TAG Immobilien AG

XETRA:TEG

Earnings Call Transcript 2022-Q1

[Operator]

Dear ladies and gentlemen, welcome to the conference call of TAG Immobilien AG regarding the publication of the interim statement Q1 2022. At our customers' request, this conference will be recorded. [Operator Instructions]

I may now hand you over to Martin Thiel, CFO, who will lead you for this conference. Please go ahead.

[Martin Thiel, executive]

Yes. I mean, thanks, and good morning, everyone. This is Martin from TAG. Many thanks for dialing in for our Q1 2022 conference call. As always, we will go together with you through the presentation, try to make it comprehensive. And of course, after that, we have enough time to discuss and to answer your questions.

Let's start with Page #4, which is the highlights slide and start with the operational development in Germany. Looking at the vacancy development in the first quarter. Well, first of all, we saw something that we've seen also in the past, that means a slight increase in the vacancy rates in our residential units, in this case, slightly up by 20 basis points from 5.5% to 5.7%, kind of seasonality that we see now for years. But I think it's important to mention already after the balance sheet date, we've seen a reduction vacancy rate. The number from April was 5.5%. Numbers from May was around 5.3%, our current vacancy rate. So already, we are in a reduction of vacancy rates in 2022, and we are, in this regard, very optimistic that 2022 will be a very good year in this regard.

Looking at like-for-like rental growth, I would say that basically unchanged to the previous financial year. We are even a little bit better, especially looking at the total like-for-like rental growth, including vacancy reduction, which stands at 1.5%. Perhaps you know that the guidance is for the full year 2022 between 1.5% and 2%. So with the expected further reduction in vacancy in the next quarters, that should be very much achievable. FFO I is up 5% year-on-year and came out at EUR 47.8 million, and also compared to the previous quarter, which you see on this slide, that ended with EUR 44.5 million, that's an increase.

A quick look on EPRA NTA and LTV, or at this stage, I will come back to that later in more detail. We saw now an EPRA NTA of 24.13 and an LTV of 47.3%, both developments means a reduction in EPRA NTA. And the increase in LTV are clearly the result of the ROBYG acquisition, which we accounted for, for the first time at the 31st of March.

In the first quarter of 2022, there have been no portfolio acquisitions in Germany. We disposed some noncore assets in Germany, 321 units all in all and mainly around book value.

Coming to the next slide and looking at our business in Poland. First of all, it's important to mention, all the figures that you see regarding the P&L in Q1 2022, exclude ROBYG. The first-time consolidation for ROBYG was at the 31st of March 2022. That means that the balance sheet already include ROBYG, and the consequence -- to include ROBYG, EPRA NTA includes ROBYG, but no numbers in the P&L include ROBYG. This will be the case now from the second quarter onwards.

Therefore, the revenues from sale of properties were quite small as this is now purely still remaining and in the meantime, quite small sales business from our first subsidiary Vantage. There will be more then, of course, in the second, third and fourth quarter when we now fully consolidate ROBYG.

Looking at the total pipeline that we have in Poland, you see the significant increase now after the first time consolidation of ROBYG. All in all, roughly 25,000 potential units that came now into our group. And if you look at the total numbers, which as here presented in the total Q1 2022, the pipeline numbers, we've got nearly 19,000 units -- potential units as land bank and our construction already for the rental business and for the sales business, roughly 18,000 units. That brings us to a total pipeline in terms of units around 37,000 units and that translates into a JV for the Polish portfolio of a little bit more than EUR 1 billion.

Effectively, this means that when we look at the land bank that we already own, there's absolutely no pressure on us to do now significant acquisitions in the future. You know that our midterm target is to have 20,000 residential-for-rent units in Poland in the next 6 to 7 years. And basically, we are already there, at least in terms of land bank units. Of course, we have to construct all the units in the next year. But in this market environment, I think it's good to say that we can really now be selective with our future acquisitions.

Yes, I said, ROBYG, the transaction closed at the 31st of March, final equity purchase price, we already communicated, that was around EUR 540 million.

