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Vonovia SE
Earnings Call Analysis
Q2-2023 Analysis
Vonovia SE
In a challenging financial landscape, the company has successfully addressed its immediate financial maturities and taken prudent steps to secure liquidity for future needs. The company has its financial obligations for 2023 fully covered, with only a minor €100 million amount pending for 2024. They've demonstrated adeptness in managing debt, with several actions including a successful bond buyback program, refinancing efforts, and securing new loans combined worth €1.4 billion, assuring stakeholders of a well-managed debt profile even as average interest rates ticked up marginally to 1.6%. However, the story isn't without its blemishes as the company faced a substantial valuation decline of €6.1 billion, or 6.6%, in its residential portfolio in the first half of the year, raising eyebrows on asset value stability.
The Rental segment, being the lion's share of the company's business, saw impressive EBITDA growth of 7.8% year-over-year, thanks to robust rental rates, low vacancies, and excellent rent collection. This performance was bolstered by strict cost controls and synergies from a notable merger. Yet, the overall adjusted EBITDA across all segments fell by 4.8%, revealing the opposing fortunes of other business areas which faced the headwinds of reduced investment and challenging market conditions.
The company's developments to sell approach has been clear-cut, with roughly €3.6 billion tied up in ongoing projects making up less than 4% of the balance sheet. A strategic decision not to commit additional capital for new projects implies a shrewd focus on completing existing ones and operating a self-financing development arm.
Organic rent growth has steadied at 3.5% year-on-year in the first half, and the company expects it to accelerate further, underpinning the ability to push market-driven rents. Despite the downward trend in fluctuation rate limiting rapid rental upside capture, the low vacancy rate emblematic of supply-demand imbalance plays into the company's strengths, ensuring sustained income from its rental assets.
The company has been proactive with its disposal strategy, albeit volumes were lower than the previous year. Nevertheless, the high fair value step-ups in the recurring sales segment illustrate an adept navigation through the real estate landscape. The overall decline in portfolio valuation contrasts with these successful disposals but also reflects the broader market adjustments in the wake of economic uncertainty.
While the portfolio valuation has undergone a stark decline, promising signs in parts of the market hint at potential stabilization in the latter half of the year. Even amidst the drop in net asset value (NAV) and the devaluation of assets, swift action in debt and liquidity management, and sales efforts provide investors with a silver lining that the company is keeping a tight ship and is poised to ride out the storm with a degree of confidence.
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Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the Vonovia SE Interim Results Six Months 2023 Analyst and Investor Call. [Operator Instructions]
I would now like to turn the conference over to Rene. Please go ahead.
Thank you, Emma, and welcome, everybody, to our earnings call for the second half -- for the first half of 2023. Your hosts today are once again, CEO, Rolf Buch; and CFO, Philip Grosse. I assume you've all had a chance to download today's presentation. In case you have not, you'll find it, as always, on our website under the latest publication. Rolf and Philip will now present the results and also give a general business update, and we're looking forward to your questions afterwards.
With that, let me hand over to Rolf.
Thank you, Rene, and welcome to all of you.
I'll start, as always, with the highlights, this time on Page 4. First, cash flow financing and disposal, which is probably in the moment the most important. Our '23 financial maturities are fully covered, and we only have €100 million less to be covered for '24. And this will be relevant only in December '24 when an €870 million bond matures, so almost 1.5 years ago.
We will continue to generate liquidity through disposals, not just for the end of '24, but also start turning out our intention to the '25 financial maturities. On financing, Philip and the team has been making good progress with the seamless rollover of all bank debts at this point, plus €1.4 billion of new secured and unsecured loans.
So you can see that bank loans are available to us and we make use of them to manage our upcoming maturities. Speaking of liability management, our attempt to buy back bonds was successful as we bought back €1 billion nominal value for less than €900 million cash. What was remarkable to us was how low the offered volume was. Only 11% of the outstanding bond volume was offered to us. And it is probably fair to argue that our bondholders are generally happy with the bonds thereon.
In terms of disposal, the Apollo transaction has closed as expected, and we now also have determined a value for the call option, which was €359 million as of Q2. Because we feel that this was a great transaction to do, we are looking to repeat something similar and have now identified a portfolio in Northern Germany that is very comparable in size to the Südewo portfolio. We will continue our sales effort at full speed to generate free cash as disposals remain our top priority.
Second, which was probably in the past the most important, operating and financial performance. Our largest segment by far, Rental, continues to perform really well. We delivered a rental EBITDA growth of 7.8% year-on-year, which is not surprising if you look at the key metrics. Rents are accelerating, vacancy rates are ultra-low and people are paying their rent in full.
Our other segments are more impacted by the overall market environment with higher cost of capital and little transaction volume. Q2 was not much easier than Q1. So for the first six months, we are still down compared to '22 million and all of this translated into an adjusted EBITDA total decline of 4.8% and group FFO was 9.5% below the prior year.
Third highlight, portfolio valuation. We did a full valuation of our residential portfolio as of the end of Q2, and it resulted in a value decline of €2.7 billion for the second quarter. Combined with the €3.4 billion in the first quarter, we have seen a value loss of €6.1 billion or 6.6% on a like-for-like basis. While it is too early to make a call on the second half, we are seeing some encouraging first signs in parts of the market that could bring some stabilization in the second half of the year.
And fourth, update on investigation. When we mandated Hengeler Mueller and Deloitte with a comprehensive investigation, we promised to you that we would update the market as we go along. Most of the forensic analysis is now completed and millions of e-mails have been scanned. And while there are more e-mails to be reviewed and interviews to be made, the assessment so far confirms three important points. The financial impact seems to be immaterial.
There is no indication so far that other parts of the business are impacted, and probably the most important, there is no finding so far about the negative consequence for our tenants. But again, this is not the final outcome, but this is an intermediate information for you.
And with this, I hand over to Philip.
Thank you, Rolf, and also a very warm welcome from my side.
Let's move to Page 5. And here, as Rolf said, we had a very good first half year in our Rental segment. Rental growth, occupancy and rent collection keep going very strong, and that is supported by very good cost control. H1 2023 rental EBITDA was significantly better than H1 last year. What is more, the second quarter this year was better than the first, so there's also good momentum.
So for 90% of our business, we had a very good first six months. Unfortunately, the other segments all fell short of the prior year period. In the current environment, this is somewhat expected because we are investing less and that hurts Value-add segments and disposals, as Rolf said, remain challenging which makes things more difficult in the recurring sales and in the development segment.
All segments combined delivered an adjusted EBITDA total that was down 4.8% and driven by higher financing expenses. The group FFO was down 9.5% compared to last year or 11.9% on a per share basis.
Let's quickly run through the different segments and start with Rental on Page 6. While the portfolio was marginally smaller than in H1 last year, Rental revenue was up 2.3%. On the expense side, maintenance was well under control with minus 3.8%, and the synergies from Deutsche Wohnen transaction helped us to cut operating expenses significantly by more than 17%.
