TAG Immobilien AG (TEG) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the publication of the Annual Report 2023 Conference Call. I'm Moritz, the chorus call operator. [Operator Instructions] At this time, it's my pleasure to hand over to Martin Thiel, CFO. Please go ahead, sir.

Yes. Many thanks and good morning, all. This is Martin from TEG. Many thanks for dialing in into our Full-Year 2023 Conference Call. As always, I will try to give you a short presentation, point out the main messages from our side and then afterwards, of course, we have plenty of time to discuss the results. So let's start with Page #4, which is a comprehensive summary from our point of view, main messages we want to give you today. Firstly, we have achieved our FFO I guidance. So, FFO I came out basically exactly in the middle of the guidance range at around EUR 172 million. This corresponds to a reduction of 9% year-on-year, but this reduction is purely due to higher financing costs. So, analyzing this a little bit more in detail, the EBITDA for the operational results was even better than in the previous year. On the one side of Germany, a little bit lower EBITDA due to disposals that we had not only in 2023 but also in 2022. But the Polish EBITDA from the rental business kicked in now stronger. So, therefore, operationally, in terms of EBITDA, we've been better than in the previous year. But also the German portfolio performed quite well. Just to give some highlights, the vacancy rate in the residential units was down to 4.0%, so down by 50 basis points in the course of the year and we achieved a total like-for-like rental growth in Germany of 2.3%. Secondly, we have outbeat our FFO II guidance due to a very strong sales result in Poland. So, FFO II came out at EUR 255.6 million. This is even more than last year, so 3% increase year-on-year and also quite significantly above the guidance that we have given, which was between EUR 240 million to EUR 246 million. The EBITDA from our sales business in Poland reached more than EUR 100 million. And the adjusted net income from this Polish sales business came out at EUR 82.8 million compared to EUR 59.3 million in the previous year, so a quite strong increase in our sales result in Poland and even a little bit better than we expected. So, Poland in general performed very well. You see this in the third point of the slide. The rental portfolio in Poland comprises in the meanwhile at year-end 2023, 2,400 finished units, so units under operation. Further, 1,400 units are under construction. Like-for-like rental growth was still at 11%, which is from our point of view very strong. And the vacancy rate for the units, which were in operation for more than one year was down to a very low 2.2%. Plus even more impressive was the sales result from our point of view. We sold in Poland nearly 3,600 units last year. And looking at the total sales volume, that increased to nearly EUR 480 million in 2023 compared to EUR 265 million in the financial year 2022. So, a very strong increase not only in sales numbers, but also in sales prices. I will come back to that a little bit later in more detail. Of course, very interesting in this results call is, for sure, the valuation result. So, we recorded another valuation loss of 4.1% in the second half. But this valuation loss was already much lower than the loss that we have recorded in first half, which was 7.4%. So, we clearly see that valuation losses are slowing down, that we are reaching perhaps the bottom of the valuation levels in Germany. We have recorded in the last 18 months already 16% of devaluation. In absolute amounts, that's EUR 1.1 billion. So, therefore, we've done already a lot and therefore, we expect not really material valuation losses in the course of 2024. But I will come back to this also a little bit later. Disposals in Germany were quite successful in 2023. So, nearly 1,400 units sold, total sales volume of more than EUR 213 million and net cash proceeds, so that means after repayment of respective bank loans of nearly EUR 190 million. The average gross yield of the units sold in Germany stood at 4.3%. And despite the quite significant valuation losses we recorded in the course of 2023 and as point #5, and I think this is also a very important point for today, the LTV was stable. So, we started in the year with 46.7%. At year-end 2023, came out at 47.0%. And we think this is definitely a good message. So, we were able to keep the leverage stable with the measures that we have taken. So on one side, the good operational business, clearly strong sales results in Poland, but also the successful disposals in Germany helped in this regard. And also the dividend suspension in financial year 2023 was something that helped us in keeping the LTV at that level. Looking forward, I think we are not too far away from our LTV target. We will also discuss this on the following slide. Also important to mention, net debt to EBITDA and the ICR stand at strong 9.3x and 6.0x, so also the cash numbers when we look at leverage metrics are in very good shape. Coming to the next slide. I mean, we have discussed already some of the main numbers. I won't go through it in details, but just pointing at the FFO per share metrics. FFO I came out as guided at EUR 0.98 per share. And FFO II -- and this is something I want to highlight, came out at EUR 1. 46. So if you compare this EUR 1.46 with yesterday's closing price for the shares, which were around EUR 12.30, it's a 12% FFO II yield. And this is something we want to point out again. So, please also look at FFO II when analyzing our results because FFO II also includes a recurring business, recurring earnings, which is coming from our sales business in Poland. So this is, in the meanwhile, and has also been in last year an important part of our sales result and our overall results. Coming to Slide #6. I just want to show you, if you look at the column with the fourth quarter results that as expected, this was very strong in Poland. You know that this has a seasonality to sales business. So, we are recognizing the profit in the P&L on the very last day, meaning when we hand over the apartments to our customers, and this is to the very large part, always in the fourth quarter of a year. So in the fourth quarter of 2023, we had revenues from sale of properties in Poland of EUR 296 million. And the adjusted net income from Poland was EUR 54.8 million, so EUR 82.8 million the full year. And out of that, material EUR 54.8 million alone in the fourth quarter. We have handed over 2,300 units in Poland. So as expected, this quarter was very strong for the sales result. Going a little bit more into the details, I want to continue on Page #9 that shows the EBITDA, FFO and AFFO calculation. I already mentioned that the EBITDA increased year-on-year by nearly EUR 3 million. So the decline in FFO I of 9% was completely due to higher financing costs. But perhaps you've already seen our guidance for the next year. We expect a stable FFO I in 2024. And why is that? This negative impact from higher interest cost that we had in 2023 will not be that strong in the course of 2024, because we have repaid a lot of debt and we have especially repaid the bridge loan from the ROBYG financing, from the ROBYG acquisition in the course of financial year 2023. So this was, of course, for us a quite strong relief for our earnings and our financing cost. And therefore, FFO I in 2024, which I think in this environment is already a success, will be stable. The AFFO was reduced by EUR 17 million. This is absolutely in line with the FFO I reduction. So, that means the total CapEx that we spent in financial year 2023 was nearly unchanged compared to the previous year. Page #10 shows the EPRA NTA calculation. We saw a reduction of the EPRA NTA by 12%. But this was purely the result of the portfolio devaluation. You see this here in the chart, or on the slide on the right side, that a bit more than EUR 4 per share was the impact from the portfolio valuation in the business itself. So the net profit that we achieved contributed to EUR 1.7 per share to the NTA. Page #11 shows the financing structure. And I want to mention 2 things. First of all, when we look at financings that are maturing in the course of 2024, 2025, and you see this on the slide, the average interest cost of these maturing financings are still at around 3% in 2024, 2.8% in 2025. So that means if you're going for refinancing today with our banks, we are perhaps at around 4% or even lower in these days for a new bank loan. Yes, we will have higher interest costs afterwards, but the step up that we see is not that material. So, we can digest refinancing in these days in a world with high interest rates because the loans that we are currently refinancing already have a coupon, which is in a range where the difference to the new coupon is not that huge. So, therefore, we expect, as already said for 2024 and also as a small outlook for 2025, not too much pressure coming from the interested side on our results. And one word on our LTV target. As I said, we are quite proud that we managed to keep the LTV stable at 47%, which would be already good result. The LTV target stands at 45%. And we're not too far away. And what do I mean by saying this? We know that from our ongoing business, so from the cash that we generate from the German business as well as from the Polish business, especially from Polish sales business, we've got a natural deleveraging. If we keep it in the balance sheet, and that's what we propose again to our shareholder, not to pay dividend, but to keep the cash in the balance sheet, then we