Good morning to everyone from Zurich. Welcome to Peach Property Group's full year 2022 results call. Thank you for joining us today. Our CEO, Thomas Wolfensberger, and our CFO, Thorsten Arsan, are in the call today. I hope you had already the chance to download our presentation from our website. Otherwise, you can find it as well as the annual report in the publication section of the website. Thomas Wolfensberger will start with an overview of our operational performance in 2022, and Thorsten Arsan will go through our financial figures and the guidance for 2023. At the end, we will be happy to answer any questions you may have. Please note that for the first time, we are reporting in euros as opposed to Swiss francs last year.
We hope that this currency conversion will help U.S. investors and analysts to compare our key figures. Now I would like to hand over to Thomas.
Thank you very much, Stefan. I'm happy to welcome you to our results call for 2022, and thank you for your interest in Peach Property. Let me start with some of the highlights of the past year. The most remarkable one is the development of our Funds from Operations. At more than EUR 19 million, they reached the highest level in our company's history, an increase of almost 90% compared to the previous year. Our rental income also grew strongly, reaching EUR 116.5 million. On a like for like basis, this represents an increase of more than 5%. At the same time, we managed to reduce our vacancy rate by more than 1% to 6.9% versus 8% at the end of 2021.
This reflects the high demand for affordable housing and market rent increases. More on that later. To further strengthen the balance sheet, a short-term mandatory bond was issued at the turn of the year. This was mainly subscribed by our anchor shareholders and strengthened the company's equity. The cash inflow of approximately EUR 67 million was fully used to repay debt. This reduced the LTV to 52% in January 2023 and represents a strong commitment from our anchor shareholders to Peach Property and the potential of our business model. ESG and sustainability continue to be key issues for us. We reached an important milestone when we received our first ESG risk rating from Morningstar Sustainalytics. With a score of 11.5, our ESG risks were rated as low.
This places Peach Property Group in the top 4% of more than 15,000 companies rated by Morningstar Sustainalytics globally. We also continue to invest in our real estate portfolio, renovating a record number of 2,160 individual rental units. Our efforts not only help the environment but also support our tenants in the current energy price environment while adding value to the portfolio. Last but not least, I would like to mention another important operational milestone during the year with our last remaining development project in Wädenswil, Switzerland. We held the official groundbreaking ceremony in December 2022. In my view, our operating results are even more notable when one considers the environment for real estate in 2022. We're on slide four now.
The war in Ukraine, skyrocketing inflation, the weakness of the euro, and the sharp rise in interest rates have led to a massive reduction in real estate financing, but also in the volume of transactions on the markets. In Germany, statistics show that mortgage lending and the volume of investment in real estate portfolios fell by 30%-40%. The result was a fall in share prices throughout the real estate sector, in particular for players active in the German residential markets. At the same time, virtually all fundamentals for already built assets, especially affordable housing, show a strong upward trend. A continued slowdown in the new construction due to higher material and financing costs will further tighten that already undersupplied market. We have seen a high number of project cancellations and reduced building permits. The effects of this will only be more visible in two to three years.
Driven by Ukrainian refugees, there has been a sharp increase in net immigration. This has fueled demand for housing, especially for affordable housing, and led to high market rent growth. In our main locations, the average rent growth was over 5%, a rate much higher than what could be witnessed in the last 10 years. It seems to us that the equity market is somewhat overly focused on the risk of currently higher interest rates and not so much on the positive fundamentals of the affordable housing product. As Peach, we have taken steps to adapt to this new environment. We're moving to slide five. We will continue to focus on cost and balance sheet optimization. We have no significant maturities until the end of 2025 following the refinancing of our February 2023 Eurobond.
This gives us time to analyze all potential options for refinancing our second Eurobond and address maturities as early as economically viable. Part of our profitability program, we have launched a review of our cost structure, which should lead to sustainable cost savings and an improvement of our margin of about 500 basis points by 2025. The same time, we believe that the evolution of the underlying fundamentals will support the valuation. Given the strong and sustainable increases in market rents, further devaluations are likely to remain within a manageable range, if they happen at all. This leaves us with a positive view of Peach and the affordable housing product for the next few years. That, I would like to move on to slide number 7 to have a detailed look at our operational performance in the financial year 2022.
There was only a slight increase in our portfolio as a result of a small acquisition of around 150 units in Saarbrücken during the year. In combination with our investments in the existing portfolio and a slight evaluation, the market value has remained virtually unchanged compared with the previous year at around EUR 2.6 billion. Let's have a look at slide number eight to see what's happening in the rental market. On the left, you can see some of our key locations and the year-on-year change in market rents, that's the dark blue bar, and the compounded growth over the last five years, the light blue bar. In almost all locations, year-on-year growth has been stronger than in recent years. According to the data we analyzed, average German rents rose by 5% year-on-year in 2022.
This is a rate of growth we haven't seen for many years, and it's quite likely that this trend will continue. In this context, it's interesting to note that the index of residential rents published by the German Bundesbank showed a year-on-year increase of 6.5% in the fourth quarter of 2022. This trend is clearly working against a correction in capital values. That's why we think the correction in German residential property values is unlikely to be as pronounced as some market participants are currently suggesting. Over the long term, as shown in the chart below right, the German house price index tracks construction costs very closely. As we all know, construction prices have been rising quite strongly recently. As we can see on slide nine, Peach has clearly delivered strongly on the rental side of the business.
