Good day, and welcome to the Bemiri Deutsche Mittelstand Real Estate AG Event H1 Results 2021 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Ingo Hartley. Please go ahead, sir.
Ladies and gentlemen, good morning, everybody, and welcome to our half year results presentation 2021. Thank you very much for dialing in. I trust you are all well and healthy. With me here, as always, is Tim Bruckner, Demira's CFO and Michael Tejeda, our Head of Investor Relations. And I'm looking forward to updating you about the Mira's development in the 1st 6 months of the year.
So let's start. Corona is still the topic of the day, although we perceive it in the media being more present than when speaking with our tenants. This indeed is a good sign as the increasing vaccination rate and the preparation for autumn and winter Now we'll hopefully prevent another locking later this year and hence affect our performance and the one of our tenants positively. In fact, the impact of corona has been and remains limited and is manageable for us. Our realized potential strategy has proven again Being the right approach to the bigger picture of what we do.
After being defined and invented back in 2019, it focuses On the main goals of portfolio optimization, financial strength, operational excellence and increased profitability. And it has helped to make the mirror more resilient at all, even before the pandemic. All four pillars of our realized potential strategy, Asset management, acquisition, the financials and the process side have contributed again to the strong performance in half year 1 twenty twenty one. And not only that, we are also benefiting from this strategic shift. It helps us now through the pandemic.
That encourage us even more to keep on going this way. So let us look together at what has happened in half year 1 'twenty one From the numbers point of view, let's start with Asset Management. The first half of twenty twenty one Was driven by a strong Latin result, more than 120,000 square meters were led. Almost 47% of that New rental contracts. I will give you some more context on the most exciting one about 26,000 square meters to Amazon On a separate slide in a minute.
As some of the new contracts kicking later this year, the vacancy rate increased to 10.2%. The loss remains constant at 4.9 years and annualized rent decreased due to the planned disposals we executed in half year 1. The second, acquisitions or better, call it, portfolio minimization. We were able to close the disposals of 5 assets in Brim and Cologne, gaining proceeds that exceed This last market value by 3%. Further, we signed the sale of an asset in Anspach At a premium of 13% to the market value.
The closing took already place in July 'twenty one. So in Q3, you will see it. This is a former Tilikom office. And after Tilikom left, we were able to successfully reposition the assets, attract new tenants Like the local administration at the University of Applied Science before it was sold. The premium to the market value is earned by our active asset management approach.
Finally, and unfortunately, after the books were closed for the half year, we closed the acquisition of the Cielo office in Frankfurt. At the disclosed terms, the transaction I have presented in my last call already, This will contribute to our performance from the beginning of Q3 onwards, and we expect this to overcompensate the effect of the disposals. Financials. As a consequence from our strong operational performance, our financials have improved and look promising as well. The earning quality remains good.
The profit from the rental improved despite lower income after recent disposals to 34,200,000 The FFO1 increased even stronger by 15.2 percent to $19,400,000 and leaves us very confident to reach our full year guidance. Tim will speak about the contribution of the finance team, which was again able to further improve financing costs in a minute. Processes. While the improvement in our receivable management has become rather a part of asset management and processes, We have introduced and implemented the new defined EPRA KPIs, which are available in our official report. In addition to that, we are further streamlining the property management setup and expect this to become effective towards end of the year.
In line with that, we aim towards more efficiency, and we expect closer contracts to our tenants, become part of the asset management efforts Rather than being part of the processes in the future, of course. Finally, the corona numbers. Currently, there are 4.5 percent or €6,500,000 of the arrangement outstanding for 2020 2021, Since the beginning of the pandemic about a year ago. For 2021 stand alone, about €2,400,000 of rents or 3% of Our expected annual rents are outstanding. Although this sounds a lot, and of course, it is a lot, we are keeping close contact to our tenants, especially those In delay or trouble.
