LEG Immobilien SE

XETRA:LEG

Earnings Call Transcript 2024-Q1

[Operator]

Ladies and gentlemen, welcome to the LEG Q1 2024 Conference Call. I am Sagar, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast.

At this time, it's my pleasure to hand over to Mr. Frank Kopfinger Head of Investor Relations. Please go ahead.

[Frank Kopfinger, executive]

Thank you, Sagar, and good morning, everyone, from Dusseldorf. Welcome to our Q1 2024 results call, and thank you for your participation. We have, as always on the call, our entire management team with our CEO, Lars von Lackum; our CFO, Kathrin Köhling; as well as our COO, Volker Wiegel.

You find the presentation document as well as the quarterly report within the IR section of our homepage.

Please note that there is also a disclaimer, which you'll find on Page 3 of our presentation.

And without further ado now, I hand it over to you, Lars.

[Lars Von Lackum, executive]

Thank you, Frank, and good morning also from my side. I will kick off today's presentation by summarizing the key highlights. Afterwards, Kathrin and Volker will provide you with more details on our strong operations and financials.

Let me start on Slide 6. The highlights for Q1 have been the following: Firstly, we are well on track for our 2024 AFFO target of EUR 180 EUR 200 million. This represents a 5% increase over the 2023 result, taking the midpoint of the range into account.

Our strong set of financials in Q1 is reflected by an operating cash flow, which is up by over 7%. However, it is not yet visible in the AFFO. While on a reported level, the AFFO is down by 11.5% to EUR 48.6 million, the comparison to the Q1 number of 2023 is distorted by 2 major effects. As explained in detail last year, the one-off contribution from our biomass plant in 2023 is not going to be repeated in 2024. The special effect on AFFO accounted for EUR 7 million quarter-on-quarter.

Additionally, we have steered investments differently, especially striving for a more even distribution. In essence, this increases investment spending quarter-on-quarter by EUR 3 million, but still, amounting to not more than 1/4 of total estimated spending for the full year.

Although needing to cope with these 2 major adverse results effects, first quarter AFFO accounts for over 25% regarding the midpoint of our target range. Once again, that represents a 5% increase over the 2023 AFFO.

Secondly, the market dynamics continue to develop in our favor. The free financed part of the portfolio saw a like-for-like rent increase of 4.1%. Overall, net cold rent in monetary terms grew by 3.8%. At the same time, the vacancy was further reduced to 2.5%, i.e., down by another 30 bps, an outstanding success of our operations.

Thirdly, we were able to benefit from first signs of recovery in the transaction market. Overall, we saw roughly EUR 210 million of disposals year-to-date. While we realized transfer of ownership on sales worth EUR 40 million until the end of March, we signed new sales contracts in the volume of EUR 170 million in 2024 so far.

We are very confident that there is more to come. However, so close to the widely expected trough of the market, we will stick to our rigorous transaction discipline. No deals below book value.

Fourthly, as shared with our full year numbers in March, we expect the devaluation cycle to come to an end in 2024. We are more than happy that this stance is shared now by a lot of other market participants, including many brokers and valuators. We expect another 1% to 3% of devaluation of our asset base for the first half of 2024. That range clearly confirms a further deceleration of the devaluation, so the values then bottom out in the second half of this year. LTV is expected to come in at around current levels, i.e., at around 48% until year-end.

With this short overview, let me provide you with some details on our disposals on the following Slide 7. As of today, we transferred and signed a transaction volume of roughly EUR 210 million representing a total of 2,200 units. While only EUR 40 million are reflected in the Q1 numbers as these units have been already transferred, the bulk of the disposals, i.e. EUR 170 million, will be transferred over the year.

I want to flag that we signed almost all of the EUR 170 million, representing almost 1,600 units, within the last weeks or even days following a longer period of negotiations. Those deals reflect the recovery of the transaction market which, however, is still at the very early beginning.

My comment on the recovery of the transaction market is based on the following observations. We saw a widening of the buyer groups when it comes to institutions. However, we did not yet already see everybody back in the street. We signed deals with smaller pension funds, high net worth individuals and institutional players, domestic, but also international. The bulge bracket firms and other bigger institutions remain mostly at the sidelines.

On the other hand, we sold the units at the low end of our quality spectrum. This is exactly what we always said, i.e., we use the situation to improve the overall quality of our portfolio. This is reflected in the achieved multiples. The lowest portfolio multiple came in at 11, whereas the upper end is being marked by a multiplier of around 24.

For single multifamily houses, the range of realized multiples is even broader, i.e., ranging from 9 to 39. However, we also started to transact on the high end of the quality spectrum, i.e., we were able to dispose some units from our new development pipeline. After projects have been completed and rented out, we sold them to first moving institutional buyers who are looking exactly for this type of ESG-compliant product.

While the product quality attracts institutional buyers, we need to admit that we are not the best owners for this type of assets with average rents well above double of our in-place rents.

We see all these developments as very encouraging. The transaction market is coming back. Also in this cycle, the saying will hold true that it is better to get invested today than tomorrow.

