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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Yes. Many thanks, and good morning, everyone. This is Martin from TAG. Many thanks for dialing in despite the summertime for our H1 conference call. Let's start the presentation on Page number 4, the highlights slide, and perhaps it's worth discussing, at this time, already perhaps the 5 most important aspects of today's publication.
First of all, look at our asset disposal activity in Germany. In total, in the first half of 2023, we sold more than 1,000 units. If you want to give me a breakdown between the different quarters, we sold 750 units in the second quarter and 300 units have been sold in the first quarter. This number, so this more than 1,000 units, excludes the so-called asset swap that we announced with the Q1 figures. So regarding this transaction, which was a disposal of 1,300 units and a parallel acquisition of around 700 units, we stepped back from the contract as the buyer was not able to prepare the financing in due time.
So this 1,050 units, just to make this clear, is a clean number without this asset swap transaction. And we think that's a quite successful number that allowed us to generate net cash proceeds, which is basically the most important figure we look at when realizing such transactions of €140 million.
Looking back on the reserve activity in the last trailing 12 months, we came out now with nearly 2,000 units that we have sold and we received total net cash proceeds of more than €200 million, which is, for us, of course, something that helped us regarding repaying debt. And that brings me to the second point. We've done really material repayment of unsecured debt than last month. So alone in the first half 2023, we repaid corporate bonds and promissory notes or unsecured of more than €300 million. And including the repayments regarding the bridge loan and all other repayments for unsecured debt in the last 12 months, we repaid €900 million of unsecured debt.
On the other side, we were able to raise bank loans, in fact quite a significant amount. So in the last 12 months, €490 million, out of which roughly €150 million in the first half of 2023, and it also helped us to create liquidity of around €380 million in total. So you see we have really broad access to the secured debt market, which is, of course, very helpful in these days.
Looking at the financing conditions for the bank loans that we effectively signed in the last weeks and months, the average interest cost was around 4.38% at an average maturity of around 16 years, that translates to an average interest cost of 4.3% and an average margin of exactly 1%.
We've also been able to reduce the ROBYG bridge financing materially. So at the end of the first quarter, the bridge financing stood at €250 million. When you look at the Q2 report, at the balance sheet date that bridge financing was already down to €175 million and we did further repayments after the balance sheet date, such that today the bridge loan is down to €75 million. And for us, it's very clear that we will repay the bridge loan in full towards the end of the third quarter 2023. So then finally, this bridge loan is done.
Just to remind you, the final maturity would be in January 2024. So I think it's fair to say that we have been quite successful regarding asset disposals, regarding repayment of debt, regarding repayment of the bridge loan, but not to forget that the operation business in Germany and in Poland is running quite well. Clearly, we are fighting against financing costs. So that's basically reason why we saw a 7% decline in FFO I year-on-year, but it would include the sales activities from Poland. The FFO II showed a growth of 11% year-on-year and EBITDA was growing in both businesses.
So the sales business and also in the operational vendor business in Germany, which is, of course, good to know.
In general, we saw rising sales numbers in Poland in the first half of 2023. So 1,817 units have already been sold. So that should be a good sign for a strong year regarding sales activities. Just to remind you, in total, in 2022, we sold around 2,400 units, so 1,800 units already in the first half compared to around 2,400 units in the whole year 2022. So this is clearly weaker year 2022 in Poland should be behind us.
Looking at the portfolio devaluation, we think nothing that should surprise you. A devaluation of the German portfolio by 7.4%, following already incurred devaluation of 5.5% in the H2 valuation of 2022. That brings valuation levels now down to €1,100 per square meter or a gross initial yield of 5.9%. I would come back to that a little bit later. Important is that the LTV still stands at 47.5%.
So that means we just saw a slight increase in the course of the year despite this quite material devaluation. The LTV was at 46.7% at the beginning of the year, now 47.5%, and that is clear that the asset disposal in Germany, there's a lot in this regard.
And looking into the second half, I mean, clearly, it's extremely difficult to predict integration results, but we know that on the disposal side, we have still some outstanding closings. We know that especially the fourth quarter in the Polish sales business is a very strong one. So we expect a lot of handovers that will naturally reduce the LTV. So we look quite pleased that even in an environment with valuations falling in Germany, we're able to keep the LTV, let's say, at least stable.
