Good morning, ladies and gentlemen, welcome to the TAG Immobilien AG conference call on the annual report 2019. At this time, all participants have been placed on a listen-only mode, and the floor will be open for questions following the presentation. Let me now turn the floor over to your host, Martin Thiel.
Yeah, many thanks and good morning all. Welcome to our full year 2019 conference call. Thanks for dialing in. As always, we will start with a presentation, which is available on our website, and that some of you already see via the webcast that we present to you. Of course, afterwards, as always, we have enough time for questions. Looking at the highlight slides for the financial year 2019. First of all, I think it's fair to say that we had a really good and strong fourth quarter on the operational side. This is shown by the vacancy development, which was definitely positive, with a reduction in the vacancy of the residential units of 40 basis points in the fourth quarter, so from 4.9% - 4.5%.
Looking at the total portfolio, the overall vacancy, that means including the commercial units that we have and including all the acquisitions that we made during the financial year 2019, vacancy was for the first time also below the 5% mark at 4.9%. Like-for-like rental growth at 1.9%, I would say more or less in line with the previous quarter. The total like-for-like rental growth, including the effects of vacancy reduction, was of course stronger. That was 2.4%. Good development in the full year for the FFO on the absolute amount and on a per share basis, a 10% increase year-over-year. Finally, we ended up at EUR 160.6 million, which was also above our guidance. Also good developments regarding the EPRA NAV and the LTV, both numbers strongly driven to the positive way, caused by the full year valuation by CBRE we had in the fourth quarter.
EPRA NAV now stands at EUR 20.45. The LTV is down to below 45%. Looking at a quick overview at acquisitions and disposals. On the acquisition side, we stated the 1,331 units that we, I think, already reported with the Q3. After balance sheet date, we already signed in January in Germany another portfolio, 431 units. I will come back to the acquisitions later, as well as to the disposals. We have basically two kinds of disposals this year. First of all, something that you know also from the last year, 568 non-core units were disposed. The closing of these non-core units will be, or was already in 2019, some of them in 2020. Basically, the task of non-core units is already done. We will also in the future have some non-core units disposed, but that's more an ongoing process.
What we reported, I think one and a half or even two years back, a larger amount of non-core units of around 2,000 units, that's now basically done. Secondly, this is perhaps something special for this financial year. We were very happy that we signed in December 2019, a contract for disposal of one of two joint ventures we have in a commercial project in Munich. Perhaps some of you remember this, a project that basically started in 2013, where we have done with the help of our joint venture partner, a development project. Something that is quite unusual for TAG, but has historical background. We were very happy that we signed now the first stage, the first of the two joint ventures, in December 2019. We cannot disclose the purchase price, so hopefully you understand that it's confidential.
Just looking at the net cash proceeds we expect from this commercial project, this will amount between EUR 55 million and EUR 60 million. That includes our TAG shareholder loans. Just to give you an indication, the amount of TAG shareholder loans are definitely the lower part of this total net cash proceeds. Closing will be expected at the end of financial year 2020, and the Stage 2 or the second joint venture, which is basically the building right next to the first building. We expect here that the disposal will take place perhaps end of next year or beginning of 2022, so also for the Stage 2, that should be a very positive effect. I'm on the next page. Quick look at the portfolio valuation that was done by CBRE again.
I would say similar positive results like we had in the first year or the first half of 2019. All in all, we ended up at a 8.6% annual uplift, and the valuation levels are now at EUR 1,000 / sq m, or to be more precise, EUR 1,030 / sq m and a 6.1 gross yield. On the financing structure, at this time, just a quick comment or something to point out, which is I think important. That's the new LTV target. We have reduced the LTV now with the help of valuation gains to 44.8%, and we think that definitely makes sense to adjust the LTV target accordingly. The new LTV target stands now at 45%. This is down from 50% as we had stood before. I already mentioned FFO was very positive in 2019, so EUR 5.6 million above our guidance, 10% increase year-on-year.
