Hello, ladies and gentlemen. Welcome to the TAG Immobilien AG publication of interim report Q1 2023. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. Let me now turn the floor over to your host, Martin Thiel.
Many thanks and good morning, everyone. This is Martin from TAG. Many thanks for joining our call for the Q1 2023 results. Before we go with more details into the results that we've published this morning, please allow me to make some comments on the ad hoc announcement that we have released yesterday evening. I'm sure you've seen this. Within the ad hoc announcement, it was stated that Rolf Elgeti will leave the supervisory board after our AGM on May 16th, so effectively next Tuesday. This is of course, something we regret very much as I've been working with Rolf for a long time, and as Rolf did a really incredibly good job during his time as a CEO and later as a chairman of the supervisory board. We also have to respect his decision to withdraw from the supervisory board.
Please be sure this is purely for personal reasons, so this has nothing to do with us at TAG. That's the, for us, sad news. The good news is that Olaf Borkers is planned to become successor, so to become the new chairman of the supervisory board. Of course, Olaf stands as a candidate in the next AGM, so that means he needs to be elected in a first step. From our point of view, from the management board, this would be a very good candidate and a very good solution to replace Rolf. The supervisory board will of course, begin the search for a new supervisory board member, because now someone is missing within our 6 people men supervisory board immediately, and we will keep you, of course, updated in this regard.
Let's go into the Q1 results for 2023. I will start with page four, which is the highlight slide. FFO I in the first quarter of 2023 came up right at EUR 42.6 million. That's a reduction in comparison to the previous quarter, and also a reduction by 11% in comparison to the previous year, 2022. Main reason for that are higher financing costs. I will come back to this a little bit later. On the other side, FFO II saw a strong increase compared year-over-year by 12%. It is a reduction in comparison to the fourth quarter, please be aware that the fourth quarter is always a very strong one in terms of FFO II growth.
Within FFO II, we also have the sales results from our business in Poland, and typically the fourth quarter here is the quarter with the highest results. Therefore, not unusual that quarter-over-quarter it is a quite strong reduction. More representative is the comparison year-over-year, where we had a 12% increase. Not really any major changes in EPRA NTA and LTV, so more or less stable quarter-over-quarter. Good result in the operational performance in the German portfolio from our point of view. The like-for-like rental growth without vacants reduction effects was at 1.6%, including vacants reduction, 2.8%. Not unusual for the 1st quarter of the year, vacants rate saw a slight uptick by 20 basis points, so that's now 4.7%.
We know from the past year that always in the first quarter, a lot of people are moving, replacing them with new tenants takes some time. Traditionally, the first quarter is always a little bit weaker. We are very confident, and we see this already after the balance sheet date, that a further reduction in vacancy rates will be very safe for the remaining part of the year. Coming to disposals, I think this is an important part for today's announcement, we can report further progress on our disposal program in Germany. We have disposed and signed in the first quarter of 2023, 1,638 units at a total selling price of EUR 163 million.
There was a slight book loss of around EUR 4 million for this, for these disposals, and we sold on average at a gross yield of 4.7%. From the sales after repayment of related bank debt, we expect net cash proceeds of EUR 129 million, and we expect the closing of this transaction towards the end of the second quarter and in the course of the third quarter. Included in this sale is a sale of 1,350 apartments at cash proceeds from EUR 90 million, for which the buyer's financing has not yet been secured. That means the closing is outstanding, so as long as the financing is not secured, there's of course, a certain risk that this sale will not happen.
Part of this transaction is a purchase of 650 apartments from the same buyer, this purchase, so effectively a kind of asset swap that we're doing here with the buyer, will only take place if the sale of this 1,350 apartments is completed. Let's look at these transactions on a net basis. Total net cash proceeds from the signed disposals and from the acquisition on a net basis are around EUR 84 million, that leads to a net acquisition volume of around 1,000 units. After the balance sheet date, we've been quite active. We sold one commercial building and also 200 residential units. In this case, above book value regarding the commercial building because part of this commercial building was valued at cost.
For the 200 residential units, the purchase price was around book value. We expect here net cash proceeds, additional net cash proceeds of around EUR 46 million, and the closing of these transactions in the third quarter of 2023. Coming to the next slide, we touch a little bit the highlights for the first quarter from our business in Poland. We're disclosing with this financial results for the first time also an FFO I for the Polish business. FFO I came out slightly negative at EUR 300,000 as a loss. Please be aware, and I will come back to this a little bit later, that a lot of the apartments that we brought to the markets in Poland, were rented out within the first quarter.