With an increase in rents of 5.1% on a like for like basis, we have achieved the strongest growth in the last five years. Our average rent per square meter per month increased to approximately EUR 60. At approximately 18% below the average market rent, this is still a very reasonable level. This underscores our commitment to affordable housing, but also the further potential in the Peach portfolio. We expect a noticeable decline in new construction activity in Germany to influence achievable rents in the medium to long term due to demand outweighing supply. On slide 10, we see a few facts underlining our assumption.
While the undersupply in the German housing market is nothing new, as the German government's target of 400,000 new homes per year has been missed virtually every year, the situation is worsening due to even higher demand, especially for affordable housing. Net immigration into Germany, as you can see in the chart on the top left, was the highest since the Second World War at around 1.4 million, mainly driven by Ukrainian refugees. The cumulative shortfall in new homes compared with the government's target will exceed 500,000 units this year. Experts expect it to rise further to at least 700,000 units in the next few years. This assumption seems plausible given that building permits for new homes are set to fall by 7% in 2022 due to soaring financing and construction costs.
A development that will have an additional impact on the number of new homes built in the next two to three years. Overall demand for our product was very strong in 2022 and will remain strong in the coming years with a noticeable effect on our vacancy rate. With that, we move to slide 11. New lettings were at a record level in 2022 with around 3,700 new contracts signed. As a result, we were able to reduce our vacancy rate to 6.9% compared to 8% at the end of 2021. Our effective vacancy, which only includes units where a new tenant will move in in the near future and units in the letting process, was therefore only 1.9% on 31st of December 2022. Our renovation program also made progress.
We renovated approximately 2,200 units in 2022, also a new record for us. As you can see on slide 12, this has resulted in a significantly higher level of CapEx than in the previous years. We move to slide number 12. We invested around EUR 58 million. This number corresponds to EUR 32 per square meter. This represents an increase of 27% from the previous year. The figure includes 110 units that underwent major energy-related renovations, such as replacing windows or insulating walls. We also replaced or upgraded our around 40 heating systems in 700 rental units. These are further steps on our decarbonization journey towards our goal of a climate neutral property portfolio by 2050.
Our efforts not only help the environment, but also support our tenants in the current energy price environment while adding value to the portfolio. Against a backdrop of high prices and challenging financial markets, preserving liquidity is a priority this year. We therefore aim to reduce the CapEx budget to around EUR 40 million or around EUR 23 per square meter. This should allow us to renovate approximately 1,500 to 2,000 units in 2023. On slide 13, I would like to comment on the valuation of our portfolio. The sharp rise in the cost of borrowing caused residential property prices to fall slightly for the first time since the German Reunification in 1990. Our property portfolio wasn't spared, and we recorded a slight devaluation of EUR 12.2 million.
The total value of our real estate as of December 31, 2022 was around EUR 2.6 billion, virtually unchanged from the previous year, taking into account renovation and modernization investments and a small acquisition completed in the second half of the year. With an average value per square meter of EUR 1,450, an in-place rental multiple of just over 20x , which equates to a gross yield of 4.95%. The valuation parameters appear to be rather undemanding for a highly sought-after product such as affordable housing. Let me round up my part with a few words on the Peninsula project on slide 14. The project is making good progress. We had the groundbreaking ceremony in December 2022. Around 60% of the 57 condominium units were notarized or reserved then.
We expect the total sales volume to be in the range of EUR 130 million-EUR 140 million. Although there are still uncertainties regarding the cost development of the overall project, we expect a single-digit margin at the end of the project, which should be in early 2025. For the last part of our comments on operational development, an update on ESG, I would like to hand over to Thorsten Arsan. As our CFO, Thorsten also chairs the Peach Sustainability Committee, which we established in 2022.
Thank you, Thomas, and also warm welcome to our call from my side. ESG and sustainability remain key topics. To further embed and actively pursue the principle of our sustainability efforts, a materiality analysis was conducted for the first time in the 2022 financial year. The subject of the analysis was the impact of Peach Property Group's activities on the environment, the economy, and society. The key impacts have been grouped and summarized into 10 material topics. These can be found on slide 16. In our 2022 sustainability report, which we will prepare for the first time according to GRI standards and publish as a separate report in May 2023, we will report in detail on these material topics. With that, let's move to page 17. An important part of our ESG efforts is our decarbonization pathway, which we presented for the first time last year.
In 2022, we focused on improving data quality and for the first time, also included consumption data for the rental units acquired in 2021. On this basis, a CO₂ intensity of 34 kilo per square meter has been confirmed as the starting point of our decarbonization path. Our targets remain unchanged, with the aim of reducing the CO₂ intensity to less than 30 kilos per square meter by 2030 and achieving carbon neutrality of our portfolio by 2050. In the current year, our focus is on planning and evaluating specific renovation measures in various parts of our portfolio before starting the actual implementation in the coming years. Overall, our estimate of the total cost of our decarbonization journey to 2050 is between EUR 300 million and EUR 350 million.
