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Ladies and gentlemen, good morning, everybody, and welcome to our Results Presentation for the first 3 months of 2023. Thank you for dialing in. I trust you all well. With me here is DEMIRE CFO, Tim Bruckner, you know him; and Ralf Bongers, our new CIO, who started in April, and Julius Stinauer, our Head of Investor Relations. I'm sure you have had the chance to look at our results already, which I would like to summarize as solid and in line with our expectations.
I presented our annual report just about 2 months ago at the end of our first quarter in 2023 until then, we have achieved 2 important milestones of our deleveraging strategy. First, the signing of the disposal of the [indiscernible] in Ulm; and second, the bond buyback of the nominal amount of EUR 51 million. So now after the most important points are made. Please follow me on the next slide, let me shortly summarize the development of our key metrics in Q1.
All 4 pillars of our realized potential strategy have again contributed to a solid start into 2023. Highlights clearly our strong growth on our top line and our progress in disposing assets. The asset management contributed with a like-for-like annual rental growth of 8.8%, which was largely driven by the strong letting performance in the past and further indexations. However, total annualized contractual rents decreased somewhat to EUR 84.1 million after 1 larger tenant left or building this loss. Meanwhile, the EPRA vacancy rate and the WALT remained relatively stable.
As announced last year, our transaction activities have increased significantly over the last month. We signed a sales contract for the Telekom asset in Ulm in April, and we received the proceeds 2 days ago. Meanwhile, we have progressed on the closing agenda for the LogPark and Leipzig as planned and expect to collect the receivables over the upcoming months. Furthermore, we collected the proceeds on the property disposal in Ludwigsburg in February. Of course, we will continue to focus on further disposals in the coming months to decrease leverage and create liquidity for refinancing purposes.
The financials show an increased profit from our rental activities, clearly driven by rent indexation. The FFO declined moderately to EUR 9.2 million. This is mainly caused by a negative effect from rent receivables due to the insolvency of Galeria Karstadt Kaufhof and higher tax expenses. The net LTV is almost stable. However, after closing of disposal in Ulm, Leipzig, the pro forma LTV will be at around 47%. Our average cost of debt remained stable at a very -- still very attractive level. Tim will provide some more details on the financials in a minute.
On processes, we have onboarded my new colleague and Chief Investment Officer, Ralf Bongers in April. He's focusing on transactions and asset management. We have also progressed with our second sustainability report, which will be for the first time externally audited this year. On top of that, our internal processes of DEMIRE were audited without any material findings. As a result in Q1 are in line with our expectations. I'm very happy to confirm our 2023 guidance on rental income and FFO.
Let's go into more detailed look at our KPIs on Page 6. Our record level letting performance over the last couple of years, together with indexation adjustments led to a strong like-for-like rental growth of 8.8% compared to the end of Q1 2022. This positive development of rent is spread across almost all of our properties. The decrease of EUR 1 million of annualized contractual rent to a total of EUR 84.1 million is primarily due to higher vacancy in our property in Dusseldorf. However, our asset management team is already in talks with several new tenants to fill the vacancy as soon as possible.
Let's have a look on the vacancy and the WALT. The EPRA-Vacancy rate keeps trending downward to now 9.2%. For the rest of 2023, we expect a rather stable vacancy rate because only a few rental contracts will expire over the year. Including our equity properties, yellow, our vacancy rates would be around 8%. The weighted average lease term decreased slightly to 4.6 years, which we still see as a very solid level for our portfolio [indiscernible] within office overweighed.
So Tim, please now go along with details about the financial performance.
Welcome, everybody. Good morning. As Alexander already mentioned, we are benefiting from the solid performance -- operating performance in Q1 2023. Let's have a look at the P&L. Despite the smaller portfolio rental income improved as a consequence of indexation adjustment, slightly improved NOI but NOI margin down as expected, given the rising energy costs in our portfolio and investments. When we go down further to the P&L to profit and loss from fair value adjustments. In real estate, you see the before mentioned effect of the reclassification from investment properties to assets held for sales. Here, we are reflecting the current negotiation of assets in our assets held for sale as we will later see on our balance sheet.
Annotation 3 and 4 are mainly driven by the impact of the Karstadt Kaufhof insolvency, and we are now fully reflecting the negative effect of this in our P&L. Annotation 5 is regarding the lower interest as the bond volume reduced -- has been reduced by roughly 10% in 2022. And as Alex already mentioned, given that we have repurchased another EUR 51 million of our paper in the second quarter of year -- of this year, you will see finance expenses going down further in the next quarter.
On the negative side, we have slightly higher taxes, among other factors due to partially used up losses carried forward in some of our property SPVs. On the bottom line, FFO is in line with our expectations and according to plan.
On the next slide, a quick look to our balance sheet. I think the main impact is really the reclassification of investment properties to noncurrent assets held for sale. It reflects either signed SPAs, especially of the properties in Leipzig and Ulm, our latest offers as received in negotiations regarding further assets that have been deemed for disposal.
