Ladies and gentlemen, thank you for standing by. I'm Natalie, your conference call operator. 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 one on your telephone keypad. Please press the star key followed by zero for operator assistance. I would now like to turn the conference over to Frank Kopfinger, Head of Investor Relations. Please go ahead.
Thank you, Natalie, good morning everyone from Düsseldorf. Welcome to our Q1 2023 results call, thank you for your participation. We have on the call our entire management team with our CEO, Lars von Lackum; our CFO, Kathrin Köhling; as well as our COO, Volker Wiegel. You'll find the presentation document as well as the Q1 report within the IR section of our homepage. Please note that there is also a disclaimer, which you'll find on Page three of our presentation. With this, I'll hand it over to you, Lars.
Thank you, Frank. A warm welcome also from my side. Let me kick off today's presentation by summarizing the key highlights. I will hand it over to Volker and Kathrin who will provide you with more details on the operations and financials. Q1 marks the first full quarter reflecting the full effect of our cash focus steering approach. We are convinced that this is the right strategy to limit cash outflows, self-finance all CapEx spending, and gather liquidity to reduce refinancing requirements. All targets pursued by that strategy have been successfully achieved in Q1. We are fully aware that suspending the dividend for the business year 2022 in total is very hard for our shareholders. In the current challenging market environment, a full dividend suspension is the most straightforward and simplest tool to strengthen our balance sheet and safeguard liquidity.
We consider simplicity not only with regards to our operations, but also with regards to the structure of our balance sheet, including debt financing, to be a cornerstone of long-term success. By adapting to the new realities, we have not only changed our dividend policy, but steer the complete business now according to the cash focused AFFO instead of the more accounting driven FFO I. Therefore, today's set of figures reflect the new steering KPIs. With our full year numbers, we have already provided you with the bridges, adjustments, and explanations to those changes. As a quick reminder, key changes are made within the net operating income and the adjusted EBITDA, while FFO I as well as AFFO remain unchanged. With these remarks, let me dive into some of the key highlights. Our operations continue to deliver strong results.
Net cold rent on a like-for-like basis grew by 3.8%, in EUR terms even by 4.5%, as some additions supported the growth in EUR terms. Vacancy was further reduced on a like-for-like basis by 20 basis points to 2.6%. The financials are affected by three key items. An ongoing conservative approach concerning general allowances for receivables, although rent collection is close to 100%. The seasonal pattern within our value add business, which is to reverse in the remainder of the year, and a negative and unfortunately persistent effect from higher interest costs. Due to these effects, FFO I declined by 15%. These effects were more than offset on an AFFO basis as we have successfully slowed down our CapEx spending. AFFO increased by almost 8% to nearly EUR 55 million.
Within the Q1 AFFO result, we have already taken a major step towards our AFFO guidance of EUR 125 million-EUR 140 million. We are happy to confirm the AFFO guidance for 2023 today. Please do not simply extrapolate the strong AFFO of Q1 for the full year as the FFO I generation and especially the CapEx spending will not distribute equally throughout the year. With regards to the balance sheet, LTV improved slightly by 40 basis points to 43.5%. The business is run unchanged on the back of a strong balance sheet. Let me reiterate. The decision to propose a full dividend suspension for 2022 is the most straightforward and transparent mean to strengthen our balance sheet. The measure supports our efforts to refinance upcoming maturities and partially cover them via cash,
As Kathrin will explain later in detail, we made good progress in addressing the 2024 maturities already by securing attractive terms for unsecured financings. In our refinancing exercise, we do not depend on a single disposal. Therefore, we are not willing to dispose prime assets at substantial discounts. Instead, we are focused on disposing assets at the lower end of our portfolio. Although transaction markets remain silent, we sold more than 400 units in Q1 at around book value. Overall, uncertainty with regards to the new interest rate equilibrium keeps investors at the sidelines. Due to the low number and volume of transactions in Q1, we did not adjust valuations, but will come up with a revaluation of our portfolio with our H1 numbers as always.
The low liquidity of the transaction market makes valuations a much more difficult exercise than in the last 10 years. Therefore, we ask for your understanding that we only indicate a mid-single digit value decline for H one and do not come up with a precise range as in the past. While higher cost loading, cap and discount rates put a burden on values, official appraisal values, asking rents and actual transaction multiples speak a different language. Finally, a short update on our ESG initiatives. In March, we presented our air-to-air heat pump initiative for the first time. This approach drew a lot of interest from the industry, many communities, but also federal and state politics.
We were very proud to be given the chance to present the pilot project to the State Minister for Construction and took advantage to explain approach and advantages of the air-to-air heat pumps versus many other solutions. As pointed out, key advantages are a low investment volume combined with a high availability of the product, enabling an improvement of the energy efficiency of even the worst buildings from Class G to a good C level. The lower costs of that solution allow to limit the burden for the tenant, i.e., in most cases it will be cost neutral. From our perspective, that puts an end to the fear of stranded assets in the market. The best news at the end.
Due to our efforts, the air-to-air heat pumps have now been included in the latest update of the Buildings Energy Act, GEG, which might now offer the possibility for subsidies in the BEG. On the next two slides, we briefly show two well-known but still incredibly important topics. Firstly, the market situation, and secondly, the rental market dynamics. I am now on Slide seven and know that you receive from us as well as many other market participants, macro data on an ongoing basis of the German housing market. However, I sometimes gain the feeling that the overdemand, especially regarding affordable housing, is not fully absorbed. Therefore, please bear with me on that slide. On the left-hand side of the chart, we included two graphs on the development of the German population. Germany's population has reached record highs. There have never been so many people in Germany.
As of 2022, over 84 million people live in Germany, and the increase in absolute and relative terms has been one of the highest on records. The pressure on the demand side, especially on the affordable segment, is increasing quickly and sustainably. It meets a housing market which is completely rented out. At the same time, new supply will simply dry out. The increase in building standards, high inflation of material and personal costs, higher interest rates, as well as a continuously changing and underfunded state subsidization regime make new construction unprofitable. Estimates for newly built apartments coming to the market are regularly revised downwards, and at the same time, the number of new building permissions has fallen by more than 26% in January versus the last year.