are, as a result or as an impact from this operational result, already at our LTV target or perhaps even slightly lower. And then, of course, it depends on the valuation result in 2024, if we see then an adverse impact. But on the other side, we will also continue to sell assets in Germany. It's clear that the official program has ended, so that we have completed the EUR 250 million sales program in the course of 2023. And the purpose of this program was to repay the ROBYG bridge financing. So, this is done. But that does not mean that we stop selling assets in Germany. So, we can be sure that we are also active on this market. So, therefore, I think it's reasonable that we will also have some disposals in Germany in the course of 2024. And this helps us then to keep the LTV or to move the LTV perhaps quite soon towards the LTV target. This is perhaps also something that you should take away for today. Coming to Page #13. I already mentioned that we saw an increase in the like-for-like rental growth when it comes to what we call basis like-for-like rental growth. So, that means the rent increases from existing tenants, from tenant turnover and from the monetization surcharge, so that was 1.8% compared to 1.5%. Including the impact from vacancy reduction, we were at 2.3%. That's a little bit lower than the previous year, where the impact from vacancy reduction because of higher vacancy rates at that time that we could reduce was a little bit higher. Top right of Slide #13 shows you our total investment, so that's maintenance and CapEx together. So, we have not reduced our investments in the last 2 years. So, we are at around EUR 25 per square meter, which we are spending currently, which breaks down into roughly EUR 7 per square meter maintenance and EUR 17 per square meter CapEx. So it means we continue to invest in our portfolio. We are especially continuing to invest in monetization projects for more energy efficiency. So this is clear, something that we have on the agenda and we will continue to do this. Page #14 shows the vacancy rate development. As already expected from our side, we saw a very strong fourth quarter with a reduction of 60 basis points from September to 4.0%. So overall, that's a 50 basis point reduction year-on-year, even a little bit better than expected. And that shows us that also in our secondary locations, the demand for affordable housing in Germany continues to be very strong. Page #15 shows the portfolio valuation. And this is, of course, an important slide. First of all, I always said we have developed the portfolio in the last 18 months by around 16%. I think that should be quite in line with valuations that other peers have already done. If you look at the valuation metrics, we are now at a gross yield of 6.3% and a price per square meter at EUR 1,060. The 6.3% gross yield, that's a gross yield, if we look at the chart that we already had some years back. So we are, valuation-wise, looking at a gross yield now back at the levels of 2018, and that gives us really comfort. So, 6.3% gross yield in this interest environment where a potential investor is financing an acquisition with a bank loan at 4% or even lower, that clearly creates a positive cash flow. And therefore, we are very optimistic that we are reaching a kind of bottom regarding valuations. Yes, it's true, we expect some further valuation declines in the course of 2024. Honestly, a little bit rounded number of 20% total valuation decline from peak to trough is from our point of view still valid. So, overall, in the course of 2024, we will see from our expectation as of today, quite strongly reduced valuation result in terms of lower valuation losses in 2024. And that's good news because that helps us, of course, to work on our leverage. I already mentioned some ideas or some potential developments on our LTV. So, we are clearly now more on the way that leverage is coming down as we see valuation declines bottoming out. Let's look a bit more into Poland on Page #17. You see the portfolio data for rental portfolio. And as I said, the rental growth was quite strong, so year-on-year 11%, like-for-like rental growth. And the vacancy rate was down at 2.2%. Looking at the in-place yields. At a valuation gross yield, that stands at 5.9%. We are convinced that we will here see also further improvements in the coming years. So, therefore, the investment idea of our rental business in Poland is still valid. We're building such portfolios at a 7% to 8% gross yield. We achieve a good like-for-like -- strong like-for-like rental growth and we will also see valuation improvements. Now, we are already below 6%, and we are quite optimistic that this number will go down, so that we will see further valuation improvements in Poland in the following years. Page #18 shows the development of the Polish rental business in terms of number of units. And important is to say that we started new investments. So, we are growing here again in Poland. For quite a time, we stopped new rental projects as, first of all, refinancing was more important. But now, as we have a lot of liquidity in the balance sheet, especially in Poland, we are growing again. So the first projects have already started in the fourth quarter of 2023, 430 units. These are 2 projects, one in Gdansk and one in Wroclaw. Further, potentially 1,000 units or more to be constructed will start in the course of 2024. So, we are growing again in Poland. We have the possibility to invest on one side from the cash flow, from a cash surplus that we achieve as sales business, which is between EUR 50 million and EUR 60 million EPRA per year. And secondly -- and that's also a message we want to highlight today from refinancing the existing rental portfolio. So, we have just signed the first mortgage, secured larger refinancing of our rental portfolio in Poland with a loan of EUR 90 million. And this is something that, of course, then gives us additional liquidity to build new rental projects. And further refinancing for the rental portfolio we follow, we have financed these rental portfolios in the first step with TEG shareholder loans. Now, we're doing step by step refinancing, releasing cash that we can use for further investments. So, therefore, the important use is we are growing the rental portfolio in Poland again. Page #19 gives more insights into the sales result. As I already mentioned, we have strongly increased the number of units sold in Poland, 3,600 units in 2023 compared to 2,400 in the previous year. But also important to say it was not only increase in number of units, also sales prices in Poland increased quite significantly. So, we saw sales prices increases in the market and in our portfolio between 15% and 20%. And if you look at the slide and compare the fourth quarter of 2023 with the fourth quarter of 2022, you will realize in both quarters we've sold roughly the same number of units. So, 715 at the end of 2022, 709 at the end of 2023. And if you look at the sales volume, that was EUR 110 million in the fourth quarter of 2023 compared to EUR 76 million one year ago. So, that shows that based on the roughly same number of units, as sales prices have increased quite strongly, the sales volume is increasing really materially. Page 20 shows you the revenue recognition as I already said at the beginning, not unusual, always the fourth quarter in our business in Poland is the strongest quarter as here the apartments are handed over. But, again, please have in mind this is something which has purely a P&L impact. The cash flow already starts earlier because when we sell an apartment, then from that point in time, the customer pays the purchase price via installments. And a final comment on Page #22, which shows the guidance for financial year 2024. We leave all the guidances unchanged. So, we are guiding for a stable FFO I in 2024 in a range of EUR 170 million to EUR 174 million. We're guiding for roughly 9% reduction in FFO II, which is coming from an expected lower Polish sales result. But please have in mind, this is an outcome or reflection as already described in the last earnings call from lower sales numbers in Poland in 2022, which will lead to lower handovers in 2024. So, that means the strong sales numbers from 2023 will then contribute to the results 2 years later when the constructions are finished in 2025. So therefore, it's a one-time reduction in our sales result. Stronger results will follow from 2025 onwards. And one final comment on the dividend here. The proposal to the AGM will be unchanged as already communicated with the Q3 results last year. We are proposing to our shareholders to suspend dividend once again. And on a potential dividend for the financial year 2024, we will decide or make a proposal, or give guidance more towards the end of the year. And this is depending on market conditions. And I mean, clearly, we see that now devaluations are bottoming. I think there should also be some signs on the horizon that transaction markets could be better in the course of the year. So these are all good signs, but let's wait for that in a first step, and then decide on a dividend more towards the end of the year. For now, we feel comfortable that we keep the cash in the balance sheet. It's on the one side for leveraging. And on the second side, and this is again, important, we use this cash to grow the portfolio in Poland, which from our side gives our shareholders an attractive opportunity to grow in a fast-growing market. That's it from my side with the highlights for the full-year 2023. And thank you so far for your listening. And, of course, now I'm happy to take your questions.

