TAG Immobilien AG

XETRA:TEG

Earnings Call Transcript 2022-Q3

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining the TAG Immobilien AG Interim Statement Q3 2022. [Operator Instructions]

I would now like to turn the conference over to Martin Thiel, CFO. Please go ahead.

[Martin Thiel, executive]

Yes, many thanks, and good morning, everybody. Welcome to our Q3 earnings call. I mean today, clearly, perhaps the most important point to discuss, the new guidance for 2023 that we have published today and of course also our decision on the suspension of the dividend for financial year 2022. So we have definitely time to discuss this in the Q&A afterwards, and I will, of course, also elaborate on our thoughts behind.

But let me please start with the highlights for the operational business in the third quarter of 2022, which you see for Germany on Page #4, and for Poland, on Page #5. Both of them, I think, show that the business itself is running very well. So for example, in Germany, we are in the meanwhile, the vacancy rates of our residential units at 4.8%, coming from 5.5% at the beginning of the year. That means already at the end of the third quarter, we have basically achieved our guidance, which stood at 4.8% as target vacancy rate. And there's still a good chance to overachieve this guidance. We can tell you that as of today we are already slightly below at 4.8%.

The same is true for the like-for-like rental growth year-on-year, including vacancy reduction. This number came in at 2.5% at the end of the third quarter compared to a number of 1.3% for the financial year 2021. And also here, we are already above our guidance, which stood between 1.5% and 2.0%.

As a result, FFO I, which is still purely coming from the German rental business increased year-on-year by 7% and was at EUR 49.1 million. If you do a simple calculation and put this number additionally on top of the first 9 months, you will see that it's clearly on a very good way to achieve and perhaps even to slightly overachieve our FFO I guidance for the full year.

Quick look at EPRA NTA and LTV, basically, the numbers at the end of the third quarter are very similar to what we have guided to with the half year as we also presented pro forma numbers after the rights issue. So now the EPRA NTA stands at EUR 22.21. And LTV came down from formerly 47%, as a result of the rights issue, now to below 45%.

Talking about acquisitions and disposals in Germany. There was just one acquisition that you already know from the second quarter. This was, yes, more or less an exception for this year. So we can clearly tell you that there are no further acquisitions planned in Germany. And on the other side, we have achieved to sell in the first 9 months of 2022, 725 units for a total selling price of EUR 37 million, which is a disposal that led to a book profit of EUR 1.5 million.

And speaking more generally about the disposal program in Germany, you know that together with the rights issue, we announced a disposal program for altogether 200, 800 units with a targeted net proceeds of around EUR 300 million. This disposal program will clearly continue. As we expect now the closing of a first tranche of 300 units, with net proceeds of roughly EUR 40 million. Now we have adjusted this because of the closing to a remaining roughly 2,500 units and as a rounded number expected net proceeds of around EUR 250 million.

But what we clearly need to accept and was clearly a consequence of, at the moment, very limited investment market is that we're not able to sell these apartments as quick as originally planned. So we have to postpone this into the next month and quarter. And also with today's decision of the dividend suspension, simply we want to have here more time to do the asset disposals in a way that simply makes sense. So we are optimistic that with our approach to sell such portfolios in smaller tranches. And over the next month and quarter, we will be successful. But as said, it takes longer than expected. And this is a picture, I think that you know, not only from us, but also from other companies.

Coming to Page #5 and looking at the highlights for Poland. Revenues increased in the first 9 months 2022, strongly in comparison to the previous year because we have now, in 2022, ROBYG from second quarter onwards in our P&L. Please be aware that the fourth quarter will be by far the strongest as most handovers for the financial year 2022 are planned for the fourth quarter. So therefore, looking at the results from operation in Poland, which was around EUR 11 million for the first 9 months, is just a smaller part of the total result that we expect for the full year. So when you remember that the FFO II guidance stand around EUR 250 million. So the total result operation in Poland should be closer to EUR 60 million in total for the full financial year 2022 as a result of expected strong handovers in the fourth quarter. And we can tell you that here everything is on plan.

And talking about more in general, in Poland, it's not only the case that the construction sites are running as planned. We also see that on the construction price side, the inflation rates have clearly come down in the next month and as very positive, expected sales numbers are picking up now again. So what we saw in September and October as average sales volume was between 200 and 220 apartments that compares to numbers more around 150 apartments per month during summer.

So therefore the difficult market condition in Poland with high interest rates, high inflation, now clearly needs to reduce the stated number, but we see here an increasing trend. And it's not the case that sales numbers are coming down and down again. So the business has not only stabilized, it shows clearly a positive and increasing development.

Coming to the next slide, where we show you our refinancing measures that we have already taken. Starting with the first 2 points, that's something that you already know. We have completed the rights issue with total proceeds of EUR 22 million. We have taken these proceeds to repay part of the ROBYG acquisition bridge, which stands today at EUR 310 million. We will use the disposal proceeds that I already mentioned to repay an additional part of the bridge, so the bridge should be at around EUR 250 million by year-end. And we have also extended the bridge financing volume or the bridge maturity until January 2024.

We've already indicated with the half year report that we are working on additional early refinancing of German bank loans, this is now really completed in full. So some signs of contracts are already missing, but -- are still missing, but this is something that will happen basically in the next days. So the closing of this early refinancing of bank loans will take place in November and in December at the latest, all interest rates are already fixed, and we expect an additional liquidity uplift of EUR 161 million.

So it's not only the case that we have extended all bank loans that originally matured in financial year 2023. The loan amount was EUR 160 million. On top of this, we get additional liquidity of around EUR 160 million because the LTV of these portfolios that we have now refinanced was quite low after 10 years of amortization of value growth. So therefore this is definitely a good sign that we are able to create additional liquidity with a banking market that is still very much intact in Germany.

As the next point, we have already adjusted our CapEx plans in Poland in the course of the year. So in summary, we decided to stop all new residential for rent projects and, of course, to continue with the existing projects. But we said, for now, we concentrate on the residential for sale projects, which are not very capital intensive as they are financed to the very large part by customer prepayments.

And that leads to the fact that the net financing needs for Poland in financial year 2023 are only at around EUR 50 million. And what we see in the for sale business is very visible in terms of cash flow. So 99% of all plant handovers for 2022 are clearly already sold into 2023, the presale ratio today or at the end of the third quarter today, it is even higher, was already more than 60%. So we have a very good visibility on cash flow and results coming from Poland, not only for 2022, but also for 2023.

I already mentioned the disposal program, which is now more extended into 2023 with an adjusted target size of around EUR 250 million after now the closing of the first disposals will happen in the fourth quarter.

