Ladies and gentlemen, thank you for standing by. Welcome. Thank you for joining the Vonovia SE Interim Results 6 months 2023 Analyst and Investor Call. Throughout today's recorded presentation, all participants are in listen-only mode. The presentation will be followed by a question and answer session, and if you'd like to ask a question, you may do so by pressing star followed by 1 on your telephone keypad. Please press star followed by 0 if you need operator assistance. I would now like to turn the conference over to Rene. Please go ahead.
Thank you, Emma, welcome everybody to our earnings call for the first half of 2023. Your hosts today are once again CEO Rolf Buch and CFO Philip Grosse. I assume you've all had a chance to download today's presentation. In case you have not, you'll find it, as always, on our website under Latest Publications. Rolf and Philip will now present the results and also give a general business update. We're looking forward to your questions afterwards. With that, let me hand over to Rolf.
Thank you, Rene. Welcome to all of you. I start, as always, with the highlights, this time on page 4. First, cash flow, financing, and disposal, which is probably in the moment, the most important. Our 2023 financial maturities are fully covered, and we only have EUR 100 million less to be covered for 2024. This will be relevant only in December 2024, when an EUR 870 million, EUR 870 million in bonds matures, so almost a year and a half to go. We will continue to generate liquidity through disposals, not just for the end of 2024, but also start turning our intention to the 2025 financial maturities. On financing, Philip and the team has been making good progress with the seamless rollover of all bank debts at this point, plus EUR 1.4 billion of new secured and unsecured loans.
You can see that bank loans are available to us, and we make use of them to manage our upcoming maturities. Speaking of liability management, our attempt to buy back bonds was successful as we bought back EUR 1 billion nominal value for less than EUR 900 million cash. What was remarkable to us was how low the offered volume was. Only 11% of the outstanding bond volume was offered to us, and it is probably fair to argue that our bondholders are generally happy with the bonds they own. In terms of disposal, the Apollo transaction has closed as expected, and we now also have determined a value for the call option, which was EUR 359 million as of Q2.
We feel that this was a great transaction to do, we are looking to repeat something similar and have now identified a portfolio in Northern Germany that is very comparable in size to the Südewo portfolio. We will continue our sales effort at full speed to generate free cash as disposals remain our top priority. Second, which was probably in the past, the most important, operating and financial performance. Our largest segment, by far, rental, continues to perform really well. We delivered a rental EBITDA growth of 7.8% year-on-year, which is not surprising if you look at the key metrics. Rents are accelerating, vacancy rates are ultra-low, and people are paying their rent in full. Our other segments are more impacted by the overall market environment, with higher cost of capital and little transaction volume.
Q2 was not much easier than Q1. For the first six months, we are still down compared to 2022. All of this translated into an adjusted EBITDA total decline of 4.8%. Group FFO was 9.5 below the prior year. Third highlight, portfolio valuation. We did a full valuation of our residential portfolio as of the end of Q2. It resulted in a value decline of EUR 2.7 billion for the second quarter. Combined with EUR 3.4 billion in the first quarter, we have seen a value loss of EUR 6.1 billion or 6.6% on a like-for-like basis.
While it is too early to make a call on the second half, we are seeing some encouraging first signs in part of the market that could bring some stabilization in the second half of the year. Fourth, update on investigation. When we mandated Hengeler Mueller and Deloitte with a comprehensive investigation, we promised to you that we would update the market as we go along. Most of the forensic analysis is now completed, and millions of emails have been scanned. While there are more emails to be reviewed and interviews to be made, the assessment so far confirms three important points: the financial impact seems to be immaterial, there is no indication so far that other parts of the business are impacted, and probably the most important, there is no finding so far about the negative consequence for our tenants.
Again, this is not the final outcome, but this is an intermediate information for you. With this, I hand over to Philip.
Thank you, Rolf, and also a very warm welcome from my side. Let's move to page five, and here, as Rolf said-
We had a very good first half year in our rental segment. Rental growth, occupancy, and rent collection keep going very strong, and that is supported by very good cost control. H1 2023 rental EBITDA was significantly better than H1 last year. What is more, the second quarter this year was better than the first, so there's also good momentum. For 90% of our business, we had a very good first six months. Unfortunately, the other segments all fell short of the prior year period. In the current environment, this is somewhat expected because we are investing less, and that hurts, that hurts in the Value-add segment, and disposals, as Ross said, remain challenging, which makes things more difficult in the Recurring Sales and in the Development segments.
All segments combined delivered an adjusted EBITDA total that was down 4.8% and driven by higher financing expenses. The Group FFO was down 9.5% compared to last year or 11.9% on a per share basis. Let's quickly run through the different segments and start with rental on page 6. While the portfolio was marginally smaller than in H1 last year, rental revenue was up 2.3%. On the expense side, maintenance was well under control, with -3.8%, and the synergies from Deutsche Wohnen transaction helped us to cut operating expenses significantly by more than 17%. As we showed in the full year 2002 presentation, we target just short of EUR 90 million synergies in the running year, and we are slightly ahead of schedule at half year.
The synergies were also the main driver behind pushing the EBITDA operations margin of our German portfolio to almost 81%. On to some of the key operating figures that is on page 7. Year-on-year, organic rent growth in H1 was at 3.5%, you can see how the market-driven rent growth has been accelerated and will continue according to our expectation to further accelerate. This underlines our view that market rents are picking up, even though this is happening at a moderate pace due to the regulation we are having in Germany. We have added the fluctuation rate to this page because it's relevant in the context of rent growth from reletting, unfortunately, the direction of travel is not in our favor, impacting the speed at which we can capture the rental upside.
The fluctuation in H1 annualized was 7.7%, down more than a percentage point from the prior year. As a side note, it was about 11% at the time of the IPO. The flip side of the coin is our low vacancy rate at 2.2%, unchanged compared to last year, and also unsurprising, I would add, as the imbalance between supply and demand keeps shifting even more in our favor, as we are the ones who are having the supply. Rent collection remains extremely high. We also view this as a great indicator for affordability. To be clear, these numbers include not just the net cold rent, but also all ancillary costs, including energy costs. Finally, maintenance. You can see how we have been managing capitalized maintenance, in particular downward, and have been able to manage liquidity.
Moving on to page 8, the EBITDA from Value-add. H1 fell short of our expectations. While there was some revenue growth in our external Value-add business, the segment result was negatively impacted by our reduced investment volume, as well as higher cost for energy and material. On page 9, for Recurring Sales, you can see that the fair value step-up in this segment remains very high, more than 45%, the challenge in the first six months was the volume. We did sell a bit more in Q2 than in Q1, the overall volume was still low. 628 units, to be precise, was about half the amount we had sold in H1 last year. It was adding around EUR 116 million liquidity to our balance sheet.
On this page, what I also want to point out is that we have also sold 650 non-core units at slightly above EUR 100 million, and that at a fair value step-up of slightly above 9%. Finally, the development segment on page 10. Development continues to be an attractive business. Gross margins clearly in positive territory, but here too, the volumes were lower than last year. The comparison is further distorted by the fact that H1 2022 included a large and very profitable global exit in Austria. Don't be confused by the increase in the Development to hold contribution in the first 6 months. The project nature of development makes the numbers a bit more volatile.
