TAG Immobilien AG (OTC:TAGOF) Q2 2022 Earnings Conference Call August 23, 2022 4:00 AM ET
Company Participants
Martin Thiel – Chief Financial Officer
Conference Call Participants
Andre Remke – Baader Bank
Clark McPherson – Clearance Capital
Marios Pastou – Societe Generale
Tom Carstairs – Stifel
Sander Bunck – Barclays
Simon Stippig – Warburg Research
Manuel Martin – ODDO
Operator
Good day and welcome to the TAG Immobilien Interim Report Q2 2022 Conference Call. Today’s conference is being recorded.
At this time, I would like to turn the conference over to Martin Thiel. Please go ahead, sir.
Martin Thiel
Yes, many thanks and good morning all. Many thanks for dialing in for our H1 2022 conference call. And as always I will try to give you a short overview about the presentation and afterwards, we have plenty of time to answer your questions. So let’s start with Page 4 of the presentation. That’s the highlight slide, and let’s have a quick look at the operational development in Germany. Quite good development in the vacancy rate in our residential units. Vacancies stood at 5.2% at the end of the second quarter compared to 5.7% at the beginning or at the end of the first quarter. So 50 basis points reduction, despite rent dip already in the press release that even after the balance sheet date, there’s good development continues. So we are today at around 5.5% vacancy already.
In line with a good development of the vacancy rate, like-for-like rental growth, including vacancy reduction, increased to 2.0% after 1.5% in the previous quarter. FFO I came up at €48.5 million compared to €47.8 million in the previous quarter. And if we compare the first half of 2022 with the first half of 2021, that was a roughly 5% increase. And comparing that with our guidance, which still stands in the midpoint at around €190 million, you’ll see that we are on a very good way to achieve the guidance. EPRA NTA before the rights issue – before the effect of the right issue, we’ll come back to that a little bit later, stands at €25.17 per share. And LTV also before effect through the rights issue was at 47.0% at the end of the second quarter.
Looking at acquisitions and disposals in Germany, there was only one small acquisition in the first half of 2022. We acquired 360 units at a purchase price of €11 million. Looking at the acquisition multiple, that seems to be quite high with 21.4x net current rent, but the vacancy rate of this portfolio, which is located in Halle, which we know very well, was at 52%. So reducing that vacancy rate quickly brings then the acquisition multiple to a range that you are more used from us. So that’s in light of this high vacancy rate, nothing unusual. 700 units disposed and signed already in the first half of 2022, mainly noncore assets, and a good message around this is that we achieved a book profit of nearly €3 million. So we sold these assets in the first half of 2022 above book value.
Looking at the results from the portfolio valuation by CBRE, which was done on a semiannual basis as always, and by the way, the full portfolio, was valued. We achieved a 4% semiannual valuation uplift without any CapEx. So including CapEx, this valuation uplift – total value uplift would be more around 5%, and the split between yield compression and operational performance of 85% and 15% was very similar to the valuation result that we had in the previous years. New valuation levels stand at €1,270 [ph] per square meter or a 5.1% gross yield.
Looking on the next slide at our development in Poland. First of all, important to realize in the previous numbers that we had the first time consolidation of ROBYG at 31st of March 2022, so that means in the period for the second quarter 2022, ROBYG was included for the first time, while in all balance sheet items at the end of the first quarter ROBYG was already included. As a result, we had a quite strong increase in units sold and units handed over because ROBYG is now fully contemplated. So we sold in the second quarter 2022, 527 units, very similar number was handed over compared to the first quarter. This was a quite strong increase now due to the first consolidation of ROBYG. The result from operations in Poland increased to €6.4 million after a small loss of €4.3 million in the first quarter.
On Page 6, we summarize from our point of view, very important highlights. First of all, some comments on the rights issue. I mean, we would – once again the data we issued nearly 20% of existing share capital in July 2022 and achieved gross proceeds of €202 million. Including this rights issue into the calculation for the LTV, the LTV was already reduced below our LTV target. So on a pro forma basis, after the rights issue based on the numbers as of the first half 2022, the LTV already stands at 44.5%. This rights issue was clearly not an easy decision for us. I mean we know issuing shares at €6.90 was the hard decision that was dilutive. Clearly, we want to explicitly say thank you to our shareholders for participating in the rights issue for their support. But looking back, I think it was still the right decision to do it.
It was clearly a commitment to our investment grade rating. We achieved a strengthening of our equity base. And it was also an important step of the refinancing of the ROBYG bridge facility, which is at least a part still outstanding. As a consequence of the rights issue, we had to adjust our guidance only on a per share basis. So the guidance in absolute amount is unchanged. So FFO I, FFO II dividend in absolute amount, there is no change. But as we have now higher number of shares, you see this on Page 06; we had to adjust the guidance on a per share basis. We used for FFO I and FFO II, the weighted number of shares and for the dividend per share we used the current number of shares outstanding.
Yes, looking at refinancing activities. I already mentioned that the rights issue was an important step to repay the bridge loan for the ROBYG acquisition. So after the balance sheet date with the help of the proceeds from the rights issue with existing cash, we’ve been able to already reduce the bridge loan from €650 million to €310 million. We are still working on the disposals. We announced that with the right issue that we want to sell around 2,800 units on top of the 700 units that I mentioned before, which have already been sold in the second half of 2022. And we want to achieve net proceeds. So that means after repayment of any bank loans and after payment of income taxes of around €300 million, there have been disposals already signed with net proceeds of around €40 million, and we expect that for the remaining disposals, we achieved signing and also closing in the course of the second half 2022.