Since the start of our sales program, sales proceeds of all sold units match the values, and we were able to sell the latest signings on average, even above book values.

Following our conservative business strategy, the proceeds will mainly support our balance sheet to mitigate any adverse effects. The gross proceeds of roughly EUR 210 million translate into net proceeds of around EUR 147 million.

And with these positive remarks, I hand it over to Volker for our operational success story.

[Volker Wiegel, executive]

Thank you, Lars, and good morning, everyone, from my side. Following on last comments on disposals, let us take a brief look at Slide 9. The 594 units that we closed in Q1 were sold at around book value, translating into gross proceeds of around EUR 40 million. The net proceeds for our Q1 disposals amounted to EUR 22 million. Roughly 2/3 of these units are a block sale of mainly subsidized units in the higher-yielding market of Recklinghausen in the Northern rural district. These properties are to be developed in the long term by the buyer real estate expert. The remainder of the disposals were smaller portfolios and some privatized single units.

Please keep in mind, this is just the first quarter. As Lars already mentioned, we are expecting another EUR 170 million of proceeds from disposals in the year. Also, to be very precise, you find the addition of a single unit in Q1 on this slide. This is due to the conversion into 2 smaller flats.

By mid of next year, we will have finished all new construction activity left in our small pipeline. The remaining cash outflow for these projects will amount to EUR 67 million, of which EUR 42 million are still due in the current year and EUR 25 million in 2025. You see all details on our few remaining development projects, as always, on Slide 31 in our appendix.

I'm now on Slide 10. Like-for-like rent growth in the first quarter was 3.5% for the entire portfolio. This is a very pleasing development considering that it was mostly generated by the around 80% of the free financed units in our portfolio. There was hardly any contribution from the subsidized portfolio as there's no cost rent adjustment this year.

So let's take a closer look at the free financed portfolio, for which the strong market dynamics become evident. The average rent in the free financed units increased by 4.1% on a like-for-like basis. This was a strong increase of 50 basis points over the previous year growth of an already strong 3.6%.

Looking at our 3 market segments, we can see similar growth in the high growth and stable markets, with plus 4.3% and 4.2%, respectively. The free financed units in the higher-yielding markets also performed well with a like-for-like rent growth of 3.7%.

The adjustment of rents according to the rent tables was the strongest driver in the first quarter. And there's more to come. As an example, for the outcome of most recent rent tables, we had an average increase of 6.8% for LEG in Dusseldorf or 6.7% in Bielefeld or even 9.5% in Solingen for a typical LEG apartment.

We are closely monitoring the timing when new rent tables are due and provide an update on expected rent tables in the appendix on Slide 29. However, there's no certainty that cities will publish their rent tables at the planned time, partly because the preparation process is very resource-intensive.

We certainly cannot predict the results, e.g., the exact increase of the average rent. However, it is an advantage that our portfolio is spread across more than 240 locations, so that there is a permanent driver for rent growth throughout the year. Therefore, we are very confident to reach our full year guidance of 3.2% to 3.4% like-for-like rent growth for the portfolio as a whole.

Finally, it should be noted that despite the dynamic growth, we stabilized tenant fluctuation at just 9.2% year-on-year. Our collection rate remained above 99% and we again decreased vacancies by 30 basis points to 2.5%.

Let us now move to Slide 13 (sic) for details on our investments. In the first quarter, adjusted investments per square meter amounted to EUR 7.58. You know that in the past, our investments were usually spread very irregularly throughout the year, often with a relatively high proportion in the last quarter. We are now steering towards distributing investments more evenly over the 4 quarters. So you may consider Q1 investments to be a run rate for the current year.

It also confirms that we are well on track to meet our investment guidance of EUR 32 per square meter for the full year. This will accordingly lead to an also more evenly distribution of our AFFO among the quarters.

Let me remind you that the reduction of our investments from EUR 35 per square meter in the last year to EUR 32 per square meter in the current year to savings of around EUR 30 million.

Furthermore, with the focus on cash rather than on accounting, maintenance expenses increased disproportionately to CapEx. As a result, the adjusted capitalization ratio in the first quarter was further down to 52%, down another 360 basis points on the previous year.

And one final remark on the adjustments. These include construction activities on owned land of EUR 2.3 million as well as own work capitalized consolidation effects and subsidies.

And with this, I hand it over to Kathrin.

[Kathrin Köhling, executive]

Thank you, Volker, and good morning also from my side.

I will continue with the development of our key P&L items on Slide 13. The net cold rent increased by 3.8% to EUR 214.1 million in the first 3 months of the reporting year, mainly driven by the increase in the in-placement, which was 3.5% on a like-for-like basis. The remaining increase was positively affected by asset rotation in our portfolio as the overall number of our apartments slightly decreased. Apartments with a low in-place rent level were sold while new build units were rented out. Vacancy reduction had a small positive effect on the net cold rent increase, too.

The recurring net operating income increased by 6% to EUR 171.1 million. Accordingly, the margin improved by 170 basis points to 79.9%. This was a result of the combination of higher net cold rent and slightly lower recurring operating costs.

