Ladies and gentlemen, welcome to the H1 2021 results presentation of Grand City Properties S.A.. At our customers' request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. If any participant has difficulty hearing the conference, please press the star key followed by zero on your telephone for operator assistance. May I now hand you over to Ms. Teresa Steins, Manager Corporate Communication, who will lead you through the meeting. Please go ahead.
Thanks. Hello and good morning to everyone. Thanks for joining us today. In the name of GCP, I kindly welcome you to our results call for the first half of 2021. With me today are CEO and CFO, Refael Zamir, Chairman of the Board of Directors, Christian Windfuhr, COO, Sebastian Hemmertsmeyer, and Senior Financial Analyst, Michael Bar-Yosef. Christian Windfuhr and Refael Zamir will guide you through the results presentation directly after this introduction. You will find the results presentation for this call on the company website in the section Investor Relations under Publications. The presentation of the results will be followed by a session with questions and answers. The management is available for questions. We have already asked you in advance to send us your questions by email. Please continue to send us your questions so that we can include them accordingly.
Please send your questions to the following email address: info@grandcity.lu. I repeat, once again, the email address is info@grandcity.lu. With this, I will hand you over to Christian Windfuhr to begin with the presentation.
Thank you very much and welcome to the first half 2021 financial report presentation. As you can see from slide two, the results of the first half of 2021 are broadly in line with our expectations, and we continue to see strong operational performance and the stability and resilience of our portfolio and operational platform. In H1 '21, we have focused on increasing the quality of our portfolio, which is the result of internal operational growth combined with disposal of non-core properties and acquisitions of quality assets. We have made our portfolio stronger and more robust, evident in decreasing our vacancy rate to a historical low of 5.7%, down from 6.2% in December '20. The net rent like-for-like growth amounted to 2%, of which 1.4% came from in-place rent growth and 0.6% from occupancy growth.
Primarily due to our disposals and recycling of capital in the last year, we have 2% lower net rental income in the first six months of 2021 compared to the first six months of 2020. However, increased profitability and optimization of our debt structure resulted in a 2% increase in FFO1 on a per share basis. Our Adjusted EBITDA remains stable and our FFO1 has increased by 3%. Total assets and EPRA NTA developed positively since December. We will go deeper into the operative numbers in the next few slides. On slide three, you can see that our enhanced asset quality is a result of accretive capital recycling, as well as our consistently strong operational performance.
The first half 2021 has been marked by EUR 300 million disposals of non-core assets at good gains against book value and acquisitions of quality assets in the same amount, thus enhancing further our asset quality. We also continued our accretive share buyback program at a discount to NAV. From a combined volume of EUR 270 million, we have bought back nearly EUR 160 million in the first half of 2021. Our strong leasing performance can be seen from the steady and gradual decline in vacancy, coupled with the increase in in-place rent. These performance parameters illustrate enhanced asset quality of the investment property portfolio and have resulted also in solid value per square meter performance, reaching EUR 2,085 per square meter, a CAGR of 22% since December 2019. With this, let me hand you over to Refael Zamir for the following few slides.
Thank you, Christian. Good morning. Move to page four, highlighting our operational profitability. Mainly as a result of disposal, our net rental income was a bit down to just over EUR 259 million in H1 2021. Property revaluation and capital gain during the first half of 2021 amounted to EUR 118 million, lower than the first six months of 2020. We aim to revaluate our Berlin portfolio in H2 and expect to see this number growing due to the good development in the Berlin market post removal of the rent cut. Adjusted EBITDA was EUR 147 million, stable in comparison to the comparable period, although net rental income was a bit low, mainly due to the improved efficiency. Our like-for-like total net rent income growth was 2%, of which 1.4% came from rent growth and 0.6% from occupancy growth.
We have maintained our sustainable growth in net rental income on a like-for-like basis, supporting our operational profitability. We were also able to maintain our efficient cost structure and even improve it by disposal of non-core assets and the acquisition of higher quality assets. Our flexible and efficient operating platform has been able to support our strong business efficiency, even during challenging times in 2020 and during H1 of 2021. On page five, you can see that our FFO 1 is EUR 94 million, 3% up against the previous year. In addition, the FFO 1 per share increased by 2% to EUR 0.56 in the first half of 2021. The FFO 2 amounted to EUR 166 million, reflecting a gain of EUR 71 million realized on a disposal during the first half of 2021. On page six, you can follow our EPRA NAV metrics.
