TAG Immobilien AG

XETRA:TEG

Earnings Call Transcript 2024-Q1

[Operator]

Ladies and gentlemen, welcome to the publication of Interim Statement Q1 2024 Conference Call. I'm Ali [indiscernible] call operator. I would like to remind you that all participants will be listen only mode and the conference is being recorded. [Operator Instructions] At this time, it's my pleasure to hand over to Martin Thiel, CFO and Co-CEO. Please go ahead, sir.

[Martin Thiel, executive]

Yes. I mean, thanks, and good morning all. Many thanks for dialing into our conference call for the Q1 2021 results. As almost we'll try to give you a brief overview about our results and at development. And after that, we, of course, have a lot of time for Q&A. So let's start on Page 4, which is the summary slide, so where we want to show you the highlights from our point of view, most important developments in the first quarter. Firstly, FFO I increased year-on-year by 5%. So we came out at an FFO I of EUR 44.6 million. In comparison to the previous year, that's around EUR 2 million more, so a 5% increase year-on-year. We think a good development that we can grow our rental results even in this quite elevated interest rate environment. German portfolio showed quite solid performance, like-for-like rental growth, including the impact from vacancy, changes was 2.4%, so a little bit more than in full year 2023. Vacancy rates slightly up by 20 basis points, but we know this now for many years that the first quarter in terms of vacancy reduction is always a little bit weaker, so 20 basis points up, but if you compare it with 1 year ago, so March 2023, where vacancy rate was 4.7%, you clearly see the positive trend. Looking to Poland, quite strong sales results in Poland, so we handed over more than 800 units in the fourth -- in the first quarter of 2024. And also on the sales side, the quarter was quite strong. So in terms of units, it was a little bit less than in the previous quarter. So we sold 636 units. For example, in the previous quarter, it was 709 units and in the quarter 1 year ago, EUR 972 million, but as prices have increased in Poland very strongly. So we see currently a year-on-year increase of around 20% the sales volume. So the cumulative sales prices were at EUR 118 million, so more than in the previous quarter and even more than in the first quarter 1 year ago due to this strong increase in sales prices. Rental business in Poland was also very strong. Like-for-like rental growth is still above 10%, 10.1% exactly. If you look at the vacancy rate of the portfolio, the rental portfolio in Poland, which now comprises 2,600 units, it was at 9.8% compared to 7.2% at year-end 2023, but don't be confused about this increase in vacancy rate. This was purely driven by new apartments that came into operations as well at the end of 2023. And additionally, in the first quarter of 2024. So looking at apartments that are in operation for a longer time, so at least more than 1 year, the vacancy rate is 2.6%. So just a temporary impact from new apartments coming into operation. Looking at disposals in Germany, we had basically after the balance sheet date quite strong disposals, at least in our size. So we sold from January to May 2024, 780 apartments in Germany, the total sales prices are above EUR 67 million, and we expect net cash proceeds. So after repayment of prospective bank loans of nearly EUR 16 million. The average gross yield of the units that we sold was 5.3%. And you should expect the closing of these disposals, mostly at the end of the second quarter this year, perhaps a little part at the first -- the third quarter 2024. The LTV was reduced in the first quarter by 140 basis points. So we are now almost at our LTV target, so a quite strong reduction from 47% at year-end 2023, now to 45.6 million. And this was purely driven by the high cash generation that we had, especially in the Polish state business. So any impact from disposals will come after the [indiscenible] date. So therefore, it was, from our point of view, a very successful quarter in terms of [indiscernible]. And if you look at the cash metrics, which have been always quite strong in our company, they improved further. So net debt to EBITDA is now at around 8.7x the ICR still at 6.7x. So that's quite a good review if we compare it within the sector. On Page 5, you'll find further highlights on the German business. I don't want to get that much into details. Just a quick note on Page #6, where you find more KPIs on the Polish portfolio. We have changed our presentation a little bit and have here a more the separation into the rental business and the sales business. And we also included additional figures regarding the sales business. So we are disclosing -- you see this on the bottom right for the first time in NTA for the sales