And looking at other financing metrics, that's also worth pointing out, the interest cover ratio and the net financial debt-to-EBITDA ratio still stands at a very strong 6.4x and 10.1x. And if you exclude the Polish sales business, the numbers are still at 5x and 13.2x. So that should be a good proof that our business creates a lot of cash to serve debt.
Coming to Slide #5. Yes, let's have a quick comment on FFO I and FFO II. So year-on-year, as I already said, a 7% reduction in FFO I, and an 11% increase in FFO II. Quarter-on-quarter, we saw increases in both businesses. In the FFO I, perhaps that's a little bit seasonal.
We had lower maintenance cost in the second quarter 2023 compared to the first quarter. Is this a real trend? No, it's not the case, but such items have some seasonality in this to receive benefit from them, but we're on a good way to meet our full year guidance for 2023 despite the ongoing disposal businesses. And as I already said, FFO II was at €111 in the first half. We expect here, as always, a much stronger second half, as naturally the fourth quarter is always the strongest quarter in the sales business as we have here a lot of handovers that then finally lead to the results.
Page #6 shows you the highlights of the Polish business. First of all, rental revenues are growing. €2.7 million rental revenues in the second quarter, €1.5 million in the first quarter. More and more rental units are finished in Poland. We have now roughly 2,200 units on the market.
And we expect that also the FFO I from Poland will now grow as the renting process moves forward. Strong development in the adjusted net income from sales Poland, €14.4 million, after €8.8 million in the first quarter 2023.
The major trend or the main driver for this result was also the joint venture with Centerbridge that we've already announced was now founded -- or not founded, it already closed in the second half. And as we sold land bank into the joint venture, we also benefited here from this earnings wise. Quick look at Page #8, income statement. It's worth pointing out that net actual rent is still growing despite sales activities in Germany. We will naturally see now the rent increases in Germany slowing a little bit down, not because we expect lower rental growth, but we had the closing of transactions at the end of the second quarter.
We expect also one transaction to close at the end of the third quarter. So that means we have, from disposals, rent reduction, but on the other side, we will have more rents coming from Poland. So that makes us very optimistic that the net actual rent should be at least stable in the next month and then growing after that. As already said, we benefited here seasonal from some lower maintenance expenses and also some other lower property management costs, but the net rental income was stronger in the second quarter compared to the first quarter. And finally, just a comment on our net financial results.
Don't be confused if this net financial result in the P&L is showing some volatility. We have some interest rate swaps in place that are valued at a fair market value at every balance sheet date. So effectively, you see here a valuation loss of €5 million quarter-on-quarter. If you look at the really relevant cash net financial results quarter-on-quarter that remained stable.
Page 9 shows detailed EBITDA, FFO and AFFO developments. I already commented that EBITDA, not only in the sales business, also in the rental business, developed very positively and that led then in fact to increase that I mentioned in FFO I quarter-on-quarter. Also, the AFFO increased quarter-on-quarter, even a little bit more than the FFO I as we had some lower numbers in our capitalized maintenance and modernization CapEx. Also, this is something more seasonal. So in general, we're not cutting CapEx in the German portfolio.
To the contrary, we are slightly investing more than in the past as we are clearly on the path to decarbonize our portfolio. But the good thing is that in overall terms, in overall numbers, this is still something very moderate. In terms of the EPRA NTA calculation, we saw a 9% reduction in the first half of 2023, mainly driven by portfolio valuation. So this led to a reduction in the EPRA NTA per share of around €2.50.
Page 11 shows the financing structure. Looking into that in a little bit more detail into the maturity in 2023. You see at the balance sheet date, we still had some smaller maturities, but as March legislature starts, the €15 million promissory notes, the €14 million corporate bonds in Poland have been repaid in July. So after balance sheet date, we have some ongoing commercial paper that will renew from quarter-to-quarter. And we have RCF that we use in Poland for the sales business, which are some balance sheet dates more used and some balance sheet dates less used. So effectively, 2023 is done.
And looking into 2024, you see here that this is a pure view from the balance sheet date perspective, the bridge loan still at €175 million. As I mentioned, after the balance sheet, this bridge loan is already reduced to €75 million. So that's then the final repayment that we are doing now towards the end of the third quarter. And after that what is left are very small unsecured maturities here in Germany, €59 million promissory notes, €23 million corporate bonds in Poland. So that's basically [indiscernible] cash, and what is left is €197 million of more classic bank loans in Germany.
