have to add on the historic cost of mortgage lending that we have in our portfolio. Under current term sheets that we have with banks, we would expect for fixed-term loans between three and five years maturity, total costs of between 4% and 5%. As said, very much depending on the fluctuation of the swap rate.
Sure. Thank you very much. Maybe to go a bit further there, also on refinancing, you already paid back two tranches of the of the bond expiring next year. Are you intending to make another premature repayment there? Is it what you wanna do also with the funds you're gonna get from the asset disposals?
Well, we consider all options that are allowed under the terms and conditions of the 2019-2024 paper. Obviously that might be an option.
Understood. That's all from my side. Thank you very much, guys.
Thank you.
The next question comes from Paul l, BNP Paribas. Please go ahead with your question.
Hi there. I just wanted to ask how much of your collateral remains unencumbered? I think the last disclosure I saw was around EUR 700 million. I think it's been a while, I'm just wondering if you could update that number for us.
I guess we have not encumbered any further assets over the last month, so that remains unchanged versus the end of 2022.
Got it. The value hasn't changed over that time period, the past few months?
That's only the same, as indicated in our Q1 numbers, so.
Got it. could you maybe elaborate on which assets remain unencumbered? Are they in your top 20 assets, or are they kinda further down the list? Like, how should we think about that?
It's a mix really. When you look into our disclosure regarding our subsidiary, Fair Value REIT, you see that most of the assets in the fund held by Fair Value REIT are encumbered given the legal structure. There's very little encumbrance in Fair Value REIT itself. When you look at the DEMIRE part of the overall business, as you know, we are mainly financed by the bond, so the number of assets encumbered here is relatively limited. Obviously, the larger assets have an overall higher encumbrance ratio than the smaller assets.
Okay. No, thanks so much. That's very helpful. Thank you.
The next question comes from Ralf Becker, B&A BAVARIA INVEST Vermögensverwaltung GmbH. Please go ahead.
Hello, this is Ralf Becker. I have a quick question to the bond buyback. Could you tell us the price which you paid for this bond in April? Second question, are there other investors who would give back their bonds at this price range we're having at the moment?
We can only tell you that we acquired the paper from different sellers at current market price. We have not actively looked for the bonds. They have been offered to us. There's always some trading volume in the market, well, I cannot give you a clear answer on whether there is currently more paper out available. I would probably think given the trading history of the paper that there might be some.
Okay. In the same range, which we had, at the 2 buybacks?
Okay. The market price on the Luxembourg Stock Exchange, I admit that there's basically no trading, but it's slightly below 70%, and that is, I think, a fair reflection of the current market price.
Yes. Off the security market.
Yes.
Yeah. Okay. Thank you.
The next question comes from Daniela Runde , TII Management GmbH[Inaudible]. Please go ahead with your question.
Hi, good morning. Thank you very much, everyone. I have a couple of questions maybe on both portfolio development and financing, obviously. Maybe looking at page six, I was just wondering the portfolio highlights you're showing, do I assume correctly that they still include the assets held for sale? If so, what would they look like without the assets that are currently held for sale?
Yeah. Yes. Yes, they include the assets held for sale. That's correct.
Okay. Okay. If I, you know, if I just briefly bridge it based on historic numbers, I could assume that around EUR 13 million-EUR 15 million of annualized contractual rent for the assets, LogPark Ulm, would reduce the annualized contractual rent to roughly EUR 70 million pro forma. I was just wondering, like, on the like-to-like rental development, how much would be actually attributable to the assets that are currently held for sale, just, you know, to get a sense on how much rental development there was actually in the remaining portfolio that's, you know, that's still on the books.
That's a good question. We might need a second to look this up. Maybe you can follow with your next question. We try to answer that as soon as possible.
Okay. No problem. Just to confirm, have I understood correctly that the first proceeds from the assets in Ulm were collected two days ago?
Correct. Correct.