business, also net debt for the sales business. And if you look in the appendix on Pages 22 and 32, you find also some additional information on the sales business, which is perhaps helpful in understanding this business. So for example, in the penis show also historical sales results, EBITDA, perhaps this is something which is helpful for you in understanding the business and expect future development a bit more. Let's go to Page #8, where we show the development of the EBITDA, FFO and AFFO. Also, the EBITDA development was quite positive, so an increase quarter-on-quarter if we compare with the fourth quarter 2023 by EUR 7 million. The fourth quarter of 2023 was when it comes to the German business, a little bit weaker as we had some higher maintenance and also some receivable write-offs. The Polish rental business is contributing quite stable EBITDA already at EUR 3.2 million in this quarter, and you should expect increasing EBITDA contribution from the Polish rental business in the following quarters as this business is growing. I will come back to that in a second. Quarter-on-quarter, FFO I increased by EUR 5.5 million. So this is clearly an outcome of the good EBITDA development. We had even a little bit better financial cash results, which seems to be surprising. But please remember that last year, we still had at least a part of the bridge loan from the Rubik acquisition on the balance sheet. So therefore, we are now benefiting from a little bit lower financial costs than in the previous year. Let's come to Page #10, and I was already referring a little bit to financing costs. If you look at the average cost of debt that we have, which is also shown in the slide, it is still at 2.2%. If you compare that with the average cost of debt end of last quarter is the same number if you compare it with the average cost of debt to 1 year ago. It's nearly the same number. So I think at that time, it was around 2.1%. So it means in this interest rate environment, we're able, let's say, at least to limit the increase in average financing costs. And if you look at maturing debt, you see this on bottom left of the page. The average coupons of the financial debt that is maturing in the course of 2024 stands at 2.7%. Average cost of debt or financial debt that is maturing next year stands at 2.8%. Looking at current financing conditions, for example, for new mortgage secured bank tones in Germany, it's around 4% for Polish mortgage your debt is that more around 5%. So that means, yes, we will see an increase in our average cost of debt, but not that materially. So we're really able to keep this in balance. As I said, LTV has been reduced quite strongly. Financial ratios like ICR and net debt-to-EBITDA are in strong shape, and we are very happy that this was also seen by S&P. Perhaps you noticed that S&P confirmed some weeks ago, the BBB- investment grade rating and changed the outlook formerly negative now to stable. And we can also tell you that we are in discussions with our second rating agency with Moody's, where we are still non-investment-grade rating at BA1 and a stable outlook. So I mean, extremely difficult to pick any outcome here, but we are very confident that we here also on a good way. Looking at LTV development going forward, of course, important will be any further as declines in the coming quarter. We have not set received any results from the half year valuation, which is understandable because we are still in May. But we think -- and that's unchanged compared to what we said at the full year figure is that the vast majority of any portfolio devaluation should be behind us. So we have already developed our German portfolio by around 16%, but some more percentage points in a low single-digit number, but will follow in the course of 2024, we can't give you an exact guidance. Is this more in the first half or is anything additional to come in the second half, but that we perhaps still are within the total 20% as a rough board number, total depilation that seems for us very clear. We see this on a transaction market, when we compare current valuation levels to our sales prices. We see this also by simply looking into our current portfolio metrics. The portfolio in Germany already stands at a gross head of 6.3% and a value per square meter of only EUR 1,060. So therefore, we are quite confident that we will not have any major negative impact from further deparations from the German portfolio. And when it comes to the Polish portfolio, which is, of course, smaller. But here, we have the opposite. So here we should expect a clear positive trend when it comes to valuations in the next quarters. The Page #12 and Page #13 shows that the development in operating terms of the German portfolio. I already mentioned that we are in a total like-for-like rental growth of 