You have to consider this as more kind of bread and butter, ongoing refinancing. So the overall statement regarding maturities, 2023 and 2024 is, once this final repayment from the bridge loan is done and now it's very, very visible, 2023 and 2024 are basically years where no really material maturities are left and that's, of course, very good for us to say.
Looking at Page 13, that shows the like-for-like rental growth was showing not a spectacular or other developments that are worth mentioning. So we have 2.1% total like-for-like rental growth weaker than in the quarters before. But this depends also on the development of equity rates. So if it is stronger, then, of course, the total like-for-like rental growth is also stronger. So this number should increase now in the second half as we expect a reduction in vacancy rates to come.
But overall, like-for-like rental growth, excluding equity, increased slightly to 1.6%. And the total investment per square meter, you see this on the top right of the slide, were €22.7 on an annualized basis, which is slightly lower than in the year before. Page 14 shows the development in vacancy rates. It's basically fair to say that the vacancy rates in the first months of the year remained stable. But as in the past year, we expect now that in the second half, as the modernization projects are now finished, we will have renting successes, so that should allow us to reduce vacancy rates quite significantly.
So that makes the guidance that brings us to an overall vacancy rate at the end of the year between 4.2% and 4.5% should definitely be achievable.
Page 16 shows the portfolio valuation in the German portfolio. As I said, we have had a portfolio devaluation of 7.4%. This comes on top of an already incurred loss of 5.5% in the second half of 2022. So that means we are already down 13% compared to the kind of peak at the end of the first half of 2022. An outlook for the second half valuation for 2023 is, of course, extremely difficult.
Are we already down in Germany or in our portfolio regarding valuation of this. That would be too optimistic, so it's fair to say that we also expect, for the second half, a valuation loss. Do we expect it in the same magnitude like in the first half. That would be perhaps surprising. But important for us is also a valuation loss in the same amount.
If it would happen, it's absolutely manageable for us. As I said, we are selling assets in Germany, we're selling assets in Poland that helps us to keep the activity stable and that's for us the most important part that we know we can really manage valuation of assets, even if they're larger than expected.
But looking at the overall portfolio metrics now valuation-wise, 5.9% gross yield, €1,100 per square meter. If you look on the right side, that's basically the valuation level like 3 years ago and that makes us optimistic that that's the largest part of valuation losses we have already seen. Clearly, as I said, there's something more that's come in the second half of 2023, but the largest part should already have been done. And that's, of course, also probably a good result.
Looking at Page 19. Quick look on the Polish rental business. So we have now more than 2,200 units in operation at the end of the first half of 2023. Another 1,000 units are under construction. So that means we will have, around the middle of 2024, more than 3,320 units completed in Poland.
And just to remind you, as I explained, the rent in Poland is more than double the average rent in our German portfolio. So that's a rental equivalent -- a rental cash flow equivalent of nearly 7,000 units in Germany. So even with the units that are already finished, units under construction, we will have already a material rental cash flow from Poland. And clearly, the plan is, as you noticed 2 scenarios that we already presented with the Q1 figures, clearly the plan is to grow the portfolio further, but we will clearly do this very moderately, step by step, and clearly do this through the last part, the financing with cash flow that is created within Poland.
So we know that we created continuously surplus from the sales business. We can use this to start the next joint venture Poland project. So the midterm target is the broader portfolio over the next 5 years to around 10,000 units, and that should be a realistic scenario, and that is absolutely achievable, and we also clearly say this without any external equity.
Page 20 shows more details on rental portfolio. As I said, 2,200 units. Finished strong like-for-like rental growth in units, which are under operation for more than 1 year, of around 14%. The vacancy in these units which are for more than 1 year on the market is around 3.7%. Units which are under operation for less than 1 year, the vacancy is at 12.7%.
And please have in mind that the last part of these units are not only finished within the last year, they're finished within the last month. So we had really strong rental results in the last weeks and months, and we are very optimistic that we can reduce this vacant rate now in the
next 3 months quite materially.
And then finally, Page 22, the guidance for financial year 2023. To make it short, all guidance regarding FFO I, FFO II, and also other elements and other figures remain unchanged. So we are on a good way to achieve our guidance, even though, as I said, we have asset disposals. So therefore, we are quite optimistic that 2023 will be the year where we deliver beyond quite good results for you. That's it from my side as an overview for the H1 figures.