Due to the continued profit generation in the first half, we were able to further increase our EPRA NAV per share metrics compared to December 2020. EPRA NAV metrics were supported by profit generation, partially offset by provisions for dividends during the period, while the EPRA NAV per share metrics were further supported by the share buyback program. The EPRA NTA amounted to EUR 27 per share as of June 2021, and including the dividend distribution, it increased by 5% in comparison to EUR 26.5 per share on December 2020. On the right side, we are describing our approach regarding the EPRA NRV, EPRA NTA, and EPRA NDV. Let me now hand back to Christian for portfolio overview.
Thank you, Refael. Now to our portfolio overview, where you can see that in spite of the disposals mentioned earlier on the presentation, our investment property further increased by 5% to EUR 8.4 billion. On the back of operational improvements in the portfolio, along with solid underlying fundamentals in the portfolio locations, we achieved revaluation and capital gains of EUR 180 million during H1 2021. Portfolio values were further supported by the strength of the pound sterling vis-à-vis the EUR. Our portfolio consists of just under 60,000 units at the end of H1 2021, and we have sold non-core assets, mainly in secondary cities in Germany, predominantly in Eastern Germany, and that is reflected in less units in Dresden, Leipzig, Halle, and others.
Our annualized rental income of EUR 354 million at the end of June 2021 has an upside potential of 23%, which amounts to over EUR 80 million to reach its full market potential, driven by rent and occupancy growth. We note that the revisionary potential increased back to previous levels, as the rent cap in Berlin is now canceled. In our opinion, rent measures implemented, which increase the calculation period for Mietspiegel, as well as further measures proposed in the current election year, do not reduce the upside potential of the portfolio itself. However, they could impact the timeline required to unlock the potential. Following the overview of our portfolio on slide eight, let us quickly review our portfolio region by region as it stands today. On slide nine, you can see that Berlin makes up 25% of our portfolio value.
70% of our Berlin portfolio is located in top-tier locations, including Charlottenburg, Wilmersdorf, Mitte, Friedrichshain, and others. The remainder is in affordable locations, primarily in Reinickendorf, Treptow, Köpenick, and Marzahn-Hellersdorf. In NRW, Germany's largest metropolitan area, we have 17% of our portfolio, with Cologne, the fourth largest city in Germany, being the strongest location, over one-third, and the rest distributed throughout the region's main cities. On slide 10, we show Dresden, Leipzig, Halle, Germany's dynamic eastern cities with strong fundamentals, which make up our quality east portfolio with 13% of our portfolio and a further 5% of our portfolio are in Hamburg and Bremen, Germany's largest northern cities. Also here, we have a resilient and defensive portfolio with upside potential.
Our quality London portfolio on slide 11 makes up 21% of our portfolio and is well distributed in the suburbs of London, with around 85% of these properties situated within short walking distance to underground or overground stations. The total London portfolio consists of over 4,000 units, including pre-marketed units in the pre-let stage. Since acquisition of our London portfolio, our strong letting performance has taken double-digit vacancy to a vacancy of 7.3% as of June 2021. We are currently seeing an upswing in demand now that pandemic measures are being eased, in particular, in recent weeks. Our low entry point into London residential market is both embedding a high upside and is also very defensive on valuations and cash flows and gives us a strong buffer to market transaction levels.
We have reached a sizable portfolio in London, enabling us to benefit from economies of scale and feel comfortable going forward in maintaining a portfolio size of around one-quarter of our total portfolio. Our maintenance and repositioning CapEx on slide 12 was almost EUR 10.3 per sq m during H1 2021. The amount is slightly up from EUR 10.2 per sq m in 2020. EUR 2.7 of this amount went to maintenance, which is a touch less than last year, and the remaining EUR 7.6 to repositioning CapEx. Repositioning CapEx is directed towards improving the asset's quality and supporting the letting activity. The repositioning CapEx also includes investments into surrounding of the assets. As a result, the AFFO of H1 2021 resulted in EUR 64.4 million compared to EUR 57.9 million in H1 2020. Now let me hand you back to Refael.