Let's take a look at Page #7, which is the income statement. It includes Germany and Poland. And again Poland, excluding ROBYG because consolidation was done later. A positive development in the net rental income, which is still coming more or less only from Germany. The Polish part is still very, very small. And we had improved rental income and also lower maintenance cost of EUR 1 million in the first quarter, but please don't take this as a kind of trend that we reduce our maintenance costs, and we see something similar when we discuss the CapEx development, which was also lower than in the first quarter of 2021 and maintenance as well as CapEx is nothing that is extremely stable quarter-on-quarter. We expect that we are in the course of 2022 on the same maintenance and CapEx levels than in the previous year. And of course, we also see in these items cost inflation. So therefore, a reduction for the full year 2022 is nothing you should expect.

The reduction is already observable is in the personnel expenses, especially looking at our German business, here reduction quarter-on-quarter of EUR 2.1 million, where the largest part is coming from the German business, as I said. What have we done here during the course of 2021, we had some internal changes in our organization structure, mainly referring to the customer service department and their shared service center, where we were able to reduce our headcount in these departments and to operate the portfolio more efficiently. And this is, of course, good to see that we already have a purely visible FFO impact in the Q1 2022 from this.

There was valuation as always, at the end of the first quarter 2022. The next valuation will follow as in the past years in the middle of the year, mainly on the 30th of June. As you know that we had like the whole sector in 2021, a very strong valuation uplift. We ended up at a 9% pure valuation gain in 2021. We have not really reliable estimates, final numbers, something like that for the half year. But if you ask us, well, what should we expect? first of all, clearly, we expect further valuation gains in the course of 2022 and also in the first half. Is it as strong as in the first half 2021? We are a little bit careful around that. So that should be a good result. But of course, one has to observe how interest rate environment develop in Germany. We are convinced that should have a tempering effect. So we are far away from any drop in values. But personally, and I think that's nothing really new. But we're discussing here, we expect that the yield compression that we've seen in the past years should come more to a level, which is more sustainable and which is then also something that we simply prefer if this is then a continuous slight increase then the strong increase that we had at the end in the past.

Yes. In total, consolidated net profit amounted to EUR 32 million, out of which the largest part is coming from Germany, the Polish business, again, excluding ROBYG, with a slightly positive result of EUR 1.2 million.

Page #8 shows the EBITDA, FFO and AFFO development. And good to see that the EBITDA improved by EUR 4.5 million, mainly as we're at higher net rental income and also better service results as well as the lower personnel expenses, that's something that we already discussed.

Financing expenses were roughly on the same level as in the previous quarter and we had EUR 1 million higher cash taxes -- that led to an FFO increased quarter-on-quarter compared with the previous quarter by EUR 3.3 million.

If you look at the results of operations in Poland, that's with EUR 1.3 million negative. Why is that the case? You see here a higher-than-usual tax effect that reduces the net income from Poland, which is -- or which has been EUR 1.2 million now to the EUR 1.3 million result operations from Poland. That's something that is not unusual in Poland to have here a time lag between realization of revenues and that point in time were under Polish GAAP or on the Polish tax law, and the income taxes are due. Meaning, if you handover apartment in the fourth quarter, then in the first quarter of the following year, we have a kind of formal authorization act still with the buyer that leads them to the point in time per income taxes are due. So therefore, good sales result in the fourth quarter, means not a tax expense in the fourth quarter, in my example, by the tax expense in the first quarter of the following year. And this is what we see here.

But of course, for the full year, we expect quite strong result operations Poland. We will discuss the guidance later. So this is something just temporary.

Next page, Page #9 shows the EPRA NTA development for 2021 and for the first quarter 2022. Well, I mean, the other effect that you see in the first quarter is more or less the ongoing result. We saw a reduction of EUR 1.65 per share coming from the ROBYG acquisition, and which is basically the ROBYG goodwill. The ROBYG goodwill was not written down. So we have in the balance sheet, a goodwill of roughly EUR 240 million. But you know that this is excluded from the EPRA NTA calculation. So again, we account for the ROBYG goodwill, of course, as an intangible asset in the balance sheet. The amount is roughly EUR 240 million. But for purpose of the EPRA NTA calculation, we have to exclude this goodwill. And therefore, we have seen this reduction in EPRA NTA from the ROBYG acquisition.