By that, we have already received about $800,000 of outstanding rents from the last year in 2021 and finding ways to reduce the amount further. And now let's have a look, A more detailed look at our KPIs and follow me on Slide number 6. The annualized rent decreased slightly due to the executed disposals over the course of the last 12 months and came in 2.9% lower at €83,100,000 The like for like rental growth Of the top 10 assets increased by 1% compared to year end 2020, the overall like for like rent decreased by about 2% due to temporary vacancy. I mentioned the lapping activities already. They were really strong, coming already from a very sound basis.
Some of you might remember that until 3 years ago, our Performance was about 80,000 square meters a year. And now we see significantly more than that, Even half of the time. Some of the contracts we signed will start later this year. The Amazon contract probably is the second half of twenty twenty Sorry, 2022. But this result underlines our strong asset management performance and makes us confident towards the full year development, including towards the valuation at the year end.
The letting activities in the first half secured €9,100,000 And a rent income and a stand alone wall of almost 8 years. New lettings account for roughly 46% of leased space, 54% of the agreed contracts were renewed. Let's look at Amazon. We managed to strengthen our relationship with Amazon by signing a new 15 years rental contract for a distribution center, our log park asset in Leipzig. The distributed hub will size about 26,000 square meters, already under construction and expected To be handed over to Amazon in autumn next year.
The sites will be created at the former Queller High Bay warehouse, Which we've considered so far as structural vacancy. The existing contract about another 20,000 square meters that was signed last year with Amazon This extended along the new contract for another 15 years as well. Unfortunately, I cannot provide you with more numbers on this project. We agreed with Amazon to not publish it. But I can tell you that we expect a material value increase when it comes to our external valuation at year end, The key parameters of this asset improved so significantly.
The April vacancy increased, but not on a surprise. On the one side, some of the contracts I just mentioned will become effective later this year, and in case of Amazon, next year. On the other side, the vacancy increased due to the temporary vacancy of 2 assets, 1 retail asset in Klee And one office asset in Regensburg, which is being repositioned after Deutsche Telekom partly left. We have signed new rental contracts already that become effective over the course of the year. In line with the already reported strong asset management performance, The wall increased slightly to 4.9 years.
Let's look at the portfolio development. Also, we have been active and successful in our asset management efforts. The development of the portfolio is moving Just slightly. The CapEx spendings are fully offsetting the disposals and the classification to asset as hold for sales makes about 18,000,000 Considering the gains on the latest valuations, the book value of the portfolio as of end of June 2021 is pretty much the same As of end of December 2020. So now let's look deeper into the financial performance.
Tim, please go along.
Thank you, Ingo, and welcome also from me. As you see on Page 11, we have delivered strong income from the rental of real estate of 34,200,000 Positive impact from some smaller disposals, low impairments, corona related, but probably not characteristic for the full year 2021, SG and A stable, the further reduction as was ongoing, lower financial expenses, as Ingo already mentioned despite a higher debt volume. All of this leading to EBT up 60 to €21,100,000 and funds from operations up about 15% to €19,400,000 In total, despite the corona related effects in H1, we have delivered a strong set of results and remain well on track for the full year 2021. And based on this, as Ingo already hinted to, we confirm our guidance of €80,000,000 to €82,000,000 rental income and €34,500,000 On Page 12, no matter effects really on the balance sheet, stable total assets despite the significant dividend paid in H1 this year. The dividend related NAV reduction to €5.43 is partially offset by the strong results for the period as stated before.
On Page 13, we'd like to update you on our financial debt related KPIs. Our net LTV is still in line with our target ratio But will increase temporarily after the closing of the Cielo transaction that happened in July this year. Our cost of debt is trending Down further to now 1.68% on a nominal basis. Furthermore, not On the page, but maybe important for you, furthermore, our bond covenants provide significant headroom. With this, back to you, Ingo.