Thank you, Christian. Our financial policy presented on page 13 remain unchanged. We keep significant headroom to our financial governance and continue to maintain healthy relation with the banking sector. Our dividend policy is 75% of our FFO1 per share. On page 14, we review our capital structure. You can see that our LTV is just at 33%. Very minor part, which reflects only 3% of our debt is variable. Our cost of debt stands at 1%, a record low for the company, and our average debt maturity is 6.7 years. We have been working continuously on optimizing our debt profile, among other, by repaying high interest-bearing short-term financial debt and replacing it with low interest rate debt with longer maturity or using our existing cash surplus. Here we took advantage of favorable market conditions.
Among others, we were able to repay over EUR 700 million of bonds, reducing the bonds outstanding as well as the cost of debt associated with those bonds. Our convertible bond of EUR 280 million is maturing in Q1 2022, but as of now is in demand with a conversion price of EUR 23.14. Except of this convertible bond, we have a very clean maturity schedule in the upcoming years. Debt coverage and credit rating on page 15 shows that we maintain our very strong interest coverage ratio with 6.5. Our unencumbered asset ratio has gone up to 92% of the value of EUR 7.8 billion, and our liquidity position remains strong with EUR 1.4 billion. Our corporate credit rating remains strong with triple B plus by S&P, and our long-term goal remain to achieve a rating improvement to A minus. Christian, back to you.
Before we move to our guidance, a few words about ESG and sustainability. While equally important as our financial reporting, we have summarized the respective slides in the top position of our appendix of our presentation. They provide good insight into our ESG results, activities, and goals. Important here would be that we have published on our website our 2020 non-financial report, which shows how we intend to manage material environmental, social, and governance matters. Furthermore, we have presented for the first time 12 topics identified as material in the Grand City's materiality assessment. These insights follow the guidelines developed by the Global Reporting Initiative, GRI, EPRA, and the disclosure requirements of the main investor-oriented ESG benchmarks that we participate in. More information regarding our ESG insights can be found on the sustainability section of our website.
Needless to add here that the recognition for ESG and sustainability measures, i.e., our excellent scores from EPRA Sustainalytics, SAM, now part of S&P Global, has remained as strong as in the past. On slide 16, finally, let me confirm our 2021 guide. The results of the first half of 2021 put us well on track to meet the 2021 guidance for the full year. FFO1 between EUR 183 million to EUR 192 million. FFO1 per share in EUR 1.08 to EUR 1.13. Dividend per share in EUR 0.81 to EUR 0.85. Total net rent like-for-like growth between 2% and 3%. LTV to remain below 45%. With this, let me hand you back to our Q&A session.
Thank you very much. We are now starting the Q&A session. We will answer the questions we have received by email so far. We have grouped them together for the reason of simplification. The answers to your questions have been prepared by the team. I will now start with the first question, and answer will be given by Christian Windfuhr. Can you please provide an update on the portfolio and the market situation? What are your expectations for German residential real estate?
Looking back on the previous quarters, it is clear the German residential real estate market has not been materially impacted by the pandemic directly or indirectly. While the uncertainties remain due to impact of virus variants, we do not see this having a significant impact on German residential and by extension, to our own operations. We continue to see strong demand driven by strong sustainable fundamentals, which we expect to continue in the coming year. The German economy is undergoing a strong recovery in recent months, with positive developments in many key economic indicators, such as industrial and consumer confidence. GDP forecasts anticipate a strong recovery by the end of 2021. The resilience of the German economy is a main driver for demographic trends, such as a continued migration into Germany, specifically into large urban and economic centers, which further drivers urbanization and demand for affordable housing.
Other demographic trends, such as smaller household size, are also unbroken. While demand trends remain strong, the supply in Germany metropolitans remains low and is not expected to meet the demand also in the upcoming years. The pandemic has resulted in a slower construction pace, as well as in longer waiting time to process and receive a building permit. The political discussion and regulatory hurdles, in particular in Berlin, are also creating headwinds for new developments. Furthermore, land is not only becoming more expensive, but it is also very scarce in many cities, further limiting supply growth. We see these strong developments reflected in our operations with a like-for-like rental growth of 2%, of which 1.4% came from rental growth and 0.6% from occupancy increase. In addition, Grand City Properties recorded its lowest overall vacancy to date of 5.7% in June.
In the transaction market, we also see strong results validating our conservative valuations, as well as the strong demand for properties in the market. In H1, we disposed over EUR 300 million at 13% above book value and 29% over total costs, including CapEx. We recorded valuation and capital gains of EUR 180 million, reflecting a 2% increase on a like-for-like basis. Based on the transaction values and with the underlying market fundamentals remaining intact, we expect to see a continuation of this trend in the coming periods.
