TAG Immobilien AG

XETRA:TEG

Earnings Call Transcript 2018-Q1

[Operator]

Welcome to the conference call of TAG Immobilien AG, which is now starting. At our customers' request, this conference will be recorded. May I now hand you over to Mr. Martin Thiel.

[Martin Thiel, CFO & Member of Management Board]

Yes. Thank you very much and good morning, everybody. This is Martin from TAG and welcome to our conference call for the Q1 results 2018. Thanks for dialing in. And some words about our first quarter in a nutshell. I think it was quite a normal quarter with, of course, good core development and everything on the right way especially if you look at our guidance, we're fully on track. But no evaluation or refinancing events during the first quarter as expected.But let's start with the highlights now on Slide 4 of the presentation, and a look on operational performance in the first quarter. If you look at the development in the vacancy of the residential units, we started on a comparable basis with 5.3% vacancy into the year and the difference between the 4.8% you know from last year to the 5.3% was the inclusion of the acquisitions from 2017 into this number.Vacancy increased a little bit in the first 3 months to 5.6%, but I think you've seen this already in the press release, was already reduced in April to 5.4%. So all in all, vacancy of residential units remained stable in the first quarter, which is nothing unusual. This quarter has always been a bit weaker than the others.Like-for-like rental growth remained stable, but basis like-for-like rental growth at 2% per annum. If we include the effects from vacancy reduction, it was clearly higher 2.6%, a little bit weaker than in the quarter and the year before where we had 3.1% and this was purely the effect from a lower rent in the previous quarter there with vacancy reduction.Good development in FFO, I already mentioned that, EUR 1 million up from EUR 34.1 million in the previous quarter to EUR 35.1 million now in the first quarter. If you compare that with last year's results in the first quarter, I think the development is even clearer, [ the good way we're ] at the moment following. In the first quarter 2017, we had EUR 28.5 million FFO, showing [ excess of ] 23% increase on a per share basis that we had last year in the first quarter EUR 0.20 per share compared to EUR 0.24 in this quarter, so that's a 20% increase. So definitely a good and positive development.Looking at EPRA NAV and LTV, EPRA NAV is slightly up from EUR 13.80 to EUR 14.01 and that's without any operational results, just the ongoing results we achieved in the first quarter improved NAV. LTV was reduced by 90 basis points from 52.3% to 51.4%. Besides the ongoing amortization from our bank loans, which always reduces quarter-by-quarter the LTV a little bit, we also had the closing of our transaction you already know from last year, a disposal in the Berlin and where their closing was at the end of the first quarter and this also reduced the LTV.Looking on the acquisition and disposal side, so far we had no acquisitions in the first quarter 2018 and -- but just not -- not really concerned. And you know markets are definitely competitive, but we are optimistic for the remaining part of the year. Difficult to give here any explicit guidance, but I think you would see here in the next quarters, definitely a development. On the disposal side, as we had no larger acquisitions, there was no pressure on disposals, so we -- what we had in the first quarter was the ongoing disposal business where we managed to sell 180 units in the first 3 months of 2018, total EUR 7 million and net cash proceeds from these disposals, which I've talked about was EUR 6.7 million.So that's a look on the highlight slide, then I'm moving now to Page #6. We have the income statement in details. Just to talk about the main events and the main developments, the net rent, that's mean rent without service charges was up by EUR 600,000, mainly coming from good like-for-like rental growth and also from a net effect from portfolio transactions. We had some disposals I already mentioned, but also 800 units from big acquisitions last year were closed at the end of the financial 2017, so going now into the first quarter numbers.Net rental income also increased by EUR 700,000. On the one side, we invested more in the first quarter of 2018, which led to higher maintenance cost and also to higher CapEx spend, for example, in the previous year in the first quarter. But on the other side, we had this increased net rent and cost of lower impairments of rent receivables compared to the previous quarter.Net derivatives or net revenue from services slightly down from EUR 5.1 million to EUR 4.5 million, but that's not unusual, first quarter always a little bit weaker than the fourth quarter of the year where we have effects from service charges. Valuation results, we have 0 compared to EUR 250 million in the previous quarter where here the next full portfolio valuation will take place at the end of the second quarter. So as last year, we will see 2 full valuations from us, the first one after the second quarter, of the next quarterly results, we will release the results. And of course, the full-year valuation will take place also at year-end at the end of the fourth quarter.Other operating expenses, if you compare that quarter-by-quarter, materially down, but perhaps you