Very consequently, we also are adjusting, that means increasing the dividend for the financial year 2019. We have overfulfilled our guidance. The new dividend proposal to the AGM in May this year will be EUR 0.82 after the original planned EUR 0.80 for the financial year 2019. On Poland, you know that we have acquired all shares in Vantage Development already at the end of last year. The signing took place in November. On January 13th, also the closing took place, so now we are a full owner of Vantage Development. The company has, at the moment, a secure pipeline of 5,400 residential units.
When you remember the call that we had in November, at that time, we said, "Well, this is mainly concentrated or solely concentrated on Wroclaw." A second location, as planned, is already in the pipeline, and that's Poznan, where we have, in the meanwhile, approximately 1,000 units secured in transactions in the fourth quarter of 2019 or in the first weeks of 2020. Looking at the P&L, the income statement. Some comments on the main development. The increase in net rent year-on-year was up by four, or the rents were up 4.2%. That translates into an increase of EUR 12.8 million. Out of this 4.2%, 2.4% was due to our like-for-like rental growth. The rest is coming from portfolio acquisitions. Not all of the acquisitions in 2019 have already closed in 2019, so we expect something to come in 2020 as well.
The increase in net rental income is even stronger than the increase in net rent. We consider to be this a very good sign. Especially, it's remarkable that we have a little bit lower maintenance costs in 2019 compared to 2018. That's nearly EUR 1 million lower maintenance cost that we have. Therefore, the improved net rental income should be definitely a positive outcome. Also, the increase in net income from services was very positive, EUR 3.3 million up. That shows that our service business, which mainly refers to caretaker services, multi-media and energy service, is in a very good way. I think I have to explain the development in other operating income. Here we have a reduction of EUR 4 million, but other operating income is, to a very large effect, driven by one-off effects.
Perhaps remember that we had last year a larger reversal of a provision for real estate transfer tax risks. We made this provision originally in 2017, now this whole risk is time-barred, the records reverse the provision in full, but the remaining amount in 2019 was lower than in 2018. This is the main difference. If you adjust this for one-off items, I think the other operating income level is on a stable level. Looking at the net financial results, the net financial result is reduced by more than EUR 20 million quarter-on-quarter, this is definitely also the very largest part, a non-cash effect. At the end of the fourth quarter, we had again the fair value valuation of the equity option of our convertible bond, that caused a non-cash expense of EUR 29 million.
Looking at the net financial result, which is relevant for the FFO, so really the cash result, it was stable quarter-over-quarter. If you compare the years 2019 with 2018, with an improvement in this net financial result by EUR 9 million. The income tax in financial year 2019 was higher than in the previous year, but this increase mainly refers to deferred taxes. Looking at the, perhaps more interesting, cash taxes. Yes, also we had an increase by EUR 3 million, but looking at the income tax rate, so based on the pre-tax FFO, it is still at a very moderate level at 4% after 3% in 2018. I'm on the next slide. Quick look on the development in EBITDA, FFO, and AFFO in detail. The EBITDA margin stays basically on the same level.
I already mentioned that the FFO development was very positive with a 10% increase year on year, driven by the EUR 8.3 million higher EBITDA and improved net financial results by EUR 9 million. This had an opposing effect, or we had an opposing effect with EUR 3.2 million cash taxes. Not only the FFO increased, also the AFFO improved by 6%, so an AFFO improvement year on year by EUR 5.5 million. Yes, we had higher CapEx in 2019 compared to 2018. I think looking at the split of the CapEx, it's remarkable and positive that this higher CapEx is not driven by capitalized maintenance. It's really driven by modernization CapEx. I will come back to this a little bit later when looking at the different regions. Summarizing investments at already this stage, the maintenance was even a little bit lower than the prior year.
Capitalized maintenance, a little bit lower than in the prior year. What has driven the increased investment, not massively, but higher than the year before, is really the modernization CapEx. On the next slide, the balance sheet. I think there's nothing really special to mention here except perhaps one position I want to explain shortly. You see in a separate line item in the current assets, the prepayment on business combination EUR 131 million. That's the total transaction price that we paid for Vantage Development. Splitting this total component, the picture that is as follows: we paid EUR 131 million to the sellers and EUR 46 million were directly repaid to us for the disposal of the commercial segment of Vantage Development. The net price for the acquisition was EUR 55 million. That's the number that you remember from the call in November last year.