I mean clearly, the market, just as a general comment, is more difficult than someone expects. We see less buyers out there, but there’s still demand for our properties. And we are doing this as we have also explained during our discussions, during the rights issue. We’re doing this really on a very granular basis. So we’re selling smaller portfolios in sizes of perhaps 200 to 300 units. And I think this is still a product which is very accepted in the market, and we are also very confident that we can reach our value for these properties, but it simply takes some time. So we have to be patient, but we are on a good way. We’re optimistic, so that’s definitely doable. We signed this 2,800 units in the next month. And by using this net cash proceeds, the bridge loan will be repaid.
Furthermore, we have issued a promissory note in June 2022 of around €65 million, average maturity of around five years. And for five years, the fixed interest rate, the coupon was 3.9%.
Additionally, we are very active regarding our mortgage secured bank loans in Germany. Originally, with all of them are maturing in the financial year 2023. So in fact, we are doing an early refinancing of these bank loans, that’s already underway. We are very close to signing term sheet, and we expect from this refinancing additional cash inflow by a new higher loan amount of around €120 million to €140 million. So that provides us with additional cash for example, to repay the upcoming unsecured debt in 2023. The closing of these refinancings regarding bank loans is expected to take place in the third or fourth quarter of this year.
Some comments on investments in Germany and Poland, where as of now, we are not planning any material acquisitions in Germany and Poland. I mean, we cannot rule out that we will do some small add-on acquisitions of some millions, but definitely, there are no material acquisitions planned in Germany and Poland in the next quarters. The CapEx program in Germany will continue. But the good thing is that, as you know, our CapEx amount in Germany is already very limited, already very targeted. We also have started ESG CapEx activities, but on a very targeted and moderate basis. So you should definitely not expect that in 2022 and 2023, you see a strong increase of CapEx in Germany.
More important is our decision in Poland that for now, we are stopping all new residential for rent projects. The ongoing residential for-rent projects, which are under construction, but of course, we finished and we will also start new residential-for-sale project in Poland. Once we have achieved certain presale ratio, so that with the help of customer prepayments, these residential for sale projects that start new are more or less self-funded. And as a consequence, we have materially reduced our funding in Poland. So if we look at the remaining part of 2022 and the full financial year 2023, the total net financing needs, that means what we as TAG need to grant for our business in Poland for operational purposes is between €50 million and €75 million.
And that’s before any additional sales activities, for example, regarding the land bank in Poland, which is still sizable. That means, as a consequence, looking at the funding needs for the next 18 months, that there are no material funding needs. As we are not planning to do large acquisitions in Germany and Poland, as we have reduced our CapEx in Poland, and I think this is an important message we want to send out today. Still, even with this decision, we will increase our rental portfolio in Poland. Currently, we have around 500 units on the market.
At year-end 2022, we should expect that we have finished around 2,000 units in total and at year-end 2023, the number of rental units will be around 3,000 units. And as we achieve per square meter rent of €12 or even more, should expect that also in the next year, already next year and in 2024, we already have a good and strong rental cash flow from Poland that should compensate by the way also the cash flow from rents that we lose via disposals in Germany.
Let’s go to Page Number 8, quick look on the income statement. I mean, you see in the income statement, the main change quarter-on-quarter valuation results of €274 million, which is the full portfolio valuation. Out of this valuation result, roughly €17 million, are coming from Poland, as this portfolio is still much smaller than the German portfolio that for clearly also the valuation result or sheer valuation result is smaller.
Look at an increase in personnel expenses as well as some other effect in the P&L, I mean this increase is due to the first-time consolidation of ROBYG. As I said, now in the second quarter of 2022 for the first time, ROBYG was fully consolidated.
Turning to Page 9, which shows the development in EBITDA, FFO and AFFO. What are the main developments here? EBITDA adjusted from German business basically remains stable. So the EBITDA adjusted margin is still at around 17%, which is, from our perspective, very good, achieved an increase quarter-on-quarter in FFO I, mainly due to roughly €1 million lower cash taxes. The FFO contribution from Poland, which is the result of the operations in Poland, which is today nearly completely a sales result, increased, if you compare the first half of 2022, with the first half of 2021 from €4.5 million last year to €5.1 million, and we will have a significant increase in this result in the third and fourth quarter. As I said, this result is mainly coming from disposals in 2022, and the largest number of apartments will be handed over and the revenue will be recognized in the third and fourth quarter of 2022. Nearly all of the apartments that are planned to be handed over in 2022 are already sold.
Page 10 shows the development in the EPRA NTA. We had some material effects, first of all, reducing effects very clear from the dividend payment in the second quarter, which was €0.93 per share with a positive impact from the portfolio valuation of €1.86 per share. And we had a reducing effect already. This was shown in the first quarter from the first-time consolidation of ROBYG. The ROBYG goodwill by definition is excluded from the EPRA NTA. So we have not done a write-down in the balance sheet. But by definition, this goodwill is excluded from the EPRA NTA calculation. So therefore, this effect from €1.67 is there as it already was in the first quarter.
So we arrived at an EPRA NTA of €25.70 at the end of June, taking into account the rights issue where we issued shares at €6.90. This has clearly a dilutive effect. We end up on a pro forma basis at €22.11 per share.
Page number 11 shows the financing structure. As I already said, and as also stated on the right side of the slide, after the capital increase on a pro forma basis, the LTV is already below our LTV target in sales at 44.5%. And you should expect further reductions in the LTV by the disposal of nearly 3,000 residential assets in Germany, which would bring the LTV again on a pro forma both basis more towards 42%.