[Operator Instructions] And the first question comes from John Vuong from Kempen.

You mentioned that you expect that you get to a targeted 45% LTV through retained earnings. Additionally, you also are looking at disposals in Germany, I suppose at a bit more of an opportunistic pace. Taking this all together, what would you say that is a reasonable LTV to target by year-end?

Yes. Well, if I continue my quite simple calculation, as I said, we have the natural deleveraging process from the ongoing results. We keep the cash in the balance sheet because we're not paying a dividend. So, this alone brings us already below the LTV target, so below 45%. Then, of course, it depends on any valuation results that you pencil in into the model. Let's stay with the 20% total value decline from peak to trough for a moment. So, another 4% value decline in the course of 2024. Please don't take this as an explicit guidance. But just to give you a range where we would expect the valuation result, then we would need disposal in Germany, which are roughly half the size of 2023. So, net cash proceeds of around EUR 100 million to be at a 45% LTV. That's something that we have in our head. So, I think it's a good chance that in the course of 2024, we get to the LTV target or very close to that.

That's very clear. And on the disposals, are there any ongoing negotiations? Or is this based on your feel that the investment market is opening up?

Yes. We are always on the market with portfolios and unchanged with smaller portfolios. And it's really difficult to predict further developments in investment market. But at the moment, our perception is more people are positive on that for reasons that are understandable. So, all the companies have devalued their portfolios. So, that means perhaps a new price level is possible for transactions at the new book value. Interest rates are really now visible, coming down, although this slightly inflation is coming down. So for quite a while, we are now in an environment where all the factors that you need to put in a model are more and more clear. So, that's a positive. But let's see how this develops. If you ask me, do we see already really material data points in the market? I mean, everyone will give you this answer, no, this is not the case. But let's be optimistic for 2024. And we are reactive on the disposal market. I already mentioned that, yes, we have completed our disposal program, but clearly we will continue to sell, but perhaps a little bit more in opportunistic basis. Yes, it's not necessary for the purpose of any refinancings to sell at any price. So, we can be a little bit more opportunistic/disciplined.

Okay. That's very clear. Then moving on to Poland. How do you see like-for-like rental growth there? Because looking at Slide 36, the growth on new stock is low single digits or even negative for Wroclaw. Were your assets in that specific city on the operation for more than a year are already close to market rents?

Yes. We would not be surprised if you see, in 2024, a slowing down of the like-for-like rental growth, should be very natural. We have seen extreme strong rental growth in the last 2 years. So 20% in 2022, more than 10% in 2023. So, I mean, we know that the pre the war in the Ukraine, we had like-for-like rental growth in this market segment, new constructed apartments in the largest cities in Poland, which was perhaps 3% to 5% per annum. That should be also a reasonable mid-term rate at least assuming that also inflation is coming down in Poland. So therefore, we don't see this as a negative if after so strong years, the rental growth is perhaps stabilizing and we're absolutely convinced that mid to long term we will see here in Poland because the demand is so strong, a really good and attractive rental growth over time.

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

I have 3 of them, and I suggest you take it one by one. Firstly, most important question for me is, is your capital allocation policy. I understand that you still have a cautious stance given the high uncertainties we still have. But on the other hand, you're talking about a stabilization of prices potentially this year, stable financing cost, ongoing rental growth, 12% FFO to yield of your stock. So, I was wondering what are the key criteria for you to at least start to repay dividends? Or is also a share buyback something you potentially might consider given your valuation currently?