Thank you so much for listening. But of course, we are now very happy to answer your questions.
[Operator Instructions] The first question comes from John Wong from Kempen [ph].
On the bridge loan, you highlighted that you expect to repay it by the end of Q3. What hurdles are still [indiscernible]?
Well, the plan is quite simple. We expect closing of a larger disposal in Germany at the end of the third quarter that leads to net cash proceeds of €60 million. So €60 million is then more or less completely used to repay the bridge loan, which is €75 million. So the remaining difference is then simply paid from existing cash. And despite this, yes, clearly, we are also working on further disposals.
Clearly, we continue to refinance bank loans and create additional liquidity, so that the repayment of the bridge loan should be now very visible.
Okay. That's clear. And maybe tying into that, because, if I remember correctly, you previously mentioned that you were going to be a bit more opportunistic with sales when the bridge loan has been repaid. There's still spend behind this now that your LTV has ticked up, that's 7.5%, and also given your comments on valuations for H2.
Yes, perhaps I'd put it like this. We will continue to sell assets, that's clear. But with this, how should I call it, more or less former disposal program is then finished when the bridge loans are paid. So if you remember our announcements around the rights issue last year, we said, well, we want to achieve €250 million of net cash proceeds from disposals in Germany. And putting everything together that we have sold since then, there was already something signed when we did this announcement. We are now at €250 million, and we are able to repay the bridge loan.
So this was that they must do, but it's not the case that we stop our selling. And opportunistic means that we are not so much under pressure, but clearly, in this environment, it makes also sense to continue that, because this is basically the way to create liquidity. This is the way to reduce leverage. So therefore, it did make sense.
That's clear. And just the last one on your dividends. I think your slide still says depending on market conditions and completions of refinancing. Could you perhaps give a bit more color on your thought process regarding this?
Yes. Regarding the refinancing, I would say now let's assume that the final repayment of the bridge loan is done. So that's achieved. If you look at the market today, has that really changed? Is it much easier compared to 7 months ago?
No, it is not the case. Please understand that we will not give any concrete guidance for today. But it's clear, if we or more or still in this difficult market environment, management teams should be careful with liquidity. So therefore, we will really look at that more closely now when we publish the full year guidance for 2024. And you can be sure that we will do nothing that brings us under pressure regarding leverage, regarding liquidity when you think about the dividend.
So we will be here, let's put it this way, clearly more on the conservative side.
The next question comes from Thomas Rothaeusler from Deutsche Bank.
A few questions. The first one is on disposals. As I understand, there was a larger commercial deal in works in the volume you showed for the first half year. If we would concentrate on the residential stuff you sold, what was the disposal yield and the discount to the book value?
Thanks for the question. So to give you some color on the impact of this commercial building, which was by the way our headquarter in Hamburg that we sold. So I cannot disclose the purchase price, but what I can disclose that the net cash proceeds from that, so after repayment of bank loan was around €30 million. So that was the impact of this commercial building. That also led to a book profit because this building was at the partially value-add cost.
And that's how we have to account for it under IFRS because we used it on our own.
If you exclude this commercial transaction in the P&L, then we are again in what we always communicated due to selling roughly 8% to 10% below the book value. And in this case, 8% to 10% below the book value at December, so more or less slightly, very slightly below the book value that we have now in June 2023. And other than that, on the gross yield, I think that had not really an impact. So I have it not in front of me, but I would say the average gross yield shouldn't have changed that much if we exclude the commercial building from the total sales.
The second question is actually on rental growth. I mean some of your peers have shown accelerated rent table momentum, I would say. Is this a trend you can share as well?
You know that predicting rent cap outcomes is extremely difficult. What we think it's actually fair to say that we will see now an environment in Germany where rents are growing. I mean, you know all the reasons for that. So that should be very clear. If you really analyze rental growth in detail and look at our like-for-like rental growth without breakage reduction, without modernization, that stands at 1.6%. That's not too far away from what you see in the peer group.
So therefore, I mean, as in the past, our rental growth is clearly a little bit lower. But on the other side, at the end, the return is the most important factor, and we simply acquired these portfolios at what we think are still reasonable prices, so the cash yielded or achieved should be still very positive. So yes, there is positive momentum. Do we see this then in the next quarter? Is it more something for the next 2 to 3 years?