The adjusted EBITDA increased by 0.4%, i.e., less than the recurring NOI. The reason is that last year's quarter was positively affected by the extraordinary income from the disposal of our green energy production in the amount of EUR 7 million. This contribution was booked in the line item net income from other services. Accordingly, the adjusted EBITDA margin declined from 76.1% to 73.6%.

Unfortunately, there will be effects due to the missing forward sale of green energy also in the remainder of the year. While the effect was EUR 7 million in Q1 as explained, it will likely be in the range of another around EUR 17 million for the rest of the year. This is, of course, already reflected within our 2024 AFFO guidance.

The AFFO was down 11.5% on the previous year and came in at EUR 48.6 million. Besides the just mentioned green electricity effect, higher investments, as already explained by Volker, led to the decline. This leads, however, to the effect that our AFFO generation should become more steadily distributed within a year and also better reflects the underlying nature of our business. With EUR 48.6 million, we are well on track for our full year AFFO guidance.

Slide 14 and the AFFO bridge show what I have just explained. Starting at last year's AFFO of EUR 54.9 million, the increased net cold rent had a positive effect of EUR 7.8 million. Operating and administrative costs together remained on last year's level, while interest payments increased by a reasonable EUR 3.2 million. The missing positive contribution from the sales of our green energy production of EUR 7 million was the main driver in others, with a negative total impact of EUR 7.9 million.

Higher externally produced maintenance had a negative impact of EUR 5.2 million, while lower CapEx after subsidies had a positive impact of EUR 2 million amounting to higher investments of in total EUR 3.2 million.

Slide 15 is virtually unchanged in comparison to the chart we showed in our financial year 2023 presentation as we did not conduct a revaluation of our portfolio as usual.

Before I highlight some of the numbers, let me allow first to comment on the change of our evaluator. Since the beginning of the year, we have PwC on board and PwC will appraise LEG's property portfolio for the first time on 30th of June 2024. PwC won the mandate as part of a tender process and is thus replacing CBRE.

LEG will continue to base the valuation for the balance sheet on its own valuation model, while PwC will prepare an independent second opinion, which LEG will use to validate its own results.

Let me now briefly comment on the figures. The gross yield of our portfolio amounts to 4.8% and the net initial yield to 3.8%. You can see first effects of the rent increase as the multiplier came down to 20.8 compared to 21.0 at year-end 2023. Assuming our expected rent growth and anticipating some smaller devaluation, we expect the gross yield to rise further to 5% and the net initial yield to 4% at year-end.

Let me come to Slide 16. On Slide 16, which shows our financial profile, virtually nothing has changed in comparison to our last reporting. As you know, we are fully financed until mid of 2025 and have significant headroom to all our covenants, hence, there is no hurry for us to rush into any refinancing. We will tackle opportunistically the maturities on the secured side and the maturing convertible bond in 2025. We will look into all options including straight secured and unsecured debt as well as convertibles.

Additionally, we continue to have a very strong liquidity position with more than EUR 450 million. Our average debt maturity is roughly 6 years. The average interest cost amounts to 1.59%. Our LTV stood at 47.9% as of 31st of March, this is a reduction over the year-end level by 50 bps as our cash focus steering helped to generate cash and reduce net debt accordingly while our value-added CapEx supported property values.

If we take the EUR 170 million of disposals into account, our pro forma LTV is at 47.5%, and we would expect the LTV to hold around 48% if we see the bottoming out of valuations in H2. While this is certainly still above our midterm LTV target of 45%, it is no area of concern as the fundamentals of our business as well as our cash generation remains strong.

And now I hand back to Lars for some final remarks.

[Lars Von Lackum, executive]

Thank you, Kathrin. Overall, our 2024 guidance remains unchanged. We confirm all our targets and aim for further improvement of the AFFO to EUR 180 million to EUR 200 million. Let me reiterate one last time. At midpoint of the guidance, this translates into a 5% increase over the 2023 result. Key driver is an expected rent growth for the entire portfolio of 3.2% to 3.4% as well as a further reduction in investments as we continue to deploy the capital more efficiently.

As you have seen, the more even distribution of our investment spending will translate into a steadier cash generation. Please also take note of the lower result of the biomass plant, which will impact the coming quarters by another EUR 17 million. You should have those effects on your agenda and even more important in your Excel sheets.

With this optimistic outlook, I hand it over to Frank. The complete management team and I are very happy to answer your questions now.

[Frank Kopfinger, executive]

Thank you, Lars. And with this, we begin the Q&A session, and I hand it over to you, Sagar for the questions.

[Operator]

[Operator Instructions] Our first question is from the line of Bart Gysens from Morgan Stanley.

[Bart Gysens, analyst]

Bart Gysens from Morgan Stanley. Just had a question on your change of valuer. What's the rationale of you doing that? Is this regulatory driven? Or is it just kind of practice that you want to rotate valuers?

And secondly, you said this was part of a tender process. Can you maybe shed a bit of light on what the criteria were used to choose PwC over any of the others?