Looking into the maturity profile, you still see as of the balance sheet date 30th of June 2022, €340 million of maturity from the bridge loan and you see the star at the maturity profile and the comment that’s already repaid as of now. So this €330 million is already done.
Looking into 2023, the dark blue color are the mortgage secured bank loans to the very largest part in Germany. As I said here, we are, regarding the refinancing, on a very good way, in a very advanced stage. So this should be done, hopefully, in the next weeks. So therefore, looking into maturities of 2023, if I try to break it down to the most important numbers, we are talking about the above three numbers, which is 77 million of bonds issued by ROBYG, which is €116 million of promissory notes at TAG level and €125 million of corporate bonds issued by TAG. Knowing that we expect additional cash inflows from this bank refinancing of, as I said, at least €120 million, basically on a net basis, we are left with upcoming refinancing needs regarding unsecured debt of around €200 million in 2023 and that should be doable.
So again, looking at investments that we need to do in Poland that has been materially reduced, looking at upcoming maturities after the refinancing of the bank loans, that’s also not yet material. So therefore, for 2022 and 2023, the whole capital needs are, as of today, absolutely manageable.
We have Page number 13, which shows the portfolio at a glance. Just some comments on the GAV, which stands, as of today, at nearly €8 billion, €6.7 billion refers to the German portfolio and €1.1 billion for the Polish portfolio.
Page 14 shows the development of rental growth and CapEx in the German portfolio. As already said, quite good development in the like-for-like rental growth. The total like-for-like rental growth was at 1.3% in financial year 2021, and now that increased to 2.0%. It clearly shows that the operational business in Germany is on a very good way. So the guidance for the full year 2022 for this total rental growth stands at 1.5% to 2%. We are already at the upper end of the guidance.
And still, this rental growth is achieved with moderate investments that’s shown on Page number 14. On the top right, if we put really everything together, maintenance and CapEx and show this on an annualized basis, we are right around €21 per square meter, and this is an unchanged number in comparison to the previous years, which is, from our point of view, a good result, especially having in mind that, of course, we are today facing higher costs for maintenance and CapEx than in the previous years.
Page 15 shows the vacancy development in the German portfolio, 5.2% at the end of June and already down to 5.0% in August. So we have basically today already achieved the vacancy reduction guidance for 2022. We communicated that we want to get to vacancy rate between 4.8% and 5.0%. So in August, we are already there, but we think this positive trend will continue in the next month as the underlying business is very strong. So therefore, again, we’re here on a really good way.
On Page 17, you see summarized the portfolio valuation results. I already mentioned, the main results, simply repeating once again. 5.1% gross yield and €1,217 per square meter were the final numbers. I mean, looking into the second half of 2022, it’s clearly much more difficult than in previous years to predict the development of valuations.
Perhaps we need to be aware that the time where we and everyone else in the peer group, we reported very strong valuation gains is to a certain extent over now. But if you ask us, what is the realistic estimate for 2022? Is it a stable valuation? Yes, that’s perhaps a realistic outcome that we would expect. So valuation result, which is perhaps a slight increase or stable valuation from our perspective, should be estimated for the second half of the year.
But to make this clear, we have not yet any indication from our valuer. That simply is something that we observe currently from the market. As I said, I mean, at our disposal, that’s in a good way, but it takes longer time. So therefore, this kind of valuation guidance, we expect something realistic.
Coming to Page number 19, you see the main data for our portfolio in Poland. We have slightly adjusted the numbers. So total investment cost per square, I think for both components for build to hold and build to sell have been adjusted to current price levels. But it’s important to mention, the yields and margins that we achieved and expect that Poland are unchanged.
So even although construction costs have clearly increased, we have also increased sales prices. We have also increased rents. So we are still, for example, talking about an average gross rental yield of around 7%. And one comment on the development of construction costs. We have seen in Poland in the last two years – or basically, since we are in Poland, with quite strong construction cost inflation that seems to have reached now really a kind of plateau.
So we see already for some material that’s the main reason why the construction price inflation was coming from a slight reduction. So therefore, we’re confident that perhaps this strong trend of construction price in Poland is coming to a kind of end.
Page 20 shows you the rental units, which we have on offer, which is unchanged to the previous quarter. But just once again, to point out the very strong demand that we see for these units. So the vacancy rate in this a little bit more than 500 units is 0.6%. We’ve given you also numbers with the extra rent per square meter that we achieved compared with the planned rent per square meter when we started the rental process. So it’s more than 10% above the expected level. So therefore, for the rental project, the demand in Poland has stayed extremely strong.
And finally, on Page 22, some comments on the FFO and dividend guidance. In absolute amounts, everything is unchanged. So FFO I still stands in the midpoint at around €190 million. FFO II still at €250 million. So that means we expect roughly €60 million results from our operations in Poland in 2022. And if you look at the numbers, for example, at the run rate for FFO I for the first half, you’ll see that we’re here on a good way.
As said, we adjusted the per share guidance for the new number of shares that needs then to affect that the FFO I guidance per share is now reduced to €1.20. That as we have a payout ratio of 75% based on the absolute amount and use the outstanding number of shares that we currently have, the dividend per share is reduced to €0.81 and FFO I – FFO II per share now stands at €1.58.
Looking at FFO II per share, even with the new numbers, there’s still a 22% increase in comparison to the previous year. Looking at FFO I per share numbers compared with the previous year, there’s a 3% reduction. And looking at the dividend, that’s a 13% reduction in comparison to the previous year now taking into account, as I said the new higher number of shares.
Yes. That’s it from my side, as an overview for the first half of 2022. Thank you so far for listening. And of course, now I’m very happy to take your questions.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] We’ll now take our first question from Andre Remke from Baader Bank. Please go ahead.