On the next slide, the development of EPRA NAV is shown. A strong increase year-over-year by 18%. If you exclude the dividend payment of EUR 0.75 that we made during the year, the NAV growth was even 22%. Of course, this was mainly driven by the portfolio valuation. The effect on a per share basis by the very positive valuation result was already EUR 3 per share. On the next slide, a quick look on the financial structure. I think it's still important to point out that we have ongoing refinancing potential. We have already materially reduced our average cost of debt, which stands now at 1.7%. There are still more than EUR 300 million of bank loans maturing in the next two years, this year and then the years 2021 and 2022.
Looking at the average coupons of these bank loans, there is still close to 3% per annum. Every bank loan we are today refinancing brings us further interest cost savings. On the next page, you see more details, the development of cost of debt and the LTV. Perhaps just something importantly to add to the development of cost of debt. This 1.7% cost of debt is based on a maturity of still more than seven years, so 7.4 years exactly, and is based on nearly 99% fixed rates. LTV, I already commented that now for the first time below 45% and we said always in the past, while delivering on that with the help of valuation gains is for us economically something different compared, for example, to really repaying debt.
You know that we look on the financial side much more from a cash flow perspective, from a perspective of maturities and of fixed rates. Therefore, for us, it was very natural to reduce the LTV target now to 45% and that should ensure everyone that we will continue the financial policy, which was from our point of view, very reliable, very conservative as well, also in the future. On the next slide you see the development in the, for us, very important financial metrics like the ICR, like the net financial debt to EBITDA. I think not so many company are reporting this figure, but we think it makes sense to show it, the net financial debt in euro per square meter, which still stands at a very moderate EUR 460 /sq m .
Let's move on to the slide that shows rental growth and CapEx allocation. I already said 1.9% was the like-for-like rental growth without vacancy reduction. Including vacancy reduction, 2.4%. The split of this like-for-like rental growth was also very comparable to the developments we showed in the previous quarter. Still the largest part is coming from rent increases for existing tenants and from tenant turnover and only a very small part, 10 basis points. That's, I think, unchanged during the last quarters from modernization programs for existing tenants. Looking at the total investment behind, you see an increase year on year from formerly EUR 19.2 /sq m now to EUR 20.40. That's not a massive increase and it really includes immediately everything. Total maintenance, total CapEx is included in that number.
Perhaps to explain this EUR 20.4 /sq m number a little bit more, if you look at the maintenance and CapEx split by region, you see that 20% of the total maintenance and CapEx went to the Chemnitz region. You have in the appendix a table with the detailed breakdown, maintenance and CapEx by region. If you add up the number for Chemnitz, this was EUR 45 /sq m . Really for our normal numbers, an exceptional high investment, but which paid off. In the Chemnitz region, we had a reduction in vacancy rates of nearly 200 basis points with 3% like-for-like rental growth in Chemnitz. Therefore, this modernization programs that we started also to a large extent already in the first half of 2019, really showed their success. Therefore, these high investments were from our point more than justified.
Still to summarize that, we think that with a total investment of around EUR 20 /sq m achieving 2.4% like-for-like rental growth, this is still a very good number. On the next slide, you see an overview of the vacancy reduction for the financial year 2019 and the years before, ending up with 4.5% vacancy rate in the residential units. That means on a like-for-like basis is something that, of course, was very positive for us. Therefore, you can see that, of course, let's say reduction in basis points is not any more the 100, 150 basis points in the years before. That's clear because the vacancy rates are now on a low level, but still there's potential to improve that.
Looking at the portfolio valuation, we think that the numbers are definitely positive. They were absolutely in line with the first half of 2019 with the financial year 2018. Percentage-wise, it's very clear now the annual uplift with 8.6% is a little bit lower than last year with 10.1%. If you look at the absolute numbers, comparing the different years, EUR 430 million to EUR 414 million. It's basically in line, and it shows that the trend is still there, the positive trend of valuation that we see in the market. Looking at the overall levels, we are now at 6.1% gross yield. That's the in-place yield based on the current rent. That includes also the nearly 5% vacancy rate that we have on the portfolio. That translates into EUR 1,030 per sq m.