Page #10 shows the financing structure. I already mentioned that the LTV is now slightly above our LTV target. LTV came up 400 basis points higher than in the previous quarter, which is then a consequence of the purchase price payment for ROBYG, which was done from the bridge loan that we had in place. So let me clearly state that the 45% LTV target is unchanged. So the 47% should be something temporary.

And we also see in a maturity profile, the bridge loan included in all the numbers coming from average -- referring to average maturities, referring to average interest rates, include this bridge loan of EUR 540 million at 31st of March 2022. And basically, it's unchanged what we said already at the beginning of the year, the clear plan is to take out the bridge loan in the course of 2022 via capital market transactions. The bridge loans, just to remember, that matures at the latest in July 2023. So there's still more than 1-year maturity.

Quick look on Page #12, which shows an overview of the portfolio. In the meanwhile, the total GAV after the [ interest in ] acquisition of ROBYG, grew to EUR 7.5 billion, out of which roughly EUR 1 billion is from the Polish portfolio and EUR 6.5 billion is from the German portfolio.

Page #13 shows the split of like-for-like rental growth. And as I already said, a slight increase in like-for-like rental growth, including vacancy reduction, excluding vacancy reduction, we came out at 1.4%. And if you look at the distribution, that's of this like-for-like rental growth, that's on the bottom left of Page #13, you see that this is something like in the previous quarter, so still a small impact from modernization surcharge. And the main part of the rental growth is coming from tenant turnover and from rent increases for existing tenants, and that leads to effect that we still only have to invest EUR 19.4 per square meter, you see this on the top right, which is absolutely in line to what we had spent in the previous years.

But again, important to point out, as you know, we have published our decarbonization strategy with the full year financial figures. So midterm, over the course of the next year, you should expect that these investments are going up to EUR 25 roughly and to get our portfolio climate neutral by 2045. So it's not a massive increase. That's something which is very much doable for us. And of course, the impact from the modernization surcharge on our like-for-like, rate growth will increase as we're simply spending more to reduce our CO2 emissions, and this leads then to the potential higher rent decreases in the course of the next years.

Page 14 shows the development in vacancy rates in our German portfolio. I think we've already discussed this. Once again, good to see that vacancy in May 2022 is already down to 5.3%.

Yes, some words on our Polish portfolio and our Polish business that's shown as an overview with a lot of hopefully helpful numbers on Page 16. In total, the pipeline for our Polish portfolio now adds up to more than 37,000 units, with our 2 platforms currently Vantage and ROBYG in Poland. It's the clear plan to combine these 2 platforms so that we have 1 combined entity, one platform in Poland. We are right now in the middle of the integration process between Vantage and ROBYG. So this is very much on the way and we want to complete this process in the course of the year, and we're very proud and very happy that we have here really the possibility to combine 2 very successful teams in Poland to create, hopefully, quite soon Poland's largest residential landlord.

Looking at the Polish market, I mean, how is the situation currently? It's clearly challenging. So not really new is a topic of construction price inflation, but we can tell you that until now, the construction sites are still running, and it's basically in plan. I mean, of course, there are bottlenecks in the supply chain visible. But so far, our teams in Poland were always able to manage that. So, of course, it gets more and more difficult. the longer the war in the Ukraine takes. But for now, we are quite satisfied with the development in Poland. So short term, this war has clearly a risk for us midterm, I mean it's hard to say this, but we are convinced that this has for us and for the Polish market, a positive impact. Where this is coming from? At the moment, we see a huge inflow of people into the Polish market. If the press articles and the announcements are correct, more than 3 million people from the Ukraine have already entered Poland. And for a country with 38 million people, that's, of course, a massive inflow. And it's clear, not everyone will stay after the war in Poland. But if only a certain percentage of that people stay in Poland, that's extremely helpful for the Polish economy firstly. And secondly, of course, this will create strong demand for the Polish residential market. So therefore, we're convinced that the market will see a very good development [ than the past ] years and what we already observed is a very strong demand for the rental business in Poland.

And selling apartments, of course, in an environment with higher interest rates is something that will be more difficult. Is this really a problem for us? That's not really a problem because you know that our main focus is on the residential-for-rent business. And if we need to even convert more projects into residential-for-rent projects, that's, of course, something we can do. So we are here quite flexible to react. So far, again, we don't see really very negative developments in the market, but we have, of course, to closely observe that. But again, the midterm outlook in Poland is, from our point of view, very positive.

