Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining the LEG conference 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 1 on your telephone keypad. Please press the star key followed by 0 for operator assistance. I would now like to turn the conference over to Mr. Frank Kopfinger, Head of Investor Relations. Please go ahead.
Thank you, Timo. Good morning, everyone, from Düsseldorf. Welcome to our full year 2022 results call, and thank you for your participation. As you have seen, we published the core elements of our 2022 financials already yesterday night. We hope you also took notice of the full reporting set, which we published this morning and which you'll find on our webpage. Please note that there is also a disclaimer, which you'll find on page 3 of our presentation. We have in the call our entire management team with our CEO, Lars von Lackum, our CFO, Susanne Schröter, as well as our COO, Volker Wiegert, who will lead you through the presentation. Before we start, I would like to warn you, unfortunately, today we have a nationwide alert day.
That means that at 11:00 A.M. i.e., in the middle of our conference call, all public sirens will be activated and all mobile phones will send alert signal here in North Rhine-Westphalia. We are sitting in a brand-new building. We cannot exclude that the noise level at 11:00 A.M. will be too loud. Should this be the case, we would simply put you on mute for 1 minute, and this will be a maximum of 1 minute, and unmute you when the sirens are silent. In a worst case, we will need to do this 3 times within 15 minutes within this call. Apologies for this in advance. It is a statewide exercise. Without further ado, I hand it over to you, Lars.
Good morning, dear analysts and investors. We present to you today a set of numbers and initiatives reflecting two completely different worlds. On the one hand, we present to you a set of record numbers. I am proud regarding the achievement of our goals and the results underline, again, our outstanding operational strength. We clearly take note of the change to the interest rate level, which brings about a very quiet transaction market and with this, low evidence on further price development. We presented to you already in November our new cash focus framework against the backdrop of a more challenging market environment. We recalibrated LEG's strategy to safeguard our balance sheet and still invest substantially into our portfolio. We reiterate our new mantra: Cash is King. Our new core KPI is AFFO, internally and externally, for as long as the current market environment persists.
We are fully aware that some of you will continue to focus on FFO I. We will certainly report that KPI, but not steer our business accordingly due to the accounting-driven nature of that number. Providing both numbers, i.e., full transparency, allows you to make the choice for your preferred KPI. Slide 6 of today's presentation lays out that we delivered on all aspects of our business. We generated record FFO I of EUR 482 million, a growth of almost 14%. On a per-share basis, a growth of 12%. One key driver was the successful integration of the Adler portfolio, which we bought at an attractive 5.1% gross yield and financed at 0.9% for a 9-year term.
Already in the first year after acquisition, Wilhelmshaven, the by far biggest new location, benefited from a 15% valuation uplift. FFO I was also driven by rent increases of 3.1%, i.e., slightly above our guidance of around 3%. Rent growth continuously gains momentum. Excluding the Adler portfolio, vacancy rate came down to 1.9%. Including the Adler portfolio, vacancy rate stands at 2.4%, reflecting the potential for further vacancy reduction. Our successes are not only operational and financial ones, but also include ESG. Different investors look at different rating providers. We received significant upgrades from all major ESG rating agencies and are among the best in class. We received ESG rating upgrades from MSCI to AAA, a significant upgrade from Sustainalytics, a strong initial rating from CDP, and submitted our documents to SBTi.
You find the details of our ESG rating success story in the appendix. we take ESG more than serious and provide you today with some groundbreaking innovations to decarbonize our business better, faster, and more efficiently. Despite those record results and major innovations, we have decided, together with the supervisory board, to propose the suspension of the dividend for 2022 to the AGM in May. In November, we informed you that the dividend for 2022 is subject to further market development. The uncertainty regarding the valuation of real estate persists, we have decided to keep cash in the company and to further strengthen our balance sheet. A debt finance payout just does not make sense when valuations decline in the second half of 2022 by 4%, i.e., in the middle of our guidance of 3%-5%.
To prepare for further adverse market developments, we are happy to share that most of the maturities in 2023 of just EUR 116 million have been successfully rolled forward. With a clear path of refinancing all our maturities until 2026, we are in a very good position in an admittedly challenging financing market. We also worked on our development pipeline and canceled additional projects without causing any damage. The further reduction of our development pipeline is the key driver for the adjustment of the AFFO guidance range, which now amounts to EUR 125 million-EUR 140 million. Slide 7 reflects our setup and positioning as a green solution provider. Reading from bottom to top, we do everything to defend our resilient setup. Retaining the dividend strengthens the balance sheet.
Compared to a full payout, this is an improvement of 160 basis points to the LTV. We possess a robust, well-diversified financing profile and a clear path to refinance the upcoming maturities until 2025. We shrunk our new development pipeline again and provided you with full details on slide 31 of this presentation. On a quick note, we have full price certainty with regard to all acquired end projects in construction. We are operating the leading platform for managing affordable residential real estate in Germany. Our operations benefit strongly from that low complexity, i.e., running a single set of mass processes for a regionally focused and homogeneous portfolio. All operational KPIs screen strong. We consider innovation to be key to efficiently decarbonate our assets. The three solutions accelerate decarbonization at lower cost and offer substantial third-party business opportunities.
On slide 8, you find a short description of the three innovations which we are promoting. All of them have in common that we cooperate with strong industrial as well as digital partners. In today's world, we are convinced that joining forces is essential to come up with relevant and significant innovative solutions. The first initiative is RENOWATE. The joint venture provides serial refurbishment and positions itself as a full service provider from planning to execution and including the application for state subsidies. The fact that the new subsidies regime provides an additional 15% of subsidies for serial refurbishment proves that we are on the right track to tap a huge external market. Competition so far is minimal as not more than a handful of companies are currently active.
The second initiative, ZeroPro, provides a digital solution for the new legal obligation to execute a hydraulic balancing for the heating systems of bigger multi-family houses as of autumn 2023. The thermostats and the artificial intelligence for the steering software are developed together with one of the globally leading smart meter providers as well as a digital company builder. Those intelligence thermostats will regulate the radiators more efficiently, reduce energy consumption substantially, and save costs for all tenants sustainably. Just for LEG's portfolio, this approach reduces the costs of hydraulic balancing by EUR 30 million. On the third initiative, we joined forces with a global air-to-air heat pump provider, Mitsubishi Electric.
This technology does not only enable the electrification of the heating systems, but also forms the missing piece to reduce the CO2 footprint of buildings with lower energy efficiency, as well as buildings with existing decentral heating systems quickly and efficiently. By applying an air-to-air heat pump, we can upgrade the building from an energy efficiency class G to C, even without any costly refurbishment. Just for LEG's portfolio, this approach reduces the cost of the decarbonization path, which you can find again on page 35, by around EUR 500 million until 2030. Volker will dive into that magic much deeper now, hoping that he's not carried away as the evangelist of sustainable innovation in LEG.
Thank Lars. No worries. I will keep my feet on the ground, always working hard to make all our initiatives a real success. Before I update you on our excellent operational results, I would like to give you some more background on our three pillars of magic sustainability. The first pillar is RENOWATE, a joint venture between the highly innovative Austrian construction company Rhomberg Bau and LEG. Founded on April 1, 2022, RENOWATE reshapes the construction industry. In the past, homeowners had to run from pillar to post to assemble the right measures to turn an existing building into a carbon neutral home. RENOWATE offers all this as a one-stop shop. RENOWATE doesn't offer general constructor services ordered and tailored by the homeowner, but a solution to the homeowner's challenge to make his building carbon neutral.
Based on digitized planning processes and self-learning algorithms and a digital ecosystem covering all angles of the modernization project, including tenant communication and subsidy management, RENOWATE aims to dramatically simplify modernization projects and at the same time, cut costs significantly. In its year of foundation, RENOWATE started and completed its first 2 projects with a total of 47 units with over 2,500 square meters. After a construction phase of roughly 10 weeks, total greenhouse gas savings amounted to 88%. If we were to install PV elements, we would be able to even reach the net-zero standard. With our approach, we qualify for the newly introduced 15% subsidies granted by the state to accelerate the development and implementation of serial refurbishment in the market. RENOWATE continues to develop its own products with the aim of reducing renovation costs per square meter and increasing construction speed.