That should be definitely also a level of further valuation gains are something that one should actually expect. Of course, for us at that stage, it's not really possible to estimate any valuation gains for the financial year 2020. Perhaps percentage-wise, even 2019, you should expect a reduced number. That the general trend in our portfolio is still very positive. That should be out of doubt. Coming to the acquisitions of financial year 2019. I already mentioned that we acquired after the balance sheet date another 430 units in Saxony-Anhalt. In the full financial year 2019, we acquired 1,300 units. We're very pleased with the multiples or the gross yields that were the basis for these acquisitions. For the 2019 acquisitions, all in all, the average gross yield was 8.3%, based on the current vacancy rate of on average 11%.
That was the definitely positive outcome of our acquisitions in 2019 that we were still able to acquire at attractive yields. We cannot disclose the exact purchase price, the exact yield for new acquisition 2020. I think a comment is fair that you should assume that it's similar to what we have acquired in 2019. Looking into acquisitions for 2020, that means looking into our pipeline. I think this 8.3% gross yield is something that you should not expect for the full year, that should move more towards, let's say, 7% or 7.5%. Just to make this clear, in line basically with the positive trend that we have on the valuation side.
Of course, another effect is that we see slightly increasing prices or increasing prices also in our markets, which is then a good news for the portfolio, but acquisitions then are a little bit more pricey. Still the 7% gross yield, if this would be the case for the full year 2020, would be definitely something which is very positive. On the next slide, you see the disposals. 568 non-core units that we disposed. It's important to mention that these are really non-core units. That means non-core in the sense of construction quality that is a little bit poorer or especially locations where we think perhaps today it's okay to operate there, but in the future, that means in the next 5 to 10 years, we have our doubts whether this is really something very successful.
Therefore, this explains the 8.3% gross yield, which was the basis for the selling price and the 19% vacancy rate. In this case, from our point of view, this 19% is something which is not contrary to the acquisitions that we made last year and are still potential. Coming towards the end of the presentation, some words on Poland. Just summarizing again the key transaction terms. We acquired all shares, so 100% in Vantage Development. Vantage Development, a very successful developer based in Wroclaw. That's also the city where the main pipeline of the company currently is. I already mentioned that our net consideration amounts to EUR 85 million. This was effectively, economically the purchase price that we paid. I can tell you that we also acquired the cash, which is in the balance sheet.
If you deduct the cash position from the year-end balance sheet, which was around EUR 36 million, leaving out any cash from the commercial property segment. That's a kind of really paid purchase price in an economic sense, was more around EUR 50 million. Therefore, we considered this price as definitely very attractive. The transaction closed at the middle of January. On the 13th of January, that was very much planned. We're very happy and very proud that the team is absolutely full in place and highly motivated. Vantage has currently a platform of approximately 100 employees, and all of them are still on board.
All of them are very much looking forward from our point of view to work with us on a basically new business model because we wanted to change at least the largest part of the business model of Vantage from a residential for sale model to a residential for rent model. You see a quick overview regarding the pipeline of Vantage Development. For now, it is exactly 4,400 units based in Wroclaw. If you compare that with the 5,300 units that we communicated at the signing date, the difference of approximately 900 apartments is simply the number of apartments that Vantage now handed over in the fourth quarter to customers. Therefore, it is now 4,400 units in Wroclaw and new, an additional 1,000 units in Poznan secured for our renting business in the fourth quarter of 2019 or in the first quarter of 2020.
As we already told in our conference call in November, that Poland is really a midterm project. Therefore, 2020 will be a year where we see earnings from disposals of Vantage, and the first rents will be collected towards the end of 2021. Our midterm target is still unchanged, and we are very optimistic and very positive that this can be fulfilled to have in next 3-5 years between 8,000 and 10,000 units in Poland. As you see the numbers, what we think are quite attractive gross yields and quite attractive margins. We will provide you with more details on our plans in Poland with the Q1 figures. Now after the closing, we are really working with the management team of Vantage on a more detailed plan, especially on a split between residential for sale and residential for rent apartments upon the timing of rents.