[Kathrin Köhling, executive]

So happy to take your questions, Bart. So on the change of the valuator, we've been with CBRE for over 10 years now. So the regular contract ended and we just felt that after such a long time, it just makes sense to do a proper tender process to confirm prices, to confirm the stuff that you get during the valuations and other things like that. So that's why we did this normal tender process. I know it's pretty much everything that you buy in a company. And in the end, PwC one with respect to all the criteria that we have in terms of pricing, quality, stuff like that.

[Operator]

Our next question is from the line of Marios Pastou from Bernstein.

[Marios Pastou, analyst]

I've got a couple of questions related to your disposals. Maybe we'll do them one by one. Firstly, maybe if you can give us any more details on pricing versus book values for the EUR 170 million agreed year-to-date, especially splitting out the existing portfolios maybe versus the new build disposals? And also just to confirm the multiplier range you mentioned, was that just for the existing portfolios sold?

[Lars Von Lackum, executive]

Yes. Thanks a lot, Marios, for the question. So very happy to take those. So with regards to the book values, what we have reached over all the signed transactions, which we did this year, we were coming out above book value, and that is also building the trough that we see now, the trough of the market coming. So it's certainly not in a big amount that we are now surpassing book values, but it is consistently above book values. So therefore, from our perspective, and that's holding true for the lower as well as for the upper end of the quality spectrum we put to the market, that is building the understanding that even if we are expecting in H1 another value decline of 1% to 3%, overall, we are now nearing the trough of the market.

With regards to what we have sold and at which multiple that is, I tried to give you a bit of a feeling for how big the spread is for portfolios. And that is including portfolios of existing as well as of the higher quality stuff. And that is in the range of 11 at the lower end and 25% of a gross multiplier for portfolios. And that's even broader if you look at single multifamily houses, which is in the range of 9 million to 39 and, therefore, we are struggling to just shout out now any blended rate because that doesn't help from our perspective at all to really get an understanding for what we are really bringing to the market.

[Marios Pastou, analyst]

Okay. That's clear. And then just secondly, you mentioned you've got further disposals in the pipeline. So maybe based on your current discussions, are you giving any indication of what quantum we could expect for the remainder of the year?

[Lars Von Lackum, executive]

Yes. So quantum wise, as you know, Marios, I still struggle to shout out numbers, but the pipeline still looks very healthy and includes, on the one hand side, those projects which we have finalized, which we have rented out. This is limited, as you know. So we have already sold a part of that. But on the other hand side, we also see that there is more interest with regards to portfolios at the lower end. The quantum of units being asked for also at the lower end is now building up. So you might have seen on the slide that we've been able to dispose 766 units, which was a portfolio at a lower quality end. And we are seeing demand building up to around 1,000. So that might be something which is then also being realized, but we are still working on those deals. There's nothing which we have already signed, but we are working hard on it to just come up with convincing numbers for the rest of the year.

Perhaps I can just add one last sentence with regards to the amount which we are currently in the market with. So although we have now sold around 2,200 units, we have still around 3,000 units additionally in the market, just to give you a feeling of where we stand with regards to our disposal activity.

[Operator]

The next question is from the line of Thomas Rothaeusler from Deutsche Bank AG.

[Frank Kopfinger, executive]

Otherwise, we take the next one, Sagar and Thomas will --

[Operator]

Sure. As there is no response from the line of the current participant. We'll move on to the next question. The next question is from the line of Andres Toome from Green Street.

[Andres Toome, analyst]

I had a couple of questions. So firstly, about the disposals. Can you provide some clarity into the structure of the deals as well insofar as were the buyers able to take over the in-place debt in those deals?

[Lars Von Lackum, executive]

Yes. Thanks a lot, Andres. So that was not the case. So in those deals, normally, the buyer either has been an all-equity buyer or someone bringing in its own debt. There is only a small part of the debt, which is being attached to KFW loans, and those might, in some cases, been taken over. But that's not the majority of the financing volumes being needed to finance those deals.

[Andres Toome, analyst]

Understood. And then I guess that the motivation, as you mentioned, a lot of these deals came from locations with lower quality or higher cap rates. So I guess, was the motivation, what was your sense in terms of making those deals happen from the buyers? Was it perhaps that it's just a more favorable cap rate spread over borrowing rates in those markets?

[Lars Von Lackum, executive]

That is the big difference, I think, across the buyer groups. So while institutionals were really being focused on generating contracts smoothly with indexation and therefore, getting an inflation protection with regards to rents and also something which is in line with their expectations with regards to net yields, we also were selling to smaller companies, very much focused in taking over lower quality assets with the chance to invest into those assets, reposition them and then rent out at higher rents.

So there are different reasons for those buyers to buy into it. It was not only driven by the consideration of the difference between the debt rate and the gross yield or net yield of the asset.

[Andres Toome, analyst]

Understood. And then my final question around also the change in the valuer. I'm just wondering, did you ever get an indication from CBRE already about the first half of 2024 valuations before you made the tender?

[Lars Von Lackum, executive]

No, we didn't. So we did the tender last year, then we took the decision beginning of this year. So therefore, the data which we shared then for Q1, so, as you know, cutoff date for providing data is end of March, we provided that data only to the new valuator, PwC. So no, we didn't get any indication from CBRE with regards to our numbers.