That is one of the strongest indicators for the persistent decline of new construction over the coming years. I know that this is no shocking news to you, but it is for the people in this country. You need to imagine what this means for the people, the market and asset companies like us. The structural undersupply of affordable housing will persist, and there is no way out unless politicians are willing to either ease rent regulation, increase subsidies, or reduce building requirements. As of today, none of these options sound executable, which will leave us in the current market state for a longer period. Quite naturally, the strong demand for affordable housing is now also being reflected in higher reletting rents. I am now on Slide eight.
On that page, we show you the reletting rent developments to provide you with a better feeling for the underlying market dynamics in our portfolio. These numbers purely reflect our portfolio and therefore naturally deviate from market numbers. Easily to be observed, there is a positive momentum in reletting rents. We were able to increase reletting rents on average by 5.6% to 5.7% across all market segments. This is a function of the high demand, but also a function of investments done when people move out. We expect this trend to continue and to eat into the rent tables and lift the overall level over the coming years. Due to the uncertainties surrounding the calculation of rent tables, it is unfortunately not a straightforward mathematical exercise to come up with precise numbers as of when and how that increase will be reflected.
As the reason is a structural one, higher rents will be reflected in any case. With this, I hand it over to Volker for the operational highlights.
Thanks, Lars. Good morning to all of you. In the first quarter, our portfolio size remained broadly stable, although we saw first disposals at our end. We added 381 units to our portfolio, which mainly comprises of a larger portfolio in NRW, especially in the cities of Düsseldorf and Cologne. The portfolio deal, including Düsseldorf and Cologne, was already signed last year, i.e., before we stopped our acquisition activities, while transfer of ownership was finally in January. In Q1, transfer of ownership for previously agreed sales in the amount of 434 units took place. Included was one larger high-rise building with 219 apartments, which is in a very weak technical condition and which absorbed a lot of management attention. Additionally, we sold a portfolio in Siegen.
Apart from that, several small ticket sales of non-core assets, mainly in Eastern Germany, were part of the disposals. These transactions reflect our still very selective approach towards sales. We are not under pressure at our end, and therefore will not rush into underpriced deals on prime assets. Kathrin will expand later the financing side of things. We do not rely on disposals to achieve certain goals. They certainly help to deliver, but we currently see no urgency. The operations run very smoothly. We offer a product with strongly increasing demand and strongly shrinking supply, and have our cash outflows under strict control. The total disposal volume in Q1 amounted to around EUR 25 million, i.e., was deposed off at around book value. On Slide 11.
At the end of Q1, the in-place rent of our entire portolio on a like-for-like basis stood at EUR 6.43 per square meter, and hence 3.8% higher in comparison to Q1, 2022. Rent table adjustments contributed 1.7 percentage points. Modernization measures and reletting, 1.3 percentage points. These adjustments are only applicable for the free finance part of our portfolio, which comprise about 135,000 units. The cost rent adjustment for our roughly 32,000 rent restricted units contributed around 0.8 percentage points to the overall increase of 3.8%. As a reminder, we can adjust the cost rent for the rent restricted units every three years based on the development of the CPI. On average, the in-place rent of these units increased by 5.2% over the three-year period.
The in-place rent on a like-for-like basis for our free finance units alone increased by 3.6% to EUR 6.73 per square meters. Rent growth was the highest in the stable markets of 3.8%, followed by the high growth markets of 3.7% and the higher yielding markets with 3.0%. As always, we do not include effects from new build apartments in this figure. Let me now move to Slide 12. In the first quarter, our total investments came down by 17% to EUR 81.2 million. As the size of our portfolio was basically the same as in Q1 2022, the investments per square meter in our standing portfolio declined by the same magnitude. New construction spending in Q1 amounted to only EUR 5 million.
While adjusted CapEx per square meter declined by roughly 34%, maintenance per square meter increased by roughly 26%. This reverse development is owed to our new steering system with a much greater focus on cash generation. As we had explained previously, the focus on a high capitalization rate was not always efficient with regards to the cash spendings due to the respective accounting standards. Accordingly, the capitalization ratio declined from 56% in Q1 2023, whereas 71% in Q1 2022. Our investments of EUR 6.59 per square meter in Q1 compare to a full year guidance of EUR 35 per square meter, i.e., in Q1, investments remained significantly below the quarterly run rate.
We stick to our guidance of EUR 35 per square meter as we consider this investment volume to form a good compromise between focus on cash generation on the one hand side and taking care of the building conditions, the energetic refurbishment, and generation of double-digit yield on turn cost modernization measures on the other hand. Nevertheless, the low starting point leaves us flexibility to reduce investments below the current targeted level. I hand over to Kathrin.
Thank you, Volker, good morning from my side. It is a pleasure to present the financials to you today for the first time in our Q1 earnings call. While I have met some of you already during our last roadshow activities, I am looking forward to seeing all of you hopefully within the next couple of months. I will continue with the development of our key P&L items on Slide 14. In the first three months of the reporting year, net cold rents growth by 4.5% to EUR 206.3 million. Of the EUR 8.8 million increase, EUR 7.3 million, or 83%, were generated for organic growth. Acquisitions, net of disposals accounted for the remainder.
Despite the positive impact from 3.8% like-for-like rent growth, the recurring net operating income decreased by 3.9% or EUR 6.6 million to EUR 161.4 million. Please keep in mind that the recurring NOI as well as adjusted EBITDA are calculated according to the definition presented to you a few months ago, and that applies as from the 2023 financial year. We now steer our operations independent of the fact whether an investment is expensed or capitalized on the balance sheet. As a result, maintenance expenses for externally procured services as well as own work capitalized are only being considered further down the P&L now, i.e., in the FFO and AFFO line item. We have adapted the previous year's figures accordingly to make them comparable.