To further develop the core product, one piece of CO₂ reduction, RENOWATE will introduce various IT portal solutions to simplify the construction process both for tenants and other stakeholders. In 2023, RENOWATE plans to refurbish over 200 units in Germany to start first third-party project and aims to put a foot in the Austrian market. With this, let me now go to slide 11, where the magic becomes reality, our ZeroPro initiative. One of the key problems with heat energy is that it is not efficiently used. Research of the Federal Ministry for the Environment, Nature Conservation and Nuclear Safety shows that a considerable part of the generated heat energy, estimates range up to 20%, is wasted due to inefficient and insufficient controlling mechanisms in our buildings. An additional 5%-10% is lost due to wasteful behavior.
Roughly 30% of our energy consumption in residential buildings doesn't contribute to our comfort. They just cost money, pollute our atmosphere and climate change. We address these 30% with our ZeroPro initiative. We address the significant potential by means of technology and best-in-class user experience. Our approach is based on three elements. First, inefficiencies. German heating systems work, like many worldwide, water-based. Since the early days of this technology, the need for an equal and balanced heat distribution is well known. Unfortunately, the process of hydraulic balancing is slow, highly complicated, and with over EUR 500 per flat expensive. Realistically speaking, the vast majority of multi-family homes in Germany has an inefficient, wasteful heat distribution. Second, nighttime reductions. There's no need for a comfortably heated room if the tenant is not using it, is absent, or sleeping.
Only very few tenants reduce the target temperature at nighttime regularly. Third, peak temperature reductions. Common understanding is that a healthy and comfortable room temperature in wintertime is generally between 17 and 21 degrees. Only certain circumstances call for higher room temperatures. Nevertheless, many German homes are considerably warmer. This reduces comfort, increases energy consumption, and comes with a high price tag. With modern made in Germany technology, these levels can be tackled today. Together with a hidden German champion for heating control and hydraulic balancing and the best-in-class digital business builder, we are developing a purposeful solution. It is a system comprising a newly constructed smart thermostat designed for use in multi-family homes, connected by state-of-the-art IoT communications technology, doing the heavy lifting algorithm-wise. The tenant will save approximately 30% of energy. We expect the landlords to transfer these costs to the tenants as operating costs.
The jointly developed product is globally unique and offers an incredible high carbon reduction per invested EUR. As we see a significant third market potential for this product, we will present the product together with our partners next week on the ISH, the world's leading fair for heating, ventilation, and air conditioning in Frankfurt. Let me now come to our third pillar, which we believe will have a major effect on how we think about the energetic improvement of buildings in general. I'm now on slide 12. An even greater level for efficient climate protection in the housing industry is our large-scale rollout of air-to-air heat pumps. Let me explain why this is the case. Almost all heating in LEG buildings and multi-family homes in Germany altogether comes from burning fossil fuels.
Germany's decarbonization initiative calls for CO₂ neutrality by 2045. Following the legislation, the main pillar in our efforts to reduce CO₂ emissions is refurbishment. We have shown with the RENOWATE that refurbishment can be thought of differently. Unfortunately, this cannot be the only tool in our toolbox to meet the 1.5 degrees Celsius target. Many of our tenants cannot afford to pay the necessary target rent price for that type of product. Therefore, we have investigated other methods of quickly available and sustainable CO₂ reductions. We asked ourselves if there's a way to stretch the timeframe available to refurbish our buildings without sacrificing the 1.5 degree target, while continuing to supply good homes for affordable and fair rents. The obvious solution is district heating if it utilizes excess heat. This can heat even l buildings without emitting additional CO₂.
Where this is not feasible in time, heat pumps operated with green electricity can be a great solution. Therefore, we partner with Mitsubishi Electric, world-class manufacturer and supplier for air-to-air heat pumps. These systems are widely known as multi-split air conditioning and in use worldwide. Production capacities are huge. The products have shown their reliability for decades now. Supplied with green electricity that produce heat and cold in the summer is truly carbon-free. These systems can handle even our lowest performing buildings easily and right now. A great side effect of installing these systems is their good fit on an apartment level. A good portion of all multi-family homes have decentralized gas furnaces. Decarbonizing these with district heating requires a time-consuming and cumbersome renovation process. We would have to install new piping in the entire house.
Pilot installations of multi-split units in 12 LEG apartments show the huge potential of that approach. They are installed within a single day and reduce the energy consumption as forecasted substantially. Together with Mitsubishi Electric, we aim to replace every failing decentral gas furnace by an air-to-air heat pump. Ramping up our efforts will decarbonize a sizable portion of our portfolio until 2030. This buys us the necessary time for refurbishment to be phased into the usual building life cycle. The total savings for LEG amount to at least EUR 500 million until 2030. I hope you have been able to build a better understanding for these innovative solutions. Those do not only address the challenges of decarbonization of our own stock, but open up business opportunities with third parties in Germany, in Europe, and even globally. That's why we call it magic.
We at LEG strive to turn challenges into opportunities. Now, let me give you some background on our portfolio on slide 13. Overall, the total number of units hardly changed compared to the previous year. Among the 1,412 units we added, 294 were newly built. These are located in Bremen, Düsseldorf, and Cologne. Some of the additions also relate to acquisitions signed before 2022. This includes the remainder of residential units bought from Adler in 2021 that joined our portfolio not before Q4. These numbers don't yet include the successful signing of two transactions that help to further optimize our asset base.
In September 2022, before the acquisition stopped, we signed an acquisition of around 3,370 attractive units located in Düsseldorf and Cologne, with transfer of ownership in Q1 this year. The additions in the reporting year were offset by the disposal of 563 units. In total, we notarized 706 units into 2022, which we sold at book value. At the moment, we are in the marketing process with more than 5,000 units. Coming back to the standing portfolio, I'm now on slide number 14 to give an overview on the rent development. We really had a successful year with rents rising by 3.1% on a like-for-like basis, slightly above our guidance of around 3%.
Rent table adjustments were the strongest driver and contributed 1.8%, while modernization and reletting added another 1.3%. Despite this development, LEG remains the leading affordable landlord in Germany with average monthly rents of EUR 3.32 per square meter. This also holds true for the free finance part of our portfolio, where rents grew by 3.7% to EUR 6.68 per square meter. In the current financial year, restricted rent will contribute to the rental growth given that 2023 is a year of cost rent adjustment. The increase of the three-year CPI by 15% applied to administration costs and maintenance increases the rents in our restricted portfolio by 4.6%. That translates into 90 basis points for the LEG portfolio.
Coming back to the free finance part of our assets, let me highlight that all our free market segments showed strong growth rates with a stable and higher yielding markets even surpassing the high growth markets by 20 basis points. I would like to point to one location in each market of the free finance portfolio that showed a particular strong improvement year-on-year. These were Ratingen near Düsseldorf with 4.6%. Bielefeld, a stable market with 6.3% in Duisburg, representing the higher yielding segment with +5.4%. In terms of vacancy, we were able to make further progress despite the low vacancy rate in the previous year. As of December 31, 2022, our vacancy rate was down by another 20 basis points year-on-year to 2.4%.
If you leave our 2022 acquisitions aside, we achieved a 1.9% vacancy rate. The first time in LEG's history a mark below the 2% hurdle. To give you some color what this means for us as an organization. When I started as COO, I joked with my team what we can realistically achieve in terms of vacancy level. Something below 2% was seen as completely out of bounds. Therefore, I promised to take a parachute jump once we reach this target. If you hear me back at the Q1 results in May, you know that I survived it. Coming to slide number 15 and the investments. On a per square meter basis, our investments decreased by 4.4% to EUR 40.61 year-on-year, reflecting our deliberate slowdown in spending against the backdrop of cost inflation and higher interest rates.
This is also slightly below the most recent guidance we had provided in November 2022. In a volatile environment, it is certainly key to quickly adjust to new situations. This is exactly what we did by reducing our projects and by renegotiating prices with our suppliers. In this context, it is certainly helpful that we are a flexible organization and that we are free to choose external craftsmen. We are not bound by contract at minimum volumes and are able to renegotiate, especially in uncertain times. When it comes to energetic modernization, however, we stick to our ESG commitment and continue to invest accordingly, as you can see from the green colored part of the bar. Let us now move to slide number 16 for a quick look at our services business.