This is our best estimate at the time of writing, but it's also subject to a high degree of uncertainty due to the difficulty of predicting the evolution of material and labor costs over the next 20 years, as well as the evolution of technological advances and the availability of subsidies for certain measures. Another important priority of Peach is, and has always been, tenant satisfaction, which we track with various KPIs in our unified ticket system. For an overview, let's move on to slide 18. I think it's quite impressive to see that we processed almost 113,000 tenant tickets in 2022. This is an increase of more than 40% and reflects the integration of 4,300 units acquired in mid-2021 into our management process.
We are proud that our Peach Points and our system partners have once again significantly reduced processing times despite the higher number of tickets. At the same time, there was a remarkable increase in tenant satisfaction to more than 78%, which is well above our medium-term target of 75%. Let's move on to slide 19. During the year, we benchmarked our sustainability efforts externally for the first time and underwent the Morningstar Sustainalytics ESG rating process. We obtained an ESG risk assessment of 11.5, which Sustainalytics classifies as a low risk of material financial impact from ESG factors. This places Peach Property Group in the top 4% of all 15,000 rated companies. We got an ESG rating upgrade for MSCI to single A, while it was triple B before. With that, let me shift to our financial performance for 2022.
Slide 21 shows the development of some key figures. Without repeating what has already been said, I would like to highlight our improved operating profitability in terms of FFO I, with a growth of almost 90% year-over-year, but also EBITDA on adjusted basis grew by 14% year-over-year. Due to lower valuation results in 2022, operating results were significantly lower. Our pre-tax profit was negatively impacted by non-cash foreign exchange losses. Despite reporting in euro for the first time, the group's equity remains denominated in Swiss francs. This resulted in accounting losses of approximately EUR 30 million due to the weakening of the euro against Swiss franc. This, together with the lower valuation result, resulted in a net loss after tax of EUR 50 million.
In terms of balance sheet metrics, I think it's fair to look at the pro forma figures, which include the impact of the mandatory convertible bond announced in December 2022, which was issued on the 12th of January 2023, and with conversion on the 12th of April this year. On this basis, our equity ratio is 42%. EPRA NTA per share will decrease by approximately 15% due to the issuance of around 3.8 million new shares upon conversion of the mandatory convertible notes. On the other hand, our loan to value ratio benefits from the new equity and remains on a solid footing at 52% and essentially stable compared to the end of 2021. Let's move on to slide 22.
In terms of our debt structure, we are pleased with what we have achieved in terms of refinancing for our first Eurobond, which had a formal maturity date of February 2023. Through active capital management, Sorry, we have prepaid this bond in several tranches throughout 2022 and the final tranche in mid-January 2023. This has been funded by an additional secured financing and the proceeds of our EUR 67 million from the mandatory convertible bond. After these refinancing measures, we have essentially no material maturities until 2025. Our ICR improved to 1.55 from 1.36 at the end of 2021, mainly driven by the higher FFO. Our average cost of debt and average maturities remained broadly unchanged year-on-year.
At the end of 2022, we still had approximately EUR 500 million of unencumbered assets, which gives us potential for additional secured financings. We are currently exploring these opportunities with various potential financing partners. We are optimistic that we will be able to close additional secured financing in the first half of 2023. At the same time, we announced today the launch of a convertible bond to refinance our outstanding hybrid bond with the first call date in June 2023. Let's move to slide 23 for the details of this new instrument. The new convertible bond will be issued directly from the holding entity, Peach Property Group AG. We aim for a volume of up to EUR 50 million. This instrument will offer an an interest rate of 3% and a conversion price of 20 Swiss francs.
The maturity is in 2026, if not converted before. Offer period will start as of tomorrow and last presumably until April 6, 2023. At the same time, we will offer all existing investors in the outstanding hybrid bond a one-to-one exchange into the new instrument. Also related to the new instrument, the board of directors decided to propose to the AGM on May 24 this year, a decrease of the nominal value of our share to CHF 1 from CHF 30 as of today. Let's move on from financing to the operating development on slide 24.
Looking at the development of our management cost per square meter, you could see a decrease of just below EUR 5 from EUR 6 the year before, which shows the additional efficiency gains due to the integration of 4,300 units acquired in 2021 into our management process. The development of maintenance cost per square meter, which rose from EUR 7.30 last year to roughly EUR 8.30, is less satisfactory. The main drivers for this development were a high number of tenant tickets as a legacy of the acquisitions in 2020 and 2021. We also felt the impact of the inflationary environment with cost pressure on materials and service purchased from third parties. This is one of the reasons why we started to review our cost structure as described on slide 25.
The aim of our cost-reducing program is to reduce our operating costs, cost base by EUR 2 million-3 million on an annualized basis. This should result in a margin improvement of approximately 500 basis points on an underlying EBITDA basis by financial year 2025. Key areas where we are investigating in more detail are cost and expenses at tenant turnover, potential to further improvement and automation. One example of this is a tool we have just introduced. It uses artificial intelligence to provide an external tradesman with more detailed information about tenant's damage. In this way, the draftsman can have the necessary spare part with him and can repair the damage in a single visit. This will, of course, save time and money. Finally, we are also looking at reducing fees for external consultants and have decided in some cases to in-source certain services.