As we showed in the full year 2022 presentation, we target just short of €90 million synergies in the running year, and we are slightly ahead of schedule at half year. The synergies were also the main driver behind pushing the EBITDA operations margin of our German portfolio to almost 81%.
On to some of the key operating figures that is on Page 7. Year-on-year organic rent growth in H1 was at 3.5%, and you can see how the market-driven rent growth has been accelerated and will continue according to our expectation to further accelerate. This underlines our view that market rents are picking up, even though this is happening at a moderate pace due to the regulation we are having in Germany.
We have added the fluctuation rate to this page because it's relevant in the context of rent growth from reletting, and unfortunately, the direction of travel is not in our favor, impacting the speed at which we can capture the rental upside. The fluctuation in H1 annualized was 7.7%, down more than a percentage point from the prior year. As a side note, it was about 11% at the time of the IPO.
The flip side of the coin is our low vacancy rate at 2.2%, unchanged compared to last year. And also unsurprising, I would add, is the imbalance between supply and demand keep shifting even more in our favor as we are the ones who are having the supply. Rent collection remains extremely high, and we also view this as a great indicator for affordability. And to be clear, these numbers include not just the net cold rent but also all ancillary costs, including energy cost.
And finally, maintenance, you can see how we have been managing capitalized maintenance, in particular downward, and have been able to manage liquidity.
Moving on to Page 8 and the EBITDA from Value-add. H1 fell short of our expectations. While there was some revenue growth in our external Value-add business, the segment result was negatively impacted by our reduced investment volume as well as higher costs for energy and materials.
On Page 9 for recurring sales. You can see that the fair value step-up in this segment remains very high, more than 45%, but the challenge in the first six months was the volume. We did sell a bit more in Q2 than in Q1, but the overall volume was still low, 628 units to be precise, was about half the amount we had sold in H1 last year. It was adding around €160 million liquidity to our balance sheet. But on this page, what I also want to point out is that we have also sold 650 noncore units at slightly above €100 million, and that at a fair value step-up of slightly above 9%.
Finally, the Development segment on Page 10. Development continues to be an attractive business, gross margins clearly in positive territory. But here too, the volumes were lower than last year. The comparison is further distorted by the fact that H1 2022 included a large and very profitable global exit in Austria. Don't be confused by the increase in the development to hold contribution in the first six months.
The project nature of Development makes the numbers a bit more volatile. As you can see on the lower left-hand side, we have been shifting more projects towards development to sell in line with our revised capital allocation policy.
Including the loan to quarter back, we have roughly €3.6 billion deployed in development to sell, so that is less than 4% of the balance sheet. And we estimate an investment volume of €800 million until the end of 2025 to complete the entire develop to sell projects that have already been started.
Our general position remains. We do not intend to commit additional capital for new projects and expect the development to sell business to recycle its inventory and operate as a self-financing entity.
So much for segment results. Let's now turn to Page 11 for our H1 valuation. This valuation update includes our entire residential portfolio. And after a €3.4 billion value loss in Q1, we saw another €2.7 billion loss in Q2 for an aggregate fair value decline of €6.1 billion or 6.6% on a like-for-like basis. If you look into the P&L, you will see €6.4 billion loss from fair value measurement of our portfolio, and the difference, of course, is around €300 million investments we have undertaken year-to-date.
This puts the portfolio now at slightly below 26x net cold rent, multiplier of 3.9% gross yields on the in-place rents. If we applied a market rent, the yield would be quite a bit higher, of course. The discount rate, if you look at the details in H1, was 4.9%, i.e., yes, around the current financing rate, and the cap rate was 3%. On a per square meter basis, which we think is a very relevant metric for our product, we are now at a fair value of €2,415 for the German portfolio, and where there is a 30% discount versus condominiums and the 55% discount versus new builds.
Given the steep discount of our shares, and that is on Page 12, the NTA is maybe a bit less of a focal point for some of you, but of course a relevant KPI nonetheless. After the first six months 2023, the NTA per share is down 13.6% to slightly below €50. And the main drivers were of course the valuation result and the 2022 dividend, which was somewhat compensated by the equity contribution from the Apollo transaction including the value of the call option Rolf was mentioning earlier.
Page 13 is the standard page on our debt structure. As of the end of H1, there is one number in particular that I would like to point out. Our average interest rate is 1.6% as of June compared to 1.5% at the end of December. Unsurprisingly, this number is increasing, but I think it's worth mentioning that it is increasing less rapidly than most people anticipate. So far at least, we have been able to manage it pretty well.
As a side note, over the last two months, also our risk spreads in the unsecured corporate bond market has closed some of the gap to the average spread of issuers with a comparable rating in other sectors. So here, too, we are starting to see first signs of normalization as our sector risk premium has been coming down a bit from very elevated levels.
The tables on Page 14 show the debt KPIs as reported as per the end of H1. If we account on a pro forma basis for the bond buyback we did in July and the disposal to CBRE, for which most of the closing is still to come later this year, and the LTV was at 46.8%, ICR at 4.8x. And the net debt-to-EBITDA was 16x based on the average debt of the last 12 months and 15.7x on a spot basis.
On Page 15, we want to show you the progress we have been making on the financing side. And here, in addition to rolling over €800 million across 9 loans as planned, we have also signed €1.4 billion in new loans, both secured and unsecured. And debt average rates below 4%, which I think is a very good result.
And speaking of unsecured loans, there seems to be a bit of confusion on our capacity under the unencumbrance covenant. The threshold here is 125%, and that is calculated as unencumbered assets over unsecured debt. And as of June 30 this year, that ratio was at 149%, so quite some buffer.
Now first of all, we are not looking, to be very clear, to increase the overall debt amount. To the contrary, we want to delever the balance sheet. So new secured debt will replace unsecured debt as a consequence.
Second, the average LTV for secured debt is around 50%. And finally, the debt we roll over has a much lower LTV given the capital appreciation over the past 10 years, and this provides additional headroom when we roll over debt.
And when you put all this together, there's more than €9 billion of headroom currently. This is, to be very clear, of course, a very theoretical number as it is based on the current valuation and in an amount we would not get even close to tapping in full. So I'm not saying we will use much of it, but I'm saying that it gives us quite a bit of flexibility.
Page 16 is a summary in a bit more detail of our liability management exercise we did in July. You can see the individual results per bond across the 17 bonds for which we have tendered on the lower half of the page. Summary is we were only offered 11% of the volume for which we tendered. So investors are holding onto these bonds quite tightly.
Second, we bought back €1 billion of nominal bond volume for slightly less than €900 million in cash. And here, the focus clearly was more on the short-term bonds, that we bought back all 900 -- sorry, 694 million that were tendered. On the longer maturities, we took a balanced approach and only paid what I consider an acceptable premium. So we bought 308 million out of the 550 million that had been offered and achieved a 20% average discount.
And with that, back to Rolf.
So thank you, Philip.
Page 17 is an update to illustrate the focus we have been making in terms of managing our near-term financial liabilities. We have fully covered all of our '23 refinancing needs and have €100 million to go for '24. So there is no unsecured refinancing to manage until December '24 when an €870 million bond becomes due, and loss really is most really covered. Against this background, we are now increasingly focusing on the '25 maturities.