Yes. Thomas, I try to explain how we think about cash flows in a company. On one side, we've got the Polish cash flow, which is producing a cash surplus from the sales business of EUR 50 million to EUR 60 million. So as discussed, we use this as equity for new rental projects in Poland. And on top of that is coming some financing, for example, from refinancing of existing portfolios or perhaps currently also financing for apartments under construction. So, that enables us really step by step based on cash flows that we create on our own to grow the rental portfolio in Poland. And we think that makes sense to continue that also an interest of our shareholders because this really creates attractive returns. And on the second side, clearly, we have the cash flow from the German business, the FFO of roughly EUR 170 million. I mean, in previous years, with a payout ratio of 75% of FFO, that's the cash that we keep currently in the balance sheet, which is a total amount of EUR 120 million to EUR 130 million. And what's the situation right now? I mean, we have unsecured debt that is coming due, not in large sizes this year. So it's, for example, EUR 60 million promissory note, but we think in the current environment, it's simply better to keep the cash from the German business in the balance sheet, take this cash, repay such unsecured debt and continue by doing this. If we are in an environment where transaction markets are more open, where it's not a big issue to sell a portfolio for EUR 50 million, EUR 60 million, where a private placement of a promissory note of EUR 50 million, EUR 60 million works again or where we can do a private placement of a bond of perhaps EUR 100 million. So, we're not dreaming of the old world where everything was for free. Yes, that's already in other environment. So then we can also be more, how should I say it, generous also with our cash flows in Germany and say, okay, the ongoing refinancing, that's not an issue. We don't need to be conservative here anymore. So then we have the cash in the balance sheet to pay a dividend again. The signs are good for 2024. But as we said in the last call, we will wait with any comments on that until we'll give the guidance for the next year, which is then in November this year again.

Understood. My second question is on Page 34 in the presentation. You mentioned that you are growing the Polish portfolio. However, if I compare 2023 figures to the figures you stated in the 9 months report, it seems to me that the build-to-hold portfolio declined by almost 10% in terms of SQM and also in terms of potential units in operation or under construction or possible future units. Did you shift the part of that portfolio to build-to-sell portfolio? Or were there any other changes compared to 9 months figures?

Yes. That's quite regularly happening. So we, of course, overthink about our pipeline, okay, which landbanks or potential future units are build-to-sell, build-to-rent. We are quite flexible in this regard, which is good. At the moment, the sales business is running very well. So, therefore, it's absolutely important to have the landbank in place to be ready for the strong demand that we see in the market. So therefore, we shift in between the 2 segments. But we clearly have earmarked also a landbank for the build-to-hold business. We can also tell you that we will continue to invest in new landbank. So for the build-to-hold business as well as for the build-to-sell business, so we have, of course, enough to sell for the next 2 years or 3 years. But in this business, you already today need to look into potential sales in 3 years. So, you need to acquire something that you can then develop, where you can then get the zoning, get the building permits and so on and to sell it in 2 years or 3 years. So that's a continuous process.

And my last question is, if you can give us indication what your spot financing costs for secured and unsecured lending, let's say, for 7 years to 10 years financing currently would be if you talk to the banks?

Well, for secured financing, we know this very well. So for German secured financing, that make the difference. I would say for 7 years to 10 years, we're perhaps at 120 basis points, 130 basis points. And depending on the portfolio, we can also give you now more indications for a Polish portfolio as we are now in the first refinancing processes. And we have also, to some extent already completed that. Here the margins are more in the region of around 200 basis points. And when it comes to unsecured financing, it's extremely difficult for us to predict because we have not really outstanding corporate bonds trading. So, there's just EUR 125 million corporate bond, which is listed, but that was a private placement held by one investor. So, therefore, we have not really exact curve where we can derive from our financing costs.

Next question comes from Thomas Rothaeusler from Deutsche Bank AG.

A few questions. The first is on mortgage lending overall. I mean, considering some of the German mortgage banks currently in trouble, do you sense any limitations with regards to access to mortgage lending or did you see any deterioration of financing terms there? I think you just referred to 200 basis point spreads for mortgage funding.

Yes. Again, this 200 basis points, this is mortgage financing in Poland.

Sorry. Okay. Maybe you can provide us the terms for Germany.

Sorry, it was a bit hard and difficult to understand. But just to make this once again clear, so 200 basis points spread, that's for Poland, so Polish portfolio. In Germany, margins have not really increased over the last 2 years, perhaps slightly. I gave this indication 120 basis points, 130 basis points, which is very much comparable to margins that we had 2 years ago. Clearly, [ mids are oppressed ] and meanwhile higher. And then your question regarding willingness to finance, this willingness to finance is from our observation really still there. And even with one of the banks, without mentioning any name that has been in the press, we just completed a refinancing some weeks back. So if it comes to a situation that we have then currently, so a portfolio or a bank loan is maturing, the financing that we had in the books for 7 years or 10 years, we have amortized the bank loan. The development of the portfolio was good. Then asking the bank if the bank is willing to refinance a portfolio, the answer is a very clear, yes. And we are also, of course, always approaching other banks. So the willingness to finance is absolutely there. I think there's one factor, which is perhaps new for some investors, whereas 2 years back we discussed with banks when it comes to the loan amount LTVs. Today, the much more important figure is clearly the debt service cover ratio. And that's more limiting the bank loan. But in our portfolio, as you know, we have high-yielding properties. So therefore, all in all, we get at least the old loan amount. And perhaps you've seen in the past presentations that we are not only able to renew the existing loan amount, we've also been able to increase the bank loan afterwards because we have the high yielding properties, we have a good debt service cover ratio. This is perhaps for some portfolios in the lower-yielding segment different. So therefore -- but in this segment, the increase in loan is not that much possible compared to our portfolio.

Okay. Actually on that background, just wondering, I mean, how would you assess the need to get back to investment grade credit rating level? How important is it for you? And by when to get the access back there maybe? And maybe how could a path look like for you to get back to investment grade level?

Yes. Perhaps 2 comments on that. First of all, the good thing is, if we look at our numbers, we are already on investment grade level. I mean, you know that we are still investment grade at S&P, so BBB minus, but with a negative outlook. So that still needs a target to get it back to a stable outlook. And at Moody's, we are at Ba1, so non-investment grade with a stable outlook. And here, clearly, the target is to get back to investment grade. If you look at the numbers again, LTV, net debt to EBITDA, ICR, and if you compare that with other real estate companies on the same rating level, I mean, we are better or with higher rated companies, we are at least on that level. So, it's not something where we are now under pressure to reduce the LTV or to improve the net debt to EBITDA, that's already there. I think the difficult situation in these days is also for rating agency and I think also this is getting better. Uncertainty around valuations, around transaction market, I mean, you know, all of this. So, a rating agency clearly wants to get more comfort at that. And I hope that we're very close to that. And then a positive rating actually should follow. So, I mean, of course, it's not up to me to guide to any rating actions, but we are definitely optimistic that we see here good developments in the course of 2024. And then as a second comment on that, investment grade rating is, of course, something that we want to keep or to achieve in the sense of Moody's, but we don't need for any refinancing processes in the course of this year or next year. So getting back investment grade rating from both agencies, getting also back the possibility to issue, for example, corporate bond, that would, of course enable, us in the future possibilities for further growth. But it's not necessary for refinancing. I think this is already a good situation in today's world.