The net operating income was mainly impacted by the decrease in the line item other, due to higher energy costs and seasonal effects from our value add business. Furthermore, also to reflect the rise in utility bills, we recognized higher allowances on rent receivable. Our share of the CO2 tax also had slightly negative impact year on year. The recurring NOI margin came out at 78.2% against 85.1% in the previous year. The adjusted EBITDA decreased slightly by 2.2% to EUR 157 million in the first quarter. This is partly due to slightly higher staff costs and expenses for insurances. There were also lower special items than in the previous year. On the other hand, there were positive effects from our biomass heating plant. All in all, the adjusted EBITDA margin reached 76.1%.
With that, we are still well on track to meet our full year target of 78%. The AFFO was up 7.6% on the previous year, reaching EUR 54.9 million. This number seems high compared to our full year target 2023 of EUR 125 million-EUR 140 million. However, you need to put it into perspective considering that CapEx in the first three months amounted to only EUR 48.3 million. This is significantly less than a quarter of the EUR 300 million-EUR 310 million CapEx spending that we are expecting for the full year. For a detailed year-on-year analysis of the AFFO drivers, let us now move to Slide number 15. In the first quarter, the organic rental growth contributed EUR 7.3 million to AFFO.
EUR 1.2 million were added by external growth and were partly offset by EUR 0.3 million from disposals. Already mentioned, AFFO benefited also from the fact that CapEx was particularly low and also EUR 22 million down on the previous year. We are spending less on investment, fewer measures can be capitalized on the balance sheet, but instead are immediately expensed. This explains the increase in like-for-like maintenance by EUR 5.8 million. The largest negative effect came from higher operating costs of EUR 17.3 million. Higher net cash interest affected AFFO by EUR 4.6 million. Moving to Slide 16, which gives an overview of the current portfolio valuation. The gross yield of the residential portfolio still stands at 4.2%.
As in the past, we did not do a revaluation of our assets in the first quarter. In Q1, there was no transactional evidence that could have triggered an early revaluation. Our internal experts monitor and analyze the market very closely and hold intensive discussions with our external experts, including our appraiser. Due to the scarcity of transaction evidence to date, there is an unprecedented uncertainty with regards to the valuation for the first half of the year. As of end of June, we therefore currently expect a devaluation amounting to a mid-single digit % rate of our asset value. Let's move to Slide 17 and our financial profile. As of March thirty-first, average interest costs amounted to 1.35%, 19 basis points up year-over-year. The interest hedging rate reached 94%.
The average debt maturity was 6.4 years after 7.3 years, 12 months earlier. Looking at the maturity profile, there are only minor maturities of EUR 53 million left for the current years, and these are being addressed. In 2024, there are liabilities due with a volume of around EUR 1 billion, and I will come back on our refinancing strategy for these in a minute. Before, let me point out that we have cash on hand of around EUR 365 million, including short-term deposits as well as undrawn credit lines with a volume of EUR 600 million and furthermore, there is our commercial paper program with the volume of another EUR 600 million. Our loan-to-value ratio, an important KPI, reached 43.5% compared to 43.1% in Q1 2022.
Our 43.9% at year-end 2022. Although it is slightly above our medium-term target of 43%, we don't expect any negative impact on refinancing. We are in a comfortable position with regards to our bond covenants, i.e., we can digest the drop in valuations of around 30% based on today's values before we hit our tighter bond covenant. Last but not least, on net debt to EBITDA. This was 14.3 times as of end of March. Let's move to Slide 18 for more details on the upcoming refinancing. Tackling our refinancing is one of our most important tasks we have today. It is certainly helpful that we have a well-diversified financing mix. Thanks to our regular activities in the secured bank loan market, we have strong relationships with a large number of commercial banks.
Additionally, we have access to a broad range of private and public capital market products. Roughly half of the debt maturing until 2024 are secured loans that will be rolled over. This is currently being prepared and negotiated with our banks. The other half of the debt to be refinanced relates to our EUR 500 million bond, which matures in January 2024. We will address this by a partial payment and a partial debt financing. For the latter, financing terms for EUR 150 million have already been agreed and further negotiations are well under progress. We will also make use of our liquidity for a partial redemption of the bond. In 2025, not shown on the slide, our older convertible is due. We expect to apply a strategy like for the 2024 corporate bond.
All in all, the volume of the upcoming refinancing is manageable. It is important to me to highlight that we don't depend on bond markets, nor are we dependent on proceeds from disposals. Once they occur, they will provide further potential to de-lever. With this, I hand it over to Lars for the outlook.
Thanks, Kathrin. Finally, let's have a look at Slide 20 and our guidance for 2023. In a nutshell, after a good start into the year, we confirm our guidance for this year with regards to all KPIs. We confirm our AFFO guidance range of EUR 125 million-EUR 140 million. This is based on a 78% adjusted EBITDA margin, as well as an investment spending of around EUR 35 per sq m. We stick to our medium-term LTV target of a maximum of 43%. Our new setup with a focus on cash, no dependency on disposals, a simple and straightforward balance sheet, and a diversified maturity profile will allow us to maneuver through the current situation successfully.
We also confirm our ESG targets, and given our various innovative initiatives, we are convinced to be not only on track here, but to front-run that change in comparison to the market. With this, we come to the end of the presentation, and I hand it back to Frank.
Thank you, Lars. We begin the Q&A session, and I simply hand it over to you, Natalie.
Thank you. 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 one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. If you're using speaker equipment today, please lift the handset before making your selections. So anyone who has a question may press star followed by one at this time. And our first question is from the line of Thomas Neuhold from Kepler Cheuvreux. Please go ahead.
Good morning. Thank you very much for the presentation. I have only two questions, maybe we take them one by one. The first one is on the financing conditions. Can you please provide us an update on the lending conditions in the German banking sector, particularly how spreads evolved recently? I was also wondering which portion of your outstanding bonds you think you could refinance theoretically by mortgages in the long run.