remember that we had one-off effect in the fourth quarter 2017, EUR 8.5 million provision for real estate transfer tax risks from prior periods. And just as a comment, nothing new on that, that's still risk and outstanding. But we'll also have cost savings compared to the previous quarter that's to lower other operating expenses.Net financial result, it's better to look at the net financial result cash after one-offs that improved by EUR 500,000 in comparison to previous quarter. I already mentioned, we had no refinancing activities in the first quarter 2018 as expected. But of course, ongoing refinancings and because we have currently acquired strong cash position, what we did, we repaid approximately [ EUR 80 million ] of short-term floating rate bank loans just to save interest cost.Income taxes, as always, mainly contain deferred taxes and if you look at the cash tax expenses in the first quarter 2018, that increased to EUR 1.1 million after EUR 300,000 in the fourth quarter 2017. Looking at the full year, I think you should expect something around EUR 5.5 million to EUR 6 million total cash taxes and that's still an attractive number compared to an FFO guidance pre-taxes of more than EUR 140 million, but more than last year where we had income taxes -- cash income taxes for the full year of approximately EUR 3 million, and that's simply the development of better result and more taxable income than in previous years.Moving on to the next page where we show the calculation of FFO and AFFO, perhaps important to point out good development in the EBITDA margin. We are now in the first quarter 2018 at 68%, coming from 67% in the fourth quarter of 2017, so clearly improving this number quarter by quarter, more than EUR 1.3 million more EBITDA in the first quarter.Already mentioned, FFO EUR 1 million up besides the improved EBITDA and despite higher cash taxes I already mentioned, but better than in the previous quarter net financial result. Also AFFO increased by EUR 1.2 million and in comparison to the previous quarters, and I think it's also an important good development that we do not only increased our FFO quarter-by-quarter, but also the AFFO quarter-by-quarter is improved.On the next page, Page #8, a quick look at the balance sheet. I already mentioned, a quite high cash position at the moment of EUR 285 million, but that's very clear. We don't only have to pay the dividend now in May that is normal, but also we have to repay an outstanding corporate bond of remaining EUR 191 million, which is due in August, and the cash balance we have in the balance sheet now is maybe to pay this as corporate bond. So a very normal trend and good cash at the moment.Then on the next slide, Slide #9, we show -- you see the EPRA NAV development, and clearly in the first quarter a material increase in NAV as expected simply because we had no portfolio relations, so the increase you saw by [ 20% ] is simply the development of higher net income in the first quarter 2018.And Slide #10, you see the development of cost of debt and LTV. Cost of debt is unchanged quarter-by-quarter at 2.35% and that is important to point out if we exclude the already refinanced corporate bonds due in August this year, which is still outstanding with EUR 191 million, we are already on a pro forma basis down to 2.14% cost of debt. So we have materially reduced cost of debt compared with 1 year before by approximately 100 basis points taking this into account. LTV now down to 51.4%, I already mentioned that. Clearly approaching on coming years our LTV target which is 50% and we expect this to be reached during the course of the year 2018 at the latest by year-end. Of course, it depends also on the evaluation result we will achieve in the half year and the full year evaluation, but if you pencil in just slight evaluation gains, you will see that there shouldn't be any problem to reach the LTV target.Then, I'm on the next slide, Slide #11, [indiscernible] financing structure in more detail. Perhaps just important to point out what [ we state ] here on the bottom left of the slide, the upcoming refinances 2018 to 2020, and it's clear we've done a lot in 2017. We refinanced ahead of maturity EUR 630 million of bank loans last year, and also the corporate bond maturing in August, but there is still room for improvement. EUR 326 million of bank loans are maturing, or the interest terms are ending in the next [ 2 ] years. And if you look at the coupons of these bank loans, it's often more of 3% per annum but this should clearly lead to further interest cost savings. And I already mentioned the EUR 191 million corporate bond that will be repaid in August. And then approximately 2 years from now, we have another EUR 125 million corporate bond maturing in June 2020, still within today's interest rates [ relatively ] quite high coupon of 3.75%. So you see that 2.14% average cost of debt, which we have now on a pro forma basis and should not be the end of the road, there's still room for improvement.Then on slide number -- I am on Slide #l3, [indiscernible] comment here on the number of units. This is the comparison to the year-end 2017 where we had 83,100 units. Now a little bit less in the first quarter, that's simply the effect of the disposals, I already mentioned, ongoing disposals and the closing of a portfolio [ scene ] in Berlin [indiscernible] already last year.On the next slide, Slide #14, you