And then some words about our decision to suspend the dividend for financial year 2022. We're talking here of an excess amount of EUR 143 million that was the former dividend guidance, and we said, well, in the current market situation, we have to accept that, we talked about this investment markets are difficult to the financing markets when we talk about capital market financing unsecured financing is extremely difficult. So therefore, we thought to be here clearly more on the conservative side to have here every decision in our hands to tackle the upcoming refinances in 2023. It's in this situation, also in the interest of our shareholders, the best situation to suspend the dividend for financial year 2022.

You can assume that this decision was not easy for us. I mean, TAG has always paid an attractive and growing dividend over the last years. And we will, of course, return to our dividend policy once this market situation is more on a positive way once we have done all the refinancings, which are basic -- which is basically the bridge loan maturing at the beginning of 2024. But for now, we think it's clearly an appropriate decision to suspend the dividend.

And if we turn to the next slide, you can also already see that with this decision and with the already completed bank refinancings, we have basically tackled all upcoming refinancing in financial year 2023. So if you look in the maturity profile, we will see this later in the presentation, there are still refinancing needs until end of 2023 for EUR 492 million. That, as said, the bank loans are as far as they referred to German portfolio financings already refinanced or extended.

We have additional liquidity of EUR 161 million from refinancing. We are keeping the cash that we generate from the German business. We don't pay any dividend. We can use that to repay debt.

And in a simplified chart on Page #7, again, we are only talking about roughly EUR 70 million as remaining refinancing needs for the next more than 12 months. And of course, we have here further options, and we just give you 2 examples on the top right, additional mortgage financing in Germany is something that works very well. So therefore, we have clearly, as an example, here, additional financing sources that we can use. And of course, we will continue with our disposal program as said. So therefore, with this decision, which is on the one side hard for shareholders. In the short term, mid to long term, this should be an appropriate way to maneuver in this market.

Coming to Page #8 and talking about our new FFO guidance for financial year 2023. We predict here a reduction in FFO I by 9% from the current midpoint guidance of EUR 190 million to now EUR 172 million. What are the reasons for this reduction? One main reason are planned higher interest rates. And this high interest rates are coming, for example, from the fact that today's bank loan in the refinancing that I already discussed, are at around 4%. We will use this to repay unsecured debt maturing in 2023, for example, from one promissory note, for example, from one corporate bond with coupons on average below 1%.

And on the other side, we have also penciled in the guidance in 2023, no disposals from this 2,500 units. But we have penciled in, of course, the interest rates from bridge financing from this 2,500 unit portfolio. So therefore higher interest costs from the bridge, higher interest costs because of already completed refinancing if there are no really material refinancings ahead of us that should give us a good picture, leads to a EUR 10 million increase in interest rates.

You see marked with this small, number 1, asset disposal of EUR 2 million. These are already signed disposals. So just to make this clear, again, we have not incorporated any disposals in this guidance. And if you incorporate that, so if you ask us what is the effect if you sell this 2,500 units on FFO I after all interest costs after taxes, this is EUR 6 million roughly for the full year. So in a simple example, if we would sell these 2,500 units, in the middle of the year, we would have a EUR 3 million reduction.

We, of course, see increased prices for maintenance. We see higher heating costs for our tenants. Therefore we have taken into account an increased number of around EUR 8 million for this. Roughly 50% of that EUR 4 million is for higher prices for maintenance work as a result of the current cost inflation and roughly 50%, so another EUR 4 million is something where we take into account, first of all, the new CO2 tax, that's an amount of around EUR 1.7 million. And then the remaining part, it's close to EUR 2.5 million, is something where we say, well, we need to plan at least higher impairments on receivables from our tenants because they will face increasing or strongly increase heating costs. As of now, this is not really an issue, but we know that in 2023 we will have the service charge bills for 2022 and increased prepayments. So simply to be on the safe side, we have taken care of that.

So there is a onetime drop by 9% in the FFO 1, but looking into 2024 and 2025, and we think that's also mentioned -- worth to mention and important, we expect on this basis, a stable FFO I level. And included in this guidance for the financial year 2024 and 2025 is the assumption that the 2,500 units are disposed. So that's already a number after the disposals. And what's the reason why we can keep the FFO I stable on the one side, yes, clearly, we still expect higher financing costs in our group, mainly coming from unsecured debt is maturing or even from bank loans, where we now have higher interest rates, but we see a growing FFO for our business in Poland.

So at the beginning of 2023, we will have already 2,000 residential units for rent on the market in Poland. In the middle of 2024, this will be around 4,000 units. And having in mind that the average per square meter rent in Poland is roughly double the number in Germany. This means that it is an equivalent of roughly 8,000 German assets that come now into our group and come now also into the FFO I. So therefore 9% reduction in FFO I, mainly coming from increased financing costs and increased prices for maintenance and heating costs. So that's the effect in 2023. But after that, a stable outlook for FFO I driving out any further acquisitions.

Yes, let's go perhaps a little bit quicker through the remaining financial slides, on Page #10. I think the P&L development in the third quarter 2022 has not really any very material developments to comment and general numbers look, as I said, very positive. Perhaps one comment on the valuation results. What is expected, whether the issues are out for the full year? As always, we are giving up here official guidance, and we have so far not any numbers from our value for debt. But what we could expect or what do we expect for the full year. That's, of course, difficult to predict. As we see ourselves that investment market is very limited in size that we don't see really a lot of transactions, by the way, we don't see any distressed sellers.

But that is a reasonable assumption, and maybe that's in line with what you hear from other companies that the value uplift that we had in the first half turns now into a value reduction in the same size in the second half. So in the first half of 2022, we had a 4% increase. So what we expect is a kind of base case. And please just take this as a rough guidance, could be that is reverts in the second half. That means for the full year 2022, perhaps a flat valuation result is a good estimate as of today.

Page #11 shows you more details on the EBITDA where we saw an improved margin in the course of the year, shows also the FFO I for the full 9 months 2022 in comparison to previous year, which is another increase of 6%.

On Page #12, quick look at the EPRA NTA calculation and the main result for the reduction by 13% is a capital increase, which was as we issued shares at EUR 6.90 dilutive in terms of the EPRA NTA, just to make clear, this was already the case from beginning, the ROBYG Goodwill is already excluded from this EPRA NTA calculation from the very beginning as this is a consequence of the EPRA NTA definition given by EPRA.

Page #13 shows the financing structure. And here, you see, and that's important to point out again, the maturity profile as it is on the 13th of December, before the extension of the bank loans and before the additional liquidity from the bank loans and also before our decision to suspend the dividend, so the more or less formal maturity profile and the, yes, kind of pro forma maturity profile we just discussed.

