TAG Immobilien AG (OTCPK:TAGOF) Q1 2024 Earnings Conference Call May 14, 2024 4:00 AM ET
Company Participants
Martin Thiel – Co-Chief Executive Officer and Chief Financial Officer
Conference Call Participants
John Vuong – Van Lanschot Kempen
Marios Pastou – Bernstein
Andres Toome – Greene Street
Stephanie Dossmann – Jefferies
Céline Soo-Huynh – Barclays
Kai Klose – Berenberg
Thomas Neuhold – Kepler Cheuvreux
Manuel Martin – Oddo BHF
Simon Stippig – Warburg Research
Martin Thiel
Gentlemen thanks and good morning all. Many thanks for adding into our Conference Call for the Q1 2024 Results. As always, I will try to give you a brief overview about our results and latest development and after that we, of course, have a lot of time for Q&A. So let’s start on Page number 4, which is the summary slides, where we want to show you the highlights from our point of view most important developments in the first quarter. Firstly, FFO I increased year-on-year by 5%, so we came out at an FFO I of €44.6 million in comparison to the previous year, that’s around €2 million more or 5% increase year-on-year. We think a good development that we can grow our rent results even in this quite elevated interest rate environment.
German portfolio showed quite solid performance like-for-like rental growth, including the impact from vacancy changes was 2.4%, so a little bit more than in full year 2023. Vacancy rate slightly up by 20 basis points, but we know this now for many years, that the first quarter in terms of vacancy reduction is always a little bit weaker, so 20 basis points up, but if you compare that with one year ago, so March 2023, where vacancy rate was 4.7, you clearly see the positive trend. Looking to Poland, quite strong sales result in Poland. So we handed over more than 800 units in the first quarter of 2024. And also on the sales side, the quarter was quite strong. So in terms of units it was a little bit less than in the previous quarter, so we sold 636 units. For example, in the previous quarter it was 709 units and in the quarter one year ago 972, but as prices have increased in Poland very strongly, so we see currently a year-on-year increase of around 20%, the sales volume. So the cumulative sales prices were at €118 million, so more than in the previous quarter and even more than in the first quarter one year ago due to this strong increase in sales prices.
Rent business in Poland was also very strong. Like-for-like rent growth is still above 10%, 10.1% exactly. If you look at the vacancy rate of the portfolio, the rental portfolio in Poland, which now comprises 2,600 units, it was at 9.8% compared to 7.2% at year end 2023, but don’t be confused about this increase in vacancy rate. This was purely driven by new apartments that came into operations as well at the end of 2023 and additionally in the first quarter of 2024. So looking at apartments that are in operation for a longer time, so at least more than one year, the vacancy rate is 2.6%, so just a temporary impact from new apartments coming into operation. Looking at disposals in Germany, we had basically after the balance sheet date, quite strong disposals, at least in our sizes, so we sold from January to May 2024, 780 apartments in Germany. The total sales prices are above €67 million and we expect net cash proceeds. So after repayment of respective bank loans of nearly €16 million, the average gross yields of the units that we sold was 5.3%. And you should expect the closing of these disposals mostly at the end of the second quarter this year perhaps a little part at the third quarter 2024.
The LTV was reduced in the first quarter by 140 basis points. So we are now almost at our LTV target, so a quite strong reduction from 47% here in 2023 now to 45.6%. And this was purely driven by the high cash generation that we had, especially in the Polish sales business. So any impact from disposals will come after the balance sheet date. So therefore it was, from our point of view, a very successful quarter in terms of deleveraging. And if you look at the cash metrics, which have been always quite strong in our company, they improved further. So net debt to EBITDA is now at around 8.7x and the ICR is still at 6.7x. So that’s quite a good value if you compare it within the sector.
On Page 5 you will find further highlights on the German business. I don’t want to get much into details, just a quick note on Page number 6 where you find more KPIs on the Polish portfolio. We have changed our presentation a little bit and have here a more clear separation into the rental business and the sales business. And we also included additional figures regarding the sales business. So we are disclosing, you see this on the bottom right for the first time, an NTA for the sales business, also a net debt for the sales business.