I recommend that we are here all perhaps as a good patient regarding rental growth. So this momentum that we have in Germany will come into the rents, but nothing that happens within week. That's more something for perhaps a 2-year, 3-year period, but the trend is very clear.
And the third question is actually on Poland and the rental business there and potentially you might further ramp up the business as I understand. Could you provide any update here? I mean, with the business overall performing quite strong, would you turn more upbeat here?
Yes, we're very positive in Poland. I mentioned that the sales numbers have increased strongly compared to last year, by the way, not only in our company or in our operations. If you look at figures, the developers in Poland published, a lot of them also listed the trend as clearly very positive. So that shows us how strong this market is. I mean, you know how other developers in Europe have problems.
Look at the announcements in Germany, and there are some developers that are even going bankrupt. So Poland has really a very strong underlying market and that translates now into higher sales numbers and into a very strong demand for the ranch product. So yes, it could be the case that we start new rental projects in the next month, that we say, once again, very clearly, the liquidity for that needs to be created in Poland.
We create a strong surplus of cash between €50 million and €60 million a year from sales business. We can use that for our next rental project. So yes, of course, we want to grow the rental portfolio in Poland as well as you simply see the strong letting results. And that's the final comment on that. You have seen in the presentation that we have now an occupancy in the projects that have been finished in the course of 2023 of already almost 90%, so within 3 or 4 months, these projects have been rented out.
But strongly, originally, such a development has been expected from us not within 3 to 4 months, more between 6 and 8 months, so that gives us further confidence on how strong the dynamics in the markets are.
I mean what kind of financing options would you have in order to pick up the rental business -- ramp up?
Yes. Yes, we are in, let's say, also concrete discussions with banks and other institutions about mortgage secured financing in Poland, perhaps also in Europe. And that would lead clearly to higher interest rates compared to what we have for a German portfolio. So you've seen that in Germany, we are financing mortgage secured at, let's say, between 4.0% and 4.5%. In Poland that would be perhaps higher, but not that material higher.
The full portfolio in Poland, the full brand portfolio is unencumbered. We have financed that in the past completely by TAG shareholder loans. So as of today, regarding the projects that are already finished, the GAV is around €250 million. If you just assume 50% of GAV, that would already give us financing capacity, to make it simple, of around €125 million. So that would be already something material to start further rental projects.
So that's in combination with the surplus from the disposal business. It's really, I would say, a very visible way how we can grow the rental portfolio in Poland in the next quarters.
Last one actually on bank lending, where you have shown quite a lot of activity. What is the LTV level on average bank supply?
For a new bank loan, the LTV is around 60%. But that's not a really relevant metric we discuss with banks. It was the most relevant metric back 2 years ago or 1.5 years ago. Today, the debt service cover ratio, that's basically the number that limits the new loan amount. And this was 1.5 or 2 years ago absolutely not an issue because interest rates were at 1%.
Now interest rates are above 4%. So when we discuss with the bank a new loan amount, the bank requires certain debt service cover ratio. And then if you translate that into an LTV, we are perhaps at around 60%, which is not that much different compared to financing levels that we achieved in the past. So still financing levels, also other conditions like covenants or margins have not changed that much. Clearly, [indiscernible] rates are higher than 1.5 or 2 years ago.
The next question comes from Manuel Martin from ODDO BHF.
A question on CapEx. Do I understand that all right that CapEx is momentarily a bit elevated due to decarbonization might decrease in H2? However, given decarbonization, is it fair to assume that it would increase in 2024 again. On that, could that have an impact on rental growth, which is a bit subdued, I have the impression.
Clearly, CapEx has increased over the last 2 years, 3 years, and we are now clearly on the path to decarbonize our portfolio. So we're not cutting this in Germany. Perhaps for us, it's an easier decision as best for further as the absolute amounts are still very manageable. So we've been talking about CapEx in total, including your maintenance or capitalized maintenance, perhaps €60 million to €70 million. This goes then more perhaps today to €80 million to €90 million, but still with good financing access from subsidized loans we get here in Germany from the Credit Suisse Bank, for example. So yes, we are investing more.