The road map for generating the necessary liquidity is clear through our different sales buckets. First, we have the noncore portfolio which we are looking to sell because they have no strategic relevance for us or we believe that we are not the right owners. This includes our residential noncore assets and our commercial assets with an aggregate value of €1.6 billion.
It also includes €5.4 billion of low-yielding multifamily homes where we believe that they are better owners because we have added most of the value and what we can add through our platform and the investments we have made. And there is a €1.1 billion nursing portfolio of Deutsche Wohnen, where we continue to support the disposal efforts to add acceptable new terms. We understand that a more granular disposal process is now also a possibility and we are very supportive for this option as well.
And second, we have the core portfolio. This is the asset pool that we want to own in the long run and where we can add value with our organization. Having said this, this is a portfolio from which we are prepared to carve out joint venture opportunities. It is where Südewo came from and where we identified the new joint venture portfolio in Northern Germany.
And in my various conversations with municipalities, we are also negotiating about assets from this core portfolio because this is what the municipality wants to have. And when I say core portfolio, this gives you an indication that when it comes to any potential price elasticity in this portfolio, our reference point is always the fair value.
When we think about disposals, one key question for the transaction market is of course the direction of values. To be clear, we don't claim to know. It is simply too early to make a prediction. But while there are plenty of gloom scenarios about the direction of values, we think it is interesting to see that there are also quite a few positive voice which are less pessimistic.
On Page 18, we have collected some of them. And they paint a picture that is much less pessimistic. It looks as if there might be first signs of stabilization as market participants are increasingly adjusting to the new environment as rental growth accelerates to help the yield equation.
We will see how the H2 pans out, but you know where we stand in the debate. Housing is more than an investment vehicle. The ownership structure in Germany, the tax regime, the solid and long-term financing and, above all, the supply and demand imbalance all have a very stabilizing effect to cushion the blow from the higher interest rates. Make no mistakes, we are not saying that we are out of the woods or that we should do less in our efforts to improve our leverage. Opposite is the case.
We know that we have to put more and we have to do everything to chase all our sales channel to move our debt KPIs comfortable in our target range.
When we put all this together, the value losses we have seen up to now, the disposals plan we have, the financial maturity profile, the various views on their values and the transaction markets are headed and the general need to exercise caution in this crisis, and when we then think about what does this mean for us, it gives us a pretty good framework on what we should do and should not do.
On Page 20, which we entitled by intention carefully negotiating through the crisis. We try to lay out this for you. In line of the 10% value decline we have now recorded since H1 '22, we have updated our worst case scenario that we have shared with you in our full year '22 results. But we did it this time from a different angle. Now we ask ourselves, how much fair value headroom do we have on the 60% LTV bond covenants?
So in other words, what is our maximum buffer before we run account? The measures we have taken, primarily the Südewo joint venture and the CBRE disposal, has helped to largely mitigate the impact of the value decline, and as a result, the current fair value headroom against the LTV covenant is roughly 25%.
But make no mistake, we can never ever allow for this buffer to be fully utilized, but it is obviously that we do have a larger cushion. Two, transaction volume remains low for now and uncertainty around values remains in spite of first indications of a positive market stabilization in H2.
At the same time, the past 12 months have clearly confirmed our view: values do not fall off a cliff in Germany. Value declines happen gradually. So does anyone seriously fears the value will fall by anywhere near 25% by the year-end, that would equally a peak through of around 35%. And the accelerating rental growth which Philip has mentioned from here on is a counter effect and at least a cushion against further value declines.
Against this background, it is rather clear to us what we should and what we should not do. One, we continue to carefully monitor and manage all relevant debt KPIs with an unwavering commitment to bring them back towards the lower end of the respective target range, as described before. And this is a long way of discipline to go. Second, we remain laser focused on all our disposal efforts to generate cash in time to delever. So it is not all about less efforts, it is all about even increasing our efforts if possible.
And three, we have sufficient headroom to act from a position of strength. We are not forced to take drastic measures that would be detrimental to the long-term nature of our business and/or destroy long-term shareholder value.
And with this over to Philip for business guidance.
Thank you.
So let's move to Page 20. As you can see, we have now quantified the range for organic rent growth, and that is 3.6% to 3.9%. And this is a good step-up from 2022, even more so when you remember that the contribution from market rent growth is higher in 2023, while the investment-driven rent growth is expected to be lower. I will not guide on the individual drivers, but I will repeat what we have been saying before.
We think that there's a good chance that the market-driven rent growth of 1% last year will be about twice as high this year. One additional driver for this number will be fluctuation. And here, as I said before, we are facing some headwinds on tenant fluctuation as this is coming down further and further.
We show the evolution in detail on Page 32 in the appendix. But we are now well below 8%, which is a record low and clearly a reflection of the lack of available apartments. So supply/demand imbalance has two sides for us.
The rest of the guidance is unchanged with the exception of recurring sales, where we have suspended our guidance for both volume and fair value step-up. To be clear, we are not surrendering in this segment by any means, but it's merely a reflection of the lack of visibility at this point.
At the end of the day, while more is better, the disposal efforts in our other sales channels, as Rolf said, are more relevant to move the needle. And what counts is the cash that comes in, not the number of individual apartments. So we are counting euros, not bricks. And make no mistake, we are very, very focused on executing on our disposal program and are fully committed to delever -- or to deliver the cash we need to delever.
Before I hand back to Rolf for a quick wrap-up, let me give you an update on the investigation on Page 21. Rolf already highlighted some of the key financings -- some of the key messages. But as a reminder, you know that our offices were searched by the authorities back in March. They were acting on the suspicion of potential problematic activities in the awarding of contracts to subcontractors in the context of our heating systems. To remind you, Vonovia is an injured party, not the defendant.
And here, we immediately reacted. We immediately instructed Hengeler Mueller and Deloitte to run an independent investigation as we have the greatest interest in a swift and comprehensive clarification of the allegations.
This investigation is far advanced by now. The forensic analysis covers a comprehensive set of data, including several millions of e-mails and hundreds of business processes. The investigation continues in the third quarter and will also include individual interviews. And while, as Rolf said, it's too early to discuss final results, there are three very important points I want to reiterate. First, financial impact is not material with less than 1% of the order volume affected, and fraudulent action realistically being only a fraction of that.
Second, other business activities outside our heating business activities are not impacted. And third, there are no findings about negative consequences for our tenants. We will, of course, report in detail once the investigations have been fully completed.
And with that, back to Rolf for the closing remarks.
So my wrap-up can be short. Rents are accelerating, vacancy remains low and rental payments are being fully collected. Our core operations remain a very strong foundation of our business. We enjoy a super healthy operating fundamentals that are increasingly supported by the two megatrends, supply-demand imbalance in urban area and the decarbonization of real estate.
On the capital structure side, we have now covered all financial maturities except of €100 million, which are relevant only in December '24. We remain 100% committed, and I hope you have got the impression, to our disposal targets, including our efforts to execute another joint venture transaction to address the '25 financial maturities and optimize our balance sheet.