And if you look in the appendix on Pages 22 and 32, you find also some additional information on the sales business, which is perhaps helpful in understanding this business. So for example, in the appendix we show also historical sales results, EBITDA, perhaps this is something which is helpful for you in understanding the business and its perhaps future development a bit more.
Let’s go to Page Number 8, where we show the development of the EBITDA, FFO and AFFO. Also the EBITDA development was quite positive. We saw an increase quarter-on-quarter if we compared it with the fourth quarter, 2023 by €7 million. The fourth quarter of 2023 was, when it comes to the German business, a little bit weaker as we had some higher maintenance and also some receivable write-off. The Polish rental business is contributing quite stable EBITDA already at €3.2 million in this quarter, and you should expect increasing EBITDA contribution from the Polish rental business in the following quarters as this business is growing. I will come back to that in a second.
Quarter-on-quarter FFO I increased by €5.5 million. So, this is clearly an outcome of the good EBITDA development. We had even a little bit better financial cash result, which seems to be surprising. But please remember that last year we still had at least a part of the bridge loan from the ROBYG acquisition on the balance sheet, so therefore we are now benefiting from a little bit lower financial costs than in the previous year.
Let’s come to Page Number 10, and I was already referring a little bit to financing costs. If you look at the average cost of debt that we have, which is also shown on the slide, it is still at 2.2%. If you compare that with the average cost of debt, end of last quarter is the same number; if you compare it with the average cost of debt one year ago, it’s nearly the same number. So I think at that time it was around 2.1%. So that means in this interest rate environment, we are able, let’s say at least to limit the increase in average financing cost.
And if you look at maturing debt, you see this on bottom left of the page, the average coupons of the financial debt that is maturing in the course of 2024 stands at 2.97%. Average cost of debt, of financial debt that is maturing next year stands at 2.8%.
Looking at current financing conditions, for example, for new mortgage secured bank loans in Germany, it’s around 4%. For a Polish mortgage debt, it’s perhaps more around 5%. So that means yes, we will see an increase in our average cost of debt, but not that materially. So we are really able to keep this in balance.
As I said, LTV has been reduced quite strongly. Financial ratios like ICR and net debt to EBITDA are in strong shape and we are very happy that this was also seen by S&P. Perhaps you have noticed that S&P confirmed some weeks ago the BBB- investment rate rating and changed the outlook from formerly negative now to stable. And we can also tell you that we are in discussions with our second rating agency with Moody’s, where we are still non investment grade rating at Ba1 and stable outlook. So it may be extremely difficult to predict any outcome here, but we are very confident that we here also on a good way.
Looking at LTV development going forward, of course, important will be any further valuation declines in the coming quarter. We have not yet received any results from the half year valuation, which is understandable because we are still in May. But we think and that’s unchanged compared to what we said with the full year figures, that the vast majority of any portfolio devaluations should be behind us. So we have already developed our German portfolio by around 16%. Perhaps some more percentage points in a low single-digit number will follow in the course of 2024. We can’t give you an exact guidance as this more in the first half or is anything additional to come in the second half, but that we perhaps still are within the total 20% as a rough ballpark number, total devolution that seems for us very clear.
We see this on the transaction market when we compare current valuation levels to our sales prices. We see this also by simply looking into our current portfolio metrics. The portfolio in Germany already stands at a gross head of 6.3% and a value per square meter of only €1,060. So therefore, we are quite confident that we will not have any major negative impact from further deparations from the German portfolio. And when it comes to the Polish portfolio, which is, of course, smaller but here, we have the opposite. So here, we should expect a clear positive trend when it comes to valuations in the next quarters.
The Page Number 12 and Page Number 13 shows that the development in operating terms of the German portfolio. I already mentioned that we are in a total like-for-like rental growth of 2.4%, slightly above what we have achieved last year. And Page Number 13 shows the vacancy development. You see when you look at the first quarter of 2024 and compare it with the first quarter of 2023 or 2022, always a small increase of 20 basis points. So we expect a similar development like in the previous years, a slight increase in the first quarter, perhaps stable towards the second quarter and then in the third and fourth quarter, we should see a development that clearly is a vacancy reduction for the full year.
