Good afternoon on a very busy day for real estate investors and analysts, which is also the reason for the rather early lunchtime slot of this conference call. The summer was very hot. Everybody, I think, can appreciate, and I guess this is the consistent message you are also receiving from the real estate market as a whole. Let me give you our six highlights. The tides have clearly changed. Please bear this in mind when you look at our excellent operational achievements in the first half of the year.
Two, we are preparing ourselves for The Perfect Storm, and credits for this title do not only go to the film with George Clooney by the late Wolfgang Petersen, but also to Nouriel Roubini and Kenneth Rogoff, the U.S. economist and Harvard professor who strongly believes that the three most important economies in the world are set up for a recession. Three, what could be observed already is a kind of shock paralysis and a shock stare of the investment markets in Q2 with the respective consequences. In situations like this, it is always worth to have a close look at balance sheets and how much cash a company has in storage. We are convinced that the more conservative companies will now be rewarded.
This, together with a healthy pipeline in eight locations only, finds us high alert, but also at the same time with some satisfaction looking into the future. Number six, we have promised the guidance, and we provide you with the guidance to the best of our current knowledge. We expect our operational performance to generate earnings before tax in a range between EUR 38 million-EUR 42 million for the full year. Please turn now to chart number four and the details of how we have done operationally. Having said all about the current conditions, I would still like to point out our strong performance in the first half. We have not been sitting on our hands and quite successfully concluded a package deal in Mainz, provided a record dividend, an industry-leading ESG rating, and introduced a new attractive working time model in the first six months of this year.
The stock market rewarded us with a year-to-date performance better than most of our peers, and the Vienna Stock Exchange with an award for our ESG efforts. As important, we have successfully closed a number of real estate sales and the sale of our non-core operations, Alba, which all contributed to our profits and let our employees drop below the number of 300 for the first time since I've joined UBM in 2016. Please follow me to chart five. For some, the expression perfect storm might sound far too martial, and I have given credits to those who have first introduced it. I would like to focus more on the aspect that even such a perfect storm creates opportunities for some, or in other words, for those who can afford and have prepared themselves accordingly.
Rising interest rates undoubtedly increase investment costs and trigger high yield expectations, higher yield expectations with real estate investors. You must be a hopeless optimist to see a positive direct effect from rising interest rates as a real estate market discipline. However, the flip side of this coin drives a much higher proportion of the wealthier part of society into becoming tenants rather than owners. This might be deplorable from a socioeconomic point of view, but creates an opportunity for investors of higher-end multi-family homes. This is exactly the market segment which UBM caters for. The same applies to our incalculable construction costs. At the moment, nobody starts construction who is not forced to do so. First data from Q2 proves a double-digit cancellation rate of projects which were scheduled to start in Q2. However, with the aggravation of what is already been.
What has already been an under supply situation, it is difficult to see sales prices deteriorate. The imbalance should at least help to stabilize sales prices of, and I stress this, finished, products, projects. Rising energy prices cause sleepless nights for many, and the affordability of living has all of a sudden become a subject again after decades. However, this fuels the demand for new developments which are energy self-sufficient or which produce the primary energy themselves. UBM is checking every new project for its geothermal ability and has put a maximum emphasis on ESG. This is not only true for new projects, by the way, when it comes to ESG, but also for the refurbishment of existing buildings. The pandemic came to stay, and the International Monetary Fund calls China's no COVID policy one of the two biggest threats to the world economy.
However, rising occupancy rates, both in office and in hotels, are the best proof that mankind is getting used to the threats of the pandemic and sees the need to return to a new normal in most parts of the world. Finally, the investment market in Europe was in a kind of shock paralysis in Q2, as I've mentioned. Transaction volumes in most classes collapsed. Most investors were in a wait and see position. However, opinion polls and market sentiment show that real estate prevails as a safe harbor investment, most recently by Union Investment. It has simply proven too often in the past that concrete gold, or in our case, I should rather talk about wooden gold, is even better than real gold.
Do not get me wrong, we at UBM do not belong to the optimist faction, which is quite obvious, who always sees the future, as being bright. We have prepared for the current situation, particularly financially, and this is why I would like to ask Patric to cast some more light on this. Patric, please.