We expect for the full year as planned an FFO I from Poland from EUR 4 million. As of today, meaning in the first quarter, rental income was still very low as we're still renting out these apartments. On the other side, we clearly have already financing costs on this, on this portfolio, nothing unusual. That's a development that we already expected. The net income from sales in Poland was already quite strong, EUR 8.8 million, especially positive was the number of sold units. We achieved nearly 1,000 units sold in the first quarter. We'll come back to this a little bit later, which was a very strong result compared to previous quarters. Coming to page number seven, where we show the details regarding EBITDA, FFO and AFFO.
As said here, you already find a split between the FFO I coming from Germany and the FFO I coming from Polish business. You see also the breakdown for the adjusted net income from sales in Poland, how we get to this figure. Just as a comment, in the appendix, you also find further details from the income statement, not only a split between Germany and Poland, but also a split within the Polish business when it comes to sales and when it comes to the rental business. Therefore, now beginning from 2023, as indicated, we're giving also more details on our Polish business when it comes to the split with rental business and sales business. Just commenting on the EBITDA for the rental business.
The EBITDA improved quarter-on-quarter. We had EUR 59 million as an EBITDA from the rental business in the first quarter compared to EUR 55.7 million in the fourth quarter. If we compare that with the first quarter of 2022, that was an almost stable EBITDA. That means when it comes to the FFO I reduction, that's really more as purely an impact from higher financing costs. Quarter-on-quarter, the financing costs increased by roughly EUR 3 million. This is nothing unusual. Remember our guidance where we already indicated a stronger increase in financing costs for roughly EUR 10 million for the full year. Clearly, what is weighing on the financing cost is also the interest rate for the bridge loan, which is on a floating rate basis.
As the Euribor has increased quite significantly in the last month, therefore, we are also paying higher interest costs on that. Therefore, it's also an economic target for us to repay the bridge loan as soon as possible. Page number eight shows the EPRA NTA calculation. As said, basically unchanged or a light increase in EPRA NTA due to our ongoing results. We did no portfolio valuation as always at the end of the first quarter, so the next full valuation will be carried out at the end of June 2023, again, as in the past years by CBRE. It's really difficult to give a guidance what we expect for this valuation. I can give you perhaps a rather broad range. A valuation loss between 5%-10% is something that we would expect.
If you take the middle of this range or something between 7% and 8%, it is really already reliable official guidance. No, this is not the case. As we see in the market, as we sell apartments currently with a certain discount between 5%-10% and generate some liquidity on this, on this level, we assume that also the valuation will follow such discounts in the course of the year. Is there already a possibility to give an outlook for the second half? That's perhaps even more difficult. What is quite sure is that in the second half, the increase in rents for us and also other market participants will clearly support valuations. Therefore, we are quite confident that perhaps this valuation decline is something that perhaps is softening already in the second half of 2023.
Again, let's wait for the final valuations, and we will, of course, update you with our half-year numbers. Page number nine shows the financing structure. Let me comment, first of all, on the maturities in financial year 2023. You see EUR 243 million in total, effectively, we're talking here when we look at upcoming maturities, about the EUR 125 million corporate bond that is maturing in the middle of June. We will repay this corporate bond from existing cash. There's no other or additional refinancing needed. Other maturities are rather small, like the EUR 25 million commercial paper that we extend on an ongoing basis. Small promissory notes of EUR 15 million in Germany, a small corporate bond in Poland of EUR 13 million. That will be repaid simply from existing cash and credit lines.
The EUR 65 million, that's the dark blue color that you see. These are RCFs, so revolving credit facilities we're using in Poland to finance the ongoing construction business. Effectively, this is nothing that will be repaid, so we always using that if we need to finance construction a little bit more. After that, in the course of the project, we receive customer prepayments. This is for us, economically, you know, not really a maturity. In essence, 2023 order maturities are already covered. There's no refinancing needed for that. Looking into 2024, clear the main maturity is the bridge loan, which is due at the latest in January 2024. It's indicated in the press release, it is our target to repay the bridge loan in the course of the third quarter.