But again, you should not expect to have a very significant increase. So on a per square meter basis, if you really put everything together, so whether this is maintenance, capitalized maintenance, or modernization CapEx, it's been in the past between €20, €21. Now that's going to €25 per square meter. So 2 bits, 2 main messages. Yes, we're investing more.
We're not cutting CapEx, and that will lead also to more rental growth from modernization in the future. But on the other side, that's not really a very material shift. It's not something that affects our liquidity very materially.
Okay. And second question, I don't know if you can give some details, but the asset swap that didn't take place. Is it possible for you to give us a bit more details why the financing did not happen?
That's unfortunately not really possible for me because this is something that the buyer or contractual party should answer. In the end, we stepped back from this contract. I think we said in the half year report that we still want to sell at least part of this portfolio, perhaps in smaller tranches. It's also not excluded that we have with our contractual party here in this asset swap deal, that's a further agreement, if not any more plans to buy the roughly 700 units in East Germany. We have received a contractual penalty from that.
And let me say that this was not our goal to go for the contractual penalty in such a transaction. But in this environment, you also need to try transactions that are perhaps not plain vanilla.
So the good thing is that we are also able to sell -- despite this asset swap, we have sold more than 750 units in the second quarter. But yes, this environment also requires things that you'll simply try, and from time to time, it doesn't work out. Is this is a big problem? No, not really, because we did not really put this very hard in our business plan as we knew that there's a certain financing risk in this, or has been a certain financing risk in this transaction. And that was also communicated from us when we reported on this sale in the Q1 figures.
[Operator Instructions] The next question comes from Simon Stippig from Warburg Research.
I have a couple in regard to Germany. You showed on the FFO add-back of revaluation, €467 million, that's higher than in the P&L. I know there are a lot of moving parts, but could you explain the figure?
Sorry, that was a bit difficult to understand because the line was not too good. Can you repeat to what figure you are...
Sure. It's the figure -- I think it's Slide 9 on the presentation, the FFO calculation. You add back the valuation result of €467 million in Q2. And that the first from the numbers you're showing in there, and then also in the revaluation, we thought maybe you can reconcile that, that would be great. I know there are moving parts in there, but just to give a bit of a better understanding there.
I assume that this difference -- let me check this after the call and I would come back to you -- relates to Poland. So because this is roughly the valuation difference that we have between Germany and Poland. So this valuation loss that we have in the P&L in total, €455 million, is in fact €417 million roughly valuation loss in Germany and around €15 million valuation gain that we did receive in Poland currently.
Okay. And then one more question in regard to the commercial building you sold, your headquarter here in Hamburg. Can you disclose the buyer? Or if you cannot disclose the name? And can you disclose what kind of buyer it was, if it was a pension fund, a family office, et cetera?
Yes, the buyer was a European institutional fund, not a German fund. I cannot disclose the name, but quite well known, who perhaps knows more in this business than we. I mean, they know that it's a commercial building, it's an office building. In fact, that this is not really our core business. We always owned this property because of smaller parts, larger part is rented out to a smaller part, that's our headquarter.
So perhaps there's some upside. And I had no doubt that this was a very professional buyer. But for us, this was something where it simply makes made sense in this environment a way to create liquidity and also not part of our core business.
Okay. And I assume you have signed a 10-year lease? Just...
Yes. Yes. We will stay here at... That's correct.
Okay. And then another question in regard to the German portfolio. First one would be, you revalued the whole portfolio, I assume the 100%. And then a second one to that, the latest units you disposed of are those -- can you indicate the book value or book loss and then in comparison, of course, to the June balance sheet values?
So the latest transactions that have been done have been slightly below the new book value, but it was not any more in order of the 10% discount, it was tighter. So at 5%. In fact, that's correctly in line below the latest book value. So on average, we sold in the first half of 2023, I would say, around 10% or slightly above that compared to the December book value. If you compare that with the June book values or the new book value, the whole disposal activities have been a little bit not too far away from the latest valuation that gives us also some comfort there.
I mean, as I said, we are not done with the valuations in Germany or in German residential, but looking at the transactions that we did, looking at the portfolio metrics that we have, 5.9% gross yield already, €1,100 per square meter, that makes us optimistic that further devaluation should hopefully be not that material. But no one has the exact crystal ball. So let's see what happens in the next month regarding the valuation gap. Also to say this very clearly, no indication so far from our value.