2.4%, slightly above what we have achieved last year. And Page #13 shows the vacancy development. You see when you look at the first quarter of 2024 and compare it with the first quarter of 2023 or 2022, always a small increase of 20 basis points. So we expect a similar development like in the previous years, a slight increase in the first quarter, perhaps stable towards the second quarter and then in the third and fourth quarter, we should see a development that clearly is a vacancy reduction for the full year. Looking a little bit more into Poland. And now on Page #15 of the presentation. We again saw a quite strong like-for-like rental growth year-on-year of more than 10%. We expect that in the course of 2024, rents will stabilize a little bit more, which is at understandable after the very strong increase that we had in the last 2 years. So if you remember, we saw in the market and also in our portfolio 20% like-for-like rent growth in 2022, around 10% in 2023. So rents were up by almost 30%. So therefore, we would be not surprised if the like-for-like rental growth is coming down in the course of 2024 that rents are stabilizing on a very high level. But looking forward, we are still very much continuously will see a good and sustainable like-for-like rental growth in the Polish portfolio. Perhaps on a more, how should I say, sustainable numbers of something around 4%, 5% like-for-like rental growth as we have seen before the war in the Ukraine started before inflation picked up. That should be a very natural number for us. I already mentioned, don't be confused about the higher vacancy rates of 9.8%. This is due to new apartments that came into operations in which the vacancy rate for units and operations for more than 1 year is already down at 2.6% as of March 2024. Page #16 shows the development of the Polish build-to-hold portfolio, the brand portfolio and the message we want to send out here is clearly that we are investing again. You know that for quite a while, so for nearly 1.5 years, we stopped investments in new construction stages as refinancing was the first priority. This is now done. So we are constructing again the 1,200 units under construction currently and further 900 units in preparation and in preparation means that construction is going to start very shortly. The midterm target is unchanged. We want to get to 10,000 residential units by year-end 2028, which will be then at the latest then a quite meaningful portfolio for us. On Page #17, Page #18 is our views about our sales results and the revenue recognition in Poland. I already mentioned that prices were up quite strongly, 20% year-on-year that we had in terms of the total sales volumes for quarter with EUR 118 million. And just to give you an impression about the strong cash inflow of the total sales business. The net financial debt in our Polish sales business is currently even negative. So we have currently more cash in the balance sheet than debt. This is simply a result of the strong inflow from customer prepayments from sales results that we had in the past quarter as this business is running very well. And finally, on Page #20, some words about the guidance for financial year 2024. First of all, all the guidances are confirmed and unchanged. If you look at the run rate for FFF 1, we are even simply much applied but for slightly above the guidance. So that looks very much achievable. Of course, interesting is the dividend we simply ask here for some more patients. So we will look at that clearly in the course of the next quarters, and I will come back to you at the latest with the Q3 results when we published a new guidance for 2025. This will be, as always, in November of this year, clearly, we see here market conditions improving. So we see -- I think that's fair to say some more interest on the transaction market. We also see still good financing conditions with our banks. Perhaps slightly improving funding condition on the unsecured side. So this all looks good. But I mean we have achieved now a lot in terms of deleveraging. We have really delivered our company to a -- to be very close to the LTV target. So therefore, we think it's worth waiting a little bit with this decision a little bit more, but we will clearly come back to that, not too late. This is from my side is an overview of the first quarter 2024. Again, we think quite successful in terms of operational development with growing results in rental and NSS business and also successful in terms of deleveraging as we know with our STB very close to the LTV target. And as a third key message, we're starting to invest and to grow the rental portfolio in Portland again, which would be when looking at the future very important for future results. So many thanls so far, and we are, of course, very happy to take your questions.