How is this or will this be done? We discussed the net cash proceeds that we will achieve from disposals. If you add this up, what we have sold in the first quarter, what we have sold after the balance sheet date, you're already at around roughly EUR 130 million. We can also tell you that as a second component to repay the bridge loan, we're already working and quite intensively working on further mortgage secured bank loans in Germany. We have signed already term sheets that would enable us to repay this after once or second half of the bridge loan. Term sheets in the amount of around EUR 130 million-EUR 140 million are already signed.
Taking cash from the disposals, taking then this new cash from mortgage secured bank loans, would enable us to repay the bridge loan in the third quarter, and that's something that we expect. Does this then mean that we stop our disposal program after that immediately? No, this is not the case, but of course, then we've got a lot more freedom to look at the market, to be more opportunistic, to continue perhaps in smaller sizes, but it's definitely then a good achievement. Once we have repaid the bridge loan, there's no pressure on us to do larger disposals. That is more pure something to really look midterm about deleveraging and also to, yeah, perhaps continue to increase the liquidity position. Commenting shortly on slide number 11, that's a slide that shows like-for-like rental growth and the investments.
Again, a good development regarding total like-for-like rental growth with 2.8% commenting the total investments that you see on the top right of this page, that stand at EUR 23.4 per square meter on an annualized basis. This is as in the prior years, really everything, so that's maintenance and CapEx. This is basically on the same basis like in the previous year. The increase in comparison to the years before is due to more modernization CapEx for energetic modernizations. We are clearly already on the way to decarbonize our portfolio, and we will continue to do so also in the next quarters and years. Page number 12 shows the vacancy reduction in the German portfolio. Again, nothing unusual that we see a slight increase in the first quarter.
This 10, this 20 basis point increase is very much comparable to the increase that you've seen in the years before, and we will clearly be able to reduce vacancy in the coming months. Coming to Poland, I'm now on page number 15, which is a slide that we're presenting here. We have already discussed this outlook during our capital markets day in Warsaw. What we wanted to do here on this slide is to give you an idea how the Polish build to hold portfolio can develop in next years. Where are we now? We have completed, as of today, 2,100 units. Further, 1,236 units are under construction.
That means once the constructions are finished, we will have roughly 3,350 units on the market in the course of 2024. It is very clear for us, we will only start new construction activities for build to hold portfolios or build to hold units in Poland. Once, first of all, the refinancing on TLG level is done, as discussed, this is now very close to happen. Of course, only if the financing for such further builds to hold portfolios is secured. Let us give you two scenarios how we can do this and what's possible. The first scenario is a scenario where we simply only take the cash that we produce from our build to sell business, which we expect is between EUR 50 million-EUR 60 million surplus annually.
From the results from selling apartments, also taking account that at some point in time, we additionally need to buy further land banks to keep the build to sell operation going. If we take this EUR 50 million-EUR 60 million for annual surplus and take this cash to reinvest this into new build to hold projects, we would increase the portfolio in the next five years by roughly 3,250 units. That means we would end up with a portfolio in five years of 6,600 units. That's the first scenario. The second scenario, which is our clear target, is that we have additional growth by an external financing, whether this is coming locally in Poland, whether this is coming from TAG side of roughly EUR 100 million per annum.
From our point of view, really a realistic amount over the next five years. EUR 100 million debt financing on top of the surplus from the disposals between EUR 50 million-EUR 60 million. That would bring us within the next five years to a portfolio with a size of more than 10,000 units. Just to compare that with the German business, as you know, the per square meter rent in Poland is more than double the rent than in Germany. 10,000 units in Poland are the rental cash flow equivalent of more than 20,000 apartments in Germany. That means that would already bring us to really meaningful portfolio. We've given you also indications how our net actual rent would look like in this case.
In both scenarios, you see that the second scenario that I mentioned, we expect net actual rent in 2029 of around EUR 85 million. That's basically a rent that is based on today's rent levels in the different locations, plus a very moderate rent increase between 1%-4% per annum. We can also pencil in more rental growth as you see today, strong rental growth in Poland. To be more on the conservative side, we decided to go for this lower growth rate. EUR 85 million net actual rent, and we expect in this case that the EBITDA margin is around 80%. In case of the scenario 1, the smaller portfolio, that it would be, as already indicated in the past, at around 75%.