Could you provide some information on the effect of the cancellation of the Berlin rental cap on your valuations in Berlin? How much has the reversal affected your rent in the period?
As we have mentioned before, we welcome the decision of the Federal Constitutional Court regarding the reversal of the Berlin rental cap. During the time that the regulation was in effect, it only intensified the housing shortage in Berlin, reducing the availability of affordable housing for rent, while at the same time, it was not effective in providing affordable rent to those people who really needed it most. In addition, people who couldn't find a rental unit but could afford to buy an apartment took that alternative route, leading to further value increase of condominiums and reduction of rental units as rental apartments were converted or new builds were directly targeted towards unit disposal. As we have only revalued a small part of our Berlin portfolio in the first half of the year, the reversal of the Berlin rent cap has had only a partial effect on our valuation so far.
With the cancellation of the rent cap, we expect that the market will benefit from less regulatory uncertainties, which, combined with the strong fundamental tailwinds of Berlin, we see as supportive for property values going forward. In regard to the rental impact, we recouped approximately EUR 2 million of the second quarter, which is related to the months the rent cap was active. On a run rate basis, the removal of the rent cap increases the annualized rents by around EUR 3 million. The impact on the like-for-like will be mostly seen in the full year results, which will compare to Q1 2020, which includes the full rent cap rent reduction. In addition, we will once again be able to capture the full upside potential embedded within our Berlin portfolio, increasing our total revisionary potential to 23%.
The release of the upside potential will contribute to our like-for-like rental growth in the coming years.
Can you please provide an update on the London portfolio? How do you see the local market developing?
With the lifting of restrictions, the London portfolio continues to the recovery we started to see end of last quarter. Compared to Germany, the London portfolio was impacted more from the pandemic and the imposed restrictions. The easing of measures has resulted in an increase in activity similar to that of the third quarter of 2020. We have seen particularly strong activity in London's outer boroughs, underlying the value of our focus on diversification within our markets, and in particular, on good middle-class neighborhoods within London, which benefit from a wide target group and are not as dependent on a single demographic. Accordingly, the vacancy in London decreased from 8.4% in March to 7.3% in June. We continue to see a very good trend and expect to further reduce the vacancy as long as the markets remain open. We are in a good track.
We strongly believe in the quality proposition of our London assets, which are situated throughout the city and the vast majority of which are located at very short distance from public transport, especially underground and overground, and as a result, benefit from strong connectivity, which is highly valuable in a major metropolitan such as London. We therefore expect, as long as the market remains open, our vacancies to continue to fill up over the coming periods, similar to pre-pandemic levels. London continues to be a market with strong fundamentals and has a unique set of value drivers as compared to the main cities in Germany. We therefore continue to see London residential market as very attractive and a good diversification to our overall portfolio.
While we have had the opportunity in recent years to acquire and build a solid portfolio and achieve a significant scale at very attractive prices, we are now at a stage where we feel comfortable with the size of the London portfolio and expect it to remain at roughly the level it is now. The main focus of our portfolio will continue to be Germany's metropolitan area.
Can we get more details on the acquisitions? Where did you acquire properties? What was the multiple? Could you share some light on your acquisition pipeline?
During the first half of 2021, we acquired properties for EUR 300 million across several transactions. The acquisitions include 1,500 units, mainly located in London, Berlin, Dresden, and other German cities. The properties were acquired at an average factor of 18. In London, we acquired properties mainly in Newham, Bromley, Lambeth, Merton, and Harrow. The properties are mostly fully occupied and also include around 100 units of properties in a pre-let stage, which will start generating income in the upcoming periods. We have a pipeline of a few hundred million EUR of attractive deals. Due to the competitive transaction market in our preferred market, in the current market environment, we see very few transaction opportunities that match our criteria and are accretive to our portfolio. We stick to our business model to acquire properties in fundamentally strong markets at discount prices.
Due to the lack of accretive opportunities in the German market, we have built up our London portfolio in the past. While we do have the capacity to acquire properties, it is important to focus on deals which create long-term value growth from capturing operational upside. Our portfolio remains to have significant internal growth potential, which we believe will drive our performance in the years to come. Another accretive growth opportunity we are doing is the ongoing share buyback. Year to date, we have acquired a value of over EUR 150 million of our shares. We see the acquisition of our shares as a good addition to property acquisition as pulling disposal proceeds into reinvestment into our portfolio at a discount to our NAV, while our disposals are sold above NAV.