One example is the creation of an internal tax department. To conclude my part, I would like to present you on slide 26, our forecast for the financial year 2023, and for the first time, also a midterm outlook for the period until 2025. As already mentioned, we are quite optimistic about further rental growth and see like for like increase of around 4%. This will result in an expected net rental income of EUR 121 million-EUR 123 million. On the FFO side as well, we are expecting further increase to a range of between EUR 21 million and EUR 23 million. This is driven by our rental growth, but also by interest savings on the part of the bond refinance by the mandatory convertible.
Some cost increases due to the inflationary environment will be offset by our cost saving measures. For the coming years, our like-for-like growth is expected to be at least 3.5%, while we see a compound annual growth rate of the FFO I of around 15%. This assumption does not take into account any refinancing measures for the Eurobond that matures in November 2025. As a further target, we see an improvement in the adjusted EBITDA margin of 500 basis points compared to our full year 2022 margin of 50.9%. With regards to the LTV ratio, we continue to aim for a target of around 60%.
While we remain committed in principle to a dividend policy of 50% of our FFO I, we will assess this on an ongoing basis against the backdrop of conditions in the financing markets. With that, back to Thomas for the final remarks and the key takeaways.
Thank you, Thorsten. Let me conclude with slide 28 and the following points. In our focus on affordable housing, we have a successful product that will benefit in the coming years from a persistent undersupply and increasing demand driven by demographic trends. For any product with high demand and insufficient supply, prices will rise. In the housing market, the result will be an acceleration in market rent growth. Peach has demonstrated its ability to increase rents and reduce vacancy, and we have further potential in our portfolio to continue to do so in the future. We have made significant progress on the financing side with the refinancing of our Eurobond maturity and the additional equity. With no further significant maturities until 2025, we have time to evaluate a number of options to address the 2025 bond maturity.
At the current share price, this poses an excellent opportunity to invest in Peach Property equity at a discount of about 70% to the value of our net tangible assets. This discount is actually higher right now than what we witnessed in the 2008 financial crisis. Thank you very much for your time. Now we are happy to take your questions. Operator, please go ahead.
Thank you. We will now begin our question and answer session. If you have a question for our speakers, please press star one one on your telephone keypad and wait for your name to be announced. One moment please for the first question. Okay. Our first question today comes from the line of Andrew Griffiths from Janus Henderson Investors. Your line is open. Please ask your question.
I have two questions. The first relates to the proposed convertible bond and exchange. Is that underwritten to any extent? What if there is insufficient subscription to that? Secondly, you referred to the potential for additional secured financings in the first half of this year. Could you just sort of elaborate upon that in terms of use of proceeds, you know, given the, as you said, the fairly sort of favorable maturity wall that you have?
Thank you very much for the question. No, the convertible bond is not underwritten as of now. We're quite optimistic that we'll have sufficient demand from existing and new investors. If that doesn't go ahead, there are quite a few other options in the secured financing market, as you said. The use of proceeds for also additional secured funding, would also be to replace the, you know, the hybrid bonds, which is actually perpetual, but with a call date at the end of June.
Okay. To be clear, if you, if the convert is sort of successful, that's gonna be the primary vehicle through which the hybrid will be refinanced.
Exactly.
Are you, I mean, are you considering potential bond buybacks, i.e., of the 25s through additional secured financing, I guess is what I'm trying to also get at.
Maybe I can step in here, Andrew. Yeah, I mean, let's assume the convertible is successful, and we can replace the hybrid with the convertible.
Yep.
We could also do additional secured financings. We could basically use the secured proceeds. I mean, we have a small drawing under our RCF that we can basically repay. We can invest in our portfolio in order to, let's say, improve the quality and reduce the vacancy rate. As you mentioned, a potential buyback of the 2025 bond is possible. As of today, I wouldn't see this as a top priority. I wouldn't rule it completely out, but if it is secured financing, I think more the higher priority is more to fully repay our RCF facility and invest into the portfolio.
Understood. Thank you.
Thank you. A reminder that if you would like to ask a question, to please press star one one on your telephone keypad and wait for your name to be announced. Your next question comes from the line of Andreas von Arx. Your line is open. Please ask your question.
Good morning. I have a couple of questions. Shall I go one by one or ask them all in the beginning?
One by one would be great.
Okay. I'll start with an accounting guidance question. I noticed in your FFO statement that you do not adjust for the income from development projects, but only for the disposals of investment properties. I mean, this might not be a big impact in 2021- 2022. I mean, going forward, this will be different. Could you therefore provide an FFO I 2025 midterm guidance without the boosting effect of development gains? I mean, the guidance is, I think, 15% CAGR. How would that look without the development project gains?
I mean, the FFO I guidance is completely neutral in terms of development, so it's just on the rental business. The potential benefit coming from our Wädenswil development is completely neutralized for FFO I guidance. This would be something which will be reflected in FFO II, but for the FFO II, we don't have any guidance yet. FFO I guidance is purely on the rental business.
Okay. I mean, you gave an indication that you don't think valuations will go down in 23. I mean, if I look at your peer, TAG, I mean, they had a 5% decline in the second half 2022, and the interest rates are expected to continue to rise. Why would that trend of declining valuations not continue in 23?