Looking a little bit more into Poland. And now on Page Number 15 of the presentation. We again saw a quite strong like-for-like rental growth year-on-year of more than 10%. We expect that in the course of 2024, rents will stabilize a little bit more, which is understandable after the very strong increase that we had in the last two years. So if you remember, we saw in the market and also in our portfolio 20% like-for-like rent growth in 2022, around 10% in 2023.
So rents were up by almost 30%. So therefore, we would be not surprised if the like-for-like rental growth is coming down in the course of 2024 that rents are stabilizing on a very high level. But looking forward, we are still very much continuously will see a good and sustainable like-for-like rental growth in the Polish portfolio. Perhaps on a more, how should I say, sustainable numbers of something around 4%, 5% like-for-like rental growth as we have seen before the war in the Ukraine started before inflation picked up. That should be a very natural number for us.
I already mentioned, don’t be confused about the higher vacancy rates of 9.8%. This is due to new apartments that came into operations in which the vacancy rate for units and operations for more than one year is already down at 2.6% as of March 2024.
Page Number 16 shows the development of the Polish build-to-hold portfolio, the brand portfolio and the message we want to send out here is clearly that we are investing again. For quite a while, so for nearly 1.5 years, we stopped investments in new construction stages as refinancing was the first priority. This is now done. So we are constructing again the 1,200 units under construction currently and further 900 units in preparation and in preparation means that construction is going to start very shortly. The midterm target is unchanged. We want to get to 10,000 residential units by year-end 2028, which will be then – at the latest then a quite meaningful portfolio for us.
On Page Number 17, Page Number 18 is our views about our sales results and the revenue recognition in Poland. I already mentioned that prices were up quite strongly, 20% year-on-year that we had in terms of the total sales volumes for quarter with €118 million. And just to give you an impression about the strong cash inflow of the total sales business. The net financial debt in our Polish sales business is currently even negative. So we have currently more cash in the balance sheet than debt. This is simply a result of the strong inflow from customer prepayments from sales results that we had in the past quarter as this business is running very well.
And finally, on Page Number 20, some words about the guidance for financial year 2024. First of all, all the guidances are confirmed and unchanged. If you look at the run rate for FFO I, we are even simply much applied but for slightly above the guidance. So that looks very much achievable. Of course, interesting is the dividend we simply ask here for some more patience. So we will look at that clearly in the course of the next quarters, and we will come back to you at the latest with the Q3 results when we publish the new guidance for 2025. This will be, as always, in November of this year.
Clearly, we see here market conditions improving. So we see that’s fair to say, some more interest on the transaction market. We also see still good financing conditions with our banks, perhaps slightly improving financing condition on the unsecured side. So this all looks good, but I mean, we have achieved now a lot in terms of deleveraging. We have really delevered our company toward LTV – very close to the LTV target. So therefore, we think it’s worth waiting a little bit with this decision a little bit more. But we will clearly come back to that not too late.
That’s it from my side as an overview of the first quarter 2024. Again, we think quite successful in terms of operational development with growing results in rental and in sales business, and also successful in terms of deleveraging, as we are now with our LTV, very close to the LTV target and as a third, that key message, we starting to invest and to grow the rental portfolio in Poland again, which would be, when looking at the future, very important for future results.
So many things so far, and we are, of course, very happy to take your questions.
Question-and-Answer Session
Operator
We will now begin the question-and-answer session. (Operator Instructions) Our first question comes from the line of John Vuong, Van Lanschot Kempen. Please go ahead.
John Vuong
Hi, good morning, Martin. Thank you for taking my questions. If I remember correctly, last quarter you said you aim for €100 million of sales in Germany, or net proceeds, if you will. You’re already now over half. Is this €100 million still the right target or is it a bit on the conservative side?