As you can see on the lower left-hand side, we have been shifting more projects towards Development to sell in line with our revised capital allocation policy. Including the loan to Quarterback, we have roughly EUR 3.6 billion deployed in Development to sell, that is less than 4% of the balance sheet. We estimate an investment volume of EUR 800 million until the end of 2025 to complete the entire Development to sell projects that have already been started. Our general position remains: we do not intend to commit additional capital for new projects, and expect the Development to sell business to recycle its inventory and operate as a self-financing entity. Much for segment results. Let's now turn to page 11 for our H1 valuation. This valuation update includes our entire residential portfolio.
After a EUR 3.4 billion value loss in Q1, we saw another EUR 2.7 billion loss in Q2, for an aggregate fair value decline of EUR 6.1 billion, or 6.6% on a like-for-like basis. If you look into the P&L, you will see EUR 6.4 billion loss from fair value measurement of our portfolio, and the difference, of course, is around EUR 300 million investments we have undertaken year to date. This puts the portfolio now at a slightly below 26 times net cold rent multiplier, or 3.9% gross yield on the in-place rent. If we applied a market rent, the yield would be quite a bit higher, of course.
The discount rate, if you look at the details in H1, was 4.9%, i.e., around the current financing rate, and the cap rate was 3%. On a per square meter basis, which we think is a very relevant metric for our product, we are now at a fair value of EUR 2,415 for the German portfolio, and there is a 30% discount versus condominiums and a 55% discount versus new builds. Given the steep discount of our shares, and that is on page 12, the NTA is maybe a bit less of a focal point for some of you, but of course, a relevant KPI nonetheless. After the first six months, 2023, the NTA per share is down 13.6% to slightly below EUR 50.
The main drivers were, of course, the valuation result and the 2022 dividend, which was somewhat compensated by the equity contribution from the Apollo transaction, including the value of the call option Rolf was mentioning earlier. Page 13 is the standard page on our debt structure as of the end of H1. There is one number in particular that I would like to point out. Our average interest rate is 1.6% as of June, compared to 1.5% at the end of December. Unsurprisingly, this number is increasing, but I think it's worth mentioning that it is increasing less rapidly than most people anticipate. Far, at least, we have been able to manage it pretty well.
As a side note, over the last 2 months or so, our risk spreads in the unsecured corporate bond market have closed some of the gap to the average spread of issuers with a comparable rating in other sectors. Here, too, we are starting to see first signs of normalization, as our sector risk premium has been coming down a bit from very elevated levels. The tables on page 14 show the debt KPIs as reported, as reported as per the end of H1.
If we account on a pro forma basis for the bond buyback we did in July and the disposal to CBRE, for which most of the closing is still to come later this year, then the LTV was at 46.8%, ICR at 4.8 times, and the net debt-to-EBITDA was 16 times based on the average debt of the last 12 months and 15.7 times on a spot basis. On page 15, we want to show you the progress we have been making on the financing side. Here, in addition to rolling over EUR 800 million across 9 loans as planned, we have also signed EUR 1.4 billion in new loans, both secured and unsecured. That at average rates below 4%, which I think is a very good result.
Speaking of unsecured loans, there seems to be a bit of confusion on our capacity under the unencumbrance covenant. The threshold here is 125%, and that is calculated as unencumbered assets over unsecured debt. As of June 30 this year, that ratio was at 149%, so quite, quite some buffer. Now, first of all, we are not looking to be very clear to increase the overall debt amount. To the contrary, we want to delever the balance sheet. New secured debt will replace unsecured debt as a consequence. Second, the average LTV for secured debt is around 50%. Finally, the debt we roll over has a much lower LTV, given the capital appreciation over the past 10 years, and this provides additional headroom when we roll over debt.
When you put all this together, there's more than EUR 9 billion of headroom currently. This is, to be very clear, of course, a very theoretical number, as it is based on the current valuation and an amount we would not, we would not get even close to tapping in full. I'm not saying we will use much of it, but I'm saying that it gives us quite a bit of flexibility. Page 16 is a, is a summary in a bit more detail of our liability management exercise we did in July. You can see the individual results per bond across the 17 bonds for which we have, for which we have tendered on the lower half of the page.
Summary is, we were only offered 11% of the volume for which we tendered, investors are holding onto these bonds quite tightly. Second, we bought back EUR 1 billion of nominal bond volume for slightly less than EUR 900 million in cash. Here the focus clearly was more on the short-term bonds, where we bought back all EUR 694 million that were tendered. On the longer maturities, we took a balanced approach and only paid what I consider an acceptable premium. We bought EUR 308 million out of the EUR 550 million that had been offered and achieved a 20% average discount. With that, back to Rolf.
Thank you, Philip Grosse. Page 17 is an update to illustrate the progress we have been making in term of managing our near-term financial liabilities. We have fully covered all of our 2023 refinancing needs and have EUR 100 million to go for 2024. There's no unsecured refinancing to manage until December 2024, when an EUR 870 million bond comes due, the door really is most clearly covered. Against this background, we are now increasingly focusing on the 2025 maturities. The roadmap for generating the necessary liquidity is clear through our different sales buckets. First, we have the non-core portfolio, which we are looking to sell because they have no strategic relevance for us, or we believe that we are not the right owners.
This includes our residential non-core assets and our commercials assets, with an aggregate value of EUR 1.6 billion. It also includes EUR 5.4 billion of low-yielding multifamily homes, where we believe that there are better owners because we have added most of the value and what we can add through our platform and the investments we have made. There is the EUR 1.1 billion nursing portfolio of Deutsche Wohnen, where we continue to support the disposal efforts to add acceptable new terms. We understand that a more granular disposal process is now also a possibility, and we are very supportive for this option as well. Second, we have the core portfolio. This is the asset pool that we want to own in the long run and where we can add value with our organization.
Having said this, this is a portfolio from which we are prepared to carve, carve out joint venture opportunities. It is where Südewo came from and where we identified the new joint venture portfolio in Northern Germany. In my various conversations with municipalities, we are also negotiating about assets from this core portfolio because this is what the municipality wants to have. When I say core portfolio, this gives you an indication that when it comes to any potential price elasticity in this portfolio, our reference point is always the fair value. When we think about disposals, one key question for the transaction market is, of course, the direction of values. To be clear, we don't claim to know. It is simply too early to make a prediction.
While there are plenty of doomsday scenarios about the direction of values, we think it is interesting to see that there are also quite a few positive voices, which are less pessimistic. On page 18, we have collected some of them. They paint a picture that is much less pessimistic. It looks as if there might be first signs of stabilization, as market participants are increasingly adjusting to the new environment, as rental growth accelerates to help the yield equation. We will see how the H2 pans out, but you know where we stand in the debate. Housing is more than an investment vehicle. The ownership structure in Germany, the tax regime, the solid and long-term financing, and above all, the supply and demand imbalance, all have a very stabilizing effect to cushion the blow from the higher interest rates.