I think in the... It's sometimes hard to compare the valuation of our portfolios because we had less valuation gains in the first half of 2022 than I think every competitor we have in the peer group. That's why we had less devaluation. I mean, basically what we base our assessment on is the fact that we have probably the highest like-for-like rental growth in the peer group, and that would reduce the pressure on further devaluation more strongly than any other, let's say, player we have in the peer group. That's what we base our assumption on.
We think if we compare our capital values per square meter to the peer group, we think the values are relatively low. We start with a relatively low base, and we add probably the strongest rental growth in the peer group, and that makes us believe that the pressure for devaluation is probably lower than in the peer group. Yes.
I mean I do understand you right, that you would not exclude, at this point in time, a further equity issue, on top of what could happen with, even the extended to EUR 70 million convertible bond?
It's not. I think we would never say to include or exclude any instrument. Right now we're working on our overall financing strategy, and I think the instruments that are chosen. I think, you know, the mandatory convertible bond that we announced will put us in a position where we can comfortably call the hybrid bond, and then we have no further plans right now. Obviously, this is a dynamic environment, and we would never rule out an instrument.
Okay. I mean, you point out to the attractiveness of your investment case by pointing to the significant discount compared to the adjusted book value. To play the devil's advocate here maybe for a moment. I mean, on your FFO of around EUR 20 million and the portfolio value of EUR 2.6 billion, you generate below 1% FFO to portfolio value yield. I mean, your FFO as compared to the current market cap is on this high single-digit yield. If I look at larger peers like Vonovia and LEG, I get 2% FFO to portfolio value yield and a double-digit FFO to market cap yield. The questions here is, A: I mean, why should I prefer Peach Property Investment here in relative terms to the mentioned peers?
Second question: why do you think your 50% FFO midterm guidance is the correct one when your peers seem to feel uncomfortable even with values below 40%, above 45%? Thank you very much.
Well, we believe that if you look at how this portfolio was built, about 75% of the portfolio was acquired since 2019. We had, we bought all of, the bulk of the portfolio was acquired with vacancy rates of around 10%. The story of Peach Property in the last three years, what was really one of capital appreciation and less one of FFO. We've only shown a positive FFO in the last two years, I believe. We are on a very strong positive trend. Because you see that what I talked about before, we have the highest like-for-like rental growth, and we probably have the highest vacancy reduction engine working in our favor.
I totally agree with your assessment b ut if you compare these different portfolios, you will see that we might have the lowest FFO yield, but I believe we have the biggest potential for rental growth, and we have the biggest portfolio, the biggest potential for vacancy reduction in the next few years. We see how these trends work. Now add to that our efforts to reduce expenses across the board in, on every single aspect of the business. I think we can come to the conclusion that this indeed poses a very attractive opportunity also comparing to some of the peers.
On the LTV, I mean on the 50%, is that just what investors should accept for your case as compared to, let's say, the lower values that seem to be normal in Germany?
Well, the LTV obviously is under constant review. I agree with you that, you know, probably you can have a meaningful debate with increasing interest rates, what the right capital structure of a portfolio like this is. Right now we feel that there's, you know, very good upside for investors, you know, taking, let's say, taking part on this capital appreciation story with increasing rents and decreasing vacancy with a slightly higher leverage. Maybe in the future we will revisit the capital structure again and adjust it as many other companies do. Right now we feel that this is the right, let's say, the right mix for the next period.
Okay. Just quick, last one, for understanding, sneaking in. That EBITDA margin improvement guidance, 500 basis points. What is here the corresponding top line to that 50% margin? I mean, that's not the operating income, or is that adjusted for revaluation? What's here the corresponding top-line base, you know, combined with the adjusted EBITDA that leads me to the margin mentioned in the presentation?
As of today, we have an EBITA, adjusted EBITDA margin of 50.9%. Let's call it 51%.
Mm-hmm.
This is excluding the valuation result. The aim is in the medium term to 2025 to increase the EBITDA margin from 51% to something which is around 56%. This excludes at any time the valuation result.
That's operate, total operating income minus the net valuation result.
It's basically we can take it as separately.
Divided by adjusted EBITDA.
The rental income.
Correct.
Mm-hmm. Okay. Thank you. I give it back to the operator.
Thank you.
Thank you very much. Our next question comes from the line of Ines Charfi from PGIM. Your line is open. Please ask your question.
Thank you. I was just wondering if you could give guidance on CapEx expectations. Obviously, the refurbishment and reduction of vacancy rates is a key story here. What, what is in your view your level of maintenance CapEx, and what's your plan in terms of further refurbishments?
The guidance for 2023 is roughly EUR 40 million of CapEx. This is something you can basically split into two parts. It's half of it, 50%, fluctuation. Someone moves out, you refurbish the unit, and then it comes back to the letting process. The other 50% is real CapEx investments, where we basically improve the building from outside, implement new heating, new roof, new window. Measurements beyond the normal measurements we have due to fluctuation.
Okay. EUR 40 million, roughly, EUR 50 million, let's call it maintenance or well, you can't really let go of it, 50% is pure improvement.
Yeah, correct.
Do you give guidance for the years beyond 2023?
I mean, that's something we are currently assessing to give a valid guidance. I think it's a bit too early. I mean, it shouldn't be less than this year. I mean, last year we had roughly EUR 60 million, this year, EUR 40 million. I mean, we don't have the final number yet for next year. Let's say, as a base assumption, it shouldn't be below EUR 40 million. Definitely not.