Where were your disposals located? At what price were the properties disposed? Will you continue disposing?
In H1 2021, we completed disposals amounted to approximately EUR 300 million. The disposals were concluded in several transactions and covered around 8,000 units and generate a profit margin of 26% over total cost, including CapEx, and were sold at a 13% premium to book values. The properties were sold at an average factor of 70 and consist mainly of non-core assets, which were mostly located in Eastern Germany cities, in states such as Saxony-Anhalt, Thuringia, Saxony, and Brandenburg, and in secondary cities in NRW. The disposals include 5,700 units of investment properties and 2,300 units we sold from the hold-for-rent portfolio. The disposals allowed us to crystallize the value we generate thus far and further enhance the quality of the portfolio by directing the funds into higher quality acquisition with strong growth potential.
The continuing disposal above book value are a testament to the conservative nature of our valuations. We expect to continue to dispose our remaining hold-for-rent properties in the coming period and may dispose further non-core and mature properties on an opportunistic basis when we see accretive opportunities.
You recorded EUR 180 million in revaluation and capital gains in the first half of the year. How much of your portfolio has been revalued? What was the like-for-like value change, and what were the main drivers of the revaluation gains? What are your expectations for the rest of 2021?
We recorded over EUR 140 million of revaluations of our investment property during the first half of 2021, which are related only to revaluation of approximately 40% of our portfolio. We have revalued mostly in NRW, Dresden, Leipzig, and Halle. We will revaluate the remaining portfolio during the second half of 2021, including the Berlin portfolio, where we are waiting to see the impact of the reversal of the rent cap, and in London, where we expect to see the portfolio further improving. Therefore, we expect to see positive revaluation also going forward. The robustness of the underlying market trend of the German residential market is also expected to provide value increase therein. Furthermore, we recorded EUR 36 million of capital gains related to the strong disposal above book value completed during the period.
The portfolio had like-for-like value change of 2%, driving mainly by an improved asset quality resulting from continuing operational improvement of the asset, as well as continued strong development of underlying market fundamentals in our portfolio location. I would like to emphasize that our like-for-like result is net of CapEx as well as transaction cost and is calculated on entire portfolio as a base, although, as I mentioned, just 40% of the portfolio was revalued in H1 2021.
Could you provide some more details on your rent like-for-like? Which regions contributed most? How much was driven by reletting and how much by indexation? What was the result in London?
Net rental income increased by 2% on a like-for-like basis year-over-year as of June. Of this, 1.4% came from rent increase and 0.6% came from increase in occupancy. The strong fundamentals provide for a strong and stable rent increase, while like-for-like performance from occupancy increase is having a lower impact due to the decreasing overall vacancy of our portfolio. The like-for-like increase in rent trend was primarily driving by reletting with 0.9%, and 0.5% came from indexation. Overall, we have seen a good performance across all of our portfolio, but in particular in NRW, Berlin, Mannheim, and Leipzig. The London portfolio rebound is seen in the like-for-like trend, which has increased to +1%, coming mostly from occupancy increase via the -1% like-for-like in Q1. Assuming the restrictions remain lifted, we expect to see London rent increase and supporting the internal growth of the portfolio.
Could you provide an update on your share buyback?
As at the end of June, we bought back over 7.2 million shares, around 4% of our share capital, amounting to approximately EUR 160 million in total. The shares were bought at an average of EUR 21.7 per share, reflecting a discount of 20% to our NTA per share. Of the shares bought back, 3.4 million shares related to the February tender offer and 3.8 million shares were bought back under the running share buyback program. The current program still has over EUR 110 million of available headroom to be used in the next period.
Could you shed some more light on the CO2 tax situation as it currently stands? Do you expect changes following the election in September? What would be the impact on your business?
Currently, the regulation stands as it was implemented in January 2021, that the full tax is payable by the tenants. Discussions in the coalition to split the tax equally between tenants and landlords did not receive enough internal support, and has therefore not resulted in any changes to the regulation. We believe that it is likely that following the elections, there will be a review of the regulations, and there may be changes to the current form, but it is too early to determine what the outcome of any coalition negotiations would be, especially considering the volatility in polls and uncertainty of the election outcome. As it currently stands, we estimate the full annual impact of the CO2 tax to our portfolio at around EUR 2 million-EUR 3 million. We will have more certainty on the exact impact following the continued expansion of our data collection throughout the portfolio.
