Vonovia SE

XETRA:VNA

Earnings Call Analysis

Vonovia reports stable liquidity and optimistic rental growth projections.

Vonovia remains on track to reach its €3 billion disposal target, having already signed deals worth €1.1 billion. Rent growth guidance has been raised to 3.8%-4.1% for this year, with long-term predictions of around 4% annually. Despite a 3.3% dip in adjusted EBITDA and a 7% drop in EBT, operating free cash flow increased by 24%. Furthermore, the company plans a €1 billion dividend capacity, highlighting strong liquidity with nearly €4 billion in cash and undrawn loans. Emphasis is on optimizing apartments for higher yields, with ongoing prioritization of cash generation over profitability.

Strategic Focus on Liquidity and Rent Growth

The company's focus on cash generation over profitability is evident in their strategic decisions. Adjusted EBITDA was down 3.3%, reflecting lower profitability in non-rental segments. This prioritization of cash generation is further confirmed by a significant 24% increase in operating free cash flow. Rent growth guidance for the year has been raised by 40 to 50 basis points, now expected to be between 3.8% and 4.1%. The company also anticipates annual rent growth of around 4% in the coming years.

Healthy Financial Position

The company maintains a strong liquidity position with approximately EUR 4 billion available. This includes EUR 1.4 billion in cash, EUR 800 million in undrawn loans, and EUR 1.7 billion from signed but not yet closed disposals. Additionally, there's an undrawn EUR 3 billion revolving credit facility, positioning the company well to cover near-term maturities【4:0†source】.

Positive Disposal Progress

The company is on track to meet its EUR 3 billion disposal target for the year, with EUR 1.1 billion already signed. This includes a major transaction with the city of Berlin involving the sale of 4,500 apartments and a land plot for EUR 700 million, slightly above the fair value. Additional proceeds come from selling non-core multifamily homes, commercial assets, and other properties. This disposal strategy aims at stabilizing the balance sheet and securing liquidity .

Dividend and Investment Outlook

The company estimates a dividend capacity of around EUR 1 billion for the year, reflecting a combination of EBIT and surplus liquidity. Potential future increases in CapEx, particularly in optimizing apartment programs with near double-digit yields, are being considered. While a return to pre-crisis profitability levels in non-rental segments remains a priority, current investments focus on liquidity rather than immediate returns. Share buyback options are also on the table if attractive investment opportunities do not materialize. Future payout ratios could potentially increase, especially as the company's financial position strengthens .

Regulatory and Market Environment

Recent regulatory challenges have been largely mitigated, with the extension of the 10% cap on reletting representing the only major regulatory adjustment. This clarity allows the company to confidently increase rent growth projections. The ongoing supply-demand imbalance in urban areas, combined with a focus on decarbonizing residential real estate, presents a positive long-term market environment for the company .

Earnings Call Transcript 2024-Q1

[Rene Hoffmann, executive]

Thank you, Modric. And welcome, everybody, to our Q1 update call. Our speakers today are once again, CEO, Rolf Buch; and CFO, Philip Grosse. They will be happy to provide an update on the year so far and then answer your questions.

But before we start, let me state few additional remarks. We all remember our last earnings call, and we have received unanimous feedback that it was too long. And we agree. We also received very clear feedback that the Q&A should be just that, a question-and-answer session, not a place to discuss the wider view of the world. Questions should be related to the business and Q1 results. And here, we agreed too. That is why we have reduced the volume of our presentation. I'm sure you've probably noticed. To be clear, we're not leaving anything out that you were used to from previous presentations. We've only moved some of the slides into the appendix, so they're still there. And the other pages have not changed from the full year presentation, so no need to include them again.

Rolf and Philip's presentation, I expect should not take longer than 20 minutes. And we're also targeting to let the total call, including the Q&A, not run longer than about 60 minutes. I kindly ask for your support here and for your understanding that we're limiting questions to 2 per participants. If you do have more questions, you're more than welcome, especially as it relates to modeling as you know where to find me and the team after the call. With that, over to Rolf.

[Rolf Buch, executive]

Thank you, Rene, and good afternoon also from my side. A few things may change as you have heard from Rene, but we will start with highlights, and this is Page 3, Liquidity. With the 3 bond issuance across 3 currencies, all of them multiple times oversubscribed. We have proven again that our access to liquidity is unrestricted, also on the bond side. And the risk premier for unsecured financing are normalizing compared to secured levels.