Okay. Do you have a target vacancy rate that you want to achieve?
Yeah. I mean, in the medium term, which is so round about three years, we would like to have a vacancy rate, which is around 4%.
4%?
Yeah.
Okay. Then just back to the, to the maturity profile. What is your capacity at the moment to raise secure debt under the covenants? Is that something you could disclose?
I didn't get. Could you please repeat the question?
What's your capacity to raise secure debt? 'Cause I think you must have some restrictions under.
Yeah.
The covenants, right? Some credit metrics.
I mean, basically, yeah, we have an unencumbered asset pool of roughly EUR 500 million that we can use for secured refinancings.
Okay.
A 50% LTV, this is something around EUR 250 million of loan amount. We have, let's say, some covenants, but I mean, in our bonds, they are in current space. They're not being fulfilled at any time. There are various baskets. I don't see any restrictions in terms of taking up additional secured financings, assuming or seeing that we have a pool of round about EUR 500 million. There shouldn't be any limitations.
Okay. One last one, a bit general. Have you seen or have you been aware of any transactions in the German resi market that took place recently that could be, you know, used for reference for valuations? Are you still not seeing much happening?
No. I mean, the German residential market is, let's say, somehow characterized that over the last months, we hardly had any big transactions. We basically have significantly less transactions than in the years before. There are a number of smaller transactions. In the last years, we sometimes had transactions with a volume EUR 200 million plus even in the billions sphere. This is something we currently don't have. I personally, I'm not aware of any material transactions which are, let's say, above a volume of EUR 100 million.
Okay. Okay, thanks.
Thank you. You're welcome.
Thank you. The next question comes from the line of Stefan Scharff. Your line is now open. Please ask your question.
I'm here from SRC. First, again, the question about your debt maturity profile. Your average maturity is now 3.7 years, and this year and the next year is not very demanding, but in 2025, you have the big bond, almost EUR 400 million and an interest of about 4%. What are your plans here to more streamline the company to quickly bring up FFO and then to get good conditions and a good data framework for refinancing this issue? First, you can say here a little bit more and how do you see your average maturity in the debt, in your debt, developing the next years?
Yeah. Thank you for your question, Stefan. I mean, as you rightly pointed out in 2025, this is basically the next window where we have to refinance material, yeah, instruments. It's a EUR 300 million bond that you just mentioned and a secured loan. I mean, the secured loan is something we basically envisage to extend a year before maturity. I.e., mid-2024, to have, let's say, the EUR 230 million off the table in 2024. The question is: How are we going to refinance the EUR 300 million bond that is due in November 2025 with a coupon of 4.4%? I mean, as of today and as in the last 12 months, the unsecured bond market is shut for us. That's something we have to accept.
I mean.
Mm-hmm.
There are first signs that this might change. To give you the full answer, how do we intend to refinance the EUR 300 million as of today is. It's challenging, and it's maybe nothing like we can basically fully answer. I mean, you have seen that we've demonstrated in the last year, we had EUR 250 million refinanced this February, which was also an unsecured bond in an environment where we didn't have any access to the unsecured bond market. We managed to refinance it with a, or through a mix of various instruments, secured existing cash, buybacks, promissory notes, Schuldschein, then the mandatory convertible.
I mean, for the 2025 maturity, which is in November, i.e., at the end of 2025, we will again assess all kinds of optionalities in order to tackle the refinancing of the bond in 2024 or at the beginning of 2025.
Okay.
Maybe I can add, Stefan. Maybe I can add, you know, now, Thorsten was explaining all the option on financing, and we have a lot of options, you know, with disposals as well. You know, we're not looking at that right now but obviously we talked to a lot of participants in the market. I think, you know, from, gauging from the interest that I see in the market for assets, actually, I don't see this as a problem at all. If we would, if still financing markets don't work, let's say in two years from now, then the disposal option is always there, I believe. We don't see this as a, you know, as a too big of a problem.
I see, I see. Yeah. two more years time. It's not due now, it's two more years. Another question is slide 24, your OpEx development. As you mentioned, about EUR 2 million higher OpEx for EUR 24 million, but it should come down. If I took you right, it had some higher costs due to the acquisitions in 2021. Perhaps you can say a little bit more what we might expect here for the current year.
I mean, as you can see on page 24, it's basically you have two elements. You have the maintenance where we had above EUR 8 per square meter. This is something where we also try to reduce it. Will this somehow, it's linked to the age and the quality of the portfolio. I think we somehow over-invested last year in maintenance, so we hope that we can reduce it this year. That's something we can't guide because it's more reactive. If tenants are calling and say, "Look, we have this issue, can you fix it or solve it?" That's something where we are more reactive, and it's difficult to guide, but it has top priority to reduce it. If you then go to the admin costs, which are around EUR 5, came down from EUR 6.
I mean, it also mean we guide that we can save annualized EUR 2 million-EUR 3 million, which is a combination of admin, but also personal expenses. It's difficult to say that we can do from the EUR 5 go down to EUR 4.50 or EUR 4. Overall, we intend on an annualized basis to save EUR 2 million-EUR 3 million of admin and personal expenses. The split is something that we can't guide right now. It really depends on fluctuation in terms of our staff, but also, other impacts that we are currently assessing.