[Operator]

The next question is from the line of Kai Klose from Berenberg.

[Kai Klose, analyst]

I've got 2 quick questions on Page 20 of the presentation. The first one is regarding the net income from other services. I was just wondering if the EUR 0.6 million is the full contribution from other services. Or do we have some other contributions in other line items? I'm asking because we had EUR 27 million to the AFFO contribution in '23, so maybe you could give an indication of what can we expect for the full year?

And the last question is also on that page regarding the subsidies of EUR 3.9 million. Is this a number which you would expect to collect quarterly? Or was it any specificities behind for Q1?

[Kathrin Köhling, executive]

Okay. So happy to take your questions, Kai. So on the first one, net income from other services. Here is directly where you can see the effect of our biomass plant. For last year, we had this very attractive forward sale of green energy, that's why we came up with 7.9%, and now we come up with 0.6%. So that's the difference here.

And then the other question on subsidies. The 3.9%, that's probably a very good approximation what you can expect quarterly now for the rest of the year. As you know, we are doing this also for the first time. So that's what we are expecting, and it's a new funding scheme for us, but that's most likely something that you can take here as a sign.

[Lars Von Lackum, executive]

And sorry, Kai, I think we only missed on one of your questions, apologies. And that was with regards to what you can expect with regards the value contribution of our value-added services. That is pretty much in line with last year. So I think that's a fair approximation. So we do not expect an increase of that contribution AFFO-wise for this year. So that number stays nearly the same.

[Operator]

The next question is from the line of Pierre-Emmanuel Clouard from Jefferies.

[Pierre-Emmanuel Clouard, analyst]

Yes. Just the first one, coming back on Marios' question on the premium achieved on your disposals. Maybe can you give us more color on the premium achieved on the new build units that you sold in Essen and Düsseldorf would be very useful.

[Lars Von Lackum, executive]

Yes. Thanks a lot for the question, Pierre-Emmanuel. So unfortunately, as with most of those institutional buyers, we are being bound by a nondisclosure agreement with regards to the price. So therefore, we unfortunately cannot give you an exact difference. But once again, it has been above book value. It is not that it is overwhelming. So it's nothing which is in the double-digit region and percentage-wise, but still it is above the book values.

And once again, it hopefully once again underlines, we are nearing the trough of the market, which might be the most important point for you and many other analysts and investors.

[Pierre-Emmanuel Clouard, analyst]

Okay. Understood. So we should not consider that there is a big discrepancy between the premium achieved between the existing portfolio and the new build portfolio?

[Lars Von Lackum, executive]

Yes. I apologize for not being more precise. So it is a slight premium to the book value. A slight one.

[Pierre-Emmanuel Clouard, analyst]

Okay. Understood. My second question is coming back on valuations. Should we consider that if you are expecting the trough of the market following H1 negative valuation results, should we consider that you are not expecting any further valuation decline in H2? Or should we consider that we can see, let's say, another tale of negative valuations in H2 as well?

[Lars Von Lackum, executive]

Yes. Yes, Pierre Emmanuel, you're absolutely right. So that was the assumption while giving you that indication for the LTV for year-end. So that was based on the assumption, no further devaluation for H2.

[Operator]

The next question is from the line of Paul May from Barclays.

[Paul May, analyst]

Just a quick one following on from the last point. Looking at it another way, is that assuming that your yield expansion will be offset by rental growth then in the second half? So as rents naturally grow, your yields naturally and mathematically expand, so values are flat? Or are you expecting value growth to resume?

[Lars Von Lackum, executive]

No, we expect prices to really flatten out.

[Paul May, analyst]

Sorry, to really -- sorry apologies, I missed that one.

[Lars Von Lackum, executive]

Yes. To be flat.

[Paul May, analyst]

To be flat. Okay.

[Lars Von Lackum, executive]

To be flat. Yes.

[Paul May, analyst]

Yes. Cool. Just second one on the rationale of selling higher-yielding assets, and I appreciate we're excluding the new builds that you sold at lower yields, I think the implied NOI on those is higher than your implied NOI of your share price. Just wondering what is the rationale of selling, I suppose, at higher yields than where you're currently trading. Just wonder what the thought process is there.

[Lars Von Lackum, executive]

Yes. So as you heard, Paul, the range of multiplier we've sold at was between 9 million and 39 million. So therefore, NOI-wise, also the range is huge. And from our perspective, at the current moment, it is of importance to stabilize the balance sheet with regards to LTV. This, I think we also discussed this during many of the calls now over the last quarters, can only be done as long as we are facing devaluation by selling stuff and we are selling stuff from our perspective, which is in a part of the market where we are thinking that we can increase the overall quality of our portfolio by disposing of those. And therefore, from our perspective, it is a wise decision on the one hand side to sell that lower quality.

And on the other hand side, and I also try to be transparent on that one, while now the market has such a strong demand for whatever type of asset, and with regards to those very high new rents we can generate on those new developments, we can also see that demand from that customer group is very different to the demand of the customer groups we have on the main portfolio. So therefore, we are also disposing of the upper end.