Therefore, our plan is when we publish the Q1 figures on May 14th, to provide you with a guidance for the year 2020 for Vantage, which is then basically a disposal result and perhaps that is even more relevant for the years 2021 onwards with a guidance, what kind of rent levels one could expect from the current pipeline and perhaps from projects under negotiations, so that it is perhaps easier for you also to put it in a model. Finally, we have already announced that we are doing our capital markets day in Wroclaw on May 26th, so that is then nearly two weeks or those two weeks after the publishment of the Q1 figures.
Perhaps it's interesting for you to go there to have a better understanding of the business that we're doing there and to get more insights from the, what we think, very promising residential for rent market in Poland. Finally, some concluding remarks on our guidance for the financial year 2020, which for now stands or is unchanged. The FFO guidance is still at EUR 168 million - EUR 170 million, and the dividend guidance still stands at EUR 0.87 per share. It's now, I think it's clear after we had really a good fourth quarter as well, the guidance for 2020 should look very much doable. Therefore, we are very optimistic regarding our numbers for 2020. That's it from my side. Thank you so far for listening, and of course, now we're very much open to take your questions.
Ladies and gentlemen, if you would like to ask a question, please press nine, followed by the star key on your telephone keypad. If you wish to withdraw your question, please press nine and star again. Please press nine star now to state your question. It looks like we have the first question here from Kai Klose, who is calling from Berenberg. Over to you.
Yes. Hey, good morning. I've got two questions on the annual report. First of all, on page 128 regarding the earnings contribution from services. We had a margin expansion of around 150 basis points. Is this still because of the fact that it's in a bit of a build up phase, or is this further efficiency gains to be expected from this segment also here in 2020? Second question would be on the personal expenses that's stated on page 129. Of course, we had higher costs for caretakers and craftsmen, but also the employees in operations went up as per the admin by 16%. Also here, the question, is this now a level which you expect to sustain or were there any one-off or the special items in the last year which were the reasons for the uptick in costs? The last question would be on the portfolio split.
Here in the presentation on page 29, we have the regional split of maintenance CapEx, could you indicate that after the high amount or the higher amount of CapEx spent in Chemnitz, say, in the new region in Germany, where you intend to ramp up the full investments to a similar level as it was in Chemnitz last year?
Okay. Thank you, Kai, for the questions. Perhaps I'll start with the last one. What perhaps the main focus for 2020 regarding CapEx. Still Chemnitz, of course, will be a region where we invest more. Perhaps not that massively as we've done that last year. That was clear. Another region where we will definitely invest more is the Berlin region. You know that this region is at the moment very promising. If you look in our presentation in the appendix, we show the like-for-like rental growth numbers of the Berlin region. For example, in 2019, we achieved a total like-for-like rental growth of more than 4.1%, out of which 3.2% were also the like-for-like rental growth without vacancy reduction. Therefore, we are investing here more, but the idea of this more CapEx in the Berlin region is definitely also to reduce vacancy.
If you remember our Brandenburg/Havel portfolio, there we still have high vacancy rates, and this is especially a place or location where we will invest more. You should perhaps for 2020 expect lower CapEx in the Chemnitz region, but more CapEx in the Berlin region. I would say overall, perhaps a similar level across the regions than we had in 2019. Looking at the development of personal expenses, there is nothing that you should have in mind for 2020 regarding a strong increase. The increase in personal expenses is then, as I said, on the one side driven by the extended service business because we show the personal cost for the service business, not in the line item for the service expenses, but in the personal expenses, as long as it refers to salaries. You should also not expect a stronger increase in administrative costs.
What we expect, for example, for increases in salaries in total is perhaps something at around 3%, just to give you an indication. What we have planned for the financial year 2019 is perhaps some more bonus payments for some of our employees. Therefore, it's a little bit increased towards the year end, but I think there's nothing really trend-wise, looking at it, that should be taken into account when looking at future results. Regarding the margins of the service business, yes, margin improvement is definitely there. Looking into the future, I think the next steps are here a little bit smaller. The big jump in income from services, in results from services, was between 2017 and 2018. Now we are really continuously doing this, but you should assume perhaps a similar margin for 2020 like in 2019.