Make no mistakes, we are not saying that we are out of the woods or that we should do less in our efforts to improve our leverage. Opposite is the case. We know that we have to put more, and we have to do everything to chase all our sales channel to move our debt KPIs comfortable in our target range. When we put all this together, the value losses we have seen up to now, the disposals plan we have, the financial maturity profile, the various views on fair values and the transaction market ahead, and the general need to exercise caution in this crisis, and when we then think about what does this mean for us, it gives us a pretty good framework on what we should do and should not do.
On page 20, which we entitled by intention, "Carefully negotiating through the crisis," we try to lay out this for you. In line of the 10% value decline we have now recorded since H1 2022, we have updated our worst-case scenario that we have shared with you in our full year 2022 results. We did it this time from a different angle. We ask ourselves, how much fair value headroom do we have on the 60% LTV bond covenants? In other words, what is our maximum buffer before we run aground? The measures we have taken, primarily the Südewo joint venture and the CBRE disposal, has helped to largely mitigate the impact from the value decline, and as a result, the current fair value headroom against the LTV covenant is roughly 25%.
Make no mistake, we can never, ever allow for this buffer to be fully utilized. It is obviously that we do have a larger cushion. 2. Transaction volume remains low for now, and uncertainty around values remains, in spite of first indications of a positive market stabilization in H2. At the same time, the past 12 months have clearly confirmed our view: values do not fall off a cliff in Germany. Value declines happen gradually. Does anyone seriously fear the value will fall by anywhere near 25% by the year end? That would equally a peak through of around 35%. The accelerating rental growth, which Philip has mentioned from here on, is a counter effect and at least a cushion against further value declines.
Against this background, it is rather clear to us what we should and what we should not do. One, we continue carefully monitor and manage all relevant debt KPIs with an unwavering commitment to bring them back towards the lower end of the respective target range, as described before. This is a long way of discipline to go. Second, we remain laser focused on all our disposal efforts to generate cash in time to deliver. It is not about less efforts, it is all about even increasing our efforts, if possible. Three, we have sufficient headroom to act from a position of strength. We are not forced to take drastic measures that would be detrimental to the long-term nature of our business and, or destroy long-term shareholder value. This is to Philip, who gives you the guidance.
Thank you. Let's move to page 20. As you can see, we have now quantified the range for organic rent growth, 3.6%-3.9%. This is a good step up from 2022. Even more so when you remember that the contribution from market rent growth is higher in 2023, while the investment-driven rent growth is expected to be lower. I will not guide on the individual drivers, but I will repeat what we have been saying before. We think that there's a good chance that the market-driven rent growth of 1% last year will be about twice as high this year. One additional driver for this number will be fluctuation. Here, as said before, we are facing some headwinds on tenant fluctuation as this is coming down further and further.
We show the evolution in detail on page 32 in the appendix, but we are now well below 8%, which is a record low and clearly a reflection of the lack of available apartments. Supply-demand imbalance has two sides for us. The rest of the guidance is unchanged, with the exception of Recurring Sales, where we have suspended our guidance for both volume and fair value step-up. To be clear, we are not surrendering in this segment by any means, but it's merely a reflection of the lack of visibility at this point. At the end of the day, while more is better, the disposal efforts in our other sales, sales channels, as Rolf said, are more relevant to move the needle. What counts is the cash that comes in, not the number of individual apartments. We are counting euros, not bricks.
Make no mistake, we are very, very focused on executing on our disposal program and are fully committed to delever or to deliver the cash we need to delever. Before I hand back to Rolf for a quick wrap, wrap up, let me give you an update on the investigation on page 21. Rolf already highlighted some of the key financings, some of the, the, the key messages. As a reminder, you know that our offices were searched by the authorities back in March. They were acting on the suspicion of potential problematic activities in the awarding of contracts to subcontractors in the context of our heating systems. To remind you, Vonovia is an injured party, not the defendant. Here we immediately reacted.
We immediately instructed Hengeler Mueller and Deloitte to run an independent investigation, as we have the greatest interest in a swift and comprehensive clarification of the allegations. This investigation is far advanced by now. The forensic analysis covers a comprehensive set of data, including several millions of emails and hundreds of business processes. The investigation continues in the third quarter and will also include individual interviews. While, as Rolf said, it's too early to discuss final results, there are three very important points I want to reiterate. First, financial impact is not material, with less than 1% of the order volume affected and fraudulent action realistically being only a fraction of that. Second, other business activities outside our heating business activities are not impacted. Third, there are no findings about negative consequences for our tenants.
We will, of course, report in detail once the investigations have been fully completed. With that, back to Rolf for the closing remarks.
My wrap-up can be short. Rents are accelerating, vacancy remains low, and rental payments are being fully collected. Our cooperations remain a very strong foundation of our business. We enjoy super healthy operating fundamentals that are increasingly supported by the two megatrends: supply-demand imbalance in urban area and the decarbonization of real estate. On the capital structure side, we have now covered all financial maturities except of EUR 100 million, which are relevant only in December 2024. We remain 100% committed, and I hope you have got the impression, to our disposal targets, including our efforts to execute another joint venture transaction to address the 25 financial maturities and optimize our balance sheet. First sign of stabilization could provide a more positive backdrop for H2.
The fair value headroom allows us to continue to react from a position of strength instead of short-term actions that would be detrimental to the long-term nature of our business and/or destroy long-term shareholder values. We are committed to our shareholders. Thank you very much.
Okay, that concludes the presentation. We'll move to Q&A, and I'm going to hand it back to Emma to instruct for Q&A, please.
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 telephone keypad. If you wish to remove yourself from the question queue, please press star, then two. As a reminder, if you'd like to ask a question, please press star, followed by one at this time. One moment for the first question, please. First question is from the line of Marc Mozzi with Bank of America. Please go ahead.
Thank you, thank you. Very good afternoon, all. Thank you for this very strong presentation. Can you remind me how much secured or unsecured debt you've been able to issue in H1 only and Q2 only this year? Because some of the credit line you indicate on your slide seems to be from the year 2022, if I'm correct. Just, just wanted to clarify what has been done in 23 and precisely in Q2 23. That will be my first question.
Mark, the, the, the short answer, that is all year to date. That is all 2023, with the exception of the unsecured loan with the European Investment Bank, which has been concluded late last year.
Okay. The only exception. Okay, that was-
The only exception.
Thank you. The other question will be on your on the JVs targeting. What can you what can you say about it? It would be structured the same way that you've structured the the JV with Südewo? Let's put it the other way around. What sort of internal rates, returns, or returns, simply, investors you were discussing with are looking at?
Mark, in winter, we consider the Südewo transaction as a very good transaction in the interest of our shareholders. That's why we have decided, and you know, it is not easy because you need the right frame. We have decided to do a second time, and we are now have decided for a portfolio. We know exactly what we have to offer to a potential partner, and it is too early to give you indications about the potential negotiations we have. Our approach is a comparable size than Südewo, and our opinion is that as a Südewo transaction was in the interest of the shareholders. I don't want to give you targets and all these others because this would be interfering in an ongoing negotiations, and this is not in the interest of the shareholders.