Disposals. We have signed EUR 1.1 billion year-to-date. So we are well on track for our '22 target of EUR 3 billion. Make no mistake, we will deliver the EUR 3 billion, and we think it will be sufficient to complete the stabilization of our balance sheet.

EBIT turns out that the EUR 3 billion is not enough. Our disposals efforts to the level will continue. And I tell you, there is still a lot of potential in the background. As expected, the value decline continues to lose steam. We expect the tough in '24. Can I tell you whether I think that will be in H1 or more likely in H2? I cannot, because I do not have the perfect glass ball. But this is, from my point of view, not the question anyway. What matters is that in any case, it will not be significant enough to impact our balance sheet risk.

And there can be no doubt that the demand value have found surpassed, the direction of travel will change because of sustainable long-term rental growth.

And speaking of rental growth, the mid-price premise, the 10% cap on reletting will be extended. But all other plans in the coalition agreement are off the table now. This is a huge success. So any remaining regulatory uncertainty has been removed. This allows us to increase our rental growth guidance to 3.8% to 4.1% for this year and around 4% for the years thereafter.

Our dividend policy gives us an estimated dividend capacity of around EUR 1 billion for this year, which is, of course, a combination of 50% of EBIT plus surplus liquidity. Any additional capacity will mostly depend on our ability to grow the nonrental segments back to precrisis level and beyond. The pre request for this will be that we can stop prioritizing delevering over profitability.

Organic value growth. Yield compression before the interest rate changes and yield expansion over the last 2 years has overshadowed the second growth component of our business. And this is what I call organic value growth. If market yields are stable, the organic value growth from the structural rental growth should deliver more than EUR 3 billion per year. This will create optionality for shareholder value generation in form of value growth in the balance sheet or distributed earnings by disposals.

And finally, the megatrends. We have spoken about the megatrends many times in the past, but it is so important for us that I want to reiterate the point. I understand that some of you are more pessimistic about the short term and maybe even about the medium-term outlook than others, certainly more than we are. But there can be little doubt that supply-demand imbalance in urban area and the need to decarbonize residential real estate create a very favorable environment for Vonovia, and we can proudly all agree that the focus of real estate investments should not be short term.

Let's go to Page 4. Our disposal target for '24 is EUR 3 billion. And as of end of April, we are at EUR 1.1 billion, so very well on track. The EUR 1.1 billion includes a larger disposal to Berlin and around EUR 360 million additional disposals across different sales channels. The Berlin deal includes 4,500 apartments in East Berlin and the land plot. The purchase price of EUR 700 million is EUR 2 million higher than the fair value. So we did what we have been saying, we are selling for fair value. And in this case, the fair value translates into a gross yield of 3.5%. What is important to understand is that this is a share year.

So we sold the company with an IFRS equity value of EUR 500 million for EUR 700 million and had no cash tax leakage. This is an example for what I call a more intelligent transaction I referred to on the last earnings call. The remaining EUR 360 million proceeds come from noncore multifamily homes, recurring sales, development, commercial and nursing. There is an exception of the EUR 28 million proceeds from commercial assets, everything else was sold either or above fair value. And so in the total, it was slightly above fair value.

Let's go to Page 5. First of all, any remaining regulatory risk is now off the table. Yes, the Mietpreisbremse has been extended, but that was expected. It doesn't mean it's right or that we are supportive of this decision. It looks as if German's private landlord association is going to challenge this in point of the Federal Constitutional Court. So let's see where it goes. What is for us much more important is that we have certainty around other regulatory risk. They are all now gone. As a consequence, we are increasing our guidance to now 3.8% to 4.1% for this year. And even more importantly, we see rent growth of around 4% per year for many years to come.

The 2 tables on the bottom of Page 5 illustrates how we get there. Please do not take this as a specific guidance or exactly on how much the Mietspiegel and how much the investment contributes in a given year. This is rather meant to be a broad explanation how we expect to grow rents by 4% per annum in the future, and this is long-term future.