Effectively, we are able to grow the rental portfolio step by step once financing is secured with a large part supported from the ongoing cash flow from the build-to-sell portfolio. Also important to point out, without any external equity, and that's our clear target. Once the refinancings on TAG level are complete, and again, we are very close to that now to continue starting investments in Poland. It's up to us when we do the next residential rent projects. It's now very visible that this is not far away. Page 16 shows you even more details on the rental portfolio. We have now, I said, 2,100 apartments on the market. We divide this here in two sections. One section is the rental units that we have in operations for more than one year.
Here the like-for-like rental growth was 16% for the last 12 months. The rental units in operation for less than one year amount to 1,500 units. Please don't be afraid of a still high vacancy rate of around 42% because most of these apartments have really been finished at the end of the last year or within the first weeks of 2023. You will clearly see strongly dropping vacancy rates from our renting processes in the next month. Some of you have been attending our capital markets day also in Wroclaw, have seen the project. We are really convinced that we are offering here a very strong product to the market.
If you want for further information, you will find also a lot material, videos, some more data in our Capital Markets Day section, in the IR section on our homepage. Page 17, I make it short, shows you that in general in Poland, rents are growing quite strongly. We see here really good developments in the locations that we are investing in currently. Page 18 shows the development of sales numbers in 2022 and in the first quarter of 2023. We're very happy that the first quarter of 2023 was now the strongest quarter since basically five quarters. We sold nearly 1,000 units in the first quarter. Let me also say that this is before the new program for subsidized loans for first time buyers of apartments is starting in July 2023.
Clearly already the announcement of this program, which is now in place, already led to higher sales numbers, as a lot of people are expecting increasing sales prices in Poland. People that, for example, already had their financing in place or buy with equity, but decided to buy it right now before prices increase. Clearly this is a program that will be very supportive for the whole market and also for us. 1,000 units in 2023, a very good result. The, yeah, the, how should I say, worst times are clearly behind us. You see the reduced numbers in 2022. As of now, the business develops really strong. On page number 19, we give some details on a new joint venture that we have signed with an international institutional investor.
Signing of the joint venture contract was right after our capital markets day on the 28th of April. The joint venture targets investment for land acquisitions of $100. We have initial contribution of projects from our side in Warsaw and in the Tri-City. The co-investor, the joint venture partner, will contribute cash in the joint venture. That means that we also have the possibility to acquire further land banks from third parties for the joint venture. This will of course accelerate our pace of the growth of our business in Poland in the first step in the build to sell business.
As we generate cash from the build to sell business, again, cash that we, for example, can use not only for the land bank acquisitions for the build to sell business, but also for the build to hold business, as different. The stake of TAG and of the international investor is 50% each. It's a very simple real joint venture, so there's no structured financing or whatever behind it. It's really a 50/50 joint venture. The rationale for us is that this joint venture, as we transfer land bank into the joint venture and get the cash, releases equity for us. We get additional fees for services that we do for the joint venture, like the construction business and the sales activities that we do for the joint venture.
That's definitely a good step for us to grow the business in Poland. Final comment, page 21 shows the FFO I and FFO II guidance for financial year 2023. This is unchanged in comparison to what we have published last time. Therefore, I think it's not necessary to comment on that in more detail. That's it from my side. Already many thanks for listening, but I'm of course now very happy to take your questions.
Hello. 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 cancel your question, please press nine followed by the star key again. We have one question. The first question is from Societe Generale, Marios Panayiotou. Mr. Panayiotou, please ask your question.
Great. Thank you very much. Just checking you can hear me okay?
Yeah. Good morning, Marios. We can understand you very well.
Fantastic. Thank you very much. Just a few questions from my side. Maybe we go one by one. First of all, just on the portfolio valuation guidance, I understand this is fairly high level, and broadly in line with the messaging I think you gave at the full year. It looks like your disposals you're doing are tighter than this if I'm looking at it, especially the second quarter ones, the lower volume, 200 units, broadly in line with book value. I just wanted to check what I'm missing here because I believe you were also mentioning you were offering units at the 5%-10% discount. I'm just trying to square off where the gap is.