Okay. Okay. Perhaps another question. Slide seven. Slide seven shows the difference, the spread between the actual rent, EUR 117 million, and the target rent, EUR 133 million. That's EUR 16 million spread. Perhaps you can give us more color. What is indexation or what comes from reducing vacancy to zero, and what comes from indexation or from new lettings?
Yeah. I mean, the target rental income, the improvement from EUR 127 to EUR 133, if you compare year-end 2022 with year-end 2021, is basically the market development. That's the rent we get from our external valuer. I think the more interesting number is that we have an in-place rent of EUR 116.5 in the -
Yeah.
Financial year 2022, compared with EUR 133 million target rental income. The difference is basically. The EUR 160 million is what we in actual got into last year. If you would assume that we basically completely eliminate the vacancy rate from 7% or 6.9% to 0%, and for all units, manage to increase the in-place rent to market rent, i.e., the 18% gap, you would basically reach to EUR 133 million rent.
Okay.
I.e., the difference is really completely reducing vacancy rate and closing the gap.
Zero the market rent for all your units. Okay.
Correct.
Okay.
In an ideal world where everything is optimized, we could have reached EUR 133 million last year.
Perhaps ideal world is a good, is a good buzzword. Now, just to ask you know, the Credit Suisse disaster and the news from yesterday, can you say us what is your impression here? What this could mean in general terms for the, for the financing market and all the markets, in Switzerland or also in Germany, and what's your impression here?
My personal impression is, I mean, it happened end of last week, beginning this week. Is that, let's say, that the German classical mortgage banking market is not affected as of today, so I don't see any implications. We are on a daily, let's say, dialogue and discussion with various mortgage banks, and I don't see any negative impact of the Credit Suisse issue going over to the mortgage banking sector. Of course, nevertheless, in Switzerland, it's an issue. We personally, we don't have any material connections to Credit Suisse in terms of having funds in a Credit Suisse account. This is something where we are safe. Overall, of course, it negatively affects the banking market.
Mm-hmm. Mm-hmm. Perhaps my very last-
As of today, we don't see any impact on our business.
I see. I see. Hopefully, there will be no further bad news coming from the banking side. My last question is the Wädenswil development. If I took it right from your annual report, you have about 40% notarized until the end of last year, and there are other people interested, another 20% or more. Can you give us a current number, what is notarized now and where you have a notary appointment for the next weeks?
As of today, including, let's say, all appointments where we think we should have a notary appointment in the coming weeks, we should be at around between 65 and 70%.
Okay. Okay, I see. That means until the end of the year, it's more or less sold out. That would be my assumption.
Mm-hmm. Maybe we at least should be at 70%. The question is when we target the sale of the remaining units, which we by intention stopped so far.
Okay. Okay, I see. Thank you very much.
You're welcome, Stefan. Bye.
Thank you. Next, we have a question from Sanford, from BlueBay Asset Management. Your line is open. Please ask your question. Hello, Sanford. Your line is open. Please ask your question.
Hey, guys. Sorry I was muted. Can you hear me now?
Yes, we can.
We can hear very small... Operator, did you wanna maybe take the next question?
Let's move on to the next question, which comes from the line of Philipp Kaiser. Your line is open. Please ask your question.
Very well. Thanks for the presentation. Just only a couple of questions left from my side. Back to the CapEx topic. You mentioned, like, you're guiding EUR 40 million for this year, after EUR 60 million for last year. Given, like, the significant rise in raw materials last year, but also, like, raw materials with the rise this year. Is that really enough to reach your midterm vacancy goal of 4%?
We take, in terms of the CapEx planning, we take it a bit year by year. You're right, commodity prices have increased. What we can also see is that commodity prices, and this is a very important distinction to be made. Commodity prices for new construction have risen much more than the commodities that we need to renovate existing apartments. There's.
Mm-hmm.
You know, prices have gone up, but not anywhere near the rates that we saw for, you know, things like wood and steel that you need for new construction. It's not, it's not nearly as bad. What we see is that, you know, with the pressure on and the scarcity of the product, you know, what we explained, what Thorsten explained, and I explained before, you see that the pressure just increased, and it's becoming, in most of our locations, becoming, you know, somewhat easier to rent out apartments. Let's say we think that we can also manage the journey with a somewhat reduced CapEx budget.
What's also important is that obviously, you know, as we, as we said before, we acquired the bulk of the portfolio since 2019, then a big chunk in 2020. We have already spent a lot of CapEx on these portfolios.
Mm-hmm.
Let's say you can probably assume that the, you know, what's coming out now on average is in a better state than when we acquired it. That makes us very optimistic to be able to run 2023 with a kind of EUR 40 million budget. 2024 is, let's say, is on a different page, right?
Okay. It doesn't affect the midterm guidance. When it comes to, like, the availability of craftsmen to do the capping for maintenance, are still easing. That's still an issue to get them or it's easing on the craftsmen side to do that?
We've never felt the problem of getting craftsmen to work with us because we have fairly long-standing relationships.
Mm-hmm.