Andre Remke
Yes. Good morning, Mr. Thiel. A couple of questions from my side please. Starting with the bridge loan, you mentioned to expand the line by six months. What has changed – what are the changes with regard to the terms of the loan, i.e., the cost? Do you face higher cost or agreed on higher cost for that? So this is the first question, please.
Martin Thiel
Yes. Good morning, Andre. First of all, correct, the bridge loan, the maturity has been extended by six months to January 2024. Without going into the details, I think it’s fair to say that for the next two, three quarters, the conditions are nearly unchanged. But clearly, the bridge loan, as it is not unusual for such a loan, becomes more and more expensive once we continue to extend this bridge loan.
So I would say in the last quarter that we would potentially use the bridge loan. Is it an extremely expensive financing in today’s interest rate environment? Perhaps not. But we are, of course, somehow incentivized to repay the bridge loan earlier. But I mean, in an extreme case, just a little bit clear, we could, of course, use this bridge loan until January 2024.
Andre Remke
Okay. This brings me directly to another question on your dividend policy. You gave the guidance for this year. Yes, you confirm this with a higher number of shares. Could it be an option to rethink that, given the capital needs, especially to – maybe to refinance it as bridge loan by a certain extent? So especially the current dividend yield took us on a very depressed share price level. Is it highly attractive or is this in general a NOBO for you?
Martin Thiel
I mean, as I said, today, the guidance of the dividend is unchanged, but we’re clearly right now in a planning process for the years 2023 and later, and we know that we are publishing our guidance each year in November. So we will do this with the Q3 numbers that we published, as said in November. We will also give a guidance for the dividend.
I can’t really say, as of today, what is still the most likely outcome of the planning in general and also for the dividend. So we’re right now working on this, and we’ll come back with any details then, as every year in November.
Andre Remke
But this refers also to the dividend for the fiscal year 2022 and not the new for the 2023 dividend, right?
Martin Thiel
Yes. I mean, hopefully, in November, we’ll have much more clarity about the refinancing process. So disposals, bank loans about the situation on the capital market place, about the development in Poland, and about development of rental projects, for sale projects in Poland, capital needs, I think we have already today quite a good view. But particularly as in the previous years, and perhaps this year it’s more complex than previous years, we need to put that together and then to give a concrete outlook for FFO I, and also for the dividend, which is then – which is first and to 2023.
Andre Remke
So again, both guidance from today’s perspectives are set in stone for the fiscal year 2022, i.e., both FFO as well as dividends?
Martin Thiel
Yes. That’s fair to just say it is as of today.
Andre Remke
But again, it could change in November, if you have more clarity on all the external and internal factors moving around?
Martin Thiel
Yes. And is this something unusual, Andre, I would say, no. I mean, basically, we are deciding on the dividend. In fact, when we invite to the AGM next year, but of course, we want to give a guidance to our shareholders. We need to update that if something changes. And that’s also what we have in mind for this year. What is different this year than in previous years? I mean, we are clearly in a different economic environment, yes? I mean looking one or two years back, the environment regarding capital markets, for example, was clearly different, much more stable, also much more positive. So therefore, any outlook, and I think that’s a not unusual that we give today on the next 12 to 24 months is perhaps more uncertain than in the previous years.
Andre Remke
Okay. Yes. Thank you for that. Okay. Another question is you mentioned the 2,800 units for disposal, and you already sold for €40 million out of roughly €300 million. How many units are standing for that? And in the closing, you mentioned it is expected until year-end. This is true for the €40 million or for the total €300 million?
Martin Thiel
No, that’s the plan for the total €300 million. So if we achieve the signing to the largest part, let’s say, now in September and October, that should be still doable. I mean, is it a worst case? Is closing of some portfolios is in January, February next year? Perhaps from our perspective, not more important is the price. And we have not really an urgent cash need in December. What is perhaps more the message we want to send out is that we were able to sell these portfolios at a good price. It’s done, and then the closing should be more something technical. But again, that’s the target for the full €300 million, and the €40 million net proceeds refer to roughly 300 to 400 units.
Andre Remke
And this is the usual portion of the portfolio or a number of units for single disposal, so roughly 300 to 400 units.
Martin Thiel
Yes. As I said, in this total package, if you want, so that’s not one or two large portfolios, it’s very granular. So 200, 300 unit size, that’s very typical. Again, that leads them to the fact that this process is perhaps a little bit more complicated. It takes a little bit more time. But we think its worth going to this size because here, we expect clearly more demand and we see, by the way, already more demand than perhaps for the portfolio of 2,000 units.
Andre Remke
Okay. And last question referring to that. Surely, you’re addressing at book value, I would assume the €40 million, is this at rough book value or maybe…
Martin Thiel
The €40 was sold above book value. So I think it was 5% or even more above book value something between 5% and 10%. For the remaining portfolio, we expect that this is around book value.
Andre Remke
Perfect. Then a question on the refinancing of the bank loans for next year. Could you remind us on the current cost of debt for the €120 million portion? And what could be expected to level as you told us that you are close for closing. So any indication would be helpful.
Martin Thiel
Yes. But the current cost of debt for these maturing bank loans is I think slightly about 2.5%. I mean these are bank loans that we have taken on maybe 10 years ago. I mean we have amortized these bank loans, and LTV of this portfolio is very low. So that enables us now with refinancing to get additional liquidity. And current bank loans are, I would say, regarding the coupon, around 3%. I mean, you know that mid-swap rates are very volatile at the moment.