[Paul May, analyst]

Perfect. And just a last one on disposals. I think the net receipts have come in quite a bit below the gross receipts. And I think you mentioned in the presentation there wasn't much debt attached to the disposals. So is it all deferred taxes and transaction costs that explain the differential? Or is there other things within there?

[Lars Von Lackum, executive]

Yes. So I apologize, Paul, if I misstated that. So I answered the first question with regards to whether there was debt attached, which was then being taken over by the buyer, which I was elaborating on that this was not the case, only with regards to some of those subsidized loans coming from KFW. However, if you compare what we had as gross proceeds and net proceeds, the difference certainly is because we have some of those assets being financed in a secured way. So we have that allocated loan amount per asset then which we need to pay back on. That is the major driver for that difference.

Second driver for that is certainly the tax effect, which we are calculating, which is a calculatory effect. And the third one is certainly the transaction costs. So in order of magnitude, certainly, the biggest part is the payback on secured loans we have on those assets.

[Paul May, analyst]

Perfect. Sorry, for my misunderstanding. Last one, just on the change in valuer. I appreciate the, I suppose, good governance to change the valuer. But I don't believe PwC are a particularly recognized property valuator. Why did you broaden out to auditors rather than just staying within the, I suppose, recognized property brokers, the CBREs, the JLLs, the Savills, Colliers and such?

Also, what happens if PwC materially disagrees with your own valuation? Whose valuation kind of wins? And then just how much was their quote below the others in terms of the payment that they're receiving? And was that a major factor?

[Kathrin Köhling, executive]

Okay. Thanks, Jonathan (sic) [ Paul ], for asking the question. So with regard to -- in our tender process, we included auditors as well as international appraisers. So we had them all on the table, And of course, we considered them all. But given that we are just a German company focusing on the German market solely, we feel that German market knowledge is a really huge factor to be considered when also choosing your appraiser. And so that's why we think that PwC, having such a large German market exposure, helps us also a lot to understand the market and be an exchange here on all the important topics that are currently taking place.

And who wins the valuation? So, so far, we have never had the game of who wins the valuation. So usually, that's why you are in an exchange and you come up with similar value, so you don't have to play the win game. So I'm quite confident that this will not happen this year again. So no worries from my side on that one.

[Lars Von Lackum, executive]

And Paul, perhaps just to add a last sentence. So the difference between the external valuation and the internal valuation has never been more than 1%. So therefore, also that hopefully gives you confidence that we are also -- going forward, we are not expecting to deviate from the valuation of PwC and certainly now are very anxious looking forward to their first valuation of our portfolio.

[Paul May, analyst]

Perfect. Just one sorry follow-up on -- you mentioned PwC being a sort of strong German presence. I think my understanding is CBRE actually values the majority of German rental residential. I just wondered why PwC has a better insight than CBRE?

[Kathrin Köhling, executive]

In the end, we are all looking at the same sources, and we have all access to the same sources. So when we look at in this space or something, so everybody has the data. So there is not that you have -- that you are more prone to data the one side or the other side.

[Operator]

The next question is from the line of Jonathan Kownator from Goldman Sachs.

[Jonathan Kownator, analyst]

Two questions, if I may. The first one on maintenance and CapEx. I see your ratio came down to 52%, as you alluded, from 59%, I think, last year. Should we consider that the 52% ratio given that you now said you have the even profile during the year with the quarters, is 52% a good level to consider going forward? And is EUR 32 per square meter still the level that you feel confident with and you don't want to either increase or decrease that level? That's the first question.

[Volker Wiegel, executive]

Jonathan, the EUR 32 is the guidance we gave for this year, and we feel comfortable to meet the guidance. And I think the first quarter shows that we are very much on track to this guidance. We don't really steal the investments on cap rates. So they appear more by chance what -- based on the spendings we are making. We very much strive to spend each euro as value accretive as possible, i.e., to improve the return profile of our asset base, and that's why -- how we spend the money and that's what we are spending the EUR 32 for. And so I don't give any guidance on cap rates for this year.

[Jonathan Kownator, analyst]

Sorry, I didn't talk about cap rates. And maybe I wasn't clear enough. Just asking whether the EUR 32 level was a good level in terms of maintenance and investment was a good level going forward to think about. And the capitalization ratio of 52% was also the right level to think about given it's come down from last year?

[Volker Wiegel, executive]

Yes, we feel comfortable with the EUR 32.

[Jonathan Kownator, analyst]

Okay. On the second question, I mean, I think you just highlighted previously quite an attractive environment for development, i.e., there is more demand for that product coming in. Yes, obviously, your pipeline is kind of tailing off. Is that something that you could revisit or reconsider? Or is there some interest given the higher demand it seems?

[Lars Von Lackum, executive]

Yes. So Jonathan, we have started to wind down our operations there. Currently, it's not in focus. If you look at how prices have developed square meter-wise, where we are now talking the mid EUR 4,000 level, just the construction costs, excluding the value of land, we struggle to find any way to really produce anything, which is affordable living. So therefore, whatever you can create newly is well above that affordable level. Therefore, that's not part of the sweet spot where we want to be active. So no, we currently have no intention to revisit our development decision.