Thank you. A final one, just a technical one. Can you remind us what is the composition of the line called consolidation in your P&L, which seems to have moved quite significantly from a very negative number last year to something very minimal this year? What has been the reason for that move?
I mean, what in the consolidation number happens is that the EBITDA, which is recorded, but intra-company profitability, if you will, we are, we are taking out when moving to FFO. What is essentially embedded here, the profitability we achieve with our craftsman organization, point one, and point two, the profitability in the Development to hold business.
Thank you very much. I appreciate your answer. Thank you.
Next question is from the line of Bart Gysens with Morgan Stanley. Please go ahead.
Yeah, hi. Thank you. I have a question around slide 20, your guidance. I think it's been helpful that you've fine-tuned that guidance and made it more clear, you know, suspended some guidance, made it, you know, also the rental growth guidance, you've been more specific. If you've revisited this guidance now, you've kept the dividend guidance, right? You're still guiding to 70% payout on recurring earnings, which is doubling of the payout ratio in 2023. Is this honestly still the working assumption? If you're really serious about deleveraging, why not go to a zero dividend? Thank you.
Look, our, our, our dividend policy is, is our dividend policy, that is 70, 70% of Group FFO, where there has been no change in guidance. I think if you look at our numbers, H1, we are on a very good path to achieve that guidance. Ultimately, and that is always, always a qualifier, if you will, the decision on what we suggest to the AGM is not taken now, it's taken early next year. As Rolf explained in very much detail, our continuous effort is and remains on deleveraging, and we have many, many projects up and running, which will hopefully contribute to achieve that goal anytime soon.
Okay. Thank you.
Next question is from the line of Andres Toome with Green Street. Please go ahead.
Hi, good afternoon. I had a couple of questions. Firstly, maybe starting with the Swedish portfolio. Just wondering, and appreciate you can't give the details, but is, has there been any progress in setting up that JV on a very high level? Are you inching closer to a deal and sort of, what buyer groups are interested in that? You know, also just trying to understand from your perspective, doing a JV there versus selling 100% of the Swedish portfolio, how, how do you see that, and, and what's the sort of strategic merit to have any exposure to Sweden?
... so, you know that we are still committed to do a joint venture in Sweden. This is, of course, a different type of joint venture than what we are doing in Germany. The Swedish joint venture would offer a possibility for somebody who would actively co-manage. If this somebody would come to us and ask for majority of 100%, we would also definitely be ready to get into discussion about this. It's a joint venture. An original idea is to sell a minority stake, but I think we are talking here about questions which are not relevant in the moment. You know that there are other players in Sweden which have some problems.
So that's why in Sweden, in the moment, we consider that this is not the best moment to discuss about a party disposal or what you have mentioned, a full disposal. So that's why we should take the time and wait until the Swedish market has solved its issue, which I think will happen soon. The operations of the- and so to operations of the Swedish, as we have always said, we see a much stronger rental growth in Sweden because Sweden is reacting faster and more flexible to, to inflation. So that's why the operation is doing very well, so that's why we are not unhappy to have the Swedish activity.
Understood. Then, the Austrian portfolio as well, is, is that something you have considered? I mean, you haven't mentioned that, but also sort of a, a different angle than, than the German part.
The Austrian portfolio is the same picture, a very significant rental growth, double rental speeds than in Germany, from the head of my mind. Of course, the Austrian business is very much linked to the development business, because in Austria, we are operating a Development to hold, to sell business model. You build it, you keep it for a while, and then you sell it. This has something to do with the Austrian rental regulation. That's why, in the moment, this is more connected to the development business, and we consider that this business has an 80% margin if we are selling the apartments.
A potential buyer would have to bring a lot of money to the table because this is an embedded, hidden, hidden value in this business model.
Okay. My second question is just around the nursing homes. Could you perhaps shed a bit more color around the performance between the real estate and the operations? You know, big decline, obviously, in EBITDA, but how much of that is actually linked to the real estate side versus operations?
It's, it's... That is really on the operational side. We have first, the situation that if you compare H1 this year with H1 last year, there is some distortion in the numbers, because last year, there was still, in the operating business, some compensation as a result of COVID pandemic. Second, we have the situation in the operational business that we are facing fairly significant increases in HR and energy costs predominantly involved. That is typically a pass-through because over time, getting compensated by long-term care insurance, there's always a time lag in between the two. This is the second impact on the operational business of the nursing home. The third one is also related to HR topic, if you will.
There is a fixed quota on the number of qualified personnel you require for the beds which are being occupied. Given the lack of qualified people and the permanent search for personnel in this area, we have not been able, as by the way, many other market participants as well, to have sufficient personnel on board. That forced us to reduce our occupancy levels by roughly 5 percentage points. Those are the 3 drivers to the operational business, which is the reason for the year-on-year decline.
Understood. Thank you. My last question, just around Berlin. With the acquisition, you've made also promises not to increase rent much in Berlin until, I think it was until 2026. Just wondering how much reversion has been built up as a result of that, and starting from 2026, then, we've had also 23 new Mietspiegel, and there's gonna be another one in 2024. Do you see a sort of meaningful ramp-up then to in-place rent growth coming from Berlin?
First of all, your information is a little bit outdated. You know, I know that we have signed this offer to Berlin to have a limited rental regulation. After increase, after this, we have this agreement with the Bündnis für Berlin, with all other companies, which actually replace- the old offer which we made to Berlin, and there was a limit of rental growth for 2022 and 2023. This is much shorter, and it is much less than we have originally agreed on. In Berlin, in general, of course, you know that we have seen a Mietspiegel, a temporary Mietspiegel, as this year, which is not a qualified one. There will be a new qualified one coming next year in 2024. We have actually two Mietspiegel.
The non-qualified Mietspiegel gives an increase of 5.4%. You have a similar situation in Munich, for example, where during COVID, there was not able to do a qualified Mietspiegel, and later there comes the qualified Mietspiegel. I assume that the qualified Mietspiegel in Berlin will, which will come out next year, will show the reality of the Berlin market. First times after a year of rent cap, rent, rent stop and all these things, but we are not here to predict what the percentage outcome of this qualified Mietspiegel will be, but it will be a full qualified Mietspiegel according to the new laws of Germany. Much less manipulated than what we have seen in the past.
Just to sum it up then, 2024 should be a pretty big growth year for your Berlin portfolio?
Yes, plus we still, due to the regulation in Germany, especially in the Berlin portfolio, we have a lot of rent which are in the moment capped because, for example, about the 15% rule. This means that in the Berlin portfolio, even without the new one, there is a huge catch-up potential already in the portfolio, and this will become bigger with the new Mietspiegel.
Okay, thank you. That's it from my side.
As a reminder, it's star followed by one to ask a question. Next question is from the line of Paul May with Barclays. Please go ahead.