Page 17 shows, again, the current projects already on offer. The vacancy rate of 2.9% confirms what I have already said, demand for rental product in Poland, not only because of the refugee wave from the Ukraine, also because of other trends is extremely strong. So we're very happy that the first project as planned and even a little bit better.

Yes, finally look on Page #19 on the guidance, FFO and dividend and that's unchanged. So we're still guiding. And if you look at the numbers, it's, I think, fair to say that we are in a good way for an FFO I of in a midpoint EUR 190 million; and FFO2, including the business in Poland, of in a midpoint EUR 250 million. So that means roughly EUR 60 million is the expected results operation in Poland now from the second quarter onwards, including the new ROBYG acquisition that would translate into a 32% increase year-on-year and to create the FFO development, which is in 2022, still from the German business, that will be a 5% increase year-on-year without any further acquisitions or without any further disposals.

And the dividend guidance stands unchanged at EUR 0.98 as in the previous years, 75% payout from FFO I. And you know that we've paid out last week, EUR 0.93 per share dividend for the financial year 2021 after AGM.

That's it from my side as an overview of the first quarter 2022. Many thanks so far for listening. And of course, now we're happy to take your questions.

[Operator]

[Operator Instructions] We have a first question. It's from Sander Bunck of Barclays.

[Sander Bunck, analyst]

Two questions from my side, please. First one is on the LTV, which obviously now is above 45%, which I guess was broadly expected. Can you give us an update on how you think to bring that down going forward? Any conjunction with that? An update on your thoughts on the bridge financing for ROBYG. That will be the first one.

And the second question is related to Poland. And I just wanted to get a bit more clarity on how you think about your FFO II development over the next, say, 9 months? How it has -- how FFO II for ROBYG was basically in the first quarter? But also in your commentary that basically mortgage rates are increasing, obviously, in Poland, which is having an impact on -- which could potentially have an impact on your development completions, et cetera, but you wanted to hold or sell. Can you give us a sense of how much more expensive flats have become for people? And if you want to get a mortgage rate, what you're paying now for flat compared to, say, for example, 6 months ago?

[Martin Thiel, executive]

Yes, of course, happy to do. Sander, I'll start with the first question regarding the LTV development. It's correct the LTV stand now at 47%. Well, if we pencil in, let's say, a slightly reduced gain just for illustration purposes compared to last year. And if you assume some asset disposals in Germany, which we are already planning, which are, I would say, underway, so shouldn't expect massive disposals, but perhaps something in a volume of EUR 100 million, EUR 150 million and more than the normally and basically already at our LTV target of 45%.

Regarding your question of the refinancing of the bridge loan, well, in general, we always said, the Polish business is something, as we expect and already see the first project, high yields that absolutely also justifies equity contribution. And here, I'm talking more generally, you know that we're investing. If we look at the residential-for-rent pipeline, EUR 2 billion in Poland over the next 6 to 7 years. This is something that we want to do completely debt finance and want to keep the LTV just with the help of valuation gains on a level where it is, that would not be our style.

On the other side, you know that we've been always very careful with our equity. With The last capital increase at TEG is now 10 years ago. Also at that time in 2012 in connection with other acquisitions. So therefore, it's something where we clearly think a lot about it, where there's always a Plan B. Plan B would be even more disposals, whether this is in Poland or whether this is in Germany. But you should expect that, as I said, in the course of 2022, we will refinance the bridge loan, which matures in July 2023. So clearly, we will not wait until the very last day for that.

And looking at FFO II development, where for 2022, the good thing is, I think, 98% of the units that are planned to be handed over in 2022 are already sold. So there's not really anything at risk for FFO II guidance for 2022. And the construction is all the way, contracts are signed. So when we talk about, for example, reduction in sales, if this would be the case, in the next quarters, we're talking more about sales results for 2023, 2024.