So what gives us a confidence that higher market rent growth is sustainable for the longer term. This is Page 6. Let's take Berlin as an example because this is where we have the largest exposure. On one hand, to have what I would call the regulated rent level, this is our in-place rent, the Mietspiegel and the reletting rent, this on this out investments. There is a clear set of rules on how much we can grow these rents over a certain period. And this is why these rental levels are where they are. However, the reality in the supply-constrained market is that the gap of rents for new construction and to the real asking price is going. And this means that the general direction of travel for the regulated rents remain upwards because this level feeds back into the new Mietspiegel. Understanding this concept is important, is also relevant for the valuation debate. Of course, you get a lower yield if you look of today's rent. But the whole point is that today's rent is meaningless in a few years from now because there is a structural rent growth already embedded in the today's rental contract.

On Page 7, we show that our investment program -- what our investment program includes: Optimize apartment, upgrade building and space creation. The weighted average net initial yield for all these programs together is between 6% and 7%. And of course, the initial yield for space creation is significantly lower in -- as an initial return. This is not CapEx. We include Page 30 in the appendix that explains difference between maintenance expenses, CapEx and investments. Our investment program is a highly attractive source of cost. And with the new metrics we make sure that we finance it appropriately. That means 60% is equity and 40% is debt, so leverage neutral. In addition to the investment program, we also have our development to sell segment. About 4% of our balance sheet are committed to this part of the business. This year we expect to invest EUR 700 million, but we are also finishing about EUR 1 billion of new products that we are looking to sell. In a normalized environment, we expect on the sales and gross margin between 15% and 20%.

Let's go shortly to Page 8 before I hand over to Philip. As a summary, what we are saying is there is a current dividend capacity of about EUR 1 billion. And in addition to this dividend policy, there's organic value growth of 4%, which should translate roughly into another 3% part of total shareholder return from rental growth if market yields are stable.

[Philip Grosse, executive]

Thank you, Rolf, and also welcome from my side. Let's move to Page 9. The adjusted EBITDA total, as you can see, is down 3.3%. And because yes, essentially, the continuously strong Rental segment could not fully compensate the lower profitability of our nonrental segments. And here, we essentially continue to see the consequences of our strategic decision that we do prioritize cash generation vis-a-vis profitability. Adjusted net financial result in Q1 this year was about EUR 10 million lower, and that was driven by the full year effect of the 2023 financings. As a result, if you look at the adjusted EBT that was down 7% year-on-year. We are now showing the EBT minorities and the Q1 2024 increase is related to the 2 Apollo JVs, as you would expect.

And finally, our operating free cash flow. So basically, the Vonovia AFFO, if you will, is up 24%, largely as a result of the positive contribution from net working capital, and that is specifically related to the Development business. In a nutshell, the numbers reflect our general strategy. Profitability is negatively impacted by the focus on cash, and this is confirmed by the operating free cash flow growth you can see in the numbers.

On Page 10, very briefly on the Rental KPIs. Rent growth is up, and you can see that market rent growth is accelerating as we have been guiding for. Fluctuation is also higher than the previous period for a change, but I would not speak from a reversal of trend as this is still well within the general range we have been seeing for this number. Vacancy remains low and essentially only a function of turnaround time in case of fluctuation. Similar, if you look at the collection rate, it remains extremely high. And finally, expense capitalized maintenance is very much in line with the prior year period.

On the financial KPIs, Page 11, we have a pro forma cash position of almost EUR 4 billion. And if you look at the details, that is including EUR 1.4 billion cash on balance sheet. It's another EUR 800 million of undrawn loans and altogether, EUR 1.7 billion from disposals, which have been signed, but not closed yet, obviously, here, including the recent transaction with the city of Berlin. This is sufficient to cover all our near-term maturities. In addition, as you know, as a safety backup, if you will, we have also a EUR 3 billion RCF/CP, which is fully undrawn. So funding, not a concern at all, especially when you look at the maturity profile for the next 2 years. Relevant debt KPIs are shown on the lower left-hand side. And while they are still elevated, we are convinced that we have them under control for the reasons Rolf mentioned at the beginning of the call.

Moving to Page 12 on guidance. First, in terms of highlights, we are increasing our rent growth guidance for this year by 40 to 50 basis points. So now 3.8% to 4.1%. Some of it is timing, which is why you see the additional rent increase claim changing from more than 2% to around 2%. Second, we are guiding also EBT minorities and expect them to be around 10% of adjusted EBT for 2024. And here, the biggest constituencies are Deutsche Wohnen as well as the Apollo joint ventures. And third, dividend capacity of EUR 1 billion will give you a pretty good understanding of where we think we will end up on the operating free cash flow. We have included some color around the different moving parts on Page 25 in this presentation. And I'm proud to say that this is probably a level of transparency on the bottom line cash flow number that I don't think you will see that often in our but also in other industries. And with that, back to Rolf.