Hello, everyone. Thanks for taking my questions. Just wanted a couple of clarifying things, Link, as I go through. Just wanted to check the fees associated with the Südewo transaction. I think you mentioned most of the EUR 85 million. Just wanted to check how much of that EUR 85 million was, was the fees on that transaction. Also linked to that, the EUR 359 million option value that you'd recognized on the on that transaction. Is that... I presume that's on top of the equity you have received or the, or the sales proceeds. Is there then a qualifying negative on the other side in terms of the amount you would have to pay out as cash to buy back those assets, or is it just a one-sided positive? Just wanted to check. Thank you.
I've got a few others to follow after that.
Yeah. On the, on the fees, we, we checked separately, but by memory, the EUR 85 million one-off transaction fees, EUR 35 million of that is budgeted integration cost for Deutsche Wohnen. The remainder broadly is assigned to the Südewo transaction. That is not only fees for banks and lawyers, but also a structuring fee we paid to the Apollo team, who placed that with long-term insurance money. On the... Your question on the call option was to better understand how this is being recognized and how we derive at the value of EUR 360 million. Did I understand that correctly?
I suppose it's more 'cause the, the option value is, is the, the joys of the black box. It's more to say that you know, if you were to exercise the option value, it would cost you money. On the one hand, you've received money, you then value an option on top of that, but there is a negative to come with that if you were to buy back the portfolio, I assume. I just wondered, have you recognized the negative, or is that something for the future? Have you, have you just taken the positives today, basically, is the question.
I mean, you, you, you, you always, you always have to look at both sides of the equation, if you will. If you, if you look at today's balance sheet, on the asset side, we have accounted for two things. One is the EUR 1 billion of cash that we have received, and the second is the value of the call option of EUR 360 million, which we have accounted for as a financial asset. The corresponding amount, you will find on the liability side, in the equity of the liability side. Here, the split is that roughly EUR 760 million is in minorities.
That is essentially the 30% interest of the JV partner in the equity of the business. The remainder is a top-up, if you will, above the implied price of the equity of our participation, which we have accounted for in the other reserves. What will happen with the option is very easy. If things go according to plan in that we deliver on the business plan, which I think in real estate for a debt-free business, which the Züriwel joint venture is, is a realistic assumption.
Second, if discount rates do not change because the option value underlying is a comparison of different income streams, then over time, you will, you will see or you can expect to see that the value of the option is going to increase given the disproportionality of the dividend streams to the insurance partners. Again, I mean, it's always our discretion, our decision, whether or not to exercise that. You can see that today, the stake, the disposal of the stake has contributed very, very significant to very significantly to our equity.
Okay. just so I'm clear, apologies, the option accounting is, is not necessarily my forte, but just so I'm clear, if you were to exercise and buy back the 30% share, it would cost you... What, as of today, if you were to do it today, would it cost you EUR 1.4 billion, basically, to buy it back? So the EUR 1 billion initially and then, or the EUR 1.35, sorry, EUR 1.359 billion. Is that the right way to think about it, that you would have to pay up that amount to Apollo or not? Just to sort of... Just so I can get a sense in terms of going forward, how to think about this.
It's a, it's a, it's a theoretical assumption because there is a, there is a term to it. Essentially, what it's saying is that the value is the EUR 300 million at which we can buy back the equity stake, which forms part of the minorities of EUR 700 million. It's adding up to EUR 1 billion. Very simple.
Okay. Okay. I'll, I'll take your word for it that it's simple. Just secondly, as you mentioned earlier in the call around the EUR 6.1 billion like-for-like value difference versus the EUR 6.4 billion that's in the P&L, in terms of the value decline, and you said it was because you spent roughly EUR 300 million on the portfolio. I-is that spend then assume, basically lost money? So surely that is part of the value decline or not?
No, this is, this is why, this is why we, we, we like to show this on a, on a, on a basis including that modernization. No, that, that is precisely the modernization, which is generating additional yield. If you look at the composition of our like-for-like rental growth, part of that is market-driven, so we don't spend any euros. We just realize that by implementing the outcome of the rent index. The other portion is investment-driven, and this is precisely based on the EUR 300 million that we have spent.
Okay. I, I assumed that EUR 300 million would be at least worth something. Effectively, you're saying you spent EUR 300 million to get some rental growth, and that entire EUR 300 million has then been written off as a negative? Is that? Sorry, just trying to understand that.
No, no.
I thought modernization was a positive thing.
Yes. Yes, obviously, the, the EUR 300 million is capitalized. From an accounting perspective, it's capitalized because it has a value, and it increases the value of the underlying property. You cannot replace investments we undertake with the outcome of a valuation result. The valuation result is always to be seen net of investments. It's a, it's a, it's a mechanical thing. There's no, no secret behind it.
Okay. I, I, I suppose it's just as values are going down, it's more evident, I suppose. Is that, is that fair to say?
Not at all. It's a contradiction. Not at all. Let's, because this is, this is pure accounting, let's have that discussion if you, if you will, in a, in a, in a bit more detail bilaterally, but there's no secret. We capitalize the investments because they're yielding additional revenue, and the valuation result is always net of the investments we undertake. The, the, the point that we capitalize is the, is the proof that it has that value I was just mentioning. This is not any different this year than it has been for the past 5 years.
Okay. Cool. Last one, just on the, I suppose, high level in terms of, you mentioned around the stabilization or evidence of potential stabilization in the market, over H2. I think you highlighted a few comments, although some of them are still highlighting that, I think the Savills one mentioning, further yield expansion is probably needed from here, which in theory would imply some further value decline, depending on what happens with rent. I just wondered, in that context, why are you suspending your disposal target? You know, if the market is stabilizing, surely that would give you more confidence around your disposal target rather than, I assume, suspending it implies less confidence. Also, if you look at transaction volumes in the investment volumes, in terms of institutional, should we say, volumes, portfolio deals-...
They've gone down in Q2 versus Q1. I appreciate your sale of Südewo and the CBRE portfolio are a large proportion of both of those quarters, and would have an impact Q2 versus Q1. It, it would appear the kind of evidence in terms of what's actually happening is slightly different to what commentators are suggesting, in terms of transaction volumes. Just wondered what your thoughts were on that. Thank you.
First of all, because Philip had already said it in the guidance, let's give me a try a second time to explain you. We are fully committed, and I think I have said it, Philip have said it, to the cash generation in this year, what we have promised to you. We think that it is irrelevant where the cash comes from. Does it come from Recurring Sales or non-core or any other disposals which we are doing, for example, with municipalities? That's why in the historic, the only revenue from sales was mainly coming from the Recurring Sales because we had no other significant sales projects. That's why it makes no sense to focus only on this small figure, because the overall picture is much bigger.
We should have given you, but we haven't done it, an overall disposal, target, and probably we will target this probably next year. This would be then in the consequence. Targeting on only this part, and this is a relatively small part in the total disposal, would misguide us as well, because, for example, take the case, to achieve this target, we could make a package of individual assets and sell it to the market. Then we would probably lose some values because an alternative transaction would be more in favor in our business. That's why it just makes sense in the moment to not give you a target anymore, not to re-focus on, on the wrong, wrong thing.
We are focusing on delivering the cash we have promised in this quarter and in the last quarter and in our full year guidance for 2023. This will be delivered. Where this comes from is probably less relevant at the moment.