Thank you. As you hear, our financial performance is underpinning our performance overall. So Initially, I have covered the corona effect already. It's remarkable, but absolutely manageable for us. Last year's rent suspensions amounted initially total to more than 5% of target trend 2020.
But over the course of 2021, about €800,000 have We paid already, and we are in close contact with all tenants with areas. For 'twenty one, so far, about $2,400,000 or about 3% of the The effects of the 2nd lockdown in Q1 2021 are at about 4% of outstanding rents, as the majority of the affected tenants received state subsidies to pay their fixed costs, including their rent. Q2 'twenty one looks unfortunately not like an improvement, But it's mainly driven by only a few tenants with good rental securities. We are, of course, in close contact at intensive And overall optimistic to find a good solution. Hence, we have classified only €500,000 Irrevocable receivables so far, after more than 3,500,000 in the last year.
To conclude, the total €5,600,000 of outstanding rent for the last 2 years is significant, but under control. But we assume to collect the outstanding rent and do not expect larger P and L effects to come. After all, we see line at the end of the tunnel With more and more people getting vaccinated and authorities that appear to prepare for the months to come. Internally, we remain focused on our costs and believe that the positive Cielo impact, improved financial results And the strong asset management performance will help us to limit the negative effect of the pandemic might cause and allows us to confirm our guidance on rental income and FFO for 2021, as Tim said. Let me end with a summary.
We delivered strong results driven by a strong and motivated team and smooth running organization that make us optimistic for the further development of 'twenty one and beyond. Thank you very much for listening. We are now happy to answer questions you may have.
Thank We will now take our first question from Philip Hessler from Pareto. Your line is open. Please go ahead.
Yes. Good morning. Filipe Kessler from Pareto. I have three questions, please. Firstly, on your guidance, you've reached Of 19.4% after the 1st 6 months and you target between 34.5% and 36.5% for the full year.
So it looks a little bit cautious from my point of view or do you expect any deterioration in H2? Secondly, on the vacancy rate, maybe you could provide some more details. What vacancy rate do you target or do you expect for the end of the year? And last but not least, a more general question, maybe you could Give us an update on your view of the office market. I mean, there's a lot of talk now about more work from home and lower demand for office space.
Maybe you Could share your view on this topic? Thank you.
Maybe I'll
start with the first with the last question. First, Philip Ingo here. The development of the office market, Very good question, and you know that this is discussed controversially. At the moment, as we see it, And you see it in our letting performance of the first half year, 120,000 square meters. This is all time high for us.
We don't see a shortfall or a completely decrease at the moment. So in the midterm, of course, there will be more pressure on that. But at the moment, we don't see any effect on On our rental activities. This may have the reason In our type of properties, as you know, we are located in B and C locations. And our average Rent is about €8,000 So compared with the A locations €30 and above, we are flavor of the month if companies look for new space and look for cost reduction.
Okay. The second one the second question goes to the increasing Vacancy rate, it's really moved up 3%. And the cost for that is just Two properties mainly. 1 department store in Pria is Vacant, completely vacant now. It's 11,000 square meters and $1,000,000 and more rent.
And we are, at the moment, it's a former cash out property. We are at the moment in the phase of repositioning the asset. And I think it's This is ongoing. And another property, the second one that is mainly responsible for This increase in vacancy is the asset in Regensburg. Regensburg was completely led by Deutsche Telekom.
They moved out, and we are also repositioning it. But in this case, we have already signed a lot of contracts With the University of Regensburg, for example. And so we are very confident to kick this in, In the second half of the year 'twenty one, our overall goal in vacancy Is to get under 7%. And maybe Tim can elaborate on the FFO.
Of course, the FFO question, whether the guidance is conservative, maybe first on the H1 numbers. Well, FFO came in a bit higher than we That is mainly driven by lower maintenance costs, a bit higher capitalization of TIs and really very moderate impairment, as you can see from our numbers. For the second half of the year, is SFO really conservative? I would So just only if there are no corona effects in H2, especially impairments of any rent receivables. And as you have probably seen, there's a lot of court cases ongoing.