[Operator]

[Operator Instrustions] Our first question comes from the line of John Vuong from [indiscernible].

[John Vuong, analyst]

If I remember correctly, last quarter, you said your aim for EUR 100 million of sales in Germany of net proceeds, if you will. You're I don't know over half. Is this EUR 100 million still the right target? Or is it a bit of on the conservative side?

[Martin Thiel, executive]

You're right. As a kind of internal target, we have the EUR 100 million net cash proceeds. And just to remind you what was the reason for that. If you assume a further devaluation of around 4%, something like that, in the course of 2024 to get to a total devaluation of 20%, with the type of the dividend suspension and the help of this 100 million net cash -- net cash proceeds would be exactly our LTV target of 45%. If you achieve a little bit more, yes, of course, we would take it. Looking into the sales results until May with EUR 60 million, it's right. It looks at is this EUR 100 million is at least achievable. So perhaps we are able to sell even a little bit more.

[John Vuong, analyst]

Okay. That's clear. Now maybe moving on to the Polish sales business. The units sold has slowed down compared to Q4 as well as Q1 last year. But from our understanding, the sales guidance hasn't changed, that still remains at least 3,000 units. Could you audit what the drivers were for this weaker Q1? And what gives you comfort that this guidance is still attainable?

[Martin Thiel, executive]

Yes. Well, first of all, talking about that, perhaps it's better to give us a guidance in terms of sales volume than purely units number, but we're still confident that we achieved the given guidance. And why do we say this? I mean, we are clearly now optimizing prices, by the way, not only us, also other developers are doing this. And so we are increasing prices. As I said, we increased prices. And this is true for the whole market by 20%. So selling a little bit lower number of units is perhaps the right strategy when you get then higher prices and maximize your sales volumes at a cumulative sales prices. At the moment -- and in Poland, the challenge in the sales market is not the demand side. This is very strong. The challenge is for us and other developers to get enough product to the market to get the building permission in time to get the zoning in time. I mean, Poland disregard is clearly much better than Germany, but also how should I say it, a little bit more crate perhaps 1 or 2 years, 2 years back. So that's simply the background. Yes, we are maximizing prices, so don't put pets too much into a slightly reduced number of sales to sales volume is perhaps a more important figure.

[John Vuong, analyst]

All right. So to understand correctly, essentially, the units are going to be a bit lower for the rest of the year, but because of higher sales price, the turnover is going to be higher compared to last year.

[Martin Thiel, executive]

Yes. I think first of all, again, we're not changing our sales guidance of the 3,000 units. So should still be a good estimate. What is then perhaps better than someone back when we publish the guidance, is the development of the sales prices. So when we assumed sales prices for 2024, in 2023, we were not strict the demand is that strong. So we are positively surprised that this increase in sales pricing continues. And as you know, an apartment that we sell today since 2024 and when the construction for this project starts will be the sales revenue than 18 months later. So what we sell today basically feeds the P&L results 18 months later. But of course, the cash is already there. And this is also the reason why we have this strong liquidity position in our sales business in Poland.

[Operator]

Our next question comes from the line of Marios Pastou with Bernstein.

[Marios Pastou, analyst]

Just firstly, on the 700 apartments that have been sold year-to-date, I think you mentioned pricing on the first wave that happened in the first quarter. I just wanted to check if you're able to comment on pricing versus book value for the remainder or for the total amount sold. And then just secondly, on the CapEx on Slide 12, I see it scale back to 2021 levels on an annualized basis in Germany. Just trying to think how we should think about this for the year as a whole.

[Martin Thiel, executive]

To answer your question. Also for the full disposal, so until May 2024 the development was very similar. So perhaps slightly below book value, but to the latest book to the December book value, but not really a huge difference. And when it comes to the development of CapEx, we should not read too much into a reduced CapEx spending per square meter in the first quarter of 2024. Also CapEx has a kind of seasonality more driven by the question which projects are under construction or in place. So for the full year, we expect a similar level like 2023. So more EUR 17 per square meter compared to EUR 13 that we have realized in the first quarter.

[Marios Pastou, analyst]

Very clear. And just a follow-up to the apartments sold. Are you able to comment on the buyer groups for the units?