Okay, perfect.
And this is thinking, you had other questions, which I have forgotten. I'm sorry for this.
No, no, no, no. That was, that was all good. I was just going to say, I suppose the thing that is not the focus is the, is the step up on disposals. That, that's kind of the bit. Effectively, it's been suspended, but in terms of the total disposal volume is still there. Is that the way to think about it?
Yeah. Actually, to be very clear, and I think I have said it very clear, we are aware that we are not done. Huh. We have to get our leverage back. For this, the solution for this is to do disposals. That's why we are committed to deliver cash to get the leverage down. I repeat, our target is to go to the lower end of the leverage. We are at the moment above the higher end, so there is a long way to go. There's a long way of discipline to be delivered. This is what we are committed, and there we have something to deliver until the end of the year, and then we have something to deliver in 2024, and then we will see what the development of values and all the rest is going from there onwards.
This is what we are doing in the moment, independent if we are selling individual apartments or if we are selling blocks or if we are selling healthcare assets, this is probably the less relevant in the moment. It's cash generation to delever the company.
Okay, cool. Then just final one linked to that. I noticed the scrip issue price was at, I think, EUR 16.15, I think is the number. Why is that considered an attractive level of equity issuance versus other potential equity issuances?
We are not looking at it this way. It's the payment of a dividend and the option of the shareholder in shares, if they believe in the future performance of our business or cash, if they decide otherwise. You're not looking at the measurement of how we would finance through equity contribution, some, let's say, M&A transaction.
Okay. I mean, it, it's effectively the same thing. Back to, I suppose, Bart's question, that if you're committed to deleveraging and you're kind of issuing shares at levels, those levels, surely it makes sense to just not pay a dividend and to potentially issue equity at those levels. I mean, we can, we can debate that forever, but that would be.
Yeah, I can hear.
similar eventuality.
Yeah, I can only repeat what I said. This is, this is not the timing. It's, it's August 2022, sorry, August 2023. We are a bit more advanced, advanced, but it's not April 2024. A decision will be taken at the appropriate time. For now, we are very pleased and confident in a, our disposal successes we have achieved so far and I think are going to achieve. Second, the operational business as the numbers are clearly demonstrating in our core rental business are, are rock solid. I think not much more to say at this stage.
Perfect. Thank you very much.
Next question is from the line of Thomas Rothaeusler with Deutsche Bank. Please go ahead.
Hi, everybody. A couple of questions, actually. The first one is on the suspension of the Recurring Sales guide. Sorry to come back on that. Actually, in the first quarter, you still expected to dispose more than 3,000 units, which focus rather on liquidity than on sales margin. Maybe you can comment what has changed since then? What caused you to decide to suspend the guidance? Assuming no recovery of the sales activity in the second half, how can you compensate to stick to the full year earnings guidance?
Again, let's try me again. We have in difference to the past, in the past, we had actually one product, which we were selling this as apartments, which we call Recurring Sales. Now we have as I've mentioned, we have a lot of non-core assets, we have some core assets, and we have the Recurring Sales part where we can generate liquidity. Looking on this, we should actually focus on generating the liquidity as fast and as much as possible. It is not really relevant if this is coming from Recurring Sales or from blocks or from healthcare disposals.
That's why we think in the new period, in the moment where we have to deliver the balance sheet, it is the wrong focus for the management and the wrong focus for all others, to look only on a very small portion of our for sales portfolio, which is the recurring sales. That's why we suspended it. Again, I repeat, it is relatively easy to deliver cash by packing few empty-- a lot of empty apartments together and sell it in a block. Of course, then there's a lower margin. If we would be sticking with this target, this would probably be the proper action. I think it is probably better to sell a few more blocks and not do this to keep the guidance, and that's why we suspended it.
It doesn't make sense to look on a very small portion of the disposal volume and focus on this, because we have a lot of other disposals, and that's why the focus is more on the cash generation by disposals, independent on the source where the disposal is coming from.
Hmm. Actually, Recurring Sales were part of the Group FFO, is it, is it right?
Yeah, Thomas, it's, it's right. I mean, they've been very, very clear from the very beginning that this year, the biggest risk really is on the, on the disposal side of what is contributing to our, our FFO, and that is Recurring Sales, and that is Development to Sell. Which is why, we have put out the ranges a bit, a bit wider than typically, to reflect for that, that risk. The good thing is that, if I look at our rental business, that is performing far better than we have budgeted. And, that is compensating for some of, yeah, the unpleasant, underperformance of, of our sales-driven businesses.
If you, if you look at Group FFO in H1, if you look at the dynamic of this number, Q1 to Q2, you can see that we are, as I, as I said before, on a very, very good path to achieve our guidance. The suspension of Recurring Sales does not mean that we are not doing any Recurring Sales whatsoever. It's only saying, as Rolf said, that we are putting the priorities a bit different in that we really want to move the needle as to what is most significant in terms of our key priority again, deleveraging of the balance sheet.
Okay, got it. Actually, second question is on, on your segment performance. I mean, if you go through your segments, all segments except rental performed quite weak so far. What, what should we roughly expect for the rest of the year? Is there any signal for recovery? Maybe Value-add? We discussed Recurring Sales, we discussed Development, but maybe Value-add, I mean, any signal for recovery?
Look, I can only repeat that in terms of EBITDA and Group FFO, on an aggregated basis, very confident if you dived in, dive into the segments. Recurring sales, yes, it's profitable, but it's at far lower volume. If you annualize year-to-date performance, it's not gonna match the performance we have achieved last year. And in the development business, it's a tricky business to sell these days. It's depending on global exits, it's depending on the timing of global exits. So far, I think also here, we made good progress with the deal we did with CBRE, but it's really binary in a challenging market.
For Value-add, it's very much a function of the reduced investment volume, and it will not disappear. That is a burden, in particular for our craftsman organization. Now, I think that overall performance will slightly improve for the second half of the year. On a group level, it will not make a big difference.
Maybe, maybe on your development business, I mean, we recently saw a proposal by the government for new tax incentives. I think the, the so-called linear depreciation. What is your take on that, and what could be the impact for your development business?
To be very clear, there's 2 views to look on it. The first view is what does this have an impact for our business? Of course, it's clearly positive because this product of, faster amortization in the first years actually help rich, small investors, which has high income tax, to finance it because they depreciate actually the higher depreciation to deduct it from the personal income tax. What we call a traditional is a dentist who is typically buying 2 or 3 apartments to rent them out. For them, it's a great product, and he will get a lot of much better, will be compensated for the higher interest rate. This is clearly positive for us. That's why we support it.
Does this solve the housing crisis in Germany? No. There's two views on look on it. For us, actually, it gives a better potential for potential customers who want to buy an apartment, not to live in it, but to rent it out. This is positive. For solving the housing issue in Germany, it doesn't help at all.
Well, what chance do you see this to, to go through?
Please ask the government. This is not my, this is not my, my job to decide if the Social Democrat Construction Minister or the Liberal Democrat Finance Minister is stronger. This is not my job to do.