You can see that its FFO contribution increased again by 28%, reaching EUR 15 million in 2022. A strong contribution was made by TSP, our craftsman organization, and ESP, the energy provider. Also a very innovative company when it comes to environmental solutions. The rollout of new services includes our innovative PropTech company, Youtilly, as well as LEG's facility management for gardening and cleaning services. For Youtilly, we completed our rollout for the entire LEG portfolio and now entering the third market to scale this platform quickly and efficiently. With this, I'll hand over to Susanne for the financials.
Thank you, Volker. Good morning from my side. I will proceed with slide 18 and the development of our P&L items. In 2022, net cold rent rose strongly by 17% or EUR 115.2 million to EUR 799.1 million. The contribution from net acquisitions amounted to EUR 95.1 million and contributed 84% to the increase in our net cold rent in total. The impact from organic growth was EUR 20.1 million. Recurring net rental income increased by 15%, or EUR 81 million, to EUR 621 million. Besides the strong growth in net cold rent, the good performance in our services business, as highlighted by Volker, contributed to this development. The NOI margin declined somewhat from 79% to 77.7%.
The margin was negatively affected by a disproportional increase in allowances on rent receivables, as well as some increases in relation to operating expenses and in personal costs, which are partially related to the Adler portfolio we acquired. The Adler portfolio, as came with lower margins, as we previously explained. The allowances on rent receivables increased in particular due to the higher volume of operating costs not yet invoiced. This is a precautionary function of booking provisions. A positive effect came from some decline in maintenance expenses, which benefited from the release of provisions and simultaneously lower increases in provisions. Net Operating Income amounted to EUR 413.5 million and was accordingly EUR 207.5 million lower than the recurring Net Operating Income.
This was mainly due to goodwill adjustments done in the first and second half of the year. The goodwill write-down affects both the net operating income as well as the administrative cost. In total, in the financial year 2022, taking into account both line items, the goodwill amortization was roughly EUR 300 million. Thereof, roughly EUR 100 million in the first half of the year and roughly EUR 200 million in the second half of the year. As was explained already in previous calls, the amortization is a result of the significant increase in interest rates and hence increased capital costs. It has nothing to do with the performance of the portfolios. The goodwill write-down in H1 was associated with acquisitions made in previous years, while the write-down on the second half was associated with the recent Adler acquisition.
We have now written down our complete goodwill. Nothing is left on our balance sheet. Another point we also highlighted before, the purchase price allocation regarding the Adler transaction was only completed in Q4 2022, so that the impairment test that led to the goodwill write-down could only be finalized at year-end. The adjusted EBITDA increased by 16.9% to EUR 598.7 million in financial year 2022. While the NOI margin declined slightly, the adjusted EBITDA margin remained stable at 74.9% and therefore met our guidance. Recurring administrative costs increased less than the net cold rent and hence offset the negative margin effects in the net operating income. The FFO I reached EUR 482 million, which corresponds to an increase of 13.9%.
The increase in financial debt and the resulting interest cost had a slightly negative impact on the FFO I margin in comparison to last year. For the detailed drivers of the FFO I development, let us now move to the next slide and the AFFO bridge. I'm now on slide 19. In 2022, acquisitions contributed EUR 60.5 million and the organic rental growth, EUR 20.1 million to the increase in FFO from EUR 423.1 million to EUR 482 million. A decline in maintenance expenses of EUR 23.2 million, as well as an increase in others of EUR 9.1 million, had a meaningful positive impact. Others benefited, among others, from the good performance of our services business.
Negative effects of the FFO development came in particular from higher operating costs in an amount of EUR 25.3 million, which is mainly driven by higher allowances on rent receivables, as mentioned before, as well as staff and non-staff costs. Cash interest costs increased by EUR 26.6 million. The majority is driven by bond issuances we did in 2021, as well as for the acquisitions of the Adler portfolio in early 2022. Slide 20 provides an overview of the revaluation of our portfolio. For the first six months of the year 2022, we reported a valuation uplift of our properties of 6.1%. For the second half of the year, we recorded a valuation decline of 4%, which is fully in line with the 3%-5% we guided at our Q3 results.
In total, we had still a valuation uplift of our assets of 1.9% in 2022. Including CapEx, the value increased by 3.8%. Our assets in the higher yielding market recorded the highest uplift in fiscal year 2022 with 3%, followed by the high growth markets with 2.1% and the stable markets with 1%. In the second half of the year, the higher yielding asset segment showed the highest resilience against the unfavorable market environment. This is mainly driven by a particularly favorable development of the value of our assets in Wilhelmshaven. The uplift in absolute numbers was EUR 751 million. In terms of value drivers, it was the discount rate which drove the uplift.
The average object specific discount rate at year-end remained at 3.7%, flat over H1 based on the low transaction evidence. Negative effects came from inflation-based costs, assumptions. Potential valuation effects will only come through gradually over time based on the current standard valuation methodology, there is therefore high uncertainty due to very low transaction activity. In terms of allocation of capital revaluation gains, EUR 382 million and CapEx drove EUR 369 million of the uplift. Page 21 provides a valuation overview of the portfolio. As a result of the valuation decline in H2, the growth yield of the portfolio increased slightly to 4.2% in comparison to 4.1% reported for the last period. The corresponding in-place rent multiple is 23.9x.
The total gross asset value amounted to EUR 19.5 million, including leased hold land and assets under construction, the IAS 40 gross asset value is EUR 20.2 billion. The gross value per share is EUR 1,789 per square meter on average, ranging from EUR 1,227 per square meter in the high yielding markets to EUR 2,508 per square meter in the high growth market. Let's now move to slide 22 and our financial profile. In comparison to our 9-month reporting, the chart on the left side with our maturity profile has not really changed. As of year-end 2022, we had maturities of EUR 116 million for the current fiscal year, 2023.
However, as of today, we have already addressed the majority of these EUR 116 million. In 2024, we have liabilities due with a volume of around EUR 1 billion. I will come to our financing strategy in a minute. That maturity stands currently at 6.5 years after 7.5 years at year-end 2021. Average interest costs amount to 1.26%, 10 basis points up to the level of the year-end 2021. The interest hedging rate remains unchanged at 94%. Our loan to value increased from 42.1 to 43.9%. The valuation decline for the second half of 2022 triggered an increase of the LTV above our self-set target of 43%. However, we do not expect an impact from this moderate increase on our ability to refinance.
Net debt to EBITDA as of year-end 2022 was 14.9 times. We are in a comfortable position with regards to our bond covenants, that means we can digest a drop in valuations of more than 25% based on today's values before we hit our tightest bond covenant. We have cash on hand of around EUR 400 million, including short-term deposits. We have undrawn credit lines with a volume of EUR 600 million, as well as our commercial paper program with a volume of another EUR 600 million in place. Let me now come to our financing strategy until 2026. I'm now on slide 23. We believe we are in a good starting position to tackle this task in the coming years. As I just said, for 2023, we already refinanced the majority of our maturing debt.
Therefore, this should be no longer an area of concern for you. For the coming years, we need to refinance roughly EUR 1 billion in 2024 and in 2025. We are in the fortunate position that we have always had a well diversified financing mix and thanks to our regular activity in the secured bank loan market, we have a very strong relationship with a large group of banks. Roughly half of the maturities for both years are secured loans. We would expect them to roll over, but the terms will of course, have to reflect the new interest rate environment. For 2024, the other half is a EUR 500 million bond, which will mature in January of next year. We expect to address this bond by repaying a portion and refinancing the rest with a mix of debt instruments.
We have already been working on this and as well as the loans due in 2024, and we will provide a regular update on this progress. For 2025, in addition to the secured loans, our older convertible is due. We expect to apply a strategy similar to the 2024 straight bond. To sum up, the absolute numbers we need to refinance are manageable. We can rely on our strong secured debt network, and we have access to a broad range of private and public capital markets products. With this, we do not depend on bond markets for the next year, and we do not rely on disposals to refinance our short and midterm maturities. With this, I hand over to Lars, who will provide you an update on our guidance.