Thank you, Thomas. Good afternoon to everybody. Let's go to slide number six. Thomas has already elaborated on the market freeze, which has also affected UBM. It led to a slowdown in our net profit in the first half of 2022, standing at EUR 15.8 million. The major drivers for the net profit were the sales of our residential and office project in Vienna and of our non-core operation, Alba. We generated this net income contribution predominantly from our at equity participations, especially our ongoing forward sold projects, F.A.Z. Tower in Frankfurt and the Kaufmannshof residential and office project in Mainz. In fact, at equity, profits increased by more than 40% compared to the first six months of 2021. What we also have to take into account is the current wait and see attitude in the transaction market.
When it comes to acquisitions and therefore the possibility to capitalize interest costs on new developments, the P&L suffers a bit from the dry up of the acquisition market. In addition, we currently develop predominantly IFRS 2 or forward sold projects where it is also not possible to capitalize the interest costs. By the way, we value our unsold projects at actual costs. This is important to mention as quite a few peers follow a different approach here. All in all, the wind has changed. Let me tell you why we think that we are still in a good position for the most likely headwinds to come. Our balance sheet and our liquidity are integral parts of our competitive advantage and give us the relevant USP.
Let us first look at some balance sheet numbers on slide number seven. Despite the major acquisition in Mainz, the repayment of the hybrid bond at par and the payment of the dividend, we are still in a position to make use of every opportunity without having to obtain bank financing. By the end of the first half of 2022, equity amounted to almost EUR 517 million, which translates into a strong equity ratio of 34.6% or almost 35%. We are clearly committed to our target range of 30%-35% and continue to be on the upper end. Net debt increased due to the aforementioned activities, but is still comfortable, not only in absolute terms, but even more so compared with the balance sheet total.
We continue to be conservatively positioned with our LTV, which is well below our target limit. At the end of the first two quarters, our loan to value stands at 36.8%. Let me now turn to slide number eight, the cash position. Besides our balance sheet, our liquidity position stands out. Compared to year-end 2018, cash increased by almost EUR 150 million. We arrived at EUR 344 million as of 30th of June 2022, despite our acquisition in Mainz Zollhafen, which was funded by our internal financial resources without any bank financing so far. Two other cash reducing activities were the repayment of the hybrid bond and the payment of the dividend. In compensation, we have raised EUR 40 million on the capital market in Q1 before the markets have effectively closed the door.
This financial buffer makes us independent of bank processes, guarantees and timelines, and puts us in a perfect position for opportunity hunting. On the right side of the slide, we give you an overview of our redemption profile. In Q4 of this year, the repayment of our 3.25% bond, which runs until 2022, will become due. As you can see from the shaded areas, more than 35% of our financing is green. This is the result from the highly successful replacement of our two sustainability-linked bonds last year. Right now we are not resting on our laurels either. We are continuously screening the debt market in order to get into action as soon as a reasonable window of opportunity opens up. To conclude, we continue to have a flat repayment profile.
Together with our optimized balance sheet ratios and liquidity situation, this provides UBM with headroom and reserves for the uncertain times and opportunities. Now back to Thomas for more details on the pipeline.
Thank you, Patric. We are on slide number nine. Let us have a look what type of projects we have acquired for the next four years based on our total output logic. They have accumulated more than 3,300 apartments in seven cities, which all expect a growth of population. You might appropriately ask, who is going to afford them? Well, our prediction is that it will be less and less individual buyers. As those who cannot afford to buy with full equity, which we still see on the market, will find it more and more difficult to obtain substantial bank financing. We therefore expect a boom of institutional buying who rent out these apartments to the better off part of society on a fully indexed basis, thereby using them as one of the most effective protections against inflation.
We have seen this trend already and it will become increasingly important in the future. Our planned office space is exclusively in Germany and Austria. We have planned more than 150,000 square meters in timber following our claim to become Europe's leading timber construction developer. This is an important aspect for investors whose predominant question today is, how do I make sure that my investment is future proof and keeps its value on an index basis, of course? Now, some of you might ask, who is going to return to the office in a recessionary scenario? Our answer is more and more of those who still have a job. We have seen occupancy rates rise to new highs in June, according to Savills.
More than 1.8 million square meters of new office rentals in Germany's top seven cities represent an increase of 49% compared with last year. If you are afraid that you could lose your job, you want to make sure that your boss sees you as often as possible, and that's in the office. As mentioned before, not all is going to be black and white. This also applies for our outlook and the last chart. Please turn to chart number 10. I think we have spent enough time on why we might be facing a perfect storm. UBM has positioned itself for this situation over the last two and a half years, I must say, as we have been also very cautious with the impact of the pandemic already. Right, we were. UBM's projects are exclusively located in top locations.