And looking into the next 3 years, we think it's fair to say there's one material refinancing to come that's the EUR 310 million bridge loan, which will be reduced at around EUR 250 million by year-end. And besides that, in 2023, where nearly everything is already done. And in 2024 and 2025, there are not any major refinancing needs outside of mortgage secured German bank loans, which you see in the date color. And as we have just shown and discussed this market is still open. So therefore, once the bridge financing is completed, and we will be clearly able to refinance this in the next month. For 2023, 2024, 2025, there should not be anything in the maturity profile that leads to a big concern.

Let me comment additionally on rating decisions. You have seen the Moody's, at Moody's in October 2022 has downgraded us to noninvestment grade to Ba1 with a stable outlook. And tenant cost confirmed our investment-grade rating at BBB minus and put the outlook from formerly stable now to negative. Clearly, for us, the decision of Moody's was disappointing, we thought, and I think we could clearly also show in the rating agency that we've done a lot. So we have done rights issue. We've extended the bridge loan. Rating agencies were also well aware of our directions about upcoming refinancings with our bank loans.

But still, for example, Moody's decided on the back of expected negative market developments in Germany to downgrade us. Clearly, this is, let me say, like this frustrating as a company. If you do a lot, if you really fight for our investment grade rating on the other side, the market goes into a direction with rating agency finally decides to downgrade you. So we have to accept this, what's the consequence for this. If we look again into the maturity profile and all discussions that we already had, main refinancing stores currently is definitely not unsecured debt. So therefore, for the short term, this is not really, how should I say, the big issue for us that we received the Moody's downgrade.

We still have an investment grade rate at Standard & Poor's. And the outlook also turned to negative also on back of the market conditions. But here, of course, we are much more optimistic to keep this investment grade rating. But investment-grade ratings are for us more something for the mid to long term. Clearly, once we restart projects in Poland [indiscernible] sector, and unsecured financing is for us more on the table. And therefore, clearly, investment-grade rating is very helpful but this is realistically seeing nothing for 2023 and perhaps also in 2024, this is something that slowly starts again, but we simply need to postpone any decisions on further investments here.

Moving on to Page #16, quick look on like-for-like rental growth. As I said, we are already above our guidance with 2.5% in the total like-for-like rental growth. You see also the composition of the rental growth on this slide. That's without any effect from the modernization surcharge. So it's really purely underlying rental growth coming from each bigger increases coming from tenant turnover and coming from breakage reduction.

And the vacancy development is once again shown on Page #17. As I said, a very good development, after a slight increase in the first quarter, we are now down by 90 basis points within 6 months, and that should be definitely something positive.

Some words about Poland. On Page #19, see an overview of the portfolio. Just to reconfirm this again, we have a sizable land bank in Poland for the build-to-hold model. So for the rental apartments as well as for the build-to-sell apartments, but it's up to us to decide when we start the project. So the potential is there, but it's not an obligation. And we will, of course, carefully manage our CapEx. And we've already seen this with our decision to postpone any new residential for rent projects.

The residential rents portfolio still is around 540 units. But as I already mentioned, this will now grow in the next quarters as more and more projects are completed. It is easy to have 3,500 units in construction. So that's the roughly 4,000 rent units in rent portfolio that we will have finished by the end of -- sorry, middle of 2024, so in roughly 1.5 years, that's very visible.

Page 20 shows you, again, an overview about our rental projects in Poland. The demand for this project is extremely strong. So the vacancy rate is basically down to a kind of minimum record rate after the balance sheet date in October and November, we had an additional project that was finished from roughly 200 units. Here also the letting success is extremely strong. Rents that we see are in double-digit percentages above planned rents and rent increases that we have now after the first year with existing tenants are also 10% to 15% above the previous rent. So therefore, the demand for our product for the rental units we offer in Poland is still extremely strong.

Yes, Page 22 shows the FFO II guidance for 2022. Once again, we confirm the guidance for FFO I as well as for FFO II. That should be both on a variable way. We already have discussed our fourth parent dividend suspension.

In our next slide, you see the guidance for 2023 that I have already elaborated on as far as FFO I is concerned. Important to mention that we also, of course published an FFO II guidance and that here, the reduction compared to the FFO II is lower. It's just 3% in absolute amounts, and it means we expect for the next year for 2023 and increased results from our operations in Poland, coming mainly from sales or from the sales business as we will have more handovers in 2023 compared to 2022. Not only because ROBYG is now fully consolidated for the full year, compare to just 9 months in 2022. Also we have here projects with higher sales prices, a good margin that will lead to increased revenue and to an increased sales result. So therefore FFO II is broadly stable. And in this market environment, we think this is definitely good news.

A final comment on the dividend for financial year 2023. In today, or in this evening we announced that we will take a decision on the dividend for the financial year 2023, perhaps at year-end 2023 at the earliest. This will be dependent on market conditions and on the completions of our refinancing, which is basically the bridge loan that we have already discussed.

But we clearly returned to our FFO I -- sorry, to our dividend policy of 75% of FFO I, once market conditions are better, once we have completed the refinancings. But in the current market environment, and please understand this is extremely difficult to predict when does this change. That's really not in our hands in full. So therefore, we will come back with the dividend guidance on the financial 2023 in some quarters, clear, once again, the FFO I will be the basis for dividend distribution also in the future. And once the market conditions are better, we will also return to the former dividend policy.

That's it from my side as an overview about the Q3 numbers and our decision that we have taken regarding refinancing and the dividend policy. But now I'm, of course, very happy to take your questions.

[Operator]

[Operator Instructions] Our first question is from Andres Toome of Green Street.

[Andres Toome, analyst]

Firstly, I wanted to inquire about the disposal progress, just to see where it stands when you're sort of thinking about early next year. And also, what sort of buyers are in the bidding tense at the moment? And what sort of pricing discussions are you having insofar as the spread between the asking price that you're looking for and the bids that are coming through? And just to follow up on that as well. Are you willing to go below, I guess, the last reported values also just given that you're guiding to effectively decline by year-end already?

[Martin Thiel, executive]

Yes, Andres. It's extremely to predict the progress on a disposal program. We had really processes in the past weeks and months where we were very close to signing. And then very shortly before signing was scheduled or we even had an appointment at the notary, then the potential buyer simply stepped back. And it was not a decision in the sense of that they tried to force us to reduce prices. Simply a lot of buyers and most buyers are currently waiting. And then they extend negotiations, we postponed the whole transaction. So even today, we have, of course, disposals in the pipeline in the sense that there are due diligence processes, negotiations. So it could also be the case that we can report something quite quickly. But in the meanwhile, we are extremely careful on this.