Thank you. The next question comes from Sander Bunck, who's calling from Barclays. Over to you.
Hi, good morning, everyone. Two questions from my side. The first one is on your values and how currently the discussion with the valuers are going. Appreciate you don't want to necessarily comment on what you expect for potentially 2020, but more to get a bit of a flavor of in your discussions, how are valuers currently looking at the general residential climate in the sense of potential regulation? Do you think they're getting more cautious and as a result are potentially more reluctant to push through yield compression? Are they saying, in particularly in your case, given that your portfolio is still relatively conservatively valued and there has been probably less regulation impact in your regions, it is not really an issue. That's the first one. The second one is on potential further acquisitions.
Now, obviously, you've shifted slightly your investment profile probably going forward into Poland. Is there opportunity to be a bit more aggressive in your acquisitions in Germany, especially where LTV currently sits with share price rating? Are there potentially any opportunities there, particularly with units with higher vacancy where you can basically increase vacancy through CapEx? Thank you.
Thank you, Sander, for the questions. Starting with the valuation question. The question was more or less what is perhaps the impact of potential regulations within our region in the valuation. My impression is that this whole topic is completely left out in the current valuation. For example, for us, this was nothing really material. The real burden portfolio that we have, which is a little bit more than 300 units, there was not a write down on this portfolio. This was simply valued. I don't know the exact increase, but I would say more or less like in the previous quarters. Simply the argument from our valuers was here that what they observe on the market are still stable or even slightly growing transaction prices. Of course, coming from smaller disposals they observe on the market.
They say as long as we not really have evidence that, for example, any regulation really reduces prices and continue like in the past. Therefore, especially in our regions, there was not any influence on regulation risks regarding valuation, and also not to the contrary, because you can, of course, argue, well, should not our regions, especially, for example, the Berlin commutable benefit from any increased risks in the city of Berlin. This was not the case. I know there's a big discussion around that, and for good reason, a big discussion about regulation risk. Looking at results from valuers, our impression was that this had no impact on the valuation in 2019. If you want some more, that's really a formal valuation, but it's observable really in concrete prices on the market. So far, we have seen no reaction.
Whether this changes in 2020, that is difficult to predict. I think for our regions, you can be sure that these would be, from our point of view, perhaps the least affected one if regulation really would spread out of Berlin. Regarding your question to acquisitions. Yes, if you want, we are a little bit more aggressive. I tried to point you to that direction a little bit when I commented on the pipeline for 2020, that also gross yields of 7%, perhaps even a little bit lower, of course, depending on the individual acquisitions are for us something that could make sense. With our lower cost of capital too. That means lower cost of equity and lower cost of debt.
Yes, that's clear, something that we have to accept, that we need to go in price levels that are a little bit higher than what we paid in the past. One thing should be made clear at this stage, very clear. We will not pay any price, you see, just to grow externally. We will be disciplined, but discipline today means that perhaps even a gross yield of 7% or lower is something that we will accept.
Great. Thank you so much.
Thank you. The next question we have comes from Georg Kanders calling from Bankhaus Lampe. Over to you.
Good morning. This suits perfectly, because I just wonder, is there anything more concrete you have seen in the pipeline that you are talking about these yields? When you are suggesting that it's a little bit lower than the 8% last year. I think you're thinking about further additions in the course of the year.
I will comment as I've done in the previous quarter, because it's really hard to say, well, now we have a very concrete pipeline where we are close to signing because this is simply not the reality today. I would say yes, there's clear pipeline and we are optimistic on that. It's, I think, very natural for us that we frequently have processes, that we frequently are bidding for portfolios. Looking at our offers, they are more in the direction that I pointed out that perhaps a 8% gross yield for the acquisitions in 2019 is, of course, something that we would like to see, but more realistic is a number towards the 7%. Again, it's hard for us to predict an exact number. For example, when we talk next time in May, what we can communicate on new acquisitions.
Thank you.
Thank you. The next question comes from Thomas Neuhold, who is calling from Kepler Cheuvreux. Over to you.