Martin Thiel
Yes. Good morning, John. You’re right. As a kind of internal target, we have the €100 million net cash proceeds. And just to remind you, what was the reason for that? If you assume a further devaluation of around 4%, something like that, in the course of 2024, to get to a total devaluation of 20% with the help of the dividend suspension and the help of this €100 million net cash proceeds would be exactly our LTV target of 45%.
And if you achieve a little bit more, yes, of course, you would take it, looking into the sales results until May with €60 million, it’s right. It looks as if this one, I mean is at least achievable. So perhaps we’re able to sell even a little bit more.
John Vuong
Okay. That’s clear. Now maybe moving on to the Polish sales business, the units sold has slowed down compared to Q4, as well as Q1 last year. But from my understanding, the sales guidance hasn’t changed and that still remains at least 3,000 units. Could you highlight what the drivers were for this weaker Q1? And what gives you comfort that this guidance is still attainable?
Martin Thiel
Yes. First of all, talking about that, perhaps it’s better to give us sales guidance in terms of sales volume than in purely units number. But we’re still confident that we achieved the given guidance. And why do we say this? I mean, we are clearly now optimizing prices. By the way, not only U.S., also other developers are doing this. And so we are increasing prices.
As I said, we increase prices and this is true for the whole market by 20%. So selling a little bit lower number of units is perhaps the right strategy when you get then higher prices and maximize your sales volumes or the cumulative sales prices at the moment. And in Poland, the challenge in the sales market is not the demand side. This is very strong.
The challenge is for us and other developers to get enough product to the market to get the building permissions in time, to get the zoning in time. I mean, Poland, this regard is clearly much better than Germany, but also how should I say it, a little bit more bureaucratic than perhaps one or two years back. So that’s simply the background. We are maximizing prices. So don’t put perhaps too much into the slightly reduced number of sales to sales volume is perhaps the more important figure.
John Vuong
All right, so to understand correctly, essentially the units are going to be a bit lower for the rest of the year, but because of higher sales price, the turnover is going to be higher compared to last year.
Martin Thiel
Yes. First of all, again, we’re not changing our sales guidance of the 3,000 units, so it should still be a good estimate. What is then perhaps better than some months back when we published the guidance is the development of the sales prices. So when we assumed sales prices for 2024, in 2023, we were not expecting that demand is that strong. So we are positively surprised that this increase in sales price continues. And as you know, an apartment that we sell today in 2024 and when the construction for this project starts will be the sales revenue then 18 months later. So what we sell today basically feeds the P&L result 18 months later. But of course, the cash is already there. And this is also the reason why we have this strong liquidity position in our sales business in Poland.
John Vuong
Okay, that’s very clear. Thank you. That’s it from my side.
Operator
Our next question comes from the line of Marios Pastou with Bernstein. Please go ahead.
Marios Pastou
Hi, good morning. Thank you for taking my questions. Just firstly, on the 780 apartments that have been sold year-to-date, I think you’ve mentioned pricing on the first wave that happened in the first quarter. I just wanted to check if you’re able to comment on pricing versus book value for the remainder or for the total amount sold. And then just secondly, on the CapEx, on Slide 12, I see it scaled back to 2021 levels on an annualized basis in Germany. Again, just trying to think how we should think about this for the year as a whole. Thank you.
Martin Thiel
Yes. Good morning, Marios. To answer your question, also for the full disposal, so until May 2024, the development was very similar. So perhaps slightly below book value, but to the latest book value, to the December book value, but not really a huge difference. And when it comes to the development of CapEx, you should not read too much into reduced CapEx spending per square meter in the first quarter of 2024. Also, CapEx has a kind of seasonality more driven by the question which projects are under construction or in place. So for the full year, we expect a similar level like 2023. So more €17 per square meter compared to €13 that we have realized in the first quarter.
Marios Pastou
Very clear. Thank you. And just to follow-up to the apartments sold, are you able to comment on the buyer groups for the units?