A good and valid question. Let me carefully comment like this. This total, especially after balance sheet date, was for us extremely positive one. Is this very representative? Perhaps not. We see, and that's more what I wanted to indicate or we wanted to indicate with our last announcement. If we are in discussions with potential buyers, to sell a book value is extremely difficult. Yes, from time to time that happens. The usual discount is perhaps something between 5% and 10%.
Okay, thank you. Just as a follow-up, the disposals agreed over the first quarter, what was the range of discounts offered on the various different deals or broadly on average as well?
This was really a broad range, I would say between selling at book value and selling to a 10%, but very slightly above discount. I would say on average, the guidance that we give that we're selling at a discount of 5%-10% still makes sense.
Very useful. Thank you. I suppose just as a secondary follow-up to that and referencing the high level guidance again, is this purely based on these disposals? Is it discussions you've had with your external valuers? How do you consider the timing of that? Is it something which is more over the year, or is that something which you're expecting really to come through in the first half?
Well, this is basically the outcome of both. What we see in the market, how we can dispose assets as of really still very preliminary discussions with CBRE. For them, it's of course incredibly difficult to find a precise figure. Therefore, this range that we give as an indication for a valuation reduction of 5%-10% is quite broad. Why are we a little bit confident that this is not more and also that in the second half of the year we will perhaps not see another 10%. We don't expect 10% in the first half, 10% in the second half. We clearly own higher yielding assets. Yeah.
We see this also when we sell our assets, we feel, and perhaps you can argue that's not really representative as we sell just smaller portfolios, but we see there is demand. If you sell an asset at a 5% or 6% gross yield, and the buyer needs to finance that with a 4% bank loan, it still makes sense for him. I'm not worried about really material valuation losses. Again, this range is very broad. It's an outcome of our observation as of, as, and also our first discussion with CBRE, but we have not really a, let's say, a final data point yet.
Very clear. Thank you. Just finally from my side, I'm just keen to understand this asset swap you've mentioned in more detail. Can you maybe give a bit of rationale here behind it? The kind of pricing that you've sold at versus what you've agreed to buy would be very useful.
First of all, it would be for us a good pricing. When I was commenting about disposals that were more at a 10% discount or more close to book value, this is clearly a disposal that is more to book value. Would we normally buy in transactions assets? No, this is not the case. We have effectively stopped our acquisitions in Germany. This is really a combination. We agreed on an asset swap. We are selling apartments to the buyer and get one portfolio in East Germany from him that fits very well into our structure. Also operationally, it makes sense. This was more or less the rationale behind it.
Thank you. Broadly, what you're selling in line with book, with this transaction, buying broadly in line with book, is that the way to take it?
Yeah. Yeah.
Okay. Very useful. Thank you very much.
Okay. Thank you very much. The next question is from Thomas Rothausler, Deutsche Bank. Please ask your question.
Hi. Morning, everybody. Actually, a question on the bridge loan, and the repayment, what you plan on this? I mean, if I listen to you, it seems like more or less done. Do you expect this to have positive impact on your rating, maybe? Also, what are the terms for the secured loans to replace the bridge loan? On the disposal, which is part of the bridge loan payment, it seems it's conditional on the final financing from the buyer side. Do you see any risk this not to happen?
Yeah. Good morning, Thomas. First of all, I wouldn't say that the repayment of the bridge loan is already done, but we're very confident that we will do this in the third quarter by as I've said. I mean, we have signed the disposals. Again, you have to wait for the closing, commenting on this disposal that we specifically mentioning. Yes, if the financing is not yet in place, then clearly there's a certain risk that this disposal could not happen. What would be the consequence of this? We get a certain contractual penalty, of course, and then we would simply put this portfolio or portfolios again on the market where we are convinced that we would find also another buyer for that at a reasonable price.
Therefore, there is then once the closing has not occurred, always a certain risk. Regarding the bank loans, we have signed term sheets. Normally, this is then something, I would say, technical that we also sign a contract. We are very confident that this happens. You know, we don't want to comment in the sense of that it's done unless the disposal really closed and really all bank contracts are signed. Further commenting on the bank loans, I mean, we had the last larger financing round last year in November. It was the same process. Term sheets were signed. Contracts were signed some weeks or months later on the same basis. We should not expect this year anything different. Terms for the bank loans.