So there is activity, we see clearly increased in the portfolio itself, but the problem is a little bit that everyone is waiting until we really see first transactions. And then I'm sure that confidence we get back to the market and more people will start to buy and so on.

Talking about pricing. I mean one needs to be to realistic and to have successful disposals compared with the current book value, which is the book value at half year, I think one needs to give a discount. And if this is a discount of, let's say, 5% or 10% to the current book value, we think that is something worth looking into. So we are not a company who's telling, well, the book value is the kind of minimum price that we want to achieve. And so far, we have achieved it.

And if you remember at the beginning of the conference, I said that we have already sold 800 units, slightly above book value. But I think in the current end market environment, that's not realistic one needs to incentivize potential buyers. So just as a rough estimate, the discount perhaps of 5% to 10% of the current book value is something that we expect is something we need to give -- to have successful disposals.

And finally, you asked about the potential buyer. Clearly, we see more people with equity and interested in our portfolios. And these are then [indiscernible] by the first step in full out of cash over the large portion of cash and are waiting for the refinancing perhaps are not forced to finance that, to refinance that very quickly. But it's not really a complete new buyer group on the market, but this trend is clearly there. And this also then leads to the effect, and that's also how we set up the disposal program that perhaps selling in smaller portfolios and tackling or looking for such equity buyers is more successful than being with a large portfolio on the market.

[Andres Toome, analyst]

And then one question on the debt side also with the disposals. When you are disposing assets, are the buyers able to take on the mortgage that you already had on these assets? Or is that not possible in that, you have to actually get a new facility for financing?

[Martin Thiel, executive]

Well, in the current negotiations or in the disposal that we've completed, the financing was not taken on. So in our contracts, in our bank contracts, I would say nearly every case, the bank has right to terminate the contract. If we FTG sell the portfolio, then it's basically something the new buyer needs to negotiate with our bank or existing bank.

[Andres Toome, analyst]

Understood. And then maybe just understanding the Polish bonds as well. They're quite expensive. So I'm just wondering what sort of optionality you have there. Is there a way for you to sort of opt to not refinance in the Polish market and maybe use disposal proceeds in Germany to pay that down or just take on more debt in the German side of the business?

[Martin Thiel, executive]

That's an option that we have. So the bonds issued by ROBYG, have, I think, every quarter a chance to be repaid. And at the moment, there's still an interest rate protection in place. That means there are still interest rate swaps in place that we did we can use. So therefore the average financing cost in Poland are still at a, I would say, a reasonable level. But yes, this option is there.

[Andres Toome, analyst]

And the final question about the Polish business as it stands. Maybe just understanding the build-to-rent side of things and how are you seeing the yield on cost evolving there? Because rental rates are spiking and you're sort of commenting that construction costs are now stabilizing or even going down. So, is there a potential for that 7% to turn into 7.5% or something even above?

[Martin Thiel, executive]

That's indeed the case. So that's exactly what's currently happening. I mean perhaps it's too early, and the portfolio there in the market to more to say, well, this is the new level. Still, if we complete the projects, look at the first rents and that the guidance or the number that we have guided to the 7% here on cost is true. But then very quickly, we see here strong rent increases in the current market situation. So therefore, yes, it's the case, the gross yields that we are seeing in the Polish rental project, it's as higher than expected.

[Operator]

Next question is from Andre Remke of Baader-Helvea Equity.

[Andre Remke, analyst]

A couple of questions from my side, starting with a kind of follow-up to the previous question on disposals. When you acted so far, very clear and straightforward in terms of capital needs, especially with a 20% highly value cap hike and the clear message to cut the dividend in full. But in terms of disposals, it seems to me that all acting in the same direction currently, that's the wait-and-see position. Yes, you would expect disposals at like at the right, 5% to 10% below book value, but why do you not accept even lower prices at this point in time and to lock in already now the cash gives you more free way to act in general?

So it seems to me that you and also other companies weighed on lower prices and book values that they should be confirmed in the first half of next year or whenever. And then to accept these lower prices because at least the direction of prices seems to be clear. So it's a more aggressive point probably, but what is your view on that?

[Martin Thiel, executive]

Perhaps you and that I don't want to comment too much on pricing thoughts, as we have current negotiations, projects running. But let me answer more generally with today's decision on the dividend as we've shown that we are building really to do also hard debt because we think that the current market environment requires such debts. So if such situation would arise that we were able to have a significant disposal and get rid of upcoming refinancings and perhaps the discount is a little bit higher than what I have indicated to, yes, definitely, we would look into it. But I'm carefully with guiding about any kind of pricing that would be acceptable.

[Andre Remke, analyst]

But at the moment, you are not really willing to accept lower prices that's in a nutshell to outcome?

[Martin Thiel, executive]

I think the problem is different with the investment market. Everyone is really looking what is the exact pricing point. It's not the case that you have a process where, for example, you asked for price of 100 and then the buyer says, but I'm just wilting to pay 80. It's more the case that the buyer says, well you read in the current process, perhaps to a preliminary price of 100 and then the potential buyer says I need more time. I will come back to you, portfolio is interesting. And then for some weeks, the process is on hold because buyers are, of course, also uncertain what happens with prices, with interest rates and so on.

So it's not really a decision at the moment, at least in the processes that we see that we have a chance or a concrete offer to sell at a specific price and we say, well, but that's, I don't know, 5% too low, 10% too low. It's more a situation and at one point in time, the convictions will change. It's more a situation where everyone's waiting. So defining an exact pricing point that is the pricing points where we see strongly increased sales is very difficult. And I think it's not only for us a situation -- that situation in the whole market.

[Andre Remke, analyst]

Okay. So a second question on your bridge loan of EUR 310 million currently. Did I get it right that this will be reduced to 250 already at year-end? And then a specific question on the cost of debt. So at the moment, that's 0.6%. When will be the next step up and to what level for the remaining then EUR 250 million? And would you be able to redeem the financing at any time and without any further cost or is it possible?

[Martin Thiel, executive]

Well, we are planning to reduce the bridge loan to EUR 250 million. And why is that? I mean, we are basically incentivized to do this because if this is above that another fee would be payable and we think economically it makes sense to use part of the disposals and that we're now having in the next weeks or the disposal proceeds to repay debt. And then as it's typical for a bridge loan, each quarter, the interest rate increase or the margin increase. It's a floating rate bridge loan, and please understand that I can't give you any very detailed numbers. But assume that today it's still below the cost of new debt financing in the mortgage secured towards the end of the bridge that we -- towards the end of 2023. This is something that is then very similar to interest rates that we see with our bank loans.

[Andre Remke, analyst]

To the current, let's say, 4%?

[Martin Thiel, executive]

Yes, yes. To give you a guidance, it's roughly the range.