As the law, in its current form, attributes the full tax burden on the tenant, Grand City Properties' financial results are not impacted. However, depending on revisions following the election, this may change. In any case, the impact is rather insignificant to our total portfolio.
Has GCP seen any impact from the flooding in NRW?
The effect of the floods on our business was immaterial, with only a few garages and cellars flooded, nothing which has caused a real damage. In any case, we have insurance in place which covers flooding.
With the elections coming in September, what are your expectations, and what do you expect the main impacts of the new government to be on German residential?
The availability of affordable housing remains one of the key topics in the upcoming elections. Current polls indicate that there will be likely a central government with the CDU as the largest party. Several scenarios are possible depending on the exact outcome of the election, but based on the current polls, we do not anticipate any major shifts. While two large parties, The Greens and the FDP, are in favor of granting more authority to states to further limit rent increases, it is highly likely that the coalition will need to be formed with the CDU, whose stance is less favorable towards market intervention. In addition, most measures are aimed at providing the state the authority to implement more rent control measures, and it is important to note that many states are not in favor of more market intervention.
Therefore, the actual impact may remain limited to certain locations, further highlighting the importance of diversification.
Could you provide an update on the Berlin expropriation vote?
As discussed previously, we follow developments around this topic, although we see it as completely illogical. Besides the main legal hurdles the proposal faces, we want to reiterate that not a single new apartment would be created as a result, and measures only favor a select number of tenants of the targeted units, which comprise only around 10% of Berlin's residents, but is paid for by all the city's residents. We believe that a majority will not be in favor of the proposal. The proposal has generated enough support, a referendum will be held along the elections in September. In order to pass, at least 25% of the eligible votes need to vote in favor, assuming only the minimum number of eligible voters cast their vote for the referendum to be valid. This is significantly more than the number of people who would ultimately benefit.
The local authorities do not believe that expropriation is the right tool, with the mayor of Berlin stating that a dialogue between all parties and the creation of new housing, combined with rental regulation tools which are already available, would be the only solution to solve the housing problem in Berlin, and that expropriation would not result in a single new apartment, in line with our opinion and the opinion of most experts. That being said, even if the referendum were to pass and authorities would be willing to implement such measures, it is highly unlikely that the expropriation would be constitutional. Under German law, there are two significant hurdles that need to be met in order for expropriation to be constitutional. The first is the determination of right compensation, which is required to be equitable.
The Berlin authorities estimate the total cost of expropriation to be at least EUR 30 billion-EUR 38 billion. We do not believe that the state of Berlin is in the financial position to fund this measure at an equitable level, and if there were these funds, could be put to much better use using in developing new schools, housing schemes, et cetera, in Berlin. This also ties in with the second hurdle, which allows expropriation only when it is the appropriate response serving the public wealth. We do not see expropriation of landlords based on arbitrary criteria as a tool that serves the public in any way whatsoever, especially considering that the measure would not have any meaningful impact on the goal, which is to secure affordable housing for low-income households.
Other less invasive measures targeting either the root supply and demand imbalance of the social security of such households would be much more effective.
With environmental protection and emissions coming more to the forefront, are you expecting any regulatory changes that will impact your properties? Do you expect major CapEx programs in case of more stringent environmental regulations?
It is becoming more important for everyone to meet climate targets and find a path towards emission neutrality. We take our contribution and responsibility in this regard seriously and have set ourselves the goal to reach a 40% reduction in emission by 2030 as compared to 2018. We also see more regulatory changes such as the CO2 tax and BEG subsidies. We expect more regulatory requirements regarding existing housing and new construction in future. We expect this to come with significant subsidies and governmental support as well. It is important to note that the vast majority of residential units in Germany are owned by private persons or small organizations. It is often a large burden for these parties to implement CapEx projects that will significantly reduce emissions. Due to the situation, we expect strong governmental support, likely to be funded by CO2 tax and similar measures.