First line of stabilization could provide a more positive backdrop for H2. The fair value headroom allows us to continue to react from a position of strength instead of short-term actions that would be detrimental to the long-term nature of our business and/or destory long-term shareholder values. So we are committed to our shareholders.
Thank you very much.
Okay. That concludes the presentation. We'll move to Q&A, and I'm going to hand it back to Emma to start the Q&A, please.
[Operator Instructions] First question is from the line of Marc Mozzi with Bank of America. Please go ahead.
Thank you. Very good afternoon, all. Thank you for this very strong presentation. Can you remind me how much secured or unsecured debt you've been able to issue in H1 only and Q2 only this year? Because some of the credit line you indicate on your slide seems to be from the year 2022, if I'm correct. Just wanted to clarify what has been done in '23 and precisely in Q2 '23? That would be my first question.
Marc, the short answer, that is all year-to-date, that is all 2023 with the exception of the unsecured loan with the European Investment Bank, which has been concluded late last year.
Okay. That's the only exception, okay. And the other question will be on your JVs targeting. What can you say about it. It would be structured the same way that you've structured the JV with Südewo? Or let's put it the other way around, what sort of internal rate of returns or return simply investors you were discussing with are looking at?
Marc, once we consider the Südewo transaction as a very good transaction in the interest of our shareholders. So that's why we have decided and you know it is not easy because you need the right frame. We have decided to do a second time and we now have decided for our portfolio. So we know exactly what we have to offer to a potential partner. And it is too early to give you indications about the potential negotiations we have.
But our approach is comparable size and visible, and our opinion is that residual transaction was in the interest of the shareholders. But I don't want to give you targets on all these others because this would be interfering in an ongoing negotiation. So this is not in the interest of the shareholders.
And a final one, just a technical one. Can you remind us what is the composition of the line called consolidation in your P&L, which seems to have moved quite significantly from a very negative number last year to something very minimal this year. What has been the reason of that move?
I mean, what in the consolidation number happens is that the EBITDA, which is recorded but intra-company profitability, if you will, we are taking out when moving to FFO. And what is essentially embedded here, the profitability we achieved with our craftsmen organization, point one; and point two, the profitability in the development to hold business.
Thank you very much. Appreciate your answers. Thank you
Next question is from the line of Bart Gysens with Morgan Stanley. Please go ahead.
Yes, hi. Thank you. I have a question around Slide 20, your guidance. So I think it's been helpful that you've fine-tuned that guidance and made it more clear, suspended some guidance, made it -- also the rental growth guidance, you've been more specific. But if you revisited this guidance now, you've kept the dividend guidance, right? You're still guiding to 70% payout on recurring earnings, which is doubling of the payout ratio in '23. Is this honestly still the working assumption? And if you're really serious about deleveraging, why not go to 0 dividend? Thank you.
Look, our dividend policy is our dividend policy, and that is 70% of group FFO, where there has been no change in guidance. And I think if you look at our numbers, H1, we are on a very good path to achieve that guidance. Ultimately, and that is always a qualifier, if you will, the decision on what we suggest to the AGM, if not taken now, it's taken early next year. And as Rolf explained in very much detail, our continuous effort is and remains on deleveraging. And we have many, many projects up and running, which will hopefully contribute to achieve that goal anytime soon.
Next question is from the line Andres Toome with Green Street. Please go ahead.
Hi. Good afternoon. I have a couple of questions. Firstly, maybe starting with the Swedish portfolio. Just wondering, and I appreciate you can't give the details, but has there been any progress in setting up that JV on a very high level? Are you inching closer to your deal and sort of what buyer groups are interested in that? And also just trying to understand from your perspective, doing a JV there versus selling 100% of the Swedish portfolio, how do you see that? And what's the sort of strategic merit to have any exposure to Sweden?
So you know that we are still committed to do a joint venture in Sweden. This is, of course, a different type of joint venture than what we are doing in Germany. The Südewo joint venture would offer a possibility for somebody who would actively co-manage. So if this somebody would come to us and ask for a majority of 100%, we would also definitely be ready to get into discussion about this. So it's a joint venture. And original idea is to sell a minority stake.
But I think we are talking here about questions which are not relevant in the moment. You know that there are other players in Sweden which have some problems. So that's why in Sweden, in the moment, we consider that this is not the best moment to discuss about partly disposal or what you had mentioned the full disposal. So that's why we should take time and wait until the Swedish market has solved its issue, which I think will happen soon.
And the operations -- and to operations of Swedish. As we have always said, we see a much stronger rental growth in Sweden because Sweden is reacting faster and more flexible to inflation. So that's why the operation is doing very well. So that's why we are not unhappy to have the Swedish activity.
Understood. And then the Austrian portfolio as well, is that something you have considered? I mean, you haven't mentioned that, but also sort of different angle on the German part.
So the Austrian portfolio is the same picture, very significant rental growth. Double rental speeds in Germany, from the head of my mind. And of course, the Austrian business is very much linked to the development business because, in Austria, we are operating development to hold to sell business model. So you build it, you keep it for a while and then you sell it. This has something to do with the Austrian rental regulation.
So that's why in the moment this is more connected to the Development business. And we consider that this business has an 80% margin if we are selling the apartments. So a potential buyer would have to bring a lot of money to the table because this is an embedded hidden value in this business model.
Okay. And then my second question is just around the nursing homes. Could you perhaps share a bit more color around the performance between the real estate and the operations? And the decline obviously in EBITDA, but how much of that is actually linked to the real estate side versus the operations?
It's -- that is really on the operational side. We have first the situation that if you compare H1 this year with H1 last year, there is some distortion in the numbers because last year, there was still in the operating business some compensation as a result of COVID pandemic.
Second, we have the situation in the operational business that we are facing fairly significant increases in HR and energy costs predominantly involved. That is typically a pass-through because of the time getting compensated by long-term care insurance. There's always a time lag in between the 2, and this is the second impact on the operational business of the nursing home.
And the third one is also related to HR topic, if you will. There is a fixed quota on the number of qualified personnel you require for the beds which are being occupied. And given the lack of qualified people, the permanent search for personnel in this area, we have not been able -- as, by the way, many other market participants as well, to have sufficient personnel onboard. And that forced us to reduce our occupancy levels by roughly 5 percentage points. And those are the three drivers to the operational business, which is the reason for the year-on-year decline.
Understood. And my last question, just around Berlin. With the acquisition, you've made also promises not to increase rental rate in Berlin until I think it was until 2026. Just wondering how much reversion has been built up as a result of that and starting from '26. Then we've had also '23 new Mietspiegel and there's going to be another one in '24. Do you see a sort of meaningful ramp up then to in-place rent growth coming from Berlin?
So first of all, your information is a little bit outdated. So I know that we have signed this offer to Berlin to have a limited rental regulation after increase. After this, we have this agreement with [indiscernible] all other companies, which actually replaced the old offer which we made to Berlin. And there was a limit of rental growth for '22 and '23. So this is much shorter and it is much less than we have originally agreed on.