[Rolf Buch, executive]

And there is a remaining 2 minutes left. So we will make this as a 20-minute target. Let me just wrap up. We have unfettered access to liquidity. We are well on track to reach our EUR 3 billion disposal target for this year, and we will deliver it and we will be -- we are committed to do so. And there is no doubt that we will deliver it. We expect the value of 2024 more importantly, any remaining value declines are expected to be significant for balance sheet -- insignificant for balance sheet risks. And four, we expect an annual run rate of around 4% for our rent growth going forward. Our dividend capacity for this year will be around EUR 1 billion, and we estimate annual organic rental growth to be around EUR 3 billion, if market yields are stable. And the relevant megatrends for our asset class continues to provide a high positive environment. And with this, back to Rene.

[Rene Hoffmann, executive]

Thank you, Rolf, and Philip. [Operator Instructions] With that, over to the moderator.

[Operator]

[Operator Instructions] And the first question comes from Jonathan Kownator from Goldman Sachs.

[Jonathan Kownator, analyst]

So two questions, if I may, please. The first one, you're rating your organic guidance for 2024. You're not raising your EBITDA total and adjusted EBT guidance. What is -- is there a specific reason? Or do you have on the nonrental EBITDA a lower start than expected? If you can comment on that, that would be great, please. And then I'll go to the second question.

[Philip Grosse, executive]

Yes, Jonathan, essentially, this is where we expect to have year-end rent levels in -- yes, for the organic like-for-like rental growth guidance, the cash impact, and therefore, the translates -- translation into profitability is only -- it's always lagging, which is why you see that in like-for-like rental growth, but you don't see that in full in the EBITDA, EBT, respectively.

[Jonathan Kownator, analyst]

And no specific weakness in nonrental effectively linked to that?

[Philip Grosse, executive]

Nothing.

[Jonathan Kownator, analyst]

Okay. Second question, you're guiding to effectively a stabilization of valuation getting LTV where you want it to be. So what is the next phase looks like effectively? What is the offense scenario for you? Are you able to raise the CapEx from EUR 1 billion higher than this? Or is EUR 1 billion a stabilized level? And what is the plan? And would you have any acquisition opportunities or anything in terms of valuation you would want to do next?

[Rolf Buch, executive]

So Jonathan, you are completely right. The most attractive possibility to invest more money is our optimized apartment program, which comes with a yield and actually double digits, close to double-digit initial yield. So priority will be optimized apartments. So we will do more if -- and this, of course, depends on fluctuation. If we have used the possibility on optimized apartment, we will do for the upgrade building, which also helps us to get a nice yield, but also to reduce our CO2 charges. And we have done this, and you have seen us in the past, having a significant higher portion on the smaller portfolio. So there is, of course, room to increase it. Then of course, we can look for other options like acquisitions or whatever. But I think the priority is on the investment programs at the moment.

[Operator]

And the next question comes from Valérie Jacob from Bernstein.

[Valerie Jacob Guezi, analyst]

So I've got two questions. My first one is on the regulation. So you're increasing your guidance because you see that the association said that the regulatory measures are not going to be agreed. But what makes you confident, if you could sort of elaborate what makes you confident that? This is off the table for good. And if I look at the old manifesto, it wasn't implemented anyway. So if you could sort of maybe sort of explain why this is sort of for good? Or can it be another sort of point of debate in 6 months' time?

[Rolf Buch, executive]

No, to be very clear. To be very clear, the mid-price brands, we expect that it will come into place even if the association is going against court. So what we assume in our guidance, everything also for next year, the mid-price brands is in place. If not, this will be another positive surprise. We are in very close relationship to the politician, to the Chancellor, the Minister of Justice, and the Minister of Construction. And we now know that for the next 18 months there will be no more further rental regulation. In the paper of the coalition agreement, there was a reduction of the [ capital canceled ] from 15 to 11, and there was also an extension of the much bigger period. This is off the table. And that's why we do not have to put any risk factors in it anymore. And that's why until the end of '25, at least, there will be no more rental regulation because technically we have an election next year. Technically, the government would have to come with new rental regulation until October this year. And we know for sure that there is nothing else in the making.