In annotation 2, you see the positive impact of our operating cash flow and the disposal proceeds from the Ludwigsburg property that has been closed EPRA lease. Let's have a quick look on Page 11 to the net LTV evolution and the average cost of debt. I think our and maybe also your main focus is refinancing of the company, together with the deleveraging, and I think we are making very good progress in terms of deleveraging. As Alex already mentioned, the pro forma net LTV is down to 47%, already reflecting the impact of the slight write-offs in our assets held for sale, but not yet reflecting the positive impact of the bond repurchases. So we are fully on track to deliver on our guidance that we want to reach below 45% LTV this year. The average cost of debt remained stable given that we have no final maturities of debt instruments until 2024. We are also progressing in raising additional mortgage financing despite the difficult lending markets.
And with that, back to Alexander for an update on our guidance.
Thank you, Tim, very much. After all, and to conclude, you may see that we delivered solid results in Q1 2023 and are looking now forward to and be prepared for the full development in 2023. With a sound start of -- to the year, we are confident to achieve our rental income guidance of EUR 71 million to EUR 73 million and to generate FFO of EUR 30 million to EUR 32 million. Thank you very much for listening. We are now happy to answer your questions.
And the first question comes from Mattieu Reinholdt, Accunia.
Just wanted to get a feeling on the assets held for disposals and the write-off you made of EUR 25.5 million. Would you be able to disclose here how much of that EUR 25.5 million relates to the Ulm properties that you have already disposed of? And how much relates to the rest? That's the first question. And the second question is the other properties that you now have as assets held for sale. How advanced are you in order for you to be able to classify these as assets held for sale, and which assets do they actually relate to?
First to Ulm. Unfortunately, we cannot disclose here the purchase price because the buyers, the family office of [indiscernible] have heard about this, asked us to negotiations, this is excluding the sale purchase agreement not to disclose the purchase price here. As regards to the assets held for sale, we, at present, do not want to disclose in detail the assets, what we want to sell. You will understand this, that we do not want you to comment on specific properties.
Yes. No, that's fair enough. Yes. But just like if you are able to classify them as assets held for sale, is that because you have -- from an accounting perspective, can you do that because you have notarized the sales? Or is it because you are very close to notarizing the sales?
Well, I already tried to hint into the right direction, the assets held for sale according to IFRS standards, include, obviously, assets that have already been notarized, but values have been signed but not closed, but it also can include properties where we are of a relevant certainty that we are going to sell those properties in the following 12-month period. And what we have done here, we have used the offer prices that we have received from third-party potential buyers, and we have used those prices and put them into the assets held for sale.
That was very clear.
[Operator Instructions]
We have another question coming up from Philipp Sennewald, NuWays AG.
You just mentioned that you're currently in discussions with bank lenders for bank financing. Can you quickly elaborate what kind of conditions are we currently talking about there? Is it 4%, 5%? And what kind of volumes of bank lending you want to raise throughout the year to prepare for refinancing?
Well, we cannot give any precise number of the potential mortgage volume that we are going to raise over the coming 9 months. But to be pretty clear, as we all know, swap rates have increased significantly. We are talking about more than 300 basis points, and that is probably what you have to add on the -- sorry, cost of mortgage lending that we have in our portfolio. So under current term sheet that we have with banks, we would expect for fixed-term loans between 3 and 5 years maturity, and total cost of between 4% and 5%. But as said, very much depending on the fluctuation of the swap rate.
And maybe to go a bit further there, costs on refinancing, you already paid back 2 tranches of the bonds expiring next year. Are you intending to make another premature repayment there? Is it what you want to do? Also what funds you're going to get from the asset disposals?
Well, we consider all options that are allowed under the terms and conditions of the 2019-2024 paper. So obviously, that might be an option.
The next question comes from Paul [indiscernible] BNP Paribas.
I just wanted to ask how much of your collateral remains unencumbered. I think the last disclosure I saw was around EUR 700 million, but I think it's been a while. And I was just wondering if you could update that number for us?
I guess we have not encumbered any further assets over the last month. So that remains unchanged versus the end of 2022.
Got it. And the value hasn't changed over that time period in the past few months.
Only sales, as indicated in our Q1 numbers.
Got it. And could you maybe elaborate on which assets remain unencumbered? Are they in your top 20 assets? Or are they kind of further down the list? Like how should we think about that?
It's a mix really. When you look into our disclosure regarding our subsidiary, Fair Value REIT, you see that most of the assets in the funds held by Fair Value REIT are encumbered given the legal structure. There is very little encumbrance in Fair Value REIT itself. And when you look at the linear part of the overall business, you know, we are mainly financed by the bonds. So the number of assets encumbered here is relatively limited. But obviously, the larger assets have an overall higher encumbrance ratio than the smaller assets.
The next question comes from Ralf Bake, MAV Vermogensverwaltung GmbH.
This is Ralf Bake. I have a quick question to the bond buyback. Could you tell us the price which you paid for this bond in April? And second question, are there other investors who would give back their bonds at this price range we're having at the moment?