Good morning. I have a couple of questions. Firstly, on the strategy, especially in Poland, I understand that you want to provide more details after Q1 results, but I was wondering if you can elaborate a little bit what could happen in Poland after you have reached this targeted 8,000 to 10,000 units, could you add more units for Poland? And what do you think is the maximum exposure in terms of total football exposure you want to have in Poland in the long run?
And then also in terms of strategy, if the Polish business works out well and you can develop an experience, do you think it's possible you might consider adding development activities also in your German activities, or do you think that the yields are not attractive enough in Germany to take the risk to go into development in Germany? And then I have to [countercredit].
Thank you, Thomas, for that question. Looking at our plans in Poland, I would say it's definitely a lot of work to build up now the residential for rent pipeline of 8,000 to 10,000 units. As I said, this looks all very promising and we're very positive on this market. Why is that? We think that Poland definitely has a housing shortage in the sense of growing cities and on the other side, a lot of older apartments, a lot of older housing blocks that simply need to be replaced. Therefore, this product that we will, together with our colleagues from Vantage, offer to the market, newly constructed apartments in large city. We are convinced that this will have a definitely growing market. It needs to be done, it needs to be constructed.
Therefore we say this is a midterm target, the next three to five years. That would translate into 10% of our total units, assuming, just simplifying that a little bit, we keep the German portfolio as it is. In terms of rent, in terms of cash flows, it would be even more as the per square meter rent in our portfolio in Poland, as we're talking about newly constructed apartments, will be higher. You should expect more rent leverage in EUR 10 - EUR 11 /sq m . That would mean we have perhaps 15%-20% already of our total rent in Poland when we achieve this, let's say, 10,000 units. We will simply decide based on what we see in Poland, how well developed the business.
One thing is clear, we will definitely be a company with the main focus on Germany. You should not expect that TAG now shifts into a company who is heavily investing across Europe or is changing its main focus from Germany to Poland, because we simply believe in the German market, and we see this from our numbers that works very well. Of course, the question is, as we have bought or acquired a developer in Poland, is this a business model that we think is applicable in Germany as well? Here the answer is clear no. Why is that? If you compare the gross yields that we are expecting from our business in Poland with gross yields in Germany, you see a material difference. We talk here of gross yields of 7% or even more.
In large cities in Poland, we're newly constructing apartments. That's definitely a huge difference compared to Germany. It's not only, let's say, the final cost is different, it's also the whole way how projects are handled. The duration of project cycles that's in Poland, as far as we have seen now, definitely that's half the time than in Germany. Therefore, we consider that the definitely higher development risk that's also there in Poland is very much justified by a foreseeable project cycle and attractive returns, where both of them we not really see in Germany.
Understood. The two minor questions I have is on cash taxes. You mentioned that they went up from 3% - 4%. Can you give us an outlook how cash taxes could develop in the next years? Maybe you can also give an indication what kind of spot financing costs you would or could currently face for reasonable maturities.
For 2020, you should expect cash taxes on a similar level like we had this year. Looking into the midterm, that's always difficult to predict. The tax rate in relation to the pre-tax FFO should definitely stay in a single-digit number. Currently, we are around 4% and if we look into our assumptions, again, for tax, that's always not that easy. We end up in the next three to five years more towards 8%, 9% as a tax rate in relation to pre-tax FFO. Just a typical indication. The second question that you have was on? Sorry.
F inancing costs.
Financing costs, sorry. Currently, when we discuss with our banks, margins for 10-year bank loans were at around 100 to 110 basis points. At the 10-year, mid-swap rate is currently negative by 10, 15 basis points. Financing of around 1% for a 10-year bank loan is perhaps a good estimate.
Okay. Thank you very much.
There are no further questions at this time. If anybody else would like to ask a question, please press nine and star now. That was nine star on your telephone keypad, please. Mr. Thiel, there are no further questions at this time.
Okay. Thank you very much to all of you for listening to our call and for your questions. As always, if there's anything left, please feel free to ask the IR team or myself personally. Looking very much forward to meeting you at the next roadshow and then perhaps on our capital markets day in May in Wroclaw or with the Q1 conference call. Thank you very much and have a good day.