We were never prepared to compromise on location and rather have accepted to acquire less projects. We have built a strong financial position and are prepared to pay the opportunity cost i.e., the interest cost. This puts us in an extremely good position for potential opportunity hunting, as Patric already mentioned. Deal security will become a major and more important USP over the next couple of months. That is what we dare to predict. With our risk strategy to fix construction costs at the beginning of a project for more than 80%, we are less vulnerable to volatile price situations many others are currently facing on the market. Finally, all investors should be fixated on sustainability, quality, and reliability to make their investments future-proof. With UBM, they take a safe bet.
Despite all of this, we predict the slow transaction market to continue for another couple of months and cannot allocate standing costs to new projects. We therefore expect our operational performance to generate earnings before tax between EUR 38 million-EUR 42 million. This is a third less than what we have generated in the difficult years, 2020 and 2021, but represents at the same time, less of a reduction than some of our direct peers have already predicted. I'm sure you have a number of questions on our guidance and other aspects of the presentation. Patric and I are looking forward to these questions. May I therefore open the line for your questions, and thank you for your interest in UBM.
Ladies and gentlemen, at this time, we will begin with the Q&A 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, you may press star followed by two. Anyone who has a question may press star followed by one at this time. One moment for the first question, please. First question is from the line of Stefan Scharff, SRC Research. Please go ahead.
Yes. Good afternoon, gentlemen. Stefan here from Frankfurt. I have a question about the changed market environment and what this could mean for your plans with regards to your big resi projects you have now in Mainz Zollhafen. You have in Munich with the big Bogner area , which should be completed, say, in 2025 or 2026, or the Gmunder Höfe coming earlier mid of next year. What are there any change to your plans or to how to develop these residential units?
Yeah. Good question. Partially, you've almost answered it yourself, Stefan, because we need to see where do we expect the situation to be in 2025 and 2026 when they are finalized. Well, for Mainz and, for those of you who follow me on the social networks, I've made the statement, UBM and Mainz is love. I believe that with BioNTech being so committed to Mainz is going to be boom town. The demand for decent living space is going to grow. We have an influx of population in Mainz, and this makes it very difficult for us to believe that Mainz is not going to be a market which is under high demand. The same, of course, is also true for Munich.
It has always been true for Munich, and it will always be true for Munich. I can't stop reminding you that the 10 most expensive suburbs in Germany are all surrounding Munich. If you want to work in Munich, if you want to live in Munich, there's no way out than to buy property in Munich. I know the double digit, i.e. more than EUR 10,000 numbers, for a square meter of living space, doesn't sound as if it's all blue sky. We are not worried about this. You've asked about the Gmunder Höfe. They are partially sold, and the rest is under very strong demand still, simply because there is too little living space that comes to the market.
This situation, as I've mentioned, is aggravated by the current decision of a lot of developers, including us, that you don't start construction before you can rely on the prices that are quoted by construction companies.
Okay. Regarding your dividend for next year, you've given guidance now saying about EUR 40 million pretax could be likely, and this is a bit lower than in 2021 with more than EUR 60 million. Also, the dividend payment should go down. I would say perhaps EUR 1.40 or EUR 1.50 might be a realistic scenario. Perhaps you can share your thoughts with us about the dividend topic.
Yeah. It's a bit early, Stefan, to talk about the dividend, if you're still not certain enough of what the year is going to bring. As you said, it's to the best of our knowledge and because we've promised you a guidance. Yes, the dividend is coined by two aspects. The one is our earnings expectations, and they were clearly frustrated this year, otherwise we wouldn't have paid a record dividend last year, but it was too difficult to predict. The other aspect which we also always stressed is continuity. We are focused on providing some continuity.
While, yes, I agree that from today's perspective, a reduction of the dividend is more likely than not, it is still too early, and this is why we haven't given any guidance on the dividend. I mean, the good news is, I also do not see a reason why we shouldn't pay a dividend from today's perspective.
Okay. If we talk about Timber Pioneer, you got the building permit, I think in December or beginning of this year. Are there some talks underway for a forward sale or forward deal here? Or you say the market is too difficult at the moment and you wait for some more serious talks, let's say in autumn or in the winter months?