But we can only tell you that we acquired the paper from different sellers at current market price. While we have not actively looked for the bonds that have been offered to us. There's always some trading volume in the market. And well, I cannot give you a clear answer on whether there is currently more paper out available, but I would probably think given the trading history of the paper that there might be some.
Okay. In the same range, which we had at the 2 buybacks?
Okay. The market price on the Luxembourg Stock Exchange, I admit that there is basically no trading, but it's slightly below 70%, and that is, I think, a fair reflection of the current market price.
Yes, of the security market?
Yes.
The next question comes from Daniel [indiscernible] GmbH
I have a couple of questions maybe on both portfolio development and financing, obviously. Maybe looking at Page 6, I was just wondering the portfolio highlights you're showing. Do I assume correctly that they still include the assets held for sale? And if so, what would they look like without the assets that are currently held for sale?
Yes, they include the assets held for sale. That's correct.
Okay. And the -- okay. So if I just briefly bridge it based on historic numbers, I could assume that around EUR 13 million to EUR 15 million of annualized contractual rent for the assets, LogPark, Ulm would reduce the annualized contractual rent to roughly EUR 70 million pro forma. I was just wondering like on the like-for-like rental development, how much would be actually at least due to the assets that are currently held for sale, just to get a sense on how much rental development there was actually in the remaining portfolio that's still on the books.
That's a good question, but we might need a second to look this up. Maybe you can follow with your next question, and we try to answer that as soon as possible.
Okay. No problem. And then just to confirm, have I understood correctly that the first proceeds from the assets in Ulm were collected 2 days ago?
Correct.
Correct.
Okay. So the funds line, right? And then, just on the -- I think that this was asked more or less before on the encumbrance, right? I mean you have now classified around EUR 314 million assets held for sale, of which I think EUR 120 million should relate to Leipzig, then we have -- or maybe the first part of the question is how much secured financing relates to these assets held for sales. So I'm just trying to understand how -- on the net proceeds you guys might receive?
We have not disclosed that yet, but if you look up the numbers in the SPV accounts, which is also public information, obviously, you could see that on Leipzig and that is also what we have publicly stated so far that we expect net cash after repayment of loans was about EUR 84 million, and there is none or very limited loans on the other properties could be assets held for sale.
No material loans, you said?
Yes.
Okay. Okay. All right. So okay. So net proceeds from the noncurrent assets held for sale should be at around EUR 230 million. I just take, let's say, to 20% to 10% roughly. And then, okay, maybe just -- I appreciate that you can't disclose which other assets you're currently in negotiation with. But if I just take a -- I mean, LogPark was already written down to reflect the pricing in December, I think, based on the full year numbers. So if I take the EUR 314 million and that Leipzig asset, I'm left with around EUR 200 million in assets held for sale and then take the profit loss from fair value adjustments and assets held for sale of EUR 25 million. Does that mean that you basically compared to book value, these assets were at a book value of EUR 225 million and now at the held-for-sale level, it's EUR 200 million, so we basically have a discount to book of around EUR 25 million or 10%, 12%, 8% to 10% something?
That is correct.
That's correct. All right. Correct.
Good calculation.
Yes. Good. Now that helps to get a sense on transaction markets and your valuations. Yes. And maybe just one final question. If we look on the structure of DEMIRE versus fair value, the assets that are currently classified as held for sale on top of Ulm and Leipzig, they are at DEMIRE level? Or is there anything at fair value levels that you're currently disposing of?
But given the corporate structure and the refinancing requirements at TopCo level, you can -- most likely on TopCo level.
Yes, fair enough. Understood. All right. Great. That was very helpful. I might follow up maybe with your IR team on the portfolio highlights and the rental development, if okay.
Yes, sure. Julius is available for that.
So then we have another question coming from Paul [indiscernible] BNP Paribas.
I was wondering if you've spoken at all with your controlling shareholders and if they remain supportive of the business? Any color there would be helpful.
The shareholder or the main shareholders, we are in very [indiscernible] contact with them. They support fully certainly what we hear -- what we are doing at present here in the company. In particular, we are looking this year, in particular, on the refinancing of our debt. This is where it's fully supported by the shareholders.
Got it. And is there any general framework that you've established with them to go forward with that potentially? Or are you still very much early days?
We have a business plan for this year, which includes all different options. But you will understand that we live in a market situation where every day we have changes. And what we have to do is we have to look what the market conditions are, can we do then our best to counter all the challenges from the market.
I understand that.
And then there was the one open question regarding the share of like-for-like rental growth reflected in the assets held for sale on the assets that have been notarized already. They represent about 40% of the like-for-like rental growth that we have reported.
And at the moment, there are no further questions [Operator Instructions] We have one more question coming from Robin Maxwell of Farnham Capital Limited.
Just very quickly, are you planning to pay a dividend for the '22 year, in this month?
No.
No.
The invitation for the AGM has been out already. The AGM, as you know, next week, and there is no dividend proposal out.
And now there are no further questions from the audience. So I'd like to hand back over to Alexander Goepfert.
Okay. Thank you again for dialing in. We will be back with our half year results on the 24th of August. We're very happy to hear you then again. Thanks so much, and have a good day.