So we’re still talking about margins for the bank loans, I would say, an average between perhaps at around 90 basis points. So clearly, mid-swap currently stands above 200 basis points, so in rough numbers. If you replace the 2.5% coupon with 3% coupon, it should be a good estimate.
Andre Remke
And you’re starting for 10 years again?
Martin Thiel
Yes. That’s in both cases 16 [ph] years.
Andre Remke
Okay, perfect. Then a very last question and a more general question regarding your investments in Poland, which is about €1 billion. So some of your peers evaluate it, let’s say, some – or had at least some ideas for joint venture structures, to get in some institutional investors into participation. Would this also be an idea for you with regard to Poland?
Martin Thiel
Yes. I would say this is an option, and we are clearly looking into this possibility. But perhaps you should not think about, as I said, huge joint venture on level of ROBYG or Vantage. But that we identified certain projects where we get perhaps equity from joint venture partner to realize this project and that is currently something we’re looking into.
Andre Remke
Okay. Perfect. Thank you very much. That’s on my side.
Martin Thiel
Thank you.
Operator
We will now take our next question from Clark McPherson from Clearance Capital. Please go ahead.
Clark McPherson
Good morning. Thanks for hosting the call. Just a further question on the bridge loan facility, specifically, and how it relates to the rating back in July when Moody’s placed your rating on review for downgrade, they indicated that they wanted to see the refinancing of this facility addressed within three months. So I’m wondering your extension of the outstanding bridge and your plans to refinance the disposals, have you actually gone back to Moody’s and discussed that with them to ensure that, that’s sort of in line with their expectations.
Martin Thiel
Yes. First of all, good morning. I mean the rating comment that you’re, I think, referring to from Moody’s was issued shortly before we announced the rights issue and also shortly before we extended the bridge. And for the rating agencies, that’s not Moody’s specific, I think that’s valid for all rating agencies, it’s always important to look into the next 12 months when it comes to liquidity. So that means by extending the maturity into 2024, we have not really, from our perspective, extreme pressure to refinance the bridge loan now in the next weeks or within this three months. So therefore, we have clearly gained time.
And I mean if you look into the disposal plans that we have, that should then match very well that we sell assets, get the proceeds from these disposals, repay the bridge loan. Let’s assume for what reason ever, if the disposals are more time-consuming than expected, then yes, of course, we could also use proceeds from the bank loans that I mentioned to repay the bridge loan in the next months. So therefore, I think this extension of the bridge loan is, of course, something which is available for the company, which is, of course, very helpful for the rating purpose as well.
And just also to active, we – of course, you can assume that we had intensive discussions with both rating agencies about our plans, for example, for the rights issue. But for example, this Moody’s comment was also published before we actually started the rights issue. So from my perspective, this should also be something positive that we then finally did the rights issue and also completed the rights issue with the gross proceeds of around €200 million.
Clark McPherson
I think in the equity report, they – sorry, the rating report, they acknowledge the anticipated equity proceeds. So – but obviously, the extension was not factored in. So I’m wondering, now do you expect Moody’s to adjust that outlook from review to downgrade to either a negative for a stable outlook? Have you had conversations on those lines with the agency?
Martin Thiel
Yes. I mean, it will clearly happen next weeks and again, more detailed conversations. And what both rating agencies are expected is that we simply make progress on the refinancing of the maturities in 2023. And from our perspective, we have already achieved a lot, first of all, the rights issue by €200 million. Secondly, the extension of the bridge. Hopefully, we can also present more details on disposals in Germany. We are making progress on the refinancing of bank loans in Germany with additional liquidity. So therefore, I think we have a good way to achieve a better rating position than we have currently.
Clark McPherson
Okay. Great. Thanks very much.
Operator
We will now take our next take our next question from Marios Pastou from Societe Generale. Please go ahead.
Marios Pastou
Hi, there. Good morning. Thank you for taking my question. Just a couple remaining from my side, more related to your development program in Poland. So firstly, would it be possible to just confirm the number of rental units that are currently under development? I know you mentioned you’re aiming to have a portfolio of around 3,000 units by the end of next year, but I wanted to check if there’s more scope to come maybe in 2024 from any units that are already in development. And then secondly, just a bit of an idea on the build-to-sell pipeline, how it looks for maybe the next few years in terms of the number of units you expect to hand over to potential customers? Thank you.
Martin Thiel
Good morning, Marios. First to complete the picture of what’s coming up for 2023. That’s an additional roughly 1,000 rental units in Poland, which are under construction. I mean for some of these units, we’re currently thinking if we transfer that to the residential for sale business, but I think for now, our assumption is still that we have been asked for 2023, so in 2024 an addition of 1,000 units in the market. So that would give us a total rental portfolio in Poland in 2024, so in 2.5 years around 4,000 units.
And to the second question, what is the realistic outlook for sale of apartment and I think this is then – that’s also the outlook for handing over apartments each year in the current environment in Poland. But for 2022, we expect that total sales are at around 2,000 units. So we have already reduced our plans – adjusted our plans for this reduced number, which is still a number where we’re making profit and where we can achieve additional cash inflows. And I think for now we expect that in 2023 we will perhaps achieve a similar number. So looking into the future is of course in this environment more difficult. But even in this difficult environment in Poland with higher interest rates we still have higher portion of buyers who pay from cash. So 2,000 units a year sold and handed over should, for the time being, be a good estimate.
Marios Pastou
Okay. Very helpful. Thank you. And in terms of pushing the button on additional development, how quickly can you make these changes or flexibility in the pipeline to maybe bring more units to the market, say in 2024? What is the average time from pushing the button to actually handing the units over on average?