Thanks, Susanne. I am now on slide 25. We achieved all our main financial goals as well as our ESG targets. Just a few words with regards to the ESG achievements. Firstly, the absolute CO2 reduction from our refurbishment activities amounted to more than 4,000 tons of CO2. Secondly, despite the challenging years of COVID, the trust index among our employees increased substantially to now 73%. Thirdly, LEG's Sustainalytics rating has been once again improved to now just 6.7. 2022 has been a very successful year for us, and we are convinced that we will also successfully maneuver through these challenging times with our resilient setup. Finally, let's have a look at slide 26 and our guidance for 2023. We presented this guidance to you already in November, but made 2 adaptations.
We increase our AFFO guidance range to EUR 125 million-EUR 140 million, mainly driven by again reducing our new development pipeline. The positive revision is due to the suspension of the dividend for 2022 as it reduces interest costs. We remove the conditionality from our 2023 dividend guidance as we feel very comfortable with our cash focused KPI, AFFO, and the derived new dividend policy. We are not dependent on disposals due to the refinancing of the majority of our 2023 maturities and a clear strategy for all maturities until the end of 2025. Please take note that our top priority remains the protection of our balance sheet. We will defend our conservative setup with all self-helping tools if market conditions require it.
Due to the high uncertainty in the market, we are convinced that the suspension of the 2022 dividend is a necessity and a major milestone in this respect. Before I open the line for your questions, let me thank Susanne for her great work in LEG over the course of the last 3 years. The strength of LEG's balance sheet is her and her team's most visible success. In the name of the supervisory and management board, I wish her all the best for her start in London. With this, I hand it back to Frank.
Thanks, Lars, before we begin the Q&A session, let me allow again for two remarks. First, this is just a reminder, for the late joiners, we are going to have a statewide alert day today in North Rhine-Westphalia, which means that at 11 o'clock CET, all public sirens will be activated. We cannot exclude that the noise level at 11 o'clock will be too loud, in this case, we would simply put you on mute for a maximum of one minute and unmute you when the sirens are silent. This could happen 3x in a row within 15 minutes. Again, apologies for this in advance, this is a statewide exercise.
As a second remark to all in the Q&A line before we start the Q&A, you may ask as many questions as you wish, but please ask them one after the other. With this, I would hand it over to Timo to guide us through the Q&A session.
Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by 1 on their touch tone telephone. If you wish to remove yourself from the question queue, you may press star followed by 2. 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. The first question is from the line of Thomas Neuhold with Kepler Cheuvreux. Your question please.
Good morning, everybody. Thank you very much for the presentation. Begin my questions. My first question would be on the CapEx outlook. I was wondering if you can elaborate, if you think in the medium term there's more potential for further reductions if interest rates go up higher, and if you can give us an indication, what is the minimum CapEx level you need to spend without jeopardizing your operational development and CO2 reduction targets?
Hey, Thomas, thanks. I will take this question. For the time being, we feel comfortable with EUR 35 for this year. We are very flexible as we pointed out in our presentation, that we can adjust on market developments. We have high inflationary tendencies. We also have a high demand for our product, which reduces the need to invest into the product because it's a very tight market. At the same time, as you said, we have also the necessity to follow our CO2 reduction path. We laid out various initiatives to cut the cost per ton of CO2 reduction and work on these measures, and all this will then fit into our revised or new CapEx strategy.
For the time being, it's a bit too early to say what is the minimum requirement and how this will look out in 2024. We will give you then an update on in November for how this figure will look like. Be assured that we look at every euro we spend and aim to reduce it.
Thank you. The next question is on financing costs. Can you give us an indication at which financing costs you were able to roll forward the debt due in 2023, and what your spot financing costs for secured financing, depending on the maturity, would be now?
Yes. Hi, Thomas, of course. Firstly, on the 2023 maturities, a portion we repaid, so we didn't refinance them. Only a very small loan we rolled, and that was done for a 10-year at 3.63%. I would also assume that in the current environment, and we haven't done a recent print, but we obviously get indications on a daily basis from banks as well as brokers, secured 5-year probably at a spread of around 120 basis points, 110-120, and unsecured same maturity between 180 and 200.
Yes. Thank you very much. My last question is a technical question on the portfolio valuation. I've seen that your net initial yield increased 40 basis points from 3.2 to 3.6, whereas your gross yield remained relatively stable at 4.2% year-on-year. Can you please explain the difference in this development?
Thomas, I think you're referring to the EPRA net initial yield, right? I need to get back to you.
Yeah, exactly.
... on that too, because the EPRA numbers are a bit different. I will get back to you after the call, if that's okay.
Okay, perfect. Then finally at the end, I want to wish Susanne Schröter-Crossan all the best. We will clearly miss you. Thank you.
Thanks, Thomas.
The next question is from the line of Charles Beaulieu with UBS. Your question please.
Yes. Good morning. Thank you for taking my question. First, on disposal, you mentioned you are in the process for more than 5,000 units. Having sold 156 units in Q4, what makes you confident you will dispose 5,000 units this year? What are you changing, if anything, in term of price, location, lot size to be more successful with disposals this year? Thank you.
Thanks a lot for the question, Charles. We will not change anything. Once again, it's not the promise to sell 5,000, it is just the portfolio we currently bring to the market. Certainly, we are focused still on the lower quality assets we have on our portfolios or portfolios which just do not fit regionally, like the one we have put for sale bought from Adler last year in Eastern Germany. That is what we bring to the market. Once again, transaction market is very silent. You might also heard that from brokers active in the market. Assumption is that not more than a couple of EUR 100 million of trading volume in the first 2 months of 2023.
Therefore, we will not change our approach, but stick to it and certainly work very hard to sell those assets we want to dispose of.
Okay, very clear. What you mean by lower quality? Can you comment what are the criteria? Is it in terms of EPC ratings or locations? What are the criteria when you identify the lower quality portion of your portfolio?
Yes. Those are assets we have in our books with lower efficiency classes in locations where we do not see the affordability being given if we invest further into that asset, for example. Certainly, there are other players which might look differently at that certain location, and therefore we try to dispose of those.
Thank you. I have a second question on credit rating. Based on Moody's report, a potential factor for downgrade would be if LTV rises and remains above 45%. Do you expect LTV may temporarily rise above that level at H1? That possibly could be the case if values erode a little further from here. How much time would you have to bring LTV back to below 45%?
First of all, I think we are operating in a very uncertain environment. I cannot give you any guidance on valuation outlook for H1 yet. Of course, where the LTV will end up is much a function of where values go in the future. Unfortunately, I don't have the crystal ball there. I think we are, of course, as usual, in close dialogue with Moody's. I think we've shown that we are very, very focused on doing everything to optimize our balance sheet. We have paid back some of our debt. We will, we are planning to repay more over the course of the year. We have announced the dividend cut as well to preserve cash and optimize our balance sheet.
I think Moody's is hopefully acknowledging the efforts we are making. I cannot comment on the stance that they will be taking. I think we should continue that discussion after the H1 numbers when we see more clearly where LTV and valuations are headed.
Okay, thank you. A question on valuation. Would it be possible in future to also provide the valuation split not just between high growth, high yield market, et cetera, but also by EPC rating? It seems that some of the valuers are saying that the value erosion from the energetically weaker assets is fast increasing, which justifies obviously your strategy to significantly improve the rating for the lower quality asset or sell assets as you just mentioned. Would it be possible to provide a bit of a sense of the value erosion you're seeing from those energetically weaker assets?
That's a good question, Charles. It's not how we are operating the model. I think that would require more significant changes to our valuation methodology, which is something that I can't promise you right here. I think we take this away and we'll have a look what we can do in that regard.
Okay, thank you. Finally, a clarification on dividend. My understanding is you have said now that you have suspended dividend for 2022, you're not looking to make any change to your guidance for 2023, and that it's confirmed on the basis of AFFO, but not subject to potential suspension.
Exactly. That's the right reading of our today's presentation.
Okay. Thank you very much.
Thank you, Charles.
The next question is from the line of Markus Kulessa with Bank of America. Your question please.
Hi, good morning. Thank you very much. First, I just wanted to come back to Charles' question on the progression of the disposals. Can you give us, or maybe I missed it, information on where you are year to date on the progression of these disposals, and are these really aimed within this year?