Okay. And maybe one in regard to the Poland regulation. The government introduced this new regulation in regard to help to buy schemes. And can you -- did you see any impact on the brand side for your assets, not on the development to hold segment, but on development to sell segment?
This impact is very clearly observable. I mean this new regulation now was effective from the 1st of July. It did already affect sales numbers in the first and second quarter, as it was clear that a lot of buyers will come to the market now after this new law is implemented, so that some people that were cash buyers, that were observing the market, they already knew some months back, well, that's now the important time to buy because prices will not come down. On the contrary, prices will go up. This is also, by the way, something that we are doing, and also other developers are doing important, so we're increasing prices, not dramatically, but prices are going up.
So you will see definitely good sales numbers in the second half, perhaps good and strong sales volume. I mean, you know that this is also something that's pure numbers. Number of unit sales, of course, depends on the price that you ask for. So you always need to find the right mix. So to make it short, yes, clearly, this program helps.
Clearly, this is something that will lead to good sales result. And just to remind you, good sales result in 2023 does not necessarily mean that we have it already in the P&L. So we sell the assets, then we can stack them, then we hand them over. So this is then more something, when we sell an asset today, for the result in the P&L in 1.5 years.
The next question comes from Kai Klose from Berenberg.
I was a little bit late to the call, so maybe if the question has been answered, apologies. The first one would be on Page 6, could you indicate a little bit on the letting portfolio in Poland? What number of units you need to have on an annualized basis in the letting to be FFO I positive? Is it fair to assume to get that already for the fiscal year '23 or more in '24?
And the second question would be on Page 27, on the German portfolio. Could you indicate or could you elaborate if there was either some seasonality or CapEx-related reasons that we saw a bit of a shift in vacancy rates for units like Leipzig or locations like Leipzig or [indiscernible] and Chemnitz despite of high amount of CapEx only come down quite slowly.
First of all, regarding your question for the rental portfolio in Poland, the portfolio is now at 2,200 units. As I said, a lot of these units have been finished during the course of the first and second quarter. So now we are really in the process where we start to collect the full rent if the occupancy rate is around already 19%. That has, of course, a positive impact on the FFO I component, and we expect that this number is already positive for the full year 2023, and will then grow thereafter as there are still projects under construction.
So again, we expect an additional 1,000 units to be completed in the next 12 months. So the FFO I from Poland will be quite positive. And yes, there's also seasonality in vacancy rates on our seasonality that depends also on finishing modernization programs and especially in Chemnitz region, which includes Dubin as a large allocation. We have invested quite significantly. You can see -- if you look at Page 27, on the very right column, the CapEx per square meter was the highest in Berlin and the Chemnitz region.
Now we have finished modernization project. So that should then, of course, be a driver for further vacancy reduction in the next month.
So to understand, Chemnitz, including Berlin, most of the work is expected to be completed towards the end of the year, what has been completed in H1.
Clearly, you should not expect that this was a finished amortization program leading to CapEx reduction in the next day, but clearly, then over the next weeks and months, we should see an improvement in your vacancy rate.
Any new regions where you intend to spend more in the future or '24, '25, or let's say '24?
I would say there's not one specific region that we have chosen as a, how should I say, hotspot for our CapEx programs. I mean, looking back in the last 2 to 3 years, if you look at the numbers, we've clearly invested a lot, for example, in our Berlin portfolio, which is a portfolio consisting of locations that [indiscernible] was really a focus of our investment that we see the success already. As I said, the Chemnitz region was that.
In general, the CapEx strategy is unchanged, meaning in regions with higher vacancy rates, we want to invest more. What is now new is that, as I said before, this decarbonization element is come more and more into our CapEx strategy and that could also then lead or will lead to the fact that in a portfolio where the vacancy rates are already very low, we're still investing or we are investing because we need to get the portfolio to climate neutrality. And perhaps also in such regions, there is investment needed to do this.
The next question comes from Marios Pastou from Societe Generale.
Just 2 remaining questions from my side. Just firstly, a bit of a follow-up on the Poland residential for rent business. You mentioned your expectation is for a positive FFO I contribution in the second half of the year as lettings have been ahead of your expectations. What are your expectations for that FFO I contribution in full year '23?