And just me -- allow me 1 [indiscernible] remark. I think German politicians of nearly all parties understand that you do not solve a shortage in housing by further rental regulation. So this is going in the right direction at the moment.

[Valerie Jacob Guezi, analyst]

And my second question is on margin. On Page 7 of the presentation, you say that you think that in normalized market, you should have 15% to 20% gross margin on development to sell. And I was wondering if you could share your expectation for this year on development to sell and also on retail sales.

[Philip Grosse, executive]

We will certainly not see the 15% to 20% this year, and this comes back to the clear priority we have in our development to sell business that we look at liquidity generation and not so much on profitability. So we are not making a loss, to be very clear. So fair value is always the trough value, if you will, but we are sacrificing some of the margin in order to make liquidity. And it's a very similar story in our privatization business, again for this year, which is why you also see in our privatization business that gross margins have come down to something slightly above 10%.

[Operator]

And the next question comes from Thomas Neuhold from Kepler Cheuvreux.

[Thomas Neuhold, analyst]

Taking my 2 questions. The first one is on the EUR 1 billion dividend capacity. I was wondering if you can share your thoughts on the advantage of a higher cash scrip dividend versus using a portion of the EUR 1 billion dividend capacity for potential share buyback, particularly if the stock is still trading at a massive discount to NPA.

[Philip Grosse, executive]

Yes. I mean part of our dividend policy is that we will offer shareholders the option between a cash or scrip dividend. I think your question about share buyback in principle, is a fair one and that is depending on alternatives in investment opportunities we do have if there is ability to invest, but we don't find interesting investment opportunities. The share buyback is an option as part of the capital distribution.

[Thomas Neuhold, analyst]

And my second question is on the Development business. Can you share your thoughts what the impact of this decelerating depreciation could be or is already on the demand in the Development sales business? Can you please also remind us about the total size and composition held sale portfolio for your total potential Development pipeline?

[Rolf Buch, executive]

So just to explain to you, sir, because not everybody in the call is probably aware, and there is an additional amortization of 5% per year for people who are investing in residential apartments to let it out. So this is a traditional program, which we call for the dentist. So high wealth income because they are actually compensating this with their normal income tax. So 5% special amortization with a 50% -- roughly 50% income tax ratio is actually adding 2.5% of the whole investment every year to your return profile, which is, of course, not very attractive, which actually compensates more or less fully the increase in interest rates. So of course, by this product, we see an increasing demand for this product.

But of course, now we have to deliver the product first. So because there is a clear framework when the building has to be -- new construction is not existing one. Yes, but it will help and we see an increase in demand. You will not see too much in the '24 figures, but later. And yes, this is actually the answer. And so this is also answered the big part of the development what we have today is probably not suitable for this will be the development of the future.

[Thomas Neuhold, analyst]

And of the potential development pipeline, can you remind us how large it is and the consolidated...

[Rolf Buch, executive]

So, I think the rule is what we always saying we want to have a roughly EUR 3 billion investment in the Development pipeline. So we have roughly a turnaround of 3 years. So every year, EUR 1 billion, which is actually our assumption for the ongoing future.

[Operator]

And the next question comes from Rob Jones from BNP Paribas.

[Robert Jones, analyst]

So two quick ones. So I appreciate you've got sufficient liquidity near term and obviously, decent appetite regarding your recent unsecured issuance. Just remind me, in terms of the timing of the cash receipts of the EUR 1.7 billion to come in from recently signed disposals, Philip, how much of that is by the end of Q2, end of Q3, end of Q4. I appreciate, obviously, Berlin is end of the year, but just a breakdown of the remaining receipts from the likes of trends in [indiscernible] et cetera?

[Philip Grosse, executive]

I don't have the specific breakdown by quarter, but it's all in 2024. The majority is really in Q4 because this is when the Berlin deal closes and also some other pockets of the EUR 1.7 billion. So it's a bit biased towards the end of 2024.

[Robert Jones, analyst]

No problem. And then the second one is on portfolio values. I think I read in your Q1 statement that you believe from a kind of desktop valuation perspective, that portfolio values in Q1 were flat. Now you've had transactional evidence to demonstrate that. But Rolf, you said that you weren't sure whether values were trough in H1 or potentially H2, implicitly, should I read into your expectation, therefore, that for Q2, you expect to see some further degradation of portfolio values, albeit at a smaller rate than we've seen in recent reporting periods?