Okay. And the last question is actually on your FFO. You made aware of the higher relevance of FFO II for your business. Just wondering what your thoughts are on reporting a group FFO, maybe as one of your peers does?

Sorry, Thomas, it was little bit hard to understand for me. Can you repeat the question?

It's like on your FFO, you highlighted the relevance of FFO II in your business. I mean, just wondering what your thoughts are on reporting a group FFO, including the FFO II?

Yes. I know that there are companies including that in one figure. For now, we prefer to clearly show the 2 different income streams that we have, rental business on the one side and then the sales business on the other side. And the thing that I wanted to point out also in this presentation is, yes, these are 2 different income streams but we have 2 different income streams. From time to time, reading some reports wherein people look at TEG's FFO I yield and only looking at FFO I yields, it's also important really to have in mind we have a second income stream, which is recurring, which is the Polish sales business, which then feeds into our FFO II. We prefer to have that separate because then it's more clear. But the point is more to make clear, this income stream is there and it's recurring.

And the next question comes from Kai Klose from Berenberg.

Yes. I've got 3 quick questions, if I may. The first one is on Page 17. You mentioned that you took up a EUR 90 million loan for the Polish portfolio if I understood that correctly. Could you indicate which portfolio was given as collateral from your side? Second question would be on the valuation uplift. You pointed out there on EUR 13.7 million for Poland. Just to understand, is this a like-for-like number? Or is it -- or not? So is it comparable to the German portfolio? And the last question would be on Page 9 regarding the cash taxes. I know it's a small number, but it went up from, I think EUR 0.5 million for '22 to EUR 2.2 million or EUR 2.5 million for '23. So not a small increase, but could you explain what caused the rise?

And thanks for [ facilitating] the questions on the Polish rental portfolio. First of all, the refinancing, we provided the investor with mortgages on projects in Wroclaw in Poland. And these were projects that were already finished. And then that was the start of the refinancing. As I said, we are also in negotiations with other banks regarding further refinancing. And in these negotiations, it's not only about already finished projects or already stabilized projects. We're also talking with banks about financing the construction process. And the portfolio, the fair value uplift, this 5% increase refers to the full portfolio. If you compare this 5% valuation uplift with indications or with the numbers that we stated for the total sales market, where we said the price increase was 15% to 20%, you can ask the question, why is that lower? By what we observed in our relations in Poland, once we have finished the apartments, it's not on day one that we get the full valuation uplift, basically to the market yield. So the valuers are here, let's say, a little bit more conservative. They really want to see that the units are rented out, that are for a longer time on the market, that we have really a stabilized and growing rental cash flow. And then valuation uplifts will come. So, I think there's a good chance that we see more valuation uplifts in the course of 2024. And your third question regarding the tax increase, I would say the tax expense for 2022 was perhaps ordinary low. 2023, we are on a more normalized level that we're guiding also another slight increase by another EUR 2 or EUR 3 million for 2024. So, that should be more a normalized level that we had in 2023, that we expect in 2024, but nothing special behind it.

Just a very quick follow-up, if I may. Regarding taking up financing in Poland, you mentioned the spreads for taking up collaterals -- for taking up debt in Poland, is there a material difference between a collateralized portfolio as a kind of rental portfolio and the debts you took up now, which I don't know debt [indiscernible] or will finally partially finance your construction activities?

Sorry. Can you repeat the last part of the question, Kai?

The question was, the EUR 90 million you took up if I understand correctly is also partly to be used for construction activities. So it's not only on the rental portfolio. Is this...

No. Sorry, let me make this more clear. This EUR 90 million was completely for finished units. And we are in discussion with banks also for financing the construction work. And I think this is the background of a question what is the margin there? That could be slightly higher, but we're not talking about something completely different. Just to give you a rough estimate, perhaps we go more towards the 230 basis points, 240 basis points margin. So it's not a completely different burden. Perhaps we can communicate something here in the course of 2024 already.

And the next question comes from Simon Stippig from Warburg Research.

Can you hear me well?

Yes, Simon.

Perfect. And also my first question is in regard to the mortgage. You constructed with banks in Poland, the amount of EUR 90 million. In the last conference call, if I recall correctly, you mentioned EUR 140 million. And now you also said that you're in constructive talks and negotiations with banks to increase that amount. I just wonder, is that amount of EUR 140 million still valid or is it lower or is it higher? And then also I wonder that it closed in March only and we talked about it in November. Is there any reason why it took so long? And also here, the LTV on the EUR 90 million on the portfolio then would be only at 36%. So, is that then something you take into consideration as valid LTV for the portfolio? Or is it rather that you are in these discussions, and you want to increase your LTV to EUR 140 million?

Yes. Simon, this EUR 140 million is still valid. I think perhaps we will come out even a little bit higher at this EUR 90 million that's not on the total rental portfolio. So, we have not put a mortgage on every single asset. It's a part of the portfolio that we've refinanced. And the LTV was even slightly above 50% that we achieved. So when I remember guiding in the third quarter, we had a portfolio of around EUR 280 million, and we said, well, 50% LTV, that leads to EUR 140 million of bank loans. So, this number is still valid. And we're confident that we get even more bank loans on that. So, this is unchanged. And it even looks a little bit better than we originally assumed. Then the question, why does it take so long? It's similar to Germany. I mean, bank loans or mortgage secured financing takes some time. Banks are asking a lot of questions also regarding energy efficiency, collecting a lot of data in the end and that's important. The outcome is still very positive. So, it takes a month to get the financing then finally done, but we finally made it. And this is also something that will happen in the course of 2024 again. So, yes, we need to be patient in this type of financing, but still the outcome, the terms are very attractive.

Great. And I can look it up, but the WIBOR, what was your all-in cost combined with the WIBOR for this EUR 90 million total, yes?

Yes. This is a financing in euro. So it's not a zloty-based loan. It's a fixed rate 5-year loan in euro.

Okay. And your all-in cost?

That's slightly below 5%.

Okay. Great. And then I wonder, your shareholder loan into Poland, how high is that now in total?