Happy to take this question. In terms of pricing, for secured financing, we see a margin of around 120 bps for 10 years currently, which hasn't changed lately. This also shows the fact that we were able, in the last few weeks, to agree on financing terms for EUR 150 million of secured financing at exactly around these terms. Unsecured financing is still significantly more expensive than secured financing. We currently see around 250 basis points for 10 years, to give you a ballpark number. With regards to the volume of secured financing that we can do, we could cover the entire 500.
Million bond also with secured financing. Our headroom for secured financing is around EUR 1 billion.
Yes, thank you very much. The next question is on the leverage situation. You mentioned that potentially values might decline by mid-single digit amounts in Q2. That would bring up your LTV, I don't know, to 46%-48% above your long-term target. Obviously, the investment market is still quite difficult. I was just wondering, are you considering already speeding up asset disposals by providing higher price concessions? Or you think the potential leverage increase in Q2 is still at a reasonable level so that you can pursue your current deleveraging strategy?
Good morning, Thomas, also from my side, thanks for the question. From our perspective, that seems to be at a higher end, if you look at the 46%-47% LTV. It's more around 45 if you take really the midpoint of the single-digit range, which we have indicated today. Once again, let me, before I answer the question with regards to the disposal volume, just get back to that indication we gave for H1. We are currently at the beginning of May, once again, the sales market is incredibly silent. Transactions are really, and transaction volumes are really at record lows. It is something which we have not seen over more than a decade. It's really only comparable to the situation during the great financial crisis.
Therefore, it is currently the best estimate we can give to the market, but certainly we are dependent on the transactions which are taking place in May and June. With regards to our own disposals, we are still not willing to agree on lower prices. We think that the market holds to the current book value. Certainly we are seeing some decline, but it is more a technical driven decline than it is with regards to the rising rents, as well as real transactions taking place with regards to that element. Therefore, no, we do not feel under pressure to speed up our disposal program, even if we would end up with the value decline, which we have indicated today to the market.
Great to hear. Thank you very much.
Thank you.
The next question is from the line of Rob Jones from BNP Paribas Exane. Please go ahead.
Yeah. Hi. Morning, Lars' team. Can you hear me okay?
Yes, we can. Thanks, Rob.
Perfect. Great. A couple from my side, one which is following up from the previous question around disposals, and then there's a bit on AFFO and also CapEx. Just on disposals, I should definitely give you credit for the work that you have done and continue to do around liquidity management, and ensuring that you have sufficient both cash and refinancing capacity to refinance your near-term debt as it matures. Definite credit there. Linked to the point that you make around no dependence on disposals, again, we're seeing asset values fall, likely call it 5%, 6% in H1.
If we assume that we see further value declines in H2, which I personally don't think is an unreasonable assumption, then whilst you have sufficient liquidity to finance your near-term maturities, you end up in a situation from a pro forma perspective, where LTV could be above 50. In that scenario, I worry that you end up with credit rating downgrade and a share price lower than it is today. I wonder whether the unwillingness to dispose of prime assets of substantial discounts, despite the fact that asset values are falling, leads to a scenario where your LTV is uncomfortably high from an equity investor perspective. I guess my point is that there's a really strong refinancing strategy, but is there a clear LTV reducing deleveraging strategy? I wonder if you could just come back to me on that point.
Yes. Good morning, Rob, thanks a lot certainly for that question. As you know, it's always difficult to discuss different scenarios today in that call. I think we just came out with the Q1 numbers. We really tried and struggled to come up with any indication for H1. Now to take our crystal ball and say, "Okay, that is what we expect for H2," it is incredibly important. I think you are absolutely right to say that disposals are the key to de-lever the balance sheet. Therefore, we are working hard, and please trust me, we are in the market with the 5,000 units, and we do everything to really dispose of it. We are doing privatization business. We are still selling single multifamily houses, but we are also in the market with portfolios.
If you look at the portfolio sizes being traded, the biggest portfolio has been traded by a bigger competitor in that market. It was just being traded in April.
Yeah.
That was by far the largest transaction. The second largest transaction was already a single commercial building with around EUR 120 million. That gives you perhaps a bit of the indication of how tight the current residential markets are. Now rushing into the market with the intent to dispose thousands of units at a single point in time will not help the market and will not open up the markets. Therefore, what we strive to is take advantage of the demand which is there, and certainly we see demand, and we are feeling comfortable to come up with further sales over the course of this year, but it will take time, Rob. Therefore, yes, if we are seeing declines of values, we need to dispose.
Therefore, all hands are on disposals, and we have definitely increased the number of people doing disposals in order to really identify every chance which is out there to help us to do disposals.
Okay. Very clear. Thank you. Just the second one is, as I said, around kind of AFFO and CapEx. Obviously your AFFO very strong Q1, albeit you rightly say don't annualize that figure because the CapEx spend in Q1 was notably below the run rate that you will need to achieve to hit your EUR 300 million-EUR 310 million CapEx guidance for the full year. My question, partially from me and partially from a client who's actually on this call, is if you end up in a scenario where the SFO remains at a lower or more depressed level as a result of higher costs continuing through the remaining quarters, do you end up in a scenario where potentially you have to cut your CapEx guidance to hit your AFFO guidance?
I wonder, and this is where the client question comes in, from a management compensation perspective, if you have a scenario in Q3, Q4, where you say, "Okay, we need to cut our CapEx guidance because otherwise we're gonna miss AFFO." Does that result in you and the team receiving higher compensation because you've hit the AFFO target even though you've missed the CapEx target? I wonder if you could just touch on that.
Yeah. Very happy to also be very precise on that topic. The AFFO guidance, which we have given and reiterated today for the full year, EUR 125 million-EUR 140 million, Rob, is being. Yeah. -based on a CapEx spending of EUR 35 per square meter. If we would be only able to reach the AFFO guidance by cutting on the CapEx, then certainly this would not increase compensation for management. That's for sure.
Okay. Very clear. The final one is just around BCP. What's the latest with that stake? Any sort of incremental color we can add in terms of where we are at the moment?