Okay. Thank you.
Next question is from the line of Marios Pastou with Société Générale. Please go ahead.
Hi, good afternoon. Thank you for taking my questions. Just first question from my side. I understand that on slide 15, it's a very high level theoretical headroom, the above EUR 9 billion current fair value, which, I think you mentioned, obviously, you wouldn't, we wouldn't go anywhere close to. Could you maybe give us some additional guidance over what level you would be comfortable at, at current values, maybe in line with your internal targets or, or, in line with your, your credit ratings as well? Thank you.
I mean, we, we still have some new secured financing in the making, so I expect that in absolute terms, to increase while in absolute terms, overall group debt will increase the relative share of-
Decrease.
of secured decrease, so relative share of secured financing will, will slightly increase. Let me put it that way, I do want to have a very comfortable headroom under the unencumbered asset ratio. Also, if I were to apply fairly drastic assumptions on the fair value declines. I'm not giving you precise numbers.
Thank you. Then just secondly, on your discussions with municipalities, for potential disposals. Obviously, I appreciate this may only be able to be given high level, but any magnitude of what the potential disposals could be over, over what time frame, any particular locations, just any, any guidance that can be given at this stage will, will be helpful. Thank you.
I, I think I should be very quiet here because also people of the government are, are probably hearing in the call, and we had the fact that some of them understood that we are under pressure to sell, and that's why they thought they can get big discounts. I mentioned again, that the government, which they want to have from us, is core portfolios, and that's why the price for core portfolio is fair value. This is the only thing I can repeat here, and that's it.
Sure. Great. Thank you very much.
Next question is from the line of Simon Stippig with Warburg Research. Please go ahead.
Hi, and thanks for the opportunity to ask a couple of questions. First one would be in regard to refinancing. If I look in your cash flow plan, then you are effectively already in 2025, if I add in your cash generation, within 2024. Is there any reason why you wouldn't give a rough indication of that also in the free cash flow guidance? Then secondly, could you also... You mentioned that the risk premium or risk premium of your unsecured debt converged a little bit to other sectors. Could you also quantify that, please? Then I would ask other questions one by one.
Let me, let me answer your, your, your second question first. We have seen for the index of triple B names, an average risk premium for unsecured financing of 110 basis points, roughly. While for quite some time, our risk premium equally in the triple B area was, was above 200 basis points, more close to 250 basis points. That has come down to roughly 170-175 basis points. I mean, you're, you're, you're, you're right in the cash flow bridge, there is no explicit but some implicit guidance if you look in detail in the numbers.
I think it tells you again that we have calibrated our business in a way that we are operating our business with the changes we have made in the cash neutral, slightly cash positive manner. I think this is the key, key message without being willing to give more granular details beyond that.
Okay, great. Maybe it's a bit early for the question, one follow-up question to the financing again. What now you have, you're probably in 2025 already, you're attacking these maturities, rolling it over, refinancing it. At what time range would you actually feel comfortable if you're already at the time today addressing the refinancings of 2026? If so, because my question goes in that regard, when would you actually use cash, potentially, when there is a value plateau, for, would you allocate your capital somewhere else?
I think there's a general answer to that. There is a second answer, which is taking recognition of the current still uncertain environment. The general answer is that we want to somewhat change the way how we look at refinancing in a way that we are basically in a situation to have addressed refinancing needs for at least the next 12, better, the next 18 months. I think this is a somewhat conservative approach, not optimizing treasury management, but optimizing potential changes to the interest rate environment and or the condition of the financing markets, point 1 and point 2. It also helps the rating agencies when they look at liquidity ratio. The answer in the current situation is, I mean, we've discussed that in detail, there is and remains uncertainty.
While we, we do see first signs of stabilization, it's still an expectation, it's not yet a certainty. We are not yet in a situation that that expectation is backed by a significant transaction volume/activity in the market. I think against that backdrop, we are simply well advised to run a very conservative capital structure policy. That is why, yeah, we now turn increasingly into 2025 in addressing refinancing needs and keep pressure on deleveraging the balance sheet.
Once we have found the bottom, of this development, and once we have seen stabilization, of the metrics, and once we have moved back our debt KPIs in our target ranges as guided, obviously, then capital allocation becomes a different focus in that, we then will increasingly focus on how to invest money, which is generating additional, EBITDA/FFO. We are turning back from a debt to an equity story, hopefully soon.
Great, thank you. Maybe a couple of smaller questions in regards to financials. You mentioned in regard to development pipeline, that your Development to sell pipeline, there's a commitment until 2025, EUR 800 million. If I add in the Development to hold commitment that you might have, how much would that actually be then in total?
In total, it's EUR 1.2 billion. Development to sell, plus Development to hold until and including 2025, by when the projects we have started have been completed. This is the additional cash I expect to be spended over the next 2.5 years.
It is also important to say this is only looking how we have to invest, but at the same time, we will sell buildings. It's not a net cash, it's a cash which has to be invested.
Sure. Thank you. It's probably the, the, the, the financial planning BUWOG applied back in the times. Then one question in regard to the EBITDA margin in the rental segment with almost 81%. What do you expect there for the year? Then, and maybe differently asked, how much of that is actually synergies? If there's another part than synergies, then where did you actually cut costs, and is there, is there further room to go?
Yeah, I mean, there's always some, some, some volatility in the EBITDA margin on a quarterly basis, but my assumption is that the year-end number is around the level we see. In terms, in terms of synergies, yes, that is the key, one of the key drivers in how we, how we managed our OpEx in the business.
On a full year basis, some EUR 90 million of less expenses embedded in that improvement in the EBITDA margin and also our cost per unit metric. Some, some slight, slight increases on maintenance, which we do not capitalize, but run through the P&L, where you see that the absolute amount on a per square meter basis is less pronounced, but that the absolute amount that's coming down a bit, I think it was just shy of, shy of %.
To be also very clear, your questions also returning a little bit to the longer term. On the longer term, we see the trend that a lot of things which was done today by people will be fully digitalized. I think we have shown you the, our app, where actually customers are doing the jobs which in, in the past, people has done themselves. I think there is optimization potential just by streamlining and digitalization or -ization of more processes. From the long run, for the long run, you should probably expect that the cost per unit is going down and, or at least compensating the inflation, so the margin will go up.
We are doing first experiments with AI to use also there, this technology, which I think will bring some revolution on how you are running these processes. It is too early to give you a guidance.
Okay, great. Maybe 1 or 2 more, if I may. In regards to Andres' question, of the nursing portfolio, can you give the indication of the exact occupancy ratio at the end of June?
It was slightly above 90%.
Okay. Thank you. Then Thomas asked about the development, I just wonder, I mean, the depreciation of an asset in regards to the development sector, there's literally nothing built, there's no, no permits, the supply-demand imbalance is increasing. Is there anything else, new regulatory framework in the making, or what else could actually help to reduce the crisis on the housing market? Is there any idea or any insight from you probably addressing both?