[Rolf Buch, executive]

No, just to add, there was not only our transaction burden, which confirms the value, but it was also the [ Vonovia ] transaction, from my understanding in terms of value. So please don't over-interpret my message. I just wanted to say I'm not sure what the values will be in H1. This was a message because it's just too early. What we are -- what I am sure is that the trough will be somewhere in '24. This information is based on several sources. It's based on the data we have. It's based on the demand supply patterns for investments. It's based on our discussions, which we have because if we want to sell another EUR 2 billion, you must be in discussions now. So that's why we know that people are ready to talk about the prices and the values. So this is much more educated than only looking on data.

[Operator]

And the next question comes from Veronique Meertens from Van Lanschot Kempen.

[Veronique Meertens, analyst]

Also two from my side. Maybe first on the disposal that you recently did with City of Berlin. Are there more likewise discussions ongoing, so perhaps with other municipalities or states? And besides that, have you seen a bit of a change in appetite or acceleration in discussion following the news about the regulation or the majority of the regulations being off the table?

[Rolf Buch, executive]

So for the first one, I have said in the last call, it's unpredictable when you are transacting with municipality because they are following different rules and different mathematics or different time lines because this is also election driven. So that's why I -- honestly, I cannot tell you, we are, of course, in discussion, but I cannot give you a short agenda on this, and we will deliver the EUR 3 billion without municipalities, but also to be precise, I'm not excluding further municipality deals, I'm just saying it's unpredictable.

And the second part of the question was...

[Rene Hoffmann, executive]

Positive impact by regulation on the sector market.

[Rolf Buch, executive]

Yes. This is clear. The regulation is off the table for everybody of us. So everybody knows that over the next 2 years you don't have to put any risk into your calculation because there's no risk left. And in general, we all see the megatrends. So Vonovia is not the only player in the market, which understands the concept of megatrends.

[Veronique Meertens, analyst]

So my question was if you've actually seen maybe a shift in your discussions or increased appetite with that risk now being off the table.

[Rolf Buch, executive]

No, not really. So we see a general interest, and we don't know if this is off risk or not.

[Operator]

And the next question comes from Thomas Rothaeusler from Deutsche Bank.

[Thomas Rothaeusler, analyst]

One question actually from my side on the Berlin rent table, which I understand will be published end of May. I mean, just maybe you can provide some color, how relevant is it for you for '24 rental growth guidance? And actually, what did you assume for the current guidance? And maybe you can also provide some color on the outcome of the rent table. What we have heard recently is that the survey is based on a less favorable sample. Just wondering if you could confirm that.

[Rolf Buch, executive]

So I will not comment the rent table, and I don't know the outcome. What I can tell you is the outcome of the rent table is more or less irrelevant for us for the guidance of '24 because you know the story about the Kappungsgrenze. So the guidance for '24, the outcome is not relevant.

[Thomas Rothaeusler, analyst]

So it's rather relevant for next years?

[Rolf Buch, executive]

Yes, probably for the year '26, '27 onward.

[Operator]

And the next question comes from Bart Gysens from Morgan Stanley.

[Bart Gysens, analyst]

Two questions, please. First one, a specific one on Slide 10. Philip, you say, look, maintenance or CapEx expense and capitalized is broadly flat year-on-year, down 4%. So you can call that broadly flat, but we've had a lot of inflation over that period. So in real terms, it's down double digits. I would have thought that goes up a bit, right, because everything got a little bit more expensive. Should we read something into this? Or is this more a matter of this is a 3-month number, and therefore, it can be a bit volatile?

[Philip Grosse, executive]

I will say is that, I think you shouldn't read too much into it. And what we have been able and that is thanks to much of the expense, but also capitalized maintenance being undertaken by our own craftsman organization that we have been essentially able to compensate inflation by efficiency gains, which is why that number is not really comparable to the broader market unit.

[Rolf Buch, executive]

And Bart, probably to add one thing is, as I have said in the full year call in the very good times, we have [ spended ] much more maintenance than needed. So this was our, what we call saving account. And you can see it also if you compare our maintenance spending to the maintenance spending of our peers. So now we are coming probably to more normal levels back because we are not building up additional saving accounts. And I think we have discussed it in length in the last call. So it's a stable number.