Yeah. Also very happy to take that one, Rob. Unfortunately, you know, most probably more than myself about the majority shareholders' position in the current market situation. We got from the latest press releases of that bigger shareholder that they want to dispose not only the share in BCP, but all of the assets currently being owned in the German market. Unfortunately, our hands are still being bound. We still wait for that transaction to happen, once again, Rob, we are very confident, and we already are in dialogue with potentially interested parties to then either split the portfolio or run the portfolio jointly for that interested party in the German market or dispose our shareholding to that new shareholder.
All those options are at hand and certainly we will then get in contact with that new majority shareholder as soon as such a transaction would take place.
Very clear. Thank you very much. Look forward to catching up again soon with yourself. Thank you.
Thank you, Rob.
The next question is from the line of Thomas Rothäusler from Deutsche Bank. Please go ahead.
Hi, morning, everybody. A few questions. Like the first one is on property values. You guide for mid-single-digit % decline in the first half. I mean, which seems a softer decline than appraisers and market and, you know, markets anticipate currently, which I think seems more towards maybe a 10% decline. Also looking at one of your peers, which reported just recently a 4.4% value decline only for Q1. I mean, this could also hint, I think to a higher downwards momentum. Just wondering on what your current outlook is based and if this is backed by the appraisers.
Yeah. Happy to take your question, Thomas. As you know, we are currently in the process of our valuation for H1 in 2023. As you said, while we have higher cost loading cap and discount rates, and they put a burden on values, we also have on the other side, official appraising values, asking rents and extra transaction multiples that speak a different language. Furthermore, we continue to see very little transactions taking place in cities or regions with LEG assets. That makes valuation really difficult for us at this early point in time where we do not have enough insights to give you a more concrete answer. We will sure do so in all detail once we have finalized our valuation with our H1 results.
Of course, if we see more transactions in the markets taking place, we will also look at those as one.
I mean, on just to follow up on this, I mean, on transaction markets activity, we saw one of your peers actually with larger scale disposals. Would you regard this as a sign of recovery of investment markets or are you still rather bearish on investment markets? Or did it change recently?
Yeah. Good morning, Thomas. Also from my side, I would love to tell you that markets have opened up and big portfolios are being traded on a regular basis. Our understanding is that there was a balance sheet restructuring exercise being done on the one hand side, and on the other hand side, we really saw a transaction, but unfortunately a transaction on a fraction of the market in the top six, seven cities. If I remember correctly, it was Berlin and Munich included, as well as Frankfurt. All three cities we are not active in, and it was a pretty newly built product. Also something which is not the focus of our disposal program. Therefore, I think it's pretty incomparable.
Once again, if you just look at the April numbers, the one transaction of that tier was by far the biggest transaction. If you just take and look at the second largest transaction, that was a EUR 120 million commercial asset being traded. Then all the other trades which have taken place were even below EUR 50 million. That perhaps I think gives you more of a feeling of how the market still feels and therefore, yes, let's wait what's going to happen over the course of next months. Our reading still is we need to see an end to the interest rate increased cycle by ECB before we see more interest and capital once again being allocated to German residential.
Okay. last one actually is on the remaining refinancing of 24 maturities actually. By when can we expect this to be covered? What is your plan here?
We already have addressed the 2023 maturities, the EUR 53 million. We can either pay it back with cash or we can prolong it. We have both options open and we have, we can go either way.
Actually, it's right about the 24 maturities.
The 2024 maturities. We have the EUR 500 million, which are secured finance. These we will roll over in the months coming. There we have more time. You're probably more interested in the January EUR 500 million bond. The first time that we can pay this one back would be in October. We are currently planning on paying it back between October and January. Whatever works best for us, given the volatility in the market and where we think we can get the best financing terms to finance the remainder of the portions that we still need.
Okay, thank you.
The next question is from the line of Jonathan Kownator from Goldman Sachs. Please go ahead.
Good morning. Thank you for taking my question. I just wanted to go back to a slightly different topic in terms of the increased maintenance and operating costs. I was wondering if you could give a bit more color as to whether this is just temporary, or whether you see actually just pressure from a cost perspective and this is a new level that we have to take into account at this stage. Thank you.
Jonathan, happy to take your question. On the operating costs, that's a temporary effect. There we have some special effects in Q1, which will level out throughout the year. On the maintenance effect, that's a function of our new steering, where we're more focused on the liquidity spend than on the balance sheet effects.
If I may, can you expand on that? I'm sorry, it's not entirely clear what that means.
Well, that we focus now on the AFFO and on the and to spend the each euro there where we expect the best return and best value. If it's then calculated or recorded in the balance sheet as maintenance or CapEx is more a function of the balance policies. We're more focused on the cash spend. That's why we will have a lower capitalization rate in the year, in this year compared to last year. In the first quarter, we had a very low cap rate of 56% compared to 70.7% in the previous quarter in 2022.
We expect this to increase to something about above 60%, between 60% and 65%, throughout the year, given that we increase the CapEx spending I think Lars or Kathrin pointed out that we had a pretty low spending in Q1 compared to the EUR 35 we plan to spend per square meters.
If I may, and sorry, maybe I'm a bit sick here, but if I wanna expand again, I understand you're reducing your CapEx to effectively preserve cash. That makes sense. As a percentage, maybe maintenance becomes more important because obviously you have less CapEx. That feels very much in line with your strategy. The one thing that I'm less clear about is why is maintenance increasing then on absolute basis? Does that mean that the policy is just to put more expenses through the P&L as opposed to just capitalizing them? Is that what we need to understand?
Yes. That's, to put it simple, that's the effect. If sometimes you spend less and don't hit certain trigger amounts, higher amounts will be run through P&L and will not be capitalized.
Okay. Effectively these expenses, because you spend a bit less on the project, don't qualify anymore. Yeah. to be capitalized. Okay. Very clear. What about sort of overall cost trends in terms of inflation? Has that moderated at this stage, or are you seeing more inflation on cost and, you know, driven by, you know, personnel or any materials there?