Yeah. Well, for those of you who live in Frankfurt, it's really worthwhile passing by because basically F.A.Z. Tower looks completed and is actually almost completed. While Frankfurter Allgemeine Zeitung is still taking time, but that has something to do with themselves, I think another six months to move in. The Timber Pioneer is rising with an enormous speed, which has something to do with the timber construction. As you've mentioned, at the moment, it's not the best time and timing to talk about a sale. Therefore, I wouldn't really say that we are in advanced talks for selling the property.
I've also mentioned in the past several times that if there is anything that you can sell in Frankfurt, it should be the first timber hybrid office building that this city has seen. We are not really worried that ultimately we wouldn't find a good buyer. A good buyer is also one who pays a full price for this asset.
Okay. Thank you very much.
Sure. Pleasure.
As a reminder, if you'd like to ask a question, please press star followed by one on your telephone keypad. The next question is from the line of Simon Stippig with Warburg Research . Please go ahead.
Yeah. Thank you very much for taking my question. I have two topics, and the first topic of questions would be also in regard to the dividend. I just wonder, you defined it with a dividend, or the dividend policy as continuity, what you just said. Can you give a little bit more insight into, how you define continuity? Do you define continuity, as being then on the same level as the previous years? Or do you just say, okay, there should be a certain years on your dividend measured on the share price?
Maybe second one, in regard to the dividends topic, would you also consider paying out a probably higher dividend if there is the market more or if you see a better market and opening bond market where you can potentially refinance the EUR 80 million bonds or the bonds of upcoming maturity in the next year? That would be my first question.
Yeah. Well, I said a lot about the dividend, and as I have said before, and I reconfirm this, it's too early to really speculate on the dividend. What we are clearly committed for is that as long as we are profitable, we are also paying a dividend. Okay. At the same time, it's difficult to see that we pay as much as last year, which was the record dividend, if the profitability is reduced. The dividend payments have nothing to do with our refinancing situation because we pay the dividends out of our cash flow. The one topic has nothing to do with the other topic.
If you take away, we are, from today's perspective, fully committed to pay a dividend and adjust the dividends to the ultimately then more visible situation which we are at the beginning of next year, because that is actually when we take the dividend decision. I think that's the best we can tell you at the moment.
Okay, thank you. Dividend guidance then would only happen probably with the full year 2022 disclosure figures.
Yes.
Is that?
Because-
Okay.
Everything else wouldn't make any sense.
Yeah, exactly. Okay. Then, the second question is around financing, or the second topic of questions, and first one is in regard to bonds. So I would be interested in what's your current average cost of debt for your unsecured financing. The EUR 81 million upcoming this year and the EUR 120 million upcoming next year. Is that? Yeah, could you give me an indication on that.
You mean what the current financing point at the market would be, or you mean what the current financing of these bonds is? What the pricing of these.
No, no. What's your indication for if you would issue a bond, say, in the volume of EUR 80 million-EUR 120 million with tenor of five years then?
I mean, the first question on the bonds is when is an opportunity in the market that you can issue bonds? We are in the unrated crossover market. The market was closed for a while. As I mentioned, I still think that the market is a difficult one currently. The question is, can you issue a bond currently? I would say if you are not under scrutiny, you wouldn't do that currently. But if we would have to issue a bond, what we are seeing is that the five-year swap, which is the basis of the bond, when we issued our bonds in the past, it was minus, let's say between -40 and -20 basis points. Currently, it's at 180+.
You need to at least have 200 basis points-220 basis points on top in order to make up for the five-year swap rate. If you put that on top, because I don't see us issuing a bond when our risk rate is increasing too much, you would end up in the range of 500 basis points-550 basis points currently. That is the current price point of a new UBM if the window would be decent to come with a bond.
Okay, great. That is very clear. Second part of the financing question is in regards to the project financing. There's also something upcoming in 2022 and 2023. Could you also indicate what's your rate on project financing, if you would roll that? Then maybe also, what do you intend to do with this project financing? Then also on what projects, is there any cluster financing of probably the asset portfolio, et cetera? Could you give me just a little bit more insight into?
Sure. Let's start with the price ticket, and it's clearly a very different view if you are financing in euro terms or if you do project financing in Czech koruna or in Polish zloty. Let's start first with the euro terms. What we have here is the three-month EURIBOR, which is normally underlying our financing. In the past, that was always with a floor zero, and it was a negative rate on the three-month EURIBOR. Currently, it is a little bit positive at, I would say, 45 basis points-50 basis points that needs to put on top in any euro financing compared to the financing world we had before. In terms of risk, we are not seeing any changes.