[Martin Thiel, executive]

Yes. Yes, we, of course, are and unchanged to what we've seen in the last, I would say, 2 years, the buyer group is really mixed. So when I look at buyers in the last 12, 18 months, including the buyers that we had now in the recent transaction that was not really a change. So a little bit of everything. So kind of buyout that you can put into a family office camp, also a private equity buyer, the more local buyer. So we're still hesitating to say there's one specific buyer group who's buying at the moment. What is true is that it's more buyers we use a little bit more equity than others. And also as an additional BioGroup, companies that do a privatization business or perhaps a little bit more on the market

[Operator]

The next question comes from the line of Anders Toome, Green Street.

[Andres Toome, analyst]

So my first question is around your FFO, which seems to be coming in quite strong in the first quarter. And in terms of the growth rate that you're seeing year-over-year, I was just wondering as it's sort of running quite a bit ahead of the full year guided pace. Is there anything here to do with the timing of costs? Or would you say that the full year guidance is perhaps rather conservative at this point?

[Martin Thiel, executive]

Yes. And perhaps the fair answer is that both is true. So when we look at the guidance as of now, that should be, I'm not sure to say absolutely achievable. Also, honestly, in the first quarter, we had a little bit less maintenance than in the previous quarters, which is then again a kind of seasonality. But despite the disposals that we have done in Germany, and there's still ongoing growth of our portfolio in Poland, yes, we are very confident that FFO 1 for 2024 should be in a good way.

[Andres Toome, analyst]

Understood. And then my second question was just around like-for-like rental growth. As you're sort of seeing nice people prints coming out in your markets, would you say these are rather stable? Or could there be some sort of upside to current like-for-like rental income base?

[Martin Thiel, executive]

So there should be clear upside. And if you look at the guidance for total like-for-like rental growth, we are at 2.3% to 2.7%, and most of that increase compared to the previous year is coming from what we call basic like-for-like rental growth. So that means rental growth from each figure where we expect that this year is, if we really look only at that component, perhaps some 40 basis points better than 2023. So clearly, we see that trends are picking up.

[Operator]

The next question comes from the line of Stephanie Dossmann with Jefferies.

[Stephanie Dossmann, analyst]

Most of my questions abenmaybe a follow-up on the housing sales business in Poland. What kind of -- what level of operating margin do you target in this business going forward? I understand that prices are very strong. So...

[Martin Thiel, executive]

Yes, Stephanie. So when it comes to the States business, we are still confident that we are quite close to the 30% gross margins. As I said, sales prices have increased quite strongly. Now we see a little bit more construction costs picking up, but on a moderate level, what is picking up quite strongly is land prices. I mean, we're not the only one who has detected at the Poland State market is very strong. So more and more companies are buying land again. Here, our advantage is that we still own a very sizable land bank, as you see in our publication. So it should be one of the largest land banks in Poland, which is clearly an advantage, but also we need to buy land because land if you buy today is then perhaps something that is going into revenues in 3 or 4 years. So this will be on the cost side, the more challenging factor land prices, whereas on the demand side, we still see a very good development. But when it comes then to the rents, it's still unchanged that we stay in the 7% to 8% gross yield for projects that are finished. So I think when we look at all the projects that have been finished until today, we're exactly at 7.5%, if I remember well, the gross yield that we have actually achieved. So therefore, margins in Poland, yield in Poland still look strong.

[Unknown Analyst]

Okay. Thank you, and a follow-up again also on the investment market. In Q1, it remained quite muted. How does it look like in Q2, you say that the bio mix is unchanged, but do you see more interest from investors do they feel -- or do you feel that the agree on pricing and you struggle to achieve good pricing on your disposal? I mean, how do they negotiate prices?