For 10 years, we expect margins, I would say, between 120, 130 basis points. The swap rate for 10 years is currently around or slightly below 300 basis points. Still the indication that roughly a little bit about 4% for a 10-year bank loan is valid. This is not that much different to the financing conditions we achieved last year in November. That's also good news that not only the willingness of banks is still there to finance residential portfolio and also that from our banking partners to finance our portfolios. Also, the conditions have not really moved very much.
Okay. Thank you. Maybe a second question actually on Poland. I mean, you basically rely on this EUR 50 million-EUR 60 million free cash produced from the build to sell product in order to build up the build to hold product. I mean, how would you assess the risk this not to materialize? Also, what would be the financing terms for the business? In order to get you to the second scenario, including some elements of financing on top.
I mean, we have in Poland, and perhaps you've also got a certain impression from the capital markets day, a really good platform. This team that we have in place in Poland has been successfully working on the markets now for many, many years. What's the state of the market at the moment? It's clearly on a positive way. This year, 2022, was not easy for everyone, and still we achieved with our team a very good result in the last year. Now, sales numbers are increasing, and we have the assumption to produce this EUR 50 million-EUR 60 million cash surplus that we need to sell between 3,500 and 4,000 units in a year.
This is basically the run rate that we already have today. We sold, I said roughly 1,000 units in the first quarter. It's not an assumption or necessary to get to this cash surplus that we sell even more than today. Even today's sales number would be enough to produce this EUR 50 million-EUR 60 million cash flow. Therefore, I'm very confident that we get this cash. Coming to the financing part, EUR 100 million a year. That could be also achieved by mortgage secured financing on the assets that we have in Poland. Already the portfolio, even though it's under construction, has a GAV, the rental portfolio of more than EUR 200 million. This will grow further as we finish more apartments, as we will clearly see also some positive relation impact on that.
For example, if we just finance the portfolio as it is today on a 50% LTV, we would already get this EUR 100 million. What are the terms for that? I mean, if we do this on a zloty basis, it's still quite high. That's something at around 8%, 8.5%. If we do this on a euro basis, our discussions show there's perhaps more. It's little more than German financing, where we are currently at around 4%. It's perhaps more 5.5%-6%, to give an indication. Yes, clearly this is a higher financing rate, but don't forget that we have in Poland also high gross yields of 7% where we started, that we have a quite strong rental growth, lastly 16% year-on-year.
Even on these terms, we could produce significant cash inflows. Clearly, who knows, perhaps in one or two years we have even more interest cost reduction than the cash flow surplus would look even stronger.
Mm-hmm. Okay, just a quick follow-up actually on my first question and the potential rating impact if you could manage to pay back the bridge loan in Q3.
This is definitely a rating positive. If you asked us is this then a trigger for an upgrade, From Moody's, I would assume that this is still too early as they look, but they're not so much specifically at TAG, but clearly they are more careful with the German residential market. I would assume that they want also more clarity where values go. Also, therefore both ratings, this would be clearly something positive.
Okay. Thank you.
Thank you very much. The next question is from Thomas Neuhold, Kepler Cheuvreux. Mr. Neuhold, the floor is yours.
Good morning, everybody. Thanks for the presentation. I have three questions. Firstly, I was wondering on the JV in Poland, can you provide more details who the partner is and what exactly the JV conditions are in terms of how much new capital each partner needs to inject in the JV? If there are also any cash requirements for the JV concerned for TAG, or you are just injecting land plots in the JV, or do you also need to put cash in there? Maybe you can also talk a little bit about annual sales target in the JV and how it's going to be consolidated in the future.
Yeah. Good morning, Thomas. We will be able to disclose the JV partner quite soon. I think the JV partner himself will do the press release, perhaps not in the next days, but you should expect this in the course of May. We can also disclose the name, which is a very, I would say, good international investor. It's a typical JV, it's really 50/50. There are not any, you know, call, put options in between, nothing structures. The purpose of this JV is, if I try to describe it quite simply, that we put land banks into the JV. The co-investor puts cash into the JV, there are not any additional cash requirements from our side. We develop the projects together, which are ready-for-sale projects.
That takes them perhaps 3 years- 4 years. These projects are right now about to start with the sales activities and with the construction. At the end of the project, after 3 or 4 years for each project, we share the profits. Additionally, we get then, of course, as we do the whole construction work, as we do all the sales process, as we do all the administrative work, certain fees for this work. Therefore, our total share in the profit is done higher than the joint venture partner. Also for the joint venture partner, I assume that this is a good deal as they've discussed, the market in Poland is now clearly getting stronger. Also his returns will be very attractive.