Well, on the materials side, we still see inflation, but we counter it through very thoroughly spending policies and also have some long-term contracts in place, but definitely we see the pressure on the inflationary side from materials. On personnel, we do not negotiate our tariff adjustment this year, but only next year. This remains stable throughout the year. As you can see from the numbers, we still live in high inflationary times, yeah.
Just perhaps to clarify and finalize then, so your CapEx spend is going to increase again, as you pointed in light of your EUR 35 guidance. Does that mean that we have to assume that the maintenance level as a EUR per square meter is going to go down again because more projects are going to qualify for capitalization? Should we assume that the maintenance level on the EUR per square meter for Q1 is a good proxy for the activity going forward?
No, I think you're right to assume that this will go down a bit, but I would suggest, or maybe From our perspective, it would be make more sense to focus on the overall spend per square meters and not on the balance sheet effect, if it's capitalized or it will run through the P&L.
Okay. Appreciate that, but maybe there's some questions around discretionary versus non-discretionary here that people will be interested to understand. Perhaps one last question, if I may. Just is it possible to have an update on where the regulatory debate is in Germany? Obviously, you mentioned air-to-air heat pumps. Can you perhaps help us understand, given the context of the German IRA in particular also, how do you think about help for the industry, in terms of green CapEx and, you know, any funding help that you can get doing that would be helpful. Thank you.
Yes. Happy to try at least to give you the current state of discussions, Jonathan. You might be aware that the GEG is one of the most heated debates on a political in the political environment I at least have seen over the last 10 years. It's still not decided as whether it really starts 1st of January 2024. That was the original intention. As the law was proposed, it was leaked to the public, just to give you a feeling for the amount of pages being included, it was around 100 pages. It has now grown via the further discussion to 175 pages, it now hits the stage of parliamentary discussions.
None of the ruling parties, even, which are forming the government, are standing behind that law firmly, so neither the Social Democrats nor the Liberals, but not even the Green Party, which Mr. Habeck is from the Green Party, and he was heading and leading that legislative process, it seems to be that there will be plenty of changes. One of that change, I think we gave you today the update, that it was include the, and it's now including the air-to-air heat pump to be included into the law.
If we are being assuming that every of those measures being included in the GEG will then also end up in the BEG, which is then defining the subsidization regime, then current assumption is that we are going to see t hat's current and as of today, 10th of May, subsidization rate between, in the range of 25%-30%. That is still under discussion and it might change. How it will end up, it is very, very difficult to say as of today because as already stated, even the three parties forming the government does not seem to support the GEG proposal, the current proposal on the table fully.
Okay. Very helpful. Thank you.
Thank you.
Question 8 from the line of Kai Klose from Berenberg. Please go ahead.
Yes, sir. Good morning. I've got three quick questions on the results, if I may. The first one is on Page eigh t of the report. You mentioned that, it was published that the net income from other services went up from EUR 3 million to, from EUR 3 million to EUR 7.8 million. Could you indicate maybe what were the reasons for that? Or maybe it was temporarily, but, maybe what was the reason? Second one is, the allowances on rent receivables were higher, as you indicated before. At the same time, you mentioned that the rent collection rate was close to a 100%. Would you expect that some of the provisions you built up in the last year might be released in the coming quarters? The very last question would be on the vacancy rate.
You published, slight reduction in the like for on a like-for-like basis, whilst the total vacancy rate remained flat at 3%. When can we expect the total vacancy rate to come or to decrease in line or similar to the like-for-like?
Thanks a lot, Kai, for your questions. The three of us will try to answer those questions. I will kick off with the other services. As you know, that includes the biomass heating plant. Due to a forward deal, which we have done on selling the power being generated by that plant, we had a higher than expected increase of the results of that biomass plant for the first quarter. Remains to be seen of how the tax regime develops going forward. That is something which we at least have been able to realize for Q1. With that, I hand it over for to Kathrin, I think, for the second question.
Yeah. Hi, Kai. With regards to your allowances on receivable, as you know, we like to be conservative. Therefore, we increased our general allowance levels on rent receivables end of last year, and this is now why we also have the increases in Q1 compared to last year. You pointed correctly out that our collection levels are currently still high, but as you know, we can't account for the future, and the impact is still very high inflation levels and increasing interest rates have on our tenants. Therefore, we like to be prepared. Of course, we will look at the numbers over the coming year and we'll see how things develop. For this.
No, no, no. Kai, I take the third one, so you have all three of us. Um, on vacancy the, um, the like for like, uh, vacancy reduction, um, um, was also i-impacted by, by our Adler portfolio. So if we would count this out, vacancy rate for the core portfolio would be significantly lower at, at two point one percent, just as, as a side note. And the overall vacancy of three percent will come down in the next quarters. This is impacted by some... by very few, but, but some, uh, new build, uh, buildings that, uh, need, need to be rented out and, uh, we expect this to come down over the next quarters.
Many thanks.
Thank you, Kai.
The next question is from the line of Marius Pastu from Société Générale. Please go ahead.
Hi there. Thank you for taking my question. Just one question remains from my side. If I just go to Slide 35 on your subsidized units, I'm just quite interested to, and I appreciate this is a bit of a technical application that you're applying. I just want to understand the difference between the 5.2% cost rent adjustment that came through versus, I think, the 4.6 figure that was provided with the full year 2022 results presentation. It looks like the CPI index is broadly unchanged, so I just wanted to understand in a bit more detail the key drivers for this would be much appreciated. Thank you.
Marius, thanks a lot for the question. I think, as it is a very technical question, we should take it offline and after the call and we'll provide you with the details on the difference exactly. It is a technical nature due to the difference.
Thank you very much.
The next question is from the line of Paul May from Barclays. Please go ahead.