[Operator]

The next question is from the line of [ Veronique Mutens ] from Van Blanchard Campen.

[Unknown Analyst]

Two last questions from my side. I just wanted to check the minus 1% to minus 3% expected value decline and the expectation of flat values in the second half. Is that something that has already been softly confirmed with PwC? Or is this purely on your own assumption?

And then secondly, looking at values troughing, you just mentioned that new development is not something that you've foreseen in the future. But do you already see other interesting investment opportunities arising for LEG?

[Lars Von Lackum, executive]

Yes. Thanks a lot, [ Veronique ], for your questions. So first of all, the -- our assumption with regards to troughing of the market certainly is our own assumption. And I think listening to a lot of market participants, competitors, valuators, brokers, I think they all are sharing that view. So it's also not a new view. I think we also try to make sure you got that during our March call. During March, I think we spoke a lot about the deceleration of devaluation. Now having seen first transactions being transacted ourselves above book value just gives us the comfort to say that most probably that is already going to happen, that stabilization, in second half of 2024, but it's our pure own view on the market not being reconciled with PwC.

That's certainly different with regards to the minus 1% to minus 3%, which might also be something which PwC shares, but we are still in discussions. So it's not any final number, which we could share.

With regards to troughing of the market and new opportunities in the market, yes, certainly, you find currently interesting opportunities in the market. With our current LTV level and as already pointed out and as a conservative player in the market, we think ourselves to be well advised to look at those options, build a market understanding for that, but certainly, first of all, being focused on stabilizing our balance sheet. So it's nothing which we consider to do short term, even if there are the one or the other appealing portfolios in the market.

[Operator]

The next question is from the line of Thomas Neuhold from Kepler

[Thomas Neuhold, analyst]

I have two. The first one is more of a quizzical kind of question. If we see a stabilization of prices this year and if interest rates are not going to increase anymore but go down and strategically starts cutting and if rent levels remains high, would you expect next year a further yield expansion? Or do you think that the rising rent levels will be reflected in higher prices going forward?

And the second question is also related to a potential trough in the market. If we see a stabilization of residential prices, will you potentially review also your CapEx strategy again?

[Lars Von Lackum, executive]

Yes. Thanks a lot for your questions, Thomas. So I think I really overstretched my crystal ball already. So if you -- if I look at the very unhappy face of my CFO, I think I shared whatever I was able to share with regards to the market insight we have currently generated. So apologies, Thomas, to not go into detail with regards to our price expectation for 2025. But with all those macroeconomic risks, please understand that we do not want to talk about 2025 already today.

So with regards to investments, I think we are always well advised to, on a regular basis, look into our investment strategy. As of today, we feel fine with the EUR 32 per square meter. I think with that, we are very efficiently invest in our portfolio to keep it at the quality level, which we are currently running it at. And we are generating very solid financial returns. Once again, I think Volker and his team have proven that they can do with less investments, but still come up with a decent increase with regards to rents. And we can still prove according to our CO2 reduction path that we are running below that, although we have reduced investments.

And finally, and certainly, we always take into consideration customer happiness and their confidence that they have chosen the right apartment. So also that's been taken and factored in.

All of that, I think, currently squares out at the EUR 32 per square meter. But in a different rate environment, that certainly might be something we want to revisit then later in the year with regards to our plan for 2025.

[Operator]

The next question is from the line of Manuel Martin from ODDO BHF.

[Manuel Martin, analyst]

Yes, I have two questions. The first question would be on the acquisition and disposal activity. On acquisitions, I understand that you would rather like to wait and to do some more balance sheet repair and to watch opportunities, meanwhile. But when it comes to the disposal side, the 3,300 units, which are still in the market from your side, will that be the end of the disposal program for repairing the balance sheet? Or might that be continued? And disposals in general, what would come after? Kind of asset rotation or what could be the plans for this? That would be the first question.

The second question, it's on the rent guidance. Having seen 3.5% like-for-like growth in the first quarter, that looks quite good. Might we see some fluctuations in rent growth this year for it to come into a range of 3.2% to 3.4%. These are the two questions.

[Lars Von Lackum, executive]

Thanks a lot for your questions, Manuel. I will try to give you an answer for the first one and Volker then follows up with regards to the rent guidance. Manuel, for 2024, I think we have laid out that currently, we want to stick to that additional 3,000 we have currently in the market. We currently do not have the plan to work on more than those 3,000. How that will look for 2025, I think, remains to be seen. We have not yet decided on that. But as soon as we come up with our plan for 2025, we'll definitely then also share an insight with regards to our further disposal plan for 2025.

[Volker Wiegel, executive]

And on your comments on rent growth, thank you very much for the comment. We also think that it looks good with 3.5%. And yes, we always try to do it a bit front-loaded to have the rent increases, the bulk of the rent increases in the beginning of the year. So that also helps us to benefit for the entire year from the rent increase. So there's some positive AFFO effect. So there will be -- it may come down to the 3.2% to 3.4% as we guided, but we did have a very good start into the year and are very optimistic to meet the guidance there.