Martin Thiel
In general we very flexible. First of all, the locations between residential for rent and residential for sale business are in many cases not the different. Ideally, you decide on the purpose of the building, so is it for rent or is it for sale before construction starts, and the construction time is around 18 months for residential for sale project, around 21 months for residential for rent project because you need to do the fit-out interior as well. But in fact, I mean, even if you decide during the construction phase, if necessary, that you rent out some apartments afterwards, that’s already possible. And I think this is really an advantage that the Polish market has. The apartments are very similar. The market is not regulated. So making changes for the purpose of an apartment between residential for sale and residential for rent is much more easier than, for example, in Germany.
Marios Pastou
Very helpful. Thank you very much.
Operator
We will now take our next question from Tom Carstairs from Stifel. Please go ahead.
Tom Carstairs
Good morning, Martin. I just got one follow-up on the Poland side of things. Where you spoke about the CapEx performance Poland €75 million [ph] by the end of 2023. Could you tell us what that was previously before you sort reprioritize the development scale business?
Martin Thiel
We have clear – I mean, previously, and previously in this sense means perhaps from the point of last year or some months back, we expected spending between all around €250 million, perhaps €300 million in Poland as we clearly wanted to ramp up much quicker the residential for rent business. So therefore, you can see that we have really reduced for now the investment in the residential for rent business we have also shifted first projects from the residential for rent business to the residential for sale business. So it did clearly then gave us – or led us to a much more moderate investment need that we now have. And this is perhaps really important to understand and would explaining that in previous calls or I have not been very good at explaining this. The land bank that we have in Poland, the platform that we have in Poland, that’s really an option. And we are in command really to manage that.
When we start projects, we’re really able to adjust capital needs. So therefore it should not be a concern that we are running in Poland now into a direction we are forced to spend hundreds of millions each year so that’s not necessary and we can say that our team in Poland is really doing an excellent job even in this difficult environment. So therefore, we are able with the help of our colleagues in Poland to adjust this – to this, which we think – amount, which we think is something very manageable.
Tom Carstairs
Thank you very much.
Operator
We will now take our next question from Sander Bunck from Barclays. Please go ahead.
Sander Bunck
Hi good morning. Just a few questions left on my side. Just again on Poland and kind of trying to understand what has changed compared to the previous estimates. Can you just give a rough estimate from – has the change mainly been in the reduced number of build to hold versus build to sell, i.e., is it just a – has the mix changed? Or is it the total volume has changed on both build to hold and build to sell? And if you can give some numbers around that?
Martin Thiel
Yes. Good morning, Sander. In fact the total volume has changed. So for example, at the end of 2023, for now, we are planning to have, as I said, roughly 3,000 residential units on a market originally, so some months back perhaps end of 2021 the plan was to have more than 1,000 units on the market. So at the 2,000 units in very rough numbers difference basically means that we have not started new residential for rent projects in the last weeks and months. And that’s where the difference is coming from. It not so much in the residential for sale area. So therefore, it’s more a total volume change.
Sander Bunck
Okay, that’s great. And the fact that the number of build-to-sell hasn’t really changed. Is there actually a possibility to scale that up the build-to-sell pipeline mainly maybe to even reduced the net cash outflow even further or is demand in the market how to reduce somewhat given the higher interest rates and therefore this is kind of the max that you can currently do?
Martin Thiel
Yes. The demand is still reduced. I mean we are very open to the selling 2,000 units; it’s already a reduction from previous years. So for example, ROBYG. ROBYG alone has sold in 2021 more than 4,000 units, and still this 2,000 units as I said, able to generate profits in Poland still the case. Once the demand stronger, yes, of course, we could increase that, what we additionally could do to get cash inflows is to start the selectively, say, part of the land bank. I mean, we have really a huge land bank in Poland right now. So therefore, if we see the need to reduce our capital needs important further for what reason ever, or in 2023 or 2024, we need more and more liquidity from Poland, yes, we could also do more disposals. That’s clearly possible.
Sander Bunck
Okay. What is the potential for selling land in Poland? Like what a rough – if you were to decide to do that, like what is the maximum that you could potentially do in terms of land disposals?
Martin Thiel
I mean, if we would really need to do that very drastically, we could perhaps bring this net investment that we currently have of 50 million to 75 million, perhaps bring it down close to close to zero within the course of 2023. So as I said, I mean, that’s not the plan, so you should rely on this 50 million to 75 million number. But if necessary, that’s what we also want to point out that this comment in the presentation is that it is more possible.
Sander Bunck
Sure. Okay. And then the very last one I had was on the margins. I mean you pointed out indeed that construction prices have increased, yet the margins have remained broadly flat. That feels maybe a bit counterintuitive, given that demand has reduced quite a bit on the back of higher mortgage rate, et cetera. So can you just give some color on how margins can remain flat, despite a weaker demand overall? Is it basically that you – yes, just some more color on that that would be helpful.
Martin Thiel
Yes, actually, perhaps, I need to be more precise. I mean what we kept, 2021, a really exceptional gross margin of 30%. What we expect for 2022 and perhaps it’s also a good estimate for 2023, more gross margin of around 26% to 27%, which is then in line with perhaps the previous years. So what I want to make clear is that we have not really any erosion of gross margins right now in Poland. And as far as I can see this, we’re looking into numbers from other development – developers that it’s also the case for the whole market. So there’s not really a pressure on prices and comparing today’s prices. So in summer 2022, with prices in summer 2021, they are still quite strongly up. And to be clear, this increase in prices year-over-year is mainly coming from the second half of 2021.