How is the situation in Poland? Interest rates have significantly increased. So a private buyer that takes on a mortgage is facing today interest rate, let's of 7%, 8%. So that's a quite strong increase compared to, for example, last year. I mean, it's fair to say that, that should have a reducing effect in sales. So we would be surprised if we see in the next quarters, not any effect on that. But on the other side, what is still absolutely there, is the demand for people to live in new apartments.

And if buying an apartment is less an alternative, then renting apartment is even more becoming popular. So therefore, this was really -- it would be really supportive for our strategy to rent out apartments. And as I mentioned, some minutes back, I mean, of course, you see we've done a preliminary split of our portfolio, leading to the 20,000 residential-for-rent units and still a significant sale pipeline of around 18,000 units.

If we see the demand from the -- is stronger on the rental business, the apartments are not that different. So doing here some conversions into residential-for-rent product is not really something complex. And also a reason why we did the split in the past was that we were careful and thought, well, perhaps, I don't know, 500, 600, 700 units renting in 1 location is perhaps a little bit too much for the market. So let's -- in this micro locations perhaps to a split and also sell some apartments in this specific location.

If there's more demand from the rental side, yes, of course, we can do more. So therefore, it sounds a little bit contradictory, but this rising interest rates in Poland, is not necessarily something negative for our business.

[Sander Bunck, analyst]

Okay. Just to slightly follow-up or maybe push you on that a bit. So I guess it just comes back to funding. And to some extent, you're saying, like, look, we need to refinance the bridge loan and you're going to do that this year. And I think you kind of alerted the fact that some equity component could be required. So basically, a, would you consider to do that at current levels? And slightly related to that, to the extent is, I totally get the point that obviously, mortgage rates increasing and therefore, you're looking to do more for rent given that there's still demand to lift somewhere, I totally appreciate it. But that, again, will probably require additional funding because you can't just finance a whole build-to-rent portfolio. So just trying to understand like the various moving parts and how you're thinking about balancing that?

[Martin Thiel, executive]

And perhaps to make it clear when I am talking about changing some project proportion between residential-for-rent and residential-for-sale, we're not talking about any cash inflows, cash outflows for 2022. We more talking about the next 2 or 3 years, so 2023, 2024 for onwards. So for 2022, from the ongoing investments in Poland, basically, that's funded, so that's cash we have in the balance sheet, and that's cash that we receive, of course, with the business in Poland, especially from the handovers from ROBYG. So it's more a midterm outlook I tried to give. So you shouldn't expect that we have additional huge funding needs in 2022 because of this change.

And again, I just wanted to give an outlook on how we can react if sales in Poland become more difficult. And the first quarter was not a bad one in terms of sales, and also at ROBYG. So we've been right in our plan. But when we look into the future, I think this is something that one should look at.

[Sander Bunck, analyst]

Okay. So -- but then I understand for 2022 is fine, but thinking about just beyond 2022, if you were to decide to do more for rent, then obviously, that does require extra funding because you're giving it back on your balance sheet. So how are you thinking in terms of funding that, not '22, but '23, '24 onwards given where mortgage rates already are basically?

[Martin Thiel, executive]

Yes. I mean you're absolutely right. It would require more funding from either side, and it would require funding by unsecured debt, and that's what I try to refer to at the beginning. And we're convinced that over the years, the Polish business really justifies equity, and we want to do this in a prudent way. And we don't want to weaken our financial metrics. We are clearly committed as well as our investment-grade rating. So looking mid- to long-term, this is clearly something that we would take into account.

[Operator]

Your next question is by Thomas Rothaeusler of Deutsche Bank.

[Thomas Rothaeusler, analyst]

One question actually on how to fix the capital structure in -- let's say, in the midterm beyond '23 as you referred to. I mean you mentioned disposals as one option. Maybe can get a bit more color here, what you expect here? Is it trade asset disposals? Or is it also joint ventures? Or are there any other alternatives you can see?

[Martin Thiel, executive]

Thomas, our idea is very clear, and we're talking about straight disposals. So I know that some companies are currently thinking about joint ventures. Don't know exactly the thinking in this special situations, but we would prefer always a clear solution. And I mean, TAG has done property management for third parties in the past as well. I mean that's now some years back. If you manage a portfolio purely on your own, if you manage a portfolio together with the joint venture partner, I mean the topic of conflict of interest is always there. You need perhaps to set up different systems that creates quite a complexity -- and I mean, with no doubt that the investment market in Germany is strong and will be strong also in the next years. So why not realizing that directly. And I think it's not necessarily for us to give here signs to the market that we could sell at potential leverage and try to keep something in our balance sheet as well a certain proportion of the portfolio that we sold.