Martin Thiel
Yes, we, of course, are. And unchanged to what we’ve seen in the last, say, two years. The buyer group is really mixed. So when I look at buyers in the last 12, 18 months, including the buyers that we had now in the recent transaction, there was not really a change. So a little bit of everything. So a kind of buyer that you can put into a family office camp, also private equity buyer, the more local buyer. So we’re still hesitating to say there’s one specific buyer group who’s buying it at the moment. What is true is that it’s more buyers who use a little bit more equity than others. And also as an additional buyer group, companies that do a privatization business or perhaps a little bit more on the market.
Marios Pastou
Perfect. Thank you very much.
Operator
The next question comes from the line of Andres Toome, Greene Street. Please go ahead.
Andres Toome
Hi, good morning. So my first question is around your FFO, which seems to be coming in quite strongly in the first quarter. And in terms of the growth rate that you’re seeing year-over-year, I was wondering, as it’s sort of running quite a bit ahead of the full year guided pace, is there anything here to do with the timing of costs? Or would you say that the full year guidance is perhaps rather conservative at this point?
Martin Thiel
Yes. Good morning, Andres. Perhaps the fair answer is that both is true. So when we look at the guidance as of now, that should be, how should I say it, absolutely achievable. Also, honestly, in the first quarter, we had a little bit less maintenance than in the previous quarters, which is then again, a kind of seasonality. But despite the disposals that we have done in Germany and still ongoing growth of our portfolio in Poland, yes, we are very confident that the FFO I for 2024 should be in a good way.
Andres Toome
Understood. And then my second question was just around, like-for-like rental growth. As you’re sort of seeing (indiscernible) prints coming out in your markets, would you say these are rather stable or could there be some sort of upside to current like-for-like, rental income pace?
Martin Thiel
So there should be clear upside. And if you look at the guidance for total like-for-like rental growth, and we are at 2.3% to 2.7%, and most of that increase compared to the previous year is coming from what we call basic like-for-like rent growth. So that means rental growth for (indiscernible) where we expect that this year is, if we really look only at that component, perhaps some 40 basis points better than 2023. So clearly we see that trends are picking up.
Andres Toome
Thank you. That’s it from end.
Operator
The next question comes from the line of Stephanie Dossmann with Jefferies. Please go ahead.
Stephanie Dossmann
Yes, hello. Most of my questions have been answered. Maybe a follow-up on the housing sales business in Poland. What kind of – what level of operating margin do you target in this business going forward? I understand that prices are very strong, so.
Martin Thiel
Yes. Good morning, Stephanie. So when it comes to the states business, we are still confident that we are quite close to the 30% gross margins. As you said, sales prices have increased quite strongly. Now we see a little bit more construction costs picking up, but on a moderate level. What is picking up quite strongly is land prices. I mean, we’re not the only one who has detected that the Polish sales market is very strong, so more and more companies are buying land again. Here, our advantage is that we still own a very sizable land bank, as you see in our publication. So it should be one of the largest land banks in Poland, which is clearly an advantage.
But also we need to buy land, because then that you buy today is perhaps something that is going into revenues in three or four years. So this will be on the cost side, the more challenging factor, land prices, whereas on the demand side, we still see a very good development. When it comes then to the rents, it’s still unchanged that we stay in the 7% to 8% gross yield for projects that are finished. So I think when we look at all the projects that have been finished until today, we’re exactly at 7.5%, if I remember well and gross yield that we have actually achieved. So therefore, margins in Poland, yields in Poland still look strong.
Stephanie Dossmann
Okay. Thank you. And a follow-up again also on the investment market. In Q1, it remains quite muted. How does it look like in Q2, you say that the bio mix is unchanged, but do you see more interest from investors? Do they feel or do you feel that they agree on prices? Or do you struggle to achieve good pricing on your disposal? I mean, how do they negotiate prices?
Martin Thiel
Yes, we see more interest, that’s fair to say. But you know us, we are still careful with predicting disposal volumes and results, because that’s one thing that they have interested. The second thing is that they really see signed larger portfolio transactions. And I mean, there are some transactions happen on the market, but still the number is quite small. But yes, looking forward, we are more optimistic than in the past.