see the development in our vacancy rates in more detail. I already explained the development of the vacancy rates in the first quarter. So we started or we ended the financial year 2017 with a 4.8% vacancy rate than just more technically including the acquisitions from last year into this number, which had on average the vacancy rate of approximately 14%, we end up with 5.3% at a starting point in this like-for-like view, then the vacancy rate increased a little bit by 30 basis points in the first quarter and then it was already reduced to 5.4% in April. I would say not really an unusual development if you compare that with the developments in the last quarters [indiscernible] always, let's say a stable vacancy rate 10 basis points, 20 basis points reduction now, 10 basis point increase. So, there is nothing unusual. The main effect from this slide the tick up a vacancy cost integration of new acquisitions.On the next slide. Another look at like-for-like rental growth, and the basis like-for-like rental growth still at 2% which is a good number, especially having in mind that we achieved this without any large CapEx programs [ out of ] purely I would say the tenant turnover and rent increases for existing tenants. The CapEx impact in this 2% number is still 10 basis points, only 10 basis points and that's a number absolutely comparable to the last quarters. Including the effect from vacancy reduction to the like-for-like numbers, we end up with 2.6% compared to 3.1% in the previous year, but I already explained this 50 basis point reduction is the effect from lower vacancy reduction in the first quarter and we expect that to pick up. But it's still in the direction of our guidance. We expect that the total like-to-like rental growth including vacancy reduction should go more towards the 3% for the full year.Then on Slide #17, another look at the guidance for 2018 and I think we already communicated with the full-year number that we will review the guidance and we will do this [ now past ] the Q2 results. If you look at the run rate and multiply the FFO we achieved in the fourth -- in the first quarter and with -- I mean we already [ noted ] EUR 140 million regarding the FFO for the full year, but the current guidance of EUR 136 million should really be achievable and also on a per share basis, we are more at a run-rate towards EUR 0.95 per share, EUR 0.96 per share than the EUR 0.93 per share already guided. But as we reach there's more clarity on acquisitions and disposals we think it makes sense to renew this with the Q2 figures and -- but we also then present the half-year evaluations. So the Q2 figures definitely will have interesting [ stuff ].Dividends per share, and we are paying out now EUR 0.65 per share after the AGM that takes place in May and the guidance for 2018 paid out in 2019 is still unchanged at EUR 0.70 per share.And then the last slide, Slide #18, a look at the upcoming events. First of all, our Annual General Meeting taking place in Hamburg on 23rd of May, already mentioned the dividend payment [indiscernible]. We have elections to the supervisory board, all current shareholder representatives and will be -- are nominated for reelection with one exception, Dr. Hans-Jurgen Ahlbrecht is leaving the board because he reached also his retirement age, and Professor Dr. Kristin Wellner which is a professor from Technical University in Berlin, with a focus on real estate and is nominated as a new representative for the supervisory board. We are happy to have her on the board hopefully as an expert [indiscernible] good candidate for the board.Also we have a resolution to approve the remuneration system for management board. You will find all the details, therefore, on the website and also in the annual report. No really general changes, we are focusing now more on the total shareholder return for a longer period. So the bonus payment for the management is still based on TAG shares and now the main change was that we will look into future more on a period to period basis than just in 1 year period which is something that we think make sense and that's also market standard. They get also resolutions to renew authorized capital and contingent capital just renewing the already given authorizations they had from the previous years.And then finally some comments on Capital Markets Day, where we hope that we see many of you to participate. We think an interesting agenda for the day taking place on the 12th of June in Brandenburg an der Havel, which is in the Berlin, commute about approximately 45 minutes drive by train there. Presentation is also included in next [indiscernible]. We want to talk with you about the acquisition, CapEx strategies they have and we have here, I think for example, TAG's Brandenburg portfolio where we acquired 3,000 units in the last 2 years or 3 years, and we want to give you more insights on service business and future projects we have at TAG and the experts, [indiscernible] presentation we spent about the topic of development from the [ Berlin could commute ] about in comparison to the growing capital. So perhaps interesting to see that after the presentations, we'll have a property tour and hope to see you going [indiscernible].That's it from me. Today, comprehensive presentation with our Q1 results. Thanks so far for listening and I'm now -- I'm of course, happy to take your questions. Thank you very much.