So from our price, it's clear that we're talking about direct sales of assets and potentially also about sales if this is necessary, increased sales in Poland, for example, also regarding the land bank. Because this is really a big asset that we have in Poland, this land bank that we have acquired with the help of our Vantage team in the last 2 years and data we've acquired now with the ROBYG acquisition.

[Thomas Rothaeusler, analyst]

Okay. Second question on Poland. I mean you also have supply constraints and higher construction costs plus, I mean, you referred to potentially lower demand on higher mortgage rates. What can we expect here looking ahead? Or what is your assumption? I mean, I understand this year is safe. Most of it is locked in, but looking further ahead?

[Martin Thiel, executive]

I think what we expect is that inflation is plateauing to a certain extent. So -- and we see this topic of construction price inflation in Poland is not really new. So that's not something new in Q1 2022. We've already seen this basically since we are in the market, which is 2.5 years ago. I mean until now, sales prices have increased and rents have increased. So we are still expecting the margins and yields that we communicated from the beginning.

Good thing is, if you look at that margins on gross yields, so 7% to 8% gross yield on our rental product, a sales margin growth of 25% that we expect long term. I mean, there's definitely a buffer. So if we are in, I don't know, 1 or 2 weeks a year, that will be still a good result. Please remember that, for example, ROBYG had a near 30% gross margin, which was extraordinary in 2021. So therefore, we are not concerned. It's absolutely not the case that now our business plan assumptions, our results for Poland are changing. But I mean, you know us. We are looking really to the future, perhaps a little bit more conservative. This was -- is the case or has been the case in Germany for years, leading to the fact that we are not that aggressive with acquisitions in the past. Now we set the foundation for our growth in Poland.

As I said, it's not any more necessary to expand the acquisition business in Poland now extremely. That's a good thing. So therefore, I just wanted to give a clear signal that we're very well aware of the situation, that until now, everything is in planned, but we are, of course, aware and observe closely what is happening in the market.

[Thomas Rothaeusler, analyst]

Maybe one other question on Poland and actually on the letting performance. It seems like you're doing quite well with the first project. Maybe you can share your experience there?

[Martin Thiel, executive]

Yes. I mean, the results have been indeed very good, and it will be good to have even more letting apartments already on the market because additionally, there was this -- or is the strong demand from people from the Ukraine, and a lot of them are also renting apartments in the segment where we are in, which is not a luxury segment, but clearly, I would say, mid to upper end of the market at EUR 10, EUR 11, or EUR 12 per square meter average rent.

So the demand is extremely strong and it's a fact we have to accept that we are under construction. And that towards the end of 2022, in the course of 2023, we will have more completions, and we expect that the renting process is been quite quick. What we know in Poland is that the pre-letting ratios are not very high. So looking into our experiences from the first project and people really want to see the more or less finished apartments. And then they sign a contract and move in quite quickly, that takes them a few weeks and then they move in. We have also, in the meanwhile, the first tenant that extend the contract, which is good. I mean you know that Poland is an unregulated market, a typical contract is a 1-year contract. So the first contracts are expiring now in May, June this year, they have signed 1 year ago. People are happy to extend this, which is also good. So the fluctuation rate turnover seems not to be too high. As the people know that it's difficult for them to find an appropriate apartment on the market. So all the signs that we see here from the letting market are really, really positive.

[Thomas Rothaeusler, analyst]

Okay. Maybe last one on leverage. I mean if you look at leverage in terms of net debt to EBITDA, I mean, it's above 14x. It looks relatively high. I mean what is the target here?