Markus, we have disposed of around 50 units within the first weeks, 2023. Once again, I can reaffirm that we bring 5,000 units to the market. We are in different stages of negotiation process. It's very difficult to promise any numbers in a highly uncertain market environment. I think I also gave you some numbers with regards to the complete market. It's nothing which is a peculiar situation for LEG, but it is a market-wide phenomenon.
Okay. 50 units in, basically, year to date.
Year to date, indeed.
Okay. Thank you. I have a question on your, on your guidance for like-for-like re-rental growth. You guide 3.3 to 3.7. If I take this year's 3.1, and I would just add the 0.9 additional one-off impact from the CPI indexation restricted units, I would get to 4%. Is your guidance conservative or is the difference due to your lower modernization CapEx?
Well, it's a mixture of both. It's conservative and it also has an effect from lower CapEx. We started very well in this year in terms of rent growth and see the dynamics in particular when we relet flats. You know that the rent tables have a significant lagging effect from all the effects we see in the new letting market. We are just 2 months and a week in this year. We started well. I think it's conservative range. I expect to be more there on the upper end of the range. We will clarify this and maybe shorten and sharpen this when we are further down the year.
Okay, thank you. Here also, maybe the second, not request, but what would be good, you did it in the past. You splitted the rent growth by reletting and modernization separately, which would help now when you cut down the modernization to, we have to assess more the pure reletting impact, if you can do it or give some info in the next reporting. My last question, sorry, would be just on the Adler. If I understood well, you had a goodwill impairment of Adler. Maybe just come back on what was the driver behind it, the goodwill was really... Is it only due to the decline in asset values? If yes, how much have the asset values declined for this portfolio versus your portfolio?
No, look, I think that we tried to make this very clear already in the H1 publication as well as in Q3, that we were expecting this impairment. You know that we impaired all our goodwill, not only the Adler, also the rest already in H1, and this is driven simply by the nominal impairment test, which was conducted as a result of the significant rise in interest rates and as a result of significantly increased weighted average cost of capital in our model. That led to the impairment of all goodwill. The Adler goodwill would already have been impaired at H1 as well, had it already been there.
The problem, it was not there yet because, from an accounting perspective, the purchase price allocation of the Adler acquisition because the transaction happened so late in 2021, was only completed in Q4 of 2022, and we could therefore only impair that goodwill in the second half. There is nothing to be read into this with regards to valuation of the assets. It's just a reflection basically of the goodwill impairment test that we have to do as a result of higher interest rates.
Okay. The Adler portfolios you bought, were you happy with them, they didn't decline more than the rest of your similar assets?
No, no. From a valuation perspective, not at all. I think Lars mentioned in his part quite the opposite. In Wilhelmshaven, we had the most significant increase actually in valuation over the year, because we bought this at a very, very attractive valuation last year.
Okay, thank you very much.
The next question is from the line of Thomas Rothäusler with Deutsche Bank. Your question please.
Hi. Morning, everybody. A few questions. The first one is actually on leverage. I mean, do you think sticking to the old 43% LTV target is reasonable, or should it be much lower nowadays? I mean, especially with the risk of lower property values and much more expensive financing costs. Maybe some color on this from your side?
Yeah, Thomas, of course. I think there's obviously a couple of elements to LTV that, why is it relevant? I think firstly it is relevant clearly for from a ratings perspective and from a covenant perspective. I think from that perspective, the 43 is something that we are comfortable with. The other element is clearly financing costs. You're absolutely right. I think the higher the financing and interest costs are, the lower the LTV should be. Having said that, I find it very hard to say what exactly is the right number there because I'm lacking the transparency as to where rates will stabilize medium term.
Clearly if they were to be at the current level or go up further, in the long run, that would have a significant impact on our FFO, because we would have to refinance at those levels over the next years. This is an impact that only shows effect really, really slowly just because we have a very well-diversified refinancing or very well-staggered maturity profile such that we will only see the effect over time. In the meantime, obviously rates will come to a new normal, which will then determine where the right level of LTV should be.
Another question is, I mean, not sure if you want to answer, but what likelihood would you attach to the need of a potential rights issue to strengthen the balance sheet, let's say, in the course of this year?
I don't think that this makes any sense. Running scenarios in a situation like the one we are currently into, with high uncertainty around us. Look, the world has so much changed over the course of the last 12 months, it's going to change for the next 12 months, that I don't think that putting any likelihood to that makes any sense.
Okay, I understand. The next question is actually on your earnings guidance. I mean, what are the key assumptions regarding refinancing?
I think I tried to highlight that with our the outlook on financing strategy in the presentation. Basically for this year, we have more or less addressed the refinancing. For next year, we are assuming to roll the loan maturities to repay a portion of the bond and to refinance the rest of the bond with a mix of different debt instruments. This is kind of the assumptions that are underlying the earnings guidance as well.
Okay. The last question is actually on BCP, the Leipzig deal. I mean, is it possible to get any pricing indications from your side and were you involved in any decision-making there?
Thomas, unfortunately, no, we have not been involved. Certainly it's all in the hands of the BCP board. We still also are asking questions to get a clearer understanding of the transaction, unfortunately have failed to do so up to now. Certainly we will follow up on that, and as soon as we have more light to be shed on that, happy to share that also with you.
Okay. Thank you.
The next question is from the line of John Fuang with Kempen. Your question, please.
Yes. Good morning. Thank you for taking my questions. I just had one last. On slide 13, you mentioned that the average ticket sizes for disposals were at 50 to 60 units for 2022. Given your comments in the Q&A, is it fair to say that you're not expecting this to improve in the short term? How does this relate to your target to sell up to 5,000 units?
John, you are absolutely right to assume that. The market has even now seen smaller ticket sizes than the 50-60, that's even not the normal ticket size anymore. That's also the reason why we are now back to that very low transaction volume within the first 10 weeks of that year, and therefore it will be certainly a huge difficulty to reach the 5,000. Once again, we do not try to reach the 5,000. We are in the market with 5,000, and we will certainly optimize the results for our shareholders.
Okay. That's clear. Thank you.
Thank you.
The next question is from the line of Simon Stippig with Warburg Research. Your question please.
Good morning. Thank you very much for the opportunity. First question would be in regard to portfolio evaluation. I saw that within your stable market cluster, you had a negative outperformance in revaluation compared to the other clusters. Could you hint to any reasons for that?
No, there is no specific reason to that. You know that we are always looking at different clusters. It will also depend on what valuations have done in the previous month. There is nothing particular that was sticking out in those markets.
Okay, great. Thank you. The second one would be in regard to capital allocation. Are there any changes to your BCP stake or is there any further plans with it, you are undertaking to maybe liquidate or get a cash inflow from this stake?
Simon, I think we still have all the options we've described during the last calls still on hand, and certainly we will evaluate those going forward. Certainly, currently, we still wait for the decision of Adler, whether they want to dispose of the BCP share. We are not aware of that. Certainly we are in close contact with BCP to clarify about and on their further strategy. Therefore, we certainly will evaluate all the options we have on hand to manage that exposure going forward.
Okay, maybe a follow-up on that. Is there any impediment you're seeing in these options, you're undertaking? Meaning, for example, you couldn't sell the stake open, into the open market, for example, in very small volumes?
Yes. once again, Simon, we are looking at the different options. We have not decided to change our current exposure. Certainly we will just maximize the value of those optionality for our shareholders going forward on that share.
Okay. Maybe to the next question. What I just try to understand again, in your decision-making of suspending the dividend is based on your November disclosure of figures, financial condition measured by, for example, your unsecured term structure haven't changed. The portfolio valuation is exactly in point in your guidance. The transaction market has been muted and still is, and probably will take some time to pick up again. Just to understand the background and also on the basis you had in the 9 months 2022 disclosure November towards making this decision now, could you just please give me a little bit more insights into how that developed?
Either you're seeing a very dim future for German residential real estate and specifically in your portfolio, because your peer obviously still are potentially paying a dividend, or you have other reasons which I would really appreciate and kindly ask you to answer. Thank you.
Thanks a lot for that question, Simon. Unfortunately, the major reason for the decision being brought forward now, the suspension of the dividend for 2022, is driven by the high uncertainty in the current market. Interest rates have risen dramatically, that's also the reason why we have a very silent transaction market. We have low visibility on the current valuation. Therefore, we just wanted to take whatever lever we had at hand to strengthen our balance sheet for an adverse market development. Whether that is going to happen, it is difficult to predict. Uncertainty is high, therefore we thought ourselves to be well advised to now strengthen the balance sheet and do that at the best interest for our shareholders.