Regarding our own portfolio, we will continue to invest in measures that will reduce emissions, such as the implementation of efficient heating systems, implementation of on-site energy systems such as solar and combined heat power, expand and charging infrastructure for electric mobility, supply climate-neutral gas and energy from renewable, as well as further reduce non-recyclable waste. We are analyzing the new subsidies and are checking the impact on our future CapEx plans. The EPC ratings of our assets are currently in line with the market. We aim to further improve the environmental profile of our portfolio through CapEx projects where it makes economic sense and where such measures are accretive to the overall quality of the property and the value proposition of all other stakeholders.
Recent changes to subsidy schemes make them more accessible and allow us to rely less on the modernization surcharge in order for projects to become economically viable. As a result, we expect to be able to do more projects in the future. However, it is currently too early to estimate the scope of our investment. We will continue to report on our progress in reducing emissions in our sustainability reporting. We also want to note that progress in this regard is not expected to be linear, with more significant impact in the coming years.
Prices for building material increased significantly during the second quarter. What is your view on this? Are you expecting structural inflation? How do you expect this to impact interest rates?
In the first half of the year, we did see increased inflation across our operations. We are seeing some general inflation affecting our day-to-day operations, in particular in personal costs and in external service providers, but also in energy costs. The effects of inflation are more than offset by our increased efficiency and by internal growth. Furthermore, some portion of the inflation related to recoverable costs by our tenants. Besides this, we are also seeing price movements in building material, which was particularly strong around the middle of the second quarter. Those prices movements have a certain impact on our refurbishment and construction costs, but we do not expect those to be structural. The supply shock caused by pandemic has resulted in ripple effects throughout the supply chain, which has resulted in a mismatch of production capacity utilization as well as transportation.
With the effect of those pandemic easing, we expect supply chains to recover, which in turn will lead to a normalization of price levels. Inflation, in general, has been relatively stable in Germany and was most significantly impacted by base effects, as well as a strong inflation in energy prices.
Thank you. I think those were the questions so far. We will now start the open Q&A part. If you have further questions, then we kindly ask you to ask all your questions together right at the beginning. We are now looking forward to your questions, please.
Thank you. We will now begin our question and answer session. If you have a question for our speakers, please dial 01 on your telephone keypad now to enter the queue. Once your name has been announced, you can ask a question. If you find your question is answered before it's your turn to speak, you can dial 02 to cancel your question. If you're using speaker equipment today, please lift the handset before making your selection. One moment please for the first question. Our first question comes from Kai Kröger at Berenberg. Please go ahead. Your line is now open.
Good morning. I've got a first question on page five presentation. Could you indicate the reasons why we had a higher cash tax expenses of EUR 17.6 million after EUR 14.5 million in the first half last year? The second question would be on the letting activities in Germany. Could you indicate what was the average rental uplift when it came to new lettings? Thank you.
Thank you.
Good morning, Kai. Thank you for your question. About the tax. We did see a slight increase in the current tax. Current tax has some timing effects. It might de-normalize over the next quarters, but there is a slight increase. The increase is also due to our large operations in London, which also results in a slightly higher ongoing current tax. Regarding the letting, we see around, I'd say 15%-20% letting uplift, in our new lettings, which is one of the biggest drivers of our like-for-like that we see. We expect this ratio to go well going forward, it's part of our 23% revision potential that we have, including vacancy reduction. Thank you.
Our next question comes from Manuel Martin at ODDO BHF. Please go ahead. Your line is now open.
Good morning. Thank you. Just one question from my side. Could you give us an update or remind us on what you're going to do with the treasury shares, that you are collecting through your share buyback program, please?
Hi. Good morning, Manuel. For the treasury shares, we currently have no big plans. We're continuing the buyback, as you know, so the number should increase. Going forward, we might use this for internal reasons like share incentive for management and so on, but currently, we don't have big plans for the treasury share. Thank you.
Our next question comes from Jorge at Barclays. Please go ahead. Your line is now open.
Hi, team. Just a couple on London and one on ESG. You acquired most of your assets over the first half in London. Just wondering whether these generally let or vacant assets, and just on valuation, you highlight you acquire at sub-market values or value flows for the transaction prices. Just wondered, are the assets then revalued upwards on the acquisition or you wait until the second half? I think you mentioned London values will be revalued through the second half. Sorry, there's one on the like-for-like rental growth guidance is unchanged. I appreciate the Berlin rental cap removal doesn't have a material impact, but I understand that the 2%, 3% assumes that the Berlin rental cap would be in place. I just wondered if there has been any impact at all within the range, as it were.