Marios, it was a bit hard to understand for me. But yes, we are expecting a better FFO I contribution from Poland in the second half as now the portfolio to the very largest part, the pink units, the very largest part are rented out, and this clearly leads to higher rents and a better earnings contribution.
Okay. And any absolute number you can provide on that business for the full year '23?
Yes, we're not guiding in absolute numbers as of today, but we will publish the full year guidance for 2024 with the next earnings call. And here we also will give more details on the development in Poland for the sales business and also clearly for the rental business.
Okay. Very clear. And then just secondly, on bank financing. I think you mentioned you did €150 million over the first half. Can you give us any guidance over additional secured financing you have under discussion?
And also any discussions you're already having to cover next year's bank refinancing or extensions of those bank facilities?
That's indeed the main focus that we have today in our financing department. So doing the refinancings that are due in 2024 already in the, let's say, next month. And doing that, as in the past quarters, we clearly expect also an additional cash inflow because the clear target is not only to obtain a further extension of the bank loan, so another 5, 7 or 10 years. These bank loans that are due today or are due next year have been amortized over the past perhaps 7 or 10 years old. Value has grown definitely compared to 7 to 10 years ago.
So if we then lever it up to the LTV that I mentioned of around 60%, that really then creates additional cash inflow. I cannot comment today on how much that is. But that's the clear focus now that we take already the maturities or a large part of maturities from 2024 now in the next weeks and months.
Okay. Very clear. And then just finally from my side, can you give us a bit more details of this transaction penalty that was applied to the sale transaction or this asset swap deal in terms of the magnitude? And has that already been received in the half year numbers? Or is that a period end amount?
Well, first of all, it's not in the numbers. I mean, we stepped back from the contract in July. So the contractual penalty is now due in August. I cannot comment on the magnitude of this contractual penalty. Please be aware it's more than just something symbolic.
So it is material. But again, as I said, our target was clearly not to go for a contractual penalty. The target was to close the deal. That did not happen, but it's not, I should say, the drama for us, that we've been able to sell other assets.
The next question comes from Felipe Seo Heung [ph] from Barclays.
Martin, I've got 2 questions here for you. I think the first one would be related to modernization CapEx. So you're spending money on modernization that was €36 million going into AFFO. And yet there was no contribution of modernization in your 1.6% like-for-like rental growth. So how do you explain that?
I understand part of it is linked to decarbonization. So can you still confirm that you're getting a return out of that modernization CapEx?
And my second question, a follow-up to what Marios asked. The penalty, can you confirm that it's not going into your FFO number for the full year?
First of all, not all of our CapEx is going to apartments where we have existing tenants, because only such transactions qualify for the modernization surcharge. But it doesn't mean there is a capital without return. To the contrary, when we put CapEx into apartments or apartment blocks where we have vacant apartments. So this is then clearly something that leads to the possibility of letting this apartment out, which provides normally much stronger returns, and then you see the success in vacancy reduction.
But it's not something that happens the next day. So you are doing the modernization, you invest, you have increased CapEx, and then afterwards, on one side, and this is a smaller part, you have the possibility to raise rent for existing tenant, and that translates into modernization surcharge and rental growth that has been shown as rental growth from modernization. And on the other side, modernization of vacant apartment is then shown in rental growth from vacancy reduction.
So if you want, the rental growth from vacancy reduction has also a modernization element as long as it refers to modernization of vacant apartment.
Can I push back on that because you're still spending -- you have spent money on modernization CapEx in the past. So you should see some kind of contribution in your like-for-like as of now.
Yes. But as I said, vacancy reductions are also seasonal from quarter-to-quarter. I mean, if you look at the full year 2022, we had a strong vacancy reduction, and this was also then an outcome of modernization projects in the past. So I'm not sure how to say, it's a concern that now we are investing in the vacancy reduction is not happening anymore. So please be a little bit patient and let's see how the next months develop in the overall financial year 2023.
And I think that's how one should look at it, not so much from quarter-to-quarter, more on a longer period. So year-on-year, you will see that we are spending CapEx and we achieve vacancy reduction.
Can you address the penalty on the asset swap?
Yes. So again, I cannot disclose the amount of the penalty. It will not flow into FFO I, but definitely will flow into FFO II as this is part of the sales business.
So it will go into FFO II?
Yes, because it's part of the sales activities.
There are no further questions at this time. I hand back to Mr. Thiel for closing comments.