Before the refinance or any potential repayments from this loan, we are at around EUR 300 million. So basically, we have a EUR 300 million rental portfolio finally constructed or under operation, and that was financed by TEG shareholder loan though, simplifying a little bit, but this was the reason for the shareholder loan and we are now refinancing that step by step.

Okay. And of the EUR 90 million, will you return something into Germany? Or will you keep it in Poland to construct? I know you talked about the growth, but maybe there is more you have a tap or an additional mortgage on another portfolio, potentially of EUR 50 million to EUR 60 million. And then you keep these EUR 50 million to EUR 60 million in Poland, or you bring the EUR 90 million now back to Germany or the full amount?

No, it's very clear, we want to grow the portfolio in Poland again. And in Germany, we've got a good liquidity position in the meanwhile. So therefore -- so let's see how this develops over time. And you know, when I talked about repayment of shareholder loans, there's always a tax impact on that how we do this. But looking from the cash flow perspective or when you ask us where should the money be invested? It's a clear task now to grow the portfolio in Poland again.

Okay. Great. And maybe just one more in regard to refinancing. I know that in 2024 and 2025, step up is lower and I think it's very manageable. But if I look into 2026, then there's this convertible EUR 470 million and the coupon is just 63 basis points. What's your approach? Or do you have look into it a little bit and you have a plan to refinance it maybe also reduce the whole potential refinancing amount of EUR 470 million? Some additional insight into your planning there would be very helpful.

Yes. This EUR 470 million convertible bond is indeed the last major financing we have ahead of us, and it's already good news. So if you look in the maturity profile, everything else is mortgage secured financing in Germany where we've just discussed this. We have broad access and get even higher loan amounts afterwards, smaller promissory notes, one privately placed corporate bond, smaller bonds in Poland. That's it. So the EUR 470 million is the only material maturity. Second good news is, it's still 2.5 years to go. And as I said, the coupon is really low, so it's 0.625%. So it makes sense to use this a little bit more. It's also clear we will not wait until the very last date with refinancing that convertible bond. I mean, the strike price is at EUR 32 or EUR 33. So, we need to take into account that we need to repay it. But that's perhaps more something for, I would say, for the next year. Let's see. We just discussed our potential path back to investment grade rating. Then we have also more financing opportunities. But even if this not happens, I mean, we have just proven in the last 18 months that we have repaid nearly EUR 1 billion of unsecured debt, if necessary, with the help of disposals and so on. So, I'm not concerned about this maturity, it's more a question of how is this most efficiently done.

Just maybe one last one in regard to your Supervisory Board changes. I know it's the Supervisory Board, but could you also comment on the need for this?

Yes. There was one background which was, if you want a little bit more coming from the formal side. Many institutional investors as well as proxy advisors require that the share of women in Supervisory Board is more than 30%, not only in the total Supervisory Board where we fulfill this already, but also for shareholder representatives. And if you look at the shareholder representatives in the current Supervisory Board, we have a share of women of 25%. So therefore, we were very happy that Philipp Wagner, one of our Supervisory Board Members for more than 10 years, said, okay, I'm offering my resignation to next AGM that you can replace my seat with a woman. So, this was one argument. And then, I mean, Supervisory Board run the process and the outcome was that we identified or Supervisory Board identified Gabriela Gryger as a new member of the Supervisory Board. And she's not only a woman, she's really an expert in the Polish residential market. And she's been, for example, on the ROBYG Supervisory Board for some years. She's already as an advisor, active in the Polish real estate market. And that's also from our point of view a helpful competence in the Supervisory Board to get even more knowledge than today in the Supervisory Board. So, this was then basically the second reason for that change.

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

2 questions from my side, please. One question would be regarding the devaluations. So, we have seen a clear deceleration in the devaluation momentum. Could you give us some color maybe on a regional split? Or how these property devaluations evolved? Or was it across the board? Maybe you can give us some words on that, please?

Yes. Manuel, it's not really fair to say that you see extreme different developments. So it's, in general, really across the portfolio. What we realize a little bit, and that would be good news for us, that the more high-yielding properties are perhaps more and more less hit by devaluations. I mentioned that during the presentation. I mean, we have already now a gross yield in the portfolio of 6.3%, take on account perhaps another slight valuation decline in 2024. We are at 6.5% or even higher. That's already a very reasonable gross yield if you finance such potential acquisitions with bank loans up 4%. So, therefore, slightly more positive development in the higher-yielding segment, I would say.

Okay. I see. And on the way how the evaluation was done, maybe you can give us a bit of flavor there? Because I can imagine that there were not a lot of data points in the market when it comes to transactions. So how was the valuation concluded?

Yes. But that was not much different compared to the last 2 or 3 evaluations. I mean, the transaction market is quite muted now for quite a while. So this was nothing new. And what also gives us comfort, if you look in transactions that we've done in the course of 2023, penciling in a further just slight valuation decline 2024, then we are really very, very close or at levels where we've sold assets where we see some liquidity. And that should also be a good proof that we are really now reaching to the bottom already.

Okay. My second question would be regarding rental growth. Can you give us some sense maybe on what you are feeling or what you are seeing or anticipating in terms of rent tables to come and how could this affect the rental growth in Germany, especially in your portfolio? Because for the time being, the rental growth in the TEG portfolio seems to be a bit slower than versus peers. Maybe you can give us some light there.

Yes. If you look in the guidance that we've given, which is also in Annual Report and was already in the Q3 figures, you see that we are already indicating a higher like-for-like rental growth. So an increase by 30 basis points, 40 basis points, which is then, to the very largest part, coming from rent increases, for example, for existing tenants. So, that means we're assuming and we're seeing that, that rents are increasing on back of higher [ niche peers ] or simply higher re-letting rents that we can achieve. So, yes, clearly we see this trend also in our markets. And then if you do a comparison within the peer group, again, it's always important to analyze that really in detail, you know that we have not this huge modernization programs, at least not in the size that some peers have. So, therefore, the rental growth from modernization is very naturally lower, but we are also spending less. And secondly, we are also not including any new construction apartment in that rental growth figure. So, therefore, if you look at the pure like-for-like rental growth without any impacts from these 2 elements, the difference is not that huge.

Okay. And for the rental tables, any view on that? What do you think about that?

Yes. As I said, we expect a higher rental growth, so that is increasing. And that also means that rent tables that come out and you know that we have not 2 or 3 very important rent tables that determine the whole rental growth of the group as the portfolio is quite diversified. But from the outcoming rent tables, we clearly expect a stronger increase compared to previous years.