Sander Bunck
Okay. Fine. So prices have stabilized now or basically?
Martin Thiel
Yes. That’s perhaps right to say. I mean 2021 was a year with strong price increases, also strong construction price increases. Now perhaps both components have more or less stabilized.
Sander Bunck
Okay. Great. That’s very useful. Thanks very much for that.
Operator
[Operator Instructions] We will now take our next question from Manuel Martin from ODDO. Please go ahead. Please go ahead. Caller, your line is open. Please ensure your mute function is turned off to allow your signal to reach our equipment. It appears the caller may have stepped away. We will now take our next question from Simon Stippig from Warburg Research. Please go ahead.
Simon Stippig
Hi, good morning. Thank you very much for taking my question. My first question would be in regard to Poland. And in regards to your – on the demand side, do you see – on your development to sell, do you see more cash from the buyers? Or if you don’t know that, then, I mean, do you have any information on your marginal buyers for Q2? Was there cash on mortgage? And then second part; is it the buyers – do they buy it to own or do they buy it to rent?
Martin Thiel
Hi, good morning, Simon. I mean, we know that currently, and that’s basically true for the full second quarter, I would say, between or above 70% – so 70% are cash buyers, that’s perhaps a number which is today more close to 80%. So that has clearly changed. And basically, this is the missing volume, right? The people who normally have had bought apartments and have taken on a significant mortgage like in the past year. So these are the buyers that are missing. But once again, these cash buyers are still there. If you ask as well, what’s the purpose of these buyers? I mean we, of course, cannot say exactly when they buy the apartment, what they – what they want to do with it. But I think the share of investors, so people that buy the apartment to rent out is perhaps unchanged to previous years, which was around 30% – so 30%. But it’s more and more a rough assumption from my side.
Simon Stippig
Okay. Thank you very much. And second part, maybe in regard to Poland. If I look into the market and you see the market holiday they implemented. We see a decrease of about 5% year-on-year in economic growth. Do you see any slowdown? I mean, surely, there’s a volume slowdown, you can see in ROBYG, but – probably in Vantage as well. But do you see any slowdown there? Or do you have any concerns? And yes, that’s one question to Poland.
Martin Thiel
Well, I mean, we are still very confident when it comes to development of the economy in Poland and especially to the development of the residential market. I mean clearly, inflation rates – interest rates have increased stronger in Poland than in Germany, but perhaps not in the next weeks, but we sure this will, at some point in time, normalize. And then we are in a market where we perhaps have a more sound inflation and interest rate environment. And then the strong demand for the residential apartment, that is now even more increased as so many people from the Ukraine have come into Poland. It will be clearly a very strong driver for our business in Poland.
So perhaps to simplify it, at the moment, we clearly need to be more patient. But we have long-term investors in Poland. We need to look at our capital needs at the moment. We need to do our business. And as I said, we have really an excellent team there who is managing this very well. And then we are very sure this market will pick up again because the fundamentals are very much intact, not only from the inflow from people from Ukraine that I mentioned, also there’s definitely demand exactly for the product that we’re building, which is new apartments in Poland’s large cities, as the cities are growing and people simply want to move out, out of their old prefabricated buildings that are not in good shape. So that’s a strategy for Poland, in general is still very much intact.
Simon Stippig
Okay. And what you said, coming back to the mortgage moratorium, they implemented in Poland, and since your share of cash buyers, you probably also don’t expect any slowdown in demand in regard to your growth because of the rate of cash buyers is that high?
Martin Thiel
Yes. That’s the case.
Simon Stippig
Okay. And then second question to Poland. In regard to house price inflation, I had the impression that the value increases were more as well in Poland. Are there any – from city to city, is there any particular reason for that? Or – yes, some idiosyncratic reason to the city? Or is it just similar picture as we see maybe in weaker economic regions, Eastern Germany compared to – or Northern Germany compared to maybe Munich or Frankfurt?
Martin Thiel
So Simon, the line was a little bit bad. You asked for any valuation differences between Poland cities?
Simon Stippig
Exactly. Within Poland, there were quite large differences in house price inflation. And I wonder if you know the reasons for that?
Martin Thiel
Well, I mean, looking into development of house prices in the last years, I think we have seen exceptional strong increases in the very larger cities like Wroclaw – sorry, like Warsaw or like Krakow perhaps little bit slight increases in smaller of the larger cities, so to say, which is perhaps Lodz or which is Poznan, Wroclaw perhaps in the middle. But in general, it’s not really a big difference. So it’s not the case that development of prices in Warsaw are perhaps completely different to what we see, for example, in Wroclaw. So these top five, six cities in Poland are quite homogenous. But at the moment, we see the best margins, if you ask for that, the best yields that we can achieve, in fact, in our two largest locations, which is today Warsaw and which is Gdansk.
Simon Stippig
Okay. Thank you. And then one question in regards – a short one in regard to the revaluation. Have you revalued 100% of the portfolio?
Martin Thiel
Yes, that’s the case.
Simon Stippig
Okay. And then in regards to dividends, maybe just one clarification. For the dividend paid next year, you gave the guidance. And as I see it in November, when you will give an update, this dividend amount will be the same?
Martin Thiel
Yes. The dividend – just to make it clear, so the dividend guidance as well as the FFO guidance in absolute amount is absolutely unchanged, so that’s €142 million. What I just wanted to make clear is that we, of course, are doing now the planning for the next years, and we published the guidance in 2023. And that also, of course, as every year, the final decision on the dividend is paid out next year is then done basically when we invite to the AGM. And additionally, what is different in today’s environment compared to the environment in the last years is that we have simply from the economic environment, a much more volatile and difficult situation. So therefore, there’s more uncertainty basically around everyone here in the sector around every kind of guidance, and that’s nothing else, nothing different at TAG.