And when it comes to disposals, clearly also this is something which is volatile. So for quite a while, your work on some transaction and then it’s not going through all opposite, then you have the chance to sign it after perhaps longer negotiations. So extremely difficult to predict exact sales numbers quarter-by-quarter in Germany currently. But yes, it’s fair to say that we see more interest, so we’ll be positive on the second half of the year.
Stephanie Dossmann
Thank you.
Operator
The next question comes from the line of Céline Soo-Huynh from Barclays. Please go ahead.
Céline Soo-Huynh
Hi Martin, I got two questions here for you. The first one is on the 2026 convertible bond. How are you thinking about this? I know it’s a bit early, but any early indication about this?
And the second question is more about the long term situation for you. It seems like your situation is under control for you this year, according to scenario of 20% peak to trough valuation decline, leading you to a 45% LTV. How are you thinking about funding and reloading growth from there? Thank you.
Martin Thiel
Yes, good morning, Céline. Well, to answer your question regarding the convertible bond, 2026, basically you gave the answer, it’s a little bit early, so that’s more than two years. So August 2026 is the maturity date. So we look at that carefully. But it’s too early to say. We have already decided for one way. The good thing is this is the last material maturity that we have in the balance sheet. So if you compare that with the situation one and a half years ago where we still had the bridge loan ahead of us and other refinancings, now when we look into the maturity profile, most of the debt that is maturing in the future is mortgage debt, but it is Germany or Poland where the financing excess is still and unchanged, very strong, and then it’s basically left with the convertible bond. So we will look at it carefully, but it’s still two years to go.
And regarding your question, funding future growth, and future growth at TAG meant that we’re primarily looking into Poland. Well, we have now developed a very natural way to grow the polish rental portfolio as the sales business is producing quite a lot of cash. So we’re taking this and it’s basically what’s currently already happening, and use this as equity for the next rental project. We are taking on additional local financing, mortgage secured in Poland. If you remember our last publication, we disclosed that we have signed the first material mortgage secured loan in Poland, which was €19 million. So therefore to get to this 10,000 units as the midterm target, we have developed away from on cash flow plus financing on the portfolio that will lead us to the service number.
If we are in a situation at some point in time where we have then two stable investment grade ratings, then of course, we could additionally look at the bond market to fund further growth in Poland. But that’s still a way to go. So therefore this would then be something additional where we have then the possibility to do perhaps a little bit more. But beside this, the way towards the 10,000 units is already very, very clear, even without any larger capital market transactions.
Céline Soo-Huynh
And Martin, can I follow up on this? How are you thinking about new equity to fund growth?
Martin Thiel
But it’s not needed for this natural growth, or however you call it. So it means constructing apartments from our existing then bank, I mean new equity. And I think that’s an answer that every company would give you. If something larger or larger opportunity is on the market, then yes, this would be one of the options, but it’s not needed for the base case scenario.
Céline Soo-Huynh
Thank you, Martin.
Operator
The next question comes from line of Kai Klose with Berenberg. Please go ahead.
Kai Klose
Yes, good morning. I’ve got two quick questions, if I may. The first one is on page 23 of the presentation. You mentioned on the right hand side that the expenses from property management decreased also due to lower receivables. Could you give a bit more clarity on that continuous trend or was it specifically for Q1?
And the second session on that page, the increase in net income from services you mentioned was due to higher results from craftsman and services. Is this also a level which we can expect quarterly for the remaining – for the remain of the year?
And the last question would be on the FFO statement where we had an increase in the cash tax. In cash taxes, is this seasonal or is this something we can expect as well to remain relatively higher than the year before?
Martin Thiel
Yes. Good morning, Kai. And starting with the answer on the write-down of receivables, we had a little bit more in the fourth quarter of 2023. Why did we do this because the fourth quarter is the year where you have – where we sent out every year, most service charge bills. So simply, as in the previous years, the total volume of outstanding receivables increased. And as you know, a lot of our tenants have now received a higher service charge bill because of increase in heating cost in the past.