Okay. Thank you very much. The next question comes from Rob Jones, BNP Paribas. The floor is yours.
Yeah. Great. Thanks so much. A couple of my questions have already been answered, but I just wanted to follow up on the point you were making around, you made a commentary around H2 valuations. I read into your comments, maybe rightly or wrongly, that perhaps H2 value decline from your expectation might be less than H1. I appreciate you're seeing a bit of an acceleration in rental growth, I wonder from an, from a, from an asset, acquire perspective to what extent that actually makes a difference and kind of what gives you the confidence to say that potentially the H2 value decline could be less than H1? That was my first question.
Yeah. Good morning, Rob.
Again, please understand that I'm very careful with giving here concrete guidance, but what we clearly see is increasing rent in Germany. If you look at the rents that you can observe if apartments are on the market are rented out. I'm also sure that we see higher rent increases from the Mietspiegel. The valuers will also take this into account and also potential buyers of apartments will take this into account. Once perhaps this is more and more visible and, I mean, you know, at the moment everyone's a little bit looking into the crystal ball, thinking about exact outcome of rent increases and lease breaks this year. Once this is more clear, this will have an value increasing impact. On the other side, it's very clear.
I mean, the higher interest rates have a very reduction impact. I assume that perhaps a little bit more this value reaction impact is already there. Whereas this more positive impact from the, from the rental increase has a certain time lag. Again, that's an argumentation that we think is reasonable. Do we have really specific evidence for that? No, that's not the case.
Okay, understood. Slightly linked to that, again, around asset values. You were talking about the fact that your higher yielding portfolio, certainly relative to some of the other companies that I cover, you believe to be more resilient. But when I think about large reported value declines and indeed looking forward over, say, H1, it looks to me like you could potentially end up delivering the weakest H1 like movement in asset values despite the fact that your port is higher yielding. I guess, am I wrong in that thought process or why should I kind of have more confidence in the resilience of your asset values, I guess, relative to maybe other listed real estate companies in the general sector?
Yeah. Rob, sorry. That was a little bit difficult to understand. Can you once repeat why you think that we have perhaps the weakest valuation results?
If we
Why?
Because you're implicitly guiding to values down maybe 7%-8% in H1.
Uh-huh.
The rest of the sector is probably gonna be down 4%-5%.
Okay.
despite the fact they've got lower yielding portfolios.
Yeah. Okay, now I understand the question. There could be also, you know, I should say other types of guiding. More optimistic, more conservative. It's of course, not possible for me to comment on other companies. We feel more comfortable to have this valuation outlook guidance, if you want to call it so, a little bit more on the conservative side.
Then the final one is n't a different topic, which is with Rolf Elgeti leaving, which I saw yesterday. Do you expect any changes to the management board or do you not have a view at this stage?
No. This is not planned. I can definitely state this for me or for my colleague, but clearly this isn't something or this is always a decision of the Supervisory Board. Do we expect anything in this regard? That's not the case, but please understand that now this is really then a process where we have after the AGM then not completely new Supervisory Board members. Clearly they will also discuss mid to long term how will the Management Board look like. This is nothing that was discussed in the last days that I can clearly tell you.
Very clear. Thank you very much.
The next question comes from Paul May, Barclays. Mr. May, the floor is yours.
Hi, Ryan. Probably just standing in for Céline, giving multiple results today. A few questions from me. On the disposals that you've done and then the acquisitions. Appreciate there was a question earlier, but I don't think it was fully answered. Can you give any guide to the yield or the multiples on those disposals and the acquisition or the asset swap? Secondly on that, appreciate disposals in line with book values. As we know, your book values can change over time, and they can change to differing degrees. What would be the sales prices relative to peak values of those assets? If you are able to give that would be great. I've got a few other questions as well afterwards. Thank you.
Good morning, Paul. When we comment on selling at discount or at book value, we always refer to the book value at the last book value, which is December. That means if you compare it with the peak of this beginning of 2022, it is 5%-10% lower already. There has been, you know, already in our books a certain valuation decline from the valuation result. I would say that we if we talk about selling at a discount to 5%-10% to current book value, there's perhaps already a discount of 10%-15%.