[Bart Gysens, analyst]

That's clear. And then my other question is about your recent transaction. I mean you've been quite vocal or clear that you strongly believe that values could be stabilizing, although we're seeing record low transactions, right? So it's tricky for us to have a good understanding of what the basis is for your statement. The recent deal again came with a land plot like the [ Berlin ] deal. Do you have more of these -- a lot more of these plots of land that you intend to sell alongside portfolios? I mean, it would be helpful, I think, for all of us to see a clean transaction where it's just a portfolio rather than a plot of land and land values can be anything, right? 7 hectares of buildable land can be worth quite a bit. So how should we see this? Are you going to -- do you intend to continue being creative when you do these disposals, not just creative on the tax side, which clearly you did very well, but also creative on kind of adding land sweeteners to the deal.

[Rolf Buch, executive]

So to be very clear, the land is as the buildings valued in our IFRS accounts by the auditor. So it goes through the same process and everything else. So we -- if your assumption is that we have land which is undervalued in our balance sheet, this is not the case. And of course, a portion of land we have in the balance sheet is meaningful. I don't have the figure with me, but it's a meaningful caution because we have sensed only in the development business of 60,000 apartments which can build it. So there's a lot.

So to be very clear, so it's -- there is no land as a sweetener doesn't work. To be very clear in the political debate, the politicians need the land to tell the people that they can build. So it is -- financial-wise, it's meaningless. It is from the political message of EMEA. It's very important for him that he's buying existing buildings and possibilities to build.

[Operator]

And the next question comes from Manuel Martin from ODDO BHF.

[Manuel Martin, analyst]

Two questions from my side. First question is on the dividend capacity. You stated that there is a dividend capacity of approximately EUR 1 billion for 2024. If I calculate correctly, that would be more than the 50% from adjusted EBIT when I have a look at the guidance. So can we read into that, that you have reserves for more investment? Or maybe you might increase your payout ratios, maybe not this year, but in the future years. Maybe you could say some words on this, please.

[Philip Grosse, executive]

We have given last time the ingredients for our -- yes, probably not very easy to digest dividend policy. And this is just to give you a better grip on the level you can expect for the running year, which is a combination of a, the 50% of EBT, as you mentioned; and b, the surplus liquidity we have after allowing for the equity financing of our guided investment program and the outcome is roughly EUR 1 billion, which will be divided by the share count.

[Manuel Martin, analyst]

And so on future payout ratios, maybe too early to say something?

[Philip Grosse, executive]

I think the additional notion is that this year is still a year where we don't have biggest expectations on our nonrental business. Because we prioritize liquidity vis-a-vis profitability. So the chances are really to the upside, but then it's going to be a question of investment opportunities vis-a-vis liquidity. But it's a long way in saying that I would consider the EUR 1 billion really at the lower end of what you also expect in future years in terms of dividend.

[Manuel Martin, analyst]

The nonrental topics that leads me to my second question. Nonrental segment, the value-add segment, that has been relatively weak in the first quarter. So it's about reduced investment volume and a higher cost base. Can you give us a kind of flavor of what we could expect of the value-add segment for the remaining year?

[Rolf Buch, executive]

So it will definitely become better. So we are not giving you a detailed guidance. To be very clear in the value-add business, especially in the government organization, we are preparing ourselves for higher investments.

[Operator]

And the next question comes from Marc Mozzi from Bank of America.

[Marc Louis Mozzi, analyst]

Sorry, again, a follow-up on Bart's question but a slightly more precise from my side. Having talked to the buyer of your EUR 700 million recent disposals, it looks like that the land plot valuation seems to be a debate. What is precisely the amount at which you're evaluating in the EUR 300 million the [indiscernible] of landlords in your transaction?

[Rolf Buch, executive]

So the transaction is a package, and it's EUR 700 million. EUR 698 million is the fair value, which we have, which is audited. And we are selling actually a company which is IFRS value of EUR 500 million for EUR 700 million.

[Marc Louis Mozzi, analyst]

I understand that. So the value of the land plot is how much, EUR 50 million?

[Rolf Buch, executive]

So the value of the land plot in our IFRS accounting is less than 1% of the total value.

[Marc Louis Mozzi, analyst]

So that EUR 7 million?