[Andre Remke, analyst]

Okay. Then last question, more technical question. At what point in time you will change the FFO calculation, not fully focused on German business to include also the Polish business in FFO I?

[Martin Thiel, executive]

Yes, that's already the case for 2023. So Andre thank you for this question. Perhaps I should have mentioned that when presenting the guidance. So a EUR 4 million contribution to the FFO I is already included in the 2023 guidance. And we will report from 2023 onwards and in the sense that we split also the FFO I and make clear which part is coming from to German business and which part is coming from the Polish business. And as said, in 2024, 2025, you should expect strong increases in this FFO I contribution from Poland as more and more apartments are than finished.

[Operator]

Our next question is from Sander Bunck of Barclays.

[Sander Bunck, analyst]

A couple of questions from my side as well. Can you talk a bit about your current cost of financing? And how you're thinking about financing in the bond market versus bank markets versus secured? What are kind of the differences and how are you thinking about that going forward?

[Martin Thiel, executive]

Yes. I would say the clear preference at the moment is for mortgage secured financing, I'm talking about the current cost of debt, we noticed now very well from the recent refinancing, I would say, margins currently around perhaps 100 to 120 basis points for a 10 year bank loan. So on top of that which operates, that brings you to a total group of that's slightly below 4%. So that's for secured debt, and that's a preference.

And talking about unsecured debt. Honestly, pricing for a new corporate bond is extremely difficult. And as we have not really any outstanding benchmark corporate bonds, the 2 corporate bonds that we have issued in the past where private placements with a very small number of investments, their pricing is not really representative. That's a more realistic option that we have are additional promissory notes. Short-term [indiscernible] issued promissory note in June with a margin for 5 years of around 190 basis points. And so that would lead then we put a 5-year which operate on top to a coupon, slightly below 5%. I think more realistic is perhaps today, that the margin is closer to 2015, 300 basis points. So they will bring us for a promissory note that somewhere coupon of 5.5%, 6%. So therefore, you can see this is not really a preferred financing for us, but perhaps something that we do additionally but in smaller sizes.

[Sander Bunck, analyst]

Okay. That's very helpful. And in terms of taking on more secured debt, have you discussed that with rating agencies? Like are they concerned about it? Obviously, there's quite a bit of layering going on in your debt book. Would you be happy to just keep on tapping the secured debt market? Or is that kind of a limit that you have in your head in terms of how much you would be willing to do?

[Martin Thiel, executive]

No, there is not really a limit. I think also not from the rating agencies, of course, but rating agency over the pool of unencumbered asset is good. We still have the complete Polish portfolio, which is unencumbered. So this is now over time, really a significant part of our portfolio. And I think also for our rating agencies, today's to the liquidity maturities, upcoming refinancings is more important than the unencumbered asset ratio. And basically that's the reason why a pool of unencumbered assets is there to use that in situation as we and other companies have today where unsecured financing is difficult or very expensive.

[Sander Bunck, analyst]

Okay. That's very helpful. The other question I had was on the dividend cut. And I was wondering that, did you discuss it with rating agencies? And if so, what was the response? And if they did say anything about it, like, do you have a sense what it would take to come back to IG or in the case of S&P to back to a stable outlook?

[Martin Thiel, executive]

Yes. Perhaps to start with the second question. I think in the last S&P announcement from November, it was very clear that they expect a refinancing of the upcoming maturities from our side and that we first into 2023. I think that's to the very largest part already done. And we have additionally the bridge loan maturity in 2024. So once this is done, I think there's a good chance, and looking into the announcement of S&P that also the outlook changes again. That's the main issue.

And all other numbers like LTV, like net debt to EBITDA, like RCR are absolutely in the range that basically both rating agencies, including Moody's expect foreign investments in credit rating. And I mean we have intensively discussed here with the Supervisory Board, the dividend suspension for 2022 rating agencies have been informed that we discussed debt. But let me also clearly say that it was not a decision that was driven from requirement from the rating agency side. It was clearly a decision that we have taken. And of course, for rating agency, and I think for all [indiscernible] more and more good news. And so this is helpful for the rating, but it was not the driving reason to put it like this behind the decision.

[Sander Bunck, analyst]

So the dividend, in isolation, you would not expect to have a positive impact on the rating?

[Martin Thiel, executive]

Yes, I think that would be also too early, knowing how rating agencies act and they don't want to change their decisions within 2 or 3 weeks. So I think the realistic estimate is that we have now the negative outlook from S&P for some months. And especially once we have refinanced the bridge loan, I think there's a good chance that the outlook changes again to stable. And of course, in itself the decision for the dividend suspension is of course helpful.

[Sander Bunck, analyst]

And then the final one for me. Obviously, there is a positive contribution from Poland into the FFO I over the next -- particularly in '24, '25. I was just wondering how much additional CapEx do you still need to spend on that? And does that drive additional disposals within Germany?

[Martin Thiel, executive]

That's not so much. So I said that in the middle of 2024, the current project, the current ready for rent projects are finished. For 2023, the net financing needs for Poland are roughly EUR 50 million that, by the way, breaks down into EUR 1 million gross investments for the rental business and EUR 50 million cash surplus, so in our numbers from the disposal business. So perhaps there's another EUR 50 million needed for the first half of 2024. So we're really talking here about how should I say, demand amount and that's, I think, also important that to mention it once again. We have really adjusted our CapEx programs in Poland in the way that Polish is more -- the Polish business is more and more a self-funding business.

[Sander Bunck, analyst]

So sorry, just to confirm the net CapEx spend for the positive ends were contribution in '24, '25, is in total, in aggregate, is around EUR 50 million?

[Martin Thiel, executive]

No, that's the gross investment that we need to take in 2024 is a rough number to complete the residential for rent projects. But also in 2024, we will have cash inflow from disposals and perhaps a little bit early to predict the exact cash inflow that we will have in 2024. But if we continue with the current decision to just finish the current residential rent project and not starting new, already in 2024, Poland would be cash neutral or would already deliver a cash surplus because then we have the rental portfolio fully in the market, we have disposals. So that's very visible and that the Polish business is not only self-funding, but it's really creating cash surpluses.

[Sander Bunck, analyst]

And on self-funding, basically, the cash to sell -- the development self-funding, the development to hold portfolio effectively?

[Martin Thiel, executive]

Yes.

[Operator]

Our next question is from Thomas Rothaeusler of Deutsche Bank.

[Thomas Rothaeusler, analyst]

A couple of questions. Maybe starting -- coming back on the rating. And specifically on Moody's rating, I think it assumes the successful execution of your disposal schedule. By when do they expect this? And I mean, is there a further downside risk if it won't happen?