That's in some cases or even slightly more to the all-time high, which was perhaps at the beginning of 2022 or perhaps more the end of 2021. Just to give you an indication where we stand right now. We disclosed that the average gross yield for the portfolios that we have sold in the first quarter was 4.7%. We've not yet disclosed the gross yield for the 650 apartments that we potentially buy. You should expect here nothing which is very different to our portfolio yield, which stands at a little bit above 5% currently.
Cool. Great stuff. Just on the valuation changes and just following slightly on from Rob's question, you mentioned different approaches to guiding, I think was the response. The sense we've had is you've always been a little bit more on the realistic or conservative side, should we say, with regard to valuations, I think wanting to get the transaction market open and working again. Is there a risk that you could be potentially too cautious? Do you think that maybe the 15%-20% from peak declines feels about the right sort of level to get transactions, you know, moving again in a sort of sustainable way?
Yeah. Again, just to make clear, I'm not commenting on if a guidance from other companies are correct or not. I just would like to express that a guidance between 5% and 10% for valuation loss in the first half is something where we feel quite safe. That's the way we like to guide the markets. You can also argue that this is a little bit more conservative. Yes, I mean, we see in the market, once we give these discounts as discussed, and the discounts are already more compared to the all-time high in 2021, we create at least some liquidity. Therefore we feel comfortable with this guidance.
The range is broad, so, 5% and 10%, that's clearly different, but difficult to be more specific. If the market clears up more early, if we've been too cautious, I don't see this yet, but if we are too cautious, clearly we will be happy about this.
Okay. Thank you. Sorry, I just wanna follow up on the asset swap. It's down to financing being secured. Do you have any, should we say, guarantees or are there any penalties paid by the opposing party if they aren't able to secure financing or is it just the transaction gets canceled?
No, there is a penalty. I cannot disclose the amount, but there is a penalty agreed.
Okay. Thank you. Sorry, very last one. noticed a small increase in vacancy, and I appreciate it's small quarter-on-quarter and things can move around, but it seems slightly counter to what we've seen over the last 12 months in terms of vacancy reduction across the board and the operating environment where we understand, you know, there's far more demand than there is supply of housing. just wondered is that anything to read into or is it just simply a rounding error and a small change in the 1st quarter? Thank you.
Yeah. I would clearly say, Paul, there's nothing to read into. Also, you know, we're not, how should I say, doing this very granularly that we sort out, for example, one or the other modernization projects where we have them for a certain time, naturally more vacancy because we are modernizing the full apartment block. Also this has some impact. We're not reading something into that. You should not see here a change in any fundamental trends. As discussed, this is something that we observed always in the first quarter in the last years. We'll be on track in the second quarter and as in the past years, even more on the third and the fourth quarter.
Cool. Thank you. There's a very last one coming from a client. Appreciate the JV on the build to sell in Poland. It, it actually should start to accelerate that part of the market. The, the build to hold or the build to rent, how do you plan on investing in there? 'Cause I think from the capital markets day, the returns on that seem very, very attractive as well, but, you know, capital is a constraint, and I just wondered what your thoughts are around where you get that capital from. Thank you.
I mean, we've given today with the presentation, these two scenarios. One scenario is really, as I said, scenario without any external financing. This is really a bare case. Nothing is available. We only have the cash flow from our build to sell business, which is quite strong. We would end up at the 6,600 units that we have mentioned, in five years. We think a realistic amount for taking on additional debt is this EUR 100 million that can then be also debt that we raise on our projects in Poland. We're not talking here about a situation where we need to issue bonds or any larger unsecured instruments, which is effectively not possible today, and that's also not possible in next quarters.
More the idea behind this is to finance already finished projects, mortgage secured, and I gave also an indication what interest rates maybe, and this seems for us a realistic target. Therefore this 10,000 units in the next five years is nothing, how should I say it, unrealistic, but something that we can really achieve and that we want to achieve.
Perfect. Thank you very much.
Mr. Elgeti, there are no further questions in the queue.
Good. Many thanks from our side for dialing in and listening to the call. As always, if there are further questions, please feel free to contact our IR team or myself. Many thanks for listening and looking forward to seeing and speaking to you soon again.
The conference is no longer being recorded.