[Martin Thiel, executive]

Yes, we see more interest. That's fair to say. But I mean, you know us, we are still careful with predicting disposal volumes and results because it's one thing that they have interest and the second thing is that you really see signed larger portfolio transactions. And I mean, there are some transactions or have been on the market, but still the number is quite small. But yes, looking forward, we are more optimistic than in the past. And when it comes to disposals, clearly, also this is something which is volatile. So for quota work on one transaction and then it's not going through or opposite then you have the chance to sign it after perhaps longer negotiations. So extremely difficult to predict sales numbers quarter-by-quarter in Germany currently. But yes, it's fair to say that we see more interest. So we're very positive on the second half of the year.

[Operator]

The next question comes from the line of [indiscernible] from Barclays.

[Unknown Analyst]

I got 2 questions here for you. The first one is on the 2026 coverage bonds. How are you thinking about this? I know it's a bit early, but any early indication about this? And the second question is more about the long-term situation for you. It seems like your situation is under control for you this year according to your scenario of 20% P21 valuation decline, leading you to a 45% LTV. How are you thinking about funding and reloading growth from there?

[Martin Thiel, executive]

To answer your question regarding the convertible bond, EUR 226 million, basically, you gave the answer still a little bit early. So that's more than 2 years. So August 2026 is the maturity date. So we will look at that carefully, but it's too early to say we have already decided for one way. The good thing is this is the last material maturity that we have in the balance sheet. So if you compare that with the situation 1.5 years ago, where we still had the bridge loan ahead of us and other refinancings now when we look into the maturity profile, most of the debt that is maturing in the future is more [indiscenible] debt, whether this is Germany or Poland where the financing access is still and unchanged, very strong. And then it's we're basically left with the convertible bond. So we will look at it carefully, but it's still 2 years to go. And regarding your question, funding future growth, and future growth at TAG Immnobilien that we're primarily looking into Poland. What we have now developed a very natural way to grow the Polish rental portfolio as the sales business is producing quite a lot of cash. So we are taking this and that's basically what's currently already happening and use this as equity for the next rental project. We are taking on additional local financing mortgage secured in Poland. If you remember our last publication, we disclosed that we have signed the first material mated secured loan in Poland, which was EUR 19 million. So therefore, to get to this 10,000 units as the midterm target, we have developed a way from own cash flow post financing and the portfolio that will lead us to this number. If we are in a situation at some point in time where we have 2 stable investment-grade ratings, then of course, we could additionally look at the bond market to fund further growth in Poland, but that's still a way to go. So therefore, this would then be something additional where we have then the possibility to do get a little bit more. But besides this, the way towards the 10,000 lit is already very, very clear, even without any larger capital market transactions.

[Unknown Analyst]

And Martin, can I follow up on this? How are you thinking about new equity to fund growth?

[Martin Thiel, executive]

But it's not needed for this natural growth we should call it, so it means constructing apartments from our existing land bank. I mean, new equity. And I think that's the answer that every company would give you if something larger and larger opportunity is on the market. And yes, this would be one of the options, but it's not needed for the base case scenario.

[Operator]

The next question comes from the line of Kai Klose with Joh. Berenberg.

[Kai Klose, analyst]

I've got 2 questions, if I may. The first one is on Page 23 of the presentation. You mentioned on the right-hand side that the expenses from property management decreased also due to lower receivables. Could you give a bit more clarity on that? Is this a continuous trend? Or was it specifically for Q1? And the second question on that page, the increase in net income from services, you mentioned was due to higher results from Craftsman and services. Is this also a level which we can expect quarterly for the remaining -- for the remainder of the year? And the last question would be on the FFO statement where we had an increase in the -- in cash taxes. Is this seasonal? Or is this something we can expect as well to remain relatively higher than the year before.