[Operator]

Thank you, Mr. Thiel. We will now begin the question-and-answer session. [Operator Instructions] We got the first question from Thomas Neuhold from Kepler Cheuvreux.

[Thomas Neuhold, Head of Research of Austria]

I have 3 questions. Firstly, I was wondering if you can give us an update on your acquisition pipeline and more generally how you see the key trends in the investment market in the core markets? Secondly, on -- the service business increased strongly year-over-year. Could you give us an update on the outlook and the growth potential for the service business? And then finally, on Slide 20, I was wondering if you can give us an update on the markets where the vacancy rates are still quite high [indiscernible], what is going on there and what is your strategy here to reduce the vacancy rates?

[Martin Thiel, CFO & Member of Management Board]

And firstly, talking about the acquisition pipeline, and that is good to talk more generally about that. And as you're hopefully understanding, we cannot comment on details project at the moment. I mean the market is really competitive and we see clearly also market participants coming from large institutional funds more and more in our markets, which is then for the acquisition side not the best news, but good use of course for our strategy, good news for evaluation. And if you remember last year, I think we are still ever and ever proving to find chances and to find acquisitions and perhaps also more frequently this year and more in sizes, so let's see would happens during the course of the year. But clearly, the market is quite competitive. Talking about the service business, yes, you're absolutely right, strong increase if you compare the first quarter 2018 to the first quarter 2017. We started a large part of the service business, which brings the multimedia business and energy business at year-end 2016 then coming more and more into our focus during the course of the financial year 2017. And if you remember the presentation we released with the full year statement -- full-year figures, you see that the penetration rate regarding the multimedia business is for example, currently, 50,000 units out of a total targeted volume of approximately 75,000 units and the managed business, it was approximately 23,000 units out of a target size of approximately 75,000 units. These are currently, definitely, the 2 most important businesses looking purely at the FFO effect. So there should be good development over the next 3 years to 4 years, that's the timeframe that we [indiscernible]in for in the full penetration and you could expect a development, which is quite linear over the next, let's say, 3 years. Talking about the potentials for vacancy reduction, I mean we're at the moment for our numbers quite strongly investing in the regions Chemnitz and Berlin. Chemnitz stands still with a high vacancy rate with 11% in March 2018. Berlin with a low vacancy rates at 5.9%, but in Berlin especially 1 region, that's Brandenburg and [ Havel ] where we acquired 3,000 units in Berlin for the Capital Markets Day take place and we're going to show our CapEx strategies on this day. The average vacancy that we have in our portfolio and [ plan ] book is around 20%. So if you ask me where is the most potential to reduce vacancy reduction, I would say, beside Chemnitz it's definitely, but also the Berlin region, [ where we have ] more strategy to do this into smaller steps and simply a reflection of the market, yes, TAG has a positive development, but that's not that strong demand that we see for example in Chemnitz or in the Berlin commuter belts for modernized apartments.

[Operator]

Mr. Sander Bunck from Barclays.

[Sander Bunck, Vice President of Real Estate Equity Research]

Three questions from me please. First one, can you really give us any guidance on the H1 revaluation results. I know that some of your peers have already been guiding at pretty strong revaluation uplifts. Have you had some discussions with CBRE already and what kind of upside are they currently looking at?

[Martin Thiel, CFO & Member of Management Board]

The [indiscernible] we have not really detailed discussions and of course, not results on the table. We have just more indications. And difficult to give exact numbers. I mean, last year we had a 14% uplift during the course of the year, approximately 7% first year, 7% in the second year. So what we expect is that it goes, let's say more in this direction. So definitely closer toward a 14% we had last year than the 3% or 5% talking about full year average uplift that we saw in the past 3 years. Let's say, the guidance we can give, which is more an informal guidance.

[Sander Bunck, Vice President of Real Estate Equity Research]

And is that sort of full year, is that already at H1?