[Operator]

The next question is from the line of Simon Stippig from Warburg Research.

[Simon Stippig, analyst]

First one would be in regard to disposals. From your full disposal volume of EUR 210 million, what net cold rent decline would you expect from the total transaction?

And then the second one would be in regard to BCP. You still have a stake valued at EUR 160 million in shares. And I wonder, do you intend to sell a stake in the market? Do you have some interest for the whole stake? Would you consider to sell it at all? And have you maybe been in discussions in the past about a potential sale? Or is it even not salable? That would be great if you could add some insights into your other assets there.

[Lars Von Lackum, executive]

Yes. Thanks a lot for your questions, Simon. Very happy to do so. So with regards to disposals and the net cold rent impact. I think we wouldn't give you that number, but I'm very happy to reaffirm that we -- despite the sales we are seeing and which we have executed, and we are still expecting to having closed this year, there will be no impact on our AFFO guidance. So we stick to that EUR 180 million to EUR 200 million. And I hope that is the good news for you as well as it is from our perspective.

With regards to the BCP stake, we are certainly open to all talks with regards to that stake. So we are open to sell that stake, and certainly, we could do so at whatever price we would agree to. But certainly, that would definitely not be the price which you can currently see on the market. As you know, the remaining free float is down to 1.6% or around 2%. So therefore, it's highly illiquid and the share price is not a fair reflection of the inner value of the company. So therefore, that would definitely not a price we would be then transacting the BCP share at.

Second part is, certainly, we would also be open to talk with whomever might be our co-share owner about splitting the portfolio, doing portfolio and asset management for an owner or whatever other option might be on the table. Currently, and I think quite understandably, it seems to be quite silent around BCP, so let's wait and see of how progress on the co-shareholder level is over the next month.

[Simon Stippig, analyst]

Great. That's clear. And maybe one follow-up to the first one. Could you give an average transaction yield you realized on the EUR 210 million?

[Lars Von Lackum, executive]

Yes. So also this, we do not want to do, Simon, because it is just -- it dramatically misleading from our perspective, looking at how broad the range is, I think you will not be able to include anything, which really makes sense.

[Operator]

The next question is from the line of Marc Mozzi from Bank of America.

[Marc Louis Mozzi, analyst]

I have only two brief questions from my side. Number one is, what has been the rental growth for the restricted units in Q1?

[Volker Wiegel, executive]

So for restricted units, there was no real rent growth as we had the [ system ] last year. We see there is minor increase in the numbers. And that mathematical effect is flat. That real rent this quarter was vacant in the previous quarter, then -- and if it is rented at a price above the average rent, then this delta translates into rent growth. So we see there's minor effect from rent, from flats rented out that were vacant in the previous year period as they're restricted and that are now rented at the new restricted rent, which is slightly above the average trend, and that's the 0.5%.

[Marc Louis Mozzi, analyst]

So the way I should understand the blended 3.5% like-for-like rental growth, it's 4.1% for free financed rent and 0.5% from restricted units. Is that correct?

[Volker Wiegel, executive]

Yes.

[Marc Louis Mozzi, analyst]

Okay. My second question would be on the disposals you've just announced, EUR 210 million or EUR 170 million. What sort of average or blended rent per square meter, as you -- what was the rent -- the average of the blended rent per square meter per month for those disposals? Whatever number you would like to take, just to give a rough idea, EUR 210 million or EUR 170 million?

[Lars Von Lackum, executive]

It's very -- I don't have that number with me, and I struggle to understand why that might be of importance. Perhaps you'd just let me know, and we take that off-line and we just quickly discuss that.

[Marc Louis Mozzi, analyst]

Well, I will let you know right now. It's just another way to find out how much NOI or rental income you're going to lose this year and to make sure that in our forecast, we do have a number of NOI loss from your disposals. So as we know that it's a standardized product of 65 square meters time on average per month, I think we all can get NOI. That's just the purpose of my question. Just as a way to get a yield basically for NOI.

[Lars Von Lackum, executive]

Okay. Understood. Once again, from our perspective, it doesn't make sense to share that. We try to just give you a bit of insight and flavor for how big and broad the range is with regards to the type of assets, which we have disposed of. Multi-family house wise, it was between a gross multiplier of 9 to 39. For portfolios, it was between 11 and 24. So easily to assume that certainly, with regards to the type of rent per square meter, that was also something between -- and I don't have the numbers with me, but most probably it was something between 5 and 18. So there, you can see that also now giving you a blended per square meter number wouldn't really help. So therefore, apologies for not sharing that.

[Operator]

Thank you. Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Mr. Frank Kopfinger for any closing remarks.

[Frank Kopfinger, executive]

Yes. Thank you, and thanks for all your questions. And as always, should you have further questions, then please do not hesitate and contact the IR team.

Otherwise, please note that our next scheduled reporting event is on the 9 of August when we report our half year results.

And with this, we close the call, and we wish you all the best and hope to see you soon on one of the upcoming roadshows and conferences. Thank you, everybody, and goodbye.

[Operator]

Thank you. Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.