So we decided to be a little bit more conservative, but it was not that material. I can remember where there was perhaps 1 million more than in the previous quarters. As of now, it seems as if this is not really a big issue. So if you look at total impairments on our rent receivables, that’s still at 1.2%, 1.3% of total net rent, so still very low. So this is more, I should say, a year-end impact.
Indeed, the cash taxes in Germany in the first quarter of 2024 were a little bit higher, but it was simply a reflection of the fact that we had roughly 1 million taxes that we needed to pay for previous years. So also not a large amount. And for the full year, if you look at our guidance, we predict a slight increase in cash taxes, but that’s lower than if you take the first quarter and multiply it with four.
If I remember well, we predicted an increase in cash taxes by 3 million or 4 million year-on-year. So to answer your question directly in the second to fourth quarter 2024, cash taxes should be a little bit lower. And net income from services, yet is still developing quite well, especially also the energy business is running very well. We have still expanded our customer and caretaker service. So therefore, we expect an improved result from services and for the financial year 2024, but compared to 2023 that’s correct.
Kai Klose
Just last one, maybe for my side on this services business. You mentioned that this higher results from craftsmen and other services is that you had more craftsmen working for you or?
Martin Thiel
Yes. Perhaps a little bit misleading. If you point out here too much a craftsman service and then we just referred to other services, we should have better written higher results from especially the energy business. So that’s part of other services. So the craftsman number has also increased a little bit, but the main driver of net income from services as in the past years is the energy business as well as the multimedia business.
Kai Klose
Got it. Thank you so much, indeed.
Operator
Our next question comes from the line of Thomas Neuhold, Kepler Cheuvreux. Please go ahead.
Thomas Neuhold
Good morning. Thanks very much for the presentation. I have only one question left, and it’s on your long-term capital allocation strategy. Obviously, you still have a lot of work to do to reach the 10,000 unit target in Poland, but it seems to me that the fundamentals in Poland are currently even stronger than in Germany. I mean if I compare that the yield of cost of 7% to 8% for a new product versus the 6% yield of sustaining assets in Germany and also the rental growth rates, which are clearly high in Poland than in Germany. So I’m wondering if prices should stabilize in Germany and the investor market opens up, if you would consider selling a bigger portion of your German portfolio in order to invest deposit in Poland and increase or speed up your long-term development target in Poland?
Martin Thiel
Yes. Good morning, Thomas. First of all, we still like the German market. And clearly, at the moment, our preferred capital allocation is Poland. Simply the numbers are convincing, as I said, 7% to 8% gross yield on a new constructed apartment in Poland larger cities. So that means not only 7% to 8% gross yield at the start also the years going forward, basically zero CapEx, very, very small maintenance requirements, not any investments needed in energy efficiency of the building (ph) in a strong economy. So that’s all very strong.
But just to complete the picture, we’re not ruling out that at some point in time, we also look at acquisitions in Germany, again, perhaps not now. But yes, we also see the good fundamentals in the German market. And that also then leads perhaps to the answer. If you ask us where are we right now in preparation of selling a huge part of the German portfolio? No, this is not the case. Perhaps it’s not the case because the possibility is not really there at the moment. This could be something that we think about, let’s say 2025 (ph) or thereafter, but not now. So we’ve developed a clear strategy, without any larger disposal in Germany, from the cash that you generate with the Polish sales business and additional debt that we take on in Poland, to grow the rent portfolio to the size that we want, and that’s still the best case.
Thomas Neuhold
Thanks a lot, Masood (ph).
Operator
The next question comes from line of Manuel Martin, Oddo BHF. Please go ahead.
Manuel Martin
Thank you. Martin. Just one question from my side. On the vacancy in your portfolio, given that rental markets are improving and you already said that vacancy might still improve in your portfolio, which has come down already to 4.2%, maybe you can give us a bit of trajectory there. What could be the image or the picture of the vacancy rate going forward? And how does it relate to the structural vacancy rate of the locations where TAG is present? Is TAG close to the structural vacancy rate, or is there still a bit of room? Thank you.