Okay. That's it for me. Thank you.
Thank you.
The next question is from the line of Lorenz Egner with Bank of America. Your question, please.
Hi, good afternoon. Thanks for taking my question. Just coming back on the asset value decline for 2023. I understand there's a lot of uncertainties and you can't really comment or give guidance on future evolution. Can you please comment on what you've seen so far this year?
So far, once again, we've been able to sell at book value. That is what we can currently share. As soon as we are having a better view on the overall market, and that will be with our Q1 numbers, we certainly will share that in May with you. For the time being, once again, it's very difficult to predict because transaction markets are so incredibly silent currently.
Okay. Thank you. My second question is coming back to the rights issue question. I understand that there is a lot of uncertainty still, and you can't give any likelihood of it happening or not. Can you please tell us what could trigger such a transaction? Because you don't have a lot of refinancing needs. There is no liquidity issue. There's headroom under your covenants. So what could trigger it, really?
I think we also answered that question, Lorenz. I think it's difficult to now run scenarios and say, "If that is happening, we are doing that." For the current uncertain environment, I think we have now, once again, prepared it for an adverse market development, by now suspending the dividend, strengthening the LTV. You've seen that the impact, positive impact is 160 bits. That's substantial, and therefore, we feel ourselves to be well prepared. Susanne?
Has done a tremendous job working on the upcoming maturities. You also heard the upcoming maturities for 2023, all of that has been solved. We are already now looking and eyeing into 2024, also for that year, but also for 2025. We have a clear path for refinancing. Therefore, from our perspective, we are well set, and now we just need to wait of how the further market development evolves over the coming months.
Okay. Thank you very much.
The next question is from the line of Jonathan Kownato with GS. Your question please.
Good morning. Thank you for taking my questions. The first one on the organic rent growth, coming back to that question, what were the latest Mietspiegel releases? What are you seeing on the ground for market rent growth? I appreciate this takes a lot of time to trigger through your like for like rent growth. Also, can you give us perhaps the contribution you're expecting for CapEx in 2023? Again, the, this, plus the 0.9 from last year, makes it, perhaps a bit conservative. That's the first question. Thank you.
Jonathan, I'm happy to take the question. On the rent tables, we see decent rent growth. It's always quite difficult. We have very many locations and the rent table adjustments is quite diverse. It varies from region to region and from location to location. What we see is a significant rent growth in asking rents, yeah, for churn. We see therefore , relettings and double-digit rent growth. We expect this to roll over into the rent tables over the next years. We have seen this in the past, that in times of high inflation with a time lag, these inflationary tendencies are reflected in the rent tables.
That takes some times. There's some regulation and needs to be fitted in there. This is what we've seen in the past. We have no indication that this will not happen in the future and in this time.
Sorry. Are you able to be a bit more specific, in terms of, how, the type of growth that you've seen, for instance, for the latest Mietspiegel released in 2023? You know, you're seeing an acceleration of these metrics, yet your guidance doesn't seem to be pointing to that. That's the question.
Jonathan, I think the proxy for the rent development is better the asking rent we see in the markets than what is in the Mietspiegel because the rent tables always reflect only the past and not the actual times. Even if rent tables come out today, they may have a cut-off date early last year and only reflect the tendencies and the market developments until this cut-off date. I don't really think that this helps to give you some real flavor going forward. What we see is the real significant upward shift in asking rents despite lower investments into the flats when they churn. On the CapEx, and it's a bit.
It's I think we always do some asset or shift between CapEx rent growth and and rent table adjustment rent growth. We want to keep the flexibility to also be able to shift maybe the one or the other modernization project into next year and have the effect from rent growth only next year when we are in a position to compensate the missing rent growth due to maybe higher dynamics in churn-driven rent growth or from dynamics from rent tables. We guide on the overall figures but want to have the flexibility to have this, do not guide on the split between the separate drivers to have the flexibility to make the most out of every euro we invest.
Perhaps to frame the question differently, out of the EUR 3.1 that you had last year, can you remind us the contribution that each bigger increases had to that?
I can give you this. That's, I think I said it in my presentation. It's was a 1.8% from rent table and 1.3% from modernization and relettings.
Okay. The 1.8% from rent table and then the 0.9% you described from a cost base. In effect, the 0.9% is incremental to 1.8%, right? That would be 2.7%.
Yes.
Per net gear if we were using the same base. Okay. All right, that's clear. Next question, sorry. On the subsidies and your investment going forward. Can you help us understand the new way subsidies that have been introduced? I think you alluded to them during the presentation, in serial modernization. What type of yield on costs are you now able to achieve thanks to these subsidies on these projects? Thank you.
Subsidies regime seems to be something very much in favor of German federal politicians. They love to change it on a regular basis, which makes calculation as well as planning quite a stretch for companies. Currently, we feel comfortable that we are on the right path, I think, with that serial refurbishment that's now gaining an 15% additional benefit of subsidies, together with the worst-performing buildings subsidy of 10%, you can reach up to 25%. That's certainly a major driver for us and RENOWATE. Therefore, we think we are on the absolute right path, and that certainly will help to improve the yield going forward.
You know that we are starting at RENOWATE with a higher than the traditional modernization costs. We are planning to bring that down going forward. Certainly that subsidy of 50% will be a big lever also for that year. For the time being, we stick to the former number we, I think, shared with you, that 5%. Certainly we are trying to improve that going forward by scaling up RENOWATE and certainly benefiting from the serial refurbishment bonus, getting being or subsidy being received there.
Okay, thank you. Just to follow up with the last question. Are you expecting more subsidies to come or more regulatory changes from the government? Are you expecting any further benefit from any European program that are currently discussed with, heat pumps being also a key component of those as an answer to the U.S. IRA program?
Unfortunately, uncertainty around subsidies is as high as the uncertainty around the further valuation of residential assets. There is a still ongoing discussion whether air-to-air heat pumps will be part of that subsidization program or not. All of that is very unclear. We just need to wait until the new publication of the GEG, which you might be aware is under strong opposition by the Liberal Party because the proposed timelines for exchanging fossil fuels being used in heating systems and to be replaced that as soon as 2024 has been pushed back. We also need to wait how that discussion is evolving, that certainly will then also drive subsidies and also the decision on how high those subsidies are going to be going forward.
Okay. No update on the previous plan from the government to introduce warm rents. Is that gone cold shall I say?
It a t least we are not aware that anyone at the current moment is really discussing that to any depth. Therefore it seems to be off the table.
Okay, thanks.
The next question is from the line of Andres Toome with Green Street. Your question please.
Hi, good morning. I have a few questions, and I'll go one by one. Firstly, on the disposals, I'm just wondering where are you seeing bids coming in for bigger portfolios at the moment?
Currently, we are not aware of any bids for bigger portfolios coming in.
Within your own disposal, pool as well as you're trying to move, more size, have you taken in bids, and where are these reflecting the pricing?
Unfortunately, we have not received any bids for bigger portfolios, Andre.
Okay, understood. My second question follows up on the previous ones just on the potential equity rights issues. You know, obviously the LTV is above your internal target and presumably will go higher as more valuation declines come through and as disposals are not really moving. I guess, is the potential remedy through equity issuances being discussed at least? I suppose you don't really need 25% reported gross asset values to come down before you get into trouble. Where would be the level you would feel that, it's time to bring in extra equity?
Yes. At the current moment, once again, I'm only able to reiterate that the uncertainty around the future development of valuation is high. We do not have clear sight currently of what is going to happen in the market. You know that the supply is going to cease over the course of the 2 next 2 years, no new, especially affordable, housing will be created. At the same time, we have a strong inflow of people coming into Germany. All of that drives rents up. You have heard that from Volker now quite impressively that we are seeing asking rents rising as strongly as double digit. Therefore, from our perspective, there are also strong pushes up with regards to the pricing. At the same time, we have that strong interest rate and development.
I think it is just premature to now discuss any scenarios. We will observe the market. Once again, I think we have decided to strengthen our balance sheet as of today by the suspension of the dividend, that we have done the utmost to be prepared for all and adverse market development going forward.