And the next question comes from Markus Schmitt from ODDO BHF.

Yes. I have a couple. First of all, on valuation, you said some weeks ago, I think in an interview with Reuters that valuation could decline up to 30% from peak. So from today's perspective, you'd rather see again the 20% decline when I understood that right. Maybe you could clarify this again. And then I have a couple of others.

Yes. Markus, thanks for asking this question. I did not change my view, but 30% value decline that was just Reuters' headline, which was honestly very misleading because that's not what I said. So also in this interview, if you look then in the interview or in other quotes, I already indicated towards the 20% and that's basically unchanged. And please take away the message that we've seen by far the highest part of devaluations already. And what I said in this interview is that, of course, a balance sheet, and in this context I referred to financial covenants, also need to be ready for anything that goes towards 30%. So, what I simply wanted to say that our covenants are really so comfortable that we could digest even higher key valuations, but we are not expecting that again. So, therefore, this headline in Reuters interview was unfortunately very misleading. There's no change in our view.

Yes. I think everybody focused on the headlines there more than maybe the text itself. And I think you had a slide in your deck where you said you have material headroom in terms of covenants. So, this is good to know now. Then again on disposal proceeds in 2024. I was a bit late to the call. I understood you aim for EUR 100 million net proceeds this year. Is that right, or is that wrong?

Yes. That's correct. And again, we have not -- an official disposal program like before where we exactly promised, that was the formal program. But if you ask us what is a reasonable amount that we expect in the course of 2024, and also something that could then fit into our target to bring the LTV back towards our LTV target of 45%, then EUR 100 million of net cash is the right number.

Okay. Then in the meantime, maybe a bit more positive question maybe from me. I mean, in terms of rental growth in Germany and given the scarcity of supply, how would you see the structural rental growth evolving here as part of your valuation model? Is this in your appraisals now a component, which is more positive for the valuation? At least I did not see any changes to the market rent parameters as part of your valuation in the Annual Report. Maybe a word how you see long-term rental growth changing here? This would be also helpful.

Yes. This would definitely help. And also with this number, it's not the case that a valuer changes from one day to another his long-term assumptions. But it's very clear that we see stronger rental growth in Germany in 2024, 2025 than in the past. I mean, you know, all this headlines about new constructed apartment numbers going down again. Germany seeing still immigration and so on and so on. And then also this will kick into the valuation. So, this will be a positive for valuation. So once we are in a stable interest rate environment where we perhaps already are, and it's not necessary interest rates are going down to get further valuation results. Also then the operational performance will help us to grow the value. So, I mean, I'm not guiding for that in 2024, but that's quite quickly thereafter, we can see value increases simply on the back of better operational performance.

So medium term, I think is maybe the right phrase here. Okay. And then 2 questions left. One is on funding. And I think you said that certain troubled lenders provide funding to TEG. So, could you just explain again how are refinancing discussions ongoing generally with bank debt providers now, and if you see more anxiety and if extension discussions have become more difficult? And secondly, how are your discussions with the promissory note lenders for the smaller refinancing in 2024 and the larger refi in 2025 with that one investor? And any concerns on your side that this could become a challenge? Or are you relaxed for the time being?

No, we have no concerns because, for example, for the promissory notes and also if necessary for next year for the corporate bond, we will repay this. So, I mean, at a certain price, you can, of course, do everything. But we don't think that given our current rating situation, this is really an attractive source of financing for us. So whether this is with the help from disposals or also as in the past with new bank financings, I mean, we will simply -- we repaid it. That's our base assumption, and that's definitely not a concern. And when it comes to bank lending, the willingness of giving us new bank loans is, I would say, absolutely unchanged. So, I commented a little bit earlier in the call, yes, the processes take longer, banks are collecting more data, especially when it comes to energy efficiency of the portfolio that's in the meanwhile an important part of their financing process. But I cannot remember any situation in the last 2 years since we had this changed interest rate environment where we had problems in getting financing for a portfolio. And as I also said before, really helpful for us is that we have a portfolio that is higher-yielding portfolio. So, that means that cash metrics, especially the debt service cover ratio always looks good, and that enables us to get really still significant bank loan amounts. And this is, of course, for us a good situation.

Just in this respect, could you say what's the unencumbered asset position is right now? I could not find it in the documents.

We have unencumbered assets in total of around EUR 1.3 billion to EUR 1.4 billion. And the largest part of that is our Polish portfolio. But also in Germany, we have encumbered assets left.

Okay. Good. And finally, on the rating, I mean, you said or spoke of a pass back to IG. So has the rating agency signaled to you that you would likely receive an IG rating again? I mean, you have one at S&P with a negative outlook and one with Moody's. If you achieve the company-defined LTV below 45%, would this be enough for both agencies? Or would there be more required to get to the stable, clear IG rating for both agencies?

First of all, a rating agency would never say, well, it's very likely that you get back to a certain rating stage, so they more talking between the lines. And between the lines, the signs that we or the signals that we receive are clearly positive. And that's what I already said some minutes back. Important is the LTV is already where it should be for investment grade rating. The net debt to EBITDA is already on that level. The ICR is already there. So number-wise, we're already there. Liquidity is not an issue. Refinancings are done. I mean, we've proven that the Polish business is running well. You know more. It's more a debate about the overall environment in Germany. But I think also now with the release of the full-year figures of all German residential companies, there should be more positive sentiment in the market that we have now really reached, valuation-wise, a kind of bottom. And this is, of course, then something which is positive from a view of a rating agency.

So, both agencies have an issue a little bit with the Polish business as a development business. I think that is what I read in the past. Still this is the reason why they don't want to provide higher ratings because you said number-wise, you are both -- you are there with both agencies, basically, but something is keeping them away, obviously. I mean, the sentiment is obviously not the best that is understood and they will be cautious on this side. But you said, okay, if that sentiment -- I want to rephrase, you said sentiment will improve a little in 2024. So, nothing could stop you from receiving higher ratings. Is this what you -- is this a base case for you then?

Yes. Basically, yes. And let me just to make that clearer, as of today, there's not really a concern about our Polish business. That was different in the course of 2022. I mean, remember the time when interest rate picked up, where we saw, for example, amongst German developers, all the sales numbers going more close to 0. And of course, was also then something where rating agencies looked at and asked us, well, is this happening in Poland as well? It did not happen. So the Polish market really turned out to be very resilient. Also in 2022 even on a lower number clearly, but people bought apartments. So the market was always there. We saw the strong increase in 2023. So in the meanwhile, I think both rating agencies see this as something positive.