[Martin Thiel, CFO & Member of Management Board]

That's with full year. That's full year.

[Sander Bunck, Vice President of Real Estate Equity Research]

And just on -- actually on some of the acquisitions you've done and I'm just doing some very quick maths here. Again, looking at Slide 20, is it correct that some of the units you've acquired in Chemnitz have a vacancy of around 40%? I'm just comparing your Page 20 from the December to your March now, the units have increased a bit, but the vacancy has increased quite a lot and the way to [ box it out ] is by assuming roughly 40% vacancy on purchases. Is that probably correct or is something missing here?

[Martin Thiel, CFO & Member of Management Board]

No, that's correct. The one large acquisition we had last in Chemnitz had a vacancy I think north of 35%. So that equation makes sense.

[Sander Bunck, Vice President of Real Estate Equity Research]

Okay, and can you give us any detail on [indiscernible] acquisition, how you've progressed with reducing that vacancy with vacancy rate?

[Martin Thiel, CFO & Member of Management Board]

Yes, the closing of this acquisition took place at 31st of December. So in the first weeks and months after the acquisition, it's very normal that you're vacancy rates remains at that level or even increases a little bit, because I would say, not only the first quarter, but the first full year is more a restructuring year. But it is important that tenants realize [ that as the ] new landlords, we're starting with [indiscernible], we're starting with simple things implementing our own caretaker services and so on. So really progress and gets more general covenant not only for Chemnitz, we have progressed you see not in the first weeks, but let's say, in the 2 or 3. Clearly everything is a spec. So today, as far as I know the vacancy rate in this Chemnitz portfolio is really unchanged, which [indiscernible] development.

[Sander Bunck, Vice President of Real Estate Equity Research]

And can you give us some guidance on -- I don't know, the Chemnitz in particular is quite small, but can you give some guidance what kind of -- within which timeframe you expect this vacancy to come down in these newly acquired units from the -- probably 35% when you acquire that, give more of 5% to 10% region for the rest of the portfolio?

[Martin Thiel, CFO & Member of Management Board]

In this case very quickly, but if -- because if you look at the purchase price we paid for the portfolio, for us it was a quite high multiple that we paid. It was north of 15x the current rent, which is if you compare it to other transactions and usually it sounds expensive on the first sight, but we see clearly potential in some if you wants a low hanging fruits, so it should be a time period of perhaps 2 years, perhaps 1 your longer, until we are, in a vacancy rate you have described, that means below 10%.

[Sander Bunck, Vice President of Real Estate Equity Research]

And you get to -- out of that -- to that vacancy rate by spending CapEx and asking market rents, or are you getting to that lower vacancy rate by reducing asking rents?

[Martin Thiel, CFO & Member of Management Board]

Clearly the first alternative and if by the way, I think, the only alternative to do this. I mean you could do -- check the second alternative, but that would mean to reduce that really materially and the key and that's very simple for vacancy reduction in these locations is Germany, it means you to have to invest. Every new tenant wants a modernized apartment and modernized, not a luxury apartment, it means, bring the apartment back to today's standards, sort of new bathroom, new floor, more simple things and that's what we do here in Chemnitz. We definitely do not have to do and really the structural investment, heavy CapEx spending just to modernize your apartment step by step. And with the returns you know from us, in this regard, which are quite attractive, that's what we plan for at Chemnitz. And then also the -- and talking more generally, when we talk about vacancy reduction.

[Sander Bunck, Vice President of Real Estate Equity Research]

[indiscernible]. And very last question. The target for like-for-like rental growth, obviously dipped a bit during this quarter to 2.6% including vacancy reduction. Are you -- the 3% to 3.5% like-for-like rental target, is that still something you looking at for the near and medium-term or do you feel you have to adjust it downwards or upwards?

[Martin Thiel, CFO & Member of Management Board]

No, we don't have that feeling. So let's say, like-for-like rental growth without making reduction a 2%, including vacancy reduction of around 3% was absolutely something that was -- think it's realistic, and perhaps we've already seen in the last year, there is a swing depending on which quarter we are reporting. So towards the end of the year, where we normally have always stronger vacancy reductions, feel very optimistic that this number is going more than into 3% per annum than reducing for other, that's very clear.

[Operator]

Bernd Janssen from VictoriaPartners.