[Martin Thiel, executive]

Moody's had not set specific data to that. It's clearly, as we've communicated today and also in the past, our target to use net proceeds from disposals to repay the bridge loan, but there are also other financing sources possible. So of course, today's decision or yesterday's decision to suspend the dividend helps us to preserve cash. As discussed, we have also the chance to raise additional mortgage secured debt. That's not only in Germany, but perhaps also in Poland.

So therefore, there's also clearly a Plan B if really nothing is possible. We don't expect this, but if really nothing is possible in the investment market in Germany in 2023. And it's not the only source of repaying the bridge loan. And I think for both rating agencies. The most important question is that upcoming maturities are takers. And as this class for 2023, basically, everything is done or nearly everything is done and the only really upcoming material maturities in the beginning of 2024, the bridge loan. And after that, and coming back to what I said in 2024, 2025 maturities, material maturities are only coming from more cap secured bank loans in Germany where the LTV is already very low perhaps have additional potential to create liquidity. So besides the bridge loan for the next 3 years, that's not really any large maturity that should be concerned. I think that's also the view of the rating agency.

[Thomas Rothaeusler, analyst]

Okay. Maybe coming back on the secured lending volume. I think it was EUR 260 million. Is it right, it's not finally closed this deal? And is there any risk that it won't close? Or and then also on that, I mean, when did you initiate negotiations with the banks? And how would be the situation if you would start nowadays? Do you think there would be a quite different term on it than the roughly 4%?

[Martin Thiel, executive]

No, I don't think so. So financing conditions have not really changed, we started this process more or less in connection with the rights issue. So in summer, I mean, this process, and that's not unusual, it takes 4 years -- sorry, 4 years, 4 months, 3 months, something like that.

Coming back to your question, EUR 260 million, these are several bank loans. So it's not one large bank loans. I think we're talking here about 5 or 6 bank loans, out of which more than 50% is already signed. So that's everything fixed. And for the remaining part, the credit approvals are already there. We have fixed all interest costs. So it should be a question of, yes, days or very few weeks until we have here signing and closing that we don't expect here any delays. Otherwise, we would have not communicated that today.

[Thomas Rothaeusler, analyst]

Okay. Another question, actually, just to clarify on your 2023 earnings guidance. I mean does it consider already the early refinancing of the debt maturities in '24 and specifically the EUR 200 million -- EUR 250 million bridge, which is open by then?

[Martin Thiel, executive]

Note that 2023 guidance assumes that the 2,500 German assets that we want to sell are still in full in the company for the full year and that also assumes that the bridge financing is in place in full for the full year. So and as I said, this 2,500 units disposal package has an FFO contribution after interest costs for the bridge after taxes of roughly EUR 6 million. So if we would relatively sell it at the 1st of July, it would lead to a roughly EUR 3 million FFO I deduction or reduction for 2023.

[Thomas Rothaeusler, analyst]

Okay. Maybe a last one on overall the financial situation, deleveraging options and as I understand you have improved your situation with the dividend suspension and also the early refinancing. But how do you consider potential headwinds from lower property values? I mean, what are your options to deliver if we should, let's say, get a 10% cut maybe next year in property values? I mean, and also maybe assuming disposals remaining difficult. Of course, dividend cuts are an option, but how would you look at this?

[Martin Thiel, executive]

Yes. First of all, we have really done already steps, not only with the dividend cut. Please also remember the rights issue that we have done in summer. And then I mean, if property where it was fall stronger than everyone expects, the question is, okay, what's the consequence? Most important thing are always covenants. Are we -- is it a concern that we're breaching covenants?

For us, the most tight covenants are in promissory notes, around EUR 315 million is the total volume. And here, the covenant is in LTV covenant of 60% at maximum and an ICR of at least 1.8x. So we're really far away from our covenants. By the way, this covenant is based on total assets in the balance sheet, so in a scenario, values could drop by nearly 40%, 40% until we reach that covenant. And we have no corporate bonds with financial covenants outstanding, we have a convertible bond without financial covenants from the bank loans, all the covenants are on portfolio level. So therefore, that's the most important thing to look at.

And then secondly, I mean, once values would drop strongly, then of course, as we increase it, then at some point in time, rating could come under pressure. But in such a scenario with strongly dropping property values, then we are really still in a crisis, which is that even more heavy. And here we are already concentrating on mortgage secured financing, LTV on group level is not that relevant then. I mean, of course, if the company is very much exposed to the unsecured market. Perhaps looking at financing or financing options, LTV rating is extremely important, but we would have, just to put like this simply more freedom. It was not under pressure to do any actions to elaborate.

Let me also state this very clearly perhaps you've seen this in the press release already. We don't see here any need for any equity measure an equity raise after our decision. So after the rights issue after the dividend cut, I mean we have really done strong and for our shareholders, I think also pay for debts. So there's not any need that we see for any equity measure.

[Operator]

Our next question is from Simon Stippig of Warburg Research.

[Simon Stippig, analyst]

My first question would be in regard to the valuation effect in Poland. On Page 11 of your presentation, you're showing a valuation result of negative EUR 16.5 million to what refers that?

[Martin Thiel, executive]

Sorry, this was hard to understand. Can you repeat this once again?

[Simon Stippig, analyst]

Sure. Again, so on the presentation on Slide 11, you're showing an evaluation result in Poland of EUR 16.5 million. So could you just elaborate on that?

[Martin Thiel, executive]

Yes. So that's not a negative valuation result, perhaps it's a little bit confusing here. On Page 11, we are calculating what we call the real operation Poland that starts from a net income from Poland and then deduct any valuation gains that are included. So we had a $16.5 million valuation gain in Poland in the first half or in the first 9 months of 2022, which was coming from the Polish renter business. And we see here valuation uplift once we have finished projects.

[Simon Stippig, analyst]

Okay. So that refers only to the residential to rent projects you're taking on the balance sheet?

[Martin Thiel, executive]

Yes, just for investment properties, which are then venture for any project.

[Simon Stippig, analyst]

Great. And then maybe your whole valuation of the residential for rent portfolio in Poland, to what amount that currently -- what's the full value you have on balance sheet of the 545 units?

[Martin Thiel, executive]

This is something at around, I think, EUR 100 million and duration uplift for the need something around I think slightly below 15% for the first half.

[Simon Stippig, analyst]

Okay. And what you just said before, you might have -- I'm just thinking forward and in 2024, the bridge loan comes to the remaining part. And if you have -- at the beginning of 2024, what would be your best guess of your full value? I know it's a bit forward-looking, far forward-looking. And with a lot of moving parts, but your full value -- or your portfolio value of your residential to rent portfolio in Poland, what would you expect it to be? And then what do you think you could take on in mortgage financing in Poland if you were to need it?