We've always had access to craftsmen throughout this period. Obviously we also, you know, we also monitor that situation. Also there I, you know, we never had the problem of really not having access. Nothing really changed in that perspective. Obviously it's better for the market if the, you know, if the general availability is higher.
Okay, perfect. That sounds great. Looking at like, yeah, the big other residential companies planning a lot of disposals this year. You stated you're not kind of interested in disposals. Still the fact that you're not planning to dispose any large portions or parts of your portfolio?
Yeah. Well, we're not planning to dispose a significant part of the portfolio at all.
Mm-hmm.
We might revise this view in, you know, when it comes down to finding a, you know, a good refinancing option for the 2025 bond. That decision will be only taken.
Yeah, sure.
In, you know, in two years' time.
Yeah. Yeah. Yeah. Fully understand. No disposals, but I think it's fair to assume that only selective acquisitions in the course of the year, given the current market environment and the huge discount to NTA. Is that fair to assume?
Well, acquisitions, I think we can safely, probably rule out for the time being, because.
Mm-hmm.
We would have to, you know, compensate, you know, you know, Have to basically raise equity in order not to, not to, increase the leverage, which we're not planning to do so.
Yes.
So. We haven't seen right now, you know, deals that are so attractive, priced so low that they would justify this.
Yeah. Okay. Good. Fully understand. The last question, no acquisitions. The bond is still far away. Capital allocation wise, share buyback still not in the cards?
Well, a share buyback would probably correspond to, you know, increasing the leverage. That's also not.
Mm-hmm.
You know, we would be using the funds to basically buy back the shares. That's not something that's on the table right now. That obviously can change if circumstances change slightly.
Okay. Sure. thanks a lot. Very helpful also on my side.
Thank you. The next question comes from the line of Peter Yu from Wellington Management. Your line is open. Please ask your question.
Hi. Can everyone hear me?
Yes, absolutely.
Okay. Hey. Hey. Just got a couple questions on the funding side. Just on the RCF maturity, you know, 'cause it's in 2025 with the whole wall of maturities that you have there. Is there the option in the agreement for the extension options on the existing contract, or? When would you think about maybe starting to roll that over?
I mean, it's a bilateral document, but I mean, to have an extension option is not completely unrealistic. Let me phrase it this way.
Okay. On the Credit Suisse exposure, it's good to hear that there's no material exposure there. It's just to understand in terms of wider Swiss banking exposure for you guys. I don't know if you can give any color there in terms of your corporate debt facilities, maybe if you have any development loans on the development project, or if you know of any of the buyers of the properties relying on funding from CS.
We have in our Swiss funding mix as we know, we only have one site where we're developing, and this is funded by a Swiss cooperative bank. Nothing to do with this sector. Yeah, we don't rely on the Swiss banking system at all, you know, in any major way. I mean, in terms of, let's say, raising debt or anything like that. Yeah. I don't think we are exposed to any of this in any notable way, let's say.
Okay. The buyers, do they normally take on a mortgage with the Swiss banks?
Yeah, the buyers... Yeah, some do, some don't.
Okay.
You know, the Swiss mortgage market is kind of working extremely well, quite, let's say a lot easier than what we see in Germany right now. Even now, you know, throughout all this situation with Credit Suisse. You know, our buyers have the option to choose from something like 100 banks when they want to take out a mortgage to buy an apartment. It's a very diversified market.
Very easy, actually.
Okay, great. That's good to hear. Then just on the secured debt that you might wanna take. If you were to sort of look to take some on now, you know, if, say, you didn't get the interest in the converts that you were hoping for, what sort of maturities would you be looking for? Then I'll go and follow up on that.
Yeah, typically for secured debt, we go for something which is around five years.
Okay. You mentioned, you know, in terms of the 2025 maturities, you probably look to address them next year. just to understand, what's the LTV and ICR on that loan at the moment? Let's say funding costs stay the same and valuations stay the same as they are today, Should we expect there to be a funding gap? you know, what sort of a number do you think it could be?
I mean, the secured loan that expires in 2025, I expect as of today that we can extend it.
Yeah.
The banks anyway, they do their assessment, and they have done their assessment in the past, not on basis of the, let's say, very attractive interest rate environment for us as clients, i.e., a five-year secured loan with 1.5%. They basically calculate exit debt yields, where they anyway incorporated sustainable interest rates, i.e., higher than what we've seen in the last years. The, at least the banks I talk to, they always go for exit debt yields which are between 6% and 9%, and that's something which should also fit as of today for an extension in next year. I don't see any reason why we shouldn't be able to extend the whole existing loan next year.
Okay. you don't need to put in any extra unencumbered assets when you're.
No.
refinancing that.
That's something I don't expect.
Okay, cool. Final one is just on the converts, I don't know if you can give any color right now, but should we expect the covenants to be similar to the unsecured bonds in terms of the?
The convert doesn't contain any covenants.
There weren't any. Okay, perfect. That's great. Thank you.
Thank you very much. We have no further questions at this time. Please continue.
Thank you, Sam, and thank you all for joining our call today. We are available for any follow-up questions you may have today or in the coming days, either bilaterally or at one of the scheduled roadshow meetings. Please do not hesitate to contact us. Please note that our next scheduled reporting event is on 23rd of August, 2023, for our results of the first six months. This is the end of the call. Have a good day.