Simon Stippig
Yes. Okay. So just again – sorry, to clarify that your full year 2022 dividend paid next year, surely you need the approval on the AGM, but that’s your guidance. And then when you renew the dividend guidance for year 2023, you will update that, but you will not update the full year 2022 guidance?
Martin Thiel
No, that’s not – today, we have confirmed the 2022 guidance also for the dividend.
Simon Stippig
Okay, exactly. Thanks. And maybe one last one in regards to increased energy costs. But have you done any undertaking, for example, you’re charging the tenants more for the upfront payment in regard to ancillary costs of energy or – and do you see any issues arising for – just you as a company from it?
Martin Thiel
Yes. Of course, we have increased prepayments to an amount that is basically possible from the legal side. And also to be honest, we expect issues from payments that tenants need to do in 2023 for ancillary costs and basically for heating. That’s what we are talking about. And yes, clearly, this is the case. Do we expect that this is a material impact on our receivables and impairment of rents and our profitability? This is not the case. But of course, I mean tenants will receive quite significant increase in service charges mainly coming from heating, as I said, so everyone is aware of that. That is, by the way, not only the case for tenants, it’s also for owners in each apartment in the whole of Germany. But we think affordability ratios in our portfolio are still in good shape. As also during the pandemic, we have not really seen – or not seen any increase in bad debt, that should not really be something which reduces our profitability materially. But clearly, this is something that will be an issue for once for the whole industry in the next year.
Simon Stippig
Okay. Maybe two follow-up to that, what is your current affordability ratio for the portfolio, can you indicate that?
Martin Thiel
Yes, of course we don’t know the exact figure, but we have done a qualitive survey, I think three years back in connection with the housing market report for East Germany. There the affordability ratio that means what people pay from their net income after-tax for the total rent, including service charges was in East Germany including cities like Dresden and Leipzig at that time between 20% and 25%. We know that in Salzgitter, it always stood around 20% and this is quite a good share if you compare that with other cities in Germany where perhaps the average is more towards 30%.
Simon Stippig
Okay. Great. Understood. And then one more, do you undertake any provisions for potential impairment or bad debt in Q2?
Martin Thiel
No. Just on a usual basis, and if you ask us, do we see already in today’s business any problems with bad debt, that’s not the case.
Simon Stippig
Okay, great. Thank you very much and sorry for my long question.
Martin Thiel
No, thanks Simon.
Operator
We will now take our follow-up question from Manuel Martin from ODDO. Please go ahead.
Manuel Martin
Yes, thank you. Ladies and gentlemen. If you can hear me now. There were some technical problems apparently. Well, many questions on Poland. So Mr. Thiel, unfortunately, I have a short follow-up question on that again. When it comes to reduced demand in Poland, have you observed or experienced also cancellations from people willing to buy saying, okay, we have to step back because of financial reasons or whatever. Is there something to be seen in Poland or in your portfolio?
Martin Thiel
Yes. Manuel, this is the case, but it’s already included in this final number of around 2000 units that we are build to sell. So clearly, I mean, people are interested in apartment, want to take on a mortgage and need to cancel that. So that’s also happening. And then additionally, there are people who refrain from buying apartments even before they approach the bank because they say, well, simply, if I calculate that, that’s manageable. Yes, but we are sure this time it will change. I mean in Poland, an own apartment or buying an apartment to own, that’s really an important step for nearly everyone, yes.
Renting apartment is becoming more and more popular. But for every citizen in Poland, really owning an apartment is something that you that you do in your life. So that’s perhaps a little bit different to what we have in Germany. And therefore, I mean, the demand in the market is still there. And we need to get used to the situation perhaps not only in the next weeks, but presumably more next month and quarter where it’s simply not really possible for people to buy an apartment as they need to take on a mortgage that they can’t pay. But again, there are still buyers out there who are buying from cash.
Manuel Martin
Okay. I see. I see. My second and last question, it’s just a clarification on the portfolio valuation gains. Just to make sure that I understood. So for second half of the year, without giving any guidance, it might be probable that TAG will book also valuation gains, so that you come up at the end of the year with, let’s say, valuation gain, which is maybe not totally similar to last year, but somewhat below. Is that reasonable?
Martin Thiel
Well, I mean, we had a 4% valuation uplift in the first half. As I said, we have not really any information from our valuers. So purely it’s a personal estimate from myself or from our side, if we end up with a valuation that is perhaps more or less unchanged compared to the first half level, so basically 0% valuation uplift or a slight valuation uplift that there would be nothing that surprises us. But that we achieved, again, a 4% valuation uplift or that the whole sector achieves, again, in the second half a valuation uplift compared to first half that should be not realistic.
And I mean looking back into our discussions that we have had in the last quarters, I remember, call it – and we already pointed a little bit to that, that this trend of strong yield compression, of strong valuation gains in terms of residential will come at some point in time to a certain slowdown. Perhaps it now is quicker than originally expected with this – on the back of this strong increased interest rates in the last month.
Manuel Martin
Okay, I see. Okay, thank you very much.
Operator
There appears to be no further questions. I’d like to turn the conference back to the host for any additional or closing remarks.
Martin Thiel
Yes, many thanks from our side for listening into the call. As always if there are any questions left, please feel free to contact Dominique from our IR department or myself. Thanks again for listening to the call. Have a good day, and see you soon. Bye-bye.
Operator
This concludes today’s call. Thank you for your participation. You may now disconnect.
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