So in general, of course, you know that we have seen a Mietspiegel, a temporary Mietspiegel this year, which is not a qualified one. So there will be a new qualified one coming next year in '24. So we have actually two Mietspiegel. So the nonqualified Mietspiegel gives an increase of 5.4%.
You have a similar situation in Munich, for example, where during COVID, I was not able to do a qualified Mietspiegel. And later they comes to qualified Mietspiegel. So I assume that the qualified Mietspiegel in Berlin, which will come out next year, will show the reality of the Berlin market first time after a year of rent gap, rent stop and all these things, but we are not here to predict what the percentage outcome of this qualified Mietspiegel will be. But it will be a qualified Mietspiegel according to the new laws of Germany, so much less manipulated than what we have seen in the past.
So just to sum it up then, 2024 should be a pretty big growth year for your Berlin portfolio.
Yes. Plus, we still -- Q2, the regulation in Germany, especially in the Berlin portfolio, we have a lot of rent which are in the moment capped because, for example, about the 15% rule. So this means that in the Berlin portfolio, even without the new one, there is a huge catch-up potential already in the portfolio. And this will become bigger with the new Mietspiegel.
Okay. Thank you. That's it from my side.
[Operator Instructions] Next question is from the line of Paul May with Barclays. Please go ahead.
Hello everyone. Thanks for taking my questions. Just wanted a couple of clarifying things, I think, as I go through. Just wanted to check the fees associated with the Südewo transaction. I think you mentioned that most of the €85 million. I just wanted to check how much of that €85 million was the fees on that transaction. And also linked to that, the €359 million option value that you'd recognized on that transaction. Is that -- I presume that's on top of the equity you have received or the sales proceeds. Is there then a qualifying negative on the other side in terms of the amount you would have to pay out as cash to buy back those assets? Or is it just a one-sided positive? I just wanted to check. I've got a few others to follow after that.
Yes. On the fees, we checked separately. But by memory, the €85 million one-off transaction fees, €35 million of that is budgeted integration costs for Deutsche Wohnen. And the remainder, broadly, it's assigned to the Südewo transaction. And that is not only fees for banks and lawyers, but also structuring fee we paid to the Apollo team who placed that with long-term insurance money. On your question on the call option, was to better understand how this is being recognized and how we derive at the value of €360 million. That -- did I understand that correctly?
I suppose it's more -- because obviously the option value is the joys of the black box. It's more to say that if you were to exercise the option value, it would cost you money. So on the one hand, you've received money. You've received -- you then value an option on top of that. But there is a negative to come with that if you were to buy back the portfolio, I assume. I just wondered have you recognized the negative or is that something for the future? So have you just taken the positives today, basically is the question?
I mean, you always have to look at both sides of the equation, if you will. And if you look at today's balance sheet, on the asset side, we have accounted for two things. One is the €1 billion of cash that we have received and the second is the value of the call option of €360 million, which we have accounted for as a financial asset. And the corresponding amount, you will find on the liability side, in the equity of the liability side. And here, the split is that roughly €760 million is in minorities.
That is essentially the 30% interest of the JV partner in the equity of the business. And the remainder is a top-up, if you will, above the implied price of the equity of our participation, which we have accounted for in the other reserves.
What will happen with the option is very easy. If things go according to plan in that we deliver on the business plan, which I think in real estate for a debt-free business, which the Südewo joint venture is a realistic assumption.
And second, if discount rates do not change because the option value underlying is a comparison of different income streams, then over time you will see or you can expect to see that the value of the auction is going to increase given the disproportionality of the dividend streams to the insurance partners. And again, I mean, it's always our discretion, our decision whether or not to exercise that. But you can see that today, the stake has -- the disposal of the stake has contributed very, very significantly to our equity.
Okay. And just so I'm clear, apologies, the option accounting is not necessarily my forte. But just so I'm clear, if you were to exercise and buy back the 30% share, it would cost you -- what could -- as of today, if you were to do it today, would it cost you €1.4 billion basically to buy back? So €1 billion initially and then -- or the €1.359 billion. Is that the right way to think about it? That you've got -- you would have to pay up that amount to Apollo or not? Just so I can get a sense in terms of going forward how to think about this.
It's a theoretical assumption because there is a term to it. But essentially, what it's saying is that the value is the €300 million at which we can buy back the equity stake, which forms part of the minorities of €700 million. So it's adding up to €1 billion. Very simple.
Okay, okay. I'll take your word for it that it's simple. Just secondly, as you mentioned earlier in the call around the €6.1 billion like-for-like value difference versus the €6.4 billion that's in the P&L in terms of value decline. And you said it was because you spent roughly €300 million on the portfolio. Is that spend then assume -- basically lost money? So surely, that is part of the value decline or not?
No, this is why we like to show this on a basis including modernization. No, that is precisely the modernization which is generating additional yield. So if you look at the composition of our like-for-like rental growth, part of that is market driven. So we don't spend any euros. We just realize that by implementing the outcome of the rent index. But the other portion is investment-driven, and this is precisely based on the €300 million that we have spent.
Okay. So -- but I assume that €300 million would be at least worth something. But effectively, you're saying you spent €300 million to get some rental growth and that entire €300 million has then been written off as a negative? Sorry. Just trying to understand that. I thought modernization was a positive thing.
Yes, obviously. The €300 million is capitalized. And from an accounting perspective, it's capitalized because it has a value and it increases the value of the underlying property. But you cannot replace investments we undertake with the outcome of a valuation result. The valuation result is always to be seen net of investments. So it's a mechanical thing. There is no secret behind it.
Okay. I suppose it's just as values are going down, it's more evident, I suppose. Is that fair to say?
Not at all, clear contradiction, not at all. But let's -- because this is pure accounting. Let's have that discussion, if you will, in a more personalized detail bilaterally. But there's no secret, we capitalize the investments because they're yielding additional revenue. And the valuation result is always net of the investments we undertake. The point that we capitalize is the proof that it has the value I was just mentioning. But this is not any different this year than it has been for the past five years.
Okay. And then last one, just on the sort of, I suppose, high level in terms of -- you mentioned around the stabilization or evidence of potential stabilization in the market of H2. I think you highlighted a few comments, although some of them are still highlighting that I think example while mentioning further yield expansion is probably needed from here, which in theory would imply some further value decline depending on what happens with rents.
I just wondered in that context, why are you spending your disposal target if the market is stabilizing? Surely that would give you more confidence around your disposal target rather than, I assume, suspending it implies less confidence?
And also, if you look at transaction volumes in the investment volumes, in terms of institutional, should we say, volumes, portfolio deals, they've gone down in Q2 versus Q1. And I appreciate your sale of Südewo and the CBRE portfolio are a large proportion of both of those quarters and would have an impact Q2 versus Q1. But it would appear the kind of evidence in terms of what's actually happening is slightly different to what commentators are suggesting in terms of transaction volumes. But just wondered what your thoughts were on that?