Would you be able to give some color around discussions you might be having with credit rating agencies? Are there certain points where they feel more concerned about at the moment?
Yes. We speak with Moody's on a very regular basis. We will also, of course, have another discussion with them now that the results have been published. You know that we have a negative outlook on our rating since last year, reflecting the deteriorated operating environment. I can't give you more color than what is in the rating report. I think they clearly monitor the situation just as we do. We are from LEG's perspective, doing everything we can to stabilize our balance sheet. We've made changes to our investment scheme. As we have significantly reduced spend per square meter. We have now announced the cut of the dividend.
We are working on redeeming a debt rather than refinancing. We are not adding any incremental debt at all. From that perspective, I think we've said that we are working hard to do what we can from our own sources to improve and stabilize the LTV.
My next question is just around environmental CapEx. You've presented quite a few measures in this report. Do you think these will reduce also the estimated cost of, environmental CapEx and energetic refurbishments versus what you presented during, I think it was back in 2021 when you had that dedicated ESC call? I suppose, also the sort of the second half of that question is what sort of yields on cost these measures provide and also the energetic refurbishment more holistically?
If you take a look at page 34 and 35 of the presentation, we have once again shown you where we are currently standing with regards to reduce the CO2 footprint. Market-based, you see, we are now standing at 28.3 kilogram, which certainly is a very substantial reduction versus the starting point in 2020 of 34. At the same time, that's certainly a majority driven by the air to heat pump strategy we are now following. We've been able to reduce the total volume of investments from around EUR 1.4 billion-EUR 1.6 billion to now around EUR 1 billion. That is certainly a very strong impetus we are having there. At the same time, that certainly will help to also work on the yields.
We are certainly exploring how we can use that new strategy to also enlarge the contracting offer we are having on hand via our daughter company, ESP. All of that certainly is meant to add substantially to our services FFO or AFFO contribution for the next years.
On a project level, those new measures, are they sort of improving cost efficiencies? What sort of yields on costs are you underwriting at the moment for energetic refurbishments?
There, once again, for the current projects, I think we are still at the 5% level. Going forward, that certainly is going to improve because the cost per ton of CO2 is so strongly reduced. At the same time, once again, Andre, we try to bundle that offer of contracting to it, which certainly then improves services FFO or AFFO contribution going forward.
Thank you. My final question is just around the cost of bank financing as it stands today and as you're negotiating new terms for refinancing's and adding new bank debt to refinance bonds. What sort of margins are you seeing? Have they expanded from sort of three months ago? Is the bank criteria also for LTVs and ICRs getting tighter?
We are in ongoing discussions with banks. I haven't received all the feedback on one secured piece that we are working on right now. It's a little bit early to answer the question finally, but from the indications we've received more recently, I would say that for 5-year, as I said earlier in the call, for 5-year secured financing, we will probably have a margin of 110-120 basis points. You will remember, like a year ago, that would have been around 80. There is a widening that we observe also in the bank market, which I don't think comes to a surprise.
I think we Not so much with regards to our portfolio, but in general, we hear from the banks that clearly they focus more on ICR than they used to. I think that is something that clearly has been more part of discussions, but it's not a concern, particularly in our case. Lastly, I think the aspect that has become a more relevant part of the discussion also with banks is ESG criteria. I think that is something that interestingly, of course, you know from discussions with you, but also from the capital market debt. We had a lot of discussions around that in the last few years. The banks are now catching up on that as well. That has also become a more relevant part of the discussion.
I think with all the strategic moves we are making on ESG related topics, as Volker and Lars have highlighted in their presentation, we feel also that we are in a very good position with regards to those questions.
Thank you. That's all from my side.
Thank you.
The next question comes from Kai Klose from Berenberg. Please go ahead.
On page 40 of the presentation, first of all, could you maybe give a split again on the increase for the allowances on rental receivables? You mentioned that in the statement, but maybe a bit more how much was from higher provisions for not yet invoiced operating costs and how much came up newly in maybe Q4 or Q3 last year. The second question would be on the increase of the non-recurring special effects. I think that was just EUR 11.6 million as of nine months, and now it's at EUR 26.4 million. What caused the increase in Q4?
Firstly on the provisions on receivables, basically we have in total provisioned EUR 15 million in that space. We have followed as in previous years, the guideline that we basically take the non-invoiced operating costs as the basis. That number has, of course, increased because we have higher make-whole payments that tenants will face as a result of the higher energy costs, which I guess have been much discussed. In the past, we have provisioned 12.4% of that, and currently we are doing 20%. That's a reason just of precautionary measures. We have discussed that very much in detail with our auditors as well.
It's difficult to know whether this is the right or the wrong number. We feel it's a cautious approach, clearly we have not had experience in the past with a similar situation where we had tenants that were faced with such an inflationary environment and as such, also such a high increase in operating costs. The second question on net recurring special effects in the admin department, I will need to get back to you on that. I don't have the details in front of me right now. Frank will relay that back to you after the call.
Thanks. Maybe a very quick follow-up on the other services which you mentioned had a contribution of EUR 50 million to the FFO from EUR 39 million the year before. Was it a bit of a catch-up from somewhat lower contributions in 2021 due to COVID, or can we expect a similar uplift, similar development for 2023 in terms of FFO contribution from these activities?
No, I think that I wouldn't write this forward. I think the services business is in nature, very different from our normal recurring rental business. As Volker said in his part of the presentation, the majority of those EUR 50 million came from our subsidiaries ESP, as well as TSP, so the small maintenance company and the energy services company. Especially on the energy services side, as the business is more volatile because it's a very different nature of the business. I wouldn't predict that the number will increase by the same amount in 2023.
Perfect. Many thanks, all the best.
The next question is off the line of Andre Remke with Baader Bank. Your question, please.
Good morning. Just one question left is on disposals. Do you consider to intensify the privatization business of units? If not, which I assume, is it the fact that it seems to be too difficult to build this business up? Or do you believe that private investors are, let's say, not really interesting to buy also in these times? Because in general, I would assume that margins could be quite more attractive and simply the fact that the lot sizes you are dealing at the moment are coming very close to a kind of privatization business. That's the reason why I'm asking.
Thanks. Thanks a lot for the question, Andre. We have a small team of 4 people doing privatizations for us in the market. Unfortunately, exactly those households which are interested in buying flats from us are those highly impacted by the changed lending behavior of secured banks in Germany. Because now the demand for equity has raised substantially. At the same time, interest rates have also raised substantially. Exactly those people are currently having difficulties to gain the necessary bank financing in order to enable them to then really buy into flats. Therefore, from our perspective, the chance to really speed that up and do bigger numbers of privatizations is small. Therefore, we do not want to invest more resources into privatizations.
Certainly, that might be instead of the 100 you've seen last year, 150 this year, but it is not nothing where we really see now hundreds of units being privatized.
Okay, that's clear. Probably a second question on, and the last question on, to Volker, probably on the heat pumps initiative. There are large discussions on the availability of those heating systems German-wide. You mentioned the strategic partnership with Mitsubishi and that planned rollout this year. Is the availability for you as a LEG due to this partnership already secured, or is it more kind of hope that you get?
No, we don't sell hope usually. It's secured, and it's an air-to-air heat pump. It's not an air to water pump. The market for these heating systems is much, much, much broader, and it's a worldwide produced system that has not yet been used for the German residential market.
We are the first pioneers who use it for this. We have great experiences with our 12 partners, apartments that it's cost-wise, energy efficient-wise, and also from a tenant acceptance perspective, a product that we are very, very confident to roll out. We think it's just, we're just the first who use it for this kind of purpose. We are very comfortable to scale it up and to use it significantly. It's a secured production pipeline.
Excellent. Thank you for that. That's from my side. Thank you very much.
The next question is from the line of Paul May with Barclays. Your question please.
Hi, everyone. Thanks for taking my question. Hopefully slightly different to the previous ones. Just wondered on page 164, deep, deep into the accounts, the value as assumptions seem very strange given the discount rates on the valuations have come in by 22 basis points. It seems sort of a lowering of the discount rate there, and cap rates have also compressed by 12 basis points over 2022. This is despite the 300-400 basis points increase in the cost of money. Can you just explain, particularly on the discount rate, how that's a logical move? I've got a second question on something else afterwards. Thank you.