If we are coming with a decent project to a bank, it is neither more difficult to find financing. It takes more time, but that was a phenomenon which also was already true last year. In terms of risk appetite of the banks or in terms of rates they put on top of risk. Nothing has changed. Basically, currently, I would say a financing I did last year, a project financing compared to a financing this year, and it would be the same project, we would end up with probably 40 basis points-50 basis points more in EUR gross.
Okay.
In Polish zloty or in Czech koruna, that is a very different game as the underlying rate. The risk is the same. I could say the same than I said on the euro terms. The risk appetite of the banks has not changed dramatically and also not what they put on top. But the underlying rate is super different. We are now talking about 9%-9.5% underlying rate. Or the total rate is 9%-9.5%.
Yeah.
I'm sorry. The underlying rate is 6.5% or so. It is a very different game in this world. You were asking on what is up for refinancing this year. Basically, there are two. The one is the Poleczki rollover of the project financing, which we have done in the past, and which we are already on the final to sign it. No worries. The second one is the voco The Hague. We are currently in negotiations what we are doing with this one because it is, as you know, a development and still the development financing. We have to see if this will be a standard long-term and we need a standard financing. This is currently up for negotiations.
That is a smaller part of the 75. Next year we are only talking about financings we have done in acquiring the project. It's something like LeopoldQuartier, St. Veit, Astrid Garden, Pelkovenstraße All projects where we have acquired land and where we have, first of all, a land financing in and need to negotiate now into a stage where it is a development financing, which is business as usual, I would say. I'm not too worried about these ones.
Okay. That's a very good answer. All clear. Thank you very much.
You're welcome.
Next question is from the line of Christoph Schultes with Erste Group. Please go ahead.
Yes. Good afternoon, and thank you for also taking my question. I just look at slide number 13. This is your pipeline and the table with the projects under construction. Can you please remind me which projects will be started in the second half of this year? Maybe the reason why you are starting the projects in this difficult market environment. Has this also something to do with the utilization of resources in your business that play maybe an important role to start projects? That would be it from my side. Thank you.
Well, thank you, Christoph, for your question. As you can see on slide 13, there is a very limited number, i.e., EUR 40 million for start of construction. The one that is for sure is a comparatively small project for UBM circumstances in the Tyrol, in Kitzbühel, the Adler Lodge, that has already started. The other one we have under contemplation because it's the Thulestraße project in Berlin. It's a residential project in Berlin. It's not even decided if we move ahead or not. We are currently in discussions with our 50% project partner on this one. It's very, very limited. The reason for it, I've clearly stated we believe that construction costs will become more predictable.
I don't say on purpose lower, but more predictable going forward because we have clearly seen a double-digit % number of project cancellations in Q2. This is again data from Germany, but they're the most reliable source from Bulwiengesa. It means that, of course, construction companies will be struggling with their order book eventually and then have to decide what type of risk they are prepared to take in terms of, you know, unpredictability, sorry, of prices. If you have a look at raw material costs, and I on purpose do not point out wood, which has decreased by 50% over the course of this year after a certain exaggeration towards the end of the year, but also aluminum or other raw materials.
You can see that prices have come back quite significantly. However, we all know that the supply chain is always including Asia. And there comes the uncertainty and the unpredictability in connection with the zero COVID policy in China. In other words, we are not forced to stop any projects because we would lose a building permit, such that sometimes is the case. That is also the explanation to me why some of our peers are still happily starting construction projects where they have price sliding clauses included, which we would not accept. The projects under construction, by the way, are the ones that you can see on slide number 14. All of those are more than 80% with fixed prices before all the turbulences occurred. That has something to do with our fixed or variable policy, as we've explained in the past.
Okay, great. Thanks. Thanks very much.
Sure. Thanks for your question.
There are no further questions. I would like to hand back to Thomas Winkler for closing comments.
Sure. No, thank you for your attention. Thank you for bearing with us for almost 45 minutes. That's more than I've expected on a day like today, because I know the conference calls that are upcoming. If you have any further questions, Chris is only too happy to answer them. Of course, you can also always revert directly back to me. Look forward to speaking to you in November. Bye-bye.