So first of all, because Philip has already said it in the guidance. So let's -- give me a try a second time to explain you. We are fully committed, and I think I have said it, Philip has said it, to the cash generation in this year what we have promised to you. We think that it is irrelevant where the cash comes from. Does it come from recurring sales or noncore or any other disposals which we are doing, for example, with municipality?
So that's why in historic, the only revenue from sales was mainly coming from the recurring sales because we had no other significant sales projects. So that's why it makes no sense to focus only on this small figure because the overall picture is much bigger. So we should have given you but we haven't done it, an overall disposal target and probably we will target is for the next year. This will be done as a consequence.
But targeting on only this part, and this is a relatively small part in the total disposal, would misguide us as well. Because, for example, takes the case to achieve this target, we could make a package of individual assets and sell it to the market. But then we would probably lose some values because an alternative transaction would be more in favor of our business.
So this is why it makes sense in the moment to not give you a target anymore, not to focus on the wrong thing. We are focusing on delivering the cash we have promised in this quarter and in the last quarter and in our full year guidance for '23. So this will be delivered. Where this comes from is probably less relevant at the moment. So and this is thinking -- you had other questions, which I have forgotten. I'm sorry for this.
No, no, no. That was good. I just didn't say. So I suppose the thing that is not the focus is the step-up on disposals. That's kind of the bit effectively it's been suspended, but in terms of the total disposal volume is still there. Is that the way to think about it?
Yes. So actually, to be very clear, and I think I have said it very clear. We are aware that we are not done. We have to get our leverage back. And for this -- the solution for this is to do disposals. And that's why we are committed to deliver cash to get the leverage down. And I repeat, our target is to go to the lower end of the leverage. We are at the moment above the high end.
So there is a long way to go. There's a long way of discipline to be delivered. This is what we have committed. And there, we have something to deliver until the end of the year and then we have something to deliver in '24, and then we will see what the development of values and all the rest is going from there onwards. So this is what we are doing at the moment, independent if we are selling individual apartments or if we are selling blocks or if we are selling health care assets. This is probably the less relevant in the moment. It's cash generation to delever the company.
Okay. Good. And then just final one linked to that, I noticed the scrip issue price was at, I think, €16, €15, I think is the number. Why is that considered an attractive level of equity issuance versus other potential equity issuances?
I am not looking at it this way. It's the payment of a dividend and the option of the shareholder in shares. They believe in the future performance of our business or cash, if they decide otherwise. You're not looking at the measurement of how we would finance through equity contribution some, let's say, M&A transaction.
Okay. But I mean, it's effectively the same thing. And back to, I suppose, Bart's question that if you're committed to deleveraging and you're kind of issuing shares at those levels, surely it makes sense to just not pay a dividend and to potentially issue equity at those levels. But I mean, we can debate that forever. But that would be a similar eventuality.
Yes, I can only repeat what I said. This is not the timing. It's August 2022 -- sorry, August 2023. We are a bit more far from advanced, but it's not April 2024. Decision will be taken at the appropriate time.
And so now we are very pleased and confident in, a, our disposal successes we have achieved so far and things we are going to achieve; and second, the operational business is -- the numbers are clearly demonstrating and our core rental business are rock solid. So I think not much more to say at this stage.
Perfect. Thank you very much.
Next question is from the line of Thomas Rothaeusler with Deutsche Bank. Please go ahead.
Hi, everybody. A couple of questions actually. The first one is on the suspension of the recurring sales term, sorry to come back on that. Actually, in the first quarter, you still expect to dispose more than 3,000 units with a focus rather on liquidity than on sales margins. So maybe you can comment what has changed since then, what projects you decided to suspend again. And assuming no recovery of the sales activity in the second half, how can you compensate to stick to the full year earnings guidance?
So again, let's try me again. So we have -- in difference to the past, in the past, we had actually one product which we were selling as apartments, which we call recurring sales. Now we have -- as I mentioned, we have a lot of noncore assets, we have some core assets and we have the recurring sales part where we can generate liquidity.
So looking on this, we should actually focus on generating the liquidity as fast and as much as possible. It is not really relevant if this is coming from recurring sales or for blocks or from health care disposals. So that's why we think in the new period, in the moment where we have to delever the balance sheet, it is a wrong focus for the management and the wrong focus for others to look only on a very small portion of our for sales portfolio, which is recurring sales. And that's why we suspended it.
And again, I repeat, it is relatively easy to deliver cash by packing a few empty -- a lot of empty apartments together and sell it in a block and, of course, then with a lower margin. And if we would be sticking with this target, this will probably be the proper action. But I think it is probably better to sell a few more blocks and not lose this to keep the guidance, and that's why we suspended it. It doesn't make sense to look on a very small portion of the disposal volume and focus on this because we have a lot of other disposals and that's why the focus is more on the cash generation by disposals, independent on the source where the disposal is coming from.
But actually, recurring sales were part of the group portfolio. Is it right?
Yes. Thomas, it's right. And I mean, we've been very, very clear from the very beginning that this year, the biggest risk really is on the disposal side of what is contributing to our FFO and that is recurring sales and that is development to sell, which is why we have put out the ranges a bit wider than typically to reflect for that risk.
Now the good thing is that if I look at our rental business that is performing far better than we have budgeted. And that is compensating for some of -- yes, the unpleasant underperformance of our sales-driven businesses. But if you look at group FFO in H1, if you look at the dynamic of this number, Q1 to Q2, you can see that we are, as I said before, on a very, very good path to achieve our guidance. And the suspension of recurring sales does not mean that we are not doing any recurring sales whatsoever. So we're saying, as Rolf said, that we are putting the priority is a bit different in that we really want to move the needle as to what is most significant in terms of our key priority, again, deleveraging of the balance sheet.
Okay. Got it. Actually, second question is on your segment performance. I mean, if you go through your segments, all segments except Rental performed quite weak so far. What should we roughly expect for the rest of days? Is there any signal for recovery? Maybe value add, we discussed recurring sales. We discussed development. But maybe value-add, I mean, any signal for recovery?
Look, I can only repeat that in terms of EBITDA and Group FFO on an aggregated basis, very confident if you dive into the segments. Recurring sales, yes, it's profitable but it's a far lower volume. So if you annualize year-to-date performance, it's not going to match the performance we have achieved last year.
And in the development business, it's a tricky business to sell these days. It's depending on global exits. It's depending on the timing of global exits. So far, I think also here, we made good progress with the deal we did with CBRE. But it's really binary in a challenging market.
And for value add, it's very much a function of the reduced investment volume and it will not disappear. That is a burden, in particular, for our craftsman organization. Now I think that overall performance was slightly improved for the second half of the year. But on a group level, it will not make a big difference.
Maybe on your development business. I mean, we recently saw a proposal by the government for new tax incentives. I think the so-called linear depreciation. What is your take on that? And what could be the impact for your development business?
So to be very clear, there's two views to look on it. The first view is what does this have an impact for our business. And of course, it's clearly positive because this product of faster amortization in the first years actually help rich and small investors which has high income tax to finance it because they depreciate actually the higher -- they use the higher depreciation to deduct it from the personal income tax.