Thanks for the question. We are still looking for the page 'cause you're referring to the annual report, and we are in a room here, so trying to locate the page. I can, on a high level, answer that for sure. Basically the discount rates that we use for our standard evaluation methodology, and that is kind of market standard, that is also what CBRE does, JLL does, all our peers are doing. This is not a weighted average cost of capital model. It's an IRR model. Basically the discount rates are determined based on the return requirements really of someone who is owning a property. Therefore, the reflection of the interest rate is not one for one.
It's much more, and we've tried to explain that in the past. It's much more driven by transaction multiples, but also by assumptions around costs, assumptions around rent increases, and things like that. Then basically by that, you come up with an internally required rate of return, and that is your discount rate. We do that on a market by market basis, so very regional. It is dependent also on what we see, as I said, in the transaction market, also in terms of offer prices for a property in the, if there is a lack of liquidity in the market. You know that this will take time to reflect the interest rate environment.
I think historically from previous cycles, it has on average taken around 12 months for interest rate increases to actually reflect in the discount rate of valuation models. That's exactly what is happening here. I think there was one particularity here, which is that in the higher yielding market, the discount rate has improved more than it has in other markets and is actually currently a little bit lower than in other markets. That is due to the reason that we had the strong valuation uplift in Wilhelmshaven.
Thank you. Just to try and understand how you believe that it's, given the change in the cost of capital, there's a lower IRR requirement for investors at this point in time. It just seems quite strange. If you mention relative to transactions that have been happening, the Europace data would indicate German apartment prices are down 15% from the peak in March. Is that not a more relevant metric given that that's transactions that are happening versus asking prices which are arguably being kept artificially too high as a metric?
Well, Paul, I mean, Lars, I think, tried to explain as well that the disposals we have actually made are happening at book value. I think this is the most relevant transaction experience for us actually. I mean, we've had these discussions with our valuers at CBRE as well, and we are looking at assets not as a, in a portfolio context, but we are looking on our properties on an asset by asset basis.
In the asset by asset market, and that's, I think the same in other regions as well, but very clearly it is the case in Germany, if individual families, private people are buying a house, that has not only the maybe the same approach that a large investor has, but they are buying those properties for a different number of reasons, be it that they want to put money in a safe place rather than in the bank where inflation might eat it up. It could be that they are very regionally attached to a property because they have lived next to it or things like that. This market is not acting in the same way as an institutional investor market.
That's how we value the properties one by one. If we see transactional evidence, then we don't see a reason to deviate from what we see. Again, this is the standard approach, how property is valued in the German residential market by ourselves, by our peers, and by the big appraisers. I don't think we would want to or could change that overnight.
Okay. I don't think we're gonna have a differing view on that. The second question I have is on the remuneration change in the policy. I appreciate you did this at Q3. I think specifically you said at Q3 that you wouldn't benefit from a reduction in CapEx. However, looking at the target numbers and your AFFO guidance, which was increased today due to the lowering of the CapEx, it looks like you're gonna get paid relatively well on the new policy versus what would have happened if you'd maintained your old policy. I'm just checking how that reduction in CapEx is benefiting you as a management team. Thank you.
The proposal, obviously supervisory board to the AGM will be to adjust it for 2 metrics. Metric 1 will be FFO per share being replaced by AFFO per share, the 2nd 1 will be the adjusted EBITDA margin instead of the net rental income target we had up to now. That was derived from intense discussions with the majority and the major shareholders of that company. They've been in favor of those 2 metrics, there was an intense discussion and therefore, supervisory board came up with that proposal, we wait and see what AGM is going to take as a decision in May 2023 on that.
Just specifically on the target values for AFFO at EUR 1.50 seems to be quite materially below the guidance of EUR 1.69-1.88 you've given for AFFO, and that guidance has increased because CapEx has come down. As I say, at Q3, you specifically said you would not benefit by reducing CapEx in terms of how you were paid. Just wondering how to reconcile all of those various things 'cause it looks like you are getting benefited by reducing CapEx. Thank you.
The investment per square meter target had been discussed with investors. It was not something investors thought well advised to include into the STI targets. Therefore it has been excluded and therefore supervisory board has decided to now stick to those two financial targets.
Okay. I mean, our conversations with investors would suggest otherwise. That's fine. Thank you.
The next question is from the line of Manuel Martin with ODDO. Your question please.
Yes, hello. Just one follow-up question on the dividend guidance for 2023. As as you explained before, the dividend guidance does not include the term subject to further market development anymore. It seems that LEG is really determined to pay the dividend of 100% AFFO. On the other hand, the market uncertainties are high. It's difficult for you to predict where the valuations could go to. What makes you confident to be able to pay a dividend in 2023, compared to 2022?
Thanks a lot for the question, Manuel. That is, I think we have now taken all the measures we have at hand. You heard from Zanna, I think now a few times, that we are well prepared with regards to refinancing. We are strengthening our balance sheet by suspending the dividend. Therefore we have the confidence that what we are operationally earning can then also be spent next year. That is why we have removed that subject to clause from the dividend for 2023 because we are very convinced that if we are sticking to the strategy now, we have set out, which is a very much cash-focused one, we will be able to pay a dividend for 2023 in 2024.
Okay. Thank you.
Thank you.
The next question is from the line of Neeraj Kumar with Barclays. Your question please.
Morning, everyone. Thanks for taking my question. My question is around your refinancing plans. If I may ask, how much incremental secure debt you can take on while complying with your bond covenants? Given the compression between secured and unsecured margins since Q3, does the unsecured market look attractive to you now?
Thank you. Very good questions. I think the first one, it depends a bit on how valuations evolve as well, clearly. We are comfortable that we can take incremental secure debt of over EUR 1 billion at this point in time. As I said, we are not looking to do that much incremental debt. The plan is to do small portion of incremental secured debt, but other than that, mostly roll existing secured debt. I think you're right that the definitely the spread between secured and unsecured markets has narrowed. By the commentary I made around various different debt instruments, I wanted to do something and leave the door open for unsecured instruments as well.
I think there is obviously the chance for private placement, things like that could take place. Again, we need to monitor the markets very closely, but you can be assured that we are looking at all available options and will put together a mix of instruments that will best suit our needs.
All right. Thank you.
The next question is from the line of Rob Jones with BNP Paribas. Your question please.
Oh, hi, team. Yeah, it's Rob Jones. Apologies, my question's actually just been asked, by Paul May, so I'll pass at this stage. Thank you.
The next question is from the line of Paul Roux with Barclays. Your question please.
Hi, thank you for taking my question. Just two on my side. The first one, coming back on the dividend, as I understand, it is more linked to the liquidity on the investment market than the AFFO. For 2023, if the liquidity doesn't come back this year, basically, can we expect the same policy? You are confident that even if the liquidity doesn't come back, you will be able to pay dividend next year? That's my first question.
Yeah, thanks a lot for the question, Paul. Very happy to reaffirm that we are planning to pay the 100% of the AFFO in 2024 full 2023. That is the operational liquidity we are having at hand at the end of this year. Therefore, we are willing to pay that out and certainly depending on the disposals we are able to execute, also a certain share of the net disposal income, we would also add to that, but that's also something we will look at over the course of the next month.
Okay. J ust another question to come back on the change of your remuneration policy. Can we have this year, for example, an increase in your package while you are cutting the dividend, or it's not possible?
I think that is being included in the long-term incentive, where you can see that this is being dependent not only on the share price, but also on the total shareholder return. You will see from the compensation we have received this year for the last year in the LTI, that we have not reached our targets there. That has been substantially being reduced due to the lower total shareholder return to shareholders. That is aligned between our shareholders and the management team.
Okay. Thank you very much.
Thank you, Paul.
There are no further questions, and I hand back to Frank Kopfinger for closing comments.
Thank you. Obviously, our windows have been as strong as our balance sheet, and we stayed also on course with this call. Thanks for your questions, and as always, should you have further questions, then please do not hesitate and contact us. Otherwise, we are looking forward to seeing you at the upcoming roadshows and conferences. Please note that our next scheduled reporting event is on May 10. Since when we report our Q1 figures. With this, we close the call, and we wish you all the best and hope to see you soon. Thank you all.