[Rolf Buch, executive]

Less than EUR 7 million, yes. We're always talking about the size of the land. The biggest part of the size is not -- never will be built because it's not...

[Marc Louis Mozzi, analyst]

It's 7 hectares precisely, but just...

[Rolf Buch, executive]

Yes.

[Marc Louis Mozzi, analyst]

So that would mean you're selling a plot of land at 1 million per hectare buildable.

[Rolf Buch, executive]

Which [ Nordics ] has no building construction, and it has no building construction since the last 20 years for good reasons.

[Marc Louis Mozzi, analyst]

I'm just trying to understand what is the difference with the communication of the buyer saying it worth between EUR 50 million and EUR 60 million?

[Rolf Buch, executive]

Well, the question of the buyer is, but I don't want to go in detail because this is not my point. There was 2 municipality companies which different capacity of balance sheet as the Senator of Berlin has actually to use these 2 balance sheets. So it's a completely insight-politic question.

[Operator]

And the next question comes from Pierre-Emmanuel Clouard from Jefferies.

[Pierre-Emmanuel Clouard, analyst]

Two questions myself. So maybe just coming back on CapEx. Just to make sure that -- so we are still expecting an increase of the overall CapEx in 2024. Maybe it could be useful to give us a breakdown between the maintenance and the capitalized CapEx that you're expecting in 2024?

[Rolf Buch, executive]

So I think it's very simple. You look on Page 30 of our presentation. If there's any further questions, please come back to Rene.

[Pierre-Emmanuel Clouard, analyst]

Okay. And the second question is on the ICR. Maybe can you give us a view on where you're expecting the ICR to land by the end of the year, given the fact that you raised your yielding debt recently?

[Philip Grosse, executive]

We are more or less done on the financing side, have good visibility. I expect ICR to come down slightly from the 4.0x to, let's call it, 3.8x, 3.9x, that is my expectation for year-end. So we have seen or -- are about...

[Operator]

And the next question comes from Paul May from Barclays.

[Paul May, analyst]

Two questions, slightly different one so I'll take them one at a time. I think you mentioned a few times the EUR 3 billion of value creation, assuming no change to yields moving forwards. I recall at the full year results, I think you said at today's rent levels, whatever measure you take the yield is not sustainable. Are you now saying that your yields are sustainable and will be flat? Or do you still expect yields to expand as rents increase, which I think is happening with the disposals you've done given the deferred completion at today's values?

[Philip Grosse, executive]

Look, we do expect to see trough values in 2024. And if we assume no change in yields to expansion, but also no tightening of yields, then it's a simple translation, 4% rental growth on the top line of EUR 4 billion x 25, which is our in-place rent multiplier is roughly the EUR 3 billion organic rent growth. One should expect once we have seen trough levels in valuation.

[Paul May, analyst]

Sorry, just to confirm, you're saying you expect yields to be flat or you assume that yields will increase as rents increase?

[Philip Grosse, executive]

We assume yields remain where they are and that is just the additional rent, which is translating into what we consider or what we call organic rent growth.

[Paul May, analyst]

And what's changed since the year-end when the yield was not sustainable?

[Philip Grosse, executive]

Paul, the statement is that we have a better rental growth for the long term and applying that rental growth, it will do something if you assume stable yields with the value growth you achieved, and that is the simple mathematics of the 4% long-term rental growth we see embedded in our business, what this is translating into in terms of value growth once we have seen stabilization in yields.

[Paul May, analyst]

And then sorry, my second question. I understand that both Glass, Lewis and ISS have recommended that shareholders vote against your remuneration policy. I think that's due to the change in all sort of retrospective change in KPIs -- under the new KPIs. And I think at the full year results, you said there'd be no change to your current LTIPs as per the change in KPIs. So just wondered, are you considering any changes to the remuneration policy given that recommendation? Or will it be put to the vote with Glass, Lewis and ISS recommending against?

[Rolf Buch, executive]

So I think this question is not a question in this earnings call because the Supervisory Board is responsible for the management remuneration, not the management, which is good. So I think this is nothing for this call.

[Operator]

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

[Rene Hoffmann, executive]

All right. Thank you very much, Modric. That's it from us for today. Thanks for joining. Any further questions, which I assume there may be 1 or 2, as always, please do reach out to me or my colleagues at any time. For today, that's it. Stay safe, happy and healthy, and have a great day, everyone. Bye-bye.