So what we call the traditional is a dentist who is typically buying two or three apartments to rent them out. For them, it's a great product since he will get a lot of much better -- will be compensated for the higher interest rate. So this is clearly positive for us. And that's why we support it.
On the other hand, does this solve the housing crisis in Germany? No. So there's two views on government. For us, actually, it gives a better potential for potential customers who want to buy an apartment, not to live in it but to rent it out. So this is positive. For solving the housing issue in Germany, it doesn't help at all.
And what chance do you see this to go through?
Please ask your government. So this is not my job to decide if the social democrat constructionist or the liberal democrat finance minister is stronger. So this is not my job to do.
Okay. Thank you.
Next question is from the line of Marios Pastou with Societe General. Please go ahead.
Hi, good afternoon. Thank you for taking my questions. Just first question from my side. I understand that on Slide 15, it's a very high-level theoretical headroom, the above €9 billion at current fair value, which I think you mentioned, obviously, we wouldn't go anywhere close to. Could you maybe give us some additional guidance over what level you would be comfortable at current values, maybe in line with your internal targets or in line with your credit ratings as well?
I mean, we still have some new secured financing in the making. So I expect that in absolute terms to increase, while in absolute terms, overall group debt will increase the relative share of secured -- decrease of relative share of secured financing will slightly increase. Let me put it that way. I do want to have a very comfortable headroom under the unencumbered asset ratio also if I were to apply fairly drastic assumptions on fair value declines. I'm not giving you precise numbers.
Okay. And then just secondly, on your discussions with municipalities for potential disposals. Obviously, I appreciate this may only be able to be given high level. But any magnitude of what the potential disposals could be, over what time frame. Any particular locations? Just any guidance that can be given at this stage but it will be helpful.
No, I think I should be very quiet here because also people of the governments are probably hearing in the call, and we had the fact that some of them understood that we are under pressure to sell, and that's why they thought they can get big discounts. As I mentioned again, that the government, which they want to have from us is core portfolios, and that's why the price for core portfolio is fair value. So this is the only thing I can repeat here. And that's it.
Great. Thank you very much.
Next question is from the line of Simon Stippig with Warburg Research. Please go ahead.
Hi, thanks for the opportunity to ask a couple of questions. First one would be in regard to refinancing. So if I look at your cash flow plan, then you are effectively already in 2025 if I add in your cash generation within 2024. And is there any reason why you wouldn't give a rough indication of that also in the free cash flow guidance? And then secondly, could you also -- you mentioned that the risk premium of your unsecured debt converged a little bit to other sectors. Could you also quantify that, please? And then I would ask other questions one by one.
Yes. Let me answer your second question first. We have seen for the index of BBB names an average risk premium for unsecured financing of 110 basis points, roughly. And while for quite some time, our risk premium equally in the BBB area was, yes, above 200 basis points, more close to 250 basis points. That has come down to roughly 170, 175 basis points. Yes.
And I mean, you're right in the cash flow bridge. There is no explicit but some implicit guidance if you look in detail in the numbers. I think it tells you again that we have calibrated our business in a way that we are operating our business with the changes we have made in the cash neutral, slightly cash positive manner. I think this is the key message without being willing to give more granular details beyond that.
Okay. Great. And maybe it's a bit early for the question, but one follow-up question to you on financing again. So what -- so now you have -- you're probably in 2025 already, you're attacking these maturities, rolling it over, refinancing it. But at what time range would you actually feel comfortable if you're already at the time today addressing the financings of 2026. And if so then, because my question goes in that regard, when would you actually use cash potentially when there is a value plateau for allocating your capital somewhere else?
I think there's a general answer to that and there is a second answer, which is taking recognition of the current still uncertain environment. The general answer is that we want to somewhat change the way how we look at refinancing in a way that we are basically in a situation to have addressed refinancing needs for at least the next 12, better, the next 18 months. I think this is a somewhat conservative approach, not optimizing treasury management, but optimizing potential changes to the interest rate environment and/or the condition of the financing markets, point one and point two. It also help the rating agencies when they look at liquidity ratio.
The answer in the current situation is, and I mean we've discussed that in detail, there is and remains uncertainty. And while we do see first signs of stabilization, it's still an expectation. It's not yet certainty. And we are not yet in a situation that expectation is backed by significant transaction volume/activity in the market. And I think against that backdrop, we are simply well advised to run very conservative capital structure policy.
And that is why, yes, we now turn increasingly into 2025 in addressing refinancing needs and keep pressure on deleveraging the balance sheet. Once we have found the bottom of this development. And once we have seen stabilization of the metrics and once we have moved back our debt KPIs in our target ranges, as guided, obviously then capital allocation becomes a different focus. In that, we then will increasingly focus on how to invest money, which is generating additional EBITDA/FFO. Then we are turning back from a debt to an equity story, hopefully soon.
Great. Thank you. And maybe a couple of smaller questions in regard to your financials. You mentioned in regards to development pipeline that your development to sell pipeline, there's a commitment until 2025, €800 million. So if I add in the development to hold commitment that you might have, how much would that actually be then in total?
In total, it's €1.2 billion development to sell, plus development to hold and including 2025 by when the project we have started have been completed. So this is the additional cash. I expect to be expended over the next 2.5 years.
But it is also important to say, this is only looking how we have to invest. But at the same time, we will sell buildings. So it's not a net cash. It's cash adjusted to be invested.
Sure. It's probably the financial planning Buwog applied back in that time. And then one question in regard to the EBITDA margin in the rental segment with almost 81%. What do you expect there for the year? And then maybe differently asked, how much of that is actually synergies? And if there is another part than synergies, then where did you actually cut cost? And is there further room to go?
Yes. I mean, there's always some volatility in the EBITDA margin on a quarterly basis, but my assumption is that the year-end number is around the level we see. In terms of synergies, yes, that is the key -- one of the key drivers in how we managed our OpEx in the business.
So on a full year basis, some €90 million of less expenses are embedded in that improvement in the EBITDA margin and also our cost per unit metric, and some slight increases on maintenance, which we do not capitalize, but run through the P&L, where you see that the absolute amount on a per square meter basis is less pronounced. But the absolute amount is coming down a bit. I think. It was just shy of percent.
But to be also very clear, for your questions also referring it to the longer term. On the longer term, we see that rent -- there are a lot of things which is done today by people will be fully digitalized. So I think we have shown you our app, where actually customers are doing the jobs in the past people have done themselves.
So I think there is optimization potential just by streamlining and digitalization of more processes. So from the long run -- for the long run, you would you should probably expect that the cost per units is going down -- or at least compensating the inflation. So the margin will go up. And we have -- we are doing first experiments with AI to use also this technology, which I think will bring some revolution on how you are running those processes. But it is too early to give you a guidance.
Okay. Great. And maybe one or two more, if I may, in regards to Andres question of the nursing portfolio. Can you give the indication of the exact occupancy ratio at the end of June?
It was slightly above 90%.