Hi team. Just got a couple of questions. First one's on Slide 10, just looking at the acquisitions and disposals or additions and divestments. Just wondered if you could talk to the additions. Apologies if you did on the presentation dive and they were late, that were made in Q1, so you only had net disposals of 53 units. Similarly, back end of last year, you were looking to sell assets or sell units, but you were also adding units. Just wondered what the thought process is there as to why units are still being added. Also linked to that, it mentions disposal volume of EUR 25 million only.
Is that just for the divestments or is that a net disposal? In which case, was the average disposal price around EUR 58,000? just on that one first around that. I have a couple of other questions. Thank you.
Yes. Good morning, Paul, and thanks for your question. The addition which was made was agreed in September. That was before we decided to stop acquisition altogether. That was an opportunity to add very attractive properties in the cities of Düsseldorf and Cologne. Therefore, that is the portfolio which and you are aware of that, it was an asset deal, so transfer of ownership just takes a while. That was also what we've referenced with regards to the numbers already in March. That addition now has taken place and came to us at beginning of January. With regards to the disposal volume, I think you're rightly showing at the low number and hinting at it.
It is because we are disposing at the low end of the quality spectrum of our assets, and therefore, that was also the reference which we made, on the right-hand side of the slide with regards to, for example, that high-rise building, which was, from our perspective, not in a technical situation where we thought, that additional investments are being worthwhile. Therefore the average unit price reads much lower compared to the book which we are running for LEG overall.
Just a quick follow-up on that one. The additions that were agreed in September and transfer ownership in Q1. Is the cash transfer, is that in Q1, or was that back in September? What was the amount of that, just the cash outflow for the, say, additions, if it was in Q1? Thanks.
Yes. It was slightly above EUR 100 million, the payment. We prepaid part of the price that was around EUR 65 million, I think. You were also able to read that from the balance sheet end of 2022. That was also now the reason why in Q1 the prepayments came down so substantially. That was exactly for that portfolio.
Cool. Thank you. The second one around valuations. I mean, isn't it relatively clear that the lack of transaction in the liquid markets is a sign that values have come down, and prices therefore need to be met in terms of bid prices rather than sort of sticking to a historic? Also linked to that, the noting that you've sold 0.3% of your portfolio at book value, and therefore it's indicative that values haven't gone down again. As you say, that's the lower end of the spectrum. That's the lower value units. How do you sort of really think about where valuations properly sit?
You know, I appreciate we're sort of going over the same thing, but isn't it part of your you know, fiduciary responsibility to have the asset values in your books at levels that which you could transact rather than at levels which you think you could transact? Which is a slightly different concept. Just wonder what your thought process is on that. Then I've got a follow-up to that. Thank you.
Yes. Thanks a lot, Paul. As you've seen, we didn't identify really a trigger for a revaluation of our assets in Q1. Bigger transactions, once again, have taken place not earlier than April. They came to our knowledge in May. Looking at the price they have it transacted at, I think certainly they gave an indication. If you look at the quality of the assets being traded, if you look at the regions, they are not regions where we are active, and they are not the quality of assets which we are selling. Therefore, we didn't have any indication of a revaluation necessity in Q1. We try to come up with the best guess we currently have for the first half. Once again, there are different signs.
On the one hand side, certainly if you're just doing an interest rate assessment and increased cap rates and discount rates, certainly you would come up with lower values, Paul. That's for sure. What we can see on the market, together with the rent increases and the very, very few transactions taking place in regions where we are active, they are not indicating a strong decline of values. That is the current difficulty, is just really giving you more insight into where we currently stand. Therefore, the best guess we currently have for H1 is a mid-single digit, but certainly there are four weeks to wait on the transaction markets. We will observe it closely, and then we will certainly account for what we are seeing in the market. Certainly we are not cooking our numbers.
We're doing that based on transaction multiples being observed in the market and a very proper and decent valuation by our internal guys, but also by our external valuator.
As you say, the. There are no transactions, so to base it on the transactions doesn't seem the right basis. I mean, typically in illiquid markets, people move to other valuation processes. As you mentioned, if you were to mark to where interest rates are, where discount rates have moved to, there would be asset value declines. Given the illiquid markets, surely that is the fiduciary duty to look for alternative ways to value the assets. The risk that we face is that we're just stuck in this sort of every quarter, every half year, we get a valuation decline and just the shares and the market just doesn't look attractive because nobody can underwrite where the actual values are.
As I say, we can debate that forever and always come up with a different view. The second question linked to that and linked to valuation, as you mentioned, obviously the transactions that have happened have not been in areas where you operate.
I just wondered what your thought processes are given the liquidity requirements that you'll have over the sort of coming months, around, obviously, a peer has sold a couple of portfolios, one in a very structured deal and one of a newer set of assets, both implying relatively large discounts to loss book values. Just wonder what your thought processes were around going down the more sort of structured disposal route, adding sweeteners in order to get liquidity into the portfolio to try to, you know, highlight a sort of headline, more attractive discount. Just wonder what your thought process were around that. Thank you.
At the current moment, I think we are not under pressure to do a structured transaction. We are having access to, and you heard it from Kathrin already, I think, debts in different ways, regardless whether we talk unsecured or secured debt. Therefore, liquidity is not an issue. Therefore, no, we have not looked closer into a structured deal at the current moment.
Thanks very much.
Thank you, Paul.
The next question is from the line of Andres Toome from Green Street. Please go ahead.
Hi, good morning. I had a couple of questions, and the first one is around your like-for-like rent growth. Just trying to understand those different components. Obviously, you have a big kicker from the cost rent component this year, which you didn't last year. Just looking at the each figure or rent table increases, they seem to be actually lower than you reported end of 2022. Just trying to understand why is that the case. Why aren't they coming in stronger if the actual rent tables are accelerating, as you've noted as well? Is it just a timing effect, and do you expect that to pick up into the latter half of the year?
Exactly, Andres, that's what we expect. It's a timing effect.
Okay. I guess if the cost rent component stays at 80 basis points, then like-for-like presumably should come in stronger than your guidance, presumably over 4%. I'm just wondering why haven't you increased your like-for-like rent guidance then?