[Martin Thiel, executive]

Yes, starting with the answer on the write-down of receivables, we had a little bit more in the fourth quarter of 2023. Why did we do this because the fourth quarter is the year where you have -- where we sent out every year, most service charge bills. So simply, as in the previous years, the total volume of outstanding receivables increased. And as you know, a lot of our tenants have now received a higher service charge build because of increase in hitting cost in the past. So we decided to be a little bit more conservative, but it was not that material. I can remember where there was perhaps EUR 1 million more than in the previous quarters. As of now, it seems as if this is not really a big issue. So if you look at total impairments on our rent receivables, that's still at 1.2%, 1.3% of total net rent, so still very low. So this is more, I should say, a year-end impact. Indeed, the cash taxes in Germany in the first quarter of 2024 were a little bit higher, but it was simply a reflection of the fact that we had roughly EUR 1 million taxes that we needed to pay for previous years. So also not a large amount. For the full year, if you look at our guidance, we predict a slight increase in cash taxes, but that's lower than if you take the first quarter and multiply it with 4. Before I remember well, we predicted an increase in cash taxes by EUR 3 million or EUR 4 million year-on-year. So to answer your question directly in the second to fourth quarter 2024, cash taxes should be a little bit lower. And net income from services, yet is still developing quite well, especially also the energy business is running very well. We have still expanded our customer and caretaker service. So therefore, we expect an improved result from services for the financial year 2024, but compared to 2023, that's correct.

[Kai Klose, analyst]

Just last one, maybe for my side on this services business. You mentioned that this higher results from craftsmen and other services is that you had more craftsmen working for you or?

[Martin Thiel, executive]

Yes. A little bit misleading. If you point out here too much a craftsman and then we just referred to other services, we should have better written higher results from especially the energy business. So that's part of other services. So the craftsman number has also increased a little bit, but the main driver of net income from services as in the past years is the energy business as well as the multimedia business.

[Operator]

Our next question comes from the line of Thomas Neuhold, Kepler Cheuvreux.

[Thomas Neuhold, analyst]

I have only one question left, and it's on your long-term capital allocation strategy. Obviously, you still have a lot of work to do to reach the 10,000 unit target in Poland, but it seems to me that the fundamentals are important are currently even stronger in Germany. I mean if it could be the yield of cost of 7% to 8% for a new product versus the 6% yield of sustaining assets in Germany and also the rental growth rates, which are clearly high in Poland than in Germany. So I'm wondering if prices should stabilize in Germany and the investor market opens up, if you would consider selling a bigger portion of your German portfolio in order to invest deposit in Poland and increase or speed up your long-term development target in Poland?

[Martin Thiel, executive]

First of all, we still like the German market. And clearly, at the moment, our preferred capital allocation is Poland. Simply the numbers are convincing, as I said, 7% to 8% growth yield on a new constructed apartment in Poland larger cities. So that means not only 7% to 8% gross yield at the start also the years going forward, basically 0 CapEx, very, very small maintenance requirements, not any investments needed in energy efficiency of the building in a strong economy. So that's all very strong. But just to complete the picture, we're not ruling out that at some point in time, we also look at acquisitions in Germany, again, perhaps not now. But yes, we also see the good fundamentals in the German market. And that also then leads back to the answer if you ask us where are we right now in preparation of selling a huge part of the German portfolio? No, this is not the case. Perhaps it's not the case because the possibility is not really there at the moment. This could be something that we think about, let's say, 2025 or thereafter, but not now. So we have developed a clear strategy without any larger disposals in Germany from the cash that we generate with the Polish sales business and additional debt that we take in Poland to grow the rent portfolio to the size that we want, and that's still the best case.

[Operator]

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

[Manuel Martin, analyst]

Just one question from my side. On the vacancy in your portfolio, given that rental markets are improving, and you already said that vacancy is -- might still improve in your portfolio, which has come down already to 4.2%. Maybe you can give us a bit of trajectory there. What could be the image of the picture of the vacancy rate going forward? And how does it relate to the structural vacancy rate of the locations where TAG is present, is TAG close to the structural vacancy rate? Or is there still a bit of room.