Martin Thiel
Yes. Good morning, Manuel. And the answer is very clear. We still have room to improve the vacancy rate. So we are at currently 4.2% in the residential portfolio. If you look at the guidance given for this year, the midpoint of the vacancy reduction guidance is around 30 basis points from the start of the year, so that would bring us from 4.0 to 3.7. If you apply this as a run rate for the next two or three years, yes, that could be a good estimate. So the structure vacancy rate is really more and more something below 3%, and we see this development in some locations that are very prominent. So I think the best example, meanwhile, is a portfolio in GAV (ph), where the vacancy is around 2.2%.
And if you look in presentations some years back, vacancy GAV (ph) was close to a double digit number. That shows us that in Germany, and especially also in our portfolio, the secondary locations are developing also very well. So we are very confident that we have not reached the kind of minimum vacancy already. So there will be room for further improvements in the next two or three years, that seems to be very clear for us.
Manuel Martin
Okay, thank you.
So in average, sorry, my bad years, the structural vacancy rate overall is something below 3%, then?
Martin Thiel
Yes, should be, I mean, as you know its difficult to define a number which represents exactly the structure we can go at some point time below 3%, that’s I think, quite visible.
Manuel Martin
Okay, good. Thank you.
Operator
Our next question comes from Simon Stippig, Warburg Research. Please go ahead.
Simon Stippig
Hi, good morning. Thank you for the presentation and the opportunity to ask some questions.
And first one would be again on the disposals in Germany. In regard to your quarter two 2024 disposals, could you comment on how many transactions those were and also what geography you sold them? And then also here and what rent decline are you targeting for the full year?
Martin Thiel
Yes. Good morning, Simon. We can give you some numbers. So out of the total sales proceeds of €65 million or €67 million, there was one larger transaction. Please understand, I can’t give you the exact number, but something slightly above €20 million. Then there was one transaction was between €10 million and €15 million, and there was one transaction between €5 million and €10 million, and the rest was a little bit smaller. So €1 million, €2 million, €3 million deals. So it was not one huge transaction that led to the €67 million sales proceeds in our heads. Two, three, a little bit larger transactions, the rest was quite granular and we sold across our regions.
So that was then, as our portfolio is located to the largest part in East Germany. East Germany there was something, for example in Dresden, again that changed, not that much compared to the profile of the sales structure that we had in 2023 or 2022.
Simon Stippig
Great, thank you. And then also one on the services business. I just wondered, this year there will be the discontinuation of the (indiscernible). And do you see any risk, especially in the multimedia business from that?
Martin Thiel
Yes, that’s already included in our projection for 2022. You’re right, that is a change in law. If I simplified it a little bit, where the tenant now in some cases can choose, it takes the cable TV from the landlord, where perhaps previously had an obligation to take it, and now he can choose to take another cable TV provider, not our multimedia company, if he wants. So that’s already included. When we published the guidance for 2024, the impact was, if I remember correctly, about $1 million less income that we expected. Perhaps we’re better than that, because not many tenants are changing, but we assumed a reduction in light of this new law.
Simon Stippig
Okay, great, that’s clear. And last one, in regard to your JV in Poland, could you comment on the status there?
Martin Thiel
Yeah, so we have no projects or additional projects that we put into the JV in 2024. So that means there are three or four projects that we started in 2023 with our JV partner in Poland are continuing, apartments are under construction, we are selling apartments. And just to give you the dimensions, we will not putting the whole sales business into the JV. So, if I remember that correctly, the total JV sales volume or projects, including land bank or units and construction upwards for 3,000 units. So we get the 50% share and the total volume of potential sales that we have when we take together apartments under construction, land bank is clearly much higher. So that’s more something around 15,000 units. So the JV is for us an additional part of the sales business, but it’s not a strategy to put the full sales business into the JV.
Simon Stippig
Great. Thank you. All clear.
Operator
Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Martin Thiel for any closing remarks.
Martin Thiel
Yes, many thanks all for your questions. Many thanks for listening into our call. As always, if there are any questions left please feel free to contact us IR team. Thank you for listening and hope to see you soon on the road or the latest within our next call in August (Indiscernible). Many Thanks.