[Martin Thiel, executive]

And that's indeed, we have also done in such scenarios, and we know that the total value of the rental portfolio once it is finished, it means that's not at the very beginning of 2024, but at the end of the second quarter of 2024, should have a value of EUR 450 million to EUR 500 million depending on valuation effects. And even in Poland, 50% LTV for such a portfolio should be and is realistic. So there's also an additional potential refinancing on these assets that could lead in rough numbers to an additional cash inflow of around EUR 250 million.

[Simon Stippig, analyst]

Okay. But I mean they are already mortgage right now, I guess. I mean, even your EUR 100 million in assets you have right now, they are already mortgage. So you wouldn't have or additional…

[Martin Thiel, executive]

Know that…

[Simon Stippig, analyst]

Yes.

[Martin Thiel, executive]

That's not the case. So that's fully unencumbered. It's completely financed currently by TAG shareholder loans.

[Simon Stippig, analyst]

Okay. Great. And okay, that's interesting. So you would have an additional cash inflow capacity from that of, let's say, EUR 200 million in the beginning of 2024?

[Martin Thiel, executive]

Yes.

[Simon Stippig, analyst]

So but then I wonder, I mean, it makes it very likely that you would reinstate your dividend paid in 2024 for your financial year of 2023?

[Martin Thiel, executive]

Yes. I mean please understand that today we simply want to be careful. And, I mean, predicting dividends in the current market situation is extremely difficult. Once again, we will return to our former dividend policy, whether this is already for the financial year 2023, the case needs to be seen in perhaps in the end of next year. Yes, and of course, if we are able to do refinancings as planned, if we are also able to do more disposals in Germany in the next month, if perhaps sales numbers in Poland pick up even more than in the previous weeks, then the likelihood of the return to a dividend payment even for the financial year 2023, very early, it's higher. But as of today, we simply put a dividend for the financial year 2023 and, yes, this statement that it really depends on the further development of the market.

[Simon Stippig, analyst]

And then maybe one more question with regard to capital allocation also. There is a gap between your FFO I and FFO II. And you mentioned also that this is probably the part of the self-funding business going into Poland, but maybe in 2024, maybe also already in 2023 with your -- what you just indicated with your financing needs. What are you trying or what are you intending to do or where do you intend to allocate your capital of the gap between FFO I and FFO II going forward beyond maybe 2023?

Because I mean, there will still, I assume, some capital be left and you're obviously not indicating to use that for dividend payout. Are you thinking to allocate that capital solely into the development pipeline in Poland? Or could you also think of for examine it's too early for now, but do you also think maybe you allocate in the future some parts of that capital towards share buybacks? Just in respect to what shareholders had to live through, I would say, dividend cuts and equity and capital increase at the market, huge discount to NTA. Is that something you are thinking about with the Supervisory Board? Or is it something you will need to direct into the Poland business?

[Martin Thiel, executive]

And there's no need to direct this into the Polish business. And perhaps I'll try to give a broader picture, what's the view about future cash flows. And perhaps I can break that down but quite simple. FFO I will always be the basis for the dividend in the future, not only coming from the German rental business also from the Polish rental business, where we used it in the past 75% of debt to pay the dividend. The difference of the 25% is then there to finance the CapEx for the German portfolio. That's one side.

Then it's correct. We create additional surplus cash surplus from the build to sell business in Poland. Let's take a round number of currently EUR 50 million, EUR 60 million a year. Perhaps it increases in the past once the market is improving even further. Then as a kind of base case that would be used to finance or as an equity part to build up the residential for rents portfolio in Poland.

So perhaps EUR 50 million, EUR 60 million equity cash surplus from disposals, we get an additional valuation uplift. We get perhaps EUR 100 million a year of unsecured debt. That brings us to a total investment volume of EUR 200 million, which is then possible without increasing our LTV. So really a meaningful portfolio both up could than possible, again, just from the existing cash flow with the help of some unsecured financing and without any new equity raise.

That's the kind of -- I would say this case. If the situation is really get still at that moment in time, share price is at hard levels, and we're trading with a heavy discount to the [indiscernible]. Yes, of course, share buybacks are an option for us as well. I mean we have done this in the past, I mean in some years back. But in 2014, we've done that in a very concentrated transaction. So today, that's not really something that we discuss as we think refinancing is still more important. But once we are -- once we have done this refinancing, and again, I think it's very visible that we're close to that. And we create these cash flows that are very visible to it could be an option, but it's nothing, I think, for 2023.

[Simon Stippig, analyst]

Sure. That's totally clear. And it was more referring to be on the year 2024 and 2025. It's all clear. And maybe in regard to your disposals again, I'm just wondering where do you intend to sell? And out of what brackets or what portfolio clusters you have earmarked for the asset to sale or the net proceed of EUR 250 million remaining?

[Martin Thiel, executive]

These are really different regions. So we are not selling, let's say, TAG specific portfolio in the sense that these are locations like, or largest locations, [indiscernible]. We're talking here about locations. Just to give you some examples, like [indiscernible] and also some locations in North Rhine-Westphalia and also Hamburg, and also some secondary locations. So we try to create packages where we really have the chance to get to approach by potential as possible. It's not very much concentrated on one type of asset or one type of locations. That's not the case. In the typical transaction size in perhaps more something of EUR 30 million to EUR 40 million.

[Simon Stippig, analyst]

Okay. That's also understood. But then if you're selling across a lot of different segments or you have earmarked a lot of different a lot of units in different segments then. Can you speak about differences in valuation or difference in buyers' behavior? Some of them may be standing back more in some regions that are economically weaker or maybe in Hamburg where the market should be more liquid and prices keep up a bit better. Is there -- do you have -- can you give us any comments in regard to valuation differences?

[Martin Thiel, executive]

What I can give as a general comment is -- and interestingly also good for our strategy is that the higher yielding assets seem to be more easy to sell than the low yielding assets. So but a little bit contrary to what we've seen in the past where a market like Hamburg, Berlin was, of course, extremely liquid, has seen a lot of demand. Now we've seen, of course, about compression in the past. Assets are in everyone's balance sheet, perhaps at a sub 3% gross yield. Yes, and perhaps you find an equity buyer, but also for this equity buyer this year is then quite hard.

If someone needs to finance that at a 4% interest rate, clearly, that's really hard to justify. So that simply supports also our strategy and gives us the feeling that we are good positioned with high yielding assets in of higher interest rates, we're still able to earn a good cash flow. And as we see simple thoughts in virus mined out there. If this is really representative needs to be seen, but I think that's a kind of move that we currently see.