[Martin Thiel, executive]

Yes. Manuel, and the answer is very clear. We still have room to improve the vacancy rate. So we are at currently 4.2% in the residential portfolio. If you look at the guidance due for this year, the midpoint of the vacancy reduction guidance is around 30 basis points from the start of the year. So that would bring us from 4.2% to 3.7%. If you apply this the run rate for the next 2 or 3 years, yes, there could be a good estimate, but the structure vacancy rate is really more and more something below 3%. And we see this development in some locations that are very prominent. So I think the best example and meanwhile, the portfolio in Gera, where the vacancy is around 2%. And if we look in presentation, some years back, vacancy Gera was close to double-digit number. That shows us that in Germany and especially also in our portfolio, the secondary locations are developing also very well. So we are very confident that we have not reached the kind of minimun vacancy already. So there will be room for further improvements in the next 2 or 3 years. That seems to be very clear for us.

[Manuel Martin, analyst]

Okay. So in average -- sorry, my bad years, the structural vacancy rate overall is something below 3% then...

[Martin Thiel, executive]

Yes, should be -- I mean, as you know, it's difficult to define a number which represents exactly the structure vacancy rate but that we can go at some point in time below 0%. That's, I think, quite visible.

[Operator]

Our next question comes from the line of Simon Stippig, Warburg Research.

[Simon Stippig, analyst]

And first one would be, again, on the disposals in Germany. In regard to your quarter 2 '24 disposals, could you comment on how many transactions those were? And also what geography you sold them? And then also here, what rent decline are you targeting for the full year?

[Martin Thiel, executive]

Yes, we can give you some numbers. So out of the total sales proceeds of EUR 65 million or EUR 67 million, the large -- there was one larger transaction. Please understand that can't give you the exact number, but something slightly above EUR 20 million. Then there was one transaction was between EUR 10 million and EUR 15 million. And there was one transaction between EUR 5 million and EUR 10 million, and the rest was a little bit smaller. So EUR 1 million, EUR 2 million, EUR 3 million deals. So it was not one huge transaction that led to the 67 million fiscal seats in our head 2, 3, a little bit larger transactions. The rest was quite granular. And we sold across our regions. So that was then as our portfolio is located to the largest part in East Germany, East Germany, there was something, for example, in this and again, that changed not that much compared to the profile of the sales structure that we had in 2023 or 2022.

[Simon Stippig, analyst]

Great. And then also one on the services business. I just wonder this year, there will be the discontinuation of the [indiscernible]. And do you see any risk, especially in the multimedia business from that?

[Martin Thiel, executive]

Yes. That's already included in our projection for 2022. You're right, that is the change in law. If I simplified it a little bit where the tenant now in some cases, can choose it takes the cable to be from the landlord where that's previously had an obligation to take it. And now you can choose to take another cable TV provider, not our multimedia company if he wants. So that's already included when we published the guidance for 2024. The impact was, if I remember correctly, about EUR 1 million less income that we expected. Perhaps we are better than that because not many tenants are changing, but we assumed a reduction in light of this new law.

[Simon Stippig, analyst]

Okay. Great. That's clear. And last one in regards to your JV in Poland. Could you comment on the status there?

[Martin Thiel, executive]

Yes. So we have no projects or additional projects that we put into the JV in 2024. So that means there are 3 or 4 projects that we started in 2023 with our JV partner in Poland are continuing. Apartments are under construction. We are selling apartments. And just to give it a dimension, we will not putting the whole sales business into the JV. So if I remember that correctly, the total JV sales volume or projects including land bank agents and construction are perhaps for 3,000 units. So we get a 50% share and the total volume of potential sales that we have when we did take together apartments under construction land bank is clearly much higher. So that's more something around 15,000 units. So the JV is for us an additional part of the sales business, but it's not a strategy to put the full sales business into the JV.

[Operator]

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Martin Thiel for any closing remarks.

[Martin Thiel, executive]

Yes. Many thanks all for your questions. Many thanks for listening into our call. As always, if there are any questions left, please feel free to contact us directly. Thank you for listening and hope to see you soon on the road or at the latest within our next call in August with the half year results. Many thanks.

[Operator]

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.