[Martin Thiel, executive]

Yes, thank you for this question because then I can point out that's more the development. You know that we've been at net debt-to-EBITDA of, let's say, around 11x 1 or 2 years back. What is the reason for the increase in net debt-to-EBITDA is clearly our investments in Poland, which lead them to a sequencing, which is, in year-1 and year-2, the investments coming along with higher debt. So we're building the apartments. And then we are renting out the apartments after 18 to 24 months of construction. So in this time, 2022, 2023, when the most part of the portfolio -- of the letting portfolio is still under construction, it's very natural that this net debt-to-EBITDA is around 14 to 15x. But we expect, once we are more in the yielding phase and the yielding phase is then perhaps in 2 years from now on, much more visible as we quite quickly come down. And I think it's for us really good to know that in a world and environment, where people, for good reasons, look more at net debt-to-EBITDA ratio, our ratio quite quickly will be in good shape as we simply own a portfolio with high yields with good cash flows. So looking then into a time where the largest part of the portfolio is -- in Poland is yielding, I mean, the net debt-to-EBITDA ratio should be again on leverage that we have seen in our portfolio before we started in Poland, which is more than perhaps something around 11x.

[Operator]

The next question is by Manuel Martin of ODDO BHF.

[Manuel Martin, analyst]

Two questions from my side, please. It's a follow-up on Poland. I mean how would you describe or could you give us a flavor on how the new it is in Poland. I mean, the country is a neighbor country of Ukraine, where we have the war. Doesn't this impact somehow the mood of people working there, that means maybe craftsman leaving the construction site and going to Ukraine to fight? And also what about inflation and salaries. Could there be a kind of spiral?

[Martin Thiel, executive]

Very clear, when we talk about construction price inflation, we are not talking about bottlenecks of craftsman, extremely strong labor inflation. I mean, the growth of salaries in Poland has been quite strong over the last years in line with good GDP growth. So that's unchanged.

When it comes to construction price inflation, we're talking about increased material prices. And then examples of a material where, for example, oil is needed and oil is normally coming from Russia or from Belarus. So that's where the construction price inflation or the higher construction price inflation is coming from. And yes, of course, there for showcases where people on the construction sites coming from the Ukraine are now returning to their home country. But at least in our construction sites, our companies, that's not really an issue. So we're talking here about, of course, cases but not a trend. And as I said, to the contrary, I mean this massive inflow of people from Ukraine into Poland, that will lead to the fact that there are simply also more workers available, and that's something that the Polish economy needs like, by the way, also the German economy would need -- but even in Poland, it will be more pronounced. So I mean, it's always hard to say that one is benefiting from a war. But for Poland, we are convinced that it is midterm positive development.

[Manuel Martin, analyst]

Okay. I see. My second question would be on your strategy in the Polish development activities that you have. I mean I suppose that supply chain disruptions become worse and you have a lack of material, where would you -- which strategy would you try to do? Would you focus more on build to hold or build to sell? Any idea on that? Or would both ways suffer?

[Martin Thiel, executive]

As I said, it could be the case that we put even a little bit more weight on build to hold. But again, for now, we were still in plan. So there's not a decision taken. I just want to make clear that we are really flexible in that regard. I mean, again, this is not the case today, but if we would see construction price inflation is even stronger, there are problems in supply chains. I mean, then, of course, we would postpone the start of certain projects [indiscernible] that should be natural. This is not the case yet to sell this very clearly. But we are long-term investors in Poland. And for us and for shareholders, it's important that we do that really in an efficient way and that we don't overpay for construction contracts. But -- I mean at least this is the opinion of our colleagues in Poland. We already observed that perhaps this construction price inflation is plateauing. So a further increase or at least not a further strong increase is nothing that we expect as of today. Let's see how this develops. Perhaps already in the course of the next quarter or the quarter thereafter, we can give you here more insights and perhaps potentially also report on -- is in our sense, positive developments.

I don't know if there are further questions. So I would ask kindly the operator to answer that. So I'm not sure whether we have...

[Operator]

Will hand back to you.

[Martin Thiel, executive]

Okay. Sorry. There have been some technical problems. Is it correct that there has been no further questions so far?

[Operator]

No further questions so far.

[Martin Thiel, executive]

Okay. Thank you very much. Yes, then, thank you all for listening to the call and for your questions. As always, if there's anything me, please feel free to contact our IR department or me directly. Happy to answer this follow-up questions. Thanks again, and have a good day. Talk soon.

[Operator]

Dear ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.