We have, we have a clear statement. I've actually been asked a lot about this because, you know, there is a next meeting with the chancellor about it. Yes, this is a different topic, I think it would explode this call here. Our message is you have to if you want to solve this issue, which is a severe issue, because we actually have to triple the number of apartments in the moment which are produced. We are doing roughly below 200,000. We have to come to 700,000 per year, which is the demand.
This needs a comprehensive action, a combination of reduction of regulation, a combination of getting interest rates, special interest rate for, for housing companies, like in France, for example, of getting a stable subsidy system, changing the rental regulation, especially the mid-price plans for more expensive apartments. This is a full package which has to be done. I'm not sure if the government is ready to take these actions. What I am advising is, if you are doing individual action, it will not help. You have to build a package of all these actions together, and then you have a chance to solve this issue, and this is not a chance to solve the issue in the next 2 or 3 years. We are talking here about a chance to solve the issue in this decade. There is no short-term solution for this problem.
Sure. Thank you. Lastly, and I think it's also partly the elephant in the room. In regard to capital increase or cash injection, a lot of market participants still waiting or fearing that there's additional cash needed. It's-- I know it's something you, it's difficult to comment on it, but you have the stress test, and it's-- can we consider the stress test as a floor to it, to any potential cash injection, or is there, is there any answer, or can you comment somehow on it?
I think this was a big part of what we tried to convey here today. I know that there are some companies out which has issues because they have not access to liquidity, or they have issues because their leverage is coming close to their covenants. I think we have pointed out here very clearly that access to liquidity, and I think Philip has pointed out at several points, that access to liquidity is not an issue at all. I think we clearly have pointed out that we are far away from any risk of covenants. This is what we are saying: we are very convinced that we can stand this crisis. Having said this, I want to reiterate, this does not mean that we have not understood that we have to deliver.
It is not that we want to deliver because we are fear of breaking our covenants. We know that this leverage is too high for this situation, and that's why it has to come down. It is not that we are afraid that we will reach our covenants. That's why the answer is clear. Deleveraging by issuing new capital is crazy. We have to delever by doing our homework, and this is to do disposals.
Great. All clear. Thank you.
Next question is from the line of Manuel Martin with ODDO BHF. Please go ahead.
Hello, gentlemen. Thank you for taking my questions. Three questions from my side. Maybe we go through them one by one. The first question is your investment program. You have your guidance of EUR 850 million for this year. Maybe you can update us a bit. Did I understand it correctly that you spent something like EUR 3 million CapEx for the first half year? Might then be the possibility exist that you, you undershoot your targeted investment volume? That's the first question.
For, for, for now, it's, it's the guidance we, we have given, and that is, EUR 500 million for investments in our standing portfolio. On top of that, EUR 350 million investment in Development to hold. I continue to think that this is a very realistic outcome, around that level for year-end.
Mm-hmm. Okay, I see. Any, any idea where, where we are right now in, in the investment program? Far advanced or halfway? Maybe an indication on that.
More or less, more or less halfway through. Yeah.
Okay.
If you look at the modernization of our existing portfolio, it's just shy of EUR 300 million as compared to a guidance of EUR 500 million. You can argue we are a bit ahead of things. But overall, as I said, I think we are pretty much in hitting our target very, very precisely.
Okay, thanks. Second question would be on joint ventures. There, there's, as, as you have been commented, you have a joint venture in Sweden as a possibility, it's a positive news. Is there, besides the, the one in Northern Germany, question would be, is, is there more in your, in your portfolio? Is, are there more possibilities for joint venture in, in Vonovia's portfolio?
I think we should deliver now what is the next one is the Northern Germany joint venture. As I said, Sweden will come later because the situation in Sweden is a moment very special and due to the fact that there are other players which has problems, which has to be solved before we are talking about Sweden. And if we have done this, we are talking about the next steps.
Let me, let me, let me, let me add one element. With the JV Südewo, we have raised equity, I think in very compelling terms of 7%-8%. With the new JV, we obviously also want to achieve very competitive terms in how the equity is being priced, but it remains equity. Equity by definition, is a, is a, is a very expensive financing of the entire balance sheet. That just as a, as a side note, that we are not getting too overexcited on this topic.
Okay. My third and last question would be on the portfolio devaluations. Can you give us an understanding or a picture of maybe regional differences have been there? Any region who has, let's say, suffered most or one which has been more resilient, maybe to give us a kind of regional flavor on the devaluations?
The boring answer is that there's no big delta.
Okay. All right, understood. Thank you.
Next question is from the line of Neeraj Kumar with Barclays. Please go ahead.
Afternoon, everyone. I guess it's already been a long call, so I'll keep it very short. Two brief questions. First one is around ratings. I see rating agencies are assuming 10% valuation decline from H1 2022 peaks, and we have already seen those values decline. How is your conversation coming along with the rating agency on the upcoming valuation decline assumptions or so?
I mean, we, we are obviously constantly in exchange with the agencies. There's been no change in rating. There has been a change some time ago in the outlook of one agency. Yes, I think both agencies have assumed a 10% value decline from peak. That is what we have seen, but we should not ignore that we have taken action and that we have raised equity of EUR 1 billion through the participation of insurance money in a minority stake in Südewo, and that we have also, also been successful with some disposals.
In other words, the embedded headroom, is, is still there in terms of what is underlying the business models of the rating agencies.
... Got it. My second question, on the refi, I see many questions have been asked already. Given that you had already sort of covered for 2023 and 2024, and looking beyond that to, for disposal proceeds to come for 2025s, will it be fair to assume that you will not be accessing the unsecured market for until at least end of 2024 or so?
I mean, I'm not guiding when we are accessing the market, but let me just reiterate the, the, the obvious. I mean, our, our debt pile today on a gross basis is EUR 43 billion, and it's composed of roughly 1/3 secured, 2/3 unsecured debt. While I think that there is some flexibility to moderately increase the share of the secured financing, we will always rely on unsecured financing, and as a consequence of that, we also want to regularly visit the unsecured market to essentially please a very important investor constituency.
Got it. I think just a linked question, but you just tended like EUR 300 million of 2028 to 2032 bonds. Like, that sort of seems a bit counterintuitive to tender the bonds in a particular maturity profile and then come back to the market with similar set of bonds?
Sorry, you mean the liability management we did?
Yeah.
Yeah, I mean, the, the, this is, this is for me, pure treasury management. I mean, we could wait and see until whatever, mid 2024, and sit on a cash pile, or we invest the money to reduce immediate cash burden on interest expenses and take some advantage of the difference in the market value versus the nominal value. This is what we've done because I think to have too much cash on a balance sheet is a, is a, is a fairly expensive exercise.
That's helpful. Thank you.
There are no further questions registered at this time. I would like to hand back to Rene for closing comments.
All right. Thanks, Emma, and thanks everyone for joining. We hope to connect with you over the coming weeks and months, and as always, a list of events is online and also on page 55 of today's presentation. As always, in the case of any questions following to this call or down the road, please do reach out to me or my colleagues. That's it from us for today. Stay safe, happy and healthy, and have a great day, everyone.
Ladies and gentlemen, this concludes today's conference call. Thank you very much for participating. You may now disconnect. Goodbye.