So it's not 100% Clear where the tenants have the right to lower their rental charges. So I guess with our FFO guidance, we remain on track. And We have a chance to come up higher, but only really if there are no corona related effects.
Okay. Thank you.
Thank you, Philip.
We will now take the next question from Stephen Wong from Allianz Pristine. Your line is open. Please go ahead.
Hi. Can you hear me?
Yes. You may go ahead.
Okay. So I we were reading actually, I guess, a news report in the London commercial property market, which pointed at More environment related regulations on commercial property in obviously in the UK market, which will going to require a lot of Refurbishment expense, etcetera, to avoid those properties not being allowed to be let out. I just so we were just curious within this context for the German market where you update. Are there like the environment regulations which require you to substantially invest in refurbishing your properties? If some color around that could be really helpful.
Okay. Well, Of course, ESG is an important topic. And as you look into our portfolio, you know that it's not all Grade A properties in A cities. But Current regulation in Germany is, as you say, probably like in the U. K, is getting tighter.
But there are absolutely no restrictions on operating and leasing the properties currently, and the amount that we have to invest are Fully in our planning. So you should not expect that there is any short- or medium term negative ESG effect on our lapping performance.
We will now take the next question from Clark Macpherson from Clearance Capital. Your line is open. Please go ahead.
Hi, good morning. I hope everyone can hear me. Just a quick question. You mentioned the On the vacancy, one of the properties that was where DT has left, DT is still the largest, I think proportion of your rental composition. And I'm wondering What the makeup of the existing tenancies with DTE is in terms of The remaining lease term and if you have any idea on terms of what their intentions are.
Thank you very much for the question. If you look At the Telecom or General, Mr. Zeltraf, how the tennis is called officially here, How the telecom moved within our portfolio, you can see that we reduced the share of Deutsche Telekom Really significantly, we are coming from above 30%, and now we are between 10% 20% and going down Further, telecom is a reliant and, of course, a good tenant. They are Moving out of some of their office properties. And As you see in Ansbach, this is another telecom property we have where the telecom moved out.
This brings us potential to reposition the properties. And this already happened in the properties where they moved out, like Flensburg, like Anspach, in some cases, we sold the property with Some upside to the value to the latest valuation as elaborated on NantSpa, for example. And in other cases, we reposition the property and bring in new tenants. Usually, Tenants from local authorities, for example. And this is what's happening in Ashbourne at the moment.
They moved out office Part of the building, they stayed in the technical part of the building. And now we are in the phase of repositioning. And I said, we already left some of the space to the university. And we have especially In Ravensbruck, we have left another 5 years for the technical part of the building. And In the other buildings and the bigger ones we have, Ulm and Bonn, we have walls With around 4 years left in the greatest properties we have.
If you're asking your question Is it the Waltz of around 4 years that's specifically relating to the telecom Portion of the portfolio. So it's kind of in line or just slightly below where the average waltz on the entire portfolio is?
Exactly.
Okay. So just one more question, if I may. In terms of
a more broader
level, The credit metrics, the LTV, how do you see that progressing towards year end? And what sort of Leading to long term targets do you have for that?
So we have not changed our LTV target of About 50%. As said, we are for the half year, we are slightly above. And as we close The Cielo transaction, it will push LTV up to the range of about 55%. Then by year end, we do not expect that the LTV will climb up further, but that it will move but That it will trend down to our target ratio. And there's also no idea, really, as said before, to change our target LTV ratio, I think, which is Really important to keep our bond related credit metrics well in line and also to keep the company in overall good shape.
So you should be confident that we maintain a proper debt policy.
Okay,
It appears that there are no any questions at this Time, I would like to turn the conference back to Mr. Hartley for any additional or closing remarks.
Thank you again for dialing in and the discussion, and stay healthy. Goodbye.