[Bernd Janssen, Head of Research]

Three brief questions. First one on cost reduction. You mentioned that you achieved cost reduction in SG&A in Q1. Could you give us some example of how this book achieved and what could be a run rate for 2018? Second question is on lower impairments on that receivable, where you so far have been above peer group average. Would it be possible to give us a number, for example, percentage off net rent you don't know that you should calculate it over [ 1 meter] over all inclusive rents, but where you're standing today? And the last question, again the like-for-like rental growth where there's always some questions, in the appendix, the one on where you compare Q1 2018 and I guess it's Page 21, could you give us an idea more specifically have there been some reductions in total like-for-like rental growth including change in vacancy in Q1 over Q4 2017, for example that Salzgitter, it was 5.4% in Q1 -- Q4 stage, so it's now 3.9% and other, some other cities where it also came down on a couple of basis points? Is that because, mainly because of a higher base now, so the base Q1 2017 over the previous base Q4 2016, or is it more the seasonal effect that you highlighted before?

[Martin Thiel, CFO & Member of Management Board]

First of all, talking about cost reduction, it was -- main effects from lower other operating expenses in the first quarter 2018 compared to the previous quarter. And I think I talked in general about this topic, but we've seen still in the last 1 year or 2 years investments in our IT system, I mean this would of course continue, but we have here reductions, especially comparing the 2 previous quarter. And so we've become more here more and more effective and beside that, I think the total cost reduction is more the effect of acquisitions exactly in our regions. So where we were able to integrate new portfolio, just really slightly increases in SG&A. And of course, the increasing and growing services business, and which is also done with personnel expenses and very limited other operating expenses. So in fact, these 2 elements are the most important things while we improve the EBITDA margin in the last quarter, quarter-by-quarter.

[Bernd Janssen, Head of Research]

I should look at your published Q1 numbers, but I was under the impression you also had an absolute decline in operating expenses?

[Martin Thiel, CFO & Member of Management Board]

Yes.

[Bernd Janssen, Head of Research]

So it was not just an impression on the margin, but also on the absolute amount and I would focus on the FFO relevant number within that, so excluding previous one-offs?

[Martin Thiel, CFO & Member of Management Board]

Yes, on this you're absolutely correct. It was also a reduction in absolute amount, which is first of all renewed, but especially looking into other operating expenses, I don't want to highlight that too much, more the general trend that I described. For example, reduced IT cost [indiscernible] over the last quarters.

[Bernd Janssen, Head of Research]

Okay.

[Martin Thiel, CFO & Member of Management Board]

And then, to your question about like-for-like rental growth and yes, we clearly see changes in the first quarter 2018 compared to the previous year, and for example, I think that the total, and you also mentioned that the total like-for-like including vacancy reduction was 3.9% from 5.4% in the previous quarter. At Salzgitter in the meanwhile already down to vacancy rate at around 5.5% which is in Salzgitter, that's not optimum yet, but not far away from the optimum. And if you remember the development during the last financial year, it was definitely strong. So now we are, I think in fact in Salzgitter perhaps quite close to what we should call a kind of structure that make it to it. And the underlying like-for-like rental growth just to point out is again, is very promising, interesting, wherein the net basis like-for-like rental growth just from rewriting and rent increasing from 50 tenants at 2.6% in the first quarter compared to 2.7%. So we see an effective reserve a number of regions or locations we have. First step is clearly, vacancy reduction than the basis like-for-like rental growth. Today you see this in Chemnitz region. And if you look at slide, the slide you mentioned, the Slide 21, where the base like-for-like rental growth was just 0.7% and was 0.8% last year, that's clearly the strong like-for-like rental growth including vacancy reduction and we are convinced, once vacancy rates in Chemnitz have fallen or our portfolio has fallen, then this number will pick up, so that we achieved overall the total like-for-like -- attractive total like-for-like rental growth. Again perhaps you can just remind me what was your third question?

[Bernd Janssen, Head of Research]

The third question was on impairments on the receivables, whether it would be possible to provide us with a number for example, as a percentage of net rents where you already or what you would expect to be. According to my calculations you were still around 2% or so.

[Martin Thiel, CFO & Member of Management Board]

We clearly expect this to get below 2% and 2% that's the calculation rent receivables or impairments of rent receivables in relation to the rent without service charges. So we -- as a consequence of reduced vacancy rate, we also expect this number will go below 2% and going more and more towards a number, which is more in the area of 1.5%, I think below that is that would be difficult.