[Simon Stippig, analyst]

And if I may, just one last one. You're not having a lot of turnover in your portfolio currently, except of maybe some of the disposals. So you best guess of your structural vacancy is in the portfolio, what would you think? Is it between 3% and 3.5%?

[Martin Thiel, executive]

Yes, I think that's a fair estimate. Always difficult to predict something like that, but it should be could estimate what we observe. I mean, also CBRE or the valuers are doing estimation for the structure vacancy rate, is that over the last years, also the assumption for such structural vacancy rates have come down. So perhaps looking into annual reports, 5 years back, it's more around 4%. That today is more around 3%.

[Operator]

Our next question is from Manuel Martin of ODDO BHF.

[Manuel Martin, analyst]

Just a quick follow-up on the vacancy rate and your rental growth. How do you see your rental growth going forward for the next 2 years? I mean, in view of the energy situation, it could be a bit more tricky to increase rent is 2.5% going forward the fair assumption? Connected with that, do you think you could further reduce the vacancy rate of your portfolio towards the structured vacancy rate? And combined with that, what does it mean to your investment in the portfolio? Do you plan to reduce your investment…

[Martin Thiel, executive]

Yes, perhaps to give you a little bit more background on our assumptions for this midterm outlook that we've given today for the FFO I for 2024 and 2025, where we said, well, in the current portfolio after the disposal of the 2,500 assets that should be stable. There's also an assumption for rental growth behind it. We simply assume that the rental growth in 2024 and 2025 is unchanged to what we expect for 2023, where the guidance is between 2.5% and 2.5%. On one side, this is conservative. If we see clearly in the market, increasing demand for the housing, on the other side, you're completely right.

And one needs to take into account that tenants simply have to pay higher service charges. And then perhaps affordability is more difficult in the next 1 or 2 years as long as there is energy crisis. So therefore it's a fair estimate and a really conservative estimate to expect rental growth on a similar level for the next 2 to 3 years. But long term, I think the market dynamics are even stronger.

[Manuel Martin, analyst]

Okay. And so for investments, are you ready to lower the investments in your portfolio? Or do you think it's a level which is sustainable for the company?

[Martin Thiel, executive]

Well, for now we will continue with our ongoing investments in the German portfolio, which have been very targeted for years. So you know that we have not started any huge investment programs in the past because we own a very well maintain portfolio. We will of course invest a little bit more when it comes to our decarbonization targets, but there's still an absolute amount, I would say, a reasonable amount. So the CapEx strategy is unchanged. I mean, if needed, if the whole market turns even worse, then of course, we would have the potential to reduce CapEx and to postpone new investments. But for now, that's not planned. But again, it's still not material.

[Manuel Martin, analyst]

The last question from my side. Sorry, the line was sometimes too bad, acoustic problems. Your FFO I guidance for 2023, is that based on an unchanged portfolio? Or does that include the disposal of the 2,500 products you [indiscernible]?

[Martin Thiel, executive]

No, no, happy to make the statement once again. That's based on an unchanged portfolio. And the outlook that we've given for 2024 and 2025 assumes a portfolio reduction by 2,500 units. So not for 2023, but just for this midterm outlook.

[Operator]

Our last question is from [indiscernible].

[Unknown Analyst]

Yes. Just 2 more questions on my side. Can you give a bit more color on your presales on your Poland portfolio? And it's 60%, what do you expect for 2023? And what is the increase of interest rate effect on buyers? Can you give some more detail on that?

And second question, on the Goodwill on ROBYG, can you expect another decrease? I mean what is the value in your balance sheet now? Can you give us some color on that, please?

[Martin Thiel, executive]

Actually, Paul, happy to do this. First of all, indeed, the pre ratio for the 2023 handover is already or was at the end of the third quarter, about 60%, and that's also compared to previous years, a good ratio. So therefore, we have a good visibility on that. And what we expect for financial year 2023 is that we sell at least locking 2,700 apartments in Poland. So compared to this year, taking full year numbers into account, that that's a slight increase, but that compares to a number of more than 4,500 units for ROBYG and for Vantage in total in 2021.

So you see that the guidance for 2023 still takes into account that sales levels are reduced in Poland, but on a good level. So compared with the years 2018-2019, that's how should I say, the typical sales level, this 2,700 units. And why is that sales number reduced in currently compared to previous year? That's simply because mortgage rates in Poland have increased strongly. So for a buyer today, perhaps on mortgage is 8%, 9% or even 10%. And on top of that, the regulation requires that banks take into account when renting a loan an additional 500 basis points step-up. So the creditworthiness check is then even 500 basis points higher.

So a simple example, if the rate would be 10%, bank needs to check whether the client is also potentially or can potentially pay even 15%. And that leads in to the fact that currently 80%, 85% of our customers in Poland are cash buyers. And this cash buyers has all been there and are, as I said, today, the largest group of buyers. So still, we are able to sell this 2,500, 2,700 units. So once perhaps the regulation in Poland is not that tight in more once perhaps interest rates in Poland comes down perhaps even just slightly, we are very optimistic that the sales numbers will increase quite strongly.

[Unknown Analyst]

And on the Goodwill?

[Martin Thiel, executive]

I'm sorry. Yes, the Goodwill is around EUR 250 million for the total Polish business. Last part of that is a ROBYG. It's excluded in the NTA calculation. It's, of course, also not included in the LTV calculations or in FFO definitions. So this would be, if we have an impairment, a pure impact on IFRS numbers and not on our key metrics. It has not been impaired so far. We will have, of course, the impairment test now with the full year numbers together with our auditor. If there a risk that we see impairment, I think that's fair that the risk is there simply because of the increased interest rates.

Yes, we need to take to make here a model where we have, of course, future cash flows. And perhaps these cash flows are unchanged compared to the acquisition process or even a little bit better than originally expected. But what we have to apply are interest rates based on Polish market conditions. So therefore, as interest rates have increased here strongly in the past quarters, also discount rates will increase and that could lead to the risk that we do an impairment on the ROBYG Goodwill or the Polish Goodwill. But again, that would have not have any consequences on our key metrics.

[Unknown Analyst]

So sorry, what is the total amount of Goodwill, which is still on your balance sheet?

[Martin Thiel, executive]

Yes, I can give you the exact amount. You see this also in the NTA Bridge on Page #12. That's EUR 252 million.

[Operator]

There are no further questions at this time. I hand back to Martin Thiel for closing comments.

[Martin Thiel, executive]

Yes. Many thanks all for your details and many questions. Happy, of course, to answer further questions, please feel free to contact Dominique from our IR department or myself. And thank you for listening to the call and talk soon again.

[Operator]

Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day.