In the meantime, I mean, I read that wording sometimes still partly developing business TEG, and I think that is what they take on the negative side. But obviously, the performance there is quite strong. So maybe they can be convinced at one point that it's not a headwind really and then you will get your higher ratings. That is how I think about it maybe. But let's see. It was very helpful for me. Yes.

And the next question comes from Stephanie Dossmann from Jefferies.

Actually, most of them have been answered earlier. But coming back on disposals in Germany, could you give us a bit more color on what kind of discount to appraisal values or at what kind of gross yield you achieve those? And how confident are you going forward? Who are the buyers? I remember that half of the transaction market in recent years was driven by listed players. So, I was wondering about the profile of the buyers. And maybe a second question on your housing development business in Poland. What kind of -- because you said prices were up 15% to 20% currently. But what is your expectations going forward on prices, development and margins, please?

Stephanie, perhaps I start with the second question about expectation for price increases of disposals or apartment sales in Poland. I think in our business plan, we have a price increase between 3% and 4%. As of today, this looks rather conservative because what happens in the market in Poland, more apartments are sold in each quarter than new apartments are coming to the market. So, that clearly leads then to increasing prices. Many developers, and also we are not so much concentrating on the numbers of unit sale. We're concentrating more on optimizing prices. If the number of units sold is a little bit lower, that's not an issue as long as you can increase the prices. Perhaps the sales volume is higher. So therefore, our business plan assumption of 3% to 4% should be definitely achieved. Perhaps we see even more. And then commenting on the German transaction market, as in the past, we don't see one specific buyer group that we want to point out. And when I remember or look at into our disposals in the last 18 months in this first disposal program, it was really a group of buyers, really different kind of buyers, from a municipal housing company to a family office, to a private equity company, to companies who are doing privatization business. And I would say each of these buyers have then identified for him a certain price level where I said, okay, that makes already sense. And according to my business plan, I can achieve a reasonable return. And again, when I look in our portfolio valuation, I simply can confirm this, 6.3% gross yield, that's already a very reasonable valuation level. The assets that we sold were at a lower gross yield. So, we had a gross yield on average, which was around 4.3%, I think. And that's also a success, yes. Selling in this interest rate environment at such levels is not easy. But again, the transaction market is not completely dry. So, you can do transactions. I mean, the large deals are clearly missing. But for us in our size, if we sell here, EUR 20 million, EUR 30 million a quarter or whatever, that really nicely adds up to amount that really helps us, for example, in our target of reducing the LTV further.

So maybe just to follow up on the 4.3%, could you give us some color on the breakdown by cities or what was the bulk of it?

I mean, there was one transaction also public because the buyer had a press release that was in the, let's say, wider Berlin commuter belt portfolio, so that should be, I should say, typical transaction that we did. But also, I mean, in fact, that's also a mix, yes. We also sold some non-core assets to a more local buyer. So, again, it was not one special asset type, not one special buyer group. You really need to look into every potential pocket in these days. And then again, it's not completely dry. We are still doing transactions. We're still doing transaction in sizes that are enough for us. So, we can -- we'll continue in this environment. But of course, it would be great if the transaction markets opens more a little bit. We can do even more than in the last month.

And I know 30% is not your case, your base case for valuation decline peak to trough. And I understand that it was rather a question of prepare your balance sheet just in case. But what could be the worst case? I mean, what could be the drivers to see more devaluation going forward, I mean, more than 20% peak to trough?

First of all, again, we don't expect this and we talk about potential worst case scenarios, we don't expect. It will definitely not come from the operational side and not from the fact that we have too many apartments in Germany. This will be definitely supportive. And again, I mean, we had just this discussion some minutes back. This will then lead this growing mismatch between supply and demand on one side to growing values. And then it's very simple, okay, a massive increase in interest rates. I mean, clearly, this isn't something which is not helpful for valuations. But is this a realistic scenario? We don't have this as a base case.

And the next question comes from Daniela Lungu from First Sentier Investors.

Yes. I have a follow-up on what you mentioned about bank lending and what the banks are doing in terms of collecting more data, especially energy-related. I thought that was quite an interesting comment, and I wonder whether you would be able to give us a little bit more color on that, in particular, as to what I would be interested in. Do they have a specific threshold, for example, in terms of energy rating, where they wouldn't even consider providing lending? Do they make some adjustments in terms of CapEx required to bring some portfolios to an energy rating that would be sufficient for them to provide lending? Are they considering different interest rates depending on the energy? Again, efficiency of portfolio. I mean, any color that you could provide in terms of that due diligence, call it, related to the energy rating that the banks are presumably doing would be great.

Yes. And, of course, happy to do so. First of all, I cannot really comment on any situations where one needs to refinance a portfolio with very low energy efficiency classes because we simply, in fact, do not really have them in the portfolio. Perhaps you maybe remember that less than 3%, or perhaps even less than 2% of our portfolio is located in the 2 lowest energy efficiency classes, and nearly 2/3 is located on the 3 highest energy efficiency classes, A to C. So, I cannot really comment whether there are financing issues in these situations. But what I can comment on is that, basically, banks are requiring more and more strategy also for their portfolio that they're financing, how energy efficiency is improved. You cannot see this in a sense of that they give us hard covenants, but they clearly expect a plan from us. And we say, okay, in the next 10 years, so for the next duration of the loan, we want to invest a certain amount because this is also in line with our general [ decarbonization ] plan. And that's of course, something the banks are very interested in. This is a development that started, I would say, versus 2 years or 3 years ago, and now it's more and more in place because they need to demonstrate towards the regulator and towards their shareholders that they are improving their credit loan book and they want to have simply a path and a confirmed path from our side. But this is not really a burden for us because we are anyway investing in a portfolio to reduce CO2 emissions. And this is completely in line with the bank expectations. But this is something which is newer in this stage compared to 2 years or 3 years ago.

So it seems there are no further questions at this time. So, I would hand back to Martin Thiel for any closing remarks.

Yes. Many thanks all for this call, and many thanks for the questions. If there's anything left, so please feel free to contact Dominique from our IR department or myself. Many thanks for listening to the call. Hope to see you soon, perhaps on our roadshows or upcoming conferences, or then at the latest in our next conference call. Have a good day and bye-bye.

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