Okay. And then Thomas asked about the development. I just wonder, is there any -- I mean, the depreciation of some assets in regard to the development sector, there's literally nothing built. There's no permits. The supply/demand in Berlin is increasing. So is there anything else, new regulatory framework in the making? Or what else could actually help to reduce the crisis on the housing market? Is there any idea or any insight from you probably addressing both?
So we have a clear statement. I'm actually asked a lot about this because there is the next meeting with a question about it. Yes, it's -- but this is a different topic. I think it would explode this call here. What our message is, you have to -- if you want to solve this issue, which is a severe issue, because we actually have to triple the number of apartments at the moment, which are produced. So we are doing roughly below 200,000. We have to come to 700,000 per year, which is a demand.
This needs a comprehensive action, a combination of reduction of regulation, combination of getting interest rates -- special interest rate for housing companies like in France, for example, of getting a stable subsidy system, changing the rental regulation, especially the mid class plans for more expensive apartments.
So this is a full package which has to be done. I'm not sure if the government is ready to take these actions. What I'm advising is if you are doing individual action, it will not help. You have to build a package of all these actions together and then you have a chance to solve this issue. And this is not a chance to solve the issue in the next two or three years. We are talking here about a chance to solve the issue in this decade. There is no short-term solution for this problem.
Sure. And lastly, and I think it's also partly the elephant in the room. In regard to capital increase of cash injection, a lot of market participants still waiting or fearing that there is additional cash needed. But if -- I know it's something you -- it's difficult to comment on it, but you have to stress test and it's -- can we consider the stress test has a floor to it? Any potential cash injection? Or how -- or is there any answer? Or can you comment somehow on it?
So I think this was a big part of what we try to convey here today. I know that there are some companies out which has issues because they have no access to liquidity or they have issues because their leverage is coming close to their covenants. I think we have pointed out here very clearly that access to liquidity, and I think Philip has pointed out in several points, that access to liquidity is not an issue at all.
And I think we clearly have pointed out that we are far away from any risk of governance. So this is what we are saying. We are very convinced that we can stand this crisis. But having said this, I want to reiterate, this does not mean that we have not understood that we have to delever.
It is not that we want to deliver because we have a fear of taking our covenants. We know that this leverage is too high for this situation and that's why it has to come down. But it is not that we are afraid that we will reach our covenants. So that's why the answer is clear. Delevering by issuing new capital is crazy. We have delever by doing our homework. And this is to do disposals.
Great. I'll queue. Thank you.
Next question is from the line of Manuel Martin with ODDO BHF. Please go ahead.
Hello, gentlemen. Thank you for taking my questions. Two questions from my side, maybe we go through them one by one. The first question is your investment program. You have your guidance of €850 million for this year. Maybe you can update us a bit, Did I understand it correctly that you spent something like €300 million CapEx for the first half year? And might then be the possibility exists that you undershoot your targeted investment volume? That's the first question.
For now, it's the guidance we have given, and that is €500 million for investments in our standing portfolio, and on top of that, another €350 million investment in development to hold. And I continue to think that this is a very realistic outcome around that level for year-end.
Okay, Fair. Any idea where we are right now in the investment program, far advanced or halfway, maybe an indication on that?
More or less halfway through. If you look at the modernization of our existing portfolio, it's just shy of €300 million. It compares to a guidance of €500 million. So you can argue we are a bit ahead of things. But overall, as I said, I think we are pretty much in hitting our targets very precisely.
Okay. Second question would be on joint ventures. So there is -- as you have been commented, you have a joint venture in Sweden as a possibility. So it's a positive news, is there -- besides the one in Northern Germany. Question would be, is there more in your portfolio?
Are there more possibilities for joint venture in Vonovia's portfolio?
I think we should deliver now the -- what is the next one, is the Northern Germany joint venture. And as I said, Sweden will come later because the situation in Sweden at the moment very special due to the fact that they are other players which has problems which has to be sold before we are talking about Sweden. And if we have done this, we are talking about the next steps.
And let me add one element. With the JV Südewo, we have raised equity, I think, at very compelling terms of 7% to 8%. And with the new JV, we obviously also want to achieve very competitive terms and how the equity is being priced. But it remains equity. And equity, by definition, is a very expensive financing of the entire balance sheet that just, as a side note, that we are not getting to -- or we're excited on this topic.
Okay. My third and last question would be on the portfolio devaluations. Can you give us an understanding or a picture of maybe regional differences have been there any region who has, let's say, suffered most or one which has been more resilient, maybe to give us a kind of regional flavor on the devaluations?
The boring answer is that there's no big delta.
All right. Understood. Thank you.
Next question is from the line of Neeraj Kumar with Barclays. Please go ahead.
It's already a long call, so I'll keep it very short. Two brief questions. So first one is around ratings. I see ratings, assuming 10% valuation decline from H1 '22 peaks, and we have already seen those values decline. So how is your conversation coming along with the rating agency on the upcoming valuation decline assumptions or so?
I mean, we are obviously constantly in exchange with the agencies and there's been no change in rating. And there has been a change some time ago in the outlook of one agency. Yes, I think both agencies have assumed 10% value decline from peak. That's what we have seen. But we should not ignore that we have taken action and that we have raised equity of €1 billion through the participation of insurance money in the minority stake in [indiscernible] 4.1 and that we have also been successful with some disposals. So in other words, the embedded headroom is still there in terms of what is underlying the business models of the rating agencies.
Got it. And my second question on the refi, I see many questions have been asked already. So given that you had already sort of covered for '23 and '24 and looking beyond that for disposal proceeds to come for 2025, will it be fair to assume that you will not be accessing the unsecured market for until at least end of 2024 or so?
I mean, I'm not guiding when we are accessing the market. But let me just reiterate the obvious. I mean, our debt pile today on a gross basis is €43 billion and it's composed of roughly 1/3 secured, 2/3 unsecured debt. And while I think that there is some flexibility to moderately increase the share of the secured financing. We will always rely on unsecured financing.
And as a consequence of that, we also want to regularly visit the unsecured market to essentially place a very important investor constituency.
Got it. I think just a linked question. But you just tendered like €300 million of 2028 to 2032 bonds. Like that sort of sits bit counterintuitive to tender the bonds in a particular maturity profile and then come back to the market with a similar set of bonds?
Sorry, you mean the liability management we did?
Yes.
I mean this is for me, pure treasury management. I mean, we could wait and see until whatever, mid-'24, and sit on the cash pile or we invest the money to reduce immediate cash burn on interest expenses and take some advantage of the difference in the market value versus the nominal value. This is what we've done because I think to have too much cash on the balance sheet is a fairly expensive exercise.
That's helpful. Thank you.
There no further questions registered at this time. I would like to hand back to Rene for closing comments.
All right. Thanks, Emma, and thanks, everyone, for joining. We hope to connect with you over the coming weeks and months. And as always, a list of events is online and also on Page 55 of today's presentation. As always, in the case of any questions following today's call or down the road, please do reach out to me or my colleagues.
That's it from us for today. Stay safe, happy and healthy, and have a great day, everyone.
Ladies and gentlemen, this concludes today's conference call. Thank you very much for participating. You may now disconnect. Goodbye.