[Bernd Janssen, Head of Research]

The 1.5% would have been longer-term growth, okay.

[Operator]

Next up Kai Klose from Berenberg.

[Kai Klose, Analyst]

Just have a few question regarding the sales results -- results from sales, it's on Page 6. The [ minus 1.5 ], just to understand is this the capital loss or sales wise you would see some comparison to the book value or that includes also some sales cost incentive? And how you would expect this to develop for the year? And the last question -- and the second question, again on Page 20, just to understand the development in the Rhine-Ruhr region. And I think you haven't bought anything down, but you would also pick up invest to it, is it a seasonal effect or anything specific?

[Martin Thiel, CFO & Member of Management Board]

Let us start with the second question. It's more -- no seasonal effect, but effect from investments we're doing in the Rhine-Ruhr region and as to Rhine-Ruhr region which is 4,700 units is not that large. In our company, you don't see a massive impact there and a lot of that was qualified. So if you look at the per square meter investments, maintenance CapEx, a lot of that was qualified as maintenance and see this number [indiscernible] per square meter, which is quite a lot. So this should be something that is nothing really a trend for the full year 2018 or 2019, so a number that should come down over the last -- over the next quarters. That's very clear for us. And your question regarding net revenue from sales and whether loss we show here, with EUR 0.5 million in the first quarter 2018, just purely the effect from transaction costs and transaction costs in this regard meaning broker fees. For example -- so very large is broker fees for example, for a [ credit ] portfolio in Berlin that we sold last year, the technique is as follows, we are selling that during the course of 2017, in fact above true value then we get to the next balance sheet date where the value that up to the purchase price. But what we cannot account for under IFRS is the broker fees. So this is then adjusted in the P&L when the closing takes place. So if you want to, the total disposal gain is on the one side in the valuation gain until the next balance sheet date and then we have a loss when we account for the broker fees. But overall, if you look at -- work out from an economic perspective, it's clearly a booking, so that's the background of this.

[Kai Klose, Analyst]

And last question regarding the valuation of the portfolio as of June. Just to understand a little details as the valuation for the year-end -- for the full year-end or is it more [indiscernible] general overview and less details for the December valuation?

[Martin Thiel, CFO & Member of Management Board]

It's detailed, it's nearly expected comparable.

[Operator]

Next questioner is Mihail Tonchev from Kempen.

[Mihail Tonchev, Analyst]

Just 2 quick ones from me. With regards to the bank [indiscernible] can you maybe elaborate on the timing of refinancing and sort of when would you expect to reach under 2% of the average cost of debt because as you mentioned the 2.14% [indiscernible]? That's the first question.

[Martin Thiel, CFO & Member of Management Board]

I think this should not be too far away to get below the 2%. So perhaps that's a matter of ongoing financial year 2018. We think about possibilities regarding refinancing, I mean that's clearly an unchanged strategy, so we want to prevent its high breakage fees, for example, for bank loans maturing in 2020, but currently we think about refinancing options in this bank -- regarding this bank loans a little bit ahead of maturity. So getting below the 2% cost of debt is perhaps something that's not too far away.

[Mihail Tonchev, Analyst]

Okay. And secondly, and just in terms of tenant turnover [indiscernible]. Are there any updates there or is this steady as a rock?

[Martin Thiel, CFO & Member of Management Board]

That's in fact steady as a rock, if you want to call it like this and 2 trends in stronger locations like for example, in Dresden particularly or in Hamburg it's very clear that this is coming down. So the trend we -- or if we talk about an average tenant turnover, which is approximately 10% and that's in average of let's say, 7% tenant turnover for example in Hamburg and let's say 12% or 13% tenant turnover in a city like Chemnitz.

[Operator]

[Operator Instructions] There are no further questions in the moment.

[Martin Thiel, CFO & Member of Management Board]

Okay. Then, thank you all for listening and taking part in our Q1 call. Thanks for the time. Hope to see many of you at our Capital Markets Day in 12th of June in Brandenburg an der Havel. Have a nice day and bye-bye from Hamburg.

[Operator]

We want to thank Mr. Thiel and all the participants of this conference. Goodbye.