Okay. So that's in, right. Then just on the-- I think that this was asked more or less before, on the, on the encumbrance, right? I mean, you have now classified around EUR 314 million assets held for sale, of which I think EUR 120 million should relate to Leipzig. Or maybe the first part of the question is how much secured financing relates to these assets held for sale? I'm just trying to understand how, you know, on the net proceeds, you guys might receive.
We have not disclosed that yet, but if you look up the numbers in the FVPL account, which is all so public information, obviously, you could see that on Leipzig, and that is also what we have publicly stated so far that we expect a net cash after repayment of loans of about EUR 84 million, and there is none or very limited loans on the other property as a sale.
No material loans, you said?
Yes.
Net proceeds from the non-current assets held for sale should be at around EUR 230 million. If it's just, you know, take off, let's say EUR 220 million, EUR 210 million, roughly. Maybe just, you know, I appreciate that you can't disclose which other assets, you know, you're currently in negotiation with. If I just, you know, I mean, LogPark was already written down to reflect the pricing in December, I think, based on the full year numbers. If I take the EUR 314 million and deduct the Leipzig asset, I'm, you know, I'm left with around EUR 200 million in assets held for sale. You know, take the profit loss from fair value adjustments and assets held for sale of EUR 25 million.
Does that mean that you basically, compared to book value, these assets were at a book value of EUR 225 million? At the held for sale level, it's EUR 200 million, so we basically have a, you know, discount to book of around EUR 25 million or 10%-12%, 8%-10% something.
That is correct.
That is correct. All right. Great. Thank you.
Good calculation.
Yeah.
That was quick. That was good.
No, yeah. Good. Good. No, that helps to get a sense on transaction markets and your valuations. Yeah. Thank you for that. Maybe just one final question. If we look, you know, on the structure, DEMIRE versus Fair Value, the assets, that are currently classified as assets held for sale on top of Ulm and Leipzig, they are at the DEMIRE level or is there anything at Fair Value level that you're currently disposing of?
Given the corporate structure and the refinancing requirements at Topco level, you can consider-
Yeah. Okay.
Most likely on Topco level.
Yeah. No. Fair enough. Fair enough. Understood. All right. Great. Thank you. That was very helpful. I might follow up maybe, you know, with your IR team on the portfolio highlights and the rental development, if okay.
Yeah, sure. Julius is available for that.
Thank you.
We have another question coming from Paul Zimnol, BNP Paribas. Please go ahead with the question.
Hi. Hi there. I was wondering if you've spoken at all with your controlling shareholders and if they remain supportive of the business and any color there would be helpful. Thank you.
The shareholder or the main shareholder, we are in very, let's just say, tight contact with them and they support fully the strategy what we here, what we are doing at present here in the company. In particular, we are looking this year, in particular on the refinancing of our debt. This is fully supported by the shareholders.
Got it. Is there any general framework that you've established with them to go forward with that potentially or still very much early days?
We have a business plan for this year, which includes all different options. You will understand as we live in a market situation where every day we have challenges and what we have to do is we have to look what the market conditions are, and we do then our best to counter all the challenges from the market.
I understand that. Thanks so much.
There was one open question regarding the share of like-for-like rental growth reflected in the sale. On the assets that have been notarized already, they represent about 40% of the like-for-like rental growth that we have reported.
At the moment, there are no further questions. For any questions, please press nine and star on your telephone keypad now. We have one more question coming from Robin Maxwell, Farnham Capital Limited. Please go ahead with your question.
Yes. Good morning, gentlemen. Just very quickly, are you planning to pay a dividend for the 2022 year in this month?
No.
No.
The invitation for the AGM have been out already. The AGM is, as you know, next week. There is no dividend proposal out.
Okay. Thank you very much.
Now there are no further questions from the audience, I'd like to hand back over to Prof. Dr. Alexander Goepfert.
Okay. Thank you again for dialing in. We will be back with our half year results on the 24th of August. Very, very happy to hear you then again. Thanks so much and have a good day.