Just on the ESG, you mentioned about a 40% reduction in emissions moving forward. Just wondering, are you focusing on all three greenhouse gas Scope 1, 2, and 3, or are you just purely focusing on Scope 1 and 2, and for the moment ignoring Scope 3? Thank you very much.
Let me start with the ESG, with the last question. We are at the moment focused more on Scope 1 and Scope 2, but we will also go into Scope 3 going forward.
Hi, [Paul]. About your first two questions, about London first. In London, we acquired mostly let properties. Around 100 were in the pre-let stage, which will come forward, but most of the acquisitions were in the let and are generating now income. However, regarding the valuations, as mentioned, we did revalue the significant amount, quite a material amount in H1. We expect to see more in H2, and there will be a value uplift. In London, like with the rest of our portfolio, we capture gradually the potential, so we will see a valuation uplift, but I think it will take more time, more track record. We're definitely, I think, in the right direction. Also, we expect to see an improvement in the operations, which will also support the valuations in London. As to the like-for-like, your second question.
Yeah, Berlin definitely had a positive impact. However, it's around EUR 3 million for Ireland, so that will have an impact, but that keeps us within the range. We believe we'll be a bit higher within the 2%-3%, but at this stage, we feel comfortable keeping this range. Yeah, I expect to see the result going forward. Thank you. Next question, please.
Our next question comes from Marios Pastou at Societe Generale. Please go ahead. Your line is now open.
Hi. Good morning. Thanks for taking my questions. Got a few questions from my side. Firstly, on the convertible bonds maturing next year. Can we get an update on your plans for these convertible bonds? If you can give us a bit of an update here, that'd be great. Just to confirm as well that these have no dilutive impact within the half year. Secondly, on share buybacks. Give us an update on the progress that has been made post the first half. Have these been in line with the progress that has been made in the first half of the year? Any update there would be very helpful. Then just finally on your acquisitions and disposals. Have these been fully reflected in the EUR 354 million, the annualized rental income?
Will these, obviously excluding the ones that are pre-marketed, all these be completing over the rest of the year? Thank you.
Sure. Thank you, Mario. First, I'll start from the end. The EUR 354 million run rate is reflecting the acquisitions and disposals, everything inside, maybe except for the pre-let properties, but besides that, everything is inside. Yes, disposals are out and acquisitions are in. As to the share buyback, so far we've done EUR 160 million out of EUR 270, we made a pretty good progress. We're in no immediate rush to complete the full EUR 270, the additional EUR 110 million. We have the program running to the end of the year, and we could also extend it going forward if we wish. There's no rush in terms of the buyback. As to your first question actually about the convertible bonds. It's maturing in February, in less than six months.
We have very high cash reserves, and we will definitely have a sufficient amount also in February, there's no rush to prepay it or to manage it because it's under management already. However, the cost of debt is close to zero. It's a coupon of 0.25%, we also don't have any rush to prepay it. Yeah. Currently it's in the money, but it's in the money as of after the reporting date, it's not inside our NTA currently. Given all equal, it should be inside the September. If it would be converted, it would increase our equity base, we see a win-win situation here. Yeah, currently we're not taking any action here. Thank you. Next question, please.
Our next question comes from Andres Toome at Green Street Advisors. Please go ahead, your line is now open.
Hi, good morning. Firstly, I wanted to just confirm that the London like-for-like rental income, was that +1% and mostly coming from occupancy, the rental rates, that's pretty much flat I assume? The second question, just around the leasing momentum, in London, in recent months in July and August, what are you seeing in terms of ability to increase rents? Also what are the occupancy trends? Has the occupancy already improved again in July, August, from your June levels?
Yeah. Sure. The like-for-like in London, which was 1%, came mostly from occupancy increases. We see the occupancy currently as the main driver, in the next few months. We see a very positive leasing momentum, after the reporting date, in July and also now in August. Assuming the market remains open, we expect to continue seeing this positive momentum and reach the level of occupancy we had before the pandemic, which was below 4%. Currently we're very positive. In terms of rents, the rents are in some ways a bit lower now, maybe because we're increasing the occupancies, but going forward, we're also very positive about the rent levels.
I'd like to highlight that the vacancy came from a very high level when we acquired them. The assets themselves have the track record of reaching very high occupancy rates and we're certain that this will go also going forward. Thank you.
This concludes our Q&A session. I will hand back to the speakers.
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