We are just in May, and we. On the other hand, we reduced significantly our investments. We have to want to have a look how this plays out on the new letting rents, and, therefore, we are very conservative. You're right to see that the guidance we gave to the market is on the very conservative side.
Thank you. Then, just going back to the CapEx point that was discussed earlier as well. You're guiding about EUR 35 per square meter for this year. Just trying to understand, obviously in recent years, the spend has been higher than I guess would be warranted, or there's been an elevated modernization program in a way. What, what do you think, what is the level for sort of recurring CapEx per square meter after you dial back some of that elevated spend?
Well, for this year, we are very comfortable with the EUR 35, and you always have to take into account if we scale this back down further that this may have effect on the carbon reduction path and also on rent growth. We see there's some headrooms, and we have therefore the initiatives to follow the carbon reduction path with lower investments per square meter. It's very hard to give you here a precise figure as this has many, many effects on inflation side, on cost rising, on effect on the carbon reduction path and also on the rent. For the time being, we feel comfortable with EUR 35, but we have initiatives on hand to further reduce this figure for the coming years.
My third question is just around debt refinancing strategy, which sort of seems to have changed. Initially you were indicating that you might refinance the EUR 500 million bond in 2024 with another unsecured debt issue, potentially pretty early in 2023 already. That was part of the initial guidance as well, which was quite low versus the last year. Now that the strategy has changed and, you know, you have some cash proceeds, you've done some secured financing, isn't that positive for your guidance? And, how do you see that playing out?
Yeah. Perhaps we've been mistaken. Apologies for that, Andres, if there was the understanding that we replaced the unsecured by unsecured debt. Certainly, as always, we wanted to look at all the different options with regards to debt. I take the question, please don't be confused that Kathrin has just joined the board, therefore, answering questions with regards to the past might be difficult for her. That is something at least from our end. Therefore, the assumption we were taking certainly was a mixed financing with regards to unsecured and secured, therefore that has no impact on the AFFO guidance.
Okay. Final question, just coming back on the service income as well, and you had a bit of a kicker there from the biomass plant. I think also initial 2023 guidance, you said there's going to be windfall tax from that segment. Looking into the latter part of the year, what could we sort of assume for the services part or how much that tax could cut into that earnings potential there?
Andres, that's a very good question and there's very high unsecurity and uncertainty in particular on this tax and how this will cut into biomass plant revenues, and we are currently evaluating this and so it's quite hard to give you the precise outlook given the high uncertainty in the legislation that is surrounded by this fact.
Okay. Understood. Thank you very much.
Thanks, Andres.
The next question is from the line of Neeraj Kumar from Barclays. Please go ahead.
Good morning. I see you repaid around EUR 50 million of bank debt in Q1. Can you please provide some color on why, a, it was not sort of rolled over?
We paid this back because we used the cash that we didn't pay for that we didn't have to use for the dividend payment to deleverage a little bit. This is also why we could improve our unencumbered asset ratio from 165% to 170% for this Q1 now.
Got it. Thank you. Apologies for sort of repeat question, but just wanted to understand, are you willing to do whatever it takes to sort of preserve your credit rating, or if you're willing to accept the rating downgrade if the market environment doesn't change? What impact do you think it may have on your access to bond market and how you're thinking about your potential equity raise?
Yeah. Thanks a lot for the question, Neeraj. I think we came out with our Q1 numbers today. We gave you an indication of how big the headroom is before we hit any covenant with regards to our bonds. There is no clear covenant or hurdle rate with regards to any of the Moody's KPIs. Therefore, from our perspective, we are doing everything to run the company as shareholder positive as possible. Now looking into the situation or scenarios with regards to value declines, having that impact and what we are going to do that, I think it's not the right way of discussing it.
If we want to discuss scenarios, very happy to take that offline, Neeraj, but, I think it's not the right point in time to do it today here.
All right. That's very helpful. Thank you.
The next question is in the line of Simon Stippig from Warburg Research. Please go ahead.
Hi, good morning. Thank you for taking my questions. First one would be in regard to the sold units, the high rise buildings. Are those the Hulk Towers?
Apologies?
The Hulk Towers, yes.
Yeah.
The Hulk Towers. They are, these are the Hulk Towers.
Okay, great. Thank you very much. Who were the buyers for the Hulk Towers and then also in the Siegen portfolio? Also in regard to the Siegen portfolio, could you please indicate the average net and place trend and also, what the square meter evaluations was?
Simon, so the buyers, we cannot disclose the names, but those are private buyers and sometimes smaller companies which are buying from us. As you've heard from us, I think it's, and look at the unit value, those are certainly at in higher yielding markets and are higher yielding products. Therefore, that is something which we are currently trading in the market. Therefore, multiples are certainly not in line with the higher yielding markets, if you want an indication for the prices being agreed there.
Okay. That also applies for the Siegen portfolio?
That would also, with regards to the Siegen portfolio, yes.
Okay, great. Thank you. The second question would be in regard to ARTAS synergies. You gave synergy indications when you purchased it. Are those synergies performing within your expectations? Could you quantify synergies you're seeing between the portfolios? Certainly also because your debt on that regard is so far fixed.
Simon, the synergies are in line with expectation and we are working hard to further streamline the entire organization and to streamline the effectiveness of the entire organization irrespective of the ARTAS portfolio.
Okay. Maybe what's next, with Q2 figures, would you give an update on? Could you then quantify it and give an update on more on with precise numbers? Would that be possible?
I think we will report the Q2 figures in line with our standard reporting.
Okay. Thank you.
There are no further questions at this time, and I hand back to Frank Kopfinger for closing comments.
Perfect, thank you. Thank you all for your questions. As always, should you have further questions, please do not hesitate and contact us. Otherwise, please note that our next scheduled reporting event is on August 10th, when we report our half year results. With this, we close the call, and we wish you all the best and hope to see you soon. Thank you and goodbye everybody.
Ladies and gentlemen, the conference is now concluded, and you may disconnect. Thank you very much for joining, and have a pleasant day. Goodbye.